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Sloppy record-keeping threatens federal funding for Penn Hills School District

| Tuesday, March 28, 2017, 12:24 p.m.
CPA Mark Turnley addresses the Penn Hills school board at its Monday meeting. Turnley presented a draft audit of district finances he recently completed.
Natasha Lindstrom | Tribune-Review
CPA Mark Turnley addresses the Penn Hills school board at its Monday meeting. Turnley presented a draft audit of district finances he recently completed.

The already cash-strapped Penn Hills School District could lose federal funding if it is unable to produce missing records on how it spent money on school lunches and low-income students, an independent auditor has warned.

Further, the district is confronting an “avoidable” financial burden that amounts to “far and above what most districts are facing,” CPA Mark C. Turnley wrote in a draft audit of the 2015-16 academic year presented to the school board last week.

“The results are serious, and it shows the serious situation we're in here at Penn Hills,” said David Roussos, who was hired as business manager in December. “We're moving in a positive direction, but we're nowhere near being where we need to be.”

He lauded Allegheny County District Attorney Stephen A. Zappala's empaneling of a grand jury to probe the district's finances, describing the investigation as “a good thing for Penn Hills.”

Should the DA find that “there has been any wrongdoing or impropriety,” Roussos said, Zappala is committed to ensuring “that things are made right.” Roussos said he has not been subpoenaed or questioned by any investigators related to the grand jury probe.

“We need to understand what happened,” said Roussos, the district's third business manager in two years. “That would allow us to understand not just why we are here, but I think it will also shed a light on maybe some of the things we can do going forward to correct the situation — because where we are is not sustainable, it's not acceptable and it has to change.”

Years of tax hikes coming

The auditor said the district will have to enact several years of tax increases and resolve gaps in internal controls to overcome its money problems, which include cash-flow shortages exacerbated by debt of more than $172 million — approaching more than double the district's $87 million annual budget.

The 57-page draft audit — completed five months late — echoed concerns by state Auditor General Eugene DePasquale in a performance audit released in May, including a lack of internal controls, poor record-keeping and ballooning debt spurred by the construction of a high school and an elementary school. The state audit covered operations from 2012 to 2015.

In several cases, the district was unable to provide Turnley with the documentation he requested.

Among the draft audit's findings:

• Financial statements show the district was significantly over budget in several areas and needs to more closely scrutinize excesses in spending. Officials failed to reconcile general-fund balance sheets on a timely basis, in some cases waiting more than a year to make adjustments that Turnley said should be done monthly.

• The district may have “over-claimed” the amount it should have received in government-subsidized food services funding. Officials also could not provide checklists documenting mandatory on-site reviews of school cafeteria systems, which puts the district “potentially not in compliance” with the National School Lunch Program.

• The district could not locate the quarterly cash-on-hand and final expenditure reports required to receive federal Title I funding, which supports districts with a high percentage of low-income students. Penn Hills budgeted about $1.6 million in Title I funding this year. Turnley recommended that officials find or complete the reports “as soon as possible so as not to jeopardize funding for this program.”

State Department of Education spokeswoman Cheryl Bates-Lee said that while state officials have not reviewed Turnley's report, such a “lack of documentation could jeopardize Title I funds” for the district.

Board Vice President Denise Graham-Shealey said she would not acknowledge receipt of Turnley's report because it is only a draft. She and other officials were hopeful the district can produce the missing records to reduce the number of deficiencies cited when the audit is finalized.

The district had a $6.8 million budget deficit as of June. Roussos said he expects the 2016-17 and 2017-18 deficits will be less but did not provide projections.

Moving in ‘right direction'

Several board members attempted to reassure a packed audience during the meeting at Linton Middle School, with several saying the district is “moving in the right direction.”

The oversight and record-keeping issues flagged in Turnley's audit add to a litany of challenges for the district of about 3,800 students in the sprawling suburb.

Last summer, the district's dire financial straits spurred a scathing audit by DePasquale, which led to the District Attorney's Office investigation into criminal wrongdoing .

Board President Erin Vecchio — one of three board members who dissented in a 6-3 vote to accept the draft audit — said she will vote against all financial decisions amid the criminal probe.

“We shouldn't vote on any drafts. I want to see the forensic audit from the District Attorney's Office to show me where the finances went,” Vecchio said. “That's the only audit I'm going to believe.”

The financial dilemma beleaguering Penn Hills can be attributed to a combination of increases in pension and health care costs, losing students to charter schools, failure to evaluate the impact of programs and — the costliest misstep — racking up $172 million in construction debt while avoiding recommended tax hikes, Turnley wrote in the report.

“This unfortunate circumstance was avoidable,” Turnley wrote, “but that gives us hope that the district can survive if immediate and long-range reform efforts are supported and implemented.”

Michael DiVittorio and Natasha Lindstrom are Tribune-Review staff writers. Reach him at 412-871-2367 or mdivittorio@tribweb.com. Reach her at 412-380-8154 or nlindstrom@tribweb.com.

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