DPS moves to tighten fiscal oversight

Jennifer Chambers, and Shawn D. Lewis

Detroit parent Millicent Austin plans to keep a close eye on the business practices at her daughter’s school this fall, following an FBI investigation that uncovered a widespread, 13-year kickback and bribery scheme in Detroit Public Schools.

Austin is “absolutely angry” about the $2.7 million essentially taken from Detroit schoolchildren by a school supplies vendor and school administrators and believes a lack of district oversight played a key role in the crimes.

“They need to put some checks and balances in place,” Austin said, as she prepares for her 6-year-old daughter to enter the Foreign Language Immersion and Cultural Studies School on West Outer Drive on Sept. 6.

“I’m not sure what we as parents could do, but there definitely needs to be more transparency, and more than one signature so that one person doesn’t have all the power,” she said.

The U.S. Attorney’s Office in Detroit continues to investigate the school district and last month filed charges against another DPS vendor who is accused of overbilling for services not delivered and taking $684,644 from the district by fraud. Theodore Thomas Pride III is charged with federal program theft for allegedly submitting fraudulent invoices from a supplemental education provider called Priority: My Education.

That’s on top of the public corruption investigation that collared 14 people in connection with the school supply fraud and another case with criminal charges against a former district administrator and vendor in a $1.275 million tutoring scam.

School district officials say they have addressed the lack of oversight by restructuring the Office of Inspector General, effective July 1, to include two primary functions: investigations and internal audits.

The office, closed in 2015, was re-established by emergency manager Steven Rhodes in April just days after 13 DPS officials and the vendor, Norman Shy, were charged by federal prosecutors with conspiracy to commit federal program bribery.

FBI investigators say Shy, owner and operator of Allstate Sales, hatched the scheme by offering cash, checks and gift cards to DPS officials in exchange for over billing the district.

School spokeswoman Chrystal Wilson acknowledges the fraud directly impacted classrooms.

“Students did experience a shortage in supplies due to various reasons including DPS was insolvent and faced several financial restrictions,” she told the Detroit News in an email.

“The OIG will continue to conduct comprehensive investigations and forensic audits based upon receipt of actionable complaints into allegations of waste, fraud, abuse and financial mismanagement, and track recommendations for completion and resolution,” she said.

In addition, the district’s finance department has implemented a new procurement policy, Wilson said. It requires additional signatures from network leaders who are assigned to a group of schools to help oversee operations and academics; sending all invoices from vendors to accounts payable first, rather going directly to the schools or departments; and reviews by the Financial Review Commission of all district expenditures.

DPS in July became formally known as the Detroit Public Schools Community District, a new school system created by the state Legislature as part of a $617 million package to rescue the debt-laden district.

Prime areas for fraud

Peter J. Henning, Wayne State University law professor, said smaller contracts made the district’s environment conducive to theft.

“I wish there was a foolproof method for preventing fraud, but this is one of the prime areas for stealing from the government because the contracts and payments tend to be smaller and there are so many that it’s hard to track,” he said.

“Still, having a ‘cop on the beat’ looking at the payments and supplies can help bring vendors into line,” he said.

David Martell, executive director of the Michigan School Business Officials, said each Michigan school district has undergone its annual audit or is preparing for one with a CPA firm before the new school year begins.

“Part of the process is reviewing internal controls, what’s in place where you look and see what ability someone might have to commit fraud and to have the ability to do something. They look at whether financial statements are correct or not. There are many ways a district is able to circumvent fraud,” Martell said.

But when two people are working together to commit fraud or steal money, as was the case at DPS, it’s not as easy to detect, Martell said.

“When there is collusion going on like in Detroit, someone in a higher level and someone at a lower level, there is always a piece where people don’t feel like they are being paid enough,” he said.

Inspector general ‘vital’

Louis Gabel, a litigator and investigator at Jones Day and a former federal prosecutor in Detroit, noted that federal monitors can be put in place after public corruption investigations to ensure that any perceived problems are being rectified.

That happened in Detroit in 2003 when the city police department was investigated by the Justice Department for its use of force and its arrest and witness detention practices.

“You are required to institute new policies. DPS may do that and it may be good in the wake of this scandal. I think they should do it on their own initiative,” he said.

Robert Bobb, the first emergency manager installed at DPS in 2009, said the district made a tactical error in eliminating the Office of Inspector General.

Between 2009 and 2011, that office conducted more than 720 investigations. Bobb said $19 million in recoveries and financial losses were prevented.

“You have to send a serious message to the organization: if you are involved in criminal activity you are going to be prosecuted. The OIG plays a vital role in an institution which has a history of criminal activity,” Bobb said.

Going forward, DPS should focus in on vendors and require them to sign an integrity document in which they promise to follow procurement rules and agreed to allow their activities to be reviewed, he said.

“They cannot have an independent relationship with principals or staff. It’s pervasive at DPS. Nationwide Detroit is the most pervasive. Vendors are the key in changing the culture,” Bobb said.

Enforcement key

Parent Patrina Riley said she was disappointed by the fraud scandal at DPS. Her 10-year-old daughter will enter fifth grade in the fall at Burton International Academy.

“We trust the leaders of the schools, and then they take from a school district that already is struggling,” she said. “I think the principals should work with the parent leaders of the schools regarding Title 1 funds so the money won’t be in a lot of hands.”

East English Village Academy High School teacher Nicole Conaway said the solution may lie within a new school board, which will be elected in November.

“I think the best way to stop the fraud and corruption is with an empowered elected school board made of members accountable to the residents with open meetings where budgets and expenditures are reported on and the public gets to see and hear about such district business and hold board members accountable,” she said.

Retired DFT president Keith Johnson said only time will tell if changes implemented by the district will be successful.

“But it really doesn’t matter what policy you put in place,” he said. “The only thing that matters is actually enforcing it.”