Discrepancies found in Winston County Board of Education audit

DOUBLE SPRINGS - Over $1 million in financial discrepancies were noted in a report of the Winston County Schools audit for 2022-2023.

Two major findings of the Winston County Schools audit for the period of 2022-2023 showed over $932,000 in financial transactions not recorded, as well as over $301,000 expended for bus fuel without letting bids, according to a summary of the audit findings.

Denise H. Olive, audit manager with the Alabama Department of Examiners of Public Accounts, was a special guest at the Winston County Board of Education’s Thursday, May 30 meeting, and presented these findings concerning internal control over financial reporting and material weaknesses.

The audit from which the discrepancies were reported covered a period from Oct. 1, 2022, to Sept. 30, 2023, having been made available on the Examiners of Public Accounts website, Olive stated.

One of the findings concerned internal control.

“Generally accepted auditing principles require that all financial activity be properly recorded in the accounting records and accurate financial statements be prepared,” Olive noted.

“During the fiscal year, the board failed to properly record all financial transactions. PSCA (Public School and College Authority) revenues and capital outlay expenditures totaling $932,367.28 were not recorded, nor did (the board) have adequate procedures in place to ensure that all financial transactions are properly recorded and financial statements were accurately prepared,” Olive pointed out.

Olive, when using the word “all”, was referring to just the financial transactions, PSCA revenues and capital outlay referred to in the audit ending September 30, 2023.

“PSCA revenues and capital outlay expenditures totaling $796,665.42 and revenues and expenditures for a flooring project totaling $431,105.95 were not recorded,” the Summar Schedule pointed out.

Chief School Financial Officer Morgan Blankenship noted these figures were for one project.

According to the Schedule of Findings and Questions Cost report for the year ended Sept. 30, 2023, the board failed to record all financial transactions.

“The board did not have adequate procedures in place to ensure all financial transactions were properly recorded and financial statements were accurately prepared,” the Schedule of Findings read.

“As a result, material adjustments were necessary to properly reflect all transactions in the financial statements,” the Schedule of Findings added.

The board was made aware of the errors and adjustments to correct financial statements, according to Olive, noting the error was listed in the audit report as 2023-002.

“Basically all that was, was a coding issue,” explained Winston County Schools Superintendent Greg Pendley. “It wasn’t that is was misappropriated or anything, but it was coded wrong.

“There were findings, but there was basically nothing wrong,” Pendley added. “It was just a matter of things needed to be coded in a certain way.

“It wasn’t that we misspent anything,” Pendley assured. “That’s why, otherwise, it wasn’t a problem.”

Pendley explained the $932,000 was coded but was not coded appropriately.

Blankenship further explained that the $932,000 was recorded in a different month, not in the actual fiscal year in which the figures were audited.

“I recorded that journal entry basically a month late, so in a different fiscal year than what the state had record of it,” Blankenship further noted.

According to Finding 2022-002, the Davis-Bacon Act requires that any construction contract in excess of $2,000, that is funded wholly or in part by federal funds, must include prevailing wage rate clauses.

The laborers and mechanics employed by contractors or subcontractors to work on construction contracts in excess of $2,000 financed by federal assistance funds, must be paid wages not less than those established for locality or project by the Department of Labor.

“And the contractor or subcontractor must submit to the non-federal entity weekly, for each week in which any contract work is performed, a copy of the payroll and a statement of compliance (or certified payrolls),” the finding noted.

However, during fiscal year 2022, the board entered into a construction project contract totaling $689,002.89 that did not include prevailing wage rate clauses, the finding from the audit pointed out.

As of Sept. 30, 2022, the board had expended $431,105.95 of COVID-19 Elementary and Secondary School Emergency Relief funds (known as ESSER) on the project, the finding continued to explain.

“The board did not have controls in place to ensure the Davis-Bacon Act wage rate requirements were included in construction contracts, therefore, the construction project contract was awarded during the fiscal year that did not include prevailing wage rate clauses, nor did the contractors submit weekly certified payroll to the board,” the finding continued.

The board, according to the summary statement, was recommended to comply with the Davis-Bacon and related acts when using COVID-19 funds, known as ESSER funds, to fund construction contracts in excess of $2,000, the summary statement read.

The timing, in which the transaction was recorded, was the issue, and that the transaction should have been paid at the time they received an invoice, school officials said.

“It sounded worse than it was,” Blankenship stated.

“So if the fiscal year ends in September, I recorded it in October,” Blankenship explained.

“So it wasn’t anything,” Pendley added.

“It makes sense to me to record (the transaction) when we receive funding,” Blankenship added. “I recorded it when we received notice of revenue or payment. It just crossed fiscal years.”

A copy of the Corrective Plan of Action taken by the board was that PSCA invoices will now be recorded when they are received, instead of when payment documentation is received, according to the plan.

The Auditee Response/Corrective Action Plan submitted by the Winston BOE noted this finding was corrected as of Sept. 30, 2023.

“The CSFO was under the impression that PSCA invoices were not to be recorded to the general ledger until payment documentation was received,” the board’s corrective action plan stated.

Funding for bus fuel expended without bids

 The second finding concerned Finding 2023-001, or a violation of the Code of Alabama Section 16-13B-1, noting that during the audit period, the board of education expended $301,687.03 for bus fuel without letting bids, Olive stressed to the board.

“The board did not have adequate procedures in place to ensure that applicable laws and board policies related to competitive bidding were followed,” Olive stated.

A more detailed look at the audit summary statement issued by the Examiners of Public Accounts showed the board failed to comply with the provisions of Code of Alabama Section 16-13B-1, which requires all expenditure of funds of whatever nature of labor, services, work or for the purchase of materials, equipment, supplies or other personal property involving $40,000 or more, made by or on behalf of any county board of education, to be made under contractual agreement entered into the free and open competitive bidding, on sealed bids, to the lowest possible bidder.

“During the audit period, however, the Winston BOE expended $301,687.03 for bus fuel without letting bids,” according to the board’s Corrective Plan of Action signed by Pendley.

“The board did not have adequate procedures in place to ensure applicable laws and board policies related to competitive bidding were followed,” the Corrective Plan also stated.

“Typically what happens on bus fuel,” Pendley explained, “is they bid, companies do, which there are not that many that do, but they bid, and that bid is good for two years.

“That was just an oversight, as far as we just didn’t bid it,” Pendley admitted. “But that wouldn’t have mattered, because they were probably the only people who would have bid on it anyway.

“It’s just a matter of timing on both issues,” Pendley added. ”It was not anything that we did inappropriately.”

“It was a timing issue,” Blankenship confirmed. “Essentially, we just bid the bus fuel too late.”

Blankenship further explained that the only bid that was received for the bus fuel was from RelaDyne of Jasper, at $1.70 per gallon.

The fuel was bid out in 2017, with an extension up to 2021, but the fuel was not rebid until 2024 for the fiscal year 2023 audit, Blankenship stated.

A copy of the Winston board’s Corrective Plan of Action noted the board of education accepted fuel bids in March, 2024, the plan added.

“According to the bid law, you have to bid it out every three years,” Winston County Schools Transportation Director Jeff Scott explained.
The bid process on the fuel for buses was to have been done in March of 2021, he noted.

“Your CSFO is the one who handles the bidding,” Scott explained. “I don’t know how the ball got dropped on that. I was assuming that it had been bid out.

“Of course we bid it, but apparently it didn’t get bid out back in 2021 when it should have been bid out,” Scott stated. “I came in...and wasn’t aware that it had not been bid out.”

When auditors found the fuel had not been bid, it was immediately bid at that point, according to Scott. “It has to be done every three years, and it got skipped over that year,” he said.

Exit Conference held

Winston County and administrative personnel were invited to discuss the results of the audit at an exit conference, according to the Examiners.
Those in attendance of this meeting were board member Mark Finley, Superintendent Pendley and CSFO Blankenship,  as well as Olive, audit manager, and Kimberly Swafford and Jacob Perdue, examiners from the Examiners of Public Accounts, the report noted.

The audit was conducted in accordance with auditing standards generally accepted in the U.S.A. and standards applicable to financial audits contained in the Government Auditing Standards as well as Examiners of Public Accounts requirements, Olive noted.

School system cited for audit discrepancies last year as well

This marks the second year in a row that internal control findings, and certain funds not recorded properly, were brought to the attention of  Winston board members.

Olive, when visiting the board on the FY 2022 audit report last  year, cited internal control finding concerning finances, with some material adjustments having to be made for some PSCA monies not recorded correctly.

The board for that period also did not record some of their ESSER monies, Olive told the board last year.