An audit of a special V.I. school emergency spending fund has revealed lax fiscal controls, improper spending, and uneven funding allocation between the schools due to a snag in the spending formula.
That’s according to a report released by the Inspector General’s Office, which reviewed spending in the government’s Education Initiative Fund from 2003 to 2007. The 71-page report was presented to government officials earlier this week and to the media Wednesday.
According to V.I. Inspector General Steven van Beverhoudt, the fund, established by the legislature in 1995, is meant to augment school budgets to allow for emergency spending for essential goods and services to keep public schools and adult education facilities up and running. The fund consists of a percentage of the proceeds the V.I. Lottery receives from games under contract with its private contractors.
Van Beverhoudt said Wednesday the report did not show that any money had been misappropriated. On the contrary, he said, it was in some cases difficult to tell how the money was used because of lax fiscal controls and poor record keeping in the departments of Education and Finance.
According to the report, "The Fund was administered in a substandard internal control environment that resulted in inadequate stewardship and accountability of Fund resources …." This was due, the report said, to "poor internal control conditions."
The report’s major findings are:
–Funds were not evenly distributed between the schools;
–Funds were generally disbursed to schools late;
–Schools were disbursing funds for purposes not allowed by the V.I. Code, which sets out allowable purposes;
–Finance and Education did not effectively monitor schools’ uses of awarded funds to ensure proper accountability and compliance with the law; and
–The V.I. Code contains ambiguous and contradictory statutes addressing the Education Initiative Fund.
The funds were often distributed late, according to van Beverhoudt, because the distribution is based on the student population of each school, and those reports are often turned in late.
The fund was designed to help prevent the frequent closure of schools due to urgent situations such as water shortages, the audit report notes, but was never intended to supplant the Department of Education’s acquisition of goods and services through the regular budget and procurement processes, as required by law. For that reason, the law spells out specific things money from the Education Initiative Fund may not be spent on:
–Entertainment items, goods, or services;
–More than $3,500 worth per year of equipment and supplies for administrative offices;
–Donations, raffles, tickets, or other related expenditures;
–More than $2,500 for personal services per person, legal entity, employee, or representative, and not more than 50 percent of the school’s total allocation on personal services; and
–Vehicles or travel.
The Code requires that principals consult with the School Based Management Team at their school before making any expenditure over $500 except in case of emergency. As an example, van Beverhoudt suggested repair to air conditioning units or plumbing emergencies that must be dealt with in a timely manner to continue school.
But in reviewing the spending of $1.28 million among 14 sample schools, the audit found $257,802 in spending for items not allowed by law. That $1.28 million figure was not all the spending from the fund for those years, the report adds, but it was all that could be accounted for among the sample schools.
Those schools had actually received $2.2 million in Initiative funding over the period of the audit, but the auditors could not track the remaining $890,000 because school expenditure reports were not available, and other records show the funds had been commingled with other school funds.
Auditors discovered that nine of the 14 schools studied had no documentation for expenditures incurred in some fiscal years, nor were the expenditure reports available at Education’s main offices on St. Thomas and St. Croix.
The unallowable expenditures included $39,765 for substitute teacher payments, which are required to come from a separate fund; $35,244 for entertainment and gift items; $29,654 for travel expenses; and $1,475 for donations. Payments to vendors for personal services or labor exceeded the $2,500 limit that could be paid to each vendor, per year according to the V.I. Code,
Also, auditors found that of $21,782 in expenditures made for administrative office equipment, $7,782 was in excess of the $3,500 allowed by law per year, for such expenditure for each school.
The report also said the V.I. Lottery owed at least $726,903 in contributions to the fund from private contractor gaming revenues. Payment documents and audited financial statements showed that the V.I. Lottery paid $6.4 million to the fund beginning in the fourth quarter of fiscal year 2003 to the end of the fourth quarter of fiscal year 2007. But when the auditors applied the lower of the two contradictory percentages found in the V.I. Code, they found the V.I. Lottery should have paid at least $7.1 million.
To complicate matters, the V.I. Code contains two different percentages for distribution to the fund from revenue from private contractors—25 percent in one section of the law, 35 in another.
Funds are distributed to individual schools based on a three-step formula. While that formula aims to make sure that the funds are distributed evenly between the St. Croix and St. Thomas–St. John districts, it virtually guarantees that it will not be equitable between individual schools.
Each school receives $50,000 as the first step in the process (an increase from $10,000 in the original law.) Then each school receives an additional $15 per student enrolled over 500 students. Then, to ensure that each district receives the same total amount from the fund (regardless of enrollment), the lesser-funded district received an amount equal to the difference, which it distributed equally among its schools but not between schools per student.
For example, in fiscal year 2004 St. Croix Educational Complex Vocational School had a student enrollment of 593 and was awarded $17,593 from the fund. Three St. Thomas schools had higher student enrollments – Addelita Cancryn Junior High, 845 students; Bertha Boschulte Middle School, 770; and Joseph Gomez Elementary, 629. But those schools received $15,175, $14,050 and $11,935 respectively.
While changes have been implemented in recent years, van Beverhoudt said, so far they have been paper changes only. Principals still tend to view their schools as their own entity to manage without interference from higher-ups or other departments, and sometimes without regard to how the law says money must be accounted for and used.
"They need to get better at record keeping, turn in their reports in a timely manner, and spend the money in accordance with the law," van Beverhoudt said.
He added that until there are repercussions for school administrators and department officials who don’t follow proper procedures and the territory’s laws, there won’t be an incentive to halt the lax practices—whether that takes the form of reprimands, dismissals, or something in between.
The report also found several conflicts within the law which it called to the attention of the administration.
A copy of the complete 71-page report is available online.
