Legislative Audit, Education Institutions Subcommittee
August 18, 2022
S. Berry … [Video unavailable prior to this point]… Motion and second. All those in favor of the motion, say aye. Opposed. Motion carried. Okay. Review of reports. And Miss Tilley will be sharing those with us, and you may proceed.
Tilley Thank you, Mr. Chair. Good afternoon. Today we have 35 educational reports for fiscal year 2021 to review. Of those 35 reports, there are three reports with findings with one being referred to a prosecuting attorney. We’ll begin today with the report that was referred to the prosecuting attorney. National Park College for fiscal year ending June 30, 2021. Finding number one: The college has policies and procedures to properly record and classify transactions in the financial statements. However, a material misstatement in the financial statements was detected during the audit. This misstatement had no effect on the college’s reported total net position at June 30, 2021, and the financial statements, they were subsequently corrected by the college during our audit fieldwork. The key errors included on the comparative statement of revenues, expenses and changes in net position, student tuition and fees and scholarships and fellowships were overstated by approximately $790,000, due to the recording of an incorrect amount for scholarship allowance. A similar finding was reported in the previous two audits. And on the comparative statement of net position, investment in capital assets net of related debt was overstated by approximately $217,000. The second finding for National Park College: The college discovered that a check dated in March of 2021 and totaling approximately $3,800 was mailed to an out-of-state vendor and subsequently altered and cashed by a third party in April of 2021. And as of the report date, the college had not been reimbursed by the bank and this matter was being investigated by the United States Postal Service. And that concludes the findings for National Park College.
S. Berry Okay. Committee, if you don’t mind, we have representation from the college if they would like to share some comments with us. Go to the end of the table, and, and it might answer some of the questions we may have for them. If you would identify yourself, both of you, for the record and then you may proceed. If you– do you have your button–
Embry Oh, okay.
S. Berry There you go.
Embry My name is Kelly Embry, and I’m the vice president for administration and chief financial officer for National Park College.
S. Berry Okay.
Pennington My name is Andrew Pennington, and I am the controller for National Park College.
S. Berry Okay. Welcome, both of you. Do you have some comments you’d like to share with the committee?
Embry Well, we’ll just share part of our response. I do want to preface it with, I’ve been in my role as Chief Financial Officer since May of this year, and Andrew’s been here about seven weeks now. So I just want to, I want to clarify that before we move on. So neither of us were actually involved in this part. However, we take these things very seriously. So as we’ve noted, we’ve looked at the error, especially the one that was a repeat and tried to figure out how that happened. And as part of our response to that, we have added a financial statement preparation checklist to ensure these errors don’t occur again. Let’s see, what else? So that’s the primary thing for the first finding. And then regarding the check, I think I’ll let Andrew speak to that. He’s been the one working more closely on that piece of it.
S. Berry Okay.
Pennington Well, I guess the key factors here is there’s no change since the audit. We, we have not heard from the United States Postal Service regarding it. It was out of state. I’m not going to speak to the past, but I can know in the future there’s actually different processes. We go in to make sure that, first of all, that this check actually went to the vendor and then this happened. We’re working on automating the process so that it’s not sending a check directly to their bank. So it’s a bank to bank interaction to avoid this from ever happening in the future.
S. Berry Okay. Mrs. Chesterfield, you’re recognized.
Chesterfield Thank you, Mr. Chair, and thank you both for being here. It’s a unique situation, isn’t it? What I’m concerned about is why Regions said it could not reimburse you. Because we’ve seen instances like that where a mistake is made and sometimes the bank is able to reimburse the institution. Could you tell me why they said they couldn’t?
Pennington I can’t tell you exactly why they said they couldn’t. I know the case is that it did go to the vendor. The vendor received it. So that’s the problem. Our bank is not at fault for it. And honestly, neither were we, in, in my opinion. But they did resolve the issue by paying the vendor back. So all we can do now is try to collect as our role as being new in the roles.
Chesterfield Were you able to identify the person that made this shaky?
Pennington It’s still being investigated. I couldn’t tell you.
Embry I think, if I remember correctly– Bruce Hankins used to be our controller and chief financial officer– and I believe he said that it was an employee of the vendor that confiscated the check, I guess, and washed it and then reissued it to themselves.
Chesterfield And so the prosecuting attorney is following up on this, or is this from the past?
Pennington It’s, it’s, it’s– I mean, this is from 2021 audit. So this would have been from last year.
Chesterfield Thank you, Mr. Chair, and congratulations on your new roles.
Embry Thank you.
Pennington Thank you.
Chesterfield We look forward to not seeing you here again.
Embry We look forward to that, too.
S. Berry Okay. Okay. Any further questions? Miss McKenzie.
McKenzie Thank you, Mr. Chair. On the finding number one, what am I missing here? What, what is the crime that’s been turned over to the prosecuting attorney? Was somebody enriched? It says misstatement and errors.
Pennington That’s finding number two.
McKenzie I thought on number one, it had been referred to the prosecuting attorney.
S. Berry Representative, we may– Miss Tilley, do you– she may be able to explain.
Tilley And so, I think that’s just the heading of this report. So it’s the second finding was the matter that was referred–
McKenzie That makes sense. I thought, Where is the crime? Thank you.
Tilley My apologies.
S. Berry Okay. Any further questions? Thank you for coming. And committee, I have a motion to file and second. All those in favor of motion, say aye. Opposed. Motion carried. Thank you for coming.
Embry Thank you very much.
S. Berry And for your comments. Miss Tilley, you’re recognized.
Tilley The next two reports were audits with findings. However, these findings, they were not repeat findings, nor were they referred to a prosecuting attorney. We begin with Gravette School District. Our first finding: During our examination of expenditures, we identified a duplicate reclassifying journal entry resulting in unallowable costs totaling approximately $38,000 that were paid from the COVID 19 Education Stabilization Fund. Our second finding: During our examination of expenditures, we identified a facilities improvement purchase and five equipment purchases in which the district did not obtain prior written approval. These purchases had a cost of approximately $74,000. Then continuing on with Gravette, finding number three. A test of disbursements revealed 25 equipment items purchased with a cost greater than $1,000 each were not recorded in the district’s equipment subsidiary ledger. The total cost of the equipment was approximately $54,000. And our last finding on Gravette: In our examination of bank reconciliations, we noted various issues with timeliness and variances. I don’t think I’m going to read each individual variance that we identified. However, it’s listed under finding number four in the synopsis if you have any questions on those. And that concludes the findings for Gravette School District.
S. Berry Do we have anyone here from Gravette school district? Okay. You’re recognized, Miss Chesterfield.
Chesterfield Thank you, Mr. Chair. In looking at the response to number two, it gives me a little angst because the district notes that ESSER-related compliance checks have been primarily driven by the state. No formal mechanism was in place. And yet we do know that you have to have prior authorization in some instances in order to to make purchases, that kind of thing. Did you find that responsive to what you were saying?
Tilley I think, maybe, maybe to an extent. With the Covid federal regulations, anything over $5,000 has to seek written prior approval from DESE or the pass through entity, which would be–
Chesterfield And that’s not new is it?
Tilley Correct. That is, that is not new.
Chesterfield So anybody who has been in the school business for a minute knows that if you’re going to spend money that’s over $5,000, you have to get proper approval. And so I guess that’s why the response to number two is troublesome to me. Thank you, Mr. Chair.
unknown Mr. Chair, we have Greg back there. I think he’s just anxious to get up here. Can we bring him to the table?
S. Berry Sure.
unknown Maybe address the senators question?
S. Berry Sure. Just identify yourself for the record and proceed.
Rogers Thank you. Yes. Greg Rogers, Department of Education. So when the– as you know, there were three pots of ESSER funds that were given out. In the first round of the Esser Funds, there wasn’t the requirement of construction projects to be pre-approved from the department. The first round, that was where school districts could use those funds for what they needed to safely reopen their schools or continue operations of their schools. And so in between that first round and the second round– in the second round, the ESSER requirements were for construction projects for the school district to get prior approval from the department. So as you know, all the ESSER funds rules kind of keep changing as the funds go out. So in between that first pot and the second pot, Gravette was spending that money on there. So there wasn’t prior approval. But they did send that in to us to get the prior approval once the feds changed the requirements that they had to give it. So that’s why the finding was there. Because when they spent it, they didn’t have it, although they should have. But the guidance hadn’t been changed at that point. It’s ESSER funds. Not enjoying them.
Chesterfield Follow up, Mr. Chair. So when they spent it, they didn’t have it.
Chesterfield How are you going to spend something you don’t have, Greg?
Rogers But that was because it was ESSER one funds, which it wasn’t real clear at that point that they had to have. It was the ESSER two pot that came out that they had– that for sure had to have the fund– the prior approval. And so.
Chesterfield You see why I smile every time I see you.
Rogers These, these funds have been– they’ve been changed. As we know, they, they’ve been changing where they’re allowable for a couple of times now.
Chesterfield So during this particular period, they didn’t have to seek the $5,000 prior approval from the state?
Chesterfield Because they spent some money that wasn’t there?
Rogers They spent their money on a project that had– later on had to have prior approval.
Chesterfield I see. So y’all changed the rules. Y’all did the Lucy on them. You snatched the football.
Rogers Wasn’t me changing the rules. I’m just trying to catch them like the rest of us.
Chesterfield All right, Greg. It’s about as clear as mud, but thanks.
Rogers And that’s how the ESSER funds have been. But it was–
Chesterfield In looking at the audit report– and I’m not going to belabor this because it’s our last one and people beat me up for keeping us too long– in the audit report itself, did it take note of the fact that that was not a requirement and therefore perhaps should not have been a finding? Am I making sense to you?
Tilley I think so.
Chesterfield I’m trying to be a lot more clear than Greg was.
Tilley I don’t know that we actually have that documented in the finding. However, part of that finding also includes not just construction, but it includes some custodial equipment which would have required prior approval. A little bit different, I believe, than the process that Mr. Rogers was–
Chesterfield Thank you, Mr. Chair.
S. Berry Mr. Meeks, you’re recognized.
Meeks So I have a question for the, for staff here, and we’ll see how it plays out. So in finding number four, and you’ve got the list of stuff. Second one from the bottom says an insufficient fund check of 511 was not posted. So does that mean they were charged $511 for not having sufficient funds or was it the $511 check that bounced? Do we know? And that would then beg my next question of, did this school run out of money and not have money in the account to pay its bills?
Tilley I can, I can double check on that. But I believe– it’s not that the school didn’t have the money. I believe that was an insufficient check that came through a deposit as a, as a returned check. I can follow up and verify on that.
Meeks Yeah, if you don’t mind. I just want to make sure that the school didn’t run out of money because that would be a huge red flag to, I think, everybody on this committee.
Tilley No, I don’t believe so. But I will follow up 100%.
Meeks Okay. Thank you.
S. Berry Miss Mayberry, you’re recognized.
Mayberry Thank you. This is really more of a question for staff as well. Just help us, in general, understand, because we’ve had lots of questions come up in other meetings here at the Capitol about how ESSER funds are being used. So can you kind of help us understand how much when you all are auditing, how much you’re looking at those ESSER funds and how they’ve been used? And, you know, help us kind of understand what your role is in assuring that those funds are being used in the right way. Does that make sense?
Tilley Yes. So when we do– and I might have to get Mr. Rogers to help me here– but also, so when we look at our expenditures, we do expenditures testing and we compare those– we do a sample of expenditures, and we will compare that against what’s considered allowable, which is communication that has come from DESE. And then we also, we will look at equipment purchases, we will look at payroll expenditures, and take all of those types of expenditures and verify them against the documents that are out there, either from the feds or that have come through our pass through entity through DESE to verify it truly is considered an allowable expenditure. Does that, does that kind of help you a little?
S. Berry Any other questions? Mr. Gilmore.
Gilmore Thank you, Mr. Chair. I’m just looking at here. Two different findings. So finding two states that there were five equipment purchases, total cost $74,238. Finding three, dispersed revealed 25 equipment items purchased, cost greater than a thousand each, were not recorded, total costs $54,327. So that’s a lot of money on equipment. What were they buying?
Tilley So the find– I’ll start with, so findings two and three do kind of overlap and that difference between the two is there was a energy recovery ventilator that did not receive prior proper approval. So it’s included in finding two. However, it was included on their equipment subsidiary ledgers. So that’s why it’s not included in finding number three. But on the $54,000, I believe that included some technology equipment, some tablets, as well as, I believe, some technology equipment for their busses as well. I can get you a detailed list of that, but it’s just general technology equipment.
Gilmore Okay, that’s helpful. I just was curious if, if it’s not recorded. I’m assuming they’re keeping track of it in other ways, maybe.
Tilley Yes. And they would have added those to their fixed asset– or the capital asset system after we identified it in the audit for tracking.
Gilmore Yeah. Just I understand, having been on this committee for a little while, I understand how things can come up missing. So I would hate for them to lose any one of those expensive items.
Tilley And we will follow up on our prior year findings next year to verify.
S. Berry Any other questions? Without objection, I’m entertaining a motion to file the report. Motion. Second? Second. All those in favor of the motion, say aye. Opposed? Motion carries. Miss Tilley.
Tilley Our last report for today, the South Central Service Cooperative. Cooperative payroll errors resulted in three employees being overpaid $600 each. Subsequently, the cooperative requested reimbursement and repayment agreements have been signed. And this concludes the findings for South Central Service Cooperative.
S. Berry Any questions? If not, without objection, I’ll entertain a motion to file the report. Motion is made. And second. All those in favor of the motion, say aye. Opposed? Motion carried. Okay. I think we have a list of how many were on here.
Tilley Yes. The remaining 32 reports that are on page four of the synopsis consist of audits with no findings. Staff recommends these reports be filed en mass.
S. Berry We’ll bulk all of these together. Take a second and look them over. If you don’t have any questions, then we’ll entertain a motion to file these reports. Motion made. And second. All those in favor of the motion, say aye. Opposed? Motion carried. Miss Tilley, that concludes the business. Does the committee have anything they’d like to share? If not, this meeting is adjourned. Thank you for coming.