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Washington County Public Schools audit findings

July 07, 2013

A recent audit of Washington County Public Schools’ financial management practices by Maryland’s Office of Legislative Audits resulted in 18 findings.

Below are the findings with some of the detail from the audit and some of the things the school system told the state it would do in response.

A full copy of the audit is available online at www.ola.state.md.us/Reports/Schools/WCPS13.pdf.


Finding 1

Internal controls over cash receipts handled at the Central Business Office were not adequate.

Among the conditions noted were that too many people had access to the safe that holds cash receipts, and duties weren’t segregated enough. Two employees involved with cash receipts and deposits also had access to the related accounts receivable records. As a result of various conditions, collections could be misappropriated without detection.

WCPS response

While the school system’s business office has a small staff, management will determine how some duties can be further segregated as the school system implements its new back office software. Access to the safe has been restricted to two employees.


Finding 2

WCPS procurement policies did not require competitive procurements for purchases that cost less than $20,000.

For comparison, state procurement regulations require competitive methods for procurements of more than $5,000.

WCPS response

Though the school system is not required to do so by policy or state law, staff routinely invites and encourages multiple price quotes for goods and services less than $20,000. This includes using the Internet to check for competitive pricing.


Finding 3

Blanket purchase orders were processed without obtaining bids, documenting prices and obtaining required board approval.

A state test of 10 vendor blanket purchase orders for fiscal year 2011, with total purchases for each order exceeding $20,000, showed none of the orders were competitively procured. Also, none of the nine orders whose totals exceeded $25,000 were approved by the board, as required by board policies.

WCPS response

Due to the nature of blanket purchase orders for the transportation and maintenance departments, the school system cannot accurately project annual purchase amounts or the specific items to be purchased. If a separate requisition was required for each purchase, as they occurred, none of the orders would be large enough to require a bid and the process would significantly slow down departmental workflows.


Finding 4

WCPS did not properly secure vendor bids and certain bid opening controls were lacking.

Vendor bids were stored in an unlocked desk drawer that was accessible to several employees. In four of 12 procurements reviewed, between 2008 and 2011, the school system could not provide bid opening documentation such as a tabulation of the bids received. In two cases, only one employee was present for bid openings.

WCPS response

The unlocked file cabinet is in an area continually staffed by Purchasing Department personnel who routinely need access to other information stored in the file cabinet. New procedure calls for staff to ensure the cabinet is locked each evening. Two people from the purchasing staff are now to attend each bid opening.


Finding 5

WCPS did not ensure the propriety of payments for employee and retiree health care costs. The school system lacked procedures and controls to ensure that amounts paid to the third-party health care administrator were proper.

WCPS response

The school system will investigate the cost of hiring a firm to perform a comprehensive claims review, with the school board deciding whether to hire a firm.


Finding 6

WCPS did not always use a competitive procurement process to obtain stop-loss insurance coverage for its employee health care coverage.

The school system did not rebid this coverage for employee health claims for fiscal years 2010 and 2011, instead negotiating stop-loss coverage with the incumbent provider, who also is the third-party administrator. Stop-loss coverage indemnifies the school system against health insurance claims that exceed a threshold for a member.

WCPS response

The health benefit bid in 2008 was for a five-year term, with fully insured products subject to adjustment after the first year for reasons such as inflation, advances in medical technology and group experience. The school system rebid its stop-loss coverage in the fall of 2012.


Finding 7

WCPS did not adequately restrict access to its automated human resources and payroll system.

The auditors’ tests did not disclose any inappropriate or erroneous transactions, however, four employees had the ability to change pay rates, including their own, without supervisory approval. Also, 11 employees had access to prepare payments for non-regular earnings, which was not a requirement for their job.

WCPS response

The school system has started generating and retaining reports that identify all pay-rate changes. A recent review of payroll system access resulted in four employees having their access reduced.


Finding 8

WCPS certified sick leave to the Maryland State Retirement and Pension System as unused for the portion that previously was paid to employees upon separation, resulting in increased pension benefits.

This practice appears common among school systems.

Sick-leave payouts for WCPS totaled about $458,000 in 2011 and $708,000 in 2012. One employee, upon retirement, was paid $38,000 for unused sick leave and the person’s annual retiree benefit increased $2,077 based on the reported unused sick leave.

WCPS response

The unused sick-leave payment is a negotiated employee benefit that was started to encourage good attendance, but wasn’t intended to be a payout of unused sick days.

Any mandated change would fall under the purview of the Public School Labor Relations Board, not the State Retirement Agency. The school system will discuss this benefit with its unions to see if an acceptable alternative can be determined.


Finding 9

Internal controls and record keeping over equipment were not adequate.

Equipment valued at less than $1,000 was not recorded in the centralized automated records, nor was it required to be labeled as WCPS property. The school system indicated electronic tracking software was used to monitor the location of some sensitive equipment, but monitoring reports were not maintained.

WCPS response

The school system has started using two software packages to monitor the location of computer devices, including mobile devices. The software will be used to verify physical inventories.


Finding 10

Certain system access, monitoring and authentication controls were not adequate. Auditors found inadequate controls for network authentication and a server that hosts critical systems such as the student management system.

WCPS response

The school system has implemented appropriate system access, monitoring and authentication controls per State of Maryland Department of Information Technology standards.


Finding 11

The WCPS network was not properly secured.

An intrusion detection prevention system was not used. An internal network was not adequately secured from high school computer labs or laptops students used. Eleven publicly and widely accessible servers were located on the school system’s internal network rather than being isolated.

WCPS response

The school system is implementing all audit recommendations related to network security. A new firewall, which the school system already had in the works before the audit, went online in early May, said Arnold Hammann, director of information management and instructional technology.


Finding 12

WCPS’ information technology disaster recovery plan was not comprehensive and backups of several critical network devices were not current. Among the possible disasters the school system didn’t have an information technology recovery plan for was fire.

WCPS response

The school system, with the help of Plan B Technologies, is updating its disaster recovery plan to meet state standards. Additional automated backups and documentation for critical network components have been created.


Finding 13

WCPS’ energy management program was not sufficiently comprehensive.

The school system hasn’t set specific goals for reducing energy consumption and, while there were periodic site visits to monitor energy usage, those visits were not documented.

WCPS response

Realistic benchmarks will be set for all buildings to reduce overall energy use. The energy management analyst will be responsible for conducting energy audits and maintaining a record of site visits.


Finding 14

Certain payments to bus contractors were not based on market conditions or actual costs. WCPS negotiates the per-vehicle allotment for bus contractors based on contractor requests and doesn’t consider market conditions related to the return on investment.

Auditors recalculated annual per-vehicle allotment payments for 25 new buses put in service during a four-year period. Using prime interest rates rather than the negotiated return on investment rate the school system used, annual payments per bus would have cost $3,268 to $4,137 less.

Also, the school system included federal fuel excise taxes in payments to bus contractors when those contractors are exempt from that diesel fuel tax and can receive a credit.

WCPS response

The school system will review the calculation for contractor compensation. The school system noted that the prime rate seldom is available to small-business owners and the school system’s compensation to contractors is the third lowest in the state.

WCPS agreed to exclude federal fuel excise taxes from payments to contractors, effective Jan. 1, 2013.


Finding 15

WCPS did not verify contractor provided operational data that formed the basis for certain payments to the contractors.

The school system lacks assurance that information used to calculate contractor payments, such as drive time and route mileage, are accurate.

Auditors estimated the school system could have overpaid seven bus contractors by $14,500 in fiscal year 2011 based on route mileage that appeared to be overstated.

WCPS response

The school system installed GPS units on all contractor buses in January 2013 and is using the data to verify information submitted for contractor routes.


Finding 16

WCPS did not fully use its automated routing software capabilities to develop more efficient routes or formalize certain ridership goals.

WCPS response

The school system has installed an additional software module to integrate the GPS on buses with the routing software so live routes can be compared with current designed routes.


Finding 17

WCPS had not performed a systemwide cost-benefit analysis of outsourcing bus services. Results of WCPS analyses of the cost to operate certain buses indicate that potentially significant cost savings could be identified from the preparation of a systemwide analysis. Currently, 35 percent of transportation services are provided by outside contractors.

Some county routes were transferred to contractors after two analyses conducted before the 2012 academic year, when some county drivers retired, showed the school system could save about $6,000 annually per bus in operating costs.

WCPS response

The school system has created a county-versus-contractor cost comparison analysis document and used it to analyze every county and contracted bus route.

The comparisons showed the health benefits package the school system provides to eligible county drivers increases the cost of certain county routes. However, the routes with health benefits are an incentive for part-time drivers to continue their employment in hopes of eventually moving into a full-time driver position. The school system does not think it would be good business to institute an immediate, systemwide change that could put contractors out of business or county employees out of work.

If the county were to assume more routes, the school system’s current shortage of certified school bus drivers will become a bigger concern.


Finding 18

Fuel purchases were not always supported or verified before payment.

Auditors, reviewing five of the invoices tested from one vendor, found the school system overpaid the vendor about $600 because the vendor included applicable taxes twice.

WCPS response

The school system is working with the vendor to obtain the $600 refund/credit.

WCPS has purchased its own Oil Price Information Service subscription, at a cost of $1,500 per year, to verify the accuracy of billings before paying invoices. The school system was sharing the county government’s subscription, with the county emailing the reports to the school system, but several reports could not be retrieved after the school system changed email vendors.

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