February 14, 2006 Investigative Audit: Tn School Boards Assn.

Audits come in many sizes and varieties.

The type of audit that I have been discussing in recent posts is a simple "financial" audit involving a limited examination of a very small number or sampling of financial transactions (such as occurs
with the required audits of all Tennessee counties).

Another type of audit is an "investigative audit" and one such audit just made big news in Tennessee. As a result of a tipster's report to the state, an investigative audit of the Tennessee School Boards Association (TSBA) was performed.

An investigative audit is special. It is far more extensive than a financial audit. The investigative auditor actually searches out information and looks for fraud and illegalities (unlike the routine random examination of a small sampling of transactions that occurs in a financial audit).

In a very simplistic way, the two audits can be compared as follows: A financial audit just looks at a few checks to see if everything adds up. An investigative audit goes deeper and attempts to find out if the checks and financial data are correct and whether the checks were ever legally authorized.

Obviously, there's a lot of difference in having an auditor come in, look at a few checks, and say everything "adds up" (financial audit) and having an auditor come in, look at several checks in depth, and find that there are checks that shouldn't have been written at all and that illegal payments were made (investigative audit).

So what did the in-depth investigative audit of the TSBA (Tennessee School Boards Assn.) find? Well, for starters, the audit reported that John Evans, program manager of the TSBA Risk Management Insurance Trust, had received over $500,000 in unauthorized commissions and interest.

It also stated that Dan Tollett, former executive director of TSBA, had received more than $400,000 in improper payments from the taxpayer-funded organization. Tollett resigned as a director of the Risk
Management Trust on Jan. 31.

Evans was recently questioned about his actions by the House-Senate Education Committee of the Tennessee Legislature.

Auditors found that payment of $492,694 in special commissions to Evans had not been authorized. Although auditors reported that board members could not recall any authorization and records reflect no such approval, Evans said that all fees and commissions were authorized and that three board members now recall the authorization. The records, he said, are "being reconstructed."

Evans admitted that he was involved, until 1999, in the establishment and operation of an insurance trust fund that subsequently went bankrupt and cost the governments involved more than $4 million. Evans also admitted that he had at least 52 insurance licensing violations levied against him in Kentucky.

Tollett, who declined to appear before the Committee, "retired" from TSBA in 1994 and drew state retirement benefits totalling $276,856 from 1994-2000.

During his "retirement," however, he was still employed by TSBA through a separate TSBA entity that he had created just prior to "retiring."

The audit says that Tollett misled TCRS (Tennessee consolidated Retirement System). Instead of making Tollett repay the "retirement" benefits, Tennessee School Boards (through TSBA) refunded the benefits owed back to the state retirement system.

TSBA members face a huge credibility challenge. Corporate scandals in recent years reveal numerous cases of board members who didn't know squat about the organization's financial arrangements and didn't try to find out. Blind ignorance is no longer a good defense.

The individual members of the TSBA — and in particular TSBA board members — are responsible for the efficient operation of schools in 136 districts across Tennessee.

Tax money used to fund TSBA appears to have been abused as TSBA leaders drew retirement benefits while continuing to draw a TSBA salary through a "sham" organization.

Taxpayers across the state can only hope that local School Boards are more careful with the tax money used to run their local schools than these same local School Boards have been in monitoring the tax money they provided to fund their Tennessee School Boards Association (TSBA).