Conniving school superintendent not so super

Activities at school districts typically generate local media coverage. In the case of the Simptomkin School District, the local newspaper ran an article about superintendent Smith's annual performance review. The article noted that during his tenure, Smith's scores on his reviews had steadily declined. The article also said that he'd been the subject of a police investigation resulting from his electronic communications with a female student.

Shortly after the newspaper published the article, the school board placed Smith on administrative leave and indicated the underlying cause was separate from the recent press attention but didn't disclose the reason publicly.

Unbeknown to the general public, the board had placed Smith on administrative leave following accusations of falsified receipts, errors in his expense reports and credit card misuse. The school board hired our firm to look into the accusations against Smith. (I've changed all names in this column.)

During Smith's tenure at Simptomkin School District, he'd entered into a contract with a for-profit venture, DEF, to offer an online high school for students at risk of dropping out. On the surface, the program seemed to be win-win. Students successfully completing the program would be eligible for a high school diploma from Simptomkin School District, and Simptomkin would keep 10 percent of state funding dedicated to the program. DEF would assume responsibility for educating the students in exchange for the remaining 90 percent of the state funding. The online learning program was supposed to be a great way for Simptomkin to generate additional revenue to fill gaps in its annual budget.

One month after Smith was placed on leave, the state's department of education released results of the most recent audit of the online learning program. The state determined that Simptomkin didn't have proper documentation or more than 100 students. Simptomkin was responsible for repaying more than $1 million in state aid for these students. The majority of the state funding had been forwarded to DEF previously as its 90 percent portion of state funding.

Investigation reveals numerous infractions — big and small

When Smith joined Simptomkin School District, he was issued a school-owned credit card, and he signed an agreement governing his appropriate use of the card. This agreement stated that Smith was the only employee who was permitted to use the card, and he was restricted to use it only for school business.

During a three-year period (the last three of Smith's five-year employment) included in our investigation, more than $60,000 of purchases was recorded on Smith's credit card. The school board hadn't regularly reviewed Smith's credit card statements and receipts. Furthermore, Smith had the ability to allocate his purchases to any department within the school district. Department heads would complain that his purchases, which they hadn't authorized, were applied to their budgets. These unexpected expenditures also hindered their ability to achieve their financial and non-financial goals for the school year.

More disconcerting than the missing receipts were the ones available for review. Smith regularly used his credit card to make purchases from large, online retailers. A few months before his suspension, Smith made a $221.97 purchase. After some delays, he submitted a receipt indicating that he had used his school credit card to purchase a laptop and several cables. The technology department at Simptomkin School District was initially unaware of these purchases. As a result, they were not subject to appropriate inventory, maintenance and/or monitoring by the IT department. Shortly before his suspension, school staff members then reviewed Smith's emails and found the sales confirmation related to this purchase. They discovered that he hadn't bought cables; the second purchase on the order actually was a necklace. The receipt that Smith had submitted for reimbursement had been falsified.

During our review of his school credit card, we discovered numerous purchases that appeared to be personal in nature, such as a textbook for a course that Smith was taking at a local college and men's clothing. Smith provided limited documentation for the business purposes of credit card charges such as hotels, meals and gasoline.

We were unable to determine the business purposes of an additional $4,400 of purchases because Smith couldn't provide receipts. Smith violated his credit card agreement by allowing his colleagues to use his credit card to make purchases on behalf of Simptomkin. We couldn't readily differentiate the transactions Smith initiated and those that other school district employees made. And when we did isolate those purchases that we thought other employees had made, we often couldn't distinguish which employees purchased what. This problem was exacerbated when a purchase was split into several different credit card transactions.

Smith was a well-known amateur photographer and took pictures at school athletic events. During our credit card review, we discovered numerous purchases of camera equipment that were charged to different school departments. School staffers weren't able to locate some of this equipment.

No-show at conference and more shenanigans

Among the initial allegations was that Smith misled the Simptomkin School District about his attendance at a local conference. He'd been scheduled to speak and was listed in the event program. Simptomkin paid for his registration dues, and Smith claimed mileage on his expense report for traveling to the conference.

A board member asked Smith about the conference, and Smith said it had been a good experience. One month later, the school received a refund check from the conference host. Smith hadn't given his scheduled speech and hadn't even attended the conference.

Simptomkin wasn't able to access all of Smith's several digital calendars or backups of the other calendars. We were unable to match hundreds of trips listed on his expense report to events on his one accessible digital calendar. Based on the available evidence, we weren't able to determine if Simptomkin actually benefited from Smith's reimbursed trip expenditures of $9,100.

Because of the falsified receipts accusations and the electronic communications with the female student, school officials asked us to perform a digital analysis of Smith's computers and devices. During our email review, we discovered numerous areas of concern. Though we didn't locate any troubling correspondence with students, we did find a number of inappropriate emails between Smith and a female teacher in the school.

In email correspondence with the district's athletic director, Smith wrote that he hoped to successfully introduce a bond issue to the voters and use the proceeds to install turf valued at $670,000 for the school's football field. Smith wrote that they needed to keep that information quiet because he feared citizens would vote it down if the truth were known. The language on the bond proposal indicated that the funds would be used for the construction or repair of school buildings and all other purposes authorized by law.

Smith also appeared to operate a DJ business and used a school-owned phone number on his firm's correspondence. After the board placed Smith on administrative leave, the interim superintendent found a flash drive containing pornographic images in Smith's office.

During our review, we discovered regular and ongoing correspondence between Smith and DEF about student counts and related documentation. At least 11 months before the state released its audit of the DEF online high school, an internal district audit indicated that the necessary paperwork for the online students was missing. Correspondence between Simptomkin and DEF personnel indicated a general confusion about which party was responsible for maintaining records pertaining to the online school. This lack of adequate documentation would have expensive consequences for Simptomkin.

Smith debacle aftermath

Shortly after the district released our investigative report, Smith resigned from Simptomkin School District. The media reported on the investigation. The district gave the report to the police. In his resignation letter, Smith indicated that he was unable to prioritize his life while superintendent, and that his drinking habits were negatively impacting his life.

Simptomkin implemented new policies on credit card purchases. The district has appealed to the state about the potential $1 million overpayment from the students who attended the online school.

Lessons learned

• The school district must develop and document a well-designed internal control environment and ensure that everybody in the district follow the policies. Regardless, the district
  already had a robust credit card policy, which the employees often didn't follow.
• Organizations need to ensure they have controls over what their employees are purchasing online at work with organizational funds and be able to track those purchases. Companies should implement corporate accounts so they're able to track purchases and easily review order histories.
• Department managers should have the ability to approve purchases applied to their budgets. In the Simptomkin School District's case, the superintendent was able to make purchases
  on his district credit card and apply them to department budgets without managers' approval.
• Organizations need tracking systems for valuable assets — even those that aren't capitalized as part of the plant and equipment. At Simptomkin, employees purchased computer and camera equipment via credit card. These assets were never recorded into any tracking system. Simptomkin still doesn't know the locations of many of these assets.
• When entering into private-public partnerships, organizations must define who's responsible for financial and non-financial aspects of contracts. In Simptomkin's case, the contract didn't stipulate who was required to maintain documentation about student attendance and who was responsible for any required repayments.
• When entering into contracts with third parties, organizations must clearly define responsibilities. If the underlying revenue stream is subject to audit, include information as to which party is responsible for maintaining documentation regarding financial and non-financial metrics that would be included in the audit. Also describe how the parties will
  bear the financial burden in light of any audit findings. If it isn't possible to shift the responsibility for any potential audit findings, it might be necessary to take extra steps to ensure that the parties are adequately protected from any potential financial burden resulting from audit findings.
• Periodically remind all employees of the importance of limiting the use of their email to relevant business matters. They should conduct all correspondence appropriately.
• Employers should be able to access and back up all relevant electronic information, including calendars and emails. Employees should be prohibited from conducting official business on unauthorized platforms.

The disaster that was Superintendent Smith

Simptomkin School District implicitly trusted its top employee with disastrous results. All organizations can learn from its lax enforcement of existing policies (which apparently gathered much dust but little interest) and its poor management of private-public partnerships.

When you're looking for ways to prevent fraud in your organization, don't forget this maxim: Start in the highest office and work down the feeding chain.

Jenell West, CFE, CPA, CIA, is the director of forensic accounting at Rehmann Corporate Investigative Services in Troy Michigan. Her email address is: Jenell.West@rehmann.com.