Auditor: IRSD too trusting of Miller, lacked policies
Problems can be ‘easily fixed,’ Wagner says
Many Indian River School District staff and residents were holding their breaths this week in anticipation of the Delaware Auditor of Accounts’ report on the district, which was released Nov. 17.
The good news? The problems are easily fixed, said Delaware State Auditor R. Thomas Wagner Jr.
The bad news? There are definite problems. In selecting 196 payment transactions, the AOA found $160,000 (or 27 percent) that was either questionably spent, inappropriately spent or incorrectly processed.
Much of the problem, the report stated, was the district’s “blind trust” in former chief financial officer Patrick Miller. He was in charge of many calculations, such as salary, which no one seems to have double-checked.
Moreover, he was accused of “intimidating” staff to share their financial software passwords, so he could give his own double authorization for purchases, as required by the state. The report indicated that Miller seemed to have authorized $53,000 in grants to two nonprofit organizations he leads.
“One person cannot have too much control over operations at an agency,” said Wagner, who encourages public servants to treat the money like it’s their own, or risk becoming careless.
Overall, in any organization, the board and the management are responsible for everything that happens, whether or not they’re aware of misdealing, Wagner advised. “School districts have to be good stewards of the taxpayers’ money.”
“For the entire period of our investigation, the District lacked formal policies and procedures for any of their financial processes,” the audit stated. “Not only did the District lack appropriate oversight and internal controls to prevent and detect financial improprieties, the blind faith placed in the CFO allowed him to create an environment ripe with intimidation tactics, favoritism and nepotism.”
Speculation had run amok since Miller was placed on a sudden leave of absence in April, and later retired from the district. Few facts could even be released, between the District’s required silence on personnel issues and the AOA silence of ongoing investigations.
The report did not indicate specifically that Miller had embezzled large amounts of money for his personal benefit. However, groups he is personally associated with received financial boons. He also was paid the most of all IR department directors, having had the most experience and longevity in that position.
Some items were questionable in the auditor’s eye that Miller’s successor, Director of Business Jeannette “Jan” Steele, said she felt are aboveboard, such as spreading back-pay over multiple pay periods, rather than giving it to employees in one lump sum, which can result in more taxes, she said.
This week, the IRSD got some direct community support, after the AOA questioned taxpayer money being spent on a $380 Tiffany & Co. bracelet given to Superintendent Susan Bunting in honor of her being a 2012 national School Superintendent of the Year finalist. An anonymous donor wrote a check for exactly that amount, in order to keep Bunting (who received the gift as a surprise) out of a negative spotlight.
None of the IRSD senior staff said they could remember who originally purchased the gift. But Jan Steele said she felt it an appropriate gift for a superintendent who dedicates long hours to the district and who was nationally recognized.
When the AOA questioned $7,000 in Teacher of the Year banquet expenses, the IRSD clarified that guests had actually paid about $3,500 of that in ticket sales.
However, $353 spent on other bracelets was definitely not appropriate, officials concluded, as they were Christmas gifts from Miller to select IRSD staff.
Conflicts of interest discovered during audit
Other items were conflicts of interest that Board President Charles Bireley said he didn’t know about, such as $20,343 and $32,500 in payments to the Indian River Volunteer Fire Company and the Boys & Girls Club of Oak Orchard/Riverdale, respectively. Miller was board president of both groups.
Miller was also direct supervisor to his sister-in-law. Although her salary was comparable to others in the same role, the report states that that does “constitute nepotism as described in opinions published by the State of Delaware’s Public Integrity Commission.”
Other issues included lack of detail in board and committee meeting minutes; unauthorized use of Bireley’s facsimile signature; the method of Bireley’s donating his scorekeeper salary to the IRHS Boys Basketball Boosters; improper use of IRSD credit cards, or State Procurement Cards (PCards); food purchased to be consumed in-state, which Susan Bunting said was perhaps a misinterpretation of the state ban on such; Miller’s personally managing the sale of a brand-new ATV from the fire company to the IRSD, at a $4,565 markup. (“You can’t have those types of transactions,” Wagner said.)
As for putting so much trust in one person, “That was his job,” Bunting said. “We had no indication that things were not being handled accurately, as far as finances went. He’s been working in the district for nearly 20 years. The board had established great trust in him.”
Ultimately, the report concluded, “This blind trust resulted in the CFO’s work not being reviewed and the complete absence of policies and procedures. … Because of these deficient internal controls, an environment in which employees were intimidated and afraid to speak up or report concerns was created. The District should develop comprehensive policies and procedures and hold all employees accountable for non-compliance. The District also needs to review employee salaries for accuracy and consistency.”
The IRSD has already begun to fix those issues — in particular since the July hiring of Steele as business director. The personnel director and business director will partner to review all district staff payroll, as inconsistencies were discovered, resulting in some staff being underpaid. They’ll also create an administrative salary step scale, which currently only exists for all non-administrative staff. Director of Personnel Celeste Bunting called it “a welcome change.”
The IRSD’s financial policies and procedures are looking at an upgrade. Employees are already forbidden from sharing passwords but, when pressed, Bunting said employees will also be discouraged from requesting passwords.
Finances are reviewed at monthly school board meetings, and also in-depth at Finance Committee meetings — typically held the second Monday of each month at 7:30 p.m. Both meetings are open to the public (although guests should coordinate with IRSD for access to the locked district headquarters building on Monday nights).
“A year and half from now, I think Indian River will be running smooth and fine. I know [Susan Bunting] seriously wants to fix those problems. The nice thing with this situation is the problems are easily fixed.”
The audit was triggered with several tips from the IRSD itself and other individuals in the community. Wagner said IRSD staff have cooperated throughout the entire auditing process.
As for allegations of intimidation, Celeste Bunting said, “There are times people don’t get along,” but employees and community members may submit formal and anonymous complaints about IRSD staff.
She would not speculate on why formal complaints were never lodged against Miller. She said other IR employees have lodged complaints against their bosses in the past.
Bunting pointed out that only “0.02 percent of the $700 million that we have been flowing through the district in the last five years” was labeled as imprudent use of funding; lacking total documentation; or there wasn’t time to find documentation.
Referendum put rush on audit report
With rumors and public concern about the audit, Wagner insisted on releasing the audit before IRSD’s Nov. 22 current-expense referendum, in which the public was to vote on whether to allow a tax increase to raise $7.35 million in additional local tax revenue (vote results were to be released after the Coastal Point’s press deadline this week).
“We are very dedicated to spending the taxpayers’ money exactly. The referendum that we are going to on Tuesday truly has nothing to do with this situation,” Bunting said. “We would be going to referendum regardless of that.”
She cited the rapidly increasing student population and a decrease in funding reserves for unanticipated projects. Wagner had agreed that the situation was typical of a natural funding cycle, and didn’t consider the shortfall suspicious as part of the audit situation. However, he said, the vote is ultimately up to the taxpayers, so he wanted them to be well-informed.
Previously, the IRSD’s less-thorough audits never came back with any issues “so we had no reasons to suspect we had anything other than stellar performance with our financial system,” Bunting said.
Bireley was one of the few people involved in Miller’s hiring in 1998 who are still officials with the district. Prior to his hiring by the IRSD, Miller had departed from the same position in Brandywine School District. Bireley said the IRSD wasn’t aware of accusations of financial finagling by Miller in that previous job, even when he was sentenced to community service.
As auditor, Wagner could face a libel lawsuit if he was to inform another school district of an ongoing investigation. In Brandywine’s case, prosecution of Miller didn’t begin for more than a year, Wagner said. Ultimately, Wagner said, his involvement ends when the audit is complete; It’s up to the school administration to monitor their employees.
As for possible penalties, Delaware’s Attorney General receives a copy of each auditor report. It’s up to the AG whether or not to press charges. Personally, Wagner said, he’s reported on more egregious acts that weren’t pursued in court. But his job as auditor stops when the report is done.
Meanwhile, the IRSD’s grants to the Boys & Girls Club (for tutoring, life skills, arts, fitness, staff training and more) came from a federal Individuals with Disabilities Education Act (IDEA) grant, parts of which are only meant for special education and services related to children with disabilities.
“We’ve had no contact with the U.S. [Department of Education],” Bunting said. “They haven’t contacted us, and we’ve been awaiting the results of this audit. We’ll be very open and honest and connect with them if we need to do so. … We will be looking at whatever we need to do.”
The report had its own shortcomings. It only covered five of Miller’s 17-plus years at IRSD, as well as being limited by AOA staff not having enough time to properly locate some documents. Working around state holidays and weekends, Bunting said that IRSD only had two working days to respond to the report, despite the typical 10-day response period.
About eight AOA staff worked on the audit, from legwork to final read-throughs.
When asked about the cost of auditing, Wagner said, “We don’t calculate cost of audit, because we want to be aggressive. … You don’t necessarily look at what it would it cost me, because I’m sending a message” to every school district and state employee: “Pretend that this money is yours.”
The district’s audit results do not damage their relationship with the State, Wagner said. In discussions with Bunting, at least, Wagner said, he has seen a desire to move forward and fix problems.
People are probably more shocked at the audit because the IRSD is typically viewed as such a well-run organization, he said.
The Auditor of Accounts report is online at http://auditor.delaware.gov/reports.shtml.