Audit: Maricopa County schools office had 'ineffective' financial practices
A third-party audit found more than a dozen financial practice deficiencies at the accommodation school district run by Maricopa County School Superintendent Steve Watson, including more than $200,000 of improperly mingled funds and an unlawful land sale worth millions.
Watson said his district had already identified and addressed "the large majority of the findings" before the audit even began.
Tucson-based forensic auditing firm Heinfeld, Meech & Co. concluded the Maricopa County Regional School District failed to maintain financial records and adhere to statutory filing deadlines. Its May 28 report said the district’s “ineffective” budgeting practices led to “overspending and cash deficits.”
Spending on administration was about 11% higher than the state average last fiscal year while spending on instruction was 15% lower than average, due in part to the closure of a school. Among other findings, the district lacked policies governing food or gift purchases and district vehicle use, failed to reduce expenditures in response to declining enrollment and couldn’t locate documentation for audited transactions.
The district agreed with each finding and pledged to implement the firm’s recommendations. District leaders plan to undergo school finance training and establish monthly meetings to discuss filing deadlines and track expenditures, according to the report. Staff restructuring is already underway, too, Watson said.
"The District's budgets have always been reasonable and responsible, based on the education funds anticipated from both the state and county," Watson said in a written statement.
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The county supervisors alleged last year that Watson repeatedly flouted standard accounting principles, misreported funds and failed to submit audited financial statements within the statutory time frame. They commissioned an audit in October. Watson denied those allegations and said the accommodation district always worked to comply with financial practices.
On Thursday, Watson said leadership changes among the county supervisors led to less support and, therefore, more revenue challenges.
"It seems like at some point they were no longer concerned about the education of some of the most vulnerable students we have here in Maricopa County. I have been working to change that attitude," Watson said.
Accommodation district might have to repay millions to the state
Watson oversees both the county’s juvenile detention education program and accommodation district, which serves students with unique challenges, including those in the foster care system. Reconstruction of financial activity found the district and detention program had improperly commingled funds for years.
The district owed nearly $200,000 from various funds to the detention program, and the detention program owed the district nearly $50,000.
Watson said he had repeatedly asked county staff to create a fund for juvenile detention money to avoid mixing it with the district’s finances, but they never did.
The audit also found the accommodation district unlawfully sold land and improperly spent $6.4 million it earned from the sale. The land had initially been purchased using state dollars from the School Facilities Board, which is now the School Facilities Division of the Arizona Department of Administration.
Statute requires school districts to return proceeds from land sales “to the state fund from which it was appropriated,” meaning the district could be on the hook to repay that money, pending a determination by the School Facilities Division.
The audit failed to locate documented board approval of the sale or documentation that Watson had consulted with legal representation.
Maricopa County superintendent candidates respond to audit findings
The audit was delivered just as candidates for the Superintendent's Office head into the height of the 2024 campaign. Watson will face two Republican challengers on July 30 and will face a Democrat in the general. His opponents have criticized his leadership and are using the audit as ammunition against his campaign.
Republican challenger Shelli Boggs said Watson’s office “shows an unacceptable lack of respect for taxpayer money” due to the amount it spent on administration. She pledged to divert more dollars to the classroom. Nickie Kelley, the third Republican seeking the office this year, did not respond to an inquiry from The Arizona Republic.
Democratic candidate Laura Metcalfe raised concerns about Watson’s decision upon taking office in 2017 to dismiss a five-person panel that had advised on fiscal and operational matters.
“I believe Mr. Watson should be held completely accountable for the financial failures related to the Accommodation School District. Multiple state laws and financial procedures have been destroyed due to his incompetence, and he should be subjected to full legal consequences,” Metcalfe said.
Watson, in turn, pointed to a recent audit of the East Valley Institute of Technology, for which Boggs and Metcalfe are school board members. The Arizona Auditor General found the school did not follow requirements or best practices when spending $85.9 million on improving career and technical education programs at satellite schools, thus "increasing its risk for errors, fraud, and data loss."
Metcalfe said the two audits are "apples and oranges" because unlike Watson — who is both the superintendent and sole board member of his district — her school did not violate multiple laws.
The audit has not shaken Watson's confidence in reelection.
"This office absolutely needs a leader who understands the unique needs of students in our Juvenile Detention system and in our accommodation school. I am looking forward to continuing to do this important work," Watson said.
Reach the reporter at nicholas.sullivan@gannett.com.
This article originally appeared on Arizona Republic: Audit of Maricopa County schools office finds financial deficiencies
