Ipakanni Early College Charter School Report

Extraordinary Audit June 23, 2025 Ipakanni Early College Charter School Michael H. Fine Chief Executive Officer June 23, 2025 Mary Sakuma Butte County Superintendent of Schools 1859 Bird Street Oroville, CA 95965 Dear Superintendent Sakuma: On April 14, 2025, the Fiscal Crisis and Management Assistance Team (FCMAT) issued its report contain- ing the study team’s finding and recommendations regarding the extraordinary audit of the Ipakanni Early College Charter School as requested by the Butte County Superintendent of Schools. Recently, additional, subsequent information related to the study team’s findings and recommendations has been received. Page 27 of the April 14, 2025, report describes three emails sent to both Ramona Williams and Benjamin Clark dated December 9, 10, and 27, 2024, asking them to meet with the FCMAT team. The charter school director and business manager were made aware of this request, and the charter school director told Ramona Williams and Benjamin Clark by email on December 9, 2024, that personnel from FCMAT would be reaching out to set up a meeting. Neither Ramona Williams nor Benjamin Clark responded to any of these emails. Had they met with FCMAT, questions such as those described on page 28 of the April 14, 2025, report could have been discussed, and any claims that their signatures were forged could have been made and investigated. Approximately two months after the report was released to public officials as required by law, including the Butte County District Attorney, Ms. Williams telephoned FCMAT. She explained that she had spoken to the district attorney investigator who was looking into the findings of the April 14, 2025, report. She stated that during her meeting with the district attorney investigator, the following conclusions were made: • The checks showing Ramona Williams’ signature were disputed by Ms. Williams as her true signature. • The district attorney investigator concluded that her signature on the questioned checks had been forged. Similarly, on June 13, 2025, an attorney representing Benjamin Clark contacted FCMAT. The attorney advised that the district attorney had investigated the questioned checks appearing to bear Mr. Clark’s signatures and determined that they had been forged. A letter to that effect from the Butte County District Attorney is now attached to the revised April 14, 2025, report, which now bears today’s date as Appendix B. (The original Appendix B is now Appendix C, and the new Appendix B contains the district attorney’s June 11, 2025, letter.) On the basis of the investigation by the district attorney, which information has been conveyed to FCMAT by third parties, the signatures on the questioned checks purporting to be those of Ramona Williams and Benjamin Clark, have been determined to be forgeries and not their responsibility. However, this informa- tion does not change FCMAT’s finding and recommendations in the April 14, 2025, report. The purpose of the attached revised report is to publicly disseminate this subsequent information. 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 The report is not a management assistance review and does not contain recommendations regarding the charter school’s practices around internal controls. However, the internal business practices of the charter school need to be reviewed and revised in light of this new information confirming forgeries. Please redistribute the revised report dated today to the parties you originally distributed the April 14, 2025, report to including the Ipakanni Early College Charter School governing board, the Oroville City Elementary School District, the state controller, the superintendent of public instruction and the local dis- trict attorney. Sincerely, Michael H. Fine Chief Executive Officer April 14, 2025 Mary Sakuma Butte County Superintendent of Schools 1859 Bird Street Oroville, CA 95965 Dear Superintendent Sakuma: In September 2024, the Butte 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 Ipakanni Early College Charter School to determine if fraud, misappropriation of funds or other illegal fiscal prac- tices may have occurred in relation to the charter school’s expenditures. Specifically, the agreement states: 1. The focus of this review is to sample the Subject Entity’s expenditures to determine whether charter school funds were used for reasons other than legitimate educational purposes. 2. The team will review and test the Subject Entity’s cash disbursements by sampling transactions from the fiscal years 2021-22 and 2022-23, as well as from the period of July to October in the 2023-24 fiscal year. Disbursements selected for testing will be based on the Team’s judgment regarding sample size, selection techniques, and conclusion. The results of this sample testing and review are intended to provide reasonable, though not absolute, certainty about whether the Subject Entity’s disbursements were sufficiently appropriate. 3. Based on the assessment performed, the team will either recommend or not recommend that the county superintendent notify the governing board of the Subject Entity, the chartering authority, the State Controller, the state superintendent of public instruction, and the local district attorney that sufficient evidence exists to indicate that fraud, misappropriation of funds, or other illegal fiscal practices may have occurred. The team will state that the county superintendent has concluded their review. This report contains the study team’s findings and recommendations. FCMAT appreciates the opportunity to serve you and extends thanks to all the staff of the Butte County Office of Education and the Ipakanni Early College Charter School 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 ...................................................................................................ii Introduction ......................................................................................................iv Background ...........................................................................................................................iv Study and Report Guidelines .............................................................................................v Extraordinary Audit Procedures ........................................................................................v Judgments Regarding Guilt or Innocence .....................................................................vi Study Team ............................................................................................................................vi Fraud, Occupational Fraud and Internal Controls ..................................1 Transaction Sampling ....................................................................................6 County Superintendents’ Responsibilities ...............................................11 Findings ..........................................................................................................12 Conclusion .....................................................................................................30 Appendices .....................................................................................................31 Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School i 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 Ipakanni Early College Charter School ii 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 new 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 Ipakanni Early College Charter School iii Introduction Background Introduction Background The Ipakanni Early College Charter School is located in Butte County in the city of Oroville. According to DataQuest, for the 2023-24 school year, the charter school served 63 students from kindergarten through 12th grade. The independent audit report for the charter school’s fiscal year ending June 30, 2022, states that it was established on August 18, 2010 and is authorized by Oroville City Elementary School District. According to the charter school board president, Glenda Nelson, charter school board members must be a member of one of three Native American Indian tribes: Berry Creek Rancheria of Maidu Indians of California, Mooretown Rancheria of Maidu Indians of California, or Enterprise Rancheria Estom Yumeka Maidu Tribe. Administrators of the charter school (e.g., the charter school director, business manager, or school site supervisor) do not have check-signing authority. Only one person, typically the board’s trea- surer, is authorized to sign checks. There were two individual check signers during the time period of this audit. The checks in the sample period were signed either by Ramona Williams or Benjamin Clark, board members of the charter school. Walter Gramps has served as the charter school director and teacher for the past 12 years. The business manager of the charter school was Christopher David Lee Williams. He was the business manager during the period of this audit and passed away on October 30, 2023. Williams began working for the charter school in 2019. Billy Bowers, the current school site supervisor, began working at the charter school in July 2022. According to the obituary for Williams, published on the Ramsey Funeral Home’s website, “Christopher David Lee Williams, of Oroville, passed away on Monday, October 30, 2023. He graduated from Oroville High School and went on to study at Chico State, graduating with a Bachelor of Science in Accounting and Finance, which he put to use working for Ipakanni Charter School.” Upon Williams’ death, Bowers assumed all duties of the business manager. The accounting system used by the charter school during the time Williams was the business manager was QuickBooks. The charter school has since moved its business accounting operations to a charter school back-office service provider. Bowers explained to FCMAT that he is not a financial person but needed to assume the business manager role when Williams passed away. During his transition into the role, Bowers noticed discrepancies in the accounting system, specifically that vendor payments seemed to be incorrectly coded. Bowers brought these concerns to Gramps, who then informed Nelson, the board president. Board president Nelson has a business background and immediately began a comparison of the checks that cleared through the bank account with those recorded in the accounting records. A cleared check, also known as a canceled check, is written to a payee and then processed by the bank. Once the check is pro- cessed or cleared through the bank, that payee is the true payee that the bank paid, and the bank keeps that check as its copy. Nelson began to cross-reference bank provided canceled checks with the check register from the account- ing records. She found that numerous checks were written to Williams but recorded in the QuickBooks accounting records to other vendor names. As her analysis continued, other discrepancies were noticed such as numerous check amounts that did not match between the accounting records and the cleared checks from the bank. In one example, a vendor recorded in QuickBooks, Bert Brown, was not known to anyone at the charter school to have provided any services; however, checks were written to names asso- Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School iv Introduction Study and Report Guidelines (AB 139 Audit Authority) ciated with that name. Based on the charter school’s analysis, they contacted their authorizer, Oroville City Elementary School District. Subsequently, the authorizer contacted the county superintendent of schools. Based on the financial information provided by the charter school to its authorizer, the county superinten- dent determined that the charter school’s transactions and financial activities might have characteristics of fraud, misappropriation of funds, or other illegal fiscal practices. As a result, in August 2024, the county superintendent contacted FCMAT to discuss their analysis of the charter school’s financial transactions. In September 2024, the county superintendent requested that FCMAT assist them 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 Ipakanni Early College Charter School. Study and Report Guidelines (AB 139 Audit Authority) Education Code (EC) 1241.5(c) permits a county superintendent of schools to review or audit the expendi- tures and internal controls of any charter school within the county if they have reason to believe that fraud, misappropriation of funds, or other illegal fiscal practices may 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. 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. 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 Ipakanni Early College Charter School v Introduction Judgments Regarding Guilt or Innocence FCMAT first contacted the charter school by email and telephone on September 12, 2024. Between September and December 2024 FCMAT, the county superintendent, and the charter school communicated and coordinated providing requested documents. On January 8, 2025, through January 9, 2025, FCMAT visited the charter school to conduct interviews, collect data and review documents. Following fieldwork, FCMAT continued its review and analysis. The team examined numerous documents from the charter school including, but not limited to, the following: • Available documentation contained in three banker’s boxes such as invoices, expense reports, receipts, and checks, contracts, and agreements. • Bank provided canceled check copies, both front and back. • Charter school provided check analysis. • Audit reports and a backup copy of the charter school’s QuickBooks accounting software. • Accounting transaction detail reports such as those from the general ledger, checking account registers, and vendors. • Federal nonprofit tax reporting (i.e., IRS Form 990). • Emails and public database information. The FCMAT audit team reviews and evaluates the available information and documents that fall within an audit’s scope. The team then assesses this information to determine whether it contributes to a finding in the report. Other information may also be included when relevant. 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. Study Team The study team was composed of the following members: Michael Ammermon Shayleen Harte CPA, CFE, CRFAC, DABFA FCMAT Deputy Executive Officer II 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 Ipakanni Early College Charter School vi Fraud, Occupational Fraud and Intern al Controls 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/charter school executive director 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. • Internal controls. 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 organizations guidance on internal control, risk management, governance and fraud deter- rence. 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: Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 1 Fraud, Occupational Fraud and Intern al Controls 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 staff, 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 1 provides a summary of these components and their respective characteristics. Table 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 organization, 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; Control Environment investigation of reported concerns; and effective disciplinary action for violations. Identification and assessment of potential events that adversely affect the achievement of the Risk Assessment organization’s objectives, and the development of strategies to react in a timely manner. Actions established by policies and procedures to enforce the governing board’s directives. These include actions by management to prevent and identify misuse of the LEA’s assets, including Control Activities preventing employees from overriding controls in the system. Ensures that employees receive information regarding policies and procedures and understand Information and their responsibility for internal control. Provides opportunity to discuss ethical dilemmas. Communication Establishes clear means of communication within an organization to report suspected violations. Ongoing monitoring to ascertain that all components of internal control are present and Monitoring Activities functioning; ensures deficiencies are evaluated and corrective actions are implemented. Source: COSO’s 2013 publication, Internal Control – Integrated Framework. Note: Table shading is for readability only. Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 2 Fraud, Occupational Fraud and Intern al Controls 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 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: which 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: which includes the approvals, authorizations, verifications and reconciliations necessary to ensure that transactions are valid, complete and accurate. • Physical controls: which are the processes and procedures designed to safeguard and secure assets and records. • Supervisory controls: which assess whether the transaction control activities performed are accurate and follow established policies and procedures. • Segregation of duties: which 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. Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 3 Fraud, Occupational Fraud and Intern al Controls Internal controls are effective in deterring and detecting fraud, and in mitigating financial errors. They help ensure that transactions are documented thoroughly and reconciled. Effective internal controls require the governing board, management and staff to discern system weakness. Examples of these weaknesses are shown in FCMAT’s sampling of transactions as discussed in the Findings section of this report. 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. Board member fiduciary duty is discussed further in the Findings section of this report. Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 4 Fraud, Occupational Fraud and Intern al Controls Corruption Corruption does not have to involve two or more parties; a single individual in a position of trust can exer- cise authority for their own personal gain. Personal gain can include, but is not limited to, forging checks or helping a significant other or personal acquaintance get a job, promotion or pay raise. And when the rela- tionship is not 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 Ipakanni Early College Charter School 5 Transaction Sampling 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. 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 example, if there are 100 travel reimbursement claims and 10 are sampled, 10% of the claims are sampled. If two of the 10 claims sam- pled contain errors, then 20% of the sample has errors. This means that 20% of all 100 claims, or 20 claims, may also contain errors. Sampling is one of many methods used to gain insight into what is being audited. Sampling techniques such as random or targeted sample selections, as well as the auditor’s judgment and experience, may also affect the results achieved and how data is sampled and evaluated. FCMAT used a combination of random and targeted sampling methods for this audit. Specific account expenditure categories were selected, such as vendor services for repairs and maintenance, employee reimbursements for materials, and consulting. Transactions specific to Williams and Bert Brown were tar- geted. As transactions in the account categories were reviewed, they could be selected because of the dollar amount or type of description written in the transaction memo. Other transactions were selected randomly regardless of the amount or what was written in a transaction memo. FCMAT sampled expenditure transactions over a sample period of 28 months, from July 1, 2021 through October 31, 2023. The sample includes expenditures issued as checks recorded in QuickBooks and not found in QuickBooks, duplicate checks, and checks endorsed by Williams and Bert Brown. Table 2 below shows both the total population amount and number of checks recorded in QuickBooks from which the sample of transactions was selected for vendor, employee, payroll, missing, and duplicate checks. Missing checks are checks not listed in QuickBooks that fall outside of the check sequence. For example, if check numbers 100, 101, 102, and 103 are recorded in QuickBooks, but the next check in the sequence is 107, check numbers 104, 105, and 106 are not found in QuickBooks and are therefore missing. Duplicate checks are checks that have the same check number recorded in QuickBooks. For example, if two checks are shown as check number 100, it is a duplicate. Duplicate check numbers may not be writ- ten to the same vendor’s name and may have different dates and amounts. Chris Williams and Bert Brown checks were selected from checks recorded in QuickBooks and from bank-provided cleared checks that were not recorded in QuickBooks. These checks were tested specifically to confirm the name and endorser of the check. The endorser of the check is the person or entity that signs the back of a check regardless of the name recorded as the payee in QuickBooks or name on the check. Endorsement of a check transfers ownership of the check to another party. Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 6 Transaction Sampling From the population of expenditure transactions, a sample was selected. The sample of expenditure transactions is shown in Table 3. The results of the sample testing are shown in Table 4. The mix of tested transactions within the expenditures sampled was used to produce a testing result that could be consid- ered representative of all transactions. The results of expenditure testing are often an indicator of the health of an organization’s internal controls, because it shows how an organization documents and controls its spending. Deficiencies in spending prac- tices can lead to cash flow shortages, excessive borrowing, an inability to pay obligations, or fraud. Tables 2 through 4 below show the results of the expenditures reviewed. Each table is part of the sampling process and results. Aspects of the information presented in these tables is discussed in more detail in the Findings section of the report. Expenditure Testing Results Sample Period, July 1, 2021 – October 31, 2023 (28 Months) Table 2: Summarized Expenditures Population Population Description - Sample Category Amount Transactions Check Types: Vendor, Employee, and Payroll Checks $ 2,019,542 1 ,203 Missing Checks not in QuickBooks N/A 2 84 Duplicate Checks $ 1 17,710 2 6 Total Check Types $ 2,137,252 1 ,513 Vendor Specific Checks: Bert Brown Checks Endorsed $ 5 5,771 4 6 Employee Specific Checks: Chris Williams Checks Endorsed $ 7 0,525 5 4 Totals $ 2 ,263,548 1 ,613 Source: FCMAT sample testing data sourced from charter school-provided QuickB\ooks accounting transaction reports. Note: Dollar amounts and other figures are rounded. Table 2 shows the total dollar amount and number of all transactions available (population) in each cate- gory of the sample period. For example, in the charter school’s accounting records, the account category of vendor, employee, and payroll checks has 1,203 transactions totaling $2,019,542 during the 28-month sample period. Each expenditure category of transactions examined is composed of 28 months of financial activity. All categories tested are selected from the 1,613 transactions totaling $2,263,548. The total popula- tion of expenditures includes 284 checks that were not recorded in the QuickBooks accounting data, some of which were found to be checks processed by the bank. From the total population of checks above, the team selected a sample of individual transactions that are shown in Table 3 below. Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 7 Transaction Sampling Table 3: Summarized Sampling — Expenditures Sampled Percentage of All Description - Sample Category Transactions Transactions Amount Check Types: Vendor, Employee, and Payroll Checks 73 6.1% $ 1 11,287 Missing Checks not in QuickBooks 19 6.7% $ 22,033 Duplicate Checks 1 3.8% $ 1,057 Total Check Types 93 6.1% $ 1 34,377 Vendor Specific Checks: Bert Brown Checks Endorsed 46 100.0% $ 55,771 Employee Specific Checks: Chris Williams Checks Endorsed 28 51.9% $ 27,153 Totals 1 67 10.4% $ 217,301 Source: FCMAT sample testing data sourced from charter school-provided QuickBooks accounting transaction reports. Note: Dollar amounts and other figures are rounded. Transaction sampling was based on random and specific selections of transactions in each expenditure category. For example, vendor, employee, and payroll checks had 1,203 transactions to choose from (see Table 2). From these, the team selected 73 transactions (see Table 3). The 73 transactions are 6.1% (73 divided by 1,203 = 6.068% or rounded to 6.1%) of all transactions for these types of checks and have a dollar value of $111,287. Overall, 167 transactions were selected for examination (see Table 3), which is 10.4% of all 1,613 transactions (see Table 2). The 167 sampled transactions have a dollar value of $217,301. Measured in dollars, the sampled transactions are 9.6% ($217,301 from Table 3 divided by $2,263,548 from Table 2) of the total transactions. The transactions from the sample were then evaluated using the testing criteria described after Table 4. The results of the sample testing are shown in Table 4. Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 8 Transaction Sampling Table 4: Expenditures Sample Results Sample Results Percentage of Percentage of Amount of Amount of Transaction Transaction Transaction Transaction Description - Sample Category Failures Failures Failures Failures Check Types: Vendor, Employee, and Payroll Checks 73 100.0% $ 111,287 100.0% Missing Checks not in QuickBooks 19 100.0% $ 22,033 100.0% Duplicate Checks 1 100.0% $ 1,057 100.0% Total Check Types 93 100.0% $ 134,377 100.0% Vendor Specific Checks: Bert Brown Checks Endorsed 46 100.0% $ 55,771 100.0% Employee Specific Checks: Chris Williams Checks Endorsed 28 100.0% $ 27,153 100.0% Totals 1 67 100.0% $ 217,301 100.0% Source: FCMAT sample testing data sourced from charter school-provided QuickBooks accounting transaction reports. Note: Dollar amounts and other figures are rounded. The Check Types category of transactions in Table 4 were examined based on three testing criteria. The sample results in Table 4 above show the number of sampled transactions that failed to meet at least one of the following three testing criteria. 1. Payment amounts matched the contract or other supporting documentation such as some form of receipt was available. 2. The invoice or actual bank-cleared check payee name and amount paid matched the general ledger. 3. The payment was for an item considered a reasonable educational purpose. The Vendor Specific Checks category and Employee Specific Checks category of transactions in Table 4 were examined based on two criteria. The sample results in Table 4 above show the number of sampled transactions that failed to meet at least one of the following two testing criteria. 1. Comparison of the payee’s name in the accounting records to the cleared check from the bank. 2. Name of person who endorsed the check. All transactions were evaluated based on the team’s judgment and were given either a pass or a fail or name or endorsement match or no match finding. Because each check type category sampled transaction was examined against three testing criteria, a single transaction could fail to meet one or more of the three testing criteria. Each transaction that failed one, two, or all three criteria was considered a single failure regardless of how many criteria it failed to Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 9 Transaction Sampling meet. The overall sample testing results, shown in Table 4, indicate that 100% of all 93 check type category transactions sampled failed at least one criterion. Table 4 also shows that 100% of all 46 vendor specific checks and 28 employee specific checks sampled failed the check payee name and endorsement criteria testing. This means that of a sample of 46 vendor specific checks and 28 employee specific checks, when the name of the check in the accounting records was compared to the name on the bank-provided canceled check, they did not match. It also means that the endorsement of the check differed from the name in the accounting records as the payee. In total, all three categories of testing resulted in 167 transactions that failed the testing criteria with a total dollar value of $217,301 for all transactions sampled (see Tables 3 and 4). In dollar values, this is a failure rate of 100%, which is determined by dividing $217,301 shown in Table 4 by the $217,301 amount shown in Table 3. If a transaction fails to meet any of the testing criteria, it is considered a deviation. This means that the auditor cannot make a reasonable determination about the validity of the transaction, such as how much it differs from similar transactions, whether it is missing supporting documents that explain its purpose, or whether it exhibits other characteristics indicative of poor internal control, fraud, misappropriation of funds, or other illegal fiscal practices. A deviation by itself does not necessarily mean that a transaction was not made for an educational purpose or was fraudulent; rather, it signifies that at the very least information is missing, or further inquiry and anal- ysis may be needed. Numerous deviations often indicate significant internal control deficiencies and weak- nesses and may contribute to patterns that are indicators of negligence or fraud. Factors that may influence how transactions are evaluated, documented, recorded in the accounting records, and monitored include, but are not limited to, the following: • The type of accounting and document processing software used by the organization. • The level of detailed board policies, board resolutions, administrative regulations, bylaws, manuals, and other guidelines for operating procedures. • Segregation of duties and the quality and level of oversight, review and approval, and mon- itoring of transactions. • Board members’, management’s, and staff members’ training and knowledge regarding internal controls. Although deficiencies and weaknesses in internal controls do not by themselves indicate the presence of fraud, they can make a charter school more vulnerable to it. The Findings section of this report provides the information needed to evaluate the sample results as they relate to characteristics of fraud, misappropria- tion of funds, and other illegal fiscal practices. Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 10 County Superintendent of Schools’ Responsibilities 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(c), the county superintendent is required to report the findings and recom- mendations to the charter school’s governing board at a regularly scheduled board meeting, and to provide a copy of the information to the chartering authority of the charter school within 45 days of completing the audit (the date of this report). Within 15 days of receipt of the report, the governing board of the charter school is required to notify the county superintendent and its chartering authority of its proposed actions regarding the county superintendent’s recommendations. Although there is no requirement for the county superintendent to notify the state controller, the superintendent of public instruction, and the local district attorney when fraud or misappropriation may have occurred at a charter school, FCMAT recommends these notifications as a best practice. Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 11 Findings Expenditure Testing Findings Expenditure Testing Completeness of Records Audit Purpose The primary objective of this audit was to determine whether charter school funds were used for purposes other than legitimate educational activities. To achieve this, the audit focused on testing various types of expenditures, including vendor payments, employee payments, payroll checks, missing checks not recorded in QuickBooks, duplicate checks, and check endorsements. These expenditures were identified through a review of the charter school’s QuickBooks financial records and bank-cleared checks. Expenditure Documentation Requirements To audit any expenditure, the supporting documents must be available and complete. This includes expen- diture-related documents such as invoices, receipts, payments, authorizations, notes, reimbursement claim forms, vendor requests for an employee to provide support services, and other information that supports the transaction’s educational purpose. Documents may not be available or complete for several reasons, including the following: • An expenditure’s true nature was purposely concealed by alteration or destruction of documents. • An organization has poor document organization and preservation policies, procedures, or training. • An organization has poor internal controls, management oversight, and review. • Check signers fail to request supporting documentation for each check being signed. • Receipts were missing or, contrary to best practice, complete documentation was not required for all expenditures. • Documentation duties, accounting, and authorizing transactions were not segregated such that there were no checks and balances and/or no central or master document package. Complete documentation is central to a charter school’s ability to provide evidence to its authorizer that its expenditures are for a legitimate educational purpose and to demonstrate that internal controls are oper- ating effectively. As outlined in the findings below, the county superintendent had good cause to be con- cerned about the charter school’s expenditures. FCMAT found that the charter school’s documentation of expenditures was neither available nor complete for all of the reasons listed above. Charter School Accounting and Records Management The charter school was responsible for its own accounting and records retention. According to the school’s management and as confirmed by FCMAT during the audit, Williams controlled all business functions related to accounting, bank reconciliation, transaction documentation, records retention, payroll processing, Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 12 Findings Expenditure Testing employee reporting to federal and state agencies, and the processing of vendor and payroll checks. The only aspect of business oversight not directly controlled by Williams was check signing, which required a single signature from one of two board members. During the audit period, the two check signers were Ramona Williams and Benjamin Clark, and their roles are discussed further below. Based on FCMAT’s research, Ramona Williams is not considered a relative or known associate of Christopher Williams. Documentation Search As part of the audit, FCMAT selected 73 vendor, employee, and payroll transactions for audit. On November 13, 2024, a list of the transactions was sent to the charter school in an Excel document, with a request to locate and provide relevant documents for review. On December 4, 2024, in an email, Gramps emailed FCMAT, notifying the team that the search for documents was complete. The email stated, We started to look for the documents and with the quickbook [sic] check number being differ- ent it made it very time consuming and an almost impossible task. The response also indicated that for most transactions, the only documentation available was a check copy, or no documentation existed at all. Given that Williams maintained sole responsibility for all business records and that the charter school’s search produced minimal documentation, FCMAT added another procedure. On January 8, 2025, FCMAT arrived at the charter school to perform its own search for supporting documents. All available business records were stored in three banker’s boxes. No additional financial documents, aside from personnel files, were found in Williams' office. FCMAT’s Findings on Documentation Quality Upon reviewing the three boxes of documents, FCMAT found that most check copies lacked meaningful supporting information. Any documents that could potentially support a check such as an invoice or receipt were often not attached and, while some appeared to be related to financial transactions, they were mostly nonfinancial in nature. In short, FCMAT’s evaluation concluded that the charter school’s documentation of expenditures was a disorganized and disconnected set of largely useless documents. Based on these findings, FCMAT concluded that the state of the charter school’s business records rep- resents a material weakness in internal controls. A material weakness indicates a reasonable possibility that a material misstatement in the financial statements may not be prevented or detected in a timely manner. The magnitude of this weakness is reflected throughout this report. QuickBooks Transactions Compared to Bank-Cleared Checks The findings below reveal numerous inconsistencies in the charter school’s accounting records. These inconsistencies are largely due to transactions exhibiting characteristics that make them irregular. A common irregularity identified is the discrepancy between the names of payees on the charter school’s checks and the actual bank-cleared payee names. Accounting software, such as QuickBooks, generates checks based on how vendors are set up within the system. Typically, the vendor’s name is printed on the check, and this name is linked to the transaction type (e.g., a check for a vendor processed from the QuickBooks vendor module or a paycheck processed from Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 13 Findings Expenditure Testing the payroll module). This linkage also includes key details like the check number, date, amount, and memo information. The payee then presents the check to a bank or check-cashing entity for deposit or cashing. At this point, the bank or entity assumes custody of the check, and the check becomes part of the bank's records. Once the check is presented for payment, the payee can no longer alter the check. Check-cashing entities are regulated as money service businesses by the Financial Crimes Enforcement Network (FinCEN). FinCEN is part of the U.S. Department of the Treasury, which carries out regulatory functions of check cashing entities. Numerous checks described below were negotiated at check-cashing entities. Discrepancies Between QuickBooks and Bank Records Bank-cleared checks can be compared to the original QuickBooks records, as both systems should reflect consistent information (e.g., the payee’s name, check number, date, amount). However, the charter school’s records show numerous instances in which checks issued to two individuals did not match the corre- sponding bank-cleared records. In many cases, checks that cleared the bank were entirely absent from the accounting records. When checks that clear the bank do not match the accounting records, or are missing altogether, they exhibit characteristics of irregular transactions. An irregular transaction has characteristics of fraud, misap- propriation of funds, or other illegal acts. There are many specific types of fraud related to check schemes. Forgery check schemes are the most common because forgery includes check tampering, which can range from falsely signing another person’s name with a fraudulent intent to altering a check in a way that misrep- resents the transaction. Forgery and Irregularities Several examples of irregularities presented below suggest the presence of forgery-related schemes that involve tampering with checks. Failures to Meet Criteria 1-3 Vendor, Employee, and Payroll Checks A total of 73 vendor, employee, and payroll checks were sampled. Of these, 73 transactions failed Criteria One, 63 failed Criteria Two, and 65 failed Criteria Three. Eight transactions did not fail Criteria Three, as they were payroll transactions for a single employee, and these could be considered reasonably documented. However, the remaining 65 sampled vendor, employee, and payroll checks failed one or more of the criteria and are therefore considered irregular. Examples of the sample criteria transaction failures that are irregular are as follows: Examples of Irregular Transactions A. Check Number 4487 – Payroll, Payee and Amount Discrepancies QuickBooks check number 4487, dated 7/2/2021, recorded as paid to Stephen M Ruble, for $0.00 is shown in the bank statement canceled checks as paid to and Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 14 Findings Expenditure Testing endorsed by Chris Williams, dated 7/9/2021, with the check memo indicating it is for “Pay Period: 07/01/2021-07/10/2021,” for $1,056.90. Figure 1 below demonstrates this discrepancy, with the QuickBooks record showing a zero-dollar payment to Stephen M Ruble, while the bank-cleared check was written to Chris Williams. Example of Check Shown in QuickBooks as Paid to Stephen M Ruble, but Paid to Chris Williams [Highlighting and red comment box added by FCMAT.] Figure 1. Copy of Check No. 4487 bank statement cleared check paid to Chris Williams. Source: Reproduced from Mechanics Bank-provided bank-cleared check information. Check number 4487 is further examined in the Duplicate Checks section, where it is also shown as written to Raphael Lamas in QuickBooks. B. Check Number 4483 – Payroll, Payee and Amount Discrepancies QuickBooks check number 4483, dated 7/1/2021, is recorded as paid to Christopher D Williams, for $581.88. However, it is shown as a bank-cleared check paid to and endorsed by Chris Williams for $1,056.90. This check also has the same memo indicating the “Pay Period: 07/01/2021-07/10/2021.” Figure 2 below shows that although the QuickBooks entry was recorded as paid to Christopher D Williams for $581.88; the actual check was written and cleared the bank paid to Chris Williams for $1,056.90. Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 15 Findings Expenditure Testing Example of Check Shown in QuickBooks as Paid to Christopher D Williams, but Paid to Chris Williams [Highlighting and red comment box added by FCMAT.] Figure 2. Copy of Check No. 4483 bank statement cleared check paid to Chris Williams. Source: Reproduced from Mechanics Bank-provided bank-cleared check information. Williams uses several variations of his name interchangeably, including Chris Williams, Christopher Williams, and Christopher D Williams. Both check numbers 4487 and 4483 are recorded in QuickBooks with discrepancies between the recorded payee and the actual payee on the bank-cleared check. The name of the QuickBooks payee and bank-cleared check payee should be the same. Both checks are for the same amount, have July 2021 dates, and have identical check memos with a pay period of 7/1/2021-7/10/2021. In contrast, other checks to other charter school employees considered to be authentic payroll checks have check memos that indicate they are for the typical bimonthly payroll check pay period of 7/1/2021-7/15/2021. Williams is not available to confirm his check endorsement signature. Nevertheless, FCMAT’s sample of Williams bank-cleared checks, no matter what variation of Williams name is shown as the check payee, have similar signatures. Therefore, based on numerous Williams check signatures examined, FCMAT presumes the endorsement is Williams’. C. Check Number 4532 - Payroll Module vs. Vendor Checks FCMAT’s review of transactions in the sample period resulted in only three QuickBooks categories/types of expenditure transactions. These types are classi- fied as Check, Paycheck, or blank. Blank means no classification type is shown. In QuickBooks, payroll checks processed through the payroll module are classified as paychecks and linked to the employee's payroll records. These checks should be traceable to the employee's payroll listing, which groups payroll checks by employee. Figure 3 below illustrates an example of a payroll check, check number 4532, written to Christopher D. Williams. Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 16 Findings Expenditure Testing Example of Payroll Check Shown in QuickBooks as Paid to Christopher D Williams [Highlighting, red comment box, and red circled date added by FCMAT.] Figure 3. Copy of Check No. 4532 bank statement cleared check paid to Christopher D Williams. Source: Reproduced from Mechanics Bank-provided bank-cleared check information. Check 4532 has the appearance of a payroll check because of the following: • The payee recorded in QuickBooks is Christopher D Williams. • The check memo indicates the appropriate bimonthly pay period (e.g., ending July 15, 2021). • The check type in QuickBooks is classified as a paycheck. • The gross amount and payroll withholdings are recorded in QuickBooks. Even though check 4532 appears to be written from the payroll module and has the characteristics of a payroll check, the QuickBooks payroll module shows the net amount as $1,408.41, but the bank-cleared check is for $1,197.38. The payroll module check amount of $1,408.41 represents the after-tax calculated net check while the bank-cleared check amount does not match. This indicates that the payroll check was altered after being processed in the payroll module. Other paycheck-type transac- tions paid to other charter school employees that were examined matched both the QuickBooks payroll module and bank-cleared check amounts. The bank-cleared check is less than the payroll module amount. Similar to many other bank-cleared checks versus checks shown in QuickBooks, numerous checks show differing amounts. Irregularities of this nature and the volume of such irregu- larities suggest a larger purpose. Based on FCMAT’s experience in auditing similar check irregularities, one theory is that the purpose is to use an intentional decep- tive practice to disorganize the books so that auditing and deciphering the records is more difficult. D. Altered Payroll Checks and Deceptive Practices Check numbers 4487 and 4483 were not shown as payroll type checks but as ven- dor-type checks. Moreover, they were not listed in the payroll module as paychecks to Williams. This means they were not processed in the payroll module. If a check Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 17 Findings Expenditure Testing is processed in the payroll module and has a check type of paycheck, those trans- actions become part of an employee’s total payroll profile from which their pay- roll tax reporting and W-2 form is created. This is important because alteration of check names, amounts, dates, and check memo information in the payroll module has more risk of discovery due to how payroll data moves through various payroll reporting systems and checks and balances in QuickBooks. Because of the risk, it is less likely that other employee payroll checks were modified as in check number 4532 above for Williams because most employees know how much their bimonthly net check and annual gross income should be as compared to their personal W-2 form the employee uses to file their federal and state income taxes. The example shown above in this section is representative of numerous similar transactions. Numerous similar types of altered transactions cumulatively are char- acteristic of intentional deception and considered an irregularity. E. Social Security Number Discrepancies Since many sampled checks had misleading characteristics of payroll checks, Williams’ IRS Form W-2 was reviewed. Williams was responsible for all aspects of the charter school’s payroll processing and federal/state reporting and entered data into QuickBooks. Payroll was processed through QuickBooks with Williams as the only operator of the accounting system and responsible for entering employee payroll data including Social Security numbers. FCMAT sampled three randomly selected Williams’ W-2s for calendar years 2020, 2022, and 2023. Williams’ personnel file copy of his Social Security card number was compared to his QuickBooks prepared W-2. A Social Security number con- sists of nine digits separated into three segments. The segments have three digits, then two digits, followed by four digits, (e.g. XXX-XX-XXXX). Williams’ Social Security number shown on his W-2 and his Social Security Administration issued Social Security card’s first three digits and second two digits are the same; there- fore, those numbers will not be shown. Williams’ Social Security number entered into QuickBooks for all sampled years is XXX-XX-7706. His personnel file Social Security card number, however, is XXX-XX-7786. The FCMAT bolded numbers of 0 and 8 should agree but do not. Williams’ Social Security card number is most likely the most accurate because it would have been provided to the charter school when he first applied to work and may have been verified at that time. While reviewing the bank-provided cleared checks, the endorsement side (reverse side) of a sample of Williams’ checks were examined. FCMAT examined within the sample period Williams’ check numbers 4905, 4632, 4626, 4940, 4981, 4992, and 5703. When cashing a check other than at a bank, many check-cashing locations require the person endorsing the check to write their Social Security number above or below their signature. Of the seven checks listed above, these checks endorsed Social Security numbers materially different from Williams’ Social Security card. Check number 4940 has the most legible Social Security number on the endorsement side of the check. That number is written as 530-228-0115. All of the numbers are incor- rect, the middle segment that should have two digits has three, and the third segment is 0115, not 7786 or 7706. Another alternative is that the number shown is a tele- phone number; however, FCMAT could not find that number associated with Williams. Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 18 Findings Expenditure Testing In charter schools with effective internal controls, the Social Security number for the W-2 should match the number on the Social Security card. A mismatch may signal negligence, but in this case, when coupled with numerous altered checks and incorrect endorsements, it points to intentional deception. Missing Checks Not In QuickBooks QuickBooks has many standard financial reports, one of which is a Missing-Duplicate Checks Report. This report lists checks sequentially by number. When a break in the sequence occurs, the words "*** Missing numbers here ***" are displayed. The missing checks can be identified by examining where the sequence stops and starts. In the sample period, 284 checks were identified as missing in QuickBooks, and 19 checks were sampled. These sampled missing check numbers were traced and found to have been processed through the charter school’s bank account, with documentation from the bank-provided cleared checks. Of the 19 transactions reviewed, all were cleared through the bank but were not recorded in QuickBooks, and there was no sup- porting documentation for these transactions. As such, all 19 checks failed Criteria One, Criteria Two, and Criteria Three, making them irregular. A check that clears the bank but is not reported in the accounting records is considered an irregularity. Below are examples of these missing checks: Examples of Missing Checks and Irregularities A. Check Number 4640 – Tax Services Check number 4640 is shown in Figure 4 below. It is not found in the charter school’s QuickBooks transactions, but it is shown in the bank-cleared checks. The check is written to Christopher Williams, dated 10/8/2021, for $1,000, and clears the bank on 10/13/2021. The check is endorsed by Christopher Williams, and the check memo states it is for “TAX SVCS.” The check stub further states, “2020 FORM 990 – ANNUAL FILING EXTENSION FILED PROFESSIONAL SERVICES RENDERED.” Example of Missing Check and Check Stub Paid to Christopher Williams [Highlighting and red comment box added by FCMAT.] Figure 4. Copy of Check No. 4640 bank statement cleared check paid to Christopher Williams. Source: Reproduced from Mechanics Bank-provided bank-cleared check information. Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 19 Findings Expenditure Testing The documented purpose of the check is to provide tax services related to filing the charter school’s 2020 IRS Form 990 tax extension. The memo states it is for profes- sional services presumably by Williams since the check is written to him. To verify the services provided, FCMAT contacted the tax return preparer and asked if they or Williams filed a 2020 extension. The preparer responded as follows: An extension was filed by our office for the 2020 tax return, which is standard practice to extend the due date to May 15 to allow completion of the audit prior to filing the tax return (May 15 is the extended due date for June 30 year ends). The extension filing is done as a courtesy for our clients and we did not request any help from Chris or the charter school to file the extension. Since the tax preparer filed the extension and did not request any assistance from Williams, and because the check is missing, meaning not reported in QuickBooks, it is characteristic of intentional deception and forgery. A forged check may include a check that is not recorded in the accounting records but clears the bank as a check of the charter school. B. Missing Payroll Checks Paid to Christopher Wiliams The sample of missing checks revealed three checks that cleared the bank written to Christopher Williams, with memos indicating they were for payroll purposes. These checks were signed by Ben Clark, the sole check signer. The checks are as follows: • Check number 5808, dated 9/28/2023, for $1,774.68, memo: “Pay Period: 09/16/2023-09/30/2023.” • Check number 5825, dated 9/28/2023, for $1,774.68, memo: “Pay Period: 09/16/2023-09/30/2023.” • Check number 5829, dated 9/28/2023, for $1,888.07, memo: “Pay Period: 09/1/2023-09/30/2023.” In addition to these three missing checks, two other related checks were sam- pled in the vendor, employee, and payroll checks category that were written in QuickBooks. These checks were recorded as paid to vendors and were signed by Ben Clark. However, the payee names on the bank-cleared checks are Christopher Williams and Chris Williams, as follows: • Check number 5802, written to Best Buy Business Advantage Account in QuickBooks, dated 9/21/2023, for $3,439.30; however, the bank-cleared check is written to Christopher Williams, dated and paid the same amount, but the check memo states, “Pay Period: 09/1/2023-09/30/2023.” This check memo is representing that the check is a payroll check for September 2023. The check is recorded in QuickBooks as a vendor check, not a payroll check. • Check number 5805, written to Granite Data Solutions in QuickBooks, dated 9/18/2023, for $4,130.64; however, the bank-cleared check is written to Chris Williams, dated a different date of 9/21/2023, for a different amount of $2,029.89. Furthermore, the check memo also says, “Pay Period: 09/1/2023- 09/30/2023.” This check memo also represents that it is a payroll check for September 2023. The check is recorded in QuickBooks as a vendor check, not a payroll check. Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 20 Findings Expenditure Testing Based on the results of FCMAT’s expenditures sampled, five checks are written as if they are payroll checks. They are all written to Williams in September 2023 and cleared the bank, totaling $10,906.62. Because five checks cleared the bank paid to Williams, three of which were not reported in QuickBooks, and two checks were recorded in QuickBooks as paid to vendors other than Williams but cleared the bank as paid to Williams, they are characteristic of intentional deception, characteristic of forged checks, and considered irregular. Summary of Missing and Irregular Checks The disbursements described above are representative of numerous similar checks with the same irregular characteristics. Of the sampled 19 checks, they were written to either Williams or Bert Brown. Seven of the checks were written to Chris Williams and nine to Christopher Williams (16 checks in total) with a total dollar value of $19,684. The remaining three checks were written to Bert I Brown totaling $2,349. Payments to Bert Brown are discussed further below. Because 284 checks were identified as missing within the sample period, it is likely that most of those checks are also intentionally forged and irregular. Duplicate Checks Using the Missing-Duplicate Checks Report (described above), duplicate checks were identified and sam- pled. The report lists all checks in sequential order and highlights duplicates with the words “*** Duplicate document numbers ***.” Based on analyzing where the sequential pattern of checks stops and starts, the duplicate checks can be pinpointed. During the sample period, 26 checks were identified. One was selected for further review. Check number 4487 is described above as recorded in QuickBooks paid to Stephen M Ruble, dated 7/2/2021, for $0.00 and with no check memo. However, a second instance of check number 4487 was also found in QuickBooks, recorded as a payment to Raphael Lamas, dated 8/5/2022, for $71.75, and the check memo stating, “Reimburse LVESCAN.” However, the actual cleared bank check corresponding to check number 4487 was written to Chris Williams, dated as 7/9/2021, for $1,056.90, with the check memo stating, “Pay Period: 07/1/2021-07/10/2021.” This memo indicates this is a payroll check for a specific pay period. The issue arises because this payroll check is not recorded as a payroll-type check in QuickBooks nor is it linked to the payroll module; instead, it is categorized as a vendor check. In total, three transactions involve check number 4487: two written in QuickBooks that never became checks cleared by the bank, and one that cleared the bank paid to Williams that was not recorded in QuickBooks. Because this check was duplicated and lacked supporting documentation, it failed to meet all three cri- teria. A check that is not recorded in the accounting records but clears the bank is considered irregular. Additionally, this type of duplicate check is characteristic of intentional deception and forged checks. Failures to Meet Check Payee Name and Endorsement Criteria Bert Brown Transactions FCMAT identified two vendors in QuickBooks under the names Bert Brown and Bert I. Brown, both with the same address. A search of QuickBooks data from its first use on July 12, 2010, to December 31, 2024, was conducted to identify any transactions involving the name Brown. Despite Williams passing away in Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 21 Findings Expenditure Testing October 2023, FCMAT expanded the search to include any vendors with “Brown” in the title. While one vendor with “Brown” in the name had a single transaction, it was not associated with Bert Brown. No other transactions linked to Bert Brown or Bert I. Brown were found in QuickBooks. FCMAT then examined the bank-provided cleared checks from the sample period of July 1, 2021, through October 30, 2023. During this period, 46 checks, totaling $55,770.92, were found written to various names associated with Bert Brown (including Bert I Brown, Bert I. Brown, Bert Ivan Brown, and B Plumbing). For the purposes of this report, all checks related to these names will collectively be referred to as Brown. Since these checks were neither recorded in QuickBooks nor supported by any documentation, they failed Criteria One, Two, and Three. A check that clears the bank but is not reported in the accounting records is considered irregular. Vendor Setup and Missing Transactions Although QuickBooks contained vendors’ records for Brown, no transactions were recorded under these vendors. Typically, a vendor is set up in accounting systems with the intention to make payments to that vendor. This allows the accounting system to track all payments to a specific vendor. Even though the charter school’s QuickBooks contained two vendors set up as Brown, no checks to Brown were found in QuickBooks. However, 46 checks clearing the bank were found to have been written to Brown. Cashing of these checks is described further below by Brown; therefore, his endorsement is con- firmed. A closer comparison of the bank-cleared check numbers written to Brown and the QuickBooks transaction reports revealed that 32 checks paid to Brown were recorded in QuickBooks as payments to other vendor names, while 14 checks were not recorded in QuickBooks at all. These checks exhibited sev- eral irregularities, as detailed in the following example: Example of Irregular Checks • Check Numbers 4951 and 4980: These checks, dated 7/19/2022 and 7/6/2022, for $600 and $695 respectively, were recorded in QuickBooks as payments to Chris Williams and Christopher D Williams. Both checks were written as to appear as vendor checks in QuickBooks. Both checks cleared the bank as checks written to Bert Brown dated 7/15/2022 for $1,150.10 and dated 7/1/2022 for $1,409.14 respectively. The actual check memos are written indicating, “Pay Period: 07/01/2022-07/15/2022” and “Pay Period: ADV 07/01/2022-07/15/2022.” Bert Brown was not an employee of the charter school. Check number 4951 is reproduced in Figure 5. Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 22 Findings Expenditure Testing Example of Charter School Check Clearing the Bank Written to Bert Ivan Brown [Highlighting added by FCMAT.] Figure 5. Copy of Check No. 4951 bank statement cleared check paid to Bert Ivan Brown. Source: Reproduced from Mechanics Bank-provided bank-cleared check information. As described earlier in the report, there are three other checks, numbers 4487 for $1,056.90 (Figure 1), 4483 for $1,056.90 (Figure 2), and 4832 for $1,197.38 (Figure 3), all written to Williams with check memos indicating, “Pay Period 07/01/2021-07/10/2021,” “Pay Period 07/01/2021- 07/10/2021,” and “Pay Period 07/01/2021-07/15/2021.” FCMAT compared the payroll module payroll check numbers with these checks. When examining authentic payroll checks in QuickBooks, there are two reports, a Paycheck Summary and Paycheck Detail, showing total earnings, payroll taxes, and deductions. As stated above, payroll checks are shown in the QuickBooks payment ledger as sourced from the payroll module by coding the transactions as “Paycheck.” In total, there are five check memos indi- cating the checks are for the July 2021 payroll period, none of which are reported in QuickBooks as payroll checks. • Table 5 shows all available Brown related transactions including the two described above, which are shown in bold. Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 23 Findings Expenditure Testing Vendor Analysis-Bert Brown: Bert Brown Bert I Brown T aBebrt I. lBerow n5: Summarized Sampling — Bert Brown Checks Bert Ivan Brown B Plumbing Bank-Cleared Check Payee Name on Bank- Check Bank-Cleared Check Memo Notes (Quoted Amount Shown in Amount Shown on Bank- QuickBooks Check Date Check Date Number QuickBooks Payee Name Cleared Check Endorsed By Directly From Check Memo) QuickBooks Cleared Check Difference 9/2/21 9/20/21 4943 Butte College Bert I Brown Bert Brown Tile Line Repair $ 49.29 $ 849.29 $ 800.00 10/8/21 10/8/21 4634 Berenice Martinez Bert I Brown Bert Brown Pay Period: 09/09/2021 - 10/08/2021 $ 1,329.39 $ 1 ,329.39 $ - 7/2/21 7/15/21 4489 Chris Williams Bert Brown Bert Brown (No Check Memo) $ 1,216.25 $ 1 ,189.21 $ (27.04) Duplicate Check 6/10/22 4969 Chris Williams / Inside out Designs Bert I. Brown Bert Brown Exterior Proj 2 $ 6 00.00 $ 600.00 $ - 5/9/22 5/9/22 4993 Peerless Building Materials Bert I. Brown Bert Brown EsserII Ext $ 9 00.00 $ 900.00 $ - 5/9/22 5/9/22 4994 Peerless Building Materials Bert I. Brown Bert Brown Maintenance $ 1,061.19 $ 1 ,061.19 $ - 5/9/22 5/9/22 4997 Best Buy Business Bert Brown Bert Brown Reimburse Paint-Supplies $ 4 88.77 $ 476.05 $ (12.72) 6/8/22 7/1/22 4979 HP Downer Annex Bert Ivan Brown Bert Brown Gen Contractor 22-23 $ 8 82.50 $ 882.50 $ - 6/9/22 6/9/22 4968 Mike Hill Bert I. Brown Bert Brown Maintenance Fence $ 8 39.18 $ 839.18 $ - 6/10/22 6/10/22 4972 Peerless Building materials Bert I. Brown Bert Brown 21-22 Exterior $ 7 50.15 $ 750.15 $ - Check Not In QuickBooks 6/29/22 4486 (Check Not In QuickBooks) Bert I. Brown Bert Brown Annual EOY $ - $ 1 ,000.00 $ 1 ,000.00 Check Not In QuickBooks 7/8/22 4978 (Check Not In QuickBooks) Bert I. Brown Bert Brown HVAC leak n seal $ 1,000.00 $ 1 ,000.00 $ - 5/1/22 7/15/22 4951 Chris Williams Bert Ivan Brown Bert Brown Pay Period: 07/01/2022 - 07/15/2022 $ 6 00.00 $ 1 ,150.10 $ 550.10 7/1/22 7/15/22 4980 Christopher D Williams Bert I. Brown Bert Brown Pay Period: ADV 07/01/2022 - 07/15/2022 $ 6 95.00 $ 1 ,409.14 $ 714.14 Check Not In QuickBooks 8/15/22 1006 (Check Not In QuickBooks) Bert I. Brown Bert Brown Main H&E Door $ - $ 500.00 $ 500.00 Check Not In QuickBooks 8/23/22 4469 (Check Not In QuickBooks) Bert Brown Not Available PIF pmt 2 - Plumbing $ - $ 1 ,198.42 $ 1 ,198.42 Check Not In QuickBooks 8/26/22 1010 (Check Not In QuickBooks) Bert Ivan Brown Not Available August Maint $ - $ 750.00 $ 750.00 Check Not In QuickBooks 9/8/22 1020 (Check Not In QuickBooks) Bert I. Brown Bert Brown 8/10 - 9/8 Maint $ - $ 880.00 $ 880.00 Check Not In QuickBooks 9/12/22 4476 (Check Not In QuickBooks) Bert Brown Bert Brown Outlet & Wiruing $ - $ 900.00 $ 900.00 7/2/21 10/5/22 4493 Office Depot Bert Brown Bert Brown Plumbing COVID $ 3 53.00 $ 506.13 $ 153.13 11/3/22 11/3/22 5191 Heidie Blue Bert I. Brown Bert Brown 1,2,3 Q Renewal $ 1,500.00 $ 1 ,500.00 $ - Check Not In QuickBooks 11/3/22 5192 (Check Not In QuickBooks) Bert I. Brown Bert Brown Pay Period: 10/1/2022 - 10/31/2022 $ - $ 1 ,395.51 $ 1 ,395.51 11/3/22 11/7/22 5194 J White Appraisals and Consulting Bert I. Brown Bert Brown Pay Period: 10/01/2022 - 11/04/2022 PM $ 1,500.00 $ 1 ,298.23 $ ( 201.77) 11/15/22 11/15/22 5218 Evergreen Janitorial Supply Bert I. Brown Bert Brown ELOP - Mainten II $ 7 23.14 $ 1 ,385.83 $ 662.69 Check Not In QuickBooks 12/21/22 5271 Check Not In QuickBooks Bert I. Brown Bert Brown ELOP OCT NOV DEC $ - $ 1 ,500.00 $ 1 ,500.00 1/25/23 1/21/23 5297 Amazon Capital Services Bert I. Brown Bert Brown Pay Period: 01/01/2023 - 01/15/2023 $ 9 01.95 $ 1 ,516.21 $ 614.26 12/23/23 12/23/22 5273 Chan F Saeteurn Bert I. Brown Bert Brown Pay Period: 12/1/2022 - 12/31/2022 $ 1,819.91 $ 1 ,341.41 $ ( 478.50) 1/6/23 12/23/22 5275 HP Downer Annex, LLC Bert I. Brown Bert Brown Pay Period: 12/1/2022 - 12/31/2022 $ 3,750.00 $ 1 ,341.41 $ (2,408.59) 1/25/23 1/19/23 5313 K12 Management DBA FuelEd Bert I. Brown Bert Brown ELOP DEC JAN $ 2,800.00 $ 1 ,200.00 $ (1,600.00) 2/13/23 2/15/23 5330 Cierra M Foster B Plumbing Bert Brown Pay Period: 2/01/2023 - 2/15/2023 $ 4 80.18 $ 1 ,425.26 $ 945.08 Check Not In QuickBooks 3/15/23 5398 (Check Not In QuickBooks) B Plumbing Bert Brown Pay Period: 03/01/2023 - 03/15/2023 $ - $ 1 ,612.95 $ 1 ,612.95 Check Not In QuickBooks 3/24/23 5402 (Check Not In QuickBooks) Bert Brown Bert Brown Maintenance ELOP $ - $ 1 ,449.75 $ 1 ,449.75 4/28/23 4/28/23 5449 Graduation Source Bert Brown Bert Brown Inv#: 202311201 $ 1,101.19 $ 1 ,101.19 $ - 5/1/23 5/1/23 5487 Accurate plumbing Bert Brown Bert Brown Pay Period: 4/1/2023 - 4/30/2023 $ 1,419.07 $ 1 ,419.07 $ - Check Not In QuickBooks 6/1/23 5607 (Check Not In QuickBooks) Bert Brown Bert Brown Inv# 1364p $ - $ 1 ,200.00 $ 1 ,200.00 Check Not In QuickBooks 6/1/23 5610 (Check Not In QuickBooks) B Plumbing Bert Brown Pay Period: 5/1/2023 - 5/31/2023 $ - $ 1 ,200.00 $ 1 ,200.00 7/12/23 6/23/23 5648 Walter G Gramps Bert Brown Bert Brown Pay Period: 06/16/2023 - 06/30/2023 $ 3,589.65 $ 1 ,626.55 $ (1,963.10) 6/30/23 6/23/23 5641 Desirae R Conn Bert Brown Bert Brown Pay Period: 06/01/2023 - 06/15/2023: $ 1,336.42 $ 1 ,696.50 $ 360.08 Check Not In QuickBooks 7/3/23 5680 (Check Not In QuickBooks) Bert Brown Bert Brown Reimburse Supplies $ - $ 1 ,196.59 $ 1 ,196.59 7/24/23 7/24/23 5701 HF Apparel Bert Brown Bert Brown Pay Period: 07/16/2023 - 07/31/20236 $ 2,250.00 $ 1 ,669.91 $ ( 580.09) 6/30/23 8/10/23 5642 William E Bowers Bert Brown Bert Brown Q4 SACS $ 1,468.29 $ 1 ,210.10 $ ( 258.19) 8/16/23 8/11/23 5734 Shawna M Beitler-Rios B Plumbing Bert Brown Pay Period: 07/01/2023 - 08/01/2023 $ 1 02.00 $ 1 ,559.23 $ 1 ,457.23 8/28/23 8/18/23 5749 HP Downer Annex, LLC Bert Brown Bert Brown Reim: Material $ 3,750.00 $ 1 ,449.59 $ (2,300.41) 8/18/23 8/18/23 5744 Michael Lee B Plumbing Bert Brown Reim: Material $ 1,400.00 $ 1 ,449.59 $ 49.59 Check Not In QuickBooks 8/31/23 5766 (Check Not In QuickBooks) Bert Brown Bert Brown Pay Period: 08/01/2023 - 08/31/2023 $ - $ 1 ,355.29 $ 1 ,355.29 9/8/23 9/8/23 5777 HP Downer Annex Bert Brown Bert Brown FacilitiesStipend/ Modernization $ 2,500.00 $ 2 ,500.00 $ - 46 = Quantity of Checks Totals $ 43,156.52 $ 55,770.92 $ 12,614.40 Source: FCMAT sample testing data sourced from charter school-provided QuickBooks accounting transaction reports. Vendor Brown Interview Once FCMAT had compiled the data shown in Table 5, more information about Brown was needed. Brown was emailed on Friday, December 6, 2024. The email explained what transactions the team found and requested his help. The email was also sent via certified return receipt mail. Brown did not respond. On Monday, December 9, 2024, FCMAT emailed the charter school to request management’s assistance in contacting Brown. Management responded the same day and stated, “… we do not know who Bert Brown is nor was he a vendor.” On Friday, December 27, 2024, another email and U.S. Postal Service mailing was sent to Brown. The email and mailing included a similar spreadsheet as shown in Table 5 and stated FCMAT will be in Oroville, California on Wednesday and Thursday, January 8 and 9, 2025 and again requested Brown’s help. On Tuesday, January 7, Brown responded through a friend via text message to the team. The friend of Brown stated in the text message regarding Brown, “He is unable to communicate normally so I am attempting too [sic] clear this up as I’m sure I have the information you seek.” The text thanked FCMAT, apologized for the delay, and requested a text or call. The team met with Brown and friend on Wednesday, January 8, 2025, at 2:30 p.m. for an hour in the lobby of the Oroville Hampton Inn hotel. During the inter- view, Brown and friend alleged the following: • Brown and friend allege Brown’s primary income comes from Social Security disability pay- ments. The disability was from a car accident in 2013 or 2014, which caused a broken neck, hand and spinal injury, and Brown was or remains mentally and physically impaired. • Brown knew Williams through a friend and performed handyman services for Williams. Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 24 Findings Expenditure Testing • Brown did not perform any work for the charter school and did not receive an IRS Form 1099 from the charter school. • Williams wrote checks to Brown from the charter school, explaining that the funds were coming from Williams’ 401(k) retirement money owed by the charter school to Williams. The money is Chris Williams’. • Brown would typically receive between $100 and $300 per service, but Williams would issue checks for higher amounts. Brown would cash the check at various locations and give Williams the difference. • Brown’s friend said that she confronted Williams many times about Williams having Brown cash checks and give the money to Williams. Williams told the friend she was “crazy.” • Brown’s friend said that Brown is 60 years old and easily taken advantage of. • Brown and friend alleged that Williams had a chronic medical condition, addiction prob- lems, and gambled at casinos. The transactions and the explanation from Bert Brown and his friend suggest intentional deception and forged checks. A check that is not recorded in the accounting records or where the payee differs from the bank-cleared payee is considered an irregularity. The failure to report checks in QuickBooks, combined with the false representations of the payees, suggests that these transactions were part of a pattern of intentional deception and forged checks. Chris Williams Checks Endorsed A sample of 28 checks was reviewed to determine the payee and the endorser of each check. All 28 checks sampled appeared to be endorsed by Williams. The sample was divided into two categories: checks written by Williams to himself and checks recorded in QuickBooks written to other vendors. Six checks writ- ten by Williams exhibited irregularities, which are summarized in Table 6 as follows: Irregularities in Williams Checks • Four checks in QuickBooks had payee names that did not match the bank-cleared check payee names. • Four checks had discrepancies between the amounts recorded in QuickBooks and the actual amounts on the bank-cleared checks. • Five check memos in QuickBooks referenced payments for services with vague descrip- tions, such as: • "Food: Summer, A XD hours, Stipend ASP." • These payments had no supporting documentation. • One check, allegedly for a stipend, is for ASP. According to the charter school manage- ment, there was no such thing as an ASP stipend. Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 25 Findings Expenditure Testing Williams Table 6: Summarized Sampling — Williams Checks QuickBooks Check Memo Payee Name on Bank- (Quoted Directly From Bank-Cleared Check Memo (Quoted Amount Shown in Amount Shown on Check Number QuickBooks Payee Name Cleared Check QuickBooks Memo) Directly From Check Memo) QuickBooks Bank-Cleared Check Difference 4482 Christopher Williams Chris Williams Business Manager 2 IT repair $ 1,500.00 $ 3 94.70 $ 1 ,105.30 4490 Christopher D Williams Chris Williams Food : Summer Business Manager 2 $ 3 19.49 $ 1 ,500.00 $ (1,180.51) 4628 Christopher D Williams Christopher Williams Tax + YEAudit 21-22 12 month IT adj $ 5 59.11 $ 1 ,224.00 $ ( 664.89) 4629 Christopher D Williams Christopher Williams Reimbursement Pay Period: 09/02/2021-10/01/2021 $ 2 22.09 $ 1 ,222.09 $ (1,000.00) 4632 Christopher D Williams Christopher Williams A XD hours Pay Period: 09/22/2021-10/07/21 $ 1,090.81 $ 1 ,090.81 $ - 5778 Chris Williams Chris Williams Stipend ASP Stipend ASP $ 1,303.90 $ 1 ,303.90 $ - 6 = Quantity of Checks $ 4 ,995.40 $ 6 ,735.50 $ (1,740.10) Source: FCMAT sample testing data sourced from charter school-provided QuickBooks accounting transaction reports. Vendor Checks with Irregularities Of the 28 checks sampled, six were written to Williams, and the remaining 22 were recorded in QuickBooks to various vendors. However, all 22 vendor checks cleared the bank as checks written to Williams. These checks exhibited the following irregularities, as summarized in Table 7: • All 22 QuickBooks payee names did not match the bank-cleared check payee names. • Sixteen checks had discrepancies between the amounts recorded in QuickBooks and the actual amounts on the bank-cleared checks. • The check memos were irrelevant because the checks are written to Williams, and the related memo purpose appears to only serve as an attempt to legitimize the payment. Williams Table 7: Summarized Sampling — Vendor Checks Clearing the Bank to Williams QuickBooks Check Memo Payee Name on Bank- (Quoted Directly From Bank-Cleared Check Memo (Quoted Amount Shown in Amount Shown on Check Number QuickBooks Payee Name Cleared Check QuickBooks Memo) Directly From Check Memo) QuickBooks Bank-Cleared Check Difference 4494 Amazon Capital Services Christopher Williams Lic x75 Replacement $ 7 50.00 $ 900.00 $ ( 150.00) 4903 J.C. Nelson Supply Co. Christopher Williams Blue Towels Reim $ 1 ,055.10 $ 891.19 $ 1 63.91 4946 Berenice C. Martinez Christopher Williams IPK5-7 $ 1 ,830.08 $ 432.12 $ 1 ,397.96 4948 Nicole M Goding Christopher Williams 1st Qtr 7-1 to 9-30 $ 1 ,503.97 $ 496.56 $ 1 ,007.41 4950 Antonia Lee Christopher Williams Apr 4th Qtr $ 1 ,990.00 $ 1 ,505.39 $ 4 84.61 4955 Heidie Blue Christopher Williams Janitorial - Squeeky Klean $ 6 40.93 $ 900.00 $ ( 259.07) 4958 Recology Christopher Williams PERS Refund $ 178.05 $ 590.09 $ ( 412.04) 4962 Feather River Park and Recreation Christopher Williams Track Pay Period: 05/01/2022-05/31/2022 xd $ 330.00 $ 990.00 $ ( 660.00) 4970 Amazon Capital Services Christopher Williams BM A BM Audit work 21-22 $ 1 ,256.08 $ 1 ,256.08 $ - 4973 Jackson's Glass Christopher Williams 2 Rear Rp Pay Period: 06/01/2022-06/15/2022 $ 9 66.29 $ 966.29 $ - 4974 Evergreen Janitorial Supply Christopher Williams #56789 Pay Period: 06/16/2022-06/30/2022 $ 5 8.39 $ 1 ,004.34 $ ( 945.95) 4981 Raphael Lamas Chris Williams Rembursement Reimbursement MAR APR $ 200.00 $ 600.00 $ ( 400.00) 4984 American Red Cross Christopher Williams Training CC Pay Period: 07/01/2022-7/15/2022 $ 777.71 $ 1 ,525.23 $ ( 747.52) 4988 Chan F Saeteurn Chris Williams Reimbursement SI Spring $ 500.00 $ 500.00 $ - 4990 Amazon Capital Services Christopher Williams SteamSys Pay Period 21-22 PY $ 7 79.15 $ 779.15 $ - 4992 Peerless Building Maintenance Chris Williams Esser III Exterior April ODS $ 9 00.00 $ 1 ,000.00 $ ( 100.00) 4995 California Water Service Co. Christopher Williams $ 25.92 $ 895.90 $ ( 869.98) 5000 Christensen Telecommunications, Inc. Christopher Williams Pay Period 4/15/2022-5/6/2022 $ 895.90 $ 895.90 $ - 5044 Chan F Saeteurn Chris Williams Reimbursement Reimbursement $ 5 95.51 $ 595.51 $ - 5045 Christensen Telecommunications, Inc. Chris Williams 04/01/2022 - 06/30/2022 Paint Equip $ 8 00.00 $ 663.79 $ 1 36.21 5747 Xaris C Phillips Chris Williams Stipend $ 1 ,265.32 $ 1 ,000.00 $ 2 65.32 5805 Granite Data Solutions Chris Williams #87248-1 Pay Period: 09/01/2023-09/30/2023 $ 4 ,130.64 $ 2 ,029.89 $ 2 ,100.75 22 = Quantity of Checks $ 7 ,713.29 $ 6 ,080.99 $ 1 ,632.30 Source: FCMAT sample testing data sourced from charter school-provided QuickBooks accounting transaction reports. A check that is neither reported in the accounting records nor matches the payee listed on the bank- cleared check is considered irregular. Furthermore, these types of discrepancies are characteristic of inten- tional deception and suggest forged checks. Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 26 Findings Expenditure Testing Testing Failures Summary A total of 167 transactions were sampled (see Tables 3 and 4), and 100% of these transactions, or all 167, failed to meet at least one of the three testing criteria. Sample Size and Testing Methodology As detailed in Table 3, FCMAT selected a large sample size with a dollar value of $217,301 to ensure robust testing results, with the goal of providing a reasonable probability of accuracy across all transac- tions. A larger sample size increases the likelihood of identifying transactions that reveal potential issues, including weaknesses in the organization’s internal control system, elements of intent to conceal transac- tions, and possible fraud, misappropriation of funds and/or assets, or other illegal fiscal practices. Findings and Internal Control Deficiencies The results from the testing indicate that the charter school exhibited material internal control deficien- cies and minimal to no oversight. Oversight deficiencies are further discussed below in the Check Sign- ers section. Specific Findings on Irregular Transactions • One hundred percent of the checks written to Bert Brown were found to be irregular. • When projecting the findings for Williams to all checks issued by the charter school, it was determined that, with the exception of his legitimate payroll checks (reflected as those used to prepare his IRS Form W-2s from the payroll module), it is highly probable that all bank-cleared checks paid to Williams are irregular. Check Signers Review of Board Members' Lack of Response and Fiduciary Duties FCMAT attempted to meet with the two check signatory board members, Ramona Williams and Benjamin Clark. On Monday, December 9, 2024, an email was sent to both Ramona Williams and Benjamin Clark, with Gramps carbon copied, informing them that FCMAT would contact them. A follow-up email was sent on Tuesday, December 10, 2024, requesting a meeting on January 8 or 9, 2025 at the charter school in Oroville. The email included Gramps and Bowers in the carbon copy and provided the phone number of the team lead. However, FCMAT did not receive a response. On December 27, 2024, FCMAT emailed both Ramona Williams and Benjamin Clark again, this time carbon copying Nelson, the charter school board president. As they had not responded to the initial email, the December 27 email reiterated the request for a meeting or a response indicating their intent not to meet. The email also set a deadline: if no response was received by the end of Tuesday, January 7, 2025, FCMAT would assume they had declined the meeting. FCMAT arrived in Oroville on Tuesday, January 7, 2025, and stayed until Thursday, January 9, 2025 but still did not hear from Ramona Williams or Benjamin Clark. Significance of the Board Members' Lack of Response Both Ramona Williams and Benjamin Clark were charter school board members, and more importantly, they were the only check signers for the period under review. This positioned them at a critical point in the char- ter school’s internal control system, responsible for safeguarding its assets. Given their unique role, they were in the best position to notice and potentially question the high volume of checks written to Williams. Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 27 Findings Expenditure Testing Checks to Williams: Anomalies in Volume To gain insight into the frequency of checks written to Williams, FCMAT reviewed the July 2021 and July 2022 bank statements and their cleared checks. In July 2021, 67 checks cleared the bank, 17 of which (or 25.4%) were written to Williams. In July 2022, 47 checks cleared, with 14 (or 29.8%) written to Williams. Even if the volume of checks to Williams was somewhat lower, FCMAT estimates that Williams should have received only two or three checks per month on average, with two of those being bimonthly payroll checks. Board Members' Responsibilities and the Fiduciary Duty Meeting with FCMAT should have been a priority for both Ramona Williams and Benjamin Clark. Their fail- ure to meet left the team unable to determine key aspects of the check-signing process, including: • Whether the board members reviewed the checks before signing them. • What, if any, documentation they requested to support the checks. • Whether they questioned any of the checks or reviewed cleared checks. • Whether they blindly trusted Williams. As board members, Ramona Williams and Benjamin Clark had a fiduciary duty to act with care, loyalty, faith, and prudence. Fiduciary duty is defined earlier in the report in the section titled “Ethical Duty, Integrity, Fiduciary Duty, and Disclosure.” Their failure to meet with FCMAT and fulfill these duties is outlined as follows: • Duty of Care: To protect the assets of the charter school. Before signing any checks, the board members should have exercised due diligence, requesting full documentation of every check they signed. • Duty of Loyalty: To avoid any actions that could harm the charter school. The board mem- bers should have prioritized meeting with FCMAT. • Duty of Good Faith: To fulfill their responsibilities in managing the operations and check processing procedures of the charter school. This includes acting honestly and transpar- ently in managing finances. • Duty of Prudence: To act wisely with care, exercising good judgment in administering the finances of the charter school. • Duty of Disclosure: Although it may have been uncomfortable or embarrassing, the board members should have met with FCMAT and acted with full candor. This includes being open, honest and transparent about their actions and oversight. Projected Loss Analysis of Irregular Checks To estimate the extent of irregular checks that cleared the bank during the sample period, FCMAT pro- jected the potential loss. The approach involved calculating the total amount of bank-cleared checks paid to Williams from July 2021 to December 2021, determining the average monthly amount, and then project- ing this average over the sample period. Since this is a projection, all calculated amounts have been rounded. The total amount of Williams’ checks cleared over the six-month period is $48,097. This total was then divided by six months to determine the average monthly amount, which equals $8,016. The rounded monthly average is then multiplied by the 28-month sample period, totaling $224,448. Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 28 Findings Expenditure Testing In addition, Bert Brown’s bank-cleared checks totaling $55,771 were added to the projected loss. All Bert Brown checks within the sample period are considered irregular and are shown in Table 5. Adjustment for Payroll Checks FCMAT also considered the payroll checks paid to Williams during the sample period. All checks, includ- ing possible payroll checks were included in the total of Williams’ bank-cleared checks. However, since some of these payroll checks do not align with the amounts recorded in the QuickBooks payroll module (as explained earlier in the report), only the payroll module checks were excluded from the projected loss calculation. The QuickBooks payroll module checks were deemed reliable because they are more likely to align with federal and state payroll reporting. The total amount of payroll checks for Williams over the 28-month sample period was $112,232. This amount is subtracted from the projected loss calculation and is referred to as the Williams payroll adjustment. Net Projected Loss After applying the payroll adjustment, the net estimated projected loss within the 28-month sample period is $167,987. This also represents the amount that may not have been reported as income to the Internal Revenue Service and California Franchise Tax Board. Table 8 summarizes the analysis of the projected loss. Table 8: Projected Loss Six Month Total - Williams Checks, July 2021 - December 2021 $ 48,097 Monthly Average $ 8,016 Gross Projected Loss, July 2021 - October 2023 (28 Months) $ 2 24,448 Bert Brown Checks (See Table 5) $ 55,771 Williams Payroll Adjustment $ (112,232) Net Projected Loss, July 2021 - October 2023 $ 167,987 Source: FCMAT projected loss data sourced from FCMAT sample testing data sourced from charter school-provided QuickBooks accounting transaction reports. Payroll data sourced from charter school-provided QuickBooks accounting transaction reports. Note: Dollar amounts are rounded. The six-month list of Williams’ bank-cleared checks is attached as Appendix A to this report. Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 29 Conclusion Conclusion Potential for Fraud, Misappropriation of Funds, or Other Illegal Fiscal Practices Based on the findings in this report, there is sufficient evidence to demonstrate that fraud, misappropriation of funds and/or assets, or other illegal fiscal practices may have occurred in the specific areas reviewed. Deficiencies and exceptions noted during FCMAT’s review of the Ipakanni Early College Charter School’s financial records and internal control environment increase the probability of fraud, mismanagement and/or misappropriation of the charter school’s assets. These findings should be of concern to the Ipakanni Early College Charter School, the charter school authorizer, Oroville City Elementary School District, and to the Butte County Superintendent of Schools and require immediate intervention to limit the risk of fraud, mis- management and/or misappropriation of assets, or other illegal fiscal practices in the future. Further, two of the board members of the Ipakanni Early College Charter School failed to cooperate in the audit. The audit is an extension of the authorizer’s oversight responsibilities. As such, the charter school authorizer, Oroville City Elementary School District, should issue a notice of concern or notice of deficiency to the charter school noting the board members’ failure to fulfill their fiduciary duties. Recommendations The county superintendent should: 1. Notify the Ipakanni Early College Charter School governing board, the Oroville City Elementary School District, the state controller, the superintendent of public instruction and the local district attorney that sufficient evidence exists to indicate that fraud, misappropriation of funds and/or assets, or other illegal fiscal practices may have occurred, and that the Butte County Superintendent of Schools has concluded its review. 2. Report the findings and conclusions of the review to the governing board of the Ipakanni Early College Charter School at a regularly scheduled board meeting within 45 days of the completion of the review (date of this report). The governing board of Ipakanni Early College Charter School shall, no later than 15 calendar days after receiving the report, notify the county superintendent of its proposed actions regarding the county superintendent’s recommendations. 3. Report the findings and conclusions to the Internal Revenue Service and the California Franchise Tax Board related to improperly reported income to Williams by Ipakanni Early College Charter School. Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 30 Appendices Appendices A. Williams Bank-Cleared Checks B. June 11, 2025 Letter From Butte County District Attorney C. Study Agreement Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 31 Appendices Appendix A — Williams Bank-Cleared Checks Bank Statement Month- Payee Name on Bank- Amount Shown on Bank- Year Check Number Cleared Check Cleared Check July 2021 4479 Christopher D Williams $ 480.00 July 2021 4480 Chris Williams $ 581.88 July 2021 4482 Chris Williams $ 394.70 July 2021 4483 Chris Williams $ 1,056.90 July 2021 4484 Chris Williams $ 581.88 July 2021 4487 Chris Williams $ 1,056.90 July 2021 4488 Chris Williams $ 390.13 July 2021 4490 Christopher Williams $ 1,500.00 July 2021 4491 Chris Williams $ 1,500.00 July 2021 4492 Chris Williams $ 581.88 July 2021 4496 Christopher D Williams $ 319.49 July 2021 4497 Christopher D Williams $ 1,151.58 July 2021 4499 Chris Williams $ 685.00 July 2021 4500 Christopher D Williams $ 480.00 July 2021 4532 Christopher D Williams $ 1,197.38 July 2021 4539 Chris Williams $ 685.00 July 2021 4544 Christopher D Williams $ 1,777.54 August 2021 4445 Chris Williams $ 1,091.66 August 2021 4447 Chris Williams $ 1,056.90 August 2021 4448 Chris Williams $ 480.00 August 2021 4449 Chris Williams $ 1,056.90 August 2021 4450 Chris Williams $ 737.52 August 2021 4485 Christopher Williams $ 685.00 Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 32 Appendices Bank Statement Month- Payee Name on Bank- Amount Shown on Bank- Year Check Number Cleared Check Cleared Check August 2021 4495 Chris Williams $ 581.88 August 2021 4573 Chris Williams $ 1,777.52 August 2021 4914 Chris Williams $ 777.81 August 2021 4919 Christopher Williams $ 406.59 August 2021 4922 Chris Williams $ 656.15 August 2021 4926 Chris Williams $ 1,777.52 September 2021 4583 Chris Williams $ 1,797.52 September 2021 4602 Chris Williams $ 1,777.52 September 2021 4909 Christopher Williams $ 460.00 September 2021 4910 Christopher Williams $ 500.00 September 2021 4919 Christopher Williams $ 500.00 September 2021 4923 Chris Williams $ 412.21 September 2021 4934 Chris Williams $ 355.00 September 2021 4936 Christopher Williams $ 403.14 September 2021 4937 Christopher Williams $ 809.32 September 2021 4945 Chris Williams $ 1,059.00 October 2021 4615 Christopher Williams $ 1,777.52 October 2021 4629 Christopher Williams $ 1,222.09 October 2021 4632 Christopher Williams $ 1,090.81 October 2021 4640 Christopher Williams $ 1,000.00 October 2021 4667 Christopher Williams $ 1,377.53 October 2021 4905 Chris Williams $ 279.02 October 2021 4940 Christopher Williams $ 559.11 October 2021 4948 Christopher Williams $ 496.56 Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 33 Appendices Bank Statement Month- Payee Name on Bank- Amount Shown on Bank- Year Check Number Cleared Check Cleared Check November 2021 4671 Christopher Williams $ 899.00 November 2021 4680 Christopher Williams $ 1,383.52 December 2021 4691 Christopher Williams $ 1,377.52 December 2021 4720 Christopher Williams $ 1,777.53 December 2021 4747 Christopher Williams $ 1,277.51 Six-Month Total – Williams Checks, July 2021 - December 2021 $ 48,097.00 Monthly Average $ 8,016.00 Gross Projected Loss, July 2021 - October 2023 (28 Months) $ 224,448.00 Bert Brown Checks (See Table 5) $ 55,771.00 Williams Payroll Adjustment $ (112,232.00) Net Projected Loss, July 2021 - October 2023 $ 167,987.00 Note: Amounts shown after the bank-cleared checks are rounded. Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 34 Appendices Appendix B — June 11, 2025 Letter From Butte County District Attorney Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 35 Appendices Appendix C – Study Agreement Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 36 Appendices Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 37 Appendices Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 38 Appendices Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 39 Appendices Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 40 Appendices Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 41 Appendices Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 42 Appendices Fiscal Crisis and Management Assistance Team Ipakanni Early College Charter School 43 Appendices FCMA T will ask the Subject Entity to also establish a contact person for FCMA T to use in communicating with the Subject Entity on matters related to the review. 17. SIGNATURES Each individual executing this Agreement on behalf of a party hereto represents and warrants that he or she is duly authorized by all necessary and appropriate action to execute this Agreement on behalf of such party and does so with full legal authority. For Client: Sep 16, 2024 Mary Sakuma, County Superintendent Date Butte County Office of Education ForFCMAT: Digitally signed by Shayleen Harte Shayleen Harte Date: 2024.09.26 05:50:00 -07'00' Shayleen Harte, Deputy Executive Officer Date Fiscal Crisis and Management Assistance Team FiVsc0a1l2 C62ri0s2is4 a nd Management Assistance Team 9 Ipakanni Early College Charter School 44