I-Team: Some internal auditors for local schools answer to elected boards, some don't

Manatee woes offer lessons for other school boards

BRADENTON - Manatee County School Board members got a shock last summer.  Their superintendent, Tim McGonegal, told them that they had overspent their budget by nearly $3.5 million --- and the fiscal year was already over.

"That was on a Friday afternoon," recalled Dave "Watchdog" Miner, who has since been elected to the school board.  "After the weekend, on Monday, Dr. McGonegal just resigned."

With McGonegal gone, it has fallen to Miner and the rest of the board to clean up the mess.  "I never imagined how bad it was," said Miner, a Bradenton lawyer.  "I knew it was bad, but this is five times as bad."

Bradenton isn't the only place where school board members are wondering if district administrators need more scrutiny.

Earlier this year, Hillsborough County School Board Chairwoman April Griffin urged her colleagues to hire an internal auditor who answers to them, not Superintendent MaryEllen Elia.

"I've had several situations where items have come to me, where there seems to be a layer of protection," Griffin told the board in January.

Some board members responded that Hillsborough schools have plenty of auditors and plenty of audits. "We have a staff of internal auditors," said Hillsborough school board member Candy Olson. "How many internal auditors, roughly?"

A school board staffer ventured a guess: "I think there's 10."

There were 16 employees listed earlier this week on the web site of the school board's district auditing office, which has an annual budget of more than $1 million.

"That's a lot of time and money on auditors," said Olson.

But who do those auditors answer to?

Elia spokesman Steve Hegarty says the auditing office "technically" reports to the superintendent.  But Manuel A. Ippolito, the district's auditing manager, does confer with the school board and accepts suggestions for programs that need to be reviewed, Hegarty says.

"In a school district, your internal audit function should not report to the superintendent," University of South Florida St. Petersburg accounting professor Carl Pacini told the ABC Action News I-Team. "It should report to the board of education."

In Polk County, Sheila C. Phelps, the school district's internal audit manager, says she reports directly to the elected board. "Having the internal auditor be independent from the administration is what you need," said Phelps. "You really can't report on someone if you report to that person."

Yet the independence of the Hillsborough school system's internal auditors isn't the only feature of their office that is in question.
Despite running the largest county school system in the Tampa Bay area, Hillsborough officials don't have a licensed certified public accountant heading up their internal audit office.

The credential is important because only licensed CPAs can certify audited financial statements in Florida. (Hegarty pointed out that one of Ippolito's team leaders holds a CPA's license in New York, although that doesn't entitle him to hold himself out as a CPA in Florida.)
In Bartow, Phelps says two of the three staffers in her small internal auditing office are CPAs licensed in Florida.

"We have been very fortunate --- or not, I'm not sure how you would say it --- but we have done a lot of investigations," said Phelps. "We have worked with the FBI on one case."

In an annual report to the Polk school board in February, Phelps stated that her office has recovered more than $200,000 that was allegedly misappropriated from local education funds. 
Phelps says her office's reputation has probably served as a deterrent, too.  The office, for example, routinely audits school construction projects, Phelps says.

"I'm not saying any of the construction firms were doing wrong," Phelps said.  "But that word gets out pretty quickly: Polk County School Board's auditing all their projects now.  You better dot your is and cross your ts."

School construction is a sore subject with Hillsborough education officials these days.

District administrators recently revealed that they have to sue an architect and a contractor who last decade put up two new elementary schools that have been leaking ever since. While the litigation drags on, the repair tab will be almost $2 million.

Hegarty counted 34 audits, both internal and external, that Hillsborough school officials conduct or supervise on a regular basis.

Four years ago, the district's internal auditors used a new software program to catch an Erwin Technical Center bookkeeper who was accused of diverting $582,659 of school funds to her own use.  In a news release at the time, district officials noted that the bookkeeper had engaged in a "complex scheme,"without specifying how long the alleged thefts had been going on before they were detected.  The bookkeeper worked at Erwin Tech for her entire 29-year school district career.

Pacini says independent and well-trained internal auditors who are on the premises every working day are in a better position to uncover fraud than external auditors

who parachute in for just a few weeks out of the year. "You would be more apt to notice if, all of a sudden, I started driving a Ferrari to work," the professor said.

Just 3 percent of fraud is discovered by external auditors, according to the Association of Certified Fraud Examiners.

Griffin suggested Hillsborough school auditors under Elia's control aren't able to go wherever the financial trail leads them. "There's certain sacred cows that cannot be addressed," Griffin told the school board in January.

The Hillsborough school board chairwoman mentioned the district's Exceptional Student Education and Urban Teaching Academy programs as two recent scandals that might have been averted with a vigilant internal auditor who has free rein.

"I believe an auditor could more than pay for themselves," Griffin said. "I believe that we need someone who is independent who can speak to the public and the board."

Her school board colleague, Doretha Edgecomb, didn't feel the same urgency. "There has been no indication that there's been fraudulent behavior or anything," Edgecomb said.

Griffin's idea was rejected on a 4-3 vote of the board.

Back in Bradenton, taxpayers and parents are demanding greater accountability from administrators and the school board after the financial debacle.  

Miner, who was elected to the school board on a reform platform, says more robust auditing is planned.

Miner doesn't want the Manatee district to be forced again to take such emergency measures as the spending freeze that was imposed last week by a new superintendent.

"I hope other communities can learn something from it," said Miner. "So that they don't have to go through the pain and suffering that we in Manatee County have gone through."

Do you have information about waste, fraud or abuse in education programs?  Email us at iteam@abcactionnews.com .

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