CATOOSA — William R. White, Ed.D., reported to a special meeting of the Catoosa School Board Thursday that former Finance Director Tom Pickens had apparently canceled encumbrances on goods and services the district had already received as a means of keeping the cash flow balance in the black.

Pickens left Catoosa in December and took a job as finance director of Claremore Public Schools. Last week he said “When I left (Catoosa) in December, they were in the black.” He reported that based on information available at the time, he didn’t know a financial crisis was pending.

“No, I didn’t know,” he said at that time.

Based on information revealed in White’s audit, the signs were “ominous” that the district was headed for disaster and last year was the “basis for the problem.”

According to the auditors, two key factors provide evidence that Pickens knew Catoosa was in trouble and took action to keep up the appearance of a positive cash flow: Canceled encumbrances and a rare deposit-in-transit.



Encumbrances

“The fact that he (Pickens) canceled $249,000 of encumbrances is the only way he could look and say they were in the black,” said White. “Cash flow doesn’t speak to the depth of the issue.”

Had the encumbrances not been canceled, the Board certainly would have known there was a problem according to White.

In school funding, money must be encumbered or set aside ahead of time to pay bills. Encumbrances are canceled all of the time, if a district decides they do not need the goods or services the money was encumbered to pay. What is unusual in the Catoosa case is that the canceled encumbrances “encompass a large number of goods and services already received,” said White.

Once an encumbrance is canceled it can’t be reissued to cover past bills because an invoice cannot predate an encumbrance. At this point no one is sure how to handle to problem.

According to Attorney Mann, these become illegal contracts and the school district cannot be held liable. Vendors may have trouble ever getting their money, even once the district can afford to pay the bills, and no obvious remedy is in sight.

Board President Jeff Conklin asked White who canceled the encumbrances.

White answered that it was his understanding that would have been Pickens who, when asked about the cancellation by White, did not “confirm or deny that he took action to cancel those encumbrances.”



Deposit-in-transit

Further evidence that Pickens was aware of the problem was a “very rare, deposit-in-transit” by auditor, Pam Dotson in 2006 to “help the district” maintain a positive Fund Balance.

“Your auditor was very, very generous at this point,” said White.

White’s report says that, “Per Auditor: ‘Error Correction,’ moved $59,218 QZBA payment to Building Fund and showed $211,350… from Ad Valorem Reimbursement as ‘deposit-in-transit,’ leaving fund Balance at $85,626.”

This rare move let the district count money they would not actually receive until August 2 but needed on the books by June 30 in order to maintain a positive balance at the end of the 2006 fiscal year.

A negative or zero fund balance would have meant the district would have to sue itself to pay its creditors. A millage would be levied and could be repaid over a three year time period.

“If it hadn’t been for your auditor, you’d have been in judgment last July,” said White referring to the deposit-in-transit.

He explained that the use of this deposit-in-transit is usually rare and reserved for situations such as a check lost in the mail. It is not a normal practice particularly concerning the amount of time, approximately 31 days, between the dates the amount was credited and when it was actually received.

“The roots of the problem are planted in last year,” said White. “You were saved by the auditor.”

Even with this help, an $85,000 Fund Balance is low enough to be a warning sign if the Board had ever been shown this number.

According to White the Board was “shown different numbers, never the $85,000.”



What the Board knew

White said that the Board should have been given information in March of last year that spending needed to be reduced. Instead the Board was given the go-ahead to add full-day Kindergarten.

“The problem started when we allowed ourselves to spend the fund balance,” said White.

He cited “inaccuracies” in documents regarding what the Board was shown and reality.

The auditor was not “obligated” to notify the Board of the deposit-in-transit, according to White, who said Dotson had been “very helpful to the district” in sorting out the problems with the numbers.

“I see nothing to believe that your board did not act in good faith,” said White. “They acted in the best interest of the kids.”

He said that the types of reports the Board saw didn’t carry warning signs.

A “Treasurer Report” by Tom Pickens for Catoosa Public schools for FY (fiscal year) 2006-07 dated Jan. 31, 2007 bears this out. The June 30, 2006 balance is shown as $161,799 in the General Fund, $49,014 in the Building Fund and $75,684 in the Child Nutrition Fund.

Superintendent Larry Cale said he was given the same financial information by Pickens that the board received. Pickens came to Catoosa one year before Cale arrived.



Current Status

White’s calculations show Catoosa could be in the hole $600,000 by June 30 of this year if prompt action is not taken.

Bills are still coming in that have not been accounted for, so figures will vary. A reduction in force in the form of teacher and staff dismissals has helped ease the problem a little, but has not solved it.

A representative from the Cherokee Nation told school officials today that anyone who had lost a job as a result of Catoosa school’s financial woes could come to them and be given employment.

A $42,000 check from the Cherokees for tag money and a $48,000 unappropriated federal grant, both received in the last two weeks but not accounted for in White’s audit yet according to Cale, will ease the burden a little.

It may be possible to liquidate a QZAB “Lease Purchase” for remodeling. The school decided not to remodel and never used the money. Payments have been made and while the interest probably isn’t refundable, the $80,000 equity should be according to White.

Other means of cutting dollars from the budget for the remaining fiscal year will have to be found. White proposed a plan of attack, including establishing a budget committee to “design a FY 08 Budget that reduces Expenditure by a minimum of $700,000.”

“You didn’t get into this problem in one year and you’re not going to get out of it in one year,” said White.

White believes Pickens was waiting for the supplemental funding by the legislature to bail the District out of the hole they were digging.

Asked if he had seen evidence of embezzlement, White said, “I see no evidence of any illegal act at this point,” but he was quick to point out he is not a legal specialist.

The contracts for goods and services then canceled encumbrances is a “clear violation of Oklahoma Statutes,” according to White, however he did not say who, if anyone would be held accountable for this violation.

“I apologize that this happened,” said Conklin. He said he wished he had “paid more attention” but that he had operated on the budget he was given.

“I think a picture was painted that we were headed in a disastrous course,” said Cale of White’s report.



Claremore Schools’ response

to audit findings at Catoosa Schools:

The superintendent’s office is conducting an investigation (into Claremore Schools Finance Director Tom Pickens) in accordance with what statutes and the state department’s rules and regulations will allow. His work (for the Claremore School District) has been acceptable.

— Claremore Superintendent Michael McClaren