Manatee schools release supporting documents for forensic audit

Herald staff writersFebruary 2, 2013 

MANATEE -- The Manatee County School District on Friday released more than 16,000 pages of supporting documents related to the forensic investigation of a $3.4 million budget deficit.

The documents, which include almost illegible handwritten notes from interviews with former superintendent Tim McGonegal and other current and former officials, were posted on the district's website shortly after 5 p.m. They were released almost three weeks after an executive summary of the audit blamed former Assistant Superintendent Jim Drake for many of the accounting errors and other blunders that led to the budget shortfall.

A repercussion of the deficit was an announcement Friday that the district's bond ratings have been reduced. As a result, the district will likely have to pay higher interest rates on its debt.

The district commissioned the forensic investigation after McGonegal announced in September that $8 million in overspending led to the deficit. External auditors have since stated overspending was closer to $11 million. McGonegal followed the announcement with his immediate resignation.

The approximately 900 files of supporting documents were given to the district about 2 p.m. Friday by auditors from Navigant and lawyers from Trenam Kemper. The district and its information technology department spent much of the afternoon trying to find the best way to make the documents available, deciding to create two large files that can be downloaded off the district website.

"This is the raw data," Karen Carpenter, school board chairwoman, said Friday. "As soon as they can, it needs to be further categorized to publish and index the documents. Right now, they've got them and wanted to put them up to get access today. They'll work early next week on a more easily navigable system."

School Board member Dave "Watchdog" Miner said he expects few comments to be made about the documents until they are more organized and reviewed.

Calls made to school district chief internal auditor Ed Daughtery, audit committee member Harry Kinnan and St. Petersburg law firm Trenam Kemper, which was hired to oversee the investigation of the document, were not returned late Friday. Calls made to Navigant and school board attorney John Bowen were also not returned. Carpenter said she knew the documents were nearing release when school board attorney John Bowen met with Navigant representatives this week to ensure student and employee privacy would not be breached. Trenam Kemper assured the district that confidential information would be redacted.

Included in the report are handwritten notes from interviews with former McGonegal and Drake, financial reports and other documentation that was used as research in the audit.

McGonegal, Drake interviews

As recorded in pages of handwritten notes and typed. short-handed summaries from interviews, Drake and McGonegal answered auditors' questions about events leading to the deficit and its discovery last summer.

Carpenter said she will first sort through those interviews.

"I want to know if the right questions were asked and what the answers were to those questions," she said. "When did management -- the superintendent and CFO -- start to discover things were not right? Why didn't they bring that up to the board? Who else in the finance department had a duty to let us know what was going on?"

Drake and McGonegal make repeated references to finance manager Sheina Runions and budget financial analyst Stephanie Riviello, who both reported to Drake, and allocation specialist Yoko Okanuma. Drake said Runions was responsible for salary projections and Riviello was responsible for nonsalary projections.

A method used to calculate the class size-to-teacher ratios to determine budget projections, Drake said, was developed on analyses performed by Runions, which went against McGonegal's recommendation.

"Sheina should have used info from Yoko," a sentence from Drake's interview reads.

According to Drake, a snapshot of who is active in the district's salary system was taken in May 2011. The first projection of the system showed no salary increases.

Drake retired from the district in February 2012.

"At the time he retired he had no knowledge of a deficit in the General Fund," the summary of Drake's interview states.

Drake also said the budget staff was insufficient and that other counties have more employees dedicated to managing the budget. Drake, however, admitted to not taking the time to conduct a review of the calculation for budget estimates for compensation, nor scheduling a follow-up meeting with Runions regarding adjustments. Drake went on to say the salary projection worksheet was a very manual system and susceptible to error.

In July 2012, McGonegal said he spoke with Runions who told him she informed Drake earlier in the year about the budget shortfall.

According to Runions' interview, she had informed Drake in December 2011 that the budget for employee benefits was incorrect. Runions told investigators Drake advised her "not to worry about it ... we'll make a retro entry after the new year to make inline" with the current budget.

In her interview, Runions said she had only two weeks to perform the salary projections and that she put employee benefit figures in the system at the last minute.

'Oh boy'

In his interview, McGonegal recounts Aug. 2, 2012, which he referred to as the "oh boy" moment. On this date, McGonegal said Runions ran a fund balance report, which showed an initial projection of a $5.3 million deficit.

McGonegal said others present in the office at the time of the discovery were finance director Angela Fraser, Runions, Chief Financial Officer Michael Boyer and Riviello. At this moment, McGonegal instructed the staff "not to tell anyone," as it was his responsibility to tell the school board.

McGonegal said he believes he would have found a solution if not for his health issues.

McGonegal told investigators he was suffering from migraines in June 2012, and by July he was "physically a mess," leading to a delay in him notifying the board of what had been uncovered, the summary of his interview states.

McGonegal said because stimulus dollars were not included in the June 30, 2011, balances, it caused understatement of expenses in comparison to other years. McGonegal said Drake was responsible for making stimulus recommendations.

In her defense, Runions said she lacked support from upper management and that workers "in the trenches" did not receive support.

Unbudgeted, modified items

Part of the multimillion-dollar school board deficit is due to the approval of programs that were not fully budgeted.

Last May, the school district paid more than $1 million to Manatee Technical Institute that was not included in the budget.

MTI is a fully accredited career and technical training center offering courses in the areas of business, computers, medical, dental, culinary, salon services, law enforcement and more.

According to the report, the school board finance staff relied on the business manager of MTI to prepare reconciliations. In May 2012, the business manager noted that the workforce allocation totaled around $8.6 million, but the difference between that amount and the amount loaded in the budget was a little more than $1 million.

The business manager requested the difference be added to MTI's budget. The school district said that they were required to provide MTI with the remaining amount, and on May 21, an adjustment was made that increased MTI's budget and took from the general fund reserve account.

Virtual schooling was another component that did not fit into the planned budget.

The Manatee Virtual Instructional Program started in 2009 and was available as a full-time option for eligible K-8 students and offered a part-time program for 9-12 students. In August 2011, the board renewed the program curriculum.

The initial budget for the program was $177,400, but the district spent more than $310,000 in support of the program. During the course of the fiscal year, no changes were made to increase the budget for the program.

ETech School of Manatee is a charter school for 6th- to 12-graders. ETech was not included as part of the original 2011-12 budget, but $491,403 was spent that school year on salaries, benefits and the curriculum for both eTech and the Manatee Virtual Instructional Program.

The district also approved the program Amer-I-Can even though the funds were not in the budget.

Amer-I-Can is an anti-gang affiliation program for at-risk students. The program involves four facilitators and two part-time "Peace Squad" leaders.

The board voted last August to approve the renewal of the contract for $251,000 that was not budgeted. In September and December, installments were paid by withdrawing from the general fund.

The program was the sole student program cut by administrators for the Spring 2013 semester as part of the plan to close the budget deficit.

Employee salaries were listed as another issue when a line of modifications caused an additional funding shortage.

The general fund took a hit of more than $2.3 million when the board decided to not make retroactive a pay cut it approved for employees in February 2012.

The audit also determined McGonegal used staff allocation schedules different from the finalized version when hiring 58 new teachers to meet an amended class-size ratio. Fifteen of the teachers should not have been included in the budget because they were hired after the 10-day student count. Using the 2011-12 budget manual and adjusting for the proposed pay cut, "the District would have incurred an additional $926,070 in salaries and benefits to hire an additional 15 teachers not included in the initial budget," according to documents released Friday.

Fitch bond ratings downgrade

The district is already seeing repercussions from the deficit. CFO Michael Boyer announced in an email Friday that the district's Fitch Rating Outlook has been downgraded from "stable" to "negative."

The lower ratings mean the district likely will have to pay higher interest rates on its debt.

Ratings for general obligation bonds, certificates of participation and sales tax revenue bonds were affected. However, fiscal year 2012-13 will not be impacted due to fixed rates, the email states.

The downgraded ratings are as follows:

n Implied general obligation (GO) bond rating from A+ to BBB+.

n $213.8 million of certificates of participation from A to BBB.

n $24.5 million of sales tax revenue bonds, series 2003 and 2005, from A+ to BBB+

n The Rating Outlook from stable to negative.

Under direction of interim superintendent David Gayler and Boyer, a series of software programs are being implemented that monitor employee positions, payroll encumbrances and requisitions, the email states.

"Going forward it is of ultra-importance that the district continues (the) course to correct the situation and return to a more stable financial position or risk further rating downgrades and higher borrowing rates," Boyer writes.

Moving forward

Carpenter said the deficit is "one point in time." She wants to know what mistakes and decisions led to the lack of money and communication.

"It's a question of people and processes," Carpenter said, as the board tries to move forward. "We want to make sure we have tight controls, we know what's going on, we have the right people who will tell us what's going on and we have the right systems in place."

Carpenter said she intends for the board to host a public Q&A session to discuss the documents after interviews for the new superintendent are completed later this month. The board is working to schedule the workshop at a venue larger than its usual meeting room.

"We're making progress," Carpenter said. "We know there have been mistakes made and we're on our way to fixing them."

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