Here is a classic case of waste in a School District, caused by a "virtual breakdown in purchasing controls".
An aggressive salesman oversold a district manager on the merits of THREE $200,000 copying machines that then were NOT used because the schools didn't have the electric power to run them.
Additionally, the purchase was endorsed in a letter with a forged signature of the Schools' attorney who had been dead for 7 months. It appears the letter was used to convince a financing company that the deal was sound.
And, the salesman is accused of offering free computers to employees who made the decision (but not proven), clearly indicating the need for a strong ethics policy on the part of both the District and the copier vendor if that actually happened.
This article highlights a trend where capital equipment is purchased or leased without any regard to the operating costs or ability to run the equipment (lack of adequate power capabilities). This is like the Dell computer purchase fiasco at Lake County where they bought Dell computers without including the cost of an operating system, and installing servers in schools that do not have adequate air conditioned rooms for them to run without burning out. School administrators seem to ignore consolidating total system costs into one purchase request for capital equipment. Capital is in one budget and expenses are in another, and total system cost (including a review of environment to ensure the equipment CAN be used as justified) is not combined so it is all researched and disclosed before any equipment or capital expenditure is authorized.
"The management and the operations part of the district is way out of control. There is no real accountability,''
from the Memphis Commercial Appeal at
Fakery aided school deal
Letter from dead man helped secure financing for copiers
By Kristina Goetz (Contact), Marc Perrusquia (Contact)
Sunday, February 3, 2008
Memphis, infamous for its dead voting scandal of 2005, has a new case of necro-fraud.
Central to this latest case is a purported letter from Memphis school board attorney Percy Harvey endorsing the lease of three digital copy machines for $517,000.
Just the letterhead -- Shelby County-Memphis City Schools -- should have been clue enough in a community where combining the two public school systems is anathema.
But the signature on the May 2006 letter was the dead giveaway. Harvey, the popular school board lawyer, died seven months earlier.
An investigation by The Commercial Appeal found the authoritative-sounding letter helped secure financing for the machines amid a virtual breakdown of purchasing controls at Memphis City Schools.
The newspaper has learned that prosecutors, too, are investigating the deal that includes allegations that a rogue salesman offered school employees a computer and a flat screen TV as inducements. The salesman also allegedly guaranteed jobs starting at $17 an hour to students who completed training on the machines -- a promise apparently never written in any contract.
Facing potential litigation from the finance company duped by the faked letter, the school district has coughed up $207,000 and is trying to escape the deal, a proposition that may cost taxpayers even more in legal costs.
Though this is just one deal in a system that does thousands every school year, spending more than $900 million annually, one ex-school board member fears it's emblematic of a much larger problem.
"The management and the operations part of the district is way out of control. There is no real accountability,'' said Wanda Halbert, who left her elected board post for a spot on the Memphis City Council.
"You've got a lot of mess out there. You don't know what you might stumble on in any given day.''
A plot unfolds
As director of the school district's division of careers, technology and adult education, Willie Slate hoped to use the copiers to train students interested in the graphic arts trade. Records show Slate and her staff initiated the order of the three expensive copiers in 2006 and planned to install them at Hamilton, Booker T. Washington and Northside high schools for vocational training.
These were hardly ordinary copiers. The three machines, Canon iR 110 digital duplicators, retail for more than $200,000 apiece. The high-speed copiers can bind booklets and do custom print jobs.
A member of Slate's staff began discussions in spring 2006 to lease the machines from IKON Office Solutions, a national firm with a local office that has rented machines to the district before.
Yet, after the lease of the copiers for $103,500 a year, they sat idle for more than a year; none of the schools had adequate electrical power to operate them. It would get worse.
Records show school officials soon were alerted to underlying troubles with the leases -- including allegations of a possible bribe. It came in early 2007 when IKON reported it fired the salesman who assembled the deal.
IKON lawyer Thomas L. Parker told the school district in a February 2007 letter that salesman Daniel B. Hobbs was terminated because he "committed unauthorized acts" that included ordering a Dell computer and electronic equipment "for his own purposes."
"When IKON confronted him about the Dell equipment, Mr. Hobbs claimed that he delivered some of the equipment to personnel with the Memphis City Schools as part of his efforts to secure sales and maintenance contracts with them," Parker wrote.
The letter said IKON couldn't verify Hobbs' claims.
Likening Hobbs to a rogue salesman who acted alone at IKON, Parker advised the school district to do "whatever level of inquiry you think the matter deserves."
Letter from a dead man
As IKON turned over a flow of internal records, other concerns came to light, chiefly the purported letter from Harvey. A copy of the letter, dated May 16, 2006, shows it bears Harvey's signature -- a full seven months after his Oct. 3, 2005, death.
In addition to Harvey's signature, the letter bore several other curiosities: It was written on letterhead bearing the name of Shelby County Mayor A C Wharton, who has no official connection to city schools. It alternately listed the school district as "State of TN Human Services,'' though that agency also has no official connection to city schools.
Sources with knowledge of the deal said financing was secured from Canon Financial Services Inc., after it was rejected by two other companies.
In the letter, the author purports to be "counsel for Memphis City Schools,'' writing that the proposed leases had "been duly authorized, executed and delivered" and were "legal and binding" -- even though the matter didn't go before the school board until three months later.
Signatures on the leases are also disputed.
The three leases are signed on behalf of the school district by Slate's assistant, Al Flowers. However, Flowers contends those aren't his signatures, according to records.
Efforts to interview Flowers were unsuccessful. Slate agreed to speak last week to reporters, but the interview was canceled by the general counsel's office.
Even if Flowers' signature is legitimate, it appears the leases weren't properly authorized, Halbert said. Under a policy Halbert said she pushed through in 2005, all contracts in excess of $25,000 must be signed by the board president and the superintendent, and must bear the date of board approval.
"That's a problem,'' Halbert said. "Somebody did something wrong."
According to records released by the district's Office of General Counsel, the copier rentals were approved by the school board on Aug. 21, 2006. Records of that meeting show the transaction was approved on the board's consent agenda without discussion. The deal was summarized for the board on a single sheet of paper that included dollar figures that don't match those on the leases.
The fake letter is reminiscent of another recent scam in Memphis. In the 2005 dead voting scandal, three county poll workers pleaded guilty to forging the names of dead people on ballot applications to cast votes for state Sen. Ophelia Ford.
"I did absolutely nothing wrong," Hobbs, the fired IKON salesman, said last week in a telephone interview.
Responding to allegations IKON's lawyer sent to the school district, Hobbs denied misappropriating any electronic equipment or giving any computers or flat-screen TVs to school employees. He also denied having anything to do with the fake letter -- though he said he knows who did it.
"This is an out and out lie,'' Hobbs said of the allegations. "This is crazy for them to try to pin this on me.''
IKON hired Hobbs in 2005 after he came to Memphis from Atlanta. There, records show, he left behind a trail of creditors and legal judgments.
DeKalb County court records list at least 11 lawsuits against Hobbs between 1998 and 2003.
Hobbs said most of that involved investors suing over a failed radio program and Internet golf venture he launched. Hobbs said his businesses failed with a sour market after the 9/11 terrorist attacks and that he never cheated anyone.
In a written statement last week, IKON stood by the allegations the firm sent to the school district. Without naming Hobbs, the company said a "former employee" claimed he delivered electronic equipment "to Memphis City Schools in an unauthorized manner."
"IKON takes allegations of this nature very seriously," said the statement released by IKON spokeswoman Wendy Pinckney.
Reached Friday, Canon officials had no comment.
CITY SCHOOLS RESPONSE
Faced with a fake letter from a dead lawyer that helped secure contracts worth $517,000, Memphis City Schools offered a two-sentence statement from general counsel Linda Khumalo:
"We understand the district's division of Internal Audits is working in conjunction with other authorities to investigate a matter involving one of our vendors. As with all pending legal matters and ongoing investigations, it would be inappropriate to speculate or offer any further statements at this time."
-Marc Perrusquia: 529: 2545
- Kristina Goetz: 529-2380