State Auditor Hector Balderas Finds Financial Disarray in Risk Review of Lovington Municipal Schools

Today, State Auditor Hector Balderas issued a risk advisory to the Lovington Municipal Schools for the fiscal years 2004-2007. The Office of the State Auditor (OSA) first listed the school district on the OSA’s At-Risk Advisory report in September 2009 due to the school district’s failure to submit a financial audit on an annual basis. After the release of the At-Risk Advisory report, discrepancies pertaining to school funds were brought to the Auditor’s attention and he initiated a risk review, which included an on-site evaluation of the District’s financial records.

“Properly managing public school funds must be a top priority,” said Balderas in a statement released today. “I want to ensure that every penny allocated to our children’s education is accounted for and well-managed.”

The review expresses grave concern over the school district’s repeated failure in preparing financial statements for every fund year after year. Furthermore, the independent public accountant was unable to opine on the District’s financial statements in fiscal year 2007.

In addition, the OSA expressed deep concern over the lack of internal financial controls and record keeping. According to Auditor Balderas, the District’s lack of fiscal transparency creates severe risks for fraud and misappropriation of taxpayer funds, which may result in a loss or reduction of student services.

“I’m recommending an immediate corrective action plan for the school district,” Balderas added. “The need for swift action by the District is further highlighted by the recent embezzlement charges brought against a former District employee. This incident may be an indicator of the District’s failure to implement effective internal controls, and the District should move rapidly to decrease its susceptibility to financial fraud.”

During the review process, another alarming finding was brought to the Auditor’s attention. Cash in the Educational Retirement Act clearing and payroll clearing accounts has not been recorded in the general ledger. It appears that approximately $1,478,023 and $14,801,345 cleared the accounts, according to the OSA. This may indicate that these transactions are not being accounted for as expenditures and, therefore, may be omitted in the financial statements and budget information. In addition, there are over 25 agency funds with unexplained beginning fund balances that differ from the prior year ending balances.

On April 23, 2010, OSA staff met with District leadership and they assured the OSA that they are currently addressing all concerns. The OSA has said it will continue to communicate with the District and monitor their progress. Furthermore, the OSA will formally communicate with various state and federal oversight agencies, including the PED. These agencies will evaluate and enforce all options allowable under law to assist the District in resolving its adverse fiscal condition.