A report from the Office of the State Auditor says the N.C. High School Athletic Association and Chatham County Schools may have committed a felony when they included an NCHSAA associate commissioner on the school system's payroll to increase his state retirement benefits.
The auditor's report says Davis Whitfield, the NCHSAA commissioner; Rick Strunk, an associate commissioner; the NCHSAA and Chatham County Schools "devised an arrangement that would enable the Associate Commissioner to receive a retirement benefit for which he was knowingly not eligible as an employee of the Athletic Association."
The NCHSAA, which has been authorized by the N.C. Department of Public Instruction to oversee interscholastic competition in North Carolina public and non-boarding parochial high schools, had been a part of the University of North Carolina system until June 2010.
All of its employees made contributions to the North Carolina Teachers' and State Employees' Retirement System and were eligible for retirement benefits.
But NCHSAA employees were no longer eligible to participate in the state retirement system after the association separated from the university and became a separate 501(c)3 corporation.
The NCHSAA investigated becoming an affiliated educational unit with Orange County so that all of the NCHSAA employees could continue to have state retirement benefits. The N.C. Retirement System concluded that since Orange County would not hire, fire or otherwise control NCHSAA employee activities, the retirement system could not recognize NCHSAA employees as Orange County employees.
The NCHSAA later made an arrangement with Chatham County Schools for Strunk to be a Chatham County employee who was contracted to the NCHSAA. The $99,028.52 benefits and salary of Strunk, who had 26 years of service in the North Carolina retirement system, were paid by the NCHSAA.
The auditor's report cites a possible violation of General Statue 14-100: "If any person shall knowingly and designedly by means of any kind of false pretense whatsoever ... obtain or attempt to obtain from any person within this State any money, good, property, services, chose in action, or other thing of value with intent to cheat or defraud any person of such ... such person shall be guilty of a felony."
In its response to the auditor's report, the NCHSAA said there was no intent to deceive.
The NCHSAA compared its arrangement with Chatham County to the agreements some school systems have with Regional Educational Service Agencies. Such agencies provide assistance to local educational agencies including curriculum, planning, facilities and technology.
Local boards of education have agreed to allow the employees of the RESA to be affiliated with and designated as employees of local education authorities.
"There was certainly no intent to deceive," Whitfield said. "Our board of directors was involved as was the Board of Education in Chatham County. Their legal counsel reviewed everything. We thought we had thoroughly vetted the arrangement."
In a joint statement released Thursday, the NCHSAA's Whitfield and Chatham County Schools Superintendant Robert L. Logan said the two groups acted in good faith.
"We firmly believe both organizations acted in good faith and all actions related to this employment agreement were handled honestly and openly for the public to review," the statement said. "Standard employment protocols were followed including legal review. Once the State Retirement System advised us in May 2011 that the employee agreement was not acceptable, we agreed to voluntarily end the contract. "
Brooks Matthews, the principal of Erwin Triton High and the president of the NCHSAA board of directors, said the association's board has been involved in the process from the beginning.
"There was never any attempt to hide anything," Matthews said. "We acted in good faith, and we thought we had investigated thoroughly. We had no idea this arrangement could create a problem."
The auditor's report said after the Retirement System denied the proposed arrangement with Orange County Schools, the NCHSAA and Chatham County should have requested approval from the Retirement System for their arrangement before proceeding.
The auditor's report has been referred to the District Attorney for N.C. Judicial District 15 B and to the State Bureau of Investigation.
"Obviously, we disagree with the opinion that we were trying to be deceitful," Whitfield said. "We have been honest and open and will continue to cooperate."