Auditor General

29 Pages·2013·0.4 MB·English

SCHOOL DISTRICT OF THE CITY OF
ALLENTOWN
LEHIGH COUNTY, PENNSYLVANIA
PERFORMANCE AUDIT REPORT
September 2013
Commonwealth of Pennsylvania
Eugene A. DePasquale - Auditor General
Department of the Auditor General
The Honorable Tom Corbett Mr. Robert E. Smith, Jr., Board President
Governor School District of the City of Allentown
Commonwealth of Pennsylvania 31 South Penn Street, P.O. Box 328
Harrisburg, Pennsylvania 17120 Allentown, Pennsylvania 18105

Dear Governor Corbett and Mr. Smith:

We conducted a performance audit of the School District of the City of Allentown (District) to
determine its compliance with certain relevant state laws, regulations, contracts, grant
requirements, and administrative procedures (relevant requirement.) Our audit covered the
period August 13, 2010 through May 17, 2013, except as otherwise indicated in the report.
Additionally, compliance specific to state subsidies and reimbursements was determined for the
school years ended June 30, 2010 and June 30, 2009. Our audit was conducted pursuant to
Section 403 of The Fiscal Code, 72 P.S. § 403, and in accordance with Government Auditing
Standards issued by the Comptroller General of the United States.

Our audit found significant noncompliance with relevant requirements as detailed in the four
audit findings within this report. In addition, we identified one matter unrelated to compliance
that is reported as an observation. A summary of the results is presented in the Executive
Summary section of the audit report. These findings and observation include recommendations
aimed at the District and the Pennsylvania Department of Education.

Our audit findings, observation, and recommendations have been discussed with the District’s
management, and their responses are included in the audit report. We believe the
implementation of our recommendations will improve the District’s operations and facilitate
compliance with legal and administrative requirements. We appreciate the District’s cooperation
during the conduct of the audit.

Sincerely,

EUGENE A. DEPASQUALE
September 26, 2013 Auditor General

cc: SCHOOL DISTRICT OF THE CITY OF ALLENTOWN Board of School Directors
Table of Contents

Page

Executive Summary .................................................................................................................... 1

Audit Scope, Objectives, and Methodology ............................................................................... 3

Findings and Observations .......................................................................................................... 7

Finding No. 1 – The District Failed to Maintain Supporting Documentation
Required for its State Transportation Subsidy ...................................... 7

Finding No. 2 – Student Membership Reporting Errors Resulted in the District
Not Receiving $47,015 in State Subsidy .............................................. 9

Finding No. 3 – Continued Certification Deficiencies ................................................... 11

Finding No. 4 – Lack of Documentation Needed to Verify Bus Drivers’
Qualifications ........................................................................................ 14

Observation – The District Financed Some of Its Debt with Interest-Rate
Management ("Swap") Agreements ......................................................... 17

Status of Prior Audit Findings and Observations ....................................................................... 19

Status of Prior Audit of Altered Superintendent Employment Contract Audit Findings ........... 23

Distribution List .......................................................................................................................... 26
Executive Summary

Audit Work Audit Conclusion and Results

The Pennsylvania Department of the Our audit found significant noncompliance
Auditor General conducted a performance with certain relevant state laws, regulations,
audit of the School District of the City of contracts, grant requirements, and
Allentown (District). Our audit sought to administrative procedures, as detailed in the
answer certain questions regarding the four findings within this report. In addition,
District’s compliance with certain relevant we identified one matter unrelated to
state laws, regulations, contracts, grant compliance that is reported as an
requirements, and administrative procedures observation.
and to determine the status of corrective
action taken by the District in response to Finding No. 1: The District Failed to
our prior audit recommendations. Maintain Supporting Documentation
Required for its State Transportation
Our audit scope covered the period Subsidy. Our audit of pupil transportation
August 13, 2010 through May 17, 2013, reports submitted by the School District of
except as otherwise indicated in the audit the City of Allentown (District) to the
scope, objectives, and methodology section Pennsylvania Department of Education for
of the report. Compliance specific to state the 2009-10 and 2008-09 school years found
subsidies and reimbursements was that District personnel were unable to locate
determined for the 2009-10 and 2008-09 the documentation supporting the
school years. transportation data reported, resulting in our
inability to verify the District’s entitlement
District Background to subsidies totaling $1,933,739 and
$1,918,702 for the 2009-10 and 2008-09
The District encompasses approximately school years, respectively (see page 7).
19 square miles. According to 2010 federal
census data, it serves a resident population Finding No. 2: Student Membership
of 118,240. According to District officials, Reporting Errors Resulted in the District
the District provided basic educational Not Receiving $47,015 in State Subsidy.
services to 17,465 pupils through the Our audit of pupil membership reports
employment of 1,433 teachers, 899 full-time submitted by the School District of the City
and part-time support personnel, and of Allentown (District) to the Pennsylvania
96 administrators during the 2009-10 school Department of Education found inaccurate
year. Lastly, the District received reporting of student membership, which
$112.3 million in state funding in the caused a subsidy underpayment to the
2009-10 school year. District of $47,015 for the 2008-09 school
year (see page 9).

Finding No. 3: Continued Certification
Deficiencies. Our audit found that the

School District of the City of Allentown

School District of the City of Allentown Performance Audit
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continued to fail to accurately monitor the With regard to the status of our prior audit
assignments for its professional personnel recommendations to the School District of
holding provisional certificates, resulting in the City of Allentown (District) from an
three teachers with lapsed certifications audit we conducted of an altered
(see page 11). superintendent employment contract
released on May 22, 2012, we found the
Finding No. 4: Lack of Documentation District had taken appropriate corrective
Needed to Verify Bus Drivers’ action in implementing our
Qualifications. Our audit found that the recommendations pertaining to the altered
School District of the City of Allentown employment agreement (see page 23) and
failed to obtain and retain the required the improper reporting of retirement wages
documentation and clearances for nine of its and service years (see page 24).
transportation contractor’s bus drivers
(see page 14). This performance audit was separate and
distinct from the District’s prior cyclical
Observation: The District Financed performance audit, which was released on
Some of Its Debt with Interest-Rate December 27, 2010. It covered the period
Management (“Swap”) Agreements. On August 18, 2011 through
April 28, 2009 and April 28, 2010, the November 21, 2011, and was conducted
School District of the City of Allentown pursuant to Section 403 of The Fiscal Code,
(District) entered into swap agreements 72 P.S. § 403, and in accordance with
related to its issuance of $34,750,000 and Government Auditing Standards issued by
$34,750,000 in General Obligation Notes, a the Comptroller General of the United
2009 and a 2010 Series, respectively States. .
(see page 17).

Status of Prior Audit Findings and
Observations. With regard to the status of
our prior audit recommendations to the
School District of the City of Allentown
(District) from an audit released
December 27, 2010, we found that the
District had taken appropriate corrective
action in implementing our
recommendations pertaining to the reporting
of health services data (see page 19) and
partially implemented our recommendations
pertaining to unmonitored vendor system
access and logical access control
weaknesses (see page 21). The District had
not taken appropriate corrective action in
implementing our recommendations
pertaining to certification (see page 20).

Status of Performance Audit of Altered
Superintendent Employment Contract.

School District of the City of Allentown Performance Audit
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Audit Scope, Objectives, and Methodology

Scope Our audit, conducted under authority of Section 403 of The
Fiscal Code, 72 P.S. § 403, is not a substitute for the local
annual audit required by the Public School Code of 1949,
What is a school performance
audit? as amended. We conducted our audit in accordance with
Government Auditing Standards issued by the Comptroller
School performance audits allow
General of the United States.
the Pennsylvania Department of

the Auditor General to determine
Our audit covered the period August 13, 2010 through
whether state funds, including
school subsidies, are being used May 17, 2013, except for the verification of professional
according to the purposes and employee certification, which was performed for the period
guidelines that govern the use of
August 1, 2010 through April 16, 2013.
those funds. Additionally, our

audits examine the
Regarding state subsidies and reimbursements, our audit
appropriateness of certain
administrative and operational covered the 2009-10 and 2008-09 school years.
practices at each local education
agency (LEA). The results of
While all districts have the same school years, some have
these audits are shared with LEA
different fiscal years. Therefore, for the purposes of our
management, the Governor, the
audit work and to be consistent with Pennsylvania
Pennsylvania Department of
Education, and other concerned Department of Education (PDE) reporting guidelines, we
entities. use the term school year rather than fiscal year throughout
this report. A school year covers the period July 1 to
June 30.

Objectives Performance audits draw conclusions based on an
evaluation of sufficient, appropriate evidence. Evidence is
measured against criteria, such as laws and defined
What is the difference between a
finding and an observation? business practices. Our audit focused on assessing the
District’s compliance with certain relevant state laws,
Our performance audits may
regulations, contracts, grant requirements, and
contain findings and/or
administrative procedures. However, as we conducted our
observations related to our audit
audit procedures, we sought to determine answers to the
objectives. Findings describe
noncompliance with a statute, following questions, which serve as our audit objectives:
regulation, policy, contract, grant
requirement, or administrative  Were professional employees certified for the
procedure. Observations are
positions they held?
reported when we believe

corrective action should be taken
to remedy a potential problem  In areas where the District received state subsidies and
not rising to the level of reimbursements based on pupil membership (e.g. basic
noncompliance with specific
education, special education, and vocational
criteria.
education), did it follow applicable laws and
procedures?

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 Did the District have sufficient internal controls to
ensure that the membership data it reported to PDE
through the Pennsylvania Information Management
System was complete, accurate, valid, and reliable?

 In areas where the District received transportation
subsidies, were the District, and any contracted
vendors, in compliance with applicable state laws and
procedures?

 Did the District, and any contracted vendors, ensure
that their current bus drivers were properly qualified,
and did they have written policies and procedures
governing the hiring of new bus drivers?

 Were there any declining fund balances that may pose
a risk to the District’s fiscal viability?

 Did the District pursue a contract buy-out with an
administrator and if so, what was the total cost of the
buy-out, what were the reasons for the
termination/settlement, and did the current
employment contract contain adequate termination
provisions?

 Did the District take appropriate steps to ensure school
safety?

 Did the District have a properly executed and updated
Memorandum of Understanding with local law
enforcement?

 Were votes made by the District’s Board of School
Directors free from apparent conflicts of interest?

 Were there any other areas of concern reported by
independent auditors, citizens, or other interested
parties?

 Did the District take appropriate corrective action to
address recommendations made in our prior audit?

School District of the City of Allentown Performance Audit
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Methodology Government Auditing Standards require that we plan and
perform the audit to obtain sufficient, appropriate evidence
to provide a reasonable basis for our results and
What are internal controls?
conclusions based on our audit objectives. We believe that
Internal controls are processes the evidence obtained provides a reasonable basis for our
designed by management to results and conclusions based on our audit objectives.
provide reasonable assurance of

achieving objectives in areas
The District’s management is responsible for establishing
such as:
and maintaining effective internal controls to provide
 Effectiveness and efficiency reasonable assurance that the District is in compliance with
of operations.
certain relevant laws, regulations, contracts, grant
 Relevance and reliability of
requirements, and administrative procedures. In
operational and financial
conducting our audit, we obtained an understanding of the
information.
 Compliance with certain District’s internal controls, including any information
relevant laws, contracts, technology controls, as they relate to the District’s
grant requirements, and
compliance with certain relevant state laws, regulations,
administrative procedures.
contracts, grant requirements, and administrative
procedures that we consider to be significant within the
context of our audit objectives. We assessed whether those
controls were properly designed and implemented. Any
deficiencies in internal control that were identified during
the conduct of our audit and determined to be significant
within the context of our audit objectives are included in
this report.

In order to properly plan our audit and to guide us in
possible audit areas, we performed analytical procedures in
the areas of state subsidies and reimbursements, pupil
transportation, pupil membership, and comparative
financial information.

Our audit examined the following:

 Records pertaining to pupil transportation, pupil
membership, bus driver qualifications, professional
employee certification, state ethics compliance,
financial stability, reimbursement applications,
tuition receipts, and deposited state funds.

 Items such as board meeting minutes and policies
and procedures.

Additionally, we interviewed select administrators and
support personnel associated with the District’s operations.

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To determine the status of our audit recommendations
made in a prior audit report released on
December 27, 2010, we reviewed the District’s response to
PDE dated March 22, 2012. We then performed additional
audit procedures targeting the previously reported matters.

Lastly, to determine the status of our audit
recommendations made in a performance audit of an
altered Superintendent employment contract released on
May 22, 2012, we performed additional audit procedures
targeting the previously reported matters.

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Findings and Observations

Finding No. 1 The District Failed to Maintain Supporting
Documentation Required for its State Transportation
Subsidy

Our audit found that the School District of the City of
Criteria relevant to the finding:
Allentown (District) could not provide documentation

supporting the data in the District’s 2009-10 and 2008-09
24 P.S. § 5-518 of the Public
School Code provides, in part: school years’ pupil transportation reports. This supporting
documentation is necessary to demonstrate that the
“[F]inancial records of the District’s transportation reports to the Pennsylvania
district . . . shall be retained by the
Department of Education (PDE) are accurate, and that the
district for a period of not less than
District received the correct amount of state transportation
six years.”
subsidy. Without this supporting documentation, we were
Since transportation mileage data unable to verify the District’s entitlement to transportation
is used to pay transportation subsidies totaling $3,852,441 for the 2009-10 ($1,933,739)
subsidy, it is important that forms
and 2008-09 school years ($1,918,702).
documenting mileage be

maintained so that our auditors can
determine that districts’ subsidies For example, the District’s transportation director could not
are correct. provide the auditors with any documentation demonstrating
that the District had made accurate payments to its
22 Pa Code § 23.4 of the
transportation contractor. The District’s documentation
Regulations of the State Board of
supporting these payments should have included records of
Education provides, in part:
the number of pupils the District transported, and the total
“The board of directors of a school mileage travelled to and from school. Instead, the
district is responsible for all transportation director only had records showing that the
aspects of pupil transportation
District made payments to the contractor during the
programs, including the following:
2009-10 and 2008-09 school years and limited data from
. . .
the contractor pertaining to the number of nonpublic and
(6) The maintenance of a record of charter school students the District transported in the
pupils transported to and from 2008-09 school year.
school, including determination of

pupils’ distances from home to
The District’s deficiencies resulted from its previous
pertinent school bus loading
zones.” transportation coordinator’s failure to maintain the
necessary transportation documentation for the 2009-10
According to the federal and 2009-08 school years. The District failed to have
Government Accountability
appropriate internal controls in place to ensure that this
Office’s (GAO) (formerly the
important documentation was maintained and on file. This
General Accounting Office)
Standards for Internal Control in lack of supporting documentation violates the Public
the Federal Government, internal School Code, and puts the District at risk of losing its
controls are key factors in an entitled transportation subsidies in the event of PDE
agency’s ability to meet its mission,
questioning the Districts’ reported figures.
improve performance, and

“minimize operational problems.”
Recommendations The School District of the City of Allentown should:

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