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Schools respond to audit findings

Auditor says WCPS has done best job in resolving issues

July 07, 2013|By JULIE E. GREENE | julieg@herald-mail.com

A recent state audit of several financial operations at Washington County Public Schools resulted in recommendations on how to improve internal controls and safeguards, including verifying costs provided by outside parties.

The school system has or is responding to all 18 findings, and in several cases already has addressed the deficiencies, according to the school system’s response to the state and school system officials.

One of the findings has the school system working with a heating oil broker to recover more than $600 believed to have been billed to the school system in error, said David Brandenburg, the school system’s director of accounting.

This was the second time the school system has been audited by the state’s Office of Legislative Audits. The previous audit was in 2007.

Thomas J. Barnickel III, legislative auditor for the state’s Office of Legislative Audits, said none of the findings were unusual and many of the findings were issues common in audits of other public school systems in Maryland.

When legislation increased state funding to school systems several years ago, state officials wanted more oversight of school systems’ financial operations and how the state funding was spent, Barnickel said.

In the mid-2000s, the state began auditing public school systems every six years, he said.

So far, compared to the other five school systems that have been audited twice, Washington County has by far done the best job resolving findings from its first audit, Barnickel said recently.

State officials reviewed the status of 21 of its 26 findings from the 2007 audit and repeated only three of those findings in the 2013 audit, the audit states.

State officials want everything addressed, but there are no penalties or funding ramifications from the audits, Barnickel said.

“We looked at it from the point of view of a taxpayer and state providing money to an entity, so the entity should take all precautions necessary to protect the resources they’ve been given” Barnickel said.

Washington County Schools Superintendent Clayton Wilcox said the legislative audit is a good thing, providing an “independent set of eyes on the way we do our work here. I think it’s important that we can verify to the community that we’re in fact responsible with the resources they entrust to us.”

The school system has received “clean audits” from a local accounting firm for several years.

Wilcox and Barnickel said the state audit is more complex and in-depth than the local annual audit.

Barnickel said the annual local audit reviews financial statements, to make sure the numbers are fairly represented, and the school system’s federal grant programs. The state audit, done over several months, did not duplicate the local auditors’ work, but took a closer look at operational controls and efficiencies the school system could gain, he said.

Wilcox said he expects information about the state audit to be presented at a school board meeting this summer.


Reviewing issues

Wilcox said he wouldn’t characterize any of the findings as a “concern,” but there were a couple of things the school system wants to review.

Among the three findings the state audit repeated from 2007 was that duties weren’t segregated enough in the Central Business Office concerning cash collections, deposit preparation and accounts receivable, according to a copy of the audit, available online at www.ola.state.md.us/Reports/Schools/WCPS13.pdf.

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, according to the state audit.

Being a small school system means not having a lot of staff when it comes to cash management, so “multiple people touching money is always a concern,” Wilcox said. “We want to make sure that there are proper audit trails. And we had great audit trails, but we just want to strengthen them even more.”

Another finding Wilcox mentioned dealt with the security of the school system’s computer networks.

The school system has two contractors who have a portal into the school system’s computer network to help the school system manage some of its network software, Wilcox said.

While Wilcox said he doesn’t think such a practice is atypical, the school system will review that situation to see if it’s the best way to continue.

“In an era of ... computer cyberattacks, we just want to make sure that nothing here is compromised,” Wilcox said, adding that nothing had been compromised at that point.

The finding that stated the network wasn’t properly secured noted the school system wasn’t using an intrusion detection system and that the internal network wasn’t adequately secured from high school computer labs or laptops students use in school.

The school system responded that it was 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.


Previous audit

The other two audit findings that were repeated from the 2007 audit dealt with blanket purchase orders and certain payments to bus contractors not being based on market conditions or actual costs.

The problem with the blanket purchase orders was they were open-ended, so the school system didn’t really know how often they were going to be used, Barnickel said.

School board policy calls for blanket purchase orders of more than $25,000 to be approved by the board, but that wasn’t happening because the school’s maintenance and transportation departments couldn’t accurately project what items would need to be bought or how much they would spend, according to the audit and the school system’s response.

Usually, an arrangement with a supplier for a blanket purchase order involves a discount for the purchaser, Barnickel said. The state audit found the orders “directed individual purchases to specific vendors for certain supplies and services, but the benefit of this process was not evident.”

Wilcox said school system officials comply with the law, but are reviewing the matter to see if they are doing the right thing for the right reasons.

The school system does save money by not generating new purchase orders and waiting for those orders, Wilcox said.

But, Wilcox said, he expects officials to look at the threshold for blanket purchase orders and whether that can be reduced without creating an undue hardship on those waiting for supplies. The school system could try to get a better deal through a large parts warehouse, he said. The school system already gets contract discounts at some places.

The findings repeated about bus contractors dealt with basing contractor costs on market or actual conditions.

The school system negotiates the per-vehicle allotment for bus contractors based on contractor requests and doesn’t consider market conditions related to the return on investment, the audit states.

Auditors recalculated some of the per-vehicle allotment payments using prime interest rates rather than the negotiated return on investment rate the school system used, and found the school system could have saved $3,268 to $4,137 annually per bus by using the prime rates.

The school system noted that the prime rate seldom is available to small-business owners such as bus contractors, but that it would review the calculation for contractor pay.

The audit also recommended the school system use actual bus operating costs to establish contractor rates for per-mile maintenance costs. The school system paid contractors 69 cents per mile for maintenance costs, while maintenance costs for school system-owned buses was 43 cents to 44 cents per mile those years.

The school system stated it has its own eight-bay repair shop with labor rates that average $40 per hour and is able to buy parts in bulk at discounted prices. The average hourly rate for various repairs and diagnostics at three area garages the school system surveyed was $123.

But the school system said it would use its in-house per-mile maintenance cost as a base; survey local repair shops for current rates on parts, repairs and labor; and use the Consumer Price Index as a reference for establishing maintenance payments for contractors.


Dollars and sense

The audit has budget implications for the school system not only in savings that might have been lost in past years, but also in some of the actions taken to remedy findings.

According to the school system’s response to the audit, it has started using new software, consulted professional services and bought a $1,500 annual subscription to the Oil Price Information Service to verify fuel costs.

Brandenburg said he did not have a final cost impact from the state audit, but Wilcox estimated it would be in the $10,000 to $20,000 range.

School system spokesman Richard Wright said no new positions are being considered as a result of the audit findings.

Auditors reviewing five invoices tested from a fuel broker found the school system overpaid the vendor about $600 because the vendor included applicable taxes twice.

Brandenburg said school system officials were working with the heating oil broker to get back the $600, as well as other amounts the broker is believed to have billed the school system in error.

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