Audit finds St. Paul-based nonprofit funded by state schools misspent millions

A technology organization funded by Minnesota school districts misspent millions of dollars on a headquarters renovation, mismanaged a State Fair parking lot and had such lax financial controls it paid for nonexistent services, according to a private audit obtained by the Star Tribune.

TIES, a St. Paul-based nonprofit founded in 1967, has an annual operating budget of about $30 million, nearly all of which comes from member school districts, who tap the organization for training and technology such as the popular FeePay online system for lunch and activity payments.

But after losing money in recent years, the TIES board of directors hired the accounting firm of Kern DeWenter Viere (KDV) to examine its operations from mid-2011 to mid-2014, said Dan Luth, head of the TIES executive committee. Before the audit was complete, executive director Betty Schweizer retired Sept. 17, nearly two years before the end of her employment contract, according to a copy of her retirement agreement. Schweizer had been with the organization for about 20 years. She could not be reached for comment.

Luth said he considered the investigation a positive step for the nonprofit, and that he didn't think any of the irregularities revealed rose to the level of criminal offenses.

"They are what they are," Luth said. "There obviously were some things that came out of that that I wish weren't there."

Among the findings of the audit, TIES:

• Ran deficits that caused the group to rely on expensive bank lines of credit to cover losses.

• Paid $500 and $1,000 bonuses to workers operating its State Fair parking lot. At least one took home a bag of cash.

• Paid $47,808 to a telephone company whose services it had stopped using.

• Accepted $250 gift cards each month from Stout's Pub as payment for using TIES parking spaces. The pub is located across the street from TIES headquarters at Snelling and Larpenteur Avenues.

• Hired children and spouses of supervisors.

The audit also focused on the organization's renovation and upgrade of its main administrative building and event center.

Neither TIES nor general contractor Greiner Construction in Minneapolis could provide the auditor with copies of the change requests or change orders.

Luth, chair of the board's executive committee, said directors were not aware of the problems that the audit revealed because they aren't involved in day-to-day operations. The executive committee did learn of the issues related to parking fees just before the forensic audit began, he said. TIES' regular accountant, Baker Tilly Virchow Krause, did annual audits but those reports did not go as deep, he said.

Luth said Thursday that the forensic accountant's report was shared with board members and TIES senior management. Later Thursday he sent TIES' member school districts an e-mail with a summary of the audit.

The Minnesota Department of Education said it has no oversight role with TIES and wouldn't be required to receive a copy of the audit.

Created by the Legislature, TIES (short for Technology and Information Education Services) is owned by 49 school districts in the Twin Cities area, though Minneapolis and St. Paul are not members. TIES member districts represent about one-third of Minnesota's K-12 students.

Luth, whose day job is director of portfolio management for collaborative care at UnitedHealth's Optum, said he thinks the problems arose from TIES becoming more complex and outgrowing its financial practices.

"This is really about financial procedure," Luth said.

As of June 30, TIES had a cash deficit of $2.78 million.

According to the audit, a "significant factor" in the cash-flow shortages that required it to tap bank loans was the result of school districts not paying their bills.

Luth said he couldn't discuss Schweizer's departure for legal reasons, but that she was not forced to retire. She became executive director about 10 years ago. TIES has a new director, Mark Wolak, and a new CFO, Denise Sundstrom, Luth said.

"It's never a good thing when public money is mismanaged in any way," Snyder said. "It's a violation not only of statutes but the public trust."

Snyder gives TIES high marks for training, fast Internet connections and other services it has provided to schools. She said she thinks that the changes needed are already underway.

Kate Barr, executive director of Nonprofits Assistance Fund, a Minneapolis group focused on financial management, reviewed the audit at the request of the Star Tribune.

"It's just really, really weak controls," Barr said. "I'm reading and I'm thinking 'Oh, for heaven's sake, don't do that.' "

Barr applauded TIES for going to KDV and investing in a thorough forensic investigation.