Superintendent announces embezzled funds reimbursed; releases crime details

by beth on April 1, 2016

A month ago, the community was shocked to learn of an alleged embezzlement from the Northborough Southborough schools. Many details of the alleged theft by the district’s budget officer were under wraps. That included the amount which was reported by media as between $200k – $450k.*

Today, Superintendent Christine Johnson announced that all funds lost, over $380k, have been regained.

Payments made by the district’s insurance carrier cover misappropriated funds identified by a forensic audit. Insurance will also cover the audit cost. $383,602 was diverted from payments due to Southborough, Northborough, and the Northborough-Southborough districts.

Almost as importantly, Johnson released more details that many have been clamoring for.  The statement confirms that thefts began in 2013 through a petty cash account and increased over time, “as the activity remained undetected.” 

Recently a statement by Johnson said she was cautiously optimistic that any funds “that would result in a loss” for this year would be recovered. Comments on the blog showed some residents were skeptical.

In this month’s Combined School Committee meeting, Johnson told members that she had confidence in the forensic auditors, now identified as Melanson & Heath. According to Johnson, everyone she talked to in law enforcement was asking her if she had contacted them for help tracking missing funds.

Here is the statement issued by Johnson this morning:

To the School Community: 4.1.16

One month ago, I reported to our school community that a former employee allegedly embezzled funds. The scheme to embezzle funds ended on February 29, 2016. Throughout this 30-day period, I have shared four goals: Identify how this happened; recapture the funds; develop a plan of action to recover, monetarily and systemically; and, communicate the on-going status of the investigation to the extent possible. I can report the following progress toward realizing these goals:

  1. Based on our forensic audit, the alleged perpetrator was given check writing and signage rights in the spring of 2013 on an account that was referred to as an impressed Northborough-Southborough Regional School District checking account. This account was set-up in 2005 as a petty cash fund for operational expenses, such as postage and certified mailings. Reimbursements to this account were made by submitting receipts through the normal warrant process.
  2. Prior to the spring of 2013, access to this account was limited to the treasurer and the former superintendent. The budget officer was added in the spring of 2013. Historically, the treasurer would authorize a change of access on the account, which included the Superintendent and any subsequent change in administration. However, once the budget officer was added to this account in 2013 no subsequent change of access was made to this account.
  3. Beginning in the fall of 2013 and until February 29, 2016, when a determination was made of possible financial irregularities, the budget officer allegedly misappropriated checks, endorsing them, depositing and converting them to cash. The frequency of deposits and check writing to this account increased, as the activity remained undetected.
  4. Deposited checks included vendor payments and payments customarily made from the Town of Northborough and Town of Southborough to the Northborough-Southborough Regional School District, as a regional school district functions by law as a town.

Based upon the results of my preliminary investigation, and in consultation with our District legal counsel, the following actions were taken:

On February 29, 2016, I placed the budget officer on administrative leave pending the outcome of further investigations, contacted the local police and District Attorney’s Office. The District Attorney’s Office provided support, guidance and direction.

The services of Melanson & Heath, a highly reputable accounting firm specializing in forensic audits, were immediately secured to begin a detailed analysis of our financial data. In addition, I requested that a task force consisting of members of the Massachusetts Association of Business Officials conduct a full Financial Operations Review of our current financial practices and provide a detailed report of findings and recommendations. The Northborough-Southborough Regional School Committee supported a recommendation to appoint an Interim Treasurer and an Interim Assistant Treasurer.

I am pleased to report that the forensic audit is complete and the request to recover funds was submitted to Massachusetts Interlocal Insurance Association (MIIA) our insurance carriers on Monday, March 21, 2016 for review, processing and payment. On March 30, 2016, the Northborough-Southborough Regional School District (NSRSD) and the Towns of Northborough and Southborough received payments that represent full recovery of all identified losses as follows: Town of Northborough – $13,573.00, Town of Southborough – $139,198.73 and Northborough-Southborough Regional School District – $230,830.32. Additionally, we have verified the balances on all of our transactional accounts. Final certification of our NSRD Excess & Deficiency (E & D) funds is anticipated within the next two weeks and MIIA has agreed to pay the costs of the forensic accountant.

Our newly appointed auditing firm is continuing to evaluate and generate the documents to close our FY 2015 audit. Our End-Of-Year Report required by the Department of Elementary and Secondary Education is undergoing the yearly audit review. Based on the information provided by the District’s auditing firm and forensic accountant, there is no impact on the FY 2016 budget. Our forensic accountant will complete an audit of our student and athletic revolving accounts as part of a proactive measure.

It is important to restate that the District Attorney’s Office is conducting a full criminal investigation, and our collaboration with them continues. Our insurance provider, MIIA, is launching its own investigation as it seeks restitution from any source, including but not limited to the alleged perpetrator, or any and all other third parties. Our role in both investigations is to collaborate and support their work.

Our mission is to provide our students with the highest quality, comprehensive educational program. Our dedicated staff commits to this mission on a daily basis and the realization that despite checks and balances, best practices, and extraordinary staff, we are not immune from criminal intent by those who seek to engage in activities that are in direct conflict with our beliefs and values. Our collaboration with our town officials embraces our spirit of community, and as we prepare for the 2016-2017 school year, I am confident that the budgets we will bring before you at town meetings are educationally sound and fiscally responsible.

Respectfully,
Christine M. Johnson
Superintendent of Schools

*A Telegram.com report indicated that the accused estimated having stolen $200K-400K, including $150,000 worth of checks in the previous three months. But the story also claimed that charges filed estimated $450,000.

Updated (4/1/16 10:53 am): Minor text edits.

1 Publius April 1, 2016 at 2:18 PM

The magnitude is alarming. This is not postage stamp money. Sounds like checks and balances did not exist.

2 Al Hamilton April 1, 2016 at 5:15 PM

I hate to quibble but this money was not recovered. To recover the money is to get it back from the party that took it. This was payment of an insurance claim.

Suggesting that we recovered the money is trying to minimize the extent of the management failure.

How does ~$400,000 flow through a petty cash account and no one notice?

3 beth April 1, 2016 at 6:08 PM

I agree. That’s why I didn’t use the word recover. Instead I used “reimbursed”, “regained” and “covered”. And Johnson wrote that the payments from insurance “represent full recovery of all identified losses.”

As for recovering the actual stolen funds – any tracked down would now go to the insurance company. According to Johnson’s statement, “the District Attorney’s Office is conducting a full criminal investigation, and our collaboration with them continues. Our insurance provider, MIIA, is launching its own investigation as it seeks restitution from any source, including but not limited to the alleged perpetrator, or any and all other third parties.”

4 Al Hamilton April 2, 2016 at 9:56 AM

Beth – I was referring to the Superintendents words. She used words like recover and recapture. Here explanation carefully skirts assigning responsibility to anyone.

At a minimum there needs to be clear accountability (something the public sector does very poorly). If there is not then we should hold the Superintendent and the School Committee responsible

5 Frank Crowell April 1, 2016 at 7:50 PM

This leaves more questions to be answered.

How long after the alleged perpetrator was hired did the check writing privileges begin?

Who made the decision to change the check writing privileges? Why were the changes needed?

How is it possible that this could have gone on so long without another person in the office noticing well prior to February?

I hope the relationship between the superintendent and the school committees is not so cozy that tough questions cannot be asked. They should conduct their own investigation and find out if there are other problems.

6 Johnboy April 2, 2016 at 7:52 AM

There should be reprocusions for those supervising the money operation. In industry there would be consequences up throughout the line for those responsible for the handling of the funds.

7 SbroMa April 2, 2016 at 11:56 AM

They are skirting the issue of accountability. These people are paid generous salaries and it appears that someone at the top of this organization – whether the Superintendent or the Director of Business operations- failed completely to do the job they are paid to do. These responsibilities do not fall to a Treasuer. They fall to those at the top of the administration. Who is responsible for the Finance operation ? That person needs to be held accountable.

8 Johnboy April 3, 2016 at 8:22 AM

You are correct! Nothing will happen to the supervisors of the person handling disbursement so.

9 Concerned Citizen April 2, 2016 at 12:50 PM

Agree with the comments previously written. I am struck by the finger-pointing and the passive language/tone being used by the Superintendent.. Seems like she is skirting the real issue(s) and questions. Great that the funds will be ‘recovered.’ So did their insurance premiums just go up ?!?!? Am I footing that bill as a taxpayer ?!?!? I think the public deserves to know more about how this could occur in the first place, vs what happened once the horse was out of the barn.

10 Publius April 2, 2016 at 7:22 PM

This is why the Town has insurance. To protect us against this type of problem. The bad side is like getting into a car accident or getting ice dams on your house and filing a claim, the Town’s insurance premium will probably go up?

Moving forward, however, I hope the Superintendent explains exactly what new financial policies and checks and balances are being put into place to avoid this in the future. Unfortunately, there are people who have some serious problems out there, some of them right under our noses. Why am I not surprised another young, smart, intelligent person had an opioid problem?

But I think overall the Superintendent has done a decent job handling this problem in a timely manner.

11 Al Hamilton April 3, 2016 at 10:02 AM

How in the world can you say that 2 and one half years of stealing was uncovered in a timely manner?

Let us be clear the alleged thief sole hundreds of thousands of dollars. He did not steal that money from a faceless entity. He stole it from our kids and from senior citizens living on fixed incomes.

Yes, we have insurance, insurance is typically for accidents and unforseen events. This was neither it was a management failure pure and simple.

So, no the Superintendent has not done a good job handling this. The business manager has not done a good job. The Auditor has not done a good job. There is no good job to do here if you are in the chain of responsibility.

Of course, I do not expect anyone to be held accountable. There will probably be raises and trophies handed out all around.

12 jim April 3, 2016 at 2:09 PM

At a bare minimum, the School Committee should replace the auditors.

13 Trixie April 5, 2016 at 6:36 AM

It appears that the audit firm was replaced. Who were they, by the way? Ms. Johnson’s letter refers to “our newly appointed auditing firm.”

14 You are correct, Al. Mostly... April 4, 2016 at 9:08 PM

Al: My point was not that this was uncovered in a timely manner, but I think since this was uncovered, it has been handled reasonably well by the Superintendent.

I do agree the auditors should be sent packing for sure and there should be a revisit of town financial policies. And I completely concur about the management and the business manager. It would be refreshing if someone just admitted this. Maybe the School Committee?

I am concerned, like you, about the length of time this was occurring. But, this is what drug addiction brings. Drug addicts of this kind, especially with opioids and prescriptions these days, are awfully sneaky and manipulative. Wait, where are the Clifford Road residents now? Maybe their energies would be better used on this topic? Fat chance….

Not just children and seniors on fixed income were affected. All taxpayers were.

And I do agree. This town seems obsessed with giving raises and trophies away like hot cakes instead of doing the difficult work it takes to get things right. Then again, as you’ve stated so many times, people need to run for office!

15 Johnboy April 3, 2016 at 7:52 AM

This theft demonstrates the difference between the public sector and the private sector.
Insurance will cover the loses but the people responsible for the checks and balances in the handling of the money march on to their retirement without consequence. Not the same as the private sector!

16 SbroMa April 3, 2016 at 2:22 PM

The entire administration has lost all credibility. How is it even possible that no one was watching the petty cash account ? For 2+ years ? What are we paying these people for ? This is not an issue of financial controls…..It is an issue of gross negligence and incompetence. Plain and simple.

17 Johnboy April 4, 2016 at 7:29 AM

How much did the insurance cost per year prior to the theft? How much will the insurance be now? We will be paying for the so called recovery for years?
So much for public sector employees and their attention to detail.

18 Frank Crowell April 28, 2016 at 4:19 PM

Meanwhile while we determine how to run our town (one “historical” land mark at a time), I wonder how things are going with embezzlement investigation. Well, let me guess:

– Investigations are still ongoing.
– No one other than the alleged perpetrator will be held responsible.
– Drug tests for new employees?
– Total costs for all work done and new insurance rates are?
– Glowing review for our superintendent on how she handled this.
– Has the Neary school been determined to be a historical land mark because a few people have some fond memories (sorry – just had to throw that in)?

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