MANATEE -- Incompetency -- not criminal or illegal activity -- caused a $3.4 million budget deficit that rocked the public trust in Manatee County this September, investigators told the Manatee County school board Monday.
In the 2011-12 year, the district failed to properly budget for recurring programs, employee benefits and teachers' salaries because of a flawed process, enacted in 2009 by former assistant superintendent Jim Drake and the now defunct Manatee Business World Ownership Committee.
Investigators said a dated, but reliable database that tracked employee salaries and benefits, was traded for a faulty, new software program. When the new program failed, staff resorted to a manual method.
That method -- which used "salary projection worksheets" -- produced errors in 17 of 18 schools when replicated by investigators.
"We had internal controls that were missing," interim Superintendent David Gayler said in a press conference after the meeting. "Many of the things we felt contributed to the problem were confirmed today."
The result was a domino-like chain of blunders that led to a budget crisis in a district that lacks the staffing and systems to support what investigators said has been an unregulated process.
The flawed methods that Drake replaced the former program with led to an understated compensation budget.
So when Drake chose to make mid-year adjustments totaling $6.9 million by taking from that fund, it made a huge dent in the budget.
The district has historically borrowed from the employee benefits budget to address shortfalls because that fund usually had surpluses, investigators said, but it did not in 2011-12 because of more system errors.
"This year they didn't have that option, because the benefits budget was understated, so they went to compensation," said Al Robinson, a former FBI agent and director of the Navigant consulting firm, which conducted the investigation.
They should have gone directly to reserves, Robinson said.
"My biggest concern is if it had come out of the reserve, the board would have seen that on the financial statements," Robinson said, "That it came out of the compensation budget, you didn't get financial statements telling you that."
In fact, not one monthly statement to school board members from August 2011 to May 2012 reported budget shortfalls in any category, the report said.
It was unclear exactly why Monday. Investigators would not answer questions from the press, according to instructions by the school board, who just last week voted to delay the release of the report, partly for fear that the media would take it out of context. Auditors would only answer questions at a later meeting, school board Chairman Karen Carpenter said.
Robinson said his team did not have evidence that the statements were intentionally manipulated, but rather were simply inaccurate.
"When you look at the monthlies, I don't believe they were providing any information that would help you identify these shortcomings," Robinson told board members.
But who knew what is still not clear from the report.
Investigators said Monday that it appeared former superintendent Tim McGonegal, who resigned during the fallout of the deficit, had no knowledge of the budget deficit until July 2012. But they also stated that McGonegal requested Drake's February retirement due to continuous budget mistakes. Chief Financial Officer Michael Boyer began in May.
"The investigation found that Dr. McGonegal relied on Jim Drake to manage the budget," the report's conclusion states. "After Mr. Drake's departure, Dr. McGonegal assumed responsibility for the budget."
The Navigant team found no mention of a deficit in a search of McGonegal's hard drive and hard copy documents in his office prior to a Sept. 5 memorandum he wrote to board members. He announced the shortfall Sept. 7, saying district officials failed to budget for more than $8 million in expenses, including the salaries of 58 teachers.
That number was really 15 teachers, investigators said, but McGonegal wasn't calculating with complete information.
In the wake of fragmented public trust, the Manatee School Board hired Tampa-based law firm Trenam Kemker to oversee the selection of a forensic investigation team. Hired attorneys chose Navigant in early October. The school board approved a recovery plan in September that brought the district reserves up to 2 percent of the operating budget.
In mid-October, external auditors pegged overspending closer to $11 million in a preliminary report to the district audit committee, but said they would not release their own reports until Navigant investigators revealed their own findings.
Investigators said Drake did not run basic checks and balances that might have caught budgeting errors earlier. When asked why in an interview this fall, investigators said Drake was frustrated, telling them that he had no time in addition to his other duties as assistant superintendent. While Director of Finance Angela Fraser has budget duties in her job description, she was mostly uninvolved with the process.
"Drake was not the hands-on manager that Dr. McGonegal was," Robinson said. "He was straightforward with us -- budget was not his strong point."
Yet, Drake was seemingly solely in charge of directing the budget process, along with two staff members, and investigators described an environment where these employees were strapped for time and resources and didn't question the processes they were told to participate in.
Other things detracted from the budget, such as the school board's decision to revoke what would have been a retroactive pay cut, the salaries of 15 teachers hired to accommodate the class-size amendment, an inability to budget for textbooks as well as recurrent programs that the district simply didn't budget for, such as the Amer-I Can program, eTech and the Manatee Technical Institute. Decreases in state and federal funding for the 2011-12 year did not help the problem.
The report notes that investigators twice interviewed McGonegal, and once interviewed Drake. They also interviewed all members of the school board.
Attorneys from Trenam Kemker sat in on 8 of 30 meetings, said attorney Charley Harris, who also disputed that McGonegal strategically announced the timing of the budget announcement.
"There is no evidence that McGonegal manipulated the timing of the information that there is a deficit," Harris said. According to the report, Bob Gause was the first board member to learn of the deficit -- Sept. 5 at an informal weekly meeting.
The Navigant report makes eight recommendations "in order to reduce the likelihood of future undetected general fund deficits."
They include implementing a new accounting system to provide real time tracking of all employees and vacant funded positions; hiring more staff to manage the budget; more frequent and more detailed financial reports to the school board; and expanding the internal audit department to include analysis of textbook budgets for all district schools.
Gayler said the district has already made plans to bring back the position control system that was abandoned in 2009.
"We intend to put it back into play (for the 2013-14 budget), but it's being tested," Gayler said. "That is not something the district of Manatee County can do without."
Board members at the meeting seemed eager for more information. "I have a concern not only about our internal audit function, but how our audit committee would make recommendations that wouldn't go anywhere. And monitoring by the external auditors," Carpenter said. "The board was given the information that everything was hunky-dory when there was a storm brewing on the horizon."
Katy Bergen, Herald education reporter, can be reached at 941-745-7081.