By Julie Keim, Parent
Denver Post Your Hub
July 22, 2013
During my time as a CPA, I have prepared and audited many Comprehensive Annual Financial Reports (CAFR) for governmental entities, including school districts. Based on my experience, I feel I must respond to the Your Hub article submitted by Cinamon Watson, DCSD Community Relations Officer.
Ms. Watson announces that the District received an award for transparency based on the following: “The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to Douglas County School District for its comprehensive financial report (CAFR).
“This award underscores our continued effort to keep the District transparent so that our parents, students and teachers can be involved as much as possible,” said DCSD Board of Education member Doug Benevento. “Any institution that handles taxpayer dollars needs to be transparent and accountable.”
The GFOA Certificate in no way signifies transparency. Every governmental entity, including school districts, must prepare an annual CAFR in compliance with Generally Accepted Accounting Principles (GAAP) and must receive a Financial and Single Audit if the entity receives more than $500,000 in Federal funds. Most entities use a standard format for preparing the required CAFR and the information is accumulated at a very high level which actually makes it difficult for a typical reader to obtain a meaningful understanding of the actual financial dealings of the reporting entity.
In addition, the CAFR is simply required to fairly represent the financial statements and related notes of the entity in all material respects. Materiality does not have a specific threshold, but often 10% of revenues, expenditures or fund balance is considered a reasonable measure. That means that the 2012 CAFR could be misstated by millions or tens of millions of dollars and the auditors would not consider that a material misstatement.
Most auditors would propose adjustments for any significant amounts discovered during the audit, but the auditors’ tests are designed to only detect material errors. It is also important to note that the auditors make no claim as to the fiscal management of the District or whether budgeting or funding decisions made by the Board or the District Administration are in the best interest of the constituents of the District, only that the transactions that have occurred in the past fiscal year are recorded properly in all material respects. The GFOA Certificate of Achievement is an award for which an entity must apply and pay.
The application is not long or difficult ( http://www.gfoa.org/downloads/CERTAPP.pdf) and being a previous year recipient makes it easier to obtain the award in subsequent years. Many governmental entities receive this certificate. In fact, DCSD has received the GFOA Certificate since the fiscal year ended June 30, 2005 without exception through the current audited statements (this is as far back as the information is available on the financial transparency page of the DCSD website).
Interestingly enough, the District did exceptionally well in its audits for the fiscal years ended June 30, 2006, 2007, 2008 and 2009. The compliance reports for these years report no significant or material deficiencies or questioned costs discovered during the audit. However, beginning in the year ended June 30, 2010 (the first fiscal year that Bonnie Betz was the CFO responsible for preparing the CAFR and monitoring internal controls) and through the most current audited fiscal year end June 30, 2012, the District has had both significant and material deficiencies and questioned costs reported by the auditors for both the Financial and Single (Federal funds) Audits.
In the 2010-2011 fiscal year, the auditors noted that “The District did not provide evidence that they are able to prepare an accurate set of financial statements.” (2011 CAFR Page 139). This was a significant deficiency that required the audit firm to help compile the information that was presented in the CAFR. In fact, the auditor reporting to the Board of Education in that year stated that they had to make 14 audit adjustments with a net effect of a $4 million decrease to fund balance. The most concerning part of this statement is that this was the net effect, which could mean that individual adjustments could have ranged from the millions to tens of millions of dollars.
The Board did not ask questions or even respond to this very significant finding in its acknowledgement of the auditor’s presentation during a public Board meeting. Significant deficiencies have been noted in all three years that Bonnie Betz has overseen the preparation of the CAFR and both material and significant deficiencies have been noted in the most recent audit report for fiscal year 2012 (2012 CAFR Page 149). A material deficiency is defined as follows in the Independent Auditor’s Report (2012 CAFR Page 145): “A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis.”
In essence, this means that conditions exist that would allow DCSD to improperly spend or inaccurately record significant taxpayer funds for which they are fiscally responsibility. This point alone should help all of us understand that the GFOA Certificate of Excellence in Financial Reporting is really just a piece of paper and in no way signifies that the DCSD financial transactions are accurate, meaningful or transparent. One would expect more from a Board that likes to tout its fiscal responsibility and transparency and from a Superintendent and CFO who are very highly compensated compared to their peers in the state and country.
Let me re-emphasize that the CAFRs prepared in the years prior to the current administration’s arrival received the GFOA Certificate of Excellence AND had no reportable deficiencies of any type. Since Bonnie Betz began her tenure as CFO and the current seven member Board of Education has been responsible for overseeing the fiscal activity and transparency of the District, the auditors have identified significant and material deficiencies that should concern the citizens of Douglas County. The reviewers that increased the DCSD transparency grade from a “D” to an “A-“ must have missed these issues. Simply providing links to information on a website does not constitute transparency. It is also important to understand that requests for more specific financial information that would help parents, students, teachers and community members better understand the funding and spending practices of DCSD are often denied, resulting in requests under the Colorado Open Records Act (CORA). Even these requests are met with resistance and sometimes denied or ignored completely. In the occasion that a response is given, the information is often redacted before it is provided to the requestor. These edits often eliminate the very information that is being requested from a report or transaction. This approach to open records certainly is not indicative of true transparency. It makes one wonder what the District has to hide. Why would the transactions of a public entity supported by taxpayer dollars and tasked with educating our children need to be protected or hidden? DCSD administrators should not accept or distribute funds if they are worried about how the transactions will be perceived by their constituents.
As stewards of our taxpayer dollars, all transactions should be readily available for review by the public of Douglas County. Hopefully it is now obvious why many of us who understand the financial circumstances of the DCSD cringe every time the Board or the administration misleads taxpayers about their fiscal responsibility and transparency. Stewardship of taxpayer dollars has decreased under the current administration. Don’t let them fool you anymore. Our children and community are suffering while this Board spends hundreds of thousands of dollars for commercials and mailers to convince you that everything is good.
The current administration has amassed over $80 million dollars in fund balance while our students sit in crowded classrooms, our staff lack proper training and development, the technology in our schools is outdated by four to six years and our high school students are roaming the streets rather than receiving the education that they need and deserve in a public educational system. There is much more to discuss related to huge budget variances and a compounding increase in fund balance. This Board continually boasts about being good stewards of your public dollars, but they are neglecting the very purpose for which they were elected – effectively educating all children who are the future of our community and nation.
These students will never get these educational years back. And if the funds really are not necessary to effectively educate our children, why are they being accumulated in the District’s coffers rather than being returned to the taxpayers? This Board and administration are not properly educating our youth and everything is not good!