State audit finds ‘significant mistakes’ with Department of Public Instruction’s financial statement

State Auditor Beth Wood

A state audit found “significant mistakes and omissions” in the N.C. Department of Public Instruction’s 2019 financial statement, including one error that led the agency to overstate the payable claims balance in its Public School Insurance Fund’s by $23 million.

This audit report shows that they have done some fundamental things incorrectly,” State Auditor Beth Wood said in an interview Thursday.

DPI Chief Financial Officer Barbara Roper resigned after the audit’s release.

Wood compared the error-filled financial statement to a loan application chocked with bad financial information; the kind that would cause a loan officer to rule against a potential borrower.

Similarly, the General Assembly uses NCDPI’s financial statement to making funding decisions, Wood said. “This is basically the same thing.”

The audit found that NCDPI failed to report and to record a $7.1 million estimate for Hurricane Florence-related claims and would have not done so had the audit not found the mistake.

NCDPI also did not report $5.3 million and $32.1 million it expected to recover for hurricane-related claims. The department is self-insured, but hurricane losses are handled by an outside insurer.

The PSIF’s claims payable balance was overstated by $23 million because of inaccurate accounting.

“They didn’t report those claims that they were going to get money for,” Wood said. “So, when you’re trying to get the financial picture of NCDPI based on the financial statements they put together; they’re misleading.”

And there’s more.

NCDPI didn’t report that $20 million in civil penalty and forfeiture funds would be sent to school districts. “They showed they got the money but then they didn’t show they owed it to somebody else, which is a net zero to them,” Wood said. “They’re showing $20 million more in assets than they really have.”

NCDPI also didn’t record some goods and services purchased in fiscal year 2018 that were to be paid for in 2019. “The failed to record those expenditures that belong in 2019 in 2019’s books, again making the bottom line look bigger than it should be,” Wood said.

NCDPI also undervalued its investments by miscalculating the change in fair market value. “These are things that they should be getting right,” Wood said. “They’re responsible for recording and reporting transactions appropriately, and when they handed us their financial statements, they had all of these errors and more.”

Wood said governmental accounting is a special field that requires knowledge and a certain competency,

“You have to have the talent in place that can account for transactions appropriately, record them appropriately and close out the books at the end of the year appropriately,” Wood said. “You’ve got have a competent staff on board to do that.”

State Superintendent Mark Johnson didn’t dispute the findings in a letter to Wood.

He said NCDPI has recommended to the General Assembly that the State Department of Insurance handle all insurance matters for state government.

“Hurricane Florence caused massive damage to schools across the state in 2018 and the Public School Insurance Fund staff did not have the capacity that one would expect of state government to be able to thoroughly respond to such an event,” Johnson wrote. “Unfortunately, staff did not accurately estimate all the possible claims caused by the historic event, which led to the issues identified.”

Johnson said NCDPI will provide additional staff training and has filled key vacancies.

Wood told Policy Watch that staffing issues are not a valid excuse for an inaccurate financial statement.

“I get frustrated with hearing people say we’ve had a lot of turnover,” Wood said. “You know someone is about to leave. What’s the job they’re supposed to be doing? If you’re going to put someone new in there, put some controls in place to make sure that if mistakes are made, they are caught. Just because someone new is in the seat doesn’t relieve you of your responsibility for getting it right.”

Wood said Johnson’s plan to resolve the issue should work.

“If he does what he says he’s going to do, we should not not see these issues again,” Wood said.

In March, Wood’s office released an audit detailing NCDPI’s handling of federal grants. The audit found seven problems with the departments oversight of federal grants, including one that cost the state $18 million it could have spent on special education.


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