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Sweetwater Union High School District faces potential fraud investigation

Posted at 7:51 AM, Dec 18, 2018
and last updated 2018-12-19 13:42:55-05

CHULA VISTA, Calif. (KGTV) - The Sweetwater Union High School District faces a potential fraud investigation after more instances of financial mismanagement were uncovered by a state agency.

The San Diego County Office of Education will initiate its own audit of the Sweetwater District’s finances following a special board meeting on Monday in which an independent state agency outlined the many mistakes the district has made.

SDCOE officials issued this statement following Monday’s meeting:

"The San Diego County Office of Education (SDCOE) takes very seriously our obligation to the children served by the Sweetwater Union High School District (SUHSD), and to taxpayers. Throughout the budget review and approval process, SDCOE has expressed numerous concerns about SUHSD’s financial situation. The presentation made tonight by Fiscal Crisis Management Assistance Team (FCMAT) Chief Executive Officer Michael H. Fine echoes our concerns and raises additional ones. That is why SDCOE will engage FCMAT to conduct an AB 139 extraordinary audit to determine if fraud or misappropriation occurred, and why we will continue to work with FCMAT and the district to ensure we are taking appropriate action to avoid further erosion of SUHSD’s financial situation.

READ: Sweetwater scrambling to fix $30 million budget mistake

These actions are a safety net to protect students, the district, and the county office. We will not compromise SDCOE’s fiduciary responsibility—or the district’s—as we work to ensure Sweetwater’s students have what they need and deserve to succeed."

The independent state agency Fiscal Crisis & Management Assistance Team (FCMAT) said at the meeting it studied Sweetwater’s finances and determined that the district is worse off than any of the other districts in California that they have reviewed this financial year.

The agency said their review found that SUHSD, for many years, has misrepresented its finances and spent more money than it has available. FCMAT CEO Michael Fine, speaking before the school board, blamed the district’s money problems on the culture and philosophy it had in place.

Fine said, “Situations like yours are the manifestation of many years of weak governance and leadership. Conditions such as this do not occur overnight.”

TIMELINE: Sweetwater Union High School District's budget woes

In a reference that created a buzz in the room, most notably from concerned citizens, Fine said Sweetwater had 302 negative budget entries.

Fine laid out a hypothetical situation to explain the negative budget entries: Four schools each have a line with $100,000 in salary. However, a fifth line at a district-level account shows a negative-$100,000. Instead of a true budget of $400,000 in salaries, only $300,000 is actually reported to the district, which fits to balance the budget. In reality, those managing the budget are believed to be managing for $400,000.

“Those don’t show up by accident. Those are very intentional entries … that, my friends and colleagues, is a cover up,” Fine said.

Additionally, Fine also said during the last fiscal year, SUHSD did not book payroll for four months.

“When payroll is zero and you have thousands getting paid, how can it be zero?” Fine told the board.

Fine said Sweetwater has also been borrowing money from local development taxes known as Mello-Roos fees, but review findings show the district may not have the ability to pay that back.

The FCMAT review stated SUHSD has exceeded state limits for borrowing, and the budget solutions the district introduced this fall will not be enough to get them out of their nearly $70 million hole.

In fact, FCMAT's review gave the Sweetwater Union High School District a 57 percent risk rating; anything over 40 percent is considered high-risk.

The situation Sweetwater finds itself in does not currently warrant the state to step in, but Fine warned that the district's financial problems are "huge."

Fine also said the district will be unable to lay off employees thanks to a deal approved earlier in the evening by the board that greenlit the early retirement of more than 300 district workers -– a move that was made by the district to combat its budget crisis.

"You spend 90 cents of every dollar on people. It will be very difficult to solve all of this without touching people. You have eliminated that as a tool," Fine told the board.

The San Diego County Office of Education disagreed with SUHSD’s decision on the early retirements, saying the resolution was not in the best interest of the district.

Sweetwater officials responded to the SDCOE’s disagreement, saying:

“This afternoon we received a letter from the San Diego County Office of Education stating that they do not believe that the SERP (Supplemental Early Retirement Plan) is in the best interest of the district. A major factor indicated in their letter is the concern about the inability to lay off staff if there are additional savings needed. However, we have a fundamental difference of opinion and approach with SDCOE. A fundamental part of finding budget solutions is through collaborations with our associations and to create a humane and thoughtful process where solutions such as layoffs for our 7-12 staff are not a primary part of this process. Through the SERP we have made agreements with our labor partners that several positions will not be replaced and ultimately result in reduction in staff. As we have continuously stated, we believe that the solutions lie in the collaboration with our partners.

We believe that being a good partner is walking together along the path to solutions. We want to continue to extend our offer to SDCOE to walk this path with us and do what is right for this community -- our community.

There is still much work to be done, but ultimately, we are confident that by working with our internal and external partners (including SDCOE), we can move forward in a positive manner and continue to serve the students and families of our district."