Just before bond election decisions, Dallas school board hears a familiar warning from auditors: contracts are being mishandled

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After reviewing two internal audits claiming the overpayment of hundreds of thousands of dollars on school repairs, officials at the Dallas school district pushed back. Rather than addressing alleged overpayments of up to $330,000, the school board began work on a policy to reduce the authority of its internal audit department.

It’s a familiar place that the school board finds itself in: experts finding fault with the district’s contract process and district officials downplaying those warnings. This time, the criticism came while the board is considering asking voters to approve billions in new bond spending.

The policy change recently discussed by the board would amend the district’s financial ethics policy to allow Superintendent Michael Hinojosa and the district’s lawyers to decide which department investigates cases of alleged malfeasance. The role of the internal auditing department, created to provide some independence from the administration, would be reduced. 

Under current policy, investigation of alleged malfeasance in the district is determined by the type of transgression – for example, personnel-related issues, child abuse and harassment go to the professional services office and financial matters generally to the internal audit office. 

The proposed policy change also would divert investigative responsibility for questions involving less than $250,000 to the professional services office, which is under the superintendent’s direct supervision.

The switch would potentially give the professional services office more authority in fiscal issues and in turn give Hinojosa more say in how to handle them.

Before the changes could be enacted, however, Chief Internal Auditor Steven Martin resigned under pressure from the district on Feb. 13, after officials challenged his report that the district overpaid on two school repair contracts.

The district contested the audit reports, issued last fall, and in a statement released after Martin’s resignation said it had received “serious allegations regarding the validity of the Internal Auditor’s methodology and the accuracy of the calculations.”

In the wake of Martin’s resignation, the amendments to the district’s policing of fiscal malfeasance are off the table for now, “and I don’t see it coming back anytime on the horizon,” Dallas schools trustee Edwin Flores said in an interview with The Texas Monitor.

That’s an abrupt turnabout from the demands of Hinojosa, who said three times during a January board meeting that it was crucial to amend the code to give more power to himself and the district’s legal office, which he has authority over.

“There is a sense of urgency in adopting many if not all of the concepts …,” Hinojosa said on Jan. 9 as the proposal was introduced.

Flores’ promise that the amendments are dead doesn’t convince some critics.

“I don’t believe that,” said Nancy Rodriguez, a trustee candidate who spoke out against the proposal during the public comment session of the Jan. 9 meeting. “I think they will try to bring it back in some form.”

She wondered aloud whether the criticism of the auditor’s office was an attempt to silence potential bad publicity as trustees and the administration consider a bond election in which the board could ask voters to approve up to $3.7 billion in spending.

Flores said that the chief auditor’s office might still be investigated.

Without specifying a particular incident, he said that “if an auditor is handing out confidential information to third parties that are not employees, that is a state crime.

“There are a number of complaints from staffers about this office who have approached people about what is going on there,” Flores said. “And those people are technically whistleblowers.”

Martin, who did not respond to a phone message, has said any moves to challenge his findings are aimed at stifling the results, which covered contracts from 2015 and 2016.

Martin and his staff concluded that officials broke contracts into sections of less than $500,000, so the contracts would drop below the threshold at which they would need board approval. The process is called “sequential purchasing,” which violates state law. Convicted violators are automatically removed from their position. 

District officials said in response to Martin’s allegations that proper procedures were followed.

Martin was told his office’s work on the two audits would be subject to a peer review, performed by other professionals in the field, usually an outside accounting firm.

“Typically, we do these peer reviews every five years if we have the same staff in place,” Flores, the Dallas trustee, said. He said numerous personnel changes in the internal audit office prompted the call for another review, which he said originated last fall from a member of the audit committee.

“It’s not unusual that you wait a bit when a new team is in place and let them develop that first audit plan, then do a peer review,” Flores said.

The last review of the department was done in early 2017, he said.

Since that time, several employees have left, including former deputy chief Aaron Muñoz, who left in October, and Brandon Jones, one of the team’s senior auditors, who left in January. Both are now with the Fort Worth school district.

The findings in the recent audits revealed issues similar to those raised in 2016 by  former DISD employee Zach Manning.

Manning, who oversaw DISD construction and maintenance projects, claimed in a wrongful termination lawsuit that he was fired after questioning contract awards that came in just below the $500,000 threshold for public bidding.

A subsequent review of Manning’s allegations by internal auditor Andrea Whelan partly substantiated his claims, but her draft report was rejected by the district and was never formally published. See the draft here.

Manning’s lawsuit was dismissed. 

Whelan did not respond to an email seeking comment.

Since at least 2013, Dallas schools officials have signed off, without dispute, on audits chronicling excessive student absences on each campus; salaries in the information technology department; bond program spending updates; the district’s tracking of electronic devices, travel and other expenses; and an annual review of the superintendent’s spending.

None of that work alleged possible illegal activity, though.

Auditing departments, whether in the public or private sector, rarely operate with full autonomy, “any more than a superintendent is independent,” said Columbus A. Alexander III, an independent certified fraud examiner in Dallas. He was hired by the Greenville school district to conduct an audit after fiscal inconsistencies were discovered in the budget.

“If you are looking for something independent, you have to go to an outside CPA firm,” Alexander said. “These internal audit functions are really more internal consulting.”

The Dallas school board on Tuesday brought on former DISD interim Superintendent Alan King to temporarily serve as chief auditor. Flores said the board will discuss whether to farm out its internal auditing work.

“I think we will look at both options and see if one is more viable than the other,” he said.

Former trustee Audrey Pinkerton, who was on the board during the Manning episode, said the concept of taking authority away from the internal auditor’s office should be watched. She said that developments in the last three years could reduce public confidence in the district — from Manning’s allegations to Whelan’s report backing some of those claims, to the move to lessen the authority of the internal auditor.

“The whole purpose of having an internal audit department is so that the board can have oversight over the administration,” said Pinkerton, who served from 2016 to 2019. “So any time you take authority away from that independent auditor, then inherently you have a situation where the fox is guarding the henhouse.”

Steve Miller can be reached at [email protected].

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