School-funded tech group mulling layoffs to stem crisis

A publicly funded K-12 technology organization is slashing its budget and contemplating layoffs as it responds to a damaging forensic audit.

The restructuring could also see TIES move its headquarters out of a distinctive art deco building north of the State Fairgrounds, and exit the costly business of hosting data services for schools. A tech nerve center for scores of Minnesota school districts from Hinckley-Finlayson to New Prague, TIES runs a server farm in its administrative building.

"Everything's up for review," TIES interim executive director Mark Wolak said after a meeting of the group's executive committee Wednesday.

Wolak acknowledged the crisis during the meeting. The schools funding TIES should not be required to pay to fix it, he said, and TIES will not increase fees to members.

"We're not sidestepping this financial situation at all," Wolak told them. "It's a new day at TIES."

Wolak said he has already found $600,000 in savings by freezing vacant positions, and will pre­sent a plan in January on how he'll find an additional $800,000 via some combination of new revenue and trims. The challenge, he said, is to save money without cutting into essential services that TIES provides to schools, such as high-speed Internet access and collecting and storing records on students, district personnel and payroll.

TIES, short for Technology and Information Education Services, was formed in 1967 as a joint powers agreement. It's a government entity made up of the school districts that elect members of its executive committee. It counts 49 school districts as full members, including St. Cloud and Anoka-Hennepin, and nearly all of its $31 million in operating revenue comes from schools. (St. Paul and Minneapolis are not members.)

That October audit essentially said that TIES was in dire trouble, not collecting on accounts receivable and relying on bank lines of credit to cover deep cash shortages each year. It also highlighted a serious lack of basic financial controls that were causing it to lose money. It routinely didn't charge for use of its event center, for instance, and paid $47,808 to a telephone company whose services it had stopped using.

Executive Director Betty Schwei­zer retired in September with severance pay of $61,332 about six weeks before the forensic audit was completed. Her salary in her last year was $183,855, TIES revealed Wednesday.

The new audited financial statements released Wednesday show TIES showed a net loss of $1.35 million in 2014. In short, TIES isn't generating enough cash to service debt.

One contributor: Total revenue fell by $1 million largely on a slower year for the products TIES resells to school districts through its TIES Depot unit, such as Chromebooks, desktop computers and networking gear.

TIES also undertook a major renovation and upgrade of its headquarters and event center that it paid for by issuing $5.3 million in notes, or IOUs, backed by a $600,000-a-year levy on its school district members.

Baker Tilly noted a "significant deficiency" in internal controls, including a lack of documented approvals for credit card charges and a lack of documentation for vendor payments. It also found that workers were not properly reconciling its books with bank statements, a problem Baker Tilly has noted for several years.

TIES' new chief financial officer, Denise Sundstrom, told the committee that her team has been addressing the problems and that "a lot of them were fixed." She said she doesn't think the same deficiencies will appear in next year's audit, except for those related to segregating certain duties, because of TIES' small staff.

A new human resources manager outlined a new nepotism policy that would ensure TIES hires solely on qualifications and skills, and that employees aren't supervising family members.

The Star Tribune reported last week that Schweizer previously had her son and daughter on the payroll. She allowed her niece to hold her wedding reception at the event center without paying a rental fee.

On Wednesday, Jeffrey Gendreau, a Baker Tilly partner at the meeting, told the committee that said he spoke with the accounting firm that did the more detailed forensic audit, and said those accountants felt comfortable there was no fraud or illegal acts.