5 key takeaways from the Memphis schools forensic audit

“Sign up for Chalkbeat Tennessee’s free newsletter to keep up with statewide education policy and Memphis-Shelby County Schools. Preliminary findings from the state audit of Memphis-Shelby County Schools show over $1 million in spending considered waste or abuse , as well as ineffective document and policy systems. The over 300-page report released Wednesday morning only represents 25% of the full investigation, which the report says is expected to conclude by June 30. The audit firm CliftonLarsonAllen, or CLA, said in the report that it is facing significant delays due to issues obtaining documents from MSCS in a timely manner. “The forensic audit identified significant and recurring internal control, documentation, and records‑management deficiencies that materially impaired the District’s ability to demonstrate compliance, accountability, and effective stewardship of public funds,” the audit says. “Several areas of the forensic audit remain in progress.” Some state leaders, including vocal advocates for the state takeover of MSCS, say these preliminary results are some of the worst they’ve ever seen . Tennessee Republicans said Wednesday that they will immediately move forward with plans to establish a state-appointed MSCS board to lead district decisions, rather than wait for the results from the full audit. MSCS leaders, including the newly-appointed permanent Superintendent Roderick Richmond, say they’re committed to addressing issues raised by the audit . And some Memphis leaders say the dollar amount identified as waste and abuse spending over three years represents a fraction of MSCS’ $2 billion annual budget. In total, the violations constitute less than 1% of the budget. Leaders have already adopted plans to upgrade internal document systems. And the school board passed a resolution Tuesday night fast-tracking corrective action plans from Richmond in the next two months. The forensic audit is reviewing MSCS practices from July 2021 through June 2024, when former interim superintendents Joris Ray and Toni Williams were leading the district. MSCS leaders will be presenting a full response report on Monday, April 6. In the meantime, here are five key takeaways from the initial audit findings: $1.1 million in MSCS contracts “classified as waste or abuse” on leadership coaching, consulting CLA found that around $1.1 million of spending on contracts over the past three years are consistent with definitions of waste and abuse. Most of that spending comes from paying for leadership coaching and consulting services that CLA says duplicate existing programs, or lack evidence of being completed. A $45,000 payment to the Council of the Great City Schools, for example, seems to pay for training that is already included in district membership fees. And a $674,000 contract with the YMCA of Memphis was issued and paid for without following proper renewal procedures. The group also identified $33,000 in payroll waste, including paying one employee for four months after they left the district. And just over $1.7 million of spending in the 2021-2024 time period didn’t rise to the level of waste or abuse, but did run afoul of district policies. The contracts and payroll violations in question include incomplete travel expense reports and missing invoice signatures. The spending labeled “waste or abuse” is a tiny fraction of overall district spending The total amount of early waste and abuse findings measures up to less than 1% of MSCS’ multi-billion-dollar budget over the three years reviewed by CLA. In an emailed statement Wednesday, Board Chair Natalie McKinney said that doesn’t discount the district’s responsibility to address discrepancies. “While no level of waste or potential violation is acceptable, it is important to provide context,” she said. The small fraction of money “underscores that the primary issue is control effectiveness, not systemic financial collapse,” she added. CLA didn’t identify any evidence of fraud, waste, or abuse in other spending categories, including federal grants and charter school funding. Plus, Richmond last month presented a plan to MSCS board members to strengthen internal controls and modernize document systems in anticipation of audit findings. That includes making sure over 80% of the district’s employee files are complete in the next 90 days and reducing paper-based work. Too many leadership transitions mean no institutional knowledge and inefficiencies CLA’s preliminary report notes “multiple leadership transitions” during the audit period that resulted in a lack of institutional knowledge and inefficiencies across accountability and document systems. “The turnover impacted the retention of staff, eroded institutional knowledge, created inefficiencies in the organizational stability of the core functions at MSCS, and increased internal control weaknesses and financial risks,” the audit says. Richmond has also cited district leader turnover as a major barrier to management and trust in previous interviews. CLA found that the district has no formal, documented plans for leadership transitions — which has fragmented records-keeping practices and district policies. In one notable example of district disorganization, CLA notes that MSCS failed to locate and provide I-9 forms that verify employees’ identities and employment authorization for 40% of requested records. The report says that the district office where these forms are kept is in “disarray with significant disorganization.” CLA did say in its report that MSCS board members “generally demonstrated adherence to key governance and ethics requirements during the forensic audit period.” Dissatisfaction with the local school board, especially after its sudden firing of former superintendent Marie Feagins, has long been tied to pushes for the forensic audit and a state takeover of the district. MSCS lacks proper internal audit systems and policies The preliminary audit states that MSCS “lacks any comprehensive audit methodology” to internally evaluate its own procedures and actions. “Many critical processes operate without formally documented, current, and standardized procedures,” the audit says. Where policies do exist, CLA says they are “frequently outdated” and “lack clearly assigned ownership.” Quality assurance reviews across multiple departments, including HR and payroll, are “either absent or inconsistently documented,” the report says. Almost half of the district’s policies listed in its online platform BoardDocs haven’t been revised in the past ten years, CLA found. That figure includes the district’s conflict of interest policies, the preliminary report notes. None of the reviewed vendor contracts include a conflict of interest clause. And the district didn’t request disclosures from board members or key employees in the three year period studied by the audit. MSCS had incomplete and delayed responses to audit’s requests Throughout the preliminary report, CLA stressed that its work has been held-up by MSCS’ “delayed and incomplete production of requested records,” especially in evidence related to vendor contracts and procurement. “Despite extensive and ongoing efforts by CLA, including repeated document requests, weekly status calls, interviews, monthly onsite visits, and multiple follow‑up communications, the District did not provide significant categories of requested procurement and contract documentation,” the audit says. In February, Richmond said that district employees were balancing their day-to-day responsibilities with diligently turning over documents to CLA . Some of the over 450 records requests were hundreds of pages long, he added. CLA said it was incapable of reporting any early findings about contract negotiation and selection due to continuous delays in access to records. Overall disorganization increased these issues, CLA said, with documents scattered across multiple departments instead of being centrally located. MSCS also lagged in responding to requests for internal emails, the audit said, and district staff still haven’t submitted a list of contract documentation that CLA requested on Feb. 13. Bri Hatch covers Memphis-Shelby County Schools for Chalkbeat Tennessee. Reach Bri at bhatch@chalkbeat.org .

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