Auditor finds poor management, risky investments in Oley Valley School District

On Wednesday, Nov. 20, Auditor General Eugene DePasquale today said a recent audit of the Oley Valley School District, Berks County, found $30,400 in excessive retirement benefits to a former assistant superintendent, and a risky investment which cost local taxpayers $6.5 million.

“The auditors found cases of poor management decisions and a lack of oversight which cost taxpayers money that should have gone toward classroom education,” DePasquale said.

Auditors found the district paid the former assistant superintendent a higher reimbursement rate for 68.5 unused vacation days, or $27,600 more than she was contractually entitled, when she retired in August 2010.

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The former assistant superintendent also received a $2,800 waiver for her share of employee benefit costs for two years that she was not entitled. Auditors found no evidence the $30,400 in increased benefits was approved by the school board at a public meeting, which is a violation of the school code.

“Better management and oversight from the school board could have prevented the former administrator from receiving benefits to which she was not entitled,” DePasquale said. “It is troubling when I see districts needlessly spending money when budgets are so tight.”

Auditors also learned that the district had identified fraud in the 2011-12 school year, including falsifying special education reports to receive higher state education subsidies and getting reimbursed for nonexistent expenses.

School officials notified the Department of Public Welfare of the fraud, which referred the matter to the Attorney General’s office in September 2012. The district is awaiting a final determination from the Attorney General’s office that could include making restitution estimated between $10,000 to $12,000.

“Anytime you hear about allegations of falsifying records and fraudulent payments, you have to be alarmed,” DePasquale said.

Auditors also found that terminating a speculative investment cost the district $6.5 million in April 2012. The district paid the fee to terminate a portion of a swap agreement issued in 2004 on $21.3 million in general obligation bonds. The district then entered into another swap agreement on $18 million in variable-rate general obligation bonds in April 2012.

Swaps are financial contracts between the school district and an investment bank, speculating on the direction interest rates will move as well as on other unpredictable factors.

“These investments are little more than guessing,” DePasquale said, “sometimes they pay off, but sometimes taxpayers are left with the bill for terminating the agreements.”

“You might think the district learned a $6.5 million lesson because this sort of unpredictability in financing often means bad news for taxpayers,” DePasquale said. “But they turned around and entered another swap agreement. I hope the district did a financial analysis to show the new agreement is in the best interest of taxpayers, but they declined to provide a response to this issue in our audit report.”

The district also lost $29,290 in state funding reimbursements because of errors in reporting student enrollment, particularly for students placed in private homes or foster children.

In the 2009-10 school year, the OIey Valley School District provided basic education to 1,936 students and employed 168 teachers, 126 full- and part-time support personnel and 10 administrators. The district received $7.7 million in state funding in the 2009-10 school year.

The Department of the Auditor General’s Bureau of School Audits examines the records of school districts, charter schools, intermediate units, and area vocational-technical schools. The audits — among other things — assess whether or not school entities received the state subsidies and reimbursements to which they were entitled, accurately managed taxpayer funds, and complied with ethics codes. The audits also determine whether or not teachers and administrators were properly certified for the positions they held during the audit period.

From the Pennsylvania Department of the Auditor General.