Findings from an independent budget review show the Sweetwater Union High School District careening toward insolvency, and suggest someone at the district may have falsified budget entries to cover it up.
The district’s board and the San Diego County Office of Education, the two entities responsible for certifying budgets, are now working to right the problem. The county office has assigned the district a fiscal adviser and ordered an audit to uncover potential wrongdoing.
But how did they miss the scope of the problem in Sweetwater?
“That’s actually one of the things that our team here thought of the day that we were notified,” said Michael Simonson, the assistant superintendent who oversees budget monitoring at the county.
It’s also a question Sweetwater trustees asked the fiscal crisis team that uncovered the problems at their meeting Monday.
“In your particular case, the early warning system failed. It failed miserably,” said Michael Fine, CEO of the Fiscal Crisis and Management Assistance Team, or FCMAT. He said both parties put too much trust in the information the district provided them, and either didn’t see red flags or didn’t dig deep enough at the sight of them.
In particular, Fine said the board and county office should have never accepted interim budget reports with vague, one-word responses. The reports require districts to account for variances in the budget they approved and their actuals, then justify the changes in written responses.
Fine said Sweetwater's response to the reasons for variances were “various.”
“We’re in the education business,” he said to the board. “There’s no reason that every one of these answers can’t be written in a full, complete sentence with the proper punctuation and the proper explanation to you to make the decision around.
“My advice to you is to send back incomplete reports and move on to the next agenda item,” he said.
For its part, Simonson said the county office is now asking districts to submit the raw files they used to generate their budgets. Some districts integrate their financial reporting systems with the county’s so it can check their work. But many districts, like Sweetwater, don’t have integrated systems and only submit the final product.
“We’re asking for detailed reports that we can upload into our system and analyze the same way a district could do from their office,” Simonson said. “That should help us be a part of that early warning system so we don’t find out in September that we have negative $10 million instead of $18 million positive.”
That’s what happened in Sweetwater to trigger the deep dive into its finances over three days this month. FCMAT combed through about 800 documents and found severe mismanagement and possible fraud.
Fine said the district had 302 false budget entries that made it appear as though it was working with a balanced budget when in actuality, school sites were working with inflated budgets.
“Those don’t show up by accident. Those are very intentional entries,” he said. “That, friends and colleagues, is a coverup.”
The team also found the district omitted four months of payroll from its books, and overestimated enrollment and state funding three years in a row despite repeated warnings from district-hired auditors. The team also found possible illegal borrowing practices. The district has been taking loans from its special tax fund, called Mello-Roos. Fine warned the loans may not be covered under the tax arrangement and are on track to exceed levels allowed under state law.
In a statement, district leadership says it will cooperate with auditors and is committed to rooting out the problem.
“When the current Board of Trustees was elected in 2014 and set their priorities, fighting against this culture and correcting these issues was the most important,” the statement says. “The Superintendent and the entire Cabinet team were selected for their commitment to making positive change in the Sweetwater District.
“Together, with the staff, with our community partners, with the parents, and most importantly with the students, significant positive efforts have been made, and we will continue to move forward,” it continues.
Despite his criticisms, Fine stopped short of placing blame on the current board and county office.
“Situations like yours are the manifestation of many years of week governance and leadership,” he said, adding that it likely started under previous boards.
But he did not mince words in stating the current board’s responsibility.
“Under all circumstances — all circumstances — the board of education and your governance and leadership team here in the district ultimately is solely responsible for the district’s financial dealings and financial stability,” he said. “It rests with you right there. Nobody else. Just you. You are 100 percent responsible.”
Sweetwater Chief Financial Officer Jenny Salkeld, who joined the district this fall and whom Fine and Simonson said they hold in high regard, told the board she’s already working to fix broken systems that let budget problems fester.
She said she’s conducting site visits with principals to develop a system of checks and balances “to make sure that the reports and dollars are within the allotted budget.” She’s also working to integrate and update financial reporting systems across departments and school sites. For example, the current system allows false budget entries instead of alerting staff when things aren’t adding up.
But the district will likely need to lay off employees to dig itself out of its hole, and that introduces another set of problems.
Before hearing Fine’s report, the board approved a retirement deal with its unions that prevents the district from laying off certificated staff through next school year. District spokesman Manny Rubio said there are no plans to renegotiate that deal.
“We do have a difference of opinion from FCMAT and the County Office of Education, in that we feel that the (retirement plan) has generated a significant number of employees leaving and we wouldn’t have to go through a layoff process,” he said in an email.
Fine said the district’s poor accounting also means it does not have an updated seniority list to manage the pink slip process, meaning it would have trouble actually affecting layoffs if it renegotiated the deal with the unions.
If the district does not find a solution and runs out of cash to make payroll, the state would then take over. The district and regulators hope it doesn’t come to that.
“We know the district is not going to be able to do this alone,” Simonson said. “We’re helping them, but the more support they have from the community, the more likely it is that they come out of this still with great relationships and still serving the kids.”
