Published on March 25th, 2014 | by Len Lazarick6
Prince George’s Schools: Auditors find millions in overpayments, inefficiencies, lack of controls
By Charlie Hayward
The Prince George’s County Public School System overpaid employees millions of dollars because of lax controls on payrolls and “sick-leave banks,” according to one of many repeat findings by legislative auditors.
The audit also found that hundreds of millions of dollars in equipment and expenses within the school system do not have proper oversight and safeguards. Among the findings: $200 million of equipment is not adequately protected against theft or loss by inventory tracking systems; regular physical inventory counts; and researching missing property.
And more than $100 million of bus transportation expenses are not adequately controlled because of unreliable routing software that isn’t fully used, as well as inefficient bus routes.
More than half of the findings –12 of 23 — in the scathing report by the Office of Legislative Audits are repeated from a previous audit, but still remain problems.
The Prince George’s school system, the 19th largest in the U.S., has the second largest enrollment in the state with over 125,000 students at 205 schools and a total operating budget of $1.6 billion, more than half from state funding.
OLA’s audit is part of a special group of expanded-scope audits of school districts begun in 2004 following a major increase in state aid to local schools passed in 2002. The previous audit report covered the period beginning July 1, 2003.
See MarylandReporter’s previous coverage of OLA’s expanded-scope audits of public schools.
The school system agreed with the audit’s findings and recommendations (except where noted below) and committed to take corrective action.
The audit criticized the “Before and After School Extended Learning Program” for inconsistent financial policies among participating schools. The program, which is financially independent from the school system, handles cash receipts and spending from 57 separate bank accounts, one for each participating school.
The audit reported that one program coordinator at each of these 57 locations has incompatible duties involving complete control over the process from start to finish, including enrolling kids, collecting fees ($3,000/year), performing financial tasks, and keeping attendance records. Much of the program’s cash receipts ($7.5 million in FY 2012) come from money orders.
In fact, the BASELP’s literature conveys a preference for money orders, even though payors don’t get copies of the cancelled checks after they clear. Program coordinators’ incompatible duties could enable them to commit fraud and conceal their actions (OLA did not, however, report any fraud.) Repeat finding.
PROCUREMENT AND DISBURSEMENTS
The school system spends money without always ensuring that invoices for utilities (heat, power, etc.), transportation maintenance, and cell-phone service are proper. Auditors found $34 million was spent for utilities, $6 million for transportation maintenance, and over $1 million for 1,600 cell phones; without verifying the invoices were proper and payments were due. Repeat finding.
OLA also reported that the system awarded $22 million of no-bid contracts during 2011-12 without justifying the lack of bidding. These awards circumvented PGPS’ procurement department, which should have approved these contracts before they were awarded. Repeat finding.
HUMAN RESOURCES, PAYROLL
The audit blamed lax internal control over payroll for causing millions of overpayments to employees that often can’t be recovered after overpayments are discovered. It found contract employees were paid for hours not worked, former employees paid after they stop working for the school system, employees that were paid when they were on unpaid leave, and duplicate payroll checks.
As of October 2012, employee overpayments totaled $1 million, of which $780,000 was referred to an outside collection agency. More than $1.4 of additional overpayments has been written off as uncollectible since 2008. Repeat finding.
The audit also found the school system’s five “sick-leave banks” had payments that greatly exceed the balances contributed to and available in the banks, leading to $2.4 million of unearned compensation paid to school system employees.
Auditors also reported that regular and overtime wages paid to bus drivers were not calculated under adequate time-clock controls. The audit found that about 35% of overtime wages it tested in a small sample were not supported.
Also, union rules dictate that any change to the routes of the 5,170 bus drivers after the beginning of the year cannot be used to reduce their wages. The audit found that because the school system did not document route changes, it cost 131,000 extra hours to operate buses, or at least $2.2 million in drivers’ wage increases. Repeat findings.
In addition, OLA reported PGPS makes leave payouts after employees terminate without an approved procedure for calculating daily pay rates. The method used differed from the usual pay calculation, leading to higher payouts. The audit found the higher payouts were about $327,000 per year. In response, the school system stated the payouts complied with the negotiated union contracts.
Lastly, the audit also found that the school system changes employee pay rates without documenting supervisor approvals. In a small sample, OLA found a 10% error rate resulting in $25,000 in overpayments. In addition, supervisors responsible for reviewing or approving hours could input and change payroll data, and then approve it. These duties are incompatible, and could lead to fraud, the audit stated. Also, OLA found employee time in the payroll system was often approved without any attempt to comply with the requirement for verifying timecard accuracy. Repeat finding.
The school system uses approximately $200 million of equipment in its operations, as of June 2012. OLA selected a small sample of FY 2012 equipment purchases and found that almost half (six of 14) had not been entered within PGPS’ inventory control systems. The audit also reported that the school system did not put property tags on 5,000 smaller equipment items that were more vulnerable to theft. Repeat finding.
OLA also reported that management of the Prince George’s public school system has not done a physical inventory to compare its equipment against its inventory records for at least six years. However, the school system’s internal audit department (which does not have primary responsibility) performed a small-scale physical inventory and found an average of $865,000 of missing equipment in each of the last two years. Repeat finding.
The audit found the school system has poor control over its employees’ access to financial systems. Auditors performed limited testing of employees’ system privileges and found dozens of employees with computer privileges enabling them to perpetrate and conceal unauthorized transactions. Repeat finding.
PGPS does not have a disaster recovery plan, which outlines procedures to recover and protect IT assets in the event of a disaster. Auditors also said that its computer networks are not adequately secured against malicious attacks. Repeat findings.
As the school system upgraded its infrastructure in 2006, it hired two energy-service contractors to more actively track energy conservation, and reduce energy costs. The contracts exceeded $100 million—the school system borrowed the money to pay for the upgrades. The contracts contained guarantees that PGPS would save $185 million over 15 years, provided the school system met certain contractual criteria, such as measuring savings.
OLA found that the school system did not assure the contracts specified deadlines for completing work. Further, even though work began six years ago, the school system has not established base-year energy usage to begin measuring savings and enforce contractors’ guarantees. In response to the audit, the school system stated contractors’ proposals specified how base energy consumption would be established and how cost savings would be measured. This is a minor mitigating factor since auditors believe the school system should set base standards, rather than the contractor.
Auditors also reported that PGPS paid energy contractors without knowing if equipment had actually been received and installed according to the contracts’ terms.
Lastly, the audit found energy contractors raised prices without explanation and PGPS paid more than its contracts required. Auditors sampled work done at three schools and found $230,000 paid that was not justified by the contracts. In response, PGPS stated it would evaluate whether pursuing refunds from the contractors would be cost effective.
The audit found the school system is not effectively monitoring and managing its bus routes to ensure its 1,146 buses are used efficiently. For example, data contained in computer software used for selecting optimal routing were not always reliable. And the school system generally does not use this software as intended.
Also, bus ridership data and actual route times are out of date and need to be brought current to improve current conditions: buses are only 48% full (according to a 2011 study.) The school system responded to the audit by saying it is beginning to use GPS data to better manage its routing efficiency. Repeat finding.
Auditors also reported that PGPS allows employees to access and use fuel-dispensing facilities that do not need or should not have such access. Auditors found that 13% of employees (72 of 573) with access to fuel facilities probably should not have it. But the audit did not find any abuse or theft of fuel.
Incentives to promote employee early retirements and save money haven’t been monitored to assure maximum savings. The audit found almost half the 370 employees receiving incentives to retire early were recalled by the school system before the end of the “prohibited period” (18 to 36 months) which substantially diluted the savings being realized by the program. The audit report didn’t define “prohibited period” and did not say if rehiring employees who were paid to retire was an abusive practice.
The audit also recommended that the school system should have an employee responsible for developing strategies for reducing risks associated with self-insuring automobile and general liability, property damage, workers’ compensation, theft, and other risks.
Lastly, the audit found that because the school system self-insures its health benefits, cost containment of health benefit costs should be improved. For example PGPS should audit health benefit claims to be sure they comply with PGPS health coverage’s. The audit also said the school system should follow up to make sure all dependents receiving benefits are eligible under the health plans’ terms.
Charlie Hayward recently retired after 30 years’ experience with performance, IT, and financial auditing of a wide variety of government programs and activities.