North Carolina’s largest recipient of private school vouchers has filed a financial review that lacked basic information consistent with “generally accepted accounting principles,” according to the agency overseeing the taxpayer-funded program.
Because Fayetteville’s Trinity Christian School—also currently embroiled in a separate embezzlement scandal—received more than $300,000 in voucher funds during the 2015-16 academic year, it is required to submit a financial review of their organization.
According to records provided by the State Education Assistance Authority (SEAA), the agency tasked with overseeing the voucher program, the financial review submitted last December lacked crucial elements typically found in such statement including a statement of cash flows and a balance sheet. What was included instead was a brief “statement of activities” that only listed top line revenues and expenses as well as a supplemental schedule of functional expenses.[See Trinity Christian’s financial review here.]
It is remarkable to omit a more detailed balance sheet from a set of basic financial statements, said Mig Murphy Sistrom, a Durham-based accountant whose firm specializes in preparing financial reports for nonprofit organizations.
Because the accounting firm that prepared the financial review for Trinity Christian—Edwards Pechmann & Packer, Inc.—did not include a balance sheet, “it raises a concern that the organization may not have accounting records adequate to produce a balance sheet,” said Murphy Sistrom.
Since 2014, Trinity Christian has received more than $1.2 million in taxpayer funds through the Opportunity Scholarships Program, which provides low-income families money to attend private schools. For the academic year 2016-17, school voucher recipients comprised 60 percent of Trinity Christian’s enrollment, according to state records. The voucher school’s overall school enrollment grew by 25 percent between 2015-16 and 2016-17.
The state places few requirements on private voucher schools to account for how the taxpayer dollars are used to educate students, demonstrate achievement of the students who receive the aid or any transparency to assure the funds are used as intended.[For more background on the state’s school voucher program, click here and here]
Trinity Christian’s first attempt to comply with the minimal reporting requirements didn’t satisfy the State Education Assistance Authority, which asked school officials last month to provide a revised and financial review by March 3. The school’s principal, Dennis Vandevender, has asked for an extension.
The authority’s demand that Trinity Christian’s provide a fuller financial review comes just after the N.C. Department of Revenue announced last month the arrest of school’s athletic director, Heath Vandevender on charges of embezzling nearly $400,000 in employee state tax withholdings between 2008 and 2015.
Vandevender (son of the head of school, Dennis) “aided and abetted the corporation to embezzle, misapply, and convert to its own use $388,422.68 in North Carolina Withholding Tax,” according to the NC Department of Revenue’s press release.”
The corporation, Truth Outreach Center, Inc. is the nonprofit umbrella organization under which Trinity Christian School has been doing business for more than a decade.
While the voucher program has been criticized for lacking adequate transparency and accountability concerning how taxpayer dollars are spent, it does include a minimum requirement: if a private school receives $300,000 or more annually in vouchers, it must submit a financial review “consistent with generally accepted accounting principles.”
Trinity Christian’s review didn’t comply with that requirement, according to SEAA officials. But the missing statement of cash flows and balance sheet wasn’t the only aspect of Trinity Christian’s financial report that raised questions about the organization’s books.
“Nonprofits are required to present their expenses broken down into three functions: program, management and fundraising,” said Durham CPA Murphy Sistrom. “This organization has included its fundraising expenses in its program expenses, thereby overstating by $14,487 the amount of expenses that relate to accomplishing its mission.”
The preparers of the financial review also included a note highlighting that Trinity Christian has listed no expenses for payroll taxes. According to the language in the review, that’s because the organization indicated that it has filed with the Internal Revenue Service an election for exemption from employer social security taxes because it is “opposed for religious reasons to the payment of social security taxes.”
Even if the religious exemption from paying social security taxes was granted to Trinity Christian by the IRS—which is not clear—the employer would still be on the hook for paying Medicare expenses. But there is no indication on the filed financial documents that those expenses were paid, said Murphy Sistrom.
According to a Feb. 8 letter from the SEAA, agency officials reached out to Trinity Christian’s head of school, Dennis Vandevender, to discuss the financial review’s shortcomings.
A Feb. 13 email reply from Vandevender did not provide the additional information to make the financial review complete. Trinity Christian was told to supply a complete financial review to the state no later than March 3.
In a March 7 email to the SEAA – four days after the completed financial review was due — Trinity Christian’s principal, Dennis Vandevender, asked for an extension to complete the financial review. Agency officials say they’re still working with the school to come up with a new deadline.
Inquiries made directly to Trinity Christian’s Vandevender have gone unanswered.
When and if Trinity Christian School does submit financial documents that fulfill the agency’s request, it still should be noted that the financial review required by the voucher program is nowhere near as rigorous—or as transparent—as a financial audit.
“CPAs have to do a lot more work to issue an audit report,” said CPA Murphy Sistrom who routinely prepares financial audits for nonprofit organizations. “They would likely identify some of the major weaknesses in procedures that this organization seems to have, as well as any failure to comply with payroll tax laws, etc.”
Because audits don’t express opinions on whether internal financial procedures and practices are adequate or if there is any appearance of fraud, Murphy Sistrom says there needs to be even more oversight than a bare-boned financial audit.
“The state should exercise oversight in addition to audits, such as a review of procedures and investigation of any suspected fraud,” said Murphy Sistrom.
As the school’s athletic director awaits trial for allegedly embezzling hundreds of thousands of taxpayer dollars from the state of North Carolina, he continues his employment at Trinity Christian, where he recently wrapped up coaching another competitive season of basketball.
And while taxpayers wait for a fuller accounting of how their public dollars are being spent at the state’s largest voucher school, Trinity Christian is on track to keep their number one perch on the list of schools receiving taxpayer dollars: they currently lead the pack in the number of voucher applications for 2017.