The Birmingham News (Alabama) - by Marie Leech

A federal investigation into the way the Alabama Department of Education awarded grants to school districts found an apparent conflict of interest existed because the state's director of federal programs at the time was involved in awarding grants that benefited her husband's company.

The Birmingham News first reported in July 2010 that three of the four Alabama school systems that were awarded first-round federal School Improvement Grant money for their chronically failing schools had used a firm in their applications whose vice president is married to a state education official involved in the program. Joe Morton, then the state school superintendent, said later that year that The News' story had spurred the federal investigation.

The U.S. Department of Education's Office of Inspector General released its report Friday, nearly a year and a half after it began its investigation. Auditors found that Deann Stone, who resigned in October 2010 as director of federal programs for the state Department of Education during the federal investigation, had "an apparent conflict of interest" because she was directly involved in the grant awarding process and her husband's company would profit from the grants.

Stone said Friday evening she hadn't seen the report and was surprised to learn it had been issued.

"I have had no conversation with the Office of Inspector General whatsoever, and I have had no conversations with the state Department of Education regarding this," she said. "This really comes as a surprise to me. I thought if there was some kind of concern, they would have contacted me for some type of conversation, but they have not."

Stone said her husband works with banks and network design, not with education and schools. "His job is unrelated to any of the education consulting work, so there is no conflict of interest," she said.

Further, Stone said, her resignation had nothing to do with the investigation. She did not say why she resigned.

"I know it may look that way, but it was unrelated," she said.

The federal audit also found discrepancies in the scoring of the grant applications, including missing score cards, which, the report states, may have resulted in the Department of Education awarding grants to school districts that would not otherwise have been selected to receive the money.

Alabama Superintendent Tommy Bice said he agreed with the report's findings, but said the state went over the grant awards again and found that the districts that received the grants would not have changed even without the discrepancies. Still, he said, the results are "regrettable."

"I do agree there were not checks and balances in place, and in terms of the personnel involved, that person no longer works here," he said. "Since this all occurred, we have a new ethics law, so all of our staff has gone through training, and conflict of interest is a big part of that."

Auditors recommended in the report that the state Department of Education implement policies and procedures to ensure the independence of employees and contractors who participate in awarding competitive grants; establish policies for conflicts of interest so an employee can recuse himself from the process if there is a conflict; and implement internal controls to ensure the accuracy of scoring processes when awarding competitive grants.

Bice said the department has been working on those internal controls since this happened, and they are in place.

Grant consultant

Stone's husband, Dave Stone, is vice president of the project management office at Information Transport Solutions, the company listed as a consultant to three school systems originally selected to receive the grant money.

Sixteen school systems applied for the grants, and seven eventually received money. Three of the four districts awarded the first round of grants used ITS as a consultant in their applications -- Coosa, Lowndes and Marengo counties -- and were awarded $24.2 million of the $58 million available in grant money.

"Her husband's employer was listed in three LEA (local education agency) applications as a provider of School Improvement Grant services, and all three LEAs were awarded SIG (School Improvement Grant) funds," the audit states. "In their applications, two of the three LEAs that listed the director's husband's employer as a provider of SIG services included a price quote from the company, which together totaled more than $10 million. The director's participation in awarding SIG to LEAs created an apparent conflict of interest because the husband's employer had a financial interest in the selected LEAs."

The School Improvement Grant money, part of the federal stimulus package, was awarded to the Alabama Department of Education by the U.S. Department of Education in late April 2010 as part of President Barack Obama's effort to turn around the nation's worst-performing schools. Schools could qualify for grants worth $50,000 to $2 million per failing school. The state received $58 million for the grants, to be disbursed competitively among eligible school systems. Other districts to receive grants were Montgomery, Mobile and Marshall counties and Tuscaloosa city schools.

"We feel like as a department, we did everything we could do to be transparent," Bice said. "They've done their job, we've done our job and now we're ready to move forward."