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Kansas school superintendent allegedly misused federal funds, an audit shows

(The Sentinel) – An annual audit of Morris County Unified School District 417 found significant problems within the district, particularly in the handling of COVID relief funds.

Morris County Schools Superintendent Aron Dody is facing a disciplinary hearing this week after Varney and Associates auditor April Swartz found “significant deficiencies” in the handling of federal grant funds and potential violations of state offering requirements .

At issue are two vehicles Dody purchased as part of a federal K-12 COVID-19 testing grant administered by the Kansas Department of Health and the Environment.

The first problem, according to the auditors, is that the district – through Dody – failed to follow the Kansas law that required purchases over $20,000 to be competitively bid and, furthermore, that Dody abused the federal funds by making “capital purchases” not permitted.

In a regular board of education meeting last week, Swartz said the district had failed to comply with state law and that the district had also failed to meet the grant requirements.

“Our opinion on the lawsuit was that the superintendent was only authorized to approve these purchases and that the district had not gone through the bidding process,” Swartz said. “So, in our view, this is a case of management override where perhaps the superintendent has been given too much authority to make decisions, and is not getting to (the) board for approval. The effect of this is that, in our view, purchases were made which did not comply with the statutory offer requirements.

The vehicles

What appears to have happened is an attempt to circumvent the requirements of the offer and the letter of the grant restrictions.

The KDHE’s grant application specifically stated that all transportation equipment had to be rented or leased and that no capital purchases were permitted.

So Dody applied for — and received — board approval to lease two vehicles at $725.45 for 36 months, or $24,294.24 each for an optional one-payer lease. The residual purchase cost of the vehicles was $6,730.76 and $6,925.76, respectively. The total, just over $13,000, was below the $20,000 threshold to trigger a bid requirement.

However, the total cost of the vehicles was nearly $63,000, which the board acknowledged in its response.

“The Council … acknowledges that it approved a grant application for two long-term vehicle leases, which were eligible costs for the grant, and the Council did not specifically authorize the exercise of a purchase option for either vehicle . While the Board appreciates the Superintendent’s attempt to save the district money by avoiding interest charges accrued on a long-term lease, the Board does not wish to sacrifice transparency, shrug off its fiduciary responsibilities, or usurp the law or grant the requirements to collect those savings. And although documents received from the dealership indicate that the majority of this financial transaction was classified as lease payments, the net result was full ownership interest in two vehicles over substantially less than the anticipated three-year lease term. in the grant application. “

There were, however, a couple of problems with the timing.

Not only did Dody have the checks for both the lease and purchase cut on the same day, but the lease papers — when Swartz finally got 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,” he told the council. “So immediately, it seems strange that you rent a vehicle, then you would pay for them in one sum. So that’s what first made us think that this seemed unusual.

Swartz said he then contacted the dealership where the vehicles were purchased.

“The initial conversation indicated they had no leases on file for those cars. We gave them VIN numbers, then they transferred us to the sales department,” Swartz said. “And as we continued asking questions, they indicated that their system had gone down and they wouldn’t be able to answer any more questions. but they would come back with us.”

Swartz said that never happened, noting that the initial purchase agreements weren’t even on the retailer’s letterhead.

“They were on plain white paper with no letterhead; the attached document with the amounts was a simple purchase agreement with handwritten amounts,” Swartz said. “So this is what we received in the initial request for documentation from the business manager.”

Swartz said after having a conversation with Dody, they received additional documents that were on John North Ford’s letterhead.

“But I will point out that the lease documents were dated the day after the checks were written,” Swartz said. “Also, we mentioned several times that the purchases were (paid for by) the grant. But the grant wasn’t formally approved by the board until Sept. 13. So the vehicles were purchased before the grant was approved.

Additionally, according to the audit, Dody instructed the business manager to charge a portion of the vehicle purchase to the 2021-22 school year reimbursement grant, with the remaining cost to be presented and reimbursed in future years and represented as annual lease payments.

In several responses to the audit, Dody said he followed the letter of the law and “made a business decision.”

“The residual value for the lease acquisition was less than the amount that required board approval,” Dody wrote. “I made the business decision to purchase the lease buyout residual value for each vehicle so that our districts/payers would benefit instead of handing the vehicles over to the car dealership who would then resell them at retail value, then make money off leasing and then with the resale of the vehicles after the lease.Regardless of whether I had waited 36 months to buy the residual value of the lease acquisition, or did it upfront as I have, the end result would have been the same in terms of cost for the Vehicle District.

Dody also, at least in part, suggests that the business manager was to blame, not himself.

“Also, the business manager was given full details for the two vehicle transactions before he processed the checks for these vehicles,” Dody said. “Up to this audit, the company director has not expressed any concerns, objections, or reservations about the transactions for the two vehicles and the KDHE subsidy.”

Financial controls in place but useless

Swartz found that problems with vehicle purchases were an indicator of an endemic “management override” culture that made in-place financial controls meaningless.

“Based on our observations during the audit, we believe there is ineffective oversight by those responsible for governance related to the approval of expenditures and the payment of bills by the district,” reads the internal audit letter. “Council approves a consensus agenda that includes the words ‘pay bills.’ However, there is no list of invoices provided to the Council and no totals for those invoices paid. While the Council package contains a list of checks, most of these checks have already been processed and mailed by the date of the meeting. Therefore, the Council is not actually “approving” the expenses before payment.

The audit also found issues with a lack of internal oversight, failure to comply with board policies, lack of a dedicated attorney for the district, and issues with cybersecurity.

Dody faces the performance review

Following the meeting, the board repeatedly entered executive session to “discuss unelected personnel” and then voted to return to a working session of the executive session at approximately 6:35 pm on Tuesday, February 21, 2023, “as far as it concerns the evaluation of the superintendent.

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