Merrimack Special Education Collaborative
August 31, 2011 · Read the full official report (PDF) ↗
Published August 31, 2011 Audit covers July 1, 2007 – June 30, 2010 Under Suzanne M. Bump · 2011–2023
source
“Based on the audit work that could be performed, we identified over $26.7 million in inadequately documented and potentially unallowable expenses charged to MSEC by its related-party organization, MEC.”
Read the plain-English breakdown
This is a state audit of the Merrimack Special Education Collaborative, a public education collaborative serving school districts and students in the Merrimack Valley area.
“The Merrimack Special Education Collaborative (MSEC), located in Chelmsford and Billerica, Massachusetts, is an association of 10 local and regional school districts in the Merrimack Valley area known as an “education collaborative.””
The state auditor reviewed MSEC because the Commissioner of the Department of Elementary and Secondary Education asked for the audit.
“Our audit was conducted at the request of the Commissioner of DESE.”
MSEC is a government entity, so its spending, contracts, records, and oversight matter to taxpayers, students, families, and school districts.
“Education collaboratives are government entities organized pursuant to Chapter 40, Section 4E, of the Massachusetts General Laws.”
If you live in or pay taxes to one of the participating districts, this matters because MSEC was funded mainly through school district tuition payments.
“MSEC reported total revenues of $19,792,376 for the fiscal year ended June 30, 2010, primarily derived from school district tuition payments.”
The audit found major documentation, spending, procurement, staffing, governance, and transparency problems, including questionable payments between MSEC and its related nonprofit, MEC.
“Finally, we also identified numerous other operational deficiencies, including questionable contract administration activities such as understaffing and charging inappropriate expenses to state-funded programs and questionable governance decisions that reduced MSEC’s transparency.”
The auditor viewed the problems as serious enough that outside intervention, possibly including a receiver, might be needed.
“Given the cumulative, serious, and long-term nature of the problems identified by our audit and the major conflicts of interest and other deficiencies identified regarding governance of MSEC by its Board of Directors and senior managers, we believe that immediate outside intervention, such as the appointment of a receiver, may be warranted and that appropriate resolution and recovery action may require the restructuring of MSEC and its board.”
A “related-party transaction” means MSEC was doing business with an organization closely connected to it, MEC, which raises special risk because the deal may not be independent or fully transparent.
“Related-party situations are of special concern for auditors, funders, and oversight agencies since the use of related parties may facilitate the misappropriation of assets; fraud; or violations of law, regulation, policy, or contract requirements and may be used to generate undue benefit to individuals or to other entities, particularly in situations where relationships and transactions are not fully disclosed to oversight agencies or parties providing funds to the organization.”
8 figure(s) pending source verification - not shown
What the Auditor checked
- Did not comply An assessment of MSEC’s compliance with applicable laws, rules, and regulations and the terms and conditions of its state contracts and its Collaborative Agreement.
What the Auditor found
Why it matters: There was inadequate assurance that the goods and services were reasonable, proper, or allowable, and state oversight agencies could not adequately assess the transactions.
Standard: Chapter 30B of the Massachusetts General Laws; 808 CMR 1.04(4); SFAS No. 57; 808 CMR 1.05(8). ( Chapter 30B of the Massachusetts General Laws; 808 Code of Massachusetts Regulations 1.05(8) )
2 recommendations
- MSEC should immediately discontinue making payments under the ASLA, and oversight agencies should review the expenses paid under current and previous ASLAs.agency: already implemented
- MSEC should procure goods and services under Chapter 30B, disclose all related-party transactions, and maintain documentation supporting reasonableness.
Agency response & Auditor reply
Agency: "In June 2011, MSEC ceased making payments under the 2009 Administrative Services and License Agreement."
Auditor: "During our audit, we found that MSEC had not established such controls and that, accordingly, many of the transactions between MSEC and MEC appeared to be questionable, improper, and potentially illegal."
Why it matters: The Auditor could not determine whether the expenses were proper and allowable, and the transaction raised legal-validity and conflict-of-interest concerns.
Standard: MSEC Collaborative Agreement; Chapter 268A of the General Laws. ( Chapter 268A of the General Laws; MSEC Collaborative Agreement )
1 recommendation
- MSEC should discontinue payments under the Settlement Agreement and oversight agencies should review the expenses and determine recoveries.agency: already implemented
Agency response & Auditor reply
Agency: "MSEC has ceased making payments under the 2006 Settlement Agreement."
Auditor: "In our opinion, conducting a related-party transaction in this manner was irresponsible on behalf of MSEC’s management and raises serious concerns about the propriety of the transaction."
Why it matters: The appropriateness and reasonableness of expenses could not be determined, and public funds were used for questionable items and school-district expenses outside required finance controls.
Standard: Chapter 41, Section 35 of the General Laws; Chapter 44, Section 58 of the General Laws. ( Chapter 44, Section 58, of the General Laws; Chapter 41, Section 35, of the General Laws )
1 recommendation
- MSEC should maintain records supporting expenses, implement credit-card controls, discontinue acting as a fiscal conduit, and oversight agencies should review questionable expenses.agency: already implemented
Agency response & Auditor reply
Agency: "Furthermore, the Billerica school district account similarly has been closed and all funds maintained in that account have been processed for return to the Billerica Public School Committee."
Auditor: "Other than the legal expenses in question, MSEC does not dispute our conclusions relative to this issue, including the almost $3 million in questionable and undocumented credit card and other administrative expenses and the $1,292,180 in payments for school districts that were improperly processed through the MSEC."
Why it matters: There was inadequate assurance that compensation charged to MSEC was proper, staffing requirements were met, or public retirement credit was accurate.
Standard: 808 CMR 1.04(1); 808 CMR 1.05(26); Commonwealth Terms and Conditions for Human and Social Services. ( 808 CMR 1.04(1); 808 CMR 1.05(26) )
1 recommendation
- MSEC should require all staff to document attendance and work activities daily and use that information for budgeting, staffing, cost allocation, and retirement reporting.
Agency response & Auditor reply
Agency: "Recently, based on recommendations made by MSEC’s independent accounting firm, MSEC’s co-executive directors coordinated a month-long time study of five (5) identified staff members (job developers, vocational coordinator and program director) whose time was allocated to multiple funding sources (a two-week time study was stated as being sufficient)."
Why it matters: Students and clients lacked assurance that educators were properly qualified and that programs were accountable for desired educational and service outcomes.
Standard: Chapter 40, Section 4E, of the General Laws; 603 CMR 35.00; 603 CMR 28.09. ( Chapter 40, Section 4E, of the General Laws )
Agency response & Auditor reply
Agency: "MSEC will review all existing job descriptions for positions that are not subject to mandatory state licensure requirements to ensure that qualification criteria are detailed and appropriate."
Why it matters: The deficiencies increased the risk of fraud, waste, abuse, noncompliance, excessive charges, unsupported contract costs, and reduced transparency.
Standard: Chapter 30B of the General Laws; Chapter 30A, Section 11A-½, of the General Laws; Chapter 32, Section 91, of the General Laws; Chapter 64H, Section 6(cc), of the General Laws. ( Chapter 30B of the General Laws; Chapter 30A, Section 11A-½, of the General Laws; Chapter 32, Section 91, of the General Laws; Chapter 64H, Section 6(cc), of the General Laws )
1 recommendation
- Oversight authorities should investigate the governance, internal control, budgeting, pricing, procurement, contracting, UFR, and tax issues, and MSEC and oversight entities should take immediate corrective action.
Agency response & Auditor reply
Agency: "MSEC’s Board of Directors will continue their efforts, with the cooperation and guidance of the DESE."
Auditor: "MSEC does not dispute our conclusions relative to the deficiencies we identified in its procurement, contract administration, governance, and budgeting and pricing activities or its lack of adequate internal control over certain aspects of its operations."
Verified dollar findings
Estimated or sample-projected amounts - shown separately because they are not a hard-identified dollar figure.
Identified dollar findings that do not fall in a named band.