Case investigator Marshall King said
the 2009-2010 audits showed $4.94 Million in administration fees
were recorded as operating expenses. These disclosures were buried
in a footnote. The
Arizona Department of Insurance is wrapping up a
separate examination of the Valley Schools trusts. King said he was
told it had similar concerns over related party transactions.
Concerns arise because transactions
between related parties or entities must be disclosed in financial
reports. Accounting standards assume that these transactions are not
"at arm's length," meaning the parties were not independent and on
an equal footing. In this case, the parties may have shared
interests or are too closely related to be seen as completely
Perhaps the fact that Hal Borhauer
is both the Chairman
Valley Schools Insurance Trust and a member of the
School District Governing Board adds credence to the perception that
the almost $5,000,000.00 administration fees might not be
independent or taint-free.
Michael Finn currently serves
as the Chief Financial Officer for Peoria Unified School District
where he has held this position for the past two years. On the
for Valley Schools Management Group, Finn is quoted in a September
2011 in what appears to be a testimonial from a happy client, rather
than from a member of the management board:
"Savings, created through the
relationship between Valley Schools and PUSD, are passed
directly to classrooms across the district. The millions we are
saving are invested in jobs for working families in our district
that have an impact on our future workforce. Our efforts, we
hope, will have a positive impact on our state's economy." said
Total unpaid claims and claim
adjustment expenses at the end of the fiscal year:
2010: $ 6,385,098
2009: $ 4,611,266
NOTE 5 - CONTINGENT LIABILITIES
Lawsuits -- During the normal course of operations, the Trust is
a defendant in various claims and lawsuits. Although the outcome
of any lawsuits is not presently determinable, in the opinion of
the Trust's management and counsel, the resolution of these
matters will not have a material adverse effect on the financial
condition of the Trust since the Trust has already recorded
these amounts in claims payable.
The Valley Schools Insurance Trust
does not include a pre-paid legal expense arrangement, so Peoria
Unified School District pays attorneys directly with
taxpayer funds. The school board, on the advice of
Mary Ellen Simonson, of the law firm
Lewis and Roca,
opposed physical education teacher Tim McKee at every step,
running up massive legal
fees to fire him, ignoring the findings of Harold Merkow,
the hearing officer.
Valley Schools Management Group
also is under criminal investigation by the
Maricopa County Attorney's Office. Issues include conflicts of
interest and misuse of public funds.
Valley Schools Management Group.Schools' benefits provider is raided
Jan. 2, 2011
School district leaders accused of misspending Jan. 7,
Arizona Attorney General's Office
raided offices of Valley School District leaders and leaders of the
Valley Schools Management Group, accusing misuse of more than
$400,000 in taxpayers' dollars. The affidavit for a search
warrant itemized lavish spending by several board members, including
more than 3,000 credit-card charges, including $150 at the Sunglass
Hut in Laughlin, Nev., $2,500 for Starbucks gift cards and $4,422
for a meal at Villa Florence hotel in San Francisco.
Among the allegations:
Conflict of interest
- As school board members of
Unified School District and
Schools Management Group board members, Tom
Boone, Bill Maas and Ted Carpenter voted on contracts and
payments to VSMG. There are multiple votes for contracts to VSMG
since May 2005.
- When Boone was appointed to the
Deer Valley board, his wife, Vicki, already worked at Deer
Valley. To avoid violating conflict-of-interest laws, she
resigned and went to work for
ESI, a company that "leases" two
employees to work at Deer Valley. Boone as a board member voted
to pay ESI for work performed by his wife.
- VSMG board members Bill Maas and
Jim DiCello sold goods and services to VSMG, as independent
contractors, without going through competitive bidding.
- School board members and
employees at various school districts accepted skybox tickets
worth between $200 and $250 to attend the Phoenix Open.
Misuse of public money
- From September 2005 to September
2010, more than $400,000 was charged through Valley Schools
Management Group credit cards by Valley Schools board members
and employees, including purchases of extensive travel and
- Valley Schools spent at least
$46,780 for Diamondbacks tickets.
- Valley Schools spent $57,878 on
golf resorts and memberships (separate from golf tournaments)
and $7,098 at the PGA Tour Superstore.
Violations of the lobbying ban
- DiCello, a registered lobbyist
for Valley Schools, purchased Phoenix Open tickets, Diamondbacks
tickets and golf tournament tickets on behalf of Boone, a former
state lawmaker, and school board members in numerous districts.
State law bans lobbyists from making entertainment expenditures
for state elected officials and, in many cases, for local
- Several Valley Schools
employees, including its chief executive, serve on school boards
or work with districts that have contracts with the group.
"VSMG has operated with minimal
oversight by the districts, so VSMG board members and employees have
been able to do whatever they wanted without having to account for
their actions," according to the attorney general's affidavit. "They
have not had to justify their spending habits or
account for the over $400,000 spent on golf tournaments and other
The Attorney General's Office also
called it "imprudent and wasteful" for an organization that cannot
sell its services to the public to spend $50,000 on advertising,
including $30,000 for an eight-page insert in The Arizona Republic.
"Many VSMG employees have jobs at other districts, sometimes
positions that seem to be in conflict or duplicative of their
Attorney General Tom Horne turned the
matter over to the Maricopa County Attorney.
Offices of the
Unified School District also were raided. The
for Valley Schools Management Group shows Tom Boone, Chairman and
CEO of Valley Schools, previously was Deer Valley Unified
School District Assistant Superintendent and CFO from 1981 through
2000. Boone was appointed to the Deer Valley Unified School District
Governing Board in 2007 and was elected to his first full term in
November 2008; his term was to expire December, 2012. Boone resigned
from his post on Deer Valley Unified School District Governing Board
in February 2011 in the midst of this investigation. Tom Boone, a
former Republican member of the Arizona House of Representatives,
was the subject of a recall petition launched on February 22, 2010
by by "Save
Deer Valley Unified Schools."
The official language submitted for
the recall petition/ballot:
1. Whereas, in his role as member
of the DVUSD Governing Board and member of the Arizona House of
Representatives, Mr. Boone cannot properly function in the best
interest of the Deer Valley Unified School District while
serving in both elected bodies simultaneously.
2. And whereas, Mr. Boone serves as the Chairman of Valley
Schools Management Group, an intergovernmental agency that is
contracted by DVUSD to control the districts multi-purpose
insurance funds, in direct conflict of interest as a member of
the DVUSD Governing Board.
3. And whereas, Mr. Boone receives an annual compensation
package of over $216,000 as the Chairman of VSMG, partly paid
for by contracts entered into with DVUSD.
4. And whereas, Mr. Boone in his role as Representative for LD4,
has introduced several bills to exempt himself from existing
state statutes to avoid the perception of Conflict of Interest
5. And whereas Mr. Boone has notified DVUSD in writing that a
conflict of interest currently on his part does currently
6. And whereas, Mr. Boone's actions are currently being
investigated by the Arizona Attorney General office for a
Conflict of Interest.