Special investigation, Kyrene school district no. 28, theft and misuse of of public monies

              Special Investigation
Kyrene School
District No. 28
Theft and Misuse of
Public Monies
Special Investigative Unit
Debra K. Davenport
Auditor General
JULY • 2010
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
Audit Staff
George Graham, Manager
Erin Mullarkey, 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
Representative Judy Burges, Chair Senator Thayer Verschoor, Vice Chair
Representative Tom Boone Senator John Huppenthal
Representative Cloves Campbell, Jr. Senator Richard Miranda
Representative Rich Crandall Senator Rebecca Rios
Representative Kyrsten Sinema
Representative Kirk Adams (ex efficio) Senator Bob Burns (ex efficio)
July 27, 2010
Members of the Arizona Legislature
Governing Board
Kyrene School District No. 28
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 Kyrene School District
No. 28 for the period July 2004 through April 2009. 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 Kyrene School
District No. 28. 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 2009, the Tempe Police Department requested that the Office of the Auditor
General investigate allegations of financial misconduct by Janet Thor, former
principal at two schools in Kyrene School District No. 28 (District). As a result of our
investigation, we determined that Ms. Thor misused and embezzled public monies
using a fraudulent scheme to conceal her misconduct. The
Arizona Attorney General’s Office has taken criminal action
against Ms. Thor, resulting in her indictment on felony charges
(see Conclusion on page 15 of this report.)
Our investigation revealed that from July 2004 through March
2009, Janet Thor violated state laws related to misuse of public
monies, theft, and fraudulent schemes and artifices while
misusing at least $54,791 of public monies and embezzling at
least $33,940. These monies were intended to benefit the
students attending Ms. Thor’s schools. However, Ms. Thor used
some of these monies for her own benefit, including paying
personal debt, travel, and household expenses.
Ms. Thor perpetrated her scheme by diverting gifts, donations, and other payments
from local businesses, parent support organizations, and community members into
unauthorized bank accounts. Then, Ms. Thor wrote checks payable to herself,
withdrew cash, and wrote checks for her personal expenses from the accounts.
Additionally, Ms. Thor supplied fraudulent documentation to the District during its
investigation.
Finally, district officials did not heed warning signs that should have exposed the
misuse. In particular, officials did not look into early concerns about an unauthorized
bank account and did not restrict Ms. Thor’s account access when they later initiated
an investigation. In both cases, the District failed to recognize the significant risk of
embezzlement or misuse of public monies that is associated with an unauthorized
account. After Ms. Thor’s misconduct was discovered, the District began to identify
actions to help prevent similar abuse in the future.
Investigation Highlights
Former Kyrene School District
Principal Janet Thor:
 Misused $54,791 of public
monies by depositing it into
unauthorized bank accounts.
 Embezzled $33,940 for her
personal use.
State of Arizona
page ii
Office of the Auditor General
TABLE OF CONTENTS
1
3
7
9
11
13
15
5
7
Introduction & Background
Finding 1: Former principal misused public monies
Finding 2: Former principal embezzled public monies
Finding 3: Former principal created fraudulent
documentation
Finding 4: District officials failed to prevent further
misuse
Recommendations
Conclusion
Tables:
1 Misuse of Public Monies
July 2004 to March 2009
2 Embezzlement Schemes
October 2004 to February 2009
page iii
State of Arizona
page iv
Kyrene School District No. 28 is located in the metropolitan area of Phoenix, Arizona,
encompassing portions of Tempe, Guadalupe, Phoenix, Chandler, and the Gila River
Indian Community with a total of 19 elementary schools and 6 middle schools. The
District is accountable to taxpayers for the $160 million it received in fiscal year 2009
to educate approximately 17,000 students. The District has five publicly elected
Governing Board members who are responsible for establishing all district policies
and are the final authority over all school district business.
Ms. Thor’s history with the District
Ms. Janet Thor began her employment with the District in February 1994 as a middle
school teacher. In July 2001, she was promoted to the position of assistant principal
at Kyrene del Cielo Elementary School (Cielo). In July 2004, Ms. Thor was promoted
to the position of principal at Kyrene de los Cerritos Elementary School (Cerritos). Ms.
Thor eventually returned to Cielo in July 2007 as school
principal.
As a school principal, Ms. Thor was responsible for
administering the overall operations of the school, including
supervising school staff, overseeing the educational programs,
and monitoring the school’s revenues and expenses for
compliance with district policy. Ms. Thor was also required to
accurately interpret and apply state laws and regulations, as
well as district policies and procedures.
In February 2009, Ms. Thor’s assistant principal contacted
district administration with several allegations of misconduct
against Ms. Thor. The District initiated an internal investigation
immediately upon receiving these allegations. As a result of the
investigation, completed in April 2009, the District found
sufficient evidence to substantiate many of the allegations.
Specifically, the District determined that as principal at Cielo, Ms. Thor had improperly
maintained an unauthorized bank account called the “Cielo Office Fund” and
deposited gifts and donations intended for the District into it. From the initial available
Office of the Auditor General
INTRODUCTION
& BACKGROUND
page 1
Employment Timeline
 February 1994-June 2001:
Middle school teacher
 July 2001-June 2004:
Cielo Elementary assistant principal
 July 2004-June 2007:
Cerritos Elementary principal
 July 2007-April 2009:
Cielo Elementary principal
 April 29, 2009:
Resignation
documentation, the District was able to determine that Ms. Thor had used the monies
to buy gifts and food for staff members in violation of the Arizona Constitution, Article
IX, §7, which prohibits the gift or loan of public monies to any individual or
corporation.
The District’s internal investigation report included a recommendation that the District
undertake a more thorough audit of the activity in the Cielo Office Fund. Shortly after
this report was provided to Ms. Thor, she admitted to the district superintendent that
she had taken monies from the Cielo Office Fund for her personal use. Ms. Thor
subsequently submitted her resignation effective April 29, 2009, and negotiated a
resignation agreement in which she admitted that she owed the District
approximately $19,000. Ms. Thor agreed to repay this amount to the District by
forfeiting payments she otherwise would have received upon resignation for
accumulated leave hours. After the resignation agreement was completed, the
District discovered that Ms. Thor had maintained a similar unauthorized bank
account while in her original principal position at Cerritos.
The District reported Ms. Thor’s embezzlement to the Tempe Police Department and
the Arizona Department of Education. In October 2009, Ms. Thor voluntarily
surrendered all of her educator certifications and is thus no longer qualified to be a
teacher or school administrator in the State of Arizona.
State of Arizona
page 2
Former principal misused public monies
From July 2004 to March 2009, Janet Thor, former elementary school principal,
misused at least $54,791 of public monies by improperly withholding district
donations and other payments and depositing them into unauthorized bank
accounts purported to be official district accounts, but were in fact
controlled by Ms. Thor. Ms. Thor was then able to embezzle portions
of these monies and also to make purchases outside of the District’s
procurement process, in violation of district policy. According to
Arizona Revised Statutes §35-301, “Duties and liabilities of
custodian of public monies,” it is a felony to appropriate public
monies for personal use or for use by others, or, without legal
authority, to deposit public monies in a bank.
Unauthorized bank accounts
School districts are allowed to maintain only those bank accounts specifically
prescribed by Arizona Revised Statutes, and all bank accounts should be authorized
by the governing board. However, Ms. Thor used two unauthorized bank accounts in
connection with her misuse and embezzlement of public monies, one at each school
where she was employed as the principal. Ms. Thor admitted in an interview with
Auditor General staff that she had deposited checks into these accounts even
though she knew the checks should have been sent to the district office.
• Kyrene de los Cerritos: From July 2004 to May 2007, while she was principal at
Cerritos, Ms. Thor misused public monies when she unlawfully deposited
$26,371 of district monies into an unauthorized bank account titled “Kyrene de
los Cerritos PTO Office Fund.” Most of these monies were donations from the
PTO, companies, and foundations.
When Ms. Thor left Cerritos to become the principal at Cielo, she gave the new
principal the checkbook and check register for the Cerritos office fund account,
but did not explain the source of the money in the account or its purpose. The
page3
Office of the Auditor General
FINDING 1
Diverted Revenues
Cerritos Elementary: $26,371
Cielo Elementary: 28,420
Total: $54,791
new principal questioned whether this type of account was appropriate and
consulted district administration. There was confusion about the origin and
purpose of the account, and district officials erroneously believed it belonged to,
or should belong to, the Cerritos PTO. In September 2007, the District wrote a
check to the Cerritos PTO for the remaining balance of about $1,200 and made
the account inactive. The District should not have allowed these monies to be
given to the PTO without determining where the monies rightfully belonged. If the
District had further investigated the account when the new Cerritos principal
brought it to their attention, they could potentially have discovered Ms. Thor’s
misuse and embezzlement a year and a half earlier than the allegations that
finally did reveal Ms. Thor’s misconduct.
• Kyrene del Cielo: From January 2008 to March 2009, while she was principal at
Kyrene del Cielo, Ms. Thor misused public monies when she unlawfully
deposited $28,420 of district monies into an unauthorized bank account titled
“Kyrene del Cielo Office Fund.” Most of these monies were donations from the
PTO, companies, and foundations. After the District’s investigation of Ms. Thor
was completed in April 2009, the District closed the account and appropriately
deposited the remaining balance of about $450 into a district account.
Donations to schools
Most of the monies Ms. Thor unlawfully deposited consisted of intercepted
donations. It is common for donations to be designated for one specific school rather
than the entire school district. The amount of donations received can vary from
school to school and from year to year. Donations to an individual school are typically
mailed to the school and must then be forwarded to the district office. If a school fails
to forward a donation, the District generally has no way of knowing that the donation
is missing. Examples of the donors whose checks were diverted by Ms. Thor into the
unauthorized bank accounts include:
• Parent-teacher organizations (PTOs) that hold fundraisers to support school
operations.
• Parents who donated money for teachers to purchase classroom supplies and
pay certification fees.
• A technology company that donates money based on the number of volunteer
hours its employees spend at the school.
• A retail department store that allows credit card holders to designate a school
to receive a donation based on a percentage of purchases made with the card.
State of Arizona
page 4
• A grocery store that allows loyalty card holders to designate a school to receive
a donation based on a percentage of purchases made using the loyalty card.
• A bank that matches donations made by its employees to a school.
Ms. Thor diverted these donations by circumventing district controls. District policy
requires that donations or other payments received at a school be recorded on a
form and immediately sent to the district office; employees do not have authority to
cash, spend, or deposit these monies. However, Ms. Thor used her position as
school principal to take selected checks and deposit them into her unauthorized
bank accounts.
Table 1 describes the sources of $54,791 in monies Ms. Thor unlawfully deposited
into unauthorized bank accounts from July 2004 to March 2009. Some of the monies
in the unauthorized bank accounts were used for purchases that, although in
violation of district policy, appear to be school-related. Other portions of the
improperly diverted monies were later embezzled by Ms. Thor, as described in
Finding 2.
Office of the Auditor General
page 5
Type of Donation or Payment Amount
Donations from PTOs $24,733
Donations or payments from individuals 11,844
Donations from companies, banks, and foundations 11,215
School picture commissions 4,027
Vending machine commissions 2,004
Recycling program income 583
Other miscellaneous receipts 385
Total $54,791
Misuse of Public Monies
July 2004 to March 2009
Table 1:
Source: Auditor General staff analysis of district and credit union records.
State of Arizona
page 6
Former principal embezzled public monies
From October 2004 to February 2009, Ms. Thor used the
unauthorized bank accounts described in Finding 1 to embezzle
$33,940 of district monies. There were no receipts or other
documentation supporting any school-related purpose for Ms.
Thor’s use of these monies. In fact, Ms. Thor admitted in an interview
with Auditor General staff that she had taken monies from the
accounts for her personal expenses. As shown in Table 2, Ms. Thor
embezzled in three different ways:
• Writing checks payable to herself: On 56 occasions, Ms. Thor wrote and signed
a check payable to herself and deposited it into a personal bank account. These
checks ranged in amount from less than $30 to over $2,500 and funded
personal shopping, travel, and debt expenses.
• Withdrawing cash: On 11 occasions, Ms. Thor withdrew cash in amounts
ranging from $35 to $1,000.
• Writing checks for personal expenses: On at least three occasions, Ms. Thor
wrote a check to directly pay for a personal expense. These checks ranged from
$150 to $1,000 and paid for her membership in a local community organization
and for her debt on a personal credit card.
page7
Office of the Auditor General
Theft Amount
Checks written to self $28,640
Cash withdrawals 3,715
Checks written for personal expenses 1,585
Total $33,940
Embezzlement Schemes
October 2004 to February 2009
Table 2:
Source: Auditor General staff analysis of district and credit union records.
FINDING 2
Embezzled Monies
Cerritos Elementary: $18,207
Cielo Elementary: 15,733
Total: $33,940
State of Arizona
page 8
Former principal created fraudulent
documentation
During the District’s investigation of Ms. Thor, she provided documentation for some
of the activity in the Cielo office fund, including receipts, handwritten notes, and a
checkbook register. The District’s and the Auditor General’s investigations both
determined that some of this documentation was fraudulent and misleading. Ms.
Thor later admitted in an interview with Auditor General staff that she had provided
false documentation to the District. This fraudulent documentation caused
transactions to falsely appear to be normal business matters or for district-related
purposes. Specifically:
• Six checks were indicated “Void” in the check register or in handwritten notes.
In reality, Ms. Thor made these checks payable to herself in amounts up to
$2,057 and deposited them into her personal bank account.
• Four checks were made payable to Ms. Thor and supported with false and
misleading information in the check register or in handwritten notes. For
example, one note indicated that a check had been made payable to an office
supply store for $15.06. In reality, Ms. Thor made this check payable to herself
for $700.
• One check for $150 was written to a local community organization for Ms. Thor’s
personal membership dues. Ms. Thor’s note indicated that she had written this
check to the former Cielo principal for reimbursement of school-related
expenses.
• In one case, Ms. Thor wrote two unique checks that both had the same check
number, likely due to an error when additional blank checks were ordered from
the bank. One was a $25 reimbursement to the former principal and was
correctly reflected in the check register. Ms. Thor wrote the other one to herself
for $1,100 and did not record it in the check register.
page9
Office of the Auditor General
FINDING 3
State of Arizona
page 10
District officials failed to prevent further misuse
On two separate occasions, district officials failed to prevent further misuse of district
monies. In particular, officials did not adequately follow up when they were notified of
an unidentified checking account with a balance of about $1,200. When an
investigation was later initiated into another unauthorized bank account, officials did
not restrict Ms. Thor’s access to that account once the investigation was begun.
First, the District did not adequately follow up on the “red flag” indication of a
fraudulent, unauthorized bank account and its associated expenditures. For
example, as described in Finding 1, the principal replacing Ms. Thor at Cerritos in
July 2007 brought Ms. Thor’s unauthorized bank account to the attention of district
officials. However, district officials erroneously assumed
that the Cerritos PTO had set up this account and added
Ms. Thor as a signer. The account was closed and the
remaining balance of approximately $1,200 was turned
over to the PTO. Officials failed to conduct any inquiries
or otherwise investigate the account, and failed to
recognize the risk that Ms. Thor may have used this
account fraudulently. District officials may have
uncovered the truth about the account if they had:
• Questioned Ms. Thor about the account;
• Examined bank statements, the checkbook register,
and other documentation related to the account; or
• Obtained and examined copies of checks that had
cleared through the account.
Secondly, the District failed to protect district monies during the investigation. The
allegations that the District received on February 23, 2009, specified that Ms. Thor
maintained a slush fund, deposited district monies into it, and used the monies to
make inappropriate purchases. To support these allegations, the alleger provided
page11
Office of the Auditor General
FINDING 4
Activity in the Cielo unauthorized
bank account during investigation
 2/24/09: Investigation begins
 2/27/09: Ms. Thor deposits $9,129 of her
personal monies
 3/23/09: Ms. Thor deposits an additional
$100 of her personal monies
 3/31/09: Ms. Thor transfers $9,129 out of
the unauthorized bank account and into
her personal bank account
examples of events that were personally witnessed. During the District’s
approximately 6-week investigation, the District failed to limit Ms. Thor’s access to
district monies or to the unauthorized bank account. Ms. Thor continued performing
her duties as school principal and was not instructed to cease using the questioned
account. Thus, Ms. Thor was able to move monies into and out of the unauthorized
account during the District’s investigation.
State of Arizona
page 12
Public officials with oversight authority have a responsibility to manage the
administration of money and property entrusted to them. Likewise, public officials
should ensure that sufficient internal controls are designed and implemented to
protect those assets. Nevertheless, a system of internal controls will not succeed
when employees in a position to oversee those operations are in fact perpetrating
unlawful behavior and concealing their misconduct, as Ms. Thor did in overriding and
circumventing the District’s internal controls.
In the time since the allegations against Ms. Thor arose, district administration has
already identified and implemented improvements to its controls over donations and
payments to schools. Specifically, district administration reports that it has asked all
major donors to mail donations to the central district office rather than individual
schools. The District also plans to implement a new online system to collect parent
payments for items such as field trips and athletic uniforms. Finally, the District
conducted onsite training for school office staff about cash-handling procedures and
provided a new detailed handbook to all principals, assistant principals, and clerical
staff.
However, there are additional actions the District could have taken and should take
now that may further help to deter future misconduct like Ms. Thor’s. Specifically,
district administration should:
1. Periodically assess whether controls over donations and payments are
functioning effectively and as designed, and explore ways to strengthen them.
2. Ensure that it appropriately responds to “red flags” by adequately following up
on indications of fraudulent or unauthorized bank accounts or expenditures.
3. Protect district monies during an investigation by prohibiting those accused of
financial misconduct from accessing or using district monies until the allegations
are resolved.
4. Continue to ensure that all principals, assistant principals, and secretaries are
familiar with district policies concerning gifts, donations, expenditures, and bank
accounts, and are aware of the appropriate method for resolving a question or
disagreement about a district policy. Policies should be periodically reinforced
and updated as necessary.
page13
Office of the Auditor General
RECOMMENDATIONS
State of Arizona
page 14
On July 26, 2010, the Arizona Attorney General’s Office presented evidence of Ms.
Thor’s crimes to the State Grand Jury. This action resulted in the indictment1 of Ms.
Thor on 16 counts of misuse of public monies, 2 counts of theft, and 2 counts of
fraudulent schemes.
page15
Office of the Auditor General
Conclusion
1 An indictment is an allegation of criminal wrongdoing brought by the grand jury. It is not proof of guilt.