WINDSOR – The long-awaited audit of Bertie County Public Schools (BCPS) finances for the 2015-16 calendar year has been released, and it does not paint a pretty picture.

BCPS was deemed to be in serious financial trouble as of June 30, 2016 – to the tune of a $704,995 deficit in its General Fund balance, as well as facing some major issues in the way the school system handles its bank accounts.

That fact, along with over 20 other significant items of interest as noted by the auditing firm, led to a review of the audit by Windsor attorney Lloyd C. Smith Jr., who serves as legal counsel for the Bertie County Board of Commissioners. In his legal opinion, Smith alleged that two of the auditor’s concerns were outright violations of the North Carolina General Statutes.

Smith’s review of the BCPS audit was in the form of a letter he sent on Monday of this week to John Trent, chairman of the Bertie Commissioners. That letter was obtained by this newspaper after it was posted on Bertie County’s local government website. That website also contained several documents pertaining to the BCPS audit.

Anderson Smith & Wike, CPA, performed the audit, as required by state statute. It was released to BCPS on Jan. 6 and in a letter from the firm on the same day, it was noted that the audit was delayed, “because the (school) Board’s bank accounts and other key general ledger accounts were not reconciled by management in a timely manner.” The firm also noted that those issues were, “repeat findings from the previous year’s audit.”

The most alarming portion of the audit dealt with the BCPS fund balances. It noted a positive General Fund Balance of $2.5 million at the close of the 2012-13 school year. Three years later, that balance was $704,995 in the red, meaning the school district had expended in excess of $3.2 million of its fund balance over a three-year period.

The audit also noted a deficit of $135,078 in the BCPS Special Restricted Fund Balance. The auditor stressed the need for Bertie education leaders to, “increase revenues and/or decrease expenditures in sufficient amounts so as to allow for it to eliminate its fund balance deficits.”

As for the combination of fund deficits, the auditor cited State Statutes that call for the full amount of any lawful deficit from the prior fiscal year shall be appropriated in the budget resolution.

Smith referenced those statutes in his March 6 letter, saying, “In Finding 16-02, the auditors determined that North Carolina General Statutes 115C-441 and 115C-432 have been violated as the board incurred expenditures within the General, Special Restricted and Capital Outlay funds that exceed the appropriations as detailed in note number two in the report. Also budget revenues in the board’s fiscal year 2015-2016 budget resolution for general funds were $588,176.00 higher than budget expenditures. The auditor notes that the (school) board was in violation of state law.

“In Finding 16-03, the auditor finds that North Carolina General Statute 115C- 425(a) has been violated as the school board appropriated $491,931.00 of fund balance in the general fund which violated state law because the board only had $313,716.00 of fund balance available for appropriation. Again, the auditor states that the (school) board was in violation of state law,” Smith added in his letter.

As far as the auditor’s findings per the current methods used by BCPS for its various banking accounts, it was noted that the school district currently maintains its General, Capital Outlay, School Food Service and Special Restricted funds checking accounts all in the same account. “We recommend that the Capital Outlay Fund and the School Food Service Fund each have their own separate bank account due to revenues in these two funds being restricted for use,” the auditor wrote.

Additionally, the auditor noted that the district has numerous old outstanding checks in its State bank account. Many of the checks are anywhere from 10 to 20 years old. “We recommend that these checks be investigated and escheated, if necessary, in accordance with State law,” the auditor wrote in their findings.

The audit also noted outstanding checks to Bertie County Schools for items totaling approximately $339,000 at June 30, 2016 which had not been deposited into the local PNC bank account. Some of these outstanding checks dated back to 2002 and were replaced in October 2016.

“Based on discussions with management, we were unable to determine why these checks had not been immediately deposited into the Board’s PNC bank account at the time they were written,” the auditor wrote.

In his response, Smith noted these and other material weaknesses, alleging, “they have been condoned by the present board or previous boards. By our count, there are three material weaknesses which have been pointed out to the school board in its 2015 year-end audit which were supposed to be corrected, but were found to still exist.”

Smith added that, in his opinion, these findings, “indicate a complete failure or at least a grossly negligent failure to separate and segregate funds such as the General, Capital Outlay, School Food Service and Special Restricted funds. The auditor noted in his letter of January 6, 2017 that the district has numerous old outstanding checks in its State bank account with many checks ranging anywhere from 10 to 20 years old. Frankly, this is stunning.”

As for the $339,000 worth of outstanding checks, Smith wrote, “We have not been able to determine where these monies are of course, as we have not been asked to nor are we capable of doing a forensic evaluation or audit, but clearly there is either gross negligence or willful and criminal activity going on if these monies have not been properly reported or if they have been improperly spent or used to someone else’s benefit.”

Other findings by the auditor included:

The district did not perform reconciliations of various general ledger accounts throughout the year, including its hospitalization insurance liability accounts;

The Bertie School Board overpaid employees with State funds totaling $71,648 and underpaid employees by $16,580.62;

The School Board utilized less positions than it was allocated in various State PRC’s. These unused positions equate to approximately $60,000 of state funds that the district would have received had these positions been utilized. Also in a report from DPI, which shows all state PRC unexpended dollar allotment balances as of June 30, 2016, there were over $180,000 of unexpended state allotments year ending June 30, 2016 that reverted back to the state;

NC sales tax request for refund forms had not been filed during the 2015-2016 year. Per discussions with management, it was determined that no request for refund forms had been filed since the 2011 calendar year;

For child nutrition inventory, the Board is not utilizing a computerized inventory management system to track inventory balances; that the child nutrition department is not tracking prepaid student meal balances and recording those balances in its general ledger; and that the School Board is required to pay a $45,000 match from State Public School Fund for school nutrition supervisors, but the Board paid only $40,276.03 of this amount; and

A payment was noted to an individual in the amount of $3,333.36 for eight days of work under a contracted services agreement. Per review of the agreement, the individual was to be paid a total of $2,500 per month for six-to-eight days of work per month. However, the individual was paid $833.36 over the contract amount.

In closing his letter, Smith referenced the audit as “alarming information.”

“With the county having notice of the multiple failures of the school board to comply with certain statutes and also to have acted negligently in failing to budget, manage and expend funds, we believe that this matter must be reported to the State Board of Education,” Smith wrote.

On Wednesday, Bertie County Manager Scott Sauer said the Board of Commissioners met with school officials in late September and learned of a projected current year deficit of $500,000, which is now estimated at more than $800,000.

“We are experiencing the culmination of systemic failures at the financial management and governance levels for the Bertie Board of Education that have been allowed to occur for nearly a decade,” Sauer stated. “The most recent audited financial statements for the school system reflects a deficit fund balance of $704,955 which is a violation of State law.

“The Board of Commissioners requested assistance from the State of North Carolina in correspondence dated October 7 of last year and can be found on the County’s website along with other related school financial reports,” he added.

Sauer said that the Board of Commissioners has given instruction to Smith to send all information pertaining to the audit, to include the attorney’s letter, to the North Carolina Board of Education.