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Petersen takes responsibility, makes changes after audit

Mark Petersen isn't in the dancing mood.

Instead, he's approaching the 2006 state audit of the McDuffie County school system head on and taking full responsibility.

"My Daddy told me, when you are put in charge, be in charge, and that includes taking responsibility for the good, bad and the ugly," said McDuffie County's Superintendent of Schools. "I don't like to admit mistakes, but I will, and I will take responsibility. I have to. If I'm going to be a leader, I have to."

So he has met with school board members. He's met with his central office staff. He's got documents an inch thick to explain his case.

But the audit is still there, hanging like a "black cloud" over the school system, said the superintendent.

Sitting in the Board of Education's main meeting room last week, Dr. Petersen spent nearly three hours explaining the audit's findings, offering stacks of documentation and being very candid about taking responsibility for the report.

Released to the public earlier this month, the wide-ranging, harshly-worded report from the Georgia Department of Audits and Accounts outlines several findings within the school system. And the school system's corrective actions aren't pretty in the black and white of the audit report. Among the items:

- The superintendent cancelled corporate credit cards for himself and four other front office employees.

- The school board chairman was asked by the superintendent to sign off on the superintendent's travel reimbursement requests.

- The superintendent had to reimburse the school system for three items, including a plane ticket for his wife.

"It puts a stain on me, my reputation and, unfortunately, the school system," said Dr. Petersen. "But I want to be clear: no money is missing, and each of the expenditures in question were made in good faith. This audit raised questions about the processes we use, not about the integrity of our spending."

The opinions on the audit's results are varied among school board members.

"I think they did a good job of explaining what had gone wrong, and I thought they did a great job of doing their job," said Georgia Hobbs, who sat in on the presentation of the findings with the auditors in late December along with board member Paul Leroy. "You know, we got caught with our hand in the cookie jar, as they say. But let's not blame that on someone else; they did what they were supposed to do."

School Board Chairman Jerry Randolph said any issues raised by the auditors have been handled, with the solutions coming directly out of the superintendent's office.

"I don't have a problem with them telling us what's wrong, and we'll do what we can to correct it," he said.

What's not in the black and white of the audit's findings is the bigger picture at the school system: Of $52 million in the school system's budget, the audit's findings involve about $68,500, or about 0.13 percent of the total budget.

Still, Ronald E. Watson, the Department of Audits and Accounts' Education Audit Division Director, said the issues raised by the audit need to be corrected. He reviewed the findings during a phone interview last week.

"I don't want to take away the importance of what's there," he said. "There's a lot of findings in here, but there doesn't seem to be any that are that severe."

Fanning the flames

The auditors spent three weeks in McDuffie County around Thanksgiving last year. They sampled the school system's financial records from the fiscal year that ended June 30, 2006, and interviewed various employees, said Tom Smalley, the school system's comptroller.

"I really felt this time that we were more up under a magnifying glass than in the past," he said.

And there's a reason for that. The corporate and government accounting landscape has drastically changed in recent years with the implementation of rules from the Governmental Accounting Standards Board - commonly called GASB 34 - and the Sarbanes-Oxley Act of 2002. Sarbanes-Oxley aims at public companies, while GASB 34 focuses on making governments more accountable. Both laws came to the forefront in the wake of scandals like Enron, and both laws stepped up the scrutiny from auditors.

In the end, the auditors came up with eight issues ranging from mileage reimbursements to improper expenditures that they detailed in an initial audit report which was presented to school system representatives during an "exit interview" in late December.

Dr. Petersen and Mr. Smalley broke down each issue in the audit and responded to each point. In early February, state auditors released the final report.

"They've really created a mountain out of a molehill," Dr. Petersen said. "I've been through audits before, but they were never like this. You'd think if they were going to focus on me, they would have asked me some questions."

In reality, Dr. Petersen said, he met with the auditors one time during their visit, and that meeting focused on legal issues.

Mr. Watson said the superintendent was not targeted, but auditors normally do pay close attention to the expenses associated with the higher level employees.

"If you are going to audit someone, you want to audit those who have control and influence," he said. "You have to start at the top.

"We do look at upper management hard because they are the ones that control the activity of those systems. We are going to always check their salary and their travel and those types of things. But we are going to do that everywhere."

Checks and balances

The report questions some of the mileage turned in by the superintendent last year. Auditors said the reports included estimates of trips and did not include a starting and ending odometer reading - as required by state regulations.

According to documents from the school system, Dr. Petersen filed four mileage reports last year. Three of those included the beginning and ending mileage; one did not. That one, which covered a series of trips to school events from November 2005 until May 2006, did include a print-out of street-by-street directions and mileage of his trips from yahoo.com.

Dr. Petersen said he should have included the starting and ending mileage for the trips, but said the incident illustrates the breakdown of the accounting process within the school system's main office. The requests passed through the correct channels and were signed off on by several school system employees, even though they were incorrectly filled out.

"The checks and balances didn't catch it," Dr. Petersen said. "The checks and balances have now been fixed."

The mileage issue was just one of several examples Dr. Petersen pointed to as justification for expanding the checks and balances process to include school board members. For example, the Board of Education Chairman will now sign off on all travel reimbursement requests from the superintendent.

"(Dr. Petersen's) integrity has been questioned, and his honesty has been questioned," Mr. Randolph said. "I probably would have reacted in the same way. I'd want another set of eyes to look at it, too."

In this case, the additional set of eyes marks a shift in the power paradigm at the school system. In the past, each level of check and balance was below the superintendent on the employee flow chart. That meant any employees questioning an expenditure would be questioning their supervisor.

"You can imagine the issues this could raise," Dr. Petersen said. "I wanted to remove any stress from our employees and remove any questions about the integrity of our process. This ensures everyone is accountable, and everyone is participating in the process."

But the questions about Dr. Petersen's travel weren't just about mileage. There was also a finding about a July 2005 reimbursement to the superintendent for $466.92 - the amount he charged to an American Express credit card for a three nights lodging at the Georgia School Boards Association summer conference convention in Savannah.

On his reimbursement request, Dr. Petersen asked that the check be made payable to American Express - a notation in bright red in the top left corner of the form. The check, however, was sent directly to the superintendent, a mistake he caught and rectified by writing a check back to the school system, according to both audit and school board documents.

And it wasn't the only expense incorrectly paid by the school board. During the auditors' visit, they found a $228.60 plane ticket to the annual Renaissance convention for the superintendent's wife, Brenda, that was paid by the school system. The school system also picked up the $225 tab for her registration at the convention. In both cases, Dr. Petersen immediately reimbursed the school system when the expenses were brought to his attention.

As in the case of Dr. Petersen's improper mileage form, the airfare and Renaissance registration requests were signed by several school system employees as the paperwork passed through the proper channels - but none of those employees caught the mistake. Problem is, Mrs. Petersen isn't an employee of the school system, so her airfare and registration fee shouldn't have been paid with taxpayer's dollars.

"I knew that," Dr. Petersen said. "And I should have been more careful when that document crossed my desk. I shouldn't have signed it in the first place. I made a careless mistake and have already taken the steps to make sure it will not happen again."

Aside from adding Mr. Randolph as another set of eyes to OK all travel requests, Dr. Petersen has also asked Mr. Smalley to sign off on all invoices, vouchers and other similar items submitted by the superintendent.

When auditors brought the ticket and registration fee to his attention, Dr. Petersen reimbursed the school system prior to the end of the auditor's visit, according to the audit. He also reimbursed the school system $75 for a Rotary Club function. His dues are now included in his salary package - following another recommendation in the 2006 audit, but there is no allocation for club functions. The $75 fee for the club's annual Partners Night was included in a dues statement and paid by the school system, Dr. Petersen said.

He said, she said

One of the biggest points of contention in the audit centered on the school system's use of rental income to pay for some items state auditors claimed were improper. But school system officials said they were just acting in good faith on the advice from a state auditor.

Mr. Smalley said the school system receives about $36,600 in annual income from the rental of places like Pine Street School, the white house across from Thomson High School and other locations.

In the past, the rental money went into the school system's general account. But in February of 2004, shortly after then-Superintendent Ed Grisham had made clear his plans to retire in July of that year, Mr. Smalley sent an e-mail to Roy Conley - the deputy director of the Education Audit Division of the Georgia Department of Audits. He asked Mr. Conley if the system could use rental income to pay for a retirement reception for Dr. Grisham.

Mr. Conley's response was short, simple and clear: "I am not aware of any law regulating the use of rental income. I would expect that you would clearly identify the revenue source on your books along with the subsequent expenditure," he wrote in Feb. 13, 2004 e-mail.

So the school system moved forward. When school leaders implemented a December graduation ceremony, the cake, refreshments and decorations - a total of $467 - were paid for using rental income. So was $2,396 in imprinted name tags for all school employees. And $1,000 for catering for a teacher retirement ceremony. In all, nearly $15,000 in charges were levied against the rental account between July 2005 and June 2006.

"I truly thought - based on that e-mail - that we were very much within the law," Mr. Smalley said.

The account wasn't mentioned in the school board's 2005 audit, but it was center stage in the 2006 report. According to state auditors this year, the rental money must be spent on instructional purposes - things that don't include retirement banquets and name tags.

"Frankly, I was shocked when we came to the exit interview," Mr. Smalley said.

School Board Attorney Bob Knox, Jr., weighed in with a letter saying "I believe that my opinion is backed up by information from previous state auditors, but in any event it is my opinion that the receipt of rents and the expenditures from the rental account which are being currently made by the McDuffie County Board of Education are legitimate and proper."

But the final word came on Jan. 2 in an e-mail to Mr. Smalley from Auditor Tracy Branch.

"I got the letter from your attorney regarding his opinion on the use of rental income," she wrote. "I wanted to let you know that our Deputy Director over Standards, Research and Quality Control, Randy Sanders, stated that rental income is considered school/program funds and must be used for educational purposes."

And that was that.

Mr. Watson said he understood there was a misunderstanding on the law, but that the spending was still an issue.

"They thought they were doing things that were correct, but the more auditors looked, the more they felt like they shouldn't be doing it," he said. "It was just more or less, 'Hey guys, this really isn't something you need to be doing with this type of money.'"

Mr. Smalley said school board officials have clearly gotten the message: Since Jan. 2, only one item has been paid out of the rental account - a $54.13 receipt already earmarked for the account in December 2006. The money that remains in the account will be rolled back into the school board's general fund, he said.

Cancelling a problem

One of the main results of the audit was the cancellation of the SunTrust corporate credit cards for Dr. Petersen, Assistant Superintendent for Curriculum and Instruction Barry O'Neill, Assistant Superintendent for Personnel Margie Waters, Assistant Superintendent of Administration Services Jim Franklin and Dr. Petersen's Administrative Assistant, Robin Browning.The cancellation of the cards was a decision made by Dr. Petersen on Jan. 2 - the day the closing letter of the audit was received, according to Mr. Smalley and Mr. Randolph.

Dr. Petersen said the cards were used for several of the purchases that showed up in the rental account, so he cancelled them on Jan. 2. Instead, school system officials now use p-cards for purchases. The main difference, according to Dr. Petersen, is documentation: The p-card requires more front-end and back-end justification for purchases.

The move is similar to actions taken by McDuffie County Manager Don Norton shortly after he came to McDuffie County in 2004. Mr. Norton said he found that various employees had been issued Wal-Mart credit cards. The problem was with the control of the cards, he said.

"Why did we have them?" Mr. Norton said. "Well, they were very convenient. Why did they cause a problem? Well, because they are very convenient. And, people, before you realize it, they have used it for something that is inappropriate. There is very little control, until after the fact, at least."

What's next

Ms. Hobbs said she was pleased to see Dr. Petersen take responsibility for the audit. Still, she was surprised by the outcome.

"We have not had that kind of problem before," she said. "I would hope that the findings would not be repeated. Hopefully this won't happen again."

Mr. Randolph said he's been pleased with Dr. Petersen's explanation of the audit's findings. And the results haven't shaken his confidence in the superintendent.

"I have all the confidence in the world in him," Mr. Randolph said. "He's had to make a lot of hard decisions, but he's leading us in the right direction."

For now, that direction is set until 2009 - the current expiration date for Dr. Petersen's contract. And if he had his druthers, Dr. Petersen said, he'd be a leader here at least another 10 years. He started in McDuffie County in July 2004.

He's worked in six different school districts, but he said there's something special about McDuffie: It's become home.

"As we were driving down Washington Road one day, my wife said 'I believe we could retire right here.' She's never said that, and we've been married 25 years. That was just music to my ears."

Breaking down the audit

Findings

1) Need to implement disaster recovery procedures and accounting controls.

2) Need for better documentation, controls and tracking to ensure rental income is spent on "education expenditures."

3) One school purchased gifts and other items for personnel, items that are considered extra compensation - which are not allowed under the state constitution.

4) Mileage on one of the superintendent's reimbursement requests based on estimates, not actual mileage.

5) School system did not include the payment of civic club dues in the superintendent's salary for 2006.

6) School system paid a $225 registration fee for someone who was not an employee.

7) School system's Title 1 Grants final report reflected a balance that was $49,000 less than actual expenditures.

8) Fiscal requirements of Title I school-wide program not fully implemented.

Response/Actions

1) School system officials plan to invite a representative from their insurance company to help create a plan.

2) The school system received a letter in February 2004 from the Deputy Director of the Education Audit Division of the Georgia Department of Audits saying, "I am not aware of any law regulating the use of rental income." Based on that letter, the school system established an account and documented each expenditure in good faith. As for actions:

- The superintendent cancelled all corporate credit cards for himself and four others effective Jan. 2.

- Any sales tax paid by school system personnel must be reimbursed by the person making the purchase effective Jan. 2.

- Rental account dollars will only be spent on school-related expenditures effective Jan. 2. And the school board must approve the monthly list of rental expenditures effective Jan. 3.

- Improvements to the checks and balances system have been implemented.

3) Such expenditures are being stopped, and the county will review their current policies.

4) The Board of Education Chairman will now sign off on all travel reimbursement requests from the superintendent. Also, all mileage reimbursement requests must include starting and ending odometer readings.

5) The amount will be included in the principal's 2006 and 2007 W-2s.

6) The amount was reimbursed to the school system, and the system will no longer pay such fees.

7) Starting in FY2007, final reports will reflect the actual amount spent.

8) The school system will solve such issues for FY2007 and will ask the Georgia Department of Education for guidance as needed.

Audit Report
- View the entire report
(pdf format, Adobe Reader required. Download Adobe Reader free)



Web posted on Thursday, March 01, 2007













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