Analysis: Cash-strapped school districts burdened by federal grant regulations

 

 

 

 

 

 

By DAN BENSON | Oct. 11, 2016

Fall is the busiest time of the year for Wisconsin school administrators as they deal with the annual flood of incoming students and teachers, new classes and programs, and problems.

So Dana Neumann was glad to hear that the federal government is relieving her of a long-standing bureaucratic burden that many see as duplicative, costly and inconsequential: the so-called annual Single Audit of federal funds that flow to local school districts.

“It’s a lot of work for one person to take on” preparing for her district’s 58-page audit performed by an outside accounting firm, said Neumann, director of business services for the Weston School District near Cazenovia in Richland County.

Neumann is off the hook this year because bureaucrats in the federal Office of Management and Budget decided to exempt from the requirement districts that spend less than $750,000 annually in federal grants. The old threshold was $500,000, and Weston each year receives a little more than that.

“It’s definitely a good thing,” Neumann said of the exemption, “because of the amount of work that it takes to prepare and execute and the extra money (the Single Audit) costs. We’re a small school, and funding is very tight. Anytime we have to pay out extra money, it matters. And it’s a burden on me.”

An illogical exercise

Neumann is not alone. Thousands of government agencies, school districts and nonprofit organizations nationwide, including hundreds in Wisconsin, will be exempt from the Single Audit from now on as a result of the decision to raise the threshold and, government officials say, give oversight to folks closer to where the money is actually spent in the state.  

But hundreds of other districts in Wisconsin and thousands more nationwide will still be saddled with the burdensome and, some would say, illogical exercise that feeds a bloated bureaucracy in Washington while adding little or no value to educational efforts. Thousands of hours of staff time and millions of tax dollars statewide will still be spent by school districts to prepare the audits of the almost $600 million of federal grants that will still be subject to Single Audit requirements, a review by the Wisconsin Policy Research Institute of dozens of federal audits of Wisconsin school districts shows.

The threshold change means that throughout the country about $19 billion in federal grant money will no longer be subject to federal Single Audits. And it means that those local governments and school districts will collectively save millions of dollars and incalculable amounts of time in having to prepare for those audits.

Federal grants-in-aid spending is so vast, however, that $19 billion represents only about 0.3% of all grants, which totaled $628 billion in 2015, the OMB estimates. That means, despite the higher threshold, 87.1 percent of state and local entities and 99.7 percent of all grant dollars will still be subject to the Single Audit process, the OMB says.

The very fact that even federal authorities apparently see little or no reason for the federal audits of districts receiving hundreds of thousands of dollars annually begs the question of what larger districts gain from the requirement, what they lose and whether there is a better way.

Audits are costly

In Wisconsin, approximately $900 million in federal grants flow to the state’s 424 school districts. In 2015, grant expenditures ranged from $43,887 by Dover #1 School District in Kansasville in Racine County to about $194.75 million by Milwaukee Public Schools, according to the state Department of Public Instruction.

The largest amount of money goes for Title I programs, meant to help low-income and disadvantaged students and which account for about 10 percent of all school spending. Other grant money supports efforts to assist special education, transportation, teacher training, free and reduced-price school lunches and physical education. Most grant monies are paid to the state and “passed through” to the local districts.

No data exists on exactly how much Single Audits are costing school districts statewide, said Kathy Guralski, assistant director of the DPI’s School Management Services Team in Madison, which helps oversee the statewide annual auditing process. In addition to the hundreds of school employees and a widespread bureaucracy at the state and federal levels devoted to administering grants, dozens of accounting firms are used across the state to conduct both the state and federal audits.

It’s safe to say the cumulative cost is in the millions of dollars.

It costs a smaller district about $1,500 to several thousand dollars just to hire the auditors, officials interviewed for this article said.

“It’s not a lot (of money), but when you’re a small district, even $1,500 can pay for four or five Chromebooks,” tablet-sized computers that students use for class work, said Karie Bourke, business services agent with the Walworth Joint School District No. 1. Her district is now exempt from the audit. 

In larger districts, the audit can cost tens of thousands of dollars — or more if auditors uncover what federal bureaucrats consider to be a problem. 

In the Cedarburg School District in Ozaukee County, for instance, an auditor sampled records for 40 children with a variety of disabilities whose bus trips are paid for by the federal government. The audit reported two students whose parents, for privacy reasons, did not give their consent for the district to bill Medicaid. Failing to check that box cost the district $17,266 in local tax dollars.

The bureaucratic burden is “pretty hefty. A lot of district officials wonder if the juice is worth the squeeze,” said Cedarburg Director of Pupil Services Ted Noll.

The audits are also costly timewise, officials said.

“For some of the grants we administer, there’s a lot of paperwork we must provide,” Bourke said.

For instance, she said, grants that support professional development for teachers require recording the teacher’s training or educational activity, details on the substitute filling in while the teacher is training and a record of where the substitute worked and for how long.

“By the time you print off all the material, you begin to wonder what we’re getting back,” said Bourke, who works alone in the district business office overseeing the K-8 district’s finances. The district spent $507,000 in federal grants in 2015.

Even for large districts, the level of record-keeping required for programs can be a strain, especially compared to the relative benefit.

The West Allis-West Milwaukee School District in Milwaukee County, for instance, is the state’s 12th-largest district with more than 9,500 students, 1,200 employees and a budget of $123 million. It spends less than $25,000 in grant aid from the U.S. Department of Transportation for its buses, but it has to maintain an avalanche of records accounting for each child who rides a bus.

That has district officials wondering if the administration of the program is worth the money the district receives, said Director of Business Services Andy Chromy.

“There are some items that I think are (bureaucratic overkill) for sure. Transportation is one of them,” he said.

Duplicative audits?

All sorts of government agencies and nonprofits in Wisconsin, not just school districts, must undergo the Single Audit, which can be helpful in pointing out issues with misspending and mismanagement. Audits of the St. Croix Chippewa tribe’s use of Housing and Urban Development funds, for instance, provided WPRI’s “Federal Grant$tanding” project — of which this story is a part — with a clear picture of problems.

But school districts in Wisconsin already perform a state-required “regular” audit of finances. The Single Audit can be especially irksome, some officials say, because, while it focuses on specific federal grant expenditures, it’s often redundant.

“It’s pretty much duplicative” of the regular audit, said Patrick Rau, administrator of the Bonduel School District in Shawano County. “There’s not a significant difference” between the two.

Susan Jarvis, business manager of the Salem School District in Kenosha County, called the state’s regular audit more thorough.

“I think I learn more from the regular audit,” she said, adding that she thinks she doesn’t learn anything from the Single Audit.

Guralski, with DPI, disagreed. “They’re not duplicative at all. Single Audit delves into compliance of federal grants.”

But regular audits can and sometimes do delve into how federal grant monies are spent, even when a Single Audit is not required, especially under new guidelines that also give more responsibility to the state for follow-up, Guralski conceded. That added responsibility includes DPI staffers following up with districts midyear and making on-site visits, if necessary, to ensure progress is being made on problems identified in their most recent audit.

There is a difference, it’s important to note, in how the process works for large districts compared to smaller ones.

The money flows in so many different ways through such a variety of programs that many smaller districts are uncertain how much federal money they’ve spent until the regular state audit is completed.

As a result, smaller districts such as Weston often have to follow a two-step process, in which an accounting firm comes in to prepare the state-required audit, and then, if it finds the district crossed the threshold on federal grants, a second step at additional cost is taken to audit those expenditures. Under the new rules, about 40 districts, most of them smaller districts such as Bonduel, remain on the audit cusp, spending between $700,000 and $800,000. They collectively spent about $29 million in 2015, according to Federal Audit Clearinghouse figures.

For larger districts where it’s certain their spending is above the threshold, the two steps are combined into one audit. That alleviates some concerns about redundancy, but critics still raise questions about the cost and whether the audits are used to measure success or rectify problems. The final audit is due to the state in September and is published by the Federal Audit Clearinghouse the following January, unless the grant recipient receives an extension.

Larger districts such as Milwaukee, Green Bay and Madison can marshal a corps of business administrators, bookkeepers and secretaries to manage the millions of dollars that flow from federal coffers.

Smaller districts, on the other hand, often have fewer than a handful of staffers — sometimes just one or two people — manning their finance offices, requiring superintendents and even school board members to get involved in day-to-day business minutiae such as signing checks, reconciling bank statements and making bank deposits.

That leads to the most common finding of audits: that school districts lack sufficient staff to exercise proper internal controls, meaning the same person might be receiving, writing and depositing checks — increasing the possibility for mistakes and even fraud and embezzlement. But over and over, cash-strapped districts say they can’t afford to hire additional staff, and so they soldier on, only to be written up for the same deficiency the following year.

Smaller districts contend that the federal requirements treat them the same as much larger districts.

Single Audit standards are “influenced by large accounting firms that don’t have little 3 people offices,” an unidentified local school official was quoted as saying in a state DPI presentation used to train school business managers on the Single Audit process.

School officials interviewed for this article agreed.

“They’re making an unrealistic standard for how most districts operate,” said Bourke, of the Walworth district.

Lack of consequences

Everyone agrees that federal grants must be scrutinized or audited in some way. The problem with the current way is that, even when audits are performed and necessary, they often point out problems that are either inconsequential, such as internal controls, or that are never rectified.

For instance, the 2015 audit of the Fort Atkinson School District in Jefferson County was the third in a row that found the district did not keep adequate time sheets for staffers whose salaries were paid with federal grants. Questioned costs for 2015 totaled $236,000.

For three consecutive years, the Westfield School District in Marquette County had to repay the DPI for money used to pay teachers and substitutes who work under the federal Title I program.

And sometimes auditors just miss things.

In the West Allis-West Milwaukee district, the 2015 Single Audit determined that $2.3 million in teachers’ pay was not accounted for in required time sheets. It was something the district had never done, but it had never been noted in prior audits, said Chromy.

“The auditor should have noted that as a deficiency” in previous audits, said Chromy, who joined the district after that year. “That was an oversight for sure.”

A ‘complicated mess’

The problem is nationwide and one that some say needs to be rectified — and quickly.

“The (grant) system is a complicated mess, and it is getting worse all the time,” said Chris Edwards, director of tax policy studies at the Cato Institute in Washington, D.C., and editor of www.downsizinggovernment.org.

“Federal aid stimulates overspending by state governments and creates a web of complex federal regulations that undermine state innovation. At all levels of the aid system, the focus is on regulatory compliance and spending, not on delivering quality public services. It is a triumph of expenditure without responsibility.”

Edwards believes it’s time to begin cutting the vastly overgrown grants-in-aid system.

Federal officials, in the meantime, seem to have concluded, by exempting districts that receive less than $750,000 that — at least for smaller districts — local oversight is more effective than trying to monitor everything from Washington, D.C.

While the $750,000 threshold might seem arbitrary, OMB officials did provide a rationale for the change: They said it would help reduce paperwork. But they also provided a defense to inevitable charges that the change would result in a lack of oversight.  Oversight and accountability will actually increase, they said, because the new rules also include mandates requiring states to more rigorously follow up with agencies whose audits expose problems — all of which begs a fundamental question:

If the feds think the state (and, by extension, local school officials) can do a better job of regulating how small districts spend federal dollars, why not go all the way and relieve Wisconsin schools — small, medium and large — and the DPI of the federal burden altogether?

It appears that would save money, time and lots of bureaucratic headaches, allowing educators to focus on their primary concern: the education of our children.

Dan Benson is editor of the Wisconsin Policy Research Institute’s Project for 21st Century Federalism, of which Federal Grant$tanding is a part (wpri.org). Benson is a former reporter and editor with the Milwaukee Sentinel, Milwaukee Journal Sentinel and Gannett Wisconsin.

Read related story: West Allis school district weaning itself from some federal money

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