Performance audit, Picacho Elementary School District

              Performance Audit
Picacho Elementary
School District
Division of School Audits
Debra K. Davenport
Auditor General
December • 2011
Report No. 11-14
A REPORT
TO THE
ARIZONA LEGISLATURE
The Auditor General is appointed by the Joint Legislative Audit Committee, a bipartisan committee composed of five senators and
five representatives. Her mission is to provide independent and impartial information and specific recommendations to improve the
operations of state and local government entities. To this end, she provides financial audits and accounting services to the State and
political subdivisions, investigates possible misuse of public monies, and conducts performance audits of school districts, state
agencies, and the programs they administer.
The Joint Legislative Audit Committee
Audit Staff
Ross Ehrick, Director
Ann Orrico, Manager and Contact Person
John Ward, Team Leader
Jennifer Wild
Steven Wong
Copies of the Auditor General’s reports are free.
You may request them by contacting us at:
Office of the Auditor General
2910 N. 44th Street, Suite 410 • Phoenix, AZ 85018 • (602) 553-0333
Additionally, many of our reports can be found in electronic format at:
www.azauditor.gov
Senator Rick Murphy, Chair
Senator Andy Biggs
Senator Olivia Cajero Bedford
Senator Rich Crandall
Senator Kyrsten Sinema
Senator Steve Pierce (ex officio)
Representative Carl Seel, Vice Chair
Representative Eric Meyer
Representative Justin Olson
Representative Bob Robson
Representative Anna Tovar
Representative Andy Tobin (ex officio)
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
MELANIE M. CHESNEY
DEPUTY AUDITOR GENERAL
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
December 30, 2011
Members of the Arizona Legislature
The Honorable Janice K. Brewer, Governor
Governing Board
Picacho Elementary School District
Mr. Allen Rogers, Superintendent
Picacho Elementary School District
Transmitted herewith is a report of the Auditor General, A Performance Audit of the Picacho
Elementary School District, conducted pursuant to A.R.S. §41-1279.03. I am also transmitting
within this report a copy of the Report Highlights for this audit to provide a quick summary for
your convenience.
As outlined in its response, the District agrees with all of the findings and recommendations.
My staff and I will be pleased to discuss or clarify items in the report.
This report will be released to the public on January 3, 2012.
Sincerely,
Debbie Davenport
Auditor General
REPORT
HIGHLIGHTS
PERFORMANCE AUDIT
2011
December • Report No. 11-14
Picacho Elementary
School District
Inadequate payroll and purchasing controls
Separation of duties lacking—One
district employee, with little or no
supervisory review, was responsible for
adding new employees to the payroll
system, maintaining employee information,
processing time sheets, recording payroll
expenses, and distributing paychecks.
Although no improper transactions were
detected in the sample we tested, this lack
of separation could allow false payments.
Inadequate documentation for extra
duty pay—The District did not always
adequately document employees’
additional pay. From a sample of 18
employees who received additional pay,
17 had no documentation showing prior
approval.
Inadequate time sheet review—
Supervisors did not always review and
approve employees’ timesheets. From a
sample of 11 time sheets, we found that
four were not reviewed by a supervisor
and another four contained inaccurate
reports of hours worked.
Weak purchasing controls—Although no
improper transactions were detected in
the sample we tested, the District had an
increased risk of errors and fraud because
two employees had the ability to initiate
and complete purchase transactions on
their own. The District also did not follow
procurement requirements for the
purchase of heating and cooling repair
and maintenance services, gasoline, and
Student achievement similar to peer
districts’—In fiscal year 2009, Picacho
ESD’s student AIMS scores were slightly
lower than peer districts’ averages in
reading but similar in math and writing. In
addition, the District’s school met
“Adequate Yearly Progress” for the federal
No Child Left Behind Act.
District’s operational efficiency mixed—
In fiscal year 2009, Picacho ESD’s per-pupil
administrative costs were 28 percent
higher than peer districts’ primarily
because it employed more administrative
positions per pupil. The District’s plant
operations costs per pupil were similar to
peers but costs per square foot were 28
percent higher. Picacho ESD’s
transportation program was reasonably
efficient with lower per-mile costs and
efficient routes. However, not all state
standards were met. Food service costs
per pupil were significantly higher primarily
because the District served 21 percent
more meals and partly because its per-meal
costs were higher than peer
districts’.
Similar student achievement and mixed operational efficiency
Our Conclusion
In fiscal year 2009, Picacho
Elementary School District’s
student achievement was
similar to peer districts’, and
its operational efficiencies
were mixed. The District
had high administrative
costs and some weak
payroll and purchasing
controls. Plant operations
costs were mixed, with per-pupil
costs that were similar
to peer districts’ and per-square-
foot costs that were
28 percent higher. Although
the District’s transportation
program was reasonably
efficient, it did not meet all
state safety standards. The
District’s food service costs
per meal were higher than
peer districts’ and the
federal National School
Lunch Program
reimbursement rate. As a
result, the District spent
nearly $36,000 of its
Maintenance and Operation
Fund monies to subsidize
its food service operations.
Further, many of the
District’s teacher
performance pay plan goals
did not promote improved
job performance.
Per Pupil
Picacho
ESD
Peer Group
Average
Administration $1,539 $1,199
Plant operations 1,059 1,077
Food service 732 559
Transportation 443 474
Expenditures by Function
Fiscal Year 2009
Percentage of Students Who Met or
Exceeded State Standards (AIMS)
Fiscal Year 2009
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Math Reading Writing
Picacho ESD Peer Group State-wide
REPORT
HIGHLIGHTS
PERFORMANCE AUDIT
December 2011
A copy of the full report is available at:
www.azauditor.gov
Contact person:
Ann Orrico (602) 553-0333
Picacho Elementary
School District
Internet services. Following procurement
requirements may have helped the District obtain
these goods and services for a lower price. For
example, we found that the District paid about $230
more per month for Internet services than the peer
districts’, on average.
Recommendations—The District should:
••Implement proper controls over payroll
processing and ensure additional pay is
adequately approved and documented.
••Ensure proper supervisory review and approval
of time sheets.
••Ensure purchases are independently reviewed
and approved prior to the purchase being
made and that procurement requirements are
followed.
In fiscal year 2009, Picacho ESD’s $2.95 cost per
meal was 9 percent higher than the peer district
average of $2.70. Although 21 percent of students
did not qualify for free or reduced-price lunches
through the federal National School Lunch Program,
the District decided many years ago to provide free
meals to all students. The federal reimbursement for
students not qualifying for the program is 26 cents
compared to the $2.59 reimbursement for a
qualifying student’s free meal. Because the
per-meal reimbursement rate does not cover the
cost of the meals, the District had to subsidize the
program with $36,000 from its Maintenance and
Operation Fund—monies that otherwise could have
been spent in the classroom. From fiscal year 2005
through 2009, the District subsidized the program
by a total of over $200,000.
Recommendation—The District should evaluate
the costs and benefits of providing free meals to all
students, including the suitability of using district
funds to subsidize the food service program rather
than using them to meet other needs.
Food service program required a $36,000 subsidy
State standards require districts to demonstrate that
their school buses receive systematic preventative
maintenance and inspections. This includes
periodic oil changes and tire, brake, safety signal,
and exit inspections. The District had no procedures
to ensure that such inspections occurred
systematically. Further, in August 2009, the
Department of Public Safety issued major violations
for three of the District’s five buses for defective
brakes. In addition, the District is required to
conduct annual drug tests as well as random drug
and alcohol tests of bus drivers, but the District only
conducted annual drug tests.
Recommendations—The District should:
••Ensure preventative maintenance is performed.
••Conduct random drug and alcohol tests.
District’s transportation program did not meet all state safety requirements
The District’s fiscal year 2009 performance pay plan
allowed teachers to earn their performance pay
mainly through activities that were already expected
of employees and that did not promote improved
teacher performance. For example, in order to
qualify for performance pay under the District’s
plan, an employee had to do what was normally
expected, such as receiving an acceptable
performance evaluation or encouraging parent
participation.
Recommendation—The District should establish
meaningful performance goals.
District performance pay plan needs improvement
TABLE OF CONTENTS
continued
page i
Office of the Auditor General
District Overview 1
Student achievement similar to peer districts’ 1
District’s operational costs mixed 1
Finding 1: District lacked sufficient payroll and purchasing controls 3
Payroll controls inadequate 3
Weak controls over purchasing process 4
Recommendations 5
Finding 2: Food service program required a $36,000 subsidy 7
Higher per-meal cost signals need for closer monitoring 7
Free meals for all students create need to subsidize food service costs 8
Recommendations 10
Finding 3: District did not meet state transportation safety requirements 11
District did not conduct random drug and alcohol tests 11
Poor bus maintenance led to safety violations 11
Recommendations 12
Finding 4: District performance pay plan needs improvement 13
Expected performance pay amounts not specified in plan or employee contracts 13
District performance pay goals did not promote improved performance 13
Recommendations 14
TABLE OF CONTENTS
page ii
State of Arizona
continued
Other Findings 15
1. District did not accurately report its costs 15
Recommendation 15
2. District lost over $6,600 in discounts from federal E-Rate program 15
Recommendation 16
Appendix
Objectives, Scope, and Methodology a-1
District Response
TABLE OF CONTENTS
page iii
Office of the Auditor General
concluded
Tables
1 Comparison of Per-Pupil Expenditures by Function
Fiscal Year 2009
(Unaudited) 2
2 Comparison of Meals Per Pupil, Cost Per Pupil, and Cost Per Meal
Fiscal Year 2009
(Unaudited) 7
3 Percentage of Students Eligible for the National School Lunch Program and
Corresponding Meal Reimbursement Rates
Fiscal Year 2009
(Unaudited) 9
Figures
1 Percentage of Students Who Met or Exceeded State Standards (AIMS)
Fiscal Year 2009
(Unaudited) 1
2 National School Lunch Program
Provision 2 Requirements 9
page iv
State of Arizona
DISTRICT OVERVIEW
page 1
Office of the Auditor General
Picacho Elementary School District is a small, rural district located 45 miles northwest of Tucson in
Pinal County. In fiscal year 2009, the District operated one school serving 212 preschool through
8th-grade students.
Overall, in fiscal year 2009, Picacho ESD’s student achievement was slightly lower in reading but
similar in mathematics and writing to peer districts’, and its operational efficiencies were mixed.1
Picacho ESD operated its transportation program efficiently, but its administration and food service
costs were higher than peer districts’, and its plant operations costs were higher per square foot.
Student achievement similar to peer districts’
In fiscal year 2009, 68 percent of the District’s students
met or exceeded state standards in math, 65 percent in
reading, and 77 percent in writing. As shown in Figure 1,
reading scores were slightly lower than the state and
peer districts’ averages, but scores for mathematics and
writing were similar. Additionally, the District’s school met
all “Adequate Yearly Progress” objectives for the federal
No Child Left Behind Act.
District’s operational costs mixed
As shown in Table 1 on page 2 and based on auditors’
reviews of various performance measures, in fiscal year
2009, Picacho ESD operated its nonclassroom programs with mixed results in terms of efficiency.
Specifically, the District’s student transportation program operated efficiently, but its administration
and food service costs were higher than peer districts’, and its plant operations costs were higher
per square foot. For small districts like Picacho ESD, cost measures can be significantly impacted
by employing even one additional part-time position or by minor fluctuations in year-to-year student
enrollment numbers. Previous audits have identified several other small- and medium-sized districts
in Pinal County facing similar issues with efficiencies. In November 2008, voters living in four of these
small districts voted on whether they should be unified. Although voters in three of these districts
voted for unification, voters in Picacho voted against it. Therefore, the measure did not pass.
1 Auditors developed two peer groups for comparative purposes. See page a-1 of this report’s Appendix for further explanation of the peer
groups.
Figure 1: Percentage of Students Who Met or
Exceeded State Standards (AIMS)
Fiscal Year 2009
(Unaudited)
Source: Auditor General staff analysis of fiscal year 2009 test results
on the Arizona Instrument to Measure Success (AIMS).
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Math Reading Writing
Picacho ESD
Peer Group
State-wide
page 2
State of Arizona
High administrative costs and weak
controls—At $1,539 per pupil, the District’s
administrative costs were 28 percent higher
than the peer districts’ average of $1,199.
The higher costs resulted from the District’s
employing one administrative full-time
equivalent (FTE) position for every 57
students while the peer districts employed
one FTE for every 68 students, on average.
Because Picacho ESD has so few students,
a difference of only 0.5 FTE in administrative
staff is all that is needed to affect the student-to-
administrator ratio in this way. In addition,
the District needs to strengthen the controls
over its payroll and purchasing processes
(see Finding 1, page 3).
Plant operations costs were mixed—
Although Picacho ESD’s plant operations
costs were similar to peer districts costs per
pupil, they were 28 percent higher per
square foot primarily because the District
employed more plant operations employees per square foot than the peer districts employed.
Specifically, each of Picacho ESD plant positions maintained 9,519 square feet of space while the
peer districts’ plant positions each maintained 15,656 square feet, on average.
Higher food service costs—Picacho ESD’s food service costs per pupil were significantly
higher than peer districts’ primarily because it served about 21 percent more meals per student
than the peer districts. The higher number of meals served likely is a result of the District’s decision
to participate in a special provision of the federal National School Lunch Program (NSLP) that
provides free meals to all students. In addition, Picacho ESD’s cost per meal was nine percent
higher than the peer district average mainly because of higher staffing levels. The District’s cost
per meal was also significantly higher than the average per-meal reimbursement rate it received
from the NSLP. As a result, in fiscal year 2009 the District spent nearly $36,000 of its Maintenance
and Operation Fund monies to subsidize its food service program’s operations (see Finding 2,
page 7).
Reasonably efficient transportation program—Picacho ESD’s student transportation
program operated efficiently overall despite a higher cost per rider that resulted from its traveling
more miles per rider than the peer districts traveled, on average. Picacho ESD’s routes were
efficient, filling buses to 90 percent of seat capacity, on average, and its $2.00 cost per mile was
10 percent lower than peer districts’ costs. However, the District did not ensure that its drivers and
buses met all state minimum safety requirements (see Finding 3, page 11).
Spending
Picacho
ESD
Peer
Group
Average
State
Average
Total per pupil $9,699 $9,148 $7,908
Classroom dollars 5,028 5,073 4,497
Nonclassroom
dollars
Administration 1,539 1,199 729
Plant operations 1,059 1,077 920
Food service 732 559 382
Transportation 443 474 343
Student support 514 525 594
Instructional
support 384 240 431
Other 0 1 12
Table 1: Comparison of Per-Pupil
Expenditures by Function
Fiscal Year 2009
(Unaudited)
Source: Auditor General staff analysis of fiscal year 2009
Arizona Department of Education student
membership data and district-reported accounting
data.
page 3
Office of the Auditor General
District lacked sufficient payroll and purchasing controls
In fiscal year 2009, Picacho ESD lacked adequate controls over its payroll and purchasing processes.
Although no improper transactions were detected in the sample auditors reviewed, these poor
controls exposed the District to increased risk of errors and fraud.
Payroll controls inadequate
The District’s procedures for maintaining payroll records and processing payroll were inadequate.
Specifically, auditors observed the following:
Payroll process lacked independent review—The District had an increased risk of errors
and fraud, such as unauthorized changes to employee pay rates and processing false time
sheets, because it did not sufficiently separate payroll and personnel functions or ensure
supervisory review. One district employee, with little or no supervisory review and full access to the
accounting system, was responsible for entering new employees into the payroll system,
maintaining employee information, processing time sheets, recording payroll expenses in the
accounting system, and distributing paychecks. Allowing an individual the ability to initiate and
complete a transaction without an independent supervisory review could allow this individual to
process false payments.
Authorization and pay for additional duties inadequately documented—The District
did not always have documentation showing that additional duties and pay were approved prior
to payment being made. Auditors identified 18 employees from a sample of 30 who received
additional pay in fiscal year 2009, and found that for 17 of these employees, there was no
documentation showing prior approval for the additional pay. For example, one employee earned
over $3,000 for acting as an after-school monitor, and one employee earned about $2,000 for
being the District’s media technician without documentation of prior approval for the additional
duties or pay. In all 17 cases, the employees were paid for activities they performed. However, to
provide assurance in the future that all pay is properly authorized and that employees are paid
correctly, the District should include additional pay in the employees’ contracts or personnel action
forms and ensure that these documents are properly approved prior to payment. This
documentation should be maintained in employees’ personnel files.
FINDING 1
page 4
State of Arizona
Employee time sheet documentation and review inadequate—The District’s
hourly employees prepared biweekly time sheets and calculated the total number of hours
worked each pay period. Supervisors were then supposed to review and approve these time
sheets before submitting them to payroll for processing. Auditors reviewed one pay period’s
time sheets for 11 employees as part of their test work and found that supervisory review was
inadequate in the following ways:
•• Four of the 11 time sheets lacked any indication that supervisors had reviewed and
approved them.
•• Another four of the 11 time sheets contained inaccurate reports of hours worked. During
payroll processing, the District subsequently found and corrected the errors. However,
more thorough supervisory reviews of time sheets would help ensure their accuracy
rather than relying on all errors being caught during payroll processing.
Weak controls over purchasing process
The District had an increased risk of errors and fraud, such as creating and paying fictitious
vendors, because two employees each had ability on their own to initiate and complete purchase
transactions. Each employee had accounting system access that would allow them to add a
vendor to the system, create and approve purchase orders, and complete a payment to a
vendor. Further, the two employees were improperly given authority to use the superintendent’s
signature stamp, which further increases the risk of purchases being made without proper
authorization.
Additionally, the District did not always follow prescribed procurement practices when purchasing
certain goods and services. The procurement requirements in the Uniform System of Financial
Records for Arizona School Districts are designed to help ensure that school districts purchase
quality products or services at the most economical price and to ensure fair competition.
However, the District did not follow these requirements when purchasing heating and cooling
repair and maintenance services, gasoline, and Internet services. Following proper procurement
requirements may have helped the District obtain these goods and services for lower prices. For
example, following the procurement requirements may have helped the District obtain Internet
services for a lower price. Auditors found that the District paid about $230 more per month for
Internet services than the peer districts, on average.
page 5
Office of the Auditor General
Recommendations
1. The District should implement proper controls over its payroll processing to ensure adequate
separation of duties or alternatively establish an appropriate review process as a compensating
control.
2. The District should ensure that payments for additional work are properly documented,
approved prior to payment, and maintained in employee personnel files.
3. The District should require supervisors to thoroughly review time sheets and have the business
manager verify the accuracy of a sample of time sheets to ensure that employees are accurately
paid for the correct number of hours worked.
4. The District should ensure that it requires an independent review and approval for all of its
purchases prior to the purchases being made. Further, in order to help ensure it receives the
best price for goods and services, the District should ensure that employees follow the
competitive purchasing rules in the Uniform System of Financial Records for Arizona School
Districts when purchasing goods and services.
page 6
State of Arizona
page 7
Office of the Auditor General
FINDING 2
Food service program required a $36,000 subsidy
In fiscal year 2009, Picacho ESD’s cost per meal of $2.95 was 9 percent higher than the peer
districts’ average of $2.70 (see Table 2). More significantly, the District’s cost per meal was
substantially higher than the federal reimbursement rate from the National School Lunch Program
(NSLP), which accounts for 91 percent of the District’s food service revenues because it has
chosen to participate in a special NSLP program
whereby all students receive a free meal. As a
result, the District subsidized its food service
program with nearly $36,000 of Maintenance and
Operation Fund monies that could otherwise have
been spent in the classroom. Reducing program
staffing levels and establishing and monitoring
performance measures could help the District
lower per-meal costs, but as long as it participates
in the special NSLP program, the District will likely
continue to need to subsidize the program. The
District should therefore reassess whether
continued participation in the special federal
program represents the best use of district funds.
Higher per-meal cost signals need for closer monitoring
In fiscal year 2009, Picacho ESD spent $732 per student on its food service program, compared
to $559 per student for peer districts. The higher per-student cost was mainly due to Picacho
ESD’s serving more meals—237 meals per student for the school year, compared with 195
meals per student for peer districts—likely because meals were free to all students. Specifically,
Picacho ESD participates in the special NSLP program that provides free meals to every student.
Although the greater number of meals accounts for much of Picacho ESD’s higher overall cost
per student, it does not account for the District’s higher cost per meal. The higher per-meal cost
is mainly reflective of food service salaries and benefits costs that were 16 percent higher per
meal than the peer districts’ average. These higher costs resulted from slightly higher staffing
levels. Specifically, the District employed one food service full-time equivalent (FTE) position for
every 18,200 meals produced while the peer districts employed one FTE for every 20,000 meals.
District Name
Meals
Per
Pupil
Cost
Per
Pupil
Cost
Per
Meal
Picacho ESD 237 $732 $2.95
Average of the peer group 195 559 2.70
Table 2: Comparison of Meals Per Pupil, Cost
Per Pupil, and Cost Per Meal
Fiscal Year 2009
(Unaudited)
Source: Auditor General staff analysis of school district annual
financial reports and fiscal year 2009 accounting data,
and average daily membership information obtained from
the Arizona Department of Education.
page 8
State of Arizona
For a small program like Picacho’s, this staffing difference was only one quarter of an FTE. If the
District had staffed its food service program on the same basis as peer districts, its per-meal
cost would be about 20 cents less, making it similar to the peer district’s average.
The District’s higher per-meal costs emphasize the need to monitor food service operations.
However, the District has not established or monitored performance measures for its food
service program. Measures such as cost per meal or meals per labor hour can help the District
identify potential issues, such as whether it has the correct number of staff and whether its food
service costs are appropriate.
Free meals for all students create need to subsidize food service
costs
For many years, the District has chosen to participate in a special NSLP program that provides
free meals to all students, regardless of income. Participation in this program means that the
District loses revenue from students whose family income level would normally require them to
pay for their meal. The federal reimbursement rates under this program are not high enough to
cover the District’s costs, necessitating a subsidy that amounted to nearly $36,000 in fiscal year
2009. The subsidy came from district monies that otherwise could have been spent in the
classroom. The District has operated its food service program at a loss for many years. Since
fiscal year 2005, the District has subsidized the program by a total of over $200,000. Given the
need for such an extensive subsidy, the District should reevaluate its participation in the special
federal program.
District chose to participate in program that provides all students with free
meals—For more than 10 years, the District has elected to operate under the federal NSLP
Provision 2 program, which allows all students to receive free meals, regardless of family
income. This program reduces the District’s administrative requirements, in that the District
does not have to determine eligibility for free or reduced-price meals each year and does not
have to collect school lunch money from students who do not qualify for free lunches. Figure
2 on page 9 describes the requirements of the program.
Under this program, the federal government pays the District a set amount for each meal, with
the amount varying significantly depending on whether, under the regular NSLP program,
students would be eligible for free or reduced-price meals or would have to pay full price for
them. For example, as shown in Table 3 on page 9, the federal reimbursement rate to the
District for a lunch provided to a student eligible for free meals was $2.59 in fiscal year 2009,
compared to just 26 cents for a lunch provided to a student who would have to pay full price
under the regular NSLP program.
Participation creates operating losses and need for subsidy—In fiscal year 2009,
the District’s cost per meal—$2.95—was significantly higher than the amount it received per
meal from federal reimbursements. The District received a reimbursement averaging $2.10
page 9
Office of the Auditor General
per meal, which was 85 cents less than it cost to
produce each meal. A key reason the
reimbursement rate was so much lower than the
District’s cost was the substantial percentage of
students who were determined to be full-pay
students—that is, students who would not be
eligible for free or reduced-price meals under the
regular NSLP program. In all, 21 percent of the
District’s students were determined to be full-pay
students. For these students, the District
received federal reimbursements amounting to
only a small fraction of the cost of meals served.
Some districts may be able to use the Provision
2 program to lower their costs because of the
reduced administrative requirements involved in
determining eligibility for free and reduced-price
meals and collecting meal monies from a
relatively limited number of paying students. For
Picacho ESD, however, the program produced a
need for a sizeable subsidy. To make up the
difference between program costs and federal
reimbursements in fiscal year 2009, the District
had to subsidize the food service program with
approximately $36,000 in Maintenance and
Operation Fund monies. If the District did not
have to use these monies in this way, they would
have been available for use in the classroom and
could have increased classroom spending by
3.6 percent.
District should reassess its participation in the
Provision 2 program—District officials were aware
that NSLP meal reimbursements did not cover meal
costs and that the program was operating at a loss, but
they said providing free meals to all students was a
more important goal. However, this decision redirects
monies away from the classroom and essentially
provides free meals to students whose families have
incomes above normal free and reduced-price lunch
standards. Even if the District adopts cost-saving
measures that reduce its per-meal costs to the peer
district average, the NSLP reimbursement will not be
sufficient to cover the District’s costs. Given the size of
the continuing subsidy, the District should reassess its
Picacho ESD
Percent
Eligible
Reimbursement
Rate
Free 66% $2.59
Reduced-Price 13 2.19
Full-Pay 21 0.26
Table 3: Percentage of Students Eligible
for the National School Lunch
Program and Corresponding Meal
Reimbursement Rates
Fiscal Year 2009
(Unaudited)
Source: Arizona Department of Education free and reduced-price
lunch reports and Federal Register / Vol. 73, No.
130 / Monday, July 7, 2008/Notices.
Figure 2: National School Lunch Program
Provision 2 Requirements
Districts with high percentages of students
eligible for free or reduced-price meals are
eligible to participate in Provision 2. The program
encompasses 4 years, with the first year being
the “base” year.
Base Year
•• School provides meals at no charge to all
students. •• School collects income applications,
determines eligibility, and conducts
verification of small percentage of
applications. •• School counts by price category the number
of meals served at the point of service daily.
Next 3 Years
•• School provides meals at no charge to all
students. •• School does not collect income applications,
determine eligibility, or conduct verification. •• School counts the total number of meals
served daily. •• Federal reimbursement is determined by
price category using base year percentages. •• If the cost of providing all meals at no
charge is greater than the total federal and
state reimbursements, the school pays the
difference from sources other than federal
monies.
Source: Auditor General staff analysis of federal regulations and
Arizona Department of Education NSLP information.
page 10
State of Arizona
decision. As part of this reassessment, the District would need to project increases in revenue
collected from students ineligible to receive free lunches, as well as determine the cost of the
additional administrative burden involved in the regular NSLP program—that is, determining
eligibility for free and reduced-price meals each year and collecting lunch money from
students who would need to pay the full or partial cost of their meals.
Recommendations
1. The District should evaluate its food service operations and determine if they can be
modified to reduce staffing levels and produce cost savings.
2. To aid in evaluating the efficiency of its food service program, the District should develop
and monitor performance measures such as cost per meal and meals per labor hour and
take appropriate actions based on the results of the performance measures.
3. The District should reassess the costs and benefits of participation in the NSLP’s Provision
2 program, including the suitability of using district funds to subsidize the food service
program rather than using them to meet other needs.
page 11
Office of the Auditor General
District did not meet state transportation safety
requirements
In fiscal year 2009, the District failed to ensure that its bus drivers met all state minimum
requirements for public safety, and it did not adequately oversee bus maintenance and repair
activities. Inspections by the State’s Department of Public Safety (DPS) revealed that several
buses had brake and other safety violations.
District did not conduct random drug and alcohol tests
According to the State’s Minimum Standards for School Buses and School Bus Drivers (Minimum
Standards), districts are required to ensure that drivers are tested annually for drug usage and
randomly throughout the school year for drug and alcohol usage. For random tests, Minimum
Standards require testing 50 percent of all drivers for drug use and 10 percent of all drivers for
alcohol use. Although each driver received annual drug testing, the District did not have a
process in place to ensure the required random testing of bus drivers. As a result, none of its
drivers were randomly tested for drug and alcohol use in fiscal years 2009 and 2010.
Poor bus maintenance led to safety violations
According to the Minimum Standards, districts must demonstrate that their school buses receive
systematic preventative maintenance and inspections. Preventative maintenance and inspections
includes items such as periodic oil changes, tire and brake inspections, and inspections of safety
signals and emergency exits. These standards are designed to help ensure the safety and
welfare of school bus passengers, as well as extend the useful life of the District’s buses.
The District did not maintain required files showing repair and inspection records on its five
buses. Rather, the only available records were invoices from the vendor that performs these
services, which were maintained by district office staff in accounting files rather than by
transportation staff. Although the invoices indicated that district buses were receiving oil changes
and inspections, the District had no procedures in place to ensure that the appropriate
preventative maintenance activities—such as brake and tire inspections—occurred systematically.
FINDING 3
page 12
State of Arizona
Available evidence indicates preventative activities were not carried out as required. Auditors’
review of DPS bus inspection documentation showed that in August 2009, three of the District’s
five buses received major violations from DPS for having defective brakes. One of the three
buses also had inoperable exit windows, and a fourth bus did not have the required DPS
inspection record on file.
Recommendations
1. The District should ensure that it conducts all required random drug and alcohol testing as
specified in the Minimum Standards.
2. The District should ensure that bus preventative maintenance is conducted and
documented as specified in the Minimum Standards.
page 13
Office of the Auditor General
District performance pay plan needs improvement
In fiscal year 2009, Picacho ESD spent its Classroom Site Fund (CSF) monies for purposes
authorized by statute.1 However, the District’s performance pay plan did not specify the amount
or range of amounts that employees could earn if they met the performance goals. Further the
District’s performance pay goals were easily met and did not promote improved job performance.
Expected performance pay amounts not specified in plan or
employee contracts
Although the District’s fiscal year 2009 performance pay plan specified performance goals and
which employees were eligible to receive CSF monies, it did not identify the amount of
performance pay that eligible employees could earn. Instead, prior to payment and after services
were already performed, the District determined the amount each eligible employee would
receive by dividing total performance monies available by the number of eligible employees.
The District’s actions were insufficient to meet state requirements. According to Attorney General
Opinion I84-034, all compensation provided to teachers should be agreed to before services are
performed. Failure to do so can lead to a violation of the State Constitution’s prohibition on gifts
of public monies. Therefore, the amount or range of amounts each eligible employee could earn
should have been included in teachers’ contracts or the District’s performance pay plan. Further,
to help ensure that performance pay goals promote improved job performance, the District
should identify the potential pay employees can earn.
District performance pay goals did not promote improved
performance
The District’s fiscal year 2009 performance pay plan allowed teachers to earn their performance
pay mainly through activities that were already expected of employees and that did not promote
improved teacher performance. Specifically,
1 In November 2000, voters passed Proposition 301, which increased the state-wide sales tax to provide additional resources for
education programs. Under statute, these monies, also known as Classroom Site Fund (CSF) monies, may be spent only for specific
purposes, primarily increasing teacher pay.
FINDING 4
page 14
State of Arizona
•• The performance pay plan required that, to be eligible for performance pay, employees had
to receive no more than one performance deficiency on their annual performance evaluations,
which is already required to avoid a corrective action plan; use no more than ten sick or
personal leave days in the school year; and sign a teacher contract for the subsequent school
year. None of these requirements encourage improved employee performance.
•• The performance pay plan required teachers to encourage parent participation by having
parents attend at least two events during the school year and encourage students to attend
school regularly. Since part of a teacher’s typical job duties include encouraging parent
participation and student attendance on a daily basis, this provision meant that teachers
received additional monies for duties that were already expected of them.
•• The District’s performance pay plan included one goal that required extra effort by teachers.
This goal required each teacher to sponsor or cosponsor an extracurricular activity.
For fiscal year 2009, most full-time teachers received over $3,900 in performance pay for meeting
these requirements. Three teachers did not meet all of the requirements and therefore received no
performance pay.
Recommendations
1. The District’s performance pay plan or employment contracts should specify the amount or a
range of amounts of performance pay each eligible employee can earn if performance criteria
are met.
2. To promote improved performance, the District should establish meaningful performance goals
for activities or achievements.
OTHER FINDINGS
page 15
Office of the Auditor General
In addition to the four main findings presented in this report, auditors identified two other less
significant areas of concern that require district action. These additional findings and their related
recommendations are as follows:
1. District did not accurately report its costs
Picacho ESD did not consistently classify its fiscal year 2009 expenditures in accordance with the
Uniform Chart of Accounts for school districts. As a result, its annual financial report did not accurately
reflect its costs, including both classroom and nonclassroom expenditures. Auditors identified errors
totaling approximately $174,000 of the District’s total $2.2 million in current spending.1 When
corrected, these changes decreased the District’s reported instructional expenditures by about
$80,500, or 4 percentage points. The dollar amounts shown in the tables in this report reflect the
necessary adjustments.
Recommendation
The District should classify all transactions in accordance with the Uniform Chart of Accounts for
school districts.
2. District lost over $6,600 in discounts from federal E-Rate
	
program
In fiscal year 2009, despite having communication services costs that were more than double the
peer districts’ costs, Picacho ESD did not receive discounts from the Federal Communications
Commission’s E-Rate program, which provides discounts to assist schools with affordable
telecommunication and Internet access. According to district officials, both the District and its
Internet service provider each believed it had completed all necessary steps for the District to receive
the discount but did not believe the other party had completed its requirements. Because the District
did not follow through and ensure that all program requirements were completed, it did not receive
the 90 percent reimbursement of its communication services costs, or over $6,600, for which it was
otherwise eligible.
1 Current expenditures are those incurred for the District’s day-to-day operation. For further explanation, see Appendix, page a-1.
page 16
State of Arizona
Recommendation
The District should ensure that it is enrolled in the E-Rate program and receiving applicable
discounts.
APPENDIX
page a-1
Office of the Auditor General
Objectives, Scope, and Methodology
The Office of the Auditor General has conducted a performance audit of the Picacho Elementary
School District pursuant to A.R.S. §41-1279.03(A)(9). Based in part on their effect on classroom
dollars, as previously reported in the Auditor General’s annual report, Arizona Public School Districts’
Dollars Spent in the Classroom (Classroom Dollars report), this audit focused on the District’s
efficiency and effectiveness in four operational areas: administration, plant operations and
maintenance, food service, and student transportation. To evaluate costs in each of these areas, only
current expenditures, primarily for fiscal year 2009, were considered.1 Further, because of the
underlying law initiating these performance audits, auditors also reviewed the District’s use of
Proposition 301 sales tax monies and how it accounted for dollars spent in the classroom.
In conducting this audit, auditors used a variety of methods, including examining various records,
such as available fiscal year 2009 summary accounting data for all districts and Picacho ESD’s fiscal
year 2009 detailed accounting data, contracts, and other district documents; reviewing district
policies, procedures, and related internal controls; reviewing applicable statutes; and interviewing
district administrators and staff.
To analyze Picacho ESD’s operational efficiency, auditors selected a group of peer districts based
on their similarities in district size, type, and location. This operational peer group includes Picacho
ESD and nine other elementary school districts that also served between 200 and 599 students and
were located in town/rural areas.2 To compare districts’ academic indicators, auditors developed a
separate student achievement peer group using the same size and location categories as in the
operational peer group, but with the additional consideration of each district’s poverty rate because
poverty rate has been shown to be strongly related to student achievement. Picacho ESD’s student
achievement peer group includes Picacho ESD and the nine other elementary and unified school
districts that also served between 200 and 599 students, were located in town/rural areas, and had
poverty rates below the state average of 19 percent.3 Additionally:
•• To assess whether the District’s administration effectively and efficiently managed district
operations, auditors evaluated administrative procedures and controls at the district and school
level, including reviewing personnel files and other pertinent documents and interviewing district
and school administrators about their duties. Auditors also reviewed and evaluated fiscal year
2009 administration costs and compared these to peer districts’.
1 Current expenditures are those incurred for the District’s day-to-day operations. They exclude costs associated with repaying debt, capital
outlay (such as purchasing land, buildings, and equipment), and programs such as adult education and community service that are outside
the scope of preschool through grade-12 education.
2 Two districts were excluded from the operational peer group. One was excluded because it received a high level of additional funding and
skewed the peer-spending averages. The other was excluded because its data was not reliable.
3 Only elementary test scores for the unified school districts were included in the peer group averages.
page a-2
State of Arizona
•• To assess whether the District’s food service program was managed appropriately and
functioned efficiently, auditors reviewed fiscal year 2009 food service revenues and
expenditures, including labor and food costs, and compared costs to peer districts’,
reviewed the Arizona Department of Education’s food service monitoring reports, and
observed food service operations.
•• To assess whether the District’s transportation program was managed appropriately and
functioned efficiently, auditors reviewed and evaluated required transportation reports, driver
files, bus maintenance and safety records, and bus capacity usage. Auditors also reviewed
fiscal year 2009 transportation costs and compared them to peer districts’.
•• To assess whether the District was in compliance with Proposition 301’s Classroom Site
Fund requirements, auditors reviewed fiscal year 2009 expenditures to determine whether
they were appropriate, properly accounted for, and remained within statutory limits. Auditors
also reviewed the District’s performance pay plan and analyzed how performance pay was
being distributed.
•• To assess the District’s financial accounting data, auditors evaluated the District’s internal
controls related to expenditure processing and reviewed transactions for proper account
classification and reasonableness. Auditors also evaluated other internal controls that were
considered significant to the audit objectives.
•• To assess whether the District’s plant operations and maintenance function was managed
appropriately and functioned efficiently, auditors reviewed and evaluated fiscal year 2009
plant operation and maintenance costs and district building space, and compared these
costs and capacities to peer districts’. In addition, auditors reviewed E-Rate program
information to determine the District’s reimbursement percentage and reimbursement
amount.
•• To assess the District’s student achievement, auditors reviewed the Arizona’s Instrument to
Measure Standards (AIMS) passing rates and “Adequate Yearly Progress” for the federal No
Child Left Behind Act. AIMS passing rates were compared to the state-wide average and
the average of the student achievement peer districts.
•• To assess the District’s computer information systems and network, auditors evaluated
certain controls over its logical and physical security, including user access to sensitive data
and critical systems, and the security of servers that house the data and systems. Auditors
also evaluated certain district policies over the system such as data sensitivity, backup, and
recovery.
We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained provides a reasonable
basis for our findings and conclusions based on our audit objectives.
The Auditor General and her staff express their appreciation to the Picacho Elementary School
District’s board members, superintendent, and staff for their cooperation and assistance
throughout the audit.
DISTRICT RESPONSE
DISTRICT RESPONSE
PICACHO ELEMENTARY SCHOOL DISTRICT NO. 33
PERFORMANCE AUDIT RESPONSES
FINDING 1: District lacked sufficient payroll and purchasing controls.
Recommendations:
1. The District should implement proper controls over its payroll processing to ensure
adequate separation of duties or alternatively establish an appropriate review process
as a compensating control.
District Response: The District agrees with the finding and will implement the
recommendation. The District will implement procedures to ensure payroll is
calculated properly and the proper oversight and documentation is in place.
The District Business Manager will ensure that payroll amounts are calculated
correctly. Finally, the Superintendent will be the final check to make sure
salaries are calculated correctly. The Superintendent will sign off on all time
sheets, leave of absences, and payroll journals reports. In addition, the
distribution of all checks will be delegated to the Superintendent’s Secretary as
an additional separation of duties.
2. The District should ensure that payments for additional work are properly
documented, approved prior to payment, and maintained in employee personnel files.
District Response: The District agrees with the findings and will implement the
recommendation. The Picacho Elementary School District #33 Governing Board
action has already taken place for the 2011-2012 School Year regarding
authorization of additional pay for Extra Duty Stipends, and will be on the
agenda for approval each year and or as deemed necessary. All Extra Duty
Stipends approved will be documented with a copy in the individual personnel
file.
3. The District should require supervisors to thoroughly review time sheets and have the
business manager verify the accuracy of a sample of time sheets to ensure that
employees are accurately paid for the correct number of hours worked.
District Response: The District agrees with the finding and will implement the
recommendation. The District has implemented that all departmental
supervisors verify hours worked and attach all proper documentation requests
for hours not worked.
4. The District should ensure that it requires an independent review and approval for all
of its purchases prior to the purchases being made. Further, in order to help ensure it
receives the best price for goods and services, the District should ensure that
employees follow the competitive purchasing rules in the Uniform System of
Financial Records for Arizona School Districts when purchasing goods and services.
District Response: The District agrees with the finding and will implement the
recommendation. The District agrees with the finding and will strive to ensure
that all purchased goods and services are competitively approved and that all
purchased transactions be in accordance with the Uniform System of Financial
Records for Arizona School Districts.
PICACHO ELEMENTARY SCHOOL DISTRICT NO. 33
PERFORMANCE AUDIT RESPONSES
FINDING 2: Food Service program required a $36,000.00 subsidy.
Recommendations:
1. The District should evaluate its food service operations and determine if they can be
modified to reduce staffing levels and produce cost savings.
District Response: The District agrees with the finding and will implement the
recommendation. The District will work with the Governing Board to resolve
and implement this issue.
2. To aid in evaluating the efficiency of its food service program, the District, should
develop and monitor performance measures such as cost per meal and meals per labor
hour and take appropriate actions based on the results of the performance measures.
District Response: The District agrees with the finding and will implement the
recommendation. The District will work with the Governing Board to resolve
and implement performance measures.
3. The District should reassess the costs and benefits of participation in the NSLP’s
Provision 2 Program, including the suitability of using district funds to subsidize the
food service program rather than using them to meet other needs.
District Response: The District agrees with the finding and will implement the
recommendation. The District will work with the Governing Board to resolve
this issue.
FINDING 3: District did not meet state transportation safety requirements.
Recommendations:
1. The District should ensure that it conducts all required random drug and alcohol
testing as specified in the Minimum Standards.
District Response: The District agrees with the finding and will implement the
recommendation. The District will perform random drug testing according to
the Minimum Standards. This testing will be performed on all employees as
required by the Minimum Standards.
2. The District should ensure that bus preventative maintenance is conducted and
documented as specified in the Minimum Standards.
District Response: The District agrees with the finding and will implement the
recommendation. The District will begin keeping on file all preventative
maintenance documentation that is performed on each bus as specified in the
MINIMUM STANDARDS.
PICACHO ELEMENTARY SCHOOL DISTRICT NO. 33
PERFORMANCE AUDIT RESPONSES
FINDING 4: District performance pay plan needs improvement.
Recommendations:
1. The District’s performance pay plan or employment contracts should specify the
amount or range of amounts of performance pay each eligible employee can earn if
performance criteria are met.
District Response: The District agrees with the finding and will implement the
recommendation. The District Administration is presently working on
providing hard copy documentation for all performance pay awards.
2. To promote improved performance, the District should establish meaningful
performance goals.
District Response: The District agrees with the finding and will implement the
recommendation. The District will work with Governing Board to resolve this
issue.
OTHER FINDINGS: District did not accurately report its costs.
Recommendations:
1. The District should classify all transactions in accordance with the Uniform Chart of
Accounts for school districts.
District Response: The District agrees with the finding and will strive to ensure
all transactions be coded in accordance with the Uniform Chart of Accounts for
School Districts.
OTHER FINDINGS: District lost over $6,600.00 in discounts from federal E- Rate
program.
Recommendations:
1. The District should ensure that it is enrolled in the E-Rate program and receiving
applicable discounts.
District Response: The District have recouped funding and discounts from 2009.
The District has secured a third party vendor to apply and receive all applicable
discounts through the E-Rate program.