A yearly audit of the Morris County Unified School District 417 found significant problems within the district — particularly in the handling of COVID relief funds.
Morris County Superintendent of Schools Aron Dody is facing a disciplinary hearing this week, after Varney and Associates Auditor April Swartz found “significant deficiencies” with the handling of federal grant funds and potential violations of state bid requirements.
At issue are two vehicles purchased by Dody as part of a federal K-12 COVID-19 testing grant administered by the Kansas Department of Health and Environment.
The first problem, according to the auditors, is that the district — through Dody — failed to follow Kansas law requiring purchases in excess of $20,000 be put up for competitive bid, and further, that Dody misused federal funds by making “capital purchases” not allowed.
In a regular board of education meeting last week, Swartz said the district failed to comply with state law and that — moreover — the district did not comply with the grant requirements.
“Our opinion of the cause was that the superintendent was allowed to solely approve these purchases, and that the district did not follow the bid procedure,” Swartz said. “So in our feeling then that is a case of management override, where possibly the superintendent has been given too much authority to make decisions, and it’s not coming over the board for approval. The effect of that is that, in our opinion, purchases were made that were not in compliance with the bid requirement in the statute.”
The vehicles
What appears to have happened is an attempt to get around the bid requirements and the letter of the grant restrictions.
The grant application from KDHE specifically stated that all transportation equipment must be leased or rented, and no capital purchases were allowed.
So Dody sought — and received — board approval for the lease of two vehicles at $725.45 for 36 months, or $24,294.24 each for an optional one-pay lease. The residual purchase cost of the vehicles was $6,730.76 and $6,925.76, respectively. The total — a bit over $13,000 was less than the $20,000 threshold to trigger a bid requirement.
However, the total cost of the vehicles was nearly $63,000 — something the board acknowledged in its response.
“The Board … acknowledges it approved a grant application for two long-term vehicle leases, which were allowable costs per the grant, and the Board did not specifically authorize exercising a purchase option for either vehicle. While the Board appreciates the Superintendent’s attempt to save the district money by avoiding accrued interest fees over a longer term lease, the Board does not wish to sacrifice transparency, shrug its fiduciary responsibilities, or usurp the law or grant requirements to reap those savings. And although the paperwork received from the dealership does indicate the bulk of this financial transaction was categorized as a lease payment, the net result was receiving full ownership interest in two vehicles in substantially less than the three-year lease period anticipated in the grant application.”
There were, however, a couple of issues with the timing.
Not only did Dody have checks cut for both the lease and the purchase on the same day, but the lease documents — when Swartz finally obtained them — were dated the day after the checks were actually cut. Something Swartz said “surprised” them.
“When I got the document, it said it was a lease, but the checks were for the full amount,” she told the board. “So immediately, it seems strange that you would lease a vehicle, then you would pay for them in one lump sum. So that’s what first got us thinking that it seemed unusual.”
Swartz said they then reached out to the dealership where the vehicles were purchased.
“The initial conversation indicated that they didn’t have any leases on file for those cars. We gave them the VIN numbers, then they transferred us to the business office,” Swartz said. “And as we continued to ask questions, they indicated their system had gone down, and they would not be able to answer any more questions, but they would get back with us.”
Swartz said that never happened, noting that the initial purchase agreements the were given were not even on dealer letterhead.
“They were on plain white paper with no letterhead, the document attached to it with the amounts was a simple purchase agreement with handwritten amounts on it,” Swartz said. “So that’s what we received in the initial request for documentation from the business manager.”
Swartz said that after having a conversation with Dody, they received additional documents that were on John North Ford Letterhead.
“But I will point out that the lease documents were dated the day after the checks were written,” Swartz said. “In addition, we’ve mentioned multiple times that the purchases were (paid through) the grant. But the grant was not formally approved by the board until September the 13th. So the vehicles were purchased prior to the grant being approved.”
Additionally, according to the audit, Dody instructed the business manager to charge a portion of the vehicle purchase to the grant for reimbursement for the 2021-22 school year, with the remaining cost to be submitted and reimbursed in future years and represented as annual lease payments.
In several responses to the audit, Dody maintained he’d followed the letter of the law and “made a business decision.”
“The residual value for the lease buyout was below the amount requiring Board approval,” Dody wrote. “I made the business decision to purchase the residual value of the lease buyout for each vehicle, so our district/taxpayers would benefit instead of turning in the vehicles to the car dealership who would then turn around and resale the vehicles at retail value, hence making money off the lease and then off the resale of the vehicles after the lease. Regardless of whether I waited 36 months to purchase the residual value of the lease buyout, or did it upfront as I did, the end result would have been the same in terms of the cost to the District of the vehicles.”
Dody also — at least in part — suggests the business manager, not himself, was at fault.
“In addition, the business manager was provided all the details for the transactions of the two vehicles before she processed the checks for these vehicles,” Dody said. “Until this audit, the business manager did not express any concerns, had any objections, nor expressed any reservations about the transactions for the two vehicles and the KDHE grant.”
Financial controls in place but useless
Swartz found that the problems with the vehicle purchases were an indicator of an endemic culture of “management override” that rendered the in-place financial controls meaningless.
“Based on our observations throughout the audit, we believe there is ineffective oversight by those charged with governance related to approval of expenditures – payment of bills by the District,” the internal control letter reads. “The Board approves a consent agenda that includes the words ‘payment of bills’. However, there is no listing of bills provided to the Board and no total for those bills being paid. Although the Board packet contains a list of checks, most of those checks have already been processed and mailed out by the date of the meeting. Therefore, the Board is not actually ‘approving’ the expenditures prior to payment.”
The audit also found issues with a lack of internal oversight, a failure to follow board policies, a lack of a dedicated attorney for the district and issues with cybersecurity.
Dody facing performance review
At the end of the meeting, the board went into executive session on several occasions to “discuss non-elected personnel” and then voted to return for an executive session work session at about 6:35 p.m. on Tuesday, February 21, 2023, “regarding superintendent evaluation.”
