Posted on Wed, Apr. 23, 2008

Report details Cleburne misuse of funds, criticizes officials

By MARTHA DELLER

Star-Telegram staff writer

CLEBURNE -- State auditors affirmed assertions by a citizens watchdog group that the Cleburne school district misspent federal funds for staff retreats, a trip to Mexico, excessive travel expenses and other items.

But the 155-page preliminary report issued last month by a Texas Education Agency team that conducted an audit beginning in November 2006 went much further than ordering the district to repay money spent on a few isolated items.

The report sharply criticized district officials for inadequate internal controls, which the auditors said resulted in the misuse of $367,000 in federal funds. Citing a high risk that funds could be misused again, auditors recommended that the agency audit all the district's funds.

Alden Nellis and Harold Gentry asked the agency to investigate the district after they examined more than 3,000 pages of district documents.

"Everything we turned in to TEA is in the report as being questionable except for a couple of state funding items," Nellis said. "We're pleased they found that and went beyond that by considering more expenses."

The audit report emphasized the district's failure to maintain financial records such as purchase orders, itemized receipts and signed and dated invoices indicating that expenditures were reviewed and approved before the expenses were incurred.

The absence of documents to support certain expenditures led auditors to label those expenses "not allowable," interim Superintendent James Warlick said. He was hired to run the district until the board hires a replacement for Robert Damron -- most likely by the end of the school year.

The board is scheduled to vote Friday on a finalist to succeed Damron, who stepped down as superintendent after the board received the preliminary audit report. He had previously announced his July 1 retirement. The finalist could be named superintendent at the May 19 board meeting, Warlick said.

Warlick is working with Assistant Superintendent Mike Bailey and Tom Canby of the Texas Association of School Business Officials to respond to the preliminary report before it becomes final. The district has until May 12 to submit its response to the TEA. The agency then has 30 days to issue its final report.

With Canby's help, Warlick said, district officials hope to offer explanations and make changes in financial procedures that would prompt TEA officials to reduce the $367,000 that the agency has recommended the district repay.

That may involve producing documents to support expenditures that district officials believe were proper, he said.

"The auditors were here so long, they were going to find something," Warlick said. "But TEA is not a gotcha place. They work with you to help you improve. We're going to get as much funding back as possible."

Warlick said other districts have sought his help to ensure that their spending meets TEA requirements.

"Cleburne will be an example of how to do things in the future," he said.

REPORT AND RESPONSE

The Star-Telegram looked at the preliminary report issued last month by the Texas Education Agency on an audit of the Cleburne school district after the spending of some federal grant funds was questioned. The district offered a response to the TEA report and a plan for action.

Internal controls

The TEA found that the district did not maintain an effective system of internal controls to ensure the appropriate expenditure of the funds for the purpose and costs allowed by federal law and rules.

Examples

Purchase orders were prepared after goods or services were received.

Travel advances to employees were paid up to a month before the travel.

Charge accounts for administrators and campus staff members circumvented the purchase order system intended to prevent misuse of grant funds.

District's response

The credit cards were used to make small purchases that were paid monthly through purchase orders. Employee were given travel advances to make registration deadlines. That sometimes caused payments to be made in one grant year for services received another year. That is not allowed under grant guidelines. "Timing is a big deal under grants," Warlick said.

Action planned

Steps already taken include hiring an accountant to assist Bailey with financial controls and reorganizing the department that handled grant programs. Warlick plans to create a simplified list of guidelines to help the staff understand federal grant requirements and add training for administering them. He will also recommend that credit card purchases be pre-authorized by the principal, department head and Bailey, the assistant superintendent over finance. "That way, there's not much of a way to get around the purchase order system. It makes the internal control system pretty strong," Warlick said.

Allowable expenditures

The TEA found that the district charged the grants for costs that were not allowed under federal law and other grant requirements or did not meet the conditions of the applicable federal award.

Examples

Grant money was used to provide meals during parental involvement activities.

The district made a $2,500 donation to the nonprofit Wardville Chisholm Trail Project.

The district paid $6,940 to the Salvation Army for housing, utilities, food, clothing, school supplies and medical and dental care for its homeless students.

District's response

The grant allows the district to provide a snack such as a slice of pizza and a drink; adding salad and a dessert makes it a full meal not allowed under the grant.

The $2,500 donation funded field trips to the historic attraction for poor students.

District officials believed that housing and other amenities were needed to educate homeless children covered by the grant. "It's a matter of interpretation," Warlick said. "Children can't learn if they're living in a car. We want to make sure we're taking care of kids. But we also want to be careful that we spend the funds exactly the way TEA says, or we could lose them."

Planned action

Put together simple guidelines for spending federal funds.

"The guidelines are very lengthy," Warlick said. "You may make an interpretation based on what you read in one section, and TEA makes another interpretation. Theirs is the interpretation we're going to live with." Warlick recommends that employees in doubt seek guidance from the TEA. "Most of the time, they're not going to call because they think they're right. But it's an easy phone call," he said.

Documentation

The district did not provide documents required to determine whether the expenditures were allowed under the grant guidelines.

Examples

Documents were not provided to show that a staff trip to Mexico had been approved by the TEA before the trip, as required by the grant. Auditors also noted that the trip, which included community volunteers, did not fall under allowable uses of grant funds.

The districts did not provide adequate documentation to support a $9,800 administrative retreat to a Glen Rose resort and two retreats for Cleburne Middle School staff that cost a total of $3,000. Auditors said also said those retreats did not meet grant guidelines and exceeded the state travel allowance.

The district did not provide lesson plans or other documentation to show how rental of an inflatable alligator and an under-the-sea water slide supported reading instruction.

District's response

"You can't take trips out of the country without permission of TEA. That's the law," Warlick said. "I'm making the assumption they didn't know. It may have been one of the guidelines they didn't read."

Staff retreats are allowable, Warlick said, as long as the training helps students. Because the district didn't provide agendas and sign-in sheets, the expense was disallowed, he said. The skeet shooting listed among the retreat expenses clearly did not benefit students, he said.

Unless the grant specifically allows it, field trips, entertainment and other rewards for students are not allowed, Warlick said.

Planned action

More staff training, Warlick said. "Everybody wants to jump on the flashy stuff like retreats," he said. "But there are a lot of things for $22 or $23 that a lot of people are doing that they're not supposed to do. I encourage everybody to look at their grants carefully. We're going to do that here and start training so we'll be in good shape." He noted, however, that much of that training has already been done since TEA began its audit.

Travel

In many instances, the district exceeded the state travel allowance for hotels and meals.

The district paid $3,000 for lodging and meals for 13 employees to discuss dress codes, teacher incentives and other issues. The daily room rate of $190 to $220 far exceeded the $80 state maximum. The bill also exceeded the $30 daily meal rate.

One employee was reimbursed $76.53 for dinner at a conference in San Antonio.

Another employee was advanced $98 for mileage and $67.50 per day for meals. The employee overcharged the district by estimating his mileage at 350 miles instead of 318 miles, auditors said.

District's response

Warlick said hotel rates at education conferences in Austin, San Antonio and other Texas cities usually far exceed the allowance.

Planned action

The solution, Warlick said, is to use federal funds for the $80 allowance rate and charge the rest to local funds.