What to look for in Stockton Unified School District finance report being released Tuesday

A state audit looking for fraud at Stockton Unified School District is set for release at Tuesday's Board of Trustees meeting.

The state’s Financial Crisis and Management Assistance Team spent nearly a year determining if fraud, misappropriation of funds or other illegal fiscal practices took place at Stockton’s largest school district.

San Joaquin County Office of Education Superintendent Troy Brown will present the findings of the team's report following the school board's closed session. The meeting, which is open to the public, is scheduled to start 5 p.m.

The team’s function is not to pass judgment on whether fraud has occurred in the school district, but rather to demonstrate if there is sufficient evidence. Should there be enough evidence of fraud, FCMAT could recommend that Brown notify San Joaquin County District Attorney Ron Freitas.

The AB 139 extraordinary audit is the first of its kind inspecting a public school district in San Joaquin County since the bill was passed in 2001. A county superintendent can call for an extraordinary audit if they have reason to believe fraud, misappropriation of funds or other illegal fiscal practices have occurred that merit a deeper look.

Stockton Unified has an $859 million budget and is projected to have at least a $30 million deficit by 2024.

After receiving the report, the school board will have 15 days to tell Brown how they plan to respond.

Grand jury reports

The Financial Crisis and Management Assistance Team’s highly anticipated report is preceded by two scathing reports in two years from the San Joaquin County Civil Grand Jury, detailing money mismanagement and dysfunction at Stockton Unified.

The most recent report in June 2022 showed a lack of accountability for the nearly $242 million in Elementary and Secondary School Emergency Relief funds the district had been allotted from the federal government to address the impacts of the COVID-19 pandemic.

The June 2022 report also detailed poor business practices, including questionable handling of vendor contracts, conflicts of interest and a lack of transparency.

Trustees held a town hall meeting on Aug. 4, 2022, to hear the community’s concerns after the last grand jury report, though the trustees remained silent. At the next meeting, Trustee Cecilia Mendez said, “We’re not having any more town halls right now,” axing the promise the board had made for dialogue between the public and the board.

Later in August, SUSD’s Board of Trustees disputed nearly half of the 50 findings in the grand jury report. Trustees AngelAnn Flores and Maria Mendez voted against their colleagues’ response.

The grand jury’s 2021 report said trustee behavior and actions negatively impacted the school district and made it “difficult, if not impossible,” for any lasting, positive changes to take hold. The report cited a “revolving door” of superintendents: Stockton Unified has had 14 superintendents since 2005.

Director-level departures

SUSD’s latest shift in superintendents came in June 2022. Former superintendent John Ramirez Jr. resigned after he said he needed to take care of his elderly parents. His separation agreement — the closed session agreement was scrutinized by the county superintendent as a violation of the Brown Act — included a full year of salary and benefits.

Ramirez was arrested two months later in Stockton for driving under the influence of alcohol after a test showed a blood alcohol level of .225%.

In August 2022, former SUSD Chief Business Officer Marcus Battle resigned. He spent just over a year on the job.

The June 2022 grand jury report states Battle was hired without a search, screening process or interviews, contrary to board policy. The report also highlights a lack of communication between the district’s business staff and Battle.

Other senior officials who have resigned or have been replaced since Ramirez Jr.’s departure and the release of the June 2022 grand jury report include: Enrique Torres, director of constituent services; Roxanna Villasenor, assistant superintendent of educational services; Benard Veasley, director of transportation; and Adan Lupercio, director of community relations and business development. 

More:Stockton Unified school board parts ways with attorney Lipton

SUSD facilities director tells staff he's under investigation by FBI, FCMAT

Armando Orozco, Stockton Unified’s director of facilities and planning, told about 100 staffers at a July 27, 2022 meeting that he had been in multiple depositions — testimony under sworn oath — and interviews as a part of an FBI investigation, with the state of California and with FCMAT as a part of their audit of the school district, sources said. 

The school district later clarified Orozco’s remarks for him and said he was speaking of previous school districts he worked for, not Stockton Unified.

Orozco is on leave. In September 2022, Orozco threatened to sue Stockton Unified, demanding $800,000 to “leave your corrupt district in silence.”

The FBI declined to comment whether Stockton Unified is under federal investigation.

The June 2022 grand jury report shows that the school district’s facilities and planning department failed to get board approval for change orders to construction projects. According to Public Contract Code §21152, a contractor is required to submit all change orders to the board. Many of these projects are funded by bonds, the report states, paid for by Stockton taxpayers.

Of 31 Stockton Unified construction contracts reviewed by an outside education consulting firm, only one change order was taken to the Board of Trustees for information, approval or ratification. The report cites an example in an athletic facility project at Franklin High School that had an overrun of about $6 million. No change order was submitted to the board for approval, the report states.

Alliance/IAQ air filters 

The June 2022 grand jury report scrutinized the way the school board approved contracts.

One example is its handling of a $7.3 million contract in 2021 with IAQ Distribution, Inc., a subsidiary of Alliance Building Solutions, Inc., for air filter disinfectant technology.

A perceived conflict of interest arose when Trustee Scot McBrian introduced Alliance Building Solutions. At the request of the former superintendent John Ramirez Jr., the school district asks companies to submit proposals, and Alliance is one of them.

ICYMI:New SUSD trustees sworn in; Flores appointed board president

The board bypassed some of its policies and eventually approved the contract that went to IAQ, despite ranking the lowest among all proposals. Flores voted against the contract, and former Trustee Maria Mendez was absent.

SUSD paid IAQ $2.9 million in August 2021, the report said. The contract was completed only in part.

At the time of the June 2022 grand jury report, 1,400 of the 2,000 filters ordered had been delivered, and only 802 had been installed. %he remaining uninstalled filters from the 1,400 delivered are still sitting in storage at Stockton Unified’s facilities yard.

This article originally appeared on The Record: State audit on Stockton school district finances to be released Tuesday