Meeting minutes show School Board, chairman knew about mounting financial crisis long before audit bombshell

Wayne County Public Schools’ former finance officer and former superintendent repeatedly warned Board of Education members that the district’s finances were in disarray, according to School Board and Finance Committee meeting minutes obtained by the New Old North.

In fact, the red flag was waved multiple times beginning more than a year before an accountant from Rives & Associates delivered a bombshell audit presentation June 3 that resulted in Superintendent Dr. Michael Dunsmore’s resignation. Finance Officer Michael Hayes submitted his resignation May 26.

One of the warning signs was confirmed by Hayes in response to a question asked by a board member in April 2019 — some $700,000 to $800,000 spent on legal services provided by Raleigh law firm Schwartz & Shaw during fiscal year 2018-19, pushing the district’s total bill from the firm well over $1 million from July 1, 2018, to present.

The documents seemingly support School Operations Specialists president Aaron Beaulieu’s contention that among the factors that led to WCPS’ general fund balance deficit and $5 million budget shortfall were overspending on contract services and a lack of oversight and action.

Here is what we have learned so far:

• During a March 12, 2019, Finance Committee meeting, Hayes told current board members Pat Burden and Jennifer Strickland and the late Rick Pridgen that Rives & Associates was ready to present its audit from the 2017-18 fiscal year. Strickland recommended that an accountant from the firm present its findings to the board ahead of its March 25, 2019, meeting.

• The audit was presented by Rives & Associates March 25, 2019. After the presentation, a motion to approve it was made by Ven Faulk, seconded by Len Henderson and passed unanimously.

• According to audit documents, the district finished the 2016-17 fiscal year with a deficit of $778,223 and a fund balance of $6,280,314. The 2017-18 audit presented to, and approved by, the board during that March 25, 2019, meeting revealed the district ended the year with a deficit of $3,491,395 — a deficit uptick of 349 percent — and a fund balance of $2,755,873 — a decrease of more than $3.5 million from the previous year.

• During a budget work session held April 17, 2019, Hayes presented the proposed 2019-20 fiscal year budget to the board. During his presentation, he “advised the board that the budget increased by approximately 4%, mostly due to salaries and insurance.”

Pridgen then requested a line-by-line accounting of expenditures — and was particularly interested in what the district was paying Schwartz & Shaw.

Board chairman Chris West told Pridgen he had “already requested and received that information,” and, while he did not provide a total, revealed that phone calls to the firm from board members had cost the district $83,000 and an additional $146,000 was spent to “save Carver Heights Elementary.” (According to the firm’s contract with the district, WCPS pays Schwartz and Shaw a $3,000 per month retainer that includes “the availability of the firm for telephone and office consultation with the Board of Education.”)

Board member Pat Burden responded.

“While I was the board chair, Mr. Schwartz requested board members to not call them directly, as it puts them in an awkward position,” she said.

West fired back.

“A large amount has been paid for vetting policies and a tremendous amount of time related to the county commissioners,” he said. “We knew there would be a spike in legal costs this year.” (According to the firm’s contract with the district, WCPS pays Schwartz and Shaw a $3,000 per month retainer that includes “policy review and drafting services.”)

• During a July 15, 2019 “Special Called Meeting,” Hayes told the board that it was possible the district would have to cut “some local funded areas in order to fund areas that are being cut by the state.” He added that WCPS’ average daily memberships (ADMs) “continue to be reduced and allotments are funded based on ADM numbers.” The targeted amount of reduction was $5 million he said, before recommending the following:

– The possible elimination of courses with low attendance numbers.

– The possible elimination of 10 CTE positions.

– Reduction of local funds being used.

– Closely reviewing programs for professional development and athletics.

• During an Aug. 8, 2019, Finance Committee meeting, Dunsmore said the district needed to cut its budget by $2 million, adding that if the budget was cut by 2.8%, it would equal $5 million in savings.

• During an Aug. 19, 2019, “Special Called Meeting,” Hayes told the board the district would “continue to look at areas that are non-instructional that can be cut.” At the same meeting, West asked board members if “everyone was in favor of having a board retreat at an NCCAT facility” in Ocracoke.

• During a Nov. 14, 2019, Finance Committee meeting, Pridgen finally got his answer about how much money the district had spent on legal services from Schwartz & Shaw during the 2018-19 fiscal year. Hayes told him “it was between $700,000 and $800,000.”

• On Nov. 25, 2019, Rives & Associates sent the Board of Education written notice that the firm had completed the FY 2018-19 audit. A response dated the same day and signed by Hayes indicated that the board “agrees with this finding” and would “immediately” take corrective actions to bring areas of concern that were noted in the audit into compliance.

• On March 17, 2020, bids opened for a new auditor. Anderson, Smith and Wike would ultimately get the contract.

• On June 3, 2020, Diana Hardy presented the FY 2018-19 audit to the board revealing that WCPS’ four-year financial nosedive had reached a fever pitch. Hardy noted that marked increases in high-level Central Office salaries were a concern.

• On June 9, Burden, who has served on the BOE since 2014 and is currently the chairman of the Finance Committee, declined to answer questions about how the district ended up in financial turmoil, saying she wanted to wait until she got more information. And Strickland, who was also present at the aforementioned Finance Committee meetings, said the information presented June 3 was a shock, adding that the board relies on the superintendent to present and to oversee the district’s financial picture and is not involved in day-to-day operations.

• During a BOE meeting held June 25, West, who has served on the board since 2010, chose not to address how the decreasing fund balance and increase in spending went unnoticed. Instead, he used his time during the board member comment period to laud Schwartz & Shaw for their hard work and commitment to WCPS. After the meeting, he insisted that the board has rules to follow — and that includes staying out of the day-to-day operation of the district.

• During Monday’s Board of Education meeting, West said he had spoken privately with board attorney Richard Schwartz about managing the district’s superintendent search. The board voted to pay Schwartz’ firm to gather information from recruiting firms and present its findings to the BOE. The other options were for the board to conduct its own search or to pay a firm — without involving a middle man — to find and pre-screen candidates. The vote to allow Schwartz & Shaw to take the lead was unanimous. (Board member Wade Leatham was not present.)