Auditor General DePasquale Says Poor Decisions Prove Costly to Taxpayers in Two Lackawanna County School Districts

November 12 2013

Auditor General DePasquale Says 
Poor Decisions Prove Costly to Taxpayers
in Two Lackawanna County School Districts

SCRANTON (Nov. 12, 2013) – Auditor General Eugene DePasquale today said that taxpayers in two Lackawanna County school districts spent a combined nearly $7.5 million due to risky investments, poor decisions and ineffective management.

“The numbers are staggering. We are talking about nearly $7.5 million. Imagine how many teachers could be hired; imagine how many books and programs that buys; and imagine what that loss of millions means in residents’ property tax bills,” DePasquale said about recently completed audits of the Scranton City and Carbondale Area school districts.

In 2011, the Scranton City School District paid $6.5 million in termination fees for two risky qualified interest-rate management agreements, commonly called swaps, related to a $66.3 million in bond-financed debt from 1998 and 2001. Auditors also found that the district paid bus contractors significantly more than the state transportation formula and it overpaid one bus contractor $3,282 because the district failed to verify the contractor’s calculations in the 2008-09 and 2009-10 school years.

In the Carbondale Area School District, poor oversight and management cost taxpayers $921,104, including: generous retirement packages for the former superintendent and two principals that totaled $690,466 and $150,571 in free tuition for ineligible children of teachers and an administrator who did not live in the district.

“When school districts are struggling with tight budgets, it is hard to watch these tax dollars going anywhere other than classroom education,” DePasquale said. “That is especially true in smaller school districts like Carbondale.”

In addition to the investment termination fees and bus contractor payments, auditors also found that the Scranton City School District:

• had student membership reporting errors and a lack of internal controls resulting in the district not receiving its entitled state subsidy;
• was underpaid $260,111 in state transportation reimbursements due to reporting errors; and
• had continued errors in health services data resulting in state reimbursement overpayments of $125,011.

“The issues we found in Scranton City School District are concerning because many of these issues were identified in previous audits, yet they were not adequately addressed by school officials,” DePasquale said, noting that the audit recommends seeking bids for transportation services which could lower costs. “Until some of these issues are addressed, it could impact future state subsidies.

“Unfortunately, we are seeing similar sloppy business practices and poor judgment cutting into classroom education funding in the Carbondale Area School District.”

Due to errors in reporting children placed in private homes and a lack of internal controls, the Carbondale Area School District was underpaid $80,067 in state funding.

In 2007, the Carbondale Area School District violated the public school code requiring superintendents to receive contracts for three to five years by terminating the former superintendent’s contract nearly two years early and then immediately implementing a new five-year contract. Five of the nine board members at the time were not reelected in the May 2007 primary. As a result, the former board members bound their successors to their decision and prevented the new board from acting on the original contract in its final year.

“At the very least, the former board members circumvented the law to protect the superintendent. Those actions violate the trust given to them by the people who elected them,” DePasquale said.

The Scranton City School District serves 9,661 students and has 769 teachers, 365 full- and part-time support personnel and 42 administrators. The district received $52 million in state funding in the 2009-10 school year.

Carbondale Area School District serves 1,615 students and has 121 teachers, 94 full- and part-time support personnel and six administrators. The district received $11 million in state funding in the 2011-12 school year.

The Department of the Auditor General’s Bureau of School Audits examines the records of school districts, charter schools, intermediate units, and area vocational-technical schools. The audits — among other things — assess whether or not school entities received the state subsidies and reimbursements to which they were entitled, accurately managed taxpayer funds, and complied with ethics codes. The audits also determine whether or not teachers and administrators were properly certified for the positions they held during the audit period.

Carbondale Area School District Audit Report
Scranton City School District Audit Report

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