State Comptroller: Sullivan School Officials Responsible for Negative Financial Audit Findings | Appalachian Highlands

BLOUNTVILLE – The state’s annual audit of Sullivan County’s finances, for the fiscal year that ended June 30, 2021, is not good with regards to how the county’s school system was holding up. his books.

The audit includes eight findings, all related to school system finances. Auditors said staff in the school system stopped doing what they were doing, even though it remained their responsibility.

Tennessee Treasury Comptroller Jason Mumpower told The Times News on Wednesday that he wants the public to understand that the bad audit reflects the past, not the county’s current or future financial condition.

As of July 1, 2021, the county’s finance department began managing school system accounting. The consolidation of what had been separate accounting offices for the school system and the rest of county government came after the Tennessee General Assembly approved a private act requested by the Sullivan County Commission.

It was known for months in advance that the county’s finance department would take over the accounting for the school system.

Mumpower said the eight negative findings were the result of “animosity and hard feelings” from school system officials.

“It is unfortunate that the school system has closed some of its financial obligations and has not been as cooperative as it could have been,” Mumpower said. “That’s why the consolidation was necessary. The people of Sullivan County need not be discouraged. The results will be better at next year’s audit.”

The Times News asked Schools Principal Evelyn Rafalowski if she had a response to Mumpower’s comments. Rafalowski said she would simply stick to the written responses that she and the school’s deputy principal Ingrid DeLoach submitted to the auditors and included in the audit.

The details of the eight results range from the school system not tracking its payroll to the extent that it paid former employees up to four months after they left the system, to fixed assets, net of accumulated depreciation, having been underpaid. estimated at nearly $20 million.

The eight discoveries:

1) School department funds required significant audit adjustments for proper preparation of financial statements. (A material weakness.)

2) Deficiencies were identified in the maintenance of fixed asset records. (A material weakness.)

3) The accounting records of various funds had not been properly kept. (A significant shortcoming.)

4) The school department had deficiencies in budget operations.

5) The school department failed to request reimbursement of grant expenses in a timely manner, resulting in a shortfall in the unrestricted fund balance in the school’s Federal Projects Fund. (A material weakness.)

6) The school department had payroll administration deficiencies that resulted in overpayments to some employees. (A significant shortcoming.)

7) Financial reports were not submitted to the county commission in accordance with state law.

8) The school department made payments based on expired contracts for student transportation. (A significant shortcoming.)

Examples of auditor details on each finding:

1) “As at June 30, 2021, certain general ledger account balances for Schools General Purpose Funds, Federal School Projects, Central Cafeteria, School Improvement and Education Capital Projects were not materially correct, and audit adjustments totaling $3,482,566, $1,480,432, $471,663, $150,000 and $20,000,000, respectively, were required for the financial statements to be materially correct at the end of the year.”

And “It is a strong indicator of a material weakness in internal controls if the department has ineffective controls over the maintenance of its accounting records, which are used to prepare the financial statements, including the accompanying notes to the financial statements. This shortcoming is a result of a lack of management control.”

Response from Rafalowski and DeLoach: “We agree with this finding and agree that audit adjustments were necessary. However, some were caused by circumstances beyond our control. The School Improvement Fund budget was entered into the system However, there was a problem in the software, and many state and federal grants were approved and awarded at the end of the year and were not entered due to the frenzy of activity involved in the year-end close and consolidation of the Finance Department.”

2) “Updated fixed asset records were not available as of January 9, 2022. Failure to properly maintain, complete, and close accounting records on a current basis diminishes the usefulness of financial records as a tool management, results in the loss of accounting controls and increases the risk that errors will not be discovered and corrected in a timely manner.”

Since the fixed asset records had not been updated since June 30, 2020, the auditors used other methods to determine the amounts, which should have been recognized for the fixed asset activity in the financial statements.

“Based on our review of school board accounting records and minutes, as well as other audit procedures, we determined that fixed assets, net of accumulated amortization, were understated by $19,455,680. .”

Response from Rafalowski and DeLoach: “We agree with this conclusion. Fixed assets records have been extracted and available, but the final report was not completed until January 9, 2022. This is the result of the transition of tasks to the new service consolidated financial statement.”

3) “Our audit revealed deficiencies relating to the administration and maintenance of accounting records of the fund. These deficiencies were the result of management’s failure to correct the findings noted in the audit report of the fund. previous year and the failure to implement its corrective action plan.”

Response from Rafalowski and DeLoach: “We agree with this conclusion, but believe that some additional information should be shared. Although the final audit log shows that April, May and June 2021 were closed in January 2022, a proper reconciliation and close took place in a timely manner.”

4) “These deficiencies exist due to a lack of management control and the inability of management to keep expenditures within the limits authorized by the county commission, which has resulted in unauthorized expenditures. These deficiencies were reported in the prior year’s audit report. Management previously provided written responses and corrective action plans to address these deficiencies; however, these deficiencies continue to exist.”

Response from Rafalowski and DeLoach: “We agree with this conclusion and will work to ensure that all budget amendments are approved and considered.”

5) “School Department staff have not requested reimbursement for grant expenses related to the Federal COVID-19 Program – Education Stabilization Fund Program – Emergency Relief Fund for Elementary and Secondary Schools ( ESSER II) in a timely manner Claims totaling $1,741,872 have not been submitted to the Tennessee Department of Education for reimbursement through December 8, 2021 of expenditures made from the Tennessee Federal School Projects Fund. March 2021 to June 2021 plus outstanding charges as of June 30, 2021.”

Response from Rafalowski and DeLoach: “We agree with this finding. Some Elementary and Secondary School Emergency Relief Fund grant applications have been stuck in review status through the approval process and would not allow for a refund. .”

6) “Two former school department employees informed the department that they continued to receive paychecks for several months after terminating their employment with the department. These employees remained on the payroll for two to four months, which resulted in overpayments totaling $31,033. The former employees reimbursed the department for these overpayments. This shortcoming was due to a lack of oversight by management.

Response from Rafalowski and DeLoach: The human resources department continued to offer assistance to the finance department in identifying and dealing with each case. The overpayments occurred after July 2021 and after the appropriate documents were shared with the newly created payroll department.”

Response from CFO Bailey: The employees have been enrolled in the payroll system for the 2021-22 school year by the school system’s human resources staff. There was no process in place to prevent and identify these issues when the Sullivan County Department of Finance assumed responsibility for school payroll in August 2021.

7) The school department’s annual financial report has not been filed with the county mayor and county clerk for presentation to the county commission at the next meeting of the commission after June 30, 2021, as requires state law. Additionally, quarterly reports were not filed with the county commission, another requirement of state law.

Response from Rafalowski and DeLoach: “We understood that the County Finance Manager would submit said reports. Access was requested to the financial management system in order to accomplish this task. Access was granted, and it was assumed that these reports were presented .”

Bailey’s response: “The Sullivan County Department of Finance was not responsible for the release of the financial (budgetary) report of the various Sullivan County Schools Funds for the fiscal year ending June 30, 2021. Further, this office does not did not have access to school records to produce reports for the 2021 fiscal year.

8) School system contracts with bus companies expired in the 2020-2021 school year and in March new offers were solicited. The Board of Education did not award bids and the contracts were renewed in September. As of January 19, the school board had taken no action regarding the awarding of offers. The school system has continued to make payments to bus companies based on expired contracts, a loophole auditors say leaves the school system open to liability.

Response from Rafalowski and DeLoach: “We agree with this conclusion. Student transport contracts are very complex and involve weeks of review and negotiation. Unfortunately, this was not completed in a timely manner with the contracts which expired during of the current year. Payment on expired contracts was not due to lack of effort or planning.”