Frankfort CPA questions L-W 210 Board on audit findings in email

Frankfort CPA Robert Ripp found the audit report presented at the April 14 Lincoln-Way 210 Board of Education meeting raised more questions than it answered.

In a recent email addressed to L-W 210 Board Members, Ripp, an officer for Lincoln-Way Area Taxpayers Unite (LWATU), a local watchdog group that has unearthed a continual stream of L-W 210 financial problems in the past year, questions Board members about the report, according to the LWATU website.

LWATU has fought for financial accountability in Lincoln-Way 210 since the last August, when the Board of Education voted to close state-of-the-art Lincoln-Way North High School and displace thousands of children across the district at the end of this school year.

This is Ripp's email in it's entirety. As of today, no response has been received by the Board of Education with the exception of member Dr, Kathleen Casey, who responded only to say she would "read the information."

"As you are aware an Agreed Upon Procedures report was presented at the April 14, 2016 Board of Education meeting by a representative from Crowe Horvath. An agreed-upon procedures engagement is one in which a practitioner is engaged by a specified party to issue a report of findings based on specific procedures performed.

"The specified party and the practitioner agree upon the procedures to be performed. The specified party assumes responsibility for the sufficiency of the procedures since they best understand their own needs. The specified party assumes the risk that such procedures might be insufficient for their purposes. In addition, the specified parties assume the risk that they might misunderstand or otherwise inappropriately use findings properly reported by the practitioner.

"As a consequence of the role of the specified parties in agreeing upon the procedures performed or to be performed, a practitioner’s report should clearly indicate that its use is restricted to those specified parties.The April 14, 2016 report is addressed to Superintendent Tingley and clearly states that the report is intended solely for the information and use of management of the District and is not intended to be used by anyone other than these specified parties.

"As the governing body of the District, the Board of Education should have been a specified party to this Agreed Upon Procedures engagement. The Board of Education (or its audit committee - if it was functioning - should have participated in the development and assessment of the appropriateness of the agreed upon procedures. As the governing body of the District, the Board of Education should have provided the representations required in an AUP engagement.

"There were many items in the AUP report that were not addressed by you or any of the other Board members. A few of the items that should have been discussed and/or addressed include:

1 –The representative from Crowe Horvath said that the procedures were performed “last year”. The District’s RFP for the engagement required that the AUP report be concluded by December 8, 2015. If the AUP procedures were completed in December 2015, why was the release of the report delayed over four months?

2 –Why are the general ledger account descriptions redacted from the AUP report that is posted on the District’s website? Did an earlier version of this AUP report include the actual fund, function, and object of the general ledger accounts noted in the detailed table of findings? I find it hard to believe that not a single Board member was the least bit curious about the nature of these journal entries. These journal entries did not just appear out of nowhere. These entries were prepared and entered into the District’s financial statements by someone for a specific reason. If you take the time to research this issue you might be surprised to find a good portion of these funds were actually used for salaries. You might also want to review the District’s audit findings 2008-2 and 2008-3 and their disposition in 2009. Ask Administration for a copy of the “journal entry procedure” that Administration said it developed in response to finding 2008-2 and 2008-3.

3 –The report indicated that $4.6 million of journal entries were identified as not having the proper supporting invoices. These items represented the reclassification of expenses and the corresponding transfer of funds. You should have asked if this finding was considered a significant deficiency or a material weakness in the District’s internal controls. Or for that matter you should have asked if this was considered outright management override of controls. Somebody should have asked if these improper journal entries rendered the Districts financial statements materially misstated and inquired of the consequences to the District of having materially misstated financial statements.

Please remember that the District’s financial statements are part of the AFR that is certified by the Board and submitted to ISBE. Not insignificantly, the District’s financial statements were also an important part of the legal documents required for the District’s bond issues. A material weakness is defined as a significant deficiency or combination of significant deficiencies that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected.Unsupported journal entries and corresponding fund transfers of $4.6 million would undoubtedly fit this description.

4 –Are you as Board members comfortable that the unsupported journal entries only existed in the Life Safety funds reviewed in the AUP? Do you think it is reasonably likely that these types of entries also incurred in other funds? Would you be surprised to find that these type of entries occurred in the District’s Student Activity funds?

5 –How do these AUP findings affect the previously reported OEPP (Operating Expense Per Pupil) numbers? Based on the District’s recent claim of transparency and the District’s continual recital of past OEPP numbers, do you believe it is appropriate for the District to restate and publish their prior OEPP figures? Do you believe the taxpayers of the District have a right to accurate OEPP figures?

6 –Administration previously stated that the AUP engagement was going to the “the first step” in determining the extent of the District’s financial problems. Based upon the laundry list of findings found in only a small portion of the District’s budget, what is the “next step?" A prudent Board member would have motioned for a full forensic audit immediately upon learning of the AUP findings. As you may or may not know, prior to your appointment, the Board of Education unanimously approved the development of an RFP for a full forensic audit. Two months later Administration informed the public that a forensic audit would not be pursued. No reason was given and the Board did not vote publicly on the rescission (probable OMA (Open meetings Act) violation).

7 –The AUP report indicates $32.2 million in bond funds used for “temporary loans to cover expenditures. Did any of these loans cross fiscal years? If so, how were they handled for year end financial statement and AFR purposes? If they were not recorded as inter-fund loans on the AFR, what effect would this have had on the District’s financial profile score? What effect would they have had on the District’s OEPP and most importantly when would the District have been placed on the Financial Watch List had these unauthorized transfers and journal entries not taken place? Is it reasonably possible the findings cited in the AUP report were orchestrated for the purpose of improving the District’s financial profile score thereby avoiding the ISBE’s Financial Watch List and resulting DRP requirement?

"The April 14, 2016 Board Resolution is lengthy but lacks substance as none of the real issues were addressed. I hate to think how much taxpayer funded dollars were spent on legal fees to have this drafted by the District’s attorneys.

I understand that some would like to simply sweep these problems under the rug, make one prior period adjustment and not look back. In the world I live in, a problem can not be fixed unless first you admit that a problem exists.

Has the Board of Education shared the AUP findings with ISBE?

Has the Board made inquiries of ISBE as to whether the District’s previously filed AFRs must be restated?

Has the Board ascertained if federal funds were involved in any of these findings?

Has the District considered if any other parties that are currently relying on the District’s financial statements must be notified?

Has the Board of Education considered if the District’s bond covenants were violated?

What are the District’s responsibilities under MSRB’s Continuing Disclosure rules?

Is SEC Rule 15c2-12 applicable?

"I am sorry if these items are troubling for you and if it means you will have to look beneath the surface for answers. I realize it is easier to simply accept Administration’s answers and move on.

I caution you not to take this approach as it has obviously not worked for the District in the past. However, you individually made a conscious decision to be interviewed and appointed to this Board of Education and now you must accept the responsibilities that come with your position.

Halt the decision to close any school until you correct the obvious financial problems in Lincoln-Way District 210. Mothballing an eight year old state of the art high school (with outstanding debt service payments of approximately a quarter billion dollars) because the District couldn't find a way to trim 5% of its budget is ridiculous.

Respectfully,

Robert Ripp

District 210 Parent and Taxpayer"

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