Indian River audit uncovers thousands of misspent funds

A 26-page audit of Indian River School District detailing a lack of financial oversight and tens of thousands of dollars in misspent funds combined for a November surprise as the district asks voters to approve a tax increase for current expenses Tuesday, Nov. 22.

Nearly a year ago, State Auditor R. Thomas Wagner Jr. began an investigation into spending practices and oversight after receiving several calls on a fraud hotline in December 2015. Callers complained there was no oversight for the district's chief financial officer, and he was mishandling money, states the audit, released Nov. 17.

Patrick Miller was hired as chief financial officer/finance director in 1998; he was placed on paid administrative leave April 24 from his more than $162,000 a year position. He officially retired June 30. According to a Delaware pension calculator, in retirement, Miller could receive as much as $7,700 a month, more than $92,000 a year.

The audit reviewed food purchases, mileage expenses, contributions, and allegations of intimidation and bullying in Miller’s office.

“Not only did the district lack appropriate oversight and internal controls to prevent and detect financial improprieties, the blind faith placed in the CFO allowed him to create an environment ripe with intimidation tactics, favoritism and nepotism,” the audit states.

More than $50,000 was given to two organizations for which Miller served as board president. The Indian River Volunteer Fire Co. received $20,343 from the school district and the Boys & Girls Club of Oak Orchard/Riverdale received $32,500.

Included in the $20,000 was a payment from the district to the fire company for more than $19,000 for an all-terrain vehicle – a markup of about $5,000, the audit states.

For the Boys & Girls Club, the audit states the district used money from a federal Individuals with Disabilities Education Act grant. “We conclude that, not only was it inappropriate for the district to use the federal grant funds for something other than special education services within the district, the transactions are questionable given the CFO's role at both the district and B&G Club,” the audit states.

In a review of state accounting records, the audit found nearly $80,000 in payments not considered valid. “This amount includes $32,500 spent with the Oak Orchard B&G Club and $19,500 spent with the IRVFC,” the audit states. An additional $24,000 lacked supporting documentation, and a signature stamp was used for about $21,000 – an example of an unauthorized transaction approval, the audit states.

The Auditor’s Office followed up with the current board president and based on that interview does not believe he or the previous board presidents were even aware that their facsimile signatures were being used for this purpose, the audit states.

There was also more than $30,000 in direct payments to Miller's personal American Express credit card. A review of meal charges showed a $358 bill for four district employees to eat at Ruth's Chris Steak House – about $90 per person.

The audit found about $7,500 in inappropriate expenditures from 2012-16 including a $380 bracelet bought from Tiffany & Co. as a gift of recognition for Superintendent Susan Bunting and about $1,100 for teacher of the year invitations and RSVP cards.

An analysis of the district's merchant code revealed about $20,000 in food purchases in violation of state accounting rules.

“We found that the district spent significant amounts in categories that are specifically prohibited,” the audit states.

The audit stated it also could not validate more than $10,000 spent on Miller's mileage from 2012-16 because of lack of documentation.

In a response to the audit, Indian River officials said starting in FY2017 no food purchases will be made with district funds unless for student instruction, and no direct payment will be made to an organization on behalf of any community member. Other changes include salary payments and credit given for years of service.

Superintendent Susan Bunting said the district has also improved documenting expenses. 

Bunting said the district would still have to go to referendum despite the release of misspent funds by the former finance official. “If you take the total of undocumented expenses, it comes out to .02 percent of our budget for the last five years,” she said.

She said she could not comment whether the district will pursue reimbursement from Miller because the investigation is continuing.

The school district is asking residents to approve a $7.35 million current expense referendum to help pay for teachers' salaries, security personnel and more student resources. The average homeowner is asked to pay 49 cents more per $100 of assessed property on their tax bill. The average yearly increase would be $95. The district's current tax rate is $3.06 per $100 of assessed property – the lowest in Sussex County.

Voting will be from 10 a.m. to 8 p.m. at East Millsboro Elementary School, Georgetown Elementary School, Indian River High School, Long Neck Elementary School, Lord Baltimore Elementary School and Selbyville Middle School.