Audit examining a 2008 budget shortfall in the Phillipsburg School District finds various issues with district checks and balances

PHILLIPSBURG | A state audit report uncovered some sloppy budgeting in the Phillipsburg School District between July 2007 to June 2009, but saw no fraudulent or intentional misuse of district dollars.

Auditors were searching for the source of a $113,000 deficit from 2008.

Released in April but never discussed publicly by the Phillipsburg School Board, the New Jersey Office of Legislative Services' audit took issue with district practices in financial recordkeeping and purchasing within the two-year period being scrutinized.

The Express-Times obtained a copy of the audit this week.

State Auditor Stephen Eells said the seven-month study found the $113,000 shortfall from 2008 to be the result of underbudgeting for increased health insurance costs.

"We're not sure exactly what happened here. There's no reason why you would have a flat budget" for health care costs, Eells said. "We just wanted to make sure that there's not intentional misuse or fraud that created the deficit."

Business Administrator William Bauer said many of the items identified in the report were being addressed before the audit's completion and have since been tackled.

"Some of the things they were talking about, we were already working to correct," Bauer said.

Instances of purchases sent directly to the homes of district staff, as cited in the audit, no longer occur. Financial documents once kept unlocked in business office desks are now stored in safes, according to Bauer.

Superintendent Mark B. Miller, who took over in the district in fall 2008, said when he and Bauer began to examine school operations there were already a number of practices they wanted to see updated or changed.

"We were kind of ahead of the audit in the sense that we were already aware of where we wanted to go and were heading there before the auditors came in," Miller said.

Besides recommendations on pursuing a less expensive health care provider, Eells' office had a number of internal control recommendations for the district.

He said the agency being audited is not required to adhere to the specifics of the recommendations, but failure to address the problems can lead to lawmakers' decision to withhold state funding.

Bauer said the district was not required to take any corrective action because most of the needed changes were in place or in the process of implementation when the audit report was finalized.

Better oversight on district health care

After unearthing the cause for the 2008 deficit, the report went on to recommend the district look into a less costly health insurance plan.

Though the audit report cited potential savings in the thousands of dollars by switching to the state's plan, Bauer said district investigations into such options showed that it would actually cost more.

However, he said, the district has been actively seeking ways to lower costs with private provider Horizon.

The audit also revealed six former employees still on the district's medical and prescription plan and 27 who were still on the dental plan for months or years after being terminated -- costing the district thousands in overpayments.

"It was rectified moments after it was called to my attention," Bauer said. "That should never happen and will never happen again."

Two separate district workers now check the billing and claims statements regularly to prevent any similar oversight, Bauer said.

Not all recommendations deemed feasible

The audit also recommended the district work on separating financial duties in the district.

In some instances, the same employees received and deposited district money and reconciled the financial reports, the audit found. Auditors suggested separating these duties and restricting access to payroll and financial information.

Bauer said the district now uses an outside company to handle payroll and new accounting software has improved district control.

The audit's recommendation that the district invest in a centralized receiving unit to better prevent shipments from being sent directly to schools or workers' homes was flatly denied by Bauer in his written response to the report.

Such a venture would mean spending up to $750,000 more on space and staff, Bauer said.

Miller said implementing such a change when teachers are losing jobs would be irresponsible.

Bauer said changes have been made in the meantime to keep the business office informed of purchases coming into the district.

Click here to review the audit in its entirety.