Edgar P. Harney Spirit of Excellence Academy on S. Claiborne Avenue. Credit: Dominic Scott / The Lens

A bank account for Edgar P. Harney Spirit of Excellence Academy was stretched thin and sometimes overdrawn at the same time that the school withheld tens of thousands of dollars from employees’ retirement accounts, according to financial records.

But the school did have money — in a separate account apparently controlled by the school’s board of directors. That’s where the state deposited per-pupil funding each month. Between Oct. 1 and the end of last year, the board’s account balance ranged from $231,854 to $627,767.

Much of that money sat idle while the school’s operating account dwindled. Meanwhile, the school wasn’t transferring employees’ retirement contributions to their investment accounts.

Brent Washington, Harney’s former chief financial officer, oversaw the school’s finances at the time.

In a brief Facebook message exchange, Washington repeatedly said that the Rev. Charles Southall III, Harney’s board president, controls the school’s funds. Asked if the board provided adequate money to the school’s operating fund, Washington said no. He did not grant an interview or elaborate on his comments. 

”It was not a financial problem. It was an execution problem.”—Charles Southall, Edgar P. Harney Spirit of Excellence Academy

But in an interview Wednesday, Southall said that if the school needed more money, Washington and the school’s principal should have asked.

“When Mr. Washington requested draws that the school leader approved, the board funded it,” he said. “The money, as I told you from day one, was always there. It was not a financial problem. It was an execution problem.”

Harney has had a host of financial problems recently. Over the last two years, the small charter school in Central City has been flagged by auditors and racked up warnings from the state and school board for late financial reports and failing to follow district policy.

Washington is under a state ethics investigation for being paid $54,500 over three years to do accounting for the school, in addition to his salary. Public employees are not allowed to contract with their agencies to do work that overlaps with their job duties. He was fired in June.

Frequent overdrafts

Even when the school’s operating account was overdrawn — sometimes by tens of thousands of dollars — Whitney Bank still processed checks.

Washington had check signing authority for the school’s operating account, but not the board account.

In February, Harney caught up on several payments to employees’ retirement accounts. The operating account didn’t have enough money to cover those payments and other school expenses, so Whitney “force paid” 33 checks and transfers, putting the account $53,084 in the red. The school paid $1,296 in overdraft fees that month.

-$53,084Balance in Harney’s operating account at one point in February$1,296February overdraft fees

Those weren’t the first overdraft fees the school was forced to pay. Between October and December last year, the bank charged the school $432 for overdrafts in its operating account. The overdrafts in the records The Lens obtained coincide with the withheld retirement payments.

All along, there was plenty of money in the board account. For instance, on Sept. 30, the school had $133.57 in its operating account. The board account held $537,562.

Two local charter school network operators — who asked not to be identified in this story — said their boards have no control over bank accounts and state funding is deposited directly into an operating account.

Southall said he controls the board account. The school’s most recent audit said he and another board member have signing authority on the account. The address on the bank statements was Southall’s church, not the school.

Asked why the board has its own separate bank account, Southall said, “We fund as they need. That’s pretty much how it’s been from day one. And that’s the only use for that account.”

Retirement contributions ‘uncleared’ for months

In June, The Lens reported that Harney held on to employees’ retirement contributions for weeks or months. The school has about 40 employees and nearly all of them participate in the program.

Two days after we published that story, the Orleans Parish school district requested three years of financial records from Harney.

We asked to see everything the district has received. We got about 1,200 pages of bank statements, account ledgers and retirement records.

Harney has four accounts, according to the statements provided to the school district. The state deposits per-pupil funding into the board’s master account. Money is transferred from there to two separate accounts, one for payroll and one for operating expenses. (Another account was used to pay a consultant and appears to be related to the school’s plan to expand to Baton Rouge.)

The documents don’t offer a complete picture of Harney’s finances, but the bank statements show that the operating account was almost empty when employees’ retirement contributions were due.

The operating account pays most day-to-day expenses, including substitute teachers, the security company, Hooked on Phonics, software and other supplies and services.

Harney’s ledger for that account shows that the school should have transferred $10,806 to employees’ retirement accounts on Sept. 30. But retirement account statements show that employees’ retirement contributions for that pay period didn’t go into their investment accounts until January.

The same thing happened six more times in the next three months, one for each pay period.

For months, the school’s ledger showed those transfers as “uncleared transactions.”

When the school deposited the funds months later, they were listed under “cleared transactions” — but with the dates that the transfers were originally scheduled, not when they were actually paid.

The late payments didn’t include any interest or money to account for what employees may have made in investments.

Federal tax guidelines call for speedy transfers

Those delays could violate federal tax guidelines.

In a similar case in Baltimore, delays in retirement transfers led to two civil lawsuits against the CEO of a drug rehab and mental health nonprofit. He later pleaded guilty to theft for taking $53,000 from his employees’ 403(b) accounts in 2009 and 2010, using the money to pay company expenses.

Federal tax guidelines suggest organizations with 403(b) retirement accounts transfer funds within two weeks of the month in which they were withheld from employees’ paychecks. (A 403(b) account is the equivalent of a 401(k) accounts, but for a nonprofit organization.)

Harney didn’t always do that. Last fall, Harney held onto at least $55,000 earmarked for retirement accounts. That included about $24,000 withheld from employees’ paychecks. The remainder was the school’s contribution.

The school appeared to struggle to pay large bills like busing service and health insurance, even as the board account was flush with cash.

The Orleans Parish school district recently confirmed the retirement transfers had occurred late. Superintendent Henderson Lewis Jr. said Harney’s board may decide not to reapply for its charter, which expires next year.

The district is seeking a forensic auditor to investigate schools with financial issues and plans to use the firm to look at Harney.

“District officials continue to review all financial documents from Harney and will issue additional notices if warranted,” a district spokesman wrote in an email Tuesday.

Reporter Charles Maldonado contributed to this story.

Marta Jewson

Marta Jewson covers education in New Orleans for The Lens. She began her reporting career covering charter schools for The Lens and helped found the hyperlocal news site Mid-City Messenger. Jewson returned...