IPS audits: Ferebee is right on deficit, financial reporting deeply flawed

Separate audits confirmed today IPS Superintendent Lewis Ferebee was right when he told a stunned audience back in March that the district, which bemoaned its financial woes for years, in fact did not have the $30 million deficit it reported in 2013.

Two audits performed by the Indiana State Board of Accounts and the national urban school advocacy group Council on the Great City Schools both showed Ferebee was right that IPS finished 2013 with a $8.4 million surplus. Former district officials questioned his math after he revealed the nearly $40 million discrepancy.

Past administrations, Ferebee said at the time, had significantly over-budgeted for expenses including teachers, desegregation efforts, contract services and certified coaches.

But the auditors’ findings were not all reassuring: Troubling processes, which were not criminal, suggested widespread disorganization and mismanagement of IPS’s money for years.

The information, Ferebee said, would be used to redesign how the district operates so it can make a fresh start.

“It gives us an opportunity to be more transparent, and to employ auditing controls, monitoring controls that we haven’t had,” Ferebee told a gathering of reporters this morning. “Trust is huge. A lot of people just didn’t have faith or trust on what we were producing as our financial figures.”

That lack of faith in the district must be rebuilt, he said.

“I think it’s a positive in that we have an opportunity to be more strategic, more transparent and inclusive and agile in our resources,” he said.

Audits find serious problems

The State Board of Accounts, which did not immediately respond to a request for comment, said in a letter to IPS that it conducted its review by asking questions of current IPS staff members and reviewing reports and spreadsheets. The Council on Great City Schools’ audit lasted five days in late April and early May and involved reviewing more than 150 documents and interviewing nearly 20 IPS and state officials.

Among the concerns cited in the reports:

There was little control over how the district’s money was managed. The Council on Great City Schools noted “significant weaknesses” in the district’s processes, noting that the school board does not have an audit committee, there is no annual audit plan and that there are flaws with the district’s “internal auditor” position.

“The actual duties, responsibilities, and activities of the internal auditor are very limited in scope and typically do not entail auditing,” according to the Council’s report.

The Council also noted that it found the district’s system for overseeing hiring allwed unfunded positions to be added, its payroll system is error-prone, salaries were not capped in a way that protected against overpayment and people were performing duties that did not match their job descriptions.

Transparency was lacking. Over 20 percent of the district’s annual expenses, or $126 million, is in budgets that are not reported to the state or the school board on an annual basis but should be, one audit found.

“The district’s financial reporting lacks transparency at virtually every level,” according to the Council on Great City Schools report, which noted that even when the annual budget was presented to the school board for approval, it did not display actual balances.

The State Board of Accounts said it “did not see evidence” that reports comparing what was budgeted to what was spent were submitted to the board as late as 2013. Those reports have begun going to the board for the past several meetings.

Board members and the public have in past years been kept in the dark when it comes to the state of IPS’ finances, Ferebee said.

“Not much was shared with the community and not much was shared with our commissioners,” he said.

Key policies are missing. The audits found the district’s financial policies don’t cover critical issues, such as how much IPS should keep in its reserves, its rainy day fund, or for school construction. There is also no policy about the district carrying debt.

Despite criticism of IPS that is is top heavy with too many central office workers, the audits found several administrative offices are understaffed, including the internal audit staff, purchasing and the treasurer’s office.

Ferebee said the reports would lead to a series of recommendations. One of the first would be moving to a fiscal year that runs July 1 through June 30, rather than a calendar year. A budget that matches the school year would allow for better monitoring of spending, he said.

“I think some of the over-budgeting was a result of trying to protect reserves due to uncertainty with funding and revenues,” said Ferebee.

He also wants to improve on how the district manages its reserves and investments. IPS has about $60 million in cash reserves now that is sitting in largely non-interest bearing accounts.

“We don’t have current long term investments but that is something that we’ll explore,” Ferebee said.

‘The tide can turn quickly’

The audit findings may have confirmed IPS is more financially solvent than it first reported, but it doesn’t mean IPS is out of the woods.

“I can’t predict what the budget will be in 2016,” Ferebee said. “If we did not make some of the reductions that we made, if we did not realize some of the efficiencies we’ve had, we would be in a challenged financial state in the future.”

The timing of audits comes as IPS gears up for collective bargaining over its teachers’ salaries later this summer. Ferebee said the audits give a clearer understanding of where the district stands financially, which it needs to meet it goal of restructuring the way teachers are paid.

He also reminded people that the district’s $60 million in cash is not as large as it sounds for a district with a monthly payroll of about $20 million.

“I wouldn’t say the piggy bank is full,” Ferebee said. “You have to be very mindful that the tide can turn very quickly, and we need to be really smart about our reserves. We’re not sitting on stacks and stacks … of dollars.”