Report flags potential for ‘significant fraud, waste and abuse’ in LR5 spending decisions

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A new report into how the Lexington-Richland 5 school district has spent taxpayer money flags the potential misspending or unauthorized spending of millions of dollars in recent years.

The report by the Jaramillo Accounting Group noted several instances of questionable spending between 2016 and 2021 that may have violated school district procedures and even the law.

The auditors emphasized that their findings are preliminary. “These are not final conclusions and followup is in process,” the report reads.

Still, the accountants identified potential for “significant fraud, waste and abuse” in the disbursement of district funds. The audit cited potentially millions of dollars spent between 2016 and 2021 that may not have been properly issued or approved, although the audit summary notes it “does not provide a legal determination on the District’s compliance with specific requirements.”

The full audit report has not yet been released, and the document released Tuesday by the school district did not provide many details about the potential problems identified.

Some of the highlighted spending relates to a 2008 bond referendum in which voters approved various school expansion projects. The report said there’s a “risk” that some operational costs were paid for from bond revenues, citing $1.2 million in legal fees and $1.4 million in bond balance transfers.

The 2008 referendum has been controversial in Lexington-Richland 5. About $1.2 million was spent on a Derrick Pond Road site for a new elementary school, which the district could not ultimately build because it could not secure appropriate road access.

The auditors’ letter raised questions about a series of sewer taps purchased by the district, including 55 from Mungo Homes, a home construction company. Mungo had obtained the taps from Richland County.

The district made separate purchases in March 2012, July 2013, and November 2014. At the time of the third purchase, the district had not used all of the 55 sewer taps previously purchased from Mungo Homes, the report finds. The district also did not follow up with Richland County to ensure the taps had been transferred from Mungo Homes, according to the audit letter.

A subsequent investigation by the South Carolina Law Enforcement Division determined county records did not indicate that the taps had been transferred to the district.

The district ended up using just five of the taps purchased from Mungo, and the other 50 expired, SLED determined. The unused Mungo taps cost taxpayers $178,750, the audit letter said.

SLED investigated the matter in March 2021 at the request of the district’s chief finance officer, Marty Rawls.

The Fifth Circuit Solicitor’s Office ultimately declined to pursue the matter, with Deputy Solicitor Daniel Goldberg writing SLED that “there is not enough probable cause to charge anyone with a criminal offense,” according to the investigation package.

Auditors also warn of potential violations of procurement or ethics policies by district employees, noting that in many instances the district administration seems to have exempted spending decisions from procurement procedures without school board approval.

Also, while reviewing spending, the auditors discovered attempted purchases at “inappropriate vendors” such as Victoria’s Secret and Adidas, the report says. The purchases were declined.

While the released report does not identify any employees or officials by name, it identifies the “tone at the top” as allowing or excusing any abuses that went on.

“It is clear from the outside looking in with an independent viewpoint that people who questioned the district’s leadership were chastised, minimized, ignored and/or attacked, as evidenced by communications in emails, meetings, and legal bills,” the audit report reads. “There were extraordinary amounts of energy and legal expenses paid to argue with those who asked questions such as Board Candidates and Board Members.”

At one point, the name of an official who may have waved procedures is redacted from the publicly available report.

During the five-year period covered by the audit, $7.8 million apparently was paid for temporary services over the approved contract rates, the report finds, with 15 of those staffers paid more than $500 a day. “It has been reported to us, and evidence corroborates, that no one in central office would take responsibility for reviewing and approving these invoices.”

“It is possible (name redacted) overrode internal controls and directed District staff to pay these invoices without approvals,” the report says.

The report was posted Tuesday on the school district website. Copies of the audit’s findings will also be forwarded to the S.C. Department of Education, the State Fiscal Accountability Authority and the S.C. Ethics Commission, the Lexington-Richland 5 school board voted on Monday.

On Monday, some board members opposed forwarding the audit report to state agencies, with Rebecca Blackburn Hines and Tiffani Moore voting against the motion.

“This is still a draft,” Hines said. “We don’t have all the information. When you start to implicate employees, we need all the information together and examined as a whole before we refer it.”

Moore said “It could be hurtful and harmful for us to put that information out that could eventually be cleared.”

The board also voted to extend Jaramillo’s contract for another six months through the end of the year to complete its review, at a cost of $60,000. Hines and Moore also voted against that extension.

Board member Catherine Huddle pointed to the unused sewer taps as evidence that more information about the district’s operations at the time needs to be uncovered.

“I want to know why that happened and how we can stop it from ever happening again,” Huddle said.

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