Accounting 101

If the Seattle School District is stumped, the state auditor is ready to help.

HAVING SOMEHOW turned two balanced budgets into IOUs, the Seattle School District is slogging through a $35.4 million sinkhole in search of money and credibility. But officials might have blown a chance to restore some confidence last month when they failed to bring in an outside agency to help guide the district's course correction. One such agency, the state auditor's office, offered its services for free shortly after the budget crisis was revealed Oct. 4. But it hasn't been invited in.

"We called and asked them to let us know if there's anything we can do," says state Auditor Brian Sonntag. "That's where it stands. We sure want to be part of helping them if they want us to." His office could provide advice on tightening the spending and auditing controls that allowed a relatively small deficit to balloon into a massive shortfall. It could also act as the public's representative in sorting out the truths behind at least two years of mental errors, questionable practices, and software glitches that have yet to be fully identified and corrected—and likely won't be until next year. Sonntag plans to make another offer of assistance. But the district so far has opted to handle the deficit in-house, where the gap developed and was kept mostly secret.

Eventually, says Superintendent Joseph Olchefske, the district plans to organize a review by a local panel, and it will hire an outside consultant. It is his hope that a private firm, to be selected through a low-bid process, could complete a review by April.

THE DISTRICT'S DECISION to wait for audit help appears not to be based on any grudge the district might have with Sonntag, who has been critical of the district for failing to fully cooperate in the past. "We've had issues with the district for a number of years," Sonntag said last week. "Their attitude has been, 'We don't think it's a big enough deal.'" The state has found fault with district controls and spending for the past six years (see "Missing Money," Sept. 5). "There are still sound, commonsense practices to be followed," says Sonntag. "When they aren't, and if that led to a $34 million-plus hole, it shows it was a pretty big deal, after all."

Though school officials indicated in October that a budget solution was at hand, they're now unsure how all the losses will be covered. "We're looking to make additional cuts in the middle of the [budget] year," says spokesperson Lynn Steinberg, "and we don't know how deep we can cut yet." Moreover, the district has yet to determine how much red ink there is. The figure has been rising since Oct. 4, when Olchefske cautiously revealed what he called "a $21 million shortfall" in last year's budget. "After weeks of careful analysis," he said, "we now understand the scope of the problem and how it evolved. We have a plan to fix it and to ensure that it never happens again." He mentioned a $12 million gap that had opened in this year's budget, too, but he did not make clear that, overall, the district was then $33 million in the hole.

Olchefske subsequently revealed that the district would empty $14.1 million from the district's loan fund and deplete another reserve fund of $7.8 million to fix last year's shortfall. By those figures, that deficit actually came to $21.9 million. The amount of this year's $12 million deficit also began rising in the following days. Olchefske conceded the gap could hit $13.5 million, then said he was looking at $14 million in cuts.

The total deficit is now at least $35.4 million to $35.9 million, according to the latest district math. Other officials say those figures are fluid, and Olchefske has added footnotes to his projections stating that there is "some imprecision in estimating."

The inexactitude is necessary, the district says, because it's still picking itself off the floor. That has some wondering if or when the public will get the whole deficit story. Unclear, for example, is the district's motive to give former chief financial officer Geri Lim a bundle of cash as she was pushed out the door when news of the crisis broke. Olchefske has indicated that Lim and others kept news of the growing deficit from him until August. If so, why was she rewarded with $53,000 in cash and health bennies in an Aug. 16 confidential agreement? Lim claims the agreement prevents her from commenting on district finances, but, in fact, it prevents her only from talking about the agreement.

ALSO UNCLEAR IS WHAT the Seattle School Board knew. Board members apparently approved two budgets that were millions out of whack, contrary to state law. The board claims ignorance, saying it was deceived by bean counters. Members apparently heard nothing about a $5 million deficit improperly carried over year to year, computer systems that weren't in sync to the tune of $7 million—were not aware, even, of a $2 million economic shortfall.

Auditor Sonntag, among others, is stumped that so many officials were missing in action. "It's essential," he says, "that the elected legislative authority, which is ultimately responsible, plays a direct oversight role. The bottom line is accountability."

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