SPECIAL MEETING OF THE GARRETT COUNTY BOARD OF EDUCATION
Oakland, Maryland 21550
Tuesday, September 27, 2010
Part I - Call to Order
Dr. Donald Forrester, President, called the special meeting of the Board of Education to order at 6:00 p.m. Also in attendance were Mr. Thomas Carr, Vice President; Mr. James Raley; and Mrs. Charlotte Sebold; and Rodney Durst, associate members and Dr. Wendell Teets, Superintendent of Schools.
Part II – New Business
Mr. James Murray, CPA, of Rodeheaver & Associates, P.C., presented the financial report for the period ending June 30, 2010. He was assisted by Mr. Daniel Porter, CPA, manager of the Board of Education audit, and Tracy Teets, CPA, who assisted with the audit. Also in attendance were Mr. Ervin Fink, Executive Director of Administration; Keith Harvey, Director of Human Resources; and Ms. Judy Travis, Finance Coordinator.
Mr. Murray reviewed a letter to the Board of Education dated September 27, 2010. He explained that professional standards require that this information be provided addressing their responsibility under generally accepted auditing standards, Government Auditing Standards and OMB Circular A-133, as well as certain information related to the planned scope and timing of the audit. This letter detailed the significant audit findings and included the qualitative aspects of accounting practices. It explained that there were no new accounting policies adopted and the application of existing policies were not changed during 2010. It also noted that no transactions were entered into by the Board during the year for which there was a lack of authoritative guidance or consensus and that all significant transactions have been recognized in the financial statements in the proper periods. Mr. Murray reported that the most sensitive estimate affecting the financial statements was management’s estimate of the net OPEB (Other Post-Employment Benefits) obligation, which is based on an actuarial valuation of the liability. He also reported that there were no significant difficulties in dealing with management in performing and completing the audit. And, all audit adjustments, reclassifications and eliminations necessary for financial reporting purposes have been agreed on by management. Those have been posted and are reflected in the report. He also informed the Board that there were no disagreements with management during the course of the audit and that Rodeheaver & Associates is not aware of the Board consulting with any other accountants in regards to the audit. He added that there are certain management representations that are to be obtained by the auditors and all signatures have been secured in this matter.
Mr. Murray gave an overview of the report which was completed in compliance with standards applicable to financial audits contained in Government Auditing Standards and U.S. generally accepted accounting principles. Mr. Murray stated the report expressed an unqualified opinion on the financial statements. He reviewed the Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards. This includes the Internal Control Over Financial Reporting and Compliance and Other Matters.
He also gave a brief overview of the basic financial statements, notes to these statements, the food service fund, supplementary program information, school construction fund, OPEB, and school activities fund.
Mr. Murray pointed out a typographical error on page 6 of the financial report under the Condensed Statements of Net Assets. The 2009 Current and other liabilities shows as 8,880,953 and it should be 8,800,953. This changes the percentage change from -8.61% to -7.78%. The only financial reports that have this error are the ones that were provided to the Board members prior to the meeting. All other financial reports have been updated.
Mr. Murray reviewed the Statement of Net Assets. The Statement of Net Assets shows Total Assets of $62,069,165 and Total Liabilities of $9,361,814, reflecting Total Net Assets of $52,707,351. This is an increase of approximately $11,752,000 from the prior year. Mr. Murray explained that there was no funding provided to fund the OPEB obligation. The current year unfunded OPEB obligation is reflected throughout the report and is approximately $557,500. This liability is recorded on the financial statements and this charge to the net assets resulted in the unrestricted/undesignated net asset class going in the negative. There was a decrease in the unrestricted net asset class in the amount of approximately $620,000. Last year the amount was $534,000. This year, the amount is $85,000 in the negative. Mr. Murray also pointed out the significant change in the amount of the non-depreciable capital asset. The balance last year was $16,300,000 which included the Northern Middle School renovation and the Northern High School roof. Those projects were in process during the end of last year and completed early in the 2010 fiscal year and subsequently reclassified into the depreciable asset line.
Mr. Murray continued to review the financial report including the Statement of Activities. For FY10, the total cost of education is $50,117,703. This is funded through general revenues which include local appropriation, state appropriation, federal revenues, miscellaneous, unrestricted investment earnings, and gain (loss) on sale of equipment. The local and state appropriations account for approximately 78% of the total expenses of the school board for the past year and that is down by 4% from the previous year. This resulted in a change of net assets of $1,520.849. Mr. Murray pointed out that this is on a system wide basis and includes food service, construction, general, and restrictive programs. He also pointed the school board reported a deficit to the extent that the county agreed to allow the Board to retain sufficient funds last year to cover an incremental increase in the health insurance cost of approximately $693,000. This would have been the deficit for the current year. The OPEB obligation of approximately $557,000 is also recorded in the amount. These two items alone account for $1,251,000 of the deficiency.
Mr. Murray reviewed the Governmental Funds. He explained that the food service fund and the school construction fund operate separately from the current expense fund. The combined total net assets of all three as of June 30, 2010 were $10,086,755. The total liabilities were $8,302,620. The total funds balance was $1,784,135. He highlighted the reserved for medical assistance restricted funds in the amount of $301,496 and the $700,000 which was designated for subsequent year’s budget. He also highlighted the improvement of the food service fund over the last year and pointed out the $111,365 surplus which is available for carryover.
Mr. Murray reviewed the Statement of Revenues, Expenditures, and Changes in Fund Balances reflects a net change of fund balances results in a deficiency of revenue over expenses in the amount of $261,576. The total revenue was $57,528,609. The total expenditures were $57,508,095. The current expense fund continues to subsidize the food service health insurance and worker’s compensation cost. The cost for FY10 was $282,090. This amount was transferred out of the current expense fund into the food services fund. The food services fund’s revenue exceeded expenditures in the amount of $65,439. He explained that the school construction fund stands on its own and the revenues equal the expenditures. The appropriations from the county and the funds received from the state are expended and there is no profit or loss relative to the construction fund. He also commented that of the total revenue of the federal sources is $5,535,915 and is an increase of $1,500,000 from last year. The total stimulus funds received was $1,900,000.
Mr. Murray reviewed the budget comparisons. This compared the original budget, the final budget, and the actual budget. The $743,807 under budget amount was able to be carried to the next year. He continued with the Current Expense Fund-Restricted Budget and Actual statement. He reviewed the Food Services Fund Budget Comparison pointing out that actual revenues exceeded budgeted revenues by $125,138 resulting in a surplus of $65,439. Mr. Murray pointed out the ARRA funds received by food service was $85,600 and that all funds were used. He reviewed the school activities fund reporting that the total assets as of June 30, 2010 were $498,947. This is a reduction from the last year. He reported the possibility of this reduction is due to less events occurring in the schools due to the weather and the mercury event at the high school.
Mr. Porter added that the Board adopted a policy last year for the school activities fund. This policy was put in place to create a reconciliation process that each school has to go through for each event and fundraiser to reconcile the tickets sales to deposit or inventories to the amount of revenue received. Most schools followed that from the date implemented and the audit procedures were focused on the qualities of the reconciliation performed to see if they were done and if they made sense. Many of the schools have done an exceptional job. For those schools that have not complied, the reports have been given to Mr. Fink and he will follow up in order to get them to comply with the policies and procedures.
Mr. Murray pointed out the notes to the financial statements and stated that there were no new significant changes from last year. He specifically pointed out note 2 in regards to funds being fully insured by the FDIC; note 4, relative to capital assets; note 4, active construction projects; and note 6, Post-employment benefits. He also reviewed the Schedule of Funding Progress-Other Post-Employment Benefit Plan. There was a short discussion of the OPEB funds and it was pointed out that once the funds are placed in the account, they cannot be taken out of the account. Mr. Porter and Mr. Fink gave a brief explanation of the Garrett County Health Insurance Plan moving to a fully insured plan.
Mr. Porter reviewed the Single Audit Report. He reviewed the Schedule of Expenditures of Federal Awards Statement. He pointed out the substantial amount of recovery funds being received. Title I received $510,100. Special Education received $642,187and State Fiscal Stabilization Funds received $814,534. The total federal award was $6,581.452. This resulted in an increase of approximately $1,864,000 over the prior year mainly comprised of the three areas listed. These funds will continue to be received through 2011 and then they stop. Discussion regarding the ARRA funds ensued.
Mr. Porter reviewed the Notes to Schedule of Expenditures of Federal Awards and the Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance With OMB Circular A-133. He stated there were no deficiencies in internal control. He reviewed the Schedule of Findings and Questioned Costs.
The only deficiency in internal control that is reported is that the Board has inadequate design of internal control over the preparation of its financial statements. Board personnel lack the qualification and training necessary to prepare financial statements in accordance with GAAP. The Board does not have controls in place over the selection and application of accounting principles in conformity with GAAP including sufficient expertise in selecting and applying accounting principles as an aspect of such controls. In order to remove this as a material weakness of internal control, the Board would have to put internal controls over the production of financial statements in place so that a financial report could be generated to include notes that satisfy the requirements of GAAP. The Board of Education has consciously evaluated the cost of hiring and training personnel with the necessary qualifications to establish internal controls over the preparation of its financial statements in accordance with GAAP and has determined it to be in their best interest to outsource the preparation of the financial statements to their independent auditors.
Mr. Porter reviewed another letter which was provided to the Board in regards to internal control and some findings that the auditors felt to be important enough to warrant management’s attention. He explained that as a result of the audit, it is felt that there is a need for the Board to update its procurement and fixed asset policy. He reviewed all that is involved. Mr. Fink added that the Director of Finance position has been posted and this position will be responsible for this task. The second finding is in regards to a whistleblower protection policy. This is being suggested because of increasing risks related to fraud, waste and abuse precipitated by economic and other societal factors and pressures. The last finding is that of organization staffing and structure. Since the Board is currently faced with the retirement of two executive directors within a six month period of time, much of the knowledge and experience related to the Board’s information systems including the budgetary process and related controls currently resides with these two individuals. It is being suggested that the Board develop an orderly transition plan until the new administrative and instructional leadership is in place, fully trained and operating effectively.
Discussion regarding the audit continued. Mr. Murray explained that an appropriate fund balance is 3% to 5% of the operating budget. There was also discussion regarding the carryover funds that the commissioners have approved and if they can truly claim the entire $700,000 or if some of those funds come from state and federal funding. Mr. Fink pointed out that there are three things in the audit that reflect the financial stability and the financial solvency of the Board of Education. They are OPEB, the federal funds and when and if they go away, and the third being enrollment. Major state aid dollars are being lost to the declining enrollment, and another item possibly having an effect on the budget is the possibility of the retirement being passed to the county.
Mr. Murray thanked the Board for the opportunity to serve and acknowledged the efforts and relationship with Mr. Fink, Judy Travis and the staff for the work they’ve done over the years.
Dr. Forrester also personally thanked Mr. Murray for his comments and added that Mr. Fink is truly one of a kind.
There was a short discussion on the posting for the Director of Finance. Mr. Murray suggested posting the position with the Maryland State Association of CPAs.
Dr. Forrester thanked Mr. Murray and his staff for their professional job and the great working relationship. Mr. Fink added that it is a great asset to have Rodeheaver and Associates to do the audit on a continual basis. Mr. Murray acknowledged and expressed his appreciation for being able to serve. Dr. Teets thanked Mr. Fink, Mrs. Waggoner, Judy Travis, and Mr. Germain for their diligence and Mr. Murray for the productive working relationship.
Part III –Adjournment
There being no further business, the meeting was adjourned at 7:55 p.m.
Dr. Donald D. Forrester
Wendell D. Teets
Approved: November 9, 2010