Wednesday, March 7, 2012

Audit of Education Department Finds Secret Accounts and More

Gary Jones
State Auditor and Inspector

A Supplemental Investigative Report of the Oklahoma Department of Education was released by the State Auditor and Inspector this afternoon.
The State Auditor performed the investigation at the request of current State Superintendent Janet Barresi. The audit covers the period of time from July 1, 2008 through June 30, 2011. An initial report was released on January 4, 2012.
The report released today is a supplemental report addressing additional concerns identified during the first investigation. 
Executive Summary of the Audit:
We performed a special audit/investigation, pursuant to a request by the Department of Education (OSDE), in accordance with the requirements of 74 O.S. 2001, § 227.8. The concerns we investigated included concerns related to travel claims filed by a now former OSDE official. We have previously issued a report related to those concerns.

During our investigation of the circumstances surrounding the official’s travel claims, we obtained records from a hotel which included a check on an account that, although not an authorized account of the State of Oklahoma, listed an address of 2500 N. Lincoln Blvd, Oklahoma City, the address of the Oliver Hodge State Office Building where OSDE is located.

We began an inquiry to determine who or what entity was using a bank account listing the address of a State Office building. Through our inquiry we identified three accounts being managed by OSDE employees that were not official accounts for the State of Oklahoma.

Over a period of years OSDE employees have been soliciting and receiving donations and/or receiving funds for booth space rental at various conferences then depositing those funds in accounts purporting to be accounts belonging to a private nonprofit organization.

The Oklahoma Curriculum Improvement Commission (OCIC), is a non-profit organization whose board members were aware that OSDE officials were managing one account, an operating account, but were not aware OSDE officials had opened and were operating two other accounts under the OCIC name. From interviews with OSDE officials and employees, as well as records we obtained, it appeared not only were the OCIC board members unaware of the accounts, but some of the OSDE officials may have deliberately concealed those accounts from the OCIC board of directors.

These off-book and unauthorized accounts allowed OSDE officials to pay, at a single event, $2,600 for 85 bottles of wine and 3 kegs of beer and $5,700 for food items including a “chocolate fountain,” “Maryland crab cakes,” “mini beef wellingtons,” and “smoked salmon mousse in a puff pastry,” without following any of the requirements normally associated with government expenditures.

Later, as the accounts were being separated, OSDE employees orchestrated the movement of $14,899 from one “OCIC” account to another “OCIC” account. Then arranged for another third party entity, the Oklahoma Director’s of Special Services, to create another third party account and moved the money to that newly created account.

The Oklahoma State Auditor and Inspector (OSAI) is the independent financial oversight body responsible for auditing the books and financial records of OSDE. These accounts were not audited by the OSAI because the existence of the accounts had never been disclosed to OSAI.
The accounts were not official accounts for the State of Oklahoma and would not have appeared on any official listing of the OSDE accounts.

A “slush fund” is typically regarded as an unregulated fund that has little if any oversight and which can be used with little or no accountability. The accounts we identified appear to have been operated as slush fund accounts allowing OSDE officials to issue payments shielded from governmental oversight as well as public scrutiny.

Over a period of 10 years, in excess of $2.3 million has been expended from these accounts.

The Oklahoma State Auditor is responsible for investigating irregularities in governmental agencies and routinely performs financial investigations into questionable matters concerning the operations of state and local governments. However, the Oklahoma State Auditor lacks the authority to perform special or investigative audits unless requested to do so by other statutorily defined offices.

We have reported the results of our limited inquiry into these accounts, identified additional concerns related to the accounts, as well as the actions and activities of the state employees involved with the accounts.

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