Education

NC New Schools flouted federal rules as collapse loomed

Tony Habit, executive director of N.C. New Schools. In April, New Schools abruptly shut down, giving its 80 employees less than 24 hours notice that their jobs had evaporated. It filed for bankruptcy, showing debts of $1.5 million more than its assets.
Tony Habit, executive director of N.C. New Schools. In April, New Schools abruptly shut down, giving its 80 employees less than 24 hours notice that their jobs had evaporated. It filed for bankruptcy, showing debts of $1.5 million more than its assets. 2014 News and Observer file photo

In the weeks before NC New Schools shut down,the organization violated federal regulations in at least one instance by holding on to federal money that it was obliged to quickly disburse, emails and financial records show.

Tony Habit was the director of NC New Schools from its founding in 2003 until it abruptly shut down in April and filed for bankruptcy. Federal regulations required New Schools to disburse grant money within three days of receiving it, but as New Schools’ finances worsened, Habit told staff to refrain from putting the check in the mail.

The News & Observer reported Sunday that Habit knew at least as early as June 2015 that New Schools could face a $2.1 million deficit, a huge problem for an organization with a $10.5 million budget. The board chairman said he did not see records of this possible deficit until after the agency closed.

The nonprofit, which received tens of millions in federal and private grants, was a champion of early-college high schools, which provide college-level classes for high school students.

NC New Schools received at least $35 million in federal grants. It received them and then passed the funds on to sub-recipients such as schools, colleges or local school systems. Federal law and regulations require the organizations to minimize the amount of time they possess the funds by spending the money within three business days so the money is spent for its intended purpose.

When an agency requests funds through the U.S. Department of Education’s computerized grant management system, the agency must check the following box: “I certify, by processing this payment request and/or re-allocation, that the funds are being expended within three business days of receipt for the purpose and condition of this agreement.”

NC New Schools wrote a check for $74,502 to UNC Greensboro on March 9 of this year, records obtained by the N&O show. Habit was one of two people to sign the check.

Habit sent an email to his finance staff that afternoon: “We may hold a couple of these for a brief period. Please see me before these are mailed. Thanks.”

Fourteen minutes later, a finance staff member wrote to remind Habit that the invoices needed to be paid within three days of receiving the money.

UNC Greensboro, which was evaluating programs for New Schools, did not cash the March 9 check until March 28.

“We can’t certify when the check in question was mailed by the NC New School,” UNC Greensboro spokesman Jim Thornton said in an email. “However, in compliance with the State’s Daily Deposit Act, the UNCG and State policy ... deposits need to be made within 24 hours of receiving a check or the next business day if a weekend or holiday is involved.”

The timing indicates that New Schools held on to the money for roughly two weeks. The money could have aided the organization’s cash flow as it struggled to pay bills.

Habit could not be reached to discuss the payment delay.

Board chairman Jeffrey Corbett, a senior Duke Energy executive, said he did not know of any delayed federal payment.

“I would be concerned about compliance with federal regulations,” said Corbett, who referred questions to the court-appointed bankruptcy trustee.

John P. Cournoyer, the trustee, said he is unaware of any irregularities but is obliged to look into New Schools’ financial affairs.

“I have a duty to investigate,” he said.

Joseph Neff: 919-829-4516, @josephcneff

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