Rio School District Report

Rio School District Management Review June 22, 2011 Joel D. Montero Chief Executive Officer Fiscal crisis & ManageMent assistance teaM June 22, 2011 Barbara Wagner, Interim Superintendent Mark Krueger, Interim Superintendent Rio School District 2500 E. Vineyard Avenue Oxnard, CA 93036 Dear Interim Superintendents Wagner and Krueger: In March 2011, the Rio School District governing board and the Fiscal Crisis and management Assistance Team entered into an agreement for a management assistance review. Specifically, the agree- ment stated that FCMAT would perform the following: The primary focus of this review is to provide the Rio School District Board of Trustees with reasonable assurance based on the testing performed that adequate management controls are in place with regard to bidding and awarding contracts. Specific review objectives will include evaluating the policies, procedures, and internal controls related to the administra- tion of outside contracts. • Sample outside contracts and vendor invoices to determine if invoices were for services and materials provided and fit within contractual agreements. • Review contracts to ensure that contracts for public work projects in excess of $15,000 or contracts for material or supply purchases in excess of $76,700 meet bidding requirements outlined in CA Public Contract Code 20111. • Review professional service contracts where bidding may not be required (Government Code Section 53060) to ensure that board policies were followed with regard to bidding process. • Evaluate the division of labor and segregation of duties between administration and staff with regard to bidding and award of outside contracts. • Provide recommendations for improvement in district policy and practices with regard to bidding and award of outside contracts based upon best practices. The FCMAT review included a test sample of documentation for district authorized outside services contracts, invoices, bid documents, and other necessary documentation required to validate or refute allegations regarding potential misappropriation of funds or illegal practices. This report contains the study team’s findings and recommendations. FCMAT Joel D. Montero, Chief Executive Officer . . 1300 17th Street - CITY CENTRE, Bakersfield, CA 93 . 301-4533 Telephone 661-6 . 36-4611 Fax 661-63 . 6-4647 422 Petaluma Blvd North, Suite. C, Petaluma, CA 94952 Telephone: 707-775-2850 Fax: 707-775-2854 www.fcmat.org Administrative Agent: Christine L. Frazier - Office of Kern County Superintendent of Schools We appreciate the opportunity to serve you and we extend our thanks to all the staff of the Rio School District for their cooperation and assistance during fieldwork. Sincerely, Joel D. Montero Chief Executive Officer i TABLE OF CONTENTS Table of Contents About FCMAT .........................................................................................iii Introduction ............................................................................................1 Executive Summary ........................................................................ x Findings and Recommendations ..................................................... x General Purchasing and Bidding Requirements .................................5 Contract Classifications ................................................................................7 Internal Controls .............................................................................................9 Contract Administration ............................................................................11 Other Findings - Potential Conflict of Interest ....................................17 Appendices ............................................................................................21 rio school District ii TABLE OF CONTENTS Fiscal crisis & ManageMent assistance teaM iii ABOUT FCMAT About FCMAT FCMAT’s primary mission is to assist California’s local K-14 educational agencies to identify, prevent, and resolve financial 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 and efficient operations. FCMAT’s data management services are used to help local educational agencies (LEAs) meet state reporting responsibilities, improve data quality, and share information. 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 local education agency 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 92/93 93/94 94/95 95/96 96/97 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* 10/11** *Projected **Actual rio school District seidutS fo rebmuN FCMAT also develops and provides numerous publications, software tools, workshops and professional development opportunities to help local educational agencies operate more effec- tively and fulfill their fiscal oversight and data management responsibilities. The California School Information Services (CSIS) arm of FCMAT assists the California Department of Education with the implementation of the California Longitudinal Pupil Achievement Data System (CALPADS) and also maintains DataGate, the FCMAT/CSIS software LEAs use for CSIS services. FCMAT was created by Assembly Bill 1200 in 1992 to assist LEAs to meet and sustain their financial obligations. Assembly Bill 107 in 1997 charged FCMAT with responsi- bility for CSIS and its statewide data management work. Assembly Bill 1115 in 1999 codified CSIS’ mission. AB 1200 is also a statewide plan for county office of education and school districts to work together locally to improve fiscal procedures and accountability standards. Assembly Bill 2756 (2004) provides specific responsibilities to FCMAT with regard to districts that have received emergency state loans. iv ABOUT FCMAT In January 2006, SB 430 (charter schools) and AB 1366 (community colleges) became law and expanded FCMAT’s services to those types of LEAs. Since 1992, FCMAT has been engaged to perform nearly 850 reviews for LEAs, including school districts, county offices of education, charter schools and community colleges. The Kern County Superintendent of Schools is the administrative agent for FCMAT. The team is led by Joel D. Montero, Chief Executive Officer, with funding derived through appropriations in the state budget and a modest fee schedule for charges to requesting agencies. Fiscal crisis & ManageMent assistance teaM 1 INTRODUCTION Introduction Background The Rio School District was formed in 1885 and serves students in preschool and grades K-8. The district is located within the city limits of Oxnard. It serves approximately 4,500 pupils from portions of Oxnard and unincorporated areas of Ventura County. The unincorporated commu- nity of El Rio is primarily agricultural and hosts several small to medium size businesses in addi- tion to some limited commercial development. While most California school districts have expe- rienced declining enrollment in recent years, Rio’s enrollment has increased 8.9% from 2006-07 to 2009-10. Several development projects are either under way or in review including the 1,500 new homes built in the River Park subdevelopment, with another 1,500 homes remaining to be built in the near future. Another large residential development is Oxnard Villages, where 1,500 homes are in the planning stages. Rio Del Mar Elementary School was opened in fall 2006 to accommodate growth in the first phase of the River Park development. It is anticipated that another elementary school, River Park West, will be needed by 2015-16 as the district nears capacity at Rio Del Mar. The State Architect has approved the district’s plans for River Park West. These plans must be renewed after one year to address any changes to the original plans or address any new building codes adopted since the original date of approval. Since opening the new elementary school in 2006, the district has added facilities to other existing schools those additions include modular classrooms at Rio Vista Middle School and science labs at Rio Del Valle Middle School. The majority of construction contracts issued by the Facilities Department in the last three years have been for the maintenance and modernization of existing facilities. Continued enrollment growth will necessitate the construction of new schools. In an attempt to ensure that policies and procedures are in place for bidding and award of outside contracts, the governing board has requested FCMAT to review the adequacy of management controls, internal controls including segregation of duties, and that outside contracts are in accordance with the Government Code, Public Contract Code and the California Uniform Public Construction Cost Accounting Act (CUPCCA). Study Guidelines FCMAT visited the district on March 15 and 16, 2011 to conduct interviews with district staff, collect data and review documents. This report is the result of those activities and is divided into the following sections: • Executive Summary • General Purchasing and Bidding Requirements • Contract Classifications • Internal Controls • Contract Administration • Other Findings - Potential Conflict of Interest • Appendices rio school District 2 INTRODUCTION Study Team The study team was composed of the following members: Debi Deal, CFE Bruce B. Hancock FCMAT Fiscal Intervention Specialist Consultant Los Angeles, California Hancock Gonos & Park Sacramento, California Luisa M. Park Consultant Laura Haywood Hancock Gonos & Park FCMAT Public Information Specialist Sacramento, California Bakersfield, California Fiscal crisis & ManageMent assistance teaM 3 EXECUTIVE SUMMARY Executive Summary Rio School District has experienced several high profile events over the last three years. First a board member was arrested, convicted and incarcerated on felony violations. Then the district’s superintendent was arrested and subsequently convicted for a misdemeanor violation. After several months of community unrest regarding the continued employment of the superin- tendent, four of the five board members were replaced in the general election. With several alle- gations of wrongdoing particularly with the management and award of contracts, the governing board requested that FCMAT review district policies, procedures and internal controls related to the administration of outside contracts. Subsequent to completion of that FCMAT study the superintendent was placed on administrative leave and the director of facilities and director of fiscal services have resigned, having accepted employment in other school districts. Most construction contracts issued by the Facilities Department in the last three years have been for the maintenance of existing facilities, such as replacement of termite infested and dry rot beams and posts, repair of the library roof at Rio del Valle Middle School, plumbing at Rio Vista Middle School, asphalt demolition and removal at Rio Rosales School, and well pump modifica- tions at Rio Del Valle School. The district built two new elementary schools and one intermediate school between 2004 and 2007. Two of these schools were partially funded through a mitigation agreement with a developer and included state funding through the School Facilities Program administered by the Office of Public School Construction (OPSC) for the State Allocation Board (SAB). According to the director of facilities, all three projects have been audited and closed out by the OPSC. FCMAT has verified that two of these projects are closed and the third is pending OPSC closeout review. Therefore, these three projects have not been included as part of the FCMAT review. The focus of this review is to determine if the Rio School District has administered contracts in accordance with the Public Contract Code, the Government Code and the California Uniform Public Construction Cost Accounting Act (CUPCCA). Under CUPCCA guidelines, the district may use alternative bidding procedures when performing public construction projects by vendor contract. The governing board adopted the CUPCCA guidelines at a June 21, 2005 public meeting. It was revealed during the course of this study that the district’s superintendent and the Boys and Girls Club of Greater Oxnard and Port Hueneme (BGCOP) Chief Professional Officer – then and now a sitting Rio school board member – signed a Memorandum of Understanding (MOU) between the two agencies to provide an after-school program that may represent a potential conflict of interest. rio school District 4 EXECUTIVE SUMMARY Fiscal crisis & ManageMent assistance teaM 5 GENERAL PURCHASING AND BIDDING REQUIREMENTS Findings and Recommendations General Purchasing and Bidding Requirements Purchasing The authority to contract is the responsibility of the governing board. Education Code (EC) Section 17605 authorizes the governing board to delegate authority to purchase materials, supplies, equipment and services; however, this authority does not supersede purchases in excess of the amount specified in the Public Contract Code (PCC) Section 20111. Delegated authority by the governing board is limited by time, money and subject matter. Under EC 17605, all trans- actions must be reviewed by the governing board at least every 60 days. The Rio school board has delegated purchasing authority to the Business Office. Under the direct supervision of the business office, the purchasing assistant and Facilities Department prepare purchase orders and bid documents. The purchasing function should be standardized and unbiased, with a focus on product quality and securing the best price. District Board Policy 3300(a) formalizes the purchasing authority and procedures but does not have an accompanying administrative regulation that specifies requirements, steps and procedures for staff to follow. The administrative regulations should document the purchasing process and establish the positions authorized to issue purchase orders that obligate the district. Governing boards can authorize purchase orders either before or after they are sent to a vendor. Flexibility with these options is established by the board and should be stated in board policy. Board policy may establish lower limitations for formal and informal bidding procedures or quotations. Currently, the district has no established guidelines for informal requests for proposals (RFPs) or requests for quotations (RFQs.) The board policy and administrative regula- tions should require informal quotes to be obtained for purchases and/or services that reach certain dollar thresholds. They should also include clear guidelines for informal bidding proce- dures and mandatory training for all employees associated with the purchasing function. Piggyback purchasing is a process of procurement utilizing another public entity’s formal bid award or RFP. The formal bid documents or RFP must state that the vendor agrees to allow other public agencies to purchase at the same terms and conditions as the original bid during the period of time that the bid is in effect. The district utilizes piggyback purchasing appropriately to buy bulk paper and other school supplies. Bidding Requirements Under PCC 20111, formal bid limitations are increased by the superintendent of public instruc- tion on January 1 of each fiscal year to reflect the change in the implicit price deflator. The statu- tory bid limit for the purchase of goods and services is $78,900 effective January 1, 2011 and is applicable to equipment, materials, supplies and services except construction services and public projects. rio school District 6 GENERAL PURCHASING AND BIDDING REQUIREMENTS Fiscal crisis & ManageMent assistance teaM 7 CONTRACT CLASSIFICATIONS Contract Classifications School districts enter into many different types of contracts. Depending on the type of contract, various education, public contract or government codes dictate the requirements for issuance of a binding agreement. For example, construction contracts fall under Public Contract Code and have specific dollar limitations and requirements for competitive bidding. Many other types of contracts are subject to certain guidelines or may have no requirements other than the district’s board policy. Purchase Order Contracts Districts use purchase orders to purchase materials, goods, equipment and services. Gen- eral purchasing falls under PCC 20111. Public Works Contracts Public work projects, such as new construction, renovation (excluding routine maintenance), improvement, or demolition of publicly owned, leased or operated facilities are limited to $15,000. However, PCC 22000-22032 authorizes a public agency to adopt an alternative bidding procedure for public works contracts. The California Uniform Construction Cost Accounting Procedure (CUCCAP) raises the bid limit from $15,000 to $30,000 for public projects. Public projects can be performed by the employees of a public agency by force account (with certain limitations), negotiated contract or purchase order. Public projects less than $125,000 may be let by informal bidding procedures subject to all of the provisions in PCC 22033. Public projects over $125,000 must be let by contract using the formal bidding procedures (PCC 20115, 22000-22032(a)(b), and 22033). In 2005, the governing board passed a resolution and properly notified the State Controller of its election to implement CUCCAP. The governing board updated Board Policy 3311, raising the respective funding thresholds to $25,000 and $100,000. In October 2007, the threshold limits were revised to $30,000 and $125,000. On December 11, 2008, the district staff presented a collection of revised policies for board adoption. According to staff, a revised BP 3311 that called for the district to follow the original PCC provisions rather than the more flexible CUPCCA guidelines was mistakenly included in the package of policies and was formally adopted by the board that evening. The new policy superseded the existing board policy and again the district was subject to the lower $15,000 threshold for informal bidding and formal bidding procedures for projects above this dollar amount. In preparation for the FCMAT study, staff noticed the error and on March 24, 2011 the board adopted a revised board policy reinstituting the CUPCCA provisions. For the 27 months between December 2008 and March 2011, the Facilities Department continued to follow the CUPCCA guidelines. As a result, the district may have exceeded its funding authority for one project. Contracts Not Subject to Competitive Bidding Several categories are exempt from the competitive bidding process as defined in the PCC, EC and/or GC: • Emergencies: When repairs or purchases are necessary to prevent discontinuance of classes or avoid danger to life or property (PCC 20113). rio school District 8 CONTRACT CLASSIFICATIONS • Data Processing Equipment: Computers, telecommunications equipment, microwave equipment, and other related electronic equipment and apparatus. This is not applicable to contracts for construction or for procuring any product that is available in substantial quantities to the general public (PCC 20118.1). • Instructional Materials: Textbooks, library books, educational films, audiovisual materials, test materials, workbooks, instructional computer software packages, or periodicals (PCC 20118.3). • The State List: Purchases made through the Department of General Services or utilizing its California Multiple Award Schedule (CMAS) for materials, equipment, or supplies (EC 17595 and PCC 10298). • Federal Surplus Property: Competitive bidding is not required when purchasing certain federal surplus property; however, some restrictions apply (EC 17602). • Transportation Services: A contract for transportation services may be exempt if it is with an entity other than common carrier or a municipal transit system (EC 39802). • Piggyback Bids: Utilizing another public entity’s formal bid award or RFP. The formal bid documents or RFP must state that the vendor agrees to allow other public agencies to purchase at the same terms and conditions as the original bid during the period of time that the bid is in effect. Does not apply to public works projects (PCC 20118). • Insurance: This includes the purchase of insurance policies for property, liability, group and life coverage (GC 989-990; EC 35208). • Energy Service and Energy Management Contracts: Although competitive bidding is not required, K-12 districts may use an RFP process for energy conservation contracts (GC 4217.12). Contracts Subject to Certain Provisions Professional Experts Professional expert applies to a person who is specially trained, experienced and competent to perform specialized services. This category includes financial, economic, accounting, engineering (see discussion below in Other Professional Services), environmental, landscape architect, land surveying, construction project management, legal, or administrative matters (GC 4529.10 - 4529.12). Other Professional Services and Advice This category includes attorneys, architects, and accountants. However, all architectural and engineering services must be procured pursuant to a fair, competitive selection process. Other regulations may require competitive bidding as is the case when securing state funding through the State Allocation Board. Depending on the nature of the services involved, other types of services may include security alarm monitoring, administration of a campus bookstore, or sewage disposal service (GC 4529.10 and 4529.12; 53060). Fiscal crisis & ManageMent assistance teaM 9 INTERNAL CONTROLS Internal Controls An integral part of an organization’s internal control system involves establishing effective preventive controls in each sector of operations. Internal controls are 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 characterized by intentional deception and misrepresentation of material facts. Effective internal control processes provide reasonable assurance that a district’s operations are effective and efficient, that the financial information produced is reliable, and that the district operates in compliance with all applicable laws and regulations. The internal control elements provide the framework for an effective fraud prevention program. An effective internal control structure includes the policies and procedures used by the district staff, adequate financial and information systems, the work environment, and the professionalism of employees. Although internal controls cover an array of procedures and guidelines ultimately designed to safeguard assets, the underlying tone of management is also important in fraud deterrence. Competent management exhibiting high ethical values sets the example for employees to follow. Policies and Procedures Policies and procedures give the staff guidance and structure in processing transactions. Board policy establishes the framework and provides legal references. The accompanying administrative regulations detail processes for staff to follow and maintain compliance with the board policy. Other resources available to staff include desk manuals and other reference materials. A fundamental element of internal control is the segregation of certain key duties. Adequate segregation of duties reduces the likelihood that errors will remain undetected by providing for separate processing by different individuals at various stages of a transaction and for independent review of the work. The principle underlying segregation of duties is that no employee or group should be in a posi- tion to commit and conceal errors or fraud in the normal course of duties. In general, the prin- ciple of segregation of duties entails separating the custody of assets, authorizing or approving related transactions affecting those assets, recording or reporting related transactions, and executing the transaction activity. If more than one of these functions reside with one employee, the possibility of theft increases. In each phase of a contract, the district should ensure that policies and procedures are in place and supported by proper approvals and documentation. In addition, segregating duties and func- tions within each phase strengthens internal controls. Several steps are involved prior to entering into a formal contract. In general, these activities include recognition of the need, notice of intent to contract, development of specifications and the award criteria. Once a contract has been awarded, contract administration and oversight is essential. Without proper oversight and segregation of duties, the district can be at risk for excessive change orders, product substitution or mischarges for labor and materials. rio school District 10 INTERNAL CONTROLS Fiscal crisis & ManageMent assistance teaM 11 CONTRACT ADMINISTRATION Contract Administration The district has the processes and procedures involved in procuring and administering professional services, public projects, materials, supplies, equipment and services in place; however, adherence to these procedures has been inconsistent. The district should establish written procedures and hold staff accountable. Until recently, the district had not provided training to its staff to ensure that board policies are followed. In August 2010, members of the Fiscal Services Division provided training for all principals, directors, supervisors and their secretaries on the district’s business procedures. In November 2010, the assistant superintendent for business and the district’s legal counsel conducted a training session for key employees on the purchasing procedures and bidding threshold for public construction projects as defined in the CUPCCA. The most recent training was in February 2011, when the director of accounting and assistant superintendent of business conducted “Budget and Purchasing 101” for all district personnel who have purchasing authority. Training efforts such as these are valuable and should continue annually. Reviewing board policies annually ensures that changes in law are properly updated The district should and reflected in board policy. This type of review would have revealed the error that adopt a RFQ/ allowed the CUPCCA process to lapse. RFP procedure for Professional service contracts such as architectural, landscape architectural, engi- all professional neering, environmental, legal services, financial services, accounting services, land services contracts surveying and construction project management firms are not subject to competi- tive bidding requirements detailed in Public Contract Code 20111. Instead, the to ensure that district is subject to the provisions of GC 4526, which allows selection based on the selection of demonstrated competence and professional qualifications necessary to satisfactorily professional service perform the services required. contracts meets District staff is required to negotiate a contract with the best qualified firm offering the intent outlined professional services. It is best practice for a school district to engage in a request for qualification or request for proposal (RFQ/RFP) process for professional services in GC Sections contracts. GC 4526 does not dictate the means by which a district ensures that the 4526-4528. selected professional is the most competent and has the qualifications necessary to satisfactorily perform the services, but there is an expectation that districts avoid any unlawful activity including, but not limited to, rebates, kickbacks, or other unlawful consideration. FCMAT reviewed 21 professional service contracts. The district utilized a RFQ/RFP process on two architectural and one construction management service contracts. District staff was unable to provide supporting documentation to indicate that a selection process had occurred on the remaining 18 professional service contracts. The district should adopt a RFQ/RFP procedure for all professional services contracts to ensure that the selection of professional service contracts meets the intent outlined in GC Sections 4526-4528. Many local agencies throughout California have adopted this method of soliciting professional services to achieve these goals. For the three professional service contracts that utilized the RFQ/RFP process, staff provided the governing board with the number of individual firms that submitted proposals and a recommenda- tion regarding which firm the board should select to provide the service. However, the board agenda rio school District 12 CONTRACT ADMINISTRATION item did not explain the criteria staff used to reach a recommendation. Instead, the agenda item simply recommended the assignment of a specific consultant to an upcoming project. Information that the board should receive regarding the criteria and the selection process followed includes: • The date of advertising • Outreach efforts • The number of firms contacted • Criteria and weighting factors for the paper screening • The selection committee membership • The top three firms in rating order • Dates of interviews • The criteria for the final selection Contracts for inspection services, community facilities district, and topographic mapping did not include evidence that a selection process was utilized. The dollar values for the contracts were less than $15,000. Therefore, staff may have considered these services to be classified as a “special service” per GC 53060, which does not require a solicitation process. Most of the professional service contracts reviewed did not include evidence that they were subse- quently approved and ratified by the board. Education Code 17604 states: “… 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.” However, according to staff interviewed, the Ventura County Office of Education will not release funds to vendors without proof of board approval. District staff provided FCMAT with a list of items required by the Ventura COE to release funds, which includes board approval of the contract. This requirement provides some assurance that approval is obtained. The district should ensure that all contracts are approved or ratified by the governing board and copies of the minutes should accompany the contract documents. Special Services Contracts As previously mentioned, special services contracts are exempt from competitive bidding. GC Section 53060 authorizes the district to contract for special services for advice in financial, economic, legal, or administrative matters, if said contractor is specifically trained, experienced and competent to render the special consultant services. Some of the contracts reviewed were of this nature; however, FCMAT was unable to determine if these contracts were approved or ratified by the governing board. Most of the contracts obtained from the district and reviewed by FCMAT were for special services. Best practice is for the district to provide its governing board with a list of contracts, the dollar value for each contract and a description of service so that the board has good understanding of where district funds are spent. Construction Contracts In the past two and half years the district has contracted for the construction of science labs at Rio Del Valle Middle School and for an addition of modular classrooms at Rio Vista Elementary School, which included site work through a formal competitive bid process. The district provided Fiscal crisis & ManageMent assistance teaM 13 CONTRACT ADMINISTRATION supporting documentation that indicates that the district adhered to PCC Section 22002 and applicable board policies. In each case, the district advertised, held a bid opening, selected the lowest responsible bidder and obtained board approval. Each contract conformed to all bid requirements, including those for bid bonds and insurance. The district contracted for other repair work at existing sites and to retrofit gym equipment at Rio Vista Middle School. These contracts are subject to the CUPCCA provisions that enable the district to seek construction services by informal bidding procedures. This process authorizes the district to seek three written quotations for any work that costs between $30,000 and $125,000. For projects less than $30,000, the district can obtain three informal quotes. A provision of the informal bidding procedures under CUPCCA requires the district to issue an annual notice inviting contractors to be placed on the list of available contractors in various trade categories. This notice is to be advertised and mailed to construction trade journals as specified by the CUPCCA. The district provided evidence that the requirement for annual notification has been followed since the CUPCCA adoption in 2005. However, the district was unable to produce an annual list of contractors in each trade category from 2008 through 2011. Instead, the district provided a cumulative list of contractors. As a result, FCMAT was unable to verify that two of the contrac- tors selected for construction services were on the list of eligible contractors to perform that specific trade at the time of their selection. Therefore, these two contracts may have failed to adhere to the informal bidding procedures set forth in the CUPCCA. FCMAT reviewed ten other contracts. Four contracts required that the district seek three informal quotes and six contracts required that the district obtain three written quotes. With the exception of one contract, the district did not provide sufficient evidence to support that the process was followed. Nine of the selected contracts are within the formal bid levels established by the governing board. One contract is in violation of the Public Contract Code that requires formal bidding for any contract that exceeds a threshold of $76,700 as adopted by the governing board on December 11, 2008. Currently, the director of facilities seeks quotes or informal written quotations and meets individually with potential contractors to discuss the scope of work and conduct a job walk. Notifying all interested contractors of a specific time and place for a job walk would ensure that all potential contractors received consistent information regarding the project. PCC Section 20116 prohibits splitting or separating into smaller work orders or projects any work, project, service or purchase that requires competitive bidding for the purpose of evading the law. FCMAT found no evidence indicating that the district has violated this provision in law. Construction Expenditures The district provided FCMAT with a list of all construction expenditures for fiscal years 2008-09 through 2010-11. In reviewing the expenditure list, the team noted that the district had not provided several contracts that appear to be subject to the CUPCCA provisions. These contracts are for the repair of gym floors, removal of portables from specific sites, transpor- tation of portables and plumbing. Subsequently, FCMAT requested and received copies of the contracts (purchase orders) for these projects. However, the district did not provide supporting evidence that the CUPCCA guidelines were followed. Specifically, no evidence was provided to indicate that the district had obtained either three informal quotations or three written quota- tions as required by PCC Section 22032. It should be noted that the large construction contracts rio school District 14 CONTRACT ADMINISTRATION on this list had already been reviewed and had adhered to the Public Contract Code for formal bidding. The study agreement with FCMAT requires a review of contracts against vendor invoices to determine if invoices were for services and materials provided and fit within contractual agree- ments. The district provided very few invoices to make this comparison, but the invoices received showed appropriate services and materials. The district has board policies governing construction contracts and informal bidding proce- dures, and generally has adhered to the Public Contract Code, the Government Code and the California Uniform Public Construction Cost Accounting Act. However, the district’s record keeping is inconsistent. The documentation provided to FCMAT did not disclose the protocol for purchasing goods and services or the selection of service providers. District staff referenced the CUPCCA guidelines often during interviews and they believe that they follow CUPCCA appropriately. However, written Rio School District procedures detailing the internal process of procurement, selection, approval and award do not exist. The staff training on CUPCCA provided in late 2010 should be supplemented with a procedure manual that covers internal implementation. Recommendations The district should: 1. Establish written procedures and hold staff accountable for adherence to district procedures and for administering professional services, public proj- ects, materials, supplies, equipment and other services. 2. Continue providing annual procurement training for staff involved in purchasing goods and/or services. 3. Review board policies annually and update them to reflect changes in law. 4. Require staff to provide more information to the board detailing the internal process of procurement and final selection criteria. 5. Ensure that all contracts are approved or ratified by the governing board and that copies of the minutes accompany the contract documents. 6. Follow CUPCCA regulations for informal bidding requirements. Adopt a RFQ/RFP procedure for all professional services contracts to ensure that contract selection meets the intent outlined in GC Sections 4526-4528. 7. Maintain a list of vendors for each trade category by bid year and retain detailed records for each RFP/RFQ for every informal bid. 8. Review current record retention systems and make improvements as neces- sary. Make documentation regarding formal and informal solicitation, bidding, approval and award readily accessible for all contracts. Fiscal crisis & ManageMent assistance teaM 15 CONTRACT ADMINISTRATION 9. Notify all interested contractors of a specific time and place for a job walk to ensure that all potential contractors receive consistent information regarding the project. 10. Consider creating a procedure manual with protocol and procedures detailing the internal process of procurement, selection, approval and award. Place particular emphasis on approval authority, the type of procurement process being used, and governing contracting /purchasing thresholds. rio school District 16 CONTRACT ADMINISTRATION Fiscal crisis & ManageMent assistance teaM 17 OTHER FINDINGS - POTENTIAL CONFLICT OF INTEREST Other Findings – Potential Conflict of Interest The district has had a long-standing multi-agency collaborative agreement to support, augment and expand existing services for students in an after-school program. This collaboration effort was established in July 2004. At that time, the Boys and Girls Club of Greater Oxnard and Port Hueneme (BGCOP) was the fiscal agent of the federally funded 21st Century Community Learning Center Grant Program and developed an after-school program called Partnership for Rio Out-of-School Student Programs for Educational Realization (PROSPER). The PROSPER collaborative included the following organizations: • BGCOP • The Coalition To End Family Violence • KidShape Foundation • El Concilion del Condado de Ventura • City of Oxnard Police Department • FOOD Share, Ventura County Food Bank • California Lutheran University, Center for Leadership • Rio School District Under the terms of the memorandum of understanding (MOU), the district provided teaching supplies and equipment from various federally funded grants totaling $13,800 to cover the after- school program. In addition, the district was obligated to provide in-kind matching contribu- tions valued at $150,000. In 2006, BGCOP was advised that the 21st Century grant would no longer be funded. Instead a new state grant called the After School Education and Safety (ASES) program grant would replace this funding source. However, under the ASES program, the district was required to be the fiscal agent and the BGCOP became a subcontractor of the district. On December 1, 2006, the district’s superintendent and the chief professional officer of the BGCOP – then and now a sitting school board member for Rio School District – signed a MOU between the two agencies under which BGCOP would continue to provide the after-school program using ASES funding. Subsequently, the MOU was never approved or ratified by the governing board in accordance with EC 17604 yet remained in place. The ASES program evolved from voter approval of Proposition 49 in 2002. The goal is to merge school and district reform strategies with local community resources, creating partnerships between schools, parents, law enforcement, non-profit entities, and other governmental agencies to provide academic enrichment programs in an extended learning environment that is construc- tive and safe. The current funding derived from the ASES grant is approximately $917,000. Of this amount, the district is entitled to indirect costs and remaining funds are paid to the BGCOP to admin- ister the program. The board member and chief professional officer of the BGCOP, which is a 503(c)(3) not-for- profit corporation, stated that he receives a salary from BGCOP. Therefore, a conflict of interest may exist. Since school board members are elected officials, GC 1090 applies, which states: rio school District 18 OTHER FINDINGS - POTENTIAL CONFLICT OF INTEREST Members of the Legislature, state, county, district, judicial district, and city officers or employees shall not be financially interested in any contract made by them in their official capacity, or by anybody 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. Government Code Sections 1091 and 1091.5 offer some limited exceptions whereby the official has only a remote interest in the contract. Remote interests are specified in GC 1091(b) and include an officer of a nonprofit corporation, landlord of the contracting party, an owner who owns less than 3% of a for-profit corporation and for whom the total income from dividends from the corporation does not exceed 5% of the total annual income, and being a “non-salaried member of a nonprofit corporation, except as provided in paragraph (8) of subdivision (a) of Section 1091.5.” (Emphasis added.) Section 1091.5(a)(8) states: An officer or employee shall not be deemed to be interested in a contract if his or her interest is any of the following: (8) That of a noncompensated officer of a nonprofit, tax-exempt corporation, which, as one of its primary purposes, supports the functions of the body or board or to which the body or board has a legal obligation to give particular consideration, and provided further that this interest is noted in its official records. For purposes of this paragraph, an officer is considered to be “noncompensated” even though he or she receives reimbursement from the nonprofit, tax-exempt corporation for necessary travel and other actual expenses incurred in performing the duties of his or her office. The starting point in the determination of a potential conflict of interest is the Political Reform Act of 1974 codified in GC Section 81000. Chapter 7 in the GC sections 87100 – 87500 deals exclusively with conflicts of interest. The Fair Political Practices Commission (FPPC) is the agency charged with enforcing the conflict of interest provisions. The FPPC regulations implementing the Act are contained in the California Code of Regulations, Title 2, Division 6, Sections 18109-18997. The guiding prin- ciple of the conflict of interest code as defined in Section 18700 states that: (a) No public official at any level of state or local government may make, participate in making or in any way use or attempt to use his/her official position to influence a governmental decision in which he/she knows or has reason to know he/she has a disqualifying conflict of interest. A public official has a conflict of interest if the deci- sion will have a reasonably foreseeable material financial effect on one or more of his/ her economic interests, unless the public official can establish either: (1) that the effect is indistinguishable from the effect on the public generally, or (2) a public official’s participation is legally required. To determine whether a conflict of interest exists under the Political Reform Act, the FPPC applies an eight-step process. The table below contains FCMAT’s analysis of the process. Fiscal crisis & ManageMent assistance teaM 19 OTHER FINDINGS - POTENTIAL CONFLICT OF INTEREST Eight-Part Process FCMAT Analysis Determine whether the individual is a public offi- Board members are public officials. cial, within the meaning of the Act. (GC 82048; 2 CCR 18701) Determine whether the public official will be The board member participated in making a making, participating in making, or using or contract with the district and signed the MOU as attempting to use his/her official position to influ- a compensated representative of the BGCOP. ence a government decision. (2 CCR 18702) Determine whether the public official has one of The public official has an economic interest if “the the five qualifying types of economic interest. public official is a director, officer, partner, trustee, employee, or holds any position of management Business Entities (2 CCR 18703.1) in the business entity.” The board member is an Real Property (2 CCR 18703.2) officer and employee of the BGCOP. Source of Income (2 CCR 18703.3) The public official meets this criterion if there was compensation aggregating $500 or more within Source of Gifts (2 CCR 18703.4) 12 months prior to the time when the relevant Personal Finances (2 CCR 18703.5) governmental decision was made. The public official may have an economic interest in personal finances should the grant funding cease. Determine whether any of the above qualifying The board member has a direct economic interest types of economic interests is directly or indirectly derived from his salary with the BGCOP. Even involved in the governmental decision which though the grant dollars cannot be traced to the the public official will be making, participating board member’s salary, the funding gives oppor- in making, or using or attempting to use his/her tunity for the BGCOP to make other financial official position to influence. (2 CCR 18704) decisions. Determine the materiality for each economic The dollar value of the ASES grant exceeds the interest involved. (2 CCR 18705) threshold amounts established for disqualification. Determine whether it is reasonably foreseeable A financial interest exists within the meaning that the economic interest will be materially of Section 87100 “if it is reasonably foreseeable affected. (2 CCR 18709) that the decision will have a material financial effect, distinguishable from its effect on the public generally, on the official, a member of his or her immediate family…” Determine if the reasonably foreseeable financial The effect of the personal expenses, income, effect is distinguishable from the effect on the assets or liabilities of the public official would public generally. (2 CCR 18707) be distinguishable if it involved more than 10% of the population, or 5,000 individuals who are residents of the jurisdiction. Determine if the public official’s participation is This standard has a narrow application and is legally required despite the conflict of interest. If used “only if there exists no alternative source of the official can establish that his or her participa- decision consistent with the purposes and terms tion is legally required, he or she may participate of the statute authorizing the decision.” One in the governmental decision despite the conflict example of an appropriate use under this section of interest. (2 CCR 18708) would be a tie-breaker vote in open session. rio school District 20 OTHER FINDINGS - POTENTIAL CONFLICT OF INTEREST GC Section 87105 defines the process a public official shall follow if a conflict of interest exists. Prior to board consideration of the matter giving way to the conflict of interest (or potential conflict of interest), the public official must do all of the following: 1. Identify the financial interest in sufficient detail to be understood by the general public. 2. Recuse him or herself from voting or discussing the matter; however, the public official may speak on the issue during general public comment section of the agenda. 3. Leave the room until the discussion and/or voting is complete. It is recommended that the board member/chief professional officer of the BGCOP follow all of the provisions of GC §87105 above. It is also recommended that the district create a new MOU with the BFCOP to be signed by an officer of the BGCOP that has no affiliation with the District. The new MOU is a binding contract once signed and must be approved or ratified by the governing board in accordance with EC 17604. The district has obtained a legal opinion dated December 23, 2010 from the law firm of Griffith & Thornburgh, LLP for which they have waived the attorney-client privilege. The document is attached as Appendix A to this report. The seeking of legal advice does not cure any potential GC 1090 violation. In general, a conflict of interest exists when an individual’s private interests interfere with his or her professional obligations to a public employer. Not all situations imply wrongdoing or inap- propriate activities. Clearly, the perception that there may be a financial incentive may detract from the overall benefit to the educational program involved. Recommendations The district should: 1. Have the board member/chief professional officer of the BGCOP follow all of the provisions of GC 87105 prior to board consideration of the matter that may involve a conflict of interest. 2. Create a new MOU to be signed by an officer of the BGCOP who has no affiliation with the district to be approved or ratified by the governing board in accordance with EC 17604. Fiscal crisis & ManageMent assistance teaM 21 APPENDICES Appendices Appendix A – Legal Opinion Appendix B – Study Agreement rio school District 22 APPENDICES Fiscal crisis & ManageMent assistance teaM 23 APPENDICES rio school District 24 APPENDICES Fiscal crisis & ManageMent assistance teaM 25 APPENDICES rio school District 26 APPENDICES Fiscal crisis & ManageMent assistance teaM 27 APPENDICES rio school District 28 APPENDICES Fiscal crisis & ManageMent assistance teaM 29 APPENDICES rio school District 30 APPENDICES Fiscal crisis & ManageMent assistance teaM 31 APPENDICES rio school District 32 APPENDICES Fiscal crisis & ManageMent assistance teaM 33 APPENDICES rio school District 34 APPENDICES Fiscal crisis & ManageMent assistance teaM 35 APPENDICES rio school District 36 APPENDICES Fiscal crisis & ManageMent assistance teaM