Missouri State Auditor Nicole Galloway presented the results of an audit of the Hannibal School District today. The report, delivered in the school library, indicated the financial condition of the district has declined and is approaching a "financially stressed" classification. In the meeting Galloway issued recommendations to improve the district's financial strength, including improvements to the district's debt issuance and bonding procedures.
The audit found the district used the same firm to serve as both financial advisor and bond underwriter on $17 million in general obligation bonds issued in 2014 and 2015 to refinance previous school construction and remodeling projects.
"There are competing interests when an organization hires the same firm to provide both financial advisor and underwriter services," Galloway said. "An underwriter's incentive is to have a higher interest rate on bonds to make them more attractive to investors, while the advisor should strive to keep the interest rate low to minimize borrowing costs for the district. For that reason, it's inappropriate for the district to use one firm for both purposes because it may result in higher interest rates, which lead to higher payments for the district, and, ultimately, the taxpayers."
Other recommendations included reviewing the district's early retirement incentive and adopting a bus replacement policy. The early retirement program was designed to encourage early retirement, but its effectiveness has not been measured and the Hannibal School Board members were not fully aware of the complete cost to the district. As of June 2014, the district owed approximately $1.1 million in early retirement incentives. Galloway also recommended the district implement a bus replacement policy to address the high number of old and high mileage buses owned by the district.
The audit also identified electronic data security weaknesses in the district's computer system. The district does not have adequate password requirements and some computers do not lock or shut down after a certain period of inactivity or a specified number of incorrect logon attempts. This can leave district records unprotected and susceptible to damage or theft.
The audit, which received an overall performance rating of "good," is available online at auditor.mo.gov.