THE LAW FIRM OF MQRENO, LEE, BAGHAND, RC. A PROFESSIONAL CORPORATION 206 West Missouri Avenue - PO. Box 1174 Pierre, South Dakota 57501-1174 Telephone: (605) 224-0461 . Fax: (605) 224-1607 Mark A. Moreno - Charles P. Schroyer (Rot) Thomas E. Lee Paul E. Bachand . I Edward s. I-Iruska 111 August 18, 2017 Also admitted in NE Dear GOAC Committee Members: I am in receipt of the August 4, 201,7'correspondence from Senator Deb Peters and Representative Jean Hunhoff on behalf of the Government Operations and Audit Committee, directed to Dr. Melody Schopp, Secretary of the South Dakota Department of Education, and to - Ms. Tamara Damall, South Dakota Department of Education. Those letters requested written answers to various questions and invited Dr. Schopp and Ms. Darnall to the next GOAC hearing. Please recall that on July 10, 2017, I wrote the entire committee and provided a copy of the civil complaint against Mid Central (Hughes C0. Civ 17-4140) and accompanying exhibits. In that correspondence, 1 addressed the pending civil action and the fact that I might have to direct Dr. Schopp not to answer certain questions at the July 24, 2017 GOAC hearing. On July 24, 2017, Dr. Schopp provided GOAC with a detailed presentation regarding the Department?s actions and oversight of the GEAR UP grant. The questions that followed were, for the most part, honest efforts to more fully understand this situation. However, Dr. Schopp also answered questions from a member of the committee that were at times unprofessional and derogatory, including questions that attempted to blame Dr. Schopp for the deaths of the Westerhuis family. At no point during the questioning did I stop Dr. Schopp from providing a response, even though some questions addressed and impacted the pending litigation. 1? mindful that most of the committee legitimately seeks relevant follow-up information based upon information presented during the July 24 hearing, and I believe these answers will help the committee to conclude this matter. - In advising Dr. Schopp and Ms. Darnall on her answers, I have attempted to balance the . committee?s statutory authority under Chapter 2-6 with my client?s right to maintain privileged communications and deliberations, along with the State?s ability to successfully pursue its civil action, based on the following: Answers are not provided if to do so would violate attorney- -client privilege or executive privilege. 2. Answers attempt to note misstatements of fact within the questions; however, to the extent that an answer does not address each and every misstated fact, the purported or alleged ?fact? should not be deemed to be admitted. 3. Answers may not be fully answered if doing so would endanger the State?s ability to successfully pursue its pending civil action. 4. To the extent that the question contains immaterial, impertinent or scandalous matters, answers will not be provided. Based upon the extensive and detailed presentation on July 24, 2017, along with the responses to the enclosed questions, Dr. Schopp and Ms. Damall will not personally appear at the GOAC hearing scheduled for August 29, 2017. This is likewise based upon my advice. For your information, Secretary Schopp has a memorial service which she will be traveling out of state to attend. Due to the pending litigation, I believe it is best that I respond to questions 46-48 directed to Secretary SchOpp regarding match. GEAR UP was a federal grant program that provided funds to help at-risk students attend college. In South Dakota, the program primarily served Native American students. The grant required that federal dollars be matched on a 1:1 basis. This match could be provided with direct ?nancial support or through in?kind contributions. If a product or service was donated to GEAR UP, it could only count toward the match if the product or service was actually used to support GEAR UP programs. The State?s contracts with Mid Central required that Mid Central satisfy the match requirement. One method used by Mid Central to accomplish this contractual requirement was based upon donated Microsoft licenses. Originally, the Microsoft partnership focused on the high school summer program students. In FY2014, the software donated included 500 licenses for a suite of software which included: Visual Studio Ultimate, Visio Professional, Windows 8, Microsoft Project Professional, Azure, OneNote, MS Press EBooks, and Pluralsight on Demand. The donation also included training materials and support. Microsoft provided documentation to Mid Central indicating that the 500 licenses were being donated at a value of $4,000 per user, per year, for a total gift value of $2,000,000 in FY2014. In FY2015, Mid Central sought to expand the partnership with Microsoft to the 38 partner schools during the academic year as well. Microsoft agreed to the expansion of the program and the donation was changed to include 1,240 licenses of DreamSpark Premium and of Azure Student Grants. The market value for DreamSpark Premium was quoted at $499 each, and for Azure Student Grants the market value was quoted at $1,200 each, for a total gift value of $2,106,760 in FY2015. As a part of SD FY2014 audit, the Department of Legislative Audit questioned the valuation placed on these licenses, because independent research indicated that the licenses were only worth $500 per license, rather than $4,000 per license. DLA raised this issue with SD DOE. SD DOE requested supporting documentation from Mid Central and was I provided documentation from Microsoft indicating the valuation of the suite of software was actually over $18,000 per user. The United States Department of Education independently 2 veri?ed the valuation of $4,000 per license and accepted the valuation of donated licenses as an in-kind match of the federal dollars. US DOE also requested documentation supporting the usage of the software. Requests to Mid Central for further documentation on the usage were unful?lled. Mid Central claimed that the match documentation was destroyed in the ?re at the Westerhuis property. In a phone call from the federal program of?cer on February 2, 2016, US DOE informed SD DOE that it would step requesting documentation on usage and accept the match. Later, in a June 8, 2016 conversation with the federal program of?cer and his supervisor to discuss reporting match going forward, the supervisor con?rmed that, due to lack of access to records, as well as the resolved 2014 audit, SD DOE should report matching funds with Mid Central according to the methodology accepted in the past. In the FY2015 audit of SD DOE, the Department of Legislative Audit questioned the usage of the Microsoft products. SD DOE again requested documentation from Mid Central to support the usage. While Mid Central was not able to produce a list of students using the software or computers the software was installed on, they did provide the course syllabus for the 2015 summer honors program which included several classes on Microsoft Programming. This documentation was provided to US DOE and accepted. However, US DOE indicated that depending on the outcome of future audits and program reviews, it reserved the right to take further administrative action, including, but not limited to the recovery of funds. The state?s pending civil litigation against Mid Central involves the Microsoft match to the extent that Mid Central was aware of its contractual obligation to provide the necessary federal match and suf?cient documentation of such non?federal match (paragraph 47). The State alleges that ?The Audits found that MCEC did not comply with the matching requirements of the GEAR UP grant.? (Paragraph 55). Paragraphs 58 61 further discuss match and allege that Mid Central failed to appropriately document matching requirements. It certainly might be an issue with US DOE that Mid Central is unable to document that the Microsoft software licenses were used to support GEAR UP programs. If that is true, it would mean that the match, regardless of the value, could not be used to match federal funds. The State ?led its lawsuit in part as a result of the DLA audit ?nding related to Mid Central not complying with the matching requirements of the GEAR UP grant. The audit finding, absent some resolution with US DOE, means that monies may need to be repaid to US DOE. It is alleged in the civil complaint that it was Mid Central?s responsibility to acquire and document the local match, and Mid Central received the federal funds to administer GEAR UP. Therefore, if the federal government requires that $4 million be repaid, Mid Central should repay it. Mid Central is a cooperative of school districts, and those districts are ultimately responsible for Operating Mid Central and for covering its liabilities. That is why those districts are also named as defendants, but note that individual school board members and superintendents were not personally named. As it currently stands, DLA has an audit ?nding (Finding No. 2015-003) that states that ?The Mid Central Educational Cooperative (Cooperative) did not comply with the matching requirements of the Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR UP) grant.? Absent a determination otherwise, money will need to be repaid. 3 The allegations contained in the lawsuit are simply allegations that must be proved or admitted to by the defendants, and nothing contained in this correspondence or the accompanying responses to questions are meant in any way to prejudice the defendants? right to contest any matters contained in the civil action or impact their ability to a fair and impartial trial. Sincerely, Paul E. Bachand Special Assistant Attorney General