School audit finds 15 areas of concern
Includes contractor overpayments, data access
Overpayments, unnecessary access to network information and a failure to disclose the appraised value of land for a new school were among the 15 findings of a recent legislative audit.
The financial management practices audit was performed by the Maryland General Assembly’s Office of Legislative Audits.
The audit was performed beginning October 2015 and took approximately 15 months.
Maryland requires a legislative audit to be performed every six years, unless an exemption is granted.
All told, the audit listed 15 findings, or issues that
were found to be of concern. Six of the findings were originally reported in the July 2010 legislative audit.
“Our audit disclosed that [Charles County Public Schools] needs to improve internal controls and accountability in a number of areas including procurement and disbursements, payroll processing, and equipment inventory,” Legislative Auditor Thomas J. Barnickel III wrote in his letter accompanying the audit. “Furthermore, our audit identified significant security and control risks pertaining to CCPS’ computer systems and network.”
CCPS has already addressed eight of the findings, said Randolph Sotomayor, assistant superintendent of business and finance.
“Some of these recommendations are very, very hard to change,” Sotomayor said. “It’s not an excuse, but it is something we need to put in perspective. Everything we’re doing is on a stepby-step basis.”
Sotomayor presented a report on the audit during the school board’s March 21 meeting.
The audit found that “numerous employees” had unnecessary access to critical data files, including CCPS’ automated procurements and accounts payable system and the human resources and payroll system.
“Our current financial management system is over 30 years old. This system serves its functions, but has limitations,” Sotomayor said. He said the system is being replaced, but will take time.
In addition, many employees are cross-trained in case of absences.
“To provide alternative internal controls and to compensate for any areas with lack of separation of duties, CCPS has established an independent review,” Sotomayor said.
The audit also stated third parties and students were given unnecessary access to CCPS’ internal network, including payroll, human resources and student information.
“The user access really concerns me, because we have a lot of sensitive information we need to control, and I feel that now we know where the weaknesses are, we really need to make sure they are taken care of,” said school board member Victoria Kelly.
Peter Cevenini, chief of instructional technology for CCPS, said third party vendors were given limited, partitioned access to the network to do software work, but could not get information they had not been given access to.
The problem, Cevenini said, was that access was not closed down once work was finished.
“When they’re done, that access should be shut down, and [the audit was] right, and protocols are now in place to close those doors,” Cevenini said.
The student access, Cevenini said, was related to the school system’s “Bring Your Own Device,” or BYOD, policy, allowing students to use personal technology at school.
“The audit used a very broad concept of network,” Cevenini said. “Students are only able to access a portion of the network. That part of the network is heavily sectioned. They cannot get into any other part of the network.”
“No data has been compromised,” Cevenini said. “We have logs and intrusion software which we use to monitor for any intrusions every day.”
The audit also found that CCPS awarded contracts as sole source procurements without appropriate justification, without superintendent approval for purchases of $25,000 or more or without posting solicitations or notice of awards on eMaryland Marketplace, as required by state law.
“For sole sourcing, we thought the form we had developed was adequate, but they say it’s not,” Sotomayor said.
The audit also found that corporate purchasing cards were used by multiple employees, and were sometimes used to purchase gift cards, which is prohibited.
Sotomayor said the purchase cards are issued to principals at schools and it is the financial secretaries’ duty to maintain a transaction log. Issuing multiple purchasing cards per school would allow less oversight, Sotomayor said. The gift cards purchased were in small dollar amounts and given to honor roll students, according to the school system’s response. The purchase cards should not have been used to buy gift cards, and Sotomayor said the school system would go over the policy, procedures and restrictions would be addressed at the next financial secretaries’ meeting.
“Out of over $780,000 in purchases, the audit only found the $1,455 [for gift cards] to be improper,” Sotomayor said.
Many of the audit’s findings related to bus transportation. CCPS contracts bus services with 26 different transportation companies.
The audit stated that elements of the Per Vehicle Allotment, or PVA, that the school system pays contractors for the use of a bus over its 15-year useful life were not based on market conditions or actual costs, and that using the school system’s formula, the school system will overpay contractors $9.8 million for the use of 106 buses over their 15year life.
“One of the issues we struggled with the PVA was getting the auditors to understand it goes beyond the cost of the bus,” said Michael Heim, assistant superintendent of support services. “It’s also used by the contractor to operate their business.”
Sotomayor said in a phone interview this is a finding in other counties that pay contractors PVA as well, that costs for business operations are included in the PVA.
“We’re currently in negotiations with [the bus contractors] to determine what is a reasonable amount for operating costs,” Sotomayor said.
CCPS also reimbursed bus contractors for federal excise taxes on fuel, $196,500 in one year, which the contractors are exempt from paying and may claim a credit for excise taxes paid on their income tax returns.
Sotomayor said the federal and state excise taxes are included in the retail price paid at the pump.
“Our contract states that we will pay them based on the retail price,” Sotomayor said.
In response, the school system said it will discontinue paying the excise fuel tax in the next fiscal year.
In addition, the audit found CCPS did not substantiate the reasonableness of payments to bus contractors for reimbursement of unemployment insurance taxes; for instance, in fiscal years 2015 and 2016, the school system overpaid one bus contractor by $129,000 for unemployment insurance tax.
Sotomayor said the unemployment insurance rates used by the state are based only on the first $8,500 of income; the threshold is not included in the calculations stipulated in the contract.
“The contract does not specify the first $8,500, so we need to put that in the contract,” Sotomayor said. “It’s a matter of us needing to spell that out.”
Mark Koch, owner of Koch trucking and spokesman for the Charles County bus contractors, spoke during the public comment phase, addressing the fuel tax reimbursement.
The state of Maryland has not yet established the mechanism for obtaining reimbursement. With respect to the federal fuel tax, this is an issue negotiated years ago. There are other offsets in the contract related to the fuel tax,” Koch said. “What is not being discussed is the recurring costs and administrative costs associated with seeking such reimbursement. What is not being discussed is the other areas of the contract that have not received an increase in several years. What is not being discussed is the areas where reimbursement is not being received, such as operational costs, facility maintenance costs. What is not being discussed is that the contact is really a return on investment and has been decreased by the board to 5 percent from 10 percent.”
According to the audit, CCPS also could provide no evidence that it had informed the board that the appraised value of the land for the new elementary school under construction in White Plains was $695,000 when the board approved the purchase of the same land for $1,101,030.
Kelly asked why the school system paid so much more than the appraised value of the land.
“I don’t know I would have paid that much more over the appraised value,” Kelly said.
Heim replied that there
were only a few available parcels of land in the area that were the right size and grade and met the school system’s needs.
“Yes, we paid a little more for that property, but it’s an ideal site in terms of its location, not only in terms of busing and transportation, but it enables us to address overcrowding issues in that area,” Heim said.
The school system has been granted an exemption from the next audit cycle, meaning that the next audit would be released in 2029 for the fiscal years 2023 to 2028.
Kelly requested the board be appraised of further developments.
“I have hesitation that we have applied for the waiver for the next cycle, that, if left unchecked, according to what OLA says we have to comply with, that things may not get caught until 2028,” Kelly said.
Copies of the audit can be found online at: https://www.ola. state.md.us/Reports/ Schools/CharlesSchls17.pdf