LR5 school district drops accounting firm behind controversial audit

The Lexington-Richland 5 school district has ended its relationship with an accounting firm that critically scrutinized the district’s spending even as it stoked controversy and pushback from some of its detractors.

School board members voted 5-2 on Monday to give Jaramillo Accounting Group a 30-day notice of the end of its auditing contract with the Chapin-Irmo area district. At least one board member cited the controversy around JAG as a reason to end the contract.

“I believe it’s time for us to move on and turn the page on our auditing contractor,” Kevin Scully said, saying the district’s chief financial officer needs “a fresh start to work with an auditing firm they have full confidence in.”

“But there are other reasons,” Scully said, including that “JAG is listed as a co-defendant in a lawsuit with the district and that is a game changer.”

In March, former Lexington-Richland 5 Superintendent Stephen Hefner amended a lawsuit against the school district to include the New Mexico-based accounting firm as a defendant, as well as school board member Catherine Huddle and former school board members Jan Hammond and Ken Loveless.

Hefner accuses the three board members of conspiring with the accounting firm to retaliate against him because he filed a complaint with the district’s accrediting agency.

Jaramillo’s report accuses Hefner of improperly awarding a “sole source” contract to an architectural firm when he was superintendent in 2016. A sole source contract can be awarded if a firm is the only company that can provide a service. Hefner responds that not only was the district aware of the contract, but the school board unanimously voted to approve it.

The latest report released by Jaramillo doesn’t revisit the Hefner claim. Last week, both Lexington-Richland 5 and Jaramillo filed responses in court denying Hefner’s latest allegations.

The lawsuit means Jaramillo and the district have “potentially adverse interests,” Scully said.

“It could be detrimental for us to continue working with her,” Scully said of group executive Audrey Jaramillo. “Her firm will have access to all of our data and records, and it could be to her benefit to use it against us.”

The firm has also “contributed to some level of division in our district and in our community,” he said. “As we sit here today, it presents us with a good opportunity to clean the slate and move forward with a fresh start.”

The State reached out to Jaramillo for comment on the board’s decision, but did not hear back before publication.

Board members Catherine Huddle and Elizabeth Barnhardt voted against ending the contract. Huddle said ending the contract now was a political move.

“The board has not been presented with any credible reason to terminate this contract,” Huddle said. “This is the first audit in decades that found significant issues… it looks political and retaliatory.”

In March, Lexington-Richland 5 released a Jaramillo report that raised questions about the district’s $234.6 million bond referendum in 2008, which Jaramillo said was vague on specifics for bond projects at area schools. The report said the referendum question broadly authorized costs associated with constructing, renovating and improving school facilities, but didn’t break down the price tag for individual projects, with the costs and scope of some projects changing afterwards.

The school district spent $1.2 million acquiring a 47 acres off Derrick Pond Road for an elementary school, but was then unable to acquire the right-of-way needed to connect the property with an adjoining roadway. After abandoning any hope of using the site, the school board voted to sell it in 2021. Some $24 million allocated to that project by the referendum was ultimately spent elsewhere, Jaramillo said.

Lexington-Richland 5 has agreed to implement some of Jaramillo’s recommended changes, including creating the position of an internal auditor.

Huddle also said it would look bad for the district to drop an auditing firm that has identified spending problems at the same time the board is considering a budget that could increase the district’s property tax rate next year.

“I don’t know how anyone could look at our taxpayers and say they want to increase the millage rate while throwing out the auditor who found these problems,” Huddle said.

Huddle also criticized Scully during the meeting for accepting campaign contributions from Hefner’s daughter and from Contract Construction, another firm that was criticized in Jaramillo’s audit report.

The Jaramillo Accounting Group submitted a partial summary last September of its audit of spending in Lexington-Richland 5. That report largely focused on criticism of Contract Construction Inc. for its work building Piney Woods Elementary School, which opened near Chapin in the fall of 2021.

The preliminary report alleged Contract Construction made unauthorized changes to billing for work done on the Piney Woods site, and it questioned the legitimacy of some of the spending decisions made by the company.

The Irmo construction firm hit back at that report, calling it “an opinionated, derogatory, and many times erroneous account.” The company said Jaramillo’s report reached conclusions based on mathematical errors and an apparent misunderstanding of how the contract for the project was approved and structured.

“When we did our own audit of the information we provided JAG, (the audit report) was riddled with errors throughout,” Contract Construction President Greg Hughes previously told The State. “I created a spreadsheet to try to get to the bottom of it, and as far as I can tell, it’s just strictly careless errors. . . . Really it’s just adding numbers up. You could have done that easily.”

Huddle herself is a party to the former superintendent’s lawsuit, which claims she and her fellow school board members “improperly used their positions of power and public resources to unlawfully conspire with JAG during its investigatory audit.” Huddle denied those allegations in a previous statement to The State, saying any action on her part was within her duties as a school board trustee.

A freedom-of-information request to Lexington-Richland 5 shows that the district has spent $142,150 on Jaramillo’s work as of March 1, with another $19,313.50 in outstanding invoices and approximately $35,000 from other anticipated charges.