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DISD Doesn't Deserve to Win Its Bond Election Because of Its Fiscal Incompetence

Pedro Alvarez,a candidate for the Dallas school board, accuses the board of using "guilt and obligation" to get voters to support the bond election. But he's going to vote yes anyway.
BRIAN HARKIN

Look at this way: I'm not trying to get you to vote against the school bond in the May 10 election. And even if I were, so what? I'm against everything, right? I'd hate to be on a jury deciding my own fate.

But I do have issues. Like that audit. The district is now four months late with its comprehensive external audit. In the May 10 Dallas Independent School District bond election, we are being asked to give the district $1.35 billion in tax money over and above the $1.5 billion it already spends every year. But the district can't produce an audit to show us what they're doing with the money they've already got.

The overall financial audit for DISD was supposed to be complete and presented to the school board at the first of the year. Now it's May. All we get is they're working on it. The check is in the mail.

So many people complained about the missing audit—even The Dallas Morning News, which never complains about anything—that the district finally had to pony up an interim report. On April 23, the auditing company, Deloitte & Touche, released a four-page summary of the kinds of areas where they are finding "significant deficiencies."

I'm going to list some of those areas below, along with an English translation:

"Control environment." (Books.)

"Financial Accounting and Reporting." (Receipts and books.)

"Policies and Procedures." (Please keep books.)

"Anti-fraud programs and controls." (Please don't cook books.)

"Capital Assets Accounting and Reporting." (Can you at least count the buildings?)

"Debt Accounting and Reporting." (If you don't have the money, who does?)

"Grant Compliance, Accounting, and Reporting." (Grants are not birthday presents.)

Deloitte did not provide details. They told the board they couldn't provide details, because the district was not providing Deloitte with the kind of details Deloitte would need in order to provide the district with details back.

Great. To me, that's two guys with their hands in their pockets. First guy says, "Ask him." Second guy says, "No, ask HIM."

A Deloitte spokesperson told the school board at its April 23 meeting that the details were not available because, "The district has not developed an effective internal control environment."

Call me unfair. I can take it. But fair or not, I'm still going to interpret the phrase, "effective internal control environment" as books.

School board president Jack Lowe says I'm unfair. "We got books," he said. "We just got things that need reconciliation."

Lowe gave me this analogy: "Let's say I haven't balanced my checkbook in two years, but the bank and I agree on what my balance should be. I'm trying to figure out where I spent it, so I'm going back trying to get things in the right column."

You see what he means. The money's all there. It's just a matter of bookkeeping. My problem? How do you know the money's all there if you haven't done the bookkeeping?

If you haven't balanced your checkbook in two years, I don't believe you have any idea what your balance should be. To put it crudely, how do you know anything, if you don't know nothing? In an April 24 Morning News story, Lowe was quoted as saying, "No one stole anything. There's no money missing. It's not dishonesty. It's a lack of competency."

That's good?

A guy has my 10 bucks. I ask for it back. The guy says, "Don't got it." I say, "Where is it?" He says, "Don't know." I say, "What did you do with it?" He says, "Don't know." I say, "Who is the President of the United States?" He says, "Don't know."

Oh, well, great, then. What a relief. I was afraid he stole it.

One of the positive defenses the district has offered is that there's nothing to worry about, because the district has more than $100 million in its fund balance or "savings account" as the Morning News called it in the same story.

In the first place, I don't believe the district has a "savings account." I seem to remember reading that they have hundreds of checking accounts and nobody quite knows how many other kinds of accounts. So maybe that was a figure of speech. But why should I be happy about the district having $100 million in its whatever account, when I don't know how much is supposed to be in the whatever account?

DISD has an annual budget of $1.5 billion. Let's do this on a percentage basis: A guy making $45,000 a year with the same percentage of his annual gross in savings (around 6.7 percent) would have $3,000.

And that's great. Unless he's supposed to have $30,000. How does anybody know there's no money missing, if nobody knows how much money there's supposed to be?

The audit that Deloitte is trying to do but is unable to complete is not even a fraud audit. It's what is called a "financial statement audit." I chatted a little last week with Urton Anderson, chairman of the Department of Accounting in the Red McCombs School of Business at UT-Austin. We talked about the difference between types of audits. He was very nice about pretending that I understood him.

 

Professor Anderson and I did not discuss DISD in particular. In fact, I never even told him I was working on a story about DISD. He talked to me about audits in general.

He said a financial statement audit—the type we are talking about here—is not designed to hunt for fraud. "Ideally it would catch big-time management fraud," he said, "but it's certainly not going to pick up on smaller employee fraud unless by accident."

But he said really bad bookkeeping, turned up in any kind of audit, is usually an indicator of serious trouble: "The federal government was in terrible shape," he said. "It was decades and decades before the IRS could get a clean audit opinion.

"The Library of Congress was a great scandal. All these places for years and years had such poor records that they couldn't do [an audit]."

In either kind—a financial audit or a fraud audit—Urton said you can't come up with a verdict, good or bad, from an absence of information. "They can't draw any conclusions about that. They could say, 'Oh, yeah, they didn't find any fraud.' Well, big deal."

Even great big expensive fraud audits can be useless when they go up against a gigantic amorphous blob like DISD. In the late 1990s, the accounting firm KPMG Peat Marwick carried out a lengthy fraud audit of DISD in which they failed to come up with anything comprehensive. At the same time, Russell Fish, the computer inventor and public access activist about whom the Dallas Observer has written much ("Crazy Fish May Redefine Computer Industry," November 15, 2007), did his own amateur spot audit of DISD and found 5,000 paper checks totally unaccounted for, along with evidence of at least 100 "phantom vendors"—addresses to which the district was sending regular checks but which turned out to be anonymous post office boxes. Nothing ever came of any of that.

So now, in spite of a looming bond election and all kinds of pressure, they can't get Deloitte to give them a clean bill of health on the easier kind of audit, the financial one instead of a fraud audit. And Lowe says the news is good.

To be fair, Lowe doesn't say the news is great. He admits it could be better. But then he says what everybody tends to say: Even if the news about the books is lousy, we don't want to penalize the children by voting against the bond program.

I called Pedro Alvarez, a young political newcomer who is running for the school board against Adam Medrano in District 8 in my part of town. His literature, which I found on my doorknob, quotes him as saying, "The current Dallas ISD Trustee for District 8 voted in favor of putting the 2008 bond package up for approval by the taxpayers before the 2007 audit was complete and made public. This is irresponsible."

He said on the phone, "It's unfortunate that the district has jeopardized the bond program because they haven't proven that they can manage money." He said he resented the public appeal of bond program supporters who say voting against the bond program will hurt the kids.

"Now we have guilt and obligation to vote yes for the bond, instead of saying, 'Yes, we happily will.'"

But he's going to vote for it. He says voting against the bond would hurt the kids.

I also spoke to Medrano, the incumbent in District 8, who said the bond program is needed no matter what happens with the audit.

I don't agree. I think there has to be a penalty somewhere, sometime. Another person I touched base with last week was Sherri Brokaw, the former DISD employee whom superintendent Michael Hinojosa cynically scapegoated for the district's credit-card scandal in September 2007. In that case DISD officials lied to the public about an internal proceeding that had called for Brokaw's reinstatement.

Brokaw told me last week she sees the school board and district officials pushing guilt off on parents and taxpayers about this bond election the same way they tried to put it on her: "Aren't they making us all their scapegoats now?"

I agree. They'll say anything. They will do anything. They just want to keep that juice flowing. The money is the one thing they care about and the one thing they understand.

The only way to kill the funny money culture at DISD is to cut off the money. I'm going to vote against the bond program, precisely because I do care about the kids. You do what you want.


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