By Erica L. Green, The Baltimore Sun
3:35 PM EDT, October 6, 2012
The Baltimore school system spent more than $2.8 million on overtime in fiscal 2010, even though it was doubtful that employees worked all of the hours for which they were paid.
Three employees earned a combined $250,000 in salaries while working for both the school system and a state agency during the same hours.
And the school system failed to collect nearly $1.5 million in debt dating to 2009, including $336,000 in bonuses paid to employees who hadn't earned them.
These are among dozens of findings outlined in a preliminary draft of an independent financial audit of the school system. The auditor says that the report is not final and the findings could be changed or resolved, though school officials have acknowledged many of the lapses in responses to the auditor.
The auditors also found financial oversight to be so inadequate that officials paid millions of dollars in contracted work that wasn't verified, lost 1,400 computers and allowed dozens of employees access to adjusting payroll even though it wasn't required for their jobs.
The preliminary report by the Office of Legislative Audits, the state legislature's research arm, was obtained by The Baltimore Sun. The audit primarily reflects fiscal year 2010 and is the first to be completed during the administration of city schools CEO Andrés Alonso. Its release comes as the schools chief has sought additional state funding from the General Assembly while repeatedly defending the cash-strapped system's fiscal responsibility.
Since January, city school officials have come under fire for a series of expenses, including about $65 million paid out as part of liberal accrued-leave policies during Alonso's administration, $500,000 in credit card charges by administrators that included expensive dinners and extensive travel, and the $250,000 renovation of an executive suite that occurred as the school system lobbied state lawmakers for millions to overhaul dilapidated school facilities.
City school officials said in their response that they were developing new policies and system improvements even as the audit was being conducted, particularly regarding payroll — the largest expense that auditors found to be the most vulnerable to problems.
In an interview, school system spokeswoman Edie House-Foster said the school system doesn't have permission to discuss the findings before they are released publicly.
"We see the audit as helping us to get better, and when the [Office of Legislative Audits] releases their findings, we would be happy to talk," she said.
Among the findings outlined in the draft document obtained by The Sun:
•The system could not substantiate the bulk of overtime payments — which totaled $2.8 million during fiscal year 2010 — with any records of hours worked or supervisor approval. Additionally, the system overpaid overtime by $206,000 to some employees, at a rate 9 percent higher than they were entitled to under the union contract.
•The system's payouts of $10 million that fiscal year to employees for unused sick and vacation time when they leave were found to be "excessively generous" and nearly four times higher than in other large school districts. Auditors found that the system paid four employees for 201 more vacation days than they were entitled to under union contracts.
•City school officials could not justify several salary adjustments. In one case, the city school board ordered a demotion and pay cut of $36,000 for an unnamed administrator in 2008 that never occurred, resulting in an overpayment of $100,000 through May 2011. Auditors also found that dozens of teachers and administrators were earning more than their pay grade or retained their higher salaries after being demoted.
•School board oversight was lacking, particularly in its ethics and financial disclosure policies. Auditors found several instances of conflicts of interests. The system paid one employee for both part-time work in the central office and nearly $34,000 as a contractual vendor for instructional services. The employee owned the vendor business — and had the authority to approve purchases in the school system's automated procurement system.
In addition, 105 school system employees had home addresses that matched the addresses of vendors hired for instruction, special education and consulting services. A review of eight procurement payments showed that seven went to vendors who were also system employees.
•The district failed to collect $3.9 million in unpaid bills, including 216 debts totaling $1.5 million that were never referred to a collection agency; 45 of those past-due accounts included $336,000 in bonuses that former employees were supposed to repay because they left the system before earning the payments.
•Oversight of contracts and procurement was lacking. For example, auditors found that the system continued to pay a contract for special education instruction that expired in 2008 and was never renewed by the school board, for a total of $6.9 million through June 2010. The audit doesn't specify whether any work was done after the contract expired.
•The system failed to verify bills submitted by school bus contractors. A review of monthly invoices showed that contractors billed for driving time and mileage totaling nearly $350,000, using the exact same hours and minutes for about 50 buses every month. And, in one instance, a contractor bus aide reported that no students were transported for two days due to a water main break, but the company still billed the system $327 for each day.
Tom J. Barnickel III, the state's acting legislative auditor, said the report obtained by The Sun consisted of "preliminary findings that we end up presenting for discussion purposes to the school system. Not everything could end up final because they might have explanation for things or provide documentation that would basically cause the finding to go away."
He declined to comment further.
Though city school officials declined to answer questions about the audit, they were required to submit responses to the authors of the audit. Many of those responses are in the report obtained by The Sun.
City school officials agreed with some of the auditors' findings. They acknowledged problems with overtime, an issue that drew blunt criticism from auditors. At one point, auditors concluded that as a result of a lack of internal controls, "doubt exists that employees actually worked all the overtime hours for which they were paid."
"It is clear that the area of payroll, and overtime approval in particular, require significant clarification and oversight," school officials wrote in their response to the finding.
But school officials said it was unclear whether the system would be able to recover the overpayment of overtime to members of one union, because they had been paid under a "verbal commitment" made when the system's payroll was managed by city government.
By April of this year, the system also said it would begin to generate a quarterly audit report of all salary changes to ensure that they are legitimate. Already, district officials have limited computer access to payroll functions and employees' personal information.
In addition to other problems, auditors found that a number of employees had the ability to manually change pay without verification and that nearly $5 million in pay increases were made with no documentation or independent verification. And two employees had questionable access to the system's check-printing machine.
School officials disagreed with some of the auditors' report. They contested the finding that the school system never reduced the salary of one employee even though the school board ordered it. The system called it a "complex issue" related to bargaining agreements, but said that it would begin to apply its policies consistently.
The district also attributed other salary adjustments to union contract requirements. But while the administrators' union contract allowed demoted employees to retain their salary through the duration of the year, the auditors found that many retained higher salaries for up to two years.
As recently as August, the city school board has shored up its oversight, passing a revised ethics and financial-disclosure policy that reflects new state standards. Auditors called the system's previous policy "insufficient." The school board also appointed a new ethics panel in July; auditors said that should have been done in 2010.
Among the conflicts uncovered by auditors, three school system employees also earned paychecks from state agencies, one for the Maryland State Department of Education and two for Coppin State University. They collected a total of $243,000 from their dual employment in fiscal year 2009.
City school officials said in their audit response that they would investigate and that "appropriate recovery will be dependent upon the results of the investigation." Coppin State spokeswoman Tiffany Jones said that the issue was investigated and resolved.
The report also says the school system implemented several new systems and protocols to address problems regarding contracts, purchasing and transportation.
In addition, the system vowed to go after millions of dollars in revenue it has failed to collect.
Among the debts for which it is now seeking repayment: $445,000 in salary and benefits paid to employees while they were on a leave of absence to work for outside organizations, such as unions, and $154,000 in tuition reimbursements from former employees who resigned.
School officials said they would also begin to enforce the system's policy to withhold final paychecks and accrued-leave pay owed to departing employees until they return their assigned take-home computers.
The audit was conducted as a mandate under state law, which since 2004 has required the nonpartisan agency to complete comprehensive reviews of the financial management practices of all 24 Maryland school systems every six years.
The law was spurred, in part, by a series of financial missteps in Baltimore City and Prince George's County, including a $58 million deficit that nearly crippled the city system in 2004.
Among the findings in the system's 2004 audit, state officials noted similar issues, finding that oversight was so lax that officials sent checks to dead employees, overpaid employees thousands of dollars with no attempt to recover the money, let employees take sick time they hadn't earned, forced no one to file an ethics form, and paid bills submitted for the transportation of students on days they were absent from school.
Preliminary audit findings
Among the findings in the preliminary audit of the Baltimore school system obtained by The Baltimore Sun:
The system could not substantiate the bulk of overtime payments — which totaled $2.8 million during fiscal 2010 — with any records of hours worked or supervisor approval. Additionally, the system overpaid overtime by $206,000 to some employees, at a rate 9 percent higher than they were entitled to under the union contract.
The district failed to collect $3.9 million in unpaid bills, including 216 debts totaling $1.5 million that were never referred to a collection agency; 45 of those past-due accounts included $336,000 in bonuses that former employees were supposed to repay because they left the system before earning the payments.
•The system paid one employee for both part-time work in the central office and nearly $34,000 as a contractual vendor for instructional services. The employee owned the vendor business — and had the authority to approve purchases in the school system's automated procurement system.