The Camden school system operates under unchecked spending and lax internal controls that resulted in more than $13 million in "questionable expenses," according to a state audit released yesterday.

The items include payouts of $380,830 to 10 dead employees; $5,000 to lease a car for former Superintendent Annette D. Knox; $5,800 for a luncheon for 200 in the Tweeter Center ordered by Knox; and $9,343 to pay for lawyers to defend her in a separate state investigation.

The audit, which covers the period from July 1, 2004 through June 30, 2006, says education funds were spent on noneducation items including $419 for 300 red and gold holiday cards ordered by Knox.

The findings are among numerous deficiencies uncovered in a court-ordered audit of how South Jersey's largest school system operates and handles its more than $300 million annual budget largely funded by state and federal taxpayers.

The New Jersey Supreme Court ordered the audit last May of Camden and the North Jersey districts operated by the state, including Jersey City, Paterson and Newark. Audits are also planned for the state's 27 remaining Abbott, or special-needs districts, which include Bridgeton, Burlington City, Vineland, Millville, Gloucester City, Pemberton Township and Salem.

State Education Commissioner Lucille Davy yesterday expressed concerns about the audit findings in all four districts, especially Camden, where auditors cited 63 internal control deficiencies.

"There are too many errors and too many holes in most of these district operations, resulting in too many opportunities for questionable activity," Davy said in a statement.

"The Camden schools audit is unacceptable," Assembly Speaker Joseph J. Roberts Jr. (D., Camden) said in a statement released last night. "The misappropriations and waste cited in this report are an embarrassment. These findings indicate a disturbing lack of controls. Taxpayer dollars are supposed to be used to help children in classrooms and should not be wasted on extravagances. It's clear that a wholesale climate change is needed in the district's approach to money management."

In 2005, the district was forced to send back $3 million remaining in a federal No Child Left Behind grant because the funds were ineffectively managed, auditors said. By sending back funds, the district risked getting a smaller grant the following year, the auditors said.

Across the district, among operations such as accounts payable, payroll, purchasing and transportation, auditors found little oversight of spending practices and lax internal control procedures. The audit was conducted by the New York-based accounting firm KPMG.

". . . There is a lack of policies and procedures both in existence and implementation," according to the 182-page report released yesterday by the state Department of Education.

In Camden, employees are not properly supervised or held accountable for their work, and fail to follow the district's standard operating procedures manual, the audit found.

Overtime is not tracked or monitored by payroll during the school year, the audit said. "Unnecessary, unapproved or unworked overtime could be submitted by employees resulting in the employee receiving additional compensation that they do not deserve."

In August, The Inquirer reported that an executive secretary was paid $103,127 in overtime over three years, far more than any other district employee.

The audit also found that in some instances former employees were paid up to a year after they left the district.

Among the other findings: The warehouse manager ordered supplies without conducting an inventory to determine what the district needed; bank reconciliations are at least two months behind; transportation contracts are renewed annually without bids because other vendors refuse to service Camden; and the district has been forced to pay for unauthorized purchases because schools ordered supplies directly from vendors.

Auditors also tested the district's payroll system and found that 10 employees had been paid $380,830 after their recorded death dates in the Social Security death file.

Davy said the districts must submit corrective action plans to address the problems, including dozens that the audit said should be fixed soon. She also announced yesterday that she would create a new office in the Education Department to review the audits.

David Sciarra, executive director of the Education Law Center in Newark, which has advocated for the state's neediest students, said audits raise questions about the state's supervision of districts. Camden has been under state oversight since 2002. "Our most disadvantaged students need every dollar, and the state, as well as the districts, must be accountable to publicly explain how those dollars are spent," he said.

Camden school board President Philip E. Freeman acknowledged that the findings were "very serious deficiencies" and the board would discuss them at a forthcoming meeting. He noted that the district recently hired a new business administrator and has a state fiscal monitor.

"I believe we will be able to restore fiscal accountability to our district," Freeman said.

The report can be found at http://www.state.nj.us/njded/

abbotts/audits/camden.pdf

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Contact staff writer Melanie Burney at 856-779-3876 or mburney@phillynews.com.