A new audit of the Montebello Unified School District’s finances questions whether a construction manager provided any tangible services to the district and calls for the company to prove it or pay back the money it received.
It’s the second time in three months an independent audit team has said the Los Angeles County District Attorney’s Office should review MUSD’s spending due to possible fraud.
Scrutiny of Montebello Unified began in March 2017, when officials from the Los Angeles County Office of Education found the district could go broke by 2019. Months later, in November 2017, the county Office of Education assigned a fiscal adviser to monitor the district’s spending with power to veto or rescind decisions by the district’s Board of Education.
A month later, Los Angeles County schools Superintendent Debra Duardo became so concerned she asked for assistance from the Fiscal Crisis and Management Assistant Team to investigate potential fraud and mismanagement.
The team is comprised of experts in school finance from across the state. It focused this most recent review on the district’s $300 million bond program.
This latest audit questions MUSD’s handling of public funds every step of the way: From how the bonds were issued – involving multiple professionals performing multiple transactions that may have burdened taxpayers with “millions of dollars of unnecessary costs” – to how the money was spent on management more than actual construction projects with little to no oversight.
The report, dated Oct. 11, describes an atmosphere where district employees were not equipped to handle the accounting of funds and feared raising questions for fear of retaliation by both administrators and outside contractors.
‘Bait and switch’
One of the contractors called out by name is City of Industry-based Del Terra Group, which has since been unseated as the construction manager for the $300 million in Measure GS bond funds. Its contract expired Aug. 19, and it was not renewed. Under the contract, Del Terra was paid 4 percent of the bond – overwhelmingly approved by voters in June 2016 – that over its life could have been worth $12 million.
Its contract listed a number of managers, at rates ranging from $100 to $180 an hour, who were supposed to oversee design and construction of major projects at the district’s 28 K-12 schools.
The report takes Del Terra to task for providing few services. It alleged Del Terra of employing a “bait and switch” scheme, “where one is led to believe that he or she will receive a particular item for service for a specific price, but a less desirable or lower quality item or service is provided.”
Del Terra’s invoices, often a single sheet, came with little to no supporting documentation, just a list of check-boxes that the audit team found insufficient..
In response, Luis Rojas, Del Terra’s chief executive officer, submitted a statement: “As much as we’d like to respond to questions regarding the recent FCMAT audit, we can’t do so because we haven’t had an opportunity to participate in the process nor have we had an opportunity to review the audit.
“Additionally, it’s important to point out that we offered to commit resources and participate in interviews to assist in a complete and thorough audit, but we never received a response from FCMAT. We find it highly unlikely that the audit is complete or thorough given our lack of participation.”
Robert Alaniz, spokesman for Montebello Unified, said district officials also haven’t seen the report yet, so he couldn’t comment.
A questionable re-hire
The district first contracted with Del Terra in the early 2000s, also for construction management services, but the relationship was terminated in a Dec. 23, 2005, letter from the then-superintendent – ostensibly for cost savings. However, district staff told auditors the real reason for the change was “performance problems,” citing a project proposal filled with errors and requiring repeated corrections and price increases.
When Del Terra was rehired in August 2016, “many staff in the Facilities Department questioned” the move, according to the report. This second time around, the company routinely billed MUSD $91,000 monthly regardless of how much work was done — and that work was barely documented.
Meanwhile, “district staff also reported that Del Terra has not performed any construction management services and that these activities are overseen by staff employed in the district’s facilities project coordinator positions.”
Auditors also pointed out there’s no proof the Del Terra contract, which they called “unbusinesslike” and too favorable to the contractor, was ever reviewed by MUSD lawyers. The motives for entering into the contract are “suspect,” the audit said.
So, Del Terra should provide the documentation or pay the district back for “all unearned amounts,” the report said.
The audit also found other problems with how Montebello Unified spent bond money:
- The district lacked processes to ensure that bond funds were used for actual work;
- Control over records was “extremely weak”;
- Bond money may have been illegally spent on employee salaries;
- A citizens bond oversight committee rarely met to provide a check and balance on expenditures.
The management team found the district’s former chief business officer — it didn’t name him, but it’s clearly referring to the tenure of Ruben Rojas, who was fired in March 2017 — was negligent by ignoring established internal controls and bypassing established policies and procedures.
The district’s bond program also is under investigation by the federal Securities and Exchange Commission, which executed a subpoena seeking a number of district documents, including some connected to the bond measure. Others are contracts, personnel records and other items that could lead to allegations of fraud.
The first audit
In July, an audit by the same team accused the district’s adult school of fraud, mismanagement and misappropriation. In 75 detailed findings, the audit questioned $268,000 paid to Montebello Unified teachers and other employees assigned extra work at the adults schools — sometimes when no class was in session or for classes with as few as one student.
The payments were made without district and/or board approval, according to the audit, which described an almost shadow human resources department in which select teachers and non-teaching employees were tapped for extra assignments in Adult Education. The timeframe of those allegations overlap with the most recent.
