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Auditor's Report Inconclusive on School Fraud

The examination delved into the Middle School PTO's bank account over two years and included interviews with former Middle School Principal Ralph Watson. The report is available below in its entirety.


The town-funded auditor's fraud examination of the Middle School PTO bank account concludes that internal controls were such that there was an opportunity for fraud.

But the examination's results are inconclusive on whether fraud took place between December of 2009 and December of 2011. Ralph Watson, the former Middle School principal, was interviewed twice as part of the examination.

Findings listed in the report, which is attached to this post, include the following:

  • The Middle School principal, Ralph Watson, was reimbursed $1,374.81 for which no supporting documentation was provided
  • The Middle School principal, Ralph Watson, was reimbursed twice for the same expense totalling $218.57
  • There is insufficient support for $34,399.17 of disbursements from the bank account
  • There is a lack of internal controls over cash receipts and cash disbursements that provide an opportunity for fraud
  • The Middle School principal's handling of the bank account and the related cash receipts and cash reimbursements was in direct violation of multiple municipal finance laws of the Commonwealth of Massachusetts
  • Noncompliance with IRS and Massachusetts Department of Revenue rules and regulations

The auditor, Sullivan, Rogers & Company, began its investigation a little more than a year ago, Jan. 23, 2012.

Upon finishing it, the forensic accountants recommended that the town consider forwarding the report to police and the Attorney General's Office for their review.

The town did this. Authorities investigated but brought forth no criminal charges.

Patch obtained the auditor's report from Town Administrator Thomas Younger on Wednesday, after making  a request for it late last year under the state's public record law. The forensic audit was funded by taxpayers, costing slightly more than $45,000.

An earlier request, prior to Younger's arrival in Swampscott, was denied because authorities were investigating the case at the time.

The report is inconclusive on whether fraud took place.

"Due to the lack of accounting records and documentation, the result of our fraud examination was inconclusive as to whether fraud occurred during the fraud examination period, " the auditors stated.

"However, we do conclude that the system of internal control over cash receipts and cash disbursements provides an opportunity for fraud to occur."

Assistant Town Administrator Dave Castellarin reported last year that internal controls had been designed, documented, and implemented to promote controls over cash receipts and disbursements related to school activities and student activity funds.

He also said at the time that the School Committee was in the process of formally closing all bank accounts that did not fall under the Town that were previously held at the individual schools.  These funds were to be deposited with the town treasurer going forward and managed and accounted for in accordance with Massachusetts laws.        


stm2010 February 21, 2013 at 01:35 PM
The auditor fleeced us!! 45k for a review of cash movements??
powderpuff79 February 21, 2013 at 02:23 PM
generally when you spend more to investigate than the amount your investigating, the investigation is really about something else who had a hidden agenda here?
Sandie Bock February 21, 2013 at 02:30 PM
What a bunch of BS !!!!! Money spent without accounting for it is theft I would think! Does this EX principal not have to prove what he spent the money on and that it was directly for his school's use? That is a lot of money to not know how it was used and not have receipts for it. This does not look so much of a Forensic look as it is a bookeepers look. Swampscott is becoming the Chelsea of Massachusetts,their problem was with their mayor years ago and money problems I believe, and that their schools were taken over by the State. Swampscott is becoming the laughing stock of the State.
stm2010 February 21, 2013 at 02:53 PM
The vendors are listed in the report and they seem to be legit. I do not understand why we would engage an auditor to 45k for this work. The first step should have been for the town accountant to review the account, it is not rocket science and the amounts are so immaterial. When the school goes through its yearly audit the school could have directed the auditor to take a look at this account for internal control weaknesses. Part of the job of the auditor when performing a financial statement audit is to document internal control weaknesses, we should not have paid them anything extra for what they should be doing anyways!! I hope the town learns something from this- we should not be paying for services which in all honesty should be performed by the town employees. If they want to pay for outside services learn to negotiate better, because the 45k fee for the amount of work performed is outrageous. No wonder they did not want to release the report, not because of missing receipts, but because the auditors did nothing more than look at the cash inflow and outflows of a bank account and interview some people....
Barbara Katz February 21, 2013 at 03:01 PM
And where was the business manager when all this was going on? Isn't this his job to oversee how money is being handled/spent in the schools? Shame on the school department. I'm disgusted. Town hall isn't run this way and the schools handle the biggest part of the town's budget. Money not accounted for by Watson? Are you kidding me? Who gets away with that? This is taking money away from kids. I can't believe this was allowed and/or ignored. What is this town coming to? Oh, and don't forget, the schools are going to be asking for more money I'm sure during budget season. I think it is time for all the secrecy to stop and us taxpayers should start demanding answers.
mary webster February 21, 2013 at 03:32 PM
There should have been some type of practice and/or investigation within the town's means and once that was completed the cost of an investigation should not have exceeded the monies being disputed nor should it have been an automatic assumption to further the investigation unless the conclusion by the "town" specifically showed fraud and by whom. I'm also curious what "bucket " the $45,000 came from? Where would our money have been spent if not for this?
Ilene February 21, 2013 at 04:22 PM
As the parent PTO treasurer at the time, I want to make it perfectly clear that the PTO account in the report was totally unrelated to the parent run PTO accounts. Our account had a different account number, signatories and was totally independent in every way from the school's and dealt with only parent run PTO events. The parent run PTO was only involved in this investigation to the extent we were asked questions about the school account and was never, per the auditor and the police, under any suspicion, nor accused of any improper record keeping. For the 3 years I was involved with the PTO, we only dealt with funds for events we sponsored, ensured we had all receipts and back up for everything and kept detailed copies of everything. (continued in next post)
Ilene February 21, 2013 at 04:25 PM
(continued from prior post) Only two times did the school ask us to deposit their funds, and once, as mentioned in the report, we returned the money as we were not comfortable with handling cash from school sponsored events, and second, we were given the exact amount in cash from an after school program and asked to write two checks for the exact same amount, which we did. At the same time we made it clear to the school that we weren't comfortable doing that and wouldn't do it again (not because it felt illegal but because once again, it wasn't something sponsored by our PTO and thus something we couldn't verify or control). Being asked to deal with school related cash felt wrong from a fiduciary perspective and wasn't something I was comfortable with, and I told the school, but I never got the feeling the school was trying to do anything shady or illegal... BTW, I was told at the time that that account was "inherited" by Mr. Watson when he arrived and had been used that way by previous principals, and was a remnant from the days when all the schools handled their own cash in their own accounts....
powderpuff79 February 21, 2013 at 05:40 PM
45,000 would be enough to avoid another teacher layoff i think hope the person who gave the anonymous tip got their (her?) moneys worth
Kevin Donaher February 21, 2013 at 05:52 PM
I wonder if Ralph's new employer is aware of his shady practices. Mr. Cronin, please tell me all these you are now on top of the new internal controls since you were oblivious to them in the past. Thank you Terry Date for helping the tax payers finally get the details of the audit and exposing another example of the ongoing mis-management at the highest levels within the school administration. It must be very difficult to be a teacher in Swampscott facing layoffs while all this is going on. Considering everything 49th on the states list may be high achieving considering the musical chairs and reported corruption at the top.
Mary DeChillo February 21, 2013 at 06:30 PM
In 2004 the school department asked for a forensic audit in another matter and was told at that time that it had many illegal accounts--some using the tax ID of another group--which had to be shut down. The auditors also said that all financial transactions in the schools had to be done by check written out to the "Town of Swampscott" and overseen by the Town Treasurer. Ms. Demkowski is still the Town Treasurer and could tell you what happened to remedy the situation. She and Andrew Maylor, the then Town Administrator, put in place in the schools and throughout the town, financial safeguards that fully complied with the MA General laws. How this one Middle School account escaped notice and survived when those others were shutdown seems questionable to me. At the time I suggested that the financial functions of the town be under one roof with one manager. Under the law, school budgets and town budgets are separate. Nothing in the law says that consolidation of function, including purchasing, economies of scale can't be a town management and oversight function rather than being separated into 2 entities--the "town side" and the "school side". There is a long tradition in this state of keeping these functions separate, including creating a separate state certification for "School Business Manager". Creating oversight structures is one thing--sustaining them are another. The law is the law. If you are to be in charge of oversight you need to know the law as it evolves.


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