"The Fiscal Crisis and Management Assistance Team’s (FCMAT) primary mission is to help California’s local TK-14 educational agencies identify, prevent and resolve financial, operational, and data management challenges by providing management assistance and professional learning opportunities.”
In last month’s newsletter article, Part 1, the FCMAT report from Stockton USD reported broken procurement practices where several lessons can be learned to avoid the reoccurrence in other districts. The FCMAT team focused their investigation into a Stockton USD contract issued to IAQ Distribution Inc., an Alliance Building Solutions Company subsidiary. It found the existence of fraud, misappropriation of funds and/or assets, and other illegal fiscal practices that should be referred to the local District Attorney.
-- The main deficiency at Stockton Unified was that the Request for Proposal (RFP) process was not followed, and a conflict of interest existed when awarding contracts.
-- The procurement of equipment and construction services must adhere to Public Contract Code 20111, that requires a competitive bid and award to the lowest responsible bidder for expenditures over $50,000. The contract award results from a competitive bid where the purchasing organization obtains the requirements document and issues a Request for Proposal (RFP) which bidders respond to.
--The purchasing department manages the RFP process and is responsible for soliciting prices for equipment and services. The process begins with receiving requirement documents that describe what is needed, advertising the RFP in a newspaper, receiving the bids, evaluating the responses, and selecting the bidder based on the lowest bid. Simple? Typically it is, but can be complex when the costs are higher than expected, the supplier offers different equipment or services not listed, or investigations into the bidder’s capabilities are not verified, indicating they do not possess the qualifications to perform the task or are not financially sound.
-- Based on the FCMAT report, the RFP Process was not followed several times – one for issuing a contract to IAQ and the other to a law firm representing the school board.
- For IAQ:
- No requirements document.
- The contract award was given to the third-rated supplier, IAQ. Ignoring the lowest bid.
- No due diligence was performed before awarding the contract to IAQ who was not registered with the California Secretary of State – as a licensed contractor with the California Department of Industrial Relations.
- The Superintendent interfered with the bid process by inserting himself into the decision-making process.
- For the law firm:
- The school board awarded a contract to a legal firm without an RFP and without District approval.
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A conflict of interest between an attorney from the legal firm, the superintendent, and the school board president may have occurred when the law firm wrote and approved a contract without district approval. Conflict of interest prohibits public officials from entering into contracts “made by them in their official capacity, or by anybody or board of which they are members.”
Lesson Learned – follow the process!
A well-documented RFP process allows for the requirements to be identified, the solicitation of publicly advertised equipment and services, and qualified providers selected who can perform the equipment/work for the best cost. When the bid and award of a contract follow the process, the district is assured of a cost-effective contract that can be executed.
-- The RFP process is an internal activity managed by purchasing where the evaluation of bids is performed by district staff and excludes the superintendent and school board members.
Leadership fiduciary responsibilities.
“A fiduciary is someone who manages money or property for someone else. When you are named a fiduciary you are required by law to manage the person’s money and property for their benefit, not yours.”
-- The superintendent and school board members are stewards of the school district responsible for managing the school district’s assets by exhibiting the highest standard of care to ensure the fiscal solvency of the district. They are responsible to act ethically when carrying out their duties. This includes creating an environment of integrity where policies and procedures are performed.
-- In the case of the Stockton USD, personnel complaints to the San Joaquin County of Education prompted a request for a FCMAT audit. It is a difficult position for district personnel to bypass its leadership and school board to report a hostile environment, intimidation and overriding of established internal control activities, and a departure from board policy. It was courageous for district staff to seek remedies outside the immediate school district to the county office.
-- The FCMAT audit identified the existence of fraud, misappropriation of funds and/or assets, and other illegal fiscal practices. The recommendation was that the county superintendent notify the governing board of the Stockton USD, the State Controller, the State 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 San Joaquin County Office of Education has concluded its review.
