Beaufort Co. auditor claimed $5M went missing from schools. Here’s what an audit said
Beaufort County’s auditor claimed in June that $5 million was missing from a Beaufort County School District account, but last week, an independent audit firm said it found no evidence of fraud by the school district.
However, the independent auditor also said the school district had “additional risks” in its relationship with an outside vendor that should be investigated. The school board’s finance committee agreed late last week to recommend an extended audit to ensure no wrongdoing.
County auditor Jim Beckert told the school board during the summer that the district had $5 million in unaccounted-for funds in its debt service account, which contains taxes collected by the county to pay off the school district’s debts.
Beckert said he received two very different numbers for the debt service fund’s balance in the span of five days: $13.5 million on June 12 from Tonya Crosby, the district’s chief financial officer, and $18.4 million on June 17 from Maria Walls, the county’s treasurer.
He also said the district’s proposed tax rate to replenish the debt service account — 36.6 mills — would lead to an $8.7 million surplus in debt revenue.
Beaufort County Council approved the district’s suggested rate, but Beckert used a slightly lower rate — 36.3 mills — on the county’s tax bills, which have now been delayed due to a lawsuit between Beckert and the county.
After Beckert’s presentation, the board voted 9-2 to carry out an independent forensic audit of “all debt service revenue and expense accounts.”
New Mexico-based Jaramillo Accounting Group presented the results of that audit at Tuesday’s board meeting.
“We did not identify any instances of fraudulent behavior or transactions,” the group’s report read.
“The concerns presented by the County Auditor appear to be primarily explainable by miscommunications, errors, and timing differences between District and County records.”
Crosby, the district’s chief financial officer, said the county “controls the funds coming in and out” of the account via treasurer Walls’ office.
“It was a wonderful result, and it was expected,” Crosby said of the audit. “The controls over the debt service fund in particular are so tight it’s nearly incapable of any omissions or errors.”
The audit report also included several recommendations for the district. The first was creating a “formal review process” for sharing information with Beaufort County.
Another was to get more accurate predictions for budgeted revenue and expenses. According to the audit report, the district has collected $11 million less in revenue and spent $6.1 million more than was budgeted in the past three fiscal years combined. In addition, the district made $2.7 million in unbudgeted transfers during the same period.
Crosby said Thursday that the discrepancies can be explained by changes in bond issuances, the impact of COVID-19 and, in the 2018-19 fiscal year, by higher-than-expected millage increases and county growth.
She added that the district will include transfers in future budget projections and “fine-tune those projections a little better.”
The report also included two recommendations tied to the South Carolina Association of Governmental Organizations, also known as SCAGO.
SCAGO, a not-for-profit corporation, pools bond payments from school districts across the state to reduce fees. Most of its members are financial advisors for the school districts that the organization services.
That includes William Saunders, who serves on the SCAGO board of directors and resigned as the district’s financial service officer in January to take a similar job in Dorchester 2.
It also includes Frannie Heizer, whose Columbia-based firm Burr & Forman serves as bond counsel for both SCAGO and the district’s $345 million 2019 school bond referendum.
Both SCAGO and Heizer are named as defendants in an ongoing $50 million lawsuit filed by Berkeley County School District against the lawyers and firms who gave the district financial advice during a 2017 embezzlement scandal.
The audit report’s recommendations were to consolidate three district bank accounts associated with SCAGO, because “having multiple bank accounts increases the risk of fraud.”
The accounts were consolidated in March 2019 once fees were paid out to refinance installment purchase bonds, Crosby said Thursday.
Also recommended: Creating “required policies and procedures” to “disclose and approve of” any district employees who also worked for SCAGO.
Audrey Jaramillo, managing partner of Jaramillo Accounting Group, said Tuesday that the district should “thoroughly check” transactions in the SCAGO accounts to ensure “the district on the revenue side received what they were supposed to receive and on the expense side weren’t overcharged for some reason.”
“There are a lot of fees, as you all know, that go along with those payments,” she said.
The group labeled SCAGO concerns as “additional information that raised additional risks to be addressed by the Board of Education” over the course of the audit, according to its report.
On Thursday, the board’s finance committee voted unanimously to expand its scope to “provide forensic audit procedures on the district tax anticipation notes (TAN) and SCAGO transactions and related accounts from July 1, 2015 - February 15, 2021.”
Finance committee chairwoman JoAnn Orischak said Thursday that she was happy with the audit.
“When an auditing firm says there are other areas that present risk and recommend the board look into that, I think we should heed that recommendation,” she said.
“This audit wasn’t just about not finding fraud. It was really about identifying some areas we didn’t know we might be a little weak in.”