Saturday, May 15, 2010

TOP STORY > >PCSSD fraud found

Leader staff writer

An investigation by the state into the finances of the Pulaski County Special School District over a six-year period has unearthed a wide range of abuses, including fraud, theft, missing funds, improper reimbursements, overpayments, misappropriations, and, in general, slipshod business practices, resulting in losses totaling at least $500,000.

Highlights of the investigation were presented Friday at a meeting of the Legislative Joint Auditing Committee at the state Capitol.

The “limited-scope review” focused on selected aspects of the district’s financial operations – the financial “buyout” settlement with former Superintendent James Sharpe after his resignation in March 2009, school board members’ travel-expense reimbursements and central-office oversight of expenditures. The period investigated, constrained by statutory limitations, was from March 1, 2004 through Feb. 19, 2010.

Acting Superintendent Rob McGill and PCSSD school board president Tim Clark last year requested that the Division of Legislative Audit for the state conduct the investigation because they suspected district accounting practices were not sound.

After the hearing, Clark said that a month after he joined the board in 2008, he began receiving anonymous phone calls and letters at his home that convinced him “it was time to do something” and seek an independent, in-depth audit.

“The next thing I knew, computers were being seized,” he said.

Kim Williams, deputy director of the state audit division, in her presentation to the legislative committee, lauded McGill and Anita Farver, chief financial officer for PCSSD, for their cooperation in the investigation. Williams noted that the individuals mainly responsible for the mismanagement and abuses no longer work for the district.

Williams said that top district managers had set a “tone at the top” that fostered a culture that made the abuses possible.

District management “has been very lax in doing their job,” she said. It was not for lack of sufficient personnel or policies that led to the waste and abuse but a failure of leadership in setting standards of behavior for the district.

The investigation has already resulted in criminal charges against two district employees and a civil case that is pending to recoup funds the district says is owed by Sharpe.

The audit report, which yesterday was turned over to Pulaski County Prosecutor Larry Jegley, may lead to more indictments.
Sen. Randy Laverty (D-Jasper), after listening to Williams’ presentation, said he has served on the Legislative Joint Auditing

Committee since 1995 and had “never seen anything like this.”

He said it is often the little school districts that get called to task for fiscal irresponsibility, but “this is an example of large, urban inefficiency. I would be remiss if I didn’t say that this is what we’ve expected all along.”

Committee member Sen. Kim Hendren (R-Gravette) stopped short of making a motion that the State Department of Education take over the PCSSD.

“It’s time the PCSSD is taken over if this is the kind of foolishness going on,” Hendren said. “This is outrageous.”

Incoming Superintendent Charles Hopson, present at the hearing, said that he too was “outraged” by the investigation findings and vowed that fiscal accountability would be a priority of his administration. He starts work July 1.

In reference to the job he is leaving as deputy director of district-wide programs for Portland, Ore., Hopson said, “We have very strong structures in place that prevent anything like this from happening,” and the one employee he knows of who stole from the district was “prosecuted and is in prison.”

Hopson praised the board for voting in favor of the audit, calling it “a gift — the timing could not have been more perfect.”

Among the findings were that two PCSSD school board members, Mildred Tatum and Gwen Williams, owe $2,788 and $619, respectively for travel reimbursements they received that are not allowed by state law. They include reimbursements to Tatum of $116 for a ticket to a Broadway play and $321 for two nights and valet parking at the Peabody Hotel in Little Rock, when she attended a local conference.

The district alerted legislative auditors in January when discrepancies in the financial records of the Jacksonville High School Activity Fund were discovered. Monies from various activities totaling $23,036 dating back to August 2009 and $8,500 from athletic-event gate receipts over the same time period had never made it to the bank. Rosalind Taylor, a PCSSD employee and bookkeeper for the activity fund, in March was charged with theft of property and is on leave without pay.


School board member Wood concurred. “A year and a few months ago, when we had movement to fire Mr. Sharpe, there was a sense we had about the tone at the top; there were a few things we were concerned about but couldn’t prove,” Wood said. “He just wasn’t running a tight organization.”

The financial buyout amount originally agreed to between Sharpe and the board was approximately $185,000. When it came to light last year that the district had paid him $269,520, Sharpe reimbursed the district $72,918. McGill subsequently requested that the district recalculate Sharpe’s compensation while superintendent and found an additional $17,203 overpayment.

According to district personnel, when Sharpe reached age 65 he got an unauthorized 6 percent increase in his pay – equivalent to the monthly contribution the district had made to his retirement account, which he was no longer entitled to since he was drawing retirement. Evidently, the board never approved the increase. Sharpe says the board president at the time approved the increase. A civil suit by the district against Sharpe is pending in Pulaski County Circuit Court.

Audits also identified “unallowable and questioned expenses” by Sharpe amounting to $7,836 that include duplicate charges, travel expenses for family members, undocumented meals, as well as alcoholic beverages and tips.
Sharpe is now employed as the superintendent of a school district in Oklahoma.


Caught red-handed by DLA investigators, James Diemer, a PCSSD employee since 1999, confessed to his crime. He admitted to defrauding the district “from day one” of becoming supervisor of mechanical systems “because he knew no one was looking.”

Diemer understood how the district system worked and he made it work for himself. The district allows blanket purchase orders for purchases under $2,500. He knew that excesses were allowed and that as his invoices passed up the chain of command to the superintendent, they were rubber-stamped without review.

A part of his scheme was to use one vendor to order items from another vendor so that excesses over monthly limits per vendor would go undetected.

“A (former) superintendent said he looked at the signatures and didn’t look for any documentation,” Kim Williams said. “As long as an invoice had the supporting cover sheet and proper signatures, it was paid.”

Over five years, Diemer made purchases for equipment totaling $439,745. The items included 266 cordless toolkits, seven truck tool boxes, 28 radios, eight generators, and 19 icemakers. Most he had sold; a few were found at Diemer’s residence.

To avoid indictment, Diemer in January pleaded guilty to theft of property from a government entity which received federal funds. His sentencing is scheduled for June 8.


The investigators found that four current school board members had been reimbursed for expenses that were undocumented, questionable or unallowed, according to either board policy or state law.

In question was $36 reimbursed to Charlie Wood and $149 to Danny Gililland. Both have repaid the district.

Still in question and potentially owed to the district is $2,788 reimbursed to Tatum and $619 to Williams.

School board president Tim Clark had no questionable or unallowed reimbursements, nor did Bill Vasquez. Asked about that at the hearing yesterday, Vasquez said, “I can’t see doing that when rain is coming down on our kids’ heads. Yeah, I can see saying, ‘I had a great time in San Diego. Too bad your kid had to put a bucket on his desk’” – a reference to poor conditions at Jacksonville schools. Sandra Sawyer joined the board later than the period that was audited.

Board expenses from July 1, 2006 to March 3, 2006 included $37,855 for travel reimbursements and $8,544 for food and catering for workshops and meetings. Board policy does not impose a limit on food purchases.

Clark said that he had instructed all board members to attend the hearing yesterday.

Williams, Tatum and Sawyer did not attend.

Deputy auditor Kim Williams said that part of the impropriety around the reimbursements stemmed from lax practices that have been allowed.


Examples of “internal control deficiencies” noted in the review included:

Desegregation funds used for purposes other than designated programs.

Overtime pay for 31 employees in the maintenance department from July 2006 to May 2009 totaling $193,279. Documentation was lacking, Williams said. The reason commonly given was to move furniture.

An overpayment of $11,975 not fully reimbursed.

Instances of non-compliance with policies for bid laws and policies, including $320,103 to a communications company without any bidding or a contract. Payments included retainer fees totaling $105,000.

Payment to a lawn maintenance company $40,553 over the amount in the contract. “He was only mowing every other week.

Nobody was making sure he was complying with terms,” Williams said.

Numerous instances of central office administrators being off the job without cause. “There was a lot of discussion about upper management being out of the office, off campus after lunch.”

The auditors’ report noted that top PCSSD personnel employed during the period investigated have left the district – besides Sharpe, Larry O’Briant (chief financial officer), James Warren (executive director of support services) and Sinclair Winburn (director of purchasing).

Clark said some of what was uncovered by the auditors was “a big surprise” and that he was “very pleased” with their work.

“If not for the auditors, taxpayers’ money would still be wasted,” the school board president said.