STOCKTON, Calif. — The San Joaquin County District Attorney's Office is now reviewing an audit that found fraud, misappropriation of funds, and an "environment" of not following policies and dismissing concerns at Stockton's largest school district.
The state's Fiscal Crisis Management Team (FCMAT) released the 45-page audit into the Stockton Unified School District (SUSD), Tuesday.
The audit recommended notifying the State Controller and the San Joaquin County District Attorney's Office that sufficient evidence exists to show fraud, misappropriation of funds, and other illegal fiscal practices happened.
SUSD's former Superintendent, John Ramirez Jr., administration members such as former Chief Business Officers, and members of the current and former Board of Trustees were named and focused on in the audit.
The audit, presented during a public Board of Trustees meeting Tuesday, came nearly eight months after a scathing Grand Jury report predicted a $30 million budget deficit at the district.
What prompted the audit:
A May 2021 meeting between an unnamed SUSD employee and the San Joaquin County Office of Education sounded the first alarm to county officials of possible illegal practices at the school district, the audit report says.
The employee met with the Office of Education to express concerns about alleged irregularities in how the district selected IAQ Distribution as a vendor for air disinfection devices.
Two months later, a different employee also contacted the Office of Education to share similar concerns.
In response to the concerns shared by employees and to the Office of Education's preliminary findings that confirmed the irregularities, Office of Education officials requested FCMAT to perform an extraordinary audit of the district to see if illegal fiscal practices existed.
Assembly Bill 139, passed in 2001, allows the county's Superintendent of Schools to request an audit of any school district in his or her county if there is reason to believe illegal fiscal practices occurred.
Audit's Findings:
To begin the audit, FCMAT sampled 64 SUSD payment transactions. For every transaction sampled, some documents were missing, not provided or included exceptions.
"This may indicate that the district does not have a comprehensive bid and selection documentation process or does not follow one," the audit says. "At the very least, it calls into question the legality of executed contracts and payments and whether legally required procedures were followed consistently, and indicates improper retention of documents."
The district also does not have a process to identify possible conflicts of interest with vendors, according to the audit.
The audit team spoke with former and current staffers who said policies and procedures were not followed in some transactions and that concerns from staff were dismissed by managers.
"Many of those interviewed believe that this environment arose from continual changes in the governing board, the superintendent, the (Chief Business Official) and other key management positions over the last three years, resulting in a weakening of business and administrative leadership," the audit says.
One district decision the audit team focused on was the selection of IAQ Distributors, a subsidiary of 'Alliance Companies,' to provide air filters for school sites.
In Jan. 2021, Trustee Scot McBrian, who later lost reelection in 2022, allegedly arranged to have Alliance give a presentation to the school board about ultraviolet disinfection technology.
The school district never held public discussions expressing any need for Alliance's technologies prior to the arranged presentation.
Days before the presentation, an unknown number of board members attended a private holiday party hosted by former Stockton Mayor and head of the Stockton Kids Club, Anthony Silva.
McBrian reportedly told auditors Alliance Companies held a special presentation at the party, which he attended.
Then-Trustee Zachary Avelar, who lost reelection to the district's school board in 2022, was also in attendance. In addition to being a trustee, he was also reportedly the secretary for the Stockton Kids Club.
Days after the private party, the same presentation was brought forward by McBrian and given to the full Board of Trustees. Auditors say the private party gave the appearance of a Brown Act violation.
The district posted a request for proposals before deciding on a vendor for air filters and made major changes to the request for proposals posting just before the deadline, ultimately extending it. This was done in an effort to favor Alliance Companies, the audit found.
"Many of those interviewed by FCMAT, including board members, stated that having a vendor present to the board was out of the ordinary and inconsistent with the district’s normal practice," the audit says. "FCMAT found departures from law, policy, procedure and past practice in the award of the contract to IAQ for ultraviolet light (UV) purification units."
12 companies entered bids to supply the filters and Alliance Companies' IAQ Distribution was ranked as the fifth best option for the district.
When the Chief Business Officer at the time wrote to Interim Superintendent John Ramirez Jr. expressing concerns about a conflict of interest, Ramirez allegedly threatened the officer in a hostile way.
Ramirez ordered the district's purchasing manager to create a list of the top five vendors to be presented to the board for consideration, a move allegedly departing from district policies and traditional ranking thresholds.
The purchasing manager resigned instead of carrying out the directive. The Chief Business Officer also left the district in June opting to retire as a result of the air filter situation.
The board of trustees voted to purchase the IAQ Distribution air filters. After the district paid half of the $7.3 million contract, a grand jury report found that IAQ Distributors was not registered to do business in California.
An ABC10 report found hundreds of the air filters were still uninstalled as of July.
The audit also found potential conflicts of interest when the district's board was selecting a legal counsel in 2020.
"The board hired Burke Williams & Sorenson (BWS) as district counsel. Although a recording of the meeting was not available, minutes indicate that a (Request for Proposals) process was not considered and that there was a perceived conflict of interest because the attorney from BWS drove the board president to the meeting," the audit says. "It is of concern that the board set a policy and then ignored it. Even more irregular and of equal concern is that the board would contract for services from a legal firm that would not advise their prospective client to follow their own policies."
Concerning to auditors was the leadership of the district and the tone set by public officials.
"The tone of the organization, set by district leaders through their words and actions, demonstrates to others whether dishonest or unethical behavior will be tolerated," the audit says. "Information obtained during interviews and a review of transactions indicate that the superintendent and board members have used their positions of power to influence certain business transactions by deliberately overriding staff recommendations and board policies related to the procurement of UV purification units from IAQ and to the award of contracts for legal services."
Response to the audit:
Directly after the audit was presented Tuesday night, Trustees sparred in 16 minutes of contentious public comments that ended when Board President AngelAnn Flores moved the meeting into a recess.
"This is not a surprise to me," said Flores. "Some of these contracts were voted 6 to 1. I am proud to say that I was the one who voted against all the shenanigans that were happening... I'm pleading that somebody needs to be held accountable."
In a statement, SUSD Interim Superintendent Traci Miller said she has an appreciation for the complex issues impacting the ability to serve students and families.
"I see the deficiencies but the bottom line is when you talk to teachers, administrators and support staff, all we want is to do great things for our kids in great environments," the statement said. "Our Board received the FCMAT report and our team is carefully reviewing the county recommendations. We realize the importance of this and will keep our students at the forefront where student learning and achievement is our focus. We will address the shortcomings head-on and without hesitation to move our district forward."
San Joaquin County's Superintendent of Schools Troy Brown also released a statement calling the results of the audit deeply troubling.
"Stockton Unified School District deserves better. While the issues raised about the district are troubling, they should not overshadow the hard work and success of Stockton Unified students, nor should they diminish the important work that the dedicated teachers, administrators, and other staff perform every day for their students and families. They deserve our respect and support," the statement said. "Looking ahead, there is an opportunity to make things better. We will continue to work with the administration of the district to strengthen fiscal systems and internal controls to protect the district in the future."
Brown referred the audit to the San Joaquin County District Attorney's Office which confirmed it received the report and is reviewing it.
"Our children are our most important resource. Their education, and the environment in which they learn, is one of my most pressing priorities,” said District Attorney Ron Freitas in a statement. "I look forward to thoroughly reviewing the independent auditor’s report. Make no mistake, any attempt to commit fraud on the backs of our children will be prosecuted to the fullest extent of the law.”
What's next?
The report is now in the hands of the District Attorney's Office, which will review the audit and decide whether criminal charges are warranted.
The San Joaquin County Office of Education hired a financial expert for the district and is commissioning a comprehensive fiscal health risk analysis.
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