State audit: DA should investigate ex-San Ysidro superintendent for possible financial fraud

State auditors found the San Ysidro School District’s former superintendent and his top deputy engaged in possible financial fraud and misuse of district funds, and they recommended their findings be turned over to the District Attorney’s Office.

Why this matters

The San Ysidro School District, which serves some of the poorest students in San Diego County, has been roiled in scandal and controversy in recent years. It has faced bankruptcy and the federal court conviction of a former superintendent in a pay-to-play scheme.

The auditors’ report was made public Thursday night when Paul Gothold, the county schools superintendent, delivered the findings to the San Ysidro school board. He said he would be sharing them Friday morning with the district attorney as well as California’s controller and superintendent of public instruction, as the auditors urged.

The audit also found fault with the school board, saying the trustees failed to discuss at public meetings major amendments that were made to the two top administrators’ contracts. The trustees also failed to make the contracts publicly available as required by law, the audit said.

Gothold told the board: “Your district must formally notify (me) within 15 days of today with proposed actions related to the audit’s findings.”

He said the audit “also identified other areas within the district that require further exploration. As a result, I have requested a second audit to examine contract agreements with outside parties.”

Gothold asked the state for the “extraordinary audit” in November — three weeks after inewsource began publishing stories questioning the compensation for San Ysidro’s top school administrators.

Former Superintendent Julio Fonseca was paid at least $1 million in total compensation for the 26 months that he headed the San Ysidro School District, making him the highest paid school district superintendent in San Diego County and the second highest paid in California based on data from Transparent California.

The audit investigated possible financial misdeeds by Fonseca, who resigned in September, and his deputy, Jose Arturo Sanchez-Macias. Sanchez-Macias served as interim superintendent for about two months following Fonseca’s departure. He also resigned as questions continued over the pair’s management of the district, which is one of the poorest in San Diego County.

Among the audit’s findings:

Fonseca and Sanchez-Macias were each overpaid about $161,000 in vacation days and life insurance. inewsource reported on the payouts in February.
Both administrators often used petty cash or funds intended for urgent expenses to circumvent the district’s fiscal controls. Sanchez-Macias, for example, used more than $4,000 from the petty cash account to buy gift cards, televisions, an iPad and more as giveaways for a staff event.
Auditors reviewed 78 payments and reimbursements connected to both administrators. All but one had problems.
The district paid more than $3,300 for a Fonseca trip that was prepaid with Sanchez-Macias’ personal credit card. No one attended the trip and the district was never reimbursed. Sanchez-Macias was also reimbursed for more than $9,800 for car repairs and a rental after he damaged his car on a school campus. He only provided a repair cost estimate and a receipt for a car rental.

Fonseca could not be reached for comment after the audit was released.

In a telephone interview after the board meeting, Sanchez-Macias disputed some of the findings, including that petty cash was used for employee gifts. “That is a flat out lie,” he said, adding that donations from vendors paid for the gifts. He also said the auditors never contacted him.

“I will defend myself, even if I do it on my own,” Sanchez-Macias said.

After Gothold’s presentation of the audit, some school board members thanked him for the county’s support in helping the district through these challenges.

“I would like to see a forensic audit of all our business activities, starting not just with those two individuals but with everything,” trustee Antonio Martinez said. “Obviously, the collaboration between the district and your office is important, but we need to work together to dig deep to see exactly what’s going on and root it out.”

San Ysidro school board members listen to a presentation on June 14, 2018, by Paul Gothold, the San Diego County schools superintendent, as he discusses the findings of a state audit.(Megan Wood/inewsource)

Questions about contracts, life insurance

When San Ysidro hired Fonseca and Sanchez-Macias in 2015, the district was on a positive path, coming off near-bankruptcy and the risk of a state takeover. Fonseca was the first permanent superintendent since Manuel Paul resigned in 2013 amidst a pay-to-play scandal.

Fonseca and Sanchez-Macias used the perception that San Ysidro’s leadership and finances were improving to “rationalize the numerous revisions to their contracts that resulted in significant personal financial benefit to each administrator,” according to the audit.

In the roughly two years they worked at the district, both administrators’ contracts were amended four times. Speaking to auditors, board members questioned whether the amendments they voted on in the meetings matched the version they later signed.

Among the changes to the contracts was one that allowed them to receive the value of their monthly life insurance premiums directly, rather than the district paying an insurance company.

But instead of receiving the monthly premiums, which had an annual value of less than $100, Fonseca and Sanchez-Macias cashed out the total value of the life insurance policies. That amounted to about $100,000 for each of them.

Even after the cashout, San Ysidro continued paying the administrators’ district-provided life insurance premiums, which the audit called a “clear misappropriation of funds.”

The pair’s contracts were also amended to add a health insurance benefit that set aside money that would pay for their health care if they left the district but didn’t immediately find new employment or enroll in Medicare.

Both then cashed out the money that had been set aside. When the county Office of Education questioned the payments, Fonseca and Sanchez-Macias again amended their contracts to explicitly allow the disbursement.

Although Fonseca received a payout for that health care coverage, he continues to receive district-funded health insurance, according to the audit.

The state audit was conducted by the Fiscal Crisis & Management Assistance Team. It included interviews with school board members, district employees and staff from the county Office of Education.

UPDATED at 9 p.m. Thursday, June 14, 2018, with comments and reactions from the school board meeting.