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Audit of Sweetwater Union High School District finds evidence of possible fraud, misuse of funds

Posted at 7:12 AM, Jun 23, 2020
and last updated 2020-06-23 20:48:22-04

CHULA VISTA, Calif. (KGTV) -- A new report from a state audit agency shows there is enough evidence that fraud or misappropriation of funds may have occurred within the Sweetwater Union High School District.

The 79-page audit, conducted by the independent state agency Fiscal Crisis Management Assistance Team (FCMAT), was presented during Monday’s school board meeting.

According to the report, the district’s school board relied on inaccurate financial information when they approved salary increases for district employees, resulting in pay raises they could not afford.

RELATED: SUHSD: 90 bus drivers paid over $950K in overtime during 2017, database says

The agency’s investigation also found the district kept borrowing from capital projects, such as Mello-Roos funds, to pay for operations without a method of repaying that money back into the fund.

The report also stated Sweetwater misled rating agencies and bond insurers by “deliberate omissions of material information.”

San Diego County Superintendent of Schools Dr. Paul Gothold said, "In short, after investigation of the district’s practices, FCMAT concluded that there is significant evidence to indicate that fraud, misappropriation of funds and/or assets, or other illegal fiscal practices may have occurred by current and former employees."

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The Sweetwater Union High School District has faced budget troubles dating back to September 2018, when they self-reported a $30 million budget shortfall. Since then, teachers have been cut, bus routes were eliminated, and class sizes have increased.

FCMAT recommends the state controller and local district attorney be notified of its findings.

Frances Martinez, the former internal auditor for the district, told Team 10 the "people who purposely did wrong should be held accountable." Martinez said she raised the red flag regarding financial issues at the district, but was not taken seriously.

She said when it came to some of the district's financial accounts, "that's how the reconciled. They just made up stuff and made a balance."

Martinez said she was sitting next to Superintendent Karen Janney when the multimillion-dollar deficit was discovered. "She said, hey it's the business system. It's old, huh? Just making up stuff. I've heard about six different versions of the truth and none of them have been truthful."

The former Chief Financial Officer Karen Michel would not participate in the audit. The team also could not make contact with Doug Martens, the director of fiscal services.

With the release of the FCMAT report, it will be up to the District Attorney, State Superintendent of Public Instruction, and State Controller to determine if fraud did in fact occur within the Sweetwater District.

The district was given 15 days to respond to the audit's findings with its "proposed action."

One teacher in the district, who did not want to be identified, said the audit's findings were sad, but not surprising. "Hopefully, the positive that can come out of this is that we become more transparent and have more oversight and this will never happen again," the teacher said.

On Tueday, SUHSD spokesman Manny Rubio provided this statement to 10News on behalf of the district: "The Sweetwater Union High School District is currently reviewing the report from FCMAT and its findings and recommendations. The District takes this report very seriously and will be determining next steps. Given that this matter is still pending, we will refrain from any additional comment at this time."

The District Attorney's office said they are reviewing the audit. There is also an investigation into the district by the Securities and Exchange Commission. An agency spokesperson would not comment.