Daily Sitka Sentinel

School Board Fixes Annual Audit Glitch

By GARLAND KENNEDY

Sentinel Staff Writer

As the annual budgeting process begins, the Sitka School District faces a $2.7 million shortfall, and might have to make spending cuts that will impact classrooms in the year ahead, Superintendent Frank Hauser told the School Board Wednesday night.

“While we are not seeing some of the same effects that other districts across the state are facing... the Sitka School District is facing unprecedented budget challenges,” Hauser said. “The district has seen significant increases in fixed costs such as employee health insurance, and salaries have also increased as a result of negotiated agreements.”

While expressing hope that the state would increase funding for education, he said the district is presently looking at the big gap in the fiscal year 2024 budget.

Only hours before the School Board’s regular meeting Wednesday, a bill was introduced in the Legislature that would add $1,000 to the base student allocation, which is currently $5,960 per student.

“Funding from the state – which represents the majority of the district’s funding – has not kept pace with inflation,” Hauser said. “District enrollment is stabilizing, but we still have to address some of the budget shortfalls that we are facing,” Hauser added. “Hopefully, we’ll continue to have more students come in. With a significant projected deficit of over $2 million, work is still underway to balance the FY24 budget. The board must present a balanced budget to the Assembly by May 1.”

In a January 11 letter to the Assembly, the School Board said the expected shortfall is $2,782,759. Since then, the board has held a work session with the Assembly and received their assurance of city funding to the maximum allowable under state law. But there will still be a multi-million dollar gap to fill if school programs are to continue at their current level, district officials said.

Specifically, Hauser told the board the district could partially balance the budget through staff attrition – that is, not filling positions that become vacant by retirement or resignation – but reductions will have impacts on learning.

“It’s unrealistic to think balancing the budget will not impact staff programs, potentially the pupil-to-teacher ratio. Any reduction that we face right now is going to have an impact on our classrooms,” he said.

Board members did not discuss the budget process in detail, but a public, town hall budget hearing is scheduled for Feb. 9 at 6 p.m. in Centennial Hall. Turning to other business, the board had a lengthy discussion, with input from school district staff, before approving the annual audit of school district finances, and the outside auditor’s finding of a “significant deficiency in internal control” in student activity funds.

“The District should have a system in place to ensure the monthly student activity bank balances are reconciled to the general ledger in order to ensure the accuracy of cash, revenue, and expenditure balances,” the audit states on page 122. “During our audit, we found that the student activity bank accounts were not being properly reconciled throughout the fiscal year to the District’s general ledger. This caused material amounts of revenues and expenditures to be excluded from the general ledger… We recommend that all student activity bank accounts be reconciled to the District’s general ledger on a monthly basis.”

The full audit is available online at sitkaschools.org.

The auditors described the finding as an “isolated issue.”

The district business office has proposed a corrective action plan to solve the problem.

“Historically in SSD, school activity accounts have been decentralized and operate within separate, school-based banking and accounting systems,” the plan reads. “School site-level staffing transitions led to student activity accounts not being reconciled in a timely fashion… (In the future) under the centralized system to which the district is already transitioning, the district business office will maintain the accounting system, which includes maintaining accounts in separate activity funds, recording receipts, and issuing checks, recording checks and reconciling bank accounts.” 

The proposed corrective action plan raised concerns from Sitka Education Association president Mike Vieira.

“I was concerned to see… a pretty big change in the standard operating procedure of our district, regarding the way that activity funds are distributed and controlled and executed… (A decentralized approach has) allowed our buildings to function as a team with our administration, our accounting team and the coaches and everyone that needs access to those people and those funds… That audit report is a plan to take those out from local control and deposit them into the district office, and I can’t express how concerned we are,” Vieira told the board.

Sitka High School activities director Rich Krupa was concerned that the proposed change could prevent the timely use of funds for various student activities.

“Things happen all the time,” he said. “I need access to stuff immediately. And with stuff that’s proposed, that’s not going to happen. And my feeling is Sitka High athletics and activities are going to be held captive if it’s changed dramatically.”

Board member Mitch Mork was reluctant to vote to approve the audit Wednesday night. He said communication from the business office “tends to be not so great.”

“Before we can go down this path, I think the communication has to be fixed. This has been going on for, I don’t know, a long time, 30 years,” Mork said. “In the same way, we’ve been basically (taking) that internal control risk for 30 years and it’s been working as far as I know. This is the first that anybody’s heard that it’s not working.”

Board member Tristan Guevin stressed the importance of proper financial accounting.

“There are laws we need to follow in terms of how money is handled, how money is stored, how checks are stored… Our auditors have come back with a finding and we’re responsible for addressing that finding,” he said. “Our business office, as the office that handles revenues and expenses for the district, is responsible for reconciling the general ledger and ensuring all this happens.”

Board member Melonie Boord said the audit should be approved.

“I’m not seeing that this says the control of spending moves from the high school to the district office,” Boord said. “I’m not seeing that. I’m just seeing that the finding and the recommendation is that bank accounts need to be reconciled to the general ledger on a monthly basis. So I also feel like we need to approve the audit.”

District business manager Leslie Young said school employees will still be able to spend money when needed.

“Local control will remain over spending and deposits, and transactions are going to still stay the same at the school. There’ll be a little bit of a learning curve with a different system… We’ll probably be talking to the board next month on some updates on directions to go with student accounting and student activities,” Young said.

The superintendent added his assurance that the changes wouldn’t be a hindrance to the managers of the various activities.

“This is not going to have any impact on their ability to actually do their work,” Hauser said. “It’s about some of the internal controls that we have… It’s not a matter of they have to wait until Monday morning to get a check cut from the business office to pay for a hotel room that is an emergency to get. I think there’s a misunderstanding.”

After public testimony and board discussion that spanned about a third of the three-and-a-half hour meeting, the board approved the audit in a unanimous vote.

In new business, the board approved new guidelines for the naming of buildings and other Sitka School District facilities.

Under the new rule, when a building is to be renamed, the district will form “a naming committee with diverse representation... The School Board will receive the recommendations and review the committee report... (and) may select a name from the recommendations but is not obligated to do so. The School Board shall provide adequate time for public input on the proposals before deciding.”

It was not brought up at the school board meeting, but the North Star School District in Fairbanks issued a news release Wednesday reporting that Hauser is one of four finalists for superintendent of that school district.

After the budget hearing at Centennial Hall next Thursday, the School Board’s next regular meeting will be March 1 at the ANB Founders Hall.