The release Wednesday of a withering audit of the Penn Hills School District underscored the school system’s precarious financial situation. What may come next is a criminal investigation.
Concerned about possible lawbreaking, state Auditor General Eugene DePasquale said he referred the conclusions of his long-awaited audit to the Allegheny County District Attorney’s office, the U.S. Attorney’s office, the state Department of Revenue and the state Ethics Commission.
The DA’s office said it had been made aware of Penn Hills’ problems but would wait for a complete review of the audit before deciding whether criminal charges are necessary in the district of about 3,900 students.
Calling the audit findings the worst of his tenure, Mr. DePasquale cited a “total breakdown” in oversight and management and a “shocking” deficit that topped $18.8 million.
“Everyone seems to have turned a blind eye as the school district marched toward financial disaster,” he said. “The school district, along with the former superintendent and business manager, all failed the students and parents of this district.”
The 74-page review, which covered the period of July 2012 through June 2015, found that the former superintendent and the school board did not hold accountable its former business manager, whose “unchecked activities” contributed to a mounting negative fund balance.
“That is, even for a large district like Penn Hills, a shocking number,” he said of the $18.8 million, “especially when you consider that just four years ago there was a $4 million surplus.”
The former business manager, Richard Liberto, was placed on leave in March 2015 after the district discovered it was nearly $9 million in debt from the previous year and a similar debt was anticipated for the 2014-15 school year. In October, the school board completed a nearly $20 million bond issue to cover the two-year shortfall.
“I have plenty of documentation to prove that I warned them that this was coming. ... I was the one who contacted the [state] Department of Education back in 2013 asking for help,” he said Wednesday.
Mr. Liberto and his attorney, Wayne DeLuca, have denied all of the charges that formed the basis for the school board’s unanimous vote to fire him in November. Mr. Liberto, who now is the Wilkinsburg School Disrict business manager, has appealed his dismissal in Common Pleas Court.
Former Penn Hills superintendent Thomas K. Washington resigned in January 2015 after working there since 2011. He could not be reached Wednesday.
Superintendent Nancy Hines, who became Penn Hills’ top school administrator July 1, said the district has already made changes and “remains hopeful but extremely cautious.”
“We are absolutely not cured. There’s no silver bullet for our situation. ... We remain extremely fragile,” she said.
School board member Pauline Calabrese told reporters after Mr. DePasquale’s news conference that Penn Hills taxpayers should not bear this burden alone.
“I think we need the state to come in and help us,” she said. “This is bigger than we are.”
Among the findings:
• The district had years of operating-budget deficits, budget errors and increased debt service. It borrowed more than $130 million in 2010 for capital improvements without a plan to pay it back.
• There was a years-long failure by the district to review, authorize and account for credit card purchases, including some made by employees for items that appear to be for personal use.
• About $22,000 in athletic admission fees were never deposited into the district’s general fund.
• The district failed to monitor transportation-contractor fuel usage, resulting in stolen funds of up to $384,500.
• The district violated the Liquid Fuels and Tax Act by selling its tax-exempt fuel to a local municipality at a markup, but still lost $60,000 because of bad billing practices.
• The district did not review bus driver background checks. Two had criminal convictions and have since been fired.
The audit report took particular note of a lack of controls over the use of district credit cards.
Despite a policy restricting procurement card access to four positions, nearly 24 cards were issued in the period covered by the audit. One of those cards was authorized to be used by “Anyone in Uniform” — meaning that the card could be used by someone wearing only a shirt or hat with the Penn Hills district logo, without even showing identification.
“I don’t even know where to start with that one,” Mr. DePasquale said. “That is insane.”
Questionable expenses charged to the cards, which were supposed to be used for emergency purchases only, include doughnuts for meetings, a $358.98 residential water heater that was not installed on district property, and asphalt sealant also not required by the district.
The audit lists numerous recommendations for improving the district’s financial situation, including increasing property taxes, requiring monthly financial reports before board meetings are approved, and terminating its contract with its current bus contractor.
The school board in March voted to furlough 43 teachers at the end the school year, including 23 special education teachers. The school board also is expecting to raise taxes by 1.5 mills next year, which would raise the district tax rate to 26.3 mills.
Current school district business manager Robert Geletko said the district is expected to have a negative $9 million fund balance at the end of this school year.
In Wilkinsburg, school board president Ed Donovan said the the board works closely with Mr. Liberto on “all aspects of budget and finance.”
“I know he’s working hard to understand the complexities of our situation and work with us to implement change,” he said in a statement. “We’ve seen progress and certainly nothing to give us any cause for concern.”
Molly Born: mborn@post-gazette.com, 412-263-1944 or on Twitter @molly_born. Anya Sostek contributed.
First Published: May 18, 2016, 3:37 p.m.
Updated: May 19, 2016, 3:30 a.m.
