DPS successfully addresses audit findings; achieves a clean audit

Contact: Steven Wasko at 313-873-4542 or Jennifer Mrozowski at 313-873-8401

Detroit Public Schools has made great strides in several key financial areas since March 2, 2009, including reducing the district’s deficit from a projected $305.9 million to $219 million and addressing many of the previous problematic audit findings.

Those and other findings come from the district’s Comprehensive Annual Financial Report (CAFR) and Annual Single Audit for the year that ended June 30, 2009.

“We are focused on the district’s financial condition like a laser beam and will continue to do whatever is necessary, even if it means midyear cuts based on reductions in state aid, as we reforecast the budget,” said Robert Bobb, DPS’ Emergency Financial Manager. “We will not ever again repeat the actions and inaction that led to this budget being out of control, including seven consecutive years of deficit spending. And, we know that our financial operations are directly linked to providing strong academic programs.”

Detroit Public Schools submitted its fiscal Comprehensive Annual Financial Report (CAFR) and Annual Single Audit for the year that ended June 30, 2009 to the State of Michigan six days earlier than the deadline – on Tuesday, Nov. 10. All Michigan school districts must complete their annual financial audits by Nov. 15. (Since Nov. 15 falls on a Sunday, this year’s deadline is Nov. 16).

Last year, the district did not submit its CAFR and Annual Single Audit to the State until Dec. 10, 2008. In addition, DPS receives an “unqualified” or clean audit opinion from the external auditors – Rehmann Robson — for the fiscal year 2008-09 financial statements.

DPS’ Status Report on Addressing Prior Year Audit Findings

The last year’s audit reported a total of 84 findings or issues. There are two types of findings. Fifty-three (53) of the findings were related to financial reporting and thirty-one (31) were for administering and compliance of federal programs. DPS received nearly $200 million in federal grants in fiscal year 2007-08 and approximately $255 million for fiscal 2008-09. Accordingly, federal grants are critical to the success of the District.

In early March 2009, Bobb established a working group comprised of Ricardo Kisner, Chief Financial Officer; Kevin Clinton, Executive Director of Federal and State Programs; and Christopher Nelson, Chief Information Officer, to develop and implement a comprehensive corrective action plan to eliminate these deficiencies. As a result of the efforts of a number of dedicated DPS employees, the following was achieved for this year’s audit:

Financial Reporting Findings:
Resolved, 47, 89%
Partially Resolved, 4, 8%
Not Resolved, 2, 4%

Federal Program Findings:
Resolved, 17, 55%
Partially Resolved, 7, 23%
Not Resolved, 7, 23%

Total of All Findings:
Resolved, 64, 76%
Partially Resolved, 11, 13%
Not Resolved, 9, 11%
(Note: percentages are rounded)

The following are among key issues that the district has addressed and that are now being implemented:
– Correcting numerous audit findings.
– Implementing a comprehensive corrective action plan to improve internal controls and integrity of financial information.
– Restructuring the Finance Division to recruit, develop, retain, and attract competent staff at all levels.
– Establishing leadership and management development programs to prepare finance staff for new roles in the organization.
– Re-engineering all internal fiscal processes to optimize efficiencies and cost effectiveness.
– Regularly benchmarking with governmental and private sector organizations to adopt and implement best-in-class processes.
– Preparing comprehensive written policies and procedures that cover all aspects of the District’s financial operations.
– Leveraging new technologies to implement a new budgeting and forecasting system that will integrate with the District’s PeopleSoft enterprise resource planning system.
– Establishing an internal capital asset program planning unit within the Office of Budget and expanding the Office of Accounting Fixed Asset Group to better monitor and track the bond program and other assets of the District.
– Partnering with colleges and universities to establish internship programs.
– Establishing the Finance Division’s annual business plan and performance measures that links to the District’s strategic plan and academic plans.

Other areas where DPS has shown marked progress is in reducing overall audit costs and incurring an accumulated general fund deficit significantly less than originally budgeted and forecasted.

Reduction in Audit Costs

DPS spent approximately $1.9 million in professional fees for the prior year audit.

For this year, the total cost of the audit, plus outside accounting assistance, is $1.3 million – a $600,000 or 31.6% reduction. By competitively bidding the audit, providing training and support to DPS finance staff, and adhering to strict timelines and schedules, DPS was able to reduce the cost and the number of days required to complete the audit. In addition, the district received an “unqualified” or clean audit opinion from the external auditors.

Actual Accumulated Deficit Significantly Less Than Originally Anticipated

One of the key purposes of this year’s financial audit is to determine the district’s actual accumulated general fund deficit. In March 2009, Bobb authorized an independent review of DPS’ financial situation in order to forecast the accumulated deficit at June 30, 2009 if no corrective action was taken. At that time, it was estimated that the deficit would balloon to be over $305.9 million by June 30, 2009 [see page 44 of the June 30, 2009 Comprehensive Annual Financial Report]. Bobb took immediate action to reduce personnel; conduct various internal audits to weed out fraud, waste, and abuse; cancelled unnecessary and exorbitant contracts; maximized the use of federal, state, and private grants and donations; and established a new culture of accountability.

According to the report, DPS’ June 30, 2009 financial statements as audited by Rehmann Robson reflects an accumulated general fund deficit at June 30, 2009 of $219.0 million or $86.9 million less than the original estimate of $305.9 million.

“We fully acknowledge that significant work still needs to be done to completely eliminate the deficit over the next three to four years,” Kisner said.

Additional Resource

2009 Comprehensive Annual Financial Report and Single Audit Report

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