By Meredith M. Griffith

Sounder Contributor

Lopez Island School District’s financial management was found lacking in a state audit this June that cited “shortcomings in financial oversight.”

Earlier this year in March, Lopez School District Superintendent Bill Evans offered his resignation to the Lopez school board, citing “shortcomings of late in our financial oversight functions, resulting in significant negative impact upon staff and financial resources.” The board asked him to continue his position for the time being.

In an effort to correct these shortcomings, the school has hired a team from Wenatchee’s North Central Educational Services District to perform business management and other financial services in conjunction with Evans as well as Stephanie Fowler, district office manager/HR, and newly employed Eleanor Burke, district office assistant/AP/purchasing. NCESD has expertise in financial management for small districts.

Evans is serving as superintendent to the district again this fall, and the school is requesting a $9.6 million bond that will go to vote this year.

The June 2014 audit report noted inadequate oversight of payroll operations to safeguard public resources. Specific examples included: a lack of independent review of final payroll reports; $2,850 in duplicate payments to 13 employees and overpayment of $1,400 for an employee’s medical benefits; over 400 hours of sick leave used during 2013 that had not been entered into the payroll system; and a negative leave balance of 17.5 hours for one employee.

The auditor also noted that the district had incurred $64,182 in penalties and late fees for late benefit and tax payments in 2012. Evans says the district is in negotiations to lower the penalty amount.

“These were issues we had already discovered,” said School Board Chairman John Helding, who has a background in management consulting. “We were having problems with our financial processing, especially in payroll and benefits.”

The district last received audit findings in June 2011, when the auditor cited inadequate internal controls over district bank accounts; personnel and payroll processes; and employee retirement and insurance benefits. A 2012 audit found that the district was making satisfactory progress to correct the insufficiencies.

Helding said it was in response to prior audit findings that the school district in January 2013 divided the position of district finance manager into two separate part-time positions – a finance manager and a payroll/board secretary.

“It was a good-faith effort … but that did not provide the level of oversight we needed,” said Helding.

In 2014-15 NCESD will provide the district complete business management services, including payroll and benefits.

“The NCESD is fully aware of these internal control issues and has committed appropriate resources to address appropriate mitigation of these issues,” reads the district’s response to the audit.

The district will not be audited again until 2016 for a review of the 2013-14 and 2014-15 school years.

“They had a plan to work with an [educational service district], they were already in communication with [NCESD Business Manager] Rick Bonner and it sounded like they were really making an effort to resolve these issues,” Auditor Andrew Asbjornsen told the Weekly.

Although progress is being made, there are still uncertainties.

“It remains to be seen what needs to be done,” Bonner said. “We feel we have the expertise to operate a district.”

According to Bonner, his team did not create the 2014-15 budget, but will assist with budget planning for next year.

“Bill [Evans] and the board really decide the direction, what the district is going to offer,” he added. “We manage the finances under their direction.”

Evans has served as superintendent of the Lopez Island School District from 2005-09, and most recently from 2011 to present. The school board will begin searching for his successor around November.

“We do need someone who has additional business finance and analytical skills as finances become more complex in the public school system,” said Helding.

Asbjornsen added that the Office of the Superintendent of Public Instruction annually grades school districts on financial competence using a weighted score of 0-4, with a four being the strongest score possible.

Lopez received a 2.95 in both 2009-10 and 2010-11 and a 3.1 in 2011-12 but plummeted to a score of 1.3 in the 2012-13 school year. Districts scoring 1.75 or lower are considered to be under “financial warning,” said Asbjornsen, adding, “Any district in ‘financial warning,’ we’re going to ask more questions, figure out what their plan is.”

OSPI is not expected to produce its scores for the 2013-14 school year until next March.

Auditor records show no audit findings for either Orcas or San Juan Island school districts in the past 10 years. Helding said the primary difficulty for Lopez has been employing staff efficiently while providing the segregation of responsibilities required by the auditor in a small district that really only requires the equivalent of one full-time position to perform these financial duties.

“Larger districts benefit from an economy of scale,” Helding said.

For reference, Orcas School District had 862 students this May and San Juan had 833, compared with just 236 students on Lopez.

NCESD solves that problem for the district because it serves eight or nine school districts. The good news is that Helding estimates the district will also reap at least $20,000 in savings this year due to the contract with NCESD.

“In essence, we have joined a cooperative of other small districts,” said Helding. “We have a lot of confidence in this being a great solution for us going forward.”