A federal appeals court ruled last week that the Philadelphia School District owes the U.S. Department of Education $7.2 million for misspent federal grant funds.
According to the Philadelphia Inquirer, the case stems from a federal audit in 2010 that found "widespread misuse" of $138.4 million in grant funds from July 1, 2005, through June 30, 2006.
The Inspector General’s Office at the U.S. Department of Education claims money dedicated to educate low-income students was spent on catering, a mini-fridge, a microwave oven, greeting cards, contract costs and salaries and benefits for employees who had nothing to do with the federal grants.
Government reports said that the district's budget records were "replete with actions by [the district] that were intentional, improper, and taken with reckless disregard for the regulations and statutes."
The U.S. Court of Appeals for the Third Circut opinion says that some of the funds were used to fund contract costs.
“Petitioner argues that, because it received a program determination letter in March 2011, it should not be liable for misused funds prior to March 2006. But here, the Philadelphia School District initially charged disallowed contract costs to its local account prior to March 2006, and then in September 2006 changed the funding code to link the expenses to its federal account. Thus, the earliest point at which the Secretary could know those funds were being used “in a manner not authorized by law” was when the School District charged the expenditures to the federal account.”
The government originally was seeking $10 million to be returned. The amount was reduced to $7.2 million based on a five-year statute of limitations.