PERFORMANCE AUDIT Scranton School District

PERFORMANCE AUDIT

____________

Scranton School District

Lackawanna County, Pennsylvania

____________

October 2017

Dr. Alexis Kirijan, Superintendent

Scranton School District

425 North Washington Avenue

Scranton, Pennsylvania 18503

Mr. Bob Sheridan, Board President

Scranton School District

425 North Washington Avenue

Scranton, Pennsylvania 18503

Dear Dr. Kirijan and Mr. Sheridan:

Our performance audit of the Scranton School District (District) evaluated the application

of best practices in the areas of finance, safety, and contracts. In addition, this audit determined

the District¡¯s compliance with certain relevant state laws, regulations, contracts, and administrative

procedures (relevant requirements). This audit covered the period July 1, 2012, through

June 30, 2016, except as otherwise indicated in the audit scope, objective, and methodology

section of the report. The audit was conducted pursuant to Sections 402 and 403 of The Fiscal

Code (72 P.S. ¡ì¡ì 402 and 403), and in accordance with the Government Auditing Standards issued

by the Comptroller General of the United States. Those standards require that we plan and perform

the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings

and conclusions based on our audit objectives. We believe that the evidence obtained provides a

reasonable basis for our findings and conclusions based on our audit objectives.

During our audit, we found significant instances of failing to apply best practices and

noncompliance with relevant requirements, as detailed in our nine findings. A summary of the

results is presented in the Executive Summary section of the audit report. These findings include

recommendations for the District.

Our audit findings and recommendations have been discussed with the District¡¯s

management, and their responses are included in the audit report. We believe the implementation

of our recommendations will improve the District¡¯s operations and facilitate compliance with legal

and administrative requirements. We appreciate the District¡¯s cooperation during the course of the

audit.

Sincerely,

October 24, 2017

Eugene A. DePasquale

Auditor General

cc: SCRANTON SCHOOL DISTRICT Board of School Directors

Table of Contents

Page

Executive Summary ..................................................................................................................

1

Background Information ...........................................................................................................

4

Findings .....................................................................................................................................

13

Finding No. 1 ¨C Chronic Operating Deficits and a Negative General Fund

Balance Have Led the District to Incur Unsustainable Amounts

of Debt ...............................................................................................

13

Finding No. 2 ¨C District Officials and the Board Failed to Perform Their

Fiduciary Responsibilities Regarding a $26 Million Transportation

Contract That Included Over $4 Million in Questionable Fuel

Surcharges over a 10-Year Period .....................................................

29

Finding No. 3 ¨C The District¡¯s Transportation Expenditures Significantly Exceeded

PDE¡¯s Final Formula Allowance .......................................................

46

Finding No. 4 -¨C The District Incorrectly Reported the Number of Charter School

and Nonpublic Students Transported Resulting in an Overpayment

of $128,590 ........................................................................................

54

Finding No. 5 ¨C For Over Twelve Years, the District Circumvented Payment

Procedures, Improperly Provided Health Benefits, and Failed

to Issue any of the Required Tax Documents to the IRS for

a Mechanic Performing Services as a Non-Employee of

the District ..........................................................................................

57

Finding No. 6 ¨C The District Offered Two Enhanced Retirement Incentives, One

with Flawed Language, Both Without a Cost Analysis, Resulting

in Increasing General Fund Liabilities ...............................................

68

Finding No. 7 ¨C The District Continued to Provide Health Insurance to Former

Employees After the Employees Failed to Pay Their Premiums .......

76

Finding No. 8 ¨C The District Entered Into Two Separatation Agreements With

Former Employees That Resulted In Questionable Use of Taxpayer

Funds and Possible Inadequate Reporting of Retirement Wages ......

83

Finding No. 9 ¨C The District Had Weak Controls over IT Inventory ..........................

90

Status of Prior Audit Findings and Observations .....................................................................

96

Appendix: Audit Scope, Objectives, and Methodology ........................................................... 101

Distribution List ........................................................................................................................ 106

Executive Summary

decreased by more than $25 million and that

the District had to borrow from other

District restricted funds and also had to

obtain General Obligations Bonds in order

to sustain current operations (see page 13).

Audit Work

The Pennsylvania Department of the

Auditor General conducted a performance

audit of the District. Our audit sought to

answer certain questions regarding the

District¡¯s application of best practices and

compliance with certain relevant state laws,

regulations, contracts, and administrative

procedures and to determine the status of

corrective action taken by the District in

response to our prior audit

recommendations.

Finding No. 2: District Officials and the

Board Failed to Perform Their Fiduciary

Responsibilities Regarding a $26 Million

Transportation Contract That Included

over $4 Million in Questionable Fuel

Surcharges over a 10-Year Period. The

District continues to use the same primary

transportation contractor (Contractor) since

the 1990s. In the ten school years from 2007

through 2016, the District paid the

Contractor $26.1 million. Most striking,

however, was the trend of increasing

payments during much of that period. The

District did not effectively monitor the daily

rate or analyze a compounding 4 percent

fuel surcharge levied in a 2006 addendum

(see page 29).

Our audit scope covered the period

July 1, 2012, through June 30, 2016, except

as otherwise indicated in the audit scope,

objectives, and methodology section of the

report (see Appendix). Compliance specific

to state subsidies and reimbursements was

determined for the 2012-13 through 2015-16

school years.

Audit Conclusion and Results

Finding No. 3: The District¡¯s

Transportation Expenditures

Significantly Exceeded PDE¡¯s Final

Formula Allowance. The District¡¯s

transportation expenditures exceeded the

Pennsylvania Department of Education¡¯s

(PDE) ¡°final formula allowance¡± by more

than $11 million during the 2012-13 through

2015-16 fiscal years. We found that the

payment structure outlined in the District¡¯s

transportation agreements were based on a

per-vehicle daily rate, which did not align

with the mileage calculations that PDE uses

to reimburse school districts for

transportation expenditures. As a result, the

District had to use over $12 million in

revenue, in addition to transportation

reimbursement from PDE, to pay for

transportation expenditures (see page 46).

Our audit found significant instances of

failing to apply best practices and

noncompliance with certain relevant state

laws, regulations, contracts, and

administrative procedures, as detailed in the

nine findings within this report.

Finding No. 1: Chronic Operating Deficits

and a Negative General Fund Balance

Have Led the District to Incur

Unsustainable Amounts of Debt. The

District experienced a significant financial

decline during our audit period that resulted

in a substantial negative General Fund

balance which could place the District¡¯s

future sustainability in jeopardy. We found

that the District¡¯s General Fund balance

Scranton School District Performance Audit

1

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