TO: Richard Wolf, Chair MN School District 719
August 31, 2017
FROM: Citizens for Accountable Government
SUBJECT: A formal complaint regarding violation of MN State Statute by School District 719
Dear Mr. Wolf,
The purpose of this letter is to bring to your attention what appears to be an intentional and unwarranted violation of MN State Statute by an employee or employees of School District 719. We are requesting the Board to review this complaint, and to take appropriate action to assure that this disregard for State Statute is discontinued immediately. We expect, and undoubtedly citizens expect that those in leadership positions in the District will comply with both the spirit and the letter of the law.
It is no secret that Citizens for Accountable Government (CAG) has been critical of the School District’s fiscal management. A major concern relates to the procedure by which Nexus Solutions was selected to be the exclusive supplier of technical services to the District, to what appears to be a less than arms-length relationship between District personnel and Nexus, and to the manner in which business with Nexus is conducted. Simply stated we believe there has been a lack of competent and disciplined management of the Nexus relationship by the Administration, and a lack of responsible oversight by the School District Board.
The Steering Committee of CAG had hoped to discuss our concerns directly with the Board, but when it became apparent that the Board leadership did not support the idea, CAG decided to make facts available directly to the public. A public presentation was made by CAG at the Prior Lake city hall on April 6 of this year, that included numerous School District documents illustrating the District/Nexus relationship. You attended and may recall that during the question and answer session following the presentation, an audience member asked what CAG knew about a half-million-dollar cashier’s check that went to Nexus. Since we didn’t know what that was about, we decided to pursue it by directing questions to the School District Administration.
CAG was initially sensitized to what we believed was an unusual fiscal relationship between the School District and Nexus, by reading the terms and conditions of the Nexus contract with the District. We subsequently sent a request to the District regarding how much Nexus had been paid since their initial contract with the District was signed in July of 2012. We were hearing through unofficial channels that it was millions of dollars, prior to being advised in a letter dated June 7, 2016 from Julie Cink, the District’s Business Director, that Nexus had already been paid $8.7 million. This amount came as a shock to those on the Steering Committee of CAG since we had not seen nor heard any mention of this amount in the School’s regular publications, or in the Prior Lake American. An amount of $8.7 million is more than incidental expense that one would assume would be discussed at regular Board meetings.
As a follow-up to that disclosure, I scheduled one-on-one meetings with 5 Board members. Three of the Board members I met with are currently on the Board, and two completed their service at the end of 2016. From those meetings, it became apparent that Board members were also unaware of the magnitude of payments going to Nexus. I began each meeting by asking the Board member how much Nexus had been paid to date since their initial hiring in July of 2012. To their credit, each acknowledged they didn’t know. My next question was whether it could be as much as a half-million or a million dollars. Your response to that question Mr. Wolf, in our meeting in June of last year was “no way”. When I then informed you that it was $8.7 million, you expressed doubt and our meeting ended. I never heard from you after that regarding what you later determined. Other Board members reacted similarly, all apparently unaware of (or unwilling to acknowledge) the millions that Nexus had already been paid.
The confusion apparently continued. In an email dated November 17 from District Superintendent Staloch to Board members, she states that Nexus had been paid $7,803,854.88. A day later in an Email to Board and Staff members, Staloch states that the amount paid to Nexus was $8,351,163.63, attributing the difference to the cashier’s check. It’s notable that this latest number from Superintendent Staloch is still $350,000 less than the amount Julie Cink reported 5 months earlier. It’s also interesting that this $547,308 cashier’s check to Nexus seems to be so easily overlooked. As best we can determine, it was never mentioned in Board agenda packets, Board minutes, or cash disbursement reports, which leads to the next point regarding Board oversight of vendor payments.
It has come to light that in general, Board members approve all of the District’s monthly expenditures essentially as a lump sum based upon a half-page disbursement report. This monthly approval for spending millions is done without the Board receiving, reviewing, or discussing any expenditure details. Given this procedure, it is understandable that Board Members were left uninformed about the millions that had been paid to Nexus. Some members have confided to me that during their term on the Board, they don’t recall a single payable invoice ever being discussed or questioned. This would seem to indicate that a staff member can approve an invoice for payment regardless of the size, without question or oversight by the Board. While in theory a Board member could visit the District office to review invoices, the impression received from discussions with some Board members is that it never happens.
The District has been less than cooperative in providing information about the District-Nexus connection (information that should be available under the Freedom of Information Act and various MN State Statutes). Our first request to the District was on April 27, 2016 wherein we specifically requested a copy of the July 2012 initial contract with Nexus. The District conveniently delayed providing it to us until after the 2016 referendum vote, in spite of the fact that it was only a 2- page document. When information is received, it often contains inconsistencies and sometimes outright contradictions to known facts. In the circumstance involving the cashier’s check to Nexus, the District has flatly refused to provide information that we believe residents are entitled to know. This sort of response by the District only serves to elevate the distrust that residents have in the Nexus/School District relationship.
DISTRICT/NEXUS BUSINESS TRANSACTIONS RELATIVE TO $547,308.75 CASHIER’S CHECK:
The following dates and related facts all speak to the manner in which the District conducts business with Nexus.
July 16, 2012: The School Board approved a project for stand-by generators for Redtail Ridge and Jeffer’s Ponds elementary schools for a total “complete” cost of $497,225, following a recommendation from Minnesota Valley Electric Cooperative (MVEC) and School District Director of Operations/Transportation Dellow. This was before Nexus was ever under contract with the District. The justification for the generators was that the occasional unloading of electrical peak demand to the generators would qualify the District for a reduction in electrical rate at the two schools. While this may sound reasonable, how did Nexus become involved since this Board decision was made before Nexus was under any contract with the District?
July 31, 2012: The District & Nexus sign their first contract titled Project Development Agreement.
December 11, 2012: The District signs a follow-up $3 million “Performance Agreement” with Nexus, the purpose being energy cost reduction. Strangely the two generators approved by the Board 5 months earlier, now appear as items in the Nexus contract, presumably meaning Nexus can and will claim credit for obtaining the electrical rate reduction for the District. We had requested copies of the Nexus contracts in April of 2016, but a copy of the Performance Agreement was not provided until November 18, 2016. The accompanying letter from Julie Cink, the School’s Business Director stated that the document “was discovered on Nov. 11, 2016 when looking through Dr. Gruver’s files”. Needless to say, one wonders how the School’s Business Director who appears to be the primary contact with Nexus, is able to administer the terms and conditions of a contract with Nexus that she doesn’t have, and is only able to find a copy of the contract after the work is done and all invoices have been paid, presumably with her approval.
January 8, 2013: Less than 4 weeks after contract signing, Nexus submits an invoice to Julie Cink for $602,205 for the generators, or $104,980 more than the “complete” project cost that was presented to the Board 5 months earlier, and was subsequently approved. Based upon information received from various technical resources, CAG has reason to question whether the generators were ordered long before the Performance Agreement with Nexus was signed by the District and/or whether the generators were actually online and operational at the time the Nexus invoice was submitted.
January 9, 2013: Someone marks the invoice “OK to pay”, but their name or initials are redacted in the copy CAG received.
January 16, 2013: The cashiers check for $547,308.75 is issued to Nexus. The District check for the $54,896.25 balance was issued on January 23, 2013.
This timeline of events and the increased cost raises numerous questions: Why did Nexus get involved after the fact? Why a project cost increase of over $100,000 after Nexus got involved? Why a cashier’s check instead of a School District check, and why for $547,308.75 instead of $602,205? Why the urgency to get cash to Nexus? Who signed the invoice “OK to pay”?
The following are answers received (in writing) from a District representative by various emails between April 18 and May 10 of this year. The District representative stated that a cashier’s check was used because the attempt to use a VISA card (P-card) was rejected as exceeding the amount acceptable for a single purchase. The District representative stated that the name of the individual approving payment of the $602,205 Nexus invoice was redacted because “this data is not public under MN Statute 13.43 Subd. d”. The District representative was also asked to provide the names of District employees who were authorized to sign School VISA cards for this kind of purchase. The District representative replied with a rambling narrative but no names.
The details regarding this transaction raise all kinds of questions about the business competence of the School District, and the fiscal oversight provided by the Board. While lack of competence and lack of oversight may not rise to the level of a violation of state statute, deliberately withholding information that the public is entitled to receive violates both the intent and the letter of the law. And most certainly it is a violation of the public trust.
It is incomprehensible that the District would cite MN Statute 13.43 Subd. D (that provides a listing of employee personnel data that is to be considered public), as a justification to hide the name of the District employee who authorized the $602,000 payment to Nexus. If this interpretation was to stand, then any decision made by any District employee could be hidden from public view including any and all decisions made by Superintendent Staloch. This claim by the District is demeaning to the intelligence of the residents of our District.
We are requesting that the Board respond to our complaint in a forthright and public manner, including providing the requested information that was previously denied by the District Administration. We are asking for the Board’s response by no later than September 15, 2017 in order that this be resolved in the most expeditious and least adversarial manner possible.
Citizens for Accountable Government
Wes Mader, Chair
Board Members, MN School District 719
Teri Staloch, Superintendent MN School District 719
Ron Hocevar, Scott County Attorney