A suburban Chicago school district appears to be facing federal scrutiny over its dealings, including past bond deals.

CHICAGO – A school district in Will County, Illinois faces a federal probe of its former superintendent's dealings, including the handling of bond funds.

In response to Freedom of Information Act requests, Lincoln-Way School District 210 this week released a May 4 subpoena received from the U.S. Attorney's office ordering the district's record-keeper to testify before a grand jury on May 18. Federal prosecutors do not comment whether investigations are being conducted.

The subpoena sought detailed records related to retired Superintendent Lawrence Wyllie's documents as well as various district documents and contracts including "all records relating to misappropriation of federal, state, and local funds to include bond funds, restricted funds, and student activity funds, for the time period of 2006 to the present."

The district declined to comment any further.

Moody's Investors Service recently slapped the district, formally known as Will County Community High School District 210, Lincolnway, with a five-notch downgrade after it turned to short-term borrowing to deal with fallout from the improper accounting of past bond proceeds.

The rating agency lowered the rating to Baa3, the lowest investment grade level, from A1 and assigned a negative outlook to the district's $259 million of debt.

"The downgrade to Baa3 reflects the weakened financial position of the district, which has necessitated the issuance of tax anticipation warrants to support operations," Moody's said. "The rating also considers the recent discovery of misappropriation of bond proceeds and restricted funds, the resolution of which will exacerbate the district's budget pressures."

The district is struggling with an elevated debt burden additionally pressured by capital appreciation bonds that will drive debt service costs up substantially in 2021. In addition to cuts, the district is seeking to close of one of four high schools to cut costs but faces public opposition and a legal challenge.

"The negative outlook reflects the likelihood that the district's financial position will continue to narrow in fiscal 2016 and beyond," Moody's said. The district has an enrollment of more than 7,000 students from six suburbs far southwest of Chicago.

Last November the district hired Crowe Horwath to conduct a sweeping review of the district's accounting practices and use of proceeds from sales in 2006, 2007, and 2009 that helped finance the construction of two new high schools. Voters approved up to $225 million in borrowing in a 2006 referendum.

The report offered a stinging assessment of the management of bond proceeds. While it found that no bond proceeds were missing, it revealed some bond proceeds and interest earnings were improperly transferred among differing funds and in turn spent on non-capital expenses.

"The result of these previous accounting discrepancies mitigated the deficit spending that was part of the district's true financial picture from fiscal year 2008 to fiscal year 2013," the district's interim business manager, Steven Langert, said in a statement. The board at its meeting in mid-April accepted the report's finding and recommendations and approved corrective actions including the transfer of money to correct funds.

The Illinois Board of Education put the district on a financial watch list last year so it remains under pressure to shore up its balance sheet or face additional state intervention.

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