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Duquesne City School fund was ‘piggy bank for personal no-interest loans’

Natasha Lindstrom
dnschooldistrictaudit1091413
Tribune-Review
Duquesne Education Center, housed in the old Duquesne High School

The cash-strapped Duquesne City School District might have violated state law by doling out no-interest personal loans totaling more than $41,000 to four employees without the knowledge of its court-appointed receiver, state Auditor General Eugene DePasquale said Monday.

“It is outrageous that the staff of the Duquesne School District — including its former superintendent — used this district’s general fund as a piggy bank for personal no-interest loans,” DePasquale said in a statement.

Barbara McDonnell — who resigned from her post as superintendent in early November after serving 17 years in the district — is accused of taking out 11 of the 22 personal loans flagged by DePasquale in a scathing audit released Monday.

Receiver Paul Long, who accepted her resignation last week, said McDonnell asked to leave for “personal reasons” and did not cite in her resignation letter any of the issues raised in the audit.

McDonnell could not be reached for comment Monday.

In his 42-page report , DePasquale pointed out weak internal controls and findings that over the past four years the former superintendent received a total of $23,150 in no-interest loans, a principal received $10,000, a clerk received $6,940 and an administrative staff member received $1,160. The employees were not named in the report.

“In response to the audit, the district’s administration has already initiated several corrective measures in order to implement all of the recommendations of the auditors,” the district said in a statement. “Updated districtwide administrative and financial controls are being instituted to ensure compliance with all of the items addressed in the audit.”

The unusual personal lending was to be repaid through payroll reductions from future wages, DePasquale found in his report. Each loan was repaid within the year it was taken out, making them less likely to be noticed by the district’s independent auditor, the report said.

DePasquale said he found the use of the district’s general fund to benefit the personal finances of public employees to be “especially egregious given the district is in a state receivership .”

“These loans not only provided a benefit to a small, select group of individuals, who received a benefit that others did not, but also created an added risk to the district of a permanent loss of public funds,” the report concluded. “Any school district, and especially one that was in financial recovery, should not have engaged in such practices.”

Duquesne City School District has been under the authority of a court-ordered receivership since 2013. It no longer serves middle or high school students and now has about 340 preK-6 students in one building.

The state Department of Education did not return a request for comment.

State ethics law prohibits public officials and employees from using public office for private financial gain, particularly when the benefit exceeds $500 and is not awarded during an open and public process.

Each loan flagged by DePasquale was taken from the district’s general fund but “issued outside of public view — without authorization by the district’s receiver, chief recovery officer or board of school directors,” the report said.

School officials had cited “financial hardships” as reasons for some of the personal loans; however, DePasquale said he could not verify the reasons. He noted that in one instance, a public official had asked to borrow $1,000 against herself “to assist with the holidays and my daughter.”

The former superintendent sent her loan requests to her clerk, “thereby essentially approving her own loans,” and a business manager approved loans for an immediate family member, the report said.

“It is total insanity to have one of the individuals responsible for this struggling district’s finances serve as a personal loan officer for district staff,” DePasquale said.

DePasquale said the loan repayment terms and schedules were not put in writing at the time of disbursement.

Among other findings cited in DePasquale’s report :

• The district did not maintain documents to verify $1.3 million in transportation reimbursements, resulting in an overpayment of $180,431. “Even with the lack of adequate supporting documentation, some reporting errors by the district were so blatant that we were able to easily calculate that the district was overpaid,” the report said.

• The district did not have adequate documentation to support $104,340 spent on foster children.

Long told the Trib on Monday afternoon that he found the audit’s findings to be “helpful” and was confident that the district was taking steps to correct any deficiencies.

The district has begun the search process for its next superintendent, with applications due in January.

Business manager Nedene Gullen is serving as acting superintendent in the meantime. Long did not provide a timetable for finding a permanent replacement.

“The sooner the better,” he said, “but we’re not going to rush this.”

View the full report at www.PaAuditor.gov .

Natasha Lindstrom is a Tribune-Review staff writer. Reach her at 412-380-8514, [email protected] or via Twitter @NewsNatasha.

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