Buses wait at Madison High, near Jim Myers Stadium, Sept. 30. State auditors recently identified risky business practices at the Madison District Public Schools, including a lack of competitive bidding, contracts, purchase orders and more.

Buses wait at Madison High, near Jim Myers Stadium, Sept. 30. State auditors recently identified risky business practices at the Madison District Public Schools, including a lack of competitive bidding, contracts, purchase orders and more.

Photo by Andy Kozlowski


State report raises concerns about Madison school district

By: Andy Kozlowski | Madison - Park News | Published October 10, 2018

MADISON HEIGHTS — The state recently issued a report examining business practices by the Madison District Public Schools (MDPS), based on allegations by a school board trustee. 

Among the findings were practices that were deemed problematic, including how MDPS sidesteps bidding requirements by splitting up invoices and classifying all repairs as “emergencies,” and how all vendors have been operating without contracts that would keep them accountable, such as the district’s construction manager, Emergency Restoration, which was being paid fees and operating without board authorization. The state also noted that not a single purchase order was used by the district or its contractors, which is required by the board’s bylaws.   

The report was from the Michigan Department of Education, with findings by the Michigan Office of Internal Audit Services. 

“My concerns were based on my observations and being stonewalled by the rest of the board and the superintendent when doing my job asking questions,” said Mark Kimble, the Madison Board of Education trustee who approached the state.  

Randy Speck, MDPS superintendent, said in an email that the district will make improvements.

“We have asked the school district’s counsel to review the report and the report’s suggestions for improvement with the Board of Education, so that we can learn from any mistakes that may have been made in a manner that is both transparent and accountable to all our stakeholders,” he stated. 

 

Finding 1

The report found that during the audit period between July 2015 and April 2018, MDPS classified all repairs as “emergencies,” which resulted in “bypassed controls, reduced accountability, and an increased risk that the school district is not receiving the best value for the work performed.”

The district’s own policy defines an “emergency” as a situation where immediate action is required to protect life and limb, or to preserve valuable property. Board approval is also required as soon as reasonably possible after the fact. 

“Due to all repairs being classified as emergencies, no competitive bids occurred, and repair work was completed without a purchase order/contract between MDPS and the vendors,” the report stated. “(The state) noted that all repairs were reviewed by the school board indirectly by reviewing and approving the monthly check register. However, there was not explicit notification to the school board that emergency repairs had occurred, nor were they subsequently approved.”

The report advised that the district announce the emergencies at public school board meetings in order to increase transparency for the board and taxpayers, and to establish “a more appropriate approval process.” 

 

Finding 2

The report found that MDPS also did not obtain competitive bids for purchases that exceeded the district and state thresholds for nonemergency repairs.

“Additionally, MDPS allowed a vendor, Emergency Restoration, to obtain and approve competitive bids on their behalf, without approval by the MDPS school board,” the report stated. “Without competitive bidding, MDPS cannot ensure that the school district is receiving a fair market price for work being performed.”

Emergency Restoration, based in Troy, is owned by John David, a friend of the Madison school board president, Albert Morrison. David is also behind NMJ LLC, the company that acquired the 3.54 acres at the site of the former Monroe Elementary for just $60,000. 

The move was controversial since the district had previously sold just 1 acre to the city for $121,000, and because the sale to NMJ occurred without a competitive bid, without consulting taxpayers and without disclosing a potential conflict of interest. More than 30 houses are now being built at the property.  

Regarding nonemergency repairs, the report pointed to Michigan Compiled Law 380.1267, which requires school districts to obtain competitive bids on all material and labor required for the complete repair or renovation of an existing school building.

By declaring every repair to be an “emergency,” the district bypassed state law requiring that repairs be bid out at certain spending thresholds, the report noted. 

 

Finding 3

The report also raised concerns about the complete lack of contracts and purchase orders between the district and its vendors.

“(The state) noted that for all the repairs that were completed during the audit period, there were no contracts/purchase orders between MDPS and the vendors,” it stated.

The report added that while the district classified items as emergencies not requiring competitive bids, the district’s “policies and procedures do not provide an exception to the contract/purchase order requirements due to emergencies.”

The lack of contracts and purchase orders is concerning, it noted, because “by not completing a contract, MDPS was not protected from nonperformance by the vendors or potential legal risk.” 

 

Finding 4

Invoice splitting was another issue identified by the state. In essence, the district took projects that would have required a competitive bid when they exceeded a certain price point, and avoided bids by dividing the projects into smaller items.  

The state reviewed the district’s check registers during the audit period, looking for checks paid to vendors that appeared to cover similar invoices. This included three checks totaling nearly $96,000, which covered 17 invoices that had similar descriptions. These invoices individually fell below the bidding thresholds. 

“The splitting of a purchase requirement for (similar) items into two or more purchases, for the purposes of circumventing the purchasing procedures or meeting the (lesser) requirements of lower transactions, is strictly prohibited,” the report warned.

 

Finding 5

The report noted that Emergency Restoration made management decisions on behalf of MDPS without a contract and without board approval. This resulted in several projects where competitive bids were made on behalf of the school district and without the district’s consent, “violating MDPS’ policies and increasing the risk of noncompliance with state law,” it stated. 

The report noted that during the audit period, MDPS paid Emergency Restoration at least $47,376 in management fees related to 11 invoices. 

“The construction management work was completed by Emergency Restoration without a contract with the school district,” the report stated. “Without a contract, MDPS cannot ensure that Emergency Restoration acted in the best interest of the (district), or hold Emergency Restoration accountable for nonperformance or other issues.” 

When contacted by email, Speck did not answer how long Emergency Restoration has been the district’s construction manager or who authorized the company. 

In a follow-up text message for clarification, he claimed that the state has it wrong.

“They weren’t ever a construction manager. That was something the state and I talked about. The report doesn’t include the narrative I talked about with the state,” Speck wrote.

When asked for additional clarification, Speck stated: “I accept (the state’s) findings. I can also disagree with their interpretation and can make sure we never give the impression of noncompliance.”

 

Other concerns

The report also said there was “questionable use” of the  district’s petty cash fund.

“Based on (the state’s) experience with school districts of a similar size, MDPS had a higher dollar value of transactions that were processed using cash from the petty cash fund,” it stated. 

The report warned about “the higher risk associated with petty cash accounts,” and also noted that there were “questionable payments made to related parties.”  

The report also noted specific allegations against the district. Here, two allegations were deemed false, while several others couldn’t be substantiated and were deemed inconclusive. 

The report could not substantiate that a “questionable relationship” exists between Morrison, the board president, and his friend’s company, Emergency Restoration — one that resulted in competitive bids not occurring, preferential treatment and/or Morrison financially benefiting. 

“The claim of competitive bidding not always occurring is true; however, the state could not substantiate that the relationship identified was the cause,” the report read. 

It also noted: “All work classified as an emergency was performed by Emergency Restoration and could be perceived as preferential treatment. (The state) questioned the cost effectiveness of utilizing the vendor as the general contractor for MDPS.” 

Another allegation brought to the state concerned a check that MDPS canceled to Pavement Specialities for work on the parking lot at Wilkinson Middle School after the company refused to pay Emergency Restoration a portion of the check as a consulting fee, which resulted in the school district reissuing checks to both companies. 

This allegation was determined to be false — the district’s business manager indicated that the original check was canceled because of an error in the accounting code used on the check, and it was reissued to Pavement Specialities in the same amount, the report stated. 

Another allegation — that the petty cash fund was used to buy a truck for the district and then returned for cash, and that once questioned, the truck was repurchased to ensure the truck was on-site — was also deemed false in the report. 

“However, (the state) questioned the appropriateness of using cash for this transaction,” it said.

 

Questions remain

In an email, Speck said that the district always meant well.

“In the case of contracting for construction and construction management, we have reached out to contractors whom we deem to be reliable and always ready to provide first-rate service to the school district,” Speck stated. 

“The report … examined whether there was any insider dealing or improper influence in our contracting process, and did not find such allegations to be substantiated,” he said. “The state did, however, highlight areas that we need to study and strengthen, such as our bidding process. We will, of course, take this charge seriously and examine our bidding procedures and any other findings in the report that are due consideration.” 

Kimble said that the lack of bids, contracts and purchase orders noted in the report are not mere mistakes. 

He pointed to lease deals with the charter school KEYS Grace Academy, which occupies Edison Elementary and 13,750 square feet of space at Madison High. While the board recently extended the academy’s lease to 2025, the original deals for each location — Edison starting in 2015 at five years for $1, and Madison High starting in 2017 — weren’t voted on by the board, Kimble said.  

Speck stated in a text message that he “talked with the school board” at a July 28, 2017, special meeting regarding the lease at Madison High, and that as the board’s “designate,” he had the authority to approve that use himself. He also stated that the charter school application for Edison was voted on by the board during a meeting on May 4, 2015. However, Kimble said that there was never a vote on the original lease deal for either use, which he said would be separate from the application.

When asked for proof showing his ability to sign agreements without board approval, Speck pointed to minutes from July 2014 where the board gave him “the authority to sign contracts, agreements and purchase orders in accordance with board policies.” 

Kimble said that the board would still have to approve any agreement or proposal. He pointed to the board bylaws, which state under “Site Acquisition” that “official board action is required to execute a valid contract, and a record of that action must be a part of the minutes of the board.” And under “Disposition of Real Property,” it states that “the board shall give final approval of all contracts” with regard to all “lease offers pertaining to sale or lease of property.”

Kimble believes that the state report shows that change is needed.   

“The state’s report shows a pattern — a clear culture of corruption,” Kimble said. “Something needs to change.”