UPDATE 2/3/09: The District 150 Board has dropped its plan for school consolidation for next year, and set up a community committee to work on the budget, according to the Peoria Journal Star.
The 2/2/09 meeting, usually televised on a community cable channel, could be viewed but not heard because the sound didn't work. It reportedly was a lively meeting.
Also see comment below from School Board member Jim Stowell.
PEORIA -- The latest audit for Peoria School District 150 reveals glaring budgeting omissions, and shows the district to have spent $10.5 million more than it budgeted during the 2007-08 school year.
Experts who have examined this budget, a public record, are shocked. They suggest that the omissions may have been crafted so that the Illinois State Board of Education would accept the budget without questioning it.
The errors also call into question the figures the administration is using to justify closing and consolidating Peoria schools.
They found that the district spent a total of $150.8 million last year in its education and operations funds combined, an increase of $3. 2 million over the previous year, and $10.5 million more than it budgeted. Why?
The report these experts wrote on this audit states:
“The November 14, 2008 audit report, prepared by Clifton Gunderson LLP, for the 2007-08 school year, shows the District #150 administrators failed to budget $10,410,849 when budgeting for Teachers Retirement Service (TRS) pension contributions.
“The State of Illinois advances contributions directly to TRS on behalf of the District’s TRS-covered employees, to be recovered by payroll deductions. The covered employees make their contribution to the pension fund through payroll deduction and the district remits the employee contributions to the state.
“For school year 2007-08, the District 150 Administration failed to include the State’s estimated contributions in budgeted expenditures, resulting in the required audit disclosure note number 14 highlighting this omission on page 36 of the audit document.
“This was not a new expense - the district has been budgeting for “on-behalf of” contributions to TRS for years. Their actual expenditure for this item during the 2006-07 school year was $7,264,468. How did they “forget” to budget over $10 million in expenditures - and revenue - for the 2007-08 school year?
“Further, how and why did the TRS provision grow over $3 million in one year? Did teacher salaries increase so much in one year that 10% of that increase amounted to $3 million?
“A further review of the audit document reveals additional budget errors and omissions. These are numerous large dollar or glaring errors where budgeted expenditures and revenues were not even considered for the 2007-08 SY in spite of having large actuals from the prior year. It’s as if the budget was prepared in a vacuum with no attention paid to the previous year(s)!”
They identified 20 instances of errors or omissions in the audit document, on pages 60-84.
Their report continues: “By delaying (not cutting or eliminating) the purchase of buses, the overall budget for 2007-08 was achieved.
“Variances can and do occur, but when an expense was incurred the previous year, it is probable it will occur again the next year and, therefore, the budget should contain a provision for that recurring expense.”
They call on the administration to explain 10 odd variances in detail. Here are two:
On page 69: Board of Ed services, salaries: $71,085 budgeted, $395,008 spent.
On page 69: Executive administration services, salaries: $280,427 budgeted, 379,100 spent. (See note below for a complete list of the odd variances.)
Their report states: “The Administration and Board of Education must become more transparent - and less secretive - in the conduct of its business. They must communicate openly, frequently and honestly with community members, taxpayers, staff, parents, and the press - especially about the district‘s financial condition.
“Under the provisions of Section 17-1.5 of the Illinois School Code (105 ILCS 5/17-1.5), each school district’s budgeted administrative expenditures cannot increase more than 5% over their prior year actual administrative expenditures. It is interesting to note how many of the administrative expense budgets the district’s administration understated are included in the list on the Limitation Schedule. Specifically they are:
Function Title
2320 Executive Administration Services (example: Superintendent, Assistant Superintendents)
2490 Other Support Services (example: Department Heads and Deans, not principals)
2510 Director of Business Support Services (example: Chief School Business Officials, Business Manager)
2570 Internal Services (example: Distributing supplies, duplicating, etc. for the school system)
2610 Direction of Central Support Services (example: Director/Manager of Planning, Information Services, Staff Services, etc.)
“Expenditures should include salaries, employee benefits, purchased services, supplies and materials, capital outlay, and other objects. Explanations and object descriptions may be found in the Illinois Program Accounting Manual. The Limitation of Administrative Costs legislation also states that state-mandated retirement costs are not included, e.g., payments to the Teacher’s Retirement System (TRS) and the Illinois Municipal Retirement System (IMRF).
“Annually, the District must submit their budget to the Illinois State Board of Education and include a report entitled, “Estimated Limitation of Administrative Costs.” If not met, the ISBE will not accept the budget”
“The understatement - for whatever reason - of administrative expenses may have facilitated the ISBE’s acceptance of the district’s seriously flawed proposed budget.
“The glaring omission of TRS budgeted expenditures and revenues begs the question, why didn’t the Controller, the Superintendent, or the Board question the drastic decline in the General Fund budget over the previous year as compared to actual? The Controller, Superintendent and Board not only missed that glaring error on the initial budget, but they missed it a second time during the usual budget revision!
“Once again, the district chose not to share complete and accurate financial information with the public. This information is only available to someone who secures a copy of, and studies the audit document.
“Page 36 of the audit document reveals more bad news:
Deficit Fund Balances of Individual Funds
Municipal Retirement/Social Security Fund $618,633
Self-insured Workmen’s Compensation Fund $1,416,539
Mid-Central Association Fund $61,092
Medicaid Operations Fund $282,618
“These four funds are all in deficit positions that will have to be resolved in future years. It is another “mortgage” against future revenues aggregating $2,378,882.
“The Administration and Board of Education are now proposing a major reorganization of the district to offset its anticipated receipt of lower corporate replacement tax revenues than they budgeted for 2008-09. According to (Superintendent Ken) Hinton (from a statement he made at the last regular BOE meeting) if the district does not proceed with this proposal, and spends the approximately $12 million they hold in reserves to meet operational expenses, the district will be bankrupt and the state will take over the district.
“Hinton’s argument in favor of school closings and consolidations is based on the ‘fact’ that they budgeted for more corporate replacement tax revenue than they are receiving.
“In light of the egregious budgeting errors for 2007-08, disclosed by the audit and cited above, a reasonable person might question whether the administration’s budgeted 2008-09 corporate replacement tax revenue figure is reliable.”
What does all this mean, and what does it matter?
The experts who crafted this report, who for now want to remain anonymous, have reached these conclusions:
“With this kind of embarrassing, sloppy and incomplete budgeting effort as illustrated above, how can anyone trust what Hinton, Cahill and the Board of Education say as to the financial condition of the district?
“How can the public rely upon the representations made by Hinton, Cahill and the Board of Education that it is indeed necessary to close and consolidate schools?
“How can Hinton, Cahill and the Board of Education justify correcting the administration’s budgeting errors and omissions at the expense of Peoria’s kids?
“This past week, Hinton spoke at the Chamber of Commerce, the South-West Kiwanis, and the African American Alliance (to) garner support for his proposal to close and consolidate schools. His efforts resulted in a public statement of support from the Chamber of Commerce and from the Mayor in his State of the City address.
“One can only wonder that if the individuals and organizations that endorsed the Hinton/Gorenz/Cahill plan had been afforded the opportunity to examine the audit and found all the administration’s glaring, “in-your-face errors” it reveals, would they still have supported their proposal?
“It will be interesting to see if District officials can spin a frothy confection to justify or exculpate their responsibility for the gaping holes in the 2007-08 budget. It would be easier to plug the holes in a wheel of Swiss cheese than it will be for Hinton, Cahill and Gorenz to “spin” away the holes in their budget and their responsibility for its creation.
“It is past time for Hinton and Cahill to be held responsible for their decisions, errors and actions. It is time for them to go.”
A copy of this blog report is being sent to District 150 officials. A response, if received, will be published here.
-- Elaine Hopkins
UPDATE: Those who have questions about this audit do not have to rely on the experts quoted above. They can request a copy from District 150 and do their own analysis. It is entitled "Basic Financial Statements and Supplemental Information, June 30, 2008" by Clifton Gunderson LLP, released in Nov. 2008.
COMMENT 2/2/09: You can see from the District job postings, we are (and have been) actively seeking a qualified internal auditor. That function, and internalizing some of our legal fees, has been something the Board has pushed for over the two years plus that I have served. Transparency is good, trust and confidence better. The District is lacking all three at the present. We are the elected ones and should help them hold admin accountable. -- Jim Stowell, District 150 Board of Education member.
COMMENT 2/2/09: This article reminds me of the Pekin Hospital accounting several years ago. The CEO was trying to merge with OSF for reasons of his own. Some properties were bought, books were cooked to show expenses over income and the 'benefit' of a merger were highly touted as virtually done.
A bit of accounting sleuthing showed problems with the hospital official's story. Then, a couple of letters to the PJS Forum and Pekin Times (ahem, me) pointing out that the history of the hospital funding was community based. It did not appear that the hospital was really the property of the administrators to be given away (ethically, at least) to OSF.
The administrator left. The hospital continued to operate, apparently improved it's finances and is continuing to serve it's intended population.
I also recall that the PHA had a series of administrators who were financially errant.
The Caterpillar alliance with OSF for 'preferred provider' occurred under CEO Don Fites, likely a Catholic. It is possible, but less likely, that would have happened if Morgan, Franklin, Neumiller, or Blackie were the CEO when that decision was opted.
Accountants and administrators, from my observation, work together to get their personal and political objectives. Those may not be consistent or beneficial with the product or service they are over seeing.
-- Ed Dentino