THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Sunday, September 24, 1995 TAG: 9509240032
SECTION: FRONT PAGE: A1 EDITION: FINAL
SOURCE: BY KAREN WEINTRAUB, STAFF WRITER
DATELINE: VIRGINIA BEACH LENGTH: Long : 309 lines
The school district's $7.4 million deficit wasn't caused by one thing or one person. It may never be possible to reconstruct exactly why the finances fell apart.
But the relationship among key players seems to have allowed it to happen.
There was an atmosphere of trust in the School Administration Building and down the street in City Hall that:
Let the superintendent overlook screaming memos from a chief financial officer and internal auditor.
Permitted the finance department to watch quietly while basic rules of its trade were violated.
Made it possible for the school board to ignore the fact that their questions weren't getting answered.
And allowed the City Council to believe what it was hearing from all three: that the district could manage its own affairs and live within the budget set by the city.
Over the last two to three years, despite repeated rumors and nagging concerns, the superintendent, the board, the school's financial leadership and the council reassured themselves and each other that all was well.
Can I afford to buy a building I really want, even though I didn't plan for it?
No problem.
Can I do three jobs and fix a budget that doesn't balance?
Of course.
Can we get out of a janitorial contract we now dislike?
Don't worry.
Can we count on the school leadership despite years of bad blood?
What choice do we have?
It will be about a month before the results of an audit of the district's books is completed.
But the deficit already has left in its wake disillusionment, soul-searching, and the erosion of faith between leaders and the taxpayers who counted on them to spend their money well.
SIDNEY L. FAUCETTE: Former superintendent Sidney L. Faucette, an oversized man with natural charm, seemed larger than life.
He told stories and wove yarns that had board members hanging on his every word. He provided more tales than details.
Faucette said he takes full responsibility for the problems, but says he was as surprised as anyone that the books were such a mess.
``A superintendent of a large school system is only as good as the information provided by his people,'' he said Wednesday evening.
Faucette, who moved to Georgia this summer to head a district there, has offered several times to come back and help unravel the numbers. He seems wounded that no one has asked for his advice.
``If there's anybody in North America who wants the truth to be gotten to, it's Sid Faucette,'' he said. ``There are about 9,000 outstanding people who work in that district and they don't deserve to go through this turbulence.''
Although most of the finger-pointing focused on Faucette when the deficit first came to light, blame is spreading as more information comes out.
His new board in Georgia says it has complete faith in Faucette, and several Virginia Beach school board members still speak fondly of him.
``Sid was very folksy and charming,'' member Elsie M. Barnes said. ``He is a most pleasant individual.
``You'd ask him a question and he'd tell you a little folklore. . . . That's very disarming.''
``He's somebody who would tell you what you want to hear and make you believe it,'' Donald F. Bennis, the Virginia Beach School Board's newest member, said early last week.
While Faucette used charm on the people who had the power to hire and fire him, he was a demanding, at times overbearing boss, those who worked for him said.
During Faucette's four-year tenure, nearly all the district's top leaders either moved on or were either fired. The list includes: Internal Auditor Kevin A. Jones, Chief Financial Officer Hal W. Canary, Deputy Superintendent Fred Benham, Director of Accounting Sammy Cohen and Assistant Superintendents Shirley Cassida, Robert Stenzhorn and Andrew Carrington.
Mordecai L. Smith, who was promoted to chief financial officer when Canary left, said bills would arrive on his desk with the word ``pay'' scribbled across them in bold letters. It didn't matter that they hadn't been budgeted, that money would have to be moved around to cover them, the superintendent expected them to be paid, Smith said.
Faucette also made some policy changes that, although minor, had a huge impact on the district's bottom line.
He decided to increase estimates of how much money the district would get from the federal government. His predecessors had been extremely conservative in their predictions, in part, because the low estimates gave them a little budget cushion and in part, because it made them look good to run a surplus every year.
Faucette disagreed with that philosophy. Under state law, the district had to turn the surplus back to the city. Although the city usually returned most of it, Faucette argued that the district would be better off raising its estimates and spending the money up front.
That policy worked well for the first few years. The federal aid projections got closer and closer to the actual money given, and the gap gradually disappeared.
Last school year, Faucette's luck ran out.
His staff had predicted $15 million in federal funds, and his district was stuck with $4 million less than it had planned to spend. To respond to the fiscal crunch, the administration slowed spending and made some cuts.
If the rest of the budget had been healthy, those moves and Faucette's finesse would have smoothed out the problems. But his legendary charm wasn't enough to balance the books. The overestimation, coupled with unplanned expenses, miscalculations and serious budget problems from the year before, left the district's financial staff with a real mess.
FINANCE DEPARTMENT: If Faucette was known for his charm, Mordecai Smith was known for his confidence and ambition.
Smith, who goes by ``Mort,'' comes across as a man in control and in the know. He mentors kids in his free time, rose from a budget analyst with the city to Chief Financial Officer of the school district, and plans to run for School Board or City Council one day soon.
Several School Board members said last week that they wish Smith had been a little less confident, a little less sure of himself. If he had shown any doubt in his numbers, then they might have, too, they said.
Despite his cool demeanor, Smith said he was nervous last summer when Hal Canary left and Smith was put in charge of the district's finances.
``I knew in August when I took over that I was digging out of the ground,'' said Smith, who was acting director from August 1994, when Canary was suspended, until February when Smith was given the job permanently.
And that wasn't the only job Smith was doing. No one was hired to replace him as director of budgeting when he was promoted, and after Sammy Cohen was ``downsized '' out of a job, he was not replaced as director of accounting.
Smith was well-trained for the budget job and had tried several times for promotion to chief financial officer. But he was not, he agrees, capable of doing all three jobs simultaneously and doing them well.
Particularly, Smith said, in the fiscal climate he was working under.
He said he was appalled by what he described as free spending by the superintendent. His boss would repeatedly ask him to find money to buy things that were not budgeted or to spend money intended for one purpose for another.
``I believe in budget authority. What you budget is what you spend,'' Smith said. ``That has not been practiced.
``It has been frustrating seeing that circumvented and violated, but I really don't know why that was done.''
One of the worst infractions, Smith said, was the decision in mid-July 1993 to purchase a $1.75 million building for the district's adult education program. The building never had been included on any annual spending plan, though the system's fiscal year started just two weeks before the board approved the purchase.
According to basic budgeting practices, buildings are bought with capital funds, money from the 6-year construction budget, rather than money allocated for day-to-day needs. But Smith said he had to dip into money set aside for the district's electric bills in order to cut a check for the Thalia II building on Virginia Beach Boulevard, then used by Commonwealth College.
Smith said he never signed off on the purchase, although as budgeting director he should have OK'd the check. He was so upset by the whole incident, he said, that he's only been in the building once.
Smith said his integrity and sense of pride has helped him survive the last difficult year.
Some involved in the budget crisis dispute Smith's interpretation of events leading up to the discovery of the deficit.
Faucette said the Commonwealth College building was bought with surplus, not electric-bill money.
Smith and Donald A. Peccia, who was promoted over him on Aug. 1, contradicted each other at a school board meeting earlier this month over budget problems in previous fiscal years.
Jones, then internal auditor wrote a scathing memo this spring to Faucette and several board members, finding ``weaknesses in preparing budget documents,'' and scolding the budget department for ``gross inaccuracies and inconsistencies.'' It is unclear how many people actually saw the memo. Jones quit within two weeks of its release.
None of the board members is willing to affix blame until the city's audit is completed.
But they said that if Smith knew the books were so bad when he took over, he should have given the board more warning. If he was so swamped in his job, they said, he should have asked for more help.
``I just wish that if the CFO was afraid that we were not going to come out in the black, he should have come out in front of the board and said `Hey, it's ugly, what direction do you want me to go?' '' board member Joseph Taylor said. ``No words other than optimism ever came out about us not coming out in the black.
``I guess I put too much confidence in the CFO,'' Taylor said. ``Not I guess, I know, I put too much confidence in the CFO.''
THE SCHOOL BOARD: The problems with the school budget didn't take board members by surprise; it was the fact they were misinformed that shocked them.
``Surprised? I wouldn't necessarily apply that to myself,'' Elsie Barnes said. ``I felt that when the finance director said that he could bring it in (on budget), I felt that he was being overly optimistic, and he was relying on some longstanding practices. I was not aware of the changes, nor was I aware of the practices.''
``I only knew what we were told,'' said Karen O. O'Brien, who joined the board in March.
On Aug. 18, board members received a memo from Smith indicating his continued confidence there would be a surplus of $400,000 when the 1994-95 financial books were closed a week later. On Aug. 28, the board was called into an emergency session to learn that they were $7.4 million in the hole.
Several said last week they take full responsibility for what went wrong, but that realistically, any board has to rely on its superintendent and staff. A board is there to provide policy direction, but real estate brokers, housewives, teachers and small business executives just don't have the experience to keep track of everything in a $350 million budget, they said.
``The board is responsible, yes,'' retired Rear Adm. D. Linn Felt said. ``I'm not sure the board was in a position to be able to do anything.''
Board members didn't notice when $2.5 million in surplus was committed to $9 million in projects. They weren't told that getting out of a janitorial contract would cost money they didn't have. They didn't realize that all the money transfers they were approving were signals of hidden problems.
``The public thinks that I, we, the board, should know every single number of the administration,'' Taylor said.
The chief financial officer ``had me believing - I'd ask him every month, are we going to come out in the black? . . . `Yes sir, Mr. Taylor, I'm pretty confident, we're going to make it there.' ''
The board occasionally asked Smith and Faucette about problems they saw in the monthly financial reports. Sometimes Faucette would tell a story. Sometimes Smith would give them a piece of the answer.
But they say they were never given the complete picture of what was going on, that if they didn't ask the precise question they were given an irrelevant or misleading answer.
``As a board member, I shouldn't have to ask the right question,'' Bennis said. ``I think the board needs to let the administration know when we ask questions we need to be told what the bottom line is. . . . I think that the answers we got were answers designed to satisfy us, to pacify us without giving us the bottom line.''
Bennis and others agree that they were not as clear with Faucette and Smith as they should have been. They won't be satisfied with ``smoke and mirrors'' from new administrators, they said.
THE CITY COUNCIL: Most School Board members feel guilty that they didn't realize they were being misinformed. But they also feel the City Council shares some of the blame.
Most council members are annoyed the board is implicating them in the budget mess. We tried to call attention to the problems, the council members said, but we had no control.
The School Board and the council have long had a testy relationship, even though board members were appointed by the council until last year. Every year at budget time, the board accuses the council of not caring about education, and the council retorts that the board lacks fiscal restraint.
Their distrust is founded on state law. In Virginia, city councils have the power to raise taxes to give money to school districts. But once they give the money away, control of how that money is spent also ends.
Some school board members say the council is constantly trying to regain that power; council members say they get stuck with the blame for problems they can't do anything to fix.
The council has bent over backwards in recent years to smooth over those hard feelings, Mayor Meyera E. Oberndorf said last week. Bent over too far, perhaps, she added.
In the ``spirit of cooperation,'' the council three years ago gave the board more flexibility over how it spent school money. By allocating funds in a lump sum, instead of in four separate categories, the district could move money around more without needing council's permission. Council members were nervous about doing that, Oberndorf said.
``It was not a decision that the council made easily, but the board was so adamant about wanting this total autonomy in the use of this money,'' she said. ``In good faith, the council finally agreed.''
Over the last year, as rumors of financial troubles got louder and more insistent, Oberndorf, Vice Mayor W.D. Sessoms and City Manager James K. Spore repeatedly asked questions of the schools' leadership. The three met monthly with the superintendent and board chairwoman to try to improve the working relationship between the two bodies.
They said they were repeatedly told everything would work out fine, it wasn't their problem, the district's finances were under control.
``Since we were always reminded that they were autonomous and we could not oversee the implementation of their budget, we tended to have to just accept what they told us,'' Oberndorf said.
Faucette's usual response to the repeated questioning: ``First he'd chuckle, then he'd say, `Now this time, I'm going to tell you the truth,' '' she said.
The council and School Board are now at each others' throats over what should be done to fix the financial problems.
A growing chorus of board members feel the council has overstepped its bounds and is acting out of political interest rather than in the best interest of the school children. Board members Ulysses V. Spiva, Robert W. Hall, Felt and Barnes strongly object to the council's recommendations for regaining fiscal control. The most contentious suggestion would call for the merger of the district's accounting and payroll departments with the city's.
``I think they're just using this as an opportunity to make political hay,'' Barnes said.
Council members dispute that. They're not trying to wrest control, they insist. They're just trying to be responsible.
``It isn't political, it isn't a power struggle, it's purely and simply accountability to our customers, the taxpayers who have to ultimately shoulder the cost,'' Oberndorf said.
But several members said, knowing what they know now, they wish they could have - should have - trusted less and done more.
``If you sit back and ask me should I have pushed harder,'' Sessoms said Friday. ``Hindsight's 20-20. Maybe I should have, but I didn't.
``Would that have made a difference? I don't know.'' MEMO: Staff writer Aleta Payne contributed to this report.Staff writer Aleta
Payne contributed to this report.
ILLUSTRATION: Photos
``A superintendent of a large school system is only as good as the
information provided by his people.''
Sidney L. ``Sid'' Faucette
Former superintendent of Virginia Beach Public Schools
``I believe in budget authority. What you budget is what you spend.
That has not been practiced.''
Mordecai ``Mort'' Smith
Chief Financial Officer of the school district
``No words other than optimism ever came out about us not coming out
in the black.''
Joseph Taylor
School Board member
``It isn't political, it isn't a power struggle, it's purely and
simply accountability to our customers, the taxpayers who have to
ultimately shoulder the cost.''
Meyera E. Oberndorf
Virginia Beach mayor
KEYWORDS: VIRGINIA BEACH SCHOOLS BUDGET by CNB