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Long-awaited results from the state-ordered forensic audit of Memphis-Shelby County Schools were released Wednesday as the legal battle continues over who will lead the district for the next four years.
The 667-page report on district finances and operations, completed June 30, identified over $54 million in MSCS spending as evidence of potential fraud, waste, or abuse. State Comptroller Jason Mumpower said the audit shows not one-off mistakes but “systemic failures” in district management from 2021 to 2024.
More than $48 million of that spending comes from a single custodial contract granted to ServiceMaster Clean in 2022, despite initial recommendations to hire multiple vendors for custodial services across the district. The contract was canceled a year later after school staff and families complained about unclean schools.
An earlier internal district audit flagged the contract after a whistleblower alleged its cost was inflated to account for “kickbacks.” As the district investigated, the chief of business operations was placed on administrative leave and later resigned. An operations sourcing manager also resigned from the district after internal auditors requested contract paperwork.
According to the state audit, the district referred the matter to the FBI. Auditors from CliftonLarsonAllen, or CLA, the accounting firm that conducted the forensic review, said they could not verify the outcome of that case or verify the allegations made in the initial audit.
CLA also identified more than $65 million in spending that violated district policies but did not rise to the level of waste, fraud, or abuse. And the final report highlights fragmented recordkeeping systems and internal control deficiencies across multiple departments.
Part of that is due to consistent leadership turnover, the audit says, which “impacted the retention of staff, eroded institutional knowledge, [and] created inefficiencies in the organizational stability” of the district. That includes multiple invoices without proper approval and instances of two vendors hired to do the same job.
In a statement posted on X, MSCS emphasized that the audit covers a time period predating current leadership.
“The work to strengthen our organization did not begin with this audit,” the statement says. “Strengthening oversight, enhancing internal controls, and improving operational practices, and increasing accountability have been ongoing priorities for the District.”
CLA also said that MSCS’ local school board and legal counsel had multiple email conversations that potentially violate Tennessee’s Open Meetings Act, including discussions on superintendent searches and contract negotiations.
“The observed patterns reflect a risk that Board business was discussed, advanced, or shaped outside the public meeting process,” the final report says.
Initial findings from the audit released in April spurred the passage of MSCS’ state takeover law. But the nine-member oversight board that Tennessee Republicans say will correct district mismanagement is temporarily unable to assume control over key MSCS decisions. A federal judge issued an order blocking the board’s authority on June 30, the night before its four-year tenure was set to begin.
The ruling was an early win for MSCS and the local government leaders who filed a lawsuit challenging the takeover as unconstitutional last month. The temporary block will remain in place at least until the court holds a full hearing, which has not been scheduled.
House Speaker Cameron Sexton on Wednesday called on Memphis and Shelby County parents to ask the board to withdraw the lawsuit, saying “time is of the essence” to turn the district around.
“They need to withdraw their lawsuit. Otherwise, all they’re doing is delaying the change that is needed in their school system,” Sexton said.
The preliminary audit findings, released when the review was only 25% complete, identified more than $1 million in MSCS spending that auditors considered waste or abuse over a three-year period. That represents less than 1% of the Memphis district’s operating budget.
The findings also pointed to issues with leadership instability and staff retention that auditors said contributed to a lack of institutional knowledge and weaknesses in accountability and recordkeeping. MSCS has had four superintendents in the past five years, a trend Superintendent Roderick Richmond has said has undermined public trust and district management.
Days before the initial results were released, MSCS leaders adopted plans to strengthen internal controls and modernize document systems. Richmond pledged that more than 80% of the district’s employee files and 95% of payroll documentation would be complete by the summer.
According to the district’s live accountability website, most of those goals are in progress or haven’t been started yet. An MSCS representative told Chalkbeat Tuesday there will be an updated report following the final audit release.
Under the district’s accountability plan, Richmond has 45 days to identify the key issues outlined in the final report and present a corrective action plan to the board.
Bri Hatch covers Memphis-Shelby County Schools for Chalkbeat Tennessee. Reach Bri at bhatch@chalkbeat.org.
