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External School District Audit Lays Bulk of Blame on Former Finance Director


BRADENTON – External auditors investigating the Manatee County School District’s massive budget shortfall described a deeply flawed and error-prone budget process that they said paved the way for millions of dollars in budgeting mistakes. The forensic audit report did not reveal evidence of criminal misconduct within the scope of the external auditors’ investigation. The bulk of the blame for the lack of oversight and awareness was placed on the district’s former director of finance, Jim Drake, who retired last summer, prior to the problems being made public.

Navigant Consulting Inc. was brought in to conduct the forensic audit by the Tampa-based law firm Trenam Kempker, whom the board had engaged to oversee the external audit process following former superintendent Tim McGonegal's resignation in September of 2012. Navigant director Al Robinson, a former FBI agent who once headed the bureau’s Tampa office, went through a point by point presentation of each area his firm came to believe conspired to enable the blunders.

Robinson described a “flawed methodology” for developing the budget which resulted in the initial budget for compensation being inaccurate from the beginning of the 2011/12 year. According to Robinson, most of the technical problems began to occur when the district (on the advice of Drake) attempted to transition software programs within the line offered by their accounting firm, JD Edwards. When the new program failed, Drake implemented a system in which a mere Excel spreadsheet called the “salary projection worksheet” was used in place of the database for the budgeting of compensation and benefits (roughly 80 percent of the district’s budget). 

As a result of the audit, Navigant found that the worksheet was “labor intensive, prone to errors and essentially flawed.” The department also used a once a year “clean-up process” to zero out negative budget balances under the salary projection worksheet system. This was usually done in December, but was delayed to February in 2012, which Navigant felt also delayed the time before red flags went up.

Navigant also reported that many expenses that would typically be “added” to the uploaded budget under the district’s system had not been, or had been underreported, such as telephone expenses, overtime and substitutes, which had to be added last February. On the benefits side, entries for Social Security, worker’s comp and life insurance were also not made until the “mid-year cleanup,” adding more than $4 million to the budget at that time.

Navigant also said that the process in which the district routinely used the compensation account rather than the reserve account to make adjustments for budget shortfalls kept them from being discovered as quickly, since a decrease in reserve balance (which would have been reported to the board each month) would have sent up red flags.

Navigant found that Dr. McGonegal’s explanation of the budget shortfall was incorrect and that the roughly $700,000 in textbook expenses that McGonegal said had not been budgeted until it was added to the deficit in August of 2012, should have been only about half that number, the difference resulting from the district’s practice of rolling forward negative balances for schools into the next year’s budget, from which they would be subtracted. Navigant also found that McGonegal’s explanation regarding 58 teachers that were hired to comply with the class-size amendment, was only 36.

Navigant found that several ongoing programs were unfunded or underfunded, including Amer-I-Can, Manatee Virtual Instructional Program (MVIP) and eTech and that they had to be either amended by the board with general fund expenditures throughout the year, or zeroed out with such monies at the end of the year, again leading to millions in unprojected expenses. Another million dollars had to come from reserves at the end of the fiscal year to reconcile funding owed to MTI that had not been properly reconciled throughout the year.

Navigant reported that according to interviews, which included voluntary cooperation from Drake and McGonegal, they believed that the time line of discovering the problems was consistent with what the parties had previously reported, but cited only the interviews and emails they had read, along with the absence of proof otherwise.

Charles Harris, an attorney with Trenam Kembker, again reiterated that they discovered "no evidence of embezzlement or other criminal misconduct." Harris said they did not believe McGonegal "deliberately withheld information or otherwise manipulated the timing of information being released," adding that they did not find cause for seeking civil redress against any participants.

The audit painted a picture in which a haphazard process with little communication and almost no oversight allowed what should have been glaring errors to pass through multiple channels undiscovered, while also being kept from reports to the board by way of the general fund reserve status. Robinson continually emphasized the need for any budget to be constantly inspected and adjusted, rather than submitted and then just rectified once a year, and condemned the practice of allowing regular, reoccurring program expenses to routinely go unbudgeted. He acknowledged that Drake, who he said admitted in his interview that budgeting was “not a strong suit,” was not a “hands on” administrator as he understood McGonegal had been when he preceded Drake in the position before advancing to superintendent. However, he also said that their investigation concluded that McGonegal’s role in the budget was minimal once he ascended, relying almost completely on what he was told by others.

The scope and degree of inadequacy in the process that Navigant described would have seemed to clearly have been enough to cause even such thunderous errors, however, many of the board members and internal audit committee members seemed less than willing to chalk it up to a series of monumental mistakes acting in concert. Newly-elected board member Dave “Watchdog” Miner was clearly nonplussed by the auditing process, asking why interviewees were not sworn in, why transcripts were not taken and how, under those circumstances, was the public was to be satisfied with the report.

Board member Julie Aranibar, who had been a constant thorn in the side of McGonegal, was also less than satisfied. When the former superintendent would report figures from the spreadsheet during reports to the board, Aranibar would routinely point out how little the board had to go on other than an Excel document McGonegal was referring to, while chronically requesting more information prior to authorizing expenditures and usually being frustrated by a lack of fulfillment.

"What I see at first blush,” said Aranibar at Monday's presentation, “is a system that was budgeted by budget entries and a budget that managed by budget amendments.” Aranibar said that the board needs to be responsible for approving hires which were not up to the tasks of their job descriptions. “What I see hear is a big failure on our part.” 

Lynn Lineman of the internal audit committee, a banker by trade, felt that one missing factor towered over the others. “No one owned this budget,” said Lineman. “One thing I’ve learned is that if someone owns it, it’ll get watched over. Does someone own them now? It has to be an individual, not a department.”

Many members echoed calls for more consistent oversight communication. Board chair Karen Carpenter, who routinely joined Aranibar in calls for more documentation complained that too often decisions were being made about expenditures while the board was in the dark on budgeting errors, noting that they were voting on financial matters during two August meetings, in which they were told “everything was hunky dory.” Carpenter lamented the amount of “good work being done by hard-working teachers and students in the district,” only to be overshadowed by this crisis.

Where the district goes from here is unclear. Interim superintendent David Gayler expressed a strong interest in working with Navigant to coordinate the implementation of the firm's recommendations so that they can be in place in advance of the district’s new superintendent, who is expected to start in late spring (the search for a successor to McGonegal is currently underway with 28 applicants having applied by the January 9 deadline).

Many citizens had hoped to get more concrete answers from the report, though the limited scope and the reliance on volunteer interviews dimmed the chance that definitive answers to who knew what and when could be provided. For now, the finance department has at least scrapped their failed spreadsheet method and returned to an upgraded version of the database which preceded their ill-fated software change. What more the district will improve in terms of processes, in response to Navigant’s detailed analysis of the many breakdowns in communication, process and accountability which led to such an epic failure remains to be seen.

Click here to read the official report summary


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