Wednesday, April 30, 2014

Gloucester, VA Potential Issues With School Activity Funds

Certain allegations of misappropriation and theft of school activities funds prompted me to take a look at how activities funds are managed and accounted for within Gloucester County Public Schools.  Accounting information and annual audit reports for school years 2009-2010, 2010-2011, 2011-2012, and 2012-2013 were reviewed; Reconciliation Reports for school years 2008-2009, 2009-2010, 2010-2011, 2011-2012, and 2012-2013 were reviewed and a question and answer meeting between Ms. Wright, Howard Mowery and I was conducted.  Study findings are as follows:
The “Report of Audit Findings and Recommendations” section of all four yearly activities funds audit reports contained the following recommendation statement:
“Due to the nature of school activity funds, there is an inherent risk of misappropriation of assets associated with the lack of segregation of duties over the accounts, records, and financial reporting. Although this risk exists, the costs of segregating these duties would likely outweigh the benefits. We recommend those charged with governance and management implement review procedures and other monitoring activities to mitigate the risks associated with the lack of segregation of duties.”
This statement seems to suggest there has been a continuing history of non-existent review procedures and monitoring activities.  The audit reports reflect that GCPS handles over 1.5 million dollars annually; making the above yearly statement unacceptable by any stretch of imagination.  The following is from the Virginia Administrative Code:
8VAC20-240-40. Audits; monthly and annual reports.
School activity funds (internal accounts) shall be audited at least once a year by a duly qualified accountant or accounting firm approved by the local school board and a copy of the audit report shall be filed in the office of the division superintendent. Monthly reports of such funds shall be prepared and filed in the principal's office, and annual reports shall be filed in the office of the principal or division superintendent. The cost of such an audit is a proper charge against the school operating fund or school activity funds.
Statutory Authority
§§ 22.1-16 and 22.1-17 of the Code of Virginia.  
Over the four year period studied, the auditor identified various discrepancies in the areas of admission ticket sales, cash money and check turn in requirements, identifying Certificates of Deposit as “public deposits”, signature requirements for checks, activity account sponsor procedures and transfer voucher requirements.  Considering the sample rate used by the auditor; these compiled discrepancies should have prompted a closer look at the management and accountability of activities funds much sooner.
GCPS’ current policies and guidelines pertaining to managing and accounting for activities funds are inadequate and leave numerous doors open for theft and misappropriation.  Policies should be reviewed and updated post-haste to reinforce the accountability and security of the large amount of money involved.
The current accounting system used by GCPS is antiquated, cumbersome, unreliable and should be replaced post-haste.  An attempt to FOIA complete accounting records for a period of five years resulted in a reply that estimated it would take eight hours at $20.00 an hour to compile each year’s information. The cost of obtaining this information prevented obtaining it, therefore it should be understood that a complete study could not be accomplished.  Software upgrades should be performed post-haste to reinforce accountability and security of funds.  There are several software companies that focus on K-12 activity funds management and accounting. The KEVgroup and Active Network/Blue Bear are two such companies.
The current method of managing and accounting for ticket sales is antiquated and unreliable.  Abandoning the roll of tickets that can be purchased by anyone at Wal-Mart method and implementing an online/bar code system will enhance accountability significantly.  Many of these systems can be integrated into management and accounting software. There are several online ticket sales software companies that address K-12 needs.  Blackbaud and ThunderTix are two such companies.
All four year’s activities funds audits were conducted by the same accounting firm.  Using different firms to conduct annual audits may enhance security and accounting.  Procurement of such services should be limited to periods of no greater than two years at a time.
There appears to be no system in place to verify whether or not funds are spent on their intended purpose, especially at GHS.  An example of such are; funds generated from the sale of parking decals.  Below are the numbers for the parking decals at GHS for the four years studied and the school systems response to what the money is used for.
 Left                                                                                         Remaining
From                              Receipts         Disbursement           at End of Year
2008 = 24,292.57……..22,145.00………903.80…………2009 = 45,533.77
2009 = 45,533.77……..21,450.00…….45,992.02……......2010 = 20,991.75
2010 = 20,991.75……..17,112.00………703.20…………2011 = 37,400.55
2011 = 37,400.55……..18,674.00……..7,785.00…..…….2012 = 48,289.55
From Ms. Wright:
The parking fees collected from students are used for parking lot improvements at the high school when accumulated funds are sufficient and to purchase the decals.  The fees are approved by the school board annually.
As you can see; GHS takes in an average of around $20,000 per year from parking decal sales.  The average cost for the decals is around $800.00 per year.  In five years GHS can potentially accumulate as much as $96,000.00 in parking decal revenue.  If the money is only spent on decals and parking lot improvements it should be one jewel of a parking lot.  Why is this money being spent on what should be a capital needs item?
GCPS’ systems for managing and accounting for activities funds appears to be flawed to the point that it would likely take a forensic audit to achieve clarity of what has and is occurring with respect to accountability and management of the funds.  Such an audit should be performed for all years allowed by the Code of Virginia and the Records Retention Act.  Conducting such an audit will determine the validity of activities funds theft and misappropriation claims and will provide a means to recoup some, if not all of what was lost should said claims turn out to be valid.  The potential for theft or misappropriation of funds not only exists, it is probable.
Companies provided as examples in this report are not recommendations or endorsements by me and are only provided for demonstrative purposes.
Kenneth E. Hogge, Sr.
Gloucester Point

Randy (George) Burak, Gloucester School Board Responds;

Mr. Hogge,
Can you provide me when and where the “allegations of misappropriation and theft of school activities funds” occurred? I have been on the board for many years and have never heard of a question or issue associated with these funds  regarding the issues noted. I am not saying things could not be improved, since that is our constant goal to always improve the ways we do things, but to state that there are outstanding allegations associated with inappropriate behavior and misappropriation of funds is a larger step. I am willing to meet with anyone that suspects such activity to discuss and review any evidence that supports such allegations.
Thank You
Randy Burak  

Our Notes:  What Mr Burak clearly fails to realize here is that Mr Hogge never made any allegations.  He was simply following up on allegations that he had heard through the grapevine.  This should seem very clear to anyone having read the Mr Hogge's letter above.  It is very interesting that Mr Burak should take such offense or is it that Mr Burak is trying to cover or hide something?  Only a question.  

Further Response from Mr Burak.

Mr. Hogge,

I asked since these are serious allegations and want to clarify them  and  understand if these allegations have any backing why they were not shared earlier. I am confident that there has not been or is any misappropriation of funds regarding this issue or anywhere else within the school system  which is monitored and validated annually and in the open. Because of the seriousness of these allegations I am surprised that they would be shared with members of the community in lieu of the board so appropriate investigations can be performed in a timely manner.

It is unfortunate that these allegations are made without the opportunity to clarify them or their origin, putting good hard working people who work and support our community and our children each and every day in a negative light for no good reason(s) .

Have a good evening
Randy Burak

Our Notes:  We have to ask, exactly where is it even relevant about the allegations?  If there are issues in the way that a substantial amount of money may be open to theft, then it would seem warranted to try and do something about it right away.  And again, Mr Hogge has made no allegations of any kind.  He clearly stated that based on allegations heard, not something Mr Hogge made, so he was prompted to research school activity funds and how they are presently handled.  Yet Mr Burak is stuck on allegations made and not something that was heard that prompted Mr Hogge to investigate.

  It is issues like this that should make one very concerned with those in charge of our school system.  It is this kind of dangerous thinking or lack thereof that flows downhill and into the classrooms and corrupts the minds of the children and we wonder why little Johnny and Linda can not think for themselves?

  Everyone may find it very interesting to note that Mr Hogge's work is based on information that came from within the county itself through FOIA.
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