The report, done by Arizona-based Veriti Consulting LLC, originated from an investigation Internal Audit began on Aug. 27, 2018, probing financial transactions within athletics. Veriti submitted the resulting report to Internal Audit on Jan. 11, and Internal Audit then reviewed it and did follow-up research to verify information, according to the report’s cover letter signed by Chief Audit and Ethics Executive Sharon Blankenship.
The file was submitted to CCS Superintendent Michael Murray March 11 and released to The Smoky Mountain News by Internal Audit April 16 in response to a public records request.
“Veriti’s opinion is CCS’s and the Booster Club’s entity internal controls are inadequate, resulting in unreliable financial reporting and safeguarding of assets … Veriti’s opinion is CCS’s and the Booster Club’s transactional internal controls are inadequate and provide the opportunity for misappropriation of assets and theft,” reads the report’s overview section.
The investigation’s Aug. 27 initiation came less than three weeks after an Aug. 6, 2018, school board meeting in which $195,658.83 in over-expenditures from the Student Activity Account was written off in the general ledger to bring accounts to zero. The Student Activity Account holds funds raised from athletic events, fundraisers and donations.
Veriti’s investigation concluded that the accounting system between the athletic department and Booster Club is inefficient and lacking in internal controls; that internal controls are lacking for vendor payments and employee reimbursements; that the purchasing and procurement process is inadequate; and that there are deficiencies as it relates to the safeguarding of cash.
The report pointed out a lack of financial training among athletic employees, as well as lack of communication between athletics, the Booster Club and CCS as it relates to accounting. It was unclear, the report said, how often or by whom athletics accounts were reconciled and reviewed for accuracy — though Booster Club President Donna Armachain, who had only recently taken on that position, told Veriti accounts are now being reconciled monthly.
Veriti also took issue with the way vendor payments and employee reimbursements are handled, deeming the filing system inadequate.
“Veriti requested complete copies of particular vendor files and employee expense reports and they were not provided,” the report said. “Veriti is unsure if they exist or were not readily located within CCS.”
Vendor files, the report said, should include an approved purchase order, requisition, vendor invoice or completed expense report along with a copy of the check and all other receipts. Athletic Director Carroll “Peanut” Crowe told investigators that no reimbursements are made unless there’s a receipt documenting the business purpose, the report states.
“However, per review of Crowe’s and other employees’ expense reimbursements, receipts were not always evident, and those that were included did not adequately state the business purpose, participants and other requisite data,” the report said.
Veriti selected certain vendors and employees for whom it wished to review payment and supporting documentation but reported that in most cases it did not receive the supporting documentation it requested.
“Employees charge items allegedly related to CCS business on their personal credit cards and receive reimbursement in the form of check payments,” the report says. “This practice is used extensively when sports teams travel, wherein a coach or chaperone will pay for the entire team’s meal and get reimbursed. However, in most cases those reimbursements did not include receipts or a list of team members and coaches who received the meals. Therefore, there is no means of verifying that the proper amount is being reimbursed.”
The reimbursement process suffers from security issues as well, the report said. At the time of Veriti’s visit, the blank checks kept for the Student Activity Account were in an “unlocked, unsecure area” at the Cherokee Booster Club office, providing opportunities for “fraudulent activities such as forged maker schemes” in which employees steal unsigned checks. While the blank checks should have been returned and accompanied by W-9 forms and check copies when cleared, the report said, the checks and W-9s were not attached. Veriti did receive various W-9s in the course of its investigation but did not reconcile them to payees due to scope limitations.
Investigators found issues with the way vendors are selected and items purchased.
“Personnel interviewed stated that there was no rhyme or reason as to which vendor was used and no solicited quotes were requested … A bid process should be implemented to ensure uniforms, supplies, equipment, etc., are purchased at the best price. This process will also help prevent kickbacks, collusion or other fraudulent activity,” the report said.
CCS also needs to tighten up the process for making purchases and collecting deliveries, Veriti said.
“According to personnel interviewed, allegedly anyone with access to a CCS computer and CCS’ credit card numbers can make online purchases and then retrieve items in the warehouse when merchandise is delivered,” the report said. “Allegedly, there is no one in the receiving area who verifies merchandise received is for CCS operations.”
That system makes it possible for people to make personal purchases with CCS funds and pick them up without detection. In two cases, Veriti noted, purchases made with CCS credit cards were delivered to individuals’ homes.
“While it is unknown if there were unusual circumstances, this should not be permitted,” the report said. “This internal control weakness could be indicative of misappropriation of funds.”
Finally, Veriti found, current practices mean that “skimming, or taking cash before submitted to accounting personnel, could easily occur.”
While the safe has recently been moved to accounting offices — four employees now have codes — it was previously located in the athletic director’s office or in his assistant’s office, with only those two employees having access, the report said. It contains start-up cash for athletics as well as funds that have been collected but not yet deposited.
Veriti found recordkeeping of cash received to be insufficient, with very few deposit slips or accompanying documents recording the sequential number of tickets sold — lack of such documentation makes it impossible to ensure that the cash received is accurate, the report said. Deposit slips had “scant detail” and there were “no written policies and procedures for handing cash and expenditures.” Booster Club statements could not be located “with ease,” taking months to receive, and when the report was completed in January the Booster Club’s cash register had not been updated since March 8, 2018.
Response from the school
Murray declined to give an interview about the findings but released a statement.
“Anytime the Board of Education receives confidential documents from another branch of Tribal Government the matter is taken very seriously and appropriate actions are taken,” he said. “However, the Board will not discuss documents which are provided to it as confidential or relate to potential personnel matters.”
In response to a request for Board of Education meeting minutes from dates surrounding the initiation of the investigation and its conclusion, Murray said that minutes “cannot be released to non-enrolled members.”
At the time of the investigation and during the 2016-2018 timeframe Veriti was investigating, Crowe was director of CCS’ athletic department and as such responsible for managing the athletics budget and making reports to Murray.
As of April 5, Crowe no longer holds that position. Murray would not comment as to the nature of Crowe’s separation from CCS.
Blankenship said that Internal Audit has not done any follow-up investigation or audit to the Veriti report but said she could not speak to whether another agency may do so.
Response from Crowe
Crowe said he was terminated from his job with the school but for nothing involving money. He said he lost his job due to not following policy and procedure but declined to be more specific. Crowe was adamant that he did nothing wrong, especially not as it relates to money.
“I had a finance person to handle all the money,” he said. “I never dealt with any kind of money whatsoever.”
As to the $195,000 that the school board had to write off, Crowe said that money accumulated because employees who were with the school system prior to his employment in 2016 failed to reconcile expenses.
“It had nothing to do with myself because I know how to balance a budget,” he said. “I’ve done it forever.”
CCS doubtless needs to upgrade its policies and procedures, Crowe said, but that’s a task that would be outside his purview as athletic director. He said he’d been logging 3,500 hours at work each year already — an average of 67 hours over 52 weeks— and pointed out, as Veriti did in its report, that the athletic department did not have any CPAs among its employees.
While Veriti did interview him when compiling the report, there was a lot investigators didn’t ask him about, said Crowe. For instance, the report notes “instances of oceanfront rooms or other deluxe accommodations reserved in Crowe’s name,” saying that “if this type of lodging is considered excessive for CCS business travel, it is problematic and provides an opportunity for employees to unnecessarily spend CCS funds.”
Crowe said that there’s a simple explanation for that expenditure.
The cheerleaders would typically take a trip down to Myrtle Beach, where hotels ran $300-$400 per night. It ended up being cheaper to reserve a four- or five-bedroom condo and house all the girls in one place, he said. The reservation was in his name because he would go ahead and pay for it and have the school reimburse him.
“Stuff like that they would never come ask me,” he said. “They just want to make it look like I was doing all this stuff.”
Crowe, a candidate for principal chief, said in a statement to The Smoky Mountain News about his candidacy sent before he was contacted about the audit that his top priority if elected would be to establish an open-book policy wherein tribal members “will never have to speculate about spending by my office. They will have direct access to my financial records.”
In Crowe’s view, the investigation and its focus on the athletic department in particular is mostly due to his decision to run.
“Someone’s trying to eliminate all the competition,” he added, “and I’m definitely competition.”
The candidate list has seen substantial change in the campaign season so far. The election board declined to certify Teresa McCoy and Mary Crowe to run for principal chief, with the Cherokee Supreme Court later overturning the board’s decision in McCoy’s case. Superior Court Judge Brad Letts sent a letter to N.C. Governor Roy Cooper in February resigning his position so he could run for principal chief, but he never filed for office and later rescinded his resignation.
Crowe said he first stated publicly that he planned to run for chief around Aug. 24, 2018, just days before the investigation was initiated Aug. 27. Internal Audit released the document to CCS and elected leaders of the tribe’s executive and legislative branches March 11, amid the March 1-15 filing period.
“You would never be talking to me if I hadn’t been running for chief,” said Crowe.