Per-Pupil Expenditures: Reporting Problems

The following is a copy of the letter dated February 9th that I sent to the Finance Committee. It makes clear that town and school officials still refuse to take seriously the problems with their reporting of the data used to calculate per-pupil expenditures. At the same time they continue to feature faulty per-pupil expenditure comparisons in their school budget presentations in order to show Shrewsbury in an unfavorable light (e.g. in the Superintendent’s Budget Recommendation, Fiscal Year 2018, now on the school web site).

Subject: Municipal Expenditures in Support of the School System

To: Shrewsbury Finance Committee

At the January 19, 2017 meeting of the Finance Committee, the Committee heard presentations from Town Manager Morgado, Assistant School Superintendent Collins, and an auditor on the subject of annual school expenditures reporting. They attempted to address satisfactorily the concerns about under-reporting of municipal expenditures in support of the school system. Their attempt failed.

As you all know, I have repeatedly raised this issue at various public meetings. Finally, in the spring of 2015, the Finance Committee asked Mr. Morgado to investigate and report on this issue. In November 2015 Mr. Morgado sent a letter to the Committee stating that he had performed the review and summarized selected spending areas. However, this review was incomplete in several respects:

– It did not cover all spending areas.

– He did not provide details showing how he had calculated each expenditure.

– He stated that he had modified the methodology for calculating these expenditures, but he did not explain the change(s) in methodology and how these changes affected reported spending compared to prior years.

– He said that he had not looked at SELCO’s contributions.

His letter also had said that he would again review this matter during the summer of 2016 and provide an updated report, being sure to look at SELCO’s contributions. This was not done, so on December 12, 2016 I emailed the Committee to ask that it obtain this information, and the discussion at the January 19 meeting resulted.

There were several problems with their presentations.

1) The auditor was there apparently to give credence to the accuracy and integrity of the spending information provided by Mr. Morgado and Mr. Collins; but as the auditor himself stated, he did not perform an audit of the End of Year Report (EOYR) on school expenditures, only an agreed upon procedures engagement, which only took two days. As a person with over 20 years of experience in auditing, I know that such a limited engagement cannot provide adequate assurance that the End of Year Report is accurate, particularly since it could not include have included testing of the accuracy of source documents.

2) Mr. Morgado distributed a summary report of account expenditures to the Committee. He implied that several account totals must be accurate, and identified them as actuals and not estimates, because the data came from the MUNIS system. Some Finance Committee members wrongly assumed that the MUNIS data must therefore be accurate because it came from a system. This is a common misconception. In fact, reports from any system are only as accurate as the data input into the system and the programing used to generate the reports.

As an example, health insurance is a large expense reported by MUNIS. Since the override was approved in 2014, dozens of new school employees have enrolled in health insurance. Were they all correctly entered into the system as school employees for FY2015? Were the MUNIS reports programmed to capture all the health insurance expenditures for all school employees? It takes a thorough audit to answer these questions correctly.

3) While Mr. Morgado and Mr. Collins made their own presentations, neither one provided any documentation reconciling the data on the summary report that Mr. Morgado’s distributed at the meeting, to the data entered by the school department in the EOYR.

Clearly this was not possible for FY2016 since the FY2016 EOYR has not yet been completed. But Mr. Morgado’s summary report included FY2015 costs, and these could have been reconciled to the town appropriations listed on the FY2015 EOYR. And in fact, I obtained a copy of the FY2015 EOYR from Mr. Collins last March, and there are some significant differences that a complete reconciliation might explain.

4) Mr. Collins’ discussion of SELCO was limited to direct SELCO project costs allocated to the school department. He did not discuss the infrastructure costs that SELCO allocates to the town (roughly $800,000 in FY2017) and the value of other in-kind services that SELCO provides to the town (as reported by SELCO each year in the Annual Town Reports). Specifically, he did not explain why none of these costs or services should be allocated to the school system and reported on the EOYR.

5) Mr. Morgado’s discussions of small amounts like lighting costs, and of some of the rough estimates he makes, were unnecessary. I have never suggested that a laborious effort should be performed to obtain better allocation estimates on small cost areas. The focus should be on the larger cost areas, including those reported by MUNIS, where even a small data or programming error could have a large dollar impact.

6) When someone changes the methodology for calculating these expenditures, as Mr. Morgado said he did in November 2015, he should explain what the changes were and how they changed the reported costs. Otherwise, methodologies could be changed each year to raise or lower reported per-pupil expenditures as desired. And as the auditor stated, there is little if any oversight of the EOYR’s by the state.

7) It was explained that Shrewsbury was unlike many other school districts which have their own Building and Maintenance, Insurance, and Retirement Departments, etc. Because Shrewsbury’s municipal departments perform these services for the school department, the costs for these services are significantly lower than most other towns. For example, the MA Department of Education website reports the per-pupil expenditures costs for these accounts in FY2015:

Accounts                                       Shrewsbury                State Avg.                   Reduction

Operations and Maintenance:         $   818.03                  $1,139.50                      $  321.47

Insurance, Retirement, Other:            $1,584.28                 $2,489.30                     $  905.02

These lower per-pupil expenditures are primarily the result of Shrewsbury’s more efficient organization of these departments and their better management, e.g. contracting out custodial services. Any fair comparisons of Shrewsbury’s per-pupil expenditures to other towns should adjust for the lower costs of these services, over $1,200 per-pupil, into account.

8) The auditor and Mr. Collins appeared to minimize the importance of the EOYR, stating that it was merely used for comparative purposes. But these comparative purposes include comparing Shrewsbury’s per-pupil expenditures to other towns. And it is the School Committee, school department officials, and other town officials who have continually emphasized the importance of these comparisons. If town officials would agree to stop making per-pupil expenditure comparisons an important statistic in future budget debates, then I could stop insisting that EOYR’s should be reported more accurately.

In summary, Mr. Morgado and Mr. Collins have not resolved the issue of under-reporting of municipal expenditures in support of the school system. Nor have they explained why comparisons of reported per-pupil expenditures are misleading. For all these reasons, I ask that the Finance Committee request (again) that they (or their successors) address and report fully on all of the points listed above.


John Lukach

Cc:       Daniel Morgado

–         Patrick Collins