MCEC Financials: Monthly Balances Don’t Line Up; Lots of Revenue Labeled “Misc”

As I review the financial reports of the Mid-Central Educational Cooperative, I find two seeming anomalies.

MCEC includes financial position statements in nearly all of the minutes it has posted online. The currently available data run from May 2011 to August 2015. Only two months lack financial reports: December 2012 (omitted from the January 2013 minutes) and November 2013 (omitted from the December 2013 minutes).

In every available financial report from June 2011 to March 2014, the beginning balance does not match the ending balance reported in the previous month’s financial report. For example, MCEC reported an ending balance in January 2012 of $2,396,755.32. MCEC then reported a beginning balance in February 2012 of $2,297,428.29. Apparently, from January 31 to February 1, $99,327.03… moved. Looking at other financial information on the documents available, I can’t tell where.

The beginning balance increases from the immediately preceding ending balance in just one report, June 2012, a gain of $192,442.56. Every other report from June 2011 to March 2014 shows the beginning balance decreasing from the immediately preceding ending balance. The average decrease is $110,807.75. Two discrepancies exceed $400K, in April 2012 and August 2013. The smallest discrepancy is the last, $300, in March 2014, after which these report-to-report discrepancies disappear.

The 32 discrepancies add up to $3,324,232.50.

Coinciding with these discrepancies are several entries for “Misc Revenue.” From May 2011 through March 2014, monthly entries for “Misc Revenue” range from $6,856.95 (Apr 2012) to $495,236.95 (Oct 2011). Over that 35-month period (again, Dec 2012 and Nov 2013 missing), “Misc Revenue” totals $6,016,154.27, over 23% of the reported revenues of $25,990,049.78.

In 14 of those reported 33 months, “Misc. Revenue” exceeded 30% of reported revenue (the maximum: 56.03% in November 2012). After March 2014 (the same report that showed the last month-to-month discrepancy), “Misc. Revenue” dried up, constituting more than 1% in only three of seventeen months.

I’m a math major, not an accountant, but I find it strange that…

  1. One month’s ending balance and the next month’s beginning balance would fail to match for 32 months; and,
  2. 23% of MCEC’s revenue could come from sources that aren’t given their own line item and are simply labeled miscellaneous.
  3. These anomalies disappear from the financial reports after March 2014 with no indication of a significant change in accounting/reporting methods in the contemporaneous minutes.

I have e-mailed MCEC director Dan Guericke to request an explanation for the balance discrepancies. I’ll let you know what reply Director Guericke or MCEC’s attorney Scott Swier offers.

* * *
By the way, MCEC started May 2011 with a cash balance of $2,405,839.10. At his last board meeting, business manager Scott Westerhuis reported an August 2015 ending balance of $300,301.53.

MCEC Revenue and Balance May 2011–Aug 2015

Update 2016.01.25 09:10 CST: Since receiving financial reports for the missing months, I have calculated the balance misalignments since May 2011 add up to $3,442,649.45.

32 Responses to MCEC Financials: Monthly Balances Don’t Line Up; Lots of Revenue Labeled “Misc”

  1. These scandals are just such a major disappointment for all citizens. How could any thinking person look at the burgeoning evidence of corruption, fraud, cronyism – even alleged killings – by the political insiders in South Dakota.

    My heart aches for all South Dakotans – even those who are blinded by partisanship to the point they can’t even see what’s happening.

    I hope the rank and file around the state finally decide after an eternity of dirtier and dirtier politics that they are willing to swing the pendulum back to something honest and in favor of what is right for all the people of South Dakota.

  2. Jeff Barth

    These discrepancies do not exceed my expectations.

    Where is the State Auditor? Where is the AG? Where is the Governor?
    Can citizens sue?

  3. rollin potter

    this attorney by the name of SCOTT SWIER rings a bell but I can’t place him !!! dOES ANYONE HAVE ANY INFO ON HIS PAST?????

  4. Roger Elgersma

    It is absolutely unbelievable to have such huge discrepancy in the books with a state auditing office in place.

  5. owen reitzel

    do you think you’ll hear back at all Cory?

  6. Wow, thanks for the link. That is the same Scott Swier that I went to Jr. And Sr. High school with in Madison. He was always a quite guy that never really bent the rules. Now he is defending what looks to be fraud. The stealing of all our monies. It is funny how people change as they grow up. How does one defend obvious corruption and fraud? We will have to wait and find out what Mr. Swier has to say.

  7. Is any one checking out these supertindents also.

  8. David Newquist

    It is simply a matter of basic purpose that a financial report for one period begin with the ending balance of the previous reporting period. I recall hitting the print button on Quicken for a report, dashing out the door with the report, and distributing it to the Brown County Democrats at a monthly meeting. After the reading of the minutes for the previous meeting, two people immediately noticed that the beginning balance was not the same as the ending balance for the previous month noted in the minutes. It was a discrepancy of about $20, which turned out to be one of those electronic deletions of an entry for which Quicken is known. Having the check ledger at hand, the error was corrected in minutes, but it demonstrated the level attention given to such reports at even a routine meeting of people who occupy no official positions is conducted. Something is rotten with the state of MCEC.

  9. Might it be interesting to examine all of the state’s cooperatives to see if similar discrepancies exist?
    Maybe with a little bit oversight, we can prevent situations like this from repeating itself.
    It seems the current system seems a bit more akin to a scene from Enemy at the Gates: (The scene is a bit R rated)

  10. Steve Hickey

    It’s Benda part two. Next year it’ll be something else. Sad that people have to die. An ethics commission is needed if for nothing else than to communicate to the public that state govt is responsive to the seriousness of the problems and willing to be absolutely forthright and accountable in the future. I said as much on the house floor in regard to Gibson’s Bill. It was one of the five times last session I was ashamed of my party and felt we were poorly stewarding our supermajority. My party? Even sounds funny to say it. My first campaign piece said I’m not beholden to any party. Perhaps that was evident in recent years.

  11. MD, that’s a good idea. I haven’t done a thorough review, but I glanced at just a few of the minutes available for East Dakota and Black Hills Special Services and found no such discrepancy in cash balances. We should keep looking for comparisons.

  12. Jeff, it’s our tax dollars at stake, so one would think we would have standing to sue. We might need to recruit some American Indian plaintiffs who can contend that federal grant money earmarked for their children’s education has been diverted to crony handouts.

  13. mike from iowa

    Here is my humble opinion of what happened to $3.3 million. The commission takes all the money they have on hand and toss it into the air. Whatever comes down goes into their pockets. The rest goes back into the piggy bank.

  14. CH,

    I don’t know for sure what you are looking at so my comments might be off. If what you looked at are “Mid Central Financial Position” in the Minutes, the “anomaly” maybe the accounts they report in that section (which may or not be a good summation of change in financial position which I can’t discern with what I looked at).

    If that is the case, your aggregation of the “discrepancies” to over $3mm is likely improper as some should be negative and some positive. If they aggregate to a small net number, the above “explanation” may be correct.

    To make virtually all of your assertions with any degree of certainty, a forensic analysis of actual financial statements (Balance Sheet, Income Statement & Cash Flow Statement) is necessary. Rather than asking questions of Mid-Central that may be the wrong questions, I’d start with reviewing actual financial statements and forming your questions from that vs. what appears to be select summary information (which again may or not be sufficient from which to draw accurate conclusions).

    That said (source I didn’t see but know I just looked at one months minutes so I may have missed it), an entity that reports such significant “Misc. Revenue” is likely not describing its income sources with a degree of a detail that is acceptable under normal and customary accounting standards.

  15. anyone checking into the program called: American Indians for Innovative Institute, its part of this, Gear Up and they are taking over several schools in South Dakota and then running them still. Stacey Phelps is leading that too, its affecting on a daily basis hundreds of students here in South Dakota. What is being done with that project, its still in operation with this person in charge of it and wasn’t he let go of Gear Up.

  16. bret clanton

    Troy, yes or no, do you think money was being absconded from MCEC ?

  17. Bret,

    Professional standards prevent me from asserting an opinion without reviewing financial information. Since I’ve not looked at enough information to reach even a private opinion, I certainly am unable to reach a public opinion. Plus, the word absconded implies theft/fraud which is a higher standard than mismanaged.

    Cory has looked at information I haven’t. While he may be able to make an informed speculation, as he said, he is not an accountant. For me it would be like a Doctor diagnosing a patient based on analysis of a parent who only took a child’s temperature.

    And if he reached his speculated opinion based on the “snapshot summary” information I saw in the single meeting minutes I opened, it would be “malpractice” for me to comment based on that information as I know such snapshot information is provided with a presumption the reader is familiar with the underlying financial statements and not for analytical conclusions such as “absconding.”

  18. larry kurtz

    Bret, professional standards prevent me from asserting an opinion without reviewing the results of Troy’s proctoscopy but it’s clear his cerebellum is lodged squarely between his glutei.

  19. mike from iowa

    Maybe in wingnut-speak,Misc stands for miscalculations and the resulting monies left over are divided among the power elite on the board.

  20. I’m not an accountant but as a teacher/sponsor for various clubs I’ve had to do basic book keeping to keep the higher ups happy(yeah teaching). I always put misc. as a small donation or if I sold something small in an isolated incident.

    So I could see some small misc. income on the books, maybe they made a little money from the vending machine in the lobby or they charged for notarizing documents, but yes, if its something large (over $100) it should be itemized as coming from a specific source.

    As for why the ending/beginning balance is changing without any reason given would be a big red flag, however, unless everyone associated with this group is involved, I’m again wondering if some of this wasn’t backdoor book fixing or changing something later, or posting these while giving other documents to the members at the meeting. Or maybe just nobody noticed or he had a valid reason at the meetings.

    I noted AZ law with schools or the basics of the law on a different post but here is what needs to happen with the state auditors department

    1. Every entity that either receives state funds, or holds a state contract must be audited once a year.

    2. If auditing errors are over a certain amount, either financial amount or # of errors amount, they get put on alert, and have to be audited by a private firm.

    3. If after being put on alert, they don’t fix the problems, they aren’t eligible for state monies, or contracts until they prove the problems are fixed.

    We can make a million committees and try to fix things, but if we just strengthened the auditors department maybe that’d help.

  21. mikeyc, that's me!

    You crack me up sometimes.
    (Maybe crack is a bad choice of words).

  22. BW, I have heard AIII is running Lower Brule’s school; what other schools is it running, and is AIII running them well?

  23. Thanks, Troy, for checking in.

    I am looking at the numbers under “Financial Position.” The discrepancies between the ending position listed in minutes for month X and the beginning position listed in the minutes for month X+1 are all negative but one, as indicated above. Adding all the discrepancies together, including the single positive discrepancy, produces the total discrepancy I listed above.

    Should the minutes not reflect the exact cash balance of the organization?

  24. So Scott Swier was an attorney in Avon. Is it strange to anyone that former Avon School Superintendent (now Sioux Valley’s) Tom Oster is a business partner with Rick Melmer and they run a company that helps hire Superintendents in SD! Good old boys club to the max!

  25. CH,

    It is obvious the snapshot information they put in their minutes do not foot to financial statements. There could be a legitimate explanation too many to go through. That said, there could be some that are not so good and the list is a lot shorter.

    That said, snapshot info you are using won’t give you any answers. You need the actual financials.

  26. Good work, Cory (as usual). It should be pretty clear to all that there were substantial issues with this operation dating back years. Apparently someone in some state office finally awoke recently and inadvertently set in motion the tragic events in Platte. Perhaps some answers will come – eventually – but why was it not uncovered sooner?
    Within the last week or so, we’ve heard public grumbling from SD Dept of Ed that US Dept of Ed is delaying approval of the proposed transfer of management authority for GEAR-UP to the Regents. Seriously. They said that. (I think it actually came from Dr Schopp, but I can’t find the quote). Millions of dollars sloppily handled for several years, and Schopp thinks the Feds should just keep writing big checks? Is there something weird in the water in the Capitol?

  27. Curt, I agree: I would think the feds would be coming down on the DoE on all of its grants. We send you several million dollars, and you funnel it to cronies via some small educational coop? We’ll take our sweet time before we send you another check!

  28. I agree CH, we can complicate this as financial audit “compliance” to the law…or we can ask, Who got a check and what did they do to earn it?
    I believe the latter is more telling and it’s where the rubber meets the road.

    Looks to me like a group of cronies is really knocking down some serious cash in this clique they have. After the fact Schopp rides in with the Board of Regents? Ya right.

  29. If my memory is correct Swier came to Avon as Oster was leaving, he took over for an attorney who had died. I don’t think you can rope that in.

    As for Oster and Melmer, when Oster left, him and Melmer became consulting partners, because well it makes pretty good money. People have asked me if Oster is tied into this, and I haven’t seen anything yet. Avon is with Southeast Education Cooperative (located in Tyndall).

    If you are going to tie Swier into the good ole boys club, I would tie that to his time in Pierre, before moving to Avon, rather then any Oster ties.