COLUMBIA — The S.C. Department of Education officially placed Richland County School District Two on fiscal watch March 27 after the northeast district submitted its annual audit report almost four months past the legally mandated deadline.
The designation, the least severe option available to the state after the 28,500-student district missed both the Dec. 1 deadline and the ensuing grace period, gives the district 60 days to put together a recovery plan outlining how it will fix the issues that led to the late submission, which the Education Department must approve.
Following the announcement, Richland Two spokesman Greg Turchetta said the district would have meetings and conversations with the state to put together its response.
The accounting firm that conducted the audit also provided an update during the school board's March 28 meeting.
Even though the district already missed the 60-day window by the end of January, the Education Department had delayed officially putting Richland Two on fiscal watch status until state officials could review the audit report, in case its contents warranted a more severe response, such as a fiscal caution or fiscal emergency.
That didn't end up being the case. A letter from state Superintendent of Education Ellen Weaver notifying the district's leaders of the designation said the move was because of the audit's lateness, not any issues with its contents.
The letter noted that if issues continue it "could lead to the SCDE continuing or escalating the District's designation in the future."
Education Department spokeswoman Laura Bayne previously said the agency would conduct routine check-ins with the district to ensure that the 2023 audit is on time.
Richland Two's 2023 auditing process will also begin earlier in the year to avoid another late submission, said Matthew Hodges, the vice president of Burkett Burkett & Burkett, the accounting firm which conducted the district’s audit, during the March 28 board meeting
Following the meeting, Board Chairwoman Lindsay Agostini said the board has not discussed appealing the watch designation, which it's able to do for 10 days after the department's declaration.
"My understanding is that we are working with (the Education Department) to address their concerns and get things done in an appropriate and timely manner," she said.
While the watch designation didn’t hinge on the audit’s contents, the report submitted to the department still included some issues with the district’s financial practices.
The audit found a “material weakness” in the district’s internal payroll controls, Hodges told the board, when the district found out in the 2022 fiscal year that it had underpaid 56 teachers around $294,000, which prompted retroactive payments throughout the 2022 and 2023 fiscal years.
That mistake led to the district overstating its expenditures and fund balances and understating salaries.
The audit also found problems with the district’s purchasing processes, particularly in its purchase cards, such as card transactions which could have been made through state or district contracts and travel and meal purchases without proper approval.
Those issues were also found by the state Inspector General’s Nov. 3 report on the district, which detailed board discord and other financial oversight issues, as well as a failure to focus board attention on academic matters.
That first-of-its-kind probe was also the reason for Richland Two’s late audit submission, the district’s senior chief officer for finance and operations, Harry Miley, told the district’s board as early as Jan. 31 and reiterated more recently.
The district business staff’s time was taken up by the work needed to respond to the state’s investigation, leading to a roughly two-month delay before the department’s accounting firm was sent financial records necessary for conducting the audit.
That business staff has also seen turnover, which Miley previously said “put (the district) behind” in the audit process, such as the Jan. 27 resignation of Chief Financial Officer Shelly Allen, whose resignation letter described "chaos and dysfunction" in the administration's working environment.
However, the district’s audit submission was already late before Allen left the district.
Richland Two, whose board of trustees was largely replaced in the November election, has publicly known of the fiscal watch possibility since at least January. The district was also the subject of the scathing state inspector general's report on Nov. 3, for a wide range of issues including financial accountability.
An earlier letter from then-State Superintendent Molly Spearman sent to district leaders on Jan. 10 said the late audit could negatively impact the district beyond the increased oversight form the Education Department, including possible effects to the district’s accreditation and federal funding.
During a Jan. 31 board meeting, Miley told the board that the district missed its deadline because its business staff's time during much of 2022 was taken up with the inspector general's probe into the district, an explanation he reiterated recently.
The inspector general's investigation was the first of its kind into a South Carolina school district. The report, released just before November's election, detailed board discord and financial oversight issues, as well as a failure to focus board attention on academic matters.
The district's business staff has also seen recent turnover, such as Allen's departure, which came on the heels of the high-profile and sudden resignation of Superintendent Baron Davis, who stepped down after an hourslong, closed-door school board meeting Jan. 17, and received a $615,000 payout from the board.
Two out of Richland County's three school districts are now under fiscal watch from the state.
Spearman gave Richland One the unflattering designation in December, after a state inspection found significant problems with the downtown Columbia district's employee purchase-card program.
The third district, Lexington-Richland Five, has also seen its share of questions about financial ethics, including the State Ethics Commission's March 24 ruling to fine former Vice Chairman Ken Loveless for failing to recuse himself from discussions about a contractor with whom his business had a relationship.
