Oversight Begins Investigation of School Board Association

The Government Oversight committee sprang to life this week as a scandal involving the Iowa Association of School Boards made the front pages of papers across the state. The story involves many egregious mistakes that created enticing tabloid headlines. But the only thing that has become clear at this point in the investigation is just how unclear this entire mess still is.

The IASB is a non-profit organization of elected school board members dedicated to supporting school boards and administrators in their governance and leadership role. The association has a staff of 29, headed by an Executive Director and is overseen by a board of directors. The board consists of school board officials elected by members in nine regions, which serve three-year terms. The board president is elected for a two-year term.

The IASB has a number of spin-offs under its control that provide various services to school districts. It has 17 business services listed on its website and it has a myriad of other tools and services available. It also has a 100% owned for-profit affiliate called Local Government Solutions, Inc. All total, the IASB is one of the largest school board associations in the country, for a state ranked 30th in overall population.

Funding for the association is entirely tax-payer dollars. About 1/3 of its revenue is from membership dues that school districts in Iowa pay based on their enrollment numbers. Dues range from about $700 to just over $10,000. Membership in the association allows school boards access to legal counsel, financial assistance, and various other services related to running a local school board. The other 2/3 of its revenue is from fees it charges to school boards for usage of its 17 businesses and other programs and trainings the association provides, as well as state and federal grant money.

The story broke last weekend with an article describing nepotism, fraud, misuse of taxpayer dollars, financial crisis, and conflicts of interest. The currently suspended executive director, Maxine Kilcrease, is on leave from the board for increasing her salary to well over $300,000 without approval and for keeping board members in the dark on the association’s financials. While she has been a large part of the focus, for good reason, the story goes much deeper and starts long before Kilcrease was hired in July 2009.

The committee has spent nearly four hours asking questions of a lawyer hired by the association last week, Nolden Gentry, and the head of an auditing firm which has been auditing the IASB for the last several years, Ted Lodden. At this point the committee has not had the opportunity to question any board members or staff of the IASB or its spin-offs.

Some of the more troubling portions of a story that keeps unfolding are:

  • The auditors hired by the association were chosen and hired by the board. However, the auditors recently were blocked from speaking with the board about concerns that arose during the audit. They were told to cease contact with the board by Kilcrease, and any information they hoped to provide to the board was taken by staff with the assurance the board would see it. It is unlikely that the board was ever notified of their concerns. Auditor Lodden stated it was the strangest thing he has ever seen in his time as an auditor. The auditing firm is having trouble completing their audit because many documents and financials are missing or paint an incomplete picture.
  • It was made clear that the only for-profit entity under the IASB is a company called Local Government Services, Inc (LGS). LGS was created to house some profit making enterprises of the IASB to prevent the IASB from losing its non-profit status. Clearly there are entities under the control of the IASB that are generating profit. The IRS has a threshold of 30% for which when revenues surpass, the non-profit status is in jeopardy. So at some point nearly 30% of revenues were profit from the IASB’s entities. It’s unclear which entities were making money, how much was coming in, where it’s coming from or where that money is going. These questions need to be answered.
  • A program called Skills Iowa, which provides a tool to schools to help assess student ability and helps set lessons for those students is a grey area that needs clarification. Representatives Clel Baudler and Kent Sorensen questioned Gentry about the program, which was reported to have received $40 million in federal funds, mostly secured by Iowa’s Senator Tom Harkin. More than $6 million of this money was used to purchase software from a company in Rhode Island over a two year period. The owner of this company has donated nearly $1 million to democratic campaigns, included over $70,000 to democratic campaigns in Iowa.

As far as solutions, it’s unclear at this point what needs to come from the investigation. Two legislative results have already occurred.

  1. Last week an amendment was brought to the Senate subcommittee on Education Appropriations. The amendment was passed in subcommittee and requires school boards to report any money paid to the association in dues or fees for services and to report those services received. It also requires the association to provide copies of reports relating to federal grant monies received and distributed to school boards. While a good idea, the amendment didn’t go far enough.
  2. The second solution was one that House Republicans fully support. Rep. Baudler asked Mr. Gentry if IASB was subject to Iowa’s Open Records/Open Meetings laws. Mr. Gentry stated that he was unsure. Senator Ward, a member of the Oversight committee, brought an amendment to the floor during debate on the Education Appropriations that subjects IASB to Open Meetings and Open Records. It passed the Senate 49-0.

While the legislation is a good beginning step, it is just that; a beginning. The bottom line is that there is a lot more to uncover. As board members, former employees, and current employees come forward to testify, the story will continue to unfold. New details and allegations are being uncovered nearly every day. The FBI is involved, investigating issues within the Skills Iowa program. It’s possible, but unknown at this point, for the IRS to get involved as well. Lodden’s firm is working to finish their financial audit, which they hope will be completed in May. And another auditing firm is performing a forensic audit at the moment which should uncover more of the financial problems.

Oversight has requested the board of directors, the current executive director, and the former executive director come before the committee. If IASB staff and board members are unwilling to take the invitation, the Oversight Committee has been granted subpoena power, which the chairs have indicated they will exercise. The next meeting is scheduled for noon on Monday, March 22.