CMAT’S AUDIT REPORT: ARUESD

Opinion
Photo Credit: Pixabay
Photo Credit: Pixabay

Hilbert Morales
EL OBSERVADOR

In November of 2016, Superintendent Gundry received an anonymous allegation that DelTerra Real Estate Services, Inc., DBA Del Terra Group fraudulently billed the Alum Rock Union Elementary (School) District (ARUESD) for construction and program management services. The allegation’s focus included: 1. DelTerra double-billed the district by submitting fees totaling 4% of the total construction costs for project management and an additional 6% for construction management and subsequently assigned the same individual to both contracts; 2. DelTerra invoiced the district approximately $330,000 for construction management services for projects that have not yet begun.

Due to the serious nature of the allegation, (COE) Superintendent Gundry requested that the Fiscal Crisis & Management Assistance Team (FCMAT) conduct an Assembly Bill (AB) 139 extraordinary audit to determine if fraud, misappropriation of funds or other illegal activities may have occurred. FCMAT began its review in December of 2016 and examined district policies, procedures, and internal controls for purchasing and contractual commitments. FCMAT has completed its review and their report containing the study team’s findings and recommendations is posted on their website. For your reference the link is: <http://fcmat.org/wp-content/uploads/sites/4/2017/06/Alum-Rock-UESD-final-report.pdf>.

“Education Code Section 1241.5(b) permits a county superintendent of schools to review or audit the expenditures and internal controls of any school district in the county if there is reason to believe that fraud, misappropriation of funds, or other illegal fiscal practices have occurred that merit examination. Such an audit is commonly referred to as an AB 139 audit. Under Ed Code, it is not the county superintendent’s responsibility or the responsibility of the auditors to determine that any of these have occurred but rather to determine whether the possibility exists and warrants further investigation.”

FCMAT concluded that there is sufficient evidence that fraud or misappropriation of funds may have occurred; therefore, Superintendent Gundry is required to notify the governing board of (ARUESD), the State Controller, the Superintendent of Public Instruction, and the local district attorney and forward the FCMAT recommendation to each of them. (COE Superintendent) Gundry has completed all of these notifications.

ARUSED’s financially independent permits operating their own fiscal and accounting systems. This has been suspended by the State Superintendent Tom Torlakson. ARUSED is being brought back into COE’s fiscal management systems. Gundry is scheduled to present the (FCMAT) audit and his recommendations at (ARUESD) Board of Trustees July 13th meeting. (Source: Peter Daniels, Chief Public Affairs Officer, COE, 06.29.17)

What follows is based upon FCMAT’s independent, objective audit, conducted under contract issued by County Office of Education (Jon R. Gundry, Superintendent, COE) and executed by FCMAT (Fiscal Crisis and Management Team, Joel D. Montero. CEO).

EO’s readers are advised to first read ‘Appendix C’ in order to become oriented about the purpose of this audit. Appendix C presents vocabulary, terms, and FCMAT’s investigative approach. The reader may also want to google “DelTerra Real Estate Services, Inc DBA (doing business as) ‘Del Terra Group’.

My belief is that ARUESD’s constituents need objective comprehensive information which enables making the best decisions in their own best interest for themselves, their families and especially their kids receiving instruction at ARUESD (K-8th grades).

My question is: “How are the children doing?” Are they receiving the best possible preparatory education because their future will be based upon having ‘multi-disciplinary knowledge’.

Responsible parents do, by instruction and personal example over time, teach their kids the ethics, morals and core values which enables their culture and its communities to thrive, not just survive. We live in this very predatory, competitive American society dominated today by leaders who are ‘profit-oriented capitalists’. Our local elected officials, such as ARUESD’s school board members, have the opportunity and responsibility to be the public policy ‘attendants’ who apply their constituent’s morals, ethics, and core values. That is the theory. What is the practice in our community’s reality?

Who includes “societal stewardship”? Who tends to make public policy decisions based mainly on ‘the bottom line’? I encourage each interested reader of this report to ‘download this audit’…all 150 pages…and read it. But read Appendix C first.

“The review results are intended to provide reasonable, but not absolute assurance regarding the accuracy of the district’s financial transactions. Specifically, the agreement states that FCMAT will perform the following: 1. Evaluate policies, procedures and internal controls for purchasing, contractual commitments, and vendor payments. Sample selections will include, but not be limited to, documents related to bond (funded) programs and construction management contracts. 2. Review sample selections of vendor payments and supporting documentation (which) verify compliance with established policy, procedures and applicable laws. Specific audit objectives are outlined in the study agreement (Appendix C).”

I have read the entire report for the purpose of becoming fully informed regarding its contents, findings and disclosures. This knowledge enables identification of particular documented actions which need the attention of ARUESD’s constituents.

ADMINISTRATIVE MANAGEMENT LEADERSHIP: During the past decade, the district has experienced continual changes in administrative leadership at all levels: Superintendent-three times, assistant superintendent of business services and facility management staff positions.

The lack of institutional memory and operational experience in key administrative leadership positions, specifically in the areas of business and facilities management, has contributed to the inconsistent financial reporting for bond and construction related projects.

Former staff members, expressed concerns regarding the district’s use of the Del Terra Group to perform contracted service ‘project and construction management’. The issues include Del Terra Group’s alleged practices of circumventing contractual reporting requirements and the cost of services.

FINANCIAL MANAGEMENT SYSTEM needs to be upgraded; The district’s bond programs (Three bond issues totaling $444 million) are impacted by the inability of it’s financial system software (SunGuard) to track projects by specific resource, site or project coding. Staff compensates by manually reconstructing and reconciling individual project costs, which include the services provided by the Del Terra Group.

Why has no employee been designated as the district auditor or disbursing officer to examine, allow and pay warrants ordered by the governing board?

The proper internal controls and segregation of duties regarding vendor payments has been further compromised because of the district’s inability to obtain a permanent chief business official and the lack of an internal auditor/disbursement officer. (THESE TWO POSITIONS HAVE BEEN VACANT FOR THE PAST FIVE YEARS).

Internal auditors function as an additional level of control to help improve the district’s overall control environment and are essential in a fiscally independent district. Internal auditors can play a valuable role conducting performance audits, special investigations and studies and help management maintain a comprehensive framework of internal controls. As a rule, a formal internal audit function is particularly valuable for activities involving a high degree of risk (e.g., complex accounting systems, contracts with independent contractors and a rapidly changing work environment).”

“The FCMAT study team made multiple attempts to meet with Del Terra Group representatives but encountered a lack of cooperation from the contractor, which resulted in a protracted time frame to complete the necessary interviews and document collection. Requests for documents from Del Terra Group have also gone unanswered. This lack of cooperation regarding requests for interviews and lack of documents both violate the program services agreement approved by the board of trustees in May 2013 and the most recently-approved program management and construction management services agreement for Measure I bond funds approved in November 2016.”

Our kids, who will inherit the future, deserve better. Let’s begin to manage ARUESD in a manner which is totally transparent. Let’s hold all elected officials, administrative & management staff, and contractors responsible and accountable. What will our kids get for $444 million in voter authorized school bond funding which they will pay off?

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