Friday, September 19, 2014

Fayette superintendent says he will examine budget, financial documents with 'fine-tooth comb'

This from the Herald-Leader:
Fayette County Public Schools Superintendent Tom Shelton said he is examining budget and financial documents "with a fine-tooth comb."

Shelton said the move was in response to a report released Wednesday that previous working budgets were inaccurate and not balanced.

As the district reacts to state Auditor Adam Edelen's findings that there was "chronic mismanagement," Shelton said he wanted to assure school board members that the working 2014-15 general fund budget of $418 million, which they will be asked to approve Monday, is correct.
Shelton said he, along with Fayette County Education Association officials, would compare individual teachers' salaries with those of administrators in response to findings that there were extreme disparities between the two. And Shelton said his staff would investigate allegations about the financial services division and other problems that surprised him when he saw Edelen's report last week.

In a wide-ranging interview with the Herald-Leader on Thursday, Shelton offered his thoughts on the 64-page report and elaborated on the actions he was taking.

Auditors found no missing funds or criminal wrongdoing, but cited mismanagement.

The report did not identify in some cases which district officials were responsible for the mismanagement. But Shelton took responsibility, saying he was aware of dysfunction regarding the budgeting process and was trying to fix it when allegations surfaced that led to Edelen's examination.
Edelen began investigating in May after the district's budget director, Julane Mullins, made allegations that centered on a $20 million discrepancy in the budget. She sent those concerns to the board and provided Edelen with a copy. Shelton also asked Edelen to investigate.

The district received Edelen's findings last week, and Shelton spent the weekend working on the district's response.

Shelton said he initially was irritated because he thought some findings contained inaccuracies. That was reflected Wednesday in an email to parents.

As the day wore on, Shelton said his position changed. He realized that the most important thing was not debating whether the report contained inaccuracies, but fixing the problems the examination revealed. He said the district would adhere to Edelen's recommendations.

"We've got problems that need to be fixed," he said. "Rather than disputing the auditor's report, I want to spend my time on making changes. ... Whether I agree with every line of it or not is not the relevant factor. ... We've got internal issues that need to be fixed."

Shelton said that he did not know how much the examination would cost the district. He said he asked other school districts that have been through the process, and they've told him it could be $25,000 to $100,000.

Last week, the superintendent received a draft of the report that identified salary disparities between administrators and teachers, excessive travel and training in the financial services department, and violations of the procurement process.

Shelton decided then to bring two consultants into the district. One will help with a budget and finance overhaul. The relationship between Mullins and finance director Rodney Jackson was described in the report as "toxic," and their lack of communication was blamed in part for accounting errors. The other consultant will focus on conflict resolution and team-building on the job.

Shelton said that while he thought the report was unfair, on some points, to Jackson and the department he oversees, Shelton will investigate all of the allegations.

One of the things he has to decide, Shelton said, is whether any employee should be placed on paid leave until the investigation is completed.

As for his ability to move forward with what appears to be a divided school board, Shelton said he was not terribly concerned about that. Two of the board's five members have expressed concerns about his ability to move forward in light of the findings.

"I'll continue to try to reach out and work with them, provide them with the information they need ... deal with them professionally and with courtesy," he said.

Shelton had asked the board to postpone his annual evaluation until the findings were released. He said he expected to talk through any concerns board members might have during the evaluation meetings.

On Wednesday, he said he still could lead the district. Shelton said he would not begin evaluating whether to ask the board to extend his contract until next year. His contract expires in June.
Shelton said he did not think his work during the next 60 days to create a corrective plan of action for the budget and finance system would affect any other major initiatives, such as the district's effort to redraw school attendance boundaries.

Read more here:

And this from the Herald-Leader:

It's unclear how much Fayette schools will pay two consultants to help fix district

It's not clear how much Fayette County Public Schools will pay two consultants hired to help the district address issues found in a state audit released Wednesday.

Superintendent Tom Shelton announced Wednesday at a news conference — and in an email to parents — that Kyna Koch, a former associate commissioner at the state department of education and a former commissioner of finance for the city, would assist him in developing a comprehensive action plan. That plan would go to the school board for approval and then be sent to the auditor of public accounts within 60 days.

The special examination released Wednesday requires the district to respond in 60 days. The report found no criminal wrongdoing or missing money, but it showed chronic mismanagement in Kentucky's second-largest school district.

The audit included 10 key findings, including weakness in budget and financial management, administrative and salary increases that outpaced those of other employees, and excessive and unnecessary travel, among other findings. The examination also said that the relationship between financial services director Rodney Jackson and budget director Julane Mullins was "toxic," and that auditors viewed that relationship as the cause of errors.

Shelton also announced that Mike Thompson, an organizational behavior expert, would help mediate problems between the budget and finance departments, a key issue cited in the 64-page report.
But Shelton and district officials could not say Thursday how much it would cost the district to hire the consultants. Contracts have not been signed, even though the consultants' employment was announced Wednesday.

No request for proposals, or RFP — a type of bid process for services — was sent out. An RFP would allow multiple consultants to bid on the project.

Shelton said Thursday that he did not have to solicit other bidders because the district's procurement policy does not require an RFP for professional services.

The procurement policy, which was provided to the Herald-Leader, says the district does not have to go through the bidding process when the district contracts for a licensed professional, such as an attorney or certified public accountant. That does not apply to architects or engineers who provide construction management services.

The district's policy also says the school board has to approve "any proposed contracts for more than $20,000." State law says the board "may require bids for consulting services to be sought." But the superintendent is authorized to approve contracts that don't exceed $20,000, the policy says.

Shelton said he did not know how much Thompson and Koch would be paid but said he did not think the two contracts would exceed $20,000.

Shelton said he was willing to take the contracts for Koch and Thompson to the Fayette County School Board for approval. But he said putting out an RFP or getting board approval would slow the district's response to the audit.

"We'll still be sitting here in 30 to 60 days and will not have taken any action. I'm ready to take action now to fix these things," Shelton said.

He said he did not talk to other consultants before announcing that Koch and Thompson would be hired.

When asked whether those consultants were independent if Shelton was the person who hired them, Shelton said Koch has extensive experience that would help determine whether the district's plan to overhaul the budget and finance system was valid. Shelton said during the Wednesday news conference that Thompson and Koch were highly recommended.

"I couldn't think of anybody better to give me an independent view," he said.

Lisa Deffendall, spokeswoman for Fayette County Public Schools, said Thursday that the money to pay for the consultants would come out of Shelton's budget for special projects. Shelton currently has $750,000 in his budget, which Deffendall said he could use for such things as training, materials, student transportation, special projects at schools or additional staffing. Shelton already has earmarked more than $500,000 of his budget, mostly for staffing at schools.

Read more here:

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Thursday, September 18, 2014

Three board members support Shelton after auditor's critical report on Fayette schools

It's official. No matter how the fallout from the State Auditor's report plays out, the best Superintendent Tom Shelton can hope for going forward is a 3 to 2 board...a very unappealing position to be in.

More excellent reporting from Valarie Honeycutt Spears in H-L:
Three members of the Fayette County school board pledged support Wednesday for Superintendent Tom Shelton in the wake of a state report that outlined financial mismanagement and other problems at the district.

But two other board members expressed reservations about Shelton's ability to lead the district.
Daryl Love said in a statement that he was pleased to hear that no money was missing and there hasn't been any criminal activity.

He said he looked forward to working with Shelton and the board to "address the valid audit findings."

Meanwhile, a teachers group expressed concerns about how the district spent some of its money.
The audit released Wednesday by State Auditor Adam Edelen detailed weaknesses in the district's budget and financial-management processes, administrative and management salary increases that outpaced those of other district employees, excessive and unnecessary travel, misuse of a trust fund, and conflicts of interest.

At a news conference Wednesday, Shelton outlined several key steps he planned to take to address the problems identified in the audit, including hiring two outside consultants and restructuring the finance and budget divisions.

School board Chairman John Price said Wednesday that he supported Shelton and that the school system is already making changes to address problems mentioned in the audit. Price emphasized repeatedly that the audit showed no criminal wrongdoing and that no money was missing from the district.

Also firmly in Shelton's corner is Melissa Bacon, vice chairwoman of the board.

"I have every confidence that the superintendent is going to put a plan in place to implement the recommendations (contained in the audit)," Bacon said after Wednesday's news conference. "Everything in that report is fixable. And I have every confidence that he will be able to do that."
But board members Doug Barnett and Amanda Ferguson said the audit showed problems with leadership at the second-largest school district in Kentucky.

After Edelen's news conference Wednesday morning, Barnett said Shelton had "failed miserably."
Barnett said that at this point, he would not vote to renew Shelton's contract when it ends in June 2015. Shelton has been superintendent since 2011.

Ferguson said she, too, had reservations about Shelton's ability to continue as superintendent.
"I have serious concerns about his ability to lead us where we need to go," Ferguson said.
For months, Ferguson has asked questions about why the budget had to be cut and why board members weren't given more financial information. She said Edelen's findings answered her questions.

"It finally answered questions I had in the spring," she said. "It's sad for our schools when we are talking about the questionable actions of adults instead of the achievement of our students. We've got to find a way to move forward to help our students."

Barnett agreed.

"The superintendent and the finance director engaged in a course of conduct designed to mislead the school board and the public with respect to the health of the district's financial position," Barnett said.
Bacon, though, said she didn't think the board was kept in the dark, noting that the board's role is oversight.

"As board members, we are suppose to be overseers, not micro-managers, so there is a balance there," Bacon said.

Price said the district had outside auditors, and that Shelton had been working on the budget problems before the state's audit.

Both Shelton and Price are certified public accountants, but Price said he didn't think he or Shelton had to check the math when handed working budgets and financial statements by district officials.
Barnett said budget director Julane Mullins was "brave" to publicly make allegations that led to Edelen's audit. Mullins — who has worked in the district's budget office for 16 years, including 10 as the director — sent an email to the board, and Edelen, containing several allegations, including that the district's current $20 million shortfall was caused by irregular accounting but worsened with "numerous acts of mismanagement."

At the time, Shelton denied those allegations, and he maintained that position Wednesday. But Shelton said that ultimately, he takes responsibility for the problems between the finance and budget arms of the school district.

Barnett said Shelton is paid "handsomely," and when the budget process is flawed, "that's ultimately on the superintendent."

Price said Wednesday that the school district does have to make key changes.

As for the budget department and the financial-services division, Price said, "We certainly have to reorganize how those departments work."

Meanwhile, the teachers group said its members were concerned about portions of the audit showing that money from a special trust fund was going to pay for travel expenses rather than for educational needs.

Fayette County Education Association president Jessica Hiler said she thought Edelen's special examination showed that money was being diverted from the classroom to the administrators. The education association is a voluntary organization for teachers.

"That's really troubling, because that's where our money needs to be. When you've got teachers out there that can't buy supplies for their classrooms because there's not enough money going to their schools, that's the most troubling for me."

Read more here:

Fayette schools audit: Findings and district's responses

This from the Herald-Leader:
Finding 1: Weaknesses in budget and financial-management processes led to significant errors in the district’s working budgets: Those errors culminated in Fayette Superintendent Tom Shelton requesting a $19 million budget cut. Response: The district will overhaul its budget and financial processes, but does not agree that errors led to the budget shortfall.

Finding 2: The FCPS working environment is not conducive to efficient operations. The working relationship between Julane Mullins, the director of budget and staffing services, and Rodney Jackson, the director of financial services, is toxic, according to interviews with staff and district leadership. Response: The district agreed about the working environment but disagreed that the financial situation was ever dire.

Finding 3: Administrative and management salary increases outpace other district employees, some without appropriate transparency. Changes to the Hay Grade Schedule, a salary additive reserved for administrators based on responsibility level, were not transparently reported to the board. Response: The district disputed the contention about district office staff and teachers getting different treatment.

Finding 4: FCPS circumvented district controls and did not follow procurement guidelines. To pay a vendor, a company owned by a personal friend of the superintendent, a budget transfer was made that didn’t comply with district policy. The policy was subsequently changed to allow more transfers. Although the auditors didn’t note any apparent conflicts of interest, favoritism might have been shown to this vendor in that adopted procurement policies were not followed. Response: The district will shore up procedures.

Finding 5: The Mary K. Stoner Trust Fund is not being used in accordance with its charter. The trust fund, intended for the “enhancement and enrichment of the educational program,” is being used for travel loans to Central Office staff. Auditors found serious control deficiencies in the process for repaying the loans, including employees forgoing mileage reimbursements, and transfers from other district trust funds. Response: The district took issue with some elements of this finding.

Finding 6: Travel and professional development in the department of financial services is excessive and unnecessary. Numerous issues related to professional development in the Department of Financial Services were noted. Response: The district agreed with some of the recommendations but said the financial services department was incorrectly targeted.

Finding 7: Conflicts of interest. Vendors are providing perks to district personnel that could compromise the procurement process. The Department of Financial Services is paying for 10 memberships to a civic organization. The director of financial services is treasurer for the parent entity of the organization. Response: The district generally concurred with the recommendations.

Finding 8: Monthly financial reports to the board lack significant information. The information provided was insufficient to clearly communicate the district’s rapidly changing financial position. Response: The district agreed.

Finding 9: Accounting weaknesses within the department of financial service. The wife of Rodney Jackson, director of financial services, was handling a significant piece of the receipt process. Other issues included the circumvention of the budget process through canceled purchase orders, vendor creation and questionable expenditures, including the continuation of an insurance policy despite landmark legislative changes on the national level. Response: The district disputed several aspects of this finding.

Finding 10: The current internal audit structure needs improvement. Employees do not have an avenue through which to anonymously express concerns with school district activities. Response: The district agreed.
State Auditor Adam Edelen and FCPS Superintendent Tom Shelton

Read more here:
There's no missing money or criminal wrongdoing, but state Auditor Adam Edelen's examination of Fayette County Public Schools found "chronic mismanagement" of the district's budget and finances.
In a 64-page report released Wednesday, Edelen said accounting errors were contributing factors for the district's budget cuts this year.

The audit detailed 10 key findings, including weaknesses in budget and financial-management processes, administrative and management salary increases that outpaced those of other district employees, excessive and unnecessary travel, misuse of a trust fund, and conflicts of interest.
"This examination found that, unfortunately, it's not all about the kids," Edelen said in a news release. "Mismanagement of the finances of the state's second-largest school district, with an annual budget of more than $400 million, is obviously very troubling. But even more so is a culture within certain elements of management that does not reflect the district's purported values. Our kids deserve better."
The report pointed out areas that needed improvement, and while district officials did not entirely agree with the findings, Superintendent Tom Shelton said the district would conduct a full review of its policies, practices and procedures.

Among the points of contention for the district: Edelen's report said the findings indicated "chronic mismanagement of the district's budget and finances that have contributed to financial instability." The findings also said that "errors and misrepresentations in the budget process over several years weakened the district's ability to address budget imbalances in the current year."

In his written response to the report, Shelton disputed several findings, including that accounting errors contributed to the district's $19 million in budget cuts. He agreed with some portions of the findings and said the district would overhaul its budget and finance system.

Edelen said the findings were based on fact. The district said in its response that one employee was "vilified."

"I don't think that holds any water," Edelen said.

In addition to poor financial management, weak policies and poor communication culminated in a weakened financial position for the district, the auditor said.

Auditors identified salary disparities between administrators and teachers, excessive travel and training in the financial services department, and violations of the procurement process and other board policies.

Edelen began investigating in May after budget director Julane Mullins made allegations that centered on a $20 million discrepancy in the budget.

Auditors found that Mullins did not become aware of certain financial transactions in a timely manner, which led to her establishing a budget that reflected $20 million more than the district had to spend. The financial transactions by finance director Rodney Jackson were not illegal, but auditors questioned whether the availability of the money was purposely hidden from the school board and public, Edelen said in a news release. Subsequent budgets also contained significant errors, leading to passage of unbalanced budgets, he said.

"We understand that school districts, especially those with large budgets, use complex accounting procedures to balance their books," Edelen said. "But when vast sums of money are committed for various purposes, and then decisions are made to routinely use those funds for different purposes after the budget process has ended, we question whether the intent is to conceal the true amount that is available for spending."

Auditors found a lack of transparency in district officials giving the school board information about salaries.

Edelen said there were 11 teachers in the district — most of whom are in high-poverty schools — asking for money on a national crowd-funding website to buy basic supplies for classrooms.

"Parents struggle to afford items on long back-to-school lists, and teachers pay for resources for their classrooms out of their own pockets," Edelen said. "Now, teachers are taking to the Internet to get help buying basic necessities like science kits and dictionaries while administrators are granted big raises and other perks that aren't offered to teachers."

Edelen's audit also noted as troubling the use of a trust fund bequeathed to the district by a Fayette County teacher for the "enhancement and enrichment of the educational program." The district may use the interest and as much as $10,000 of the principal each year. The fund balance was more than $1.1 million on June 30.

The fund is used to grant loans to administrators for travel and training. When the use of that money was discussed with the director of financial services, he indicated it would be problematic to promote the availability of that money to teachers and others, the auditor said.

"Concealing the trust fund from educators so that only bureaucrats reap the benefits is just greedy," Edelen said.

The Department of Financial Services spent more than $115,212 for travel, training and reference books during a four-year period, Edelen found. Auditors found unnecessary and excessive travel and training. The district paid for Jackson, the director of financial services, to receive his superintendent certification. After the audit, he refunded the full amount to the district.

Auditors also found that Shelton circumvented controls and violated the procurement process to contract with a vendor that provides college-preparation services. The contract is a potential conflict of interest, but auditors were unable to determine that Shelton benefits directly from his relationship with the vendor's CEO, Tim Hanner of NaviGo. Auditors identified other possible conflicts of interest in the district during the examination.

Edelen said there was evidence that Mullins informed management during the 2014-15 budgeting process that the 2013-14 working budget did not balance and that the superintendent suggested she "fix the 12-13 actual to flow ... ."

The examination found that the journal entry affected the 2011-12 budget because the entry was not reflected in the working budget's beginning balance. Because of that error, the adopted working budget was not balanced, because once the journal entry was taken into consideration, estimated expenditures exceeded revenue.

Read more here:

Wednesday, September 17, 2014

FCPS Audit Fallout Mounting

“This examination found that unfortunately, it’s not all about the kids.
Mismanagement of the finances of the state’s 2nd largest school district, 
with an annual budget of more than $400 million, is obviously very troubling. 
But even more so is a culture within certain elements of management 
that does not reflect the district’s purported values. Our kids deserve better.”
---Auditor Adam Edelen 

In the wake of a scathing review of district financial practices from State Auditor Adam Edelen, at least two FCPS board members are expressing doubts about Shelton's ability to continue as superintendent. Board Chair John Price has publicly supported Shelton, while members Melissa Bacon and Daryl Love are generally considered to be reliable. Both Amanda Ferguson and Doug Barnett have expressed doubts about Shelton's future.

Below is the auditor's press release, followed by links to the Audit report, and Superintendent Tom Shelton's response to the audit.

Adam Edelen's press release.

State Audit of FCPS

FCPS Response to Audit

Shelton's remarks at this afternoon's press conference
FCPS news conference (starts 18 seconds in)
Part 2