JCPS audit is informing about needed improvements

I’m playing catch-up (due to a busy spring), but I wanted to share important news from the JC Board of Education meetingon Monday, May 22nd (available here on Facebook) which is about the district’s annual audit. I read this report in the Jersey Journal and thought it was a good article about the meeting. I wanted to share additional insight/context for those interested.

The annual audit is a required compliance measure every year. You can see all past year audits for all school districts in NJ on the NJ Department of Education website here; what’s more, each audit is tied to an annual “Annual Comprehensive Financial Report.”*

What I found so interesting about this report was that, for the second straight year, systemic issues are being highlighted by a third party (CPA firm) as part of an annual compliance process. What’s more, the CPA who presented the audit credited Superintendent Dr. Fernandez for helping the process unfold in a productive manner.

This is welcome news. I have personally heard for years about lack of transparency, questions about money, and more, as it relates to Central Office. This audit and the related process is a public check on Central Office (however limited in scope), and to see some of the issues (detailed below) laid out publicly struck me as positive. That Dr. Fernandez both owned and was credited by the CPA also seems positive.

And with all of this, I acknowledge that there are no “quick fixes.” I see the district akin to an ocean liner: huge in scope, not built to turn quickly or easily. But, if and when it does turn, even slightly, we can see potentially dramatic outcomes.  Good leadership, teaming, excellent communication, and honest feedback are essential to the entire operation not only staying afloat but also heading in the right direction.

Let’s dive into the audit first. The team of accountants from the CPA firm is charged with both the authority and a mandate to understand if the CAFR – the annual report with all the key data – fairly represents what is actually happening. Important nuance to note here is that:

• Superintendent Fernandez and the Business Administrator present the ACFR to the BOE (see page 7 of the PDF)
• The Auditor then writes the its report that details their findings, in context of the ACFR, based on what they’ve learned in the process of their audit (see page 3 of the PDF)

The auditor’s role is not a rubber stamping type of exercise; on the contrary this is a process laden with professional skepticism and aiming to get to the reality of what’s going on. And so we see in the audit the 21-page audit report a detailed list of findings related to the 300+ page “ACFR” financial report created by the district. These are the findings that were reviewed during the May 2023 caucus meeting (the audit report starts at minute 11).

In a nutshell – what the auditors shared

The 21-page audit report is here and includes noted issues and related recommendations, much of it pertaining to “Central Office,” the vast bureaucratic apparatus that is run primarily out of 346 Claremont Avenue.  To put a visual on “Central Office,” I found this dated org chart (if a more recent org chart is available, I’ll update this). The point here is to put a frame on this hierarchy and bureaucracy, akin to middle management, with many other staff positions rolling up to the boxes in the org chart:

The audit report detailed findings related to

• the Business Department (left column from chart above) regarding accounting data not being reconciled to bank statements on a regular basis (page 5 of audit report), W-9 IRS forms required for IRS compliance were not available for review (page 7), and more. I assume there is interplay here with Human Resources, too (2nd column from left).
• Special Education (second column from right) and Transportation (falls under “Business” on left) that “Information on special education students being transported is not adequately being provided on a live basis to the transportation department, nor is information being monitored for accuracy and completeness between the special education department and transportation department.” (page 9)
• Facilities – the district is not “maintaining fixed assets subsidiary ledger on a live basis nor performing periodic inventory to ensure safeguarding of assets and accuracy of ledger for financial reporting and insurance purposes.” (page 10)
• And then there was also the note that some issues were found last year, and never addressed, and so are issues again (page 11):

There is also a “corrective action plan” that lays out what the district is supposed to do in the year ahead to address these findings. This gets very specific as to who is on point to fix these issues, including the business administrator, the IT director, assistant superintendents, division supervisors, purchasing agents, clerks, and more. This is a bureaucratic checklist on accountability and follow-up.

Board Responses

If you watch the video, you’ll see around the 1:20 (one hour, 20 minute) mark that Trustee Velazquez asks the auditor (Mauricio Canto) why so many issues have been flagged in 2021 and 2022 while in years prior to 2021 there were not as many issues noted. Mr. Canto noted there were many findings last year (June 30, 2021 year end) but this year is more “severe”. He cited the volume of 2021 issues being driven by pandemic-related flux, including:

• volume of grants,
• COVID-relief funds,
• unemployment claims,
• pandemic-related funding streams,
• self-insurance, and more…
• he also cited the loss of institutional knowledge and experience as staff retired or resigned during the pandemic and the lack of sufficient transition during that time period.

Mr. Canto also, interestingly, cited a change in business department office culture. He indicated that the staff were more open and willing to share now that after the replacement of Regina Robinson with the new business administrator, Dr. Dennis Frohnapfel.

He also credited Dr. Fernandez for helping them dig into the details and ferret out all these issues; taken at face value, I see this as a positive reflection of Dr. Fernandez.

What’s next?

So a natural question now to ask is: will this all get addressed? And…how will it change? Interested stakeholders can ask about the status of these changes at the public board meetings. The degree to which the Board of Education provides clarity into this will also inform about their competency as a governing body. Much remains to be seen, but this initial report is welcome insight into a system that needs vast improvement from the inside-out.

* Prior year audits go back to 2015 and are available here, where, with a few quick mouse clicks you can access Jersey City’s 2022 ACFR here and the accompanying audit report here. I’ve referred to these reports in prior posts about state aid updates and about public data that advocates can use to better understand their public schools).