COR School District Performance Audits

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ARIZONA STATE LEGISLATURE

Forty-ninth Legislature – First Regular Session

SENATE EDUCATION ACCOUNTABILITY AND REFORM AND

HOUSE OF REPRESENTATIVES EDUCATION COMMITTEE OF REFERENCE

FOR THE SCHOOL DISTRICT PERFORMANCE AUDITS OF:

CHANDLER UNIFIED SCHOOL DISTRICT

TOLLESON UNION HIGH SCHOOL DISTRICT

SOMERTON ELEMENTARY SCHOOL DISTRICT

FLAGSTAFF UNIFIED SCHOOL DISTRICT

Minutes of Meeting

Monday, October 5, 2009

House Hearing Room 1 -- 9:00 a.m.

Chairman Crandall called the meeting to order at 9:11 a.m. and roll call was taken by the secretary.

Members Present

Senator Gray Representative Court

Senator Landrum Taylor Representative Goodale

Representative Meyer

Representative Waters

Representative Crandall, Co-Chair

Members Absent

Senator Allen

Senator Lopez

Senator Paton, Co-Chair

Overview of the School District Performance Audit Process

Ross Ehrick, Division of School Audits, Auditor General’s Office, gave an overview of the school district performance audit process (Attachment 1, pages 1-3) and directed the Members’ attention to a chart showing the implementation status of recommendations made to date by school districts (Attachment 1, page 13). He noted that there is a 97 percent implementation rate for the 22 school districts in which the follow-up process was completed. He clarified that administrative costs include activities like the superintendent’s office, the principal’s office and the business office, but do not include transportation, student support, instructional staff support, food services and community schools.

Chandler Unified School District

Ross Ehrick, Division of School Audits, Auditor General’s Office, gave a presentation on the performance audit and follow-up report for the Chandler Unified School District (Attachment 1, pages 3-4). In response to questions, he related the following information:

· One-fourth of performance pay was used to provide two additional days of training, which was not originally indicated in the performance pay plan or tied closely to whether or not teachers attended the training. The school district included this requirement in the plan and made it clear that employees are eligible to receive the pay by attending the training, but it is not required. A program was instituted to make sure teachers who do not attend the training do not receive the performance pay.

· Transportation costs are sometimes high because of high salaries or benefits, or full-time drivers only work an hour or two in the morning and/or afternoon and hang out at the bus barn. Sometimes routes are inefficient and not reviewed for changes to better fill the buses. School districts are able to reduce transportation costs by improving efficiencies of routes and reducing salaries. Recommendations have been made to have bus drivers perform other duties when they are not running routes such as deliver food items to other schools. Another area reviewed is fuel costs to determine if those are high or low and attempt to make improvements.

Senator Gray conveyed that one school district had a half-time bus driver who drove 450 miles per day.

Representative Meyer said that happens in his school district when homeless children move out of the school district, but the law still requires the school district to provide transportation, which can be a challenge. He questioned if changing the transportation funding formula could increase efficiencies.

Mr. Ehrick responded that in recent audits, the funding formula did not seem to be closely tied to actual costs. He has seen some school districts, in the same year, subsidizing their program by millions of dollars and others receiving $5 million more than costs. With the Transportation Support Level (TSL)/Transportation Revenue Control Limit (TRCL) situation, he has found that if a district makes an error or has high miles from years ago, the district continues to receive funding for that in future years. He agreed that school districts are paid according to the formula to drive the specified miles on a route no matter how many children are on the bus. He added that one school district he recently audited found that in recent years the cost per mile was slightly higher than the amount of reimbursement, so there would be an incentive to reduce the number of miles driven, but if the cost per mile is lower than what the school district is reimbursed per mile, there is not an incentive.

Senator Gray clarified that in the situation she mentioned, it was not one student being transported on a bus. The school district was claiming about $10,000 per parent to transport the children and counted the mileage each way. A very nice gym was built with the excess money received from transportation.

Jeanette Polvani, Associate Superintendent, Chandler Unified School District, stated that she appreciates the opportunity to work with the Auditor General, and the school district complied with the recommendations. In response to a query about performance pay, she stated that this year teachers have the opportunity to earn $2,300 for meeting academic goals so there is a large performance pay stipend, but as part of that pool, an additional two days of the contract is also paid out of performance pay if the teachers attend and participate in the training and collaboration needed to improve performance of the school and students. She agreed to email to the Members a copy of the academic goals specific to the $2,300 in performance pay.

Chairman Crandall remarked that reductions in force (RIFs) and other decisions can no longer be based on seniority or tenure, which means evaluation systems become more critical. Evaluation systems will need to distinguish between good teachers and those who are not, and AIMS scores will not be a strong enough factor, especially at the high school level. He would like to know what the school district will do to distinguish good teachers from great teachers, especially since there may be RIFs in the future.

Ms. Polvani responded that the school district has a strong evaluation tool currently in place, but things are going to change, and it will be necessary to be able to distinguish clearly those teachers with the most positive effect on student achievement.

Representative Waters commented that it sounds as if the performance pay system is being confused with the evaluation system, which are separate in most school districts. In her school district, the evaluation system is much more stringent, so it might be helpful to gather information about evaluation systems.

Chairman Crandall wondered if the two should be so distinct because, hopefully, evaluation is done on the same items for which performance pay is received. A brief discussion followed.

Tolleson Union High School District

Mike Quinlan, Manager, Division of School Audits, Auditor General’s Office, gave a presentation on the performance audit and follow-up report for the Tolleson Union High School District (Attachment 1, pages 5-7). In response to questions, he advised that the school district reviewed the credit card purchases of $26,000 made by the previous superintendent and determined that about $250 was proper, so the former superintendent reimbursed the difference. No fine or fee was assessed by the school district, but a review by the Special Investigative Unit has expanded beyond some of the issues identified in the report for which there are three likely outcomes:

If nothing additional is found to report, the investigation will end.
A separate report could be issued addressing additional items that are found
Information could be turned over to the Attorney General’s Office for review.

Margo Seck, Interim Superintendent, Tolleson Union High School District, advised that she was hired and began work on June 16, 2009. She conveyed the following:

· A series of in-depth audits is being conducted to determine the effectiveness and efficiency of operations throughout the school district and identify any compliance issues.

· Currently no school district employee has a credit card and the school district stopped paying for cell phones.

· The school district does not have a fundraiser.

· A better job is being done of tracking transportation costs.

· Proposition 301 monies are being paid on actual amounts, not projected, and based on academic gains.

· Training sessions are being conducted on coding because people were not coding purchases correctly, which is why classroom dollars do not always reflect what is happening in the school district.

· A formula-based budget for schools and departments is being developed.

· The district’s English Language Learners (ELL) program is no longer in corrective action.

In response to a question, she stated that she does not know why coding was not properly done. She is reorganizing the business office and will be searching for a chief financial officer.

Senator Gray commented that often business managers do not have training or knowledge of the complex financial system, so perhaps a test should be developed.

Ms. Seck replied that it is not always the business manager; support staff needs training, too. It is also a matter of having the right manuals in place and being consistent across the board.

Chairman Crandall pointed out that it is sometimes appropriate to have a fundraiser or use cell phones, as long as there are proper internal controls. He is aware of a fundraiser that made $18,000 which went toward student scholarships. Ms. Seck replied that would be through a foundation as opposed to a school district, which is a better mechanism.

Chairman Crandall noted that the school district had rapid growth in the last five or six years and asked the Average Daily Membership (ADM) increase for this year.

Ms. Seck answered that the school district presently has about a four percent growth rate with 401 students compared to last year at the fortieth day, so it is slower than before. It will probably be less next year because enrollment is down at the feeder schools. The school district recently hired Applied Economics to conduct a demographic study of the school district to determine the projected growth. The school district does have the physical capacity for future students since a new school was recently opened (Sierra Linda High School at 67^th Avenue and Lower Buckeye).

Somerton Elementary School District

Mike Quinlan, Manager, Division of School Audits, Auditor General’s Office, gave a presentation on the performance audit and follow-up report for the Somerton Elementary School District (Attachment 1, pages 7-9). In response to questions, he advised that most of the changes took effect in 2009 and some will take effect in 2010. Data will be collected for the next month to review the impact for 2009.

Debbie Davenport, Auditor General, in response to a query about how budget cuts to the Auditor General’s Office affects the ability to conduct school district performance audits, stated that in 2009, the Office took about a 25 percent cut. Office mandates were reviewed and those with the biggest stakeholder input were prioritized. School district audits were high priority, but cuts were made to the number of audits to be conducted in 2009. The 2010 budget cuts were restored to the Office, which may be a sign that legislators believe the work done by the auditors saves taxpayers money. She indicated that no Proposition 301 money is received for the audits; the agency receives funding exclusively from the general fund. Proposition 301 originally mandated that the Office review each school district every five years, but funding was not available to meet that mandate. Through the years, with budget cuts, etc., the Office is now reviewing only six or seven school districts annually.

Representative Court noted that it would take about 33 years to audit every school district and questioned what funding would be needed to conduct the audits every five years as originally recommended. Ms. Davenport responded that she will make that calculation and let him know.

In response to questions, Ms. Davenport conveyed the following:

· School districts are sorted by size, assigned a number and chosen by a random number generating table from the computer.

· As far as special audits, theft, embezzlement or fraud would be investigated by the Office’s Special Investigative Unit, which works with prosecutorial agencies, and that has been done successfully. For financial issues, all school districts that receive federal funding are required to have financial audits in addition to compliance audits. The Office works with Certified Public Accountant (CPA) firms hired by the school districts to ensure that any potential financial issues are addressed.

· School districts under receivership do not have special audits, but are included in the random pool with other school districts.

Senator Gray pointed out that the agency provides the Members with a thick manual on the performance of every school district. Ms. Davenport acknowledged that the Classroom Dollars Report is distributed in March and contains official accounting data that schools submit to the Office. If something seems odd, the school district is called, so the data is cleaned up, but not audited.

Frank Reed, Superintendent, Somerton Elementary School District, submitted that there were some major operational problems with the school district which were identified in the performance audit, and time was allowed to manage those in a suitable manner, so he is appreciative of the Office and the audit. To date, all 18 recommendations have been implemented.

In response to questions, he stated that the school district was doing things for Proposition 301 performance pay that research indicated might or could lead to better student performance. Legislation changed 301 performance pay to actually pay for performance so the school district reconvened the 301 Committee and addressed the 11 items in the legislation. To earn about $2,700 in performance pay this year, teachers must choose five or seven students (5+2 program) based not only on AIMS data, but also criteria and reference tests, and pre-test and post-test the students. The teacher is only paid performance pay if those students reach a higher level of performance. There is more that can be done in that area, on which the 301 Committee is currently working.

Mr. Reed advised that a few years ago, the percentage of ELL students was 66, now it is about 30. He does not know if it is due to students moving out of the school district. He knows how many migrant students the school district has, but he does not know the transient rate.

Flagstaff Unified School District (FUSD)

Vicki Hunter, Manager, Division of School Audits, Auditor General’s Office, gave a presentation on the performance audit and follow-up report for the Flagstaff Unified School District (Attachment 1, pages 10-12). In response to questions, she related the following information:

Cost of living is not considered in relation to salaries.
The school district is no longer subsidizing the charter school, which was billed for monies owed to the school district. It is not a district-sponsored charter school.
The school district still has a number of open work orders for preventative maintenance and corrective actions, but there is a plan in place for tracking.

The school district has a Facilities Committee that is analyzing the use of building space, and closing a school is one of the items under consideration.
Each Classroom Dollar Report contains a table comparing a school district to the district average, state average and national average on administration, plant operation, etc. In relation to the national average for administration, in the report for 2006, FUSD spent about $720; the comparable district’s average was $543; the state average was $643; and the national five-year average was $943.
As far as overfunding of $200,000 for transportation, the transportation districts have the ability to work with the Arizona Department of Education to correct reports in cases of over-reporting. The audit focused more on the process for calculating riders and mileage. There was still concern at the 12-month follow-up, on which the school district is working.

Chairman Crandall remarked that one weakness in the audit is not taking into account the cost of living because a higher salary may be needed to attract someone who can afford to live in Flagstaff.

Representative Meyer stated that the same is true for plant and operations. Certain districts offer programs that require more space and cost more to operate. Also, in an older school district like Flagstaff that is not growing, there are no new buildings and the state has not provided facilities funding for the past three years, so a decision has to be made whether to pay teachers or fix broken windows.

Senator Gray remarked that school districts are required to send a maintenance plan to the School Facilities Board (SFB) and asked how many are not fulfilling the requirement.
Ms. Hunter said is has been her experience that many school districts are submitting the reports. The major concern is with how well the work orders are tracked for the preventative maintenance that needs to be done.

Chairman Crandall remarked that the report prepared by the Mesa School District took a long time to prepare. It was submitted to the state, but it had no bearing on funding and had very little value to the district since it was contingent upon being funded or not being funded and laws being passed or not passed. He wonders whether there is a way to add more value to the report.

Kevin Brown, Superintendent, Flagstaff Unified School District, made the following points:

When the charter school movement began, the superintendent and governing board at that time were involved in creating a separate 501(c)3 for a charter school primarily for Latino students in the community, to be housed in an elementary school with the idea of charging the charter school for services provided, but it did not work out that way. When he became superintendent, he questioned its existence in the school and asked that it be moved. The charter school was billed several times, but there are currently only about
19 students who do not generate enough funds to pay the money that is owed.
Regarding transportation issues, FUSD is one of the largest school districts in the U.S. with 4,500 square miles, and about 10,000 miles are driven each day. One of the schools is on the Navajo reservation about 50 miles east of Flagstaff and buses drive well beyond that. Since the audit, the school district implemented a new routing system and paperwork recommended by the Auditor General’s Office for drivers to report ridership on a daily basis.
Regarding administrative costs, FUSD has more schools per capita than some school districts, partly due to its large geographic size. Across the street from Leupp Elementary is a Bureau of Indian Affairs (BIA) boarding school so there is competition in the area for students. FUSD was mandated to put Leupp Elementary on the reservation in the early 1950s because a pipeline project was going on and there were students who could not go to the BIA school, so the school is still operating.
A check-out system was implemented so people do not carry fuel cards and receipts must be turned in along with mileage.
Regarding facility utilization, FUSD implemented a third middle school within one of the high schools this year, which dramatically reduced facility utilization at two other middle schools. If enrollment does not change dramatically in the next few years, the school district will probably close a school.
FUSD implemented a new tracking system in the Maintenance Department that is working well.

In response to questions, Mr. Brown conveyed the following:

Regarding desegregation, about 50 percent of FUSD’s population is Latino, and the largest ELL group in the community is Native American. FUSD was providing services to support those students in the regular classroom after exit from the ELL program because the students were still not proficient enough to be successful.
The charter school has students in grades six through eight. FUSD subsidized the charter school at $50,000 in fiscal year 2006, and the school district had already recovered some of the funds. He will find out how much the charter school still owes.
A bond was passed in 2006 so the school district is currently in the middle of work for which the bond proceeds are paying. The total bond for emergency repairs was
$43 million, and the most serious issues have been taken care of such as reroofing and electrical/heating, ventilation and air conditioning (HVAC) issues.
Desegregation money did not increase in the last few years because there is a cap. FUSD has had great success with ELL students because of the easier exit criteria in the Arizona English Language Learner Assessment (AZELLA) so many ELL students exited; however, their needs still exist in the regular classroom. About three percent of the students are still ELL.
Leupp Elementary has just under 300 students. The SFB rebuilt much of the school about six years ago so the current capacity is about 500.
FUSD ADM decreased by about 100 students, primarily from elementary and high school. Middle school ADM has increased.
The remaining recommendations will be implemented within the next six months to one year, although the facilities issue may take longer depending on enrollment.

Discussion

Chairman Crandall stated that due to a miscommunication the superintendent from St. John’s Unified School District, Larry Heap, is present, but the hearing for St. John’s will occur at the next Committee of Reference (COR) meeting. He apologized for the misunderstanding and invited the members to visit with Superintendent Heap.

Jennifer Anderson, Majority Research Analyst, House Education Committee, advised that the next COR meeting will be held Wednesday, October 21, 2009 at 9:00 a.m. for six school districts.

Chairman Crandall thanked those in attendance for their work and noted that even if the money saved by the audits is not returned to taxpayers, it does help in the classroom.

Without objection, the meeting adjourned at 10:46 a.m.

_______________________________

Linda Taylor, Committee Secretary

October 7, 2009

(Original minutes, attachments and audio on file in the Chief Clerk’s Office; video archives available at http://www.azleg.gov)