EXCLUSIVE: Financially Mismanaged Central Falls Schools Face $5.6M Deficit

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Thursday, February 09, 2012

Stephen Beale, GoLocalProv News Contributor

A review by the Rhode Island Department of Education has found widespread evidence of financial mismanagement of the Central Falls School District, which now faces a $5.6 million deficit next year, according to documents obtained by GoLocalProv.

 

The financial review uncovered a “significant deficiency in internal controls,” inadequate management of federal grants that caused the district to lose funds, and “significant inconsistencies” between what was budgeted and what was spent over the last three years. The district also miscalculated how much it would be receiving this year in state aid even though RIDE told local officials how much they would be getting.

The department concluded that the district’s “inability to accurately report budget to actual expenditures” had “prevented a thorough understanding of the district’s bottom line,” according to a Nov. 14, 2011 letter from Carolyn Dias, Chief of Fiscal Integrity and Efficiencies at RIDE.

 

‘Gross financial mismanagement’

“RIDE has uncovered what appears to be gross financial mismanagement,” said state Senator James Sheehan, D-Narragansett, North Kingstown, who has previously raised questions about the management of the district. “What I had looked into in the past was issues of academic programs in school and management of staff—teaching faculty. I think what you find here is where there is smoke, there is fire in terms of mismanagement across the board.”

The district now must make deep cuts and restructure many of its services to deal with what RIDE estimates is a $5.6 million deficit in the upcoming fiscal year. A chunk of that, about $1.7 million, is due to the new education funding formula. The district is also losing $1.3 million in federal stimulus money and $1 million in federal grants. That leaves a “structural deficit” of $1.5 million.

“You don’t need that kind of a burden on a city that’s been in the dire financial straits it’s already in,” said state Senator Frank DeVall, D-East Providence, a former Central Falls middle school administrator who is now assistant principal at Cranston High School West.

 

Last weekend, the district issued pink slips to 71 teachers, a fourth of its total faculty, in advance of a March 1 state-mandated deadline for notifying teachers of the potential loss of their jobs. The layoffs are due to a combination of uncertainty of funds and declining enrollment, according to a district spokeswoman.

This week, the district also began consolidating about half a dozen departments and services with the city, according to Robert Flanders, the state-appointed receiver for the city who has taken steps to intervene in the school finances. Flanders told GoLocalProv that finance, HR, maintenance, IT, public works, and recreation could all be merged with the city, in an effort to avoid needless duplication of services.

The number of positions that will be eliminated and exactly how much money will be saved as a result are not yet known, Flanders said.

School board was not approving budgets

 

The RIDE financial review noted that management issues were first uncovered in audits dating back to 2008 and 2009. After the 2009 audit, RIDE ordered the district to implement a new software program, known as FMIS, but the district never used the most important part of that program, which dealt with the budget.

RIDE also discovered that the school board of trustees in Central Falls has not been approving budgets, as required by state law. (Click here to read the law.) Nor were the trustees signing off on any changes to the budget or even receiving periodic updates on its status during the year. “I find it disheartening that the budget, which it requires the board of trustees to approve, was not approved by them,” Sheehan said.

“This discovery just proves that there needs to be scrutiny not just of labor, which has been under a microscope, but [also] management,” added Sheehan, a history teacher at Tollgate High School in Warwick. “Certainly there needs to be accountability on behalf of students and parents.”

A district spokeswoman, Yaviri Grosso-Escalera, said the board of trustees had been informed about the budget and that it was approved by the state Board of Regents. “We believed that their approval was sufficient because we considered ourselves a line item in the RIDE budget,” Gross-Escalera said.

In a statement, Superintendent Frances Gallo emphasized that the financial review had not uncovered any “misappropriation” of funds. “Additionally, in previous audits it was confirmed that the district had a constant surplus due to a well-managed budget,” Gallo said. “However, there were some technical findings that denoted district policy and internal control issues that needed to be addressed. The district has and will take the appropriate actions that resolve the findings.”

Sources: fiscal problems much worse

But sources in the district tell GoLocalProv that the financial management issues in Central Falls schools are far worse than the audit let on. They question why legal fees ate up $306,000 of the budget last year and why the district is paying out $560,000 to outside discipline consultants, known as restoration specialists. (A district spokeswoman said the legal fees included $180,619 for contract negotiations.)

 

Sources also say that the district has not made wise use of its school facilities. For example, the Segue Institute for Learning, a charter school, occupies a district-owned building, while the district has had to rent the Fairlawn Elementary School in Lincoln. The district also is renting space at the YWCA for about $60,000 a year for two alternative high school programs, Square Mile and Guide 2 Success—both of which could be accommodated in the main Central Falls High School building, one source claimed.

In all, the district will spend about $300,000 on rent this year, according to budget documents obtained by GoLocalProv.

Questions have also been raised about compensation for top administrators, after GoLocalProv reported last May that three administrators were still collecting their full salaries—collectively costing $285,000—even though two of them had resigned and a third, Elizabeth Legault, then a former high and middle school principal, was on administrative leave.

Within weeks of the GoLocalProv report, RIDE informed the district that it could be conducting its financial review.

Legault has since fought the district in court to get back her position as an administrator. It’s one costly legal battle the district ultimately lost: last month, the district issued a tersely worded statement announcing that Legault had returned as administrator-principal of two alternative learning programs.

Future of schools rests on bankruptcy

Over the next five years, as much as ten million dollars needs to be stripped out of the budget, which in the current year stood at $41.6 million, according to Flanders. “The days of having $42 million and greater for the school budget are over,” said Flanders, who is also the former chairman of the state Board of Regents.

Since becoming receiver Flanders has taken a number of steps to include the school district in his restructuring of city finances. And he has claimed the power to renegotiate contracts. Both moves are current facing challenges in federal bankruptcy court from the local unions representing teachers and school workers, according to Flanders. In August, he also issued an order mandating that any school expenditures greater than $25,000 required his approval.

“We think that we now have the tools that we have … with the receiver to rectify any issues,” Flanders said.

Dias, through a spokesman, declined to be interviewed for this report. In response to a series of questions submitted in writing by GoLocalProv, RIDE spokesman Elliot Krieger released a statement, the full text of which is copied below.

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FULL TEXT – RIDE Statement on Central Falls School District Finances

The R.I. Department of Education (RIDE) monitors the Central Falls Schools budget quarterly and reviews audit reports when they are issued. Last year, the Central Falls district had audit findings and budget projections that raised concerns which required a financial review.

Central Falls has had independent audits conducted in Fiscal Years 2009, 2010, and 2011, as well as two “single audits,” which are required when an entity spends more than $500,000 in federal awards in any one fiscal year. Over the past several years, RIDE has also conducted onsite reviews. Following up on these reviews, RIDE has sent communications, including two from the Commissioner last year, regarding Central Falls financial-management issues.

We believe that Central Falls, with the oversight of the Receiver’s Office, now has the tools to, and is currently working to, rectify any issues that reviews and audits have identified. We believe that Central Falls has the appropriate number of staff members at the district level to resolve these financial issues, but the district needs to determine whether a sufficient level of expertise exists within its current staff.

Central Falls has submitted new fiscal policies and procedures to RIDE. There is no set schedule for future reviews, but RIDE continues to monitor Central Falls finances through monthly reports. In addition, the Receiver’s Office is currently doing an analysis to determine whether the district can achieve savings by consolidating functions.

 

 

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