There's no missing money or criminal wrongdoing, but state Auditor Adam Edelen's examination of Fayette County Public Schools found "chronic mismanagement" of the district's budget and finances.
In a 64-page report released Wednesday, Edelen said accounting errors were contributing factors for the district's budget cuts this year.
The audit detailed 10 key findings, including weaknesses in budget and financial-management processes, administrative and management salary increases that outpaced those of other district employees, excessive and unnecessary travel, misuse of a trust fund, and conflicts of interest.
"This examination found that, unfortunately, it's not all about the kids," Edelen said in a news release. "Mismanagement of the finances of the state's second-largest school district, with an annual budget of more than $400 million, is obviously very troubling. But even more so is a culture within certain elements of management that does not reflect the district's purported values. Our kids deserve better."
The report pointed out areas that needed improvement, and while district officials did not entirely agree with the findings, Superintendent Tom Shelton said the district would conduct a full review of its policies, practices and procedures.
Among the points of contention for the district: Edelen's report said the findings indicated "chronic mismanagement of the district's budget and finances that have contributed to financial instability." The findings also said that "errors and misrepresentations in the budget process over several years weakened the district's ability to address budget imbalances in the current year."
In his written response to the report, Shelton disputed several findings, including that accounting errors contributed to the district's $19 million in budget cuts. He agreed with some portions of the findings and said the district would overhaul its budget and finance system.
Edelen said the findings were based on fact. The district said in its response that one employee was "vilified."
"I don't think that holds any water," Edelen said.
In addition to poor financial management, weak policies and poor communication culminated in a weakened financial position for the district, the auditor said.
Auditors identified salary disparities between administrators and teachers, excessive travel and training in the financial services department, and violations of the procurement process and other board policies.
Edelen began investigating in May after budget director Julane Mullins made allegations that centered on a $20 million discrepancy in the budget.
Auditors found that Mullins did not become aware of certain financial transactions in a timely manner, which led to her establishing a budget that reflected $20 million more than the district had to spend. The financial transactions by finance director Rodney Jackson were not illegal, but auditors questioned whether the availability of the money was purposely hidden from the school board and public, Edelen said in a news release. Subsequent budgets also contained significant errors, leading to passage of unbalanced budgets, he said.
"We understand that school districts, especially those with large budgets, use complex accounting procedures to balance their books," Edelen said. "But when vast sums of money are committed for various purposes, and then decisions are made to routinely use those funds for different purposes after the budget process has ended, we question whether the intent is to conceal the true amount that is available for spending."
Auditors found a lack of transparency in district officials giving the school board information about salaries.
Edelen said there were 11 teachers in the district — most of whom are in high-poverty schools — asking for money on a national crowd-funding website to buy basic supplies for classrooms.
"Parents struggle to afford items on long back-to-school lists, and teachers pay for resources for their classrooms out of their own pockets," Edelen said. "Now, teachers are taking to the Internet to get help buying basic necessities like science kits and dictionaries while administrators are granted big raises and other perks that aren't offered to teachers."
Edelen's audit also noted as troubling the use of a trust fund bequeathed to the district by a Fayette County teacher for the "enhancement and enrichment of the educational program." The district may use the interest and as much as $10,000 of the principal each year. The fund balance was more than $1.1 million on June 30.
The fund is used to grant loans to administrators for travel and training. When the use of that money was discussed with the director of financial services, he indicated it would be problematic to promote the availability of that money to teachers and others, the auditor said.
"Concealing the trust fund from educators so that only bureaucrats reap the benefits is just greedy," Edelen said.
The Department of Financial Services spent more than $115,212 for travel, training and reference books during a four-year period, Edelen found. Auditors found unnecessary and excessive travel and training. The district paid for Jackson, the director of financial services, to receive his superintendent certification. After the audit, he refunded the full amount to the district.
Auditors also found that Shelton circumvented controls and violated the procurement process to contract with a vendor that provides college-preparation services. The contract is a potential conflict of interest, but auditors were unable to determine that Shelton benefits directly from his relationship with the vendor's CEO, Tim Hanner of NaviGo. Auditors identified other possible conflicts of interest in the district during the examination.
Edelen said there was evidence that Mullins informed management during the 2014-15 budgeting process that the 2013-14 working budget did not balance and that the superintendent suggested she "fix the 12-13 actual to flow ... ."
The examination found that the journal entry affected the 2011-12 budget because the entry was not reflected in the working budget's beginning balance. Because of that error, the adopted working budget was not balanced, because once the journal entry was taken into consideration, estimated expenditures exceeded revenue.