What did the forensic auditors do, exactly?
- The forensic auditors looked at many different aspects of the District’s bond program in deep detail, including analyzing a huge number of records and two dozen interviews with involved parties. Their final report ran over 1,500 pages with exhibits. In this phase of the audit, they completed two main tasks: a test of controls (TC) and forensic accounting investigations (FI). The TCs looked into the processes the District used in managing and overseeing the bond program to assess their adequacy. The FIs looked into specific allegations of mismanagement and followed money trails to attempt to determine whether or not those allegations had merit. One way to think about this is that the TCs tell you whether or not it is easy for fraud or waste to occur, while the FIs tell you whether or not it is likely that fraud or waste actually did occur. (It is important to note, however, that the auditors were not tasked with passing official judgment on whether or not fraud definitely occurred, nor if anything illegal occurred).
What did they find?
Some of the major headlines of the audit are:
- Confirming allegations by the District whistleblower Dennis Clay and others, the audit found that many District budgeting practices were – and remain – inadequate and below the average standard for management of a bond program. This included the fact that projects were done “on scope,” meaning by what features were desired, rather than “on budget,” and budgets were simply increased to meet the scope. These sub-optimal practices led to significant sums of money (potentially millions of dollars) being spent unnecessarily.
- The risk for fraud in most non-budgetary related areas was found to be low. The first phase of the audit found 36 categories of “high” risk. The second phase, digging deeper, lowered that number to only 10. Again, most of these remaining high-risk areas existed in budgeting practices.
- The District has begun making significant progress in its management practices and there remains significant work to be done. The auditors recommended 111 specific actions the District should take to continue improving its management.
- Regarding “allegations of kickbacks” to – and “undue influence” from – former School Board President Charles Ramsey, the auditors found that “at a minimum,” there was an environment where “some vendors did feel undue influence to make [political] contributions when solicited [by Ramsey and other District leadership and staff].” It was beyond the scope of the auditor’s charge to determine whether any corrupt activities actually occurred.
Was anything illegal uncovered?
- The auditors were explicitly not asked to pass legal judgments. As they wrote, “no opinion is expressed by VLS regarding the legal guilt or innocence of any person, party, or organization.” That said, VLS did leave open that the District should seek legal counsel to consider whether or not to refer certain matters to the appropriate legal authority, most notably:
- The contract of the construction management company The Seville Group, Inc. (SGI)
- SGI’s cooperation with the investigation (see below)
- Allegations of kickbacks to former Board member Charles Ramsey, stating that “…VLS renders no opinion as to whether there has been any fraud, criminal activity, corruption, or bribery by anyone associated with this engagement. However, VLS recommends that legal counsel provide guidance and counsel to the Subcommittee for the Clay Investigation and the Board to determine whether this report should be referred to appropriate law enforcement agencies for appropriate action.”
Did all parties cooperate fully with the auditor’s investigation?
- According to the auditors, no. The Seville Group, Inc. (SGI), the District’s main construction management company and one of District’s two largest vendors, did not cooperate fully. SGI did not provide all requested documents nor make all requested individuals available for interviews. The auditors wrote that “SGI may have been in breach of the Right to Audit Clause of the contract between the District and SGI by failing to provide VLS access to requested documents after reasonable notice was provided,” and suggests the District consult with legal counsel to determine next steps.
Several news articles and some Board members have used the term “sloppy” to describe the District’s budgeting practices as described by the audit. What does that mean?
- The “sloppiness” refers to a lack of detailed oversight when making budgets, recording budget expenses and sticking to budgets for school construction projects. For instance, the auditors found that:
- The District did not require architectural firms to hold to established budgets
- The District signed contracts with fees that were “excessive” or well beyond industry standards
- The District provided items “not typically included” in contracts, such as furnishing office space and reimbursing for cell phone usage
- The District accepted and paid overcharges that they were not required to pay, for example over $100,000 in sick time and vacation time that the contract explicitly stated were the vendor’s responsibility
- The District accepted charges that were calculated incorrectly (for example, charges based on labor hours when the contract was not supposed to be calculated on a labor-hour basis)
- The auditors wrote that the District still has “significant work in this area” to lower the risk for future mismanagement.
How do the findings relate to the allegations brought forth by the District whistleblower?
- Factually speaking, the audit seems to largely verify the allegations of mismanagement levied by project analyst Dennis Clay, and similar concerns brought up by former bond program associate superintendent Bill Fay. These concerns are what drove a group of community members, led by Parents for Better Education, to advocate for the full forensic audit. These are also the concerns that are likely to have led four School Board members (Block, Cuevas, Kronenberg and Groves) to vote in favor of the full audit.
- Clay was quoted in the East Bay Times in 2015 explaining his allegations that, ““The budgets were changed to match what was actually spent” and “The spending was never controlled by the budgets. It was pretty much the reverse. And that’s still true. There is no budget process in place to control spending.” As noted above, the audit confirmed that budgets were not held to, and that budgetary cost controls are the area that needs most attention from the District moving forward.
What did the audit find about vendors/contractors and political influence?
- From 2008-2009 to 2014-2015, District vendors and contractors gave a total of $2.1 million to the District for a variety of programs and campaigns. The vast majority of these donations went to either the Ivy League Connection or to the Political Action Committee (For the Children of West County) running campaigns for passing parcel taxes and bond measures. The largest donors were WLC Architects and SGI.
- A smaller amount, close to $70,000, was made as direct donations to School Board member campaigns, with the vast majority going to Madeline Kronenberg and Charles Ramsey.
- The audit found that at least some vendors felt that their contributions were required in order to continue getting work from WCCUSD. As one put it, “It was pretty well known that if [you] didn’t contribute to what Ramsey says, you’re not going to get work with the District.” At the same time, many vendors reported feeling no coercion and that they believed in the causes and candidates they were donating to.
What recommendations did the auditors make?
- Again, the auditors made 111 detailed recommendations. Some are more technical recommendations, such as how to process a vendor’s request to amend their contract for the purpose of adding staff in a way that ensures good oversight. Others are broader, such as the recommendation that the District adopt a “District Business Ethics Expectations” policy for all vendors. Some of the key recommendations include:
- Put into place far more stringent budgeting practices, including requiring much more accurate and widespread recordkeeping, robust approval processes, and safeguards to ensure that contracts are industry-standard.
- Develop detailed, written, line-item budgets for all school construction projects moving forward, and use those budgets to keep projects on track fiscally.
- Put into place extra checks and balances to make sure the bid process for vendors is actually resulting in the lowest reasonable bid being accepted
- Enforce guidelines around ‘change orders’ (requests by vendors to alter the terms of the original contract in the face of new realities that emerge during construction) to make sure they are timely, needed, and of appropriate amounts. Further, make sure that budget increases are approved by staff (and, when needed, the Board) prior to approving and paying out change orders.
- Develop and pass a Board policy on conflicts of interests in terms of association with District vendors and contractors and times when relationships should be disclosed.
What happens now?
- The auditor’s report went to the full School Board on Wed., September 21. The Board voted 4-1 to accept the findings and the recommendations (Groves dissenting, citing a belief that the auditors did not speak to a comprehensive enough list of involved parties).
- On September 21, the Board also followed the auditors’ recommendations and set up a “Recommendations Implementation Task Force” to ensure that the recommendations in the report are put into place. As reported by the East Bay Times, the Task Force will include “Superintendent Matthew Duffy, the associate superintendent for the bond program, the district’s internal auditor, its director of contract administration and a member of the Citizens Bond Oversight Committee. The task force will report to the district’s Facilities Subcommittee quarterly and to the school board semi-annually.”
- 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 SGI.