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State auditor recommends Chatham School board take disciplinary action against school superintendent Logan

Posted Monday, December 12, 2011

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Pittsboro, NC - Pursuant to North Carolina General Statute §147-64.6(c)(16), the state auditor completed an investigation of allegations concerning the discovery of an employee of the North Carolina High School Athletic Association, Inc. on the payroll of Chatham County Schools. The investigation found that the North Carolina High School Athletic Association and Chatham County Schools intentially misrepresented the employment of the Associate Commissioner to increase his retirement benefits.

The audit's findings have been turned over to the State Bureau of Investigation and Chatham County District Attorney Jim Woodall to determine whether criminal charges are warranted.

The NCHSAA was founded by a University of North Carolina at Chapel Hill professor a century ago and remained affiliated with the university until last year, when it became an independent nonprofit. The move meant that association employees were no longer considered state employees and had to end their participation in the state pension system.

Rick Strunk, the associate commissioner for communication at the NCHSAA, had more than 26 years in the pension system at the time, meaning he was less than four years away from full retirement benefits, according to the audit. State officials said there was no way to grandfather him or any other association employee into the pension system to let them continue to accrue benefits.

Association officials wanted to find a way for Strunk to earn his full retirement benefits, so they agreed with Chatham County Schools in June 2010 to list him as a school district employee, making him eligible to continue participating in the pension system, while the NCHSAA paid his salary, the audit states. The arrangement continued until last April, when state auditors began to question it.

Below are the auditor's recommendation and notes about the responses from Chatham County Schools and the North Carolina High School Athletic Association, Inc.

Auditor's recommendation

NC State Auditor Beth Wood

The North Carolina High School Athletic Association should terminate its agreement with Chatham County Schools to prevent future transfers of funds to Chatham County Schools on behalf of the Associate Commissioner. The Athletic Association’s Board of Directors should exercise greater oversight and due diligence regarding agreements involving senior Athletic Association employees. The Athletic Association’s Board should also consider taking disciplinary action against the Commissioner who initiated the arrangement and Associate Commissioner who benefited from it.

Chatham County Schools should remove the Associate Commissioner from its employment payroll and should not make any additional contributions to the Retirement System on behalf of the Athletic Association’s Associate Commissioner. The Chatham County Board of Education should exercise greater due diligence when approving individuals for employment with Chatham County Schools who have unusual position titles or responsibilities. The Chatham County Board of Education should also consider taking disciplinary action against the Superintendent for facilitating the approval of the arrangement.

Note: Finding referred to the District Attorney for North Carolina Judicial District 15B and the North Carolina State Bureau of Investigation.

State Auditor's Note

Consistent with our standard practice, the Office of the State Auditor provided draft reports to the governing boards of the North Carolina High School Athletic Association (Athletic Association) and Chatham County Schools. A primary purpose of providing draft reports to responsible officials is to ensure that our reports are complete and objective. An equally important objective of providing draft reports to responsible officials is to include in the final report the corrective action the organization has taken or plans to take in response to the report’s findings and recommendations.

Both the Athletic Association and Chatham County Schools elected to engage legal counsel to provide responses to our investigative report. Instead of an outline of corrective action, the responses from both attorneys attempt to rationalize the conduct of the Athletic Association and Chatham County Schools. Moreover, the responses include statements or implications that are misleading or inaccurate and warrant the following comments.

Response on behalf of Chatham County Schools

The response on behalf of Chatham County Schools includes the statement, “Neither the Board nor its Superintendent intended to mislead any person or entity.” Yet, because Chatham County Schools included the Associate Commissioner for the Athletic Association on its payroll for nearly a year, the Retirement System assumed that the Associate Commissioner was an employee of Chatham County Schools when, in fact, he was not. The agreement between Chatham County Schools and the Athletic Association (see attached Appendix A, page 13) indicated that the Associate Commissioner performed no “services” for Chatham County Schools and explicitly noted that the Athletic Association “assigns all duties and responsibilities” and is “solely responsible for his supervision, daily direction, and control.” Nonetheless, Chatham County Schools presented him as an employee to the Retirement System although he never met the definition of “employee.”

The response also claims that “As soon as the Board learned that the Retirement System did not approve of the arrangement…, the Board voluntarily corrected the mistake” and “When questions were raised, the Superintendent immediately called the Retirement System and learned, for the first time, that the arrangement was viewed differently…The Board and NCHSAA then immediately and voluntarily rescinded the contract.” As such, the response attempts to indicate that Chatham County Schools proactively contacted the Retirement System. To the contrary, no such contact occurred until almost a year after the arrangement commenced and after we met with the Superintendent as part of our investigation on April 7, 2011. Later that month, Chatham County Schools submitted retirement contributions to the Retirement System on behalf of the Associate Commissioner. On May 2, 2011, Chatham County Schools sent an invoice to the Athletic Association requesting reimbursement for the Associate Commissioner’s salary and benefits for April 2011. On May 6, 2011, the Superintendent spoke to officials from the Retirement System who advised him that Chatham County Schools should “immediately cease remitting retirement contributions” on behalf of the Associate Commissioner. This directive from the Retirement System was reiterated in a follow-up letter on May 12, 2011. The contract was not officially rescinded until May 31, 2011.

In addition, the response makes repeated references to “virtually identical,” “seemingly identical,” and “virtually the same” arrangements in attempting to compare Regional Educational Service Agencies (RESA), the North Carolina League of Municipalities, and the North Carolina Association of County Commissioners to the arrangement devised for the Associate Commissioner. However, the arrangements between those organizations and the Retirement System received explicit approval from the Retirement System and are codified in State law. For example, employees of the League of Municipalities and Association of County Commissioners are specifically included in the Retirement System by virtue of North Carolina General Statute § 128-21. Chatham County Schools should have performed its due diligence and requested approval from the Retirement System; the failure to seek such approval suggests intentional deception or, in a light most favorable to Chatham County Schools, negligence. In addition, the exceptions for the above organizations included all employees of those organizations. If Chatham County Schools believed this arrangement was legitimate and similar to those arrangements, an exception would have been sought for all Athletic Association employees rather than just the Associate Commissioner.

The response on behalf of Chatham County Schools also attempts to portray the arrangement as “an open and transparent” matter. The response cites that the Chatham County Schools website “clearly stated” the Associate Commissioner’s “role” and “affiliation with the NCHSAA…for easy public access.” However, the only references to the Associate Commissioner are buried within the “Personnel Agendas” and “Meeting Files” for the specific Board meeting at which the arrangement was approved. Those documents simply list the Associate Commissioner’s name, title, educational and employment background, and hiring date; the same information is listed for every teacher and administrator approved for hire by Chatham County Schools at that meeting. There is no reference to his actual job duties or that this was a special arrangement outside the normal employment process. Further, a true open and transparent process would have included approval by the Retirement System that such an arrangement was permissible.

Finally, the response on behalf of Chatham County Schools includes a legal opinion that “actions did not factually or legally violate N.C.G.S. § 14-100.” It is important to note that the Office of the State Auditor did not make a determination of guilt or innocence regarding violations of State law. Our report includes the facts obtained during our investigation and those facts indicate that the referenced State law may have been violated. Therefore, we intend to refer those facts to the State Bureau of Investigation and the District Attorney for the jurisdiction where the alleged misconduct occurred in accordance with General Statute § 147-64B.

Response on behalf of the North Carolina High School Athletic Association, Inc.

The response on behalf of the Athletic Association confirms that “employees of the Association would no longer be eligible” for the Retirement System, that “a similar arrangement” with Orange County Schools was denied by the Retirement System, and that the Athletic Association “accepted the decision” that being “affiliated” with a local school district would not be permissible to continue inclusion in the Retirement System. Given these agreed-upon facts and the prior requests for approval and rejection of “similar arrangements,” the Athletic Association knew it should have requested approval from the Retirement System but chose not to seek such approval.

Throughout its response, the Athletic Association argues that the arrangement would result in “no cost to the State or taxpayers.” However, the Retirement System receives State appropriations and benefits ultimately paid to retirees include State funds collected through taxes. As a result, the improper benefit the Associate Commissioner would have received would have cost the State and its taxpayers. In fact, had this investigation not been undertaken, the improper retirement contributions would have continued and the Associate Commissioner would have collected over $600 per month in additional retirement benefits after achieving 30 years of State service. Just 10 years into retirement, the State would have inappropriately paid the Associate Commissioner $72,637. After 13.7 years, the improper retirement benefits would have exceeded $100,000.

Further, the Athletic Association’s response indicates that the Retirement System informed it that there was “no authority in the statues [sic] which would permit” the Associate Commissioner to continue to participate in the Retirement System by “being allowed to ‘grandfather’ [the Associate Commissioner]’s membership….However nowhere did he indicate that an employee of the [Athletic Association]’s could not become affiliated with another qualified contributing member in the Retirement System, such as a ‘county board of education’.” However, the Athletic Association failed to contact the Retirement System to receive approval of the arrangement with Chatham County Schools and the Retirement System had previously denied a “similar arrangement” with Orange County Schools. Further, the Retirement System’s statement regarding “no authority” included no qualifiers for other situations that would permit his continued contributions. To the contrary, a clear line was drawn that his participation in the Retirement System ceased upon the Athletic Association’s split from the University of North Carolina (University). The Athletic Association argues that it was not denied approval of a request that it never submitted.

The Athletic Association’s response also attempts to draw comparisons between the arrangement with Chatham County Schools and agreements that some school districts have with Regional Educational Service Agencies (RESA). However, the arrangements between RESAs and local school districts received explicit approval by the Retirement System. The Athletic Association should have performed its due diligence and requested approval from the Retirement System; the failure to seek approval appears intentional considering the prior denials by the Retirement System. In addition, the exceptions for RESAs included all employees of those organizations. If the Athletic Association believed this arrangement was legitimate and similar to those arrangements, the Athletic Association would have created arrangements for all its employees instead of just the Associate Commissioner.
The Athletic Association’s response notes that the “contract” would enable the Associate Commissioner to “become an employee of Chatham County Schools, while retaining his duties and responsibilities to the [Athletic Association].” However, the Retirement System previously denied the arrangement with Orange County Schools because the local school system did not “control” the activities of the employees and the agreement (see Appendix A, page 13) with Chatham County Schools clearly indicated that the Athletic Association would control the day to day activities of the Associate Commissioner. In fact, the agreement stated that the Associate Commissioner performed no “services” for Chatham County Schools and explicitly noted that the Athletic Association “assigns all duties and responsibilities” and is “solely responsible for his supervision, daily direction, and control.” Therefore, the Associate Commissioner was never an “employee” of Chatham County Schools. The creation of an employment “contract,” which included no consideration, does not change that fact.

The response also indicates that the arrangement with Chatham County Schools “was the same basic arrangement that the [Athletic Association] had with [the University].” However, the Athletic Association was actually a component of the University and all of its employees were considered University employees. Upon the split from the University, the Retirement System informed the Athletic Association that its employees could no longer participate in the Retirement System. In fact, that communication is what necessitated the entire process by which the Athletic Association attempted to devise a scheme to keep the Associate Commissioner in the Retirement System.

The Athletic Association’s response states that “there was no false pretense involved as both sides fully understood the purpose of the contract with the [the Associate Commissioner], nor was there any ‘intent to cheat or defraud any person’ of ‘money, goods, property, services, chose in action or other thing of value’ as suggested in the Investigative Report.” However, the false pretense was intentionally presenting the Associate Commissioner to the Retirement System as an employee of Chatham County Schools when both entities (Chatham County Schools and the Athletic Association) knew he was an employee of the Athletic Association and therefore ineligible to continue contributing to the Retirement System.

Furthermore, the response argues that the Athletic Association only “knew…that the [Athletic Association] could not have all of its employees become affiliated with [Orange County Schools] nor could the [Athletic] Association ‘grandfather’ [the Associate Commissioner] into the [Retirement System].” The Athletic Association further states “in hindsight, it might have well been appropriate to have sought the approval…it was believed that the arrangement was a valid one.” Again, the Athletic Association chose not to contact the Retirement System for approval after prior arrangements were denied in clear, precise terms regarding affiliation with other school districts as well as for this individual. The failure to request approval for the third method indicates a decision to move forward under the philosophy that “it is better to ask forgiveness rather than permission.”

Finally, the Athletic Association’s response asserts that “when questions about the arrangement were first raised by the State Retirement Office [sic] and about the time your office began its inquiry into these matters, both the [Associate Commissioner] and the Chatham County Schools agreed to voluntarily terminate his contract.” As such, the response attempts to indicate that the Athletic Association and Chatham County Schools proactively remedied the situation. However, payments were made to the Retirement System for over nine months including the April 2011 payment which was sent after the Office of the State Auditor notified the Athletic Association in April 2011 that the arrangement appeared improper. On May 6, 2011, the Athletic Association received an invoice from Chatham County Schools requesting reimbursement for the Associate Commissioner’s salary and benefits for April 2011. On that same day, the Chatham County Schools Superintendent spoke to officials from the Retirement System who advised him that Chatham County Schools should “immediately cease remitting retirement contributions” on behalf of the Associate Commissioner. This directive was reiterated in a follow-up letter on May 12, 2011. The contract was not officially rescinded until May 31, 2011.

 
 
State auditor recommends Chatham School board take disciplinary action against school superintendent Logan
The state auditor has recommended that the Chatham School board take disciplinary actions against School superintendent, Robert Logan.


Related info:
Investigative Report of the NCHSAA and Chatham County Schools
 
News Unofficial Chatham County Schools site

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