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Phila. misspent $17.7M in school aid, audit finds

The Philadelphia School District failed to follow federal rules in 2005 and '06 in spending nearly $140 million in U.S. aid, according to a federal audit.

The Philadelphia School District failed to follow federal rules in 2005 and '06 in spending nearly $140 million in U.S. aid, according to a federal audit.

The audit calls for the district to repay about $17.7 million to the Department of Education and provide "adequate documentation" to justify an additional $121 million in spending or return that amount, too.

During the audited period, the district received $245 million in federal aid toward its $1.9 billion budget.

The audit, which took 18 months to complete, examined the district's accounting methods from July 2005 through June 2006, when Paul Vallas was chief executive and the School Reform Commission was composed of other members.

The district has 30 days to respond to the report. The Department of Education will determine whether the district must repay any of the money, said Mary Mitchelson, the federal agency's acting inspector general.

The findings were "similar to what we have found in some other districts," she said. Officials would not say why they chose to audit Philadelphia, which was last audited in the late 1980s.

The 130-page report generally criticizes the district for faulty bookkeeping and poor records management. It was released Jan. 15 by the Office of the Inspector General for the Department of Education.

The audit said the district had not enforced required staff certifications, improperly used some grant money to pay for ineligible salaries, failed to show what work some employees performed, and inadequately explained how some of the money had been used to pay for food, training materials, computers, and class trips.

The district had rebutted a draft of the audit in a 30-page response, calling many allegations the result of a "fundamental misunderstanding" of how it managed the grants. Refunding the money would have a "devastating impact" on the district's mission, it said.

"The sheer magnitude of the findings - over $140,000,000 - would put an end to the great strides that the [School District of Philadelphia] has made in meeting the objectives of the No Child Left Behind Act," the response stated.

Michael J. Masch, the district's chief business officer, said that nearly all of the $140 million had been spent appropriately, but that the auditors had been "resistant" to accepting alternative forms of documentation.

"I want to make sure that the public does not misunderstand and think that the School District of Philadelphia spent $140 million in inappropriate expenses," he said.

Masch, who began working for the district in June 2008, said it had already improved the way it maintains spending records and would "wholeheartedly embrace" the auditors' recommendations for managing grants.

Along with reporting systemic flaws, the audit cited some unusual expenses. It said some grant money had been spent on a grab bag of items that included pool tables, crystal vases, a crystal wine bucket, floral arrangements, and 21 iPods.

The district said the iPods were used for literacy programs, and Masch asked that the $2,100 spent on them be put in perspective.

"My calculation is that the iPods are 1/10,000 of the total amount questioned," Masch said. "There are some relatively small numbers that deal with questionable expenditures. But the fact that they are small amounts of money does not mean that was OK. That's not the way we operate around here."

Vallas, now schools superintendent in New Orleans,  said the federal government had been encouraging schools to use their money in more flexible ways.

During his tenure in Philadelphia he said test scores had soared and the district had one of the greatest increases in graduation rates in the nation.

"It happened because the dollars were used creatively to fund programs that were having the greatest impact," Vallas said.

He cautioned against jumping to conclusions.

"This is not about the district not spending the money on the right things. These preliminary findings reflect a difference of interpretation on what constitutes proper documentation," Vallas said. "I think things will be resolved in a way that's favorable to the district."

Of the $17.7 million that the audit said should be returned, about $423,000 was distributed to private and parochial schools and organizations. The district was responsible for overseeing and monitoring that money, the auditors said.

Most of it was used to reimburse nonpublic schools for teacher training, which federal regulations forbid. But the district also reimbursed some of the schools for floral arrangements, rental of a piano and piano player, valet parking, and tips for alcoholic beverages, the audit said.

The audit holds the district accountable for the entire $17.7 million: about $3 million for unallowable salaries, benefits, and related costs; about $7 million that supplanted state and local grants; $411,383 for unallowed travel, entertaining, and miscellaneous items; $6.4 million for transactions, contracting, and reimbursements that did not adhere to the district's policies and procedures; and $611,000 spent without having related written policies and procedures.