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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.
More in our San Ysidro investigation…
Ex-San Ysidro school superintendent’s compensation makes him highest paid in county, second highest in state
October 19, 2017
Public reacts to ex-San Ysidro school superintendent’s pay — and it’s not positive
October 21, 2017
County superintendent asks state to investigate San Ysidro School District finances
November 10, 2017
‘Extraordinary audit’ of San Ysidro School District moving forward
November 20, 2017
Budget error means San Ysidro School District owes state $5.1 million
December 15, 2017
Ex-San Ysidro superintendents received hefty payouts for vacation and leave days
February 9, 2018
We’ll let you know when big things happen.
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| All Staff Percentages are based on 15 total survey responses. The numbers include full-time and part-time staff, full-time fellows and full-time and part-time interns. | Newsroom Percentages are based on 15 completed survey responses to this question. | Business Percentages are based on 15 completed survey responses to this question. | |||
| Gender Identity | Gender Identity | Gender Identity | |||
| Women | 80% | Women | 82% | Women | 75% |
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| Sexual Orientation | Sexual Orientation | Sexual Orientation | |||
| Straight | 87% | Straight | 82% | Straight | 100% |
| LGBTQ-identifying | 7% | LGBTQ-identifying | 7% | ||
| Not specified | 7% | Not specified | 7% | ||
| Speak a language beyond English at home | 33% | Speak a language beyond English at home | 18% | Speak a language beyond English at home | 75% |
| Race/Ethnicity | Race/Ethnicity | Race/Ethnicity | |||
| White | 67% | White | 73% | White | 50% |
| Hispanic or Latinx | 20% | Two or more races | 18% | Hispanic or Latinx | 50% |
| Two or more races | 13% | Hispanic or Latinx | 9% | ||
| Age | Age | Age | |||
| 20-29 | 40% | 20-29 | 45% | 20-29 | 25% |
| 30-39 | 47% | 30-39 | 45% | 30-39 | 50% |
| 60 or older | 13% | 60 or older | 9% | 60 or older | 25% |
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Lorie Hearn is the chief executive officer, editor and founder of inewsource. She founded inewsource in the summer of 2009, following a successful reporting and editing career in newspapers. She retired from The San Diego Union-Tribune, where she had been a reporter, Metro Editor and finally the senior editor for Metro and Watchdog Journalism. In addition to department oversight, Hearn personally managed a four-person watchdog team, composed of two data specialists and two investigative reporters. Hearn was a Nieman Foundation fellow at Harvard University in 1994-95. She focused on juvenile justice and drug control policy, a natural course to follow her years as a courts and legal affairs reporter at the San Diego Union and then the Union-Tribune.
Hearn became Metro Editor in 1999 and oversaw regional and city news coverage, which included the city of San Diego’s financial debacle and near bankruptcy. Reporters and editors on Metro during her tenure were part of the Pulitzer Prize-winning stories that exposed Congressman Randy “Duke” Cunningham and led to his imprisonment.
Hearn began her journalism career as a reporter for the Bucks County Courier Times, a small daily outside of Philadelphia, shortly after graduating from the University of Delaware. During the decades following, she moved through countless beats at five newspapers on both coasts.
High-profile coverage included the historic state Supreme Court election in 1986, when three sitting justices were ousted from the bench, and the 1992 execution of Robert Alton Harris. That gas chamber execution was the first time the death penalty was carried out in California in 25 years.
In her nine years as Metro Editor at the Union-Tribune, Hearn made watchdog reporting a priority. Her reporters produced award-winning investigations covering large and small local governments. The depth and breadth of their public service work was most evident in coverage of the wildfires of 2003 and then 2007, when more than half a million people were evacuated from their homes.
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Laura Wingard is the managing editor at inewsource. She has been an editor in San Diego since 2002, working at The San Diego Union-Tribune, KPBS and now inewsource. At the Union-Tribune, she served in a variety of roles including as enterprise editor, government editor, public safety and legal affairs editor, and metro editor. She directed the newspaper’s award-winning coverage of the October 2007 wildfires and the 2010 disappearance of Poway teenager Chelsea King. She also oversaw reporting on San Diego’s pension crisis.
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