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Former MPS controller details financial crisis
MILWAUKEE — It’s been two weeks since Milwaukee Public Schools (MPS) announced it is working with the state Department of Public Instruction (DPI) to submit important financial data that Claimed DPI is more than eight months late.
What do you need to know
- Two weeks ago, the DPI stated that the MPS was more than eight months late in sending important financial information
- Former controller Alfredo Balmaseda said he was fired Tuesday, June 4
- Auditor Baker Tilly exposed financial issues in a 2022 audit presented to the MPS school board last year
- Balmaseda said there is no deadline for when fiscal year 2023 data will be certified by the auditor
That sparked a whirlwind of ridicule from Milwaukee taxpayers, who narrowly approved a $252 million referendum for the district in the April election.
It also led DPI to withhold payment of the district’s special education aid in June, worth more than $16 million, pending approval of the MPS Corrective Action Plan (CAP).
The resignation of now-former superintendent Keith Posley occurred on Tuesday, June 4 — the same day former controller Alfredo Balmaseda said he was fired.
“I’m actually worried about the school district because I’m not there to continue solving the problem,” Balmaseda said. “I was very close to finishing; maybe in a week.”
Balmaseda cited his 25 years in accounting before explaining an accounting system that even he had difficulty understanding at MPS.
“The person responsible for creating this system would be the person who should hold themselves responsible for all of this,” he said.
He called it “not at all efficient.” He also said it was not in compliance with GAAP, which stands for generally accepted accounting principles.
He said he began noticing warning signs soon after taking office in August 2023 at Posley’s recommendation.
“There are a lot of things coming from the previous year and that’s where the problems came from,” he said. “This isn’t about accounting for 2023. It’s about finding a needle in a haystack of $400 million – $1.5 to $2 million.”
Auditor Baker Tilly exposed these problems in a 2022 Audit presented to the MPS School Board on May 18, 2023. Auditors found the following issues:
“Our assessment of internal controls over financial reporting identified control deficiencies that are considered material weaknesses surrounding the preparation of financial statements and footnotes, including the schedule of federal and state premium expenditures, adjustment of journal entries identified by auditors and an independent review of financial reports.
“Management has not prepared financial statements that conform to generally accepted accounting principles or a schedule of federal and state award expenditures that conform to applicable federal or state requirements. Additionally, material misstatements in the general ledger were identified during the financial audit and subsequently corrected when challenged as part of the audit process.
“In previous audits, it was also noted that inaccurate deductions were being made from employee payrolls. Reports received from the payroll department showed participants with amounts owed with no deductions set up or employees who currently had payroll deductions but were not included in any HR records as enrolled at MPSU or through a university or partner college.
The former superintendent’s update on these findings were presented to the board on December 19, 2023.
Balmaseda said there is a possibility the problem is even older.
“This couldn’t just be 2022,” he said. “This could also be 2021, 2020, 2019, which is causing the problem.”
Balmaseda also cited a serious lack of staff in both his department and the auditor’s department.
“They were understaffed and we were understaffed,” he said. “I didn’t have a financial reporting manager and there wasn’t one. There was no controller before me to inherit anything from and this is a huge organization.”
Without certification from auditors, Balmaseda said DPI will not accept any of these financial reports. He said that, as far as he knows, there is no timeline for when that certification will happen.
“As soon as we had a new update, we put it on the DPI website and I know that the DPI needs certification from the auditors,” he said. “DPI says, ‘I don’t know if your numbers are right until the auditors say they are right.’”
He said it was not possible to reach agreement with auditors on the way forward.
“In a $400 million subsidy universe, we’re talking about $1.5 to $2 million that we lost,” he said. “We were never able to reach an agreement and the auditors completely stopped working with us from February until mid-April.”
Spectrum News 1 reached out to auditor Tilly and received the following statement:
“Baker Tilly’s policy is not to comment on matters involving our clients.”
Governor Tony Evers asked MPS instructional and operational audits also.
“I’m not concerned about any mismanagement of the district and certainly not on my part,” Balmaseda said. “The money is totally there. We just don’t know what bucket to put it in.”