—– By: Ann Costantino —-
When the Baltimore County school board approved a $413,000 contract last year for audit consultant, UHY Advisors, to perform an external audit following the fall of former Superintendent Dallas Dance for the school system’s 2012 to 2017 procurement practices and select contracts, prior board leadership determined the scope, depth and particular state laws and policies applicable to the focus of the audit.
With the laws and polices predetermined by former board leadership, whose term ended in November 2018, new records obtained by The Baltimore Post reveal how the prior board’s selection of polices limited UHY’s ability to determine system practices that were in violation of state law or school policy – called “findings” – or were “observations” that showed more benign weaknesses in which UHY could recommend improvements.
Board members asked, Q: “Did UHY consider any ethics and conduct policies? Policy 8410 (Fraud, Waste, Abuse)? Policy 2370 Conduct?” UHY responded, A: “The scope of work indicated which laws, regulations and rules that we were to consider in our scope of work.”
While members of the new school board – sworn in as a new unit in December – asked UHY to look into questionable practices that led to calls for the audit, documents show that UHY went “back and forth with (school system) management” over what was a clear legal or policy violation versus a general need for improvement.
Board members asked UHY to explain, the record shows. “Please explain your comments… ‘final meeting with BCPS staff, back and forth with management, UHY define observation or finding – then battle with staff.’’
UHY answered, “We provide a draft of the potential finding/observation for review and comment. They (BCPS management staff) draft their response and provide additional documentation or commentary to support their position. I consider the additional information in finalizing the finding/observation for inclusion in the draft report. When the draft report is presented, BCPS again is afforded an opportunity to provide a response and additional documentation and commentary to address the finding/observation, which I then consider before providing my final written report.”
In fact, the thirteen page document of questions and answers, obtained by The Baltimore Post through a Maryland Public Information Act request, shows that where UHY had initially determined there were at least three legal or policy violations in the draft audit report, UHY’s final Phase One report pared it down to only one.
In the final version of UHY’s first report, the firm found employees and board members to be in violation for the untimely filing of financial disclosure statements. But some board members have disputed the claim since they say they were not on the board at the time the documents were due.
In the draft version, an employee, identified by UHY as a top system administrator, was able to use a procurement credit card for six years without any oversight. In another instance, UHY determined a finding due to employees not ensuring sufficient spending authority was available before issuing purchase orders, prior to incurring an expenditure.
Yet, in the latter two cases, the findings switched to more benign “observations” when the final Phase One report was finalized.
But if a law or policy was not part of UHY’s scope, then a violation could not be determined. The document shows that UHY determined which category would stick only after the “battle with staff” in order to decide which was which. Board members asked:
Q: Curriculum procurements do not appear to follow established BCPS business practices. Should be a finding.
A: The Code of Maryland provides for a different legal basis governing procurements of curriculum. There is no board policy or Superintendent Rule requiring the Division of Curriculum and instruction to follow “traditional” non-curriculum related procurement processes. Accordingly, since we could not identify a rule or policy that had been violated, this matter should be reported as an observation.
Q: No procedure to document consideration of piggybacking contracts. Failure to demonstrate compliance with Annotated Code 5.112.
A: As BCPS has implemented additional procedures since 2016, in our judgement, an observation is the appropriate classification of this matter.
Q: Documentation of pre-proposal activity is critical to show adherence to Board Ethics policies. Absence of such documentation means that all records needed for audit were not made available.
A: There was no board policy or superintendent rule requiring the maintenance of such documentation or pre-proposal activity, which is why, that this matter should not be considered a finding.
Q: Not all travel, conference fees, etc. are paid for using procurement cards. Were non-procurement card transactions reviewed for same staff?
A: Our procedures did not include non-procurement card transactions reviewed.
Q: Missing travel approval forms should be a finding – in violation of Board Policy 3127.
A: (UHY did not respond.)
Q: There was a contract (iReady/Curriculum Associates) that exceeded spending authority. Why isn’t this a finding?
A: (UHY did not respond to question). The amounts in the table have been revised.
Audit, Phase One
In March 2018, the Baltimore County school board requested proposals from auditors to perform the external procurement audit, after media reports questioned employee and vendor relationships, followed by the indictment of former Superintendent Dallas Dance.
Dance lied on his 2012, 2013 and 2015 financial disclosure statements, concealing nearly $147,000 in income earned from work he performed outside of the school system. He was convicted of perjury and served four months in a Virginia jail last year.
Charging documents showed that Dance told, what would become, a school system vendor, “Keep me as busy as you can.” Months later, Dance brought an $875,000 contract with the same vendor to Baltimore County Public Schools. Yet auditors failed to find the relationship with the vendor as a finding, which would have been a violation of law or school policy.
Dance later lost his superintendent credentials in Maryland and Virginia, but currently runs two education consulting companies which have contracts with several school systems throughout Texas.
In January 2019, UHY presented a draft version of its Phase One report to the new school board. Members of the media and prior school board demanded its release, which UHY and school board attorney, Andrew Nussbaum, advised against.
In April, Jack Reagan, UHY Advisors’ managing director, said he found one finding and 12 observations for which his company provided recommendations for improvement.
But leading up to the final Phase One report, the school board asked UHY to hone in on the most troubling aspects of the system’s procurement practices which led to calls for an audit in the first place.
But unless there was a corresponding law or policy written into the scope of audit, then those areas of concern could not be determined as findings.
Instead, UHY would make a recommendation for improvement and flag them as “observations.”
Destruction of Documents Prior to Audit
As reported extensively by The Baltimore Post, one month prior to determining the scope and time frame of the audit, in April 2018, Baltimore County schools’ law office destroyed nearly 2,400 financial disclosure statements, citing a 4-year document retention/destruction policy it made use of for the first time in its 21-year recorded history of maintaining the records. After the audit began, in August, the law office destroyed 200 more. Among the records destroyed were years 2012 and 2013 which UHY noted was a limitation during its research of years 2012 through 2017.
Financial disclosure statements are designed to capture employee and vendor relationships and possible conflicts of interest. But when UHY requested those 2012 and 2013 records, they were unavailable for review.
In their questions to UHY, board members asked if the law office had the authority to destroy the records since school system policy states that the school board – which was not notified of the record destruction – has “responsibility” over the documents. UHY did not answer the questions, but responded, A: “We have included additional language and have made a recommendation.”
Yet records show that UHY relied heavily on financial disclosure statements to assist in the firm’s research into any potential conflicts of interest. But unless such disclosures appeared in the financial disclosures, UHY went no further.
Q: Did UHY evaluate which contracts involved vendors that were affiliated with ERDI (Education Research and Development Institute) at the time of contract or prior to contract?
A: Our procedures evaluated known relationships between BCPS employees and its vendors based on information contained in the Financial Disclosure forms.
Q: Did UHY utilize any questionnaires or surveys of employees to further evaluate BCPS/vendor interactions? Gifts?
A: We relied on information contained in the required financial disclosure forms.
Q: Did UHY utilize any questionnaires or surveys of vendors to further evaluate BCPS/vendor interactions? Gifts?
A: We relied on information contained in the required financial disclosure forms.
Q: Did anyone list any dinners/gifts from vendors on their financial disclosure forms?
A: No such information was disclosed.
Audit, Phase Two
A Phase Two audit, the scope of which was also determined by the prior school board, would ask auditors to look deeper into up to 180 contracts and other aspects of system procurement between 2012- 2017. It is up to board members to decide whether a Phase Two procurement audit is warranted.
Board chairwoman, Kathleen Causey, did not respond to questions surrounding the prospect of the second phase of the audit. But former at large school board member, Ann Miller, says that not only is there a need for the second phase, but she called the first phase a “bait and switch.”
The UHY audit firm Miller says she voted for when she was on the school board was contracted to conduct an audit, whereas the consulting arm of that firm chosen to complete the job that was actually hired – UHY Advisors – she says are actually tax and business consultants.
In an analysis, Miller said of the Phase One audit, “Audit standards would require independence from the auditor, whereas consultants don’t need to be independent… If an auditor identifies anything that looks like fraud, they have to report it to the board.”
In a Monday night interview with Chris Papst from Fox 45, Miller called on the Maryland State Prosecutor to look into the UHY Advisors audit and alleged violations of Baltimore County schools procurement with the company under the $413,000 contract.
Miller asserts that even the contract and procurement practices leading up to the school system’s contract with the external auditor – who was hired to look into the system’s procurement practices and contracts – needs a review.
In her analysis, Miller stated, “…The review was not conducted by UHY LLP, but by a subsidiary, UHY Advisors, which is not a licensed CPA firm.”
Miller told The Baltimore Post that she is filing a formal complaint with the Office of the Maryland State Prosecutor.