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Mecklenburg County schools audit spurs dispute with Thornton / April 30, 2014
The Mecklenburg County School Board last week revisited an issue that first cropped up in summer 2013 — involving the use of student activity funds to purchase classroom furnishings and pay other expenses, a practice that prompted a critical report by an independent audit firm.

The Tuesday night meeting of the trustees witnessed a sporadic argument between Superintendent of Schools Dr. James Thornton, whose Central Office oversight of the funds the auditors called into question, and the auditors themselves.

Presenting the audit findings to trustees were representatives with two firms: David Alga and Nadine Chase, CPAs with Creedle, Jones and Alga in South Hill, which issued its initial report some eight months ago; and Chris Banta, a CPA with the Roanoke office of Brown Edwards. He is part of a team that conducted a follow-up review of the South Hill firm’s findings.

The independent audit letter, issued by Creedle Jones and Alga on Aug. 26, observed that school activity funds were being used by administrators to pay for such items as new classroom furnishings and employee salaries, “in direct noncompliance” with Virginia Department of Education policies.  There was also evidence of “order splitting” — breaking purchases into small amounts to skirt bidding and purchasing rules — which is prohibited by the Virginia Procurement Act, the auditors noted.

Among the alleged missteps, the Central Office administration tapped the student activity accounts to advance a coach’s salary, and to buy new tables and chairs with the adoption of the Project Based Learning curriculum. By making the purchases on a school-by-school basis, the expenditures levels fell under levels set under the Virginia Procurement Act.

Banta said his firm also found evidence of potential order splitting, in their more limited review of the student activity funds. Auditors with Brown Edwards only looked at 25 transactions made through Park View Middle School and Bluestone High School’s student activity funds.

“The results of our findings were and you will see, in some cases they look similar to what I am told is in your management letter [the report issued by Creedle Jones and Alga].”

The Brown Edwards firm was hired by the School Board after the trustees and Superintendent Thornton received a scathing management letter from Chase, the accountant with Creedle Jones and Alga. According to Board Chairman Robert Puryear, trustees asked their attorney, Brad King, to arrange for the additional review.

Before discussing his firm’s findings, Alga clarified for trustees the role of the auditor: “We are not part of the judiciary branch. We cannot make determinations that somebody has broken the law or that fraud has been committed. That is not our job. Our job is to simply look at the policies and procedures that have been adopted and just report if there are any exceptions. Maybe that is not the most pleasant thing, but that is what you hired us to do.”

The biggest hurdle both firms faced when auditing the accounts was with the lack of written policies directing how and when monies in student activity funds can be spent. This oversight, which was never fixed, was brought to the attention of trustees in 2007 during an efficiency study by Evergreen Solutions. The reviewers recommended that the Central Office “develop and implement a comprehensive school activity funds manual.”

“So that means in our mind,” Alga said, “that you are defaulting to the Board of Education literature, the ‘Red Book’, to the Virginia Administrative Code and the Code of Virginia.” His firm based its findings on whether the School Board was compliant with those guidelines, laws and regulations.

In 1989, the Virginia Department of Education developed guidelines for schools which administer student activity funds. The department’s communications director, Charles Pyles, said the guidelines, commonly known as the Red Book, were never intended to be anything other than advisory. In fact, the document expressly encourages local school boards to enact their own policies regulating all aspects of student activity funds, with the caveat that those policies be no less restrictive than existing state rules and regulations.

Under the Code of Virginia, student activity funds take in revenue from extracurricular activities such as athletic outings, club dues and any other activity involving students, staff or facilities. While the code is silent on how the funds can be spent, the DOE’s guidelines suggest that disbursements should be “solely in accordance with the purpose for which such funds are collected.”

“And just as a clarification, we are talking about band instruments, sports gear and equipment, robotics materials, maybe some raised plant beds. Basically any items necessary for the students to run their activities and for the enrichment of their education,” Alga explained.

Where Mecklenburg County schools went astray, according to the audit findings, was in using the funds to advance the salary of a then-Bluestone High School basketball coach — to the tune of nearly $2,000 — and to purchase classroom tables and chairs, when the monies deposited into the fund were never collected for those purposes, even if the money was later reimbursed back into the student funds.
A second, but equally important issue, was having each school separately yet simultaneously purchase essentially the same new furniture from their school activity funds. That practice was also flagged in the Creedle Jones audit as being in non-conformance with Virginia’s Procurement Act. Banta said his review looked at additional transactions, not the purchase of furniture.

Thornton, however, disputed the auditors’ interpretation of the purchasing decisions, saying he was merely following past practices. For years, even before he became superintendent in Mecklenburg, the schools often purchased things like pens used by teachers and file cabinets from the student activity funds, Thornton said.

Trustees Dora Garner, a former educator in the school system, and Glenn Edwards acknowledged that under previous superintendents, the student activity funds have been used for limited purchases of fixed assets for teachers. However, that was when superintendents gave each school a lump sum from the general fund, which principals could spend at their discretion.

Two years ago, Alga recommended that the superintendent suspend that practice, and Thornton said he complied.

Alga said his firm based their audit around the guidelines in the Redbook after interviews with MCPS staff disclosed that staff were trained in the “concepts delineated in the Red Book,” and after seeing that “several of the daily and monthly forms they used to reconcile a report to the central office, were pulled directly from the Red Book.”

The auditors concluded, “at some point in time [the school board] has adopted the provisions of the Red Book. Additionally when we met with the Superintendent [in 2012 as they were wrapping up the 2012 audit], we [Alga and Thornton] discussed rules and regulations and we talked about the Red Book, and he acknowledged that he had used and was familiar with the Red Book,” said Alga.

Briefly outlining the various acts of nonconformance, Chase said in each instance the staff expressed an awareness that they were going against existing policy, but claimed, “they were directed to do so by the Superintendent.”

Thornton vehemently denied these allegations, saying he had emails and witnesses that could verify his claims. He and trustee Sandra Tanner also questioned why Chase never discussed these claims with him as part of the audit.

Chase replied, “To be honest with you we try to talk to different people. I talked with principals and bookkeepers. I talked to a couple of board members. We talked to the Superintendent last year and we did the same thing this year. So why would I want to talk to him again?”

The finding that brought the sharpest retort from Thornton involved the purchasing of tables and chairs, initially using monies in the student activity funds. Chase called this a “repeat finding.”
Relaying her understanding of the events, gleaned from interviews with school staff, Chase said, “During June 2013 the schools were instructed by the Central Office to purchase new furniture for the purpose of facilitating the project based learning initiative. As a result, the funds were expended from the school activity fund with the exception of Park View Middle School, where the Central Office directly purchased furniture. The schools purchased a total of $91,784.90. The Central Office reimbursed these schools a total of $89,281.60.

“Five schools were reimbursed 100 percent, but two schools were not reimbursed the total costs. This means the money raised and designated for student use was actually used to purchase capital assets.”
This particular set of transactions resulted in three findings: one for using student activity funds to make large capital asset purchases, one for using the student activity fund for something other than a purpose for which the money was raised, and the third for splitting the purchases in a way that appeared to circumvent Virginia’s Procurement Act.

“Fixed asset purchases are approved by the Board and included in the budget. All purchases for fixed assets should be made by the central office, under the budget guidelines. The purchase of capital assets through the student activity fund is a repeat finding. We brought this to the attention of the superintendent and director of finance in a prior year when we gave him a copy of the Red Book for guidance,” said Chase.

Section 4.11 of the Virginia Procurement Act, entitled “Order Splitting Prohibition,” states “the placement of multiple orders within other than a reasonable time period to one or more vendors for the same, like, or related goods or services [to avoid using the appropriate method of procurement or to remain within delegated purchasing authority] is prohibited.”

Banta later said his firm’s subsequent review of additional transaction from the Bluestone High School and Park View Middle School activity funds turned up two additional instances of potential order splitting.
Thornton explained the purchase of furniture and the salary advance thusly: “I sent to Kristy Somerville and Tracey Rogers, the two directors of elementary and secondary instruction. I asked them to contact the principals about the purchase of desks for the students in the different schools, and I asked them to contact Dona Garner and follow all procurement policy. I don’t know how clear that could be that I asked them to follow procurement policy.

“Now in the other accusation [the salary advance], where you state a specific transaction is by the principal: There is also an email to me from the director of secondary education, who was principal at the time, giving permission to write that check to that coach. I did speak to that individual over the phone, because the principal could not be contacted and the bookkeeper was not on the phone with me, she was listening in on another line, and I said yes, Ms. Somerville has approved it. And yes, I did not think it was a violation because it was supposed to be reimbursed the entire time.”

Thornton expressed his frustration with the audit process, accusing Alga of “not doing a thorough job,” and saying that had he been granted an exit interview before the report was released, he would have clarified many of the issues raised in the findings. This was the first time in his ten years as a superintendent that he did not have an exit interview at the end of an audit, Thornton said.
Alga responded that he simply followed DOE procedures which required him to issue his report to the school board and copy the superintendent. Thornton then had 30 days to respond to the findings and recommendations.

“The response must state concurrence or nonconcurrence with each audit finding and recommendation, outline action taken or contemplated, and provide target dates for completion of such action.”
Thornton did not offer a response. In answer to an email from the Sun seeking clarification, Thornton stated, “I have a response that was held due to the board requesting another audit. I am adding to that response after hearing the presentation from the auditors.” 

Tanner dismissed alleged order splitting: “I mean all these schools are different. All these school sizes are different. All these classrooms are different.”

Trustee Dale Sturdifen summed up his view by saying, “I just find it amazing. Maybe I’m wrong, but for every principal, and we have a lot of principals here to decide on their own I want to buy these tables and to do it all at the same time. But, that is really the question and it really comes down to when we spend a lot of money if it goes over a certain amount, it should come before the board.
“That’s what it really comes down to, and had it come before the board, chances are the board would have approved it. But when it did not come before us and you break it down by each school and you tell each school that we’re going to give you $15,000 back, there lies the problem because you add it all together, it’s way over the threshold so that’s my concerns with it.

“We say our principals decided this and every school is different and every school is unique, and if you go in each school, no school is the same so why all of a sudden did all of our schools decided we want to spend $15,000 on round tables?”

When asked his view on the separate and simultaneous purchase of tables and chairs, Banta said, “My general take away from that is that you have to have a policy that specifically addresses capital purchases…because you don’t want these situations.” He also asked, “At what point is purchasing desks make sense from an activity fund?”

Chase’s audit also “noted a few instances of other control weaknesses such as lack of approval on expense vouchers, lack of two signatures on checks where two signatures are required.” She brought these to the attention of those involved during the audit process.

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