WVN #518: Latest report details school accounting shortcomings
Dear Wayland Voter,
The latest report on school system accounting shortcomings shows checks made out to cash, ATM withdrawals, lack of supporting documents, even a debit card purchase of gifts from the Cheesecake Factory.
The School Committee, which commissioned the report, invites citizens to discuss it with its author on Tuesday.
SCHOOL ACCOUNTING LAPSES DETAILED
After citizens complained in 2010 of accounting irregularities, an audit firm examined the books, and later a forensic accounting firm, Powers and Sullivan, was hired to examine certain areas in detail. The 35-page study covered the period July 1, 2006 through June 30, 2012, spanning two administrations. School Business Manager Joy Buhler retired in August 2010, and Superintendent Gary Burton retired in June 2011.
The public is invited to hear the Wayland School Committee discuss the draft report on Tuesday, Sept. 3 at 7 p.m. with consultant Jim Powers present. The SC plans to hold an extended public comment period so residents can ask questions.
A lack of fiscal controls was evident in several accounts and itemized in the Powers and Sullivan report. In particular, student activity, principals’ discretionary, and some program accounts were noted. Fiscal controls, such as prior approval and accurate proof of expenditures, ensure that funds are properly used and relevant tax laws are followed. They also provide accurate records for future budgets. Many of the accounts were off ledger with no reporting to the central office.
The report also indicates what processes and controls have been put in place by the current administration to provide more accountability and better records of costs.
Only the Metco discretionary program had checks made out to cash. The program also showed use of a debit card. Details begin on page 28 of the report.
Over the period, checks totaling $14,036 were made out to cash and there was $4,330 in ATM withdrawals. Some of the cash was used to pay students who took the late bus and for scholarships, according to the report.
Two checks in large amounts were later converted to bank checks, one for $4,800 to reimburse a parent (no details provided), and one for $5,000 for a speaker at a fundraising event, according to the report.
The debit card was used at Cheesecake Factory for charges totaling $1,300, among other items.
Metco is the state-supported program that brings students from less affluent communities to suburban schools including Wayland.
The report can be found at
It is also at
http://www.wayland.ma.us/Pages/WaylandMA_Selectmen/2010ATM.pdf Page 30, petitioners’ article 6.
For those who cannot attend the meeting, comments or questions can be submitted in advance to the School Committee:
Student Activities Accounts
Recently the SC has approved a reduced number of school activity accounts, with the remainder being processed through MUNIS, the school’s accounting system. Beginning with school year 2013, the report’s recommendations have been implemented and discretionary accounts are now handled by MUNIS. (Page 4)
The report found that the handling of the five school principals’ accounts for student activities didn’t fully comply with the law (no itemization, for one thing): “In order to be in compliance with the law, each school would be expected to submit a reimbursement request that listed all disbursements made with original invoices attached. The school business office, Superintendent and School Committee would then be able to review, approve or disapprove the reimbursement as part of the next warrant. Once approved the reimbursement would be processed and approved by the Town in the same manner as any other warrant.” That way, more eyes could review the expenditure before the payment was issued. Also, the report wants the source of each deposit to be clearly identified.
There were numerous other examples of procedures that require more process, such as issuing blank checks to teachers, and paying “various stipends directly from the principal’s checking account for proctoring exams, supervising field trips and similar purposes. The payment of stipends is required by IRS and Department of Revenue regulations to be processed as payroll and not as direct payments to the employee.” The report notes the school business office has indicated it was preparing amended W2s for the recipients of those stipends.
“In order to be in compliance with 1099 reporting requirements we recommend that all vendors that would require a 1099 be paid from MUNIS and funded directly from the money market account.”
Sometimes advances were made to individuals without an accounting of how those funds were spent or the return of unspent funds. In that instance, technically such advances are income to the employee who is then liable to the IRS for the applicable taxes. This occurred in cases such as providing advances to coaches to pay referees and payment for proctoring exams:
“We recommend that a policy be adopted that requires an Expense Report be required for all advances and any unspent funds be returned. The employee is responsible for supplying original documentation to support all expenses. We also recommend that advances be prohibited for the purpose of paying cash to a vendor.”
Principal Discretionary Accounts
These accounts have been closed, according to the report, but when they existed, the report notes: “All of these accounts are not in compliance with laws and regulations and were used by the Principals without any oversight. The lack of any permanent accounting system with organized supporting documentation of most of the transactions is a serious breach of financial controls. We cannot make specific findings on transactions that we cannot review, therefore there may be other transactions that we are not aware of that would be considered a significant violation of laws and regulations.” (Page 11)
The report hints that these accounts may have consisted of commingled funds from various sources such as PTO, teachers, and the school system.
At Claypit Hill, “most of the activity related to library lost books, the principal’s sunshine fund and administration funds. There is a possibility that funds were spent on purposes other than school-related however we do not believe that it is cost effective to conduct further investigation.”
At Happy Hollow, much of the $64,000 spent appeared to be used for coffee for meetings, staff lunches, supplies, sunshine related expenses. The money came from “minor grants, PTO, fundraising, sunshine deposits, commissions, library revenue, coke funds and reimbursements from Wayland Schools.” The Sunshine funds consist of donations from teachers for occasions such as a new baby, retirement, illness, etc.
“As stated earlier a student activity account or a principal discretionary account should never be used to circumvent the warrant process,” the report said.
Warrant process adds the oversight of many parties, including requiring signature at the site of expenditure, signature at the central office, signatures of the SC and signature of the Finance Director. For both advance funds and reimbursement, receipts and itemization are required.
Loker had many years without documentation. The Middle School and High School had more complete documentation.
Powers and Sullivan emphasized “the school should never have allowed any of these discretionary accounts to exist and therefore all transactions are in violation with laws and regulation. Since these accounts were not monitored by the school business office the lack of support by the school’s accounting professionals can lead to serious breaches in financial controls.”
In the report the Metco account was front and center for lack of accountability and oversight. Unlike in business, lacking receipts seemed to present no problem, and reimbursements were made with no supporting evidence.
The Metco program has a state grant fund, a revolving fund and a discretionary account. The study did not examine the state grant. The revolving account accepts donations and money from fundraising to supplement the state grant. The bulk of the discretionary account pays for transportation.
However, “we noted that various awards were given to students each year which may or not be considered scholarships. …Although not a significant amount of money, we recommend that the school adopt a policy that clearly defines when an award should be considered a program expense and when it would be considered a scholarship. A monetary award would normally be considered a form of a scholarship and should be reported as a scholarship and not a program expense.”
The Discretionary Bank Account was not reported in MUNIS, as was the case with the principal accounts, and other programs such as BASE and Pegasus.
The review of this account “identified many checks made out to cash, ATM withdrawals of cash and many questionable transactions without any supporting documents,” the report found.
Payments were made to directly pay down the director’s personal credit cards via check or the account’s debit card. The director told Powers and Sullivan she would “purchase items for the program with her personal credit card and instead of completing an expense report she would pay her credit card directly for only the program related expenses. . . . There was very little documentation to support the METCO portion of the credit card charges. There were entries on the memo field of a few checks that stated ‘camera, video camera, tripod, flash drives BJ’s” “BJ’s, KFC, Christmas Tree, Dunkin’ that indicates that there may be a program purpose but nothing definitive. She stated that she threw out all of her old credit card statements and had requested copies of the statements after our discussion. As of the date of this report we have not been provided the statements.”
“There were 4 charges to the debit card to the Cheesecake Factory for gift certificates before the Christmas break and end of the school year that total $1,165. Another charge for $139.04 on 12/23/10 at the Natick Cheesecake Factory...As stated in other areas, gift certificates should not be purchased to reward staff and others using program revenue. Program revenue should not be used to pay for staff parties.”
Scholarship awards were paid out of this fund, most amounting to $1,000. One student received $5,000, as well as a laptop. The proper method would be to transfer funds into the Treasurer’s scholarship fund and pay them from that fund. “When the Treasurer is the custodian and a scholarship committee approves the awards, it minimizes the possibility that the funds are awarded on a basis other than merit such as the child of an employee, relative or friend. This does not mean that these students cannot receive an award; it just helps minimize any perception problem,” the report advises.
Over the years, $14,036 in checks were made out to cash and $4,330 in ATM withdrawals. These included $1,200 for travel to the presidential inauguration in January 2009, but no expense report exists. In May 2007, a check for more than $4,800 to cash was exchanged for a bank check to a parent as reimbursement for expenses related to fundraising. There was no itemization of expenses being reimbursed. In February 2011, a $1,000 check to cash had the memo entry of a band that performed at an event sponsored by Metco.
Both checks and ATM withdrawals were used to pay bus monitors for students taking the late bus. There was $3,930 withdrawn in cash from a Wayland ATM and $400 from Brockton. Although there was itemization of which monitors received payments, a full reconciliation is not completed. “Payments of cash should never be made,” the report stated.
In March 2007, there was $6,000 for a bank check for Beatrice Berry for being the featured person at a Metco-sponsored event. “Checks of this nature should always be processed as a warrant and posted to the revolving fund,” the report advised.
“In September 2007 a $1,000 check was issued to a non-profit charitable organization. As stated in a previous section of this report, program funds cannot be used to support a charitable organization, no matter how worthy.”
Money Transferred Out of Wayland
Just prior to the discretionary account being closed, in December, 2011, a $5,000 check was issued to the Boston Parents Council which is a non-profit organization that supports the METCO program. The director said this was a transfer of discretionary funds that she retains the ability to expend on behalf of Wayland METCO. “We recommend that funds raised for METCO purposes be kept within the METCO revolving accounts and not maintained at another organization.”
And sometimes, the debit card was used while school wasn’t in session: “On 12/24/2009 the debit card was used to purchase $37 from a Braintree bakery, on 12/26/2009 the debit card was used to charge $89 at a restaurant in Marlboro and on 7/13/2010 the debit card was used to charge $57 at a restaurant in Stoughton. These charges were made for either perishable items or restaurants while the school was not in session in communities that are not local. We question whether these are program related expenses. If a School debit card is used in error to make personal purchases then the employee is required to make immediate reimbursement to the school. Since there is no detail to support the deposits we cannot verify if reimbursement occurred.”
Hockey Revolving Fund
The report noted students pay fees to a third party, the Wayland Hockey Association Corporation, and said its interpretation of Massachusetts law is that all student fees should be paid to the town rather than a third party: “We have found that the normal relationship with an Association/Booster Club would have the Association fundraise and provide assistance to support the program.” The report noted the revocation of the Wayland Hockey Association Corporation and suggested the school consider having a formal agreement with the association or similar booster club and determine the “proper compliance with the referenced statute.” (page 26)
For athletic accounting, the firm recommended setting up specific accounts, such as for High School and Middle School, and then for each sport.
-- Molly Upton
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Wayland Voters Network
Michael Short, Editor