In October 2016, a community member asked the County Superintendent to conduct an Extraordinary Audit of CUSD. The letter/report is provided below, and the full report with supporting evidence can be found here. Superintendent Gundry’s response to the report on February 3, 2107 can be found here.
October 7, 2016
Mr. Jon R. Gundry
Santa Clara County Superintendent of Schools
1290 Ridder Park Drive
San Jose, California 95131-2304
Dear Mr. Gundry:
As parents and community members of Cupertino Union School District (CUSD), we escalate to you our concerns about potential violations of the Education Code, Government Code, and the District’s Board Policy. The attached report contains evidence to demonstrate that fraud, misappropriation of funds and/or assets, or other illegal activities may have occurred within CUSD.
We have conducted an extensive review and analysis of the District’s financial records. We request the Santa Clara County Office of Education (SCCOE) to engage the Fiscal Crisis and Management Assistance Team (FCMAT) or similar agency to conduct an AB 139 Extraordinary Audit under the provisions of Education Code Section 1241.5(b).
Based on our findings, we specifically request the following activities:
- Evaluate the District’s internal control structure, policies, and procedures to determine if adequate procedures are in place to safeguard assets.
- Evaluate the reliability and integrity of financial transactions.
- Examine no-bid contracts and associated accounting and report on compliance with statutory code and board policy.
- Determine if authorization procedures for travel and purchasing are appropriate and consistently followed.
- Examine credit card transactions and report on compliance with code and policy on usage, purchasing, and reimbursements. Report on any potential instances of “Gifts of Public Funds.”
- Review job descriptions for all department positions; evaluate capacity, scheduling, efficiency and functions; and make recommendations for staffing and operational improvements.
Thank you in advance for your attention to this critical issue. Please respond to this request within 10 business days of receipt.
[concerned community members]
Fiscal Crisis and Management Assistance Team (FCMAT)
State Superintendent of Public Instruction
District Attorney, Santa Clara County
Cupertino Education Association (CEA)
Education Code Section 1241.5(b) permits a county superintendent of schools to audit the expenditures and internal controls of any school district in the county if he or she has reason to believe that fraud, misappropriation of funds, or other illegal fiscal practices have occurred. The county superintendent may direct an investigation based on written concerns by parents or community members when sufficient proof is provided that justifies a review. This report provides detailed findings and evidence based on an extensive evaluation and analysis of Cupertino Union School District (CUSD) records and practices.
Since the Superintendent’s arrival in 2012, Cupertino Union administrators and Board members have unilaterally enacted policies to promote their self-interests; alienated teachers and parents; enjoyed lavish meals together at taxpayers’ expense; paid millions for unqualified consultants and unproven programs; sharply increased administrative overhead; and run up huge legal bills.
The Superintendent routinely broadcasts to the parent community her accessibility and transparency in operations. Yet, the District’s policies and administrative practices hide information and decisions from public view. Board members do not question contracts with the Superintendent’s long-time friends, despite the absence of tangible deliverables and measurable outcomes. At board meetings, trustees stifle public opinion and disrespect attendees. Trustees take pride in having delegated the Board’s power and authority to the Superintendent for all District affairs.
After frequent and repeated attempts to engage the Superintendent and Board members, parents and community members have taken it upon themselves to course-correct the District. This report provides analysis and evidence of deficiencies and exceptions that currently exist within the District related to improper and potential illegal spending practices. These issues are of great concern to parents, teachers, and community members within CUSD and require immediate review by an independent authority under the provisions of Assembly Bill (AB) 139.
Policies and procedures for employee reimbursements govern travel expenditures, mileage, and credit card purchases. They are designed to achieve the following objectives:
- favorable pricing for the district from vendors
- fiscal responsibility and proper accounting
- operating environment of checks and balances that avoids costly mistakes and mitigates the risk of exploitation
The Cupertino Union School District’s (District) Authorization for Employee Reimbursement policy dated August 1, 2012 states: “The Employee Reimbursement is for routine supplies and may NOT be used for equipment/fixed asset purchase, field trip deposit, textbook purchase or any other purchase that should be processed through Purchasing Department. … The Business Services Department will process a requisition only if the original receipt or invoice with amount paid is attached,… Credit card receipts must be accompanied by an itemized receipt, if applicable. …. Personal memberships are not reimbursable.”
In examining the District’s financial practices, the disregard for statute, policy and procedures is rampant. A culture of accountability is established at the highest ranks of an organization. Followers model the behavior of their leaders. Evidence of findings in multiple areas as described below indicates an environment at CUSD that is conducive for fraud, waste, and abuse.
The District’s Board Policy 3350 states, “All out-of-state travel for which reimbursement will be claimed shall be approved in advance by the Board. …. The district shall not reimburse personal travel expenses including, but not limited to, tips or gratuities, alcohol, entertainment, laundry, expenses of any family member who is accompanying the employee on district-related business, … Reimbursement of travel expenses shall be based on actual expenses as documented by receipts.”
Education Code 44032 and Board Policy 3350 authorize payment for travel expenses incurred by any employee performing authorized services for the district, whether within or outside district boundaries.
The District’s Travel Procedures policy dated August 1, 2011 states: Travel and conference reservations should be processed through the Purchasing Department. Reimbursement for taxi, shuttle, rental car, or parking requires an itemized receipt. Meals will be reimbursed on a per diem basis, up to a maximum of $42 per day. Breakfast will be reimbursed at the rate of $7.00, lunch at the rate of $14.00, and dinner at the rate of $21.00. Actual receipts must be submitted if claiming reimbursement for more than one person and should list the name of each person.
Expense reports submitted by Board members, the Superintendent, and District Executive Staff for 2014-2016 were obtained via Public Record Act (PRA) requests. These reports revealed frequent and recurring violations of statute, Board policy, and District procedures.
In CUSD administrators’ expense reports, there is no verification of prior Board approval of out-of-state travel despite numerous trips. District credit cards are used extensively for travel costs for administrators and Board members without going through the Purchase Department. Expenditures for meals associated with travel frequently exceeded approved per diem rates; failed to include attendees’ names; lacked itemized receipts, and often included nonemployee family members. There were often discrepancies between the employee’s claimed expense amount (no tip) and the amount actually charged to the District credit card (including tip).
The examples of violations provided below point to a severe abuse of discretion and indicate a pervasive and systemic breach throughout the District. These are only a few of the countless violations discovered during the examination.
- From December 14-16, 2014, the Superintendent and Board members attended the California School Boards Association (CSBA) conference in San Francisco. The combined travel expense to the District was $4510.52 including three overnight stays, despite the event being held 42 miles from the District Office (DO). On 12/14/14, the Superintendent expensed a dinner for $377.53 for 10 entrees at Grill Concepts in San Francisco. Handwritten on the receipt was “Board and spouses.” While there was internal DO communication about the legality of paying for spouses, the expenditure was ultimately approved with no suggestion or evidence of repayment for spouses – a violation of Board policy and perhaps a “gift of public funds.” The same expense report included at least two additional meals with Board members – an itemized receipt was not provided for one, and both exceeded per diem rates. No form of receipt or attendee list was produced for a fourth meal in the amount of $57.32. A handwritten note on the hotel receipt indicated the Superintendent would pay for an in-room movie charged to her room. However, there was no evidence of repayment. [Appendix A]
- On 12/3/15, the Superintendent and Board members attended the California School Boards Association (CSBA) conference in San Diego, CA. For dinner that evening, the Superintendent expensed a dinner for $481.33 at the Marriott Marina’s Kitchen. Hand-written on the receipt was “Board dinner.” She did not submit an itemized receipt as required, but one was obtained elsewhere. The receipt shows that 10 entrees were ordered, including three orders of the steak special at $42 each. A service charge in the amount of $65.16 was added to the bill. On the receipt, the Superintendent added an additional $20 tip. Besides the Superintendent and Board members, it is unknown who else attended the lavish dinner at the District’s expense. (Appendix B)
- In examining nearly 3,000 credit card transactions from 2014-2016, seventeen (17) purchases were made on discount travel sites for a total of $5,814.91. Purchasing from intermediaries without a receipt from a direct vendor complicates accounting. In addition, sixty-four (64) disbursements for airline tickets were made for a total of $29,509.58 and 113 disbursements for hotels for a total of $44,560.37. Only one of the travel expenditures was purchased by someone in the DO Purchasing Department. These expenditures for airlines and hotels bypassed the District’s Travel Procedures.
Effective January 1, 2016, the reimbursement rate for the approved district business use of an employee’s automobile is $0.54 per mile – the same rate as approved by the Internal Revenue Service. Per the District’s travel procedures, employees are required to compute mileage from the District Office when traveling on official business and attach a map displaying the route and mileage from origination to destination.
Many CUSD administrators claim mileage expense on a monthly basis for their routine travel to school sites and conferences. Often mileage expense reports are incomplete or misreported as in the following case:
- On 1/15/15, the CUSD Chief Information Officer (CIO) attended the Governor’s Budget Workshop in Sacramento and the California School Public Relations Association (CalSPRA) annual banquet in San Francisco later in the day. He left the District Office in Cupertino early in the morning and arrived in Sacramento at approximately 8:20 am, according to parking receipts. He left the parking garage at 1:57 pm and traveled to San Francisco, arriving at the Westin hotel at 3:47 pm. For this trip, the CIO claimed roundtrip mileage expense from the DO in Cupertino to Sacramento ($244.80) and roundtrip mileage expense from Cupertino to San Francisco ($82.40). He should have claimed mileage reimbursement from Cupertino to Sacramento to San Francisco and return to Cupertino, resulting in an overcharge to the District. (Appendix C)
District-Issued Credit Cards
According to PRA requests, CUSD maintains six credit cards: one issued to the Superintendent, two issued to the Superintendent’s administrative staff, and three issued to DO departments. The District was asked for its credit card use policy, but the CIO could not locate any records responsive to the request.
Credit cards statements from July 2014 to July 2016 for the six accounts were obtained and analyzed. District office personnel performed 2,094 transactions using the cards during this period. Outside of Purchasing, credit card usage is distributed fairly consistently across the District: Instruction department executed 378 transactions; the Superintendent (and her assistants) executed a combined 370 transactions; and Human Resources executed 205 transactions.
The volume and nature of transactions reveals District-wide, frivolous spending and lack of fiscal prudence and oversight. As the tables below indicate, the majority of transactions occur at discount stores such as Costco, Amazon, Target, and Walmart. In violation of Board Policy 3300, itemized receipts for these transactions are often not submitted, masking the true nature of the expenditures. Similarly, Paypal – a ubiquitous transaction processor – was used for 48 transactions with combined disbursements of $11,937.13. Credit cards are accepted at merchants that also accept Paypal, and credit cards offer greater purchasing protection. As shown, the greatest expenditures with credit cards are food, travel, and electronics.
The analysis of credit card transactions showed hundreds of expenditures for books, instructional materials, memberships, electronics, and equipment. It is clear that the purchase order process is not followed or is frequently bypassed by using District credit cards.
Accounting for these expenditures is problematic when policies and procedures are disregarded in an environment lacking internal controls. It appears from examining account transaction details as provided by the District that expenditures are assigned based on the cardholder, not the nature of the purchase. This behavior as practice invites fraud, waste, and abuse of financial assets. (Appendix D)
Excessive Dining – “Gift of Public Funds”
The District frequently purchases meals and food for meetings, department meetings, working lunches, celebrations and other activities before, during and after the workday. District procedures require an itemized receipt and a list of attendees as supporting documents for payment. Based on the documents reviewed, countless receipts were missing; exceeded per diem rates; included tips in the amount paid; and omitted names of attendees – all in violation of Board policies 3300 / 3350.
California Government Code section 8314 and the California Constitution Article XVI, section 6 prohibit the gift of public funds to any individual, corporation, or another government agency. Further, the Santa Clara County Office of Education (SCCOE) published an informational bulletin (12-019) on the topic of Gifts of Public Funds on July 22, 2011.
Expenditures of school funds must be for a direct and primary public purpose to avoid being a gift. According to the California Constitution, Article XVI, “In determining whether an appropriation of public funds or property is to be considered a gift, the primary question is whether the funds are to be used for a ‘public’ or a ‘private’ purpose.”
The Superintendent hosted at District expense frequent lunches in the local area for her staff and labor union members. These expenditures are unnecessary and excessive, as business could be conducted on-site.
- From 7/2014 – 7/2016, the Superintendent dined guests (mostly staff) a total of 37 times at local restaurants for lunch. For these meals, the Superintendent charged the District $2,670, mostly dining at BJ’s Restaurant ($1,555) and Fontana’s Italian ($900). Expenditures lacked itemized receipts for 22 of the meals and nearly always exceeded authorized per diem rates. One meal on 1/16/15 was expensed twice – once on the District credit card, and the second time via an expense report submitted by the Superintendent. On multiple occasions, the receipt submitted did not match the credit card transaction amount. Because tips are not reimbursable, the Superintendent did not claim a tip on expense reports, despite the District paying the entire amount including tip for the credit card purchase. (Appendix E)
- Often times, District personnel held “workgroup meetings” at local restaurants. While itemized receipts may have been provided, attendee’s lists and meeting agendas were not. These lunches are accounted for using the Object Code of 4313: “Materials Unassigned.” Both excessive dining and sloppy accounting display a lack of discipline and compliance within the District for proper fiscal management. (Appendix F)
In examining credit card statements from July 2014 – July 2016, District administrators purchased food for meetings 368 times for a total expenditure of $49,458.55. This amount is inclusive of the Superintendent’s local dining meetings described above. However, it does not include additional food expenditures where payment was disbursed via check. These excessive dining charges are especially egregious considering the District has its own food services department.
The volume of meals, patterns in spending, lack of supporting documentation, and frequent disregard for per diem rates raise questions about how Cupertino Union exercises its fiduciary responsibilities and administers its own Board policies and procedures. These excessive dining expenditures could be considered gifts of public funds and a further indication of fraud, waste, and abuse within the Cupertino Union School District.
Contract Violations / Cronyism
The CUSD Superintendent contracts her long-time friends and former associates for work often performed by District personnel. These consultants enjoy automatic renewal of annual contracts – for over a million dollars combined. None of their contracts resulted from a bidding process; they have been contracted for “Special Services” under Government Code 53060. This provision is intended for specialized services on a temporary basis that cannot be fulfilled by public employees. The legal merits of these ongoing contracts under this provision are questionable.
None of these consultants’ contracts states specific goals, milestones, or deliverables. Nor are their performances measured by outcomes. They are either paid on a daily basis or monthly retainer regardless of how many hours they work, what they produce, or the value they deliver. Simply put, these consultants have guaranteed income for just showing up. There are no performance objectives by which to hold these consultants accountable. And there is no oversight on invoicing or billing.
Enid Lee, Consultant
One example is a contract with Enid Lee, who was brought on due to a Resolution Agreement from a Civil Rights lawsuit in 2013. This Agreement states the program that Ms. Lee is responsible for will be implemented by September 2015. Yet, on August 12, 2016, the Board approved Ms. Lee’s third annual contract of $180,000 ($540,000 total) at a daily rate of $2,000. District responses to PRA requests have not produced any deliverables or work product from Enid Lee, despite her 2-year tenure at CUSD.
During the 2015-2016 school year, Enid Lee sent invoices to the District in August, September, and October of 2015 in the total amount of $48,000. She didn’t send a single additional invoice until June 2016. Then at the same time, Ms. Lee sent invoices for November 2015 – June 2016. And all of Ms. Lee’s invoices are dated in June 2016. The Superintendent placed these invoices on the consent calendar for a June board meeting, and the Board approved payment in the amount of $120,000 without question. In at least one case, an invoice stated ½ day meeting, and Ms. Lee was paid for an entire day. It is also unclear from Ms. Lee’s invoices whether her services met the requirements stated in the Statement of Work. (Appendix G)
Community members have repeatedly addressed CUSD Trustees about providing greater transparency and oversight of District affairs, but our concerns are always dismissed – and rarely even acknowledged. Internal controls within CUSD to adequately safeguard assets and ensure sound fiscal stewardship are nonexistent. A formal complaint was filed with the Board on 9/12/16 requesting an external audit of financial practices and procedures. Despite numerous follow-ups, there has been no response.
Voler Strategic Advisors (Voler)
A second example of potential illegal contracts is Voler Strategic Advisors. Voler is a recently formed public relations firm, though its principals are long-time friends of the Superintendent. Within CUSD, there has been endless controversy over Voler’s initial arrangement with the District, the services it provides, and its recently executed no-bid contract for the 2016-2017 school year.
The diagram below illustrates the timeline and events related to CUSD’s engagement with Voler.
On 7/1/15, CUSD executed a Professional Services Agreement with Dannis Woliver Kelley (DWK) for legal services. The (DWK) Agreement does not provide for services beyond the scope of legal services. A provision for “special projects” explicitly pertains to associated legal fees. The contract also lists 11 potential third-party services — all of which pertain to legal services. (Appendix H)
On 8/27/15, Voler Strategic Advisors contracted through DWK to provide public and media relations services to CUSD. The agreement provided for a monthly retainer of $8,500.
On 12/8/15, the community first learned of Voler (and the Superintendent’s plan to build teacher housing on a school site) from a press conference held by Voler to announce “Cupertino Union School District Seeks to Build Largest Teacher Housing Project in California.” Demanding transparency, the community rejected both Voler’s arrangement with the District and the Superintendent’s proposed plan.
Community members addressed the CUSD Board regarding Voler, citing multiple infractions:
- Education Code 35041.5, restated in CUSD Board Policy 9124, identifies the legitimate duties of legal counsel. Voler’s public and media relations services as detailed in an agreement with DWK clearly do not qualify as legitimate duties of legal counsel per statutory requirements.
- Regarding payment, the DWK Agreement for Professional Services states: “District further agrees to pay for major costs and expenses by paying third parties directly…” However, as evidenced by Voler’s agreement with DWK and associated payment information, the District is funding Voler through DWK to avoid public scrutiny. This arrangement violates the terms of DWK’s contract with CUSD.
According to the District Chief Information Officer (CIO) in February 2016, payments to Voler would not exceed $68,000 (per an approved purchase order). In May 2016, the CIO reported the District’s engagement with Voler had exceeded the purchase order amount, but the District would be ending its engagement with Voler at the end of the school year.
Unexpectedly, a new Voler contract for the 2016-17 school year appeared on the Board agenda (consent calendar) to be ratified on 6/7/16 without public awareness. The agenda packet neither contained a consent summary page, nor the actual contract for the Board to review in advance of the meeting. The actual contract executed on 6/3/16 in the amount of $70,000 was obtained from the CIO via PRA request. At the Board meeting on 6/7/16, the Voler contract was pulled from the agenda due to public outcry.
At the 8/16/16 Board meeting, the Superintendent confirmed the Voler contract had been pulled from the agenda. Yet, that same night, the Board approved the minutes for the 6/17/16 Board meeting. Omitted from the minutes was any mention of the Voler contract being pulled from the agenda. The meeting minutes inaccurately implied the Voler contract had been ratified on 6/17/16.
Weeks later on 9/13/16, a second Voler contract executed on 9/8/16 for $77,400 appeared on the consent calendar for ratification. The contract was ratified by the Board without comment. Again, neither the actual contract nor consent summary was included in the Board package.
Two community members filed formal complaints with the District the week of 9/12/16 concerning Voler. Challenging the following infractions, the complaints requested an outside audit / investigation of the matter:
- Legality of CUSD’s initial arrangement with Voler (channeling their services through outside legal counsel, DWK).
- Legality of outsourcing services that are currently being performed by a public employee – a Communications Analyst who is accounted for in the CUSD Local Control and Accountability Plan (LCAP) earning $89,889 annually. Voler’s work as reported by the District (social media / communications) is nearly identical to the responsibilities of the Communications Analyst described in LCAP.
- Voler does not meet the statutory requirements to qualify as a “Special Service” under Government Code section 53060. The contract amount of $77,400, falling just below the requirement for competitive bidding, is suspect.
- Failure of the Board to approve either new Voler contract (6/3/16 or 9/8/16).
- Wrongfully approving the 6/7/16 Board minutes that implied the first Voler contract had been ratified.
The fact that the Superintendent continues to sign no-bid contracts with her friends without Board approval, and the Board ratifies them without question (from the consent calendar) is beyond incompetency. Their behavior and actions are intended to misrepresent the facts and to deceive the public — seemingly fraudulent misconduct.
Administrative Staff Increases
The CUSD District Office is suffering from severe bloat, as the number of administrative staff and their salaries have sharply increased since the Superintendent’s arrival in 2012. Various committees and PRA requests have asked for organizational charts, position descriptions, and movement of personnel. But it’s like a shell game. Responsibilities and personnel are moved around to the extent that publicized “administrative cuts” are merely shifting costs rather than reducing costs. There appear to be endless layers of coordinators / analysts / Teachers on Special Assignment (TOSA) within the District. Many of these personnel are funded by LCAP dollars, which have padded the District budget over the last several years. The vast majority of these positions are not front line, touching students in the classrooms or providing services on-site at our schools.
To obscure the number of administrative staff, the District often aggregates headcount by certificated, non-certificated and administrative personnel. This method is deceiving because not all certificated employees are actually in the classroom such as TOSA.
Over the past several years, select individuals have enjoyed accelerated promotions and salary increases. One example is the District’s Communication Manager, who in July 2013 was promoted to Chief Information Officer – seemingly skipping several rungs in the organizational ladder. Salary inflation is difficult to discern when looking only at a single district. According to http://ed-data.org, over a 2-year period Cupertino Union has the highest percent increase in amount spent on Administrative and Supervisors’ Salaries, at 36%, compared to other local districts, including Evergreen, Saratoga, Los Altos, Los Gatos and Sunnyvale.
Summary of Administrative Salary Increase: from 2012-2013 to 2014-2015
|School District||Admin Salary Increase|
|Orinda Union Summary||6%|
|Los Altos Elementary||19%|
|Los Gatos Elementary||23%|
Transparency and Open Governance
The Cupertino Union School District (CUSD) Board of Trustees and Superintendent operate in secrecy and frequently manipulate Board agendas and minutes to mislead the public and protect their image. Citizens are allowed 1.5 or 3 minutes to address the Board at meetings, to which the Board never responds. The Superintendent, however, is allowed to respond to comments at length and on any topic desired. Most contracts are placed on the consent calendar to avoid public scrutiny, and many are simply ratified – but not approved – by the Board. Board members rubber-stamp everything the Superintendent places in front of them without inquiry.
CUSD Board members violate the Ralph M. Brown Act on a routine basis. They fail to bring topics of interest to the public prior to making decisions. They conduct business in closed sessions that is required by law to be held in open sessions. They conduct serial meetings and use personal email addresses to avoid public disclosure of communications.
In March 2015, a concerned parent issued a complaint and Cease and Desist letter for Brown Act violations relating to a failed attempt by the Superintendent to build teacher housing on the Luther School site. Despite dismissal attempts by the District’s attorneys, the Board ultimately agreed to cease and desist from committing the alleged violations in the future.
Less than two months later, the Board was at it again – holding a mid-summer meeting to extend the Superintendent’s contract when it didn’t expire until July 2017. Last summer in 2015, following the abrupt reconstitution of West Valley Elementary, parents pleaded with the Board to hold a summer meeting, to which they refused due to conflicts with their vacation schedules.
Fundamental aspects of governance in the Cupertino Union School District must change to protect its history of high academic achievement. Parents and community members have spent endless time, energy, and resources in attempts to engage the Superintendent and Board of Trustees for improved transparency, governance, and commitment to sound fiscal management. Our appeals have gone unanswered, which necessitates the need to escalate our findings through designated channels.
We believe this report provides sufficient evidence to demonstrate that fraud, misappropriation of funds and/or assets, or other illegal activities may have occurred within the Cupertino Union School District. The deficiencies and exceptions identified in reviewing the District’s financial records suggest a breach of fiduciary duties by the Board of Trustees and Superintendent, which breeds immune behavior to principles of integrity, compliance, and fiscal restraint to personnel throughout the District.
Under the provisions of California Education Code Section 1241.5(b), we request that an Extraordinary Audit be conducted in a timely and efficient manner by the Fiscal Crisis Management & Assistance Team (FCMAT) or similar agency.
Thank you for your consideration.