APS Audit Committee meets – raises WERE given to administrators in FY13 and an additional $500 million pension underfunding disclosed

The Audit Committee of the Atlanta Public Schools held its first meeting yesterday and it was disclosed that the external auditors had found that 5-7 administrators had received approximately $42,000 in raises for which the administration did not follow state regulations. This information is in direct contradiction to statements made by senior administration officials during last year’s budget discussion (see more on this below).

In addition, the external auditors noted that the Teachers Retirement System (TRS) was underfunded and APS’s share of the underfunding could amount to as much as $500 million. This amount is added to the approximately $530 million that represents APS’s share of the underfunded City Pension Plan. The combined total of over $1 billion for both pension plans is a startling number and doubles the previously disclosed underfunding problem.

In its initial session the Audit Committee (composed of Byron Amos, Steven Lee and Matt Westmoreland), on a motion by Westmoreland, unanimously elected Amos as the Chairman. The Audit Committee is tasked with oversight for the Office of Internal Compliance (Internal Audit) who is responsible for both internal and external audits.

The Committee heard presentations from the external auditor – Mauldin & Jenkins – that has conducted the audit for the last six years and from the State Auditors. A number of key issues were raised during the meeting, as follows:

  • The external audit report, which is part of the Comprehensive Annual Financial Report (CAFR) and can be seen here, resulted in a “clean” opinion which is the best that can be obtained. The auditors stated that, since the start of their engagement with APS six years ago, there has been a dramatic improvement in the financial and internal control systems at APS.  In fact, they were very complimentary of the work performed by CFO Burbridge’s team.
  • The external auditors had not found any material weaknesses in the financial system, but they did make two recommendations on certain procedural weaknesses.
  • The key weakness they noted was that their testing had shown that 5-7 administrative employees had received approximately $42,000 in raises in FY13 and the procedures followed by the administration in granting of these raises had not conformed to state regulations. Under state regulations, during periods when teachers are being furloughed, any raise granted to an administrator must first be publicly disclosed and a public meeting must be held. This was not done.

Comment – I raised the issue of administrators receiving raises last year (both directly and by reorganizing departments) and senior administration officials repeatedly denied this was the case (see here and here). An excerpt of one of the posts is as follows:

 Again, under very pointed and direct questioning, both Associate Superintendent Steve Smith and Deputy Superintendent for Curriculum and Instruction Karen Walden stated unequivocally that no central or school administrative staff had received any raises during the past year or were there any raises for these staff members in the upcoming Budget. However, they did say that certain individuals did receive salary increases as a result of being promoted to new positions. Several Board members remained skeptical and requested additional information related to the numerous Departmental reorganizations, changes in positions titles and apparent compensation increases shown in the Preliminary Budget. I think this one is going to get very interesting given the strong and unequivocal denial that any salary increases had been given out.

It appears that the administrations statements were, at best, incorrect.

  • The external auditors noted that under new GASB guidance the estimated pension liabilities in the future would be presented on the balance sheet versus as footnote disclosures in the past. As a result, the unfunded pension liabilities – currently estimated at over $1 billion – would be included as part of the balance sheet in FY15. It was during this discussion that APS’s share of the TRS underfunding amounted to approximately $500 million.
  • State auditors also made a presentation on their review of APS finances and controls. They indicated that, given the tremendous improvement in the financial systems and controls at APS over the last five years, they were able to heavily rely on the work completed by the external auditors and did not find any misstatements or required adjustments.
  • The state auditors commended the APS finance organization and presented them with an Award of Distinction for Excellent Financial Reporting. This award was only granted to 24 out of 252 entities. The state auditors also noted that the 10 year financial and statistical information that APS includes in the CAFR also represented an excellent achievement that only 12 of the 252 entities in GA provide to their constituents.

Comment – During my interactions with the Finance team at APS, I have always been impressed with their knowledge and their promptness with responses to my many questions. The award noted above is well deserved and it was clear CFO Burbridge was proud of his team. Nice job!

In addition, a number of other Board Committees have met over the last several weeks. I will report on their activities in subsequent posts.

[Follow me on Twitter @Financial_Decon]

One Response to APS Audit Committee meets – raises WERE given to administrators in FY13 and an additional $500 million pension underfunding disclosed

  1. Michelle Constantinides says:

    Bob, thank you for always providing your detailed perspective and for “turning back the clock!”

    Perhaps it is fair to say that these “raises” are part of the “new direction” or “move in a different direction” that was not conveyed to any principal impacted by the recent “personnel changes.”

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