Vashon Island School District (VISD) is amid an annual state audit process that could spell more financial and operational woes for the already cash-strapped district.

For the current audit, the State Auditor’s Office (SAO) will determine whether financial reporting for the 2022-23 school year prepared by VISD’s director of business and finance, Kim Mayer, is accurate and complete, and if federal funds the district received were spent according to the laws that govern such appropriations.

But at a board meeting on May 23, Mayer and Superintendent Slade McSheehy said that staff members of Puget Sound Educational Service District (PSESD) have now taken over communication with the state auditor’s office and are working with the district to resolve issues that have arisen during the auditing process.

PSESD’s help, Mayer said at the meeting, had come at her request, after her communication with the auditor assigned to the district had become difficult.

“… I was getting frustrated because it was like no matter what I said, [the auditor] either wasn’t understanding that or he wasn’t accepting what I said,” Mayer said at the meeting.

PSESD has already been helping the district with other analyses and advice about its finances, Mayer told the board at a meeting in mid-April.

Jolianne Valentinto, PSESD’s executive director of business and operations, will be joined by other PSESD staffers to make a presentation to the VISD board on June 13, detailing their work on the audit and presenting their conclusions about it, McSheehy said.

PSESD is one of nine educational service districts created by the legislature in Washington to provide centralized financial and other services for the 35 local districts it serves in the region. PSESD also reviews the Vashon school district’s budget each year before it is submitted to the Office of the Superintendent of Public Instruction.

The district’s work on its 2024-2025 budget, which had been slated for school board approval on June 27, has now been delayed as PSESD staff members continue their work on the audit. PSESD has now told the district the board should adopt the budget on July 25, McSheehy said.

Many districts throughout the state adopt their budgets in July, both Mayer and McSheehy said — though in recent years, Vashon’s school board has formally approved the district’s budget in June.

Fund balance uncertain

According to an email sent by McSheehy to the school board on May 23, PSESD has discovered that there are misstatements from 2022-23 in the audit which may have led to misstatements in the district’s current budget.

If that’s the case, Mayer said at the May 23 school board meeting, VISD’s general fund balance could be lower than what is currently known.

A very low fund balance could seriously affect the district’s operation, as the fund is used as a reserve to pay for expenses, including staff salaries, during stretches of the year when the district does not receive tax revenue from the state.

According to VISD policy, the fund balance should not dip below a minimum of 5 percent of the district’s annual budget, which for the current school year is just under $28 million.

Both McSheehy and Mayer said that PSESD will determine the severity of the misstatements found in the district’s audit materials, and whether they will result in either management recommendations from the state auditor, or more unfavorably, in a “finding” from the auditor.

In the parlance of state audits, “findings” address and document how a publicly funded entity has made significant errors or been non-compliant in properly accounting for how its revenues were spent within the guidelines of state and/or federal laws.

Findings can also impact the interest rate the district is charged for bonds, McSheehy said.

PSESD perspective

L. Michelle, the communications director of PSESD, said in an email that the agency was asked to support VISD because of workload issues, and that helping to close out the 2022-23 audit was only one of several tasks the agency is currently engaged in on behalf of the district.

PSESD’s help to VISD has not been necessitated by any third-party compliance issue or problem, Michelle said.

“Sometimes because of workload and timelines districts need short-term support to get everything accomplished,” Michelle said. “We are thankful we can step in to support.”

Michelle characterized such assistance to the school districts served by PSESD as increasingly common.

“Given the state of school finances, asks for support are becoming more frequent,” Michelle said. “Many districts are struggling to find budget for adequate staffing. We want all our districts to know that we’ve got their backs in these challenging times and will do everything we can to support them.”

Michelle said PSESD staff now expect to close out the audit by Friday, before PSESD’s presentation to the school board on June 13.

PSESD will bill the school district for its recent assistance to the district, Michelle said. The cost to VISD, she added, may come in around $10,000, based on an hourly contract from May 1 to Aug. 1 — but it could be less or more depending on the tasks PSESD is assigned by the district.

“We meet weekly to receive our tasks and at that time we provide an estimate of the hours we think it will take, so there is ongoing communication on the hours being spent,” Michelle said.

Spending freeze

At the May 23 meeting, Mayer said that even before the issues with the audit were known, the district had frozen expenditures by staff members to preserve the district’s fund balance.

Asked to elaborate on the extent of the spending freeze, McSheehy said in an email that all purchases at the district now require prior approval.

“Given the fiscal landscape statewide for school districts, we are taking a more conservative approach during the remaining months of the current fiscal year,” he wrote.

On May 14, the board voted to approve a plan to trim staff and programs in the district, which McSheehy first proposed in April, citing a projected $1.3 million budget shortfall in the district’s 2024-2025 budget.

During discussions at an April 18 board meeting about the staff cuts, Mayer spoke about her concerns about the fund balance as she understood it at that time, saying that she had been working with PSESD staff to better understand and solve the district’s financial woes.

During months when tax revenue is lean, Mayer said, maintaining the fund balance has been difficult.

“We aren’t going to be solvent if we continue on the path we’ve been on,” she said.

Business office leadership

Mayer, hired by McSheehy as the district’s director of business and finance in January 2023, repeatedly said during the May 23 meeting that she did not understand some of the accounting practices of her predecessors in the district’s business office.

The PSESD staffers now working on the audit, Mayer and McSheehy said, are now looking back at previous accounting from the 2021-22 school year, to see if misstatements in 2022-23 financial reports could have carried over from that year.

“…There’s not a question necessarily that the previous people were doing anything wrong, we just need to understand what was in their heads and how they were accounting,” Mayer said. “I’m not calling them out for anything — I’m saying we just don’t do our entries the same way, so that’s what [PSESD staffers] are trying to figure out.”

Mayer previously served as the fiscal officer of the Enumclaw School District for seven years. Previous to that, she had worked in the business office of Vashon’s school district from 2002-2015.

Her return to Vashon followed the departures of Matt Sullivan and Kay Adams, who were key longtime staff members overseeing the district’s finances.

During the tenures of Sullivan and Adams, the district received eight clean or perfect state audits of its finances — a result announced with pride at school board meetings following the auditors’ final reports.

Sullivan, the district’s former financial chief, left the district in September 2022 to assume the same role at the Mercer Island School District.

At that time, McSheehy announced that as a cost savings, he would not fill Sullivan’s position and instead promoted Adams to a new role as director of business and finance.

In November 2022, Adams announced that she, too, had accepted a position at Mercer Island School District.

Last year’s state audit of VISD’s finances, covering finances for the 2021-22 school year and prepared by Mayer based on Sullivan’s and Adam’s accounting for the year, also came back clean in late May 2023, with no findings — earning praise from McSheehy in a community email and board meeting, who thanked not only Mayer but also Sullivan and Adams for the district’s then nine-year streak of clean audits.

Mayer, at the May 23 board meeting, implied that she had pointed out the past perfect audit scores of her predecessors to the auditor assigned to this year’s audit.

“I have asked that question,” Mayer said. “I’ve said, ‘I don’t know what to say because this is how these have been done for years. I may not be able to tell you why, [but] you guys haven’t had a problem.’”

However, Mayer said that line of questioning was not productive.

“It’s not really a good thing, because just because you’ve done something [one] way doesn’t mean you should continue to do it that way,” she said. “So we are just working really hard to make sure we’re on the right path, so that going into this next year everything looks the way it should, and I needed help on that.”

Adam Wilson, a spokesperson for the State Auditor’s Office, confirmed that completion of VISD’s audit had been delayed.

“However, we are working closely with the district and [PSESD] and continue to make progress,” Wilson said. “At this point, we do not have an expected completion date for the audits, and we can’t speak to any issues we find until they are complete.”