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Former Dayton Superintendent Accused of $224,000 Fraud

Former Dayton Independent Schools superintendent Gary Rye improperly received more than $224,000 in payments and benefits, Kentucky Auditor Adam Edelen alleged Thursday morning at the Board of Education.

Rye, who was paid more than $140,000 annually, retired last summer after fifteen years at the helm of the small school district.

Edelen's report accuses Rye of fraudulently accepting the payments and benefits over the course of eight years. The investigation did not go back farther than that,

“That amounts to $240 per student in a district in which almost ninety percent of students receive free or reduced lunch,” Auditor Edelen said. “That’s an unconscionable abuse of scarce resources in a working class community.”
 
Calling it the most personally offensive audit conducted by his office, Edelen referred the matter to the FBI.
 
Rye did not cooperate with the Auditor's office and has since moved out of the area. "I think there is a very good reason he's not living here now," Edelen said.
 
Culture of deception and retribution
 
Auditors found the former superintendent did not inform the Board of benefits for himself and intimidated staff members, who were responsible for issuing checks, if they questioned him.
 
The Auditor’s office launched the examination last fall after the new superintendent, Jay Brewer, raised concerns about certain activities of the former superintendent, who retired at the end of fiscal year 2012. The report includes twelve findings related to payments and benefits to the former superintendent, credit card expenditures, assistant superintendent leave, and board oversight.
 
During the time the former superintendent received the unauthorized benefits and payments, the district began to struggle financially as funding decreased and expenses increased. Brewer said that the district is currently looking to cut $300,000 from its budget.
 
Additionally, the district was struggling academically, culminating in a December 2011 assessment by the Kentucky Department of Education that led to state management of the District’s middle school and high school.
 
“Although the students of the Dayton School District continue to be served, the district would have liked to have been able to purchase advanced technology and other instructional resources to further benefit the students,” Brewer said. “Now it is time to look forward and 
concentrate on the continued education of the Dayton Schools’ students.”
 
The money represented what could have been a raise for teachers and other school resources, Brewer said.
 
Where the money went
 
Auditors found the former superintendent was reimbursed $146,276 for his personal retirement contributions and service credit purchases, benefits not included in his contract.
 
He was paid $47,429 for sick and annual leave days that he should not have received. Some of the leave accumulated was not approved by the board; some leave was taken but not deducted from his leave balance. 
 
An assistant superintendent accumulated 16 more annual leave days than was allowable, representing an additional benefit of $6,368.
 
Auditors also found rampant travel expense abuses. The former superintendent used a district gas credit card for his personal vehicle, which was not a benefit authorized by the board, and accumulated a total of $21,464 in fuel purchases. He double-and even triple-dipped – using the district credit cards to pay for gas and expenses, submitting mileage and other expenses for reimbursement and in some instances, receiving additional reimbursement from the Kentucky Association of School Administrators when he served on the group’s board of directors.
 
In total, Rye was reimbursed roughly $8,502 for expenses he did not incur, that were duplicated, or were for apparent non-existent meetings.
 
“Ripping off the district and (Kentucky Association of School Administrators) is heinous enough, but he really outdid himself when he restricted the athletic teams from traveling long distances for games in order to save money,” Edelen said.
 
Better balance needed between school boards and district administrations
 
Edelen said Thursday morning that the Dayton School Board was a victim in Rye's alleged criminal activity and that across the state a better balance between boards and administrators is needed.
 
While the former superintendent failed to disclose financial activity to the Board, auditors found the Board did not consistently perform his annual evaluations and continued to extend his contract without reviewing it or the cost of the benefits provided.
 
“Unfortunately, this is not the first time my office has identified lack of oversight as a concern with boards,” Edelen said. “Hindsight is always 20/20 that more could’ve been done, but I hope school boards across the Commonwealth heed these lessons to strengthen accountability in our public schools.”
 
Board chairperson Roseann Sharon said she doesn't know how Rye was able to pull off what he did. She cited different codes in the line items on the annual budget that were difficult to decipher. The board has since changed those codes and assigned two members to meet monthly with the district's financial officer to go over superintendent expenditures.
 
Sharon and board members Bernard Pfefer and Diane Huff said that they learned a lot in the process about being out in the open and transparent. 
 
District to file claims against auditing firm, insurance company
 
Board attorney Matthew Demarcus said that the district will pursue claims against Rankin & Rankin, the Ft. Wright-based accounting firm that audited the school district each year. The district will also pursue a claim against the insurance company that protects it from theft.
 
Former Dayton and Covington schools superintendent Jack Moreland was present at Thursday's news conference. "Being a new superintendent is damn hard, but being a new superintendent dealing with this," is even more difficult Moreland said.
 
"How could you hide something of that magnitude? It's unconscionable." 
 
Edelen relies on citizen auditors
 
The Dayton case was brought on by a new superintendent but Edelen said he also relies on citizen auditors to report any perceived wrong-doing by school districts and their budgets. He did not identify any other school districts on his office's radar but Dayton is the fourth such audit of school districts since Edelen took office in 2012.
 
He previously found problems with Kenton County, Breathitt County, and Mason County schools, the latter resulting in the resignation of a superintendent.
 
“I plan to continue working to make sure school districts are spending tax dollars to provide our kids with the world-class education they deserve,” he said.
 
READ: The full report (PDF)
 
Written by Michael Monks, editor & publisher of The River City News
 
Photo: Auditor Adam Edelen presents his findings in Dayton Thursday/RCN