Federal audit fiasco mars Arapahoe schools’ success story

As academics improved at Fremont #38, the school district’s business side faltered. With poor bookkeeping and commingled funds in a single bank account, it missed crucial audit deadlines and attracted unwanted attention from Cheyenne. (Photo illustration by Erik Myers — click to enlarge)
By Ron Feemster
May 28, 2013

The schools in Arapahoe, a small town near Riverton on the Wind River Indian Reservation, have attracted national attention twice in the past 18 months.

First, Fremont County School District #38 turned around its struggling elementary school after more than five years of failing to make AYP, the “adequate yearly progress” standard mandated by the federal No Child Left Behind Act. The steep climb in reading and math scores earned favorable reviews by education experts from Cheyenne to Washington, D.C.

Jim Rose, interim director of the state department of education, hand-delivered this letter to Fremont #38 so that board members could ask about sanctions related to the missed audit deadline. (Click to enlarge)

But even as the academic turnaround program progressed faster than state or federal observers anticipated, the Arapahoe district foundered on lax bookkeeping and careless business practices. When it failed to complete a federal audit of the 2011-2012 school year on time, the state suspended its federal funding. The audit it finally submitted restored the funding stream, but it also revealed details of a business culture that may need significant changes to avoid future fiscal debacles.

“To my knowledge, no [other] Wyoming district has ever missed the federal deadline,” said David Holbrook, the federal programs division director at the state department of education. Some districts have missed state deadlines, however.

Every recipient of more than $500,000 in federal funding must complete the Office of Management and Budget’s A-133 audit within nine months of fiscal year end in order to remain eligible for funding. After the district missed the March 31 deadline, the Wyoming Department of Education (WDE) froze the district’s federal funding until the audit was completed. A satisfactory audit was turned in on May 24, nearly two months after the federal deadline.

“WDE was required to implement the sanctions,” said Holbrook. “We were lenient as long as we could be. If we didn’t take some action, we could have jeopardized the federal funds for all districts in the state.” The Department of Education is a pass-through agency that receives funding from the federal government and disburses it to the local districts.

The WDE restored funding for Fremont #38 after the audit was completed. And once the money began to flow again, the reaction of the district came off as “Hey, no big deal.”

“Our audit was fine,” said Chantell Denson, the new superintendent. “We missed a deadline and they froze our funding. We turned in the audit, and they unfroze the funds.”

Officials at the Department of Education, and auditors who worked on the project, did not take the missed audit or the disruption in federal funding lightly. They expressed grave concerns about the financial practices of the district. The state has reached out with offers to help.

Jim Rose, interim director of the state department of education, hopes the department and the district can work together to make lasting changes at Fremont #38. (Greg Nickerson/WyoFile — click to enlarge)

Interim Director of the Wyoming Department of Education, Jim Rose, traveled to Arapahoe at the end of April to hand-deliver a letter to the district board of education, explaining why the federal funding was suspended.

“I went there and met with the board,” Rose noted in a conversation with WyoFile on May 22, before the Department of Education had received the audit. “I felt they needed to be given an immediate opportunity to ask questions.”

In that lengthy district board meeting, which Rose described as “all over the place,” he suggested that the district board must take decisive action to remedy problems with accounting. In particular, the district had not reconciled the bank balances with the general ledger of the school district, which was the most important factor slowing the completion of the audit.

The current district business manager, Kenneth Smith, later told WyoFile that the discrepancies to be reconciled ranged into the tens of thousands of dollars.

How did it happen?

June Shakespeare, president of the Fremont #38 school board, assigned responsibility for the missed audit to district employees, including outgoing superintendent Jonathan Braack, who is widely credited with engineering the academic turnaround, and to the audit firm of Leo Riley and Co., which began the audit and did not complete it.

“We hire people to do the job,” Shakespeare said in a telephone interview last week. “We hired a superintendent and a business manager to do the job. We can’t make the people do their jobs. We hired an audit firm and they didn’t do the job.”

Rose said that he heard a similar explanation at his meeting with the board. He was firm, but seemingly gentle, in his response. “I told them I didn’t give the letter to the superintendent,” he said. “I gave the letter to the board. The board members are the ones who are openly accountable.”

Shakespeare said that the auditor from Leo Riley and Co., a Casper firm, quit and left the district without a CPA. Paul Stille, the firm’s auditor who originally accepted the job of auditing the district, tells a different story.

Kenneth Smith, the business manager at Fremont #38, said the unreconciled bank statements had discrepancies in the tens of thousands of dollars. (Ron Feemster/WyoFile — click to enlarge)

Stille said that he was hired by a former Fremont #38 business manager with whom he had worked at another school district in the past. At about the same time the district accepted Leo Riley and Co.’s bid for the A-133 audit, the business manager left the district for another job. Later, after Stille had made site visits and begun the fieldwork, the district asked Stille to help reconcile the bank balances in addition to doing the audit. He informed the district that he could not do so.

“I cannot reconcile the bank statements and do the audit because it violates my independence as an auditor,” Stille said.

Stille said he then received an email from the district that they were seeking a new audit firm. The district hired Lovelett, Skogen & Associates, P.C., a different firm from Casper, which completed the audit. That firm did not return repeated calls for comment.

Braack, who has since resigned and taken the superintendent post at Niobrara County School District #1 in Lusk, said his resignation agreement with the district limits what he can say. But he acknowledged that the change in accounting firms and the delay in reconciling the bank statements slowed the audit.

For Rose, who will soon be replaced by a permanent director of the Department of Education, the issue goes beyond short-term fixes prescribed by the audit. He wants the department to work with the district on long-term changes in their business culture.

“I didn’t receive a direct commitment from the board that, ‘we are willing to work with you and follow your lead,’” Rose said in a second interview on Monday. “But both the board and I agreed that this cannot be done in isolation. We [the Department of Education] have a role in assisting the board with addressing the challenges. But the board and the community must decide with us. It can’t be just decisions that are made in Cheyenne. We need to work together.”

Specific problems

The problems underlying the district’s A-133 audit resemble in some respects the issues that led to unsatisfactory audits for the Northern Arapaho tribe, which Wyoming Public Radio reported on last month. In particular, both the school district and the tribe have run into problems because they commingled federal money with other funds in the same bank accounts.

The district’s A-133 audit, especially the section beginning on page 52, details many specific issues the tribe must address to avoid fiscal troubles in the future.

Foremost among the issues was the district’s failure to “perform monthly bank reconciliations during the year,” which was difficult to sort out after the fact because the district maintained too few bank accounts. Smith, the business manager, said the district maintained one money-market account to receive funds from all sources, and one checking account, which was used to pay all bills including payroll.

The district also overstated the number of students in the district by 49, according to the audit, which resulted in overstating the amount of federal aid by almost $452,000.

A litany of smaller problems detailed in the audit paint a picture of a district that seemed overwhelmed by the minutiae of federal accounting but, at the same time, was unable to place some seemingly obvious controls on routine expenditures.

When paying employees out of funding from different federal programs, for example, the district must keep track of the “time and effort” spent on projects paid for by the different funding sources. In the judgment of the auditor, that was not reflected in the allocation of funds. The salary for one employee receiving money from such programs was “overstated on two payroll periods,” according to the auditor.

The pay rates of some employees who receive hourly wages were not documented. According to the audit, “22 out of 60 tested payroll transactions lacked documentation for the rate of pay. It was not possible to document hourly pay.” The auditor recommended that the district record the hourly pay rate of each worker in the worker’s personnel file and update it whenever the rate changed.

Before Chantell Denson became superintendent of Fremont #38, she made changes in curriculum and instruction that spurred a rapid academic turnaround. (Ron Feemster/WyoFile — click to enlarge)

This fall, the academic progress of the district is in familiar hands. Chantell Denson, the new superintendent, implemented the changes in curriculum and instruction that played a role in the academic improvement.

At the same time, the district will be among seven in the state’s 48 school districts that are receiving accreditation follow-up in the coming school year. Rose declined to go into the specifics about the extra scrutiny that any of the districts will receive, but he noted that with more than a dozen criteria in play “it’s probable that at the seven schools with follow-up, the issues may not be common to Arapahoe.”

Fremont #38 will be a marked district as the audit season approaches this fall. The same deadlines will come around again: November 15 for the Department of Audit and Dec. 15 for the Department of Education.

“If they miss those deadlines, we’ll be looking closely,” Holbrook said.

Correction: The original version of this article incorrectly gave the meaning of “AYP.” It is “adequate yearly progress.”

Financial Report for Fremont School District #38

Fremont School #38, CPA 2012 (PDF)

Fremont School #38, CPA 2012 (Text)
— Ron Feemster covers the Wind River Indian Reservation for WyoFile in addition to his duties as a general reporter. Feemster was a Visiting Professor of Journalism at the Indian Institute of Journalism & New Media in Bangalore, India, and previously taught journalism at Northwest College in Powell. He has reported for The New York Times, Associated Press, Newsday, NPR and others. Contact Ron at ron@wyofile.com.

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