Internal auditor urged for district

Even while declaring the Seattle School District "positioned to fully recover" from its financial crisis, a blue-ribbon advisory panel is sounding a note of urgency and calling for corrective measures beyond those outlined in a recent audit report.

The Committee on Fiscal Integrity in Seattle Public Schools unanimously adopted a report yesterday that urges the School Board to hire a permanent auditor to keep an eye on the district's troubled finances.

The report will be delivered next week to the School Board, which appointed the committee to review an audit by Seattle-based Moss Adams Advisory Services and offer its own views on how to restore the school district to financial health.

Moss Adams was hired after the district's discovery last fall that it had overspent its 2001-02 budget by $23 million and that midyear budget cuts had to be made to avoid a $12 million deficit this year.

Two days before the audit was delivered to the School Board last month, Superintendent Joseph Olchefske announced he would resign, effective Oct. 15.

The audit described a finance department in chaos, a poorly supervised former chief financial officer, and a lack of fiscal checks and balances.

The fiscal committee, co-chaired by former state Employment Security Director Carver Gayton and retired King County Superior Court Judge Larry Jordan, praised Moss Adams for its "exhaustive" study.

"We feel that if those recommendations are implemented along with the recommendations of the committee, the fiscal integrity of the school district will be restored," Gayton said.

The committee report said its 14 members were most concerned by Moss Adams' findings about the "culture" of the school district.

"The committee learned that managers were reluctant to communicate bad news to or disagree with leaders; that managers were expected to bend rules and cut corners; that managers felt that they were constantly in a reactive mode, barely able to keep up with the work demands," the report said.

The report generally supported Moss Adams' 113 recommendations and added some of its own. Among the most important additions was the proposal to hire an internal auditor who would report directly to the School Board on financial matters.

Committee member Dwight Dively said he was "troubled" by Moss Adams' suggestion that the auditor could be hired after the district's financial position improves. The full committee recommended the auditor be hired within one year.

The Committee for Fiscal Integrity also recommended that:

• District staff should prepare a work plan for implementing the Moss Adams recommendations by early August.

Committee members were not satisfied with the administration's suggestion that it would meet a Moss Adams target of October for parts of the plan.

• A consultant or "loaned executive" should be named to help write the work plan and carry it out.

Money should be earmarked in the 2003-04 budget for implementing the plan.

• The School Board should appoint a volunteer audit and finance task force of outside experts to provide ongoing advice.

• A new superintendent should be hired as soon as possible.

• Corrective actions identified by Moss Adams as high priority should be considered "mandatory."

• Annual budgets should be drawn up within a two-year "planning horizon."

Steve Nielsen, the district's interim finance director, said there were no big surprises in the report.

"I agree that there is a sense of urgency, and we are committed to addressing that," he said.

Committee members are:

Gayton, co-chairman, former School Board member; Jordan, co-chairman, now an auditor and mediator for Judicial Dispute Resolution; Brad Anderson, a Washington Mutual Bank senior vice president; Mike Bigelow, associate state superintendent of public instruction for budget and finance; Bill Bradford, professor of finance at the University of Washington; Dively, finance director for the city of Seattle; Josef Gray, retired Seafirst Bank president and board member of the Alliance for Education; Joann Kink Mertens, compensation and finance field representative for the Washington Education Association; Jennifer Lindwall, manager of the capital-improvement program and planning section of King County's roads division; Grant McLaughlin, president of GEM Financial Services and former chief financial officer and treasurer of Group Health Cooperative; Mary McWilliams, president and CEO of Regence BlueShield; Peter Moy, project manager for Financial Consulting Solutions; Shan Mullin, partner in Perkins Coie law firm and Alliance for Education board member; and Ken Myer, Atlantis Investment Group principal and Alliance for Education board member.

Keith Ervin: 206-464-2105 or kervin@seattletimes.com