Los Angeles County Office of Education - Bassett Unified School District Report

Extraordinary Audit October 3, 2022 Los Angeles County Office of Education re: Bassett Unified School District Michael H. Fine Chief Executive Officer October 3, 2022 Debra Duardo, MSW, Ed.D., Superintendent Los Angeles County Office of Education 9300 Imperial Highway Downey, CA 990242 Dear Superintendent Duardo: In October 2019, the Los Angeles County Office of Education (LACOE) and the Fiscal Crisis and Manage- ment Assistance Team (FCMAT) entered into an agreement to conduct an Assembly Bill (AB) 139 extraor- dinary audit of the Bassett Unified School District to determine if fraud, misappropriation of funds or other illegal fiscal practices may have occurred. The audit was requested because LACOE received a report, dated March 5, 2019, prepared for the Bassett Unified School District, indicating possible fraud, misappropriation of funds or other illegal fiscal practices by one of the district’s contractors, who may have overcharged the district approximately $1.8 million. There were also concerns that the superintendent and school board may have not fulfilled their fiduciary duties, based on their lack of any action to reclaim the overpayment of approximately $1.8 million in public funds as outlined in the report. In addition, even though the superintendent and school board have been notified of the possible overbilling based on the March 5, 2019 report, a subsequent contract for additional work by the same contractor has been approved. The study agreement scope and objectives for this report are as follows: The Los Angeles County Office of Education (LACOE) received a report, dated March 5, 2019, prepared for the Bassett Unified School District indicating possible fraud, misappropriation of funds or other illegal fiscal practices by a district contractor, who may have overcharged the district approximately $1.8 million. LACOE has provided that report to the local district attor- ney’s office to investigate the allegation. LACOE has requested FCMAT to assign professionals to conduct an AB 139 Extraordinary Audit based on allegations raised in that March 5, 2019 report. This audit will be conducted pursuant to Education Code Section 1241.5(b). There are concerns that the superintendent and school board have not fulfilled their fiduciary duty based on their lack of any action to reclaim the overpayment of approximately $1.8 million in public funds as outlined in the report. In ad- dition, even though the superintendent and school board have been notified of the possible overbilling based on the March 5, 2019 report, a subsequent contract for additional work has been approved with the same contractor. As part of the audit, FCMAT will review the March 5, 2019 report, prior payments and documentation concerning the contractor named in the report, the subsequent contract with the same contractor, and any payments and documenta- tion related to the subsequent contract. The scope of work includes a review, based on auditor’s judgment, of determining whether any undisclosed or inappropriate related-party transactions were engaged in by the school 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 board, superintendent, or management connected directly or indirectly to the contractor named in this report. Based upon this review, determine whether any conflicts of interest stan- dards may have been violated by any of the schools’ local public officials, designated employ- ees, or others as defined in the Political Reform Act (PRA) of 1974 (Government Code Sections 81000-91014). This final 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 Los Angeles County Office of Education and the Bassett Unified School District for their cooperation and assistance during this review. Sincerely, Michael H. Fine Chief Executive Officer Table of Contents Table of Contents About FCMAT ..................................................................................................iii Introduction .......................................................................................................1 Study and Report Guidelines (AB 139 Audit Authority) ...................................1 Extraordinary Audit Procedures ............................................................................1 Study Team ................................................................................................................2 Background ...............................................................................................................2 Occupational Fraud and Internal Controls ....................................................... 7 Conflicts of Interest .................................................................................................10 Fiduciary Responsibilities ....................................................................................16 Gift of Public Funds ................................................................................................17 False Claims ..............................................................................................................18 Transaction Sampling ............................................................................................19 Findings ..........................................................................................................21 Del Terra ....................................................................................................................21 A. Introduction — Background on School Facilities .....................................23 B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects .....................................................................36 C. Failure to Properly Close Out Projects .......................................................69 D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval ......................................................................... 107 E. All Projects Paid for; Few Delivered .........................................................133 Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District i Table of Contents F. Failure to Obtain DSA Approvals ................................................................158 G. Value for the Services Provided ................................................................166 H. Conflict of Interest ..........................................................................................177 I. Summary of Potential Del Terra Irregularities ...........................................180 Board Member Paul Solano ...............................................................................181 Measure V Campaign Funds .............................................................................199 Audit Firm Lack of Cooperation and Possible Audit Quality Issues .......212 Conclusion ..................................................................................................215 Appendices ..................................................................................................216 Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District ii About FCMAT FCMAT’s primary mission is to assist California’s local K-14 educational agencies to identify, prevent, and resolve financial, human resources and data management challenges. FCMAT provides fiscal and data management assistance, professional development training, product development and other related school business and data services. FCMAT’s fiscal and management assistance services are used not just to help avert fiscal crisis, but to promote sound financial practices, support the training and development of chief business officials and help to create efficient organizational operations. FCMAT’s data management ser- vices are used to help local educational agencies (LEAs) meet state reporting responsibilities, improve data quality, and inform instructional program decisions. FCMAT may be requested to provide fiscal crisis or management assistance by a school district, charter school, community college, county office of education, the state superintendent of public instruction, or the Legislature. When a request or assignment is received, FCMAT assembles a study team that works closely with the LEA to define the scope of work, conduct on-site fieldwork and provide a written report with findings and recommendations to help resolve issues, overcome challenges and plan for the future. Studies by Fiscal Year 90 80 70 60 50 40 30 20 10 0 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 FCMAT has continued to make adjustments in the types of support provided based on the changing dy- namics of K-14 LEAs and the implementation of major educational reforms. FCMAT also develops and provides numerous publications, software tools, workshops and professional learning opportunities to help LEAs operate more effectively and fulfill their fiscal oversight and data management responsibilities. The California School Information Services (CSIS) division of FCMAT assists the California Department of Edu- cation with the implementation of the California Longitudinal Pupil Achievement Data System (CALPADS). CSIS also hosts and maintains the Ed-Data website (www.ed-data.org) and provides technical expertise to the Ed-Data partnership: the California Department of Education, EdSource and FCMAT. FCMAT was created by Assembly Bill (AB) 1200 in 1992 to assist LEAs to meet and sustain their financial obligations. AB 107 in 1997 charged FCMAT with responsibility for CSIS and its statewide data management work. AB 1115 in 1999 codified CSIS’ mission. seidutS fo rebmuN About FCMAT Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District iii About FCMAT AB 1200 is also a statewide plan for county offices of education and school districts to work together locally to improve fiscal procedures and accountability standards. AB 2756 (2004) provides specific responsibili- ties to FCMAT with regard to districts that have received emergency state loans. In January 2006, Senate Bill 430 (charter schools) and AB 1366 (community colleges) became law and ex- panded FCMAT’s services to those types of LEAs. On September 17, 2018 AB 1840 was signed into law. This legislation changed how fiscally insolvent dis- tricts are administered once an emergency appropriation has been made, shifting the former state-centric system to be more consistent with the principles of local control, and providing new responsibilities to FCMAT associated with the process. Since 1992, FCMAT has been engaged to perform more than 1,400 reviews for LEAs, including school districts, county offices of education, charter schools and community colleges. The Kern County Superin- tendent of Schools is the administrative agent for FCMAT. The team is led by Michael H. Fine, Chief Execu- tive Officer, with funding derived through appropriations in the state budget and a modest fee schedule for charges to requesting agencies. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District iv Introduction Study and Report Guidelines (AB 139 Audit Authority) Introduction Study and Report Guidelines (AB 139 Audit Authority) Education Code Section 1241.5(b) permits a county superintendent of schools to review or audit the expen- ditures and internal controls of any school district in the county if he or she has reason to believe that fraud, misappropriation of funds, or other illegal fiscal practices have occurred that merit examination. This is known as an AB 139 extraordinary audit or review. 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 local district attorney’s office and further investigation by law enforcement if needed. In writing its reports, FCMAT uses the Associated Press Stylebook, a comprehensive guide to usage and accepted style that emphasizes conciseness and clarity. In addition, this guide emphasizes plain language, discourages the use of jargon, and capitalizes relatively few terms. 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 gathering adequate information about specific allegations, establishing an audit plan, and 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 inappropriate activity; and determining who was involved and how it may have occurred. FCMAT visited the Bassett Unified School District and conducted on-site fieldwork in January 2020 through September 2021. This included conducting interviews, collecting data and reviewing documents. Following fieldwork, FCMAT continued its review, analysis, and any additional interviews as needed. The team exam- ined numerous available district-provided documents and information provided by community members, including, but are not limited to, the following: • Campaign forms and related documents (i.e., checks, bank statements, and deposits) • Bank statements, deposits, checks/warrants, and available related supporting documenta- tion • Board minutes and agendas • Credit card statements and transaction reports • Travel and reimbursement documents • Construction contracts, vendor contracts, agreements, schedules, architectural documents and other such documents Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 1 Introduction Study Team • General ledger detail and journal entry reports • District board policies, administrative regulations, and board protocols • Job descriptions • Twenty-one banker’s boxes containing various Del Terra Construction records • Citizens’ bond oversight committee documents • Audit reports and investigator reports • Purchase orders and purchase order reports, invoices, expense reports, receipts, and other such documents • Various financial and communication documents from the Bassett Education Foundation • Emails, social media, and public database documents Study Team The study team was composed of the following members: Michael W. Ammermon Terry Tao, AIA, Esq. CPA, CFE, CRFAC, DABFA Tao Rossini, a Professional Corporation Intervention Specialist FCMAT Consultant Paul Horvat John Lotze/Laura Haywood CPA, CFE, MBA FCMAT Technical Writers FCMAT Consultant Each team member reviewed the draft report to confirm its accuracy and to achieve consensus on the final recommendation. Background The Bassett Unified School District serves the cities of La Puente and the City of Industry. The district has one high school, one middle school, four elementary schools, one continuation school, one adult school, and one child development center. In October 2019, the Los Angeles County Superintendent of Schools requested that FCMAT assist the Los Angeles County Office of Education (LACOE) by conducting an Assembly Bill (AB) 139 extraordinary audit to determine if fraud, misappropriation of funds or other illegal fiscal practices may have occurred at the Bassett Unified School District. The Bassett community proposed four bond measures that passed. The Secretary of State County, City, School District & Ballot Measure Election Results describes the district’s election results and ballot measure text as follows: 1. $23 Million-November 2, 2004, Measure E, Education Bonds, 80.9% of vote, Pass (55% required). Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 2 Introduction Background To improve student safety, repair and upgrade every neighborhood school in the Bassett Unified School District by: fixing leaky roofs; upgrading outdated plumbing/sewer systems, installing fire safety equipment, upgrading heating/ventilation systems and electrical wiring for technology; acquire school facilities the District is currently leasing; repairing/ constructing/equipping classrooms, libraries and facilities, shall the Bassett Unified School District issue $23,000,000 in bonds at legal rates, with guaranteed annual independent financial audits, citizens’ oversight, and no money for administrators’ salaries? 2. $20 Million-November 7, 2006, Measure E, Education Bonds, 73.4 % of vote, Pass (55% required). To improve student safety, security, and learning by repairing and upgrading every school through repairing roofs; upgrading plumbing, heating/ventilation systems and electrical wiring for technology; installing fire detection equipment; providing increased disabled access; equipping classrooms; retiring facility debt; facilitating joint-use projects; and constructing and equipping new school facilities, shall the Bassett Unified School District issue $20,000,000 in bonds at legal rates with guaranteed annual financial audits, citizens’ oversight and no money for administrators’ salaries? 3. $30 Million-November 4, 2014, Measure V, Education Bonds, 62.4 % of vote, Pass (55% required). To improve school facilities with funding that cannot be taken by the State, replace leaky roofs, improve student access to computer / modern technology, replace / upgrade outdated heating, air conditioning, electrical systems, modernize outdated classrooms and restrooms, acquire, construct, repair classrooms, facilities, sites and equipment, shall Bassett Unified School District issue $30 million of bonds at legal rates, appoint an independent citizens’ oversight committee and no money for teacher or administrator salaries? 4. $50 Million-November 3, 2020, Measure BB, Education Bonds, 69.9 % of vote, Pass (55% required). To improve school facilities, by replacing leaking roofs, improving student access to technology, repairing and upgrading security/fire/earthquake systems, modernizing, acquiring, constructing, repairing classrooms, restrooms, and facilities, shall Bassett Unified School District issue $50 million of bonds, within legal interest rates, averaging $2.66 million annually for 36 years (estimated), at projected rates of 6 cents per $100 assessed value while bonds are outstanding, be adopted, with all funds staying local? The bond funds total $123 million. The description for all four bonds stated they would be used to improve student safety, to modernize the district’s campuses, and for repairs. In April 2015 and July 2019, the district entered into program and construction management agreements (see Appendices 1 and 28) with Del Terra Real Estate Services, Inc. dba Del Terra Group. The agreements provide in the Recitals, Section C that: The District and Manager desire to enter into an agreement for the Manager to provide the District with professional services consisting of program and construction management ser- vices in connection with the planning, programming and construction of existing projects, and new construction projects related to the District’s Bond Program, known as Measure V, and any match funding (Campus Projects). Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 3 Introduction Background Del Terra managed the district’s modernization construction projects as both the project manager and con- struction manager. The president and chief executive officer of Del Terra is Luis Rojas. Del Terra is identified in the contracts as the district’s agent and fiduciary. Acting as the district fiduciary means Del Terra has a responsibility to act in the district’s best interest. The responsibilities of a fiduciary are discussed further below. This audit was requested because the Los Angeles County Superintendent of Schools received a report dated March 5, 2019, issued for the Bassett Unified School District by the district’s external law firm, Leal Trejo, APC, and signed by H. Francisco Leal (Leal Report), which (see Appendix 86) included the following finding: “Based on our analysis, it appears Del Terra may have overcharged the District by $1,831,567.14. One million dollars was identified as ‘additional services’ and ‘assessments’ for which there is no documentation.” When the Leal Report was issued, according to board members Armando Barajas and Patrice Stanzione, they were the only two board members unwilling to vote to approve additional Del Terra contracts. Because Barajas did not believe a few other district board members or management were concerned about the find- ings in the Leal Report, he took it upon himself to personally deliver the report to LACOE. Because Barajas provided the Leal Report to LACOE and because of its comprehensive nature, LACOE was concerned that the district’s superintendent and school board may have failed to fulfill their fiduciary duties when they did not take any action to reclaim the overpayment. Further, even though the superintendent and school board were notified of the possible overbilling, the district issued a subsequent contract to Del Terra for additional work. When FCMAT discussed the district’s inaction regarding the Leal Report with former district superintendent Debra French, she explained that she and then board president Delores Rivera met with LACOE to discuss both the Del Terra contract and one district board member’s possible residency issue. French’s concern about the construction issue was that the district’s legal team informed her that Del Terra might sue the district because the previous superintendent may have breached the contract by not meeting the Del Terra timelines. Del Terra has also been identified in previous FCMAT AB 139 audits of Montebello Unified School District in October 2018 and Alum Rock Union Elementary School District in June 2017. Those reports also describe irregularities in Del Terra’s billing and contracting practices. Issues cited in those reports include little to no supporting documentation for billing provided to the district, and the amount of work being inconsistent with the amount billed. This report also finds similar billing and contracting irregularities and practices. Because LACOE was concerned about the superintendent’s and school board’s inaction regarding Del Ter- ra, it had reason to believe there may also be potential conflicts of interest and undisclosed related party issues. The indicators that point to the possibility of irregularities and conflicts of interest are explained in this report. When this audit began there was, and there continues to be, great interest by the Bassett com- munity in many issues that they allege the district would not address. When trying to locate Del Terra records, FCMAT was contacted by Bassett community members, staff and others who wanted to share their concerns. The audit consisted of interviews with district staff, adminis- trative assistants, accountants, directors, teachers, superintendents, board members, community mem- bers, district labor associations, and representatives of the Bassett Education Foundation. Many of those interviewed did not want to meet anywhere near the district because they feared they may be watched by board member Paul Solano, his allies, or others. Therefore, most meetings and interviews were conducted away from district locations. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 4 Introduction Background A few individuals FCMAT met with had gathered substantial information they wanted to share. And several individuals FCMAT met with said that district board member Paul Solano, who has been a board member for more than 20 years, was the real power in the district and is backed by the district’s law firm. One community member, Amadeo Rodriguez, had been researching and gathering evidence into alleged district irregularities. Rodriguez met with FCMAT many times. His research, documentation and information were well organized and proved extremely valuable. He alleged and provided compiled evidence regarding several issues, such as possible conflicts of interest. Community members also alleged that former board member Natalie Ybarra mismanaged the Citizens for Bassett Schools – Yes on Measure V campaign account. Ana Morales, a community member, assisted with the Citizens for Bassett Schools on Measure V campaign funds. Morales explained to FCMAT that even though she has no financial experience, the district’s former superintendent, Alex Rojas, asked her to be a treasurer for the campaign funds. She stated that she agreed to help because no one else would. According to Morales, all campaign transactions and forms were taken care of by Ybarra. Even though Morales was not involved in the operations or management of the campaign funds, she was instrumental in coming forward to help FCMAT by working with the bank to obtain copies of records. When FCMAT began its on-site fieldwork in January 2020, the district superintendent was Debra French. French succeeded superintendent Alex Rojas. When Alex Rojas departed, French was appointed as the district’s interim superintendent for a contractual employment term to run from May 24, 2017 to June 30, 2018. Near the end of her interim term, French entered into a new contract as superintendent, which ran until June 30, 2020. At the end of French’s employment term, she accepted a superintendent position in a school district in the Bay Area. From the beginning of the audit until her departure, French provided FCMAT with unrestricted access to anything and anyone she could and continued to assist FCMAT even after the end of her term in June 2020. Her successors also cooperated fully with the FCMAT audit. Succeeding French was Art Cunha, assigned by LACOE as interim superintendent. He remained at the district from July 2020 to November 16, 2020 until Dr. Alejandro Alvarez was appointed superintendent by the district’s school board. When FCMAT first arrived at the district to obtain Del Terra-related documents, only two filing cabinet draw- ers of documents were available. A filing cabinet drawer is equivalent to approximately one banker’s box. Given the size and scope of the district’s construction projects and bond measures, one would reasonably expect to find at least 20 banker’s boxes or more of financial documents and another 10 or more banker’s boxes of plans, schedules, and other documents. The FCMAT team asked if anyone knew where more doc- uments may be. No one knew. When asked where the staff was that handled the processing of Del Terra payments and documentation, FCMAT was told that person was reassigned and no longer at the district office. This reassigned staff member was Barbara Molina, who was identified as someone who may be able to shed more light on the accounting and business practices of the district and might be able to find more Del Terra documents. Eventually the team was able to meet with Molina. She and a trusted co-worker who remained working at the district office searched for Del Terra records. Months after FCMAT began the audit, Molina notified FCMAT that she was able to find more Del Terra records. The total amount of records found was contained in approximately 21 banker’s boxes, which Molina and her co-worker organized and labeled. On October 6, 2020, approximately nine months after the audit fieldwork began, with the help of Molina and her co-work- er, FCMAT obtained custody of those records. It was important to find as many documents as possible be- cause Del Terra did not meet with FCMAT at the district’s and FCMAT’s request. Nor did Del Terra provide any records, which they were obligated to produce under the terms of their contract with Bassett. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 5 Introduction Background This report shows that LACOE and the community had good reason to be concerned. Many of the suspi- cions and concerns described above are corroborated by this report. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 6 Introduction Occupational Fraud and Internal Controls Occupational Fraud and Internal Controls Fraud can include an array of irregularities and illegal acts characterized by intentional deception and mis- representations of material facts. Although all employees have some degree of responsibility for internal controls, the governing board, superintendent and senior management ultimately are responsible. Occupational Fraud Occupational fraud includes asset misappropriation, corruption, and fraudulent financial statements. Occu- pational fraud occurs when an organization’s owners, executives, managers or employees use their posi- tion in the organization to deliberately misuse or misapply the employer’s resources or assets for personal 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 an employee(s)/board member(s) using his or her influence in business trans- actions to obtain a personal benefit that violates that employee’s 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. Although there are many different types of fraud, occupational fraud, including asset misappropriation and corruption, is more likely to occur when employees are in positions of trust and have access to assets. Em- bezzlement occurs when someone who is lawfully entrusted with property takes it for his or her 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 re- lies on the fraudulent information • Concealment to hide the act or facts • Damages, loss or injury by the deceived party This report finds that there are indicators that board member Solano and former board member Ybarra, and Del Terra, and others, had the incentive, capability, and opportunity to conduct themselves and their activi- ties contrary to their fiduciary duties to the district. Internal Controls The accounting industry defines the term “internal control” as it applies to organizations, including school agencies. Internal control is “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 Committee of Sponsoring Organizations of the Treadway Com- mission – May 2013). The reference to achievement of objectives refers to an organization’s work of plan- ning, organizing, directing and performing routine tasks related to operations, and monitoring performance. An organization establishes control over its operations by setting goals, objectives, budgets and perfor- mance expectations. Several factors influence the effectiveness of internal control, including the social Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 7 Introduction Occupational Fraud and Internal Controls environment and how it affects employees’ behavior, the availability and quality of information used to monitor the organization’s operations, and the policies and procedures that guide the organization. Inter- nal control helps an organization 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 principal mechanism for preventing and/or deterring fraud or illegal acts. Illegal acts, misappropriation of assets or other fraudulent activities can include an assortment of irregularities charac- terized by intentional deception and misrepresentation of material facts. Effective internal control provides reasonable 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 control structure includes the policies and administrative regulations established by the board and opera- tional procedures used by staff, adequate accounting and information systems, the work environment, and the professionalism of employees. The five integrated components of internal control and their summarized characteristics are included in the following table. Internal Control Characteristics Component Control Environment 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; investigation of reported concerns; and effective disciplinary action for violations. Risk Assessment Identification and assessment of potential events that adversely affect the achievement of the organization’s objec- tives, and the development of strategies to react in a timely manner. Control Activities 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 preventing employees from overrid- ing controls in the system. Information and Ensures that employees receive information regarding policies and procedures and understand their responsibility Communication for internal control. Provides opportunity to discuss ethical dilemmas. Establishes clear means of communication within an organization to report suspected violations. Monitoring Activities Ongoing monitoring to ascertain that all components of internal control are present and functioning; ensures defi- ciencies are evaluated and corrective actions are implemented. The five components of internal control are supported by numerous underlying principles that help ensure an entity achieves effective internal control. Each of the five components listed above and their relative 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 the board and all employees in the district have some responsibility for internal control, the su- perintendent, board other key management personnel, and even Del Terra have a higher ethical standard, fiduciary duty and responsibility to safeguard the assets of the LEA. Control Environment The internal control environment establishes the organization’s moral tone. Though intangible, it begins with the leadership and consists of employees’ perception of the ethical conduct displayed by the govern- ing board and executive management. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 8 Introduction Occupational Fraud and Internal Controls The control environment is a prerequisite that enables other components of internal control to be effective in achieving the goals and objectives to prevent and/or deter fraud or illegal acts. It sets the tone for the organization, provides discipline and control, and includes factors such as integrity, ethical values and com- petence of employees. The control environment can be weakened significantly by a lack of experience in financial management and internal control. As this report describes in the findings section, there are indicators that the tone at the top established by the district’s leaders was weak. Certain board members were perceived as being above the rules, regula- tions and policies of the district. Questioning board member Solano’s activities was considered by employ- ees as a sure way to be reprimanded, reassigned, ridiculed, or worse. According to Molina, she was sub- jected to such treatment when she questioned Solano’s travel reimbursement forms. 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: 1. 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. 2. Information processing, which includes the approvals, authorizations, verifications and reconciliations necessary to ensure that transactions are valid, complete and accurate. 3. Physical controls, which are the processes and procedures designed to safeguard and secure assets and records. 4. Supervisory controls, which assess whether the transaction control activities performed are accurate and in accordance with established policies and procedures. 5. Segregation of duties, which consists of processes and procedures that ensure that 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. FCMAT discussed processing of documents, invoices, payments, and other procedures with district staff. One individual explained that Del Terra could simply walk into the business office with an invoice contain- ing little or no documentation to support the invoiced amount and receive a check/warrant. That employee stated that Del Terra just submits an invoice and Linda [Bermudez][executive director of business] signs off without any checks or balances to see if the work has been performed. [Del Terra employee] Jerry [Que- mada] walks into the business office, submits invoices, the business office then generates a requisition/pur- chase order, and the contractor is paid. No checks and balances established and implemented. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 9 Introduction Conflicts of Interest Conflicts of Interest Actual (or Appearance of) Impropriety; Government Code Section 1090; Political Reform Act; and Common Law Broadly defined, a conflict of interest occurs when a public official participates in a decision in which the official has a personal interest of some kind that may influence their conduct or be perceived as causing divided loyalty. Some conflict-of-interest laws focus on financial interests, such as contracts that come before an agency for approval when the official (or the official’s spouse or registered domestic partner) has some financial con- nection to the transaction. An official is considered to be participating in the making of a contract not just by voting to approve it, but also by participating in the preliminary phases leading up to the vote, such as the earliest discussions about the contract, planning, and soliciting for bids, developing specifications, etc. The decision to hire an employee is considered an approval of a contract for purposes of conflict-of-interest law. As discussed below, the common law conflict-of-interest doctrine is not limited to financial conflict, but also addresses other situations in which a personal interest is involved, creating the potential for divided loyalty or the appearance of a conflict or impropriety in connection with the official’s involvement in the decision. Conflicts of interest are addressed in statute (Government Code Section 1090, the Political Reform Act - Government Code Section 87100 and following, Corporations Code Section 5233 for nonprofit organiza- tions, Education Code Section 35107(e)), and in common law as reflected in court decisions. Government Code Section 1090 can carry some of the most severe consequences, and violations can rise to the level of a felony. A public official as used in Government Code Section 1090 includes board members, officers or certain designated employees of school districts, charter schools, and other governmental entities. Financial Conflicts Government Code Section 1090 Government Code Section 1090 prohibits the approval of contracts in which an official has a financial interest. Violations of this law can carry severe penalties. If a board member has an interest in a contract that is deemed to be a Government Code Section 1090 violation, then the entire board is prohibited from entering into the contract unless an exception or safe harbor applies. This is true even if the contract is with a vendor that has the best price and even if the board member with the conflict abstains from voting on the contract. Government Code Section 1090 is the strongest standard to meet. Conflict-of-interest laws prohibit public officials from entering into contracts “made by them in their official capacity, or by any body or board of which they are members” (GC 1090(a)). The law does not apply only to board members; if an employee prepares or negotiates a contract in which the employee has a financial in- terest, or recommends its approval, this prohibition also applies to them. The prohibition is absolute absent a valid exception, and the contract is voidable and has no legal effect. It is not legally possible to abstain from a contract that violates Government Code Section 1090 unless a safe harbor is available, referred to as a “remote interest” under Government Code Section 1091 or “shall not be deemed to be interested” un- der Government Code Section 1091.5(a). If a board member’s interest is only remote, the board can proceed to vote on the contract as long as the affected member abstains from discussion and voting on the matter. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 10 Introduction Conflicts of Interest The Fair Political Practices Commission (FPPC) issued An Overview of Section 1090 and FPPC Advice, Oc- tober 2020, which adds further clarification for conflicts of interest as follows: In Thomson v. Call (1985) 38 Cal.3d 633, the California Supreme Court explained the purpose underlying Section 1090: [E]xamination of the goals and policy concerns underlying section 1090 convinces us of the logic and reasonableness of the trial court’s solution. In San Diego v. S.D. & L.A.R.R. Co., su- pra, 44 Cal. 106, we recognized the conflict-of-interest statutes’ origins in the general princi- ple that “no man can faithfully serve two masters whose interests are or may be in conflict”: “The law, therefore, will not permit one who acts in a fiduciary capacity to deal with himself in his individual capacity. . . . For even if the honesty of the agency is unquestioned. . . yet the principal has in fact bargained for the exercise of all the skill, ability and industry of the agent, and he is entitled to demand the exertion of all this in his own favor.” (44 Cal. at p. 113.) We re- iterated this rationale more recently in Stigall v. City of Taft, supra, 58 Cal.2d 565: “The instant statutes [§ 1090 et seq.] are concerned with any interest, other than perhaps a remote or min- imal interest, which would prevent the officials from exercising absolute loyalty and undivided allegiance to the best interests of the city.” (58 Cal.2d at p. 569.) Furthermore, Section 1090 is intended “not only to strike at actual impropriety, but also to strike at the appearance of impropriety.” A contract that violates Section 1090 is void. The prohibition applies even when the terms of the proposed contract are demonstrably fair and equitable, or are plainly to the public entity’s advantage. Courts have recognized that Section 1090’s prohibition must be broadly construed and strictly enforced. “An important, prophylactic statute such as Section 1090 should be construed broadly to close loopholes; it should not be constricted and enfeebled.” [Bold and underlining emphasis added] [FCMAT has removed the footnote case citing from the quoted information.] Political Reform Act The Political Reform Act, enacted by Proposition 9 in June 1974, is another California law that focuses on financial conflicts. The act has been revised and continues to be revised. The stated intent of the act was to establish a process for most state and local officials, as well as certain designated employees, to publicly disclose their personal income and assets as follows: [a]ssets and income of public officials which may be materially affected by their official ac- tions…should be disqualified from acting in order that conflicts of interest may be avoided. The act’s provisions are enforced by the FPPC and supported by Government Code, requiring every state and local governmental agency to adopt a conflict of interest code. The FPPC is the state agency respon- sible for interpreting the provisions of the law and issuing California Form 700 – Statement of Economic Interests. Because school governing board members are considered public officials and governing boards are con- sidered legislative bodies, board members and certain designated individuals who participate in financial decisions for an LEA must file Form 700 annually by April 1, when they take office or begin in a position, and upon leaving office. Form 700 must usually be filed by April 1 for the preceding calendar year and within 30 Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 11 Introduction Conflicts of Interest days of assuming or leaving office or their position unless an exception applies. In addition, a consultant to the organization “who makes, participates in making, or acts in a staff capacity for making governmental decisions” may be required to complete a Form 700. Failure to follow FPPC Form 700 rules can result in fines, and in extreme cases, deliberate failure to file can result in criminal charges by the attorney general or district attorney, or civil or administrative action by the FPPC or private citizens. The Political Reform Act concerns situations in which a public official’s economic interests are affected by a government decision in which the person participates or which the person attempts to influence. Failure to disclose information is a form of influence. If a conflict under the Political Reform Act exists, the public offi- cial must recuse themselves from every part of the decision-making process and abstain from voting. The FPPC has issued many detailed regulations about conflicts of interest discussed below. Non-Financial Conflicts Common Law Court opinions lay out common law principles that require public officials to abstain from other kinds of de- cisions they have a personal interest in, even if the interest isn’t financial. For example, in the case of Clark v. City of Hermosa Beach, 48 Cal. App. 4th 1152 (CA2 1996), a city council member was considered to have a common law conflict of interest when he voted on a project that affected the view from his rented house. Even though he didn’t own the house and thus no financial interest was at stake, his personal interest was seen as having the capacity to influence the decision, or at least the potential to create an appearance of impropriety, even without a financial interest. The remedy for a common law conflict of interest is for the affected individual to disclose the conflict and abstain from participating in the discussion and voting on the matter. Appearance of Impropriety Conflicts of interest are applicable to not only economic interests but also to the appearance of impropriety, misconduct, or even indiscretion. Conflict of interest is about self-dealing. Often a government official may say they did not benefit financially from a transaction; therefore, there is no conflict of interest. However, those who may commit improprieties can have hidden interests that are not always economic. A hidden interest is an undisclosed or concealed interest that does not have to be financial. This can include when a board member’s actions are detrimental to the district because they provide a benefit to a friend, romantic interest, or relative, even though the board member themself does not appear to benefit financially. The office of the California attorney general published opinion, No. 97-511, dated December 5, 1997, that discusses the appearance of impropriety as follows: The Supreme Court has declared that the purpose of section 1090’s prohibition “is to remove or limit the possibility of any personal influence, either directly or indirectly, which might bear on an official’s decision, as well as to void contracts which are actually obtained through fraud or dishonest conduct. . . .” (Stigall v. City of Taft (1962) 58 Cal.2d 565, 569.) The statutory goal is “not only to strike at actual impropriety, but also to strike at the appearance of impropri- ety.” (City of Imperial Beach v. Bailey (1980) 103 Cal.App.3d 191, 197.) [Bold emphasis added] Limiting the possibility of any personal influence, either directly or indirectly, is about avoiding even the appearance of a conflict. Failure to do so can be dishonest and is a breach of a public official’s fiduciary responsibilities. When a public official such as a board member, or even any government employee, con- Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 12 Introduction Conflicts of Interest ceals information relating to the official’s personal interest in a decision, the official deprives the decision maker of information that may be necessary for the board or management to make an informed decision. By acting without disclosing his or her own personal interest (self-dealing), the board member or employee gains hidden influence over the outcome of other board members’ decisions. A governmental decision can be influenced by a board member concealing information from fellow board members or the public when, had that information been known, it would, or would have appeared to, alter the outcome of the decision. Failure to disclose information is a form of influence. The FPPC provides many resources regarding conflicts of interest, such as An Overview of Section 1090 and FPPC Advice-October 2020, A Quick Guide to Section 1090-October 2020, and Recognizing Conflicts of Interest-August 2015. These resources provide further clarification regarding conflicts of interest, as follows: Section 1090 “codifies the long-standing common law rule that barred public officials from being personally financially interested in the contracts they formed in their official capacities.” The prohibition is based on the rationale that a person cannot effectively serve two masters at the same time. Therefore, Section 1090 is designed to apply to any situation that “would prevent the officials involved from exercising absolute loyalty and undivided allegiance to the best interests of the [public entity concerned].” Section 1090’s goals include eliminating temptation, avoiding the appearance of impropriety, and assuring the public of the official’s undivided and uncompromised allegiance. Furthermore, Section 1090 is intended “not only to strike at actual impropriety, but also to strike at the appearance of impropriety.” [Emphasis added] [FCMAT has removed the footnote case citings from the quoted information.] The Political Reform Act embodies voters’ recognition that conflicts of interest in government decision-mak- ing by public officials pose a significant danger. Under the Act, a public official will have a statutory conflict of interest with regard to a par- ticular government decision if it is foreseeable that the outcome of the decision will have a financial impact on the official’s personal finances or other financial interests. In such cases, there is a risk of biased decision-making that could sacrifice the public’s interest in favor of the official’s private financial interests. In fact, preventing conflicts of interest was of such vital importance to the voters that the Act not only prohibits actual bias in decision-making but also “seeks to forestall ... the appearance of possible improprieties.” [Emphasis added] The issue of the appearance of possible improprieties is referenced in Witt v. Morrow (1977) 70 Cal. App. 3d 817 at 822–823 as follows: Morrow asserts it is unconstitutional to automatically disqualify a public official from partici- pating in decisions which may affect the investments of an entity which pays him .... However, the whole purpose of the Political Reform Act of 1974 is to preclude a government official from participating in decisions where it appears he may not be totally objective because the out- come will likely benefit a corporation or individual by whom he is also employed.” [Emphasis added] The Act applies to all “public officials,” which is defined as “every member, officer, employee or consultant of a state or local government agency.” (Government Code Section 82048) Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 13 Introduction Conflicts of Interest Courts have recognized that Section 1090’s prohibition must be broadly construed and strictly enforced. (Stigall v. City of Taft (1962) 58 Cal.2d 565, 569-571.) A civil service appointment is an employment contract (59 Ops.Cal.Atty.Gen. 223 (1960)) [FCMAT emphasizes that a board member voting on the hiring and pay raises of someone with whom they have an undisclosed relationship for any position, including a district director level position, is voting on an employment contract; however, this does not include collectively bargained raises, even those that affect a spouse.] A decision to modify, extend, or renegotiate a contract in which an official has a financial interest can trig- ger a conflict where the official was involved in the making of the contract under Section 1090. Reasonably Foreseeable Financial Effect FPPC regulations 18700, the basic rule and guide to conflict of interest regulations, and 18701, which deter- mines whether a financial effect is reasonably foreseeable, state the following: 2 Cal. Code Regs., Section 18700(a) states, “Basic Rule: A public official at any level of state or local government has a prohibited conflict of interest and may not make, participate in making, or in any way use or attempt to use the official’s position to influence a governmental decision when the official knows or has reason to know the official has a disqualifying financial inter- est. A public official has a disqualifying financial interest if the decision will have a reasonably foreseeable material financial effect, distinguishable from the effect on the public generally, directly on the official, or the official’s immediate family, or on any financial interest described in subdivision (c)(6)(A-F) herein. (Sections 87100, 87101, & 87103.)” [Emphasis added] 2 Cal. Code Regs., Section 18701(a) states, “Financial Interest Explicitly Involved: A financial effect on a financial interest is presumed to be reasonably foreseeable if the financial inter- est is a named party in, or the subject of, a governmental decision before the official or the official’s agency. A financial interest is the subject of a proceeding if the decision involves the issuance, renewal, approval, denial or revocation of any license, permit, or other entitlement to, or contract with, the financial interest, and includes any governmental decision affecting a real property financial interest as described in Regulation 18702.2(a)(1)-(6).” Ethical Duty, Integrity, & Fiduciary Duty It is not enough to evaluate a potential conflict of interest based on whether a board member has a direct financial interest. The public, management, and staff at a school district should expect the highest level of ethics and integrity from its board members and all public officials. Board members should show an ethical tone at the top and demonstrate the highest levels of ethics and fiduciary duty. Board members are fiduciaries of the district. They have a fiduciary duty to be loyal, act in good faith, with prudence and full disclosure, in the best interest of the district, without any hint of self-dealing or person- al interest in any transaction associated with the district. Fiduciary responsibilities are described further below. When faced with potential conflicts of interest on the part of a public official such as a school board mem- ber, administrator or consultant, it is important to consider the legal and ethical standards and review any applicable board policies that may be even more restrictive than the statutory mandates. The board and management should demonstrate all forms of integrity. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 14 Introduction Conflicts of Interest Corruption Corruption does not have to involve two or more parties; a single individual in a position of trust can exer- cise authority for his or her own personal gain. Personal gain can include but is not limited to helping a girlfriend/boyfriend/partner or other personal acquaintance get a job, promotion, or pay raise. And when the relationship is not disclosed to the public, management, or all fellow board members, and the interested board member votes on the position or salary increase(s) or fails to abstain and explain the reasons for ab- staining, these actions may be considered a conflict of interest. Every conflict of interest issue 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. A conflict can result from being related to an applicant; engaging in social interaction outside of work with an applicant; or having a personal financial interest connected to an applicant or the company he or she represents. District Bylaws and Protocols The district has adopted board policies and protocols, which are specific local laws the board must follow. To maintain the highest ethical standards and help ensure that decisions are made in the best interest of the district and the public, the board has adopted Board Bylaw (BB) 9270 Conflict of Interest, stating that board members shall abstain from any official action in which their private or personal interest may conflict with their other official duties. Board policies and protocols are discussed in greater detail below. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 15 Introduction Fiduciary Responsibilities Fiduciary Responsibilities A fiduciary duty is the highest standard of care. The person who has a fiduciary duty is called the fiduciary, and the person to whom he or she owes the duty is typically referred to as the principal or the beneficiary. (Source: https://www.law.cornell.edu/wex/fiduciary_duty) A fiduciary also may be a person who holds a legal or ethical relationship of trust with one or more other parties (a person or group of persons). In other words, a fiduciary takes care of money or other assets for another. Board members, administrators and managers are examples of those who have fiduciary respon- sibilities or duties. The Cornell law source cited above further describes several components of fiduciary duties, which FCMAT summarizes and applies to LEAs as follows: Duty of Care: Before making a decision, collect all evidence and information available. Do your due dili- gence 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 the questions: who? what? when? and where? A fiduciary’s responsibility is to protect the assets of the LEA. Duty of Loyalty: You cannot use your position in the organization to further your private interests. Avoid anything that might injure the LEA. Duty of Good Faith: Advance the interests of the LEA. Do not violate the law. Fulfill your duties and respon- sibilities. Duty of Confidentiality: Keep confidential matters confidential, and never disclose confidential 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 board member, member of management, or fiduciary would exercise. Prudent means acting with wisdom and care, including exer- cising good judgment. Duty of Disclosure: Act with complete candor. Be open, sincere, honest and transparent. Disclose all finan- cial interests on Form 700, Statement of Economic Interests. This report demonstrates that there is sufficient evidence that the actions and activities of board member Solano and former board member Ybarra, and Del Terra owner/principal Luis Rojas, are characteristic of individuals that may have failed in their fiduciary duties to the district. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 16 Introduction Gift of Public Funds Gift of Public Funds Gifts of public funds are governed under Article 16, Section 6 of the California Constitution, which specifies that the state Legislature cannot authorize any county, city, or other political subdivision to make any gift of public funds to an individual or corporation. This constitutional provision prohibits making any gift of public money, including items of value, to any individual, including public employees, a corporation, or other gov- ernment agency. The constitutional prohibition of gifts of public funds is designed to prevent the misuse of public money. If the funds expended have a direct and substantial public purpose, with only an incidental benefit to an individual, a gift of public funds has likely not occurred. To justify the expenditure of public funds, the gov- erning board must determine that the expenditure will benefit the education of the LEA’s students. Expendi- tures that most directly and tangibly benefit students’ education are more likely justified, but expenditures driven by personal motives are not, even if they have been a longstanding local custom or are based on benevolent intentions. If an LEA’s governing board has determined that a particular type of expenditure serves a public purpose, courts will almost always defer to that finding. Therefore, if the LEA has a board policy stating that specific items are allowable, such as scholarships and awards, the expenditure will likely be considered allowable. Gifts and awards to staff and/or students may be considered gifts of public funds unless the board has an established policy defining the parameters of allowable gifts and awards. The evidence described in the findings section of this report includes indicators that gifts of public funds may have occurred. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 17 Introduction False Claims False Claims Payment of unsubstantiated invoices may constitute a gift of public funds and/or a false claim scheme. These schemes as defined by Government Code Section 12651 include situations in which the entity “know- ingly presents or causes to be presented a false or fraudulent claim for payment or approval.” Entities that present false claims are liable to the district for triple damages, the costs of a civil action to recover the damages, and a civil penalty of between $5,500 and $11,000 per occurrence. Government Code 12651(a)(1) and 12651(a)(2), states the following: (a) Any person who commits any of the following enumerated acts in this subdivision shall have violated this article and shall be liable to the state or to the political subdivision for three times the amount of damages that the state or political subdivision sustains because of the act of that person. A person who commits any of the following enumerated acts shall also be liable to the state or to the political subdivision for the costs of a civil action brought to recov- er any of those penalties or damages, and shall be liable to the state or political subdivision for a civil penalty of not less than five thousand five hundred dollars ($5,500) and not more than eleven thousand dollars ($11,000) for each violation… (1) Knowingly presents or causes to be presented a false or fraudulent claim for payment or approval. (2) Knowingly makes, uses, or causes to be made or used a false record or statement material to a false or fraudulent claim. The findings in this report demonstrate that false claims may have occurred. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 18 Introduction Transaction Sampling Transaction Sampling FCMAT developed and conducted audit procedures to analyze and evaluate allegations and identify po- tential outcomes of transactions sampled. The audit scope, objectives, and substantive transaction testing were based on the FCMAT study team’s experience and professional judgment and did not include the test- ing or evaluation of all available transactions and records. An important distinction in FCMAT sampling and records review is the term available transactions and records. Available transactions sampled were those selected randomly and/or selected specifically based on the team’s judgment. Neither all transactions nor all potential issues were examined, and not every irregularity that may have had merit was pursued. Trans- actions, audit scope items, and potential irregularities are evaluated and pursued based on the conditions of the books and records and the team’s judgment. Transactions selected, when applicable, are analyzed and compared to board policies, administrative regulations, operational procedures, and industry standards or best practices, and are evaluated for proper authorizations and reasonableness based on the team’s judgment and technical expertise in school busi- ness operations, internal controls, and accounting best practices. Sample testing and examination results are intended to provide reasonable but not absolute assurance of the accuracy of the transactions and financial activity and/or to identify whether fraud, misappropriation of funds or other illegal fiscal practices may have taken place during the period under review. When a complete set of records may not be available, and there is the possibility of fraud, sampling various types of transactions is one of many methods that can help identify trends or other anomalies. This process also helps provide an understanding of the control environment and whether transactions and activities are properly monitored. The district provided FCMAT with separate American Express and travel expense data files and accounting transactions. The transactions data spanned fiscal years 2017-18 through 2019-20. This data was compared with available supporting documents including cancelled checks/warrants, invoices, expense reports, receipts, purchase order reports, journal entries, credit card transactions, board policies, and administrative regulations. The table below summarizes the results of sampled American Express and travel reimbursement transac- tion testing for the fiscal years ending June 30, 2018, 2019 and 2020. Transaction testing identified some types of deviations. A deviation is a transaction that does not meet the criteria of a reasonable transaction. For example, if a transaction is performed in such a way that it is Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 19 Introduction Transaction Sampling missing supporting documents or presented in a way that is different from other similar transactions, it is considered a deviation. A deviation by itself does not mean the transaction may be fraudulent; rather, it means that there is missing information or that further inquiry and analysis of the deviation may be needed if considered relevant to the testing performed. An internal control weakness also may not mean there is fraud; however, such weaknesses can indicate a potential for fraud to occur. As FCMAT reviewed the 107 American Express charges and travel expense reimbursements, various inter- nal control weaknesses were identified as follows: • Numerous financial and approval documents were missing or incomplete. Missing detail receipts are necessary to identify which expenditures may or may not be allowed according to policy. • Purchase order procedures were not used for specific purchases. • Purpose of expenditure was not always listed with support documentation. • Invoices did not match American Express statement transactions. Of the deviations shown above, only one deviation is considered to be irregular. Irregular means outside of the regular pattern of approved transactions and may even be those transactions with internal control de- ficiencies. The irregular deviation is tied to a travel expense reimbursement submitted by Paul Solano. This reimbursement is described in the findings section below because it contains numerous inconsistencies. FCMAT also asked the district to provide a random sample of purchase order transactions in 2015-16. The purpose of the purchase order testing was to confirm that purchase orders were properly signed as a past practice. Of the sample of 46 purchase orders, it was found that the superintendent was regularly signing them. No further purchase order sampling was considered necessary. As part of the audit, FCMAT reviewed the March 5, 2019 report issued by the district’s external law firm, Leal Trejo, APC, mentioned above, which was primarily about Del Terra overbilling the district. As described above, approximately 21 banker’s boxes of Del Terra documents were eventually located and examined. Be- cause Del Terra chose not to cooperate with the FCMAT audit and did not comply with the audit provisions in the district and Del Terra contracts, FCMAT’s findings about Del Terra activities are based on the records available at the district. Those records were reviewed, and various documents were used to compile the audit findings below. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 20 Findings Del Terra Findings Del Terra When the audit began and Del Terra records were being requested, FCMAT anticipated that Del Terra would cooperate with the audit. Del Terra is a construction company that builds, modernizes, and manages construction of school buildings. Former district superintendent French notified Del Terra about the audit in an email dated January 7, 2020. FCMAT contacted Luis Rojas, principal owner of Del Terra, via email on January 11, 2020 and received a response on February 3, 2020 indicating that he had a family matter to ad- dress; therefore, FCMAT did not resume communications until September 2020. Instead, FCMAT communi- cated with Jerome Quemada, Del Terra’s construction manager. FCMAT’s communications to Jerome Que- mada were about specific subcontracts with the district; however, he did not respond. FCMAT remained hopeful that Luis Rojas would at some time agree to meet even though he did not cooperate in providing requested records to the district’s law firm, as explained in the March 5, 2019 report by Leal Trejo, APC, the Leal Report (see Appendix 86). The Leal Report states in its process section at bullet points five and seven, that attorney Francisco Leal met with Luis Rojas and had sent Del Terra two letters requesting information about various assessments and billings the district paid for; however, the requested information was not produced. Meeting with Luis Rojas was important because FCMAT was informed that he had told the district that he no longer had access to all Del Terra’s records for the district’s construction projects. In an interview with FCMAT on July 20, 2020, former district board member Javier Romo stated that even back in 2011 he wanted to audit Del Terra’s records; however, Luis Rojas told him that his computer was broken. Javier Romo took this to mean that Luis Rojas would not provide any records the district was requesting, and indeed he never did. On September 11, 2020, Luis Rojas responded concerning Jerome Quemada not replying to FCMAT’s re- quests, but he did not reply that he would meet with the team. FCMAT knew of the nature of Luis Rojas’s fam- ily matter and decided not to pursue engaging with him until June 9, 2021, approximately nine months later. No response was received to the June 9 email; therefore, the team emailed Luis Rojas again on June 19, 2021, and again, no response was received. On June 24, 2021, Superintendent Alvarez emailed Luis Rojas imploring him to meet with FCMAT and citing the audit provisions of Del Terra’s contracts with the district. The contracts that Luis Rojas signed with the district contain two provisions about requirements that Del Terra maintain complete and accurate books and records and state that the district has the right to audit those records. These provisions are spelled out in Article 6 of the contracts as follows: “6.1.1, Maintenance of Project Books and Records. Manager shall maintain complete and accu- rate books and records with respect to services, costs, expenses, receipts and other informa- tion required by District to verify the scope or charges for any services provided under this Agreement. Manager shall maintain such records in sufficient detail to permit District, District’s independent auditors, or their designee to thoroughly evaluate and verify the nature, scope, value and charges for services performed under this Agreement. All such books and records shall be maintained in accordance with generally accepted accounting principles and shall be clearly identified and readily accessible.” [Emphasis added] The July 2019 agreement further adds “and shall be maintained for a minimum period of 5 years post termination of the Agree- ment, completion of the Projects or applicable statute, whichever is longer.” Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 21 Findings Del Terra “6.1.2, Audit of Records. District, District’s independent auditors, or their designee, upon rea- sonable notice shall have the right to examine and to audit books, records, documents, and ‘any’ (included in July 2019 agreement) other evidence sufficient to reflect properly all costs and expenses claimed to have been incurred ‘or earned’ (included in July 2019 agreement) in Manager’s performance of this Agreement ‘or of any contractor or consultant performing any scope of work or performing any service’ (included in July 2019 agreement). Such right to audit shall include but not be limited to, inspection at all reasonable times at Manager’s offices or facilities. In addition, Manager shall furnish facilities and cooperate fully with the audit. Upon request, Manager shall provide reproducible copies of books, records and other docu- ments that are applicable to this Agreement for reproduction by the District or its designee at the District’s cost.” FCMAT emailed Luis Rojas again on July 9, 2021, explaining in detail the importance of meeting. The July 9, 2021, email was lengthy and stated in part the following: . . . Luis, you should want to cooperate with our audit because it will help you and also helps us. The FCMAT AB 139 audit is about alleged Del Terra billing issues and services performed matters which are alleged to be in excess of $1.8 million. With your records that you possess and are required to maintain as part of your contractual obligations, you can contribute greatly to helping us understand if the billing allegations are without merit. The allegations include but are not limited to, breach of your fiduciary duty, failure to maintain and produce required records and documents, improper invoicing for services not authorized or performed, receiv- ing double pay or overbilling for service already paid, and failure to properly close-out proj- ects with DSA. These allegations total more than $1.8 million in overbilling. We know your email address is correct and we are operating under the presumption that you continue to receive our emails . . . Only you can help resolve the allegations. These billing issues are serious and we really want to hear what you have to say and help you help us find the documentation to support that you have not over billed the district and somehow it is a misunderstanding . . . We simply do not understand why you would not welcome meeting with us in order to clear up such material billing issues . . . Del Terra’s program and construction management agreements with the district contain performance standards that impose a higher level of responsibility on Del Terra and its principal owner, Luis Rojas. The performance standards in the contracts at Article 1.3 are as follows: “1.3.1 Standard of Care. Manager shall perform all services under this Agreement in a manner consistent with the standard of care, competence, skill, and knowledge under California law applicable to those who specialize in providing Program, Project and Construction Manage- ment services for projects of the type, scope and complexity of the Campus Projects. 1.3.2 Relationship. Manager serves as District’s agent and fiduciary in performing services under this Agreement. Managershall (sic), in this capacity, maintain confidences and provide professional services in a manner consistent with District’s economic, educational and gov- ernmental best interests.” [Emphasis added] Del Terra, and by extension, Luis Rojas, is a fiduciary of the district. Del Terra managed money, resources and assets of and on behalf of the district. Del Terra’s fiduciary duty of care, to be loyal and act in good faith, is to protect the assets of the district, protect the district from injury, not further its own private inter- ests, and provide access to requested records. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 22 Findings A. Introduction — Background on School Facilities Luis Rojas eventually responded in two emails dated July 15 and 16, 2021. Both emails essentially stated that he or his attorneys will respond to FCMAT’s emails. Since July 16, 2021 and through the date of this report, neither Luis Rojas nor his attorneys nor any representative of Del Terra has contacted FCMAT. A. Introduction — Background on School Facilities 1. District Responsibility for Effective Use of Bond Funds In 2014, the voters in the Bassett Unified School District passed Measure V, a $30 million school general obligation bond. Measure V’s priorities were to fund major renovations, safety upgrades, infrastructure up- grades, and repairs to district schools. Homeowners would be taxed $60 per $100,000 of assessed proper- ty value annually. The ballot measure question was worded as follows: “Bassett Schools Safety, College/Career Readiness Measure. To improve school facilities with funding that cannot be taken by the State, replace leaky roofs, improve student access to computer / modern technology, replace / upgrade outdated heating, air conditioning, electri- cal systems, modernize outdated classrooms and restrooms, acquire, construct, repair class- rooms, facilities, sites and equipment, shall Bassett Unified School District issue $30 million of bonds at legal rates, appoint an independent citizens’ oversight committee and no money for teacher or administrator salaries?” Conceptually, a general obligation bond is a tax on the property owners who live in the boundaries of the district to provide funds for construction to ensure safe learning environments for the children who attend schools in the district. In exchange for property owners agreeing to tax themselves, the district’s board of education made an implied promise to effectively and efficiently use tax dollars to upgrade structures so children have a safe environment, and to provide infrastructure and improvements to increase the longevity and effectiveness of the district’s education programs. Bassett Unified School District is a small school district that lacked both construction staff with the exper- tise to oversee and administer a general obligation bond and staff with the knowledge needed to negotiate the highly regulated state requirements for modernizing and building schools. As a result, the board looked to outside expertise to lead the district through a time-consuming and complicated state school construc- tion process of evaluating classrooms, prioritizing projects, and upgrading outdated infrastructure. The district needed a seasoned, knowledgeable and trusted advisor to guide them through the school construction process. The district decided to hire a program manager to act as that trusted advisor. But even though the district is a small school district that lacked the expertise and staffing to administer gen- eral obligation bond construction projects, specific to the construction projects turned over to Del Terra as described below, the board members, superintendents, and senior staff still had responsibilities or fiduciary duties as follows: 1. Duty of Care, to collect and review all evidence and information available, including physically inspecting the work performed and to not just accept the information as it is presented, and protect the assets of the district. 2. Duty of Prudence, to oversee the project with the degree of care and skill that a prudent board member, member of management, or fiduciary would exercise by acting with wisdom and care, including exercising good judgment. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 23 Findings A. Introduction — Background on School Facilities To ensure the advisor, Del Terra, was acting in the best interests of the district and its students and staff, language was included in the district’s contract to clarify the responsibilities of the selected program manager to act as “an agent and fiduciary,” and for the program manager to “provide professional services in a manner consistent with district’s economic, educational and governmental best interests.” The exact language of the contract is as follows: “Article 1.3.2 Relationship. Manager serves as District’s agent and fiduciary in performing services under this Agreement. Managershall (sic), in this capacity, maintain confidences and provide professional services in a manner consistent with District’s economic, educational and governmental best interests.” [Emphasis added.] Fiduciary is defined in the Merriam-Webster Dictionary as “[R]elating to or involving trust (such as the trust between a customer and a professional).” Black’s Legal Dictionary defines fiduciary as follows: “The term is derived from the Roman law, and means (as a noun) a person holding the char- acter of a trustee, or a character analogous to that of a trustee, in respect to the trust and confidence involved in it and the scrupulous good faith and candor which it requires. Thus, a person is a fiduciary who is invested with rights and powers to be exercised for the benefit of another person. [Citations omitted.] . . . A person or institution who manages money or property for another and who must exercise a standard of care in such management activity imposed by law or contractor . . . The status of being a fiduciary gives rise to certain legal incidents and obligations, including the prohibition against investing the money or property in investments which are speculative or otherwise imprudent.” Fiduciaries must put aside their own personal interests and should never use their position to better their own financial interests. For several years before the passage of Measure V, the district had worked with the construction manage- ment firm Del Terra, and based on relationships that had developed from that past work, the district chose Del Terra to be the fiduciary program manager responsible for guiding the district through its Measure V bond program. The district utilized no request for proposal (RFP) or formal process in selecting Del Terra. The best practice for selecting a program manager is to use the RFP process in selecting professionals for this type of scope of work. A copy of the April 21, 2015 agreement (2015 Agreement) with Del Terra is included as Appendix 1. As a contracted fiduciary, Del Terra agreed to perform services that were only in the best interests of the district. The district’s expectation was that Del Terra would prioritize student safety, spend bond funds efficiently, prepare for the long-term interests of the district, plan for the education programs, and upgrade district facilities to provide a safe and educationally superior program for the district’s students now and in the future. Del Terra contracted to provide both program management and construction management services. In all such contracts, program management services were built around Del Terra’s knowledge, expertise, and years of experience providing oversight and control over project documents, establishing program priori- ties, managing budgets, interfacing with state agencies, obtaining state funding, and guiding other school districts through districtwide campus renovations. Another arm of Del Terra, a construction management division, was contracted to manage subcontractors in various trades, schedules, and reports to state agencies, and to oversee the construction of projects. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 24 Findings A. Introduction — Background on School Facilities 2. Bond Process, District Process and Expectations Measure V is a Proposition 39 general obligation bond. Under Proposition 39, the Legislature decreased the supermajority voting requirement to impose real property taxes from two-thirds of voters to 55% of vot- ers.1 The legislative intent of Proposition 39 is set forth in Education Code Section 15264, which states: It is the intent of the Legislature that all of the following are realized: (a) Vigorous efforts are undertaken to ensure that the expenditure of bond measures, includ- ing those authorized pursuant to paragraph (3) of subdivision (b) of Section 1 of Article XIII A of the California Constitution, are in strict conformity with the law. (b) Taxpayers directly participate in the oversight of bond expenditures. (c) The members of the oversight committees appointed pursuant to this chapter promptly alert the public to any waste or improper expenditure of school construction bond money. (d) That unauthorized expenditures of school construction bond revenues are vigorously in- vestigated, prosecuted, and that the courts act swiftly to restrain any improper expenditures. The language of Proposition 39 outlined a legislative purpose under Education Code Section 15264, and FCMAT interprets that language as focusing on the propriety of expenditures and the hiring of knowledge- able and performance-driven vendors for a fair price. Proposition 39 required a citizens’ bond oversight committee, composed of members who represent differ- ent aspects of the public, to oversee the propriety of expenditures. To do this, the citizens’ bond oversight committee reviews various aspects of the bond program to enforce the desire of the Legislature that funds be properly expended. Legislative focus under Proposition 39 was on the abilities and effectiveness in the district’s managing and spending of bond funds. Although not stated explicitly, the Proposition 39 process anticipated that the typical hiring would be via an open request for proposal or public process to select a bond manager to ensure public participation and the subsequent creation of proper controls over expendi- tures. In the district’s case with Measure V, no request for proposal was undertaken. Del Terra was selected by the superintendent, Alex Rojas,2 and the contract was entered into on April 21, 2015. 3. Contract Responsibilities The 2015 agreement with Del Terra required a program manager with the “background, knowledge, expe- rience, licenses and expertise necessary to provide” advice and guidance on planning, programming, and construction. In addition, the 2015 agreement required the program manager to provide a comprehensive program and construction management services to oversee all construction (see Recital Section A, C and D and Article 1.3.1 of the 2015 agreement). This included project needs assessment, architect and engineer coordination, Division of the State Architect (DSA) coordination, and development of budgets and sched- ules. Del Terra agreed to provide written progress reports monthly, which included program status reports for each project, schedules, budget, and balances (see Article 2.1.1 and 2.1.2). 1 Under Proposition 13, passed in 1978, new taxes on real property required a two-thirds supermajority vote. See California Constitution Section 13 A (4). 2 Alex Rojas was hired as deputy superintendent for the district on April 1, 2014. He later became interim superintendent in May 2014 and then district superintendent in October 2014. Alex Rojas resigned on May 24, 2017. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 25 Findings A. Introduction — Background on School Facilities To ensure a quality construction product, Del Terra agreed to perform an evaluation of design documents for accuracy and completeness and advise the district on design costs, value engineering, materials and finishes, building systems, equipment, and methods of delivery (see Article 2.2.4). The terms of the 2015 agreement confirm that the district expected to hire a program manager knowledge- able in developing a comprehensive bond construction program and evaluating the needs of each district site. The contract terms show the district’s intent that Del Terra perform quality services, provide qualified personnel, provide an adequate number of personnel, and provide the vision to perform the work in a man- ner that is in the best interests of the district. 4. Division of the State Architect In 1933, Long Beach experienced a magnitude 6.3 earthquake, which devastated more than 230 school buildings in Southern California.3 Assemblyman Charles Field sponsored legislation that provided a com- prehensive system mandating a higher level of structural safety than found in the Uniform Building Code and created a state oversight process specific to public schools. This legislation is called the Field Act and created the Office of State Architect (now known as the Division of the State Architect), which is responsible to review, oversee, and approve all school construction in the state (Education Code Section 17280, and fol- lowing). The DSA supersedes oversight by all local building departments (Education Code Section 17295). The Field Act states the following in Education Code Section 17307: No contract for the construction or alteration of any school building, made or executed by the governing board of any school district . . . is valid, and no public money shall be paid for any work done under a contract or for any labor or materials furnished in constructing or altering any building, unless the plans, specifications, and estimates comply in every particular with the provisions of this article [the Field Act] and the requirements prescribed by the Depart- ment of General Services [DSA] …. [Brackets added by FCMAT, and emphasis added.] The DSA requires a series of reports from architects, engineers, and inspectors in which each attest to their personal knowledge that all aspects of construction meet the requirements of the Field Act (see Education Code Section 17309). Education Code Section 17312 states, “Any person who violates any of the provisions of this article [Field Act] or makes any false statements in any verified report or affidavit required pursuant to this article is guilty of a felony.” 5. Safety Concerns, AB 300 In 1999, the Legislature enacted AB 300, which required the DSA to create an inventory of school buildings that are potentially seismically unsafe (see Education Code Section 17317). In 2002, the DSA published the seismic safety inventory of school buildings statewide, pursuant to AB 300. Based on archived build- ing plans rather than field investigation, the AB 300 inventory concluded that over 7,000 schools required structural engineering analysis to determine if the structures could withstand seismic events. The AB 300 report placed school districts on notice that there may be seismic safety issues with school buildings on the list, which placed an obligation on the affected school districts to investigate. 3 As a result of the Long Beach earthquake of March 10, 1933, 230 school buildings were either destroyed, sustained major damage, or ren- dered unsafe to occupy. See The Field Act and Public School Construction: A 2007 Perspective. Alquist Seismic Safety Commission Report. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 26 Findings A. Introduction — Background on School Facilities 6. State Seismic Mitigation Program Funding Many school districts in the state performed seismic investigations of school buildings based on schools that were listed in the AB 300 report and applied for State Seismic Mitigation Program (SSMP) funding to repair buildings determined to be vulnerable to earthquakes. In 2006, the state set aside seismic mitigation funding, but program-related difficulties prevented many school districts from accessing the funding. In 2012, the state made changes to Sections 1859.82.2 and 1859.82.3 of the State Allocation Board regula- tions. In August 2015, the state published the Seismic Mitigation Program Handbook to help guide school districts through the state funding process for structures vulnerable to earthquake forces. DSA Procedure PR 08-03 was revised in 2016 and includes guidelines on the evaluation needed to determine if buildings are vulnerable to earthquakes. The reason the Legislature created the AB 300 report was to help identify seismically vulnerable structures so any unsafe school buildings could be identified and repaired. The SSMP was a companion program cre- ated to help fund half of the eligible expenses. However, more fundamentally, the law on design immunity under Government Code Section 830.6 creates an obligation for school districts to investigate potentially unsafe conditions and seek funding to repair the condition. The publication of the AB 300 report included buildings in the Bassett Unified School District and thus put the district on notice that a structural investi- gation was needed. In this case, not only did Del Terra have a contractual obligation, but since Del Terra was the agent and fiduciary of the district’s governing board, Del Terra had a heightened responsibility and affirmative duty to investigate the safety of the buildings at the district and address this basic safety issue as part of the bond program. The safety of students is one of the most basic responsibilities of the district and of a bond manager en- trusted with responsibility to determine priorities for expenditures under a bond program. Thus, after Mea- sure V was passed, as part of the prioritization and investigation of district’s projects, Del Terra should have reviewed whether any of the district’s buildings had safety issues that required remediation. All available evidence points to Del Terra failing to address seismic safety. The following district buildings are listed in the AB 300 report with their respective building, unit, and class- room numbers: 1. Don Julian Elementary School Buildings 1, 2, 3 & 4. 2. Edgewood Academy Buildings 1, 2, 3, 4, C-5(5), H(6), K(7) and 7(8) 3. Thomas Erwin Adult Education Facility Buildings 1, 2, 3, 4, 5, K(6) 4. J.E. Van Wig Elementary School Building G(1), C(2), D(3), A(4), H(5), B(6), I(7) 5. Sunkist Elementary School Building 2, 3, 4, 5 6. Torch Middle School Building B(2), 3, C(4), D(5), E(6), H(7), and Building 1 7. Bassett High School Adult School 8. Bassett High School Buildings 1, 2, 3, 4, 5, 6, Unit II(7), Unit III(8), Unit IV(9), 10, Unit 1(11), IX(1), 2, 3 A copy of the entire AB 300 list is included in Appendix 73. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 27 Findings A. Introduction — Background on School Facilities Del Terra’s Vision Del Terra presented its vision for the district’s Measure V construction program focusing on safety. Repro- duced below are two pages from Del Terra’s Facilities Master Plan dated February 18, 2016. Appendix 72b: Del Terra Facilities Master Plan (2/18/16). Highlighting added by FCMAT. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 28 Findings A. Introduction — Background on School Facilities Appendix 72b: Del Terra Facilities Master Plan (2/18/16). Highlighting added by FCMAT. The No. 1 priority listed on Del Terra’s Facilities Master Plan shown above was to evaluate the structural safety of district schools on the AB 300 list. In addition, the Facilities Master Plan Del Terra presented to the district included reports that addressed critical infrastructure upgrades involving major utilities, mechanical systems, electrical systems, Americans with Disabilities Act (ADA) upgrades, and multiple other infrastructure related upgrades throughout the district. Life Safety Work Also included as a first priority in Del Terra’s Facilities Master Plan and the above list at Appendix 72b was to upgrade fire alarms. This is a first priority because California Fire Code (CFC) Section 901.7 and 19 California Code of Regulations Section 1.14 require fire detection and alarm systems, fire hydrant systems, extinguishing systems, mechanical smoke exhaust systems, and smoke and heat vents to be operative at all times. Article 1.2.4 of DSA GL-2 requires installation of fire alarms on all new and alteration projects that exceed $200,000. Currently, the DSA requires nearly all school projects (with a very small number of exceptions) submitted for review to receive upgraded fire alarms as part of the basic infrastructure upgrade, regardless of the size or type of project. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 29 Findings A. Introduction — Background on School Facilities Americans with Disabilities Act Compliance On the list of Facilities Master Plan priorities, Del Terra also included compliance with the ADA as a first priority. A violation of the ADA is included as a civil rights violation under Civil Code Section 54. This means that failure to implement ADA requirements subjects the district to treble damages, or $1,000 if no damag- es are sustained (Civil Code Section 54.3). In addition, an aggrieved claimant is entitled to injunctive relief and attorney’s fees to mandate upgrades for ADA requirements. As a result, the DSA has taken the position that any project that requires ADA upgrades under Chapter 11B of the California Building Code Section 11B- 202.4 requires upgrades to the path of travel to all project areas. Requirements for an accessible path of travel under 11B-202.4 include the following: • A primary entrance to the building or facility, • Toilet and bathing facilities serving the area, and • Drinking fountains serving the area. As with fire and life safety, the DSA requires nearly all schools (with a very small number of exceptions) submitted for review to include upgraded ADA compliance as a part of the basic infrastructure upgrades for all alterations, additions or renovations, regardless of size or type of project. Del Terra’s Approach Although Del Terra’s Facilities Master Plan placed “safety of students and staff” as its first priority, the proj- ects worked under the 2015 agreement were not infrastructure-, seismic- or safety-related. The first project was a 21st century classroom project for grades 6-12, for $4,355,630 (see Invoice 36380-01 in Appendix 9), which included new carpet, paint, installation of flat screen televisions, and purchasing new furniture for the junior high and high school. This project was followed by a 21st century classroom project for TK-5 for $5,045,758 (see Invoice 36382 in Appendix 33). With just these two 21st century classroom projects, which total $9,401,388, approximately one-third of the $30 million Measure V Bond was already encumbered and expended. The improvements planned under the 21st century schools projects did not address any infrastructure improvements, fire or life safety, AB 300 seismic review, or the structural reports dated July 2014 and included in the Facilities Master Plan. The remainder of the Measure V program under the 2015 agreement, and later under the 2019 agreement, ignored the top priority items. In fact, as described later in section B7 and C10, the 21st century classroom projects may have made safety conditions worse in class- rooms by not following DSA procedures. By committing one third of the Measure V funds to cosmetic projects, based on the records available to FCMAT, Del Terra did two things. First, Del Terra had the district commit funds to improve the inside of buildings that were likely to require extensive structural upgrades, or perhaps even replacement.4 Second, the commitment of funds reduced the amount of funding available to match SSMP funds that could have been requested upon completion of structural evaluations required under California Code of Regulations Title 2, Section 1859.82.3. A more detailed discussion of the commitment of funds to 21st century schools is in Section B of this report, and further discussion of DSA responsibilities is in Section F of this report. 4 Under both state funding requirements and DSA Policy EB3 applicable in 2015 through 2019, if the repair cost for building rehabilitation for structural, life safety, and ADA exceeds 50% of the replacement cost, then the state recommends replacement of the structure and funds will be calculated based only on replacement costs. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 30 Findings A. Introduction — Background on School Facilities Failure to Close Out Previous Projects with DSA Prevented New Projects To initiate infrastructure or seismic improvements, compliance with the Field Act and submission of plans to the DSA is required. The Field Act provides at Education Code Section 17307: No contract for the construction or alteration of any school building, made or executed by the governing board of any school district . . . is valid, and no public money shall be paid for any work done under a contract or for any labor or materials furnished in constructing or altering any building, unless the plans, specifications, and estimates comply in every particular with the provisions of this article [the Field Act] and the requirements prescribed by the Depart- ment of General Services [DSA] …. [Brackets are added by FCMAT, and emphasis added.] However, the DSA has a policy that prevents initiating new DSA projects if older projects have not been closed and certified by the DSA (see DSA Interpretation of Regulations (IR) A-20 and Section C of this re- port). When Del Terra entered into the 2015 agreement as program manager and construction manager for the Measure V bond program, every school had open projects (see Section C.5-C.7 of this report). Beyond Del Terra’s responsibility to close out DSA projects under the 2015 agreement, Del Terra also had obligations to perform DSA close out under several other agreements as follows: 1. 2013 amendment payment of $240,000 (with a $60,000 additional payment for extended duration) (see Appendix 20 for invoice 36240-16 dated 5/1/2014 for a total of $300,000 and discussion in Section C.3 of this report). 2. 2014 amendment payment of $460,000 (with $10,000 in reimbursables for a total of $470,000) (see Appendix 23 for invoice 36245-13 dated May 1, 2015 and discussion in Section C.4 of this report). 3. Additional services invoice 362240-01 for closeout for $64,500 (see Appendix 25 for invoice 362240-01 dated June 1, 2016 and discussion in Section C.5 of this report). 4. 2019 agreement closeout service for $23,265 (see discussion in Section C.7 of this report and Appendix 28, Exhibit B). Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 31 Findings A. Introduction — Background on School Facilities The available records indicate Del Terra did not close out all district projects, leaving six uncertified proj- ects (see discussion in Section C.8 of this report). By undertaking projects without DSA review, Del Terra may have violated Education Code Section 17307, including the possibility of inappropriate expenditure of public funds. This undocumented work resulted in the DSA issuing stop work orders on February 24, 2021 and its March 2, 2021 email (see Appendices 32 and 68). Failure to Complete Program as Promised Under 2015 Agreement Although the 2015 agreement required Del Terra to create a comprehensive program (Recital D), and the agreement “shall end when the District has issued notices of completion for all Campus Projects and all Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 32 Findings A. Introduction — Background on School Facilities punchlist items for the Campus Projects have been completed . . .” (Article 4.4.1), Del Terra discontinued working on the 2015 agreement on April 21, 2018, exactly three years after the 2015 agreement was en- tered into. At the time that Del Terra declared the 2015 agreement completed, Del Terra had been paid a program management fee of 4% based on the $30 million Measure V bond ($30,000,000 x 4% = $1.2 million), but the district had only expended the following sums: 1. 21st century classrooms 6-12 with a total cost of $4,355,630 2. 21st century classrooms TK-5 with a total cost of $5,045,758 3. Development of a child development center with a total cost of $3,591,965 4. Bassett High School (BHS) two classroom project, $324,854, and BHS cabling project, $88,511, with a total submitted cost of $413,365 According to the records at the district of Del Terra’s accounting, these projects totaled $13,406,718. Soft costs for Del Terra were $4,687,994 (see Appendix 71). This left at least a value of $11,905,288 ($30,000,000 - $13,406,718 - $4,687,994) in services that Del Terra did not provide under the 2015 agree- ment. Del Terra did not undertake any of the priority projects except technology under their Facilities Master Plan dated February 18, 2016 (see Appendix 72b). Del Terra had a list of promised projects at Bassett High School in a 2015 list of projects (see list from Ap- pendix 2), but during the 36 months of the 2015 agreement, Del Terra did not perform any measurable work on any Bassett High School project on the 2015 list of projects (see more detailed discussion in Sections E.7 and E.8 of this report). Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 33 Findings A. Introduction — Background on School Facilities Del Terra’s Timeline at the District It is helpful to break down events into categories to follow the findings of this report. The timeline below lays out the sequence from three perspectives: contracts, invoices, and personnel. These perspectives are described below by year. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 34 Findings A. Introduction — Background on School Facilities Appendix 0: Del Terra’s Timeline. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 35 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects As addressed more comprehensively in Section A of this report, the voters in the Bassett Unified School District approved the $30 million Measure V general obligation bond on November 4, 2014. Measure V’s purpose was to provide funds for upgrading classrooms and other facilities and to improve safety, infra- structure, and access to technology among the district’s seven K-12 schools and one adult school. To lead this effort, the district contracted with Del Terra to act as program manager and construction manager on April 21, 2015. Among the services Del Terra was asked to provide under Exhibit C of the 2015 agreement was “Develop [an] Initial Program Plan” at a cost not to exceed $85,000. Del Terra was to create a list of projects under the 2015 Agreement in accordance with Article 1.2.1 of that document.5 Subsequently, Del Terra prepared a schedule and identified seven projects to form the program under the 2015 agreement (2015 program list): 1. 21st Century Classrooms 6-12 2. 21st Century Classrooms TK-5 3. BHS: New Snack Bar 4. BHS: New Courtyard 5. BHS: Little Theatre 6. BHS: Main Entrance 7. BHS: Swimming Pool Remodel6 Del Terra’s Bond Program, Measure V Proposed Projected Construction Timeline listing the above seven projects is shown in Appendix 2. Under the 2015 agreement, Del Terra was to be compensated for the work it performed on the projects identified in the 2015 program list with a program manager fee of 4% of the full bond program value. Del Terra was also to receive a construction management fee of 9.9% of construction funds expended. Below is a copy of Exhibit C of the 2015 agreement, which provides for the $85,000 fee7 to “Develop Initial Program Plan,” and which contains the program management and construction management fee provisions: 5 Article 1.2.1 of the 2015 agreement states: “Campus Projects. District shall, with the input from Manager, develop the list of all Campus Projects to be included in the Bond Program . . .” 6 As addressed in Section E of this report, other than some work on the BHS new snack bar, no work was performed on projects 4, 5, 6 or 7 until after Del Terra declared that the 2015 agreement funds were exhausted. Del Terra subsequently stopped work on district projects on April 21, 2018, and requested a new contract and additional funds, three years after the 2015 agreement was entered into. 7 This $85,000 extra to develop initial program plan is paid out of the $30 million bond of which 4% is paid to Del Terra. Thus, Del Terra receives 4% of this $85,000 extra or $3,400. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 36 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects Appendix 1: Exhibit C, 2015 agreement (4/21/15), Page 39. Highlighting added by FCMAT. Del Terra’s first two projects as the project manager under the 2015 agreement were called 21st Century Classrooms TK-5 and 21st Century Classrooms 6-12. The names appear to match the intent of the bond: to improve student access to modern technology, improve infrastructure and safety, and upgrade classrooms. However, based on the information available to FCMAT, and because Del Terra would not cooperate with the audit, the only available district information indicates the 21st century classrooms project mainly in- volved carpeting, new furniture, some asbestos abatement, paint, and installation of flat screen TVs. Del Terra’s 21st century classrooms projects resulted in the expenditure (excluding payments to Del Terra) of $9,401,3888, approximately one-third of Measure V funds, on nonconstruction items such as furniture, carpeting, and flat screen TVs. In addition, the construction aspects of the two 21st century classrooms projects were not submitted to the DSA for review or approval9. Records could not be found showing that Del Terra performed any evaluation of the seismic safety addressed in 2016 Master Plan, ADA, fire alarm, or underlying infrastructure of the school buildings at the district before proceeding with the 21st century classrooms projects. 8 Backup information and background on these expenditures are provided later in Section B.6 of this report. However, Del Terra budgeted construction costs for the 21st Century Classrooms 6-12 project of $4,355,630 and the 21st Century Classrooms TK-5 project of $5,045,758, for a total of $9,401,388. For construction management fees, Del Terra billed $431,207 on the 21st Century Classrooms 6-12 project and $499,530 on the 21st Century TK-5 project.. 9 See discussion in Section C.9 of this Report addressing how DSA issued a notice of violation and addressed Del Terra’s failure to submit all but one project to DSA between 2015 and 2020. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 37 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects 1. Additional Services Invoice for Reprogramming and Re-Planning Services — 21st Century TK-5 Project On September 15, 2016, during the construction of both the 21st Century TK-5 and the 21st Century 6-12 projects, Del Terra invoiced the district for $230,000 for additional services of reprogramming and replan- ning the 21st Century TK-5 project. A copy of the additional services invoice is shown below: Appendix 51: Additional Services Invoice 36382 for $230,000 (9/15/16). Highlighting and red comment box added by FCMAT. Del Terra’s Initial Program Plan under the 2015 agreement included program management services for the 21st Century Classrooms TK-5 and 21st Century Classrooms 6-12 projects. The contracted program man- agement responsibilities (discussed more fully below) included planning and coordinating the seven initial program projects of the 2015 program list. Thus, it is unclear why reprogramming or replanning of the two 21st century classrooms projects was submitted as an additional service. It is also unclear what services the additional $230,000 was intended to pay for and thus how those services may or may not have differed from Del Terra’s original contracted planning responsibilities as a program manager and the $85,000 extra received for developing an initial program plan as addressed above. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 38 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects Based on the vague description and lack of supporting documentation, it does not appear the $230,000 was a valid district expenditure.10 2. Program Management Fees as Related to the 2015 Agreement For context, when Del Terra presented its request for the reprogramming services for the 21st Century TK-5 project, Del Terra was being compensated for program management services in an amount equal to 4% of the entire value of Measure V (4% x $30 million = $1.2 million). This $1.2 million for program management was divided into 36 payments of $33,333. A retention of 5% was withheld from the $33,333 each month; thus, Del Terra received $31,666 each month for program management services for the seven 2015 pro- gram list projects, including the two 21st century classrooms projects.11 The scope of program management services is outlined in Article 2.1.1 of the 2015 agreement as follows: Appendix 1: 2015 Agreement, Page 11 (4/21/15). Highlighting added by FCMAT. Del Terra’s scope of services included reviewing designs and preparing bid documents under Article 2.3 of the 2015 agreement. Appendix 1: 2015 agreement, Page 13 (4/21/15). Highlighting added by FCMAT. In this instance, 4% of the 21st Century Classrooms TK-5 cost of $5,045,758 is $201,830. This $201,830 is a component of the total program management fee of $1.2 million described above. 10 It appears that $230,000 is 4% of an anticipated cumulative total of the two 21st century schools’ projects. $230,000 is 4% of $5,750,000. Since Del Terra was paid monthly a cumulative total of 4% of $30 million, it appears this $230,000 may be a double payment of the 4% fee. 11 It is not clear how Del Terra addressed the “priority one” projects under the 2016 Master Plan. Other than the 2016 special board meeting held on February 18, 2016, there are no references to work shown in Del Terra-related expenditures for structural evaluation of AB 300 seismic vulner- abilities, upgrade of fire alarms, or district-wide ADA upgrades. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 39 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects An example of a Del Terra program management invoice submitted during the same time period as the requested $230,000 reprogramming extra of September 2016 is shown below: Appendix 4: Program Management Services Invoice 36250-16 (for September 1-30, 2016), 10/6/16. Highlighting added by FCMAT. The $230,000 invoice for reprogramming and replanning for the 21st Century Classrooms TK-5 project appears to duplicate services Del Terra provided under the 2015 agreement for a fee of at least $201,830 based on 4% of the Measure V project allotment of $5,045,758. In addition to the program management fee, Del Terra was concurrently receiving construction management fees totaling 9.9% of all construction costs. It is difficult to distinguish the labor that was being expended toward program management hours and construction management hours under the 2015 agreement from the undocumented reprogramming hours that were invoiced on an hourly basis as additional services under Article 4.3.1 of the 2015 agree- ment. FCMAT was not provided, nor could there be found, any detail, backup, or other information supporting the time or expenditures for a monthly invoice, net of retention, of $31,666 or why program management fees were paid over a 36-month period. 3. 2015 Agreement Requirements for Additional Services Under the 2015 agreement, Article 4.3.1 defines Additional Services as follows: Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 40 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects Appendix 1: 2015 agreement, Page 20 (4/21/15). Highlighting added by FCMAT. There is no record that FCMAT was provided or could find of any written or oral direction provided to Del Terra by the district, or any discussion of why the 21st Century Classrooms TK-5 project required addition- al reprogramming services or how they were distinguishable from the $31,666 program management fee being paid monthly. Similarly, even though the reprogramming invoice description states the extra work was “directed by Superintendent,” there is no record available of any approval by the superintendent or submission of the request to the district’s governing board. In addition, it does not appear that Del Terra ex- plained why the requested additional amount represented actual additional services, or why those services required additional manpower, provided value to the district, or were reasonably related to unanticipated work needed for the project. Article 4.3.2 of the 2015 agreement provides two options for compensating additional services as follows: Appendix 1: 2015 agreement, Page 20 (4/21/15). Highlighting added by FCMAT. Thus, compensation may be based on established hourly rates and documentation of time spent, or the parties may determine a “mutually agreed upon Fee amount.” The extra fee cannot exceed the value of the additional service provided or it would constitute a gift of public funds. A review of the $230,000 invoice for additional services (reproduced again below) shows that the addition- al reprogramming and replanning services were to be charged at “hourly rates,” and not to exceed a total of $230,000: Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 41 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects Appendix 3: Additional Services Invoice 36382 for $230,000 (9/15/16). Highlighting added by FCMAT. Although Del Terra’s invoice stated that the additional services were to be invoiced based on hourly rates, they were nonetheless billed as a lump sum for the maximum allowable amount of $230,000. Superinten- dent Alex Rojas signed the invoice as “All items Received/Services Rendered” and approved the $230,000 payment that was issued on November 28, 2016, as shown below. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 42 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects Appendix 5: Warrant 23412923 for $230,000 (11/28/16). Highlighting and red comment box added by FCMAT. The invoice shows no attempt to quantify or justify the hours spent on the additional services. Even if the highest hourly rate of $210 from the 2015 agreement is used, $230,000 extra would have required 1,095 hours12 ($230,000 / $210 per hour) of work from Del Terra. Because there are no time records, work prod- 12 See Section G of report addressing the manpower provided by Del Terra to the district. Given the manpower identified, there are no records of additional people assigned to the project other than the individuals addressed in Section G of this report. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 43 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects uct, or other available documentation showing time was spent on reprogramming, there appears to be no underlying basis for the approval from former superintendent Alex Rojas to justify stamping that the ser- vices were rendered. A second example of the lack of documentation that was provided with the Del Terra invoice for the ad- ditional services is provided below in invoice No. 36250-17 without description of the type of progress and services provided. In the October 2016 billing period, Del Terra simply submitted another invoice, No. 36250-17, sequentially numbered for the next billing period, and the district paid it. Appendix 6: Program Management Monthly Invoice 36250-17 for October 1-31, 2016 (11/2/16). Highlighting added by FCMAT. The scant documentation supporting the additional services payment leaves two questions unresolved. First, what programming or planning was not contemplated in the 4% program manager fee that was being paid concurrently for the 21st century classrooms TK-5 and 6-12 projects? Second, if the reprogramming fee Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 44 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects of $230,000 was an additional service and due for the 21st Century Classrooms TK-5 Project, what was the regular fee of $31,666 per month paying for?13 (See Section E of this report for additional information.) 4. Amendment to the 2009 Agreement – $300,000 Demonstration Project Mockup On August 5, 2014, before the passage of Measure V and eight months before entering into the agreement dated April 21, 2015, the district’s governing board agreed to pay Del Terra to “modify 3 existing individual classrooms into Technology based Demonstration classrooms” through an amendment to its 2009 agree- ment with Del Terra. This August 5, 2014 document was called the Fourth Amendment to Construction Management Agreement (hereinafter referred to as the fourth amendment to the 2009 agreement). The work is referred to in a future additional services request as a mockup classroom. A copy of the fourth amendment to 2009 agreement is shown below: 13 The original planned Bassett High School projects were not undertaken. There were two projects (Child Development Center Modernization project at Florence E. Flanner Elementary School and BHS cabling project) that replaced the Bassett High School Projects in the original 2015 program list. See Section E of this report. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 45 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects Appendix 7: Fourth Amendment to 2009 agreement, Page 1 (8/5/14). Highlighting added by FCMAT. Page 2 of the fourth amendment to the 2009 agreement has a board approval date of August 5, 2014 and is shown below: Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 46 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects Appendix 7: Fourth amendment to 2009 agreement, Page 2 (8/5/14). Highlighting and red oval added by FCMAT. Page 3 of the fourth amendment to the 2009 agreement includes the scope of work for Bassett High School and is shown below: Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 47 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects Appendix 7: Fourth amendment to 2009 agreement, Page 3 (8/5/14). Highlighting added by FCMAT. The work for each classroom in the 21st century classrooms projects is similar to that performed on the three demonstration classrooms under the fourth amendment to the 2009 agreement. All involved paint, furniture, carpeting, and installation of flat screen TVs in classrooms. Del Terra’s ability to create the three Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 48 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects mockup classrooms a year before the 21st century classrooms projects shows that Del Terra had already planned out the basic 21st century classroom.14 Although the three demonstration classrooms appear to be the basis for the 21st century classrooms projects, Del Terra worded the invoice for the $230,000 in additional services for “reprogramming and replanning” in a manner that suggested the need for different classroom configurations, and thus gave the appearance of a legitimate service. Del Terra’s invoice provided the following description of the scope of reprogramming work: Appendix 33: Additional services Invoice 36382, Page 2 (9/15/16) and Check No. 23412923 for $230,000 (check not shown here). Del Terra submitted its invoice for $230,000 for additional services on September 15, 2016, more than a year after its July 1, 2015 submission of its $85,000 Invoice 36255-01 for developing the 2015 program list, which included the two 21st century classrooms projects. Thus the two 21st century classrooms projects were already established as part of the 2015 program list before the $230,000 additional services invoices, and all work should have been considered base contract work under the 2015 agreement. A review of the district’s 21st Century Classrooms TK-5 project records shows that the work involving construction, carpeting, furniture, and flat screen TVs was largely completed in August of 2016. The first invoice, No. 36381-01, was issued on June 8, 2016, and the last invoice, No. 36381-05, was issued on Octo- ber 5, 2016. Those invoices largely predate the September 15, 2016 additional services invoice for “repro- gramming and replanning.” With the work on the 21st Century Classrooms TK-5 project mostly complete by August 2016, it is unclear why subsequent additional programming was necessary. 14 The work addressed in the Fourth Amendment to the 2009 Agreement is a multiprime project for $300,000 in services. Del Terra’s fee is embedded in the $300,000 contract amount. Based on the breakdown accompanying Del Terra’s proposal, after subtracting hard costs, the Del Terra fee was increased by up to $58,188 (Bassett High School $85,884 + Don Julian Elementary School $80,214 + Edgewood Academy $75,514 = $241,612. $300,000 - $241,612 = $58,388). The fee increase could vary based on how much was spent on the demonstration classroom exceeding the budgeted numbers. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 49 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects 5. Del Terra Tried to Justify Additional Charges, Claiming Savings of Architect Fees The scant justification for the $230,000 in additional fees includes Del Terra’s implicit claim that the ex- tra services kept the district from incurring additional architect fees. The narrative provided in Del Terra’s $230,000 additional services invoice, No. 36382, is shown below: Appendix 33: Additional services Invoice 36382, Page 2 (9/15/16). Highlighting added by FCMAT. Del Terra’s statement defies logic since there is no apparent basis for charging design or construction man- agement fees for placement of furniture, carpeting, and purchase of flat screen TVs. That is work that most district maintenance departments perform on their own.15 The primary reason for hiring a specialist or an outside consultant is to obtain their expertise in evaluating safety, negotiating with state agencies such as the DSA, complying with competitive bidding rules, evaluating needed infrastructure upgrades, and helping the district prioritize the Measure V program. Del Terra’s justification for $230,000 for additional “reprogramming” services rings hollow because very lit- tle special expertise is required to procure TVs, carpeting, and furniture.16 The review and layout of furniture and location of TVs does not require time-consuming calculations, design services, DSA approvals, DSA corrections, or any of the other time-consuming elements that ordinarily would be included in reprogram- ming something previously designed. To be clear, an architect or, more specifically, a structural engineer was required to provide a certification to DSA that no structural design was necessary for the mounting of TVs if this was considered a project exempt from DSA review under IR-22 (projects under $100,000 adjust- ed annually). Since the 21st century schools exceeded the thresholds under IR-22 they were not exempt projects, and an architect and structural engineer were required to submit plans to DSA. The substitution of licensed design/engineering professionals with Del Terra may have cost the district more, necessitated a stop work notice by DSA, and subjected students and staff to unsafe conditions. This is primarily directing vendors to mount a TV set, install wiring, and place furniture. It is not clear how 1,095 hours or more were spent as an additional service or why this service was in addition to typical program management responsi- bilities. As a direct result of Del Terra’s failure to undertake the 21st century schools projects with an architect or structural engineer, DSA issued stop work orders for Edgewood Academy, Sunkist Elementary School, J.E. Van Wig Elementary School, and Bassett High School. This is discussed further in section F.1. 15 District maintenance departments will sometimes contract with an architect to determine mounting for flat screen TVs. 16 While Del Terra did not hire an architect and did not submit the 21st century schools projects to DSA, Del Terra was required to obtain a structural engineer opinion under DSA IR A-22 (Appendix 65) from a California registered structural engineer certifying the work did not contain any structural work. See Article 1.3.2.2.1 of Appendix 65. In this case, the installation of TV mounts is considered structural work that requires DSA review and approval, and the DSA application must be prepared by an architect or engineer. Refer to Section C.9 of this report concerning DSA site investigation and subsequent DSA notices issued on February 24, 2021 and March 2, 2021 that flat screen TV mounts were required to be submitted to the DSA. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 50 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects 6. Del Terra Not Entitled to Charge Construction Management Fees for Furniture, Fixtures, or Equipment Under 2015 Agreement Exhibit C of the 2015 agreement states that the construction management services fee is 9.90% of “actual construction cost.” Because carpeting, furniture and purchasing flat screen TVs do not constitute construc- tion under the 2015 agreement, Del Terra should not have charged 9.9% for construction management fees on these items. Below is Invoice No. 36381-06, one of Del Terra’s invoices for construction management services on the 21st Century Classrooms TK-5 project, in which ALL project costs are included in the calcu- lation of construction management fees (9.9% x $5,045,758 = $499,530). Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 51 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects Appendix 8: 21st Century TK-5 Construction Management Services Invoice 36381-06 (6/2/17). Similarly, below is a Del Terra invoice for the 21st Century Classrooms 6-12 project, with a 9.9% fee applied to the entire cost of $4,355,630 (9.9% x $4,355,630 = $431,207). The 21st Century 6-12 project invoice, No. 36380-01, is shown below: Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 52 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects Appendix 9 and 12: 21st Century 6-12 Invoice 36380-1 Construction Management Services, Page 1 (9/1/15). Highlighting added by FCMAT. Of the $9,401,388 in total costs for both projects, the district’s accounting records show only $1,735,500 was for construction services; all other charges were for equipment, furniture, or flat screen TVs. Neverthe- less, Del Terra charged a construction management fee based on the projects’ total cost.17 17 ($5,045,758 for the TK-5 project + $4,355,630 for the 6-12 project = $9,401,388). Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 53 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects Exhibit C of the 2015 agreement provides that the construction management fee will be 9.9% of construc- tion costs, and the language of the contract at Article 1.1.20 and 1.1.48 specifically excludes “fixtures, furni- ture and equipment” from “construction costs.” Article 1.1.20 of the 2015 agreement defines construction costs as follows: 1.1.20 Construction Costs. The total cost of constructing a Campus Project, excluding the following: i) the cost of professional services to be rendered by Design Consultants, Specialty Consultants, or Manager; (ii) land acquisition costs; (iii) finance costs; (iv) District’s administra- tive costs; and (v) legal fees and related legal costs. This definition does not include furniture, fixtures or equipment.18 The only items (other than an embedded construction cost for mounting of flat screen TVs)19 that would be eligible as construction costs were as- bestos abatement, paint, and contractor-related construction costs. The total expenditure for construction costs on both 21st century classrooms projects was as follows: Although the total construction costs for all 21st century classrooms projects set forth above equaled $1,735,500, Del Terra charged construction management fees of 9.9% on $5,045,75820 for the 21st Centu- ry Classrooms TK-5 project and 9.9% on $4,355,63021 for the 21st Century Classrooms 6-12 project. Thus, 18 The program manager fee is tied to project costs (2015 agreement section 1.1.48), not construction costs. The construction manager fee is tied only to construction costs (2015 agreement section 1.1.20). 19 The mounting of flat screen TVs may be considered a construction cost. However, the invoices from the vendor who mounted the TVs do not have a separate breakdown for the costs of mounting. 20 $5,045,758 is the Del Terra budget amount for the 21st Century TK-5 Project. 21 $4,355,630 is the Del Terra budget amount for the 21st Century 6-12 Project. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 54 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects instead of applying 9.9% to $9,401,388 and collecting $930,737.41 in construction management fees,22 Del Terra should have excluded furniture and flat screen TVs from construction costs in accordance with the 2015 agreement and instead collected 9.9% on the $1,735,500 in actual construction costs or $171,814.50. This is an overcharge of $758,922.91 ($930,737.41 – $171,814.50 = $758,922.91).23 7. Del Terra Charged for Construction Management Services That Duplicated Digital Networks A review of documents for underlying vendor contract charges on all 21st century classrooms projects revealed entries for services that seem to duplicate the construction management services charged by Del Terra. The vendor that supplied and mounted the flat screen TVs for both 21st century classrooms proj- ects was Digital Networks. The invoices from Digital Networks include charges for “Professional Services,” duplicating the construction management services for which the district is paying Del Terra at 9.9%. Digital Networks’ professional services fees are sometimes broken down using the term “Project Management.” Other Digital Networks invoices break down the professional services charge into other categories, as listed below: 1. Systems Commissioning 2. Project Management 3. General Consulting Engineering 4. CAD/Programming 5. On-Site Tech Support Below is a representative example of a Digital Networks Invoice No. 14362, which provides a breakdown of professional services: 22 $9,401,388 is the sum of the budgets for both the 21st Century TK-5 Project and the 21st Century 6-12 Project. ($5,045,758 for the TK-5 proj- ect + $4,355,630 for the 6-12 project = $9,401,388). 23 Note that a cost for installation of flat screen TVs was not added to this total due to lack of accuracy of the TV installation numbers. ($9,401,388 - $1,735,500 = $7,665,888 x 9.9% = $758,922.91) Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 55 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects Appendix 10: Digital Networks Invoice 14362 (8/3/16). Highlighting added by FCMAT. A full accounting for the Digital Networks project management and engineering fees is included as Appen- dix 11. The accounting in Appendix 11, also shown below, includes a 13.56% ($341,808 / $2,519,849.43) mark- up for professional services on the cost of all equipment supplied and installed by Digital Networks. The breakdown below is an accounting taken from district records of invoices and payments made to Digital Networks. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 56 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects Appendix 11: Accounting of district payments to Digital Networks, prepared by FCMAT. As outlined earlier, the district paid Del Terra 4% for program management services, 9.9% for construction management services, and $230,000 for reprogramming services. Article 1.6 of the 2015 agreement states, “Manager shall not separately invoice fees for services rendered by Subconsultants.” Thus, the Digital Networks professional service invoice amounts for planning, designing, and mounting flat screen TVs du- plicates both program management and construction management fees being paid to Del Terra, as well as the fees Del Terra charged for reprogramming services addressed in Section B.1 of this report. As a result, if Digital Networks actually performed the design and planning for mounting flat screen TVs and the district paid for this service, under Article 1.6, Del Terra should not have been compensated for program manage- ment or construction management services that were provided by Digital Networks. There is no record that Del Terra notified the district that Digital Networks would be charging professional fees to manage the project of siting, designing and mounting the flat screen TVs as required under Article 1.6 of the 2015 agreement. The 13.56% professional services fee charged by Digital Networks as outlined in Appendix 11 and shown above therefore seems to duplicate the 13.90%24 charged by Del Terra for com- bined program management and construction management services. There is also a Digital Networks charge for engineering services, which presumably includes designs and calculations for the mounting brackets. As addressed in Sections C.9 and F of this report, engineering calculations, including structural calculations, require DSA review and approval. In addition, the DSA has a policy that requires the architect or engineer of record to review, counter-stamp, and provide a statement of 24 Under Exhibit C to the 2015 agreement, the total consolidated program management and construction management fee is 13.9% (4% program management fee + 9.9% construction management fee = 13.9%). Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 57 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects responsibility for designs prepared by vendors under DSA IR A-18.25 There are no available records ad- dressing how Del Terra complied with this policy requiring structural review of the bracket mounts for the flat screen TVs installed at the 21st century classrooms projects. As addressed in Section B.4 of this report, Del Terra’s invoicing indicates no architect or structural engineer was hired to oversee DSA compliance or to address the IR A-18 responsibilities. 8. Issues with 21st Century Classrooms 6-12 Project Costs and Invoicing There are several problems with the invoicing for the 21st Century Classrooms 6-12 project. Invoice No. 36380-01 was issued on September 1, 2015, seeking a total construction management fee of $431,207.26 25 IR A-18 has been in existence since February 1, 2008. Copies of IR A-18 from 2009 and 2020 are included in Appendix 78. 26 Please note that while 9.9% of the budgeted cost is $496,483, Del Terra’s invoice 36380-01 seeks payment of $431,207, ($4,355,630 x 9.9%) which is based on a reduced construction budget of $4,355,630 rather than the $5,014,981 original budget. Handwritten notes appear to be district accounting department notes indicating that the original invoice is missing. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 58 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects Appendix 9: 21st Century 6-12 Invoice 36380-1 for construction management services, Page 1 (9/1/15). Highlighting added by FCMAT. This invoice was approved by the district’s former superintendent Alex Rojas with the notation “All Items Received/Services Rendered.” Payment was issued on October 1, 2015. The second page of this invoice shows a $4,355,629.89 summary of costs, which is used for calculating the $431,207 construction manage- ment fee ($4,355,630 x 9.9% = $431,207). Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 59 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects Appendix 9: 21st Century 6-12 Invoice 36380-1 for construction management services, Page 2 (9/1/15). Highlighting and red oval added by FCMAT. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 60 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects The breakdown of the budget on pages 3 and 4 of this invoice shows that many of the costs are taken from quotes and proposals. Below is Page 3 of the invoice: Appendix 9: 21st Century 6-12 Invoice 36380-1 for construction management services, Page 3 (9/1/15). Highlighting and red oval added by FCMAT. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 61 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects Page 4 of Invoice No. 36380-01 also shows the price is assembled from several quotes: Appendix 9: 21st Century 6-12 Invoice 36380-1 for construction management services, Page 4 (9/1/15). Highlighting and red oval added by FCMAT. FCMAT performed a more detailed review of the district’s accounting records for two of the vendors that appear on the invoice. The vendor who provided the furniture was Culver Newlin, and the vendor who provided and installed the flat screen TVs was Digital Networks. The district’s accounting records show that although Invoice No. 36380-01 was submitted to the district on September 1, 2015, and paid on October 1, 2015, most of the work on the invoice occurred in 2016 through 2018 (see payment shown below issued to Del Terra dated October 1, 2015, Check No. 22436758 for $431,207, paying invoice number 36380-01). Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 62 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects Appendix 12: Warrant 22436758, payment of $431,207 (10/1/15) for Invoice 36380-01. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 63 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects The accounting below is from the district’s records on Digital Networks’ invoices and is for work that oc- curred in 2016 through 2018: Appendix 13: Accounting records based on district records of payment to Digital Networks, prepared by FCMAT. For the Culver Newlin invoices outlined in the spreadsheet below, $929,497.10 of invoices were paid in August 2015, just before the Del Terra invoice dated September 1, 2015. However, a cumulative total of $1,338,886 (rounded) (Sept. $9,238.44 + Oct. $22,594.29 + Nov. $2,166.38 + Dec. $4,681.04 + Feb. $36,862.74 + March $27,013.06 + Aug. $1,236,329.56) was spent after the September 1, 2015 invoice. Most significantly, $1,236,329.56 was spent in August 2016, 11 months after Del Terra was paid for Invoice 36380-01. Invoicing in advance for future work is inconsistent with charging for construction management fees based on “actual construction costs.” Appendix 14: Accounting records based on district records of payment to Culver Newlin, prepared by FCMAT. Under the terms of the 2015 agreement, Del Terra was only entitled to charge construction management fees based on “actual construction costs,” not costs based on quotes or proposals for work that had not yet occurred. As a matter of policy, fees cannot be charged on theoretical costs because they are unverified and could be inaccurate or subject to change. If the actual costs are less, then a refund needs to be provid- ed. In addition, the fee is not yet earned if the percentage is applied to a theoretical cost or quote amount. The 2015 agreement is unambiguous in its requirement that fees be based only on actual costs incurred. Exhibit C to the 2015 agreement states this and is shown below: Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 64 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects Appendix 1: Exhibit C, Page 39 of 39 from 2015 agreement. Highlighting added by FCMAT. Former superintendent Alex Rojas, who signed the September 1, 2015, Invoice 36380-01, could not have accurately verified “All Items Received/Services Rendered” without asking whether the underlying work had been performed before agreeing to issue payment. This was likely not possible because most of the procurement occurred the following year, in 2016.27 No evidence was presented to or found by FCMAT to demonstrate that any verification was performed to ensure that the amount billed reflected actual expendi- tures. Former superintendent Rojas should have checked Invoice 36380-01 against invoices from vendors that had been received and paid to date, such as those from Culver Newlin and Digital Networks, to verify the Del Terra billings were correct. But even at a high level, the superintendent should have known the work being invoiced was not completed because these were significant projects (nearly 30% of the total bond program). 9. Some Invoices Appear Manipulated FCMAT reviewed the 21st century schools Panasonic television installation and found every invoice that included the materials and labor for mounting the televisions appears to be proportionate to the cost of the television itself (see Appendices 66 and 76). 27 While the 2017 and 2018 payments were included in the accounting for Digital Networks for completeness, the charges for 2017 and 2018 are for projects other than the two 21st century classrooms projects. As shown on the spreadsheet of payments to Digital Networks in Appendix 11, Section B.6, the invoices for the two 21st century classrooms projects – which is the bulk of the invoices – were issued on August 3, 2016. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 65 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects Appendix 76: Digital Networks Invoice 14353. Highlighting and red comment box added by FCMAT. None of the invoices appear to show actual time expended, and in some cases, the installation costs ap- pear to be adjusted to reach the desired percentage of material costs. A total of 84 televisions were accounted for among the Digital Networks invoices. Of those 84 televisions, the cost invoiced to the district for installation totaled $84,499, or slightly more than $1,000 for each instal- lation. At a labor rate of $120/hour, this would suggest that it took approximately eight hours to install each television. That would require at least one contractor present for 84 days, or two contractors present for 42 days, to install all 84 televisions. Based on what FCMAT can determine from the available documentation, it is evident that Del Terra did not track time expended. Instead, the available documents indicate that Del Terra forwarded invoices based on the original estimates without review before the work started and did not provide oversight while the work was performed. No time tickets were available or provided to FCMAT for any of the installation work. The California Department of Industrial Relations requires that any project costing more than $30,000 is subject to prevailing wage rates and requires certified payroll reports to be submitted. There are no certi- fied payroll reports from Digital Networks from January 1 through August 15, 2016. It was Del Terra’s respon- sibility as construction manager and fiduciary of the district to ensure that the certified payroll reports were filed with the Department of Industrial Relations, and it is their responsibility to keep those records in case they are audited. This again is an indicator of Del Terra’s lack of proper project oversight. In summary, invoices were submitted based on what appear to be manipulated percentages, with an in- flated fee, based on an overstated cost of installation, rather than the actual cost expended on the project. Without Del Terra’s cooperation and documents, the available evidence indicates a lack of due diligence and oversight by Del Terra over the process. This indicates that Del Terra may have failed to again exercise its fiduciary duty to properly manage the project or have Digital Networks report the hours expended. 10. Discrepancies in 21st Century Classrooms Invoices Below is Page 3 from Invoice 36380-01 for the 21st Century Classrooms 6-12 project, which shows three invoices totaling $817,265.69 taken from quotes for work at Torch Middle School. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 66 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects Appendix 9: 21st Century 6-12 Invoice 36380-1, Page 3 (9/1/15). Highlighting, red oval, red square, red arrows, and red comment boxes are added by FCMAT. Accounting of the actual invoices received and paid to Digital Networks shows only one Torch Middle School invoice, No. 15425, for $44,359.97, not the $817,265.69 shown on the detail on Page 3 of Del Terra’s invoice from Appendix 9 shown above. Appendix 11: Accounting records based on district records of payment to Digital Networks. Highlighting added by FCMAT. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 67 Findings B. Del Terra’s Failure to Account for the Work Provided; District Failure to Hold Del Terra Accountable — 21st Century Classrooms Projects The single invoice, No. 15425, from Digital Networks for Torch Middle School is shown below: Appendix 15: Digital Networks Invoice No. 15425 $44,359.97 (4/26/17). Highlighting added by FCMAT. The discrepancy indicates that, based on the district’s records, Del Terra improperly billed $76,517.66 in construction management fees on the sum of $772,905.72 ($817,265.69 – 44,359.97 = $772,905.72, for which a construction management fee 9.9% would equal $76,517.67). While Del Terra billed $76,517.67 Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 68 Findings C. Failure to Properly Close Out Projects based on a 9.9% markup, the actual amount billed for services and equipment by the vendor, Digital Net- works, was only $44,359.97. C. Failure to Properly Close Out Projects 1. Del Terra Contracted to Close Out All Projects a. Definition of Closeout Prior to entering into the 2015 agreement with Del Terra, the Bassett Unified School District had past construction projects at every school that were never properly closed out with the DSA. The DSA defines closeout as follows: Project closeout is the process that the DSA uses to determine that the constructed project complies with the codes and regulations governing school construction (the codes and regu- lations being those used for the original design). Project closeout consists of examination of specific project files for documents required to be submitted before, during and after con- struction, and to determine if outstanding issues have been resolved. After the file is exam- ined, the project file is closed either with certification or without certification. After the project is closed, the files are sent to State Archives. (DSA Project Certification Guide (Rev. 3/18/15) p.2.) The DSA Project Certification Guide defines project certification as: .... a letter issued by the DSA certifying that the building project has been completed in accor- dance with the requirements as to the safety of design and construction pursuant to Educa- tion Code sections 17280-17316 and 81130-81147. The DSA further addresses the importance of closeout and certification of a project as follows: Why is Certification Important? Provides a method to determine the safety of school construction. School Board members may be personally liable for projects until certified. The DSA will be unable to approve new proposed projects associated with uncertified con- struction (See DSA IR A-20 at Appendix 79 and 80 for in depth discussion). b. Importance of DSA Closeout The district has had a number of contractors and construction managers perform work at several district sites since the late 1990s, including Del Terra. Lack of closeout with DSA certification on any project that requires DSA oversight and approval28 is problematic because it can prevent a school district from starting new projects. DSA IR A-20 provides the following policy: 28 All public school districts in the state of California are required to comply with the Field Act, codified at Education Code Section 17280 and following for K-12 school districts and Section 81130 for community colleges. All Field Act compliant buildings are subject to state oversight by the DSA and must receive DSA approvals for any alteration, addition or modification (with some minor exceptions). A more complete discussion of the Field Act and its application to school districts is provided in Section A of this report. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 69 Findings C. Failure to Properly Close Out Projects New work involving uncertified projects cannot be approved by DSA until the issue of certi- fication is resolved. DSA will not approve (stamp out) plans and specifications for alteration and/or addition projects on, or utilizing portions of, uncertified projects. [Emphasis added] The policy provides that any uncertified project on a school campus bars further DSA approvals across the entire campus: DSA may begin review of other projects not identified in Section 1 [DSA exempt projects which do not require DSA approvals] above, associated with uncertified projects. However, DSA approval (stamp out) of the plans and specifications shall be withheld until the issue of certification is resolved.29 [Emphasis added.] As addressed on Page 2 of the DSA Certification Guide, this DSA policy relates to personal liability that may be imputed to school district governing board members arising from unsafe conditions resulting from uncertified projects (Government Code Section 830.6 addresses school district design immunity). Thus, until all liability issues associated with a project closeout are fully addressed, no new projects can be start- ed. Without such strong consequences, unfinished work or unsafe conditions could be forgotten and left incomplete. This DSA policy has been in place since at least April 15, 2008.30 When the district and Del Terra entered into the 2015 agreement, every school at the district had one or more open uncertified projects. The 2015 agreement required Del Terra to complete closeout of those projects and to engage in the DSA process to start new modernization, renovation, or modification of proj- ects at district schools. Typically, construction managers or program managers will complete the closeout process on outstanding prior projects on campuses where their program is planned without charging an additional cost (except if the closeout is extensive or requires significant testing). Nevertheless, as shown below, on June 1, 2016, Del Terra generated a $64,500 closeout invoice, No. 362240-01, as an additional service.31 29 There are several exceptions to DSA policy prohibiting the start of new DSA projects until earlier projects are closed out. Those exceptions include items like fire alarm upgrades, security camera wiring, and door hardware upgrades. None of these situations are the case in this audit and did not arise during Del Terra’s work at the district. 30 See history of IR A-20 indicating “Original Issue 04/15/08.” A copy of IR A-20 is included in Appendices 79 and 80. 31 Seeking additional compensation for closeout is not in and of itself improper, especially if the closeout is unusual, difficult, or involves testing. However, the goal is to finish closeout so new projects can be started on district campuses. The issue addressed here is not the request, but the completion of Del Terra’s obligation to close out projects. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 70 Findings C. Failure to Properly Close Out Projects Appendix 25: Invoice 362240-01 Additional Services DSA Close Out Report for $64,500 (6/1/16). Although this invoice states “DSA Close-Out Assessment and Report,” DSA closeout status has been avail- able online since the late 1990s; the stated scope of work therefore does not make sense.32 The district’s files do not contain time sheets, backup documentation, or a list of lingering projects showing they had all been closed out that would justify payment of this $64,500 invoice. Del Terra’s request for $64,500 for an updated “DSA Close Out Assessment and Report” is of questionable credibility because Del Terra had previously contracted to close out all district projects no less than three times before 2015. As discussed in greater detail below, Del Terra contracted to close out the district’s open projects in an agreement dated September 1, 2009 (hereinafter referred to as the 2009 agreement), again in 2013 in an amendment to an unrelated 2010 agreement (hereinafter referred to as the 2013 amendment), and a third time in an April 2014 amendment to the 2009 agreement (hereinafter referred to as the 2014 amendment). 32 The online link for DSA closeout status is https://www.apps2.dgs.ca.gov/dsa/tracker/CountySchoolProjects.aspx?County=19. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 71 Findings C. Failure to Properly Close Out Projects Del Terra invoiced a total of more than $760,00033 for closeout services for the three contracts, yet all the available information seems to demonstrate they still failed to complete those services. The district paid every Del Terra invoice, all before entering into the 2015 agreement and receiving the $64,500 additional services request in Invoice 362240-01 discussed above. 2. Del Terra’s Failure to Close Out Projects as Required Under 2009 Agreement The 2009 agreement included a number of services to be provided by Del Terra, including closeout of all bond projects with the DSA. The 2009 agreement describes the program manager’s responsibilities, in- cluding to act in the best interest of the district. The cover page of the 2009 agreement is shown below. 33 Del Terra was paid $300,000 under the 2013 amendment and $401,595 under the 2009 agreement (which included a number of services, including DSA closeout of legacy projects). Under the 2014 amendment, exclusively for closeout services, Del Terra was paid an additional $460,000. Del Terra received $760,000 ($300,000 + $460,000) solely for closeout services, in addition to the portion of the $401,595 intended for closeout services under the 2009 agreement. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 72 Findings C. Failure to Properly Close Out Projects Appendix 16: 2009 agreement, Page 1 (9/1/09). Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 73 Findings C. Failure to Properly Close Out Projects Exhibit A of the 2009 agreement required Del Terra to “close all Bond projects with DSA:” Appendix 16: 2009 agreement, Page 12 (9/1/09). Highlighting added by FCMAT. Under the 2009 agreement, Del Terra was subject to a retention clause, which is understood in the con- struction industry as an amount of compensation due the contractor that the payer is entitled to withhold until it has verified that all contracted work is complete. In the instructions for the G 702 application for certificates for payments, the American Institute of Architects defines “retention” as follows: Retainage (or retention) is a percentage of your payment that the GC or owner will hold until the project or job is complete. Exhibit B in the 2009 agreement includes the following statement authorizing retention: Appendix 16: 2009 agreement, Page 13 (9/1/09). Highlighting added by FCMAT. The available documentation that FCMAT could find or was provided by the district indicates that Del Terra did not complete the project closeout services it was obligated to perform under Exhibit A of the 2009 agreement before requesting the release of retention funds on August 2, 2010. FCMAT concludes that Del Terra did not complete the project closeout services through review of the DSA website tracker system. By examining the project dates against the project status, the team compiled the following 29 projects remain- ing that were not closed out by Del Terra with the DSA: 1. 03-110311 Bassett High School 2. 03-113107 Bassett High School 3. 03-112694 Bassett High School Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 74 Findings C. Failure to Properly Close Out Projects 4. 03-109520 Bassett High School 5. 03-109960 Bassett High School 6. 03-108692 Edgewood Academy 7. 03-110425 J.E. Van Wig Elementary School 8. 03-109484 Sunkist Elementary School 9. 03-109217 Edgewood Academy 10. 03-109215 Don Julian Elementary School 11. 03-109219 J.E. Van Wig Elementary School 12. 03-115199 Bassett High School 13. 03-115110 Bassett High School 14. 03-112026 Bassett High School 15. 03-115247 Torch Middle School 16. 03-115206 Edgewood Academy 17. 03-115235 Torch Middle school 18. 03-115554 Don Julian Elementary School 19. 03-115198 Don Julian Elementary School 20. 03-105862 Parent / Resources Center 21. 03-102381 Various 22. 03-102567 Various 23. 03-103720 Edgewood Academy 24. 03-101459 Various 25. 03-115690 Bassett High School 26. 03-112683 Thomas Erwin Adult Education Facility Marquee 27. 03-110365 Sunkist Elementary School 28. 03-109218 Sunkist Elementary School 29. 03-112399 Edgewood Academy (Interim Housing) Given the 29 projects that were still not closed out, Del Terra should not have received retention or been released from its contractual obligations under the 2009 agreement to “close all bond projects with DSA.” Review of the invoices shows Del Terra was paid in full, including retention, on the 2009 agreement on September 1, 2010, with the payment of Invoice 36220-11, shown below. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 75 Findings C. Failure to Properly Close Out Projects Appendix 17: Retention Invoice 36220-11 on 2009 agreement (8/2/10). When the district paid Invoice 36220-11 in 2010, Del Terra had not completed the closeout process. A re- cord of the payment is shown below. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 76 Findings C. Failure to Properly Close Out Projects Appendix 18: Check No. 18291751 for $20,079.25 (9/1/10). Del Terra’s failure to honor its contractual obligations to close out the 29 open projects continued to pre- vent the district from opening new DSA projects. Yet the district chose to contract again with Del Terra in 2013 for services that Del Terra previously failed to perform but for which they billed and were paid. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 77 Findings C. Failure to Properly Close Out Projects 3. 2013 Amended Agreement – Failure to Close Out Projects On February 8, 2013, Del Terra requested an amendment to a 2010 program management agreement (see Appendix 19) unrelated to the 2009 agreement. The scope of services to be provided under the 2013 amendment included “the necessary DSA close-out services for the un-closed/open Bond, non-Bond and legacy projects.” The 2013 amendment is shown below: Appendix 19: 2013 amendment to 2010 agreement (2/8/13). The DSA closeout services constituted the entire scope of work under the 2013 amendment as set forth in the amendment’s Exhibit A, entitled “DSA Closeout Certification Services.” Exhibit A of the 2013 Amend- ment is shown below: Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 78 Findings C. Failure to Properly Close Out Projects Appendix 19: 2013 amendment to 2010 agreement, Exhibit A, Page 2 (2/8/13). Highlighting and blue ink underlines added by FCMAT. The scope of services for “DSA Closeout Certification Services” plainly lays out responsibility to “[p]erform all actions necessary to achieve DSA Closeout with Certification for all District buildings that have not received a DSA certification” [emphasis added]. In addition, the scope of services required Del Terra to “[p] rovide all administration, coordination, scheduling, tracking, budgeting, invoicing, attendance at meetings (District or otherwise), as needed to complete the provision of DSA Closeout Certification Services to the District” [emphasis added]. Thus the expectation was that the 2013 amendment would ensure closeout of all district projects for a payment of $240,000 to Del Terra. Del Terra subsequently requested $60,000 to extend the 2013 amendment from December 31, 2013 through March 31, 2014 to complete closeout. By May 1, 2014, Del Terra had been paid $285,000, repre- senting the entire contract amount of the 2013 amendment except for 5% retention. Del Terra subsequently issued Invoice 36240-16, seeking payment of retention, which was $15,000. Even though the retention Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 79 Findings C. Failure to Properly Close Out Projects invoice characterized the payment as program management fees, the scope of the 2013 amendment includ- ed only project closeout services. The payment of retention meant by definition that Del Terra had “completed closeout of District buildings” or “completed DSA closeout for the District” as required by the 2013 amendment. The retention Invoice 36240-16 is shown below: Appendix 20: Retention Invoice 36240-16 (5/1/14). Highlighting added by FCMAT. Once again, the district did not insist that Del Terra complete its contractual responsibilities to close out the open projects but instead issued a final retention payment for Invoice 36240-16. The district did not hold Del Terra responsible for completing their closeout scope, continued to issue new contracts for closeout that did not occur, and imposed no consequences for Del Terra if they did not complete the contracted closeouts. Despite having entered into and been paid for multiple contracts, a review of the DSA closeout records shows that only eight open projects were closed out between the date of the 2013 amendment and the next agreement for closeout entered into in 2014. In 2013, the following DSA projects were closed out: Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 80 Findings C. Failure to Properly Close Out Projects 1. 03-110311 Bassett High School was closed out on 11/7/2013 2. 03-113107 Bassett High School was closed out on 1/9/2013 3. 03-112694 Bassett High School was closed out on 11/26/2013 4. 03-109520 Bassett High School was closed out on 2/11/2013 5. 03-109960 Bassett High School was closed out on 3/26/2013 6. 03-108692 Edgewood Academy was closed out on 7/29/2013 7. 03-110425 J.E. Van Wig Elementary School was closed out on 10/30/2013 8. 03-109484 Sunkist Elementary School was closed out on 3/26/2013 However, as of December 31, 2014, the following 21 projects were still not closed: 1. 03-109217 Edgewood Academy 2. 03-109215 Don Julian Elementary School 3. 03-109219 J.E. Van Wig Elementary School 4. 03-115199 Bassett High School 5. 03-112026 Bassett High School 6. 03-115247 Torch Middle School 7. 03-115206 Edgewood Academy 8. 03-115235 Torch Middle School 9. 03-115554 Don Julian Elementary School 10. 03-115198 Don Julian Elementary School 11. 03-105862 Parent / Resources Center 12. 03-102381 Various 13. 03-102567 Various 14. 03-103720 Edgewood Academy 15. 03-101459 Various 16. 03-115690 Bassett High School 17. 03-115110 Bassett High School 18. 03-112683 Thomas Erwin Adult Education Facility Marquee 19. 03-110365 Sunkist Elementary School 20. 03-109218 Sunkist Elementary School 21. 03-112399 Edgewood Academy (Interim Housing) The district was legally entitled to reject Del Terra’s May 1, 2014 request for release of retention and insist that Del Terra perform its contractually required scope of completing closeout. However, the district paid Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 81 Findings C. Failure to Properly Close Out Projects the retention Invoice No. 36240-16 rather than holding Del Terra responsible for closeout of the 21 remain- ing open projects as required under the 2013 amendment and the previously discussed 2009 agreement. The paid retention Invoice 36240-16 is shown below: Appendix 21: Check No. 21372386 for $15,000 (5/28/14). Highlighting and red oval added by FCMAT. After failing again to satisfy its contractual obligation to close out the pending district projects, Del Terra sought and received another closeout amendment. As the district’s agent and fiduciary, Del Terra had and continues to have a responsibility to act in the best interests of the district yet did not appear to do so. 4. 2014 Amendment On April 1, 2014, Del Terra requested an amendment to the 2009 agreement. The 2014 amendment pro- vided a single scope of work: to “[p]rovide the necessary DSA close-out services for the un-closed/open Bond, non-Bond and legacy projects.” The 2014 amendment was an entirely different agreement from the 2013 amendment under which Del Terra received $300,000. It was also in addition to the underlying 2009 agreement, which included DSA closeout in its scope of work. Language in Exhibit A of the 2014 amend- ment sets forth closeout as the sole scope of work. The 2014 amendment is shown below: Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 82 Findings C. Failure to Properly Close Out Projects Appendix 22: 2014 amendment to 2009 agreement, Page 1 (4/1/14). Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 83 Findings C. Failure to Properly Close Out Projects Appendix 22: 2014 amendment to 2009 agreement, Page 2 (4/1/14). Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 84 Findings C. Failure to Properly Close Out Projects This requested scope of services is nearly identical to the 2013 amendment and encompasses the closeout scope of the original underlying 2009 agreement. The language defining the scope of the 2014 amend- ment was, again, entirely for closeout services, as detailed in Exhibit A, which is shown below: Appendix 22: 2014 amendment to 2009 agreement, Page 3 (4/1/14). Highlighting and underlining added by FCMAT. Del Terra was contracted to be paid $460,00034 and was paid a total of $460,000, billed in equal monthly amounts from May 2014 through May 2015 as specified in Exhibit B of the 2014 amendment, which is shown below. 34 By the time of the 2014 amendment, Del Terra had been paid $300,000 under the 2013 amendment and $401,595 under the 2009 agree- ment (which included a number of services, including DSA closeout of legacy projects). The 2014 amendment, exclusively for closeout services, would pay Del Terra an additional $460,000. As noted above, Del Terra thus received $760,000 solely for closeout services, in addition to the portion of the $401,595 intended for closeout services under 2009 agreement. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 85 Findings C. Failure to Properly Close Out Projects Appendix 22: 2014 amendment to 2009 agreement, Page 4 (4/1/14). Del Terra billed $460,000 in 12 equal monthly amounts of $36,417, with a 5% retention payment ($460,000 x 5% retention = $23,000. $460,000 - $23,000 = $437,000 / 12 months = $36,417). Even though Del Terra previously had not completed the 2009 agreement closeout or the 2013 amendment closeout, as in both closeout amendments, (2013 amendment to the 2010 agreement and 2014 amendment to the 2009 agreement), as shown above, Del Terra essentially guaranteed DSA close out by saying they would “[p]erform all actions necessary to achieve DSA Closeout Certification for all District buildings that have not received a DSA certification” [emphasis added]. There is no record of questions from the district’s governing board about why Del Terra had not complet- ed the 2009 agreement closeout services, the 2013 amendment closeout services for which Del Terra was paid $300,000, or why Del Terra was entitled to an additional $460,000 in costs solely for closeout services. The record provides no explanation or breakdown of the basis for the $460,000 cost. Also, the record is similarly lacking any explanation why the previous $300,000 under the 2013 amendment and por- tion of the 2009 agreement for $401,595 was inadequate to accomplish closeout of the district projects. The district’s files contain no monthly reports or progress reports on closeout efforts under the 2014 amendment.35 Review of the DSA closeout records shows only 10 of the remaining 21 projects were closed between the date of the 2014 amendment and the next agreement for closeout entered into in 2015. Below is a list of projects closed out or certified pursuant to the 2014 amendment (April 1, 2014, through March 31, 2015): 1. 03-109217 Edgewood Academy was closed out on 12/23/2014. 2. 03-109215 Don Julian Elementary School was closed out on 12/23/2014. 3. 03-109219 J.E. Van Wig Elementary School was closed out on 12/23/2014. 4. 03-115199 Bassett High School was closed out on 7/29/15. 5. 03-112026 Bassett High School was closed out on 9/16/15. 6. 03-115247 Torch Middle School was closed out on 10/14/15. 7. 03-115206 Edgewood Academy was closed out on 9/16/15. 8. 03-115235 Torch Middle school was closed out on 2/11/15. 35 The district had no records of 2009 closeout reports or 2013 closeout reports. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 86 Findings C. Failure to Properly Close Out Projects 9. 03-115554 Don Julian Elementary School was closed out on 4/21/15. 10. 03-115198 Don Julian Elementary School was closed out on 7/29/15. On May 1, 2015, Del Terra submitted Invoice No. 36245-13 for a final retention payment under the 2014 amendment. This invoice was issued for completion of closeout services exactly one year after Del Terra invoiced for retention on a closeout scope exclusively under the 2013 amendment, on May 1, 2014. Invoice No. 36245-13 is shown below. Appendix 23: Retention Invoice 36245-13 (5/1/15). As discussed previously regarding the May 1, 2014, closeout retention payment on the 2013 amendment, Del Terra was not entitled to receive retention on the 2014 amendment until all contractually required work was complete. As cited in the 2013 amendment in Appendix 22, contractually, Del Terra had not yet “[p] erform[ed] all actions necessary to achieve DSA Closeout with Certification for all District buildings that have not received a DSA certification,” nor had it “[p]rovide[d] all administration, coordination, scheduling, tracking, budgeting, invoicing, attendance at meetings (District or otherwise), as needed to complete the provision of DSA Closeout Certification Services to the District” [emphasis added]. Similarly, as discussed in relation to the May 1, 2014, retention payment for the 2013 amendment, the district did not enforce its contractual right to demand completion of all closeouts of district projects. The district did not withhold retention as it was obligated to do under the 2014 amendment, which stated the following: Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 87 Findings C. Failure to Properly Close Out Projects Appendix 22: 2014 amendment to 2009 agreement, Exhibit B, Page 4 (4/1/14). Highlighting added by FCMAT. Under the 2014 amendment, the district was obligated to withhold retention and insist on completion of closeout as contractually promised. Under the language of Exhibit B, the district was obligated to insist on closeout following resolution of any disputes. Instead, the district released the 2014 amendment retention. The check/warrant the district issued is shown below: Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 88 Findings C. Failure to Properly Close Out Projects Appendix 24: Check No. 22167385 for $23,000 (5/20/15). On May 20, 2015, when the retention was released and final payment made for closeout services under the 2014 amendment, the following 11 projects were still uncertified with the DSA: 1. 03-105862 Parent/Resources Center – Open since 11/16/2007 Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 89 Findings C. Failure to Properly Close Out Projects 2. 03-102381 Various – Open since 10/16/2001 3. 03-102567 Various – Open since 10/16/2001 4. 03-103720 Edgewood Academy – Open since 2/5/2004 5. 03-101459 Various – Open since 9/9/2003 6. 03-115690 Bassett High School – Opened 11/17/2014 7. 03-115110 Bassett High School – Opened 10/30/2013 8. 03-112683 Thomas Erwin Adult Education Facility Marquee – Opened 10/28/2009 9. 03-110365 Sunkist Elementary School – Opened 5/11/2007 10. 03-109218 Sunkist Elementary School – Opened 4/6/2006 11. 03-112399 Edgewood Academy (Interim Housing) – Opened 9/22/2009 This means that Del Terra’s closeout services were far from complete, despite Del Terra having collected more than $760,000 solely for closeout between 2009 and 2014. 5. Del Terra’s Additional Services As discussed earlier in this report, on April 21, 2015, the district and Del Terra entered into the 2015 agree- ment for bond management and construction management services. However, the district at that time was still prevented from opening new DSA projects at most of its schools because of the 11 remaining uncer- tified projects. From April 21, 2015 until June 1, 2016, the only project submitted to the DSA was a 2014 HVAC project at Don Julian Elementary School.36 Although several additional invoices were submitted by Del Terra as addressed in Section D of this report, records show the main services provided by Del Terra seemed to be determining the next projects that would proceed under what Del Terra called “Develop Ini- tial Program Plan.” That work yielded a list of projects that included the 21st Century Classrooms TK-5 and 21st Century Classrooms 6-12 projects (see discussion in Section B of this report). On June 1, 2016, approximately one year after entering into the 2015 agreement, Del Terra submitted an invoice for $64,500 for additional services to then superintendent Alex Rojas for closeout. This closeout Invoice 362240-01 is shown below: 36 The 21st Century Classrooms TK-5 and the 21st Century Classrooms 6-12 projects, discussed earlier in this report, were not submitted to the DSA. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 90 Findings C. Failure to Properly Close Out Projects Appendix 25: Invoice 362240-01, Additional Services DSA Close Out Report for $64,500 (6/1/16). Highlighting and red comment boxes added by FCMAT. Although the invoice indicates it includes services for “DSA Close Out Assessment and Report,” the DSA closeout status of all projects has been publicly available and easily accessible online since the late 1990s. Under Invoice 362240-01 it is not clear what closeout services were performed other than printing the DSA closeout status from the DSA website.37 Former superintendent Rojas nevertheless approved this invoice and stamped it, indicating “All Items Received/Services Rendered.” The district’s files do not contain time sheets, backup documentation, or a list of closed projects that would indicate the payment of the $64,500 invoice was justified. FCMAT’s review of various district-provided files revealed that when the invoice for closeout was initiat- ed on June 1, 2016, most of the projects noted as incomplete in Section C.4 of this report under the 2014 amendment were still not certified. The DSA project status tracker at https://www.apps2.dgs.ca.gov/dsa/ tracker/ProjectStatus.aspx shows the following nine projects were still not certified: 37 The DSA website for closeout status is located at https://www.apps2.dgs.ca.gov/dsa/tracker/ProjectStatus.aspx. Although this is a new DSA tracker, there has been some form of DSA tracker for project status and closeout for at least two decades. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 91 Findings C. Failure to Properly Close Out Projects 1. 03-105862 Parent /Resources Center – Open since 11/16/2007 2. 03-102381 Various – Open since 10/16/2001 3. 03-102567 Various – Open since 10/16/2001 4. 03-103720 Edgewood Academy – Open since 2/5/2004 5. 03-101459 Various – Open since 9/9/2003 6. 03-115690 Bassett High School – Open Since 11/17/2014 7. 03-115110 Bassett High School – Open since 10/30/2013 8. 03-112683 Thomas Erwin Adult Education Facility Marquee – Open since 10/28/2009 9. 03-112399 Edgewood Academy (Interim Housing) – Open since 9/22/2009 When Alex Rojas signed the 2014 amendment as the district’s deputy superintendent, the presumption is that by signing the agreement, he should have been fully aware of the scope and status of work for close- out of district projects. The available information indicates as superintendent two years later in 2016, Alex Rojas had no basis to certify Invoice 362240-01 as “All Items Received / Services Rendered” because the scope of work was not complete; therefore, Del Terra had not earned its full fee for the entire closeout invoice. As a consequence of the delayed closeout, the district’s program was still obstructed by DSA’s prohibition against starting new DSA projects under IR A-20. 6. Del Terra’s Failure to Close Out the Child Development Center Modernization Project at Florence E. Flanner Elementary School The Child Development Center Modernization project at Florence E. Flanner Elementary School (Flanner Project) was identified by the DSA as the only project begun during Del Terra’s tenure as program manager and construction manager under the 2015 agreement. According to the DSA website, the Flanner Project, DSA 03-118482, was begun with DSA on November 13, 2017. This project comprised the alteration of two existing buildings at Florence E. Flanner Elementary School. Under Article 2.4.19 of the 2015 agreement, Del Terra was responsible to close out all projects begun under its watch as program manager: Appendix 1: 2015 agreement, Page 16 (4/21/15). Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 92 Findings C. Failure to Properly Close Out Projects Exhibit A of the 2015 agreement also lists “Project Close-Out” as one ofDel Terra’s contracted responsibilities: Appendix 1: 2015 agreement, Exhibit A from Page 37 (4/21/15). Highlighting added by FCMAT. Article 4.1 of the 2015 agreement required completion of all requirements of the agreement, including the closeout scope. Appendix 1: Exhibit A. Highlighting added by FCMAT. Even though the Flanner Project was not certified, the district’s executive director of business services, Linda Bermudez, approved the final Invoice 36500-03 as “All Items Received/Services Rendered.” This approved final invoice is shown below: Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 93 Findings C. Failure to Properly Close Out Projects Appendix 26: Invoice 36500-03 for 100% on Flanner Project for $42,957 (2/5/19). Highlighting, red oval, and red comment box added by FCMAT. This invoice was paid on March 18, 2019, as shown below. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 94 Findings C. Failure to Properly Close Out Projects Appendix 27: Check No. 25160827 for $42,957 (3/18/19). Highlighting added by FCMAT. This final payment of $42,957.00 should not have been made until the Flanner Project was certified and closed out by the DSA. A further consequence of Del Terra’s failure to close out the Flanner Project is a bar to future DSA projects at Florence E. Flanner Elementary School under IR 20 until the Del Terra project is closed out as required under the 2015 agreement. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 95 Findings C. Failure to Properly Close Out Projects 7. Del Terra’s Requested 2019 Contract Amendment and Fees for Closeout After Del Terra declared its work under the 2015 agreement complete on April 21, 2018,38 Del Terra asked the district for yet another contract amendment to cover project closeout even though that scope was included in the 2009 agreement, 2013 amendment, 2013 amendment extension, 2014 amendment, the ad- ditional $64,500 paid under Invoice 362240-01 under the 2015 agreement, and $230,000 paid by Invoice 36382 under the 2015 agreement. When the request was made in 2019, the same list of six projects re- mained uncertified:39 1. 03-105862 Parent /Resources Center (Edgewood Academy) – Open since 11/16/2007 2. 03-102381 Various (J.E. Van Wig Elementary School and Sunkist Elementary School) – Open since 10/16/2001 3. 03-102567 Various (Sunkist Elementary, Don Julian Elementary School, and Erwin Elementary School) – Open since 10/16/2001 4. 03-118482 Florence E. Flanner Elementary School – Open since 1/16/18 5. 03-103720 Edgewood Academy – Open since 2/5/2004 6. 03-101459 Various (J.E. Van Wig Elementary School and Erwin Elementary School) – Open since 9/9/2003 Exhibit B of the 2019 agreement includes closeout in its scope as follows: Appendix 28: 2019 Agreement Exhibit B from Page 38 (7/29/19). Highlighting added by FCMAT. 38 On April 21, 2018, three years after commencement of the 2015 agreement, Del Terra declared that the 2015 agreement was expired, and services were completed. A new bond program agreement was presented to the district and is referred to in this report as the 2019 agreement. 39 This is the 2021 list of uncertified projects that continue to be open at the time of the writing of this report. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 96 Findings C. Failure to Properly Close Out Projects The above exhibit to the 2019 agreement designates $235,000 to be spent on project closeout. Del Terra also expected to charge a construction management and program management fee of $23,265 on top of the $235,000 line item cost. 8. Member of the Measure V Bond Oversight Committee Objected to New Contract, Additional Payments to Del Terra Before the district and Del Terra entered into the 2019 agreement, a member of the Measure V Citizens’ Bond Oversight Committee voiced objections to the district superintendent. On February 1, 2019, commit- tee member Dena Florez sent a letter to district Superintendent French questioning further expenditures on closeout and requesting that her concerns be shared with both the bond oversight committee and the district’s governing board. Appendix 29: Letter from Dena Florez, Bond Oversight Committee member (2/1/19). Highlighting added by FCMAT. Despite objections from Ms. Florez, the district moved forward with the 2019 agreement (see Appendix 28), which was signed on July 29, 2019 and which included closeout services for DSA projects that were not Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 97 Findings C. Failure to Properly Close Out Projects closed out under the 2009 agreement, 2013 amendment, 2013 amendment extension, 2014 amendment, or the 2015 agreement. A copy of this 2019 agreement is included in Appendix 28 to this report. The first page and signature page are shown below: Appendix 28: 2019 agreement, Page 1 (7/29/19). Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 98 Findings C. Failure to Properly Close Out Projects Appendix 28: 2019 agreement, Page 38 (7/29/19), signature of Debra French and presumably Luis Rojas. As noted above, Exhibit B of the 2019 agreement includes a line item for DSA closeout at a cost of $235,000, in addition to which Del Terra charged a management fee of $23,265. Although Del Terra was once again expected to perform the promised closeout services under the 2019 agreement, all available evidence indicates this did not happen. Instead of Del Terra performing close- out of projects, on July 29, 2019, it appears that Del Terra had the district hire INK Architects to complete closeout. So the district approved a contract with a third-party vendor, Leslie Sydnor dba INK Architects, for DSA closeout and certification services for eight open DSA application numbers – the exact same closeout services the district hired Del Terra to perform in 2009, 2013, 2014, 2015, and in the 2019 agreement. Del Terra was paid a management fee of $3,760 for Invoice 36511-01, which is shown below. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 99 Findings C. Failure to Properly Close Out Projects Appendix 69: Invoice 36511-01 closeout, 11/25/19. Del Terra was paid for Invoice 36511-01 on December 26, 2019, with Check/Warrant No. 25666915 as shown below. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 100 Findings C. Failure to Properly Close Out Projects Appendix 70: Check for $3,760 on Invoice 36511-01 (12/26/19). Highlighting added by FCMAT. Article 1.6 of the 2015 agreement states, “Manager shall not separately invoice fees for services rendered by Subconsultants.” However, there is no documentation showing that Del Terra let the district know that the scope of INK Architects’ contract was to perform the closeout services for which Del Terra was already charging $23,265. Below is the district’s governing board agenda item for hiring INK Architects. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 101 Findings C. Failure to Properly Close Out Projects Appendix 30: Board Agenda item from July 29, 2019 approving INK Architects. Highlighting added by FCMAT. The district is paying for the same services at least twice if not multiple times – the first time through Del Terra’s 2019 agreement and the second time directly to INK Architects. Additionally, Del Terra received a combined 9.9% fee of $23,265 ($235,000 x 9.9%) on the work to be done through the 2019 agreement. However, because INK received a separate purchase order from the district it was paid separately by the district, and Del Terra still received its 9.9% fee for work not performed by them. INK should have been paid under the Del Terra contract and not through a separate purchase order by the district. As of 2019, the closeout work was still incomplete. On August 26, 2019, Del Terra presented a Measure V update, which noted that 13 closeout projects remained outstanding. FCMAT’s count of remaining projects is eight. Rather than use Del Terra’s count of 13, the lower number of eight is used by FCMAT. Appendix 31: Del Terra August 26, 2019, Measure V Update, slide 13, (8/26/19). Highlighting added by FCMAT. As of the end of February 2022, six projects remained that were not closed out and certified by the DSA.40 The district has retained yet another consultant to respond to DSA stop work orders and was working on closing out the Flanner Project. This means that under DSA IRA-20, the district cannot open a DSA project because Del Terra has failed to close out projects throughout the district since their original 2009 agreement and the four others as well as various amendments that followed including the 2015 agreement. Planned DSA projects can therefore not proceed. Del Terra’s failure to close out projects also renders the district unable to seek state funding, which requires a DSA-approved set of plans or a basis for funding pursuant to Education Code Section 17072.30 for eligible projects. 40 Based on official DSA records, FCMAT cannot determine where or how Del Terra came up with the number of 13 uncertified projects. The number of projects not closed changes based on when the review of projects takes place. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 102 Findings C. Failure to Properly Close Out Projects Recital C of the 2015 agreement required Del Terra to undertake “planning, programming and construction of existing projects, and new construction projects related to the District’s bond program, known as Mea- sure V, and any match funding.” [Emphasis added.] Because Bassett High School had modernization eligi- bility, it was Del Terra’s responsibility as a program manager to guide the district through the state funding process as a district fiduciary, as stated in Article 1.3.2. As of the end of February 2022, Del Terra had not completed closeout despite contracting to do so on seven occasions: 1. The 2009 agreement (paid $401,595, a portion of which was intended for project closeout services). 2. The 2013 amendment (paid $300,000). 3. The 2014 amendment (paid $460,000). 4. The 2015 agreement for the Flanner Project 03-118482. 5. Additional Services Invoice 362240-01 for $64,500. 6. The $230,000 paid under Invoice 36382 of the 2015 agreement. 7. The 2019 agreement (paid $3,760 paid on Invoice 36511-01). 9. DSA’s Actions Against the District Were Consequence of Del Terra’s Failure to Close Out Projects As discussed earlier, DSA IR-20 mandates that any open DSA projects be properly closed out and certified; otherwise, the DSA will prohibit further work on any site that has uncertified projects. The goal in paying Del Terra over a million dollars through the years under various contracts and amendments was to prevent the lack of closeout from stopping any future work at school sites with uncertified projects. On February 24, 2021, the district received orders from the DSA to stop work at Bassett High School, Edge- wood Academy, Sunkist Elementary School, and J. E. Van Wig Elementary School. Portions of these docu- ments are included in Appendix 32 of this report. One of the stop work orders for Bassett High School is shown below. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 103 Findings C. Failure to Properly Close Out Projects Appendix 32: DSA stop work letter (2/24/21). The stop work order required the district to document all work performed without DSA approvals during the time projects were uncertified. The DSA orders constituted a demand to document all work that was begun and overseen by Del Terra from the time of the 2015 agreement until Del Terra’s services were terminated in 2021. As a result of a site visit in February 2021, the DSA noted in an e-mail dated March 2, 2021 that work had been performed without DSA approvals and that all work must be documented to the DSA: Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 104 Findings C. Failure to Properly Close Out Projects Appendix 68: DSA stop work e-mail, (3/2/21). The DSA’s records show that no district projects other than Flanner Project had been submitted to the DSA since 2015.41 Thus the DSA considered all projects under Del Terra’s management and oversight between 2015 and March 2021 (except for the Flanner Project) to be undocumented. This DSA order was a direct re- sult of Del Terra’s failure to engage in the DSA process for projects, the process that Del Terra represented as its expertise. In addition to affecting current and future projects, Del Terra’s failure to properly close out and certify proj- ects as required under various agreements exposes the district’s governing board members to potential personal liability. Without proper DSA certification, the district may not be able to avail itself of the design immunity defense under Government Code Section 830.6. As a result, governing board members may be held personally liable for projects that did not receive DSA approvals pursuant to Government Code Sec- tions 830 and following, 835 and following, and 840 and following. 10. Del Terra’s Failure to Close Out Projects Likely Led to Undocumented Projects The lack of DSA project certification had significant consequences for the district beyond overpaying for an unknown or incomplete level of work to close out district projects and exposing members of the governing board to possible liability. As discussed earlier, DSA policy IRA-20 rendered the district unable to proceed with any modernization districtwide. The only projects that could potentially proceed were those that could be performed outside of DSA oversight, such as paint, carpet and furniture. Thus, it was possible that the only projects that Del Terra perceived could proceed under the 2015 agreement were the two 21st century classrooms projects (comprised mainly of furniture, paint, and flat screen TVs) that were not submitted to 41 The Child Development Center Modernization project at Florence E. Flanner Elementary School is the only project that went through the DSA process under the 2015 agreement; however, Del Terra never obtained final DSA certification of the Flanner Project, which created another uncertified project for the district. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 105 Findings C. Failure to Properly Close Out Projects the DSA and did not receive any DSA oversight or approval.42 Evidence of this is shown as part of the addi- tional services Invoice 36382 for $230,000. The entire invoice with its supporting documentation is shown in Appendix 33. Del Terra’s invoice states the following: Appendix 33: Invoice 36382, Page 3 (9/15/16). Highlighting added by FCMAT. The above commentary about working without architects shows that Del Terra believed the nearly $9.4 million in 21st century classrooms projects did not require technical or industry expertise or oversight by the DSA. Typically, either an architect or a structural engineer is required for a DSA project submission, and there are no DSA project submissions between 2015 and 2021 other than one for the Flanner Project (see Education Code Sections 17302 and 17307). Of the $30 million approved through Measure V, $9,401,388 had been allocated to 21st century classrooms projects and at least $2,184,27543, according to district records, had been spent on Del Terra. Thus, a little more than one year after the district entered into the 2015 agreement with Del Terra, $11,585,663, or ap- proximately 39% of the bond funds, had already been spent on projects that did not improve the underlying infrastructure or facilities. The DSA’s policies articulated in IR A-10 and applicable in 2015 required all projects costing more than $100,000 (adjusted annually) to be submitted to the DSA. Projects up to $225,000 (adjusted annually) for alteration or reconstruction could be exempt if a structural engineer certified to the DSA regional office that no structural work was involved and if the architect of record submitted a certification that no ADA upgrades or fire or life safety requirements were triggered (see IR A-10 Section 1.2 in Appendix 81). No certifications from structural engineers or architects were located in the district’s files, and the DSA never received any drawings or certifications for the $9.4 million in 21st century classrooms projects. 11. Failure to Address Safety and Infrastructure Causes Policy Problem A fundamental policy-related problem with Del Terra’s presumed decision to avoid DSA review from 2015 through 2019 was that Del Terra avoided critical evaluation of safety, infrastructure, ADA upgrades, fire and life safety, and other critical components of the district’s facilities (see discussion on IR A-10 above). As noted previously in Section A.7, all the Bassett High School structures identified on the AB 300 list may be vulnerable to seismic forces. Del Terra stated in the 2016 Master Plan that the first priority project was to “Evaluate and address any potential safety issues. (Bassett High School and Torch Middle School are 42 While the work looks simple, projects cannot avoid DSA except when they comply with IR-22 requirements and a structural engineer certifies the work does not have structural components. In this case, the TV mounts were structural and required DSA review as evidenced in the DSA stop work letter dated February 24, 2021 (Appendix 32) and addressed in Section C.9 of this report. 43 See Appendix 71. Transactions from July 2015 through September 2016 consist of all invoices paid to Del Terra for a cumulative total of $2,184,275. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 106 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval currently on the State’s AB 300 list and may need seismic updates.)” It follows that rather than purchasing furniture, replacing carpet, painting, and installing flat screen TVs at $12,000 per unit, Del Terra’s fiduciary responsibility was to investigate and review the safety and infrastructure projects that it identified as in the district’s best interests. Instead, Del Terra rapidly spent $9.4 million on 21st century classrooms projects but ignored their 2016 Master Plan’s top priority of investigating structures and seeking state funding for build- ings identified on the AB 300 list. As Del Terra implicitly acknowledged in its list of priorities, safety should be given priority over cosmetic improvements, especially when the safety of district students and staff is at stake. The district’s maintenance staff likely could have easily selected and replaced furniture, and contracted for painting and floor coverings. It does not appear that Del Terra used any special expertise or construction knowledge to perform the 21st century classrooms projects. More importantly, Del Terra had the district rapidly spend funds that could have been used to protect the district’s students and staff from exposure to injuries that could occur at buildings identified as having seismic vulnerabilities, the very buildings Del Terra identified as its first priority. Instead, based on the available billing records of the district, Del Terra billed and was paid $9.4 million for less urgent projects over two years between September 2015 and September 2017. Del Terra also had an opportunity to seek state seismic mitigation funding to increase bond funds but did not do so. D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval 1. Contracts Require Board Authorization By law, contracts are valid only if they are approved by a district’s board of education (see Santa Monica Unified School District v. Persh (1970) 5 Cal.App.3d 946). Those who contract with school districts are legal- ly presumed to know the limitations of contracting that require compliance with legal procedures. Miller v. McKinnon (1942) 20 Cal.2d 83, 87-88 states that a school construction contract was void for failure to follow contracting formalities and that the contractor who fails to follow legal procedures is required to return all payments. Education Code Section 17604 allows a district’s governing board to delegate to the superin- tendent the authority to enter into contracts, but a contract for services requires board authorization or subsequent ratification; otherwise the services are void. The language of Education Code Section 17604 is specific and states, in part, the following: . . . the power [to contract] . . . may by a majority vote of the board be delegated to its dis- trict superintendent, or to any persons that he or she may designate…However, no contract made pursuant to the delegation and authorization shall be valid or constitute an enforceable obligation against the district unless and until the same shall have been approved or ratified by the governing board, the approval or ratification to be evidenced by a motion of the board duly passed and adopted . . . Education Code Section 17604 also addresses the situation in which a superintendent or superintendent’s designee oversteps his or her authority: In the event of malfeasance in office, the school district official invested by the governing board with the power of contract shall be personally liable to the school district employing Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 107 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval him or her for any and all moneys of the district paid out as a result of the malfeasance [em- phasis added]. 2. Alex Rojas Authorized Additional Services Without Board Authorization From April 2015 through September 2016, Del Terra billed the district $952,750.00 for “Additional Services” under the 2015 agreement, as set forth below: Facility Report, HVAC Assessment (Invoice 36270-01 on 6/1/16) $115,750.00 Facility Report, Torch Environmental (Invoice 362230-01 on 6/1/16) $68,000.00 DSA Closeout (Invoice 362240-01 on 6/1/16) $64,500.00 District Roofing Assessment (Invoice 36201-01 on 6/1/16) $74,500.00 PM and CM Services District-Wide Projects (Invoice 36370-01 on 4/29/15) $400,000.00 Reprogramming & Replanning/Tech. (Invoice 36382 on 9/15/16) $230,000.00 TOTAL: $ 952,750.00 For the additional services noted above, FCMAT was not presented with, nor was it able to locate, any re- cord of a board agenda item or evidence of direction from the board to Del Terra to perform the services as an addition to the 2015 agreement under Article 4.3.1. These additional services were all approved within a very short time by Alex Rojas. A review conducted by FCMAT of board agendas from 2014 through 2019 does not show any board agendas where any of the six above noted additional services were approved. Additionally, except for a lone purchase order included in the July 14, 2015 agenda under a report of pur- chase orders for “District wide facility projects $400,000,” district records do not show that the governing board or superintendent directed any of the additional services listed above, and Del Terra has yet to pro- duce evidence to support such direction, request or approval by the district. The $400,000 in project management (PM) and construction management (CM) services (District-Wide Projects) billed by Del Terra under Invoice 36370-01 not only fails to conform to the requirements of Arti- cle 4.3.1 of the 2015 agreement but was considered by the board of education in an agenda item to reflect direction by the district or ratification of superintendent direction as required under Education Code Sec- tion 17604. Placement of this $400,000 additional services on a purchase order report does not meet the requirement of an additional service approved by the board since a purchase order does not identify the extra services that were performed, the scope of work, or the increase that would be added to the 2015 agreement. Court cases regarding approval of services are very clear that the lack of a board agenda item and board approval invalidates the extra service. For example, in Uhlmann v. Alhambra City High School District (1963) 221 Cal.App.2d 228, the school board president asked a real estate broker to find a purchaser for a prop- erty being sold. The broker then advertised and helped locate a purchaser who ultimately purchased the property being sold. The court held that a contract entered on the authority of a single board member is not valid without prior authorization or ratification by the full board. In this case, the fact that members of the board asked for services did not constitute a contract that bound the board to pay for services. On September 6, 2018, David Alvarez of Leal & Trejo, the district’s legal counsel, asked Alex Rojas, the su- perintendent who had authorized the $952,750 in additional services invoices, about his authorization (see Appendix 34). In a September 28, 2018, response, Alex Rojas wrote the following: Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 108 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval Appendix 35: Alex Rojas response letter (9/28/18). Consistent with the statement in Alex Rojas’ September 28, 2018, response, Alex Rojas signed or initialed each of the purchase orders using the 2015 agreement approval date of April 21, 2015. However, a FCMAT review of board agendas, board purchase order approvals, and board meeting minutes did not produce any documentation that a purchase order had been entered to indicate consideration or approval of any of the $952,750 in additional services, and there is no record of board action provided to FCMAT or that could be found to increase the 2015 agreement by $552,750 ($952,750 - $400,000). Alex Rojas’ statement that it was his job to initial invoices is inconsistent with the superintendent’s responsibilities and authori- ty to contract as outlined in Education Code Section 17604. Lastly, only the Invoice 36370-01 on 4/29/15 for $400,000.00 was taken to the board on a monthly purchase order list. The routine board approval of purchase orders was not considered an approval of an additional service in this instance, but the remaining $552,750 in additional services related purchase orders – initialed by Alex Rojas – was not placed on the monthly purchase order report to the board. An example of one of the additional services purchase orders that is signed by Alex Rojas is shown below. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 109 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval Appendix 36: Purchase order 82492 for $64,500 (6/14/16). Highlighting added by FCMAT. This is an example of a purchase order for DSA closeout that is addressed in Section C of this report. This purchase order was initiated on June 14, 2016, two weeks after the invoice was issued to the district on June 1, 2016. The timing within this transaction is inconsistent with standard business practice wherein a purchase order is issued and then followed by a request for payment for the goods or services. The tim- ing of issuance of the purchase order indicates that the work had been initiated and invoiced prior to the initiation of a purchase order. The underlying invoice in this example was never taken to the board as an additional service and is not on any purchase order report to the board from 2014 through 2019. The word- ing on the purchase order “PER PROGRAM AND CONSTRUCTION MANAGEMENT AGREEMENT – BOARD APPROVED 4/21/15” is a reference to the original 2015 agreement approval, not an additional services approval. Thus, the funds for the $64,500 in the example above authorized under this purchase order were purportedly based on the original contract authorization but were not identified, addressed, or approved by the board as an additional service. In other words, no additional funds could be authorized with this purchase order because the additional fund request was never taken to the board for approval or ratifica- tion. This is assuming that a purchase order for $64,500 was taken to the board. However, since there is no purchase order, there is no basis for making this payment as an additional service. The original April 21, 2015 agenda item for the 2015 agreement is only for the original services and only includes language that provides for future requests for additional services upon direction from the district or district administration under Article 4.3.1. The 2015 agreement does not budget for or provide autho- rization for additional services, nor does it add costs that would be incurred under any of the additional Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 110 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval services invoices. The agenda for the 2015 agreement is shown below. This agenda only authorizes a 4% program management fee and construction management services fee of 9.9% for actual construction costs. Although change orders and increases are noted in Exhibit C, the exact amount of increases or change orders are not addressed in this April 21, 2015 agenda. Appendix 37: Board Agenda item (4/21/15). A separate governing board action to approve or ratify the superintendent’s action was needed to increase the authorization for more than the April 21, 2015 board-approved amount of 4% of the bond program and 9.9% of the construction cost, despite the language about change order increase of additional costs. In each instance below, there is no separate additional service agenda item taken before the board. Instead, funds for each of the purchase orders issued for additional services were taken from the approval of the Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 111 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval original contract authorization amount, because no additional funds or board approval of funds appear to have ever been requested.44 3. HVAC Assessment – $115,750 Del Terra invoiced the district for $115,750 in an additional service increase to the 2015 agreement for pre- paring an HVAC assessment. A copy of the HVAC Assessment is shown at Appendix 82. This invoice, No. 36270-01, is shown below. Appendix 38: Additional Services Invoice 36270-01 for Districtwide HVAC Assessment (6/1/16). Highlighting added by FCMAT. Additional services are defined under Article 1.1.3 of the 2015 agreement as follows: 44 This lack of proper authorization resulted in a budgetary problem, because the available documentation indicates Del Terra billed more than previously authorized under the 2015 agreement, but there was no board-approved authorization for additional services to allow for an increase to the original 2015 agreement amount. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 112 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval Appendix 1: 2015 agreement, Page 2 (4/21/15). Del Terra’s HVAC assessment request does not meet any of the elements addressed in Article 1.1.3 of the 2015 agreement. FCMAT found no written request from the board or district for the HVAC assessment, nor are there records indicating the assessment was approved by the district in any district records. There is no discussion of why the HVAC assessment is not included in basic services, and this request was made at the start of the 2015 agreement and not at the “expiration of the Basic Term.” No district records show how the Exhibit B hourly rates were expended by Del Terra. Article 4.3.3 further addresses additional services and how the district is to be notified: Appendix 1: 2015 agreement, Page 20 (4/21/15). The invoice for the HVAC assessment does not reference any explicit written direction or confirmation of direction in conformance with Article 4.3.3 of the 2015 agreement. No district records could be found con- firming written direction from the district’s administration or board for preparing an HVAC assessment as an additional service, and no board meeting records confirm that either the district’s administration or board requested the HVAC assessment as an additional service. Even if the district’s representative had verbally directed Del Terra to perform the work described on the invoice, Del Terra was required to inform the dis- trict in writing (per paragraph 4.3.3) that Del Terra considered the request as additional services. It should not be overlooked that Del Terra is a fiduciary for the district per its own contract terms. No records were found of a written directive from the district requesting a separate evaluation of HVAC that would be in addition to Del Terra’s program management responsibilities. If this written directive was not issued, then at a minimum Del Terra should have attached some backup documentation such as an email, proof of the deliverables provided to the district, or a time sheet to show hours spent in performing the ser- vices. For example, if Del Terra principals had performed the labor for documenting the HVAC status for the district at $210 per hour, a total of 551 hours of services should have been documented as expended. There is no record of this level of hours expended for this HVAC assessment. A FCMAT review of board agendas determined that no board agendas reflected this item as an additional service. No purchase order reflecting this item was included in any purchase order report to the board. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 113 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval See the above September 28, 2018, email response from Alex Rojas to David Alvarez of Leal & Trejo about this issue. Invoice 36270-01 for HVAC assessment contains a signature stamp stating that all items are received or services rendered, as shown below. Appendix 38: Additional Services Invoice 36270-01 for districtwide HVAC assessment (6/1/16). Based on this stamp, Alex Rojas is verifying that at least 551 hours of services (assuming a $210 per hour rate) were provided by Del Terra between April 21, 2015 and June 1, 2016. The purchase order issued is based on the original 2015 agreement, so the lack of board approval or ratification means funds for this ad- ditional service request were never authorized and any related payments were made without board autho- rization. Also, this purchase order was not taken to the board under the district’s monthly list of purchase orders, which means the purchase order below was never properly authorized. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 114 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval Appendix 39: Purchase Order 82490, HVAC additional services (6/14/16). Highlighting added by FCMAT. The assessment of HVAC should reflect an intent to perform HVAC projects, but very little HVAC work was performed during the 2015 agreement. Most of the HVAC work referenced in the 2015 HVAC assessment was performed after the 2015 agreement was declared complete by Del Terra on April 21, 2018.45 Because the district was paying Del Terra a fixed sum amount for program management services based on 4% of the entire program of $30 million, without proof of the number of actual hours worked by Del Terra for program management related items during any given month, these services should have been deemed basic ser- vices under the 2015 agreement and should not have been billed by Del Terra or approved as additional services by the superintendent. 4. Environmental Facility Report — Torch Middle School — $68,000 On June 1, 2016, Del Terra issued an additional services invoice, No. 362230-01, for $68,000 for environ- mental assessment of Torch Middle School. This invoice states the service is “Per Board request: Torch Middle School Environmental Assessment” and is shown below: 45 Some HVAC work was initiated under the 2019 agreement. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 115 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval Appendix 40: Additional Services Invoice 362230 for facilities report and assessments (6/1/16). Highlighting added by FCMAT. There is no record of a board request as written in the invoice or record of this request from district admin- istration. If such direction was provided, it should have been given in writing as required in Article 4.3 of the 2015 agreement. Even if someone from district administration had verbally directed Del Terra to perform the work described in the invoice, Del Terra was required to inform the district in writing (per Article 4.3.3) that Del Terra was considering the request as additional services. A written directive from the district would have established the scope of services to be rendered, the expected deliverables, and the agreed upon compensation. This additional service invoice is for “Environmental Assessment, Phase 1,” which is defined under Educa- tion Code Section 17210(g) as follows: (g) “Phase I environmental assessment” means a preliminary assessment of a property to determine whether there has been or may have been a release of a hazardous material, or whether a naturally occurring hazardous material is present, based on reasonably available information about the property and the area in its vicinity. A phase I environmental assess- ment shall meet the most current requirements adopted by the American Society for Testing and Materials (ASTM) for Standard Practice for Environmental Site Assessments: Phase I Envi- Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 116 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval ronmental Site Assessment Process or meet the requirements of Part 312 (commencing with Section 312.1) of Title 40 of the Code of Federal Regulations. That ASTM Standard Practice for Environmental Site Assessments or the requirements of Part 312 (commencing with Sec- tion 312.1) of Title 40 of the Code of Federal Regulations shall satisfy the requirements of this article for conducting a phase I environmental assessment unless and until the Department of Toxic Substances Control adopts final regulations that establish guidelines for a phase I envi- ronmental assessment for purposes of schoolsites that impose different requirements. Education Code Section 17210(b) provides the qualifications required for an environmental assessor as follows: (b) “Environmental assessor” means an environmental professional as defined in Section 312.10 of Title 40 of the Code of Federal Regulations. The Department of Toxic Substances Control (DTSC), the agency that oversees Phase I environmental as- sessments, (see https://dtsc.ca.gov) requires in Fact Sheet #10, October 2006, Update on Phase I Environ- mental Site Assessments for School Sites; All Appropriate Inquiries; ASTM E-1527-05, the following: Definition of Environmental Professional: ASTM E1527-05 requires that all Phase Is be pre- pared by a qualified environmental assessor with at least three years’ experience in prepara- tion of Phase Is, with documentation of education and college degrees. Environmental pro- fessionals must sign declarations verifying that they meet required qualifications, that is, that they possess specific education, training and experience for conducting AAI (All Appropriate Inquiry) [emphasis added]. A Phase I assessment requires DTSC concurrence and must ensure that the “environmental assessor meets the qualifications specified in subdivision (b) of Section 17210” (see Education Code Section 17213(a)(2)). However, no evidence can be found of a Phase 1 report prepared by Del Terra or information showing how Del Terra met the requirements of Education Code Section 17210, and following, as outlined above. Based on the requirements of Education Code Section 17210, it does not appear that Del Terra was a qual- ified environmental assessor or provided adequate documentation to justify the services rendered. Finally, there is no documentation of either a Phase 1 report or DTSC approvals for Alex Rojas to stamp the invoice for $68,000 for performance of an environmental assessment Phase 1 as “All Items Received/Services Ren- dered.” Despite Alex Rojas’s signature verifying that the hours were expended and the services rendered, it is unclear how Alex Rojas verified that Del Terra qualified as an environmental assessor, how the services were performed, the hours expended by Del Terra performing the environmental assessment, or that DTSC was involved in the assessment as required under Education Code Section 17210. District records of board agendas that FCMAT reviewed do not show this item was taken to the board for approval as an additional service for $68,000. 5. Roofing Assessment - $74,500 On June 1, 2016, Del Terra requested $74,500 for additional services for preparing a roofing assessment, as shown below. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 117 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval Appendix 41: Additional Services Invoice 36201-01, Roofing Assessments, $74,500 (6/1/16). Highlighting added by FCMAT. Similar to other invoices for additional services discussed earlier and bearing the same June 1, 2016 date, there are no district records of a written authorization, board approval, breakdown of hours, or that this roofing assessment qualified as an additional service beyond the original 2015 agreement’s scope of services. No roofing work was performed during the 2015 agreement, which was from April 2015 through April of 2018, when Del Terra improperly declared the 2015 agreement complete. As addressed above, a purchase order was never taken to the board of education for consideration, so there is no board related authorization for the roofing conditions request for additional services. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 118 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval Del Terra provided a roofing conditions update, Page 2 of which included the following chart: Appendix 42: Del Terra roofing conditions update (undated; believed to be May 2016). Highlighting added by FCMAT. Del Terra also gave the district a report from a roofing manufacturer, Garland Company Inc., as the basis for the $74,500 additional services invoice. The cover sheet of the report is shown below. Appendix 43: Garland Roofing Report (undated but believed to be from 2008). This report provided an assessment and dollar values for replacing roofing throughout the district. For ex- ample, Page 8 of the report included a summary of the square footage and budget for repair. In the exam- ple shown below, the Bassett Adult School has 65,879 square feet of roofing and the budget for replace- ment would be $1,301,110. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 119 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval Appendix 43: Garland Roofing Report, Page 8 (undated but believed to be from 2008). Highlighting added by FCMAT. The budget figures from the Garland report match the budget figures for the Del Terra roofing conditions update except for Bassett High School, where the figures were updated to $806,039 for 96,000 square feet and $284,024 for 9,000 square feet, for a total of 105,000 square feet and $1,090,063. Page 18 of the Garland report shows Bassett High School having 104,934 square feet of roof with a replacement cost of $1,090,063. Appendix 43: Garland Roofing Report, Page 18 (undated but believed to be from 2008). Highlighting added by FCMAT. The Del Terra total cost of $1,090,063 and square footage of 105,000 for roofing replacement is the same as in the Garland report except for the number is broken down into an “a” figure and a “b” figure, and the square footage differs by 66 (105,000 – 104,934). Counsel for the district, David Alvarez, contacted Garland representative Sean Magee on January 11, 2019 to inquire as to the cost of preparing the roofing assessment and was told the roofing assessment was pre- pared in 2008 and had been provided at no charge to Del Terra as part of a Williams Act assessment. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 120 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval Appendix 44: E-mail from Sean Magee of Garland (1/11/19). Highlighting and green underline added by FCMAT. Thus, it is not clear what the basis was for the $74,500 additional services invoice from Del Terra for a roof- ing assessment that was prepared eight years earlier at no cost. If the Garland representative was incorrect in his recollection of the 2008 roofing report, Del Terra should have been able to submit a Garland invoice as a pass-through cost but did not do so. The summary provided by Del Terra, which does not have a date, appears to be a summary of the Gar- land report from 2008, and there is no information on any time spent performing new or additional roof- ing assessments that could be considered an additional service under Article 4.3 of the 2015 agreement discussed above. The only new information on the Del Terra chart is budget figures increased by 20% for some locations and 10% for others. District records do not reflect that this additional service of $74,500 was taken to board for approval. Thus, this does not appear to be a valid additional service. 6. Program and Construction Management Additional Services Charges – $400,000 On April 29, 2015, Del Terra presented an additional services invoice, No. 36370-01 for $400,000 for plan- ning and scheduling work at the district office, Bassett High School, Erwin Elementary School, and Florence E. Flanner Elementary School, as shown below. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 121 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval Appendix 45: Additional Services Invoice 36370-01, Districtwide Facilities Projects, $400,000, Page 1 (4/29/15). This invoice listed four sites at which program and construction management services were to be provided. Other than the Flanner Project, which was constructed in 2018, the district does not have records of these purchase orders or contracts, or records of payment(s) to any contractors for these services. Under the 2015 agreement, Del Terra was entitled to charge a program management fee and a construction man- agement fee for any work performed. However, Del Terra did not invoice based on a percentage of costs incurred. Instead, there is a list of services with no information about hours, efforts or costs. The first exam- ple is Page 2 of the invoice, shown below, which contains the backup information submitted for the district office project. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 122 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval Appendix 45: Additional Services Invoice 36370-01, Districtwide Facilities Projects, $400,000, Page 2 (4/29/15). District records do not have any backup documentation of the request from the superintendent or the CBO and no documentation on costs for hazardous material removal or the cost for any of the work performed. There should have been a cost that could be used to calculate the management fees. Instead, a lump sum with no relationship to the actual construction work performed was requested as an additional service. California Financial Services (CFS) while not a municipal advisor as defined under the Securities Exchange Commission, was the district’s bond facilities financial advisor that prepared a “Priority School Project Sta- tus Report” dated August 26, 2015, on bond expenditures. However, none of the projects listed on Invoice 36370-01 are listed in the report. Because the report of August 26, 2015, is dated several months after the invoice date of April 29, 2015, it should have listed these projects. The expenditures listed are shown on the CFS bond expenditures charts below: Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 123 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval Appendix 46: CFS Bond Expenditure Report, Page 3 (8/26/15). Appendix 46: CFS Bond Expenditure Report, Page 4 (8/26/15). The next CFS bond expenditure report, dated February 18, 2016, listed one project that matches the project descriptions listed on Invoice 36370-01: “Modernize Existing Little Theater at Bassett High School.” Page 21 of the February 18, 2016, report, shown below, lists a project under the category “Potential Measure V – 2017 Series B Projects.” This project is titled Bassett High School Little Theater and shows a projected expenditure of $220,000 for 2017. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 124 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval Appendix 47: CFS Bond Expenditure Report, Page 21 (2/8/16). Highlighting added by FCMAT. A December 16, 2019, report was prepared by CFS on bond expenditures, after Del Terra declared on April 21, 2018 that it had completed its contractual responsibilities under the 2015 agreement. The December 16, 2019, CFS report provided cumulative summaries of all expenditures under the 2015 agreement and of some expenditures on prior Del Terra agreements. The December 16, 2019 Citizens’ Bond Oversight Committee Report cover page and report on bond expen- ditures summaries are shown below to provide additional context as to what was being presented as bond expenditures. Appendix 48: COC Bond Expenditure Report (12/16/19). Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 125 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval This report on bond expenditures includes no mention of the district office project. A review of the first page of expenditures, which starts on Page 3 of the report, found only one expenditure at Erwin Elemen- tary School, of $1,588.00, so it does not appear that the Erwin Elementary School Mommy and Me project was performed as listed on Invoice 36370-01 shown above. Appendix 48: COC Bond Expenditure Report, Page 3, (12/16/19). Highlighting added by FCMAT. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 126 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval Page 4 of the report also lacks any expenditures related to the $400,000 additional services request. Appendix 48: COC Bond Expenditure Report, Page 4, (12/16/19). The Bassett High School Little Theater project that was previously shown as a 2017 anticipated expenditure is no longer listed. Appendix 48: COC Bond Expenditure Report, Page 5, (12/16/19). Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 127 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval There are no expenditure reports for architecture or construction services in the district’s files related to modernizing the Little Theater. Also, based on interviews of district employees, the Little Theater was never renovated. Appendix 48: COC Bond Expenditure Report, Page 6, (12/16/19). Highlighting added by FCMAT. The 2015 agreement was approved on April 21, 2015. This $400,000 additional services invoice is dated April 29, 2015, just eight days after the 2015 agreement was approved. A purchase order was opened for this item by Alex Rojas on May 5, 2015, then revised May 12, 2015, but it appears to be based on the orig- inal contract approval, and no board authority for extra services was ever approved or ratified. The pur- chase order was issued six days after the Del Terra invoice was submitted. Purchase Order No. 71791 for $400,000 is shown below. Appendix 50 and 77: Purchase Order 71791 for $400,000 (5/12/15). Highlighting and red circle added by FCMAT. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 128 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval This May 5, 2015 purchase order is revised to May 12, 2015, then paid two days later, on May 14, 2015, with Check/Warrant No. 22155882 as shown below. Appendix 50: Check No. 22155882 for $400,000 (5/14/15). Highlighting added by FCMAT. District records do not reflect $400,000 in additional services ever being properly preapproved on a board agenda. After the fact, on July 14, 2015, two months following the date of payment, a purchase order was placed within a monthly purchase order report. This is not the proper way to approve services. Services should be preapproved by the board. See copy of the agenda for July 14, 2015 reproduced below: Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 129 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval Appendix 83, board agenda monthly purchase order listing, Page 5 (7/14/2015). Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 130 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval The timing of how Del Terra authorized work is inconsistent with standard protocols where the district enters into a contract which authorizes the work, the executed and board approved contract initiates a purchase order, the work is performed consistent with that included in the contract and then an invoice is submitted for payment. In this case: 1. The invoice is initiated on April 29, 2015 2. A purchase order is issued on May 5, 2015 (this is the only purchase order for an additional service request that is taken to the board) 3. Payment for the entire additional service is made on May 14, 2015 4. The board approves the purchase order 2 months later on July 14, 2015; and 5. Then the work is performed. Based on the August 26, 2015 and February 18, 2016 bond expenditure reports, no work was performed on any of the projects listed for this $400,000 additional services invoice until sometime between 2016 and December 16, 2019, when an expenditure was shown for the Flanner Project (see further discussion in Section E.8.). Thus there was no basis for approving or making this $400,000 payment and no basis for the $400,000 amount requested by Del Terra. 7. Reprogramming and Replanning – $230,000 The reprogramming and replanning invoice is discussed more fully in Section B.1 of this report, and it is unclear why reprogramming or replanning was needed at the outset after the 2015 agreement was exe- cuted. As discussed above, this $230,000 additional service invoice deviates from the requirements for written direction under Article 4.3.1 of the 2015 agreement and does not provide information on the number of hours of work spent on the project, or who provided the labor for this request. This invoice, No. 36382 shown below, was for reprogramming the TK-5 21st Century Schools project, but it is unclear what was being reprogrammed. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 131 Findings D. Alex Rojas Approved Questionable Additional Expenditures Where Del Terra May Have Started Work Without Verification or Board Approval Appendix 51: Additional Services Invoice 36382, 21st Century Schools TK-5 Project, $230,000 (9/15/16). Because the services are marked as “All Items Received/Services Rendered,” Alex Rojas should have received information on the number of hours spent or other details on which to base his finding that the services had been rendered, and that information should have been preserved at the district, but it was not. As noted in Section B of this report, this invoice was paid before the TK-5 21st Century Schools project work had been performed, so it is not clear what work was undertaken by Del Terra. As with all the additional services request for $952,750 addressed above, there is no governing board ap- proval or ratifications, and no written authorization from either the board or the district’s administration for this $230,000 additional services request. There also does not appear to be a basis on which Alex Rojas could confirm that all items and/or services were rendered. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 132 Findings E. All Projects Paid for; Few Delivered E. All Projects Paid for; Few Delivered Article 4.4.1 of the 2015 agreement states the following: 4.4.1 Basic Term. When this agreement has been fully executed by the Parties, the Term shall commence on the date first set forth above and shall end when the District has issued notices of completion for all Campus Projects and all punchlistitems (sic) for the Campus Proj- ects have been completed or waived by the District, or upon the termination of this Agree- ment as set forth in Article 7, whichever occurs earlier. [emphasis added]. Under Article 4.1 and Exhibit C of the 2015 agreement, compensation to Del Terra was 4% of the full bond program value for program management services and 9.9% of the actual construction costs, including all change order increases and consultant costs for construction management services. Compensation was “[i]n exchange for the full, timely and complete performance of all of the requirements of this Agreement” [emphasis added]. The critical language under Article 4.4.1 of the 2015 agreement states that the term began April 21, 2015 and: . . . shall end when the District has issued notices of completion for all Campus Projects and all punchlist items for the Campus Projects have been completed or waived by the District, or upon the termination of this Agreement as set forth in Article 7, whichever occurs earlier. On February 18, 2016, at a special meeting of the district’s governing board, Del Terra presented a master plan that addressed Del Terra’s goals, objectives and priorities. Page 4 of that plan states that the first and most important objective was to “Ensure Safety of all District students and staff,” with priorities that includ- ed significant infrastructure priorities such as AB 300 structural safety, ADA compliance, and upgrading fire alarms. The 2016 master plan priorities outlined by Del Terra included structural engineering preliminary review documents that recommended a full structural evaluation and application for state funding under the SSMP (see Appendix 72e). Similarly, ADA-related items and fire alarms are important infrastructure-related up- grades for the long-term use of district facilities and for the safety of students and staff. The district’s records do no not show any contract or expenditures associated with evaluation of any of the outlined priorities of structural evaluation of seismic issues, fire alarm design, or ADA upgrades. There are no records of further structural review and no application for SSMP funding. There are no detailed ADA evaluations of the district’s schools, mechanical/electrical evaluations, or work performed to upgrade fire alarms. Based on the available information obtained by FCMAT, the only time Del Terra addressed critical infra- structure that formed the foundation of the Measure V Bond program was at the district’s February 18, 2016 special board meeting. Based on the information available to FCMAT, and because Del Terra refused to cooperate with the audit, as best as can be determined, after February 18, 2016, there is no evidence that the subject of infrastructure and safety was pursued. 1. The 36-Month Schedule and Projects under the 2015 Agreement Contractually, the 2016 master plan should have formed the basis for the “comprehensive program” uti- lizing the “full bond program value.” Instead of following Del Terra’s 2016 master plan, Del Terra created a Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 133 Findings E. All Projects Paid for; Few Delivered new program document which Del Terra provided superintendent Alex Rojas.46 This document provided a 36-month schedule for the following projects: 1. 21st Century Classrooms 6-12 2. 21st Century Classrooms K-5 3. BHS: New Snack Bar 4. BHS: New Courtyard 5. BHS: Little Theatre 6. BHS: Main Entrance 7. BHS: Swimming Pool Remodel Del Terra’s proposed schedule as previously shown above and at Appendix 2 showed that all projects would be completed by mid-2018. Pursuant to this 36-month schedule, Alex Rojas and Del Terra agreed that Del Terra would be compensated for program manager fees equal to 4% of the entire amount of the $30 million Measure V Bond, which was $1.2 million. This $1.2 million for program management fees was then divided into 36 payments of $33,333. For retention, 5% was withheld from the $33,333 each month, and Del Terra received $31,666 each month for program management services for the seven initial program projects. See Section E.5 of this report for discussion of why this 36-month schedule of equal payments was improper. FCMAT’s understanding is that the listed Bassett High School projects were included as a result of discus- sions with the district’s school facilities funding consultant, Betty Hanson of CFS, who notified Del Terra in the email below that certain projects at Bassett High School were eligible for state funding.47 46 Under the 2015 agreement, Del Terra was asked to provide, as an additional service of $85,000 to “Develop [an] Initial Program Plan” to create the list of seven projects to satisfy Article 1.2.1 responsibilities under the 2015 agreement. 47 The state funding consultant at California Financial Services, Betty Hanson, also sent an email dated November 9, 2016, stating that Del Terra’s failure to follow state funding prequalification requirements on an earlier Bassett High School HVAC project resulted in the loss of state funding eligibility for the Bassett High School site. In this email Hanson expressed hope that Del Terra could meet requirements for state funding on Bassett High School projects, including the five listed. In an interview with FCMAT, Betty Hanson explained that Del Terra did not want to undertake a competitive process since it could eliminate Del Terra’s preferred contractor. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 134 Findings E. All Projects Paid for; Few Delivered Appendix 52: E-mail from Betty Hanson on state funding (11/9/16), Pages 2-3. Highlighting added by FCMAT. This email from Betty Hanson was forwarded as an email string as shown below to former superintendent Alex Rojas on November 9, 2016 by a CFS employee due to concerns over Del Terra’s failure to meet state funding requirements. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 135 Findings E. All Projects Paid for; Few Delivered However, according to Betty Hanson, Del Terra did not respond to her emails or return her calls even though she had explained to Del Terra that she could help them obtain more funding. Although the recommendation in 2016 by the school facilities funding consultant was to include a stadium project for Bassett High School, Del Terra did not include this project in its initial program plan list. Based on a review of district records and interviews with district personnel, FCMAT found that the only con- struction work performed on the Bassett High School projects was painting the snack bar and installation of new lockers, which was performed in 2019.48 The DSA records do not show any applications for a Bassett High School pool project, little theater, courtyard, or main entrance project. When Leal and Trejo questioned the district’s completion of certain projects in a letter to Alex Rojas, he provided a document dated September 28, 2018, shown below. Alex Rojas indicated it was a document kept by himself and the board on projects. This list of project expenditures appears to be document- ing completed work and expenditures after the date when Del Terra declared that all work under the 2015 agreement was complete.49 It incorrectly shows expenditures of $995,000 on the Little Theater, $2,800,000 on the swimming pool, and $500,000 on the snack bar/stadium projects in the summer of 2017, with the courtyard project being planned for the summer of 2017 (see excerpt from the September 28, 2018 report below). 48 Del Terra had declared that the 2015 agreement was complete on April 21, 2018. The snack bar painting work was done in 2019 under the terms of a new 2019 agreement. No work was performed during the 2015 agreement on the Bassett High School snack bar. 49 Despite the language of Article 4.4.1 of the 2015 agreement, that all projects were to be completed, on April 21, 2018, three years after the 2015 agreement, which is dated April 21, 2015, Del Terra declared that the 2015 agreement had expired. Del Terra improperly asserted that all services were completed, contrary to the actual status of the projects. Nevertheless, a new bond program agreement was presented to the district, which is referred to in this report as the 2019 agreement. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 136 Findings E. All Projects Paid for; Few Delivered Appendix 35: Alex Rojas response letter, Page 5 (9/28/18). Highlighting added by FCMAT. The district’s records do not include the expenditures shown in the document provided by Alex Rojas. Un- der the 2015 agreement none of the projects on the superintendent’s list above occurred during the 2015 agreement term (see 2016 California Financial Services’ expenditure report in Appendix 47 of this report). 2. Additional Service Fees Charged for Little Theater Even though the Bassett High School Little Theater project was included in the 2015 agreement as a sched- uled base contract project, Del Terra included the Little Theater project as part of a $400,000 additional services amendment dated April 29, 2015. The additional services invoice, No. 36370-01, is shown below. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 137 Findings E. All Projects Paid for; Few Delivered Appendix 45: Additional Services Invoice 36370-01, Districtwide Facilities Projects, $400,000 (4/29/15). Highlighting added by FCMAT. The description that accompanied this invoice stated the following: Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 138 Findings E. All Projects Paid for; Few Delivered Appendix 45: Additional Services Invoice 36370-01, Districtwide Facilities Projects, $400,000 (4/29/15). Highlighting added by FCMAT. Based on interviews with district personnel and a review of the district’s records for Bassett High School, it does not appear that any work was done on the Little Theater project during the 2015 agreement. After the 2019 agreement was entered into, the Little Theater received paint. Under the 2015 agreement, the Little Theater renovation project was to comply with requirements to re- ceive state funding, which means that the project would be modernized, receive DSA approvals, and then the project would be bid. There are no records of any DSA approvals for the Little Theater project. A DSA renovation project of the Little Theater would have included ADA, electrical, and code-related upgrades to the theater and potentially adjoining areas. There is also no record of bids for a modernization of the Little Theater. The notation in the CFS email that the Bassett High School projects needed to meet labor compliance requirements was also not followed. Thus the Little Theater project could not be included as a state funded project. Because Del Terra had already charged for the modernization scope of work of the Little Theater project, which never happened, there was no basis on which to justify payment for the same services again under the 2019 agreement. 3. Expenditure Reports Lack Evidence of Approvals, Timely Completion In addition to district records of expenditures that show little expended on the 2015 listed projects at Bassett High School, cumulative bond-related expenditures were logged by CFS and provided in annual reports to the district and to its citizens’ bond oversight committee. The CFS bond expenditure report dated December 2019, shown below, shows that the swimming pool remodel had $393,490 allocated to it, but there are no expenditures in December 2019.50 The 2019 bond expenditure report also shows the snack bar and courtyard projects as having $143,564.07 in expenditures. 50 After the 2015 agreement was completed, Del Terra had the district enter into a new agreement, which is referred to in this report as the 2019 agreement. As discussed in Section F.1 of this report, an architect did begin work in late 2019, and design work continued through 2020. However, it appears that no work was performed on the Bassett swimming pool project under the 2015 agreement. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 139 Findings E. All Projects Paid for; Few Delivered Appendix 48: COC Bond Expenditure Report, Page 5 (12/16/19). Highlighting added by FCMAT. Based on the 36-month schedule that Del Terra submitted and Alex Rojas approved at the start of the 2015 agreement, in addition to the two 21st century classroom projects, Del Terra was to complete the following five projects within the 36-month period: 1. BHS: New Snack Bar 2. BHS: New Courtyard 3. BHS: Little Theatre 4. BHS: Main Entrance 5. BHS: Swimming Pool Remodel Project Under the schedule, all the above listed projects were to be DSA approved, and construction was to be completed by April 2018. However, a review of DSA records shows no projects submitted for Bassett High School from 2015 through 2019, and there is no record of any DSA approvals for any of the five projects list- ed above.51 Based on the 2019 CFS bond expenditure report, the only BHS projects that had expenditures were the snack bar and courtyard, on which a total of $143,564 was expended. 4. Update to Del Terra 2019 Agreement Del Terra provided a September 24, 2019 update shown below indicating that the snack bar repainting was included in a July 8, 2019, football field restoration project. 51 For a more thorough discussion of the activity at Bassett Unified School District that failed to secure DSA approval during the Del Terra 2015 agreement and 2019 agreement, see Section G of this report. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 140 Findings E. All Projects Paid for; Few Delivered Appendix 53: Del Terra September 24, 2019 update, Page 3. Highlighting added by FCMAT. Based on the timing of the statements in the September 24, 2019, Del Terra update, this July 8, 2019 project was performed after Del Terra declared the 2015 agreement complete on April 21, 2018. The work occurred under the 2019 agreement.52 Also, as addressed earlier in Section E.1 of this report, the Bassett High School snack bar renovation was potentially eligible for state funding but required a DSA submission and approval. It also required compliance with Office of Public School Construction (OPSC) submission requirements. This meant that the project was intended to be a modernization project, not just a repaint of the snack bar. Regarding the Bassett High School swimming pool project, Del Terra also indicated in its September 24, 2019 update that an architectural firm was awarded a contract on July 25, 2019, nearly 15 months after Del Terra notified the district that it had completed the 2015 agreement. Del Terra had been paid to complete this project under the 2015 agreement. 52 As addressed more fully in section E.1 of this report, Del Terra had been paid program management fees, which included the promised snack bar renovation project. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 141 Findings E. All Projects Paid for; Few Delivered Appendix 53: Del Terra September 24, 2019 update, Page 8. Highlighting added by FCMAT. Based on the December 2019 expenditure report and the September 24, 2019 Del Terra update, other than completing the two 21st century school projects, Del Terra did not complete any of the other five projects included in the 36-month plan approved by Alex Rojas, nor did it receive DSA approvals. In addition, Del Terra charged a fee of $154,000 under the 2019 agreement for project management services that were already paid for the Bassett High School swimming pool project under the 2015 agreement. 5. Lack of Any Basis for 36 Month Duration of 2015 Agreement The 2015 agreement states the following under Article 4.4.1: Appendix 1: 2015 agreement, Page 20 (4/21/15). Highlighting added by FCMAT. Thus, Del Terra’s contractual responsibilities were not completed until the 2016 master plan was complete. Unfortunately, the most important items — seismic, fire alarm, and ADA upgrades — were not completed. Alternatively, using the 2015 project list, Del Terra’s work was not complete until at least all five open Bas- sett High School projects had notices of completion issued or had them waived by the district. As part of their report, the district’s legal counsel, Leal and Trejo, asked Alex Rojas the basis for the 36-month payment schedule. Leal and Trejo’s September 6, 2018 inquiry is shown below. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 142 Findings E. All Projects Paid for; Few Delivered Appendix 54: Letter from Leal and Trejo to Alex Rojas on 36-month schedule (9/6/18). Highlighting and blue border added by FCMAT. Alex Rojas responded on September 28, 2018, in the email below stating that 36 months was pursuant to Government Code and referring to a schedule that was not attached to the correspondence but that is included above at the beginning of this section. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 143 Findings E. All Projects Paid for; Few Delivered Appendix 35: Alex Rojas response letter (9/25/18). Highlighting and blue border added by FCMAT. The only statute that potentially provides for a 36-month period is Education Code Section 17596, which states the following: Continuing contracts for work to be done, services to be performed, or for apparatus or equipment to be furnished, sold, built, installed, or repaired for the district, or for materials or supplies to be furnished or sold to the district may be made with an accepted vendor as fol- lows: for work or services, or for apparatus or equipment, not to exceed five years; for materi- als or supplies, not to exceed three years. [Emphasis added.] The 36-month reference from Alex Rojas is misapplied, and the duration of the agreement does not affect the obligation to complete projects. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 144 Findings E. All Projects Paid for; Few Delivered First, no such provisions in the 2015 agreement discusses compensation based on equal payments over a 36-month or any other time period. And no evidence was provided to FCMAT or could be found that the district’s governing board delegated its authority under Education Code Section 17604 to Superintendent Rojas to modify the terms of the 2015 agreement or make any other decisions related to the payment provi- sions in the 2015 agreement.53 Even if Del Terra could provide documents showing that Superintendent Rojas expressly agreed to any modification or clarification of the terms and requirements of the agreement, any such agreement would be void and unenforceable absent a formal delegation of authority by the district’s governing board as required under Education Code Section 17604 (see Santa Monica Unified School District v. Persh (1970) 5 Cal.App.3d 946). Furthermore, Article 10.9 of the 2015 agreement contains an integration clause and states, “[t]his Agreement may be amended only by written instrument signed by authorized representatives of both District and Manager, which has no force or effect until it has been formally approved or ratified by the Board of Education.” Rather than follow the express provisions of the agreement and prepare invoices based on contract lan- guage, Del Terra presented the superintendent with a schedule of projects to be performed during a 36-month period. The project timeline schedule in Appendix 2 provided for the completion of the following projects: 1. 21st Century Classrooms 6-12 2. 21st Century Classrooms K-5 3. BHS: New Snack Bar 4. BHS: New Courtyard 5. BHS: Little Theatre 6. BHS: Main Entrance 7. BHS: Swimming Pool Remodel Project During the 36-month period, only projects 1 and 2 above were completed. Items 4 through 7 were not undertaken at all. After Del Terra declared the 2015 agreement complete, item 3 for the new snack bar only received paint. Based on the lack of records showing the 36-month schedule was ever placed on a governing board meeting agenda or discussed with the board, there was no basis for the 36-month payment schedule and there is no evidence that Del Terra completed any of the promised Bassett High School projects during the 36-month period. 6. 2019 Agreement Included Items Not Completed Under 2015 Agreement Even though the 2015 agreement had not been completed as required under Article 4.4.1, Del Terra noti- fied the district that the 2015 agreement ended on April 21, 2018, three years after it was entered into, and 53 This is likely an act that exceeds Alex Rojas’ authority as superintendent under Education Code Section 17604 and for which Alex Rojas may have personal liability. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 145 Findings E. All Projects Paid for; Few Delivered requested an amendment to the 2015 agreement. Del Terra’s proposed amendment was provided to the district on or about June 2018. The cover page of Del Terra’s 2018 amendment is shown below. Appendix 55: Proposed amendment to 2015 agreement, June 2018. Highlighting added by FCMAT. This proposed amendment was not signed, and it incorrectly asserts that the 2015 agreement had been completed, seeks an additional $389,906 as of June 2018, and alleges that the need to pursue the addi- tional fee was because of reprioritization and reprogramming of the bond program. However, there are no documents that show a reprioritization or reprogramming. When Del Terra requested the 2018 amendment to extend the 2015 agreement, the district had already fully paid all program management fees of $1.2 million related to the bond (4% of the $30 million Measure Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 146 Findings E. All Projects Paid for; Few Delivered V bond), even though Del Terra had not completed its program management services, the 2016 master plan, or the 2015 project list.54 The 2018 amendment proposed an extension until December 2019 and a fee increase of $389,906 to continue providing program management services. As shown above, the 2018 amendment makes several incorrect assertions as justification, including the following: 1. Due to various district decisions and actions, the 2015 agreement program timeline was exceeded and the original program management fee was exhausted. 2. The “District’s decision to re-prioritize the Bond Projects several times and directed Manager to work on re-developing and re-programming the Bond Program and to assist the District in developing a revised list of Bond Project to be recommended to the Board of Education for Implementation.” 3. “ . . . delays in District decisions, and the time and effort to re-prioritize and re-program the Bond Program was not originally contemplated by the District Administration or Manager” when the original Agreement was negotiated.” Although the 2018 amendment alleged reasons for the additional time and costs, the district has no written record to support Del Terra’s contention of delays and reprioritization of projects. Del Terra did not provide evidence to support its position that the terms and conditions of the 2015 agreement had been satisfied, that all projects had been completed, that projects were closed out, and that notices of completion had been recorded. When Leal and Trejo questioned Del Terra about the payments and proposed amendment, Del Terra stat- ed that prior superintendent Alex Rojas agreed to a 36-month term.55 As noted in correspondence dated September 28, 2018 and discussed above, it appears that Alex Rojas had received a 36-month schedule of projects and agreed to it. 7. 36-Month Schedule Did Not Cover All District Projects The 2015 agreement was for program management and construction management services for the entire $30 million Measure V bond. The language of the 2015 agreement refers to “full Bond Program value,” as shown in Exhibit C below. Appendix 1: 2015 agreement, Page 39 (4/21/15). Highlighting added by FCMAT. 54 According to Del Terra’s September 24, 2019 bond report (see Appendix 53), there was $11,347,554 in bond funds remaining. In the same bond fund availability chart, Del Terra also listed the Bassett High School swimming pool project, and DSA closeout – two of the projects includ- ed in the original 2015 agreement bond program project list and schedule. 55 36 equal payments of $31,660 were paid based on a charge of 4% on the entire bond amount of $30 million. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 147 Findings E. All Projects Paid for; Few Delivered Del Terra’s scope of services included the Measure V bond funds but also included all state matching funds.56 Appendix 1: 2015 agreement, Page 1 (4/21/15). Highlighting added by FCMAT. The scope of work for Del Terra’s 2015 agreement covered all district schools. Appendix 1: 2015 agreement, Page 1 (4/21/15). Highlighting added by FCMAT. Under the 2015 agreement, Del Terra was to work “under the supervision of the District’s Superintendent or designee.” Throughout the Measure V bond project, Del Terra worked under the direction of the superin- tendent. When the 2015 agreement was executed on April 21, 2015, Alex Rojas was the superintendent until his resignation on May 23, 2017, at which point Debra French took over. Soon after Debra French became superintendent, Del Terra announced that the 2015 agreement had ended and requested a new agree- ment. The 36-month schedule (see Appendix 2) lacked a comprehensive bond program plan that included how the $30 million would be spent across the entire district at its eight schools. The projects shown on the 36-month timeline schedule concentrated on Bassett High School. Under the language of Article 1.3, a program manager would oversee all projects under the bond, including contingency amounts, and plan for the timely completion of projects. The seven projects shown on the 36-month schedule do not appear to be a complete bond program; this is inconsistent with the purpose stated under Recital C of the 2015 agreement. More significantly, Del Terra’s responsibility as a fiduciary under the agreement raises the level of responsibility to act in the best interests of the district when planning projects for the district. It is troubling that Alex Rojas agreed that this schedule represented a comprehensive bond program when he agreed to pay Del Terra the entire program management fee of 4% of $30 million. Although it seems questionable that the seven listed projects in the timeline would be acceptable as the entire district Measure V program under the 2015 agreement in light of the 2016 master plan, if both the governing board and Alex Rojas did agree that this schedule was the bond program, under the 2015 agree- ment it was Del Terra’s responsibility to document why the five Bassett High School projects depicted with red x’s shown below could not move forward before expiration of the 36-month period and to show which projects were substituted for those five projects. FCMAT’s review of district documents does not show that projects from other schools were added to the program. 56 As far as district records show, the district was eligible for state funding, but the projects Del Terra undertook under the 2015 agreement were not submitted to DSA, a condition required for state funding. See Education Code Sections 17070.50 and 17072.30. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 148 Findings E. All Projects Paid for; Few Delivered Appendix 2: Del Terra proposed program projected construction timeline of seven projects. Red x’s and blue check marks added by FCMAT. 8. Projects from April 21, 2015 through April 21, 2018 The district’s accounting records show that the main costs incurred during the 2015 agreement arose from the two 21st century schools projects. Del Terra’s 2018 proposed amendment indicated that the district’s priorities changed during the 2015 agreement, leaving the five Bassett High School projects uncompleted. The district’s accounting records indicate that from April 21, 2015 through June 1, 2018, three projects (list- ed below) were worked on in addition to the 21st century schools projects. While there is no record reveal- ing that these projects were substituted for the five Bassett High School projects under the 2015 agree- ment, these are the only three projects that took place during Del Terra’s alleged 36-month period and are likely the projects Del Terra claims were the result of reprioritization. The projects were: • Development of the Flanner Project, for which a cumulative $380,782 was paid to Del Terra on a $3,591,965 project. • Bassett High School Cabling and refurbishment of two classrooms from July 1, 2017 through January 31, 2018, for which the total project cost was $413,365 and for which Del Terra was paid $32,161 (two classrooms) and an additional $8,763 (cabling) for construction manage- ment services. None of the other three projects were undertaken or completed by Del Terra under the 2015 agreement. a. Child Development Center Modernization The Flanner Project was done in 2018, just before Del Terra declared the 2015 agreement services com- plete. Del Terra billed and was paid $380,782 on a budget of $3,591,965. Del Terra’s Invoice 36500-01 for construction management services for this project is shown below. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 149 Findings E. All Projects Paid for; Few Delivered Appendix 56: Invoice 36500-03 for $380,782, CM Services, Flanner Project Child Development (2/5/19). Highlighting added by FCMAT. An accounting showing $380,782 of all invoices on the Flanner Project was prepared by FCMAT based on district records.57 See Appendix 57 for an accounting of district expenditures. Based on district records, this was the only project submitted to the DSA in the six years Del Terra was under district contracts (April 21, 2015 through April 17, 2021). b. Bassett High School Cabling Project and Refurbishment of Two Classrooms The other projects worked on at Bassett High School were a cabling project for $88,511 and refurbishment of two classrooms for $324,854. From July 1, 2017 through January 31, 2018 Del Terra was paid $32,161 for the Bassett High School two classroom project and an additional $8,763 for the Bassett High School ca- bling project. The October 12, 2017 Invoice 36351-01 associated with the cabling project is shown below. 57 Between Del Terra invoice number 36500-02 and 36500-03, Del Terra increased their budget from $3,591,965 to $3,846,283, an increase of $254,318. This increased Del Terra’s compensation from $355,605 to $380,782 or $25,177. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 150 Findings E. All Projects Paid for; Few Delivered Appendix 58: Invoice 36351-01, Bassett High School Cabling, CM Services of $7,887 (10/12/17). Completion of this cabling project was indicated in February 8, 2018 Invoice 36351-02 for $876. (See Ap- pendix 59, Page 5). The Bassett High School two classroom project Invoice 36353-01 for the first payment on the $32,161 construction management fee is shown below. While this invoice shows the first payment, the full amount of $32,161 was paid to Del Terra with four checks/warrants. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 151 Findings E. All Projects Paid for; Few Delivered Appendix 84: Invoice 36353-01, Bassett High School, two classrooms, $32,161 (8/1/17). Highlighting added by FCMAT. The Flanner Project and Bassett High School cabling and two classrooms are small projects that were added to the 2015 agreement, which is supposedly for the entire Measure V bond program. Del Terra was contractually obligated to complete the entire Measure V bond program, but based on what FCMAT can determine, all they did were these two small projects. Sections 10 and 12 below discuss these two projects in more detail. 9. Only Four Projects Were Completed Under the 2015 Agreement It is not clear how Del Terra met its contractual obligation to provide a comprehensive program. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 152 Findings E. All Projects Paid for; Few Delivered Appendix 1: 2015 agreement, Page 1 of 39 (4/21/15). Highlighting added by FCMAT. A program management fee of 4% for the entire $30 million bond program was paid to Del Terra for the following four projects58: 1. 21st Century Classrooms 6-12 at a total cost of $4,355,630 2. 21st Century Classrooms K-5 at a total cost of $5,045,758 3. Development of a Child Development Center at a total cost of $3,591,965 4. BHS Two Classroom Project, $324,854 and Cabling Project $88,511, at a total submitted cost of $413,365 The above total of $13,406,718 was the total expended during the 36 months of the 2015 agreement; soft costs for Del Terra were $4,687,993, which leaves a value of $11,905,288 ($30,000,000 - $13,406,718 - $4,687,993); however, Del Terra billed the district for program management fees on $30 million. Thus, it appears that Del Terra billed for fees and was paid on a value of $11,993,800 worth of services that were never provided. This means Del Terra improperly billed and was paid $479,752 ($11,993,800 x 4%) for pro- gram management fees. 10. 2019 Agreement Scope of Work Even though there was significant incomplete work that had already been paid for under the 2015 agree- ment, on July 29, 2019, the district entered into an agreement with Del Terra that had almost the same scope of work as the 2015 agreement. The first page of the multipage agreement is shown below. 58 The following two construction projects were under other contracts with Del Terra before the 2015 agreement was entered into: 1. Bassett HVAC project, started in November 2013 and completed December 1, 2015 2. Bassett High School Labs Modernization, from August 2014 through February 20, 2016 These two projects predate the Del Terra 2015 agreement and while there was some overlap of work and payments with the contracted projects under the 2015 agreement, these were not projects under the 2015 agreement. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 153 Findings E. All Projects Paid for; Few Delivered Appendix 28: 2019 agreement (7/29/19). Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 154 Findings E. All Projects Paid for; Few Delivered Page 38 of this 2019 agreement shows a schedule of projects and budgets attached as Exhibit B: Appendix 28: 2019 agreement, Exhibit B, Page 38 (7/29/19). Highlighting added by FCMAT. The first project listed in Exhibit B is the Bassett High School swimming pool project, one of the seven projects in the 2015 agreement. The listed budget for this project is $3,850,000. Because this project was the basis for the original program management fee of $1.2 million charged under the 2015 agreement, the $154,000 in program management fees shown for this project duplicates charges for program management fees already paid under the 2015 agreement. The next line item on Exhibit B is closeout projects that were carried over from the 2014 agreement and additional services of $68,000 dated June 1, 2016 on the 2015 agreement. All projects that required close- out should have already been closed out under the 2014 and 2015 agreements. The additional services for a total of $23,265 ($9,400 in program management fees and $13,865 in construction management fees) du- plicate previously contracted amounts that were fully paid for still incomplete contracted closeout services. A more complete discussion of closeout-related issues is found in Section C of this report above. Del Terra did not close out the only DSA project undertaken during the 2015 agreement, the Flanner Proj- ect. The DSA record, shown below, indicates that a DSA 301-P notification of requirement for certification was sent regarding Florence E. Flanner Elementary School. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 155 Findings E. All Projects Paid for; Few Delivered Appendix 60: Florence E. Flanner Elementary School DSA Certification Status Notes dated 3/16/21. Highlighting added by FCMAT. The Flanner Project was closed out on March 7, 2022, by a consultant hired by the district to respond to the DSA stop work orders. To review any DSA project status, use the following link: https://www.apps2.dgs. ca.gov/dsa/tracker/Default.aspx. The DSA website at https://www.dgs.ca.gov/DSA/Resources/Page-Content/Resources-List-Folder/Proj- ect-Certification-for-School-Essential-Services-Construction-Projects?search=301%20P states that a DSA 301-P form is a list of deficiencies for a project and the parties responsible for the deficiencies. The relevant portion of the website is shown below. Appendix 61: Printout from DSA website on project certification. Highlighting added by FCMAT. The Flanner Project was the only DSA project during Del Terra’s tenure at the district under the 2015 agree- ment. Del Terra’s failure to obtain closeout of that project violates articles 2.4.19 and 2.4.20 of the 2015 agreement, which are shown below. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 156 Findings E. All Projects Paid for; Few Delivered Appendix 1: 2015 agreement, Page 16 (4/21/15). Highlighting added by FCMAT. As discussed above, the Bassett High School snack bar project was not performed as required under the 2015 agreement and was included in the 2019 agreement as part of the Bassett High School football field renovation/restoration project. This was discussed in Del Terra’s September 24, 2019 update, which indi- cated the snack bar repaint was included in a July 8, 2019 football field renovation/restoration project. The update is reproduced again below. Appendix 53: Del Terra September 24, 2019 update, Page 3. Highlighting added by FCMAT. The cost of the painting project for the snack bar is unknown, but it was covered under the 2015 agree- ment. Based on what FCMAT can determine, it is clear that Del Terra did not perform modernization work, seek DSA approval, or seek state funding for the snack bar project under the 2015 agreement. It appears Del Terra was paid the full program management fee under the 2015 agreement for these projects and re-included these projects in the 2019 agreement, resulting in a duplicate charge. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 157 Findings F. Failure to Obtain DSA Approvals F. Failure to Obtain DSA Approvals Construction on all school buildings is required to comply with Education Code Section 17280 and following, which is known as the Field Act (see Section A.4 of this report for more information regarding the Field Act). Under the Field Act, plans are to be prepared by a licensed architect or structural engineer (see Education Code Section 17302). All projects are to be overseen by a DSA-approved inspector, who is required to con- tinually inspect the project (see Education Code Section 17311). The architect, structural engineer, inspector and contractor are each required to submit verified reports acknowledging that construction met the require- ments of DSA-approved plans (see Education Code Sections 17309 and 17315). 1. Locker Room Renovation Project On July 29, 2019, Del Terra entered a contract with the district to continue unfinished bond work. This 2019 agreement included a locker room renovation project at multiple sites, as listed in at Exhibit B of the agree- ment, which is shown below. Appendix 28: 2019 agreement, Exhibit B, Page 38 (7/29/19). Highlighting added by FCMAT. The budget for the locker room renovation project was $1,320,000. On Del Terra’s Invoice 36532-02 of May 21, 2020, Del Terra sought 90% of its construction management fees on the locker room project totaling $13,841.12. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 158 Findings F. Failure to Obtain DSA Approvals Appendix 67: Invoice 36532-02 for locker room renovation (5/21/20). Highlighting and red oval added by FCMAT. Del Terra’s Invoice 36532-02 included a general description, shown below, stating that the locker room was renovated starting on December 21, 2019, and mostly completed on March 24, 2020. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 159 Findings F. Failure to Obtain DSA Approvals Appendix 67: Invoice 36532-02 for locker room renovation, Page 4 (5/21/20). Highlighting added by FCMAT. Since it does not appear that an architect worked on this project, it was not possible to obtain a DSA ap- proval for the locker room project. This explains why the description on Invoice 36532-02 does not include architectural services, plans, or DSA approvals for that project. A locker room project requires ADA-related upgrades to comply with the applicable building codes. ADA accessible lockers, ADA path of travel, and bathroom upgrades for ADA were required. An architect is required to prepare plans that are submitted to DSA addressing ADA requirements. The total cost of $868,871 billed for the project far exceeds the small projects threshold of $245,636 for exempt projects for 2019 through 2020 under IR A-22, Section 1.3.2.2. Even if Del Terra asserts that the project is exempt, there was no statement from a structural engineer that there was no work of a structural Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 160 Findings F. Failure to Obtain DSA Approvals nature (see IR A-22, Section 1.3.2.2.1). Neither the district files nor DSA files reflect a written statement from an architect that the project contained any ADA requirements and did not require upgrades as required under IR A-22, Section 1.3.2.2.2. IR A-22 requires replacement of plumbing fixtures and replacement of flooring to be reviewed by the DSA for accessibility. IR A-22 Appendix Page 12 applies and this IR specifies these requirements and is shown below: Appendix 65: DSA IR A-22, Page 12 (4/6/20). Highlighting added by FCMAT. As a result of Del Terra’s decision to perform the work without DSA approvals, a stop work order was issued by the DSA on February 24, 2021 for Bassett High School for the non-DSA-complaint locker room work, as shown below. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 161 Findings F. Failure to Obtain DSA Approvals Appendix 32: DSA stop work letter (2/24/21). Highlighting added by FCMAT. The DSA also issued stop work orders for Edgewood Academy, Sunkist Elementary School, J.E. Van Wig Elementary School and Bassett High School because of past work performed from the 21st century schools projects under Del Terra’s management and oversight. Correspondence from the DSA dated March 2, 2021 states that the DSA issued the stop work orders because of failure to obtain DSA approvals for the Bassett High School locker rooms, but also noted that classrooms at Sunkist Elementary School had been renovat- Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 162 Findings F. Failure to Obtain DSA Approvals ed with new flooring and large mounted TVs. An e-mail from the DSA, shown below, ordered the district to undergo a districtwide investigation of undocumented projects. Appendix 68: DSA e-mail on stop work visits. (3/2/21). Highlighting added by FCMAT. In FCMAT’s conversations with the DSA, the head of the DSA’s Los Angeles office, Doug Humphrey, stat- ed that there had been only one DSA submission for the district since 2015 and specifically noted that the changed flooring and the flat screen TVs were structural in nature and required DSA approvals. Thus all of the 21st century classrooms projects were called into question by the DSA. As noted earlier in this report, Betty Hanson with CFS let the district and Del Terra know that the Bassett High School campus was eligible for state funding, but Del Terra did not comply with all of the OPSC’s rules, including prequalifying contractors and subcontractors as required under Public Contract Code Sec- tion 20111.6 and proceeding only with DSA-approved plans. Del Terra’s failure to meet these prerequisites for state funding means that the district forfeited state funding on the project. 2. Football Field Project Required DSA Submittals The football field renovation project was started on July 8, 2019 and completed on October 18, 2019. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 163 Findings F. Failure to Obtain DSA Approvals Del Terra charged $47,996 for construction management fees on November 25, 2019, as shown in Invoice 36505-01 below, and was paid on December 30, 2019 with Check/Warrant No. 25668667. However, as the responsible manager and fiduciary, it does not appear that Del Terra had the district hire the necessary professionals to take the football field project through the DSA approval process. Appendix 64: Invoice 36505-01 for Construction Management Services, Page 3 (11/25/19). Highlighting added by FCMAT. DSA IR A-22 requires artificial turf projects to be submitted to the DSA, as shown below. Appendix 65: DSA IR A-22, Page 6. Highlighting added by FCMAT. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 164 Findings F. Failure to Obtain DSA Approvals Del Terra does not appear to have provided the expertise necessary to guide projects through the state funding and building approval processes. In this case, it appears that Del Terra did not provide guidance on the hiring of professionals like architects so that DSA plans could be prepared as required under IR A-22 when they submitted their invoice for 4% program management services as shown below in Invoice 36551-01. Appendix 63: Invoice 36551-01, Program Management Services, Bassett High School Football Field, Page 1 (11/25/19). Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 165 Findings G. Value for the Services Provided 3. 21st Century Projects Lacked DSA Approvals The DSA’s February 24, 2021, stop work order (Appendix 32, Pages 1-2) specifically notes that the 21st cen- tury schools projects deviated from DSA requirements. In followup correspondence from the DSA regarding the stop work order (see Appendix 68), DSA representative Wei-Tsu Liu lists large, mounted TVs along with other items that required DSA approvals for drawings, specifications, and backup calculations. All available information provided to FCMAT indicates that Del Terra failed to obtain DSA approvals, including structural approvals for the mounting of flat screen TVs, or to hire an architect or structural engineer as required un- der Education Code Sections 17302 and 17307. In addition, there was no infrastructure evaluation, improve- ment of the district, or improvement of safety in these projects. As discussed in Section A.7 and C.11. of this report, many of the district’s school buildings, including almost every building at Bassett High School, are listed on the AB 300 list as requiring evaluation for earthquake vulnerability. If a district building is deter- mined to be unsafe, the district is entitled to SSMP funds to repair or replace those buildings. Unfortunately, based on the documentation available, Del Terra failed to follow their February 2016 master plan on evalu- ating and upgrading AB 300 seismic vulnerabilities. G. Value for the Services Provided 1. District Master Plan Prioritizes Safety The basis of the 2015 agreement was the district’s desire to effectively administer its Measure V bond funds. The district needed expertise and knowledge that its employees did not have. Hiring program management and construction management expertise was viewed as the most cost-effective way to spend bond funds that the district’s voters had entrusted to the district, and to access state facility funds to lever- age the local bond funds to meet even more needs. The 2015 agreement placed complete trust in Del Terra to act as a fiduciary and agent to represent its interests (see Article 1.3.2). The district’s hiring of Del Terra meant the district believed Del Terra would plan effectively to make the best use of the district’s money (recital paragraph B), seek state matching funds (recital paragraph C), make sure the schools were safe, and address the complicated construction requirements of the California Department of Education, the DSA, the California Environmental Quality Act, and the Department of Toxic Substances Control (Article 1.1.4). The district’s infrastructure was decades old and needed important upgrades for structures to withstand earthquakes, electrical upgrades to address new fire life safety requirements, infrastructure for air condi- tioning, and upgrades for ADA compliance that would also provide an improved learning environment. Del Terra promised the following in Appendix 1, Article D of the 2015 Agreement Recitals, Page 1: “It is the intention of the parties that the Manager provide comprehensive program, project and construc- tion management services . . .” [emphasis added]. On February 18, 2016, Del Terra presented a master plan to the district’s governing board that focused on safety, one page of which is shown below. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 166 Findings G. Value for the Services Provided Appendix 72b: Del Terra Facilities Master Plan, Page 4 (2/18/16). Highlighting added by FCMAT. The first priority listed on the master plan below was to evaluate the structural safety of schools on the AB 300 list.59 59 While Appendix 72b only lists Bassett High School and Torch Middle School, Del Terra’s master plan included AB 300 surveys not only for Bassett High School and Torch Middle School, it also included surveys for Edgewood Academy, Nueva Vista High School, Sunkist Elementary School, and J.E. Van Wig Elementary School. The AB 300 report lists nearly every district school and the relevant portion of the AB 300 report is included at Appendix 73. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 167 Findings G. Value for the Services Provided Appendix 72b: Del Terra Facilities Master Plan, Page 5 (2/18/16). Highlighting added by FCMAT. In addition, the master plan included making needed upgrades to major utilities, mechanical systems, elec- trical systems, ADA items, and multiple other infrastructure items throughout the district. Del Terra promised to complete all services as follows: . . . the Term shall commence on the date first set forth above and shall end when the District has issued notices of completion for all Campus Projects and all punchlistitems (sic) for the Campus Projects have been completed or waived by the District….” Article 4.4.1 of the 2015 agreement, Page 20 [emphasis added]. However, as discussed in Section E above, Del Terra did not complete the promised projects under the 2015 agreement and declared all services complete at the end of 36 months (April 21, 2018). Under the 2015 agreement, the district did not receive the comprehensive program promised. No infrastructure was upgraded. No earthquake safety upgrades were undertaken. No fire life safety upgrades were undertaken. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 168 Findings G. Value for the Services Provided By the time Del Terra declared the 2015 agreement complete, Del Terra had been paid $4,687,993.6960 and just over $9.4 million had been spent on furniture, paint, and other cosmetic upgrades for the 21st centu- ry schools projects (which were later determined to be noncompliant by DSA). A list of projects that was planned under the 36-month schedule (the 2015 Project List) included: 1. 21st Century Classrooms 6-12 2. 21st Century Classrooms K-5 3. BHS: New Snack Bar 4. BHS: New Courtyard 5. BHS: Little Theatre 6. BHS: Main Entrance 7. BHS: Swimming Pool Remodel Of the seven projects listed above, based on the information available to FCMAT, items four through seven were never undertaken. Item three, New Snack Bar, only received paint under the 2019 agreement. The only projects that records show were undertaken during the 36-month period of the 2015 agreement were: 1. 21st Century Classrooms 6-12 2. 21st Century Classrooms K-5 3. Flanner Project, $3,591,965 4. BHS Two Classroom Project, $324,854 and Cabling Project $88,511, at a total submitted cost of $413,365 (A more complete discussion of the work done during the 2015 agreement is found in Section E.8 of this report.) When Del Terra’s services were terminated in 2021, Del Terra had not completed DSA closeout of projects, which effectively prevented the district from performing infrastructure upgrades or obtaining state funding since 2014 under DSA IRA-20, which states the following: “DSA may begin review of other projects not identified in Section 1 [DSA exempt projects which do not require DSA approvals] above, associated with uncertified projects. However, DSA approval (stamp out) of the plans and specifications shall be withheld until the issue of certification is resolved.” [Brackets added by FCMAT and emphasis added]. According to the district’s records in the February 18, 2016 special board meeting, Del Terra presented a bond program master plan to the district that discussed structural deficiencies at Bassett High School, Edgewood Academy, Nueva Vista Continuation High School, Sunkist Elementary School, Torch Middle School, and J. E. Van Wig Elementary School. Each of the reports identified structural deficiencies, includ- ing diaphragm, anchorage, wall panel and foundation vulnerabilities, and recommended further investiga- tion. Below is the first page of an example for Bassett High School of one of the recommendations from a July 2, 2014 structural engineering report representative of similar reports for the schools listed above. 60 From the 2015 agreement through the 2019 agreement, Del Terra charged and was paid $4,687,993.69 out of the Measure V bond according to district expenditure reports. See Appendix 71 prepared by district administrative staff. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 169 Findings G. Value for the Services Provided Appendix 72e, Page 1: Bassett High School AB 300 Survey (7/2/14), from the February 18, 2016 master plan. Highlighting added by FCMAT. The 2016 master plan recommends “a detailed evaluation” of the following buildings: 1. Classroom (Units A and B) Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 170 Findings G. Value for the Services Provided 2. Administration, art and classroom (Units C and D) 3. Library and classroom buildings (Units E1, E2, and E3) 4. Gymnasium building (Unit F) 5. Girls’ locker room building (Unit G) 6. Food services building (Unit H) 7. Industrial arts and band building (Unit I) 8. Drama and music classroom building and covered patios (Units J and P) 9. Boys’ locker room building (Unit K) 10. Classroom building (Unit L). Similar recommendations were made in the 2016 master plan with respect to: 1. Edgewood Academy 2. Nueva Vista Continuation High School 3. Sunkist Elementary School 4. Torch Middle School 5. J. E. Van Wig Elementary School Copies of these reports are included in Appendix 72e, as are records of the entire February 18, 2016 spe- cial board meeting on master plan documents. Based on the recommendations in these documents, Del Terra presented to the board and district leadership that multiple schools had potential structural vulner- abilities and were on the DSA AB 300 list. One page of the five-page AB 300 list addresses Bassett High School and is shown below. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 171 Findings G. Value for the Services Provided Appendix 73: AB 300 Report for Bassett USD, Page 3. After presenting these reports (which are not mentioned in the Del Terra conditions assessment included at Appendix 72c), there was no further investigation or mention of structural concerns at district schools despite the schools being listed in the statewide AB 300 list of vulnerable schools. Instead of further investigating safety concerns, the available evidence indicates Del Terra proposed cos- metic projects at the schools identified as potentially vulnerable to earthquake-related collapse. Other sections of the master plan presented on February 18, 2016 showed mechanical systems upgrades. Instead, Del Terra chose to use bond funds for cosmetic improvements, ignoring structural, mechanical and other important infrastructure updates rather than undertaking the mechanical systems upgrades suggest- ed on February 18, 2016 in the master plan, which is essential infrastructure that was critical for the long- term well-being of the district’s students, staff and others who use its facilities. 2. State Funds Availability In 2006, the state’s voters passed Proposition 1D, which provided approximately $7.329 billion in state funds for new construction and modernization projects for kindergarten through twelfth grades. Proposition 1D specifically included funds for repair, reconstruction, or replacement of school facilities that are the most vulnerable to seismic damage. In conjunction with the passage of Proposition 1D, Section 17075.10(b)(2) was added to the Education Code; it states the following: Funds for the purpose of seismic mitigation work or facility replacement pursuant to this sec- tion shall be allocated by the [State Allocation B]oard on a 50-percent state share basis from Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 172 Findings G. Value for the Services Provided funds reserved for that purpose in any bond approved by the voters after January 1, 2006. If the [State Allocation B]oard determines that the seismic mitigation work of a school building would require funding that is greater than 50 percent of the funds required to construct a new facility, the school district shall be eligible for funding to construct a new facility under this chapter. [Brackets added by FCMAT] By 2014, the SSMP was fully operational, and many applications were being submitted under the program. Between 2006 and 2012, the SSMP program added ground shaking criteria, which made many school dis- tricts ineligible to receive SSMP funds. However, between 2012 and 2014 the SSMP program was reworked and provided funds for investigation, design and reconstruction of buildings determined to be seismically vulnerable. By November 2016, when Proposition 51 passed making $7 billion in funding available for K-12 schools, the SSMP program was fully operational, and it continued to provide funding for seismically vulner- able buildings throughout the state until Proposition 51 funds started to dwindle around 2020. The district’s general obligation bond, Measure V, passed in November 2014. The timing of the passage of Measure V, in conjunction with the AB 300 status of many of the district’s buildings, made the district a perfect candidate to maximize the effectiveness of Measure V with state funds from the SSMP program to upgrade the safety of eligible school buildings. Because nearly every building at Bassett High School was listed, it should have been the first school reviewed for seismic safety so SSMP funds could be used for seismic upgrades or even new buildings. As a fiduciary responsible for the district’s best interests, Del Terra’s comprehensive program should have considered AB 300-related infrastructure upgrades and the safety of the students and staff in district build- ings. FCMAT interviewed Betty Hanson with CFS, the state facilities funding consultant hired by the district. Betty Hanson was a consultant for the district from 2015 – 2020. Hanson explained that while state funding was available for seismic improvements, Del Terra never sought her assistance to seek this funding. No records provided to FCMAT indicated that state funding was sought for seismic repairs. No records provided to FCMAT indicated that seismic upgrades were considered. Instead, Del Terra was paid 13.9% of available bond funds for mostly managing furniture, paint and carpet projects. 3. Del Terra Staffing Based on interviews with district staff, Jerry Quemada of Del Terra was provided on a mostly full-time basis to the district during Del Terra’s 2015 agreement. Other administrative personnel and individuals from Del Terra were occasionally assigned to district projects from its main office, but the main individuals seen at the district were Jerry Quemada and Luis Rojas. FCMAT found no time records or other information on the individuals who worked on district projects. How- ever, some information was extrapolated from expense reports. Based on the work that was accomplished, and because Del Terra would not cooperate with the FCMAT audit or meet with FCMAT, it appears that the personnel assigned to the district’s projects did not have the expertise needed to complete project closeout and that this prevented Del Terra from performing the in- frastructure projects needed to remedy safety issues. The lack of DSA approvals also meant that Del Terra failed to obtain any available matching state funds. Reimbursable expense records show only one person, Jerry Quemada, working for the district. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 173 Findings G. Value for the Services Provided Appendix 75: Invoice 36100-34, Reimbursable Expenses, Page 1 (3/7/16). Highlighting, red oval and comment box added by FCMAT. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 174 Findings G. Value for the Services Provided Appendix 75: Invoice 36100-34, Reimbursable Expenses, Page 19 (3/7/16). Yellow highlights, red oval and comment boxes added by FCMAT. Staff indicated that other individuals, including Luis Rojas, would occasionally be present on various proj- ects. Under the 2015 agreement, Del Terra was being paid $31,666 each month61 for program management services. All Del Terra construction management was billed at a 9.9% fee, which was in addition to the $31,666 paid each month for program management services. Because one person was responsible for both program management and construction management services, it is difficult to understand how the program management services were distinguished from construction management services. It appears that Del Ter- ra was paid a generous amount for the services of one person, Jerry Quemada. This level of personnel is also inconsistent with the 2015 agreement commitment to provide a comprehen- sive program under which all projects under the bond program would be completed and notices of comple- tion and punch lists completed (see Article 4.4 of the 2015 agreement). 61 The actual charge was $33,333.33; however, 5% retention was withheld which results in the $31,666 payment. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 175 Findings G. Value for the Services Provided Indeed, as discussed earlier, Del Terra did not complete the promised program under the 2015 agreement. Only $13,406,71862 was expended on projects under that agreement, yet Del Terra was paid as if the full $30 million had been spent. This means that instead of being paid 4% for program management fees under the 2015 agreement, based on the information available to FCMAT, Del Terra was actually paid 26.77% of the cost of projects delivered for program management. The 26.77% actually paid to Del Terra is calculated as $3,588,585 (presuming all fees paid to Del Terra under the 2015 agreement) / $13,406,718 (all construc- tion expenditures 2015 agreement).63 4. Contractual Responsibilities to Maintain Documents This report was difficult to prepare because Del Terra would not cooperate with the audit and even though they are contractually obligated to retain documents, because they would not cooperate, they did not produce documents as required under Article 2.1.5 and 2.4.10 of the 2015 agreement. Article 2.4.10 of the agreement states the following: 2.4.10 Document Control and Recordkeeping. Maintain files for Campus Projects utilizing Manager’s filing structure and recommended document control system. All recordkeeping shall include all files on Construction Contracts, submittals, design, engineering, construction, Change orders, test reports, inspection reports, regulations, and other records…. 62 $13,406,718 (see below invoiced items 1-4= $4,355,630 +$5,045,758 + $3,591,965 + $413,365) is calculated from the projects that were actually undertaken during the 2015 agreement term, which included: 1. 21st Century Classrooms 6-12, total cost of $4,355,630. Del Terra was paid $431,207 on Invoice 36380-01 (lump-sum) 2. 21st Century Classrooms K-5, total cost of $5,045,758. Del Terra was paid $499,530 on Invoice 36381 3. Development of a child development center, total cost of $3,591,965. Del Terra was paid $380,782 on Invoice 36500 series 4. BHS Cabling and Two Classrooms Project, total Del Terra submitted cost of $413,365. Del Terra was paid (Cabling $8,763 on Invoice 36351 series) and (Two Classrooms Project $30,553 on Invoice 36353 series) totaling $39,316 Del Terra was paid CM fees on the invoices for these projects, $1,350,835 (see above paid items 1-4 =$431,207+$499,530+$380,782+ $413,365+$39,316). Del Terra was also paid Additional Services and CM fees as follows: Additional Services and Fees: 1. Facility Report, HVAC Assessment (Invoice 36270-01 on 6/1/16) $115,750 2. Facility Report, Torch Environmental (Invoice 362230-01 on 6/1/16) $68,000 3. DSA Closeout (Invoice 362240-01 on 6/1/16) $64,500 4. District Roofing Assessment (Invoice 36201-01 on 6/1/16) $74,500 5. PM and CM Services District-Wide Projects (Invoice 36370-01 on 4/29/15) $400,000 6. Reprogramming & Replanning/Tech. (Invoice 36382 on 9/15/16) $230,000 7. Add program plan Inv 36255-01 $85,000 8. Total Additional Services $1,037,750 9. Add in 4% PM fee on $30,000,000 (Invoices 36250 series) $1,200,000 10. Add in CM fees on projects from above $1,350,835 11. Grand Total Del Terra was paid (see Appendix 71) $3,588,585 63 Even if retention of $60,000 on the 2015 agreement was not paid to Del Terra, the percent actually paid to Del Terra instead of the 4% under the 2015 agreement would be 26.32% ($3,588,585 - $60,000 = $3,528,585 / 13,406,718). Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 176 Findings H. Conflict of Interest FCMAT could not locate any construction files; this report used available financial records. As described in the Leal Report (Appendix 86, Page 9), in a February 26, 2019 meeting with former superintendent, Debra French, district legal counsel, and Luis Rojas of Del Terra, Luis Rojas stated that the district’s request was under review by his legal counsel. The meeting did not result in the release of any documents by Del Terra despite its contractual responsibility to maintain program-related documents. As with FCMAT’s request for cooperation and production of documents from Del Terra, no documents or access to records have been provided by Del Terra as of the date of this report. Maintenance and retention of school facility project files is a routine activity for any qualified program manager or construction manager working on a public school project. Even in today’s highly technological environment, it is unusual to have 100% of all program and construction documents on a computer with no hard copies. H. Conflict of Interest 1. Government Code Section 1090 Government Code Section 1090 states: (a) Members of the Legislature, state, county, district, judicial district, and city officers or em- ployees shall not be financially interested in any contract made by them in their official capaci- ty, or by any body or board of which they are members. Nor shall state, county, district, judicial district, and city officers or employees be purchasers at any sale or vendors at any purchase made by them in their official capacity. Section 1090 is concerned with financial interests, other than remote or minimal interests, that prevent pub- lic officials from exercising absolute loyalty and undivided allegiance in furthering the best interests of their agencies (Stigall v. Taft (1962) 58 Cal.2d 565, 569). Under Section 1090, “the prohibited act is the making of a contract in which the official has a financial interest” (People v. Honig (1996) 48 Cal.App.4th 289, 333). A contract that violates Section 1090 is void (Thomson v. Call (1985) 38 Cal.3d 633, 646). Contracts subject to Section 1090 are void, not voidable, and the public agency may retain the benefit of an interested party’s performance without providing anything in return (Marin Healthcare Dist. v. Sutter Health (2002) 103 Cal.4th 861, 871 {quoting Thomson v. Call (1985) 38 Cal.3d 633, 646}; see also Cnty. of San Bernardino v. Walsh (2007) 158 Cal.4th 533, 549–552, 69 [defendants in a bribery scheme were required to pay to the county profits they realized from selling contracts they received through bribing county official]). The California Supreme Court recently clarified the standard used to determine whether an independent contractor is subject to Section 1090 in the first instance (People v. Superior Court (Sahlolbei) (2017) 3 Cal.5th 230, 237). There, it held that the Section 1090 reference to “officers” applies to “outside advisors (independent contractors, including corporate consultants) with responsibilities for public contracting simi- lar to those belonging to formal officers.” With respect to the district, the Kirchman court held that an outside consultant is considered to have a financial interest in a governmental decision within the meaning of Government Code Section 87100 if “it is reasonably foreseeable that the decision will have a material financial effect, distinguishable from its effect on the public generally, on the official” (Kirchman v. Lake Elsinore USD (1997) 57 Cal.App. 4th 595). There- fore, in its role as an “official,” Del Terra cannot have a material financial interest in additional work that is recommended and added to Del Terra’s contract. In this case, Del Terra entered into both a 2015 agreement and a 2019 agreement for program and con- struction management services with the district that oversees and determines projects in which Del Terra Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 177 Findings H. Conflict of Interest was also working on as construction manager. Under Article 1.3.2, Del Terra agreed to act as a fiduciary and as an agent for the district. “1.3.2 Relationship. Manager serves as District’s agent and fiduciary in performing services under this Agreement. Managershall (sic), in this capacity, maintain confidences and provide professional services in a manner consistent with District’s economic, educational and gov- ernmental best interests.” [Emphasis added.] As a fiduciary, Del Terra had a duty to put aside its personal interests and never use its position to better its own financial interests. In addition, in May of 2021 the FPPC issued an advisory opinion to a contractor in a situation similar to that of Del Terra (FPPC Bettenhausen Advice Letter (2021) No. A-21-021.) In Bettenhausen, the FPPC sought to answer whether Section 1090 prohibited a contractor from analyzing and making recommendations related to a city project’s scope pursuant to a contract for project management between the city and the contrac- tor. Under the terms of the contract, the contractor would serve as the project manager of a project that had both public and private components. The advisory opinion concluded that the contractor was sub- ject to Section 1090 because the contractor had duties to engage in or advise on public contracting with respect to the project and to be involved in the design and development of plans and specifications for the project under its contract with the city (see Page 7 of FPPC Bettenhausen Advice Letter). Therefore, be- cause Del Terra had a similar contract agreement with the district, Del Terra would most likely be found to be subject to Section 1090 as well. Section 1090 prohibits Del Terra from advising and enlarging the scope of the projects covered under its contract with the district. Like the contractor in the Bettenhausen opinion, Del Terra’s compensation was a percentage of the bond issued and the total construction cost. Furthermore, unlike the contractor in Bet- tenhausen, there are no facts to suggest that Del Terra had any type of compensation cap or that it was required to acquire formal approval from the district before any additions to the contract. Therefore, Del Terra, which was subject to Section 1090 (see section above), was impermissibly participating in the making of district contracts by increasing compensation through recommendations of added services (see Section D) and adding projects beyond the scope of its initial contract with the district. As previously mentioned, under the 2015 agreement, the Del Terra scope of service was seven projects. They were: 1. 21st Century Classrooms 6-12 2. 21st Century Classrooms K-5 3. BHS: New Snack Bar 4. BHS: New Courtyard 5. BHS: Little Theatre 6. BHS: Main Entrance 7. BHS: Swimming Pool Remodel However, under the 2015 agreement, none of the Bassett High School projects listed as items 3 through 7 above were performed. Instead, Del Terra submitted a request for reprogramming and constructed the following four projects: 8. 21st Century Classrooms 6-12 total cost of $4,355,630 9. 21st Century Classrooms K-5 total cost of $5,045,758 Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 178 Findings H. Conflict of Interest 10. Development of a Child Development Center total cost of $3,591.965 11. BHS Two Classroom Project, $324,854 and Cabling Project $88,511, at a total submitted cost of $413,365 During the 2015 agreement, Del Terra requested $952,750 in extra services, which included the following six projects: Facility Report, HVAC Assessment (Invoice 36270-01 on 6/1/16) $115,750.00 Facility Report, Torch Environmental (Invoice 362230-01 on 6/1/16) $68,000.00 DSA Closeout (Invoice 362240-01 on 6/1/16) $64,500.00 District Roofing Assessment (Invoice 36201-01 on 6/1/16) $74,500.00 PM and CM Services District-Wide Projects (Invoice 36370-01 on 4/29/15) $400,000.00 Reprogramming & Replanning/ Tech. (Invoice 36382 on 9/15/16) $230,000.00 TOTAL: $952,750.00 The issue with these additional services invoices – beyond questions concerning authorization and ne- cessity as addressed in Section D of this report – is whether Del Terra in its position as a fiduciary and as program manager for the district was in a position to influence its own compensation, creating a conflict of interest, especially when Del Terra had contracted to manage and oversee the entire program, which argu- ably included the $952,750 as base contract services rather than as additional services. Del Terra’s posi- tion of trust gave them the ability to recommend and get paid for the requested $952,750, which arguably was not for additional services at all. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 179 Findings I. Summary of Potential Del Terra Irregularities I. Summary of Potential Del Terra Irregularities Based on the information above, numerous possible overbillings and other financial irregularities are attrib- utable to Del Terra’s management of district bond funds. The table below quantifies the potential irregulari- ties, which total $3,031,703. Other Findings The primary scope of work of this audit is specific to the actions and inactions of Del Terra. However, the original allegations included concerns that board members and executive management were not fulfilling their fiduciary duties, thus providing an opportunity for Del Terra and others to act in ways harmful to the district. To determine if there were other breaches of fiduciary duty and integrity, FCMAT reviewed some concerns brought forth by the Bassett community and identified additional findings that may have contrib- uted to, or are evidence of, poor internal controls, an inadequate tone at the top, lack of fulfilling fiduciary duties, or overall transparency issues. The findings below describe a few of those examples. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 180 Findings Board Member Paul Solano Board Member Paul Solano Paul Solano has been a district governing board member since 2001 and is its longest serving member. FCMAT interviewed Solano via a Zoom meeting on Tuesday, September 7, 2021. One of the issues dis- cussed was that Solano may have falsified a travel expense reimbursement claim of $753.28. But this is more than just about an expense claim. Because of the intricacies and lengths that Solano went through to create what appears to be a falsified expense claim, and because he is a board member, a fiduciary, and has responsibilities for setting a good example or tone at the top for ethics of the district, FCMAT spent considerable time unraveling the transaction. Based on FCMAT’s review of Solano’s expense claim, his actions and behavior are not consistent with the district’s board members’ protocols, professional and fiduciary duties, tone at the top, and board policies. And because of the lengths Solano went to dispute the expense claim issues with the district staff respon- sible for reviewing the claim, his actions do not represent proper conduct by a board member. The district has established board policies and protocols that govern how board members should conduct themselves. Board policies, board bylaws, and administrative regulations are written local laws that the district and its board members must follow (for information on conflicts of interest, fiduciary duties and gifts of public funds, refer to those sections earlier in this report). Procedures or protocols the board adopts must also be followed by the board, management and staff, and students of the district. The district’s board protocols are shown on the district website as adopted December 9, 2015, and indicate they are “Board and Superintendent Operating Procedures.” The district’s board protocols, and board policy manual are available on the district’s website at https:// www.bassettusd.org/apps/pages/index.jsp?uREC_ID=1184491&type=d&pREC_ID=1429115 and http://www. gamutonline.net/district/bassettusd/, respectively. The board policy manual is a link to the district’s board policies. The board bylaws are found in Section 9000 of the board policy manual. The link to the board pol- icies contained in the board protocols goes to a set of board policies that is out of date. Board policies are found in the Board Policy Manual listed from Section 0000 through 9000. Section 9000 is titled as “9000 Board Bylaws.” Within Section 9000 Board Bylaws are numerous sections starting with “BB 9000 Role of the Board,” further down there is Section “9270 BB Conflict of Interest,” and at the end is Section “9400 BB Board Self-Evaluation.” The “BB” stands for Board Bylaws. Numerous protocols are in place for board mem- bers and the superintendent; however, several stand out and state that the board “will” follow them, which makes them requirements as they are adopted by the board. The district’s board protocols are as follows: District Board Protocols The board and superintendent will: • Operate openly with trust and integrity. • Govern in a dignified and professional manner, treating everyone with civility, dignity, and respect, while honoring the right to disagree with each other. • Define and respect the difference between administration and policy-making and re- spect the roles of each. Board members will: • Understand the distinctions between Board and staff roles, and refrain from performing management functions that are the responsibility of the Superintendent and staff. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 181 Findings Board Member Paul Solano • Understand the Board as a collective body must provide clear signals to its profession- al staff through its Superintendent. • Act with dignity, and understand the implication of demeanor and behavior. [emphasis added] The district’s board policies and bylaws are even more important and add further clarity about how board members should govern. For purposes of this report, board policies means board bylaws. Board policies are local laws of the district that have relevance to this report and are as follows: District Board Policies Role of the Board, BB 9000: The Board shall ensure that the district is responsive to the values, beliefs, and priorities of the community. Governance Standards, BB 9005 states: Each individual Board member shall: …3. Recognize and respect differences of perspective and style on the Board and among staff, students, parents, and the community. 4. Act with dignity and understand the implications of demeanor and behavior. To operate effectively, the Board shall have a unity of purpose and: …3. Operate openly, with trust and integrity. 4. Govern in a dignified and professional manner, treating everyone with civility and respect. Conflict of Interest, BB 9270: The governing board desires to maintain the highest ethical standards and help ensure that decisions are made in the best interest of the district and public. In accordance with law, Board members and designated employees shall disclose any conflict of interest and, as nec- essary, shall abstain from participating in the decision. A Board member shall abstain from any official action in which his/her private or personal interest may conflict with his/her official duties. [emphasis added] There are many more board protocols and specific policies that are important to promoting a positive district culture. The tone at the top is an important characteristic of internal controls that creates trust or distrust and credibility or lack of credibility for any organization, depending on how that tone is perceived. Community members, district management and staff who view board members as trustworthy are more likely to create a stronger organizational culture. When some board members are perceived as trustworthy and others are not, those who are not draw most of the attention, and the district can become mired in neg- ative news cycles, low staff morale, and management turnover, which detracts from promoting the educa- tion of students. Solano’s Travel Expenses FCMAT’s disbursement sampling identified expenditures Solano charged to the district’s American Express credit card and his attempted request for reimbursement of expenses. Out of the sample of reimbursement expenditures, only the California Latino School Boards Association (CLSBA) summit in Oakland, CA on June 2, 2018 was found to be irregular. The approved travel request was for June 1 through June 3. The costs of the travel were for airfare, hotel and out-of-pocket expenses such as meals, taxis and parking. Solano Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 182 Findings Board Member Paul Solano charged the airfare and hotel costs to the district’s American Express card, and submitted the out-of-pocket costs by using the district substitute receipt form. The CLSBA travel costs are summarized in the following table. •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• •••••••••••• •••••••••••••••••••••••••••••••• Jet Blue District Amex Card 5/27/2018 Airfare $ 189.95 $ 189.95 Paid Homewood Suites District Amex Card 5/29/2018 Hotel 446.59 446.59 Paid Paul Solano Paul Solano-Reimbursement 6/8/2018 Out-of-Pocket 116.74 - Denied •••••••••• •••••••••••••••••••••••••••••••••••••••••••••••••••••• Solano submitted the details of the travel costs to the district for review and payment. Reconciliation of travel costs was performed at that time by Barbara Molina, accounting technician II, who has worked for the district approximately 25 years. When FCMAT selected the CLSBA transactions for testing, the documents Solano submitted to Molina for verification and reimbursement did not look authentic. The team had never seen a Homewood Suites hotel receipt that looked like what Solano submitted as proof of where he stayed. To gain a better understanding of this transaction, FCMAT interviewed Molina on January 21, 2020 and discussed the CLSBA transaction. At that time, she provided the team with additional documentation about the transaction and what hap- pened to her when she questioned board member Solano’s reimbursement. Molina provided documents that she had written to district human resources explaining that it is her job to review and question reimbursement transactions. According to Molina, because she questioned Solano’s travel expenses the following happened: • Molina followed up with vendors by attempting to obtain authentic documents. • She withheld reimbursement for Solano’s out-of-pocket expenses. • She took her concerns to management. • She stood her ground in following procedure. • She continued to research and audit the reimbursement. • She was ridiculed by Solano. • Her findings and documentation were not taken seriously by management or the district’s law firm, Leal and Trejo. • She was reassigned to a position away from the district business office location. It took an external investigation to get people to listen to her on this and other issues. The investigation was performed by the Titan Group Professional Investigations, which issued a report dated March 16, 2020. Based on the documents FCMAT reviewed, Molina’s actions were appropriate and she was authorized to question Solano’s transactions. Excerpts from pages 27-29 of the Titan Group report in a section titled Paul Solano, School Board Member/Witness interview, on September 26, 2019, read as follows: Mr. Solano stated he was aware of the District investigating the issue and said he was notified nothing was wrong. He informed Ms. French and legal counsel Bill Trejo (Mr. Trejo) that he was willing to pay back the money that was needed…told by Ms. French and Mr. Trejo that Ms. Molina had whistleblower rights…Mr. Solano did not know if Ms. Molina had direction to look into his Expedia account…neither Ms. Molina nor the District had his permission to access his Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 183 Findings Board Member Paul Solano personal Expedia accounts or any of his accounts at all…was not given any options of disci- pline for Ms. Molina…Molina should not have been protected by the Whistleblower Act…did not offer to pay anything back because he felt he did something wrong. Instead, he offered to pay the money back because he did not want his reputation ruined over false allegations… it was not Ms. Molina’s job description to do what she did, and further, he had never heard of Ms. Molina doing it to anyone else…has never referred to Ms. Molina as a problem. [emphasis added] Molina did not need approval or supervision or management’s direction to verify Solano’s expense claim by detecting, tracing and resolving discrepancies. Molina’s fiduciary duty was to protect the assets of the dis- trict, and how she was to carry out her duties is defined in the job description for the accounting technician II position (see Appendix 88 for the complete accounting technician II job description). This job description states the following: Distinguishing Characteristics: This is the advanced level in the series, and incumbents perform the most complex technical accounting or District payroll functions. Examples of Duties: Perform a variety of complex technical accounting duties…research, compile and analyze financial information in order to answer questions, facilitate comparisons with historical data and procedures and summarize account information and trends…ensure accuracy, com- pleteness and compliance with a variety of State and federal laws and regulations as well as established District policies and procedures. Monitor and verify expense claims, reconcile receipts…detect, trace and resolve discrepancies…control and monitor budgets and expendi- tures; calculate, prepare and verify accuracy of reimbursement claims…Inspect and verify ac- curacy of personnel payroll and financial documents and related materials; detect, trace and resolve discrepancies, errors and questions regarding invoices…Perform accounts receivable/ payable duties by matching and verifying necessary documents…interpret and apply rule and regulations.” [emphasis added]. Included in the job description is an array of items for which Molina must have the knowledge, ability and experience to carry out the duties assigned, including the ability to do the following: Maintain accurate financial and statistical records. Read, interpret, apply and explain policies, procedures, rules and regulations related to the assignment. Work independently with little direction. Analyze situations accurately and adopt an effective course of action. [emphasis added] The documents provided by Solano were questionable, and his interview with the Titan Group leads to even more uncertainties, including about the invoice for $446.59 for two nights at the Homewood Suites by Hilton Oakland-Waterfront. Shown below are copies of Solano’s receipts as provided by Molina. Any red color notations, arrows, com- ment boxes or yellow highlights are added by FCMAT and so noted below each example. Because Solano submitted a receipt for a Hilton Homewood Suites that is not characteristic of an authentic Homewood Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 184 Findings Board Member Paul Solano invoice, FCMAT obtained and compared an authentic example of a Homewood invoice with Solano’s re- ceipt. The invoice FCMAT obtained is also shown below. FCMAT obtained example invoices from a variety of Homewood Suites locations, and all are similar to the example from Los Angeles International Airport Homewood Suites by Hilton invoice shown below. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 185 Findings Board Member Paul Solano Typical Authentic Homewood Suites Invoice Red comment boxes and red arrows added by FCMAT. The receipt shown above contrasts with the receipt shown below, which is what Solano provided as au- thentic proof of his stay at Homewood in Oakland. This receipt is what Solano used to justify his hotel lodg- ing for the hotel cost charged to the district’s American Express credit card bill. This receipt looks nothing like FCMAT would expect for a Hilton or Expedia provided reservation or receipt at Homewood Suites. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 186 Findings Board Member Paul Solano Homewood Suites Invoice Submitted by Solano Red comment boxes, highlights, and red arrows added by FCMAT. On Page 21 of the Titan Group report, Solano stated in an interview regarding receipts and credit cards that the “district executive assistant fills out reimbursement forms for all five board members after receiving receipts they turn in and he overlooked what the executive assistant did and signed the document once he approved it.” Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 187 Findings Board Member Paul Solano On pages 23-25, the Titan Group report states the following: . . . he booked his own hotel arrangements for the trip . . . he originally intended to stay in Oakland, CA, he then canceled the arrangements for Oakland, CA and made arrangements to stay in Napa, CA…he booked the Homewood Suites hotel for a two (2) night stay before cancelling…the receipt for the Homewood Suites in Oakland, CA was printed to be turned in before cancelling, and he did not recall receiving a cancellation notice from Expedia when he cancelled the reservation online…he had stayed in the Silverado Hotel in Napa, CA for a past conference and wanted to stay there again for personal interest for things to do outside of the scheduled training…he did not change his travel dates for the training. He said he flew in on the morning of the conference, the 2nd, to save the District money and did not want to fly in the night before…he took a cab service from the hotel to the conference on the 2nd… he did not charge the District for travel from his hotel in Napa to the airport to return which he estimated to be at least sixty to eighty (60-80) miles…the dollar amount for the Napa hotel was not the same dollar amount for the Oakland hotel. He copies and pastes the screen in terms of his receipts, and believed he left the dollar amount from the hotel twice. Mr. Solano explained he uses a form of a spreadsheet/template to compile his receipts. He said he must have submitted the wrong receipt and did not change the name of the hotel which was where he said the discrepancy must have come about…the Expedia account used to make the reser- vations is his own personal account, not the District’s account [emphasis added]. There are inconsistencies in Solano’s explanation of how he stayed in a hotel in Napa at least 60 miles away rather than Oakland, where the conference was held. The differences between Solano’s explanations and the documents reviewed by Molina and FCMAT are as follows: The hotel receipt submitted is neither an authentic Homewood receipt nor an Expedia receipt. In Solano’s interview with FCMAT on September 7, 2021, he stated that the Homewood receipt was from his original Expedia Homewood reservation and was a mistake, and that the Silverado Resort and Spa, Napa Valley stay may have been a little more expensive but not significantly so. However, if the Silverado cost a little more, it would not have saved money as Solano told the Titan Group he was trying to do. If Solano used Expedia or Hilton to make his reservation, his receipt would have included a confirmation number, but there is none. If Solano cancelled the reservation, he would have been issued a cancellation notice, also with a confirma- tion number. If Solano did not receive or failed to keep his cancellation notice, he could have requested a copy from Hilton or Expedia to document his travel. Below is the Expedia receipt for the Silverado, obtained directly from Expedia by Molina. If Molina could obtain a receipt, then Solano should also have been able to obtain a receipt to submit a complete and authentic set of travel documents. Solano stated that he cuts and pastes screen prints to document his receipts. If this were true, confirmation and itinerary numbers would be part of the receipt and presumably be visible and printed on all receipts. Were it not for the auditing and research of the charges on the district credit card that showed the true location, Silverado in Napa Valley, where Solano and guest stayed, anyone would believe Solano stayed at Homewood in Oakland from June 1-3. Based on what FCMAT examined, the evidence suggests almost all documents of the CLSBA trip submitted by Solano may have been altered, may not be authentic, and have incorrect dates. According to Molina, the Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 188 Findings Board Member Paul Solano alterations shown in Solano’s expenses are characteristic of concealing the true location of his stay, and the true dates of June 2-4, not June 1-3. Shown below is the section of the district’s American Express card statement that indicates that the charge for the Silverado was from Expedia. This was one of the red flags that alerted Molina to potential irregularities in Solano’s travel claim. Because the Expedia charge is purchased with the district credit card, which used public money to pay the Expedia charge, Molina was well within her assigned duties to contact Expedia and question the charge, and Expe- dia cooperated with Molina. Red comment boxes, highlights, and red arrows added by FCMAT. Review of Solano’s Expedia issued Silverado receipt that Molina obtained clearly shows a confirmation number of 81435EC098670. Expedia was able to provide Molina a copy of the Silverado reservation after the stay had concluded. Therefore, if Molina were able to obtain a copy of the reservation, then Solano, the Expedia account holder, should have been more than capable of obtaining the Homewood receipt and cancellation document, or providing receipt from Silverado, where he actually stayed. Also shown on the Expedia receipt below is an itinerary number. There is no itinerary number on the Home- wood receipt, nor does that receipt look remotely like an Expedia receipt. The Expedia receipt obtained by Molina is shown below. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 189 Findings Board Member Paul Solano Red comment boxes, highlights, and red arrows added by FCMAT. Solano stated to Titan he did not change his travel dates; however, the Homewood dates are for June 1-3 while the Silverado receipt is for June 2-4. Solano stated he wanted to save the district money by flying in on the morning of June 2. He was sched- uled to be at the conference June 1-3, or three days. If his intent was saving the district money, then he should not have arranged to fly up on June 1; He should have originally flown up on June 2 and back on June 3, which would have been only one hotel night and cost less in airport parking and other out-of- pocket costs. However, Solano actually returned on June 4, also after three days, which does not save the district money. Whether it is June 1-3 or 2-4, it is the same total of three days of travel. Solano submitted a Jet Blue airline ticket as more documentation that he flew up on June 1 and returned June 3. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 190 Findings Board Member Paul Solano Red comment boxes, highlights, and red arrows added by FCMAT. The information Solano provided to FCMAT differs from that provided in the Titan Group interview. Solano told FCMAT that CLSBA was not sure if they were going to have a meeting with Tony Thurmond and other important people the night of Saturday, June 2 or Sunday, June 3. Therefore, Solano said he would have returned Sunday but chose to stay until Monday, June 4. However, the reason Solano gave the Titan Group for changing his flight to June 2 was to save money; therefore, he still could have returned on June 3. It is possible that during the FCMAT interview Solano remembered more than what he told the Titan Group. Nevertheless, providing a Jet Blue receipt for the actual flight dates would have provided clarity about the dates of travel. The Expedia Silverado receipt room criteria states, “Reserved for Paul Solano 2 adults.” Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 191 Findings Board Member Paul Solano Highlighting added by FCMAT. Molina was also able to obtain directly from the Silverado a copy of what the hotel charged Solano. Red comment boxes, highlights, and red arrows added by FCMAT. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 192 Findings Board Member Paul Solano FCMAT reviewed the district’s American Express accounts. With the district’s help, FCMAT determined the account number ending in 1592 on the Silverado receipt is not a district account. Account 1592 could be an error; nevertheless, the Silverado receipt indicates the stay for Solano was $380.06. This differs by $66.53 from the $446.59 that the district paid Expedia on its American Express bill. Solano told FCMAT that the American Express account number ending in 1592 was not his, and he cannot explain why the Silverado charge is less than Expedia charge that the district paid. FCMAT cannot determine if So- lano or another party received a credit or refund of the $66.53 while Solano’s Expedia account processed the full charge of $446.59 to the district’s credit card. It is also clear from the Silverado receipt that it looks authentic and similar in appearance to other hotel receipts that use a logo and confirmation number and is much more organized than the Homewood receipt Solano submitted. Comparing the Homewood and Expedia receipts, it is also inconsistent that the two different hotels would have the same pricing for each night’s stay. The two hotels are very different, yet both hotels, miles apart, one a spa and resort and the other close to an airport, were priced identically. The Homewood hotel was priced at $204.16 for Friday, June 1 and $184.96 for Saturday, June 2. The Silverado is also priced $204.16 and $184.96 but for Saturday, June 2 and Sunday, June 3. Both hotels also show an identical tax of $57.47 for a total of $446.59. FCMAT cannot confirm what the true price of a stay at Homewood in Oakland would have cost on June 1-3 or 2-4, 2018, nor can the true Silverado cost in Napa be confirmed. FCMAT does not consider the Home- wood pricing to be accurate. FCMAT’s theory of what occurred is that the Silverado pricing was used on So- lano’s Homewood receipt. Doing so allowed Solano to match the pricing on his Homewood receipt from the Expedia Silverado receipt because that amount, $446.59, is what is on the district’s American Express bill. If it is true that Solano entered the Homewood pricing from his computer screen when he made the reser- vation, then it is likely the pricing for Homewood in Oakland for June 1-3 would have differed from that for Silverado in Napa for June 2-4. If Solano entered the Silverado dollar amounts on the Homewood receipt after the stay was complete, then he would presumably know he was using Silverado numbers on a Home- wood created receipt. Either way, it takes considerable effort to create alternative documents to establish a stay and costs at a different location on different dates. These dates are significant because there are other documents, such as the district’s substitute receipt form for meals, that Solano submitted using the same June 1-3 dates, as shown below. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 193 Findings Board Member Paul Solano Red comment boxes, highlights, and red arrows added by FCMAT. Solano submitted a district substitute receipt form that he admitted to FCMAT is in his own handwriting and signed as actual and necessary expenses. As previously stated, Solano explained he uses a spreadsheet to compile his receipts. This means he is presumably organized, tracks his travel in a spreadsheet, and the data in the spreadsheet is compiled from the receipts he keeps. Yet in this case, when corroborating evi- dence in the form of receipts would provide precise information about costs and dates of travel, rather than submit receipts, Solano listed non-meal expenses in the substitute receipt form meant for meals only. FCMAT asked Solano why the dates on the district receipt form were June 1-3. Solano explained he was using his original calendar dates of June 1-3 when he filled out the receipt form and did not correct these dates. He said this was also a mistake. The names, dates and amounts were handwritten and were record- ed after the travel had concluded. Solano explained to the Titan Group investigator that he did not charge the district for travel from his hotel in Napa to the airport; however, his substitute receipt form clearly has a charge for reimbursement of $15 to Friendly Cabs, “hotel to Oakland Airport” on June 3. The purpose section of the receipt form clearly says, “hotel to Oakland Airport,” which FCMAT takes at face value to mean Solano’s travel from his hotel in Napa to the Oakland airport. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 194 Findings Board Member Paul Solano It is not clear how a cab ride from Napa to Oakland would cost only $15. What also appears misleading or purposely designed to present his travel as legitimate on June 1-3 is that the receipt form is filled out in Solano’s own handwriting, which would be based on receipts with actual dates after he returned from the trip. In other words, if he knew he was not in Oakland on June 1-3, but rather in Napa on June 2-4, then one plausible explanation of Solano hand writing the travel dates and signing the form on June 8 may be to continue the appearance of his travel being on June 1-3. His answer for almost everything associated with the CLSBA travel is that it was a mistake. Solano had yet another chance to be open and truthful about the dates and costs of his stay in Napa. He also signed a district travel request form, shown below. Red comment boxes, highlights, and red arrows added by FCMAT. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 195 Findings Board Member Paul Solano The district’s travel request form is also required for preapproval of travel and for reimbursement of actual and necessary expenses after the travel. Whether Solano completed the form or someone else did, he is responsible for the form. Fortunately, Molina performed her duties responsibly and was able to deny pay- ment of the substitute receipt form request for reimbursement of Solano’s out-of-pocket costs. The district had to spend an extraordinary amount of time and energy and incur significant costs to sort through a board member’s travel for a potential total of $753.28. All board members are fiduciaries of the district. They should always exercise good judgment and disclosure by being open, sincere and honest. Regardless of when Solano may have become aware of his trip expenses and dates being questioned by Molina, he used a district credit card paid for with public money for his trip. Rather than producing the receipts needed to document his claims, time was spent condemning Molina’s actions in performing her required duties of researching the expenses, including contacting Expedia, Homewood, and Silverado. As stated in her job description, Molina was responsible to “Monitor and verify expense claims, reconcile receipts . . . detect, trace and resolve discrepancies . . . and work independently with little direction.” FCMAT neither found nor was provided any documents that informed Molina not to pursue the irregularities in Solano’s expense claim. Solano’s statements to the investigator on September 26, 2019 in pages 19-29 of the Titan Group report indicate that he notified the superintendent and legal counsel that he was willing to pay back the money. He did not, in fact, repay the funds at that time. Solano explained to FCMAT the following: • He loves Napa and tries to go there any time he can. • The receipts and events were his mistake, but that he did bring this to French’s attention when he was in her office with attorney Bill Trejo, and wanted to pay the money back. • French and Bill Trejo told him he did not have to pay the money back. French explained to FCMAT that her original contact about this issue was with Francisco Leal and that Bill Trejo never told her that Solano did not have to pay the money back. He talked about the travel issue with attorney Francisco Leal, who thought his travel was OK or not an issue. French explained to FCMAT that Francisco Leal told her that Solano did not have to pay the money back and that Francisco Leal would speak to Solano. As discussed below, Francisco Leal may not have been shown the true documents or heard the full and complete story from Solano, because some time later Francisco Leal stated in an email that he had reconsidered and that Solano should pay the money back. As a board member, Solano stated that he can only go along with what his superintendent and district legal tell him. He spoke several times with French and legal counsel, and he wishes he never made the mistake. When FCMAT interviewed French, she stated she had reviewed the CLSBA travel documents and origi- nally thought Solano stayed where his paperwork indicated, and took Solano at his word that he stayed at Homewood. Further, because of Solano’s explanation and paperwork shown to her at that time, she did not think it was an issue. It did not cross her mind that the paperwork Solano was submitting was false. Howev- er, in a meeting with French, once the FCMAT team pointed out the date, dollar amount, location differenc- es, missing receipts, altered receipts, and other items, French realized there was much more to this issue and that Solano was not forthcoming in his explanations about the true nature of the receipts he showed her. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 196 Findings Board Member Paul Solano This same misconception of the true nature of the receipts is evidenced in an email dated January 5, 2021, from Francisco Leal of the district’s law firm to the new superintendent, Dr. Alejandro Alvarez, that in part states the following: This issue has garnered more importance than it probably deserves, with accusations from Mr. Solano’s political detractors that he mis-used District funds. Mr. Solano has repeatedly attempted to resolve this matter by using his personal funds to reimburse the District for the hotel stay. Regrettably, he has been given conflicting advice from me, my law partner Trejo, and the former Supt, Ms. French. As I recall, my advice was that he reimburse the District for the hotel stay, and the advice from Mr. Trejo and Ms. French was that reimbursement was not required. I have taken a more thorough review of the situation, and I believe it would be pru- dent for Mr. Solano to resolve this matter by reimbursing the District for the hotel stay. Please convey this message to Mr. Solano, along with a personal apology for delaying closure of this situation. Please make sure that the repayment is properly documented. As a fiduciary of the district, a board member is supposed to have a legal and ethical relationship of trust with the district, its management, the public, and his fellow board members. Following board protocols, board policies, and being a good fiduciary are all components of how an ethical board member should act in fulfilling their responsibilities by setting the tone at the top with integrity and honesty. If a board member fails to adhere to the rules, others may follow their lead and also not do so. Even years later, the red flag findings of a seasoned accounting technician II, Molina, were not given consid- eration. Attorney Leal wrote, “This issue has garnered more importance than it probably deserves,” which seems to water down a possible concealment. Yet those involved with keeping the information concealed apparently were willing to cause Molina to be a complainant in an investigation because she stood her ground, questioned the expenses and protected public money. This diminishes the essential checks and balances. Solano appears more concerned that Molina and the district looked into his personal Expedia account than about being transparent and a good fiduciary to the district. Page 28 of the Titan Group report states the following: Mr. Solano was not given any options of discipline for Ms. Molina, but it was discussed that he can pursue criminal charges individually just not through the District…he felt he was lax on the issue and the District was as well. He felt something should have been done and Ms. Molina should not have been protected by the Whistleblower Act. Nobody should have had to tell Solano he should pay back the money. He is a board member with more than 20 years of experience and should know what to do. The fact that Solano was seemingly discussing pursuing criminal charges against the person responsible for reviewing his travel expenses and did not believe Molina should be protected by the Whistleblower Act speaks volumes about his lack of integrity in exercising his fiduciary responsibilities as a board member. Molina explained that it was easy for Solano to bully his way around the district and do whatever he wanted because he was the senior board member, and most are afraid of him because of his close ties to the law firm and because he yells at anyone he does not like. Both Molina and others interviewed said that Solano is a bully, demeans women, will confront any- one, and goes after them relentlessly if he feels they don’t do what he wants. In the email above, the attorney writes he has conducted a more thorough review and believes Solano should reimburse the district. The attorney believes Solano should only reimburse for the hotel stay, but as shown in this report, a better approach would be reimbursement for the entire trip, including the Jet Blue cost of $189.95, Expedia cost of $446.59, and possibly the cost of the Titan Group investigation, to ensure full restitution of funds. Further, Solano cannot explain where the $66.53 difference between his Silverado Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 197 Findings Board Member Paul Solano and Expedia receipts went or who may have it. During FCMAT’s interview with Solano, the team also recom- mended he repay the funds. On January 10, 2022, approximately three and a half years later, Solano paid restitution to the district by personal check in the amount of $447, the cost of the hotel, rounded up. Even if funds are later paid back, the original diversion of the funds for other than public purposes may be considered misappropriation of funds when it occurred. If the funds from an alleged irregular activity are paid back later, it can be consid- ered restitution, meaning a restoration of something lost or stolen to its proper owner or making good or giving an equivalent for some injury. The travel expenses issue also raises the possibility that a gift of public funds may have occurred. Based on the information available, the entire trip may be considered a vacation to Napa with a guest rather than a district-related educational activity to benefit students. Expenditures of public money that are driven more by personal motives are disallowed because the use of the funds does not have a substantial public purpose, even if all the funds are repaid. This means the entire cost of the trip paid by the district may be considered a gift of public funds because the facts and circumstances as shown above have the attributes of someone purposely concealing the true nature of the travel for what appears to be a personal vacation. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 198 Findings Measure V Campaign Funds Measure V Campaign Funds The community organized a campaign to support a bond measure, Measure V, to obtain financing to im- prove its schools. To fund the campaign costs of promoting Measure V, a Wells Fargo bank account was created in September 2014 and titled Citizens for Bassett Schools on Measure V. The bank account address was the alleged residence of former district board member Natalie Ybarra. Ybarra’s Linkedin profile dis- closes that she has been a member of the board of trustees of the district from “Dec 2015–present. 4 years 10 months,” has a Bachelor of Arts degree from Columbia University in New York, is a policy specialist, community engagement coordinator, vice chair of the planning commission of the city of Baldwin Park, and assistant director of upward bound at Harvey Mudd College. Her board term ended December 2020, and she did not seek re-election. The FPPC requires that campaigns such as the district’s bond measure report their financial activities (money received and money spent) on Forms 497 and 460. FCMAT obtained the campaign’s 497 and 460 reports from the Los Angeles County Registrar-Recorder County Clerk, Campaign Finance Section. Ana Morales, a community member, provided FCMAT with copies of bank statements, cancelled checks, and deposits. Form 497 is a report that details the contributions received to support the campaign, which are also re- corded in Form 460. Form 460 has several schedules and is shown in Appendix 87. Schedule A reports the contributions received, and Schedule E summarizes the expenses or actual payments made. The first page of Form 460 is the cover page, which identifies the committee on behalf of which it is filed, in this case Citizens for Bassett Schools-Yes on Measure V. The cover page has several signature lines and titles, and the campaign used two of those lines. Ybarra signed the form as the controlling officeholder or responsible officer of sponsor, and Morales signed as the treasurer or assistant treasurer. According to Morales, the campaign needed at least one additional person to sign forms and be part of the bank account. Morales, a Bassett community member, was asked by then district superintendent Alex Rojas to help with the campaign account as treasurer. In a written statement to FCMAT, Morales stated that she “…was reluctant to commit for many reasons…” and explained she “had never been or held position in treasure [sic] or financial…and…was not good with numbers or forms.” Morales further explained that Ybarra promised to fill out all forms, kept all documents, had control of the Wells Fargo bank account, possessed the only active bank debit card, and would take care of all expenditures. Form 460, Schedule E is important because this is where cash payments of less than $100 are reported as unitemized; however, receipts remain required to substantiate the cash used. When an amount is report- ed on Schedule E as a payment of less than $100, it means that cash was spent from the campaign funds. Form 460 is designed to reconcile with the campaign bank account, because cash withdrawals from the account should be used only for campaign related purchases. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 199 Findings Measure V Campaign Funds Appendix 87: Campaign form 460, Schedule E, Page 5. Highlighting and red oval added by FCMAT. Amounts from Schedule E are totaled and placed on Form 460’s summary page. In this example, the sum- mary page is page 3 of 7 for the statement period of October 1, 2014–October 18, 2014, and the Schedule E amount of $177.13 is shown on the summary page in the line item titled Cash Payments. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 200 Findings Measure V Campaign Funds Appendix 87: Campaign Form 460, Summary, Page 3. Highlighting and red oval added by FCMAT. All evidence and Ybarra’s statements indicate that Ybarra had sole use of the only active campaign bank debit card, used the debit card for cash withdrawals and transactions, and was the sole signer of checks issued by the campaign. Morales stated that she only agreed to help with the campaign because another person could not be found, never signed any checks, and destroyed her debit card when she received it because she did not want the responsibility. The FCMAT team met with and interviewed Ybarra about the campaign account on June 3, 2020. In the interview, Ybarra stated the following: She wrote the checks and authorized transactions and also took direction from others. She and Morales were responsible for making sure the transactions were reported on the proper campaign forms 460 and 497 (Morales strongly disputes that she was responsible for any reporting because the bank account statements, and information went to Ybarra’s home; Ybarra said she promised to fill out the forms, and only needed Morales for her signature). She was experienced in completing campaign forms. It was her responsibility to manage the funds, complying with business rules, IRS rules such as issuing 1099s and other regulations, and the financial aspects of the bank account and forms reporting. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 201 Findings Measure V Campaign Funds All receipts, invoices and purchase documents were in her possession. She stated that she had a binder of receipts that she would provide to the team (Ybarra never provided the binder of receipts to FCMAT). She no longer has the debit card. FCMAT compared the address on the campaign’s bank statements with the address on Ybarra’s personal Check No. 416 discussed further below, and the addresses matched. Based on Ybarra’s answers during the interview and the fact that the bank statement and campaign forms had Ybarra’s apparent home address, FCMAT concluded the campaign forms and bank statements were in her sole custody and that she was solely responsible for managing all campaign funds, proper documentation and administration of the funds, ensuring the safety and integrity of the funds, and reporting the use of the funds accurately. The campaign bank account statements, which are from the bank and campaign forms obtained from the county clerk and prepared by Ybarra, are sources that can be compared. Having reviewed the available documents, FCMAT found that the campaign funds had characteristics of not being properly documented, reconciled or accounted for, and found irregularities in how campaign funds were spent and where the cash went. Following is the analysis of irregularities and Ybarra’s explanations of those irregularities during the June 3, 2020 interview. Form 460 Reporting Period: October 1, 2014 - October 18, 2014 Comparing the bank transactions to the campaign forms 460 further identified that the campaign’s funds were not reconciled and did not clearly record how the cash and other purchases were spent under Yba- rra’s management. Form 460 was filed by Ybarra for the reporting period of October 1, 2014 through Oc- tober 18, 2014. Form 460, Schedule E, Payments Made, Page 5 shown above indicates that $177.13 in cash was spent during this reporting period. A review of the September 2014 Wells Fargo bank statement when the account was opened and the Octo- ber 2014 bank statement when the first banking activities began shows only one $50 check written in the October 1, 2014, through October 18, 2014, reporting period that might qualify as an unitemized payment under $100. Therefore, the difference of $177.13 less $50.00, or $127.13, is unaccounted for. Schedule E, unitemized payments under $100, becomes more important as the campaign irregularities continue. Form 460 Reporting Period: October 19, 2014 – December 31, 2014 On October 20, 2014, Ybarra withdrew $100 from the Wells Fargo campaign bank account as an in-branch withdrawal. Ybarra confirmed to FCMAT that she made the withdrawal and confirmed that her signature is on the withdrawal form. Wells Fargo campaign bank account, October 2014. Highlighting, red comment boxes, and red ovals added by FCMAT. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 202 Findings Measure V Campaign Funds Wells Fargo bank campaign account withdrawal slip. Red comment boxes and arrows added by FCMAT. When the FCMAT team asked Ybarra what the $100 cash withdrawal was for, she said she was not sure but thought it was for water. On October 21, 2014, Ybarra used the debit card for a purchase at Home Depot for $16.97 with no explanation of what the purchase was for. Even though the campaign forms allow for round- ing to whole dollars, there are more inconsistencies in the reporting of expenditures. On November 5, 2014, Ybarra withdrew $300 using her campaign debit card, and on November 13, 2014 withdrew another $300. These $300 debit card cash withdrawals are discussed further below. The total possible Form 460, sched- ule E reportable “Unitemized payments made this period of under $100” was $656.97, or $657 if rounded to the nearest dollar. The October 19, 2014 – December 31, 2014 schedule E shows that $440 was spent in payments, not $657, which is an understatement of $217. Ybarra stated that she had the receipts to explain the $440 but did not mention explaining the additional $217. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 203 Findings Measure V Campaign Funds Appendix 87: Campaign Form Schedule E, Page 5. Highlighting, red comment boxes, arrows, and red ovals added by FCMAT. Ybarra continued to insist she had all the receipts in a binder for all purchases and would provide the binder at FCMAT’s next meeting with her. This binder was significant because it would have been the foundation for Ybarra’s answers to the more difficult financial questions. FCMAT followed up in an email dated June 23, 2020, reminding Ybarra about the binder of receipts. On June 23, 2020, at 10:28 PM, Ybarra responded as follows: Thank you for your reminder email. I do need more time to locate the binder to provide the receipts. I’ll be in touch just as soon as I have them. FCMAT gave Ybarra considerable additional time, but she would not meet with the team again and failed to produce the binder of receipts to corroborate the campaign expenditures and her explanations of what happened to the money. Payment for $276 Becomes $576 On October 28, 2014, Ybarra wrote Check No. 1002 for $276, payable to David Hernandez, for canvassing services. The check cleared the Wells Fargo campaign bank account two days later. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 204 Findings Measure V Campaign Funds Wells Fargo bank campaign account, Check No. 1002 As shown in the two exhibits above, Schedule E does not report the payment to Hernandez for $276, but instead shows $576. Ybarra was the preparer and documenter of all transactions on the campaign forms. Ybarra explained that she thought she paid Hernandez an additional $300 in cash, which is why she recorded $576 in payments on Form 460. Because of the many discrepancies in Ybarra’s accounting of campaign funds that are associated with cash, FCMAT wrote to Hernandez on July 6, 2020 and July 13, 2020 to confirm how much money he was paid by Ybarra from the campaign funds. FCMAT included in its correspondence a form that he could complete. Hernandez replied and completed the form. Hernandez’s signed reply confirmed he had received the check for $276 and indicates he received zero additional cash, meaning he had not received any cash as Ybarra said. The district’s interim superintendent, Art Cunha, told FCMAT that the district’s law firm said Hernandez approached them about signing the confirmation letter. After their meeting, the financial amounts were filled in and the confirmation letter was signed confirming that no additional cash was received. The $300 difference in cash is important because for the Form 460 statement period of October 19, 2014, through December 31, 2014, shown above, Ybarra asserted she has the receipts in her binder that substantiate that Hernandez was paid $576. As described above, Ybarra withdrew $300 in cash on two occasions. One method used to skim funds from an account is to withdraw cash and apply that cash to an unsuspect- ing person’s balance as if that person were paid more than what they actually received. According to Her- nandez, he did not receive the extra $300 Ybarra applied to his account balance. Throughout the interview, any time Ybarra was not sure of an answer or did not want to answer, she insisted that she had the receipts in a binder and could explain everything when she met with FCMAT again. Check for $500 to Ybarra Dated May 5, 2015 On May 5, 2015, Ybarra wrote herself Check No. 1011, for $500. No purpose for the $500 was written in the check memo. The check is believed to have been deposited into Ybarra’s personal bank account the same day, and the campaign’s Wells Fargo bank statement shows it as clearing the bank the same day. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 205 Findings Measure V Campaign Funds Wells Fargo bank campaign account, Check No. 1011. Red comment boxes and arrows added by FCMAT. Ten days later, on May 15, 2015, Ybarra deposited $500 into the campaign account and wrote in her per- sonal check memo, “return recent withdrawal.” The check shown below is presumed to be Ybarra’s person- al check for $500, returning the money to the campaign’s bank account. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 206 Findings Measure V Campaign Funds Natalie Ybarra check payable to Wells Fargo bank campaign account. Red comment boxes added by FCMAT. The May 2015 bank statement documents the $500 withdrawal and the $500 deposit back into the ac- count. Wells Fargo bank campaign account, May 2015 bank statement. Highlighting added by FCMAT. Writing a check to herself and then returning the funds 10 days later is typical of someone giving themself a short-term loan. Both transactions should have been but were not reported in the Form 460. This means there is no public record of the transactions in the Form 460, even though both transactions, regardless of how they are interpreted, were for more than $100 and thus should have been disclosed. Ybarra would not provide a reason for the transactions or state why they were not reported. FCMAT searched all forms 460, from the statement period starting July 1, 2014 through the final closing statement period ending December 31, 2015, for any $500 transactions. None were found. During the interview, FCMAT asked Ybarra why she wrote herself the check for $500; why there was no memo on the check describing what the funds were for; whether the money was for her own person- al short-term loan; who gave her the money to pay it back; and why neither the check to herself nor the repayment of it were reported in Form 460. At this point Ybarra said she would have to look at the books, presumably meaning the alleged binder of receipts. Ybarra had no further comments about the two $500 transactions. Purchases at Hustler Hollywood-San Diego and Marriott Hotel-San Diego Comparison of the forms 460 with the campaign bank account revealed two more transactions not report- ed in the forms 460. On Sunday, December 7, 2015 Ybarra used the campaign debit card for a purchase of $96.10 at Hustler Hollywood, San Diego and on the same day used it for a purchase of $38.85 at the Marri- ott hotel in San Diego. The December 2015 bank statement documents the two transactions. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 207 Findings Measure V Campaign Funds Wells Fargo bank campaign account, December 2015 bank statement Highlighting added by FCMAT. FCMAT researched the types of items sold at Hustler and spoke to a Hustler representative, who could not find the transaction to help identify what might have been purchased at Hustler in San Diego that would be an appropriate campaign purchase. The clerk indicated that Hustler sells sex toys and related items in its store and that a $96.10 purchase might be a toy or possibly a certain kind of apparel. FCMAT researched other Hustler locations and found that there is another Hustler location in West Covina, which is only three miles from the district office in Bassett; therefore, the need to purchase items from Hustler in San Diego was questioned. Ybarra provided no answer other than saying it was a mistake. FCMAT cannot find any item at Hustler that might remotely be considered an acceptable campaign purchase. FCMAT also contacted the Marriott hotel in San Diego about the $38.85 purchase. Marriott indicated the amount may be for parking combined with some other purchase but could not be sure. They also were not able to look up a receipt for that day to determine its purpose. FCMAT asked Ybarra about the Hustler and Marriott purchases in San Diego. Ybarra stated she used her campaign debit card by mistake at Hustler and that the Marriott purchase was for attending a conference. The date of the Hustler and Marriott purchases was December 7, 2015, a Sunday. Ybarra could not explain which conference the purchase was for or how it might be related to the campaign. Because the Hustler purchase was said to be a mistake, FCMAT asked if Ybarra had paid the money back to the campaign, and Ybarra stated that she had not. When asked why, she said that she had the receipts and would check the binder, which was not an answer to the question. When FCMAT asked which confer- ence she attended at the Marriott that Sunday and how was the conference related to the campaign, her answer was that she would check her receipts. The FCMAT team again searched all forms 460 from the statement period starting July 1, 2014 through the final statement period ending December 31, 2015 for Hustler and Marriott transactions but found none. The Hustler and Marriott transactions should have been but were not reported on Form 460. This means there is no public record of these transactions on the Form 460. If the purchases were not campaign related, those funds should have been paid back to the campaign, but there is no record of such repayment. Ybarra stated that she knew she used campaign funds for the Hustler purchase and did not repay the cam- paign. Receipt Binder and Attempts to Meet Again with Ybarra The meeting with Ybarra about the campaign funds took place on June 3, 2020 at a conference room pro- vided by the Los Angeles County Office of Education at its Head Start facility. At that meeting, as previously described, Ybarra’s primary source of explanation for the transactions discussed was the campaign binder that Ybarra stated was full of receipts that explain and justify all campaign purchases. Ybarra told FCMAT Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 208 Findings Measure V Campaign Funds she might need a week to review the binder before she could meet again. FCMAT believed Ybarra and offered her two weeks if she needed it before meeting again. On June 18, 2020, FCMAT emailed Ybarra reminding her of the promised binder and timeline but offering more time if needed. FCMAT followed up again on June 23, but Ybarra responded she needed more time. FCMAT also emailed Ybarra on July 1, 2020, July 6, 2020, September 9, 2020, and September 15, 2020. The September 15 email repeated many of the issues such as the outstanding cash, $500 check to herself, the Hernandez check, the cash amount of $576, and the Hustler and Marriott purchases, and reminded Ybarra of her fiduciary responsibility to act in an honest and transparent manner. On September 17, 2020 Ybarra responded, saying she could not meet and requested a new date but would not provide a date when she could meet. FCMAT offered to meet on Tuesday, September 22 or Wednes- day, September 23 and gave her until 5 p.m. on September 17, 2020 to respond. No response was received. On September 19, 2020, FCMAT sent another email and set a meeting date of September 22 at 5 p.m. On September 20, 2020, Ybarra replied that she could not make the September 22 meeting because of her work schedule but provided no alternative meeting date. FCMAT responded the same day with an offer to wait until 6 p.m., after Ybarra’s work day. Ybarra replied the same day that she could not meet then be- cause she had a board meeting. FCMAT replied the same day with a reminder that FCMAT had also offered to meet on September 23 at 6 p.m. and expected to meet then. On September 22, Ybarra replied that she was “not able to get out of work in time” but did not provide an alternate meeting time. FCMAT sent a final email stating that the FCMAT team would be at the meeting location at 6 p.m. The team arrived at the meet- ing location at 4:49 p.m. and waited for Ybarra until 8 p.m.; however, she did not arrive, and the alleged binder that Ybarra claimed explained everything was never provided. Because of the lack of cooperation from Ybarra, FCMAT compiled all campaign checks, deposits and transactions as reported on the bank statements from the time the account was opened in October 2014 through its closure in January 2016. Because Ybarra did not provide receipts to support the campaign purchases and cash withdrawals she made and was responsible for, the evidence indicates that a total of $1,334.95 in campaign purchases may be attributable to Ybarra for her personal use. These transactions are listed and summarized below. Although these amounts may seem small or inconsequential, the campaign funds were raised to support a campaign for Measure V to improve school facilities. Ybarra, a community member and later a board mem- ber, was entrusted with a fiduciary responsibility to properly care for, maintain and document all campaign activities, including all purchases. Based on the information FCMAT obtained, and because Ybarra failed Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 209 Findings Measure V Campaign Funds to produce substantiation of the transactions and activities questioned, the available information indicates that Ybarra may be responsible for the following: • Failure to report the $500 check to herself or the return of the funds that she had use of for 10 days. • Failure to pay back allegedly mistaken spending of campaign funds for a $96.10 purchase at Hustler Hollywood-San Diego and a $38.85 purchase at Marriott San Diego. • Withdrew $100 in cash directly from the campaign account with no explanation or receipts. • Using the campaign debit card for two ATM cash withdrawals of $300 each without any receipts or campaign purpose noted. • May have diverted campaign funds for noncampaign uses. • Failed to disclose cash and other transactions on the campaign forms 460. • Overstated or falsified form 460 by $300 for the check written to Hernandez, one check to herself for $500, and one check from herself back to the campaign for $500. • Failure to produce the receipts for which she was responsible or failed to keep receipts and other records. The FPPC is the state agency that enforces the California Political Reform Act to ensure campaign ethics laws are followed and to help agencies comply with its many rules and regulations. The FPPC assists with and enforces rules to ensure that the disclosure of political payments is accurate, timely and transparent. The FPPC issues a manual titled Ballot Measure Committees, Campaign Disclosure Manual 3. The most current version of the manual is dated June 2020. The manual states the following at chapter 2, Section B, Records Retention: Committees must keep all records, including original source documentation such as bank statements and other records reflecting account activity, and copies of completed campaign statements, for a period of four years from the date the campaign statement relating to the records was filed. Although the Measure V campaign form filings were from 2014 and 2015, more than four years ago, at the June 3, 2020 meeting with FCMAT Ybarra referred many times to the alleged binder of receipts, which im- plied that the receipts remained available. Regardless of whether the receipts exist or are available, Ybarra was the campaign fiduciary and so remains responsible for the records, books, transactions and expendi- tures that the Bassett community entrusted to her to protect and administer. Use of campaign funds is discussed in chapter five of the FPPC campaign disclosure manual. The general rule is that campaign fund expenditures must be reasonably related to a political, legislative or governmen- tal purpose. The manual states: A campaign expenditure that confers a substantial personal benefit on any individual autho- rized to approve campaign expenditures, a controlling candidate, or a state ballot measure proponent, must be directly related to a political, legislative, or governmental purpose. A substantial personal benefit means an expenditure of campaign funds which results in a direct personal benefit with a value of more than $200. Ballot measure committees should also consult Elections Code Section 18680, which provides that ballot measure funds are held in trust for use on the measure and specifies permissible Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 210 Findings Measure V Campaign Funds expenditures. Under Elections Code Section 18680, expenditures for food, clothing, shelter and other personal needs of the trustee are not permissible. [Emphasis added] The manual and California Government Code allow for reimbursement of expenditures but not for overstat- ing, exaggerating or inflating a consultant’s expenses, concealing cash transactions, or purchases at a sex toy and apparel store and a hotel. Government Code Section 84307 states: No contribution shall be commingled with the personal funds of the recipient or any other person. Government Code Section 89512.5 states the following: (a) Subject to the provisions of subdivision (b), any expenditure by a committee not subject to the trust imposed by subdivision (b) of Section 89510 shall be reasonably related to a political, legislative, or governmental purpose of the committee. (b) Any expenditure by a committee that confers a substantial personal benefit on any indi- vidual or individuals with authority to approve the expenditure of campaign funds held by the committee, shall be directly related to a political, legislative, or governmental purpose of the committee. [Emphasis added] Government Code Section 89518 states the following: (b) Campaign funds shall not be used to compensate any individual or individuals with author- ity to approve the expenditure of campaign funds for the performance of political, legislative, or governmental activities, except as provided in subdivision (b) of Section 89513 and for reimbursement of out-of-pocket expenses incurred for political, legislative, or governmental purposes. In other words, campaign expenditures require receipts and must be for activities related to the campaign; they cannot be used for compensation. The evidence indicates that Ybarra’s use of the funds may not have had a substantial campaign purpose and may have been driven by personal motives. As an additional step, FCMAT searched for amended campaign forms that might correct the issues dis- cussed above but found none. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 211 Findings Audit Firm Lack of Cooperation and Possible Audit Quality Issues Audit Firm Lack of Cooperation and Possible Audit Quality Issues When FCMAT began this audit, community members came forward with concerns about how the bond funds were spent and audited. One such community member was citizens’ bond oversight committee (CBOC) chair, Dena Florez. Florez was not pleased with the district’s role in providing information to the CBOC. Florez explained that the CBOC was not holding meetings because the executive director of busi- ness services, Linda Bermudez, was canceling the meetings, and explained that Bermudez was also al- lowing few or no bond budgets to be provided or monthly status reports to be issued. Without budgets and other needed reports, the CBOC was not able to fulfil its duty to the community. Furthermore, without meeting, the CBOC was essentially disenfranchised and nonfunctioning, calling into question the legitimacy of any and all bond fund expenditures. Florez explained that since February 18, 2017, as best as the CBOC could determine, there were no DSA closeouts and no details of how Measure V funds were being spent. No individual transactions were pro- vided until December 16, 2019, and even then only vendor totals were provided, which would not show the details of what the vendors were paid. The CBOC members were not pleased with how little information they were provided by the district, and Florez suspected there may be irregularities with the bond funds. The district’s external, independent auditor during this time was Vasquez and Company, LLP. The successor auditor to Vasquez was Vicenti, Lloyd & Stutzman, LLP (VLS). VLS later merged with another public account- ing firm and became part of CliftonLarsonAllen, LLP (CLA). FCMAT reviewed building fund and districtwide audits of the district for fiscal years ending June 30, 2013 through June 30, 2018. In addition to a districtwide financial audit, school districts that issue bonds under Proposition 39 (2002) have a separate audit of the building fund, which is where bond proceeds are placed. Vasquez and Company was both the districtwide financial auditor and the bond funds auditor for the fiscal years ending June 30, 2013 through June 30, 2015. For the following fiscal year, ending June 30, 2016, the building fund audit and districtwide audit (audits) were performed by VLS. Then, after CLA and VLS merged, the audits for fiscal years ending June 30, 2017 through June 30, 2018 were performed by CLA. The 2016 VLS audit report, the year VLS assumed responsibility as the district’s auditor, contained $455,602 in audit adjustments attributable to the prior year, 2015, when Vasquez and Company was the auditor. The VLS report also contained numerous findings attributable to the Vasquez and Company audit for the prior year, such that VLS issued disclaimed opinions on various aspects of the district’s financial reporting. To understand more about the differences in audit results between Vasquez and Company and VLS, FC- MAT contacted both firms and requested access to their audit work papers and documents. When FCMAT contacted VLS/CLA, they were proactive and granted access to their work papers without hesitation. Vasquez and Company, however, refused to grant access to their work papers. Both public accounting firms perform audits of school districts and are listed on the State Controller’s website as active and able to per- form K-12 LEA audits. FCMAT was surprised at Vasquez and Company’s refusal to provide access. Vasquez and Company stated that they were never paid for their audit and claimed that the standards of the profession prohibit them from granting access to their work papers. The former superintendent, Alex Rojas, told FCMAT that Vasquez and Company was paid in full but remembered that the audit reports for Vasquez and Company may have been rejected by the State Controller’s Office. Alex Rojas explained that, as best as he can remember, there were issues with Vasquez and Company’s final year bond audit, including discrepancies, and the bill was not fully paid because Vasquez and Company would not provide Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 212 Findings Audit Firm Lack of Cooperation and Possible Audit Quality Issues information the district was requesting. FCMAT reminded Vasquez that FCMAT’s request was not from a successor auditor performing a financial audit of the district, but from a state agency conducting an AB 139 extraordinary audit, and thus nothing prohibited them from granting access to their work papers. Further- more, the engagement letters or audit agreements between the auditor and the district state, “However, pursuant to authority given by law or regulation, we may be requested to make certain audit documentation available to a Cognizant or Oversight Agency for Audit or its designee, a federal agency…to carry out over- sight responsibilities.” Therefore, Vasquez and Company, whether paid or not, should have cooperated with the district’s request to grant access to their work papers, the county-initiated AB 139 audit of the district, and FCMAT’s request. FCMAT communicated numerous times with Vasquez and Company over several months but was not granted access to their audit work papers. In speaking with VLS, FCMAT found that Vasquez and Company also did not provide VLS access to their work papers. FCMAT reviewed the differences between Vasquez and Company’s June 30, 2015 final audit and VLS’s audit for the subsequent fiscal year (2015-16), its first audit as the successor auditor, and found significant differences. There are numerous inconsistencies that indicate Vasquez and Company did not disclose or identify deficiencies that the successor audit firm VLS found in its audit. VLS’s audit findings and adjustments may be attributable to transactions or internal control processes Vasquez and Company’s audit missed, ignored, or may have considered immaterial. The VLS 2015-16 audit identified that the district was unable to provide support for the opening balances and fiscal year activity related to capital assets and depreciation, compensated absences, postemployment healthcare benefits, and the early retirement incentive. Opening balances are the prior year’s ending bal- ances that become the new year opening balances. For example, if last year’s cash ending balance on June 30, 2015 was $500, then when the new fiscal year starts the next day on July 1, 2015, the opening balance should also be $500. Because schedules were not available, the opening balance issue flows into the new year, thus causing the next year’s ending balances to be incorrect. This means the district was unable to determine the proper amounts to capitalize, expense or record as liabilities as of June 30, 2016. These deficiencies affect the governmentwide assets, liabilities, expenses and ending net position. In other words, the district’s financial statements were inaccurate. Because of the significance of the matter described in the above paragraph, VLS was not able to obtain suf- ficient, appropriate audit evidence to provide a basis for an audit opinion on the governmentwide financial statements of the district. Accordingly, VLS did not express an opinion on these financial statements. A de- ficiency in internal control over financial reporting was also noted by VLS but not Vasquez. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstate- ments on a timely basis. During the evaluation of the district’s internal controls, VLS noted numerous internal control and prior period audit deficiencies that related to the previous fiscal year, 2014-15, when Vasquez was the auditor. A prior period adjustment is typically associated with transactions or amounts that were found during an audit that should have been addressed or recorded in the prior reporting period or prior audit; in this case, when Vasquez was the auditor. The deficiencies and adjustments are described in detail in the district’s 2015- 2016 audit report, Financial Statement Findings section, pages 79-89, totaling 10 pages of findings. When an audit firm refuses to grant FCMAT access to their audit work papers, it is a warning flag, and in FCMAT’s experience, it means something may be materially deficient in that auditor’s work papers. Auditors are an independent third-party source for FCMAT. When FCMAT can rely on an auditor’s work papers and procedures performed, greater confidence can be achieved about the direction FCMAT chooses to go with the audit, or FCMAT can confirm with greater confidence that an audit area is less problematic. Vasquez should have cooperated and provided access but would not. FCMAT’s prior experience with auditors who Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 213 Findings Audit Firm Lack of Cooperation and Possible Audit Quality Issues would not grant work paper access is that the work papers and firm’s system of work paper review and even external peer review may be deficient. This should be of concern to the State Controller, California State Board of Accountancy, California Society of Certified Public Accountants, American Institute of Certi- fied Public Accountants, state of California Peer Review, and the Los Angeles County Office of Education. 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 judicial process. FCMAT is not making a finding 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. In accordance with Education Code Section 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 Education Code Section 1241.5(b), the county superintendent is required to report the findings and recommendations to the district’s governing board at a regularly scheduled board meeting within 45 days of completing the audit. Within 15 days of receipt of the report, the governing board is required to notify the county superintendent of its pro- posed actions regarding the county superintendent’s recommendations. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 214 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 district’s financial records and internal control environment increase the probability of fraud, mismanagement and/or misappropriation of the dis- trict’s assets. These findings should be of great concern to the Bassett Unified School District and the Los Angeles County Office of Education and require immediate intervention to limit the risk of fraud, misman- agement and/or misappropriation of assets, or other illegal fiscal practices in the future. Recommendations The county superintendent should: 1. Notify the governing board of the Bassett Unified 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 Los Angeles County Office of Education has concluded its review. 2. Report the findings and recommendations of the review to the governing board of the Bassett Unified School District at a regularly scheduled school district board meeting within 45 days of the completion of the review. The governing board of the school district shall, no later than 15 calendar days after receipt of the report, notify the county superintendent of its proposed actions on the county superintendent’s recommendations. Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 215 Appendices Appendices Appendix A Study Agreement Appendix 0 Del Terra Timeline Appendix 1 2015 Agreement (4/21/15) Appendix 2 Project Timeline 2015 Appendix 3 Additional Services Invoice 36382 for $230,000 (9/15/16) Appendix 4 Program Management Services Invoice 36250-16 (10/6/16) Appendix 5 Warrant 23412923 for $230,000, Invoice 36382 (11/28/16) Appendix 6 Program Management Services Invoice 36250-17 (11/2/16) Appendix 7 Fourth Amendment to 2009 Agreement (8/5/14) Appendix 8 21st Century TK-5 CM Services Invoice 36381-06 (6/2/17) Appendix 9 21st Century 6-12 Invoice 36380-1 for $431,207 (9/1/15) Appendix 10 Digital Networks Invoice 14362 (8/3/16) Appendix 11 Accounting of Digital Networks Invoices Appendix 12 Warrant 22436758 Payment of $431,207 (10/1/15) Appendix 13 Accounting of Payments to Digital Networks Appendix 14 Accounting of Payments to Culver Newlin Appendix 15 Digital Networks Invoice 15425 (4/26/17) Appendix 16 2009 Agreement (9/1/09) Appendix 17 Retention Invoice 36220-11 on 2009 Agreement (8/2/10) Appendix 18 Check No. 18291751 for $20,079.25 (9/1/10) Appendix 19 2013 Amendment to 2010 Agreement (2/8/13) Appendix 20 Retention Invoice 36240-16 (5/1/14) Appendix 21 Check No. 21372386 for $15,000 (5/28/14) Appendix 22 2014 Amendment to 2009 Agreement (4/1/14) Appendix 23 Retention Invoice 36245-13 (5/1/15) Appendix 24 Check No. 22167385 for $23,000 (5/20/15) Appendix 25 Invoice 362240-01, Additional Services DSA Close Out Report for $64,500 (6/1/16) Appendix 26 Invoice 36500-03 for 100% on Flanner Project for $42,957 (2/5/19) Appendix 27 Check 25160827 for $42,957 (3/18/19) Appendix 28 2019 Agreement (7/29/19) Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 216 Appendices Appendix 29 Letter from Dena Florez, Bond Oversight Committee Member (2/1/19) Appendix 30 Board Agenda Excerpt (7/29/19) Appendix 31 Del Terra August Measure V Update (8/26/19) Appendix 32 DSA Stop Work Letters (2/24/21) Appendix 33 Additional Services Invoice 36382 for $230,000 (9/15/16) Appendix 34 Letter from David Alvarez of Leal and Trejo to Alex Rojas (9/6/18) Appendix 35 Alex Rojas response letter (9/28/18) Appendix 36 Purchase Order 82492 for $64,500 (6/14/16) Appendix 37 Board Agenda Item (4/21/15) Appendix 38 Additional Services Invoice 36270-01 for Districtwide HVAC Assessment (6/1/16) Appendix 39 Purchase Order 82490 HVAC Additional Services (6/14/16) Appendix 40 Additional Services Invoice 362230-01 for Facilities Report and Assessments (6/1/16) Appendix 41 Additional Services Invoice 36201-01 Roofing Assessments $74,500 (6/1/16) Appendix 42 Del Terra Roofing Conditions Update (undated) Appendix 43 Garland Roofing Report (2008) Appendix 44 E-mail from Sean Magee of Garland (1/11/19) Appendix 45 Additional Services Invoice 36370-01 Districtwide Facilities Projects, $400,000 (4/29/15) Appendix 46 CFS Bond Expenditure Report (8/26/15) Appendix 47 CFS Bond Expenditure Report (2/8/16) Appendix 48 Del Terra COC Bond Expenditure Report (12/16/19) Appendix 49 CFS Bond Expenditure Report (11/12/19) Appendix 50 Check No. 22155882 for $400,000 (5/14/15) Appendix 51 Additional Services Invoice 36382 21st Century Schools TK-5 Project $230,000 (9/15/16) Appendix 52 E-mail from Betty Hansen on State Funding (11/9/16) Appendix 53 Del Terra Measure V Update (9/24/19) Appendix 54 Letter from Leal and Trejo to Alex Rojas on 36-month schedule (9/6/18) Appendix 55 Proposed Amendment to 2015 Agreement (June 2018) Appendix 56 Invoice 36500-01 CM Services Invoice Flanner Project Child Development (4/5/18) Appendix 57 Flanner Project Accounting of Del Terra Invoices Appendix 58 Invoice 36351-01 Bassett High School Cabling CM Services of $7,887 (10/12/17) Appendix 59 Invoice 36351-02 Bassett High School Cabling CM Service of $876 (2/8/18) Appendix 60 Flanner Project DSA Certification Status Notes (3/16/21) Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 217 Appendices Appendix 61 Printout from DSA website on Project Certification Appendix 62 Board Agenda Item (6/25/19) Appendix 63 Invoice 36551-01 Program Management Services Bassett High School Football Field (11/25/19) Appendix 64 Invoice 36505-01 Construction Management Services Bassett High School Football Field (11/25/19) Appendix 65 DSA IR A-22 (2015) Appendix 66 Accounting of Expenditures on Digital Networks Appendix 67 Invoice 36532-02 for Locker Room Renovation (5/21/20) Appendix 68 DSA Stop Work e-mail (3/2/21) Appendix 69 Invoice 36511-01 closeout (11/25/19) Appendix 70 Check for $3,760 on Invoice 36511-01 (12/26/19) Appendix 71 Del Terra Payments from 2014 through 2021 prepared by District Business Office Appendix 72a Del Terra 2016 Special Board Meeting on Master Plan (2/18/16) Appendix 72b Del Terra Facilities Master Plan (2/18/16) Appendix 72c Del Terra 2016 Conditions Assessment Appendix 72d DMc Engineering Site Infrastructure and Utility Needs Assessment Appendix 72e Bassett High School AB 300 Survey (7/2/14) Appendix 72e District Office AB 300 Survey (7/2/14) Appendix 72e Edgewood Academy AB 300 Survey (7/1/14) Appendix 72e Nueva Vista High School AB 300 Survey (7/1/14) Appendix 72e Sunkist Elementary School AB 300 survey (7/1/14) Appendix 72e Torch Middle School AB 300 Survey (7/1/14) Appendix 72e J.E. Van Wig Elementary School AB 300 Survey (7/1/14) Appendix 72f Roof Asset Management Program Appendix 72g Mechanical Evaluation Appendix 72h Energy Evaluation Appendix 73 AB 300 Report for Bassett USD Appendix 74 Invoice 36250-35 Retention on 2015 PM fees for $15,855 (5/3/18) Appendix 75 Invoice 36100-34 Reimbursable Expenses (3/7/16) Appendix 76 Digital Networks Invoice 14353 Appendix 77 Purchase Order 71791 for $400,000 (5/12/15) Appendix 78 DSA IR A-18 (2009) Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 218 Appendices Appendix 79 DSA IR A-20 (2009) Appendix 80 DSA IR A-20 (2019) Appendix 81 IR A-10 2015 (revised 6/30/16) Appendix 82 HVAC Conditions Assessment (5/16) Appendix 83 Board Agenda Monthly Purchase Order Listing (7/14/15) Appendix 84 Two Classrooms Bassett High School Invoice 36353-01 (8/1/17) Appendix 85 2010 Program Management Agreement Appendix 86 March 5, 2019, Leal Report with Exhibits Appendix 87 Campaign Form 460 (7/1/14 – 12/31/15) Appendix 88 Job Description – Accounting Technician II Fiscal Crisis and Management Assistance Team Los Angeles County Office of Education re: Bassett Unified School District 219