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Alicia, Accounting

PAGE 12: THE REGION PRESS & DAKOTAN n SATURDAY, APRIL 19, 2014

VERMILLION — Srini Ragothaman,Ph.D., accounting professor at the Uni-versity of South Dakota, recently pub-lished a case study on the Madoff fraudin Issues in Accounting Education, aleading national journal published bythe American Accounting Association(AAA).

Ragothaman examined the fraudu-lent activities that occurred in BernardL. Madoff Investment Securities (BMIS)between 1992 and 2008. After a rigorousreview process, his case study was pub-lished in February. The acceptance ratefor this association-wide journal isabout 10 to 12 percent. This case studywas also a finalist for the 2011 GeorgeKrull/AICPA Teaching Innovation Awardat the Denver national AAA meeting.

Because it is based on one of thebiggest Ponzi schemes in history, stu-

dents appreciated thecase narrative andcould easily relate toreal world occurrences.About 170 USD account-ing majors participatedin this case project, an-swering 10 conceptualquestions in detail overa three-year period.

Students who worked in groups weregenuinely engaged in the learningprocess, and they came up with severalred flags associated with the BMISfraud and suggested many new internalcontrols. This case provided a hands-onlearning experience to students thatcould be relevant for them in their fu-ture career in public accounting. Eventhough the initial estimate of the fraudwas about $65 billion, it turned out that

Madoff had actually cheated his in-vestors to the tune of $20 billion.

“The Madoff case study providesstudents with a better understanding ofthe concepts of professional skepti-cism, internal control weaknesses, ma-teriality decisions and fraud riskassessment,” said Ragothaman, who isa chartered accountant and joined theUSD faculty in 1991. “It enables stu-dents to recognize and more fully un-derstand how naivety/greed combinedwith regulatory failures can dramati-cally affect retiree investments.”

Ragothaman concluded that lessonslearned by students from using thiscase study may help them stay alert tofuture Ponzi schemes, control weak-nesses, and governance failures in theirprofessional life.

USD

Accounting Professor’s StudyOf Madoff Case Published

Ragothaman

opt-out in place.”The district is making

good on a promise to taxpay-ers, Alvey said.

“If we continued to dropthat intensely (in opt-outneeds), we would hold ourword with taxpayers and notbuild up our reserves,” hesaid. “We didn’t want the taxopt-out put into savings. Wewanted it for educating thekids.”

The district’s financialpicture has improved dra-matically for two reasons,according to business man-ager Kevin Kocer.

First, the school enroll-ment, which was in a free-fallabout a decade ago, has notonly bottomed out but actu-ally trended upward, he said.

“There was a period oftime where it had been 20consecutive years of K-12 en-rollment in the 400s. All of asudden, in two to threeyears, we were down to 300and then below 300. Therewas a big decrease there,” hesaid.

“There had been the gen-eral (downward) trend allthe way through, to the be-ginning of our second opt-out, where enrollment finallybottomed out in 2009 at 244

for grades K-12.“Since then, even though

we projected to continue ourdownward trend, we actuallyreversed that slightly. We arebeing funded at 264 stu-dents, as we have graduallyclimbed during the last fiveyears.”

Another positive factorhas been the Legislature’s2009 passage of a law, set toexpire in 2018, providing ad-ditional budget flexibility forschool districts, Kocer said.

Districts still cannottransfer capital outlay funds— used for books, buildings,buses and other major needs— to the general fund foreveryday operating ex-penses, Kocer said. However,the 2009 law allows districtsto use the capital outlayfund for expenses, such asproperty insurance and utili-ties, that formerly could becovered only by the generalfund.

Kocer noted the districttaxes far below its maximumallowable amount for its cap-ital-outlay fund.

A board decision on anopt-out at the May meetingwould give the district ahead start in making bothshort- and long-term deci-sions, Kocer said.

“Technically, we don’thave to make a decision untilJuly,” he said. “But becauseof budgeting reasons, if wecan make the decision inMay, it will help us project

forward.”The board has put discus-

sion of the opt-out on itsagenda for months, andschool officials have madepresentations to local serv-ice organizations and othergroups, Alvey said. The edu-cation effort, and the posi-tive feedback, have led theboard to plan on passing theopt-out at its May meeting,he said.

“In the past, we have au-tomatically put it to a vote ofthe people. Basically, we arenow putting it right to thedecision of the board, not toa public vote,” he said.

“The board feels prettyconfident of the trust fromthe community, based onwhat they have been hear-ing. They have the confi-dence that taxpayers wouldlike us to get (the opt-out)done and not spend themoney for a special election.Some of our board feels themoney (that would be spenton a special election) is bet-ter served to spend on ourstudents.”

School officials were pre-pared to hold an opt-outelection in conjunction withthe school board election,Kocer said. However, noboard races have developed,and holding a special opt-outelection would cost an esti-mated $2,000-3,000, he said.

Voters would still havethe ability to refer the opt-out to a public vote, Kocer

said.The school district has

taken a conservative ap-proach in spending, as re-flected in the need for farless spending authority thanpast years, Alvey said. In ad-dition, the district has builtup the needed funds beforepursuing projects such asthe elementary addition,track, windows and roofing,he said.

The revenue picture hasalso improved, Alvey said.

“We have more studentsin our district, and moremoney is coming in for taxesand state aid,” he said.“Those things are positivetrends for our cash flow.When those things happen,we stop taking as much inopt-out. It’s a good issue tohave.”

Finances still remaindicey at times, especiallywith any enrollment fluctua-tions affecting the district’sstate aid, Alvey said. Thecurrent per-student alloca-tion stands at $4,781.14 perstudent for 2014-15, whichincludes both local taxesand state aid.

The incoming Scotlandkindergarten class looks tohave 16 or 17 students, com-pared to the low 20s of re-cent years, Alvey said.Future classes looking to re-main in that range.

“You lose a family ofthree kids, but then youhave someone you’re not ex-

pecting (move) into Scotlandat a nice time,” he said. “Youthink it doesn’t matter whenyou have numbers droppingby a few, but those studentscan represent $4,000 or$8,000 or $12,000.”

Despite the board’sbudget cutting, the Scotlanddistrict — like many acrossthe state — took a hit whenstate aid was frozen one yearand cut 8 percent anotheryear, Kocer said.

“We feel we have a fairlyhealthy fund balance. Thereason we feel we need anopt-out is because of ourstructural deficit,” he said.“A lot of that was triggeredfrom the (state aid) cuts fouryears ago. The opt-out al-lows us to tap into our re-serves but at a much slowerrate.”

The state cuts creatednew problems just when theScotland district was turningthe corner, Kocer said.

“It’s almost a little bitfrustrating, considering howfar our district has come fi-nancially the last 10 years,”he said. “If not for the (state)cuts four years ago, wewouldn’t be talking about an-other opt-out.”

Alvey said he was happyto see this year’s state aid in-crease and bonus money forteacher salaries. However,he noted the districts suf-fered a “devastating” blowwith the 8 percent cut, andSouth Dakota still ranks 50th

in the nation for teacher pay.Scotland gave its teach-

ers a 2.25 percent raise, withnext year’s base salary set at$30,875, Kocer said.

While the opt-out pro-vides additional funds, theScotland district continuesto look for efficiency, Alveysaid. The district shares staffwith neighboring districtsand offers distance learningcourses, he said.

“We would like to be able,over the next five years, toplan and continue to look atupgrading the facilities andto keep up to speed on tech-nology, which is a priorityfor us,” he said.

The school district seeksto be good stewards of taxmoney but also remainscommitted to a quality edu-cation, Alvey said.

“The board looks at theramifications of cutting pro-grams and reducing staff,”he said. “You have to becompetitive and attractiveas a school district. We alsoneed to create opportunitiesfor our students.”

You can follow RandyDockendorf on Twitter atRDockendorf. Discuss thisstory at www.yankton.net.

ScotlandFrom Page 1

Big Friend, Little Friend

SUBMITTED PHOTOBig Friend Little Friend’s winner of the Mall of America rafflewas Jeff Hansen of Sioux Falls. Big Friend Little Friend thanks 5Star Communications for the donation. Pictured is Bruce Myers, board president of Big Friend Little Friend and Jeff Hansen, vol-unteer.

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