Thursday, October 28, 2010

Crappy! Chart! Thursday! Simple Cons: “We’re Solemnly Addressing the Audit”

Yup. I’m still harping about the claims SPS is making on its levy FAQ. Let's take a moment to note that Crappy! Chart! Thursday! is on a Thursday, demonstrating my (dilatory) commitment to aligning titles to dates!

SPS is not scoring well on the Truthy SuperAnalysis™ so far. The claim du jour isn’t likely to fare much better.

District Statement
Q: “The State audit of the 2008-2009 school year resulted in a number of findings. What is the district doing to respond?”
A: “The School Board and the Superintendent are committed to being good stewards of public resources. A comprehensive set of strategies have been put in place. Progress will be reported to the public monthly at the Audit and Finance Committee (a monthly meeting has been added devoted specifically to audit response); at School Board meetings; and at several special “oversight” board work sessions that will be scheduled during 2010-2011.”

Actual Factual Facts
Factual! There were “a number” of findings in both audits. The "number" of findings in the accountability report was 13, and the "number" in the financial report was 7.

The below chart (this may be easier to read) may help you put the "number" of those findings in "context" by letting you see the "number" of findings in the worst audit reports ever released in the state (okay, since 1997). Seattle has 3 of the top 5 spots in the Audit Report Hall of Shame.
The Audit & Finance committee has added a monthly meeting just to address the audit, and plans to have oversight workshops. All of this is factual.

Truthy SuperAnalysis!™
Dude. Worst auditor's report ever.

What the public doesn't seem to have fully twigged to is that the state auditor's office reports problems that they find to district staff months before reports are released (with notes on who each findings was communicated to, with dates). I use present tense because this is standard operating procedure for the State Auditor's office. The auditor's office lets districts know about issues well before the issues become part of audit reports. As a policy.

Which, hmmm.

Interesting that district management didn't find the motivation for their "commitment" to being "good stewards" until after the report was released in July 2010, quite a few months after the auditor's office had updated them about the many, many ways they weren't being good stewards.

And very, very interesting that, apparently, members of the board found out about the report... at the exit interview with the state auditor.

That's right. District staff somehow forgot to inform the board about the seriousness of the audit; the board found out from the auditor's office just before the audit was released.

Does that sound like a "commitment to good stewardship" on the part of management? I think it sounds more like a commitment to good stewardship when people are paying attention, but I'm kind of judgmental.


And the response to the audit might be less than robust. If you look at the audit response log (longer and more detailed than the district summary), the district might have an... unusual view of a problem being "addressed."


Let's have a quick look at issue AE3.1 (page 6), "Superintendent did not disclose financial relationship with vendor." District response for the problem is "Superintendent has publicly disclosed all applicable relationships (October 2009)." Problem is categorized as "completed." If you want a timeline/fuller picture, I just posted it.

Let's imagine this scenario in the private sector, shall we?

So. We have, in our imaginary scenario, the CEO of a company. Our prez also sits on the board of a worthy non-profit, "Committed Ruminant Adorers Zealously Into Equality Stuff (C.R.A.Z.I.E.S.)," a group that promotes goats as urban farm animals and pets and works to reduce the social stigma of goat ownership. No problem (aside from the fact that whoever thought of their name is clearly the soulmate of the person who first named the South Lake Union Trolley). Being on the board of a non-profit is not a big deal, and often expected of CEOs.


However, the company's board decides that the company needs to increase charitable giving. The giving committee on the company - several of whom only got their positions through their relationships with the prez - decides that the worthiest recipient of their charitably-intended dough is... C.R.A.Z.I.E.S. The prez says nothing to the board about her relationship with C.R.A.Z.I.E.S. FYI: The prez receives no compensation for being on the board of our imaginary non-profit.

During a routine audit, an external auditor confirms that a) the prez is on the board of C.R.A.Z.I.E.S. and b) notes it was really, really, really not kosher for the prez not to let her company's board know that she was on the board of an organization that stood to benefit from the company's money.

So. Do you think the prez disclosing the relationship and stepping down from the board of C.R.A.Z.I.E.S. would be enough for a private sector board of directors?

Uh, no. No it wouldn't. Undisclosed conflicts of interest are frowned upon. Disclosing a conflict of interest after the fact doesn't "fix" the problem. The following courses of actions would all be possibilities:

1) Prez gets fired

2) Prez gets fired and relationship with C.R.A.Z.I.E.S. is terminated

3) Prez stays on job, with a censure and some kind of punishment, relationship with C.R.A.Z.I.E.S. is either terminated or fully and very critically re-examined, and an investigation into the prez is undertaken to see if there are any other ethics issues that the external auditor might have missed.

Upshot?

I don't agree that this issue has been "completed." It's public money - if anything, there should be a higher standard of disclosure, ethics and conflict of interest. I don't think the Superintendent should absolutely be fired over the issue. However, the relationship with NWEA, and what benefit SPS is deriving from MAP, should be fully and very critically re-examined.

If you disagree with me, I'm interested to know why. I will, just a leeeeetle snarkily, leave this issue with a quote from the Strategic Plan:

"At Seattle Public Schools, we see a city where: District leadership and staff model excellence and accountability."

Huh. Well, moving on.

The Audit & Finance committee has set up additional meetings every month just for the audit. It's a start.

However. Having meetings about a problem doesn't mean a problem gets fixed.

The board could meet every day to discuss oversight, but if they don't provide oversight where it counts - at votes, board meeting discussions, committee meetings and workshops - they still won't be fulfilling their duty of oversight.

Oversight and governance are not passive.

On the same line of thinking, putting processes "in place" - no matter how comprehensive, strategic and benchmarked - is still different than fixing a problem. I can make my kids come up with a comprehensive, strategic process (aligned with our core family values) for making sure they get their homework and chores done. And yet, making Curly and my boy create a process is not the same as the little squirrels doing their homework and chores. A crazy thing called "supervision" is required.

Whew. That was alotta material to cover. Of course, the two audits, between them, were 131 pages o' problems.

Truth SuperAnalysis™ says: Believe the problems in the audit are fixed when you see change in the way things are done. New! meetings!, procedures! and! policies! may be where you've gotta start, but a genuine commitment to good stewardship will be shown in district and board action.

To date, there's been no action demonstrating a genuine commitment to good stewardship.

9 comments:

Naom said...

Dude, you are sooooooooooo funny!

And so on the mark.

Noam said...

We hope you are an SPS parent for a looooooooong time.

Don't ever leave us.

Art said...

Meg,

There were not 13 "findings" in the Accountability report. There were only 5. Combined with the 7 from the Financial report makes a total of 12 for all the audit reports issued this year.

Are you considering other, lower reporting levels as "findings"? If so, that is not accurate. More than likely there are items reported at a lower level, but those are not "findings".

Rest of your info is AWESOME!

Meg said...

Art said... - um, while I don't want to be a belligerent know-it-all, there were, well 12 or 13 findings.

Here's a link to the whole long document from the auditor's office that notes, for each exception (issue), which of the four categories of problem it is categorized as (finding, management letter, exit item, verbal only). Some of the findings are very similar, and were grouped together in the report, but are still separate findings.

I have to be honest, I struggle to get upset about some of the findings (1 whole employee incorrectly paid with Title I? I mean, be more careful and all, but whatever).

If you don't want to wade through the report, the findings are as follows:

1. district did not have adequate documentation to support sole source vendor contracts

2. district did not comply with federal requirements over safety net funds

3. district does not have parent committee as required by indian education program

4. district lacks internal controls to demonostrate compliance with eligibility requirements for indian education program

5. district's internal controls over financial reporting preparation are inadequate. district staff did not have adequate knowledge of/experience with prescribed financial reporting requirments, resulting in multiple errors: capital outlays of $800k misclassified as equipment, $670k of general fund salaries incorrectly reported in the capital fund, accounts payable of $1.6m incorrectly reported to general fund not capital, and financial statement notes with inaccurate information
6. district did not comply with state law on recording meeting minutes and making them available to the public

7. SPS paid a Title I paraprofessional who did not meet the highly qualified requirements

8. capital fund money was used for the unallowed purpose of operating a small business training program, costing $1.8m, which will have to be paid back by the general fund

9. SPS did not report all known or suspected stolen property to the auditor's office, as required by law

10. SPS's payroll controls for Recovery Act payments were inadequate, resulting in overpayment (with recovery act funds) of $40k to just one employee. Records were poor enough that the auditor's office was unable to determine the total of overpayments using the recovery act funds

11. SPS overpaid employees by at least $220k due to lack of controls in payroll system

12. Internal control environment: school board and management have not implemented sufficient policies and controls to ensure the district complies with state laws, its own policies or addresses concerns identified in prior audits

13. um... okay. I don't see a 13th. The auditor's office says there are 13 - maybe 4/8 of the management letter issues were rolled up into their own finding (procurement cards, fuel cards, paying contracts before contracts have been approved). I don't know.

Naom - thank you. We'll see how long I last; I'm pretty sure there are saner hobbies than following school district issues.

Art said...

"Art said... - um, while I don't want to be a belligerent know-it-all, there were, well 12 or 13 findings"

I wasn't trying to be a know-it-all, Meg, but there are certian things called "Findings", and other issues that are not "Findings". Terminology is important in understanding the level of reporting in that industry. The list you provide shows the 12 items included as findings in both reports, combined.

As the document you link to clearly shows, there were apparently 42 "Audit Exceptions". Holy Crap!

Meg said...

Art - pardon me. I wasn't referring to you being a twerpy know-it-all, I was referring to myself. I'm really sorry that it sounded like I was talking about you, particularly since I appreciated your comment - it made me take a second look at the data and my conclusions. You are totally correct that terminology is important.

There is, as you note, huge intersection between the findings in the accountability report and findings in the financial & single report - meaning that pretty much every finding in the financial report is in the accountability report. I hadn't noticed that before (duh).

And, yeah. 42. Forty. Two.

Dorothy Neville said...

Reading the full audit with exceptions was fascinating in a cringe-worthy sort of way. Seeing the dates of when the auditors spoke with staff, and how the staff all agreed with the auditors. But nooooo, they sure didn't feel it necessary to tell the board. So much for really and truly being good stewards.

Dorothy Neville said...

"To the District’s credit, management has had a wake-up call in FY03. The approach to recovery
has been direct. In a climate of openness and transparency, the District is examining itself in a
spirit of cooperation and is displaying a willingness to change and add necessary structure and
rigor to its business practices."

Moss Adams Report

dan dempsey said...

So is increased accountability now required of the Superintendent by the Board?

How well is the Board moving right now?

On 5-20-2010 MGJ signed a contract for $800,000 with the New Tech Network.

This contract did not have competitive bidding and there were no exemptions from competitive bidding sought in the legally required way.

Four Board members twice voted to approve this illegally presented no bid contract.

Has any Board member reported this illegal action to the State Auditor? (Likely NO, as four were complicit in the illegal actions.)

So its Same-o Same-o from the folks, who extended the Superintendent's contract from two additional years to three, the day after the July 6, 2010 Audit release.

Solemnly addressing the audit ... and swamp land for sale.