March 28, 2007 — Karen Marsal of Alvarez and Marsal, the third-party fiduciary now managing Education Department grant funds, outlined to the Board of Education Wednesday on St. Croix areas of dysfunction that have led to the territory losing tens of millions of dollars in federal education grants.
Marsal said her company was addressing the problems by replacing existing fragmented accounting with a complete, up-to-the-minute online accounting system geared toward meeting federal reporting guidelines.
“Anyone in the Department of Education can pull up and see today where we are in our finances. Alvarez and Marsal have taken that down to the school level, so we know at any time how much money is being spent on every program.” she said.
“We manage the funds and help the process, in discussion with the commissioner of Education and give advice on things that have to be done on your side,” said Marsal.
“The old way, when a school went to the Department of Education wanting to purchase goods and services, we had to fill out a 14-part form. You were lucky if they all reached their destinations. A lot of goods for which there was funding never got purchased. Today that no longer exists,” said Marsal.
The territory usually receives some $34 million to $36 million in federal education grants each year. But for many years now the territory has had difficulty encumbering, then spending the grant monies both fast enough and with federally acceptable accounting and auditing controls.
In 2002 the U.S Department of Education issued a compliance order giving the territory until 2005 to get its books in order. When the deadline came, the U.S. D.O.E. determined we were not complying with their requirements and began holding back grants until a third-party fiduciary was in place and overseeing the accounting.
Although only a fraction of the territorial education budget, this caused a sudden cash shortfall. Over the past two budget cycles, the V.I. government has lent Education tens of millions to help compensate for the losses, pending a positive resolution of the crisis.
Marsal said now most of the monies are potentially available, but the late start on spending the monies held back since 2005 and rapidly approaching deadlines for this year mean there is little time to correctly allocate, spend and account for several years worth of grants.
“To date we have encumbered 19 percent of the money from 2005. That’s a far cry from where we need to be,” Marsal said.
“If we don’t have obligations, purchase orders on the books by December, it will go back to the U.S. Treasury. Complicating it more, we are in middle of applying for '06 and '07 grants."
Marsal said the ’06 grant application had been sent in but had 86 errors, which they had found and corrected. “We are committed to getting everything in the form that the federal government has requested. By May we should have gotten spending done through July of '06 with the rest of ’06 and ’07 behind that.
“My job is to make sure you spend every nickel you deserve. I don’t want to give it back,” she said. “I am extremely concerned we will be giving back some of the ’05 money, however.”
Acting Education Commissioner Lauren Larsen disputed portraying the grant application as riddled with errors.
“The 86 errors referred to were essentially an error in the rounding formula. The amount was calculated up, as opposed to down, so all budget areas were off by one dollar. I would say 90 percent of errors were just that,” Larsen said.
“I have nothing to gain here. I am just here to do a job and go home. I have a gentleman working the whole weekend in his office, and it was not just rounding off. There were errors amounting to thousands of dollars,” said Marsal.
Larsen later reiterated that most of the 86 errors mentioned were the same rounding error produced by one formula, arguing that using the number "86" misleadingly suggested many more problems than were present in the grant.
Board member Jorge Galiber asked Marsal what she could find to praise here.
“You have said so much that is negative. Do you have anything positive you can say?” he asked.
“It’s a beautiful island,” said Marsal.
“I’m talking about education,” said Galiber.
“You have many good people who are working hard. But you have to have qualified people, truly qualified. You can’t put someone in a courtroom and call him an attorney because he watches 'Law and Order.' You need qualified people and leadership,” said Marsal.
Board member Terrence Joseph asked Larsen about getting rid of dead wood.
“No one wants to fire anyone because of the outcry that we will hear on the radio. Dr. Larsen, are you willing to do that, because it is going to come down to hiring and firing,” said Joseph.
“Whether acting or permanent commissioner, I cannot hire or fire anybody. No commissioner can,” said Larsen.
By law, the governor has the sole power to hire and fire, although an individual governor could instruct a commissioner to make those decisions, signing off on them afterwards.
Marsal warned that the territory must ensure that its teachers are certified or lose Title 5 grant money. “I know you have until ’08 under the compliance agreement to have your teachers rated as highly qualified. But the Title 5 funds also require that, and they are not affected by the compliance agreement,” said Marsal.
Both Joseph and board President Debra Watlington asked Larsen and Marsal what sort of structural changes would be needed within Education in order to effectively manage the grant funds and take back control.
“You say you are doing everything with six people. Should we make a duplicate body here to do exactly what your people are doing?” Joseph asked Marsal.
Marsal said what to do was up to the territory but offered that in her opinion it would be good to have an autonomous Department of Education that controlled its own finances and its own personnel, like many stateside jurisdictions. This would streamline and speed the procurement process, she suggested. Larsen said he knew of no planned structural changes within Education.
In other business, the board voted to certify a slate of 25 teachers approved by the board’s certification committee.
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