Minneapolis schools financial audit shows improvement but nagging concerns for future

After years of budget deficits, the Minneapolis school district has curbed overspending, raised revenue and erased a multimillion-dollar shortfall, according to a recent audit of the district's finances. But enrollment woes and low reserve funds still leave the state's third-largest school system in a precarious financial state, the audit shows.

The audit, which covers the financial report through June 30, 2018, revealed that the district decreased its expenditures by $12 million and increased its revenue by $8 million, thanks in large part to local property taxes. But the auditor also noted that the district's revenue is growing at a slow pace because of its plunging enrollment. At least one-third of Minneapolis' school-age children are choosing charter schools and other neighboring school districts.

"We believe the district is moving in the right direction when it comes to the internal control process this year," auditor Matt Mayer of Bergan­KDV said at a recent board meeting.

The district also was applauded for using only $4 million of the $16.5 million it pulled from the rainy-day funds to erase a projected $33 million deficit for the 2018-19 school year. Some of the district's cost-saving methods included restricting travel, reducing contracts, slowing down hiring and leaving vacancies unfilled. To be fiscally stable, the district needs to add $16 million more to its reserves to reach the 8 percent threshold set by the board.

"We're making significant improvements," Superintendent Ed Graff said at the board meeting, touting his financial team's efforts to curb costs. "Of course, there's always room for improvement, but it's important to acknowledge our progress that we're making."

Meanwhile, the auditor raised concerns about the district's budget process and accuracy of the reports the board members received. Board members were not given the right tools to appropriately monitor the district's financial health, the audit found. In the past and at a recent board meeting discussing the audit's findings, some board members said the finance reports they received were difficult to comprehend.

Board Member Bob Walser said the board passed budgets in the past that might have had significant deficiencies. Walser said he also finds it "perplexing" to hear that the district is on the right track, arguing that dwindling student enrollment could jeopardize the new operating money approved by voters in November.

District Chief Finance Officer Ibrahima Diop said revenue loss resulting from a projected student drop is always accounted for in the budget. Also, he said the finance team recently did a major overhaul of the district's accounting software system and launched a new reporting tool that would help board members keep tabs on the district's budget process. Financial literacy training will be given to board members, he added.

"Right now, we're providing the board with the right tools," Diop said. "We have a balanced budget, we have an audit that's a good audit compared to the other ones, and we have a budget book."

Some of the audit findings that were not considered major concerns included vendors not being paid on time, tardiness with balancing monthly checks and under-budgeting meal expenses. Diop blamed some of the blunders on fewer staff doing more work and on the district switching accounting systems.