Audit committee recommends board affirm corrective-action plan after Portland SD 1J ACFR and single audit

Patty Sullivan, chair of the Portland SD 1J audit committee, led a review of the district's annual comprehensive financial report (ACFR) and single audit at a committee meeting where auditors reported an unmodified opinion but several compliance findings.

Dan Miley, a partner at Talbot, Corbola and Warwick (TKW), summarized the audit process and results, saying, "I am happy to report that at the end of this, we were able to issue an unmodified opinion," meaning the auditors concluded the financial statements are presented fairly in accordance with U.S. GAAP. Miley told the committee three programs'the child nutrition cluster, Title I and the education stabilization fund'comprised roughly 47% of the district's approximately $64,000,000 in federal expenditures for the fiscal year.

The auditors identified three findings required by Oregon standards. Two findings involved overexpenditures: roughly $4,100,000 in the general fund for instruction and about $3,600,000 in a special-revenue fund for support services. Miley also reported a significant deficiency in internal control tied to grant accounting and schedules of federal expenditures, saying some grants were recorded in the wrong buckets and documentation of review and approval was missing for certain federal reports.

The auditors' testing of teacher-experience records selected 60 files from the district's roughly 2,900 teachers and found four records with issues. On accounting standards, Miley explained a recent GASB change that broadened compensated-absence recognition to include sick time; that change increased the district's compensated-absence liability by approximately $42,000,000 on governmentwide statements, a presentation change rather than new spending.

Michelle Morrison, the district's chief financial officer, told the committee the findings reflected significant turnover in the finance office and a lack of some documented review steps, and she outlined corrective actions already underway. "It doesn't look great," Morrison said of having findings, "but fortunately for us, it's not findings that end in a criminal case. These are compliance issues." She and staff described standardized oversight, documentation and training measures they have begun to implement.

Committee members asked for and received confirmation that the audit communications letter and detailed schedules (including the schedule of findings beginning in the ACFR) are in the board packet. The committee also discussed the timing risk: staff and auditors said the state's Feb. 2 filing deadline had created urgency because missing that deadline could have delayed the district's state school fund payment and caused cash-flow complications.

Chair Sullivan presented three referral options for the audit committee to the full board: accept the ACFR and single audit as-is; accept and pass a resolution affirming staff's corrective-action plan; or accept and direct the board to set corrective measures. After discussion members said they preferred option two but requested that the staff's timelines included in the corrective-action memo be incorporated into the resolution. The committee recorded an informal consensus to recommend to the full board that it accept the reports and pass a resolution affirming the corrective actions staff outlined, including the timelines.

The committee was told there are four proposed adjusting journal entries and two uncorrected misstatements called out by auditors (one a projected draw and one related to the state Local Government Investment Pool fair-value adjustment). Auditors characterized both as below materiality thresholds but reportable under auditing standards.

Next steps: the committee will forward its recommendation and the existing corrective-action plan (including staff-proposed timelines) to the full board; staff will file required state disclosures and post the completed audits on the district's audit reports page. The board is scheduled to consider the resolution at its next regular meeting.