THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Sunday, September 17, 1995 TAG: 9509160102
SECTION: VIRGINIA BEACH BEACON PAGE: 06 EDITION: FINAL
LENGTH: Long : 231 lines
Following is a memorandum, with accompanying report approved by the School Board Audit Committee. Editorial comment at left.
Virginia Beach City Public Schools
Office of Internal Audit
Memorandum
To: Dr. K. Edwin Brown,
assistant superintendent
Dr. M. Anne Meek,
assistant superintendent
John S. Kalocay,
chief operations officer
From: Kevin A. Jones, Director
Subject: Audit Report No. 8 - Review of 1994-95 School Operating Budget - Office of Budget Development
Date: April 3, 1995
Attached is the final subject audit report for your records. This report was approved by the Audit Committee on Wednesday, March 29, 1995.
Should you have any questions, please give me a call.
AttachmentOffice of Internal Audit
Review of 1994-95 School Operating Fund Budget
Office of Budget Development
Audit Report No. 8 - December 29, 1994
Members of the Audit Committee
Ms. June Turner Kernutt
Ms. Susan L. Creamer
Dr. Sidney L. Faucette
Dear Audit Committee Members:
We have completed our examination of the school operating fund expenditures budget for the year ending June 30, 1995. The primary purposes of our examination were to ascertain whether:
- Dollars budgeted by unit code and expenditure line item are reasonable; and
- Any obvious errors in the budget are identified.
BACKGROUND
The School Board adopted a budget resolution on May 10, 1994, to request a lump-sum school operating-fund appropriation of $340,790,112, revised from the March 15, 1994, proposed budget of $343,915,776. Funding sources for the budget include $12,666,593 in federal revenues; $136,090,102 in local contributions; and $192,033,417 in state revenue.
On October 4, 1994, the School Board adopted another budget resolution reappropriating the 1993-94 year-end balance of $234,093. Also, an additional $3 million in federal funds are to be received from the federal government. $1.7 million was committed to restore funds into the replacement and renovation project in the Capital Improvement Program (CIP) and $1.3 million was appropriated to the school operating fund for indoor air-quality projects.
Expenditures are budgeted by four categories: instruction; administration, attendance and health; pupil transportation; and operations and maintenance. Financial reporting guidelines established by the Virginia Department of Education drive the expenditure account structure.
In accordance with School Board policy 3-10 (and in corresponding regulation), budget transfers greater than $10,000 must be approved in advance by the School Board before funds are to be spent.
SCOPE
Our examination was conducted in accordance with the audit standards specified in the Internal Audit Charter.
First, we reviewed the proposed 1994-95 budget document prepared by the Office of Budget Development for mathematical accuracy. This document was approved by the School Board on March 15, 1994.
We then analyzed the revised budget amounts posted to the accounting system at the beginning of the 1994-95 year. These numbers were first compared to 1993-94 actual to identify any significant variances.
Using the position-control database maintained by Personnel Services and payroll reports, we analyzed salary and fringe amounts. Budgeted substitute and other part-time wage amounts were reviewed for reasonableness based upon 1993-94 actual expenditures. A separate analysis of health benefits was also performed, comparing revised 1994-95 budgeted amounts to 1993-94 actual figures.
For expenditures other than salaries and fringes, we compared budgeted amounts to last year's actual expenditure activity.
Monthly expenditure reports for 1994-95 school year were also used in our analyses and projections to determine reasonableness of amounts.
FINDINGS
In reviewing the proposed 1994-95 budget document prepared by the Director of Budget Development and approved by the School Board, we found mathematical and/or typographical errors affecting nine unit codes. As a result of these errors, requested funds in the proposed budget fell short by $2.4 million when posted to the accounting system. The largest of these errors, $1,125,000, affected Middle School Classroom - unit code 2200, teachers' salaries. There were also a $595,000 error affecting Custodial Services - unit code 7500, purchased services; and a $573,540 error affecting Elementary Classroom - unit code 0100, capital outlay.
There were gross inaccuracies and inconsistencies in the calculation of salaries and fringe benefits. The incorrect VRS group life contribution percentage was used in both the proposed and revised budgets.
Current budgetary practices often dictate that a percentage increase is to be applied to prior year's budgetary amounts to calculate next year's budgetary amounts. This practice results in shortfalls or errors since no consideration was given to historical or actual expenditures. This is a major flaw in the budget development process.
For the year ended June 30, 1994, there were over $2 million in 1993-94 purchase commitments carried forward to the 1994-95 school year. These purchases affected many unit codes and expenditure classifications; such as school draw accounts, other materials and supplies, and capital outlay line items.
In addition to the (e)ffect of carry forwards mentioned above, favorable and unfavorable variances were found throughout our review of the budgeted amounts.
One of the most significant projected deficits is the health-insurance line item. A comparison of 1994-95 budgeted appropriations to 1993-94 actual expenditures shows a $2.7 million shortfall.
There is a projected shortfall in the special-education budget of approximately $2.6 million in salaries and payments for tuition. Requests by administration to fund $3.5 million in tuition payments were cut to $2 million by the Director of Budget Development.
Shortfalls in budgeted amounts have been identified in several expenditure classifications among various unit codes. Some examples follow:
ERIP salaries - no funds budgeted or transferred from other categories to cover these costs - last year $1.5 million was paid in ERIP salaries;
Substitute and COE student salaries - funds budgeted are insufficient to meet prior year's service level;
Administrator's salaries - funds budgeted for most directors and principals are insufficient to cover actual salaries; and
Reprographics/office supplies - funds budgeted in some unit codes are insufficient to meet prior year's service level.
As of November 30, 1994, $3.5 million in available funds have been identified in the other purchased services and group life insurance categories. Some of these available funds may be used to cover a portion of the shortfalls identified above.
Salary contingency line items are being used to charge option payroll and FICA taxes expenditures and have not been allocated to the appropriate salary classifications.
The Director of Budget Development has projected a $4.6 million reduction in revenue should enrollment decrease 2.5 percent by March 31, 1995.
Over the past several years, VRS contributions have been paid in error on all supplements and allowances by the division. In June 1987, VRS issued a directive relative to the payment of contributions on supplements and allowances, stating that such contributions should not be paid on all supplements or allowances. The division has not followed this directive. The division may be able to recover a portion of these costs paid since 1986-87.
During our review and analyses, we found budgetary transfers processed by the Director of Budget Development after July 19, 1994, which were not approved by the School Board. On August 26, 1994, $212,047 were transferred from other purchased services in the elementary classroom, school leadership, and literacy center unit codes to fund elementary school office supplies draw accounts without Board approval.
Administrators often learn of budgetary transfers affecting their unit codes after the transfers have been made.
RECOMMENDATIONS
1. Enhance administrative and accounting controls over budgetary process.
In our review of the budgetary documents and process, we found weaknesses in preparing budget documents and revising budgeted amounts. Due to many errors in budgetary calculations and estimates, shortfalls have been identified in unit codes. Salary contingency line items have not been allocated to appropriate salary classifications when salary increases went into (e)ffect October 1, 1994.
Also, a lack of communication exists between the Office of Budget Development and other offices as to changes in or transfers among budgeted expenditure line items.
We recommend that the Director of Budget Development prepare an accurate proposed budget document for School Board approval (i.e., to proof for footing/mathematical errors). When the budget is posted to the accounting system, mathematical errors result in immediate variances and impact spending decisions.
The Director of Budget Development should allocate salary contingency line items to appropriate salary categories and provide these entries to Personnel Services so they can update Position Control. The Director of Budget Development should also monitor availability of funds for all categories. Consideration should be given to the allocation of budget amounts by school and/or office where appropriate (i.e., substitute salaries).
Monitoring availability of funds before requisitions are processed should be enforced, especially when deficit account balances already exist.
Communications with department heads should be enhanced by the Office of Budget Development to inform them of budgetary transfers.
The Director of Budget Development and other appropriate administrators should analyze available funds within unit codes and expenditure classifications and propose budgetary transfers for School Board approval. Once transfers are completed, administration should determine the need for additional funding.
2. Analyze VRS contribution payments and calculations.
As previously mentioned, the division has been making overpayments for VRS contributions for the past seven years. The division includes erroneously all supplements and allowances, rather than base pay, in calculating monthly VRS con-tri-bu-tions.
We recommend that administration, through coordinated efforts with VRS, revise current monthly contribution calculations to comply with VRS' directives. Retroactive adjustments for recovery of prior years' overpayments should be pursued as well.
3. Comply with School Board budget transfer policy.
Many line items are already in deficit positions in the school year 1994-95. We also found instances where budget transfers greater than $10,000 were made by the Director of Budget Development after July 19, 1994, but were not approved by the School Board.
We recommend that the Director of Budget Development prepare all necessary budget transfers for School Board approved to cover deficits. Deficit line items indicate spending before School Board approval.
All budget transfers greater than $10,000 processed subsequent to July 19, 1994, but not approved by the School Board should be submitted to the Budget Committee for their review and to the School Board for their approval.
4. Record school operating fund transfer to the central athletic fund.
The school operating fund currently supplants the central athletic fund to cover operating costs for high school athletic programs. These costs are charged directly to school operating fund rather than the central athletic fund and historically have been paid with end-of-the-year funds.
For budgetary and accounting purposes, we recommend that the division record a school operating fund operating transfer (with City Council's approval) to the central athletic fund for program costs paid by the School Board. These funds will earn interest in the central athletic fund - interest earned will help defray additional/new costs to the fund (i.e., FICA taxes on wages paid for police officers).
FOLLOW-UP ON PREVIOUS REPORTS
There were no previous audit recommendations to consider.
LIMITED USE
This report is intended solely for the use of the Audit Committee members and administration of the Virginia Beach City Public Schools and should not be used for any other purpose.
REVIEW OF REPORT
The Director of Budget Development has reviewed this report. He has expressed substantial agreement with this report.
Sincerely,
Kevin A. Jones
Internal Auditor
cc: Dr. James L. Pughsley
Dr. K. Edwin Brown
Dr. M. Anne Meek
John S. Kalocay
Karen H. Bishoff
Mordecai L. Smith by CNB