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Probe of State School Readiness Program Begins

Two years after more than a dozen state senators requested a review of the state’s early childhood education agency, S.C. First Steps to School Readiness, the Legislative Audit Council last week formally began an examination of the agency.

Fourteen state senators put their names on a request for the Legislative Audit Council (LAC) to look into the “operations, systems, and management practices of First Steps,” according to correspondence written on the letterhead of Sen. Ray Cleary, R-Georgetown, in May 2010.

While the LAC has audited BabyNet, a program that was moved to First Steps a few years ago from the S.C. Department of Health and Environmental Control, the Audit Council has never reviewed First Steps.

Among issues the LAC audit may focus on are an apparent discrepancy in funding between what's reported as allocated to First Steps through the Legislature, what's shown in the agency's annual report and what's reported to the IRS; salaries which might seem out of line for an operation with fewer than four score employees; and whether First Steps has resolved problems uncovered during a 2011 audit of BabyNet, a federally funded program that serves children ages 3 and younger who have developmental delays.

However, First Steps, begun in 1999 to prepare the state’s poorest and neediest children for school, might prove a difficult web for state auditors to unravel.

Speaking with First Steps officials and reviewing financial information from the agency, which operates under the S.C. Department of Education, leaves a somewhat confusing picture of where it’s been and where it’s going.

Even the most basic points appear to be in question. For example, Executive Director Susan DeVenny told the Nerve last week that First Steps was going to become a stand-alone agency next month, when the 2012-13 fiscal year begins.

However, Sen. Mike Fair, R-Greenville and a member of the First Steps board, said First Steps cannot go out on its own without statutory approval, which it has not received.

First Steps’ financials can be confusing, as well. According to the Legislature’s website, First Steps was appropriated a total of nearly $21.6 million for fiscal year 2010-11, including nearly $12 million in general funds, a difference of nearly $13.5 million.

But according to First Steps’ annual report for the same period, it recorded total revenues of $35 million for 2010-11.

That amount was broken down as follows:

  • $16 million in state appropriations;
  • $12.4 million in federal funding;
  • $5.7 million from interagency grants – funding from other South Carolina state agencies; and
  • Slightly less than $1 million from other sources, including $225,000 in interest.

Finally, a document filed with the Internal Revenue Service for fiscal year 2010-11 and dated Feb. 21, 2012, shows First Steps with a still different revenue figure: nearly $33.9 million.

It's also not clear if First Steps is losing money. For the 2011-12 year, First Steps reported that expenses exceeded revenues by $1.2 million.

Over the past three years, IRS documents show that First Steps has registered nearly $9.5 million more in expenses than revenues. DeVenny said that could be the result of an accounting-related matter tied to BabyNet, which First Steps took over at the beginning of 2010.

“I don’t know if that is not a carry-forward from when we took BabyNet over,” DeVenny said of the $9.5 million.

Gov. Nikki Haley told The Nerve last week that she was “very anxious” to see the results of the LAC audit.

Haley said she would wait before making a judgment on whether First Steps should remain under the Department of Education.

“That’s a conversation I’ll need to have with (Superintendent of Education) Gen. (Mick) Zais after the results of the audit come out,” she said.

First Steps offers a wide variety of services, including tuition for children to help them attend qualified private childcare centers, parent-mentoring classes and a school-transition program.

First Steps helps about 600 kids ages 4 and 5 attend qualified childcare, and 1,800 children are involved in the school-transition program, DeVenny said.

The LAC formally began its audit of First Steps on June 4.

The Legislative Audit Council conducts independent performance audits of state agencies and programs, either as requested by the General Assembly or mandated by law. 

Until the LAC gets a better understanding of what issues may exist within First Steps, and what the senators who signed the audit request are interested in, it’s difficult to estimate how long this audit might take.

The audit took two years to get underway because, according to LAC Director Perry Simpson:

  • The LAC has limited staff,
  • Other audits were either ongoing or already scheduled; and
  • There were some entities, such as the Department of Motor Vehicles, the Department of Employment and Workforce, and the S.C. Education Lottery, that are mandated legislatively to be audited by the LAC and take precedence.

DeVenny said she wasn’t sure why First Steps was being audited.

Cleary said he decided to push for an audit of First Steps after noticing a couple of years ago that while the state was mired in the Great Recession, First Steps was reducing financial assistance to its county-based programs, yet boosting the salary of its executive director. It had also hired an assistant who earned a substantial salary, according to an email response he sent The Nerve.

For the past three years, DeVenny has earned total annual compensation of $153,400, according to information filed with the IRS.

That makes her the third-highest-paid employee in the state Department of Education, after only Murray Brockman, the head of the S.C. Governor’s School for Science and Mathematics; and Bruce Halverson, who leads the S.C. Governor's School for the Arts and Humanities, according to the state salary database.

In fact, DeVenny earns 67 percent more than the $92,007 earned by Zais, who oversees an agency with approximately 800 employees. First Steps, by comparison, has 74 employees.

The assistant Cleary was referring to was Kim Aydlette, who is the former director of the S.C. Department of Social Services. She now works for the Department of Education and earns about $113,000 annually, according to the state salary database.

DeVenny isn’t the only current First Steps employee earning more than the state education superintendent. Chief Program Officer Dan Wuori earns $94,292.

In all, at least 12 First Steps employees, or nearly one in six, earn $50,000 or more annually, a review by The Nerve found.

One of the issues related to First Steps that has provided heartburn for some is an apparent lack of oversight in the program. While First Steps is under the Education Department, the latter has no authority over First Steps’ policies, budget or procedures, according to Jay Ragley, spokesman for the S.C. Department of Education.

"First Steps has always 'been on its own,'" he said in an email response to The Nerve. "The South Carolina Department of Education has not and does not currently manage their programs, hire their employees, coordinate their board of directors meetings or write their strategic plan. They have been and currently are independent of SCDE."

One thing is certain: First Steps can only hope its review turns out better than the audit results released on BabyNet, which the LAC put out in August.

Among the findings:

  • First Steps did not exercise adequate efficiency or oversight in its administration of BabyNet;
  • First Steps had not tracked or reported Medicaid funds paid directly to non-state government BabyNet providers by the state Medicaid agency; and
  • First Steps had not implemented a comprehensive method to measure provider performance or to ensure that invoices correctly reflected services provided.

Fair, the state senator and First Steps board member, said he’s all for the audit.

“Auditing is a win-win situation,” he said. “I don’t know of an audit that has been done where there weren’t recommendations that didn’t offer improvements for the entity in question.”

Reach Dietrich at (803) 779-5022 ext. 110, or kevin@thenerve.org.

State Agencies Legislation K-12 General Assembly Budget Accountability Transparency

Susan DeVenny First Steps Department of Education