The Orleans Parish school district has cited Edgar P. Harney Spirit of Excellence Academy for allegedly violating federal law by improperly withholding tens of thousands of dollars in employee retirement contributions. The district also issued a warning to the school for failing to provide adequate services for special education students.

The two “level 2” warnings are the most severe the district can deliver. The school has received nine official warnings over the last year, six of those at the most serious level.

In a July 20 letter, Dina Hasiotis, executive director of school performance, said she referred the district’s concerns about the school’s financial practices — including the retirement payments — to the Louisiana Legislative Auditor. The state agency is charged with monitoring government finances.

”The failure of Harney to transfer employees’ withholdings to Mass Mutual in a timely manner is a violation of the federal laws related to retirement plans.”—Dina Hasiotis, Orleans Parish school district

The district reviewed hundreds of pages of the school’s financial information from the past three years. It requested those records two days after The Lens reported Harney had withheld employees’ 403(b) retirement contributions for weeks, sometimes months before depositing them in employees’ retirement accounts.

The late payments did not include interest or account for potential lost investment earnings. In the July 20 letter, Hasiotis told Harney officials they must submit a plan to address any potential losses.

“The failure of Harney to transfer employees’ withholdings to Mass Mutual in a timely manner is a violation of the federal laws related to retirement plans,” she wrote.

A similar case involving a Baltimore mental health clinic led to two lawsuits. The clinic’s CEO 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.

The Central City charter school has received several warnings from the district this year, for financial management and special education problems as well as operational issues.

At a meeting in June, Superintendent Henderson Lewis Jr. predicted the 300-student school may not reapply for its charter, which is up for renewal this fall.

If the school does not take corrective action, it could have Harney’s charter revoked, Hasiotis wrote.

Delayed retirement payments and other financial concerns

In June, The Lens reported Harney held onto at least $55,000 in employees’ 403(b) retirement benefits in October, November and December 2017.

That money, which included employees’ withholdings and the school’s match, was not deposited into employees’ retirement accounts until February, according to retirement account statements. The district found the same in its analysis, Hasiotis wrote.

But that’s not the only time the school delayed payments. Retirement records obtained from the district through a public records request show the school didn’t make September 2017 retirement deposits until January. Meanwhile, retirement funds withheld in January weren’t deposited until March.

During its review, Hasiotis wrote the district “received conflicting information” about who manages the books.

“It is unclear who directly manages and is responsible for funds, ranging from the Board Chair, Chief Financial Officer, and School Principal,” she wrote.

The school’s operating fund was frequently overextended during the period the school failed to pay into employee retirement accounts. Records show a separate bank account, controlled by the school’s board of directors, had hundreds of thousands of dollars in it during the same period.

In interviews last week, the Rev. Charles Southall III, Harney’s board chair, told The Lens he controls a board account but releases funds to the operations account anytime the CFO and principal request. But the school’s former CFO, Brent Washington Sr., disputed that. Washington is undergoing an ethics investigation over a contract he had with the school while he was employed there. He was fired in June.

Hasiotis also noted the school’s bank statements are addressed to Southall’s church on Carondelet Street. The foundation that runs the school uses the church as its local business address.

“Using the church address for school-related bank accounts and as a domicile address could be a violation of state law,” which prohibits charter schools from being affiliated with religious institutions, she wrote.

Meanwhile, Southall’s home address in Baton Rouge is the one that Harney has listed with the state agency that distributes per-pupil funding to schools, another potential violation, Hasiotis wrote.

The district has hired a forensic auditor to review the school’s finances. 

”Using the church address for school-related bank accounts and as a domicile address could be a violation of state law.”—Dina Hasiotis, Orleans Parish school district

The school is supposed to submit more documents to the district, including an explanation of why the delays occurred. The school must also submit a plan to ensure delays don’t happen in the future, as well as a plan to address employees’ potential investment losses.

Those were due last week. But The Lens learned through a public records request the school had been given an extension until Friday.

Southall did not respond to requests for comment.

A school district spokeswoman said the school would be held accountable.

Special education shortcomings

Harney has also struggled to provide special education services. Federal law requires schools to provide all students with a free and appropriate education. For students with special education needs, that often means providing additional support.

On April 5 the school received a warning for failing to provide special education services to a student. The child had refused to attend support sessions, but that didn’t alleviate the school of its requirement. A warning letter from the district stated the mother was unaware her student was not receiving services.

The school also received a less serious “level 1” warning for improperly restraining a child. Harney couldn’t prove the staff member who restrained a student had the proper training and couldn’t prove school employees had provided the child’s parent with written warning of the restraint.

Then, in July, an independent monitor evaluating schools  — part of a settlement reached in a landmark special-education lawsuit against the Orleans Parish school district and the state Department of Education — released a critical report on Harney, one of three schools chosen for observation in the fall of 2017.

The monitors found Harney failed to provide occupational therapy and social work services because the school couldn’t find a contractor. The student files they reviewed “lacked pertinent information regarding the students’ present levels of performance.” They also had concerns with parents ability to participate in their child’s education plan meetings.

As a result of the findings, the Louisiana Department of Education issued a corrective action plan.

“At this time, Edgar P. Harney is not meeting expectations with regards to its legal obligations to enroll and serve students with disabilities,” Hasiotis wrote in an Aug. 1 warning letter. “It is critically important that your organization address the concerns noted by the LDOE immediately.”

The school must complete the state’s plan, which runs through the 2018-19 school year, to return to good standing with the district.

“According to the state monitors, Harney is currently on track with their special education compliant-related Corrective Action Plan,” district spokeswoman Dominique Ellis wrote in an email.

The district also cited Harney on Aug. 1 for failing to meet the district’s minimum requirement of seven members on its board.

“Through direct conversations with at least two of the listed board members, OPSB has learned that they resigned months ago without their names being removed from board communication,” Hasiotis wrote.

The board must have seven members by Aug. 15, Hasiotis wrote.