School au­dit finds 15 ar­eas of con­cern

In­cludes con­trac­tor over­pay­ments, data ac­cess

Maryland Independent - - Front Page - By JAMIE ANFENSON-COMEAU jan­fen­son-comeau@somd­news.com

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

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