Mpls. school district overspent by $21.6 million last year, audit shows

Overspending forced the Minneapolis Public Schools to pull millions of dollars from other district reserve funds, an audit of school district finances shows.

The audit was discussed Tuesday at the first meeting of the new school board. It covers the fiscal year that ended June 30, before Superintendent Ed Graff took the helm of the state's third-largest school district.

"Our audit confirms what we know without any surprises," Graff said in an e-mailed statement. "By this time next year, our expectation is that we will have many of these areas addressed."

The district overspent its $574.7 million budget by $21.6 million, even after the school board approved a bump of $17.4 million to the budget, said Matthew Mayer of BerganKDV, the district's auditor.

"That hopefully is a one-time occurrence, because the resources won't be there on a perpetual basis to bring those dollars back in to shore up the budget," he said at the board meeting.

The shortfalls didn't stop at spending, the audit showed. For the second straight year, auditors highlighted seven areas of financial missteps, including problems in budgeting, payroll and approval of district purchasing cards.

Some employees remained on payroll after they left the district or took leaves, and as of June 30, 70 people owed about $80,000 to the district. In some accounting areas, the same employees were able to handle multiple steps of a payment. And sometimes, expenses on district-issued purchasing cards, or p-cards, didn't get approved before payment or at all.

Revenue increased overall in the district, thanks to property tax collections and a slight increase in student enrollment, Mayer said.

The district has a plan to replenish the overspent funds annually with money from its general fund, said district Chief Finance Officer Ibrahima Diop.

"The plan that we have to rebuild it is clear, we have it, so it's not a concern to us," he said, adding that it would have been worse if the overspending had impaired the district's financial health.

In 2015, the district spent about $14 million more than it budgeted and had to tap its reserve funds.

In May 2016, the district reported a deficit of $15 million to $17 million because it didn't budget for costs like pension contributions and a new teachers' contract. Officials predicted the shortfall, after auditors discovered that in fiscal year 2015 the district was under-budgeting some expenses and revising numbers during the year.

For example, in the Southwest Driver's Education Community Education class, the same employees who deal with incoming payments are also charged with making deposits. In payroll, people who can record and process payroll can also tweak payroll input information.

These combined duties put the recording of financial information at risk, according to the letter.

Further, overspending that required midyear budget amendments "calls into question the budget process and accuracy of the reports provided to the Board," the letter said.

The district will budget differently in the future, Diop said at the meeting.

In his statement, Graff said, "We are making progress toward correcting the findings identified in the audit, both with improved practices and procedures and with additional training."