Deceased teacher's trust was once used to buy TVs for Lexington schools; it was later used for loans

This from Valarie Honeycutt Spears in the Lexington Herald-Leader:

When former Lexington school teacher Mary K. Stoner died in 1961, she directed in her will that a $150,000 trust be set up for the "enhancement and enrichment" of educational programs.

Tom Shelton

Stoner, 93, gave the school board sole discretion in how to use the funds, saying she was confident the board would carry out plans and projects that "would be beneficial to the students."

"As a former teacher in the city schools of Lexington, I appreciate the desirability of providing funds for the enhancement and enrichment of their educational program," Stoner said in her will.

In the early 1960s, the Lexington Herald wrote at least three articles about her donating the funds, the board accepting them and then, deciding the money would initially be used for a technological advancement, the board's use of the funds to install televisions in as many schools as possible.

But the fund hasn't attracted much attention since then. At least, not until last week, when state Auditor Adam Edelen questioned in a special examination report whether the fund is currently being used in accordance with its charter.

As of June 30, 2014, the fund's balance was more than $1.1 million, the report said. And Edelen said the trust has been used for loans for professional development travel.

"This trust fund, intended for the 'enhancement and enrichment of the educational program,' is being used for travel loans to IAKSS (Central Office) staff," Edelen's report said. It was among several problems that Edelen noted when describing "chronic mismanagement" in the district. Edelen found no criminal wrongdoing.

Last week, Fayette Superintendent Tom Shelton said he wanted to know more about the trust fund. He said the trust was not being hidden from teachers.

"I'm perfectly comfortable saying we shouldn't even be managing that trust if there is a question about how that trust fund is used. It should be completely transparent, maintained by a separate entity," Shelton said. "I want someone to investigate that."

The Stoner Fund is one of at least four trusts controlled by Fayette County Public Schools, according to district documents provided by Edelen's office. The trusts' available cash balances range from about $10,000 to $392,000, the documents said. A committee makes decisions about the trust funds.

As for the Stoner Trust Fund, very little information about Stoner's intentions were in the articles or her will except that she wanted her money to benefit students. The articles did not provide much insight, and relatives of Stoner could not be located.

Documents say the trust was supposed to be in control of the board. It's not clear what happened years later, but at some point oversight of the fund went to a committee.

Stoner's will says the district can use the interest and as much as $10,000 of the principal each year.

District spokeswoman Lisa Deffendall said Friday she did not know exactly when a decision was made to use the Stoner Trust for loans to staff, but she had records on loans dating to 2007.

District personnel told auditors that the Stoner Trust was used for educational loans to staff, loans to prevent financial hardship while traveling for professional development, and loans to obtain certifications, the report said.

Auditors found serious control deficiencies in the process for repaying the loans, including employees forgoing mileage reimbursements and per diem amounts, and transfers from other district trust funds.

Auditors also questioned whether the Department of Financial Services, which holds three of the five seats on the Trust Fund Committee, disproportionately benefitted from the Mary K. Stoner Trust Fund.

Rodney Jackson

The auditors recommended that Fayette County Public Schools strengthen controls over the repayment of loans and ensure that loans are issued for reasons compliant with the fund's charter.

The report said that when the use of these funds was discussed with Director of Financial Services Rodney Jackson, he indicated the intent of the fund was for educational training, but acknowledged that the availability of these loans has not been publicized to school-level employees.

"He indicated this is because it would be difficult to do so because of the number of teachers and others who might want their Masters degrees and other education covered," the report said. "Given that the Department of Financial Services holds three out of the five trust fund committee seats, it gives the appearance that they may be utilizing funds primarily for the benefit of those working in their department, to the exclusion of others."

Making use of the fund

Deffendall said Friday that the Stoner Fund had been used to help teachers in the past four years.

Edythe J. Hayes Middle School received $4,475 to send five teachers to training on increasing the rigor of instruction.

Three teachers received $2,816.33 to offset payroll glitches that caused their paychecks to be short, she said.

One teacher received $5,030.04 because she had missed the deadline to request her summer paychecks but had a family emergency and needed the money. Another teacher was loaned $10,740.14 to pursue his doctoral degree, Deffendall said.

All of these loans were repaid by the employees or the school, she said.

Prior to 2009, the Stoner Fund loans were given to teachers pursuing advanced certifications in exchange for agreeing to remain in the district for at least three years. The Stoner Fund loan agreement with each of them stated that upon completion of the employee's educational program, the employee could apply to another fund called the Schmidt Fund for a grant to repay the loan over a period of 36 months.

During the 2007-08 school year, the 16 people who got loans included teachers, counselors and people who went on to become principals. All of these employees held teaching certificates, and none of them worked at the district office, Deffendall said.

Shelton said in his response to the report that auditors received documents showing that 30 employees had received loans totaling more than $140,000 from the Stoner Fund since 2007. District officials said the loans were given to only four employees who work in the Department of Financial Services, and their total loans amounted to less than $1,800. Shelton said that calls into question whether a significant portion of loans were being made to financial services staff.

The auditor in his report recommended that the district implement policies and procedures to ensure that disbursements from the Stoner Trust Fund are for the "enhancement and enrichment of the educational program" as established in the fund's charter.

Edelen recommended that at least one school board member join the Trust Fund Committee to provide oversight.

Auditors recommended that procedures reflecting the charters of other various trust funds should be put in place to avoid noncompliance with trust fund requirements. Edelen said a timeframe should be established for the repayment of loans, such as within a certain number of days after the related travel occurs.

In his response to Edelen, Shelton said he agreed that the district should examine the policies, procedures, accounting, and charters related to all of the trust funds under Fayette County Public Schools control. He said he agreed that board members should be added to each trust fund committee.

He said that additional oversight is warranted, and that the district will investigate options to move responsibility for the trust to a more responsible party.

And Shelton said the district agrees that information about the funds should be made widely available.

"It seems, at least in recent years, that that fund has only been used for administrative travel," Edelen spokeswoman Stephenie Hoelscher said Friday. "We don't think that's in keeping with the spirit of why this trust is established."

Edelen noted last week that there were 11 Fayette County teachers asking for money on a national crowd-funding website to buy basic supplies for the classrooms in high poverty schools.

That is an example, Hoelscher said, of why "every dollar literally counts."

• Fayette schools audit: Findings and district's responses

  • 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.

• Fayette Schools audit coverage

  • State audit highlights 'chronic mismanagement' of Fayette schools budget, finances
  • It's unclear how much Fayette schools will pay two consultants to help fix district
  • Fayette superintendent says he will examine budget, financial documents with 'fine-tooth comb'
  • Read the audit (PDF)
  • Read the state auditor's remarks
  • See the Fayette public schools' response
  • Video: Superintendent's response to the audit
  • Summary: Findings from the audit of Fayette County Public Schools, and the district's responses
  • Fayette schools superintendent, operations chief say they should have acted more quickly to fix problems
  • Three board members support Shelton after auditor's critical report
  • From May 27: Fayette superintendent says there is no discrepancy in $20 million entry, didn't cause financial crisis
  • From May 28: Fayette school board approves tentative budget despite parents' requests to wait for audit
  • From May 31: Fayette Schools budget director stands by her allegation of $20 million budgeting error
  • From June 21: Fayette superintendent says no problem with hiring company founded by friend
  • From Aug. 4: Fayette schools chief asks that his evaluation be delayed until audit report is released