Alum Rock Union School District Report

Michael H. Fine Chief Executive Officer TFARD TFARD TFARD Extraordinary Audit March 9, 2026 Alum Rock Union School District March 9, 2026 David M. Toston, Sr., Ed.D., Superintendent Santa Clara County Office of Education 1290 Ridder Park Dr. San Jose, CA 95131 Dear Superintendent Toston: In September 2025, the Santa Clara County Superintendent of Schools and the Fiscal Crisis and Management Assistance Team (FCMAT) entered into an agreement for FCMAT to conduct an extraordinary audit of the Alum Rock Union School District. The agreement states the focus of the review is to determine, based on the sample testing performed and the auditors’ judgment, whether fraud, misappropriation of funds, or other illegal fiscal practices may have occurred at the district. The agreement stipulates FCMAT will perform the following: 1. Review and test District reimbursements to board members by sampling associated transactions within fiscal years 2022-23, 2023-24 and 2024-25. Reimbursements selected for testing will be based on the Team’s judgement as to sample size, sample selection technique and conclusion. Sample testing and review results are intended to provide reasonable but not absolute certainty about whether the District’s disbursements were sufficiently appropriate; 2. Based on the assessment performed, either recommend or not recommend that the county superintendent of schools notify the District’s governing board, the State Controller, the State Superintendent of Public Instruction, and the local district attorney that sufficient evidence exists to indicate the fraud, misappropriation of funds, or other illegal fiscal practices may have occurred. This report contains the study team’s findings and recommendation. FCMAT appreciates the opportunity to serve you and extends our thanks to the staff of the Santa Clara County Office of Education and the Alum Rock Union School District for their cooperation and assistance during this review. Sincerely, Michael H. Fine Chief Executive Officer Michael H. Fine • Chief Executive Officer 1300 17th Street – City Centre, Bakersfield, CA 93301-4533 • Tel. 661-636-4611 • Fax 661-636-4647 www.fcmat.org Table of Contents Table of Contents About FCMAT ..................................................................................................iii Introduction .......................................................................................................v Report Authority, Purpose and Standards ..........................................................v County Superintendent of Schools’ Responsibilities .......................................v Judgments Regarding Guilt or Innocence ..........................................................v Study Team ................................................................................................................vi Background ..............................................................................................................vii Extraordinary Audit Procedures ..........................................................................vii Findings .............................................................................................................1 Transaction Sampling ..............................................................................................1 Results of Testing ......................................................................................................1 Board Policy ...............................................................................................................4 Disclosure Requirement .........................................................................................5 Annual Limit on Reimbursements ........................................................................6 Reimbursement Approvals ....................................................................................6 Conclusion ....................................................................................................... 7 Potential for Fraud, Misappropriation of Funds or Other Illegal Fiscal Practices ..................................................................................................................... 7 Appendices ......................................................................................................8 Appendix A: Study Agreement .............................................................................9 Appendix B: More About Types and Causes of Fraud ..................................18 Appendix C: More About Transaction Sampling ............................................28 Fiscal Crisis and Management Assistance Team Alum Rock Union School District ii About FCMAT About FCMAT Purpose and Services FCMAT was created by the California Legislature to help California’s transitional kindergarten through grade 14 (TK-14) local educational agencies (LEAs) avoid fiscal insolvency. Today, FCMAT helps LEAs iden- tify, prevent and resolve financial, management, program, data, and oversight challenges; provides pro- fessional learning; produces and provides software, checklists, manuals and other tools; and offers other related school business and data services. FCMAT may be asked to provide fiscal crisis or management assistance by a school district, charter school, community college, county superintendent of schools, the state superintendent of public instruction, or the Legislature. When FCMAT is asked for help with management assistance or a fiscal crisis, FCMAT management and staff work closely with the requesting LEA to meet their needs. Often this means conducting a formal study using a FCMAT study team that coordinates with the LEA for on-site fieldwork to evaluate specified operational areas and subsequently produces a written report with findings and recommendations for improvement. For more immediate needs in a specific area, FCMAT offers short-term technical assistance from a FCMAT staff member with the required expertise. To help meet the need for qualified chief business officials (CBOs) in LEAs, FCMAT offers four different CBO training and mentoring programs that consist of 11 or 12 diverse two-day training sessions over the course of a full year. For agencies with professional learning needs, FCMAT offers workshops on specific topics. Popular topics include associated student body operations, use of FCMAT’s Projection-Pro online financial forecasting software, use of FCMAT’s Local Control Funding Formula (LCFF) Calculator, and data reporting for the California Longitudinal Pupil Achievement Data System (CALPADS). FCMAT staff and management also frequently make presentations at various professional conferences. The California School Information Services (CSIS) service of FCMAT helps the California Department of Education (CDE) operate CALPADS; helps LEAs learn about CALPADS, resolve data issues and meet reporting requirements; and provides LEAs with training and leadership in data management. CSIS also developed and continues to host and improve the Standardized Account Code Structure (SACS) web-based financial reporting system for all California LEAs, and provides ed-data.org, which gives educators, policy- makers, the Legislature, parents and the public quick access to timely and comprehensive data about TK-12 education in California. Since it was formed, FCMAT has provided LEAs with the types of help described above on more than 2,000 occasions. FCMAT’s administrative agent is the Kern County Superintendent of Schools. FCMAT is led by Michael H. Fine, Chief Executive Officer, and is funded by appropriations in the state budget and modest fees to requesting agencies. Workshop schedules, manuals, presentation slide decks, Projection-Pro software, LCFF calculators, past reports, an online help desk, and many other resources are available for download or use at no charge on FCMAT’s website. Fiscal Crisis and Management Assistance Team Alum Rock Union School District iii About FCMAT History FCMAT was created by Assembly Bill 1200 (Chapter 1213, Statutes of 1991) and Education Code 42127.8. Assembly Bill 107 (Chapter 282, Statutes of 1997) added Education Code 49080, which charged FCMAT with responsibility for CSIS and its statewide data management work, and Assembly Bill 1115 (Chapter 78, Statutes of 1999) codified CSIS’ mission. Assembly Bill 1200 created a statewide plan for county offices of education and school districts to work together locally to improve fiscal procedures and accountability standards. Assembly Bill 2756 (Chapter 52, Statutes of 2004) gave FCMAT specific responsibilities for districts that have received emergency state loans. In January 2006, Senate Bill 430 (Chapter 357, Statutes of 2005) amended Education Code 42127.8, and Assembly Bill 1366 (Chapter 360, Statutes of 2005) amended Education Codes 42127.8 and 84041. These newer laws expanded FCMAT’s services to include charter schools and community colleges, respectively. Assembly Bill 1840 (Chapter 426, Statutes of 2018) changed how fiscally insolvent districts are administered once an emergency appropriation has been made, shifting oversight responsibilities from the state to the local county superintendent to be more consistent with the principles of local control, and giving FCMAT new responsibilities associated with the process. Fiscal Crisis and Management Assistance Team Alum Rock Union School District iv Introduction Introduction Report Authority, Purpose and Standards Education Code (EC) 1241.5(b) permits a county superintendent of schools to review or audit the expendi- tures and internal controls of any school district within the county if they have reason to believe that fraud, misappropriation of funds, or other illegal fiscal practices have occurred that merit examination. This is known as an extraordinary audit. The purpose of an extraordinary audit is to determine if sufficient evidence exists that fraud, misappropria- tion of funds, or other illegal fiscal practices may have occurred, and to document the findings for referral to the state controller, the state superintendent of public instruction and the local district attorney’s office and further investigation by others if needed. When conducting an AB 139 extraordinary audit, one must be able to determine that there was intent before finding that there is sufficient evidence to indicate that fraud may have occurred. If the intent to commit fraud cannot be determined, it is likely that the conclusion at the end of an extraordinary audit report will indicate there is insufficient evidence to demonstrate that fraud, misappropriation of funds and/ or assets, or other illegal fiscal practices may have occurred in the specific areas reviewed. This extraordinary audit report considers standards that define and help detect fraud, occupational fraud, financial abuse, internal controls, and gift of public funds. These standards are defined in Appendix B and are integral to this report. In writing its reports, FCMAT uses the Associated Press Stylebook and its own short internal style guide, which emphasize plain language, capitalize relatively few terms, and strive for conciseness, clarity and simplicity. County Superintendent of Schools’ Responsibilities In accordance with EC 42638(b), action by the county superintendent of schools shall include the following: If the county superintendent determines that there is evidence that fraud or misappropria- tion of funds has occurred, the county superintendent shall notify the governing board of the school district, the State Controller, the Superintendent of Public Instruction, and the local district attorney. In accordance with EC 1241.5(b), the county superintendent is required to report these findings and rec- ommendations to the district’s governing board at a regularly scheduled board meeting within 45 days of completing the audit (the date of this report). Within 15 days of receipt of the report, the district’s governing board is required to notify the county superintendent of its proposed actions regarding the county superin- tendent’s recommendations. Judgments Regarding Guilt or Innocence The existence of fraud, misappropriation of funds and/or assets, or other illegal fiscal practices is solely the purview of the courts. FCMAT is not making statements that could be construed as a conclusion that fraud, misappropriation of funds and/or assets, or other illegal fiscal practices have occurred. These terms are a broad legal concept, and auditors do not make legal determinations regarding whether illegal activity has occurred. Fiscal Crisis and Management Assistance Team Alum Rock Union School District v Introduction Study Team The study team was composed of the following members: Jeffrey B. Potter, CFE Marcus Wirowek, CFE FCMAT Intervention Specialist FCMAT Intervention Specialist Leonel Martínez FCMAT Technical Writer Each team member reviewed the draft report to confirm its accuracy and to achieve consensus on the final recommendations. Fiscal Crisis and Management Assistance Team Alum Rock Union School District vi Introduction Background Located in eastern San Jose, the Alum Rock Union School District has a five-member board of trustees serving approximately 7,300 students in transitional kindergarten (TK) through grade eight. The district has 12 elementary schools, four TK-8th grade schools, five middle schools, and one early learning center. According to data available through the California Department of Education (CDE) for 2024-25, approx- imately 83% of the district’s students are either English learners, foster youth and/or eligible for free or reduced-priced meals. In September 2025, the Santa Clara County Superintendent of Schools requested that FCMAT assist the county office of education by conducting an Assembly Bill (AB) 139 extraordinary audit to determine if fraud, misappropriation of funds, or other illegal fiscal practices may have occurred at the district. The audit was initiated following allegations from parents, community members and district employees of questionable board member reimbursements, specifically where district funds may have been used to reimburse board members for college-level coursework or other similar training. The scope of the transactions was collectively determined to include a review of the district’s reimburse- ments to governing board members during fiscal years 2022-23 through 2024-25. Review and transaction testing covered all reimbursements, as provided by the district, for July 1, 2022 to June 30, 2025. Reimbursements were considered to be any payments made by the district to the benefit of a district board member. Most often, these payments were made through the district’s reimbursement process. However, in some instances, similar transactions, such as a direct payment to a vendor by the district to the benefit of an individual board member, were also reviewed. Certain items that occurred prior to July 1, 2022 were also reviewed due to their transactional relationship to items captured within the scope. These exceptions are further explained within the report. FCMAT initially visited the district on November 5-6, 2025 to conduct interviews, collect data and review documents. Following fieldwork, FCMAT continued its review and analysis and conducted additional interviews. Extraordinary Audit Procedures An extraordinary audit is conducted based on the study team’s experience and judgment. These audits have many components, including obtaining and examining available original source documents; corrobo- rating documents and information through third-party sources when possible; interviewing potential wit- nesses; gaining an understanding of internal controls applicable to the scope of the work; and assessing factors such as intent, capability, opportunity, and possible pressures or motives. The audit consists of the following: • Gathering adequate information about specific allegations. • Establishing an audit plan. • Performing audit test procedures, often based on sampling of transactions. • Using the team’s judgment and experience to determine whether fraud, misappropriation of funds, or other illegal fiscal practices may have occurred. • Evaluating the loss that resulted from the alleged inappropriate activity. • Determining who may have been involved and how it may have occurred. Fiscal Crisis and Management Assistance Team Alum Rock Union School District vii Findings Findings Transaction Sampling The purpose of sampling transactions is to provide insight into all transactions. The larger the sample size, the more accurate and representative of all transactions the results can be. For this audit, because the scope of transactions was limited to three fiscal years, and because the total population of board member reimbursements for the scope of the audit could be effectively reviewed in totality, a sample was not used. Rather, the entire population of board member reimbursements was reviewed for the specified time period. For all transactions, FCMAT reviewed all relevant information for each transaction, including the amount, date and purpose of the reimbursement. This information is summarized in a table below. Additionally, any administrative approvals that may have been obtained were reviewed, as well as any board approvals for expenditure reimbursements. FCMAT identified several types of reimbursements during the term of the scope. These are outlined below and included travel and related costs, trainings and professional development, and other miscellaneous reimbursements. Results of Testing FCMAT requested that the district provide all board member reimbursements for July 1, 2022 through June 30, 2025, thereby covering the review scope of fiscal years 2022-23 through 2024-25. The district pro- vided available documentation as requested, and FCMAT presumes that all applicable transactions were disclosed. FCMAT noted that the total population of transactions included several credits or refunds of prior payments for various reasons (event cancellations, etc.). These transactions were reviewed and determined to be either offsetting transactions that essentially nullified an original payment or were insignificant to the overall testing results. All credits or refunds have therefore been omitted from the results. Also, any district trust- ees who lacked any reimbursements in accordance with the audit scope are excluded from the table below. Payment Trustee Date Stated Purpose of Expense Amount ($) Andrea Flores Shelton 6/26/23 Latino Leadership Alliance Gala 215.26 6/28/24 CSBA Conference 1,250.00 Total 1,465.26 Andres Quintero 12/21/20 Graduate education courses * 4,700.00 7/23/21 Graduate education courses * 4,700.00 4/21/22 The Kids Table: Susan Ellenberg * 50.00 7/22/22 Graduate education courses 5,000.00 6/30/23 Graduate education courses 830.00 10/6/23 Graduate education courses 1,245.00 1/19/24 Graduate education courses 1,245.00 Fiscal Crisis and Management Assistance Team Alum Rock Union School District 1 Findings Payment Trustee Date Stated Purpose of Expense Amount ($) 3/22/24 Water Education for Latin Leaders 200.00 5/17/24 Graduate education courses 2,490.00 9/20/24 Graduate education courses 2,490.00 Total 22,950.00 Corina Herrera-Loera 10/31/22 SCCSBA (dinner) 55.00 11/4/22 SCCSBA (dinner) 150.00 12/16/22 CSBA 2,114.75 1/20/23 CSBA 2,282.00 3/21/23 Santa Clara Children's Summit 85.00 5/19/23 Alum Rock Counseling Center Luncheon 90.00 8/11/23 SSC Event, CSBA Conference, Working Partnership 1,075.00 10/19/23 Latino Leadership Summit 175.00 11/16/23 SSC Event, DV Conference, Latina Coalition Event 301.21 1/18/24 CSBA Governance Event 1,785.37 9/12/24 Women to the Polls Equality Day Brunch 81.88 11/19/24 CSBA Leadership Luncheon 1,647.56 12/13/24 CSBA Conference (airfare) 277.96 6/6/25 CSBA Conference (lodging, other travel costs) 1,190.82 6/30/25 Crisis Resilient Schools Summit 84.93 Total 11,396.48 Linda Chavez 9/19/22 CSBA (dinner) 52.56 11/16/22 CSBA (meals, transportation) 208.57 12/16/22 CSBA (registration, airfare) 1,127.96 12/27/22 CSBA (meals, transportation) 214.47 1/20/23 CSBA (lodging) 994.56 6/26/23 Latino Leadership Alliance Gala 215.26 9/8/23 CSBA Symposium 1,250.00 1/12/24 CSBA (meals, transportation) 253.14 1/18/24 CSBA (lodging) 1,371.60 3/15/24 CSBA (meals) 69.51 11/19/24 East Side Education Foundation Event 200.00 6/30/25 Baleo Conference 370.98 Total 6,328.61 Minh Nguyen 12/13/24 CSBA Conference (airfare) 465.97 12/18/24 CSBA Conference 935.00 1/21/25 CSBA Conference 575.00 N/A ** CSBA Conference (lodging, transportation) 1,113.01 3/24/25 Memb. - Asian Pacific Islander Board Members 150.00 Fiscal Crisis and Management Assistance Team Alum Rock Union School District 2 Findings Payment Trustee Date Stated Purpose of Expense Amount ($) Total 3,238.98 Minh Pham 3/21/23 Luncheon - East Side School 588.56 10/19/23 Board President Event 45.92 11/16/23 Board President Event 350.56 9/19/22 Working Partnership USA - Champions for Change 100.00 2/21/23 Creations Connections YMCA Project 65.00 3/21/23 SCCBA Brunch 40.00 5/19/23 Alum Rock Counseling Center Luncheon 90.00 6/30/23 San Jose Spotlight Presents: Politibeat 160.00 10/19/23 East Side Foundation Event 200.00 11/16/23 Santa Clara School Boards Association Event 71.21 3/18/24 SCCBA Brunch 39.19 4/19/24 East Side Foundation Event 90.00 5/16/24 Alum Rock Counseling Center Luncheon 154.50 11/19/24 SCCSBA Dinner, East Side Foundation Event 271.21 3/24/25 Fremont High School Event 49.87 Total 2,316.02 * Payments predate FCMAT’s review scope of fiscal years 2022-23 to 2024-25, as mentioned below. ** Items identified as “N/A” could not be determined using documentation provided to FCMAT. As shown by the table above, most trustee reimbursements were related to various community events, gov- ernance trainings and other educational or charitable functions. FCMAT noted that some reimbursements for one board member, Trustee Quintero, were related to post-graduate coursework at University of the Cumberlands. Transcripts provided by the board member to the district indicate the coursework was taken in support of a doctorate degree in history, with a specific emphasis in leadership. The transcripts indicated the degree remained in progress at the time of FCMAT’s fieldwork and that some coursework credits had already been successfully earned toward a degree. The district had previously informed FCMAT that these coursework reimbursements had occurred and also pro- vided FCMAT with the applicable district policies related to allowable trustee reimbursements. Questions from current and former district staff members, as well as from various community members, had also been received related to the collegiate coursework reimbursement payments. FCMAT reviewed the coursework payments and related documentation, noting that the reimbursements for the specific coursework in question began in 2020, predating the scope of FCMAT’s engagement by two years. Because the coursework reimbursements occurred throughout the duration of FCMAT’s scope from 2022-23 through 2024-25, FCMAT requested all reimbursements related to the coursework from the inception of the reimbursement requests in 2020 through 2024-25. The district provided the requested documentation, which resulted in three additional reimbursement transactions from 2020 to 2022, two of which were related to the coursework in question. As shown by the table above, the total amount of the coursework reimbursements to Trustee Quintero from 2020 to 2025 was $22,700 resulting from eight reimbursement payments. Fiscal Crisis and Management Assistance Team Alum Rock Union School District 3 Findings FCMAT reviewed all reimbursements to all board members to determine whether district funds were used in a manner that was both a generally appropriate and typically allowable educational use of district funds, as well as whether each reimbursement followed established district reimbursement policies. While most payments were for generally acceptable educational expenditures as shown in the above table, the course- work reimbursements were unique in that FCMAT did not find that other board members had requested similar reimbursements. As previously mentioned, FCMAT requested additional district documentation, including the district’s reimbursement policy related to the coursework in question. Board Policy Originally adopted in 2019 and subsequently reviewed and revised in 2020, the district’s governing board policy at the time of the coursework reimbursements stated the following: Bylaw 9240: Board Training The Board of Trustees believes that the Board’s ability to effectively and responsibly govern the district is essential to promoting student achievement, building positive community relations, and protecting the public interest in district schools. Board members shall be pro- vided sufficient opportunities for professional development that helps them understand their responsibilities, stay abreast of new developments in education, and develop boardsmanship skills. The Board and/or the Superintendent or designee shall provide an orientation to newly elected or appointed Board members which includes comprehensive information regarding Board roles, policies, and procedures and the district’s vision and goals, operations, and current challenges. Throughout their first term, Board members shall continue to participate in additional educational opportunities designed to assist them in understanding the princi- ples of effective governance, including, but not limited to, information on school finance and budgets, student achievement and assessment, labor relations, community relations, program evaluation, open meeting laws (the Brown Act), conflict of interest laws, and other topics nec- essary to govern effectively and in compliance with law. All Board members are encouraged to continuously participate in advanced training offered by the California School Boards Association and/or education through an accredited college or university in order to reinforce boardsmanship skills and build knowledge related to key education issues. Such activities may include online courses, webinars, webcasts, and in-per- son attendance at workshops and conferences. In addition, workshops and consultations may be held within the district on issues that involve the entire governance team. The Superintendent shall make available the dates for the Masters in Governance Courses. The Superintendent shall provide, to the extent possible, registration and hotel arrangements which shall be made through the Superintendent’s office. The goal is to increase academic achievement by improving organizational effectiveness and efficiency, learning best practices to identify and fix weaknesses. Funds for board training shall be budgeted annually for the Board and each Board member. In selecting appropriate activities, the Board and/or individual Board members shall consider training and/or education that is aligned with the district’s vision and goals and the needs of the Board or individual member to obtain specific knowledge and skills. The Board shall annu- ally develop a board training calendar in order to schedule and track board training activities Fiscal Crisis and Management Assistance Team Alum Rock Union School District 4 Findings and to schedule opportunities for Board members to report on the activities in which they participate. Board members may attend a conference or similar public gathering with other Board mem- bers and/or with the Superintendent or designee in order to develop common knowledge and understanding of an issue or engage in team-building exercises. In such cases, a majority of the Board members shall not discuss among themselves, other than as part of the scheduled program, business of a specified nature that is within the district’s jurisdiction, so as not to violate the Brown Act open meeting laws pursuant to Government Code 54952.2. Board members shall report, orally or in writing, on the board training activities they attend, for the purpose of sharing the acquired knowledge or skills with the full Board and enlarging the benefit of the activity to the Board and district. FCMAT reviewed the coursework reimbursements to determine if these payments could reasonably be con- sidered allowable expenditures in accordance with the above policy. While coursework related to obtaining a doctorate degree in history may not generally be considered appropriate training for which a school dis- trict should be reimbursing a board member, interviews and coursework materials indicated that the doc- torate program included an emphasis on “leadership,” which could coincide with the policy outlined above. Specifically, the policy states that (with emphasis added), “…Board members shall continue to participate in additional educational opportunities designed to assist them in understanding the principles of effective governance, including, but not limited to, information on school finance and budgets, student achievement and assessment, labor relations, community relations, program evaluation, open meeting laws (the Brown Act), conflict of interest laws, and other topics necessary to govern effectively and in compliance with law.” The policy further states that, “All Board members are encouraged to continuously participate in advanced training offered by the California School Boards Association and/or education through an accredited col- lege or university in order to reinforce boardsmanship skills and build knowledge related to key education issues.” Based on the policy in place at the time of the reimbursements, FCMAT determined that, while the reim- bursement of collegiate coursework may not have been the original intent of the policy when adopted by the governing board, training that includes an emphasis on leadership skills can generally assist or improve a board member’s ability to “govern effectively.” Disclosure Requirement FCMAT noted an additional requirement in the above policy, which states that, “Board members shall report, orally or in writing, on the board training activities they attend, for the purpose of sharing the acquired knowledge or skills with the full Board and enlarging the benefit of the activity to the Board and district.” Interviews indicated that this section of the policy was not regularly followed by the greater board, with some trainings discussed and disclosed in open session, while others were not. Interviews indicated the college coursework in question was not reported or discussed in open session when it originally occurred and was only reported to the greater board in 2025. While such a policy oversight could theoretically invalidate a reimbursement, the practice of reporting indi- vidual board member trainings and related activities was not always followed. Whether such an oversight could effectively invalidate any such reimbursement, regardless of actual permissibility, is a local determi- nation subject to board discussion and action. Moreover, the underlying coursework reimbursements that include leadership training could conceivably be considered an allowable expenditure based on the dis- trict’s broad definition as included in the aforementioned policy. Fiscal Crisis and Management Assistance Team Alum Rock Union School District 5 Findings Annual Limit on Reimbursements During fieldwork, FCMAT also learned that the district had maintained an annual limit for board member educational reimbursements of $5,000, inclusive of any training and related travel costs. This limitation was known to both the governing board members and staff members and appears to have been monitored and enforced annually. FCMAT could not locate any district or board policy that outlined such a restric- tion and assumed this may have been a remnant of a previous policy no longer in existence. Even so, this limit appears to have been known by all board members, resulting in annual training reimbursements that remained at or near this limitation in all years reviewed by FCMAT. Reimbursement Approvals Board member reimbursements were typically paid through the district’s reimbursement process. This process included a form called a “Request for Payment” where each board member would describe the reimbursement being requested, including all relevant details and supporting documentation. This form would then be circulated for internal approvals prior to the generation of any payments. FCMAT’s review of these forms indicated that internal approvals were regularly obtained, often from the district superinten- dent, among other signers. Following approval, a warrant (check) was issued to the board member for the reimbursement(s). Warrants were generated through the district’s standard warrant issuance process, each time resulting in a warrant register report for board approval. FCMAT reviewed the warrant reports provided regularly to the governing board. The team identified only four instances where a reimbursement could not be located within a warrant report, suggesting documen- tation may be unavailable in these instances. For all remaining reimbursements, all payments were clearly documented in the warrant reports. These reports were presented under the consent agenda during most board meetings. This is a common practice and allows the board to approve all warrants in an expedited manner, often without any formal discussion unless otherwise raised by an individual board member. FCMAT further reviewed board member voting records and found that, in every case where warrant reports were approved, the vote was unanimous. This included any reports that contained board member reim- bursements, such as the university coursework in question. FCMAT did not identify any open opposition to board member reimbursements in the meeting minutes for any meetings during the scope of FCMAT’s review. During FCMAT’s fieldwork, the district indicated that a review was ongoing of Board Policy 9240 and that revisions were nearing completion that would more clearly describe, in detail, allowable board member training reimbursements in the future. FCMAT did not review or consider any policy changes that occurred during or following the review. Fiscal Crisis and Management Assistance Team Alum Rock Union School District 6 Conclusion Conclusion Potential for Fraud, Misappropriation of Funds, or Other Illegal Fiscal Practices Specific to the scope of the audit and based on the findings included in this report, there is insufficient evidence to demonstrate that fraud, misappropriation of funds and/or assets, or other illegal fiscal practices may have occurred at the hands of district staff and board members in the specific areas reviewed. Recommendation The county superintendent should: 1. Notify the Alum Rock Union School District governing board at a regularly scheduled board meeting within 45 days of the audit’s completion (the date of this report) that insufficient evidence exists to indicate that fraud, misappropriation of funds and/or assets, or other illegal fiscal practices may have occurred, and that the Santa Clara County Superintendent of Schools has concluded its review. Fiscal Crisis and Management Assistance Team Alum Rock Union School District 7 Appendices Appendices Appendix A — Study Agreement Fiscal Crisis and Management Assistance Team Alum Rock Union School District 8 Appendices Appendix A: Study Agreement Fiscal Crisis and Management Assistance Team Alum Rock Union School District 9 Appendices Fiscal Crisis and Management Assistance Team Alum Rock Union School District 10 Appendices Fiscal Crisis and Management Assistance Team Alum Rock Union School District 11 Appendices Fiscal Crisis and Management Assistance Team Alum Rock Union School District 12 Appendices Fiscal Crisis and Management Assistance Team Alum Rock Union School District 13 Appendices Fiscal Crisis and Management Assistance Team Alum Rock Union School District 14 Appendices Fiscal Crisis and Management Assistance Team Alum Rock Union School District 15 Appendices Fiscal Crisis and Management Assistance Team Alum Rock Union School District 16 Appendices Digitally signed by Michael H. Fine Michael H. Fine Date: 2025.09.29 12:12:06 -07'00' Fiscal Crisis and Management Assistance Team Alum Rock Union School District 17 Appendices Appendix B Appendix B More About Types and Causes of Fraud Fraud, Occupational Fraud and Internal Controls Fraud can include an array of irregularities and illegal acts characterized by intentional deception and mis- representations of material facts. Although all employees have some degree of responsibility for internal controls, the governing board, superintendent and senior management are ultimately responsible. Occupational Fraud Occupational fraud includes asset misappropriation, corruption, and fraudulent financial statements. Occupational fraud occurs when an organization’s owners, executives, managers or employees use their position in the organization to deliberately misuse or misapply the employer’s resources or assets for per- sonal benefit. Asset misappropriation includes the theft or misuse of local educational agency (LEA) assets and may include taking cash, inventory or other assets, and/or fraudulent disbursements. Asset misappropriation is the largest category of occupational fraud and includes numerous fraudulent disbursement schemes. Corruption schemes involve one or more employees and/or board members using their influence in busi- ness transactions to obtain a personal benefit that violates their duty to the employer or the organization; conflicts of interest fall into this category. Financial statement fraud includes intentionally misstating or omitting material information in financial reports. Many different types of fraud exist; however, occupational fraud, including asset misappropriation and corruption, is more likely to occur when employees are in positions of trust and have access to assets. Embezzlement occurs when someone who is lawfully entrusted with property takes it for their personal use. Common elements in all fraud include the following: • Intent, or knowingly committing a wrongful act. • Misrepresentation or intentional false and willful representation(s) of a material fact. • Reliance on weaknesses in the internal control structure, including when an individual relies on fraudulent information. • Concealment of the act or facts. • Damages, loss or injury by the deceived party. Financial Abuse Many transactions related to abusive financial practices are found in school districts, charter schools, and other similar organizations. Examples of financial abuse that cost an organization are as follows: taking an extended lunch or break without approval; coming to work late and leaving early; not reporting used vaca- tion time; using sick leave inappropriately; getting paid for more hours than worked; doing slow or careless work; and performing work under the influence of drugs or alcohol. Financial abuse also requires dishonest intent on the part of the employee to victimize the organization. In the private sector, intentional financial abusive practices typically result in reprimands, reducing an employee’s pay, or termination. Governmental entities may impose consequences similar to those in the private sector, but in addition abuse may also be Fiscal Crisis and Management Assistance Team Alum Rock Union School District 18 Appendices Appendix B considered fraud because the employee has intentionally made a false statement against the government for financial gain. Internal Controls The accounting industry defines the term “internal control” as it applies to organizations, including school agencies. The Committee of Sponsoring Organizations of the Treadway Commission (COSO) gives orga- nizations guidance on internal control, risk management, governance and fraud deterrence. COSO is recognized globally for its Internal Control – Integrated Framework (ICIF), which was updated in its 2023 publication, Achieving Effective Internal Control Over Sustainability Reporting (ICSR): Building Trust and Confidence Through the COSO Internal Control – Integrated Framework. This publication defines internal control as follows: A process, effected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance. The reference to achievement of objectives refers to an organization’s work of planning, organizing, direct- ing, and performing routine tasks related to operations, and monitoring performance. An organization establishes control over its operations by setting goals, objectives, budgets and performance expectations. Several factors influence the effectiveness of internal control, including the social environment and how it affects employees’ behavior, the availability and quality of information used to monitor an organization’s operations, and the policies and procedures that guide an organization. Internal control helps an organiza- tion obtain timely feedback on its progress in meeting operational goals and guiding principles, producing reliable financial reports, and ensuring compliance with applicable laws and regulations. Internal control is the primary mechanism for preventing and/or deterring illegal acts or fraud, which can include an assortment of irregularities characterized by intentional deception and misrepresentation of material facts. Effective internal control provides reasonable but not absolute assurance that operations are effective and efficient, that the financial information produced is reliable, and that the organization complies with all applicable laws and regulations. Internal control provides the framework for an effective fraud prevention program. An effective internal con- trol structure includes the policies and administrative regulations established by the board and operational procedures used by employees, adequate accounting and information systems, the work environment, and the professionalism of employees. The Committee of Sponsoring Organizations of the Treadway Commission initially outlined the five com- ponents of internal control in an executive summary, Internal Control – Integrated Framework, published in 2013. Table B-1 provides a summary of these components and their respective characteristics. Table B-1. Summary of internal control components and characteristics. Internal Control Component Characteristics The set of standards, processes and structures that provide the basis for carrying out internal control across an organization. Comprises the integrity and ethical values of the organization. Commonly referred to as the moral tone of the organiza- tion, the control environment includes a code of ethical conduct; policies for ethics; hiring and promotion guidelines; proper assignment of authority and responsibility; oversight by management, the board or an audit committee; investigation of reported Control Environment concerns; and effective disciplinary action for violations. Fiscal Crisis and Management Assistance Team Alum Rock Union School District 19 Appendices Appendix B Internal Control Component Characteristics Identification and assessment of potential events that adversely affect the achieve- ment of the organization’s objectives, and the development of strategies to react in a Risk Assessment timely manner. Actions established by policies and procedures to enforce the governing board’s di- rectives. These include actions by management to prevent and identify misuse of the Control Activities LEA’s assets, including preventing employees from overriding controls in the system. Ensures that employees receive information regarding policies and procedures and understand their responsibility for internal control. Provides opportunity to discuss Information and ethical dilemmas. Establishes clear means of communication within an organization Communication to report suspected violations. Ongoing monitoring to ascertain that all components of internal control are pres- ent and functioning; ensures deficiencies are evaluated and corrective actions are Monitoring Activities implemented. Source: COSO’s 2013 publication, Internal Control – Integrated Framework. The five components of internal control are supported by underlying principles that help ensure an orga- nization achieves effective internal control. Each of the five components listed in Table B-1 above and their related principles must be present and functioning in an integrated manner to be effective. An effective system of internal control can provide reasonable but not absolute assurance that the organization will achieve its objectives. Although an LEA’s employees have some responsibility for internal control, the superintendent, board and other key management personnel have a higher ethical standard, fiduciary duty and responsibility to safe- guard the LEA’s assets. Control Environment The internal control environment establishes an organization’s moral tone. It begins with the organization’s leadership and encompasses employees’ perception of the ethical conduct displayed by the governing board and executive management. The control environment is the set of standards that enables other components of internal control to be effective in preventing and/or deterring fraud or illegal acts. It sets the tone for the organization, provides discipline and control, and includes factors such as integrity, ethical values and competence of employees. The control environment can be weakened significantly by a lack of experience in financial management and internal control. Control Activities Control activities are a fundamental component of internal control and are a direct result of policies and procedures designed to prevent and detect misuse of an LEA’s assets, including preventing any employee from overriding system controls. Examples of control and transaction activities include the following: • Performance reviews: These compare actual data with expectations. In accounting and business offices, this most often occurs when budgeted amounts are compared with actual expenditures to identify variances and followed up with budget transfers to prevent overspending. • Information processing: This includes the approvals, authorizations, verifications and rec- onciliations necessary to ensure that transactions are valid, complete and accurate. Fiscal Crisis and Management Assistance Team Alum Rock Union School District 20 Appendices Appendix B • Physical controls: These are the processes and procedures designed to safeguard and secure assets and records. • Supervisory controls: These assess whether the transaction control activities performed are accurate and follow established policies and procedures. • Segregation of duties: This consists of processes and procedures that ensure no employee or group is placed in a position to be able to commit and conceal errors or fraud in the normal course of duties. In general, segregation of duties includes separating the custody of assets, the authorization or approval of transactions affecting those assets, the recording or reporting of related transactions, and the execution of the transactions. Adequate segregation of duties provides for separate processing by different individuals at various stages of a transaction, and for independent review of the work; these measures reduce the likelihood that errors will remain undetected. Gift of Public Funds Article 16, Section 6 of the California Constitution specifies that the state Legislature cannot authorize any county, city, or other political subdivision to make any gift of public funds to an individual or corporation. This prohibits making any gift of public money or items of value to any individuals (including public employ- ees), corporations, or other government agencies. This constitutional prohibition is designed to prevent the misuse of public money. Expending public funds for a direct and substantial public purpose, with only an incidental benefit to an individual, is unlikely to violate this constitutional prohibition. The existence, lack of, or absence of a direct and substantial public purpose is the primary factor in determining whether an expenditure is a gift of public funds. To justify an expenditure of public funds, a governing board must determine that the expenditure will bene- fit the education of the LEA’s students. Expenditures that most directly and demonstrably benefit students’ education are more likely justified, but expenditures driven by personal motives are not, even if they have been a longstanding local custom or are based on benevolent intentions. If the LEA’s governing board has determined that a particular type of expenditure serves a public purpose, courts will almost always defer to that finding. Therefore, if the LEA has a board policy stating that specific items are allowable, such as schol- arships and awards, the expenditure will likely be considered allowable. Gifts and awards to employees and/or students may be considered gifts of public funds unless the board has a policy that defines the parameters of allowable gifts and awards. Conflicts of Interest Actual or (or Appearance of) Impropriety; Government Code 1090; Political Reform Act; and Common Law In broad terms, a conflict of interest arises when a public official participates in a decision-making process about matters in which they have a personal interest that could influence their conduct, create the appear- ance of a conflict or impropriety, or be perceived as fostering divided loyalty. Some conflict-of-interest laws focus on financial interests, such as contracts that come before an agency for approval when the official (or the official’s spouse or registered domestic partner) has some financial connection to the transaction. An official is considered to be participating in making a contract not only by Fiscal Crisis and Management Assistance Team Alum Rock Union School District 21 Appendices Appendix B voting to approve it, but also by participating in the preliminary phases leading up to the vote, such as the earliest discussions about the contract, and planning, developing specifications, and soliciting for bids. The decision to hire an employee is considered an approval of a contract for purposes of conflict-of-interest law. Conflicts of interest are addressed in common law, as reflected in court decisions, and in statute. Relevant statutes pertaining to LEAs include EC 35107(e); California Government Code (GC) 1090, GC 81000 and following; and California Corporations Code 5233, which applies to consultants serving LEAs. Financial Conflicts Government Code 1090 California Government Code 1090 prohibits approval of contracts in which an official has a financial inter- est. Under GC 1090, a “public official” includes board members, officers or certain designated employees and consultants of school districts, charter schools, and other governmental entities. It is the highest stan- dard to meet, and violations of this law can lead to felony charges. If a board member has an interest in a contract deemed to be a GC 1090 violation, then the entire board is prohibited from entering into the contract unless an exception or safe harbor (i.e., a special provision that offers legal protection if certain conditions are met) applies. This is true even if the contract offers the best price and even if the board member with the conflict abstains from voting on the matter. In cases where a safe harbor applies, such as when a board member is considered to have a “remote financial interest” according to GC 1091, or is not “deemed to be interested” under GC 1091.5(a), the board may vote on the contract provided the affected member abstains from discussion and voting on the matter. Government Code 1090 also applies to employees who prepare or negotiate contracts in which they have a financial interest and those who recommend the approval of such a contract. The prohibition is absolute absent a valid exception, and the contracts are voidable and have no legal effect. The Fair Political Practices Commission (FPPC) published An Overview of Section 1090 and FPPC Advice in October 2020, which provides further clarification regarding conflicts of interest as follows: In Thomson v. Call (1985) 38 Cal.3d 633, the California Supreme Court explained the purpose underlying Section 1090: [E]xamination of the goals and policy concerns underlying section 1090 convinces us of the logic and reasonableness of the trial court’s solution. In San Diego v. S.D. & L.A.R.R. Co., supra, 44 Cal. 106, we recognized the conflict-of-interest statutes’ origins in the general principle that ‘no man can faithfully serve two masters whose interests are or may be in conflict’: ‘The law, therefore, will not permit one who acts in a fiduciary capacity to deal with himself in his individual capacity. . . . For even if the honesty of the agency is unquestioned. . . yet the principal has in fact bargained for the exercise of all the skill, ability and industry of the agent, and he is entitled to demand the exertion of all this in his own favor.’ (44 Cal. at p. 113.) We reiterated this rationale more recently in Stigall v. City of Taft, supra, 58 Cal.2d 565: ‘The instant statutes [§ 1090 et seq.] are concerned with any interest, other than perhaps a remote or minimal interest, which would prevent the officials from exercising abso- lute loyalty and undivided allegiance to the best interests of the city.’ (58 Cal.2d at p. 569.) Furthermore, Section 1090 is intended “not only to strike at actual impropriety, but also to strike at the appearance of impropriety.” A contract that violates Section 1090 is void. The Fiscal Crisis and Management Assistance Team Alum Rock Union School District 22 Appendices Appendix B prohibition applies even when the terms of the proposed contract are demonstrably fair and equitable or are plainly to the public entity’s advantage. Courts have recognized that Section 1090’s prohibition must be broadly construed and strictly enforced. “An important, prophylactic statute such as Section 1090 should be construed broadly to close loopholes; it should not be constricted and enfeebled.” [Footnote case citations removed from the quoted information by FCMAT.] Political Reform Act The Political Reform Act, initially enacted by Proposition 9 in June 1974 and updated as needed, is another California law regarding financial conflicts. The stated intent of the act is to establish a process for most state and local officials, as well as with certain designated employees and consultants, to publicly disclose their economic interests. This disclosure of personal income and assets aims to identify potential areas of conflict that could influence the decisions and actions of these individuals. The Political Reform Act’s provisions are enforced by the FPPC and enumerated in the California Government Code. It requires every state and local governmental agency to adopt a conflict-of-interest code. The FPPC is the state agency responsible for interpreting the provisions of the law and issuing California Form 700 – Statement of Economic Interests. Because school governing board members are considered public officials and governing boards are con- sidered legislative bodies, these members, as well as certain designated individuals involved in financial decisions for an LEA, must annually file a statement of economic interests (Form 700) by April 1 for the preceding calendar year. They must also file this form within 30 days of assuming or leaving office or their position. In addition, the Political Reform Act stipulates that a consultant to the organization “who makes, participates in making, or acts in a staff capacity for making governmental decisions” may be required to complete a Form 700. Failure to follow FPPC Form 700 rules can result in fines, and in extreme cases, deliberate failure to file can result in criminal charges by the attorney general or district attorney, or civil or administrative action by the FPPC. The Political Reform Act concerns situations in which a public official participates in or attempts to influ- ence a government decision that affects their economic interests. Failure to disclose information is a form of influence. If a conflict under the Political Reform Act exists, the public official must recuse themself from every part of the decision-making process and abstain from voting. The FPPC has issued many detailed regulations about conflicts of interest, as discussed in the “Nonfinancial Conflicts” section below. Nonfinancial Conflicts Common Law Court opinions lay out common law principles that require public officials to abstain from decisions in which they have a personal interest, even if their interest is not financial. The remedy for a common law conflict of interest is for the affected individual to disclose the conflict and abstain from discussion of and voting on the matter. Appearance of Impropriety Conflict of interest applies not only to economic interests but also to the appearance of impropriety, mis- conduct, or even indiscretion. Conflict of interest is about self-dealing, which is when a fiduciary such as a government official places their personal interests above those of the entity or persons they serve. Often Fiscal Crisis and Management Assistance Team Alum Rock Union School District 23 Appendices Appendix B a government official may claim they did not benefit financially from a transaction and that therefore there was no conflict of interest. However, those who may commit improprieties can have hidden interests that are not always economic, such as when a board member’s actions are detrimental to the district because they provided a benefit to a friend, relative or romantic interest. The Office of the Attorney General of California’s Opinion No. 97-511, dated December 5, 1997, discusses the appearance of impropriety: The Supreme Court has declared that the purpose of section 1090’s prohibition ‘is to remove or limit the possibility of any personal influence, either directly or indirectly, which might bear on an official’s decision, as well as to void contracts which are actually obtained through fraud or dishonest conduct. . . .’ (Stigall v. City of Taft (1962) 58 Cal.2d 565, 569.) The statutory goal is ‘not only to strike at actual impropriety, but also to strike at the appearance of impropriety.’ (City of Imperial Beach v. Bailey (1980) 103 Cal.App.3d 191, 197.) Limiting the possibility of any direct or indirect personal influence includes avoiding even the appearance of a conflict. Failure to do so can be dishonest and is a breach of a public official’s fiduciary responsibilities. When a public official such as a board member, or even any government employee, conceals information about their personal interest in a decision, they are depriving the board or management of information that may be necessary for them to make an informed decision. By acting without disclosing their own personal interest (self-dealing), the board member or employee gains hidden influence over the outcome of other board members’ decisions. A board member can influence a governmental decision by concealing information from fellow board mem- bers or the public when, had that information been known, it would, or would have appeared to, alter the outcome of the decision. Failure to disclose information is a form of influence. The FPPC has published many resources regarding conflicts of interest, including An Overview of Section 1090 and FPPC Advice in October 2020, A Quick Guide to Section 1090 in October 2020, and Recognizing Conflicts of Interest in August 2015. These resources provide further clarification regarding conflicts of interest. A Quick Guide to Section 1090 describes the purpose of GC 1090 as follows: Section 1090 “Codifies the long-standing common law rule that barred public officials from being personally financially interested in the contracts they formed in their official capacities.” The prohibition is based on the rationale that a person cannot effectively serve two masters at the same time. Therefore, Section 1090 is designed to apply to any situation that “would prevent the officials involved from exercising absolute loyalty and undivided allegiance to the best interests of the [public entity concerned].” Section 1090’s goals include eliminating temptation, avoiding the appearance of impropriety, and assuring the public of the official’s undivided and uncompromised allegiance. Furthermore, Section 1090 is intended “not only to strike at actual impropriety, but also to strike at the appearance of impropriety.” [Footnote case citations removed from the quoted information by FCMAT.] The Political Reform Act represents voters’ recognition that conflicts of interest in government deci- sion-making by public officials pose a significant danger. Recognizing Conflicts of Interest states: Under the Act, a public official will have a statutory conflict of interest with regard to a par- ticular government decision if it is foreseeable that the outcome of the decision will have a Fiscal Crisis and Management Assistance Team Alum Rock Union School District 24 Appendices Appendix B financial impact on the official’s personal finances or other financial interests. In such cases, there is a risk of biased decision-making that could sacrifice the public’s interest in favor of the official’s private financial interests. In fact, preventing conflicts of interest was of such vital importance to the voters that the Act not only prohibits actual bias in decision-making but also “seeks to forestall ... the appearance of possible improprieties.” [Footnote case citations removed from the quoted information by FCMAT.] The issue of the appearance of possible improprieties is discussed in the 1997 Fourth District Court of Appeal decision in Witt v. Morrow as follows: Morrow asserts it is unconstitutional to automatically disqualify a public official from partici- pating in decisions which may affect the investments of an entity which pays him .... However, the whole purpose of the Political Reform Act of 1974 is to preclude a government official from participating in decisions where it appears he may not be totally objective because the outcome will likely benefit a corporation or individual by whom he is also employed. [Witt v. Morrow (1977) Official California Appellate Reports, Third Series volume 70 pages 817, 822- 823 (Witt v. Morrow [1977] 70 Cal.App.3d 817, 822-823)]. The Political Reform Act applies to all “public officials,” which GC 82048 defines as “every member, officer, employee or consultant of a state or local government agency.” In the 1962 case of Stigall v. City of Taft, the California Superior Court recognized that GC 1090’s prohibition against conflicts of interest must be broadly construed and strictly enforced. (Stigall v. City of Taft (1962) Official California Reports, Second Series volume 58 page 565 [Stigall v. City of Taft (1962) 58 Cal.2d 565]). Reasonably Foreseeable Financial Effect In its implementation of the Political Reform Act, the FPPC enacts many regulations, including Title 2, California Code of Regulations 18700 (2 CCR 18700), the basic rule and guide to conflict-of-interest regula- tions. This regulation states, in part: (a) Basic Rule: A public official at any level of state or local government has a prohibited conflict of interest and may not make, participate in making, or in any way use or attempt to use the official’s position to influence a governmental decision when the official knows or has reason to know the official has a disqualifying financial interest. A public official has a disqualifying financial interest if the decision will have a reasonably foreseeable material financial effect, distinguishable from the effect on the public generally, directly on the official, or the official’s immediate family, or on any financial interest described in subdivision (c)(6)(A-F) herein. (Sections 87100, 87101, & 87103.) Title 2, California Code of Regulations 18701 (2 CCR18701) determines whether a financial effect is reason- ably foreseeable and states, in part: (a) Financial Interest Explicitly Involved: A financial effect on a financial interest is presumed to be reasonably foreseeable if the financial interest is a named party in, or the subject of, a governmental decision before the official or the official’s agency. A financial interest is the subject of a proceeding if the decision involves the issuance, renewal, approval, denial or revocation of any license, permit, or other entitlement to, or contract with, the financial interest, and includes any governmental decision affecting a real property financial interest as described in Regulation 18702.2(a)(1)-(6). Fiscal Crisis and Management Assistance Team Alum Rock Union School District 25 Appendices Appendix B Ethical Duty, Integrity, and Fiduciary Duty It is not enough to evaluate a potential conflict of interest based on whether a public official has a direct financial interest. School managers and staff and the public should expect the highest level of ethics from all public officials. Public officials should show an ethical tone at the top and demonstrate the highest levels of integrity and fiduciary duty. Board members are fiduciaries of the LEA. According to the Legal Information Institute, a fiduciary is some- one who has a fiduciary duty to conduct themselves in a way that financially benefits another person or persons (referred to as a beneficiary or principal). In other words, the fiduciary assumes responsibility for managing money or other assets on behalf of the beneficiary. Moreover, a fiduciary may hold a legal or ethical relationship of trust with one or more other parties (person or group of persons). Board members, administrators and managers have fiduciary responsibilities or a fiduciary duty to the LEA(s) they serve. The Legal Information Institute asserts that fiduciaries are responsible for certain fiduciary duties. FCMAT has summarized these six duties and actively applies them to LEA fiduciaries as follows: • Duty of Care: Collect all evidence and available information before making a decision. Do your due diligence and review all the information and evidence available – do not just accept the information as it is presented. Assess information with a critical eye and ask who, what, when and where. A fiduciary’s responsibility is to protect the LEA’s assets. • Duty of Loyalty: Do not use your position in the organization to further your private inter- ests. Avoid anything that might injure the LEA. • Duty of Good Faith: Advance the LEA’s interests. Do not violate the law. Fulfill your duties and responsibilities. • Duty of Confidentiality: Keep confidential matters confidential, and never disclose confi- dential information for your own benefit or to avoid personal liability. • Duty of Prudence: Be trustworthy, with the degree of care and skill that a prudent member of management, board member, or fiduciary would exercise. Prudent means acting with wisdom and care, including exercising good judgment. • Duty of Disclosure: Act with complete candor. Be open, sincere, honest and transparent. Disclose all financial interests on Form 700, Statement of Economic Interests. Board members must be loyal and serve in good faith, with prudence and full disclosure, in the best interest of the LEA, without any hint of self-dealing or personal interest in any transaction associated with the LEA. They also have a duty to ensure their business partners (e.g., consultants, contractors and vendors) do the same. When faced with potential conflicts of interest on the part of a public official, such as a school board member, administrator or consultant, it is important to consider the legal and ethical standards and to review any applicable board policies that may be even more restrictive than the statutory mandates. Corruption Corruption does not have to involve two or more parties; a single individual in a position of trust can exercise authority for their own personal gain. Personal gain can include, but is not limited to, helping a significant other or personal acquaintance get a job, promotion or pay raise. When the relationship is not Fiscal Crisis and Management Assistance Team Alum Rock Union School District 26 Appendices Appendix B disclosed to the public, management, or all fellow board members, and the interested board member votes or abstains on the matter but fails to explain their reasons for abstaining, these actions may be considered a conflict of interest. Every conflict of interest requires one party to be in a position of trust, and every instance of corruption requires both a conflict of interest and a breach of that trust. Fiscal Crisis and Management Assistance Team Alum Rock Union School District 27 Appendices Appendix C Appendix C More About Transaction Sampling FCMAT developed and conducted audit procedures to analyze and evaluate allegations and identify poten- tial outcomes. The audit scope, objectives, and substantive transaction testing were based on the FCMAT study team’s experience and professional judgment. Transaction testing does not include testing or eval- uating all available transactions and records. Transactions sampled were those selected randomly and/or based on the team’s judgment. Transactions selected, when applicable, are analyzed and compared to board bylaws and policies, adminis- trative regulations, operational procedures, and industry standards or best practices. They are then evalu- ated for proper authorizations and reasonableness based on the team’s judgment and technical expertise in school business operations, internal controls, and accounting best practices. Sample testing and examination results are intended to provide reasonable but not absolute assurance that the transactions and financial activity are accurate, and/or to identify whether fraud, misappropriation of funds, or other illegal fiscal practices may have taken place during the period under review. Fiscal Crisis and Management Assistance Team Alum Rock Union School District 28