An audit, by definition, is an independent inspection of financial accounts. It is helpful for examining line items, but not so much for reading between the lines. For example, an audit can tell you if money was misspent, but it can’t tell you the intent of the person who did the misspending. That’s because auditors are experts in finance, not criminal law or psychology. And that brings me to a recently concluded audit of the Winston-Salem/Forsyth County Schools, which attempted to explain an unprecedented budgetary fiasco that is about to have a disastrous effect on thousands of students, and hundreds of teachers, administrators, families, and vendors.
The financial woes of WS/FCS have been building for several years but were only recently revealed to the school board and the public. We now know that the N.C. Department of Public Instruction had sent numerous notices and reminders to former school CFO Thomas Kranz about deadlines for submitting an audit. But according to various news reports, superintendent Trish McManus and the school board indicated that they knew nothing about those notices, much less why Kranz had been dragging his heels. They also didn’t know that Kranz had routinely misappropriated federal, state, and county funds, moving money from one pot into another so that Peter could pay Paul. For example, he used county funds designated to pay SROs and nurses for covering other expenses. Aside from being unethical (and potentially illegal), such misdirection left the school district in dire financial straits, the full extent of which Kranz initially kept from McManus. Apparently, he first told her that the school district was $8 million short and unable to meet payroll for the balance of the current fiscal year.
And so, in March of this year, seeing only the tip of the iceberg, McManus informed the board of the $8 million deficit and laid out a strategy for balancing the books over the remaining three months. Her plan included only using state funds for summer school programs, freezing new hires and freezing spending unless for essential purchases, eliminating long-term substitutes, and reallocating central office staff. She would also hire HIL consultants to conduct an official audit, which was now past due, with DPI threatening punitive action. But when McManus made her report to the board, she was unaware of just how deep a hole Kranz had put WS/FCS in.
Knowing that the shit was about to hit the fan, Kranz announced that he would be retiring in June and, despite his incompetence, McManus publicly praised the CFO for his service. Little did she know that a financial tsunami was about to make landfall. Not long after she announced her cost-cutting plan, McManus learned that the shortfall wasn’t $8 million. Instead, it was over $40 million and growing, including $11 million owed to the state, and millions more owed to vendors and to the county. By the time that news leaked out, McManus announced she too would be retiring, and Kranz’s last day was moved up a month.
Former State School Board member and veteran educator Catty Moore was brought in to serve as interim superintendent and clean up the financial mess. Her first move was to ask the Forsyth County Board of Commissioners to bail out the schools and pony up the entire $42 million. Predictably, the Commissioners rejected her proposal but later voted to give her $8.6 million, provided that the money goes toward paying down the DPI debt. Moore also hoped that DPI would help out by waiving interest charges on the debt owed, but that request fell flat. Moreover, for some strange reason, she allegedly waited for nearly two months before asking Triad area state legislators to intercede. Some, like Rep. Donny Lambeth, made it known that it wasn’t the state’s responsibility to bail out a local school district. Nevertheless, a face-to-face meeting with state lawmakers has been scheduled for September.
And that brings me back to the audit. On Aug. 13, HIS submitted a 39-page report which concluded that WS/FCS was guilty of years of financial mismanagement, but that there was no evidence of fraud. The former conclusion was predictable, and the latter was welcome news to Moore, the school board, and to District Attorney Jim O’Neil, who now has justification for not prosecuting anyone. But the good news was short-lived because that same day, Moore informed her board that despite help from the county, WS/FCS would have to eliminate up to 350 positions. The Winston-Salem Journal’s Lisa O’Donnell observed Moore wiping tears of sadness from her eyes while delivering the bad news. Perhaps she was crying for the 350 families whose lives will be forever changed, or for the vendors who might never get paid, or for the students who may have their favorite course or activity eliminated. It is also sad that those people most affected by this debacle may never get closure. That’s because the audit told us a lot about accounts, but nothing about accountability, and that brings us to the villain of this tragic story.
It looks like CFO Tommy Kranz is off the hook for his misdeeds, but he shouldn’t be. True, he doesn’t appear to have profited financially from his fiscal mismanagement, but according to the state code, misappropriation of funds is still a form of embezzlement. He may also not be guilty of malfeasance, but he certainly seems to be guilty of misfeasance. He also kept his ongoing misappropriations a secret from the folks he reported to, and he is singularly responsible for hundreds of jobs that will be lost. But hey, we all make mistakes, and so what if Kranz was grossly incompetent? After all, this is his first offense, right? Wrong.
Kranz once served as CFO and interim superintendent of Richmond, Va. public schools, where, according to the Richmond Free Press, he kept $8.3 million in a secret “unassigned fund balance” while asking the city council to pony up an additional $16 million to make up for budget shortfalls. At the same time, he hired Dallas Dance (a front-runner for the superintendent’s job) as a “consultant,” paying him $24,000 for two months work. This while Dance was still under investigation by Maryland authorities for a relationship he had with an Illinois company while he served as superintendent of Baltimore schools. All of this was kept from the Richmond school board. The Free Press story ran in September 2017, and by February 2018, Kranz was fired as CFO.
The question is, were McManus and the WS/FCS Board aware of Kranz’s past problems in Richmond? If so, Kranz should never have been hired. If not, then why didn’t they do their due diligence? The fact is that Tommy Kranz appears to be a serial misappropriator, so perhaps it would be appropriate for the hundreds of people who stand to lose their jobs to enter into a class action against him when the time comes. If successful, it might mitigate the damage about to befall them, and send a message to superintendents and school board members everywhere to pay more attention to the books and to those who might cook them.
School CFO Should Be Held Accountable
An audit, by definition, is an independent inspection of financial accounts. It is helpful for examining line items, but not so much for reading between the lines. For example, an audit can tell you if money was misspent, but it can’t tell you the intent of the person who did the misspending. That’s because auditors are experts in finance, not criminal law or psychology. And that brings me to a recently concluded audit of the Winston-Salem/Forsyth County Schools, which attempted to explain an unprecedented budgetary fiasco that is about to have a disastrous effect on thousands of students, and hundreds of teachers, administrators, families, and vendors.
The financial woes of WS/FCS have been building for several years but were only recently revealed to the school board and the public. We now know that the N.C. Department of Public Instruction had sent numerous notices and reminders to former school CFO Thomas Kranz about deadlines for submitting an audit. But according to various news reports, superintendent Trish McManus and the school board indicated that they knew nothing about those notices, much less why Kranz had been dragging his heels. They also didn’t know that Kranz had routinely misappropriated federal, state, and county funds, moving money from one pot into another so that Peter could pay Paul. For example, he used county funds designated to pay SROs and nurses for covering other expenses. Aside from being unethical (and potentially illegal), such misdirection left the school district in dire financial straits, the full extent of which Kranz initially kept from McManus. Apparently, he first told her that the school district was $8 million short and unable to meet payroll for the balance of the current fiscal year.
And so, in March of this year, seeing only the tip of the iceberg, McManus informed the board of the $8 million deficit and laid out a strategy for balancing the books over the remaining three months. Her plan included only using state funds for summer school programs, freezing new hires and freezing spending unless for essential purchases, eliminating long-term substitutes, and reallocating central office staff. She would also hire HIL consultants to conduct an official audit, which was now past due, with DPI threatening punitive action. But when McManus made her report to the board, she was unaware of just how deep a hole Kranz had put WS/FCS in.
Knowing that the shit was about to hit the fan, Kranz announced that he would be retiring in June and, despite his incompetence, McManus publicly praised the CFO for his service. Little did she know that a financial tsunami was about to make landfall. Not long after she announced her cost-cutting plan, McManus learned that the shortfall wasn’t $8 million. Instead, it was over $40 million and growing, including $11 million owed to the state, and millions more owed to vendors and to the county. By the time that news leaked out, McManus announced she too would be retiring, and Kranz’s last day was moved up a month.
Former State School Board member and veteran educator Catty Moore was brought in to serve as interim superintendent and clean up the financial mess. Her first move was to ask the Forsyth County Board of Commissioners to bail out the schools and pony up the entire $42 million. Predictably, the Commissioners rejected her proposal but later voted to give her $8.6 million, provided that the money goes toward paying down the DPI debt. Moore also hoped that DPI would help out by waiving interest charges on the debt owed, but that request fell flat. Moreover, for some strange reason, she allegedly waited for nearly two months before asking Triad area state legislators to intercede. Some, like Rep. Donny Lambeth, made it known that it wasn’t the state’s responsibility to bail out a local school district. Nevertheless, a face-to-face meeting with state lawmakers has been scheduled for September.
And that brings me back to the audit. On Aug. 13, HIS submitted a 39-page report which concluded that WS/FCS was guilty of years of financial mismanagement, but that there was no evidence of fraud. The former conclusion was predictable, and the latter was welcome news to Moore, the school board, and to District Attorney Jim O’Neil, who now has justification for not prosecuting anyone. But the good news was short-lived because that same day, Moore informed her board that despite help from the county, WS/FCS would have to eliminate up to 350 positions. The Winston-Salem Journal’s Lisa O’Donnell observed Moore wiping tears of sadness from her eyes while delivering the bad news. Perhaps she was crying for the 350 families whose lives will be forever changed, or for the vendors who might never get paid, or for the students who may have their favorite course or activity eliminated. It is also sad that those people most affected by this debacle may never get closure. That’s because the audit told us a lot about accounts, but nothing about accountability, and that brings us to the villain of this tragic story.
It looks like CFO Tommy Kranz is off the hook for his misdeeds, but he shouldn’t be. True, he doesn’t appear to have profited financially from his fiscal mismanagement, but according to the state code, misappropriation of funds is still a form of embezzlement. He may also not be guilty of malfeasance, but he certainly seems to be guilty of misfeasance. He also kept his ongoing misappropriations a secret from the folks he reported to, and he is singularly responsible for hundreds of jobs that will be lost. But hey, we all make mistakes, and so what if Kranz was grossly incompetent? After all, this is his first offense, right? Wrong.
Kranz once served as CFO and interim superintendent of Richmond, Va. public schools, where, according to the Richmond Free Press, he kept $8.3 million in a secret “unassigned fund balance” while asking the city council to pony up an additional $16 million to make up for budget shortfalls. At the same time, he hired Dallas Dance (a front-runner for the superintendent’s job) as a “consultant,” paying him $24,000 for two months work. This while Dance was still under investigation by Maryland authorities for a relationship he had with an Illinois company while he served as superintendent of Baltimore schools. All of this was kept from the Richmond school board. The Free Press story ran in September 2017, and by February 2018, Kranz was fired as CFO.
The question is, were McManus and the WS/FCS Board aware of Kranz’s past problems in Richmond? If so, Kranz should never have been hired. If not, then why didn’t they do their due diligence? The fact is that Tommy Kranz appears to be a serial misappropriator, so perhaps it would be appropriate for the hundreds of people who stand to lose their jobs to enter into a class action against him when the time comes. If successful, it might mitigate the damage about to befall them, and send a message to superintendents and school board members everywhere to pay more attention to the books and to those who might cook them.