THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Friday, September 29, 1995 TAG: 9509280149
SECTION: VIRGINIA BEACH BEACON PAGE: 06 EDITION: FINAL
TYPE: Editorial
SOURCE: Beth Barber
LENGTH: Medium: 73 lines
What did which school officials know and when did they know it?
Monday's decision to put Chief Financial Officer Mort Smith on paid administrative leave won't put the school-finance fiasco to rest.
That's not to say his suspension isn't welcome. Mr. Smith has been the schools' budget-development director since 1989, was interim chief financial officer after Hal Canary was fired in August 1994 and was named CFO in February 1995. There's not a budget in the past four years that Mort Smith didn't have a hand in developing and/or im-ple-ment-ing.
There's not a budget in that time that's clear as a bell, either. At least two years' worth of audit reports and memos clanged clarion calls - to anybody who was listening. And com-pre-hend-ing.
Yet three days before the school system had to disclose the '94-'95 deficit of at least $7.4 million - and several months after the internal auditor documented disaster ahead - Mr. Smith was predicting a $400,000 surplus. Interim Superintendent Jim Pughsley had to issue a memo repudiating and correcting not a novice to finance but a CFO.
For novices, apparently, look to the School Board.
Without a peep, board members let a crucial month, June 1994, pass without the usual, and stat-u-tory, interim financial statement. Instead, they got this ad-vis-ory:
. . . As June is the last month of the fiscal year, the ``books are held open'' into August in order to record any liabilities pertaining to the prior year. Presentation of preliminary financial statements at this time might be misleading. Therefore, the School Board will be advised as to the preliminary estimate of ending fund balances and any un-u-su-al transactions or balances, if any.
The ``missing statement'' of June '94 - or at least school system files seem to be missing it - is reproduced at top right. Prepared by then-CFO Hal Canary, it shows ``unrealized'' revenues - a deficit in budgeted in-come - of $8,715,731. It shows a deficit of ``unencumbered'' funds - funds received but not yet committed to specific expenses - of $257,791. It shows, in short, a budget way out of whack as school year '93-'94 ends.
This statement is ``misleading'' in that it does not include some revenues due short-ly for '93-'94 - a state sales tax payment, for instance - that could, some say should, have been included. It is instructive, however, as the proverbial 2x4 to get the board's attention; surely no board member could have missed how close to the edge the district skated.
I say ``surely,'' but . . . Eight months later, internal auditor Kevin Jones noted that the Audit Committee - Chairman June Kernutt, member Susan Creamer (a CPA) and then-Superintendent Faucette - had approved a report that should have gone 'round School Board and city like Paul Revere 'round Middlesex villages and farms. But the information in Jones' report, presaging the '94-'95 fiasco, apparently never got past the Audit Committee. Why?
For much the same reason that board members ``missed'' Canary's June financial statement for the end of school year '93-'94? For the same reason that Faucette in effect fired Canary on Aug. 16, 1994, the very day the superintendent presented the School Board a revised ``Preliminary - Unaudited Statement''? Reproduced at right, it indicates that between June 30 and Aug. 16, schools ``realized'' enough revenue and reduced enough expenses to have a surplus in the '93-'94 budget.
Legitimately ``realized''? Legitimately reduced? Surely the ``expanded'' audit led by city finance staff will review adjustments such as ``carrying over'' '93-'94 purchase orders into the '94-'95 budget and emptying but not replenishing ``enterprise'' accounts.
If not, the audit will only cement a suspicion already hanging heavy through this city: that this audit is more a case of covering the city's backside and bond rating than uncovering the truth, the whole truth and nothing but. by CNB