General confusion

The Washoe County School District recently held a hearing during a school board meeting to review an audit over finances. A budget violation of $700,000 drew some questions and concerns.

The violation prompted WCSD officials to waffle about how its audit results were disclosed to the public.

Jeff Church, a school district critic—whom the district in the past has accused of “defaming” WCSD—complained about the budget violation during public comment at a School Board of Trustees public meeting.

Church said he was concerned about WC-1 funds potentially being misspent. WC-1 was the voter-approved ballot initiative in 2016 that raised Washoe County sales tax to fund new schools and repair old ones.

School board president Katy Simon Holland brushed Church's concerns aside and said that WCSD had already notified the public about the violation.

“Those costs were moved, and we did provide that information to the public,” she said, also noting the need for a capital projects auditor.

However, even school district defenders were taken by surprise by the violation. It turns out, the violation was not a legal violation. And it was easily explained.

But the accuracy of Simon Holland's claim was dubious. When asked how the public was notified about the budget error, which was discussed at a Tuesday meeting, a school district spokesperson said that an email went out to members of the school district's Capital Funding Protection Committee.

That email, however, was sent four days after Simon Holland made her statement about WCSD making the violation public.

“Based on recent accusatory comments that were sent to many local officials and community leaders, the chief financial officer and I put together … information regarding charging a Principal's time to the capital fund,” said WCSD Chief Operating Officer Pete Etchart in an email.

When asked how the public was notified prior to the school board's Tuesday meeting, when Etchart's statement was sent after that meeting, WCSD spokesperson Megan Downs said that the budget violation was also mentioned at other meetings.

“It was discussed at a public audit committee meeting, which is made up of community volunteers and was discussed publicly with the Board of Trustees,” she said. “It was also part of the [auditor] Eide Bailly's Executive Summary, which was made public.

“When Pete Etchart learned of the audit issues at the Nov. 12 board meeting, he then sent the provided memo with additional context to the Capital Protection Committee,” Downs added.

The school district typically sends information it wants to be made public to the news media, parents and employees. It did not do that in this case.

School District in fiscal compliance

The financial audit report notably found WCSD in compliance with state laws.

“We believe the district's internal accounting controls provide reasonable assurance of proper recording and disclosure of financial transactions and adequately safeguards assets,” WCSD conveyed in the report.

An internal audit department reports to the WCSD School Board of Trustees. It “has full and independent access to the Audit Committee of the Board of Trustees and is authorized to review all areas of the District with full, free, and unrestricted access to all activities, records, property, and personnel …” according to WCSD.

The budget violation, it turns out, occurred because of how principals helping to oversee new school construction were coding their time. Historically, capital funds have been used to pay principals and staff while new schools were being constructed.

That occurred this year as well: capital funds were being used to pay administrators while new schools were being built. Three schools—Desert Skies, Sky Ranch and Nick Poulakidas—were partially funded with capital funds.

“However, during the construction of our recent new schools (since the passage of WC-1), the district had the principals conduct a desk audit and keep track of their time and activities to see if it was appropriate to utilize capital funds,” Etchart said. “This was done in consultation with the district's tax counsel.”

The school district had to adjust the percentages of the administrators' time to more accurately reflect how much time was spent doing building-related activities.

“Prior to the completion of the desk audit, the principals for the new schools had their time charged 100 percent to the capital fund,” Etchart explained. “When the desk audit was completed, Business [and] Finance transferred the non-capital expenditures to the General Fund as a year-end adjusting journal entry.”

Etchart added, “The business and finance team was being proactive in completing this desk audit to assure that only capital related activities were being charged to the capital fund. It was only in the timing of the transfer process that the functional violation occurred.”

In short, the school district was being cautious about how it was spending its capital funds, making sure to have the correct time percentages noted for the staff and principals documented for the correct funding sources.

“With the schools currently under construction [Marci Herz Middle School and John Bohach Elementary School], the principals are currently being paid from the general fund,” Etchart added. “However, as with the recently completed three schools, it would be completely appropriate to have that portion of their time that was spent on capital related activities charged to the capital fund. Once a school's construction is completed, 100 percent of a principal's time is charged to the general fund.”

The auditor agreed, explaining the budget violation like this:

“The school administrators for those new schools being built, they were originally budgeted to be paid out of the capital projects funds,” said Eide Bailly's Audit Manager Michael Arciniega. “But after some digging into the actual time they were spending, it was determined that not 100 percent of their time was related to capital projects activities, like buying equipment or purchasing furniture—those types of things.

“They were actually spending some of their time doing things like setting up schedules and various other normal school administrator tasks, so those portions of their salaries were moved into the general fund,” he added. “Unfortunately, this was discovered after the augmented budget was already submitted, so that's what the overspending in that function is. The general fund did not have any overspending—it was just in that one function.”