Audit Accuses Kentucky Ed. Dept. of Fiscal 'Subterfuge'

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The Kentucky Department of Education violated state law by transferring unspent money to various school districts and education cooperatives rather than returning it to state coffers—a practice that enabled a former department official to embezzle more than $500,000, the state auditor asserts in a recent report.

The report by Edward B. Hatchett Jr., the auditor of public accounts, also alleges that the department went against state purchasing regulations in paying $300,000 to the National Faculty, an organization that conducts teacher-training institutes. The Atlanta-based organization, which employed former Kentucky schools chief Wilmer S. Cody before he took the state commissioner's post in 1995, did not have a written contract with the department.

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Download the complete report from auditor Edward B. Hatchett Jr. (Requires Adobe's Acrobat Reader.)

The department "appears to resort to subterfuge by transferring money it characterizes as 'grants' to cooperatives and school districts for use in subsequent budget periods," the April 18 report says.

The report notes that it was from such grants to the Kentucky Education Development Cooperative, one of nine cooperatives that enable districts to purchase supplies and professional development services at lower prices, that former Deputy Commissioner of Education Randy Kimbrough allegedly embezzled more than a half-million dollars by authorizing payments from those funds to fictitious vendors.

"When you have that kind of environment where financial accountability is so loose, it is entirely conceivable that you will have funds wasted or stolen," Mr. Hatchett said in an interview last week.

Ms. Kimbrough pleaded guilty to the embezzlement charges in federal court on April 10. Her sentencing hearing is scheduled for July 31. A lawyer representing Ms. Kimbrough declined to comment last week on the auditor's report.

End-of-Year Grants To End

Lisa Y. Gross, a spokeswoman for the education department, said that the funds the department transferred to the education cooperatives and school districts at the end of the fiscal year were earmarked for specific educational purposes.

"We don't consider that [the funds] were held back in any violation of the law," Ms. Gross said. "Even though the auditor says we were trying to hide them, that's not the case."

Still, in a written response to Mr. Hatchett's report, interim Commissioner of Education Kevin M. Noland told the auditor that the department would stop the practice of giving districts and cooperatives end-of-year grants.

"You have my assurance that at the close of this fiscal year, any remaining financial balances that are not under contractual obligation will lapse to the general fund," Mr. Noland said in the April 18 letter.

The auditor's report also calls into question the department's relationship with the National Faculty. It says that the department authorized five educational cooperatives and one school district to pay the organization for teacher training without having a written contract for services.

Mr. Hatchett also suggests that Mr. Cody's previous employment at the organization "raises the question of whether a conflict of interests influenced the KDE's business dealings" with the teacher-training group.

Department officials acknowledge that the organization should have had a written contract with the National Faculty, but say that the group did provide the teacher-training services for which it received payment.

Mr. Cody, who stepped down as education commissioner in January and is now working on a research project at his home in New Orleans, said he was surprised that such a contract did not exist.

"I had thought there was a written agreement," Mr. Cody said in an interview last week. "There should have been one, and I'm somewhat puzzled that there wasn't one."

Still, Mr. Cody said there was no conflict of interest in the department's dealings with the National Faculty, because he had left the organization in 1995.

To ensure that some of the lapses indicated by the auditor's report don't happen again, Ms. Gross said, the department has tightened up its controls and is working to hire an internal auditor. Mr. Noland pledged to create such a position shortly after Ms. Kimbrough was indicted in the embezzlement scandal in January. ("Kentucky Auditor Probes Spending by State Ed. Dept.," Feb. 2, 2000.)

"This is not a reflection of the other staff in the department," Ms. Gross said. "You can trace every single piece of this back to one person, and that is Randy Kimbrough."

Vol. 19, Issue 34, Pages 24, 27

Published in Print: May 3, 2000, as Audit Accuses Kentucky Ed. Dept. of Fiscal 'Subterfuge'
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