What was the forensic audit?
- The forensic audit was an independent financial investigation that was designed to look for concrete evidence of fraud or mishandling of funds. Simple financial audits only evaluate whether an organization’s financial statements accurately say how much money is there. A forensic audit goes several steps further to trace the chain of funds and uncover possible fraud. This is similar to the purpose of a forensic criminal investigation.
How and why was it started?
- There have long been questions from community members about potential fiscal mismanagement and fraud regarding WCCUSD’s $1.6 billion bond program. The questions grew over the past 2-3 years. Former WCCUSD Associate Superintendent for Facilities Bill Fay, who was later terminated, commented publicly that project budgets were being disregarded. There was a grand jury investigation and some believe the questions led to the initiation of SEC and FBI investigations.
- In the spring of 2015, Dennis Clay, a project analyst with the District for 11 years who worked on the bond program, came forward as a whistleblower alleging tens of millions of dollars of mismanagement and providing documentation in support of his claim. Under California’s whistleblower law, the District was required to initiate an independent investigation. This led the School Board to establish the Dennis Clay Subcommittee and, with consistent pressure from community advocates, to hire a forensic auditing firm as a culmination of efforts to answer these questions. After the first phase of the audit found 36 categories of “high” risk, four out of five school board members voted to move into Phase 2, which culminated with a 1,500-page report released in September 2016.
What were the key findings?
- The audit’s findings seem to vindicate the allegations by Fay, Clay, and others that the District did not attempt to keep school construction projects within established budgets. As the auditors wrote, they learned from interviews that “…it was a known fact that the District did not adhere to budgets that were established” and instead adjusted budgets to meet the desired features of the schools. Moreover, due to a lack of internal cost controls, contracts were signed with construction and architectural firms that appear to have included “excessive fees” and elements that were outside industry standard, further driving up costs. The auditors noted that although the District has progressed in many areas of management over the past few years, there is “significant work” still to be done around budgetary policies.
Why are these findings important?
- Despite the District’s generous taxpayer-funded bond program, which has led to West Contra Costa residents having the highest tax rates in the region, 21 of WCCUSD’s 52 schools are still in need of significant repair or rebuilding, according to the District’s own consultant. The bond program is, however, now nearly out of money. The audit demonstrates mismanagement that led to cost overruns, which burned through much of the bond money. Some believe this led to the distrust that caused voters to reject an additional bond measure in 2014. Some board members have noted the importance of being able to acknowledge and correct the missteps of the past, enabling the District to move forward in reestablishing the community’s trust.
What happens next?
- The auditor’s report went to the full School Board on Wednesday, September 21, 2016; the Board voted 4-1 to accept the findings and the recommendations.
- On the 21st, the Board also followed the auditors’ recommendations and set up a “Recommendations Implementation Task Force” to ensure that the recommendations in the report are enacted.
- On September 21, the Board (in closed session) decided to turn the report over to law enforcement agencies. The Board will, in conference with legal counsel, have to determine whether to attempt to take legal action against any parties, most notably the construction management firm The Seville Group, Inc. (SGI) which may have been in breach of contract by not cooperating fully with the auditors.