State Audit: Pottsville Schools Finance Management “Especially Alarming”

TLDR: Pennsylvania Auditor General Eugene DePasquale released a scathing 48-page report Thursday detailing gross financial mismanagement at Pottsville Area School District. The school also failed in maintaining proper maintenance records. And it only performed a fraction of required fire drills.

Pottsville Area School District Needs “Reality-Based” Budgets

State Auditor General Eugene DePasquale released a report detailing an audit his office conducted of Pottsville Area School District.

In a 48-page evisceration of the school’s administration and budget practices, the AG details how the school’s finances went from a general fund balance of $12.5 million in 2013 to (-$1.2 million) just five years later. DePasquale called that fact “especially alarming” in a statement accompanying his audit report.

Because of the dire situation at Pottsville Area, DePasquale says the district is at risk of being placed in “Financial Watch” status. If that escalates, Pottsville could be placed in “Financial Recovery” status. That’s when we lose local control of the school’s decisions and an outside recovery officer is appointed to manage the school’s finances.

The audit of Pottsville Area included the timeframe from July 1, 2013 through June 30, 2017.

“School district officials need to better manage the district’s finances to ensure that students are getting the best possible education,” DePasquale says.

Almost No Financial Planning at Pottsville Area

In the audit, DePasquale determined Pottsville Area school officials, including administrators and school board members, conducted no financial planning. The report found the school didn’t conduct a multi-year budget. It also failed to address the following changing costs:

• Teacher and staff retirements
• Healthcare costs for school employees
• Charter school costs

If that’s not bad enough, the AG determined these other factors contributed to Pottsville Area’s current awful financial state:

• The court settlement with former business manager Stephen Curran that cost the district more than $200,000 in total costs.
• Failing to maintain proper transportation records that led to an under-reimbursement from the state.

And on top of all that, Pottsville Area also failed to conduct the required number of fire drills during a school term. The topper on that is that for 4 of these required drills, the school said it did them. However, DePasquale found that these 4 drills only included school officials going over the drill procedures with elementary school students.

“The school board and administration must adopt a reality-based approach to budgeting while making sure to correctly report student transportation data and not leave reimbursement money on the table,” DePasquale says.

AG DePasquale Audit of Pottsville Area School District

The full 48-page audit report goes into great detail on the bumbling of Pottsville Area School District officials and school board members. This financial mismanagement and lax effort toward proper record keeping and student safety is costing the school district dearly.

In a letter addressed to schools superintendent Jeffrey Zwiebel and school board president Karen Rismiller, DePasquale writes: “During our audit, we found significant instances of failing to apply best practices and non-compliance with the Public School Code and its associated regulations.”

Here’s a breakdown of the full report released Thursday. It’s long and detailed and shows how the school officials and board members at Pottsville Area tanked the school’s General Fund balance.

In the end, the school tries to pin most of the blame on its rising obligation to pay Gillingham Charter School. But earlier this week reported how Zwiebel essentially bragged that Pottsville doesn’t even know how much it pays annually to Gillingham. That’s because it’s never paid the school.

The Pottsville superintendent told The Philadelphia Inquirer that the school just lets the “state” take the money it believes it owes Gillingham.

Despite that excuse, which DePasquale’s report does acknowledge, the Auditor General found plenty of other alarming practices at Pottsville that likely contributed more to Pottsville’s current financial state.

The audit report makes 5 findings:

1. A cumulative operating deficit of $14.3 million over 5 years reduced the district’s general fund balance to (-$1.2) million.
2. The board-approved separation agreement with the former business manager cost Pottsville Area more than $200,000.
3. Pottsville Area got $21,175 less than it was owed in transportation funds from the state because it didn’t report accurate figures.
4. The school also failed to maintain proper transportation reimbursement records.
5. And Pottsville also failed to conduct routine and required fire drills at all 3 of its schools.

Poor Budgets Led to Operating Deficit

Pottsville Area essentially had little or no budgeting practices. It planned to spend money but never really had any idea if it was available to them.

“The district’s total expenditures exceeded total revenues for each year reviewed. It is particularly alarming that the district’s expenditures are largely operational and not the result of debt service payments or capital outlays,” the report reads.

AG DePasquale notes that the school didn’t raise property taxes — during this audit period — until the 2016-17 school year.

However, as you can see in this chart included in the report, the school spent more than it got in revenue in the years prior to raising taxes that year.

If the school district had raised property taxes every year between 2013 and 2016, it would not have seen such a fast drop in the General Fund. Of course, that’s how a Democrat would suggest the school balance its budget. Literally, tax and spend.

We think Pottsville could perhaps find ways to spend less money or spend money more wisely to avoid these issues.

In his report, DePasquale says a school should have two months of operating expenses in reserve.

But since Pottsville likely has little idea how much is spent on a monthly basis, it couldn’t possibly know how to save that amount.

Specifically, Pottsville misjudged how much local revenue it would get during the audit period. Check out this chart which shows how much the school actually got in local property tax revenue vs. how much local revenue it “budgeted” to get.

School Board Never Got, Never Asked for Monthly Expense Reports

The key to preparing a budget is knowing how much money is coming in and going out in a specified amount of time. It’s nearly impossible to create a budget without these numbers. But that’s what Pottsville does.

In the audit report, DePasquale notes that the Pottsville school board, from 2013-2018, “was not requiring the necessary financial information at monthly meeting to meet its fiduciary duties.”

Without this information, the school board members couldn’t know how much money was coming in and going out.

“The board did not receive a monthly budget to actual expenditures report and therefore was unaware of what was being spent,” the report adds.

It’s not until January 2018 that the school board members finally started getting these reports. Now, just think about all those times they told you they were being good stewards of your money. In reality, they had no idea what they were saying.

Audit Recommends …

DePasquale says that Pottsville must start using 5-year budget plans. That way it can spot trends and plan ahead. It should also demand that independent audits of the school’s finances and practices be submitted in a timely manner so the school can make informed decisions on revenues and budgets.

But wait … there’s more!

We’ll have more on the AG’s findings regarding the decision to settle a lawsuit with a former business manager that cost the district more than $200,000 as well as numerous problems in Pottsville’s transportation department and some mildly disturbing school safety issues raised by the auditor general.

Check back Friday for more details on this report. If you want to read it yourself, you can check it out here: https://www.paauditor.gov/Media/Default/Reports/schPottsvilleAreaSchoolDistrict090419.pdf