State audit faults Howard schools' financial practices

A state audit of the Howard County Public School System found limited financial controls led to the approval of millions of dollars in salaries, mileage expenses and construction projects without proper approval or procurement.

The findings, were released by the Maryland Office of Legislative Audits on Friday as part of a state-mandated audit conducted at least once every six years.

They come amid mounting concerns from the community and local elected officials about the school system's commitment to financial transparency and accountability.

State auditors were especially concerned about the school system's reliance on no-bid contracts, said Thomas Barnickel III, the office's legislative auditor.

"If you're a steward of public funds, you want to make sure the procurement process allows all vendors to openly participate so you can get the best price possible," he said.

The school system disputed the findings, which its internal auditor, David Clark, said were "unbalanced" conclusions by "inexperienced" auditors.

"We want the [state's] audit; it can provide a value, but we want it to be done well," Clark said, adding the audit was the "most difficult" experience for him in nearly four decades of work in the field.

State auditors defended their work, citing that staff members are led by experienced and objective auditors. At times, the school system resisted requests for timely information, access to documents and access for interviews, Barnickel III said.

The school system, which has an $808 million operating budget, came under fire this year when the Howard County Council and Howard County Executive Allan Kittleman refused to fully fund its record-high request of $856 million.

The contentious budget season spurred the council to call for an independent financial audit of the school system. That audit, which is not routine like the state's, is ongoing as a council-created committee reviews the school system's budget.

The state's ombudsman is also expected to release by January an investigation of the school system's handling of public information requests. The state Senate unanimously passed a bill in April that requested the investigation.

Despite increasing public pressure, schools spokesman John White said Thursday that he saw no reason for public concern.

"We are one of the most scrutinized systems in the state right now and probably the most transparent," White said, adding the school system is responding to all public requests for information.

In its report, state auditors found the school system awarded $15.3 million in total salaries for administrative staff in 2014, without the school board's approval as required by state law. The audit report addressed no other issues related to salaries.

For their report, state auditors for the Office of Legislative Audits reviewed the school system's financial records, particularly from mid-2013 through 2014.

Clark said the school board approved the administrative raises based on a salary scale set up years ago. He said state law does not require the board to re-approve that scale every year. He said state auditors raised concerns based on their "philosophy" and not issues "grounded in any law or state regulation."

In a critical response, the school board's chairwoman, Christine O'Connor, called the audit a "disservice" to the state and school system and questioned the state auditor's experience and understanding of financial audits.

"On the whole, we believe the audit delivered limited value at best; diverted attention away from meaningful and important school system initiatives and operations; and overall was a disservice to the state and HCPSS in our joint efforts to ensure accountability and improve performance," O'Connor said in a written statement. She also wrote that the audit "stubbornly resisted acknowledging the sound business practices we use."

State Del. Warren Miller, a District 9 Republican, said the "abrasiveness" of the school system's response was astounding.

"It just seems like [the school system] has been caught doing something they shouldn't have been doing and we have to be the adults and step in and fix this problem," Miller said.

Responding to the state report, State Del. Frank Turner said the school system should work to eliminate sole-source contracting – a long standing concern for state legislators.

"Senior management has little business making these decisions," Turner said. "The school system should openly listen to these recommendations and take the steps necessary to improve."

State Del. Vanessa Atterbeary, a District 13 Democrat, said the audit was shocking and validated concerns related to transparency.

"It all goes back to whether the people we have entrusted our children with are doing the best job that they can. Are they being transparent? Are they being truthful? This audit calls all of that into question," Atterbeary said.

With better cooperation from the school system, the cost of the audit could have been reduced, the report said.

Competitive bidding

The audit found senior management awarded $12.6 million in no-bid contracts without sufficient justification, suggesting the school system did not award contracts to the most qualified vendors at the best value, according to the audit.

School policy allows management to seek single-source contracts if it is impractical to seek competitive bids. The school board management failed to support why it did not seek competitive bids, according to the audit.

Clark said it was "unbalanced" for state auditors to fail to mention that 97 percent of its contracts are competitively bid.

Barnickel III, however, said that assertion was ungrounded because the audit mentions that the school's methods for handling the selection of goods and services were appropriate overall.

The audit also found that the school system did not select construction management firms by competitive bids as required by state law. The audit shows that in fiscal 2013 and 2014, the system entered into a dozen contracts worth $9.3 million with five construction management firms.

Competitive bidding helps ensure qualified firms participate in a fair environment that provides the best value for the school system, according to the audit.

Miller said he is considering drafting legislation to halt all no-bid contracts in the school system.

"A lot of the findings show both the school board and superintendent haven't been very concerned about how our money is being spent and utilized," Miller said. "Our students and teachers have unmet needs and instead of using the money for those needs, we're squandering them on sole source contracts."

Staff currently select firms from a list of approved firms, according to the audit.

The audit also found executive employees received monthly mileage payments of around $208,000 in fiscal 2014 and 2015 without documenting mileage traveled.

The school system could not support how mileage payments were determined and the school board did not authorize or approve payments, according to the audit.

Clark said the school system provides a flat stipend to cover mileage, a form of compensation that does not require board approval and relies on conservative cost estimates.

The report also indicated that limited controls on the school system's computer system left it vulnerable to attack, a gap that a new management system implemented earlier this year is already addressing, Clark said.

"It is OK sometimes for auditors to disagree, Clark said. "We can respectfully disagree … but there are certain points that are problematic."

Clark said the audit's recommendations related to technological improvements were "well-reasoned" and reinforced steps the school system was already taking to address security vulnerabilities.

Howard County Schools Superintendent Renee Foose said she preferred to defer to Clark and schools spokesman John White to answer questions and respond to the audit. She did, however, say she was concerned that the audit was circulating in the community prior to its public release on Friday.

"Doesn't the fact that we have [board of education] candidates posting it on Facebook suggests that it is extremely political? It's clear where it fits in," Foose said. "It's hard to ignore that."

This story has been updated.

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