Southeastern Massachusetts Educational Collaborative

This is a Massachusetts State Auditor review of Southeastern Massachusetts Educational Collaborative, a public educational collaborative based in New Bedford, covering July 1, 2008 through October 31, 2010.

“In accordance with Chapter 11, Section 12, of the General Laws, the Office of the State Auditor (OSA) has conducted an audit of certain activities of SMEC for the period July 1, 2008 through October 31, 2010.”

The audit looked at whether SMEC had proper controls and followed laws, rules, contracts, and grant requirements in areas like accounting, budgeting, contracts, staff credentials, evaluations, and credit-card spending.

“Our audit objectives consisted of a review and assessment of the system of internal controls over certain activities, including accounting, budgeting, financial reporting, contract administration, professional licensure, staff evaluations, and credit card expenses, and an evaluation of SMEC’s management practices and its compliance with relevant laws, rules, regulations, policies, and grant and contract requirements.”

SMEC used more than half of its revenue for adult services, which auditors said may not match the legal purpose of an educational collaborative and could add costs to the state pension system.

“SMEC receives over 50% of its revenue from contracts with state human service agencies to provide various human services, including employment support and residential and adult day health services, to adults over the age of 21 years.”

For taxpayers and local school communities, the issue is transparency: without required financial reports, oversight agencies and school districts could not properly judge SMEC’s activities or performance.

“Because SMEC did not file these reports, state funding and oversight agencies and other interested parties, such as the school districts for which SMEC provides services, did not have the ability to adequately assess SMEC’s activities and its performance in providing services.”

The auditor said SMEC had major compliance and accounting problems, including improper payments under state contracts totaling $53,063.

“Also, contrary to state regulations, SMEC had not filed annual audited financial statements with the Commonwealth; was not maintaining its accounting records in accordance with generally accepted accounting principles; and received unnecessary and, in some instances, not properly authorized payments totaling $53,063 under its state contracts.”

The report recommends that DESE clarify whether educational collaboratives may provide adult human services, that SMEC file required annual financial reports and keep GAAP-compliant records, and that DDS recover the $53,063.

“DDS should recover from SMEC the $53,063 in funding provided to SMEC under LUSA contracts during fiscal years 2009 and 2010.”

The report raises a broader policy question: whether a public education collaborative should mainly provide adult human services, especially when doing so may increase public pension obligations.

“SMEC’s provision of these services may not only be inconsistent with the purposes of an educational collaborative, but may also be allowing employees to accrue pension benefits and unnecessarily increase the state’s pension liability.”

A UFR is the annual financial report human-service contractors must file with the state; GAAP means standard accounting rules; LUSA contracts are meant for short-term, as-needed services, not retroactive payment for extra services already provided under other contracts.

“According to state regulations, agencies such as SMEC that provide human services under contracts with state agencies must file an annual financial report, the Uniform Financial Statements and Independent Auditor’s Report (UFR), with the Commonwealth.”