Danehy: accounting was improper, not illegal

WINSTED — Having met a deadline to file documents with the state that explain how the school district spent $636,000 in federal grant money during the 2009-10 school year, Superintendent of Schools Thomas M. Danehy said Tuesday that he sees no reason to penalize the Winchester school system or its employees for using flawed accounting practices to record legal and proper expenditures.During an interview at his office, Danehy presented a three-ringed binder stuffed with hundreds of documents that outline corrective measures being taken by the school system to improve the recording of expenditures and reduce the possibility of errors. The main issue being addressed — and the one that caused so much controversy in the 2009-10 audit — is the need to reduce the use of “journal entries” to record expenditures.On Jan. 6, Danehy submitted documents to state officials outlining the school system’s corrective action plan and indicating how two different grants — $342,579 for special education and $293,508 for Title I — were expended.Under the leadership of former Superintendent Blaise Salerno, the school system used money from town accounts to pay salaries, and then used grant money to pay back the town. Those transactions were marked with journal entries to highlight and explain the transactions.Danehy explained that journal entries are supposed to be used in exceptional situations, but the business office relied on the entries as a matter of course during the 2009-10 school year.“We had 258 journal entries that year,” Danehy said. “Last year we had 58, and so far this year we’ve had none.”Danehy said the journal entries were were used to indicate when and where grant money should be used to pay for salaries in the budget, and that it would have been more appropriate for the business office to plan ahead for the expenditures and explain which accounts would be used as revenue sources.The 2009-10 budget was complicated by the fact that American Recovery and Reinvestment Act (ARRA) grant money had been given to the town in early 2009 by the federal government, through the State of Connecticut, for the purposes of hiring or retaining staff. While that money came as a windfall to receiving towns, the state concurrently reduced its Education Cost Sharing funding to local school districts. Towns and their school systems were left with the task of properly accounting for the influx of grant money and properly appropriating it to maintaining and hiring staff.Making journal entries is not illegal or improper, Danehy noted, and he said he expects there to be “a handful” of journal entries this year to highlight expenditures that require additional explanation.“If something comes from the wrong line item and you need to change it, I think that’s what a journal entry would be for,” he said.Critics of the school system have said they believe the improper recording of expenditures may be a sign that more egregious errors have been made, and that grant money may have been spent illegally. Board of Education member James Roberts said in an interview Tuesday afternoon that he believes the town’s elected officials have a duty to alert state and federal officials if they believe something is wrong.“I don’t know if the spending was within the rules, and I don’t think we as a Board of Education have made an effort to show it was,” Roberts said. “I have asked if the grants were used according to the fund rules, and I have been told generally yes. But I don’t think anyone has done the work to prove that.”Selectman Ken Fracasso, who has been a vocal critic of the school system and the Board of Education, has said publicly that he believes “people need to go to jail” for the school system’s accounting errors. Fracasso was joined by Roberts, Board of Education member Carol Palomba and fellow Selectman Glenn Albanesius in sending a letter to the U.S. Department of Education’s inspector general Dec. 1, asking federal investigators to look into the Winchester School System’s accounting practices and determine if any laws have been broken. The issue is currently being investigated by Connecticut state officials.Danehy, who was not employed by the Winchester school district when the accounting discrepancies occurred, said he had no comment on Fracasso’s statement, but he noted that he has not seen any evidence of illegal activity.“There were no over expenditures,” Danehy said. “Nobody was doing anything illegal or criminal. They were just using a journal entry for what should have been done more properly. Use of the proper procedures to pay for things from grant funds — for which they were intended from the start — would have been a smarter move. A journal entry should be an exception to the rule, but in this case this is the way they did business.”Roberts said Winsted is one of only a handful of districts in Connecticut that have ever had problems accounting for grant money and that he believes different reasons were given for the ARRA expenditures at different times.“My general level of concern is that no one is paying attention,” he said. “No one is minding the store.”Roberts said he wants to ensure the town and school system are not exposing themselves to future liability.“If the feds say ‘no harm, no foul,’ that’s the answer,” he said. “I’m not trying to create trouble here. But we have a problem here. As soon as someone tells us we have no problem, we’ll continue on our merry way. Fraud is fraud, and the paper trail is certainly contingent with it.”Under stricter accounting guidelines, Danehy said, there will be clearer documentation of expenses in future budgets, including the current year. For the 2011-12 fiscal year, the business office has instituted tougher guidelines for the approval of purchase orders, while requiring layers of administrators to give approval for expenditures. The school system’s year-end closing procedures have also been revised, meaning the deadline to submit and approve year-end purchase orders will be earlier in the school year, leaving less room for unfinished business in the form of straggling expenditures.“There could be some last-minute expenditures that throw things out of whack, but to the extent that we’re able to, we need to be on top of that,” Danehy said. “Every time there is not snow, we are not paying overtime for guys out at 2 a.m. shoveling the walk, so right now it seems like we might be in a better spot than we were last year, but there are other things that could creep up. A boiler could go, and if it does, I’m in trouble.”The school system also continues to face the cost of rising tuition for special education students, who account for 17.8 percent of Winchester’s student population, compared to the statewide average of about 11 percent. As always, there are many factors that can throw the school budget out of balance.But Danehy said the school district’s corrective action plan will make it easier to review and manage expenditures, and that the new system will prevent complications at the end of the year. The result should translate to more efficient auditing and regular budget reports. The most important change, perhaps, is that the use of journal entries to record expenditures has been significantly reduced.