1. Non-contractual payments made by Superintendent Ross without board approval.

Non-contractual payments were made to certain employees of the Houston Public SchoolDistrict (“HPSD”) beginning, on January 1st 2009 and continuing through May 18, 2010. Thesepayments were made at the direction of then Superintendent of Houston Public Schools, Mr. KimRoss (“Ross”). There is no record of the Houston Public School Board (“HPSB”) authorizingsaid payments. An auditor’s report, prepared by the Office of the State Auditor, State ofMinnesota, reports that non-contractual payments were made that were not part of the HPSB’sapproved budget. See Petition Engagement, Independent School District 294, Rebecca Otto,State Auditor, attached hereto as Exhibit A. (“Auditor’s Report”)

Minnesota law further provides that: “No funds shall be expended by any board or districtfor any purpose in any school year prior to the adoption of the budget document whichauthorizes that expenditure, or prior to an amendment to the budget document by the board toauthorize the expenditure. Expenditures of funds in violation of this subdivision shall beconsidered unlawful expenditures.” Minn. Stat. § 123B.77, subd. 4.

The Auditor’s Report sets forth specific non-contractual payments that were made fromJanuary 1, through March, 2, 2009, and from March 3 through June 30, 2009, which were nottimely and properly approved by the HPSB.

An amended school budget was approved at the March 3rd, 2009 meeting of the HPSB. Asearch of the public record shows no authorization for the non-contractual payments, nodocuments in the HPSB meeting packet or any documents related to the individuals to becompensated, what they were to be compensated for, nor any documents the HCSB may havehad alerting them to the payments. In fact, at the same March 3rd HPSB meeting it wasannounced in the minutes that: “Mr. Ross is taking a voluntary wage freeze for the 2009-2010school year.”

On or about May 18, 2010 the HPSB unanimously approved the following resolution:“Motion to discontinue any and all stipend, payments to employees for days worked beyondcontracted requirements, and any other pay beyond base salary, unless such payments areapproved, in advance, by the School Board.”

Two School Board members who left office on December 31, 2008 have stated publiclythat no discussion was held in their presence regarding these payments. Since the paymentsbegan on Jan 1st 2009, discussion or approval should have taken place during their term inoffice.

Past practice for the HPSB has always been to approve at a public meeting any increase ordecrease in employee compensation whether it be Additional Compensation in an AdministrativeContract or financial modification to a teacher’s or administrator’s contract. Any School Districtemployee financial compensation changes, were and currently are, always reflected in theofficial minutes of the HPSB.

It is apparent from the State Auditor’s report that these payments were commencedillegally and then covered up in the HPSB’s budget without the knowledge of the authorizing

body. That constitutes theft and fraud. The appropriate measures should be taken to hold theindividual responsible for this crime accountable and the illegal payments returned to the SchoolDistrict to be used for what the public was taxed for, the education of Houston School Districtstudents.

Ross approved payments to himself and certain staff without authorization by the HPSB.See page 2 of Auditor’s Report.

Theft – Unauthorized non-contractual payments initiated by Ross to himself, hisemployee and business partner Mr. Kerska and select office staff.

In addition to criminal liability under Minn. Stat. 609.52, subd 2 Theft – it is believedthat Minn. Stat.609.52 has been violated as well since claim was made for payment withoutsubstantiation of what the payment was for and without the elected body’s knowledge.

At an absolute minimum these non –contractual and unauthorized payments constitute aviolation of Minn. Stat. 609.45 (Public Officer: Unauthorized Compensation) – Whosever isa public officer or public employee and under color of office or employment intentionally asks,receives, or agrees to receive a fee or other compensation in excess of that allowed by law orwhere no such fee or compensation is allowed, is guilty of a misdemeanor.

As the taxpayers in the State of Minnesota and the Houston Public School District weassert Minn Stat. 604.14 (Civil Liability for Theft) and demand that the County Attorneyinitiate not only criminal charges but seek the return of the purloined funds to the School District

2. Inappropriate compensation to School Board Member Scheu.

Although Minnesota law provides that school board members may receive “suchcompensation as may be fixed by the board.” Minn. Stat. § 123B.09, subd. 12, unauthorizedand inappropriate payments are both unethical and illegal.

Page 3 of the Auditors Report puts forth the following Houston Public Schools Boardcompensation policy: “On August 22, 2006, the School Board approved a school boardcompensation rate in effect through February 14, 2011. The compensation rate provided thatboard members would be compensated at a rate of $40 per meeting for regular board meetings,study sessions, special board meetings, committee meetings, and other board meetings.”

The Audit Report details as well on Page 3 that Mr. Scheu (“Scheu”) was compensatedfor 156 meetings from July 2008 through June 2010 for which no other Board member receivedcompensation. Attachment A or the Audit report details Scheu inappropriately beingcompensated for individual meetings with Superintendent Ross 25 times plus individualmeetings with other persons. 30 meetings for “agenda planning”, 28 facility planning meetingsand even compensation for attendance at the graduation ceremony and diploma signing!

Scheu intentionally and repeatedly violated the School Board’s compensation policy bysubmitting for and being compensated for “meetings” which do not meet the criteria forreimbursement.

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At an absolute minimum, these non –contractual and unauthorized payments constitute aviolation of Minn. Stat. 609.45 (Public Officer: Unauthorized Compensation) – Whosever isa public officer or public employee and under color of office or employment intentionally asks,receives, or agrees to receive a fee or other compensation in excess of that allowed by law orwhere no such fee or compensation is allowed, is guilty of a misdemeanor.

Scheu, with the Superintendent’s approval, accessed thousands of dollars in violation ofBoard policy. As the taxpayers in the State of Minnesota and the Houston Public School Districtwe assert Minn Stat. 604.14 (Civil Liability for Theft) and demand that the County Attorneyinitiate not only criminal charges but seek the return of the purloined funds to the School District

3. School Credit Card abuse by Superintendant Ross and Director of SecondaryOptions Kerska.

It is both inappropriate and illegal for school personnel to make unauthorized andundocumented charges to a school credit card.

Page 5 of the Auditor’s Report states: “Based on our review of the charges listed on themonthly credit card statements, we could not determine whether some of the charges to the creditcards were for School District business because the District could not provide us the relatedvendor receipts. In addition, the Superintendent and the Director of Secondary Options did notcomplete the District’s travel expense claim forms for travel expenses, nor did they complete theDistrict’s purchase orders for items they purchased with the credit cards. For the time periodDecember 1, 2008, through June 30, 2010, the Superintendent school credit card hadundocumented charges totaling $5,777.48. See Attachment B. For the period January 1, 2009,through June 30, 2010, the Director of Secondary Options school credit card had undocumentedcharges of $4,033.66. See Attachment C. See Attachment D for a copy of the District’s TravelExpense Claim form.”

Along with the other financial improprieties, noted above, taking place at Houston PublicSchools, Ross and Kerska abused their credit card privileges by not submitting proper receipts,travel expense claims or purchase orders. All other school staff were required to submit theproper paperwork and complied with school policies.

The State Audit Reports that “The following software and computer parts were purchasedusing the Superintendent school credit card, and the shipping address was the Superintendent’sresidence.”

Although the District’s Purchasing Procedure policy requires submission of a purchase order, wefound no such purchase orders for these purchases.● October 2009, purchased Other World Computing upgrade bundle for $201.24.● The I-Phone accessories that were purchased at the Apple Online Store in October 2009.● November 2009, purchased at Microsoft Store the Windows 7 Home Premium softwareapplication for $213.74.

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The State Auditor inquired with certain employees of the School District whether theseitems were returned to the District. The employees stated that they did not know if these itemswere returned or not, nor did they know that the Superintendent purchased these items.”

Page 8 of the Auditor’s Report notes that “the Superintendent and Director of SecondaryOptions school credit cards were used to charge meals that did not require overnight travel. Thecost of these meals was not reported as fringe benefits by the District as taxable wages on theSuperintendent or Director of Secondary Options W-2 Forms for the petition period. Per IRSPublication 15-B, it appears these meals are taxable as wages to the employees because travelmust be away from home overnight to be an excludable.”

By not complying with School policy and procedure Ross violated Minn. Stat. 609.52(Theft).

Ross and Kerska by submitting credit card expenditures without the properdocumentation violated Minn. Stat. 609.465 (Presenting False Claims to the Public Officer orBody) and were personally enriched in violation of School policy and State law.

Minn. Stat. 609.45 (Public Officer: Unauthorized Compensation) – Whosever is apublic officer or public employee and under color of office or employment intentionally asks,receives, or agrees to receive a fee or other compensation in excess of that allowed by law orwhere no such fee or compensation is allowed, is guilty of a misdemeanor.

Personal enrichment as a result of the purposeful violation of School policy and Statestatute is the obvious situation in this case. The period of audit was for only 18 months and bothindividuals worked for the school for multiple years. The true extent of the amount stolen fromthe School District remains beyond this petitioner’s knowledge. Mr. Ross as Superintendent wasthe chief decision maker at the school, he held all other employees at the school to the policiesregarding travel reimbursement and purchasing. He clearly did not follow those policies himselfnor did he require his employee and business partner Kerska, to follow them either. This resultedin the Houston Public Schools being deprived of revenue to fulfill the school’s mission ofeducation to the District’s children.

A persistent environment for personal enrichment was fostered by Superintendent Ross.In addition, that personal enrichment was extended to Mr. Kerska. This contention is bolsteredby the fact that the other three school employees with credit cards, the Director of Finance, thePayroll Director and the HR Director had adequate supporting information to ascertain that allcharges they made were for School District business.

Ross and Kerska deprived the Houston Public School District of revenue in an illegal anddeceitful way. They should be held accountable both criminally and be required to pay back theSchool District the fraudulently acquired money.

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