Portland school district officials were warned in the spring that the district’s financial system was vulnerable to problems.

An outside audit completed in March identified significant concerns with the district’s finance department, including a lack of built-in oversight and checks and balances necessary to allow the district to avoid or quickly detect mistakes.

Some issues identified by the auditors appear to have contributed to problems that resulted in employees not being paid correctly or on time since October, a situation that has left employees struggling to pay for food and rent and burdened with interest and fees. The issue came to a head Tuesday night when over 50 district employees attended a board meeting to demand a solution to the ongoing payroll issues.

The audit of the financial year ending June 30, 2021, was completed and the findings were provided to city and school officials this past spring.

It identified a combination of school district finance department issues, including a lack of payroll oversight, documentation and checks and balances, and a failure by the district to complete important accounting tasks in a timely manner.

The audit said the deficiencies could lead to records of pay rates and expenses being entered without proper documentation, invoices being recorded without appropriate review and pay rates being adjusted by people outside of human resources.

Because of some of these problems, “unauthorized adjustments can be made by personnel and errors or irregularities could occur and not be identified timely,” the audit states.

That prediction seems to have played out this fall.

In late October, the district accidentally overpaid a group of employees by a total of $57,335 and the money was not recouped for at least 10 days, according to emails obtained from the city on Monday in response to a Freedom of Access Act request.

Exactly what caused the overpayments is unclear. But according to emails between school finance department staff and city finance employees who tried to help, the district’s controller, a relatively new employee who had not regularly managed payroll, was working to get payroll out the night that those overpayments were sent to the bank.

A few days after the employees were overpaid, Kim Kennedy, the controller, emailed city finance department staff explaining that she needed to recoup overpayments. “I really need to recall payments,” Kennedy said. She wrote that employees enter their time worked on a Google sheet and that if they enter incorrect hours “they will be duplicate paid, triple paid … so crazy.”

There is no evidence included in the emails obtained by the Press Herald that indicates employees purposely filled out their time sheets incorrectly

Superintendent Xavier Botana did not respond to questions Wednesday about how the audit might be related to the district’s ongoing payroll issues. He has said he will no longer respond to questions from the Press Herald, citing displeasure with its coverage.

However Botana has previously pointed to software problems, staff turnover and a lack of staff training as the cause of the district’s payroll issues.

School board Chairwoman Sarah Lentz said in a written statement Wednesday that she believes the district’s ongoing payroll challenges are the result of staff departures and issues with the district’s system for processing payroll. Lentz, who became chair of the board on Monday and joined the board this summer, said she is working to get up to speed on the payroll developments, as well as other district duties.

Since the October overpayment incident, numerous employees have been paid in the wrong amounts and been paid late or not at all for certain duties. Botana said Tuesday that 140 people have communicated pay discrepancies to the district. At the board meeting Tuesday night, one employee said she has been working for the district as a substitute teacher since October but has not been paid at all. Another said the district owes them more than $1,000.

The audit also reiterated recommendations from the previous year’s audit that had not been implemented, including checking district credit card and cash transactions against documentation, assessing accrued vacation for excess balances and better managing student activity funds.

IMMEDIATE ACTION URGED

The New Hampshire-based auditing firm, Melanson, recommended the school district create an immediate plan to address some of these problems.

The audit was presented by the auditor and discussed at a joint city and school board finance committee meeting in September in which city councilors expressed concern about the district’s audit results and pressed for more information on the issues highlighted and the steps the district had been taking to remedy them.

District leaders responded that they had restructured the district’s finance department and increased staff and were taking steps to shift payroll functions to a private company.

“Because of the challenges that are being noted in the audit we have done a couple of things,” Botana said during the meeting. He said the school district was looking into outsourcing its payroll functions and working with an outside company to help it use its financial software.

The board’s chairwoman at the time, Emily Figdor, said the district’s finance committee had been discussing the results of the audit since May and had worked with district officials to change the structure of the finance department and create and fund two new department positions. Botana said the additional staff would allow the district to create greater separation of duties.

At the September meeting, Botana said that out of the 11 full-time and four temporary positions in the district’s finance department, five were open, although one would be filled in a few days.

But the departure of some key employees later led to the payroll problems that began in October, Botana has said.

“Our payroll department is experiencing staffing issues as a result of turnover this summer and then an unexpected medical leave that occurred in early October,” Botana said in a November statement to district employees.

DEPARTURES TRIGGER PROBLEMS

That left the district without staff familiar with the district’s payroll processes trying to manage the payroll system that auditors had previously warned had significant issues.

“A lack of employee training and clear understanding of our payroll processes, a payroll system that was not fully built-out as well as gaps in process documentation have made it difficult for others to step in and support the department and have caused gaps in employee pay (wages, additional pay, etc) for a number of employees in the last three pay cycles,” Botana said in the statement.

Outsourcing its payroll system remains the school district’s long-term plan for the issues they are currently having.

Botana said Tuesday that the district has contracted with the software company it uses for payroll to have a technician help the district reset its payroll system to “the way it should have been set up in the first place.”

“For a long time we’ve been fixing individual things and not repairing the underlying problems so we recognize that we’re on a hamster wheel and we have to get off of it,” he said.

Botana said rebuilding the district’s payroll system from scratch is key to transitioning to an outsourced system down the road and that he hopes outsourcing will be done by spring.

Although the city and school district manage their finances independently, they are audited together and the city’s bond rating, which is similar to a credit score, can be affected by the school district’s finances. There has been no indication that the school district’s recent payroll issues have negatively impacted the city’s bond rating.

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