Bag Of Money

Below is a story written by Mary Hinds of the News Herald on a topic I brought up at the last board of education workshop. Ms. Hinds did an excellent job with the story but I would like to add a few more details that she may not have known.

Unknown by I think most people, each year the BOE distributes a substantial amount of money to each of the nine schools. This money is spent at the discretion of the principals on a wide variety things. Last year the BOE distributed nearly $714,000.00 to the nine schools. This years distribution is nearly $600,000.00. Each school's share of the money is determined by the number of students, teachers and other factors. Some refer to this as their "bag of money."

This practice has been going on for many years but according to the State Comptroller's office, the practice is a violation of the law. Given that it is illegal, I have asked that the practice be suspended immediately.  

School audit sparks questions

Author: Mary E. Hinds
Source: News-Herald

The county schools’ activity funds and how they are viewed by state auditors came up for discussion at the last school board workshop. Board member Van Shaver said a yearly finding by state auditors is a “major problem.”

For decades the county schools have operated by disbursing funds to the individual schools and allowing them to make the purchases they need.  Shaver said giving the funds directly to the schools is “illegal” and “every year we are written up by the auditor for it.” 

According to the county audit released by the state, Loudon County School System “disbursed fund to the various individual schools’ activity accounts and allowed the individual schools to make purchases of equipment and various other items.” The finding also says this practice “violates provisions of the County Purchasing Law of 1957, Section 5-14-101, Tennessee Code Annotated (TCA). This act requires the county purchasing agent to make all purchases for the various county departments.” 

The audit recommends, as it does each year, that the “school department should not disburse funds to individual schools for the purchase of equipment and various other items. All purchases should be made by the purchasing agent in compliance with the County Purchasing Law of 1957. School activity funds should not be used to disburse county school funds.” 

The audit includes the management’s response from the office of the director of schools (who was Edward Headlee at that time) which states, in part, “Each year we allocate funds to schools based on a per student allocation for such items as library books and materials, instructional materials and supplies, per teacher allocation, telephone, duty-free lunch, staff development and data entry services. These funds were distributed to each school during the school year and were audited by a firm selected by the Loudon County Board of Education for that purpose. This firm verifies that those funds were properly expended and accounted.”

The management response concludes, “We feel strongly that the site-based management in which the principal is held accountable for all activities in the school is a more efficient use of funds. For this process to be conducted for all nine schools centrally we would need to employ an additional person to handle this paperwork. To centralize the purchasing of all school supplies and materials would seriously affect the efficiency and quality of the process.”

The state rebuttal to the management response pointed out, “this method of channeling funds to the individual schools violates state statutes.” 

Referencing this finding in the audit, Shaver said he believed “purchasing not done through the purchasing department is illegal. I don’t know how we can continue to do that.” He also said he found it irregular that each individual county school pays for its own communication charges. Bennie Sims, budget director of the school system, reminded Shaver that each school has a switchboard and its own phone system.

Director of Loudon County Schools Wayne Honeycutt said the county schools use a “site based management” system, which allows the schools to “operate independently” and, while the practice has never been approved by state auditors, he was “not sure it’s illegal.” Board member Gary Ubben agreed site based management is a “common practice in much of the state.” 

Board member Steve Harrelson suggested Honeycutt contact the Tennessee School Board Association (TSBA) legal department, which advises local school boards, for an opinion on the situation. Honeycutt said he would follow up on the request for a legal opinion. 

Speaking after the meeting, Shaver said using the term “illegal” to describe the distribution of funds to the individual schools might be overstating the situation a bit, but he was not sure how violating the statute differs from being illegal. He said he did not think any school personnel were abusing the system, but having no central accounting could leave the system open to abuse and is certainly frowned upon by state auditors. 

State auditor Dennis Dycus, speaking about the school system’s audit for the 2007-2008 school year, said the state comptroller’s office had “rendered an adverse opinion” on the school system’s method of distributing funds and the records in some Loudon County schools were “so bad that they (state auditors) could not satisfy themselves as to whether everything was properly accounted for or not. As an auditor, which is what I am, that really concerns me.”