BISD's auditor says bond money dwindling
The coffers for the Beaumont Independent School District have seen better days. Aside from the hundreds of thousands of dollars funneled to Assistant Superintendent Patricia Adams Collins Lambert’s grown son for “printing” from his Houston-area apartment bedroom, aside from the double-dips in the pay trough OK-ed by the district superintendent, aside from the millions lost to bad math equations, even aside from the $4 million embezzled by the school district’s finance department, BISD is losing more money than auditors can track.
A team of finance professionals hired by BISD is now reporting that bond money has been misreported, the general fund reserves diminished more than $20 million in one year, and BISD administration’s rate of spending is placing the school district on a path to sink even further into the red as the weeks roll by. To top it off, BISD’s investor rating has taken a plunge with analysts stating that the negative rating assigned to the school district could delve even further south should BISD “continue (its) trend of lax internal controls.”
At a Monday, Feb. 17, meeting of the BISD Board of Trustees, independent auditor Gayle Botley explained to the elected officials and school district administrators that the $388 million entrusted to BISD by Beaumont voters to build new schools was not used as has been purported by district officials. Having had the chance to review only two of the 50-plus projects covered under the bond, Botley said he is already seeing red flags and needs to expand his task — from reviewing the top five costliest projects to reviewing every single project undertaken by the school district to determine where taxpayers’ money has gone. According to him, roughly $10 million has been incorrectly attributed to the final cost total at the multi-purpose sport complex and another $4 million was incorrectly attributed to the end cost of the new South Park Middle School.
“The only way to find out where that money belongs is to look at all the projects,” Botley said. “I don’t know what we’ll find in the other projects until we look at them. I really just don’t know.”
What Botley has already found, aside from approximately $14 million missing dollars, is that bond projects were paid from the general fund, that bond project manager Parsons may have been double-dipping in the millions, and the separate accounting books held with the project manager and BISD do not match up.
“We’re not sure why that is,” Botley said. “We’re having trouble following that process.”
In addition to the news Botley reported, CPAs Bill Lenhart and Charles Yaple also painted a picture of fiscal sickness for BISD’s Board of Trustees.
“We feel there are a lot of adjustments left to come up with the proper figures,” Yaple said, “but based on your spending, best practices would have your fund balance at $40 million. Right now, you’re at $11 million.”
According to Yaple, at the end of 2012 BISD had a fund balance of $36 million, but that number had decreased by $25 million by the end of 2013. Still, he added, “That number is subject to change as we get to the bottom of things.” Also, he said, that number will continue to decrease at the end of the current fiscal year since BISD administration is spending at a pace faster than last year, although this year’s budget is $14 million less than last year. If the BISD Board of Trustees does not institute change at this point, the fund balance is expected to be hit with roughly $8 million in expenditures over revenues for the year. The ending fund balance for BISD, at the current rate, is expected to be at roughly $3 million.
CPA Lenhart explained that measures to cut the budget deficit could include cutting out the excessive Worker’s Compensation funding where “claims do not even come close to what the district is paying in,” eliminating BISD-funded UIL and life insurance, increasing facility use fees, freezing travel cost reimbursement, eliminating district-issued cell phones for non-material staff, and staffing the maintenance department in separate shifts to cut back on the extreme amount of overtime paid to personnel in that department.
Even making changes now will be too late to keep BISD’s good fiscal name intact. On Feb. 18, Moody’s Investors Service downgraded BISD’s general obligation (GO) rating to A1 from Aa2, affecting $183.8 million in parity debt obligations.
“At the same time, we have concluded the review of the district and assigned a negative outlook,” Moody’s analyst Karolina Norris reported. “The rating was placed under review for possible downgrade on Nov. 19, 2013, pending the outcome of various investigations.
“The downgrade … reflects severe governance problems plaguing BISD, including lack of internal controls, a divided board, as well as allegations of fraud and multiple pending investigations. The rating also takes into consideration recent declines in reserves, the district’s sizeable tax base concentrated in the petrochemical industry, below-average wealth levels, and an elevated debt burden with no additional debt plans in the near term.
“The negative outlook reflects Moody’s expectation that the district will face additional challenges in the near- to mid-term given the ongoing special accreditation investigation by the Texas Education Agency, as well as separate federal investigations. Additionally, the outlook reflects uncertainty surrounding the extent of future state involvement in the district’s operations, as well as projected narrowing liquidity resulting from budgeted draws on General Fund reserves in fiscal 2013 and 2014.”