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Audit of Gainesville schools results in $33M in adjustments

POSTED: June 24, 2008 5:00 a.m.

State audits of the Gainesville school system identified the same problem in 2005 and 2006 and resulted in accounting adjustments of more than $33 million over a two-year period.

The report of the Georgia Department of Audits and Accounts for the fiscal year ending June 30, 2006, revealed repeated problems in how the system accounted for long-term debt and capital lease activity.

The audit resulted in a $15.37 million adjustment to the financial statements for 2006. The adjustment was in the system’s debt balance and did not change the district’s cash position. In 2005, the adjustment was $18 million.

The audit report said that in both 2005 and 2006, the system "failed to comply with the requirements of the Georgia Department of Education regarding financial reporting."

"We had to make a huge journal entry," said Ben M. Riden Jr., deputy director of the education audit division of the state audit department. "Some of their revenue was not in the right fund. They had to transfer between funds to get their fund balances corrected by fund."

Riden called the discrepancy "significant to the financial statements."

Equally significant, according to Riden, was the system’s failure to maintain an accurate listing of capital assets,

including land, buildings and major equipment. "They did not calculate their accumulated depreciation correctly on some of their assets," he said. "They also did not maintain an adequate listing of their assets."

Riden said there was a variance between the list of capital assets provided to auditors and what was listed on the general ledger for those assets.

While the determination of what qualifies as a capital asset is up to the local board, Riden said generally items costing $5,000 to $10,000 or more are capitalized.

"We had a situation where the asset listing did not mirror what was listed on the general ledger," he said. "That was also a material weakness in a prior year."

The items were listed as "material weakness," the most serious level of adverse finding in a state audit. Less serious findings were categorized as a "reportable condition."

In the final audit, the state had to "qualify" its findings by excluding the school district’s assets.

"There was such an issue there with the assets, we could not tell what the final asset balance should be. They did not have a good listing of assets and accurate depreciation on those assets," Riden said.

On a related matter, the district was criticized for failing to list any construction in progress in the audited year.

"You can’t depreciate a building until it is finished, but you should have it capitalized for what it is worth in progress," he said.

Riden said the state was still awaiting information to determine if corrections have been made in asset management for the 2007 audit.

The school system was cited for failing to record an escrow account for a 2003 Qualified Zone Academy Bond, resulting in an audit adjustment of $143,816. The issuance costs for a 2005 bond were also not recorded on the general ledger, resulting in a $46,512 adjustment.

The audit also noted inadequate internal controls over principal accounts, the individual accounts maintained at schools. The audit cited the failure to separate the check writing and record keeping functions.

A total of five financial statement findings were noted, four of them were listed as "material weakness."

"If you see something in the audit report itself it is fairly significant, although it may not be ‘material,’" Riden said.

But the state audit does not measure the system’s performance compared to its proposed budget.

"A budget is a management tool," he said. "We don’t audit the information in the budget. We audit the actual numbers, which are expenditure numbers. How they prepare their budget is a management decision."

Riden said the state has not completed the 2007 audit of the system and had to stop the audit two weeks ago.

"We had to pull out to allow them (Gainesville) to complete some things," Riden said. "There were some things that needed to be completed before we complete our audit."

He said a team of auditors will return to Gainesville on Wednesday to complete the audit for the fiscal year ending June 30, 2007.

Riden estimated the final on site visit will take two to three weeks.

He said he has no indication at this point of the system’s financial standing at the end of last fiscal year.

"I don’t know if they are in deficit or not," he said. "We’ll have to wait on the final number. The numbers will tell the tale when we finalize the audit."

Riden said the school system personnel are working diligently to cooperate with his auditors. He said he has met personally with both Superintendent Steven Ballowe and finance director Janet Allison and indicates they are sincere in their desire to complete the process.

"Do I think the superintendent or the bookkeeper was intentionally doing anything? No, I don’t think anybody was intentionally doing anything wrong," he said.



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