After troubling audit, Minnesota will investigate tech group funded by school districts

The state will step in to examine the financial affairs of a troubled technology organization funded by Twin Cities area school districts, Minnesota Legislative Auditor Jim Nobles said Friday.

Nobles was responding to what he called the "serious concerns" raised by a forensic accountant's report of TIES. The audit, ordered by the school technology group's board because it was losing money, revealed widespread spending irregularities and lack of documentation.

"I think there's certainly a need for some follow-up by someone at the state, and it could be either the state auditor or the Legislative Auditor, and we'll sort that out and get more details about what occurred from the audit firm," Nobles said. "They need accountability because they're spending public money."

A spokesman for State Auditor Rebecca Otto said the office can't confirm "whether we have an open examination or investigative file."

The audit showed TIES' deficits prompted it to rely on expensive bank lines of credit, that it routinely failed to charge for use of a remodeled event center, paid $500 and $1,000 bonuses to workers operating its State Fair parking lot and paid $47,808 over a year and a half to a telephone company whose services it no longer used. It also accepted $250 gift cards each month from Stout's Pub across the street from its headquarters as payment for using TIES parking spaces.

The audit revealed that the cost of renovating TIES' main administrative building and event center in 2012 and 2013 ballooned from $318,267 to more than $3.1 million. Auditors could not locate the change orders for the work.

Before the forensic audit was finished, TIES Executive Director Betty Schweizer retired. A copy of her retirement agreement shows she resigned Sept. 17 and was paid severance of $61,332. She had been with the organization for about 20 years, and her employment contract wasn't due to expire until 2016. TIES has a new executive director, Mark Wolak, as well as a new chief financial officer.

"We've all been working on this," said board member Jim Burgett, who is also on the board of the Osseo Area Schools.

The nine board members are mostly administrators from member school districts. Representatives from the 49 school districts that are members of TIES elect board members to four-year terms. Luth said he was elected in May to his third four-year term.

TIES has an unusual and somewhat autonomous structure as a joint powers board made up of school districts. Luth described it as a "quasi school district."

Mark Kerr, assistant legal counsel for the state auditor, said that TIES reports to the office as a "special district" but that his office doesn't audit the group. The state auditor received a copy of the routine financial audit of TIES for 2012-13, done before the forensic accountant's report. Dated Nov. 20, 2013, that audit determined there was a "material weakness" in the organization's internal controls over financial reporting, a term indicating the most serious kind of accounting problem.

The earlier audit doesn't detail the weakness. It describes it as "two material adjustments" indicating a "lack of controls over the year-end financial reporting process."

Created in 1967 under a joint powers arrangement, nearly all of TIES' annual operating budget of about $30 million comes from its member school districts. They tap TIES for a range of training and technology services, including the popular online FeePay system that families can use to pay schools for things such as lunches.

TIES is housed in a distinctive 1930s building at Snelling and Larpenteur avenues north of the State Fairgrounds. Although it lists a St. Paul address, it's located in Falcon Heights.

Luth said that the renovation and upgrade projects at TIES headquarters were paid for with a 10-year levy on member school districts for $600,000 a year.

"This levy was appropriated based on student populations and added to each of the 49 member districts local levies on an annual basis," he said.

According to the 2013 audit, member districts were assessed $2.50 per student fee for major capital improvements.