THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Sunday, November 5, 1995 TAG: 9511050066
SECTION: FRONT PAGE: A1 EDITION: FINAL
SOURCE: BY TOM HOLDEN, STAFF WRITER
DATELINE: VIRGINIA BEACH LENGTH: Long : 157 lines
Commonwealth's Attorney Robert J. Humphreys said Saturday he may call for a special grand jury to investigate financial mismanagement within the school system if key questions remain about how administrators ran up a $12.1 million deficit.
Moving the inquiry into the courts could produce limited results for the community, he cautioned, and may cost far more in legal fees than is possible to recover in fines.
Meanwhile, City Manager James K. Spore is recommending that the City Council consolidate many of the schools' and city's financial operations and seek legislative approval for the city staff to monitor school finances more closely.
Both Humphreys' and Spore's comments came after Friday's release of an audit by KPMG Peat Marwick revealed that the 1994-95 deficit for the fiscal year ending June 30 was $4.8 million more than the $7.3 million the school system had reported in August.
The deficit is the result of two critical fiscal mistakes: the district received $5.7 million less income than it expected while it spent $6.4 million more than called for in the budget.
In addition to the deficit, the audit uncovered a school system in fiscal chaos, with administrators producing budgets that were unreliable and spending money the district did not have.
The findings stunned many on the City Council and angered community leaders, some of whom have turned their attention to accountability for the accounting fiasco.
``If I felt there were still answers the public needed to decide how exactly this occurred, who is responsible, and if there is a potential for criminal charges, then I could petition the circuit court for a special grand jury,'' Humphreys said.
``We could be talking about anything, from someone putting money in their pocket, which is embezzlement, to mismanagement, which could be malfeasance,'' he added.
``If we're assuming that it's mismanagement, then the most we can get is a malfeasance prosecution, and that's kind of useless under Virginia law,'' Humphreys said. ``It's a $100 fine. I would be spending hundreds of thousands of dollars and at most get $100 fines from each conviction.''
During the prosecution and appeals phase of any such effort, the accused would remain in office. Given the anticipated length of such proceedings, it would probably take more time than remained in every board members' individual terms.
``And, by law, the taxpayers will have to fund their defense,'' he added. ``Now, if we have embezzlement, let's say someone has a yacht or a Swiss bank account, then we have a different ball game. Like everyone else, I'm looking for answers. The public should be told in as full a detail as there is what exactly happened and how we came to this pass. Then we can make a judgment.
By state law, the School Board cannot spend more money than it is allotted, but no one on the board or within the school system has been charged with any crime arising from the deficit controversy.
``From what I am hearing, it's not necessarily a crime to be a lousy manager or an inept public official,'' Humphreys said. And just because this has occurred does not mean anyone is guilty of a crime. I won't know more until after Monday when I receive the Peat Marwick report.''
The regular grand jury meets on the first Monday of every month. If Humphreys concludes that a case should be made when the regular jury is not in session, then he could petition the circuit court for a special session. The court could deny his request. Once a jury is empaneled, its members would make their own decision. He would serve only as the jury's legal adviser.
Special grand juries are rare in Virginia Beach. Humphreys said the last one he could remember was the 1985 jury that issued indictments alleging Cox Cable of Tidewater had violated obscenity standards by airing the Playboy Channel. The company later withdrew the programming.
He said that one benefit of a grand jury is that it can write a report, which could include recommending indictments or legislation to correct a problem.
If Humphreys remains uncertain about the need for a grand jury, no doubt exists for John T. Early Jr.
``A special grand jury now would be mandatory,'' said Early, leader of Kids First, a community organization working to reform public education. ``The audit only puts financial data on the table. We need to interview the players under oath, with penalty of perjury.
``The next logical step is to interview (former school superintendent Sidney) Faucette, (former chief financial officer Hal) Canary, and (the current chief financial officer who is on administrative leave Mordecai) Smith. We need to find out what they knew and when they knew it. It's the only way this thing will be resolved.''
Early also said that because deficits have been reported in the last two fiscal years, and another is projected for 1995-96, that another independent audit is needed going back at least two years.
``We have looked at financial data from 1993-94 and we're convinced there was a deficit in that year as well,'' he said.
At least one City Council member says a grand jury is not needed.
``I don't think a grand jury will lead us to where we need to be. We need fiscal control,'' said Louisa M. Strayhorn, who represents the Kempsville Borough on council and who served on the School Board from January 1992 to June 1994.
Strayhorn said she would push for the School Board to agree to the proposed consolidation plan that calls for placing the school system's accounting, purchasing, payroll and risk management departments under the city staff's control.
Faced with the deficit, she said, the district cannot expect to pay for the computer systems needed to revamp its fiscal control operations. By allowing the city to take control, the School Board can then pursue educational goals, Strayhorn said.
``If we have a system in place and we're able to handle it and they don't have the money to do the job, then it makes good financial sense, and good common sense, to do that. This would not take away their control of what they want to do with the school system.''
In a letter issued Friday to council members, the city manager outlined several steps council should consider taking to ensure that deficit spending does not recur.
Spore suggested that council specify a budget format for the school division in order to assist the School Board and council as they re-evaluate the new budget figures.
He said that the council should insist that the board develop a budget based on three service levels. The first would be a ``reduced'' budget that reflects the current funding levels. Second, that the School Board itself develop a budget that maintains existing programs with no new personnel, and, thirdly, that it develop a budget showing what it needs for new personnel to staff future school openings or expanded programs.
Spore also would like council to seek a legislative remedy so it can monitor school system expenses, although he did not specify in the letter what that remedy might be. He also favors having the School Board adopt the consolidation agreement.
He also called upon council to place an ordinance on the Nov. 14 agenda that would appropriate $12.2 million to cover the deficit - but only on the condition that the School Board accept the reconciliation agreement.
Both the City Council and the School Board will meet separately Tuesday to hear a presentation by KPMG Peat Marwick auditors on the firm's findings. The City Council meeting begins at 2 p.m.; the School Board will meet at 7 p.m. ILLUSTRATION: Graphic
WHAT THE CITY SHOULD DO...
[For complete graphic, please see microfilm]
KEYWORDS: VIRGINIA BEACH SCHOOLS BUDGET by CNB