Audit confirms staffing, lack of internal controls led to Portland schools' payroll problems
Feb. 7—An independent audit has confirmed that understaffing, a lack of internal controls and software issues combined to cause recent payroll problems in the Portland school department.
The audit report from Spinglass Management Group was publicly released by the district Tuesday. In addition to identifying deficiencies, the report outlines work the district is doing to correct the problems, including by entering into an agreement with ADP Inc. to outsource payroll processing.
The district received the report Jan. 31 but held off on releasing it publicly at the request of collective bargaining units that asked to first be able to review it and communicate with their membership. The report focuses on the same issues identified by district officials in response to complaints by employees and union representatives.
From July to December last year, the period that Spinglass was asked to review, the school district was understaffed with its payroll department consisting of just one full-time temporary payroll manager and a part-time payroll specialist. "This is inadequate for an entity with 1,900 employees," Spinglass said.
The district also did not cross-train other finance staff to perform payroll duties in the case of a departure or illness, and this eventually contributed to a collapse in payroll functions. Spinglass also found a "lack of segregation of duties" within the payroll system.
The lack of internal controls and detailed procedures combined with the payroll specialist going on medical leave without a trained back-up, problems with "inadequate and poorly programmed software which was not properly maintained" led to the problems the district experienced in October with district employees being paid in the wrong amounts or not on time.
"While much progress has been made to improve and stabilize the payroll system, PPS must continue to embrace a culture of change, address staffing needs, strengthen internal controls, and place a high priority on training all personnel and management involved with payroll processing," the audit says.
It notes that the district's move to outsource payroll to ADP is recommended and "will solve a number of problems with the current system."
An official launch meeting with ADP is scheduled for this week, the district said, with a goal of being fully set up with the outside system by Aug. 1. The district says it has also improved staffing with two full-time payroll specialists working as of this week. Temporary support is also in place for the payroll manager position while the district finalizes a permanent hire.
The district is in discussions with collective bargaining units about resolving instances identified in the Spinglass report where penalty payments are due or overpayments were made. It noted in its release that there is still work to be done to address impacts of the pay issues from last fall and to resolve individual concerns.
"The district continues to work with Spinglass to finalize the remaining tasks as outlined in the conclusion and to negotiate with its collective bargaining partners the resolution of penalties, overpayments, and other issues," the school department said in a statement released with the audit report.
The district's payroll issues, which left some employees struggling to pay for food and rent and burdened with interest and fees, began in late October following a few months of significant staff turnover in the payroll department.
City officials became aware of the district's payroll issues when a member of the school district's payroll staff asked city finance staff for assistance after overpaying a group of employees by $57,000.
Around four weeks later, the district shared at a school board meeting that it had been having payroll issues, but minimized the problems. The district eventually reported that 750 employees, about half of the district's workforce, notified the district that they have or had payroll or payroll-related issues such as not being paid correctly or on time. Of those, 400 involve missing pay, school board Chair Sarah Lentz said in December.
Supt. Xavier Botana cited the turnover, software problems and a lack of staff training as the cause of the payroll problems. Outside auditors had warned district leaders in the spring, before the significant turnover, that their financial system was vulnerable to problems because of a lack of built-in oversight and checks and balances. Botana had been scheduled to leave the district in June but stepped down from his post in January amid fallout from the payroll problems.
This story will be updated.
