State audit blasts Gary schools

2013-03-26T21:39:00Z 2013-03-27T12:51:03Z State audit blasts Gary schoolsCarmen McCollum carmen.mccollum@nwi.com, (219) 662-5337 nwitimes.com

GARY | An Indiana State Board of Accounts audit of the Gary Community School Corp. points out overdrawn fund balances, poor internal controls and poor record-keeping in a 72-page audit released Tuesday that takes the school district to task.

The audit is for the period July 1, 2010, to June 30, 2012.

Gary school Superintendent Cheryl Pruitt, a 1981 Roosevelt High School graduate, took over the post July 1. The state was scheduled to audit the district, but last summer, she asked auditors to come in early and review the financially troubled district. She said at the time she wanted to know exactly where the district stood financially.

Pruitt couldn't be reached for comment Tuesday, but in its response to state auditors, the district said corrective action was taken.

Auditors began the job in August and did not complete it until January. The exit interview was Jan. 24.

According to the state audit, several funds were overdrawn at the time of the audit. The Gary Community School Corp. has said its financial problems resulted from decreases in state funding because of declining enrollment, low tax collection rates and a lack of reimbursement for reimbursable grants.

The district also was affected by the revised "deghoster," which previously allowed school districts with declining enrollment to continue receiving funds for students who had transferred for three additional years. That practice was eliminated as part of the state's plan that the money follow the student.

In addition, the Indiana Department of Education took over Roosevelt High School because of six consecutive years of academic failure, and appointed a management company to turn it around.

The Gary Community School Corp. lost approximately $4.5 million from July to December 2012, auditors said.

By the end of last year, Dec. 31, 2012, the district had a negative balance in all funds of $12.2 million, the report said.

As of June 30, 2012, the school corporation's overall cash and investment balance was $2.15 million, with negative balances in three areas: general budget balance at a negative $2.85 million; capital projects balance at a negative $2.62 million; and transportation funds, cash and investment balance at a negative $7.52 million.

In mid-December, the corporation was issued a judgment bond in the amount of $5.7 million and used that money to pay outstanding debt to vendors. In January, the district issued mortgage bonds on two schools and received $18 million to be used for capital improvements, funding the budget and debt service, if necessary.

The district had several outstanding bills where the checks were written but payment was withheld until the district received the bond money or its monthly draw from the state.

For example, about $4.7 million worth of vendor checks were processed, approved and posted — but not released to vendors. About $4 million due to the Internal Revenue Service for the period of Oct. 19 2012, to Dec. 31, 2012, was not paid until Jan. 4, 2013.

The school corporation contracts with Compass Group USA Inc. through its Chartwells Division to manage the school's food service program. As of Dec. 31, the school corporation owed Chartwells nearly $1.4 million for the September 2012 through December 2012 invoices.

Based on the school funding formula, the Gary Community School Corp. will receive a monthly distribution of $5.2 million from the state as tuition support to the general fund. By contrast, the district's monthly general fund expenses are estimated at $5.8 million, and that doesn't include utilities.

In the report auditors said "school officials need to continue to assess the financial situation of the school corporation to ensure a sustainable resolution to the material deficit cash balances that have been determined."

The audit noted problems with some school extracurricular accounts, a lack of a bond on some officials and a lack of documentation to support textbook reimbursement claims.

The audit said some of the bargaining agreements were not current, and it was difficult to determine if the salaries and wages paid to some staff was in compliance with board-approved rates.

The report also said the school corporation did not completely disburse federal funds until anywhere from four to 160 days after the receipt of the reimbursement. In some cases, the state chose to hold monies "due to the overall deteriorating financial condition of the school corporation."

Finally, the Indiana State Board of Accounts intends to issue additional reports specifically on Banneker Achievement Center, Roosevelt College and Career Academy, which is the turnaround school currently run by EdisonLearning, and Lew Wallace STEM Academy.

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