Auditor: Cedar Rapids schools need more cash reserves

CEDAR RAPIDS - The Cedar Rapids school district received a positive 2009-10 financial audit from McGladrey-Pullen LLC.

This is the second year McGladrey-Pullen has served as the district's independent accounting firm.

David Farmer, a lead auditor with the firm, said there were no identified financial concerns. Going through the numbers, he said revenues declined last school year, specifically at the state level. The change was due to the statewide 10 percent budget cut issued in October 2009.

Farmer also said the district's unreserved, undesignated general fund balance, also known as cash reserves, declined significantly. In fiscal 2008, the district had 44 days' worth of cash on hand. The balance was equal to 24 days' worth of expenses in fiscal 2009, and fiscal 2010's balance equaled just two days.

“For schools, the government prefers a balance of 30 days,” Farmer said.

The district used a portion of cash reserves to make up for the loss in state funding last year. Steve Graham, the district's executive director of business services, said the definition of unreserved funds has changed over the years, which also affects the numbers.

“It's not as bad as it looks,” Graham said.

For the fiscal year ending last June 30, total district expenditures were $213.2 million. District revenues were $215.7 million.

The district had an increase in federal funding, with a significant jump in the number of students participating in the federal free and reduced-price lunch program. The shift coincides with the increased number of students living in poverty.

Reviewing the district's internal controls, five areas were red-flagged, but Farmer wasn't concerned, saying that the audit was done at a time when the district was in the process of increasing its internal controls.

“I expect these to go away next year with the actions the district has in place,” Farmer said. “ ... There is a positive change in the district.”

Graham gave a quarterly update of internal control progress. The regular reports are part of the district's promise to be more transparent after a state auditor's special report said former employee Jamie May embezzled $587,784 from the district between 2002 and 2009.

May, who had breast cancer, died Nov. 1, 2009, of cardiac arrhythmia. The Linn County Attorney's Office dismissed the first-degree theft charge after May's death.

The district has since restructured the accounting department to segregate duties, and both an internal auditor and an accounting supervisor were hired. Monthly cash management training sessions are new, too, with 42 district administrators and 163 support staff completing the training so far.

In all, the state auditor's report identified 52 items to strengthen internal controls. Graham said the district is in compliance with 51 of the items.

The last task, a physical inventory of the district's equipment acquired with federal money, won't be completed until district staff move to their new administrative building in May 2012.

Graham said the district has identified areas that can be strengthened beyond recommendations from the state and is working to strengthen controls in those areas, too. For example, parents used to make school book fairs checks directly to the district. The checks are now addressed to the book fair company, such as Scholastic, and receipts are provided for every purchase.

The district also is revising the student activity manual with the new cash procedures. The manual should be updated by the summer, and it will be reviewed annually.