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Questionable spending at the embattled Helen Y. Davis Leadership Academy runs much deeper than excessive pay to a former executive director, according to a state audit released Monday that found the Dorchester charter school made more than $126,000 in improper credit card transactions and that its former executive director dipped into school funds to pay her mortgage.

The audit indicated that some of the most vulnerable students at the small middle school may have paid a big price for the financial missteps. Instead of hiring two special education professionals in 2017 to work with these students, the school used the money to help cover a $117,000 sick-time payout to retiring executive director, Karmala Sherwood.

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“This audit makes clear that the Board of Trustees for the Helen Y. Davis Leadership Academy fell considerably short of their fiduciary and oversight responsibilities,” state Auditor Suzanne Bump said in a statement. “Our audit found numerous instances where funds that should have been used to support the education of students were not properly safeguarded and either improperly spent, potentially lost, or allocated toward excessive compensation.”

Davis Leadership officials could not be reached for comment.

The state audit is one of three investigations into Sherwood’s payout that have gone on for more than year, casting a shadow on a school that aims to foster “good character” in marginalized youth.

The probes began after state education department staff fielded complaints about Sherwood’s compensation from some school employees in summer 2017 and asked the state auditor and inspector general to investigate. In February, the state Board of Elementary and Secondary Education placed the school on probation, citing the questionable sick-time payout, the school’s declining academic performance, and governance issues.

The state Inspector General’s Office faulted the school last month for giving Sherwood excessive pay raises and other benefits, enabling her to retire in 2017 with $380,000 in salary, benefits, and payments, including the sicktime buyout that violated terms of her contracts. She is now living on a $12,347 monthly pension from the Massachusetts Teachers Retirement System, while she continues to work for the charter school as an $80,000-a-year consultant.

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Amid the turbulence, the school’s academic performance has eroded further. On last spring’s MCAS, fewer than 20 percent of all students met or exceeded grade-level expectations.

A spokeswoman for the state Department of Elementary and Secondary Education said Monday “staff plan to bring a report to the Board of Elementary and Secondary Education in early 2019 about the school’s probationary status and any recommendations for next steps.”

The audit paints a picture of school leaders who frequently flout the rules and proceed with decisions without regard for consequences. It reviewed finances and governance between 2014 and 2017.

For instance, most of Sherwood’s contracts during her 15 years prohibited carrying over sicktime — until two years ago. Trustees then allowed Sherwood to cashout 130 sick days, valued at $117,ooo, even though an accountant they consulted advised against it, leaving a nearly $100,000 deficit.

“I must note that, in my 28 years working in the grassroots non-profit sector, I have never seen such a payout,” the accountant wrote in an email to trustees that appeared in the audit. “While the board is certainly within their rights to make such a decision, be advised that your auditors and others could raise serious questions and issues concerning this arrangement. The board’s fiduciary responsibilities could even be questioned. I have not read the contract/arrangement, but retroactive sick time payout is highly unusual, particularly for a period of 15 years.”

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The trustees justified the payment and increasing her pay by more than $60,000 over three years to $235,485, arguing they were rewarding her for taking on multiple jobs and wanted to bring her pay in line with other charter-school leaders. Trustees, in their written response in the audit, praised Sherwood for “her selfless dedication to the school.”

But the Auditor’s Office noted that her pay was much higher than comparable schools and that the state’s former education commissioner in 2016 expressed concern about the school’s declining MCAS results.

The audit culled through 3,300 credit cards transactions, identifying $126,333 worth of transactions that lacked proper documentation, such as receipts or invoices, or were unallowable expenditures. The school had only one credit card and authorized user, Sherwood, allowing her to review and approve her own expenses, the audit found.

Sherwood said she accidentally used school funds to pay her mortgage in November 2016, saying that she uses the same bank as the school, the audit said. However, she did not reimburse the school until June 2017.

The audit also found that school management approved nearly $22,000 in cash advances to its employees, more than half for Sherwood, violating school policies; many vendor payments lacked proper documentation; and a PayPal account, which was used to make purchases and collect donations, had unreconciled expenditures.

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In the area of governance, the audit criticized Kevin Tarpley for serving as trustee chairman for seven years — three years longer than bylaws permit.

“It is clear that deliberate and decisive action is needed to restore public trust in the fiscal management of the school,” said Bump.


James Vaznis can be reached at james.vaznis@globe.com. Follow him on Twitter @globevaznis.