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.
- Bob Mercer, “State Audit Finds Wrongdoing Was Widespread in GEAR UP,” Mitchell Daily Republic, 2016.03.21.
- Dana Ferguson, “GEAR UP Audit: State Should Have Spotted Conflicts,” that Sioux Falls paper, 2016.03.21.
- Angela Kennecke, “Audit: State Had Inadequate Oversight Of GEAR UP Grant,” KELO-TV, 2016.03.21.
- Pat Powers—oh, wait, sorry, this is real news about corruption in South Dakota government, and all Pat can offer is a funny Bernie Sanders button and a Janet Jackson back-up singer running for State House.