Special investigation, Red Mesa Unified School District no. 27, theft of public monies and malfeasance by district officials a report to the Arizona Legislature

              Special Investigation
Red Mesa Unified
School District No. 27
Theft of Public Monies and
Malfeasance by District Officials
Special Investigative Unit
Debra K. Davenport
Auditor General
APRIL • 2007
A REPORT
TO THE
ARIZONA LEGISLATURE
The is appointed by the Joint Legislative Audit Committee, a bipartisan committee composed of five senators
and five representatives. Her mission is to provide independent and impartial information and specific recommendations to
improve the operations of state and local government entities. To this end, she provides financial audits and accounting services
to the State and political subdivisions, investigates possible misuse of public monies, and conducts performance audits of
school districts, state agencies, and the programs they administer.
The Joint Legislative Audit Committee
Senator Robert Blendu, Chair Representative John Nelson, Vice Chair
Senator Carolyn Allen Representative Tom Boone
Senator Pamela Gorman Representative Jack Brown
Senator Richard Miranda Representative Pete Rios
Senator Rebecca Rios Representative Steve Yarbrough
Senator Tim Bee (ex-officio) Representative Jim Weiers (ex-officio)
Audit Staff
George Graham, Manager
Lindsey Perry, Senior
Copies of the Auditor General’s reports are free.
You may request them by contacting us at:
Office of the Auditor General
2910 N. 44th Street, Suite 410 • Phoenix, AZ 85018 • (602) 553-0333
Additionally, many of our reports can be found in electronic format at:
www.azauditor.gov
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
WILLIAM THOMSON
DEPUTY AUDITOR GENERAL
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
April 24, 2007
Members of the Arizona Legislature
Governing Board
Red Mesa Unified School District No. 27
The Honorable Terry Goddard
Attorney General
The Honorable Tom Horne
State Superintendent of Public Instruction
The Office of the Auditor General has conducted a special investigation of the Red
Mesa Unified School District No. 27 for the period April 2005 through July 2006. The
investigation determined the amount of public monies misused, if any, during that period
and the extent to which those monies were misused.
The investigation consisted primarily of inquiries and examination of selected financial
records and other documentation. Therefore, the investigation was substantially less in
scope than an audit conducted in accordance with generally accepted auditing
standards. Accordingly, the Office does not express an opinion on the adequacy of the
financial records or the internal controls of Red Mesa Unified School District No. 27. The
Office also does not ensure that all matters involving the District’s internal controls,
which might be material weaknesses under standards established by the American
Institute of Certified Public Accountants or other conditions that may require correction
or improvement, have been disclosed.
The accompanying Investigative Report describes the Office’s findings and
recommendations as a result of this special investigation.
After this report is distributed to the members of the Arizona State Legislature, the
Attorney General, and the State Superintendent of Public Instruction, it becomes public
record.
Debbie Davenport
Auditor General
Enclosure
page i
Office of the Auditor General
SUMMARY
In May 2006, the Office of the Auditor General received a complaint alleging financial
misconduct by Mr. Stewart Waite, former Business Manager, and Mr. William Bean,
former Superintendent, for the Red Mesa Unified School District No. 27. As a result,
our Office conducted an investigation of those financial improprieties and submitted
our report to the Arizona Attorney General’s Office. During our investigation, we
determined that Mr. Waite and Mr. Bean embezzled and misused public money. In
addition, our investigation further revealed that Ms. Sadie Tso, Board President, also
violated state laws. The Attorney General has taken evidence of Mr. Waite’s, Mr.
Bean’s, and Ms. Tso’s activities to the State Grand Jury, which indicted them on
felony charges. See the Conclusion on page 17 of this report.
Our investigation determined that from April 2005 to July 2006, almost
$360,000 in public monies was embezzled, and an additional
$520,000 in other public monies was misused, as follows:
􀁺􇩍 Mr. Waite, former Business Manager, embezzled at least $274,693 by misusing
district monies and credit card privileges to purchase personal items totaling
$196,555 at various retail outlets; $63,618 in cash advancements; and $520 in
personal travel; and authorizing a $15,000 district check to himself, of which
$14,000 was for his own personal use. In addition, Mr. Waite misused public
money by participating in the issuance of payouts of employment contracts
totaling more than $304,000 for both himself and Mr. Bean. Further, Mr. Waite
failed in his fiduciary responsibilities and violated procurement laws by
circumventing procurement procedures when purchasing items totaling
$187,924 for the District’s equestrian education program.
􀁺􇩍 Mr. Bean, former Superintendent, embezzled at least $85,305 by also using the
district credit card for personal purchases, such as $49,245 in cash
advancements, $33,282 at various retail outlets, and $2,778 for personal travel.
In addition, Mr. Bean misused public money by improperly disbursing gifts
totaling $28,280 to other district employees and students without substantiating
the public purpose for such gifts. Further, Mr. Bean unlawfully authorized
Almost $880,000 of school district
monies was misused by school district
officials.
payouts of their employment contracts totaling more than $304,000 for both
himself and Mr. Waite.
􀁺􇩍 Ms. Tso, Governing Board President, also misused public money by solely
authorizing the contract payouts totaling more than $304,000 for Mr. Waite and
Mr. Bean outside any formal board meeting or approval.
In addition, during the onset of our investigation, Mr. Waite, Mr. Bean, Ms. Tso, and
another board member established as the Board Clerk collectively altered public
records and made false statements to the Auditor General’s Office to conceal their
financial misconduct and impede the investigation. Such conduct constitutes illegal
acts.
The District’s internal controls over travel, purchasing, and credit card activities were
inadequate, as evidenced by the ability of Mr. Waite and Mr. Bean to initiate, approve,
and reconcile those types of activities on their own. As a result, Mr. Waite and Mr.
Bean were able to embezzle and misuse district monies for more than 1 year, and
the District was unable to detect and deter their thefts.
State of Arizona
page ii
Office of the Auditor General
TABLE OF CONTENTS
continued
1
3
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4
4
5
7
7
8
9
11
13
15
17
Introduction & Background
Finding 1: Administrators embezzled public monies
Personal credit card purchases
Cash advances and transaction fees
Personal travel
Personal payment
Finding 2: District officials misused public monies
Unauthorized employment payments
Gift card purchases
Finding 3: District officials obstructed investigation
Finding 4: Former business manager violated school
district procurement rules
Finding 5: District officials failed to establish and
maintain adequate controls
Recommendations
Conclusion
page iii
State of Arizona
TABLE OF CONTENTS
Exhibits:
1 Embezzlement Schemes
June 2005 to June 2006
2 Procurement Violations
April 2005 to August 2005
3
11
concluded
page iv
Red Mesa Unified School District No. 27 is located in Teec Nos Pos, Arizona, within
the Apache County boundaries. The District comprises two elementary schools, one
junior high school, and one high school. The District is accountable to its students,
their parents, and the local community for the quality of education provided. The
District is also financially accountable to taxpayers for the more than $15 million
(unaudited) it received in fiscal year 2006 to provide this education to more than 970
enrolled students. Additionally, the District has five publicly elected Governing Board
members who are responsible for setting all district policies and are the final authority
over all school district business.
History of financial mismanagement
Over the years, the District has had a history of problems relating to its financial
management. As far back as June 1991, the Office of the Auditor General performed
a special review of the District’s records to address possible malfeasance by district
personnel. That review found a number of problems with the District’s internal control
environment, noncompliance with district policies, and violations of state law. These
deficiencies are similar in nature to the charges addressed in this report, including
misuse of the district credit cards and travel as well as procurement violations.
In recent years, the District has repeatedly failed to comply with the Uniform System
of Financial Records (USFR), which prescribes the minimum internal control policies
and procedures to be used by Arizona school districts for accounting, financial
reporting, budgeting, attendance reporting, and various other compliance
requirements. To date, the District is still in noncompliance for deficiencies
discovered during its fiscal year 2003 financial audit. These deficiencies include
failure to follow School District Procurement Rules, failure to ensure and report
accurate financial information, failure to maintain documentation to support daily
attendance figures, and failure to establish a sufficient control environment to
safeguard district assets and student activities monies. Further, the District has not
submitted financial audits for fiscal years 2004 and 2005 to the Office of the Auditor
General and to the Arizona Department of Education, as required by law. As a result,
the Office of the Auditor General has determined the District to be in noncompliance
with the USFR and state and federal law in regard to report submission.
Office of the Auditor General
INTRODUCTION
& BACKGROUND
page 1
State of Arizona The District’s poor financial management also directly impacts its mission to educate
its students. For example, the administrators’ improper expenditures as described in
this report reduce the money available for classroom purposes. The District’s
spending patterns for fiscal years 2003 through 2006 appear to be abnormal
compared to state and national averages as the District’s fiscal year 2006
administrative expenditures were 5-7 percent higher than state and national
averages. The District used approximately 43 percent of its monies in the classroom,
which was almost 16 percent below the state average. As a result, for fiscal year
2006, this District ranked among the lowest school districts in the State in terms of
how much money it spent on classroom activities (213 out of 229 districts).
District officials responsible for current misconduct
Four district officials played a role in the misconduct discovered during this
investigation:
􀁺􇩍 Mr. Stewart Waite, who was hired by the District as the Business Manager in July
2004. Mr. Waite possessed a high school education and had no previous
experience as a school business manager.
􀁺􇩍 Mr. William Bean, who was hired as the District Superintendent in June 2005. Mr.
Bean had previously served as a school superintendent for another district in
Arizona.
􀁺􇩍 Ms. Sadie Tso, who was elected to the District’s Governing Board in 1998, and
was appointed Board President in 2003.
􀁺􇩁 Another board member established as the Board Clerk was elected to the
District’s Governing Board in January 2005.
Both Mr. Waite and Mr. Bean submitted their formal resignations on July 17, 2006, 1
month after the Office of the Auditor General began its investigation.
District officials and the Governing Board have a fiduciary duty to Arizona’s citizens
in general and to district students, parents, teachers, and taxpayers in particular for
ensuring the prudent use of public money. However, these individuals failed in their
responsibilities to the public they serve by abusing their official positions.
State of Arizona
page 2
Administrators embezzled public monies
From June 2005 to June 2006, Mr. Waite, former Business Manager, and Mr. Bean,
former Superintendent, embezzled almost $360,000 by misusing district monies and
credit card privileges to perpetrate their thefts. Over a 1-year period, these
employees repeatedly violated state laws related to theft and fraudulent schemes.
By taking advantage of the District’s insufficient control policies and procedures
related to its credit card process, Mr. Waite and
Mr. Bean were able to charge more than 1,180
personal items to their district credit card
accounts. As summarized in Exhibit 1, Mr. Waite
and Mr. Bean used the district credit card to
purchase personal items such as clothing,
jewelry, and vehicle accessories; withdraw cash
advances from various automated teller
machines (ATMs), including ATMs at casinos in
Las Vegas and Arizona; and purchase items
related to personal travel to places such as
Disneyland and Texas. Finally, Mr. Waite
improperly issued and negotiated a district check
payable to himself for $15,000, of which $14,000
was for his own personal use.
Both Mr. Waite and Mr. Bean participated in
various embezzlement schemes to perpetrate
their thefts, which totaled almost $360,000. Following are specific descriptions of
each scheme as summarized in Exhibit 1 above:
Personal credit card purchases
From August 2005 to June 2006, Mr. Waite embezzled at least $196,555 by using the
district credit card to purchase 453 items for his own use. Mr. Waite used the district
page3
Office of the Auditor General
FINDING 1
Description S. Waite W. Bean Total
Personal Credit Card
Purchases $ 196,555 $ 33,282 $229,837
Cash Advances and
Transaction Fees 63,618 49,245 112,863
Personal Travel 520 2,778 3,298
Credit Card Theft $ 260,693 $ 85,305 $345,998
Personal Payment 14,000 n/a 14,000
Total Theft $ 274,693 $ 85,305 $ 359,998
Embezzlement Schemes
June 2005 to June 2006
Exhibit 1:
Source: Auditor General staff analysis of district records and Wells Fargo Bank account
statements.
credit card to purchase personal items such as jewelry totaling $14,308 and to make
personal vehicle payments to four dealerships totaling $29,975. Mr. Waite admitted
to using the district credit card to pay for two personal vehicle loan payments and to
purchase personal items, including clothing, for himself, his children, and his wife.
Similarly, from August 2005 to June 2006, Mr. Bean embezzled at least $33,282 by
also using the district credit card to purchase 139 personal items. Mr. Bean used the
district credit card to purchase items primarily from various apparel and department
stores totaling $26,132. Mr. Bean also admitted to using his district credit card to
purchase clothing and gift cards for his personal use at various retail outlets.
Cash advances and transaction fees
During a 6-month period from December 2005 to June 2006, Mr. Waite
embezzled $61,762 from the District by using the district credit card to
withdraw cash from various banks and ATMs for his own personal benefit.
Several of these withdrawals occurred at various casinos within Arizona and
Las Vegas. Further, the District’s bank assesses a one-time transaction
charge for each cash withdrawal, and those fees ranged in dollar amounts
between $4 and $225. As a result, the District paid $1,856 in cash advance fees for
Mr. Waite’s cash advance withdrawals. Mr. Waite admitted that all of the cash
advances were for personal use and none were used for district-related purposes.
Similarly, Mr. Bean embezzled $47,791 from the District during a 5-month
period from January 2006 to June 2006 by also using his district credit card
as a means to withdraw cash from various banks and ATMs for his own
benefit. Several of these withdrawals occurred at various Las Vegas casinos
and those withdrawals ranged in dollar amounts between $300 and $5,200.
As a result of Mr. Bean’s cash advances, the District paid $1,454 in fees for
Mr. Bean’s withdrawals. Mr. Bean admitted to using a portion of these cash advances
to repay personal debts.
Personal travel
In June 2006, Mr. Waite charged personal travel-related items to his district credit
card totaling $520. Mr. Waite traveled throughout Arizona on personal business and
used his district credit card to purchase lodging related to these trips totaling $520.
For each of these instances, there were no documents such as a travel expense
claim or a purchase order to support the purpose of the travel.
Similarly, from January 2006 to June 2006, Mr. Bean also charged personal travel-related
items to his district credit card, totaling $2,778. Mr. Bean traveled on three
separate personal vacations and charged his district credit card with items relating
to these trips. Mr. Bean vacationed in destinations such as Santa Fe, New Mexico;
Marshall, Texas; and Anaheim, California; all at the District’s expense. Mr. Bean
State of Arizona
page 4
Within a 6-month period, Mr. Waite
personally withdrew more than $61,000
in cash with a district credit card.
Within a 5-month period, Mr. Bean
personally withdrew more than $47,000
in cash with a district credit card.
admitted to traveling on these personal vacations and using his district credit card to
purchase items such as food, lodging, and fuel related to these trips.
Personal payment
In June 2005, Mr. Waite violated state laws by authorizing and issuing a check
payable to himself totaling $15,000. According to district records, the purpose of
issuing this check was to purchase horses for the District’s Equestrian Education
Program. Mr. Waite created a $15,000 district check payable in his name and signed
by two other district employees and negotiated the check at a local bank for cash.
However, other than paying a $1,000 cash deposit for horses, Mr. Waite did not
purchase any other items for the equestrian program. The remaining $14,000 was
then used for his personal benefit. In July 2005, Mr. Waite submitted a letter to Mr.
Bean and to the District’s Governing Board, falsely claiming to have used these
monies to purchase horses.
Office of the Auditor General
page 5
State of Arizona
page 6
District officials misused public monies
School districts are fiscally accountable to Arizona taxpayers for the appropriate
spending of state and local monies. Additionally, as public officials, district
employees have a responsibility to prudently manage district assets on behalf of the
community they serve.
Unauthorized employment payments
In July 2006, Mr. Waite, Mr. Bean, and Ms. Tso misused district monies totaling
approximately $304,441 by improperly approving that amount to be paid to Mr. Waite
and Mr. Bean upon their voluntary resignation from the District, just 1 month after the
Auditor General’s Office began its investigation. As a result, Mr. Bean received
$173,392 and Mr. Waite received $96,665 to cover a portion of their future salaries
and other benefits when they resigned. The District also paid for approximately
$34,384 in employment taxes and retirement benefits associated with these two
payments.
Specifically, on July 13, 2006, Mr. Waite, Mr. Bean, Ms. Tso, and another board
member improperly met to discuss the details of Mr. Bean’s and Mr. Waite’s
resignations, including negotiations for an employment payout. During this meeting,
all four individuals collectively agreed to the terms of Mr. Bean’s and Mr. Waite’s
employment payouts. This secret meeting was held for the purpose of concealing
information from other district Governing Board members.
As the Board President, Ms. Tso had a duty to govern independently of district
administrators, to monitor district operations, and to inform other board members of
such operations. However, Ms. Tso violated this duty by acting independently of the
Governing Board in approving employment payouts to Mr. Bean and Mr. Waite.
Further, as the Superintendent, Mr. Bean had a fiduciary duty to advise the District’s
Governing Board about current district operations, including this employment
payout, and to act according to board guidance. Therefore, Mr. Bean abused his
supervisory position by failing to receive board approval and improperly authorizing
page7
Office of the Auditor General
FINDING 2
Mr. Waite to process these two employment payouts. Finally, as the Business
Manager, Mr. Waite participated in the issuance of payouts of their employment
contracts for both himself and Mr. Bean.
Ms. Tso admitted to approving the employment payouts without informing the Board
or obtaining proper board approval. Additionally, Mr. Bean was acquainted with open
meeting laws and procedures and therefore, understood that neither employment
payout had been properly presented to or properly approved by the Board during a
public meeting.
Further, after Ms. Tso approved the employment payouts, Mr. Waite altered both
amounts, increasing the total payouts by $774. Mr. Waite claimed that both he and
Mr. Bean were entitled to additional vacation, sick, and personal leave amounts
above what the original contracts included.
Gift card purchases
During his tenure with the District, Mr. Bean improperly disbursed from district monies
certain benefits and gifts to students, teachers, and other district employees totaling
more than $28,000. The public purpose for these disbursements was not identified
and the cost appears to greatly exceed any benefit to the
public. Any public purpose that may have been associated
with these gifts was not documented or approved by the
District’s Governing Board. The Arizona Constitution
prohibits the use of public money for private benefit unless
that benefit is incidental to a public purpose being served by
the expenditure and the public value is not far exceeded by
the amount being paid.
Mr. Bean used the district credit card and spent at least
$28,280 during a 10-month period from August 2005 to
June 2006 on gift card purchases ranging in value from $75
to $900 from various retail outlets. Mr. Bean’s purported
reason for purchasing these gift cards was to reward district
employees for positive performance and to provide
incentives to district students.
Mr. Bean admitted that his actions would be considered a
misuse of public money, but despite his better judgment, he
knowingly participated in such activities.
State of Arizona
page 8
The Arizona Constitution prohibits gifting of public monies,
including using public money for entertainment and other
personal benefits.
The Arizona Constitution, Article IX, Section 7, states:
"Neither the State, nor any county, city, town, municipality, or
other subdivision of the State shall ever give or loan its credit
in the aid of, or make any donation or grant, by subsidy or
otherwise, to any individual, association, or corporation, or
become a joint owner with any person, company, or
corporation, except as to such ownerships as may accrue to
the State by operation or provision of law."
Attorney General Opinion I85-051 states in part: "While
public funds may not be loaned or given to private
individuals or entities, an incidental private benefit is not
prohibited by Article IX as long as there is a public
purpose served by the expenditure or loan of funds and the
value to be received by the public is not far exceeded by
the consideration being paid."
District officials obstructed investigation
In an attempt to impede the Auditor General’s investigation, Mr. Waite, Mr. Bean, Ms.
Tso, and another board member established as the Board Clerk collectively decided
to insert false statements into Mr. Bean’s and Mr. Waite’s employment contracts.
They purported to have inserted these statements to validate Mr. Bean’s and Mr.
Waite’s misuse of district monies and with the expectation that the Auditor General’s
Office would terminate the investigation. Later, Mr. Bean and Ms. Tso submitted a
written statement to the Auditor General asserting that the altered documents were
the original board-approved employment contracts.
District officials have a duty to comply with and provide accurate records when
requested by the Auditor General. A district official who knowingly falsifies and
conceals information pursuant to a scheme to deceive the Auditor General’s Office
in the execution of those duties is in violation of the law.
In June 2006, the Auditor General’s Office requested copies of credit card statements
for each district employee. After receiving the Auditor General’s request letter, Mr.
Waite, Mr. Bean, Ms. Tso, and the other board member concocted a scheme to insert
false statements into Mr. Bean’s current employment contract stating, “The
Superintendent is assigned a District issued Credit Card as part of his compensation
package to be used for any and all expenses incurred by the Superintendent for the
term of this Agreement.” Additionally, a similar false statement was added to Mr.
Waite’s prior and current employment contracts.
In July 2006, Mr. Bean and Ms. Tso responded to the Auditor General’s request by
letter on district letterhead. The letter included Mr. Waite’s and Mr. Bean’s altered
employment contracts and falsely stated, in part, that the District’s Governing Board
approved the use of a district credit card for Mr. Bean and Mr. Waite to use as a part
of their compensation package within the employment contracts. Both Mr. Bean and
Ms. Tso signed the response letter.
page9
Office of the Auditor General
FINDING 3
Both Ms. Tso and the other board member continued to impede the Auditor
General’s investigative efforts by being untruthful about the altered employment
contracts. Specifically, Ms. Tso and the other board member continued to state that
the credit card clause was included in Mr. Bean’s employment contract, and was
authorized by the District’s Governing Board. Subsequently, both individuals have
recanted this statement and all four individuals admitted that employment contracts
were purposely altered with the intention of obstructing the investigation.
State of Arizona
page 10
Former business manager violated school district
procurement rules
Arizona Revised Statutes, the School District Procurement Rules for
competitive sealed bidding, and the Uniform System of Financial
Records guidelines exist, in part, to ensure that public officials obtain
the best possible value for the public money they spend by prohibiting
the restraint of free trade and unreasonable reduction of competition
among vendors. Although responsible for ensuring that the
procurement process was properly followed, Mr. Waite failed to follow
school district procurement requirements when procuring items for the District’s
Equestrian Education Program.
During the period April 2005 to August 2005, Mr. Waite improperly purchased goods
and services totaling more than $187,900. The School District Procurement Rules
require school districts to issue invitations for bids or
requests for proposals (RFP) when purchasing goods
or services exceeding the sealed bid threshold. As
required by Arizona Revised Statutes, this threshold is
increased annually and was $32,899 in fiscal year 2005
and $33,689 in fiscal year 2006. Mr. Waite failed to use
either of these methods when purchasing a truck, a
trailer, horses, and the renovation to a pavilion. As
illustrated in Exhibit 2, each of these purchases
exceeded the amount for which a bid or RFP was
required and totaled $187,924.
In a letter to district officials, Mr. Waite admitted to
circumventing procurement procedures in order to
purchase items in a timely manner. Because Mr. Waite
did not comply with the School District Procurement
Rules when spending district monies, competition for
page11
Office of the Auditor General
FINDING 4
School District Procurement Rules
describe procedures on how to
appropriately use competitive sealed
proposals outlined in Arizona
Administrative Code R7-2-1041.
Purchase Description Amount
Pavilion Renovation $ 56,486
Horse Trailer 55,150
Dodge Ram Truck 38,946
10 Horses and Supplies 37,342
Total Unallowable Purchases $ 187,924
Procurement Violations
April 2005 to August 2005
Exhibit 2:
Source: Auditor General staff analysis of district and Apache County records.
these purchases was limited and the District may not have received the best value
for the goods and services received.
State of Arizona
page 12
District officials failed to establish and maintain
adequate controls
Public officials with oversight authority have a responsibility to oversee the
administration of money and property entrusted to their jurisdiction for safekeeping.
Likewise, public officials should ensure that sufficient internal controls are designed
and implemented to protect those assets. As such, Red Mesa Unified School District
officials failed to implement an adequate system of internal controls over their
financial operations, which allowed Mr. Waite and Mr. Bean to embezzle and misuse
public money for more than a year.
As the Business Manager and Superintendent, Mr. Waite and Mr. Bean were able to
instruct their employees to issue payments to vendors without any additional
supervisory approval and without providing any supporting documentation such as
a receipt or invoice. Therefore, because of their management positions, Mr. Waite
and Mr. Bean were able to carry out their misappropriations without detection.
Additionally, district administrators allowed the issuance and distribution of credit
cards without properly establishing credit card policies or providing guidelines as to
allowable purchases, spending limitations, required documentation, and proper
reconciliation processes. Furthermore, credit card statements were not reconciled to
receipts and invoices to ensure purchases were for a specific district purpose or to
determine if the purchase was already paid through a travel claim, thereby identifying
or avoiding duplicate payments. As a result, district administrators established a
business climate that did not encourage the prudent use of public money or promote
the expectation that expenditures of public money should have a public purpose.
Finally, the District’s Governing Board is responsible for establishing, at a minimum,
an internal control environment outlined by the Uniform System of Financial Records.
Also, the District’s Governing Board has a fiduciary duty to protect the District and to
make decisions that are in the District’s best interest. Instead of upholding that
fiduciary duty, the Board’s President and another board member failed to act when
page13
Office of the Auditor General
FINDING 5
they knew of the Superintendent’s and Business Manager’s improper conduct in July
2006 and attempted to conceal all evidence of these administrators’ wrongdoing. A
system of internal controls will not succeed when those in a position to oversee those
operations are in fact perpetrating unlawful behavior and colluding with one another
to conceal their misconduct.
State of Arizona
page 14
To help ensure the proper use of public monies, the District should establish effective
internal controls over cash disbursements including policies, procedures, and
monitoring activities. Specifically, the District’s Governing Board should establish the
following policies and procedures:
1. The Governing Board should establish and provide to authorized employees
formal, written policies governing the use of credit cards. The policies should
specify purposes for which the cards may be used and dollar limits for charges,
and require an effective accounting system to account for and control the cards.
2. The District should ensure that no employee has the ability to carry out all steps
in the credit card process. Accordingly, the District should properly separate
among employees the following credit card functions:
􀁺􇩁 Authorizing credit card issuance to cardholders
􀁺􇩁 Approving credit card purchases in advance
􀁺􇩒 Receiving credit card statements
􀁺􇩒 Reconciling credit card statements to receipts and invoices
􀁺􇩒 Reviewing credit card usage to ensure it is for appropriate district purposes
􀁺􇩁 Authorizing payment
3. The District should prepare and retain documentation to adequately support all
credit card expenditures. Such documentation should clearly indicate the
employee making the purchase and the specific district purpose for the
expenditure, and the purchase should be approved in advance. Employees
should be required to submit all receipts to the district office as soon as
possible.
page15
Office of the Auditor General
RECOMMENDATIONS
4. The District should require that billing statements are sent directly to the district
office, not to a cardholder. An employee in the district office should reconcile the
statements to supporting receipts prior to payment and report any suspicious
charges to a supervisor for further investigation.
5. The District must ensure that expenditures are processed based on proper
documentation. Such documentation includes, but is not limited to, properly
approved purchase requisitions, purchase orders, and vendor invoices.
6. The District should ensure the prudent use of public money. Public money
should not be used for private benefit unless that benefit is incidental to a public
purpose being served by the expenditure and the public value is not far
exceeded by the amount being paid. Expenditures should be approved only if
they support the needs of the District in its role to serve the public, and in
particular, the community’s students, parents, citizens, teachers, and schools.
7. The District must take greater care to ensure all contracts for purchases
exceeding the sealed bid threshold (currently $33,689) are awarded in
compliance with the School District Procurement Rules for Arizona school
districts, as outlined in the Arizona Administrative Code. School District
Procurement Rules, applicable Arizona Revised Statutes, and the Uniform
System of Financial Records exist to help ensure that districts receive the best
possible value for the public money they spend and school property they
manage by prohibiting the restraint of free trade and unreasonable reduction of
competition among vendors.
8. The District’s Governing Board should establish periodic monitoring procedures
to ensure that all policies and procedures prescribed by the Uniform System of
Financial Records are being followed.
State of Arizona
page 16
On April 19, 2007, the Arizona Attorney General’s Office presented evidence of Mr.
Waite’s, Mr. Bean’s, and Ms. Tso’s crimes to the State Grand Jury. This action
resulted in the indictment of:
􀁺􇩍 Mr. Stewart Waite on four counts of theft, one count of fraudulent schemes and
artifices, one count of forgery, and two counts of fraudulent schemes and
practices.
􀁺􇩍 Mr. William Bean on three counts of theft, one count of fraudulent schemes and
artifices, and two counts of fraudulent schemes and practices.
􀁺􇩍 Ms. Sadie Tso on two counts of theft and two counts of fraudulent schemes and
practices.
page17
Office of the Auditor General
CONCLUSION