The Española School District received its Fiscal Year 2018 audit Tuesday from the State Auditor’s Office, along with a whithering letter from State Auditor Brian Colón.
The audit was conducted by Fierro and Fierro, of Albuquerque.
As part of the state’s takeover of the District’s finances a contract business manager, Maria Fidalgo, was hired by the state, paid by the District.
District Superintendent Bobbie Gutierrez said Ed Fierro nailed it.
“I appreciate the thoroughness of the audit,” she said. “Do I feel responsible? I do. But I don’t feel I had any control in the process.”
Gutierrez’s frustration stems from the process with which the state was supposed to correct the District’s problems.
“Part of this is it’s not an effective model,” she said. “Contracting services is not an effective model to fix a broken school district.”
District Board President Ruben Archuleta said the way the Public Education Department (PED) established the contract business manager’s duties, the District was bound to not improve.
“What’s concerning to me is we spent a lot of money for these services and the mess isn’t fixed yet,” he said. “We’re spending $47,000 a month and we’re no better off.”
District Chief Financial Operations Officer Dan Romero had the same response to the audit.
“It’s right there in the auditor’s corrective actions,” he said. “That’s what we have our contractor to do. That’s up to PED.”
Romero said in the audit, under “roles and responsibilities,” it’s spelled out clearly.
“They were supposed to clean this up,” he said. “We have concerns about the deliverables (of contracted business manager Bryan Runyon).”
Archuleta said the audit states the disconnect between the contracted business manager and the District was at the root of several findings. He also questioned whether the Department was prepared to take over a District’s finances.
“I know the takeover was needed but PED didn’t have a plan,” he said. “I don’t think they knew how bad it was.”
Archuleta also had issues with the state contractor.
“This guy (Runyon) is only here once a week,” he said. “We’re meeting with the state to get a better outline of duties and hiring a contract manager.”
Gutierrez said the directive when the Department took over the district was that the agent (Fidalgo) would develop an improvement plan.
“(Assistant Superintendent) Denise Johnston pretty much did that,” Gutierrez said. “Then I finished it and gave it to David Craig at PED in July 2017.”
She said she got feedback from Craig in December.
“Maria never paid attention to it,” Gutierrez said. “The Department never saw it.”
The Board president said he’s hoping to get the District’s finances back and move forward. The audit has six criteria the District must meet to regain control. The first is to submit a financial audit with an unmodified opinion and resolve all prior year findings.
However, Gutierrez said she feels the District will regain control in July.
“Adan Delgado, assistant education secretary, said they plan to give us back our finances,” she said.
The District, whose finances have been under state control since November 2017, received 20 findings in the State Auditor’s report. Nine were repeated findings, 11 were new. Of the 11, three were material weakness findings, the most egregious. Eight were significant deficiency findings.
“The findings relate to a broad variety of significant issues, including purchasing and procurement violations, internal controls over accounting transactions over a four year period, including property tax and intergovernmental receivables, transactions associated with the New Mexico Finance Authority loans, and cash disbursements,” Colón wrote in his letter.
The first material weakness found the District overstated its cash position by $673,155. Among the 11 other findings under the statement of condition material weakness are
• eleven funds with negative balances,
• failure to determine property taxes receivable for the SB-9 mill levy debt service (a $1.2 million variance),
• failed to report $141,383 in payments from a $1.6 million New Mexico Finance Authority loan for technology,
• failed to classify certain purchases from an Authority loan as capital assets to be depreciated,
• overstated receivables from intergovernmental loans by $311,832.
The District has a contract business manager (Bryan Runyon), who works for the state but is paid ($47,000 monthly) by the District. The auditors recommend that manager perform a comprehensive review of the District’s records. It further states in the audit the manager begin preparing for the annual audit before the end of the fiscal year (June 30).
The auditing firm states in its findings that then-contracted manager for the state Public Education Department Maria Fidalgo told the auditors it was not her job to prepare financial statements. It was the job of the auditors. She also provided Fierro and Fierro with an incomplete list of receivables. Auditors disagreed and cite the policy supporting their argument.
The second material finding is in regard to the District’s suspension of finance authority and the state’s role in correcting financial problems for the District. It has not worked well.
Auditors cite Fidalgo’s contract only required her to be at the District one to three days per week. Because of her lack of attention, nine previous findings continued into this audit. Colón’s letter echoes this statement.
Fidalgo’s attention on current operations did nothing to correct the problems with financial statements.
The Department made the situation worse by allowing this practice to continue for 19 months before replacing her with Craig.
The auditors recommended District Superintendent Bobbie Gutierrez and Chief Financial Officer Dan Romero meet with the Department and assess the current business model.
The third material weakness was the District’s failure to timely submit the “Reporting Package” to two federal agencies. The reports were in regard the school lunch program and 21st Century Community Learning Centers, both federally-funded.
The District is required to submit the audit package to federal agencies by March 31 of the following year. Fierro auditors state the audit was complete March 1 but the District requested time to review and answer, missing the federal date. This could result in not receiving federal funding in the future.
Under the significant deficiency findings the District did not perform timely, monthly bank reconciliations. This resulted in a duplicate disbursement of $180.
The District recorded $21,089,485 total salaries and wages in its general ledger but reported gross wages of $20,219,803 to the New Mexico Education Retirement Board, a difference of $869,681. Auditor’s requested the reconciliation performed by the state’s business manager. It was denied.
The same error occurred in the District’s reporting of wages to the New Mexico Retiree Health Care Authority. In this case, the difference was over $1 million.
In a sample size of 24 employees, auditors found 19 had their portion of the health care contribution treated as a qualified benefit. This affects how much the employee and employer pay for Social Security and Medicare. So those taxes were miscalculated as a result.
Auditors also found 67 stale checks totaling $146,424. The oldest was dated May 15, 2015. The District failed to follow its policy that checks dated older than a year shall be null and void.
A finding reaching back to the 2015 audit was found again in the 2018 audit. In a sample of 20 transactions, auditors found nine instances where per diem and mileage policies weren’t followed correctly. A sampling found one employee not fully reimbursed for parking, another 11 instances where an employee was not reimbursed partial per diem for the last day of travel. In one case, a District vehicle was used for travel but the employee was also paid $74.73 in mileage.
On the return leg of the July 2017 trip to Philadelphia, Penn., 16 employees were delayed 15 hours. When the auditors tested these travel vouchers, they found some of the departure and return times had been changed. Not all employees were reimbursed correctly.
Auditors state that management had responded to the prior year’s audit stating staff had been trained on travel and per diem requirements.
“The results of our testing indicates the staff does not have a working knowledge of the requirements of the Per Diem and Mileage Act,” the report states.
The 11 repeat findings stretch back to 2014 and include procurement violations, allowable costs under several contracts, cash disbursements, cash receipts and deposits, legal compliance with budget, late audits, lack of/late reporting of capital assets, late payment of payroll taxes and late filing of quarterly payroll tax return (IRS Form 941).
Colón’s letter states the District must immediately remedy the issues in the report. He requests a detailed update within 60 days of the date of his letter, May 21.
Gutierrez said as awful as the audit is, she sees it as a tool.
“Now, with taking back our own finances, we have a road map,” she said “We can correct the processes. The state never got down to root causes of the deeper issues like policies, procedures, guidelines, training for managers and new people.”