Probing Ohio school board member says concentrated power, secrecy led to massive embezzlement

November 13, 2012

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Victor is a communications specialist for EAG and joined in 2009. Previously, he was a newspaper journalist.
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By Steve Gunn
EAGnews.org

CUYAHOGA HEIGHTS, Ohio – Embezzlement doesn’t happen by accident, particularly in a small school district where many people have been working together for years.

It’s fostered by a culture of concentrated power, secrecy and financial negligence, sometimes dating back years.

And it becomes more likely when concerned school board members are kept out of the loop and told to mind their own business, even though they are elected to help govern the school district.

That’s what happened in Ohio’s Cuyahoga Heights school district, according to Dr. Holly Thacker, a school board member who continued to ask questions until she managed to uncover a massive financial rip-off of the district.

The Ohio state auditor recently accused Joseph Palazzo, the district’s former technology director, of cheating the district out of $4.2 million by improperly approving payments to seven technology vendors that were operated by his friends and relatives.

Some products and services that were purchased by the district were never delivered, according to the state auditor. Some were delivered but were apparently re-sold to or given other people who had no connection to the district.

Criminal charges have yet to be filed, but the FBI is investigating the situation and the school board recently voted to sue in an attempt to recover the missing funds.

Thacker says the entire situation might have been discovered much sooner, or perhaps prevented altogether, if district administrators and school board members had been more attentive and open to inquiries.

“I think it’s easy to steal money from public schools when everybody is so close – teachers, board members, the union, administrators,” Thacker told EAGnews. “If you don’t have checks and balances, that isn’t a good thing.”

Culture of complicity?

The Cuyahoga Heights school district is a small, prosperous district in the middle of Cuyahoga County, not far from Cleveland.  It had an annual budget of about $14.6 million in 2011.

Thacker, the mother of three students in the district, got her first taste of local school politics when her husband served on the Cuyahoga Heights school board between 2002 and 2006.

Thacker was elected to the board in 2010 and soon became concerned about financial accountability. She noted that many significant expenditures were made without prior board approval.

But she said nobody seemed receptive to her questions or concerns.

At one point she said the former superintendent, Peter Guerrera, told her she was not allowed to contact the school’s attorney, and the district treasurer told her other board members “wouldn’t like her” if she contacted the attorney. She said her fellow board members, many of them longtime veterans, acted as though she was sticking her nose into business that shouldn’t concern her.

She said few officials responded positively when her husband called for a complete material audit of the district at a board finance meeting in November 2010.

By December 2010, Thacker said she was so frustrated with the lack of information that she refused to vote yes on any district expenditures.

“When I joined the board, the former superintendent suggested I join the dress code committee, but I asked for an appointment to the financial committee,” Thacker said. “I knew we were going to have to go for a (property tax) levy soon, and I was disappointed that there had not been regular finance committee meetings in more than four years.

“I felt I wasn’t getting the information pertaining to financial questions I had. Bills were being paid without financial approval or scrutiny. I was told that schools don’t budget like businesses.

“I sat in executive meetings and had school attorneys, administrators and board members scream at me because I was asking questions. It looked to me like a culture of complicity, with so many people related to each other, or friends with each other, in a small community.”

Demanding the truth

Thacker said she first noticed a seemingly large amount of money being spent for technology purposes in the summer of 2010. She and her husband did some research and found very little information online regarding some of the technology vendors receiving money from the district.

That November she noticed a small entry in the school auditor’s report referring to “excessive expenditures” for technology products and services. She said she demanded more information but received few responses from fellow board members or the administration.

She also became concerned about the longtime presence of three supposed volunteers working in the district technology office. She later found out there were being paid by some of the vendors that were doing business with Palazzo.

“I began asking questions and I was told technology costs a lot of money,” Thacker said. “I wondered why we were spending so much money on laptops when we don’t use laptops anymore. I noted the name of one of the vendors – Laptops and More – and I was told the expenses had to do with the ‘more’ part.”

In January, 2011 Thacker authored two new policies that were adopted by the school board. One required all expenditures over $5,000 to have prior approval of the board. The other required school personnel making purchases to disclose any personal connections they may have with vendors.

Palazzo responded by disclosing that two of the vendors receiving school district money were owned by his brother.

“Once that happened, I was increasingly concerned,” Thacker said.

Thacker contacted the state auditor’s office and reported what she knew. Another school board member apparently went to the interim superintendent, who took over when Guerrera retired in December, and told her about the situation.

Thacker also became worried about the safety of her family and contacted the county sheriff. Thacker and her husband met with the sheriff in early February, shared their information, and were told to keep quiet.

Discovering huge losses

In late February, 2011 the school board decided to pull a scheduled property tax millage proposal off the school ballot due to “financial irregularities.” They also voted to suspend Palazzo, who resigned shortly afterward.

About the same time federal, state and local authorities started a criminal investigation, and the state auditor started a special technology criminal audit of the district. The state ordered the school board to pay for that audit at a cost expected to be in the $40,000 to $60,000 range, Thacker said.

School board members were not briefed on the results of the criminal audit until October 8 of this year. On Oct. 16 state Auditor Dave Yost held a press conference to disclose the findings of the audit to the public.

In short, the audit found 436 payments made by the district to seven companies owned by relatives or friends of Palazzo between July 1, 2007 and Feb. 22, 2011 for a total of $3,844,155. The district received no apparent goods or services for the payments.

The audit also identified 179 payments totaling $336,495 for goods and services which were “diverted for purposes unrelated to district operations.”

Kickbacks may also have been involved. The audit uncovered 347 payments totaling $1,308,194 from four of the vendors to Palazzo, after district payments were made to those companies.

The Federal Bureau of Investigation continues to look into the situation, but no arrests have been made or charges filed.

School boards should be the boss

The situation has left the small Cuyahoga Heights district in a state of alarm, according to Thacker.

Last week the school board voted to file a lawsuit in an attempt to recover the lost funds from Palazzo.

“People are angry, outraged and calling for longtime board members to resign,” she said. “Everybody is pointing fingers at everybody. People need to have all the facts. Things need to be done transparently.”

Amazingly that idea has not sunk in with everybody in the district, Thacker said.

Despite the huge financial losses and lack of accountability, several district officials have either ignored the policy requiring board pre-approval of expenditures of more than $5,000, or called for the policy to be dumped, according to Thacker.

“Are you kidding me?” Thacker said. “That’s the culture. But when you get a lot of power and a lot of money together it’s not a good combination.”

Thacker has a real problem with the traditional definition of a school board member.

While board members are elected by citizens to govern school districts, that’s usually not what they do. Instead they are told that their job is to set “broad policy,” then step back and let the “expert” administrators manage the districts with little interference or oversight.

The apparent embezzlement at Cuyahoga Heights demonstrates how that traditional policy can lead to big problems, according to Thacker.

“I think there is a big, huge concern when nobody is looking at what’s going on,” she said. “It’s ripe for problems. I remember sitting there in utter disbelief at the retirement party for our former superintendent. One board member was gushing about how wonderful it was to work for him. He didn’t work for him. The superintendent works for the board.

“Boards have to be involved. You can’t take things at face value, and you can’t be deterred when you’re accused of micromanaging. The board should be the boss. There has to be checks and balances.”

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