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CliffsNotes for Rockwood's Response to Missouri Audit Allegations

FOURTH IN SERIES THIS WEEK: Rockwood School District leaders issued official responses to the Missouri State Auditor team. But truly reading the document of exchanges between the two entities begs the question of whether it's a case of '

Anyone who attended Missouri State Auditor Tom Schweich's presentation Wednesday evening regarding audit findings of the Rockwood School District was handed a single-spaced, 25-page document. The presentation started promptly at 5:30 p.m. and ended just as promptly at 6:09 p.m.

Several months of detailed, investigative information and a quick-talking, but insightful, state auditor was a lot to immediately soak in.

While pieces from the nine "categories" of findings were pulled out by some St. Louis media sources to hurriedly spotlight, actually reading the lengthy document—including Rockwood's response to the auditors—provides a more intriguing overview.

  • Was Glenn Construction really overpaid, or did the legal agreement in place allow for such compensation based on changes? 
  • The issue of Superintendent Bruce Borchers' "contract" was really about a life insurance policy discrepancy, not the overall contract. Rockwood Chief of Communications Officer Kim Cranston tells Patch on Thursday the discrepancy was due to a human error, that Borchers' was supposed to be provided with a $500,000 life insurance policy all along.
  • With most procurement cards having transaction limits of $1,000, does any individual Rockwood employee need a $1.5 million limit, even if it is meant for information technology needs?
  • Rockwood did not solicit proposals for consulting services prior to hiring two former colleagues of Superintendent Bruce Borchers as independent contractors in October 2010 to review district employee positions. They were paid $30,600 each. Should that have occurred?

As a reader convenience and to cut to some key points of consideration, Patch is providing an abbreviated version of the documented exchange between the auditing and Rockwood groups. A PDF version of the complete audit report accompanies this article, just like it did with the first Patch article published about this matter Wednesday night. Feel free to add your own observations based on the overall document.

AUDITORS' CONCLUSIONS

AUDITORS' RECOMMENDATIONS

ROCKWOOD RESPONSE Significant change orders cast doubt on planning process and value of original plans. Change orders should be kept to mimimum and not used to make big changes to existing contracts. Missouri law requires school districts to advertise bids for construction exceeding $15,000. Board member Steve Smith had a conflict of interest on matters voted on by the board.
Ensure all services are clearly documented. District should attempt to collect "overpayment" of fees. Do better planning to avoid change orders. Ensure all board of directors avoid participating in decisions or situations that give appearance of conflict of interest. Proposed fees should be part of program management evaluation process. Retain all bid documentation for required period of time.
For 12 months, district has been reviewing for and updating its policies regarding construction management. Glenn Construction agreement authorized payment of additional fees to Glenn; district will review to determine whether in fact "overpayments" did exist. When Steve Smith joined the board, Rockwood board secretary asked the Missouri School Board Association should abstain from voting on Glenn-related items. Two MSBA attorneys responded in writing there was no conflict of interest and did not have to abstain. Smith did go ahead and not vote, and in fact left the room during such votes. District agreed to keep documentation. Rockwood will take additional steps toward avoiding the appearance of conflicts of interest.
District used same provider to serve as both financial adviser and bond underwriter for several general obligation refunding bond issues. Discontinue using an underwriter who also acts in a dual capacity as financial adviser.
In prior years, districts were allowed to use an adviser in both capacities. It is advantageous to do so with fluctuating interest rates. But the district agreed to not contract with just one firm.
19 percent of faculty had procurement cards. District's master credit card list is inaccurate. Monthly limits ranged from $2,000 to $1.5 million. P-card purchases totaled $4.5 million last school year. Improperly monitored credit cards can result in misuse.
Evaluate need for each procurement card issued. Update master list periodically. Evaluate credit card limits. Ensure approved purchases exceeding limits are documented. Retain such documentation as matter of policy.
Procurement cards were issued according to purchasing department policies. IT staffs were given higher limits and district received rebates from using credit cards. District agrees that master list should be reviewed. District will submit request to Board of Education annually regarding credit limits. District will enact a board policy to document and reinforce new process.
Professional services were frequently obtained without benefit of competitive selection process. Fuel purchases were not bid out in years. District used the same law and auditing firm without soliciting bids since 2005.
Ensure compliance with district purchasing policy and modify policy to require periodic and competitive selection for professional services. Soliciting proposals for all consulting services is not legally required, nor mandated as Rockwood Board of Education policy. Although the district used same law firm since 2005, there has been no increase in rate paid since that time. District's current contract with auditing firm expires after June 30, 2013, so district will consider competitive solicitation. For fuel, district does solicit bids for bulk fuel used by bus company. In 2007, district entered into contract with Fuel Man vendor; gas cards track all usage.
Copies of checks were missing. Employees do not document their acknowledgement of money transmissions.
Issue pre-numbered slips for all monies received. Reconcile receipts with deposits. Ensure slips and records are signed to better document transmittal of monies between departments.
District will implement procedures to address these issues. District will review and consider approaches to address funds received in classrooms. Controls will be put in place for funds transmittals.
Controls and procedures over district property need improvement. Annual inventories did not appear to have been taken.
Ensure complete, accurate and detailed capital asset records are maintained. Conduct annual inventories and compare to records. Board should ensure mileage logs are maintained for all district vehicles.
District maintains a perpetual inventory system. With district size of Rockwood, furniture and equipment doesn't always stay in its original location. District adjusted inventory record and now is performing monthly reconciliations. District agrees to prepare monthly reports.
Superintendent's contract for 2012-2013 provides for $150,000 of life insurance. District records show a $500,000 life insurance policy provided since July 2010.
Ensure contract is accurate. District agreed, and will update the current written contract to accurately reflect approved agreement. District noted the difference was due to typo errors.
Attendance system doesn't adequately limit the time frame during which changes can be made to student records. There is no review by district officials. Changes must be made before attendance can be certified to DESE. Additional controls are needed for accurate records. District uses a software program that doesn't allow for a "lock-out" procedure. District will change procedures to allow for adequate time changes at end of month and save on separate backup file. State reports will be based on backup. Controls over computer systems are not sufficient to prevent unauthorized access. District records are unprotected and susceptible to damage or theft. Require unique passwords for each employee. Required a security control that shuts down and locks computers after inactivity and after specified number of incorrect login attempts. District agrees with these recommendations and is in the process of implementing changes.

Read related articles:

  • Patch coverage prior to the presentation
  • Rockwood State Audit: The Findings Revealed
  • Rockwood State Audit: Various Reactions
Mary March 01, 2013 at 03:26 PM
What is a "perpetual inventory system" and how does it differ from an annual inventory that has not been conducted according to the auditors' findings? Why is the District reluctant to track expensive computers and other electronic equipment that can be chipped and followed? As Mr. Schweich noted, it's unlikely that anyone wants to steal desks and chairs, but electronics are highly desireable and portable.
Julie Brown Patton (Editor) March 01, 2013 at 03:34 PM
By industry definitions, a "perpetual inventory system" gathers updates and information on inventory quantity and availability on a continuous basis as a function of doing business, as opposed to the "periodic inventory systems," which are conducted at specified intervals. Rockwood officials responded to the auditors that within the district's perpetual system, any purchased or gifted items to the district were added to the system. "When these items are surplused or sold, assets are removed form the system."
Julie Brown Patton (Editor) March 01, 2013 at 03:37 PM
Rockwood representatives in the audit response stated the district does not currently perform a physical inventory to verify the accuracy of the perpetual inventory. They also said they understand the benefits of physical inventories, but it "takes a significant number of hours to locate each item on the physical inventory." And with a district of Rockwood's huge size, furniture and equipment don't always stay in their original locations.
Julie Brown Patton (Editor) March 01, 2013 at 03:40 PM
Teachers and administrator would have to inventory everything in classrooms, stated Rockwood representatives. They would want to install a bar code readers on each piece identified, which would prompt a significant cost to prepare assets in this manner. Rockwood reps cited shrinking budgets, and said "a decision would have to be made by reducing other expenditures."
Sylvester Mena Mena March 01, 2013 at 04:31 PM
I have serious doubts that anything is "just a typo" when it comes to financial matters with this board and this superintendent.
Mary March 01, 2013 at 05:01 PM
Julie, are you an impartial reporter, or is Patch a public relations vehicle for the Rockwood School District? Why are you responding in-depth on its behalf?
Julie Brown Patton (Editor) March 01, 2013 at 05:04 PM
Mary, you asked questions, for which I thought you were seeking more details. I provided those directly from the auditor's report. Responding to readers is a daily function of Patch editors.
Mary March 01, 2013 at 05:20 PM
Your copy of the audit report must include a lot more details than the one that was handed out at the presentation. My copy doesn't include a definition of the alleged perpetual inventory system.
Mary March 01, 2013 at 06:16 PM
“Rockwood officials responded to the auditors that within the district's perpetual system, any purchased or gifted items to the district were added to the system. "When these items are surplused or sold, assets are removed from the system." Here is the problem with a perpetual inventory: “Surplused or sold” does not account for items that are stolen or damaged (and then disposed of). To me, a perpetual inventory means that every item that RSD ever acquired/purchased is still a part of that inventory. When, where, and how are assets added and subtracted? Given that other RSD records (attendance, monetary transactions, procurement cards…) are in such poor shape, how accurate are the perpetual inventory records? Most organizations do a physical inventory as it shows areas where there may be “shrinkage” and where the property is at any given time. It is another accounting check and balance, with which Janet Strait, CPA, should be familiar. It would be a one-time project to put labels on all assets, and teachers could attach bar code labels to each item in their respective rooms. It is not at all realistic to think that every employee and student is honest and forthright, and the public deserves a physical inventory of the items paid for by their taxes.
Artie March 20, 2013 at 02:12 PM
I am a scientist who spent most of my career working in a large pharma research environment with many, many capital expense items. We performed periodic (not annual) reviews to update our asset tracking system. We spend hours running around trying to match bar-coded instruments to the room-by-room locations of last record. A bit waste of time since useful (valuable) equipment was easily found, but abandoned equipment (not so useful) was usually parked in an obscure location. We could not even discard these non-useful items until their multi-year capital tax duration had prorated to zero. As for locating valuable computers, internal IT departments retrieve upgraded computers and personal-use computers are recovered when an employee leaves. The policies are or more value to reduce theft than asset-tracking procedures, in MHO. I dont see a scandal here.
Artie March 20, 2013 at 02:18 PM
For employer provided life insurance benefit: Very common to have life insurance at 2X salary = the "corrected" 500K benefit. Very uncommon to have life insurance at 2/3 salary = the previous benefit. For group life, and the Supt's age, the difference in cost for these two is just a couple of hundred dollars a year. Think it through and let's move on; no scandal here.
Artie March 20, 2013 at 02:24 PM
IT does seem worthwhile for an inventory of each classroom's valuable assets (i.e. >$250 value, or whatever), to be made at the beginning and end of each school year. But I admit this seems superficial. Most items fitting this description, not including furniture - which does not leave school grounds, would be the few computer and audio-visual electronics in each room. I would anticipate there is policy about these particular items. It would be a useful clarification for the Board or others to explain this. My experience is that policys get enforced, especially for electronics.

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