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YELLOW SHEET Office of the State Auditor of Missouri |
Report No. 2004-47
June 14, 2004
This audit is the second of two reports related to the St. Louis Public School District's financial viability. The first report issued in February 2004 reviewed the factors causing the district�s financial hardship and budget projections. This report�s 11 findings focus on the internal controls over management and financial functions, the factors that may have led to the declining financial condition, and the impact on the district of various cost reduction strategies.
The district�s financial condition remains poor
The district�s declining financial condition resulted from a combination of declining state revenues and a lack of significant reductions in expenditures. In both fiscal years 2002 and 2003, the district�s expenditures exceeded revenues, leaving the district with a $12.3 million deficit at the end of fiscal year 2003. From 2003 to 2004, district officials reduced expenditures by $41.4 million; however, expenditures are still projected to exceed revenues, leaving the district with a $38.6 million deficit at June 30, 2004. If additional cuts are not made, the district is projecting a $54.6 million deficit for fiscal year 2005. While both the 2003 and 2004 deficit budgets were not in compliance with state law, the state will not sanction the district as long as the district is improving it's financial condition. (See pages 5 through 7)
District�s non-instructional costs were higher than the peer average
The district expended 30 percent more per student on non-instructional costs - such as transportation, food services, and warehouse operations � than the average of nine peer districts of comparable size. Auditors found such costs could have been reduced sooner. (See pages 6 and 7)
District had 17 more public school buildings than the peer group average
Total district enrollment has steadily declined over the past 15 years by 12 percent, but auditors found no evidence district officials evaluated school building needs. Shortly after the current Board and administration took over, they closed 16 schools. The resulting school closures saved an estimated $14.5 million, while classroom sizes remained within state standards. Even after the consolidation, 6 of the 26 schools that received students from a closed school had occupancy levels below 70 percent. Additional and ongoing analysis by the School Board is necessary to ensure the efficient use of school facilities. (See pages 7 through 9)
District needs a policy requiring competitive bids for service contracts
The district does not have a policy requiring competitive requests for professional services. Auditors found several examples in which competitive requests had not been sought, or the district did not have adequate documentation to support the selection process. In addition, the district did not always include appropriate criteria to provide a means to monitor the contractor�s performance. (See pages 9 through 13)
Inefficient bus routes cost millions, despite available resources to modify routes
District officials were not using bus routing software � available to districts for at least 10 years and owned by the St. Louis School District since 2002. An anticipated $5.6 million in cost savings in fiscal year 2004 is anticipated by using the software, which increased efficiency and reduced the number of buses needed. In addition, the district has started to enforce the provisions of the transportation service contracts and should continue to improve this oversight. (See pages17 and 18)
Poor inventory tracking caused excessive overstocking in worn down warehouses
In the fall of 2003, the district contracted for warehouse services and expects to pay approximately $400,000 less than previously paid. The inadequate, manual-tracking systems in the former warehouse system resulted in significant overstocking including $5.4 million in unused textbooks, expired janitorial supplies, and large quantities of chemicals. The district should continue improving the tracking procedures. (See pages 18 through 21)
Salaries paid to top district administrators are higher than the peer district average
The salaries of top administrators do not appear reasonable. For example, the Chief Operations Officer�s $200,000 salary is 75 percent higher than the peer district average. In addition, should the district pay its new superintendent the average salary based on a compensation study they used, that salary will rank in the top four in the nation. (See page 25 through 28)
Inventories of fixed assets are not performed and records are not maintained
The district does not have adequate controls and procedures for property items valued at $51 million. Surplus property along with some unneeded vehicles should be inventoried and either placed into operation or disposed of. In addition, the district should consider obtaining independent appraisals for the real estate property it is trying to sell. (See pages 28 through 31)
Other recommendations
The audit also includes recommendations related to budgets, board meeting minutes, and cell phone and travel expense policies. In addition, the district should consider establishing an internal audit function. When making cuts and trying to balance the budget, the need for an internal auditor is even greater.
