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Ohio auditor cites Manchester

By John Published: February 9, 2011

By John Higgins
Beacon Journal staff writer

The Manchester school district failed to catch payroll clerical mistakes that resulted in some underpayments and overpayments to employees.

This was among a list of findings in the district's annual audit released Tuesday by Ohio Auditor Dave Yost.

The district also delayed cashing checks for employee contributions to the district's self-funded, health-care insurance plan so they could be bundled with the district's contributions.

Manchester has recovered the overpayment and paid back the underpayment. Now the treasurer or assistant treasurer reviews computer entries for payroll, and employee contribution checks are now deposited when printed.

But one violation noted in the audit will stand: Manchester is sticking to its cash accounting system instead of using the more costly system used by corporations that the state requires.

The district has always used cash accounting, which states exactly how much money the district has at the end of the fiscal year on June 30 basically a snapshot of the district's finances.

The state requires a system known as Generally Accepted Accounting Principles (GAAP), which accounts for expenses with anniversaries that overlap the fiscal year.

If the district has an annual contract that renews on Sept. 1, for example, July and August payments wouldn't be included on the cash report until the following year, but the GAAP report would show those payments to be a liability.

Likewise, if a contract concluded on April 1, GAAP accounting would count payments in May and June on the new contract as a credit, but that wouldn't show up until the next year in the cash system.

Every year, the district is cited for failing to adopt GAAP accounting and, every year, the district responds that its board has elected to stay with the cash system.

The reason is money.

Converting to GAAP accounting would cost $20,000 to $30,000 initially, Manchester Treasurer David Osborne said.

The district would have to pay for an official inventory of district property to establish its baseline appraised value, a process that requires hiring an outside company.

''That has to be updated annually because that's part of the GAAP reporting,'' Osborne said.

It also costs districts more for an annual audit based on GAAP accounting than one based on cash.

''It's going to be 10 to 15 percent more than the cash audit,'' Osborne said.

He said a GAAP report never would have revealed more information than what the district already knew from its cash system and five-year financial forecasts.

The debate over GAAP versus cash accounting methods started when Thomas Ferguson, who was state auditor from 1975 to 1995, pushed for local governments to convert to GAAP in the late 1980s, Osborne said.

''School boards were right at the top of the list because there's a lot of us,'' Osborne said. ''Three treasurers, myself and two ladies, our school boards said we don't want to do this.''

Even when the state began imposing fines of $750 for noncompliance, districts such as Manchester figured it was cheaper to pay the fine than convert.

''What [the board] has done is they've basically made the decision that says it's economically better to pay the fine and have the citation in the report than it is to incur all those additional expenses.''

John Higgins can be reached at 330-996-3792 or Read the education blog at



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