Alarming Information about the Valley Schools Insurance Trust, Peoria Unified School District

The Arizona State Board of Accountancy has been conducting a probe into Heinfeld, Meech & Co. PC, the accounting firm that audited financial statements for the Valley Schools Management Group. This investigation already has run for more than a year, looking into such matters as $4.94 Million in administrative and services fees paid in the 2009-2010 year.

Insurance auditor for W. Valley schools group investigated   Tucson-based firm focus of over yearlong investigation  Feb. 3, 2012  

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 independent.

Perhaps the fact that Hal Borhauer is both the Chairman
Valley Schools Insurance Trust and a member of the Peoria Unified 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 website 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 Finn.

Valley Schools Insurance Trust is the subject of a criminal investigation by the Maricopa County Attorney's Office for issues ranging from conflicts of interest to misuse of public funds

Estimated legal costs to the Peoria Unified School District

Legal invoices and billing records from Lewis and Roca

Tim McKee's Notice of Claim

Tim McKee's Lawsuit

Statement of Charges Against Tim McKee

Hearing Officer's Report

Prado Family Notice of Claim

Alarming Information about the the district's self-insured trust, under criminal investigation by the Maricopa County Attorney's Office.

Total unpaid claims and claim adjustment expenses at the end of the fiscal year:
2010:   $ 6,385,098
2009:   $ 4,611,266

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 counsel 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, 2011

The 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 Deer Valley Unified School District and Valley 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 dining.
  • 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 elected officials.
  • 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 questionable items."

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 duties."

Attorney General Tom Horne turned the matter over to the Maricopa County Attorney.

Offices of the Deer Valley Unified School District also were raided. The website 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 charges.
5. And whereas Mr. Boone has notified DVUSD in writing that a conflict of interest currently on his part does currently exists.
6. And whereas, Mr. Boone's actions are currently being investigated by the Arizona Attorney General office for a Conflict of Interest.

OVERVIEW: What It Is Costing Peoria School District to Fire a Teacher...
...and What Gilbert Public Schools Can Expect in Similar Circumstances

MORE: Legal invoices and billing records from
Lewis and Roca, the law firm representing
the Peoria Unified School District
from June 30, 2010 through February 2, 2012

Peoria Unified School District serves 36,000 students;
Gilbert Public Schools
serves 38,300 students.

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