Auditor general questions district’s loans

Duquesne’s lending might violate ethics

The Pennsylvania Auditor General plans to refer the former superintendent and several other employees of the Duquesne City School District to the state ethics commission, after he said they used district money for questionable personal loans.

Auditor General Eugene DePasquale’s office on Monday released a 42-page audit of the Duquesne district, which was placed under state control in 2012 because of its struggling finances.

According to the audit, which spanned from July 1, 2012, to June 30, 2016, former superintendent Barbara McDonnell authorized more than $41,000 in personal loans to herself and three other district employees. Eleven of the 22 loans authorized during that time — or about $23,000 — were to Ms. McDonnell. And even though the money was used from the district’s general fund, none of the salary advances were approved by the school board, the district’s receiver or the chief recovery officer.

“Such behavior is especially egregious given the district is in

state receivership and has to send its middle and secondary students to other school districts,” Mr. DePasquale said in a news release, arguing that the practice could indicate a possible misuse of public funds and violation of the state Ethics Act.

The school district did not have a formal policy regarding the issuance of personal loans to employees, but a list of procedures was provided to auditors, the report states. All district employees had to do to receive a loan was submit a written request to the superintendent, who passed it along to the business manager who then referred it to a payroll clerk and a business consultant, who developed an “informal” repayment plan for the employee. District officials said the loans were issued to assist with “financial hardships,” but many of the requests auditors reviewed included a request for an advance without providing a reason.

One request from the former superintendent was for $1,000 to “assist with the holidays and my daughter.”

The report also noted that Ms. McDonnell submitted her loan requests directly to the payroll clerk, a subordinate. The business manager also approved loans for the payroll clerk, who is a relative. None of the repayment plans were formalized in writing.

The report also criticized the financial risk the loans posed to an already struggling district, even though the money was repaid through payroll deductions.

In response to the audit, the district said it has been working to implement the recommendations of the auditor general’s office and updating district policy and financial controls to “ensure compliance with all items addressed” in the report.

In the audit, investigators noted that district officials said the school board plans to implement a policy prohibiting the practice in the future and seek repayment of interest on the loans. The district also argued that the superintendent, not the business manager, approved the advance for the clerk and that the superintendent did use the salary advances for “financial hardships,” including for a family member’s health care, college tuition and after a theft of personal property.

“At no time was the intent to be fraudulent in nature, abuse district funds or violate ethical practices as evidenced by the full repayment through payroll deductions of all salary advances in a timely manner,” the district said in a statement to auditors.

Ms. McDonnell resigned from the district effective Nov. 2.

Auditors also found several other issues related to the Duquesne district’s finances, including failing to maintain appropriate documentation for more than $1.3 million in transportation reimbursements and data reporting errors that resulted in an overpayment of about $180,000 in transportation subsidies from the Pennsylvania Department of Education; failing to verify that bus drivers had the appropriate background clearances at the start of the 2016-17 school year; and not having proper documentation for $104,340 in state-paid tuition for foster children.

“For the sake of the students and the taxpayers of the Duquesne School District, I certainly hope that the board and district officials get their house in order and focus on providing the best education possible for students,” Mr. DePasquale said.