MPS auditors issue unmodified opinion on FY2023 financials, identify material weaknesses; board accepts audit and orders quarterly progress reports

Baker Tilly presented Milwaukee Public Schools' (MPS) fiscal year 2023 audit to the district's Committee on Accountability, Finance, and Personnel, reporting unmodified opinions on the financial statements and the district's two pension plans while documenting federal, state and internal-control findings.

The auditors told the committee they issued “unmodified opinions” — the highest level of assurance — for the annual comprehensive financial report and for the pension plans, but also cited two federal findings related to grant compliance, one state finding, and multiple material weaknesses in financial processes.

Why it matters: An unmodified opinion means the FY2023 financial statements were free of material misstatement in the auditors’ judgment. At the same time, Baker Tilly flagged weaknesses that the board, administration and the public must monitor to restore timely, auditable reporting and controls.

Baker Tilly summary and key findings

Wendy Unger, the engagement principal for Baker Tilly, and Michelle Walters, senior manager, said the single-audit process was required because MPS expended over the federal threshold for grant funding. The auditors listed five major federal programs and seven state programs reviewed for compliance. The audit report showed: - Two federal findings: one on equipment and real property management for ESSER-funded purchases (incomplete capital-asset records in sampled items) and one related to Medicaid reporting where supporting documentation did not match a reported ratio (the ratio was corrected going forward). - One state finding in the AGR program caused by four teachers in the sample who were not licensed for that program allocation. - Eleven total findings recorded in the single-audit report, which also incorporates certain financial-statement findings.

Unger and Walters also outlined material weaknesses they required the district to disclose, including the year-end close process and audit readiness, journal-entry deletions in the general-ledger system, accounts-payable and year-end analysis, and budget-reporting inconsistencies. Baker Tilly said the district experienced significant delays and unexpected effort to produce auditable FY2023 information.

Financial highlights presented

Michelle Walters summarized high-level fund activity for FY2023 as presented to the committee: governmental funds decreased fund balance by about $49.3 million; the general operating fund decreased by about $92.2 million; the capital/construction fund increased by about $43.6 million (noted as driven largely by a $60 million contribution); and the nutrition services fund declined by roughly $734,000. The district-wide fund balance at year end was reported at about $67.5 million, with the capital projects funds holding the largest share (about $140.5 million) restricted for future capital projects. Walters also reported a general-fund deficit of about $69.7 million and a nutrition-fund deficit of about $3.3 million. On long-term liabilities, the Wisconsin Retirement System position shifted by about $246 million and OPEB decreased by about $36.8 million, as shown in the audit materials.

Auditors’ required communications and next steps

Baker Tilly emphasized required communications to governance: changes in accounting policy (none for FY23), significant estimates (pension and OPEB actuarial estimates), proposed material journal entries and items management chose not to post, and difficulties encountered in performing the audit. Unger noted continued carryovers from prior years and recommended management responses and board oversight. The auditors recommended a reporting cadence to the board on remediation progress — for example quarterly updates on implementation of corrective actions.

Public comment and board discussion

Two registered public commenters criticized past management and urged accountability. Theresa Fowleron, who identified herself as a district whistleblower and public-school advocate, said, “NPS needs to heal. And the first step in healing is for this board to apologize to Milwaukee taxpayers, NPS whistleblowers, NPS families, and NPS children.” Deborah Keether cited repeated findings and the district’s historic problems and read from the audit, quoting, “Individuals in management positions do not possess the appropriate skills, knowledge, and experience to insist in ensuring complete and accurate information is available for the preparation of the financial statements.”

Board members pressed administration and auditors on specifics: Director Zombor asked about an IT assessment referenced in the report and was told the district will provide that information by the end of next week. Multiple board members asked whether current staffing and recent hires make the district better positioned to remediate findings; administration said staffing has improved and staff have received training. Baker Tilly noted FY2023 audit work reflected previous management and said current management appears positioned to implement change.

Formal action

Director Zombor moved to accept the attached FY2023 audit report documents, require administration to return quarterly with progress updates on remediation, and direct the Office of Accountability and Equity (OAE) in collaboration with administration to review the district’s fund-transfer and investment policies and return recommendations to improve board oversight by the June board cycle. The committee voted 5–0 to approve the motion (Director Herndon — Aye; Director Jackson — Aye; Director Leonard — Aye; Director Zombor — Aye; Chair Garcia — Aye). The motion passed.

What the committee asked for next

- Administration will provide the IT assessment referenced in the audit by the end of the following week, per the administration’s response. - The committee directed quarterly status reports on remediation of FY2023 findings and asked OAE and administration to return recommended changes to fund-transfer and investment policies no later than the June board cycle.

Ending note

Baker Tilly and district staff said they will continue to work through FY2024 audit activities; auditors noted some FY2023 issues remain under investigation, including the deficit cash position held by the City of Milwaukee that the auditors reported as about $141 million at June 30, 2023, a condition attributed in the audit materials to timing differences related to ESSER claims. Administration said it is actively investigating the present status and root causes of that deficit cash position.