When it comes to cutting things into pieces, there’s shredding the truth, there’s shredding the Constitution – and then there’s shredding your financial records right before you’re going to be audited.
In a story that could vie for headlines in The Onion or onThe Daily Show with Jon Stewart, South Carolina’s state-supported John de la Howe School for wayward youths shredded an unknown number of its financial records just prior to being audited by the state.
Then, after that happened, the S.C. House approved a $1.3 million state funding increase for the school in the House’s proposed budget for next fiscal year.
(It really needs to be said here now: We don’t make this stuff up.)
In addition, previous reviews of John de la Howe by the State Auditor’s Office turned up numerous shortcomings that could have been considered – and perhaps should have been considered – a harbinger of things to come via the pre-audit shredding episode.
Violations of state law and regulations were found in both the audit and the other reviews.
Now, John de la Howe is under intensified scrutiny from the most powerful panel in state government – the five-member Budget and Control Board.
Meanwhile, a bill is pending in the General Assembly to fold John de la Howe, which operates as an independent state agency, into the S.C. Department of Education along with two similar special-needs schools.
The destruction of financial records by John de la Howe was discovered in a state audit of the school’s procurement practices during the 2009 and 2010 fiscal years. An agency component of the Budget and Control Board – its Division of Procurement Services – conducted the audit.
The division regularly examines state agencies to determine whether they are adhering to the S.C. Consolidated Procurement Code, a set of rules designed to get the most for state taxpayers’ money.
In the John de la Howe audit, the school could not provide requisitions, bids and other supporting documents for its procurements as the code requires, according to a report on the audit. The financials were missing for all 16 procurements reviewed in the audit, a total of more than $165,000 in expenditures. The largest of those was an approximately $85,000 cottage renovation.
“The school believed the records had been scanned when they were ordered destroyed,” the audit report says. “The records were shredded about a week before the audit during an office clean out and could not be provided.”
Without the supporting materials, it is impossible to determine whether the procurements complied with the code, the report says.
The school also failed to report some of its expenditures to the Division of Procurement Services as required by state law and regulations, according to the report.
“We must state our concern over the findings in this audit report,” it says. “The John de la Howe School has failed to maintain procurement documents and comply with basic requirements of the South Carolina Consolidated Procurement Code such as statutory reporting requirements. Corrective action must be taken immediately.”
In a written response to the report, the school said it is doing that.
The Budget and Control Board (BCB) discussed the audit during a February meeting of the panel, and its chairwoman, Gov. Nikki Haley, was incredulous at what the John de la Howe School had done.
“I can’t imagine any situation where an agency, a business, a person who knows they’re getting ready to be audited, and would shred every ounce of evidence,” Haley said.
Mary Cartledge, then the school’s director of business operations, was on hand. “It’s hard for me to believe,” responded Cartledge, who has since retired. “If it wasn’t happening to me I would really think that this is a script out of a movie.”
Cartledge attributed the blunder to a misunderstanding between new employees, precipitated by staffing pressures from state budget cuts.
“It was just an unfortunate incident that this happened at this time,” she told the board. “But I will assure you that we did have the records and that we now are scanning as well as keeping paper copies of everything that we are doing.”
Despite that assurance, at Haley’s urging the other four BCB members – the state treasurer, the state comptroller general and the chairmen of the House Ways and Means and Senate Finance committees – agreed to yank the school’s authority to make any procurement without approval from the Division of Procurement Services.
“I think they have lost every ability to do anything,” Haley said of the school. She said suspension of its procurement authority should stand “until we get the confidence that this has been corrected.”
The Budget and Control Board also ordered the division to review John de la Howe’s procurement procedures 90 days later and report the results of the follow-up to the board.
The 90-day review will be conducted May 9 and the results will be reported at a BCB meeting scheduled for June 14, according to Lindsey Kremlick, a spokeswoman for the agency.
After the February meeting, Haley was asked whether she is concerned that the school attempted to obstruct the audit.
“Absolutely,” she replied. “It was unacceptable. To read the fact that people would shred evidence prior to an audit is unacceptable. Regardless of the dollar amount it’s unacceptable.”
Does the governor think it was a mistake or a criminal act?
“I’m not a lawyer but we’re not going to have mistakes like this, not under my watch,” Haley answered. “I think it goes beyond a mistake. It goes beyond anything any business or person would do if they knew they were being audited.”
Email and phone messages left Monday for John de la Howe Superintendent Thomas Mayer were not returned.
Tighter controls over the school’s spending of tax dollars can only be a good thing given not just the audit findings, but also the large funding increase for John de la Howe under the House budget and past problems with the school’s bookkeeping.
Reviews of John de la Howe’s accounting procedures by the State Auditor’s Office in fiscal years 2006, 2007 and 2010 discovered several violations of state laws, rules and regulations.
The infractions tended to be minor, such as incorrect coding for certain expenditures.
But some of the noncompliance was more serious. “The School does not report fair market rental value of residences furnished to School employees as required by the Appropriation Act [state budget],” says a report on the 2006 review.
The findings of the State Auditor’s Office – some lingering for five years – are readily available on its website.
Nevertheless, those outside examinations of John de la Howe’s books by the state apparently did not serve to avert the shredding fiasco, or deter a majority of S.C. House members from voting to give more state money to the school.
Located in McCormick County in western South Carolina, John de la Howe provides educational and other services in a residential setting to about 150 children from families in crisis.
In the current fiscal year, the school’s combined funding from all sources – state, federal and other – totals about $4.3 million. Of that, nearly $2.9 million is state money.
Under the House’s proposed 2011-12 budget, the school would receive more than $4.8 million in total funds, an increase of about $500,000; and its state funding would jump sharply, to $4.2 million, a hike of some $1.3 million or 45.8 percent.
The House budget also appropriates large state funding increases to the other two independent special-needs schools – the S.C. School for the Deaf and Blind and the Wil Lou Gray Opportunity School.
The senate and the governor must concur with the budget for it to be finalized.
As part of its spending plan, the House passed a proviso stating that John de la Howe’s 2011-12 funding “must be used to bring the school up to full capacity.”
The proviso (5.4) also requires the school to report to the House Ways and Means and Senate Finance chairmen by Dec. 1 “on how the funds have been utilized and how many additional students have been served.”
If regularly documented problems in John de la Howe’s financial protocols are not enough to bring about fundamental change in the school’s record keeping, the bill pending in the Legislature could be.
Rep. Kris Crawford, R-Florence, is sponsoring the legislation, H. 3532.
It would transfer John de la Howe, the S.C. School for the Deaf and Blind and the Wil Lou Gray Opportunity School to the state Department of Education. The state superintendent of education would hire a chief administrator to run each of the schools and their boards would have an advisory role only.
Crawford says his restructuring bill is meant to foster greater flexibility in state education spending. With the three special-needs schools operating as independent agencies, he says, “It really functionally allows less flexibility, is what it does.”
State Superintendent Mick Zais has not taken a position on the bill, according to Jay Ragley, who tracks legislative issues for the Department of Education.
Crawford’s bill was introduced on Feb. 2 and referred to the Education and Public Works Committee. No action has been taken on it since then.
Reach Ward at (803) 254-4411 or eric@thenerve.org.