New Orleans schools probed for alleged misspending

NEW ORLEANS -- Suddenly, no one wants to claim hundreds of paychecks issued by the city's public school system.

To some outraged school board members and their auditor, it's a sign that fraud likely accounted for a good portion of misspending estimated in a report released during the past week at around $20 million a year.

"People don't let their checks just sit there. If there's a problem with somebody's check, we hear about it 10 minutes later," said school board member Jimmy Fahrenholtz.

The paychecks were being cashed regularly until a few weeks ago, when employees were required to provide identification to pick them up. Since then, checks made out to more than 300 names have not been picked up, and the names have not been verified as school employees.

Together, they add up to at least $7 million a year, school board consultant Stuart Piltch said.

Piltch said he isn't sure yet if the payees' names were real or made up, but U.S. Attorney Jim Letten is eager to find out. On Friday, Piltch was helping the school district respond to a federal subpoena.

"If people are stealing from the school system, we're going after them," Letten said. He also has been investigating some school system insurance and construction contracts, though he wouldn't elaborate.

Forged annuities

Piltch also has found apparently forged documents creating annuities to be charged to the system on behalf of more ghost employees, but he said he caught those before the money could be withdrawn. Meanwhile, genuine employees were routinely receiving handwritten checks with no backup documentation explaining why, and a number of former employees continued to receive an array of benefits after leaving their jobs.

"The level of mismanagement that existed was so extreme," said Piltch, managing director for Compensation & Benefits Consulting Services in Pennsylvania. "There were basic business practices thrown out the door, apparently consciously, because it's just common sense, a lot of this stuff."

Piltch said the school system had no credible internal auditing or compliance function; compliance officers couldn't obtain some documents without permission from the people they were auditing.

The misspending Piltch has uncovered would be enough to build three new schools a year in the district where the annual budget is around $500 million, school board members said.

"Our buildings are in deplorable condition and it's a sin that people have misused any appropriation of funds," said school board president Ellenese Brooks-Simms.

It's not clear how long the school system, with Louisiana's lowest standardized testing scores, has been bilked. The audit wasn't ordered until turnover on the seven-member school board during the past four years pushed the balance in favor of those who wanted to hire an outside consultant.

Initially, Piltch was hired on a 4-3 vote. A fifth board member has since joined the majority.

"The previous administration and some of my fellow board members did not want to proceed very aggressively for whatever reason," Fahrenholtz said. "It was either collusion, willful ignorance or stupidity, and I can't put up with any of those."

Two board members who opposed bringing in outside auditors -- longtime board member Gail Moore Glapion and Cheryl E. Mills -- did not respond to phone messages seeking comment.

Another split vote led to the hiring of school turnaround specialist Anthony Amato as new superintendent earlier this year. Former superintendent Alphonse Davis, who was in charge from 1999 to mid-2002, has an unlisted number and could not be reached for comment.

Brooks-Simms said she wants all the dirtiest details made public.

"The majority of our board is very comfortable with information being given out. The public needs to know we're trying to clean it up," she said. "You can't clean it up under cover."