Home > Uncategorized > Detroit Principals Who Bilked Taxpayers Money for Students Deserve Vilification, Jail Time

Detroit Principals Who Bilked Taxpayers Money for Students Deserve Vilification, Jail Time

March 30, 2016

I was appalled to read the latest setback to the credibility of the Detroit Public Schools (DPS): the arrest of 13 Principals who collectively bilked the taxpayers in Detroit of over $900,000 over a period of several years. The NYTimes reported the scheme as follows:

The principals, including five who have retired and one who became a district administrator, ordered supplies like paper, workbooks and chairs from the vendor, and Detroit Public Schools paid the bills. The vendor then delivered only some of the supplies to the schools, and paid $908,518 in kickbacks to the principals, according to documents filed in Federal District Court in Detroit…

According to the charges, the principals used an array of methods to disguise the kickbacks, including receiving prepaid gift cards or having payments made to sham companies they had created…

Prosecutors said that some of Mr. Shy’s payments to (one of the defendants) had gone to a travel agency she owned, and that in other cases, he had paid contractors to do work on her home.

How does something like this happen?

  1. Turnover and incompetent leadership at the top: DPS has had four “emergency managers” since 2009, the six year time period when all but one of the scams occurred. Each of the emergency managers was appointed by the Governor, and one “manager” was a private for-profit management company that presumably would bring the hard-nosed business practices
  2. Inattention to detail in purchasing procedures at all levels: This kind of scheme can only work when there is no clear system in place for tracking the delivery of orders and no inventory control. These procedures are not eye-catching “reforms” like the decision to turn over the school system to a private for-profit management company, but they could have created a culture of accountability that was sorely lacking in DPS.
  3. The lack of transparency that results from authoritarian leadership: The Principals could only pull off a scam like this if they had total and complete control over the budgets and refused to allow their subordinates or parent organizations participate in budget development.
  4. Incremental budgeting: The combination of poor district level leadership, lax purchasing controls, authoritarian leadership, and incremental budgeting can create an opportunity for a dishonest building level administrator to skim funds in the fashion described in the article. If, for example, $50,000 was budgeted in 2009 for “supplies” and the Principal spent only $40,000, they could arrange with a vendor to place a ghost order for the $10,000 balance and split the “proceeds” with the vendor without “doing any harm to the students”.  An incremental budgeting procedure, one that bases the subsequent year’s budget on the prior year’s spending, would allow this $10,000 “cushion” to remain in place over a period of years.
  5. Austerity budgeting: Unfortunately an austerity budget increases the possibility of this kind of scam. When teachers have wages frozen and are asked to pay more for benefits, they are not surprised when their supplies are diminished. This cut-back on supplies can allow the dishonest administrator to cut the supply budget without reducing the margin between the budget figure for supplies and the actual amount spent on supplies with that margin going into the pocket of the vendor and the dishonest administrator.

And here’s what is very problematic: when all of the factors outlined above are in place, the chance of a dishonest employee getting caught is slim. An auditor wouldn’t catch this problem as long as the employees involved in the scam followed the district policy for tracking purchases because auditors don’t look to see if a product was delivered, they only look to see if it was purchased in accordance with the procedures in place. The clerical staff in the office are unlikely to be aware of the gap between spending a acquisition of materials because managing inventory was the Principal’s responsibility, not theirs. And the teachers would be none the wiser as long as they had sufficient supplies to teach in their classroom or… as was likely the case in DPS, accepted the fact that they didn’t have supplies because of the ongoing budget crisis. I’m not sure how the prosecutor got wind of the ongoing scam, but whoever did blow the whistle deserves to be lionized. As for the dishonest administrators who took advantage of the adverse circumstances in DPS, they should be stripped of retirement funds and benefits, sentenced to time in prison, and vilified. The public trust in public schools is degraded as a result of their misconduct and the trust can only be restored if some kind of serious punishment results.

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