THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Sunday, March 17, 1996 TAG: 9603150232
SECTION: VIRGINIA BEACH BEACON PAGE: 07 EDITION: FINAL
LENGTH: Long : 229 lines
Virginia Beach School Board members June T. Kernutt, Susan L. Creamer, Robert W. Hall, Tim Jackson, Ferdinand V. Tolentino, Ulysses Van Spiva, D. Linn Felt, Elsie M. Barnes and Joseph D. Taylor issued the following reply to the special grand jury that investigated the school district's budget deficit.
Last week the Special Grand Jury released a report which, as was intended, drew maximum media attention and public clamor. Using language which was totally uncalled for, it describes dedicated public servants as ``unfit,'' as guilty of ``malfeasance,'' and - in the unkindest cut of all - as ``poor role models for children.'' The report contains factual conclusions which are inaccurate. It recites legal conclusions which are erroneous. It brandishes a threat of criminal prosecution which is inappropriate.
The public deserves some balanced perspective on these emotional issues. The public deserves to know, for example, that a grand jury hears what it chooses to hear. It neither solicits nor receives the points of view or legal arguments of those in its path. It is significant that the grand jury is not advised by independent counsel. To the contrary, its only attorney - present throughout the testimony and conducting much of the questioning - is the prosecuting attorney. Board members were not entitled to call witnesses on their own behalf, question witnesses called by the grand jury or have counsel argue in their defense.
Unfortunately, the report has already yielded several casualties. Prominent citizens who have devoted their lives to their community have resigned, not in recognition of a legal ``malfeasance,'' but for the best of reasons: the preservation of harmony in the delivery of public education. Nonetheless, they are stung by criticism which is excessive and intemperate. Their reputation and standing in the community requires that they respond. A careful review of the report compels the following observations:
This Board did not create the several deficiencies in the system which the Grand Jury believes were contributing causes of the School Division budget deficits. The Report contains many useful suggestions for correcting those deficiencies, which clearly played a part in the 1994-95 deficit and the continuing concerns for the 1995-96 fiscal year. Even before the Report was issued the Board had acted to address many of the systemic problems cited in the Report.
Although its punitive recommendations might suggest otherwise, the Report correctly concludes that no public funds were diverted from the benefit of the School Division, and that no board member reaped any personal financial gain arising out of the budget deficits.
The Report correctly records that Superintendent Faucette and Chief Financial Officer and Budget Director Mordecai Smith repeatedly misled the School Board and/or failed to inform the Board as to the true picture of the Division's finances. Available videotapes abundantly support that conclusion. However, despite the fact that most Board members are laymen untrained in the intricacies of finance, the Report charges them with ``malfeasance'' for failing to discover that the financial information provided to them by highly paid full-time professional administrators falsely depicted the Division's financial condition.
The Report identifies several specific findings in support of its conclusion that (we) ``committed malfeasance in office,'' were guilty of ``incompetence,'' and ``are unfit for further service.'' These conclusions are harshly stated, and fall into the following categories:
A. ``Blind Trust''
The first and most significant charge leveled at the Board is that members ``blindly'' trusted Superintendent Faucette and Chief Financial Officer and Budget Director Mordecai Smith. In this the Report relies heavily on the benefit of hindsight. While it is now clear that the trust placed in these two administrators was misplaced, it is inaccurate to describe that former trust as ``blind.''
To the contrary, Board members repeatedly and aggressively interrogated Faucette and Smith on a regular basis. The best evidence of this is found in videotapes of every Board meeting. These tapes were made available to the Grand Jury. For some reason the Grand Jury ignored the significance of this compelling evidence. The public should seek access to these tapes. . . .
The tapes memorialize that the Board was repeatedly assured by Dr. Faucette and Mr. Smith that the School Division would end the 94-95 fiscal year with a surplus.
In fact, the grand jury itself got a taste of Faucette's and Smith's skill at evasive and misleading answers. . . . Apparently, the grand jurors were not able to get any better answers from Faucette and Smith than the School Board despite having several advantages over the School Board members they have so unfairly criticized. These advantages include (1) the power of subpoena compelling testimony under oath and under penalty of perjury; (2) the presence and guiding hand of Commonwealth's Attorney and his staff; (3) the ability to concentrate their attention solely on financial issues (and not concern themselves with substantive education issues as the Board was required to do); and perhaps most importantly (4) the advantage of hindsight.
With the benefit of this hindsight, the grand jurors could easily be more skeptical and unconvinced by the answers of Faucette and Smith. Unfortunately, their condemnation of Board members ignores the fact that the Board was not examining events in hindsight but was examining events as they unfolded and attempting to predict future events. . . .
To support its contention that board members ``blindly'' trusted the Superintendent, the Report notes as one of its specific findings that Audit Reports Nos. 2 and 8 were not shared by Board Audit Committee members with the entire Board. The Report states that the Board members on the Audit Committee ``rashly and, in our judgment, inappropriately, assumed the Superintendent would share audit results with the rest of the School Board.'' The Report conveniently omits the fact (noted in the minutes of the March 3, 1995 Audit Committee meeting) that the Committee members did not simply ``assume'' the Superintendent would circulate this data to the Board; they instructed him to do so. . . .
B. System Deficiencies
The Report correctly points out several deficiencies in the financial reporting system which if corrected by the Board might have uncovered the scope of financial mismanagement earlier. For example, the Report notes that the Internal Auditor should not have reported to the board only through the Superintendent. This allowed Dr. Faucette to stifle or downplay the concerns of the Internal Auditor. Another deficiency was that budgets were routinely presented to the Board at the eleventh hour with very little time to review and question the massive document. The Board has acknowledged these deficiencies and is specifically dealing with them.
C. The hiring of Mordecai Smith as Chief Financial Officer
The Report places great emphasis on this decision by the Board as evidence of ``malfeasance.'' The Report accurately notes that some Board members were ``uneasy'' with Smith's suitability for the position, and that his appointment had ``political'' overtones. However, it cannot be overlooked that Dr. Faucette actively championed Mr. Smith for the job. Presumably, lay Board members are entitled to give some weight to the recommendations of their CEO. The fact that certain board members were ``uneasy'' with Mr. Smith's ability to perform the duties of Chief Financial Officer and voted to approve him for the position in deference to the Superintendent's publicly stated desire, is hardly wilful and reckless behavior that supports a finding of ``malfeasance.''
D. The decision not to fire Mordecai Smith
A substantial portion of the Report's findings in support of its conclusion of malfeasance relate to the Board's recent 7 to 4 vote not to terminate Smith, a vote which occurred well after the events which gave rise to the deficit. This is a difficult issue for the Board to address with one voice given the strongly held and divergent opinions of board members. The four board members who voted to terminate Mr. Smith agree with the Grand Jury that Dr. Pughsley's list of charges was adequately supported by evidence and justified terminating Smith. A fifth board member believed Smith should be terminated but voted in favor of reinstating but demoting him because he recognized there were not enough votes to remove him, and in the hope of retaining the right to bring the matter up for a second vote at a later date.
Even those Board members who voted to retain Smith can hardly be characterized as casting a vote of confidence in him. He was removed as Chief Financial Officer and Accounting Manager, had his salary reduced, and was placed on probation with regard to his duties as Budget Director. He faced inevitable intense scrutiny. Those Board members who voted not to terminate him believed Smith's defense that his actions had been directed by Dr. Faucette, and that he should be given another chance.
Given the fact that Smith's reinstatement and demotion played no part in creating the budget deficits which the Grand Jury was impaneled to investigate, the emphasis the decision receives in the Report seems undue. . . with the budget deficits, the decision to reinstate and demote Smith is far removed in time from the relevant events.
E. Refusal to consolidate school and city financial record keeping and monitoring functions.
Here the Report suggests that the Board has ``stonewalled'' on the issue of consolidation. This charge in the Report is simply wrong. While it is true that certain board members have opposed consolidation, the majority of the board has favored exploring consolidation ever since the deficits have come to light. Months ago, the Board requested further specifics from the City, and these discussions are ongoing. On February 20, 1996 (before the Grand Jury issued its Report) the Board adopted a resolution directing Superintendent Jenney to work with the City Manager to develop a consolidation agreement with the goal of beginning implementation on or before July 1, 1996. . . .
F. Failure to demonstrate the proper degree of contrition
The Report repeatedly alludes to the Grand Jury's irritation with the Board's ``unapologetic'' manner. This is troubling. The Grand Jury was created to determine facts not accept apologies. Moreover, the existence of potential criminal prosecution has a rather chilling effect on the apology process. Those confronted by a Grand Jury are advised by their counsel to answer truthfully, but to avoid seeking absolution. It is ludicrous to suggest, as the Report does, that in the light of hindsight Board members have not been embarrassed, or have not questioned their own actions and have not regretted not being more skeptical of the information they received. Certainly they have.
While the penalty of a $250 fine may appear small, the threat of criminal prosecution in this case is the ultimate insult. Unlike the full-time professional administrators who caused and then concealed the deficit, the Board members castigated in this Report are individuals who have long records of exemplary volunteer public service. . . .
Since it is clear that no funds were diverted and that no one reaped any personal financial benefit in this case, the threat of criminal prosecution was heavy handed indeed. The Grand Jury states bluntly that seven school board members should be terminated ``one way or another'' and states further that ``if they fail to resign in a timely manner, the Commonwealth's Attorney should seek indictments for malfeasance from the regular Grand Jury.'' Mr. Humphreys has rushed to embrace this recommendation, although it goes much further than his initial position. He originally stated that no criminal prosecution would be warranted unless the Peat Marwick audit revealed evidence that individuals diverted money from the School Division or reaped some personal financial gain. See Virginian-Pilot, Sunday, November 5, 1995. He was right the first time, and he now overlooks the complete absence of those elements in bowing to the will of a Grand Jury to which he was the legal adviser.
Moreover, both Humphreys and the Grand Jury somehow overlook the fact that even in the unlikely event their threatened criminal prosecution resulted in a conviction, removal from office is not automatic. Removal from office is governed by the election laws, not the criminal laws. . . .
Conclusion
The Special Grand Jury is entitled to its opinion as to the competence of the seven school board members which it excoriated. However, the public should not mistake a grand jury proceeding for a full, open and impartial trail. The grand jury meets in secret, and with advice from the prosecutor, determines what witnesses it wants to hear and what questions will be asked. The Board members had no opportunity to question witnesses called by the Grand Jury, to call witnesses on their own behalf or to argue in their own defense. For those undersigned board members who have no desire to subject themselves or the School Division to protracted litigation, this is their only chance to tell their side of the story. They vigorously disagree with the opinion of the Special Grand Jury as to how they carried out their financial oversight function. Moreover, (we) feel the conditional threat of criminal prosecution was highly inappropriate.
Fortunately for them, the Grand Jury enjoyed the benefit of hindsight, and in retrospect it must be acknowledged that the Board failed to see some of the warning signs of the 94/95 deficit, and that their trust in the Superintendent and his Chief Financial Officer was indeed misplaced. However, they did not ``blindly'' trust these men. . . . The board was simply misled.
While some Board members have resigned, this only recognizes that their continued presence might shift public focus away from addressing the problems which face the Virginia Beach School System. Their resignations should not be interpreted as any acknowledgment of ``malfeasance.''
All aspiring future school board members should take heed. They should be warned that they are now expected to be hardened skeptics skilled at financial analysis and adept at cross-examining evasive witnesses. They should be warned that they assume their essentially volunteer duties at great risk. That risk includes harsh second-guessing by a secret tribunal, criminal prosecution and public humiliation through attacks on their personal integrity.
KEYWORDS: VIRGINIA BEACH SCHOOL BOARD TEXT GRAND JURY by CNB