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56 Gary School Corporation (copy)

The Gary School Corporation building.

INDIANAPOLIS | The financial and payroll records of Gary Community School Corp. are in such disarray the state's auditing agency cannot determine if the school district's claimed bank balances and spending reports are accurate.

In a 105-page audit report released Tuesday, State Examiner Paul Joyce also questioned whether the school corporation can continue as a going concern, given its significant negative cash balances.

"There are things we do not see every day in this report," said Tammy White, the deputy state examiner who led the Gary schools audit for the State Board of Accounts. "They have some serious things that they are working on."

Auditors reviewing records for the July 1, 2012, through June 30, 2014, period found the Gary school corporation failed to reconcile its operating bank account after June 2013. Its payroll bank account had not been matched to paychecks issued since July 2012.

The report notes the accounts still had not been reconciled as of July 2, 2015, despite the district's being notified of the discrepancy in early spring.

"Due to the school corporation's failure to reconcile the ledgers to the bank balances and their failure to provide adequate accounting records which would permit the application of other auditing procedures, we were unable to ascertain if the cash and investment balances were fairly stated," auditors said.

Other issues identified in the audit report include the school corporation's lack of documentation for employee pay rates and hours worked, the co-mingling of federal grant awards with other district funds preventing review of how grant money was spent and the submission of inaccurate financial data to the Indiana Department of Education.

Auditors also determined that one-third of the school equipment purchased with some $4 million in federal funds was not listed on school property records, and data on withdrawn students was recorded improperly leading to miscalculation of the graduation rate.

In addition, Gary schools paid $334,160 in undocumented charges to its food service provider, while hourly food service workers were paid for nine snow days they didn't work and possibly paid again for working seven snow make-up days, auditors said.

Gary schools Superintendent Cheryl Pruitt, in her five-page audit response, pledged to work with state and federal education officials to improve the school corporation's financial condition.

The Indiana Department of Education already has declared the district "high risk" due to its history of unsatisfactory academic performance and financial instability. The designation gives the state education agency additional oversight over Gary school spending.

Pruitt also is counting on financial support and advice from Indiana's Distressed Unit Appeals Board following the hiring of Jack Martin, a Michigan-based financial turnaround specialist.

Martin learned in July that Gary schools have a $23.7 million operating deficit and a long-term debt of nearly $92 million.

The district currently owes the following to vendors and others:

* $7.1 million in taxes and interest to the federal government,

* $4.15 million to NIPSCO, 

* $730,000 to AT&T, and

* $440,000 to the Gary Sanitary District.

State Sen. Earline Rogers, D-Gary, who in April inserted language in Indiana's two-year budget providing DUAB assistance to Gary schools, said it's no surprise to her the district is having financial problems.

"I just am encouraged by the fact that I think we're going to get an opportunity to find out with the Gary Community Schools — and other schools that I think are going to find themselves with problems later on — what have been the problems and what we can do as a Legislature to address those problems," Rogers said.

"Hopefully from this process we'll get ideas for legislation and might even take a look at some of the policy we already have implemented and see how that might be tweaked."

The city of Gary similarly was tagged in a 2010 audit with questions about its ability to continue operations.

That notice has been removed from subsequent State Board of Accounts examinations following intervention and assistance by the distressed unit board.


Dan is Statehouse Bureau Chief for The Times. Since 2009, he's reported on Indiana government and politics — and how both impact the Region — from the state capital in Indianapolis. He originally is from Orland Park, Ill.