County-initiated audit of Howard schools released ahead of budget season

County-initiated audit of Howard schools released ahead of budget season

As local officials grapple with how to fund the school system's record-high budget request this year, the county's auditors released a long-anticipated report on the school system's finances.

In their review of financial statements for special education, the health and dental fund and legal services, the auditors found the school system generally complied with all procedures. State law limits the scope of the financial audit, which purely verifies transactions, traces payments to contracts and reviews other financial statements.

The audit capped an often contentious back-and-forth between the school system's leadership and local officials last year as the Howard County Council considered the school's budget request.

Howard County Executive Allan Kittleman will consider the school system's request of $872 million next month. Kittleman has already indicated he has no plans to fully fund the request, which is $64 million above what the county approved last year. The school budget request alone is $23 million more than expected revenue growth for next year in a county that spends the second-highest amount per student in the state after Worcester County.

But the school system and the county's auditors continued a months-long dispute on the legality of the audit. In a letter responding to the audit, Howard County Schools Superintendent Renee Foose wrote the county's auditors went outside the state law by conducting a performance audit, which includes a review of the effectiveness and efficiency of programs, services and finances.

Beverly Davis, the school system's budget director, said the county's auditors did not issue an opinion on the school system's financial statements, making the audit a performance audit "by de facto," but still appreciated the report.

"We want transparency and want to do our part to facilitate transparency and good government oversight so we welcomed their input in doing that. Their performance audit really affirms the outcomes of our external audit…. There hopefully is a greater sense of confidence in the financial reporting of the school system," Davis said.

The county's auditor, Craig Glendenning, defended his staff's work.

"We did a purely financial audit. That meant that we did not inquire about payments to attorneys that we may have felt were questionable. … This audit would have looked very different if it was a performance audit," Glendenning said. "It was a two-month audit that took eight months because of the roadblocks that were put in front of us."

School officials, however, said the school system communicated upfront with the council's auditors. The council's audit came as the school system transitioned into a new financial system, and during two other audits - which have state-mandated deadlines - and turn-over of staff in the accounting office.

"They would have preferred that we could accommodate them sooner. We would have preferred to get it done sooner. We just didn't have the resources," Davis said.

The county's concerns about stalled access, heavily redacted documents and limited cooperation pushed Howard County Councilman Calvin Ball to threaten the possibility of legal action against the school system late last year.

Council members Jon Weinstein and Ball said the audit will help guide the upcoming budget process. Ball declined to comment on the audit, but in a statement wrote, "the audit has shed light on items that can only improve the school system and most importantly hold them accountable for their actions."

In a report released this month, a local financial advisory committee urged the county government and the school system to balance competing needs and recognize the "reality of a limited resource increase."

Despite the difference of opinion on the type of audit the county conducted, Foose wrote the school system welcomed the audit "in the spirit of cooperation with the county government and in the interest of transparency and good government oversight."

Auditors noted that the school system's contract for a $300,000 special education report did not fully deliver on requirements listed in the contract, including recommendations to save costs and the identification of strategies to improve student achievement and boost savings.

Although the school system issued a 26-page "highlights for sharing" report in 2015, a final report has not been issued nearly two years later, the audit noted.

The school system will continue to work with all vendors to complete contracts and advised that the report "represented preliminary findings which are being vetted and validated" to avoid "detrimental impact on programming," according to the audit.

The audit noted transactions between fiscal years 2015 and 2016 in the health and dental fund, which covers health benefits for teachers, complied with related contracts and purchase orders. In one case, the school system underpaid the state's Department of Health and Human Services by $103,488 — an error the school system addressed when auditors raised the issue.

Revenues in the health and dental fund have not kept up to pace with expenses, auditors noted. The fund faced a $16.5 million deficit as of June last year — a deficit that could be addressed by seeing a one-time exception from the state that does not count toward the minimum funding required of the school system. Anne Arundel County officials sought a similar exception when its school system faced a similar deficit, according to the audit.

Between fiscal years 2014 and 2015, health care and prescription costs jumped from 9 percent to 37.6 percent while contributions from employees increased by 4.6 percent.

In a response to the audit, Foose noted the school system is monitoring the health program and selected a firm through a competitive bid that will secure $9.1 million in savings.

The audit found no discrepancies in $141,200 of financial statements. Records and rates for $1.1 million in transactions related to special education also matched financial statements.

Earlier this year, the school board added $3.5 million to Foose's budget request for around 93 positions, largely for para-educators and 15 high school media center secretary positions.

The county will prepare its budget by March 31. The council reviews and approves the budget in May.

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