State report flags $100K in ‘unnecessary’ spending in LR5 review of school construction

A state inspector general’s report has flagged both spending decisions made by the Lexington-Richland 5 school board during the construction of an elementary school, as well as how school board members went about challenging decisions after the fact.

The inspector general’s office published its report this month into the construction of Chapin’s Piney Woods Elementary School, a project that has been a lightning rod in the Chapin-Irmo school district for years.

The Lexington-Richland 5 school board asked Gov. Henry McMaster in January to investigate procurement-related issues and complaints of potential fraud. The request came after a school district audit report alleged potential misspending on construction of the school, which opened in 2021.

While the inspector general’s report cites lapses in Lexington-Richland 5’s oversight of the project, it doesn’t conclude anything illegal or inappropriate happened at Piney Woods. The report also criticizes some of the actions the school board subsequently took to find fault with the project after it was completed.

The report says it looked into $396,700.65 in questioned disbursements, which after its investigation was knocked down to $38,362.69 in questionable payouts by the district. Among its conclusions:

▪ The builder Contract Construction was paid $20,088.58 for travel and other expenses that lacked adequate documentation.

▪ $1,939,50 in payment to vendors on the project that lacked adequate documentation.

▪ Contract billed the district $11,266.39 for an Irmo town business license that actually covered a different project. That money was later reimbursed to the school district.

While the school district’s audit report from the Jaramillo Accounting Group flagged spending for Owens Cleaning Service at the construction site, the inspector general reviewed invoices for the firm and, while finding Contract Construction had submitted some hourly rates incorrectly, found that the school district had been underbilled for Owens’ services to the tune of $620.

In total, the questioned spending items in the inspector general’s report amount to 0.14% of the total project cost.

While the report chided the district for not independently verifying some of the amounts they were being charged, “These questioned costs by themselves however are not indicative of fraud or illegitimate reimbursements,” the report says. “Rather, they point to weaknesses in the District’s internal controls over contract management.”

The conduct of critics of the project also came under scrutiny by the inspector general. The report notes one member of the district’s selection committee that reviewed bidders for the project noted they may have a potential conflict of interest, but was cleared by the board chair and the district’s attorney to serve on the committee.

“Notwithstanding the determinations made by the Board chair and the District’s counsel at the time, a minority number of Board members continued to question the composition of the (Piney Woods) selection committee even after the Board approved the contract award,” the report notes.

Almost three years after the contract for Piney Woods was approved, a new school district attorney conducted an investigation into the conflict of interest before telling board members during a closed door executive session that none existed. At the same time, the board retained an outside attorney to investigate the same matter, who also concluded there was no conflict of interest.

“(T)he board’s disregard of three legal reviews, including two investigations constituted a waste of District resources and Board interference” in violation of district policies, the report says. At least $12,605 was spent on the efforts to find a conflict of interest.

The district also hired the New Mexico-based Jaramillo Accounting Group to review the district’s spending. But while the initial request for proposals asked for an audit of the 2020-21 fiscal year, the agreement with the accounting firm was later approved as a “consulting services agreement” reviewing spending dating back to 2016. Jaramillo was asked to examine spending in years for which the district already had completed audits.

“Inasmuch as the JAG engagement letter with the District diverged from the ... solicitation for procurement audit services, the (state inspector general) determined this solicitation for procurement audit services was an unnecessary expenditure of District resources,” the report says.

The report notes Jaramillo’s $46,000 bid for the five-year procurement audit only quoted $9,500 for the 2020-21 audit. In total, the changes to the agreement resulted in board-approved increases of $105,650.

Part of Jaramillo’s report departed from district spending to examine campaign donations to school board members from potential vendors, and documented ethics complaints against district officials, including a lengthy defense of ethics charges that were pending at the time against then-board vice chair Ken Loveless.

The inspector general called an accountant’s examination of such issues a “substantial departure” from the state’s standard format for such a report.

“The standard audit reporting procedure required by (the state) does not contain provisions for the examination of campaign contributions, ethics issues, and legal conclusions,” the report says.

At Monday’s school board meeting, board chair Rebecca Blackburn Hines said the report “stands on its own,” but noted the district had already taken actions to address many of the oversight issues noted in the report, including policy changes, training for staff and new internal controls. That includes the addition of an internal auditor in the district.

Board member Catherine Huddle said the Jaramillo report was a legitimate decision by the board at the time to review a wide range of spending for potential waste, fraud or abuse, saying the board has a duty to ensure the district is in compliance with state laws. She also said the inspector general’s report failed to zero in on the concerns that led the board to request an audit in the first place.

“There were $38,000 of questioned costs not supported by the vendor, and this appears to explain that away,” Huddle said. “It’s a shame that the report highlights the shortcomings of the district, but not these problematic vendor issues.”

Board member Kevin Scully said the report should lay to rest any concerns members of the community have about the Piney Woods project, saying that a project of this size where 99.86% of spending was thoroughly documented is “extremely good,” and that the remainder is “not evidence of overbilling or anything invalid, it’s just that they were undocumented.” He also noted the project as a whole came in under budget by $369,467.25.