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Audit Confirms Lowell Schools’ Fiscal Quagmire

December 15, 2018

LOWELL -- Yes, Lowell Public Schools are in a “financial crisis,” according to a third-party audit released Friday.

The audit found the district overspent last year’s general fund budget by $1.4 million and identified $3.4 million in budget shortfalls in the originally approved version of this year’s budget. The financial woes are further compounded by overspent revolving funds, which typically have a balance that carries over year to year, according to the audit.

The 20-page document drafted by Minneapolis-based firm CliftonLarsonAllen describes a district that was out of compliance with laws and regulations in “numerous instances,” detailing improper contracts, overpayment of employees, issues with account transfers and a culture of favoritism. The district is facing a structural deficit, according to the audit.

Some of the issues identified in the document are as follows:

n The forensic review primarily focused on fiscal year 2018, which covers July 2017 to June 2018.

Though the district appeared to end the year $81,746 below its $162.3 million budget, the audit found the general fund was overspent by $1.4 million.

This total includes $165,088 in general fund bills that were unpaid by the end of the fiscal year.

The rest involves inappropriate charges or overcharges to revolving funds. Of the total, $1.1 million is related to overcharges of indirect costs to the food services account -- an issue first found in a state audit. This fall, the district agreed to pay back this sum, and an additional amount owed from fiscal year 2017, over a four-year period starting next year.

The $1.4 million in overspending for fiscal year 2018, does not include an additional $1.4 million in “unpaid and accrued” bills for food services provided to the district between April and June of this year. These bills are paid from the food services account, which only had a $655,633 balance at the end of the fiscal year, according to the audit.

The circuit breaker account for special education was drained by the district, according to the audit.

“The (district) not only spent all of the 2018 Circuit Breaker funds ... totaling approximately $3.5 million, but also liquidated the entire prior year balance of approximately $2.1 million in an unsuccessful attempt to not overspend the 2018 (district) budget,” according to the audit.

For the current budget, the audit found $1.2 million in budget offset overages related to food services, use of facilities, PEG access and utilities. Additionally, the district under-budgeted special education transportation, special education tuition and retirement sick leave buyback by $2.1 million, according to the audit.

Some numbers used in the audit were provided by the school district, according to the document.

n The audit also identified issues with payments to employees.

In one instance, an employee on leave to take care of her elderly parents was paid for just shy of five months after her leave should have ended, according to the audit.

The audit said the district filed suit to recoup the loss, but the judge dismissed the case resulting in the district losing $35,400 in overpayments.

A table in the audit shows 11 principals received merit bonuses or increases to pay above what was allowed by their contract, totaling $23,096 in overpayments

One principal -- previously reported as Jason McCrevan, principal of the STEM Academy at Rogers School -- was promised compensation outside his contract by former Superintendent Salah Khelfaoui to oversee construction work during the summer of 2017.

A year later when the School Committee was notified of the agreement, McCrevan was compensated via a $6,590 settlement with the committee, according to the audit.

Additionally, the pay for an unnamed attorney working for the district increased from $50,000 to $90,000 in fiscal year 2018 “without sufficient documentation to support the increase,” according to the audit. The increased payment was not included in the fiscal year 2018 budget and there is no current employment or contractor agreement between the district and attorney, the audit said.

According to the audit, the School Committee did vote to expand the attorney’s responsibilities in Oct. 2017, though City Solicitor Christine O’Connor told auditors her office still conducts many of these duties.

As part of the audit, employees in the central office were interviewed about former Superintendent Khelfaoui and former Chief Financial Officer Gary Frisch.

“The interviews conducted revealed an environment of conflicting opinions, emotions and confusion towards Dr. Khelfaoui and Mr. Frisch,” the audit said.

The audit found employees were split on Khelfaoui with some describing him as a good leader and others saying he frequently played favorites to the detriment of others.

Frisch was described by employees as “overwhelmed.” The audit also found the former chief financial officer described himself as a certified public accountant on his resume even though his license had not been renewed since 1997.

* Finally, the audit called into question the district’s three-year, $9.7 million special education transportation contract with Pridestar EMS, Inc. that was approved by the School Committee in February of this year.

Khelfaoui did not present a competing offer from North Reading Transportation (NRT), Inc. to the School Committee, which could have saved the district $1.9 million over four and a half years, according to the audit.

This conflict was the topic of a state Inspector General complaint filed earlier this year.

Pridestar featured in another section of the audit, which highlighted the process of choosing a building for a new day school location.

An employee from Pridestar, notified the district that Pridestar’s holding company, the Daly Group, LLC ,owned buildings in the area that might be suitable for the school’s new location, according to the audit.

The audit described school administrators touring a building on 60 Carlisle St. in Chelmsford, before the district went out to bid on proposals for a new location. The Chelmsford location was ultimately selected over another offer, a building at 144 Merrimack St. in Lowell, according to the audit.

“In the spirit of the law, this would appear to give The Daly Group a competitive advantage over any other entity submitting a bid,” the audit read. “Whether it actually resulted in an unfair advantage is unknown.

The audit comes during a period of turmoil in the district.

On July 18, a split Lowell School Committee voted to begin the process of terminating Khelfaoui and placed the superintendent on paid administrative leave. The same night Mayor William Samaras, who opposed Khelfaoui’s continued employment, requested this outside audit.

The School Committee approved spending up to $50,000 for the audit. The final cost was not available Friday evening.

Almost four months after starting the process, a still divided School Committee voted to terminate Khelfaoui on Nov. 14.

In the meantime, Billie Jo Turner, the Interim Assistant Superintendent of Finance, conducted a review of the fiscal year 2019 budget and found a $2.48 million deficit even after the district received $2.2 million in additional unbudgeted revenue. Her figures do not include the $2.1 million in improper food service account offsets that the state will require the district to repay.

Her review has received a mixed response from the School Committee with some members describing the numbers as inflated and others pushing to close the hole.

The School Committee is expected to discuss the audit at 6:30 p.m. on Wednesday in City Council Chambers.

Follow Elizabeth Dobbins on Twitter @ElizDobbins

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