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After three years of deficits, State calls for audit of Bettendorf education group

After three years of deficits, State calls for audit of Bettendorf education group
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The Quad-City agency that supplies Iowa school districts with special education resources has ended several years in a financial hole, and the Iowa Department of Education now is intervening.

The Mississippi Bend Area Education Association, or AEA, is the only one among nine Iowa AEAs to show negative fund balances at the end of the past three fiscal years. The Department of Education is recommending the Iowa State Board of Education reject next year’s budget proposal by Mississippi Bend and instead demand the agency provide written assurances of a plan to balance the budget.

“Also, the Department of Education is requesting a state audit (of the AEA’s finances) because of some concerns we have about use of federal special education funding and also the overall financial condition of the AEA,” agency spokeswoman Staci Hupp said Thursday.

Specifically, the state has concerns the Bettendorf-based AEA is using money earmarked for special education to pay for general education needs, including millions of dollars in loans to meet payroll.

Bill Decker, chief administrator at Mississippi Bend, pointed to long-term funding cuts and “an abundance of fluctuations to the high side” in its health care self-insurance program as reasons for the ongoing deficit. He said agency loans, called warrants, have been handled “exactly as directed by agency attorneys.”

The use of federal funds, Decker said, has been “appropriate and well accounted for.”

Regarding the warrants, Mississippi Bend has about $27 million in annual payroll, and late-arriving state funds make it necessary for the agency to borrow money to pay its employees, Decker said.

He said he welcomes the audit.

“(Mississippi Bend) will not have an issue in moving the timeline up by one year in the elimination of a deficit position,” Decker wrote in an email Thursday. “The annual budget that was submitted for this year and next was ‘balanced’ from an annual perspective, in that revenues far exceed expenses, but it is true that the budget doesn’t eliminate the agency’s overall deficit position in one year.”

The AEA’s use of funding has been on the Department of Education’s radar for several years. Despite Mississippi Bend’s budget projections that had the agency ending several fiscal years with positive balances, the financial reality was deeply negative fund balances.

For instance, in spring 2016, the AEA projected it would end fiscal year 2017 with $5,606. But the fiscal year ended with a $4.6 million deficit.

All nine Iowa AEAs are required to submit Certified Annual Reports to the Department of Education, and Mississippi Bend is the only one to show negative balances, beginning in 2015. In 2014, the year after Decker took over the agency, it had a positive fund balance of $3.2 million. The agency now projects a negative balance of $3.75 million for the next fiscal year.

The Certified Annual Reports show the actual financial condition of the agencies, while the budgets presented to the State Board of Education are projections. It was the proposed budget that set this week’s actions by the Department of Education into motion.

“This is the first time Mississippi Bend submitted a budget with a negative beginning and ending balance,” Hupp said. “That’s in violation of the law.”

In previous years, proposed budgets were millions of dollars off from actual spending, which the Department of Education noted from the Certified Annual Reports. Those reports put the agency on alert in 2016, and personnel conducted a “limited review” of Mississippi Bend. In addition to its own financial concerns, Hupp said, the agency heard from constituents who are served by Mississippi Bend.

The AEA provides staff and support for special education services, teacher training, technology resources and other services in 21 school districts, including those in the Iowa Quad-Cities.

It is not common, Hupp said, for an AEA to be so far off in its spending projections, and that is why the Department of Education stepped in two years ago. At that time, state workers outlined steps for the AEA to take to get its budget back on track.

But projecting deficits, such as in the fiscal year 2019 budget, turned concern into more serious action.

“It is very unusual,” she said of the proposed budget. “It’s one of the reasons we’re asking for a state audit.”

If the State Board of Education accepts the recommendations by the Department of Education, Mississippi Bend’s proposed budget will be rejected. The agency then will be given deadlines for providing assurances of a new budget plan that would eliminate any deficits within two years.

If the AEA misses any deadlines, Hupp said, its accreditation would go into “conditional status.” Without accreditation, Mississippi Bend cannot operate.

“(Mississippi Bend) supports the Department of Education directive, understands why it was issued in regard to the annual budget and will adjust appropriately,” Decker wrote in his Thursday email. “(Mississippi Bend) will be able to accelerate agency plans from the previous three-year plan, to the (Department of Education) required two-year plan with minimal changes in agency services to area districts.”

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