Tag Archives: Michael Fine

Fraud at Sweetwater; Maybe but Unlikely

1 Jul

By Thomas Ultican 7/1/2020

For the past week, local San Diego TV and Print media have been filled with damning headlines like the NBC affiliate’s, Audit of Sweetwater Union High School District Finds Evidence of Fraud” or the online publication Voice of San Diego’s “Audit Finds Sweetwater Officials Deliberately Manipulated Finances.” Every local news outlet published the story with some version of these headlines.

On Monday June 23, the Fiscal Crisis Management Assist Team (FCMAT) presented the results of its long awaited audit of Sweetwater Union High School District’s (SUHSD) finances. The report authors state,

“Based on the findings in this report, there is sufficient evidence to demonstrate that fraud, misappropriation of funds and/or assets, or other illegal fiscal practices may have occurred in the specific areas reviewed.”

How Did SUHSD Arrive Here?

For Sweetwater, this is really a continuation of the course set by corrupt leadership a decade earlier. It is also emblematic of the financial stress all California school districts are facing. Kristen Taketa reporting for the San Diego Union noted in November 2018:

At least 10 districts in the county are projecting that they will not be able to meet their financial commitments next school year, including Chula Vista Elementary, Jamul-Dulzura Union, Mountain Empire Unified, Oceanside Unified, San Diego Unified, San Marcos Unified, San Ysidro, Sweetwater and Vista Unified. More districts won’t be able to meet their financial commitments after next year.

Three factors are mainly responsible for these growing financial stresses. The state has mandated a more than doubling of teacher retirement payments from 8.1% to 18.4% without providing extra assets. Special education costs have been soaring and enrollment has been shrinking due to an increase in state funded privately operated schools.

enrollment-graphs

The Drop in Attendance Accounts for a $20 Million Drop in Revenue

In April of 2014, four of the five Sweetwater board members (Jim Cartmill, Bertha Lopez, Pearl Quinones and Arlie Ricasa) plus Superintendent Jesus Gandara pled guilty to corruption charges and resigned. The fifth member of the five person board, John McCann left the board to run for a seat on the Chula Vista city council.

Cartmill and Lopez pled guilty to a misdemeanor charge of accepting gifts over the state limit. Quinones, Ricasa and Gandara were charged with felonies. Arlie Ricasa pled guilty receiving probation and a fine. Gandara was sentenced to 7-months jail time and fined $7,994.

Pearl Quinones also pled guilty and stated “I would have fought it to the very end if I had been able to afford to keep fighting it.” She received a three-year probation with the felony being reduced to a misdemeanor.

District Attorney Bonnie Dumanis called this a “pay-for-play” scheme stating,

“For years, public officials regularly accepted what amounted to bribes in exchange for their votes on multi-million dollar construction projects. This case is outrageous and shameful.”

In my opinion, Gandara was out of control and deserved the outcome. On the other hand, the school board members’ biggest mistake might have been being careless while the district attorney was planning to run for mayor.

I was politically opposed to the four indicted board members but never believed they were selling their votes and still don’t. I believe they did put the school district and the community first. Dumanis painted them with Superintendent Gandara’s malfeasance.

It is true that they all accepted a small number of free dinners and tickets to local sporting events and did not report some of them correctly. DA Dumanis over-charged them with misdemeanors and felonies that forced their resignations from the board. She could have more appropriately cited them with infractions which would have brought fines, however, the DA valued headlines over justice.

An entirely new five member school board was elected in November, 2014. After completing the school year with interim-superintendents, the board selected Karen Janney to be the new permanent Superintendent of SUHSD. That June 8, 2015 decision was a hailed by the board, the community and the teachers union.

In a 2019 interview, teacher’s union President Gene Chavira said he felt Janney made two critical errors. She rejected the expense of having a forensic audit performed on the district’s finances and she did not listen to board members and labor leaders when they encouraged her to bring in an outside leader for the finance department.

Janney had been a teacher, principal and assistant superintendent in the district. She evidently had formed a strong relationship with Karen Michel and wanted her to be the district’s Chief Financial Officer (CFO).

Michel and her number two, Douglas Martens, retired in June of 2018. There last official act was delivering the budget for school year 2018-19. The budget was approved by the board on June 25th and sent to the County Office of Education (COE) for final approval.

Jenny Salkeld was hired to replace Michel as CFO. In early September, Salkeld discovered a $20 million negative discrepancy in the budget and reported it to the Sweetwater leadership team which forwarded her report to the COE.

The County immediately disapproved of the SUHSD budget and brought in the Fiscal Crisis Management Assist Team (FCMAT) to investigate Sweetwater’s finances.

The FCMAT Audit

Audit Team

CEO Michael Fine and the Four Women Who Performed the SUHSD Extraordinary Audit

FCMAT was created and signed into law in 1991 by Governor Pete Wilson. The Kern County Superintendent of Schools office was selected as the administrative and fiscal agent for FCMAT. It is not a government entity but does receive financial support from the state.

FCMAT is organized as a non-profit. The purpose of FCMAT was to provide districts experiencing budget issues with professional leadership. However, they have developed a reputation for being more about helping political allies than struggling school districts.

The County’s official rejection of the 2018-19 budget was a trigger bringing in FCMAT to conduct a Fiscal Health Risk Analysis. On December 17th, 2018, the Analysis results were presented to Sweetwater’s board by FCMAT CEO Michael Fine. The Voice of San Diego reported,

“FCMAT’s chief executive officer Michael Fine told board members that 302 entries in the district’s accounting system were doctored to create the impression the district had more money than it really did. ‘That my friends and colleagues, is a cover-up,’ …”

Although Michael Fine’s charge of “cover-up” appears mistaken according to the new audit, it does point to a central problem that led to a bad budget. The audit revised the 302 “negative budget entry” count to 220 and explained the origin of these often inadequately documented inputs.

The auditors reported that SUHSD began the budgeting process by rolling the 2017-18 budget into the beginning template for the 2018-19 budget. This was not viewed as unusual, but projections concerning changing budget demands then needed to be inserted into the budget model and that was not satisfactorily done.

FCMAT states, “Interviews with staff … indicate that the district was not utilizing data from a position control system to project salaries and benefit obligations.”

Apparently the suspicious entries were the budget being updated based on actual costs when they arrived. These entries were suspicious because they were not documented in accordance with the California School Accounting Manuel.

I worked in SUHSD from 2002 – 2017 and these findings seem to confirm my own impression of unprofessionalism in the district office. It didn’t appear corrupt but there was little concern with meeting deadlines, crossing t’s and dotting i’s.

In the audit, FCMAT questioned delays in posting payroll transactions. They wondered if these delays were purposeful for hiding the understatement of salaries and benefits in the budget. They concluded it was not, but does give more evidence of the lack of professionalism in the financial department.

In the report, FCMAT says Superintendent Karen Janney, CFO Karen Michel, Director of Financial Services Douglas Martens and Financial Consultant Adam Bauer may be guilty of financial fraud over the February 2018 bond deal. However, much of the damning evidence comes down to the fact that they followed Bauer’s advice about the best path to guarantee a good bond rating.

Laws and methods had changed since the last time Sweetwater did a bond deal. It is difficult to understand why SUHSD not following previous processes with fidelity was considered suspicious.

FCMAT also claims Sweetwater officials should have known that the drop in ending revenue between 2016 and 2017 from $36,285,098 to $21,469,748 indicated deteriorating financial conditions. This was also part of FCMAT’s evidence for Sweetwater knowingly misleading the bond markets about the district’s financial health.

The “extraordinary audit” was triggered by FCMAT’s declaration in December 2018 of possible fraud and cover up. By agreement with the county the audit was quite limited and focused almost exclusively on the 2017-18 budget year and SUHSD internal budgeting processes.

By comparison, a forensic audit of SUHSD is estimated to cost as much as $2,000,000; the county cost for this “extraordinary audit” was estimated at $50,700.

The auditors did not look at data from previous years.

Going Forward

The audit was delivered Monday, 6/23/2020. The document reminds the district’s board, “Within 15 days of receipt of the report, the governing board is required to notify the county superintendent of its proposed actions regarding the county superintendent’s recommendations.”

Board member Paula Hall indicated this would not be a problem since they have already instituted many of the FCMAT suggestions. She also expressed how pleased she was with CFO Jenny Salkeld’s professionalism. Hall believes the district now has strong leadership in finance.

Governor Gavin Newsom signed the state budget on Monday, June 29th. Now Salkeld’s team needs to finish the 2020-21 budget and present it to the board.

Wednesday the 25th, the Sweetwater board met in a virtual executive session and put Karen Janney on paid administrative leave by a vote of 4-1. A board member said that in the uncertain legal climate they felt this move was needed to protect both the district and Janney.

The board also voted to lay off 223 employees and selected Dr. Moises Aguirre to serve as acting Superintendent.

Aguirre must now pick up the ball and continue the planning for opening school on August 3rd.

Dr. Aguirre faces the challenge of how to safely open schools in the Sars-CoV-2 era if that is even possible. If not, he and the Sweetwater team must find a way to make distance learning work for all 36,000 students.

My best guess is that there was no intentional fraud or purposeful financial misleading in SUHSD. It looks like there was a significant budget creation error that collided with state created structural deficits. I do not expect any prosecutions.

If meaningful changes are not made to California school financing, there are going to be many more districts running into these same structural deficits with no good solutions.

The Vicious Attack on Sweetwater Union High School District

14 Mar

By Thomas Ultican 3/14/2020

Chula Vista, California

Superintendent Karen Janney and the school board at Sweetwater Union High School District (SUHSD) have a target on their backs. In September 2018, new Chief Financial Officer, Jenny Salkeld, announced there was a $20 million dollar hole in the submitted 2018-2019 school year budget. Salkeld had discovered a long smoldering budget irregularity. Janney immediately reported the budget issue to the County Office of Education and informed the bargaining units with whom she was negotiating about the new uncertainties. Since then, journalists looking for readers and politicians looking for opportunities have robustly slimed the district and its leaders.

A Quadruple Whammy

Besides the mystery of going from a reported $17 million positive budget to an actual $10 million deficit, Janney and the board of trustees had to deal with the states increased pension payment requirements, a hike in special education costs and shrinking enrollment.

In the 2013-2014 school year, the state required school districts to pay 8% of teachers’ salaries to the California Teachers Retirement System (CalSTRS). In the just submitted Second Interim budget report, Salkeld revealed that the rate is now 17.1% and will increase to 18.4% in the 2020-2021 school year. In other words, the retirement costs have more than doubled.

This school year, spending on special education has zoomed to $62.5 million and is projected to reach almost $70 million in two years.

In addition, SUHSD is experiencing shrinking enrollment. Between 2014 and today the average daily attendance in the district has dropped from 38,302 to 36,023. That accounts for another $20 million in lost revenue. The drop is almost entirely fueled by the expanding charter school sector. In the 2018-2019 school year, 15% of 7th grade through 12th grade students in the Sweetwater service area were in charter schools; a total of 6,281 students. (Number of students derived by cross referencing county charter school data with state attendance records.)

With all of the turmoil, the fact that SUHSD has 13 high schools and 11 middle schools in excellent facilities with professional leadership and highly skilled educators is often overlooked. According to the state, 23% of the district’s students are English language learners and 60% are socioeconomically disadvantaged. What might surprise outsiders is that the professional educators in Sweetwater love their jobs, their students and their schools. They take great pride in the quality of education being provided and are not disturbed in the least by the learning challenges associated with these kinds of student demographics.

However the current situation has presented an opportunity for demagoguery. Chula Vista Elementary has for several years gotten around the law limiting them to grades K-6 by starting dependent charter schools. They now have five dependent charter schools educating 2,108 students who would otherwise be in SUHSD schools. A recent article in the San Diego Union reports “Chula Vista district leaders say they want to give parents more options for middle school as soon as this July.” They want to steal more students.

Sweetwater 2018 Budgets Compared

Comparing the June 2018 Budget with the Revised October 2018 Budget

Is it Time to Replace Karen Janney?

In April of 2014, four of the five Sweetwater board members (Jim Cartmill, Bertha Lopez, Pearl Quinones and Arlie Ricasa) plus Superintendent Jesus Gandara pled guilty to corruption charges and resigned. This is when the current SUHSD board of Trustees was originally elected. On June 8, 2015 the board selected Karen Janney to be the new permanent Superintendent of the district.

Janney was born and raised in the district. She began teaching in SUHSD in 1978 and soon became an administrator. When Jesus Gandara was appointed Superintendent in 2006, Janney was serving as Assistant Superintendent of schools. By 2009, she had completed her doctorate in Education Leadership and Administration at San Diego State University (SDSU) and had been forced out of the SUHSD by Superintendent Gandara.

Janney had many friends in the district who were excited by her selection as the new superintendent. I was working at Mar Vista High School at the time and vividly recall how two staff members that were taking her education leadership course at SDSU were absolutely thrilled. I was OK with her selection but had some unfounded reservations that I kept to myself.

I soon became troubled by three different Janney agendas. I was bothered when she found funding to buy tee-shirts for all staff. The shirts had “Sweetwater Union High School District Putting Students First” emblazoned across the front. Though not mandated, there was pressure applied to wear these corporate styled promotional tee-shirts on certain days. It reminded me of the corporate approach to leadership employed by large charter school chains.

IMG_20200312_125802

Corporate Type of Promotion Foisted on SUHSD Teachers

A second and more troubling policy change came a few months into her tenure. Janney announced that Sweetwater was joining the Core Districts. Originally conceived as an organization for leaders in urban school districts to share strategies, CORE gained notoriety when its eight districts led by John Deasy of Los Angeles Unified made a legally questionable side deal with US Secretary of Education Arne Duncan. They agreed to evaluate teachers using testing data for a chance at Race to the Top grants. Today, CORE is offering to conduct school evaluations for California districts using the residual-gain growth model as an alternative to the California Department of Education evaluation method.

Worse – in 2017, Janney scrapped the district’s expensive I-pad program and replaced it with another Ed Tech industry scheme for putting students at glowing screens. She purchased laptop computers for all students and staff. She had succumbed to the allure of education technology and its associated bad pedagogy. Janney also signed the Future Ready pledge making SUHSD a target for education technology salesmen.

Since the budget crisis began, it has become apparent that Janney is incapable of creating a good working relationship with the County Office of Education (COE). It may not be all her fault. She has been careful to legally comply with the COE but has not developed any visible cooperative relationships.

Superintendents are in charge. School boards only approve or disapprove of the agenda set before them by the Superintendent. From the beginning of her administration, board members, union leaders and community members recommended that she replace the financial department’s leadership. Janney refused and turned away calls in 2015 for a forensic audit of the district’s finances. She was not willing to accept the almost $2 million dollar price tag. These two decisions are central to the financial situation the district is in today. Many people were predicting financial issues would eventually be revealed.

When the crisis first manifested in September 2018, trustees and others encouraged Janney to utilize existing expertise within the district to run a messaging campaign making sure the district’s side of the story was being told. Janney chose instead to leave existing communications director, Manny Rubio, as the sole district spokesperson. During the first two months, there was no public response to the crisis by SUHSD. Rubio was content to wait and react to media questioning.

As the hidden $20 million dollar problem and growing structural issues created an urgent need for budget cuts, Janney made another critical error. Under her leadership the district’s central office staff has doubled. This is where cuts should be expected but Janney has rejected most cuts to her staff. To successfully solve the crisis she needs the cooperation of the Sweetwater Education Association (SEA – the teacher union), however, cutting teachers before district staff is undermining collaboration.

Union Chart of Sweetwater Staffing

An SEA Flyer for the March 10 School Board Meeting

FCMAT is a QUANGO and that’s Not Good

The Financial Crisis Management Assist Team (FCMAT) was summoned to Sweetwater to look at the budget. After a three day deep dive into SUHSD finances, FCMAT CEO Michael Fine delivered a report and some damning words. He said that 302 entries that made the district finances look better were not well documented. He concluded, “That my friends and colleagues, is a cover-up.” He also suggested the district was in danger of a state takeover.

FCMAT was created and signed into law in 1991 by Governor Pete Wilson. The Kern County Superintendent of Schools office was selected as the administrative and fiscal agent for FCMAT.  It is a QUANGO which Roland Watson describes as “a Quasi-Autonomous Non-Governmental Organization.” It is a neo-liberal construct common in the UK. Those of short duration are sometime called task forces; they are set up to look at an issue, report their recommendations and then disband. The purpose of FCMAT was to provide districts experiencing budget issues with professional leadership. However, they have developed a reputation for being more about helping political allies than struggling school districts.

It is eerie how closely the issue in SUHSD echoes the 2003 events in Oakland, California. In 2000, the School Board appointed Dennis Chaconas Superintendent over the objection of Oakland Mayor Jerry Brown, who had pushed a city hall official for the superintendent’s post. In 2003, Education Next Reported, “New software, installed so that the school district could better understand its finances, had uncovered a $40 million deficit from the previous year.”

Chaconas wanted a waiver from the state to allow use of existing construction funds to temporarily pay off the deficit. Instead State Schools’ Superintendent Jack O’Connell and influential Democratic politicians like State Senator Don Perata and Mayor Jerry Brown were instrumental in putting together a deal requiring the district to accept a $100 million loan, even though it was only $37 million in debt. Through apparent complicity with FCMAT, a state takeover of the district came about which gave Broad trained administrator Randolph Ward complete control.

The problem with a QUANGO is they carry out the political agenda of whoever is in power. An article in the Black Agenda Report stated,

“FCMAT did “hit” jobs for anyone willing to pay. Brown paid Tom Henry to prevent Oakland from solving its fiscal problem. FCMAT lobbied the State Attorney General, Bill Lockyer, the former Democratic Assemblyman from Alameda, to rule that Oakland’s plan to borrow construction funds was a violation of state and local law.” (Tom Henry was FCMAT CEO)

FCMAT is still draining money from Oakland. Former Oakland School District Public Information Officer, Ken Epstein writes,

“State appropriation for FCMAT in 2018-19 was about $6.3 million, plus the fees school districts are required to pay for the “aid” provided by FCMAT staff. This past school year, the district paid FCMAT and the county $1.4 million to oversee OUSD.”

“… The district loan payments are $6 million a year until 2026. The $100 million loan was spent unilaterally by the state Receiver Ward with no input from the community.”

In December 2018, FCMAT CEO Michael Fine accused SUHSD of the felonious offense of covering up bad financial information with no evidence. At the same time his team moved in to perform a forensic audit of Sweetwater’s finances. To this date no evidence of criminal malfeasance has been presented and no forensic audit has been conferred.

That has not stopped Will Huntsberry and the Voice of San Diego from running banner headlines like “State Investigators Say There’s Evidence of a Financial ‘Cover-Up’ in Sweetwater” and linking to these allegations repeatedly throughout the last year.

Another Huntsberry headline claims, “Docs, Interviews Show Sweetwater Officials Ignored Budget Warnings.” This article which Huntsberry repeatedly linked in latter reports says one unnamed employee went to Director of Finance Doug Martens and CFO Karen Michel to raise concerns. Huntsberry says both of them told the employee not to worry about it. Martens and Michel resigned from Sweetwater after the June 2018 budget was submitted. If there were legal or ethical problems with financial reports, they are the main suspects. Technically, the report is not false but it is purposefully misleading and sensationalized.

A Final Observation

I lived through the three superintendents’ tenures of Brand twice and Gandara once. They were perverse and unethical. At the same time, many Trustees serving on the board appeared to represent the construction industry more than parents, students or taxpayers. The present board and superintendent might not be perfect, but I do not believe they are corrupt. That is important.

At this point in time, billionaires throughout America are openly hostile toward public education including US Secretary of Education, Betsy DeVos. Many politicians who take money from them would be happy to facilitate the state taking over our school districts. It is in the best interest of the entire Sweetwater family to close ranks and solve this crisis before outside forces take advantage.