The Alamance-Burlington school system’s financial audit for the 2023-24 fiscal year includes four “findings” and questioned costs incurred by the previous ABSS administration.
The audit and budget violations for the fiscal year that ended June 30, 2024 were outlined for school board members during their latest work session Tuesday afternoon.
The school system’s auditor, Dale Smith of the Anderson Smith & Wike accounting firm in Rockingham, said Tuesday that the budget violations in 2023-24 totaled about $3.2 million.
Those violations stemmed, in part, from expenditures within the general fund and the “other special revenue” fund (which includes such things as revenue from Medicaid and the NC Pre-K programs) that hadn’t been properly approved in advance by the school board.
“That would be a bit of a puzzle to try and figure out what got overspent,” Smith told the board Tuesday. “We didn’t run across anything that looked fraudulent…the school system budget is very dynamic.”
In general, the three main types of revenue (federal, state, and county) that ABSS and other public school systems receive aren’t distributed as single, lump-sum allotments, the auditor elaborated. “It’s not easy to design a budget [for a school system] like it would be in any other government entity,” Smith told the board.
A separate note within the audit, which appears under the heading of “Stewardship, compliance, and accountability,” shows that the school system’s expenditures exceeded revenues by $2.9 million in 2023-24.
Those expenses included: $432,135 in regular instructional services; $85,532 for operational support; $2.4 million in “non-programmed” charges; $17,978 in interest and fees for debt service; and another $258,978 in instructional services for special populations (such as students in the Exceptional Children’s program).
By comparison, Smith said that budget violations during the 2022-23 fiscal year had totaled about $4.3 million. “These directly contributed to the negative fund balance,” he told the board Tuesday afternoon. (See related story, this edition).
Three material weaknesses, one significant deficiency
The auditors discovered three violations of the state’s School Budget and Fiscal Control Act, as well as one violation of ABSS policy, based on a report of findings and questioned costs that Smith presented Tuesday.
The auditors found several instances in which a lack of timely recordkeeping and oversight of the budget resulted in ABSS exceeding the revenue it received for the 2023-24 fiscal year.
Two of the state budget violations were determined to have been a “material weakness,” as was a violation of an ABSS policy that governs contracts; a third violation of the state’s School Budget and Fiscal Control Act that occurred within the Child Nutrition fund was determined to have been a “significant deficiency.”
The state budget violations that the auditors deemed to be material weaknesses were:
- Failure to adopt a budget resolution and subsequent budget amendments before encumbering expenses, ultimately resulting in expenditures that exceeded revenues;
- Entering into contracts for mold remediation in the fall of 2023 without first obtaining and appropriating funds to cover the costs of the contracts.
The first state budget violation in 2023-24 – failure to adopt budget resolutions and subsequent budget amendments prior to encumbering expenses – resulted in ABSS budget going over its budget, as it also had during the previous, 2022-23 fiscal year.
The same violation appeared as the sole finding in the ABSS financial audit for 2022-23 that Smith had presented in November 2023, the auditor recalled during his presentation Tuesday.
Audit findings mirror the conclusions from earlier legislative investigation into ABSS finances
Most notably, the school system’s audit for 2023-24 reveals that the previous administration – under the leadership of then-superintendent Dr. Dain Butler – had improperly entered into contracts after toxic mold was discovered in 31 ABSS facilities just weeks before the 2023-24 school year was set to begin.
At the same time, those audit findings related to the $29.3 million in contracts for mold remediation, air quality testing, and dehumidifier rentals and purchases for 31 ABSS facilities reinforce the conclusions of an earlier, legislative investigation into the school system’s finances.
The earlier investigation was conducted during the spring of 2024 by the General Assembly’s Joint Legislative Commission on Governmental Operations (i.e., the “GovOps” commission) at the request of state senator Amy Galey. The commission’s findings were outlined in a four-page report issued on June 12, 2024.
The legislative commission concluded that ABSS had failed to comply with numerous state laws, including: a law requiring a competitive bidding process to be used; failure to first obtain the school board’s approval before entering into the contracts; failure to complete a pre-audit certification verifying that sufficient funds were available to cover the costs of the contracts; and failure to adopt a budget amendment to formally appropriate funding for the contracts.
The handling of mold contracts in the fall of 2023 also resulted in two separate findings – both deemed material weaknesses – in the audit for the 2023-24 fiscal year.
ABSS violated the state budget act by failing to first obtain school board approval before entering into the mold remediation contracts, the auditors concluded.
The auditors’ recalled in their report on the findings, “Several instances were noted of expenditures for which a purchase order [or contract] was not pre-audited by the finance officer until after the goods or services was received,” the report on that finding states. “One instance was noted of an expenditure…for which no purchase order was completed.
“In addition, it was noted that the Board of Education made a resolution request [to the county commissioners] in November 2023 for an additional appropriation of approximately $9 million to meet contractual obligations incurred during the mold remediation project. This resolution indicates that the mold remediation services were completed without [sufficient funds appropriated in the budget to pay for the contracts]…Goods and services were received for which the finance officer did not first properly perform the pre-audit function.
“Staff with purchasing responsibility did not submit purchase orders to the finance department for approval prior to initiating a purchase,” the auditors said in reference to the mold contracts that had violated both state law and ABSS policy. “Contracts were entered into for mold remediation without properly performing the pre-audit function to verify that sufficient unencumbered funds were available to pay for the contracted services.”
“We understand the emergency, urgent nature of that work,” Smith told the board, “but, again, if you have a policy in place, it should be adhered to.”
Accounting errors in Child Nutrition
The fourth finding – and third violation of the state School Budget and Fiscal Control Act – involved failing to properly reconcile food service (Child Nutrition) accounts – was deemed as a significant deficiency that meant important decisions “could have been made while relying upon inaccurate financial reporting.”
Failure to properly maintain ledgers for the Child Nutrition fund during the 2023-24 fiscal year resulted in the auditors having to go back and correct multiple journal entries in order to properly account for revenue received through the U.S. Department of Agriculture, based on a breakdown included with the 2023-24 audit.
For example, among the journal entries the auditors had to correct were: $214,670.32 to adjust deferred revenue to actual revenue at the end of the fiscal year; $221,505.72 in commodity revenue; and $136,402.13 in federal revenue for the ABSS summer feeding program, among other recording errors.
Another error documented within the audit itself notes that the Child Nutrition program received $925,274 in “donated commodities” through the state School Food Service Fund; rather than being properly recorded as revenue, it was recorded as an operating expense.
Another $46,585 in salaries for “administrative personnel” within the Child Nutrition department was paid from the state-funded portion of the budget, when it should have been paid from the Child Nutrition fund, as required by North Carolina school business rules.
School board members are scheduled to discuss the audit for the 2023-24 fiscal year at their next meeting in two weeks.
