• Tag Archives Department of Education
  • Schoenfish & Co: We Did Our Job Well, But Education Dept Maybe Didn’t

    Schoenfish & Company signNobody from accounting firm Schoenfish & Company accepted the invitation to testify before the Government Operations and Audit Committee next week about its auditing of the scandal-sunk Mid-Central Educational Cooperative. But someone in the Schoenfish office (probably not accountant and legislator Kyle Schoenfish, who has distinguished himself with a defensive reticence and an inability to write coherently) did compose a series of concise and, where necessary for its purposes, evasive responses to the 31 questions GOAC sent to Kyle’s dad and firm chief Randy Schoenfish on August 4. The auditors undercut the Department of Education’s claim of diligent oversight of Mid-Central financial activities. And for good measure, the auditors also tell GOAC to jump in a creek.

    Schoenfish & Company doesn’t tell us much new case-cracking information. Their response to GOAC tells us that “approximately eight different people” have worked on Mid-Central audits for the “approximately 20 years” that the firm reviewed Mid-Central’s finances. The last five audits Schoenfish & Company conducted of Mid-Central before ceding audit responsibility to the Department of Legislative Audit took from 145 hours on FY2010 to 172 hours on FY2014:

    • Fiscal Year 2010: 145 hours
    • FY2011: 149
    • FY2012: 152
    • FY2013: 147
    • FY2014: 172

    Schoenfish & Company notes that Mid-Central was one of “roughly 80 schools, cities, coopes, and other governmental entities around the state” that it has audited. The firm notes with pleasure that “even more governmental entities chose to hire the firm for 2017.”

    The firm reminds GOAC that it issued several adverse opinions to Mid-Central (Schoenfish & Company identified material weaknesses for eight years) and says that “more than just cash was reported as a concern.” The auditing firm says the responses from Mid-Central’s board members, director Dan Guericke, and business manager Scott Westerhuis were typical of responses from other agencies to audits. Apparently there were no “heated” meetings like the one described by Secretary of Education Melody Schopp with Mid-Central staff circa 2012 amidst discussions weaknesses in bookkeeping.

    If the Department of Education had concerns that could provoke a “heated” meeting with Mid-Central, one would think they might be interested in learning more from the auditors who were finding chronic material weaknesses in Mid-Central’s books. However, in its most noteworthy response, Schoenfish & Company says DOE called them once:

    The Department of Education had only one brief conversation with one member of our firm. As we recall, they only asked a couple of simple questions. They never expressed any concerns to us during the many years we performed the audits [Schoenfish & Company, response to GOAC, 2017.08.17, p. 2, Response #7].

    Here Schoenfish & Company makes it sound like the Department of Education didn’t want to let anyone know that it knew that something was amiss at Mid-Central. Bookmark that.

    GOAC asked Schoenfish & Company about the $900,000 gym Mid-Central business manager Scott Westerhuis built at his home with money he stole from GEAR UP and other federal grant moneys handled by Mid-Central. The firm says the gym “was discussed” and was “never acknowledged to be a GEAR UP asset by anyone we spoke to.”

    Schoenfish & Company explains that it asked the Department of Legislative Audit to take over auditing Mid-Central after the spectacular Westerhuis murder-arson-suicide in September 2015 because the investigation was too big for any private firm:

    [DLA] had better access to DCI, Forensics, Fraud Division and the Attorney General’s office. They looked at many of our documents and visited with us. Because of the media attention and various other expectations, the time they spent (not exactly known to us) would have been prohibitive to a private business with regular clients to serve [S&C to GOAC, 2017.08.17, p. 5, Response #23].

    Schoenfish & Company’s evasions include using professional standards to justify not telling us who specifically worked on the audits:

    We use a team approach, with approximately 8 auditors. Profession standards require all auditors under the firm to be competent and unbiased; therefore, an auditor’s individual involvement is immaterial to the scope of an audit as a whole. It is very rare that any one auditor in our firm would do more than twenty five percent of any audit [S&C to GOAC, 2017.08.17, p. 4, Response #19].

    Schoenfish & Company cites the AICPA Code of Professional Conduct to avoid a specific response to GOAC’s question about gifts auditors may have receive from Mid-Central, the DOE, or other state or federal officials. The firm parries questions about misused funds, illegal contracts, and criminal charges by citing pending court cases.

    Despite its reticence on several questions, Schoenfish & Company concludes with some unsolicited advice to GOAC on how to do its job:

    As explained to us by Tim Flannery, the GOAC has several basic purposes. One is to determine if some changes need to be made with any weaknesses with any department. Another is to suggest possible legislation to be brought before the House and Senate. In the future, perhaps the GOAC would better serve the citizens of South Dakota through a combined effort involving the Department of Legislative Audit and several firms that audit government entities in South Dakota in order to address potential weaknesses, legislation or other local government matters [S&C to GOAC, 2017.08.17, p. 7].

    Such advice from a citizen in the witness chair might seem audacious, but hey—isn’t telling the Legislature what to do one of our fundamental rights?

    Schoenfish & Company is sending no one to testify in person next week to avoid putting any individual face on its responses to this legislative inquiry. The firm has provided a corporate response, stating it met its professional obligations in auditing Mid-Central for around twenty years and has the vote of confidence of an increasing number of government customers. And for those of us trying to keep score, Schoenfish & Company has suggested that the Department of Education was not quite as concerned about financial problems at Mid-Central as the Secretary of Education has suggested.

  • DOE Sources Silent About Fiscal Misconduct Warnings for Six Years

    According to DCI, Stephanie Hubers knew something was wrong in Scott and Nicole Westerhuis’s budget fudgery at Mid-Central Educational Cooperative before the Department of Education noticed “incompetence” in Mid-Central bookkeeping in 2012. Apparently, reports Angela Kennecke, so did multiple people in the Department of Education:

    Sources who have first-hand knowledge within the Department of Education tell KELOLAND News there were questionable expenses involving GEAR UP grant money as early as 2006 that were brought to the attention of department officials.

    Several sources have confirmed that the department was warned of the misuse of grant money again in 2010 and 2011 by then-directors of Indian Education, LuAnn Werdel, followed by Roger Campbell.

    KELOLAND News spoke with Roger Campbell Wednesday. He told Angela Kennecke he left the Department of Indian Education by his own accord, and could not help regarding issues with the GEAR UP grant during his time in office.

    When KELOLAND News reached LuAnn Werdel, she said she did not want to comment.

    In a statement Wednesday, the governor’s office did not dispute those warnings, but said they cannot comment on personnel actions [Angela Kennecke, “Warnings of Troubles With GEAR UP Grant To DOE Earlier Than First Reported,” KELO-TV, 2016.03.23].

    One could read this report as pretty thin. The two individuals named, both former directors of the Office of Indian Education, decline to substantiate whatever “several” unnamed sources are telling Kennecke. We don’t know if “first-hand knowledge” is simply stuff folks heard or documents that landed in their laps that they can share with the press and the police. We don’t know if “several” means two or ten.

    But I don’t think Angela Kennecke leaks tea leaves stamped “Sources in Pierre” unless she knows there’s strong tea coming. Since we have these tea leaves, let’s stick our pinkies out and see what they say:

    1. Kennecke says the sources are “within the Department of Education.” Leaks don’t happen much in Pierre. If sources in Pierre are talking, they may know the next shoes are about to drop, and they want to get out in front of that drop so they don’t get squashed along with the main targets.
    2. Leaks from the Department of Education may also indicate that someone higher up has authorized the leaks. Someone higher up may have told those sources that whatever fear or orders or loyalties have kept them silent for six years are about to be superseded.
    3. Speaking of that six-year silence, even if we don’t know their names, apparently several people had signals of “misuse”—not “incompetence,” but “misuse”—for a mighty long time and, apparently, did little or nothing to stop it. These sources may have committed no active fraud, they may not have received any hush money from Scott Westerhuis, but even if unbought, their long silences lay on their shoulders some portion of responsibility for the diversion of funds and whatever other crimes happened at Mid-Central.

    “Several” sources cognizant of misuse of funds but silent for six years or more would represent pervasive corruption that no happy spin or the replacement of one department official will cure. These unknown DOE sources may be guilty staffers who know the crapstorm cometh and can only unburden their consciences on their way out the door.

    Now, let’s see which one of them is first to reveal the real evidence.

  • Audit: Education Dept. and Mid-Central Didn’t Monitor GEAR UP Grant Correctly

    The statewide Single Audit Report for FY2015 spends eight of its 316 pages outlining the failure of the state Department of Education and its subcontractor, Mid-Central Educational Cooperative, to properly administer the federal GEAR UP grant.

    Audit Finding No. 2015-003 supports the suspicion aroused by tangled corporate web revealed shortly after the spectacular murder-arson-suicide carried out last September 17 by Mid-Central’s apparently felonious business manager, Scott Westerhuis: Westerhuis moved GEAR UP responsibilities to a separate non-profit corporation, the American Indian Institute for Innovation to shield his graft from public audit. Auditor General Marty Guindon concludes that Mid-Central gave AIII a subaward, not a contract, that should have been but never was subjected to a Single Audit:

    Section 400(d) of Circular A-133 describes the responsibilities of a pass-through entity with regard to the federal subawards made to subrecipients. These responsibilities include monitoring the activities of subrecipients to ensure compliance with federal laws and regulations. Federal law requires that subrecipients expending $500,000 or more in Federal awards during their fiscal year have an audit conducted in accordance with the requirements of the Single Audit Act and Circular A-133.

    According to AIII’s Internal Revenue Service Form 990-PF (form 990) filed for 2012, 2013, and 2014, the AIII recognized revenue from direct and pass-through federal awards in excess of $500,000 in each of these three years. Thus, we believe AIII should have had a Single Audit for the years 2012, 2013 and 2014. However, we found no evidence that Single Audits of AIII for those periods were performed. Neither the DOE nor MEC had internal controls in place to ensure that MEC’s agreement with AIII was correctly identified as a subaward and that AIII had complied with the Single Audit Act [Single Audit Report FY 2015, issued 2016.03.21, p. 272].

    The audit notes that Scott Westerhuis, Nicole Westerhuis, and Stacy Phelps all engaged in cross-employment between Mid-Central, AIII, and/or Westerhuis’s Oceti Sakowin Education Consortium that should have been reported but was not:

    Since key employees of MEC were also in compensated officer positions of AIII, a significant subrecipient of GEAR UP pass-through funds, there were significant risks that needed to be addressed by specific subrecipient monitoring procedures at the DOE and MEC. Procedures implemented by the DOE did not address these risks and as a result, the DOE exposed itself to potential violation of federal regulations, and an increased risk of fraud, waste, and abuse of grant funds [Single Audit Report FY2015, p. 272].

    Finding No. 2015-004 says that Mid-Central engaged in some shaky math in calculating matching funds for the federal GEAR UP grant. Most significantly, Mid-Central appears to have claimed more matching funds than budgeted for software from Learning Solutions for Schools of Rapid City and not spent enough on matching funds for teacher compensation. Hmm… more money going to private vendors than teachers… why does this sound familiar?

    Finding No. 2015-005 says the state was not properly monitoring Mid-Central payroll charged to GEAR UP. Specifically, DOE reimbursed Mid-Central for unusual year-end lump-sum payments to Scott Westerhuis and Stacy Phelps totaling $88,973.03 in Federal Fiscal Year 2014. The Audit did prompt DOE to dig up documentation “to substantiate that the costs were allowable.”

    On all three findings, the Audit recommends that the Department of Education get its poop in a group. DOE grovels, Yes, Master! We’re trying!

    On all three findings, DOE shifts blame to the independent auditor, Schoenfish and Company:

    The Department also reviewed the independent audit reports for signs of risk in the operations of MEC. Each year, the independent audit reports came back with no significant findings [Single Audit, pp. 273, 276, and 278].

    On the matching funds, DOE says Mid-Central is still giving them the runaround:

    The Department has made multiple requests to MEC for match documentation since the termination of the contract with MEC. The Department has not received timely and sufficient responses from MEC. As a result, the Department has engaged a specialist to help in acquiring adequate supporting documentation for match for the Gear Up grant. The Department will identify and catalog existing match documentation and conduct outreach to Gear Up sub recipients to document recoverable match  [Single Audit, p. 276].

    The Department assures us no such monkey business will happen with GEAR UP in the Board of Regents’ hands, since the Department has “created a new position whose duties are to work on the Gear Up program to ensure that federal program requirements are being met and students continue to receive services.” Department staff are attending all sorts of training on grant management and will provide training and support to all of their grant partners.

    The Department of Education directly handles $74.3 million in federal awards (see pp. 198–201). The state FY2017 budget runs $767 million through Secretary Schopp’s office. That’s an awful lot of money to trust to an office that let so much corruption go unchecked in Platte for so long.

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