Audits warned Carroll district of
finance woes
by Jessamy Brown, Star-Telegram, Sunday, May 9

SOUTHLAKE - Last month's job and program cuts in the Carroll school district have their roots in financial problems that surfaced at least five years ago, when independent auditors raised concerns about overspending.

But even after the auditors' reports, district officials continued to run up deficits in several accounts. Carroll officials have long blamed the state's Robin Hood program for their budget problems, but they now acknowledge that the causes are more complex. Overspending, accounting errors and lax oversight all contributed.

Carroll officials, parents and residents say that a culture of spending -- with the idea the money would always be there -- existed in the affluent district.

"It's important that someone is held responsible for this," parent Sue Armstrong said. "I think it's very disappointing to know that the real reason we lost art and music is not because of Robin Hood. It's because of their own budget problems. It just seems really irresponsible."

Last month, trustees cut $6 million in expenses to avoid a deficit in the 2004-05 budget and to begin replenishing the district's savings account. The reduction means a loss of 98 positions, larger class sizes, fewer extracurricular programs and less of the "individualized, personalized" instruction that Carroll touts in its motto.

Carroll officials say it will take until at least 2007 to rebuild the savings account and restore financial health. Meanwhile, district officials have taken steps to help prevent a recurrence.

"Carroll is just now learning that education life will just never be the same," said Gary Mathews, who became superintendent in September 2002. "Now we're down to budget by subtraction."

District officials should have been more frugal with public funds, said Bill Zimmerman, a member of Carroll's budget and finance committee, a citizens group that advises trustees.

"They were spending money until there was no tomorrow until Robin Hood hit," said Zimmerman, a Carroll taxpayer who does not have children in the district. "You can rewind the tape five years ago and avoid this by simply being more conservative."

If the Legislature overhauls school finance, Carroll officials fear the district won't fare any better.

Parents in the district, where the average house is appraised at $375,049, expect Carroll to provide a top-notch education that will prepare their children for college. And parents have been willing to open their wallets to achieve this.

Carroll's per-pupil spending adds up to $8,921 annually, compared with the state average of $7,088. Among the six Northeast Tarrant County districts, only Northwest spends more -- $9,280 per student, according to a 2002-03 report by the Texas Education Agency.

Carroll students have access to an indoor swimming complex, an indoor football training facility and a sparkling 3-year-old stadium. They also have well-equipped science laboratories and 17 Advanced Placement courses, part of the reason 95 percent of Carroll graduates go on to college. Teachers' pay exceeds the state average.

But district officials say they are having to be much more selective about spending.

For years, they have blamed Robin Hood for budget cuts. The state's share-the-wealth program forces Carroll to send millions of dollars to poorer school districts -- $14.2 million in 2003-04. Next school year, the district expects to send about $16.0 million, or about 27 percent of the district's estimated $60 million in expenditures for 2004-05.

Now, Carroll officials say, Robin Hood is only part of the problem. Past administrators overspent on such costs as travel, personnel and utilities. And they did not always keep track of where the money was going.
Administrators dipped into the district savings account to cover expenses that were never budgeted, according to audits for the past five years. The auditors repeatedly warned against this practice.
For example, in 1999 the district spent more than was budgeted in 16 of 34 categories. Expenses totaled $1.46 million more than that year's $33.6 million budget. Most of the overspending was for instruction -- about $1.2 million. That account covers costs associated with teaching children, such as teacher training, libraries and the curriculum.

In the 2002-03 school year, the payroll was over-budget, apparently because administrators computed personnel expenses using average salaries instead of what employees were actually being paid, the district reported.

"It's just bad business practice," said Ed Flathouse, the Texas Education Agency's associate commissioner for school finance and compliance. He said about 30 of Texas' 1,039 districts in 2002- 03 had deficits in their fund balances, meaning they had depleted their savings.

To improve the system, Carroll auditors in 1999 recommended a monthly review of budget requirements. But district officials did not consistently follow through on the recommendation until this year. It was one of the first issues noticed by Sharon Eaves, the district's business manager, who was hired in June.

"That's the only way the board's going to know how much money has come in and how much has been spent. So they have an idea of where we are," she said.

Financial errors
The district might have weathered these problems were it not for sloppy accounting and a sharp slowdown in enrollment. Accounting problems resulted in at least $2.1 million in errors.

In December, for example, trustees were surprised to learn that Carroll had made an extra $700,000 Robin Hood payment in 2003, but the expense had not been properly deducted from district accounts. And administrators found that the 2003-04 budget did not include $437,000 for payments to the state's teacher retirement system, among other errors.

In February, trustees also learned that previous administrators spent $6.2 million from the district reserve fund -- its savings account -- between 1999 and 2003, apparently without school board approval. Although the expenses were deemed legitimate, Carroll officials cannot find documents showing administrators sought board approval for the transactions.

"I can't see anything that was inappropriate. It's just poor accounting, poor reporting to the board," said Eaves, a board member of the Texas Association of School Business Officials.

School board President Robin Snyder said many in the district appear to have assumed that there would always be money to cover expenses.

"In reality the money had been coming from the fund balance," she said. "It's not like it was coming from somebody's pocket. So we were exceeding our budgets without knowing it. And boards have been passing balanced budgets, but administrations in the past have not kept within the budgets."

Jim Schiele, Carroll's assistant superintendent for business and finance from July 2002 to December 2003, declined to comment on the district's record-keeping because he is not privy to the district's documents.

But he said that trustees were provided financial reports only sporadically; no one insisted on the reports. Because of high turnover among top administrators and a short-handed budget office, other tasks received higher priority.

"I only had so much time. You have got to prioritize and put first things first. A lot of stuff was going on," said Schiele, now the Duncanville school district's assistant superintendent for business and operations.
Added to these problems is a slowdown in enrollment. In the late '90s, enrollment jumped by 11 percent to 12 percent annually.
New figures released in September projected that the district would grow only 1 percent to 2 percent a year for the next decade. And this year enrollment may increase less than 1 percent.

The slowdown means higher Robin Hood payments, based on the state's current formula. Mathews, the superintendent, said many in the community have been slow to understand that Robin Hood could affect the district so drastically.

"I think our own Robin Hood plight could have been foreseen," he said. "I think the district in the past could have given clearer warning as to its reality."

The heavy drains on the district's savings meant that trustees, who had expected this spring to make $3 million in cuts from the 2004-05 budget, needed to cut twice as much to have $2.4 million to begin rebuilding the district's savings account.

The reserve fund, which in 1998 totaled more than $9 million, has dwindled to $3.7 million and could shrink to $429,061 by the end of the fiscal year. District policy says Carroll should have enough money in savings to run the district for at least 45 days, or about $6 million.

In April, trustees reluctantly voted to cut half the district's art and music programs for elementary and intermediate students. Almost 100 positions were eliminated, and classes will be larger next year.
Officials have also proposed almost a 4-cent increase in the district's 2004-05 tax rate, estimated to generate more than $1 million.

This year's rate, $1.9025 per $100 of assessed property value, will generate about $51.3 million in tax revenue. In 2002, the most recent figures available from the Texas Education Agency, Carroll's school tax rate was the fifth-highest in the state.

A final vote on the proposed 2004-05 budget is scheduled for August. The tax rate will be set in September.

Records 'in shambles' It's difficult to determine who is at fault.
Mathews is the district's third superintendent in the last five years. Several other administrators have come and gone.

Mathews said he learned the extent of the financial problems in December and January after investigative work by Eaves and reports from new auditors.

"I was under the distinct impression that the district was doing better than it was," he said.

Ted Gillum, Carroll superintendent from 1996 until he retired in June 2002, could not be reached for comment. Gillum was replaced by Santo Forte, a retired Azle superintendent who served as a temporary replacement until Mathews was hired in September 2002.

Forte said he noticed that officials were over-projecting income. He said that he was surprised at the lack of budget controls and that he told the board problems existed. To try to end the freewheeling spending attitude, Forte and trustees stopped the unlimited use of district credit cards and cellphones.

"I had to be the person who sort of started applying the brakes," he said. "The record-keeping was so atrocious. I'd go over to
the business office and the records were in shambles. They were just fraught with a lot of lax book work."

Snyder said that although trustees are given 16 hours of state training in education matters after being elected, they're not budget experts. They have not been given all the legal and financial information they need to perform their oversight, she said.

As a new board member in 2001, Snyder said she thought the district's budget and finance committee members were overseeing accounting practices. She also relied on district administrators.
"My background is not accounting. It's education. You have to trust your people to do it," Snyder said. "We're still operating the way we were when we were a 2A district, a small district. When it gets larger, you have to put in more levels of accountability."

Many school board members have trouble understanding school finance because it is complex and changes often, said Flathouse of the Texas Education Agency. Information must be provided to the board regularly, and in ways that trustees can understand. Some trustees need information in simple terms. Boards that have members with financial backgrounds might prefer more sophisticated reports, he said.

"Typically school boards are not very well-versed in the art of school finance," he said. "It needs to be provided in a way that addresses the board's needs. It's tailor-made."

Teachers said they understand that many of Carroll's financial problems appear to have been beyond the district's control. But they are angry that further sacrifices were needed because of accounting errors, said Steven Poole, associate director of the United Educators Association, a group that represents Carroll teachers.

"Robin Hood takes so much of their money away, but a lot of it was their own doing. Not only did they have to send money to the state, but they had to make up a budget shortfall they didn't know about but should have known about," he said. "I think it will take some time for trust to return. It was kind of hard to swallow."

Parent Dana Sternfeld praised the current school board and administration for trying to be more efficient.
"That's the only way they're going to improve the system, so there's more checks and balances," she said. "It's hard, sitting around in a coffee chat, to make people aware that this isn't about the fact that anyone embezzled money."

To prevent a recurrence of budget problems, Mathews said, officials will perform a targeted audit of district spending for the past five years. They will try to identify more precisely how the financial problems occurred.

Snyder said the board will closely monitor the district's finances to ensure that departments do not exceed their budgets. Board members have pledged to review the district's budget monthly and compare expenses with costs from the previous year -- procedures recommended by the state and business groups.

Flathouse said he believes Carroll has viable plans to handle the problem.

"If they watch it, they can make it," he said. "But they may need to watch the spending." And the communication.

"It's the behind-the-scenes monitoring and making the board aware of what is going on," Eaves said. "It's being aware that there is a problem and not stepping in after the fact."

Budget woes The Carroll school district cut $6 million in expenses last month to avoid a deficit and replenish its savings account. The budget problems were created by:

* Accounting errors. Some expenses were not deducted from accounts.

* Overspending. District officials for years spent more money than what was budgeted. Administrators repeatedly dipped into
the district's savings account.

* Robin Hood. The state share-the-wealth program is forcing the district to increase its payments by millions of dollars annually.

* Lack of communication. School board members were not informed that administrators were overspending. Changes include making monthly budget reports to the board.

ONLINE: Carroll school district, www.southlakecarroll.edu
Texas Association of School Business Officials, www.tasbo.org
Jessamy Brown, (817) 685-3876 jessamybrown@star-telegram.com