MONTEBELLO UNIFIED SCHOOL DISTRICT RESPONDS TO FCMAT AUDIT

• Evidence points to sufficient evidence to demonstrate that fraud, mismanagement and misappropriation of the district’s funds and assets may have occurred during past administration

• The district’s former administration was negligent in its fiduciary duty to the district’s governing board, staff, students and parents

• District will likely take immediate action to place certain staff members on administrative leave pending the outcome of a further investigation

MONTEBELLO, CALIFORNIA (July 17, 2018) – The Fiscal Crisis and Management Assistance Team (FCMAT) has released its audit of the Montebello Unified School District’s (MUSD) Adult Education Program including its policies, procedures and internal controls and practices.

Among some of its most disturbing conclusions, the FCMAT audit concluded that the control environment for Adult Education was undermined by a number of factors including the former adult education administrator and later superintendent’s control over the adult education financial system and over approval of overtime and extra assignments.

Additionally, district employees were fearful of retaliation and possible termination of employment; therefore, no one challenged his authority or questioned payroll time records submitted.

The audit was conducted at the request of the Los Angeles County of Education (LACOE). In September 2017 LACOE and the Fiscal Crisis and FCMAT entered into an agreement for FCMAT to conduct an AB 139 Extraordinary Audit to determine whether fraud, misappropriation of funds or other illegal fiscal activities may have occurred at the Montebello Unified School District.

It follows on a previous state audit and an earlier request from the current MUSD Board for a comprehensive forensic audit of the District’s operations, policies and procedures. The MUSD Board previously pressed for a forensic audit when district staff members approached certain Boardmembers with allegations of potential fraud and abuse in district programs including Adult Education.

“I would like to thank the Fiscal Crisis and Management Assistance Team for its thorough review of the District’s Adult Education Program including its administrative practices and operations,” said MUSD Board President, Joanna Flores. “The audit findings will provide this Board with a roadmap to help strengthen our administrative and operations controls, protocols, policies and procedures for our Adult Education Program.  We also believe the audit, coupled with the previous state audit and recent efforts undertaken by the current Board of Education and Administration will result in improved governance, the elimination of potential fraud and abuse, and an even stronger, more responsive and transparent District.”

The audit stated that internal controls are among the most important aspects of any fraud prevention program. It goes on to say, “As stated earlier in this report, the control environment is essential to establishing other internal controls. It includes the ethical tone and example set by management, and it results in a work place where employees feel safe expressing concerns.

Based on interviews and documentation reviewed, this environment clearly was not present in the district; in interviews, employees expressed fear of retaliation and stated that they were told to stay in their own lane.”

“As a District we need to take a formal action to guarantee we are implementing controls, policies and procedures that ensure fiscal accountability and transparency including conducting an extensive investigation to examine the issues called out in the audit,” said Superintendent Dr. Anthony J. Martinez. “Additionally, we will be taking immediate action to place certain employees on paid administrative leave pending the outcome of an investigation.”

The audit also states that the district’s former administration was negligent in its fiduciary duty to the district’s governing board, staff, students and parents; it ignored established internal controls, and administrators did not hold themselves to a standard of conduct commensurate with their positions.

They also identified that the district’s internal control environment has significant material weaknesses that increase the probability of fraud and/or abuse.

The audit goes on to say that It is imperative that the county office and the district’s governing board review the findings and recommendations of this report and implement effective internal controls.

Based on the finding and analyses in this report, there is sufficient evidence to demonstrate that fraud, mismanagement and misappropriation of the district’s funds and assets may have occurred.

FCMAT took a position that the existence of fraud is solely the purview of the courts and juries, and that it will not make statements that could be construed as a conclusion that fraud has occurred. However, in its recommendation, FCMAT indicated that the County Superintendent should “Notify the governing board of the Montebello Unified School District, the state controller, the superintendent of public instruction, and the local district attorney that fraud or misappropriation of district funds and/or assets may have occurred.”

Link to FCMAT Audit