No fraud, corruption found during investigation by state auditor’s office into Hannibal School District

HANNIBAL, Mo. — An investigation of the Hannibal School District by the Missouri State Auditor’s Office completed on Oct. 18 and posted online on Thursday revealed no indication of fraud or corruption. The summary, made public Thursday afternoon, did note the district is in a “weakened financial position.” 

“It appears district officials could have anticipated some of the contributing factors to its financial condition,” the document read.

“We are pleased to report that the investigation found no indication of fraud or corruption within the district,” read a prepared statement sent to local media by Andrea Campbell, public relations/communications specialist for the Hannibal School District. 

“This finding aligns with previous analysis completed by the outside firm that annually audits the district, the Missouri Department of Elementary and Secondary Education, the contracted bond underwriters and financial/investment firms that consulted with the district.”

The office of State Auditor Scott Fitzpatrick said in its report that it had received complaints regarding the fiscal management of the Hannibal School District. Concerns include the projected budget deficit, the lack of fiscal knowledge and budget awareness by key administrators, and questionable use of Elementary and Secondary School Emergency Relief (ESSER) funds. 

“The complainant also indicates there is a lack of internal controls over district disbursements, including credit card purchases, and the superintendent’s contract provided for additional compensation through contributions to her retirement plan,” the summary said.

To review complaints, Zimmerman’s office requested and reviewed bank account information, credit card statements, ESSER Fund disbursements, employee reimbursements, superintendent contracts and benefit information, disbursement policies and procedures, budget and financial documents, and open and closed meeting minutes.

The summary said district officials determined there was a $3.3 million budget shortfall in early 2024, and the shortfall was “well publicized.” Incoming superintendent Roy Webb cited it as one of the reasons he chose to rescind his acceptance of the position on March 9 after accepting the position six weeks earlier.

Webb cited in a resignation letter sent to the Hannibal School Board that one of the reasons for his decision to walk away from the position as “inaccurate” finances within the school district, which he said was “facing serious financial needs” with a “risk of running out of funds.”  

Hannibal Superintendent Susan Johnson told Muddy River News in a March 12 story that the district’s $3.3 million shortfall was the result of less-than-expected revenue and higher-than-expected expenditures on the preliminary budget, which was presented in July.

The school district reported its revenues were on pace to come in at $47,674,135 — $979,642 less than the $48,653,777 it anticipated when the School Board passed the budget in July. Expenditures were on pace to come in at $51,108,261 — $2,358,154 more than the $48,750,107 it anticipated, resulting in the $3,337,796 deficit.

Johnson listed the reasons for lower-than-expected revenues as:

• An assessed valuation less than predicted
• Decreased tax revenue due to local business closures
• Decrease in student enrollment
• An increase in student absences
• Loss of ESSER funds
• Additional staffing and resource needs
• Over-budget capital projects
• Increased supplies costs
• Salary and benefit increases

Johnson told the Hannibal School Board that district officials would closely monitor expenditures, reduce staff through attrition and recommend that the Board reevaluate the voluntary tax levy rollback to address shortfalls.

“A review of current and prior year financial, budget, enrollment and attendance data indicated some of the factors impacting the district’s finances were known or continuing issues,” the auditor’s summary said. “For example, the loss of one-time ESSER funding should have been anticipated and planned for.”

The summary said district budget documents showed 2024-25 total budgeted revenues of $49 million, comparable to the 2021-22 and 2022-23 school years (the years before significant ESSER II and III funding) total revenues of $45 million and $48 million, respectively. 

“District officials could have used these pre-ESSER amounts as a guide for 2023-24 and 2024-25 revenues,” the summary said.

The summary also noted enrollment and attendance data for the 2018-19 through 2022-23 school years indicated K-12 enrollment and attendance had generally declined each year. 

“The continuation of this trend should not have been unexpected,” the summary said. “(Johnson) also cited increased costs as a factor in the district’s financial condition. However, board meeting minutes indicate district officials presented financial and budget reports to the board. and it appears officials and the board could have used these to identify expenditure concerns sooner.”

The summary said the 2024-25 budget, approved by the Hannibal School Board in June 2024, does not provide “sufficient information to be a useful management tool” or provide the board or public an overview of the district’s current and planned finances.

The budget did not include actual or estimated revenues and expenditures for the preceding year (the 2023-24 school year) as required. Instead, the budget only presented actual information for the 2020-21, 2021-22 and 2022-23 school years and does not allow for a comparison of the immediate prior year’s activity to the budgeted amounts.

The budget also did not present any fund-level summary information, and it did not include beginning and ending balances by fund for the current and prior years. 

“By not presenting beginning fund balances, it is difficult to know how much of existing reserves are being used to offset estimated expenditures,” the summary said. 

The summary said the district’s fund balance reserve percentage had declined from a high of more than 25 percent for the 2018-19 school year to a 4.3 percent for the 2023-24 school year. The Department of Elementary and Secondary Education considers districts with a less than 3 percent unrestricted fund balance reserve to be “financially stressed.”

The Revised Statutes of Missouri requires the district’s budget to present a “complete financial plan for the ensuing budget year” and sets specific guidelines for the information to be included, such as comparative statements of actual or estimated revenues and expenditures for the two preceding years. 

“Realistic projections of the district’s revenues and expenditures are essential for the efficient management of finances and for communicating accurate financial data to taxpayers,” the summary said. “Adopting a budget that does not include fund level or prior year information, or beginning or ending balances, is misleading to the public and prevents an accurate estimate of the district’s financial condition.”

The summary said the district used one-time ESSER funding to sustain payroll expenditures for some time. Johnson indicated the district would attempt to reduce payroll expenditures through attrition and evaluating faculty needs given reduced enrollment. 

“Any staff reductions would have to be weighed against potential educational impacts,” the summary said. “The district did make efforts to curb other expenditures and initiated a spending freeze for some expenditures in early 2024. A review of such expenditures earlier in the school year may have alerted the Board and district officials to budget overruns and the need for earlier intervention.”

ESSER funds being used for sanitation and personal protection items in response to COVID-19, payroll-related expenditures, educational materials and technology, and software licenses were all allowable with the grant funding.

“However, the use of limited-time funding for routine expenditures, such as payroll, put the district at a disadvantage when the funding ended,” the summary said. “It will require the district to replace the lost revenue or further reduce expenditures.”

The formation of a district finance committee, comprised of members of the board, district staff and local financial experts, was announced during the Hannibal School Board’s meeting on Oct. 15. 

“The district recognizes the importance of making this data more accessible and aligned with state statutes,” read the Hannibal School District’s statement. “The district has historically provided a consistent format with comprehensive data, with all information presented via individual line items. Future reports will organize expenditures and revenues by fund, streamlining the format for greater clarity and ease of understanding. This approach will ensure stakeholders can more readily interpret our financial information.”

The statement from the Hannibal School District was emailed by Campbell to local media after 5 p.m. Thursday. It also said district offices were closed on Friday because of student/teacher conferences, and no one from the district would be available for comment until Monday.

EDITOR’S NOTE: The name of the Missouri State Auditor was incorrect in an earlier version of this story.