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Helen Y. Davis Leadership Academy Charter Public School’s Board of Trustees Made an Unallowable Payment of $117,743 for Unused Sick Time to the School’s Former Executive Director.

Audit notes the Board approved payment that was not consistent with former executive director's employment contract.

Table of Contents

Overview

In June 2017, Helen Y. Davis Leadership Academy Charter Public School’s (DLA’s) board of trustees voted on, and ultimately made, a onetime payment of $117,743 to DLA’s former executive director for unused sick time she had accrued since 2003. However, her employment contracts did not provide for this payment. In making this excessive and unallowable payment to the former executive director, the board unnecessarily used the school’s limited funds, which could have been used for other school-related purposes.

Authoritative Guidance

Employment agreements between DLA and the former executive director from fiscal years 2003 through 2005 stated that unused sick days could not be carried over from one year to the next, and contractual agreements for fiscal years 2006 through 2015 specifically stated, “Sick days may not be carried over.” The contract for fiscal years 2016 and 2017 did allow the executive director to earn 10 sick days per year and stated that she would be paid for any unused sick time: “The Board agrees to pay the Employee the value of the remaining accrued sick leave in a separate cash payment.” As of June 30, 2017, the maximum amount of accrued sick time that would be payable to the former executive director under the contracts would be $18,114, for 20 days, assuming that she did not use any sick time in fiscal years 2016 and 2017. (According to DLA’s records, the former executive director did not take any sick days while employed by the school.)

According to regulations promulgated by the Department of Elementary and Secondary Education (DESE) under Section 1.06(1) of Title 603 of the Code of Massachusetts Regulations (CMR), charter schools’ boards of trustees “must fulfill their fiduciary responsibilities, including but not limited to, the duty of loyalty and duty of care, as well as the obligation to oversee the school’s budget.” According to the Massachusetts Attorney General’s Guide for Board Members of Charitable Organizations,

The duty of care means that you must act with such care as an ordinarily prudent person would employ in your position. The duty of loyalty means that you must act in good faith and in a manner that you reasonably believe is in the best interest of the organization.

To meet these responsibilities, the board needs to take the measures necessary to ensure that it makes fiscally sound decisions that are in its students’ best interest.

Reasons for Payout of Accrued Sick Time

According to DLA’s financial statements for fiscal years 2016 and 2017, in paying DLA’s former executive director $117,743 for unused sick time,

The Board of Trustees’ intent was to ensure the former Executive Director was made whole based on what we perceived as someone who was possibly treated unfairly and/or discriminated against because of gender and/or race during the tenure of the previous Board of Trustees.

Recommendation

The board should not approve any employment-related payments to a person unless the payments are specifically authorized under the person’s employment contract.

Auditee’s Response

The Helen Y. Davis Leadership Academy Charter Public School’s (“DLA”) Board of Trustees (the “Board”) made good faith efforts to fulfill its obligations of duty of care and duty of loyalty, and properly exercised its discretion in executing an employment contract with the former Executive Director (“ED”) that was consistent with those obligations. With respect to providing the ED with a compensation package that included accrued sick time, the Board, with input from its payroll service and former business manager, strategically negotiated an extended contract that factored in not only her accumulated sick leave from years past, but also her years of successful leadership at DLA; the Board’s desire to make her whole to account for past practices of a prior board; consideration for her dual role as an academic leader and senior administrator; her selfless dedication to the school and its community; and a financial incentive to extend her employment for a limited term in light of her expressed intent to retire and relocate to the west coast. Where the Board was not at the point of implementing a succession plan to replace her, the Board believed that every effort should have been made to retain her services to allow the Board to recruit, select and train a qualified replacement. As part of that effort, the Board had extensive discussions with its accountants and counsel before the proposed contract to the ED was finalized. For the above reasons, the one-time sick leave payment to the ED was made pursuant to unique circumstances not previously encountered by DLA, but was nonetheless within its authority as a charter to tender.

Auditor’s Reply

We do not agree with DLA’s board of trustees that its decision to provide its former executive director with a one-time payout of $117,743 for her purported unused sick time was consistent with its duties of care and loyalty. This payment was unnecessary and therefore not fiscally prudent, since, as noted above, the former executive director’s employment agreements from fiscal years 2003 through 2005 specifically stated that her unused sick days could not be carried over from one year to the next; her contractual agreements for fiscal years 2006 through 2015 specifically stated, “Sick days may not be carried over”; and her 2016–2017 employment contract did not stipulate that she should be retroactively paid for unused sick time accrued before July 1, 2015. In the Office of the State Auditor’s (OSA’s) opinion, since the former executive director agreed to these contractual terms, it was not necessary for DLA to pay her for more unused sick time than she was eligible for based on her most recent contract. Moreover, this payout was for unused sick days that she had purportedly accrued since 2003, but she had no accruals of unused sick days in DLA’s general ledger before 2015 that could be used to support this payout amount, which calls into question the accuracy of the payout. Further, because this payout was not budgeted for, DLA chose to offset it using $100,000 that had been budgeted to hire two special-education professionals during the 2017 academic year for its students’ benefit.

Representatives of DLA’s external audit firm told us that DLA had not contacted them to discuss the computation or reasonableness of this payout.

The former executive director did consult an outside accountant regarding DLA’s ability to fund her retirement payout. That accountant sent her the following response in an email dated June 28, 2017:

Given the time constraints, I was unable to completely review the books in order to determine the validity and accuracy of the school’s balance sheet. However, based on the information I reviewed and assuming that there aren’t significant outstanding liabilities of which I have not been made aware, I can report that, at June 30, 2017, the school is in a position to pay $116,000.00 plus associated benefits for your retirement pay out.

I must note that, in my 28 years working in the grassroots non-profit sector, I have never seen such a payout. While the board is certainly within their rights to make such a decision, be advised that your auditors and others could raise serious questions and issues concerning this arrangement. The board’s fiduciary responsibilities could even be questioned. I have not read the contract/arrangement, but retroactive sick time payout is highly unusual, particularly for a period of 15 years.

Date published: November 19, 2018
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