Adds to disturbing string of problems with school funds security in Kentucky’s schools

Does Kentucky need better protection for education dollars?

The State Journal reports that a huge embezzlement of public school funds, perhaps on the order of $1.5 million, has occurred in the Franklin County Public School District. It’s alleged that the district’s finance director made off with a ton of cash intended to benefit kids in a series of thefts that might stretch back to 2011 or even earlier. Apparently, the district finance director had been cutting checks to pay bogus invoices that appeared to come from regular vendors to the school district. This person then altered the checks in ways that allowed those checks to be deposited in personal accounts.

Of special note are comments that this massive theft was not discovered through existing audits or other fiscal tools that might be currently in use by the state’s public schools. Instead, the crook only got tripped up when a local credit union started asking questions about a dubious check this person tried to deposit. The FBI got called in by the credit union and it was that federal investigation led to the eventual discovery of the scam.

It’s worth noting that opponents of charter schools in Kentucky have been alleging that such schools of choice lack adequate security for public money, but Kentucky currently has no charter schools and this incident shows the theft of school money is far from just a charter school problem.

It’s also important to note that the Franklin County situation is far from the first time someone tried to make off with a whole lot of tax dollars meant to be for kids. For more on that and possible implications for legislative action, click the “Read more” link.

How did this go on for so long?

The State Journal indicates the district was warned in a recent audit that it had inadequate separation of duties in its fiscal office. If any action was taken, it clearly wasn’t effective.

Also concerning, the State Journal’s Open Records requests for relevant documents – such things as checks which an audit questioned as invalid expenditures – has been turned down by the school district. The newspaper is currently appealing this possible public transparency law violation to the Kentucky Attorney General’s office. However, at present important information is still being withheld from the public and the full dimensions of the case remain unknown.

This is far from the first case of embezzlement in Kentucky’s public school system.

Another whopper embezzlement case took place during the 1990s, coming to light just after the turn of the century when the former Associate Commissioner of Education for Finance, Randy L. Kimbrough, pleaded guilty in April 2000 to swiping at least $500,000 and perhaps more. In this case checks were cut to bogus consultants and wound up in Kimbrough’s personal account, instead.

A much more recent case in Shelby County resulted in an 18-year jail sentence for a former payroll manager. She got away with stealing $600,000 over the course of seven years from 2007 to 2014 before finally being discovered. Again, protection of money meant for kids was clearly inadequate.

And, the example from Shelby County isn’t just a fluke, unfortunately.

Several years ago, William “Gary” Rye, a former superintendent from the Dayton Independent Public School District, got to do federal time for swiping hundreds of thousands from students, too. Rye’s crimes also went on for years, at least from 2004 to 2012 and possibly for as long as 15 years, before he was finally tripped up by a special audit by the Kentucky Auditor or Public Accounts. The auditor only conducted this special audit after receiving a tip. The regular annual audits and any other fiscal protections never uncovered these crimes. Rye’s total “take” according to the auditor was on the order of $500,000. He pleaded guilty to taking $200,000 and got two years in federal prison for it. Rye used a number of different scams to swipe the cash, but no-one noticed until a whistle-blower apparently had had enough.

Mason County saw problems, too

.A former superintendent in the Mason County Public School District also was convicted for grabbing money meant for students. Tim Moore pleaded guilty to theft by deception for illegal activities spanning from 2007 to 2012. Once again, annual audits disclosed nothing. Like the Dayton case, Moore was also tripped up by a special audit from the State Auditor after the Kentucky Office of Education Accountability raised questions in regard to an anonymous complaint that office had received. The total amount of restitution Moore was to provide totaled about $25,000.

Is education money safe in Kentucky?

This on-going series of embezzlement cases raises some serious questions about the protection being afforded to tax dollars meant to serve Kentucky’s students. Clearly, there are problems that the existing annual audits of public schools are not likely to reveal, and the latest example from Franklin County shows the issue has continued, apparently without correction, for many years.

Adding to concerns is the fact that Kentucky has traditionally had issues with its MUNIS education financial accounting system. Poor control over the proper entry of expenditures into this system has been known since at least 2006 when the Kentucky Office of Education Accountability issued “Indicators of Efficiency and Effectiveness in Elementary and Secondary Education Spending.” This report found there were notable problems with education financial figures being entered improperly into the MUNIS system, which resulted in untrustworthy data that wasn’t suitable for analysis and research.

Much more recently, I discovered an obvious problem with education financial reporting for the state’s new school-level expenditures reports. In the specific report for Pike County’s schools, an entry for “Instruction” is shown for the school bus garage, a place unlikely to support any instructional activity. When I questioned finance folks at the Kentucky Department of Education about this, I was informed that the district actually uses the MUNIS code for the “Bus Garage” for something else! Really!

Clearly, no one is requiring data going into the MUNIS system be loaded properly. That, of course, opens the door wide for still more financial security issues.

So, it looks like at the very least the Kentucky legislature, which just came into its regular session for 2020, needs to examine what has happened with the on-going cases of embezzlement and the continuing failure to create a credible fiscal accounting system. The legislature might need to take action to ensure scarce tax dollars aren’t made even scarcer by the acts of felons or just wasted due to poor fiscal management.