State Board names receiver for Isaac School District after $12.3 million overexpenditure

The State Board of Education voted unanimously to place Isaac Elementary School District into receivership after hearing evidence that the district reported millions in misclassified and uncovered expenditures and may be $12.3 million over budget.

The decision followed presentations from the Arizona Department of Education, Maricopa County officials, the state Auditor General and the district. Tim McCain, chief financial officer for the Department of Education, said a revised annual financial report submitted Dec. 30 showed about $2.9 million in maintenance-and-operations overexpenditure and $9.3 million in unrestricted capital overexpenditure, for a combined reported overexpenditure of roughly $12.3 million. McCain also told the board the district forfeited $8.9 million in federal ESSER II funds after failing to file required completion reports.

The board’s action came after Maricopa County and the Department of Education described a years-long pattern of cash-management problems, accounting miscoding and internal-control failures. Heather Mock, assistant superintendent for economic management at the Maricopa County Superintendent’s Office, described negative cash balances in federal grant funds, delayed reimbursements and coding errors that, if corrected, would increase the reported overexpenditure. The Auditor General’s office told the board Isaac had been rated a high financial risk for five years and cited 28 significant deficiencies in internal controls, including problems with accounting records, property-control listings and grant monitoring.

Treasurer John Allen told the board that the county had been advancing grant reimbursements and other warrants for years but said his office could not continue doing so and that the district had misrepresented its finances. "They lied to us," Allen said, adding that the district had no remaining levy capacity and was insolvent in his view. Allen said he would continue to make time-sensitive payroll payments that were already in process but could not commit to further advances without a different financing arrangement.

Isaac School District Superintendent Dr. Ventura acknowledged the district’s errors and described pandemic-era grant growth and staff turnover that strained the district’s business office. "I’m not going to deny that they’ve happened," Ventura said, outlining steps the district has taken: separation of duties, weekly revenue posting, internal reconciliations, increased draw-down frequency and a corrective-action plan the district submitted for review.

Outside consultant Jeremy Kis presented short- and long-term remedy proposals that included a lease-purchase infusion to bring immediate cash in (he estimated an immediate need of at least $12 million and targeted $18 million to ensure liquidity), followed by a bond election and potential override for long-term capital stability. Kis also proposed automated coding tools and CFO mentoring to prevent repeat errors.

Board members debated whether a receiver or expedited financing would be less disruptive to students and staff. Superintendent Horn argued receivership was the only path that could quickly protect payroll and basic services; Maricopa County officials said they could not continue to underwrite district operations indefinitely. After a final round of remarks, Horn moved to place the district in receivership; Member Clark seconded the motion and the board voted unanimously in favor (Member Katne had recused himself from the meeting).

Under statute the receiver is required to prepare a fiscal-management plan and quarterly reports; board staff said a receiver is already on contract, that the board asked for an expedited plan (statute allows 90 to 120 days) and that the receiver will present an initial plan publicly. The board directed staff to provide points of contact to the receiver and to monitor quarterly expenditures and progress.

The board said it will continue outreach to county officials and other stakeholders to reduce disruption for about 5,000 students, district employees and families while the receiver implements the fiscal plan. The board adjourned after confirming next steps and scheduling its regular meeting.

What happens next: The receiver will assess finances, prepare a fiscal-management plan for the board and report back in public meetings; statute requires professional-development hours for school-board members and relevant district staff if a receiver or fiscal crisis team is appointed.