DePasquale: Penn Hills audit 'one of worst school audits I have ever seen'
Rampant fiscal mismanagement, bad business decisions and a gaping lack of oversight have thrust Penn Hills School District onto the edge of a “self-inflicted” financial cliff and might warrant criminal charges, Pennsylvania Auditor General Eugene DePasquale said Wednesday.
Taxpayers in one of Western Pennsylvania's largest school districts are on the hook for debt that has ballooned from $11 million in 2010 to more than $170 million — almost twice as much as the Penn Hills district's annual budget of about $90 million. After ending 2011 with a surplus of nearly $1 million, the district is more than $18 million in the red, DePasquale said, and its tax rate is likely to climb later this year.
“It will take a Herculean effort to turn the district around,” DePasquale said.
The state audit's findings — all of which the district agreed to be true — depict an alarmingly weak system of checks and balances that DePasquale said contributed to unrealistic debt obligations, school-issued credit card abuse, missing athletic funds, transportation overspending and unchecked theft of district fuel, among other issues.
“It's a disaster,” said state Rep. Tony DeLuca, D-Penn Hills, who requested the audit and has asked the state Department of Education to install a financial control officer to repair the situation. “It's totally mismanagement. I just can't believe it. What concerns me the most is the fact that nobody was paying attention.”
Most of the debt comes from a $135 million bond issuance in 2010 to fund the construction and renovation of schools.
“There was no plan,” DePasquale said, “and now the students, the parents, the staff, the teachers, the administration and the taxpayers of Penn Hills are left holding the bag.”
DePasquale faulted the district's nine-member board, former Superintendent Tom Washington and former Business Manager Rick Liberto.
“We are like a business. We have people who've invested in us financially. … Unfortunately, we have not been following a business model,” said Superintendent Nancy Hines, who was assistant superintendent during the audit period. Several sitting board members placed blame on former board members and administrators.
“The present board is working hard to try to make a difference here,” board member Erin Vecchio said.
Former school board member Carolyn Faggioli did not return calls seeking comment. Neither did board member Donald Kuhn, board President Denise Graham-Shealey, who has been on the board since 2011, nor Washington.
Liberto — who was Penn Hills' business manager from 2008 until he was fired last year — said he clashed with a board that consistently flouted financial advice and warnings from him and other experts.
“They were advised by construction managers, they were advised by politicians: Don't borrow $167 million,” said Liberto, who is suing the district for wrongful termination in Allegheny County Common Pleas Court.
He noted that since he started at Penn Hills in 2008, the district has churned through five superintendents and fired several supervisors, some of whom he said were rebuffed by board members when they pushed for budget cuts.
“Not only did they not listen, but they told me what we were going to do,” said Liberto, now business manager of Wilkinsburg School District. “It was like giving a kid a badge and a gun and they think they can just control the world.”
Liberto said he warned the board dozens of times about the district's dire financial straits, and the board refused to follow through with plans to save money by laying off teachers, consolidating bus routes and reducing construction costs.
Among problems flagged in the 74-page audit, which covered July 2012 through June 2015 were:
• Abuse and numerous violations of board-approved policies for credit card use, including a failure by the district to review, authorize and account for purchases — such as a $359 residential water heater not found on district property.
• At least $22,000 collected as admission fees to district athletic events from July 1, 2012, through June 30, 2015, went missing. The district did not have written procedures for collecting, safeguarding and depositing admission fees into its general fund.
• The district did not obtain, review and maintain documentation on any of 25 bus driver records reviewed. Two bus drivers had convictions, one on a felony drug offense and the another on an aggravated assault crime.
“When we brought this to the district's attention, both drivers were removed from their positions,” DePasquale said.
DePasquale — who called the report “one of the worst school audits” he's seen — said he shared the findings with the Allegheny County District Attorney's office, the U.S. Attorney for the Western District, the state Department of Revenue and the state Ethics Commission. He urged the oversight agencies to probe Penn Hills School District “for further investigation of possible criminal and tax violations.”
None confirmed an active investigation of the district.
Mike Manko, spokesman for District Attorney Stephen A. Zappala Jr., said his office and Allegheny County Police had received a referral from the Penn Hills superintendent. He said information and conclusions within the state audit “may be of assistance.”
U.S. Attorney David Hickton declined to comment.
School officials are planning for the 2016-17 budget. Board members on March 29 approved eliminating 43 teaching positions and more than 20 high school elective courses.
The district borrowed $18 million in October to fund day-to-day operations. Its challenges have been exacerbated by losing students to regional charter schools.
“We remain extremely fragile,” Hines said. “As the residents know, we have raised taxes for this year, and we will continue to do that the next couple of years for sure and without a doubt.”
Longtime Penn Hills resident Gene Mowry and his wife, Cathy, a school board member, said they are on a fixed income, and real estate tax increases will be “a backbreaker.” Gene Mowry said the most disturbing part of DePasquale's findings was about the credit cards.
In August 2012, district credit cards were used to purchase doughnuts for meetings, lunches at local restaurants, sports equipment and hotel rooms for district consultants. One of the names on two dozen district-issued credit cards was listed as “Anyone in uniform” — an authorization that DePasquale described as “insane.”
“Anybody in uniform? What?” Gene Mowry said. “I want to see people pay the price, but that's not going to get your money back.”
The district eliminated those credit cards eight months ago and is investigating the use of the previous cards, district spokeswoman Teresita Kolenchak said.
In June, the board adopted an $87 million 2015-16 budget that used a loan to cover a deficit.
To generate enough to pay off its $167 million debt obligation in a single year, the district would have to quadruple its tax rate — a move prohibited by state law. One mill generates about $1.5 million, which means the district's 24.8061 rate brings in about $37 million a year.
Hines said the district has “stabilized” but is “absolutely not cured.”
“There's no silver bullet for our situation,” Hines said.