The Dollarway School District has received four audit findings from the Arkansas Legislative Joint Auditing Committee.
Legislative auditor Roger A. Norman and deputy legislative auditor Larry W. Hunter conducted an audit of the Dollarway School District for the academic year that ended on June 30, 2016, and produced the report. It was made available to the news media during Christmas vacation when school districts were closed.
Norman and Hunter found four problems: One material weakness regarding internal control over financial reporting under the category of financial statements; “Significant errors in the other aggregate funds resulted in a $226,683 understatement of interest expense; and $226,683 overstatement of principal payments. The financial statements were subsequently corrected by adjusting entries during audit field work.”
Another material weakness regarding internal control over major federal programs was found, and one associated significant deficiency.
The district could not account for two of five equipment items purchased in previous years for the Child Nutrition Program. The equipment cost $4,809.
Norman and Hunter wrote that “the district failed to properly account for all equipment items to ensure accourate equipment subsidiary records.” They noted that the business manager and superintendent are currently updating capital assets procedures, records, and documentation records as well as the inventory system in order to accurately account for the district’s assets.
Norman and Hunter wrote that “payroll disbursements were made without a contract demonstrating agreements between the parties. As a result, we could not determine if the former superintendent and the interim superintendent were properly compensated.”
Additionally, “The effects on the financial statements of the variances between the regulatory basis of accounting and the accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material. … The financial statements do not reflect fairly the financial position of the district as of June 30, 2016, or the changes in financial position for the year then ended,” according to the audit.
Norman and Hunter issued an adverse opinion “because the [Dollarway] school district prepared the financial statements on the basis of the financial reporting provisions of Arkansas Code, which is a basis of accounting other than accounting principles generally accepted in the United States of America. The effects on the financial statements of the variances between the regulatory basis of accounting and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material.”
Hunter also raised concerns about the district’s major federal programs as identified in the summary of audit results section of accompanying schedule of findings and questioned costs.
“A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions to prevent or detect and correct noncompliance with a type of compliance requirement of a federal program on a timely basis,” Hunter said in the report.
“A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. We consider the deficiency in internal control over compliance described in the accompanying schedule of findings and questioned costs as item 2016-002 to be a material weakness.”
Dollarway Superintendent Barbara Warren responded that state law allows for districts to deviate from Generally Accepted Accounting Principles (GAAP) and submit to a regulatory basis of accounting.
“The district submits to the rigor of a Legislative Audit and although a very ominous sounding statement, it refers to an allowable deviation that we and the vast majority of the schools in the state exercise,” she said via email.
“While no number of findings is good, we know that some findings speak to greater issues for risk and mismanagement than others,” Warren said. “I am proud to say that we have four findings—which is down considerably from the many, many more the district has had in the past and the findings are explainable and easily correctable. In just a year, we have overhauled our fiscal operations and have gotten excellent results.
“People in this business who understand the implications, recognize that we have done a great deal in a short period of time. Recognition of this has been made even by the auditors.”
Appointed to her current post in December 2015 by the Arkansas Board of Education, Warren took the reigns when the state dissolved its local board of directors because the district was struggling fiscally and academically. Dollarway has been in academic distress since 2010, as fewer than 49.5 percent of students have scored at a proficient or advanced level in math or literacy.
Dollarway entered fiscal distress in April 2016.
Norman and Hunter said that “A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. We consider the deficiency in internal control over compliance described in the accompanying schedule of findings and questioned costs as Item 2016-003 to be a significant deficiency.”