This story was originally published by Chalkbeat. Sign up for their newsletters at ckbe.at/newsletters.
______
A massive state audit of Memphis schools showed limited instances of potential spending abuse but widespread mismanagement of district documents and records under previous administrations.
The $6 million probe into Tennessee’s largest school district served as a driving force for the Republican-led state takeover of Memphis-Shelby County Schools, which was temporarily blocked by a federal judge last week.
Takeover proponents have said for months that the audit would reveal extensive fraud, waste and abuse. The final report released July 8 identified $54 million in spending under that category, around 1% of the district’s budget from 2021 to 2024. The vast majority of those dollars come from a 2022 custodial contract that the district canceled after one year.
School system leaders say they’re committed to improving internal recordkeeping and document processes. Superintendent Roderick Richmond kicked off a plan to update district operations in March, days before the state released initial audit results.
Under the district’s accountability policy, Richmond has 45 days to create a corrective action plan in response to the final audit report. In the meantime, here are five findings from the forensic audit:
$65 million violated district policies, but not criminal law
CliftonLarsonAllen, the accounting firm that conducted the forensic review, found that more than $53 million spent by Memphis-Shelby County Schools in the three-year period was evidence of potential abuse.
An additional $1 million was flagged as potential fraud or waste. Altogether, that’s about 1% of the district’s multibillion-dollar budget from 2021 to 2024, predating Richmond’s tenure as superintendent.
The firm also identified $65 million in spending that didn’t rise to the level of potential abuse but did violate district policies. Most of that money went toward contracts that CliftonLarsonAllen said did not follow school system protocol, such as invoices without signatures or travel reimbursements that weren’t filed on time.
State takeover legislation gives the nine-member oversight board final approval over contract purchases exceeding $50,000 – a hurdle that system leaders said in their plea for a now-issued temporary block would hinder early school operations.
Flagged custodian contract sparked FBI investigation
Memphis-Shelby County Schools leaders were the first to investigate the 2022 contract with custodial company ServiceMaster Clean, which became the largest source of potential abuse spending identified in the audit.
In June 2022, the local school board voted to award ServiceMaster Clean a four-year contract to cover the entire district’s custodial needs. The system’s custodial director originally recommended using multiple vendors as was customary, but the former chief of business pushed for one.
That business director was placed on paid leave by the school system and ultimately resigned in January 2023. The system cancelled ServiceMaster Clean’s contract that same year after parents and district staff complained about unclean schools.
A year later, the district launched an internal investigation into the $48 million contract after a whistleblower said it included “kickbacks” to a member of district leadership. Without the proper resources to fully investigate, Memphis-Shelby County Schools referred the case to the Federal Bureau of Investigation.
CliftonLarsonAllen said it wasn’t able to verify the whistleblower’s allegations or find evidence from the FBI search. Auditors said they did not receive financial or procurement records related to the case.
This winter, school board members awarded a yearlong contract to ServiceMaster Clean, among multiple other custodial vendors, that took effect Jan. 1. ServiceMaster Clean’s contract passed without debate, while a different company raised ethical and performance concerns after 30 schools went uncleaned during the first month of the year.
Memphis school board may have run afoul of state Open Meetings Act
School board members may have violated state public meetings laws during the 2021 to 2024 time period, according to the forensic audit.
The firm found multiple email exchanges among board members and the district’s legal counsel that may have influenced district decisions, including discussions on superintendent searches and contract negotiations.
“While the nature and extent of deliberation varied across the instances, the observed patterns reflect a risk that board business was discussed, advanced or shaped outside the public meeting process,” the audit report says.
That could violate the Tennessee Open Meetings Act, according to CliftonLarsonAllen.
The firm also reported one closed-session meeting that was not included in the board’s meeting minutes. Those incidents “may contribute to the appearance that decisions were being developed outside of public view,” auditors wrote.
Leadership instability weakened district processes, operations
From July 2021 to June 2024, the district cycled through three superintendents, which CliftonLarsonAllen said “eroded institutional knowledge” and led to inefficient operations and increased financial risks.
Auditors said they conducted more than 142 interviews because staff turnover left a “lack of consistent knowledge” across the district. The report also says that system employees pointed to former Superintendent Marie Feagins’ decision to fire more than 1,000 district staff as contributing to that problem.
Now, the district is facing another leadership upheaval because of the impending state takeover, championed by the same legislators who pushed for the forensic audit. With less than a month until the first day of classes, it’s unclear whether the district or a state-appointed board will have ultimate authority over district decisions.
The nine-member oversight board is currently blocked by a federal court order, with no hearing date set. But that is just an early step in the ongoing lawsuit filed by district and Shelby County leaders challenging the takeover.
Outdated policies, missing records found throughout departments
One of the most notable consequences of leadership instability, CliftonLarsonAllen says, was widespread disorganization across district departments and operations.
“Many critical processes operate without formally documented, current and standardized procedures,” the final report says. And procedures that do exist are often outdated or unclear, auditors found, many unassigned to a specific district employee for management.
The firm also reported that district records of contracts and employee files were maintained inconsistently and sometimes haphazardly. That led to delays and difficulties in conducting the audit, the firm said. It also led to operational errors, such as the district paying two vendors for the same job.
The audit report notes that district employees described a substantial change to the district’s contract policies under Feagins. According to CliftonLarsonAllen, Feagins replaced the fully electronic contract approval system with a manual, color-coded folder system that organized contracts by level of importance until they were approved and uploaded online.
Richmond and other district leaders have acknowledged these internal issues in recent months and launched a live website to share real-time upgrades to district policies and systems. Most of those projects are in progress or haven’t been started, according to the site.
______
Bri Hatch covers Memphis-Shelby County Schools for Chalkbeat Tennessee. Reach Bri at bhatch@chalkbeat.org.
Chalkbeat is a nonprofit news site covering educational change in public schools.