San Joaquin County 2021-2022 Grand Jury Final Report

2.1 Not all change orders are brought to the Board of Trustees for approval or ratification, leaving the Board and senior management unaware of overruns and total cost of projects and causing possible cost overages and budget deficits.

Insufficient Budget Monitoring or Updates • Failure to regularly update budget assumptions • Negative or three consecutive qualified interim report certifications • Downgrade of an interim certification by the county superintendent • “Lack of going concern” designation from the county superintendent • Actual revenues and expenditures inconsistent with the most current budget • Budget revisions not posted in the financial system or communicated to the board regularly 40 • Lack of control or monitoring of total compensation as a percentage of total expenses • Failure to regularly reconcile balance sheet accounts in the general ledger • Incomplete responses to criteria and standards variances or deficiencies identified by the county office of education • Requisitions or purchase orders processed when the budget is insufficient

Inadequate Cash Management • Failure to reconcile cash accounts monthly • 18-month cash flow not forecast • Lack of short-term plan to address cash flow needs • Noncompliance with Education Code requirements when interfund borrowing is occurring • Failure to set aside repayment funds when external borrowing is occurring • Lack of communication to the board about the district’s cash position (with a clear distinction that cash and fund balance are not the same thing)

Mismanaged Collective Bargaining Agreements • Failure to consider long-term impact of collective bargaining agreements • Lack of bargaining agreements with all units for several years with no resources identified to cover potential settlements • Presettlement analysis not conducted thoroughly or timely • Settlements above the funded cost of living adjustment (COLA) • Lack of compliance with public disclosure requirements under Government Code Sections 3540.2, 3543.2 and 3547.5 and Education Code Section 42142 • Board approval of collective bargaining agreement is inconsistent with superintendent’s and CBO’s certification

Increasing and/or Unplanned Contributions and Transfers • Insufficient control and monitoring of contributions and transfers • Lack of a board approved plan to eliminate, reduce, or control contributions/transfers • Transfers from the unrestricted general fund not made when needed to cover projected negative fund balances in other funds • Contributions/transfers to restricted programs and/or other funds not budgeted

Continuing Deficit Spending • Deficit spending in the current or two subsequent fiscal years • Not having or implementing a board-approved plan to reduce and/or eliminate deficit spending • Not decreasing deficit spending over the past two fiscal years 41

Mismanaged Employee Benefits • Actuarial valuation not completed in accordance with Governmental Accounting Standards Board (GASB) requirements to determine the unfunded liability for other post-employment benefits (OPEB) • Lack of a board adopted plan to fund health and welfare retiree benefit liabilities • Nonexistence or noncompliance of a policy or collectively bargained agreement to limit accrued vacation balances • No verification and determination of eligibility for benefits for all active and retired employees and dependents in the last five years • Compensated leave balances not tracked, reconciled and reported

Inattention to Enrollment and Attendance Reporting • Enrollment decreasing and/or unstable • Enrollment and average daily attendance (ADA) data not monitored and analyzed at least monthly through P2 • Consistently inaccurate data reported through CALPADS and other state reporting • Enrollment projections and assumptions not based on historical data, industry-standard methods, and other reasonable considerations • CALPADS data not reviewed and verified by applicable sites and departments and corrected as needed before the report submission deadlines • Unplanned or unmonitored effects of enrollment losses to charter schools • Board policy to limit outgoing interdistrict transfers is nonexistent, or policy is not followed

Decreasing Fund Balance and Reserve for Economic Uncertainty • Failure to accurately estimate the ending fund balance • Failure to maintain the minimum reserve for economic uncertainty • If unable to maintain the minimum reserve for economic uncertainty, a board-approved plan to restore the minimum reserve for economic uncertainty does not exist • Projected unrestricted fund balance not stable or not increasing • Unrestricted fund balance does not include assigned or committed reserves above the recommended reserve level when unfunded or contingent liabilities or one-time costs exist

Ineffective Internal Controls and Fraud Prevention • Lack of controls that limit access to the financial system • Access and authorization controls to the financial system not reviewed and updated upon employment actions (e.g., resignations, terminations, promotions or demotions) and at least annually • Duties in accounts payable, accounts receivable, purchasing, contracts, payroll, human resources, associated student body, and warehouse/receiving not segregated, supervised or monitored 42 • Beginning balances for the new fiscal year not posted and reconciled with the ending balances from the prior fiscal year • Prior year accruals not reviewed and cleared by first interim • Suspense accounts not reconciled regularly • General ledger not reconciled or closed timely • Inadequate processes and procedures in place to discourage and detect fraud

San Joaquin County does not have a formal internal policy concerning payments or procedures in ransomware attacks. This absence of policy could cause confusion, delay and greater loss of security in the event of such an attack.

Breakdown in Leadership and Communication • Uninformed decisions made because the system(s) can’t provide key financial and personnel data needed • Instability in the chief business official or superintendent positions (been with the district less than two years) • Lack of regular communication between the superintendent and all members of the administrative cabinet • Timely training on financial management, budget and governance not provided to site and department administrators who are responsible for budget management and decision-making • Board policies and administrative regulations routinely ignored, not adopted, updated, implemented or communicated to staff • Micromanagement by board members • Systems fully or partially controlled by highly influential special interest groups

San Joaquin County has an exemplary profile regarding cybersecurity and should serve as a model for other government agencies within San Joaquin County.

Lack of Multiyear Planning • Unreasonable and/or unclear multiyear projections that are not aligned with industry standards • Failure to explain trend analysis • LCFF calculation not prepared with multiyear considerations • Financial decisions made without most current multiyear projection in mind • Detailed information not included when “other adjustments” is used with multiyear projections (line B10)

The Board of Directors failed to enforce the District’s Credit Card Policy providing an opportunity for financial malfeasance.

Inattention to Non-Voter-Approved Debt and Risk Management • Sources of non-voter-approved debt repayment unstable, unpredictable and from the unrestricted general fund • Downgrade of credit rating • Out-of-date actuarial study without a plan to pay for any unfunded liabilities when self-insured • High levels of non-voter-approved debt (such as COPs, bridge financing, BANS, RANS and others), with total annual debt service payments greater than 2% of the district’s unrestricted general fund revenues

Requiring non-exempt administrative employees to attend a retreat that created overtime hours without compensation was in violation of the current Memorandum of Understanding and the Fair Labor Standards Act, opening the District to potential liability.

Lack of Position Control • Financial and human resources systems not integrated • Accounting for positions and costs is incomplete • Staffing not analyzed or adjusted based on staffing ratios and enrollment 43 • Budget, payroll and position control not reconciled regularly • Budget source not identified for each new position before the position is authorized by the governing board • New positions and extra assignments posted before governing board approval • Staffing ratios for certificated, classified and administrative positions not adopted or followed • Lack of regular meetings between human resources, payroll and budget to discuss issues and improve processes.

Funds generated for the use of the District through the Cal-JAC program were allocated to purchases, services and events, uses that were not in compliance with District’s purchasing and credit card policies. These expenditures could be construed as misuse of funds.

Related Issues of Concern • Failure to produce timely and accurate financial information • Annual Independent Audit Report contains material apportionment or internal control findings • Inadequate, undocumented monitoring and oversight of authorized charter schools • Out-of-date long-range facilities master plan • Special education costs not monitored, with contribution rate above the statewide average contribution rate • Special education staffing ratios, class sizes and caseload sizes do not align with statutory requirements and industry standards • District and the county office of education have different financial systems and lack automated interface Revised 8-14-2019 44 Appendix B: ESSER funds The Elementary and Secondary School Emergency Relief Fund (ESSER) was established as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020. CARES provided direct funding to states and districts to address the impact COVID-19 has had, and continues to have, on elementary and secondary schools across the nation. The ESSER Fund is the leading source of funding for public elementary and secondary education under each law. As each succeeding law was enacted, the U.S. Department of Education (ED) modified the acronym ESSER to distinguish each fund from the other. Collectively known as ESSER funds. The Office of Elementary and Secondary Education (https://oese.ed.gov/offices/education- stabilization-fund/elementary-secondary-school-emergency-relief-fund/) clarifies each ESSER phase as: ESSER I On March 27, 2020, Congress set aside approximately $13.2 billion of the $30.75 billion allotted to the Education Stabilization Fund through the Coronavirus Aid Relief, and Economic Security (CARES) Act for the Elementary and Secondary School Emergency Relief Fund (ESSER) Fund. The Department awarded these grants to State educational agencies (SEAs) for the purpose of providing local educational agencies (LEAs), including charter schools that are LEAs, with emergency relief funds to address the impact that COVID-19 has had, and continues to have, on elementary and secondary schools across the Nation. ESSER Fund awards to SEAs are in the same proportion as each State received funds under Part A of Title I of the Elementary and Secondary Education Act of 1965, as amended, in fiscal year 2019. ESSER II The Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act, 2021, was signed into law on December 27, 2020, and provided an additional $54.3 billion for the Elementary and Secondary School Emergency Relief (ESSER II) Fund. ESSER II Fund awards to SEAs are in the same proportion as each State received funds under Part A of Title I of the Elementary and Secondary Education Act of 1965, as amended, in fiscal year 2020. American Rescue Plan (ARP) ESSER (III) On Thursday, March 11, 2021, the American Rescue Plan (ARP) Act was signed into law. It was an unprecedented $1.9 trillion package of assistance measures, including $122 billion for the ARP Elementary and Secondary School Emergency Relief (ARP ESSER) Fund. Funds are provided to SEAs and LEAs to help safely reopen and sustain the same operation of schools and address the impact of the coronavirus pandemic on the Nation’s students. ARP ESSER Fund awards to 45 SEAs are in the same proportion as each State received funds under Part A of Title I of the Elementary and Secondary Education Act of 1965, as amended, in fiscal year 2020. https://oese.ed.gov/offices/education-stabilization-fund/elementary-secondary-school-emergency-relief-fund/ ESSER funds can be used in a variety of ways as long as the use addresses the impact of COVID-

Beginning in 2019 the District’s fireworks booth was operated by the 501(c)(3) nonprofit Behind the Fire LMFD, overseen by a member of the Chief’s family. This occurred with no oversight by the Board, who held the license for the booth, a situation that could expose the District and its Board to allegations of misconduct and malfeasance.

While all three funds can be used for things like hiring new staff, avoiding layoffs and implementing strategies that address the public health crisis. There are some additional nuances that were added to the terms for ESSER II and ESSER III. These include: • accelerating learning recovery, • facilitating remote learning, • prepping for reopening, • testing for reopening, • improving air quality in schools, • maintaining health and safety and • building new protocols to meet CDC guidance. Appendix C: Consultant Forms E 3600 BOARD POLICY Adopted: 06/12/07 Business and Noninstructional Operations Consultants CONSULTANT UTILIZATION FORM The following form is to be utilized by all non-instructional Consultants. The form is divided into two sections. Section #1 is to be utilized by the Consultant, and Section #2 by the District designees. Section #1 To provide consultant services to the Stockton Unified School District, all potential noninstructional Consultants must first provide the District’s ____________________Office with the following information. The information may be provided below or attached hereto.

The Stockton Unified School District Board of Trustees has shown disregard for Board Bylaw 9270, Conflict of Interest, contributing to an appearance of impropriety that may diminish the integrity of the District.

Not all Stockton Unified School District Board of Trustee members have completed the California School Board Association Masters in Governance training program, leaving them inadequately trained in Board duties and responsibilities.

Requiring non-exempt administrative employees to attend a retreat that created overtime hours without compensation was in violation of the current Memorandum of Understanding and the Fair Labor Standards Act. This action could expose the District to potential liability including financial penalties.

Allegations were made that merit or step pay increases were withheld pending the signing of a non-disclosure agreement which violates the District’s Memorandum of Understanding for Executive Staff. If proven to be true, and not corrected, the District could be subject to legal action brought by affected employees.

Pending litigation filed against the Fire District by employees for harassment and intimidation could expose the District to expenses for financial settlements and legal fees.

The District does not have a nepotism and cronyism policy that prohibits the direct supervision of family members and/or individuals with whom the supervising manager has a romantic or other close personal, financial, business or political relationship. Not having a clear policy for nepotism and cronyism has created discord within the District.

Lack of Stockton Unified School District Board of Trustee meeting minutes posted publicly and/or timely per Board Bylaw 9324, Minutes and Recordings, and Ed Code §35145a creates diminished public awareness of the actions of the Board of Trustees.

The absence of general discussion in Board minutes diminishes Board accountability and public transparency, leaving District constituents ill-informed of District issues that could have adverse effects on the students.

Board agenda packets are often missing important information, a violation of Board Bylaw 9324, Agenda/Meeting Materials, contributing to ill-informed decision making which could adversely impact students and constituents.

Lack of public discussion on Board agenda items creates an appearance of business being conducted “behind closed doors” and fosters mistrust among District staff and constituents.

Lack of certified translators for Board meetings causes inaccurate and nontransparent translations of public meetings. 37

The City of Lodi does not have an approved Business Continuity Plan, rendering the City relatively unprepared to restore essential services in a disruptive event.

The City of Lodi has implemented an excellent cyber awareness training program for all employees minimizing risk to damage from cyberattack.

The City of Manteca has an Information Technology Security Policy which has not been updated since 2010, leaving the City relatively unprepared for a cyber event.

The City of Manteca lacks a policy and procedure for ransomware attacks. This absence of policy could cause confusion, delay, and greater loss of security in the event of such an attack.

The City of Manteca has a significant number of security devices with single power supplies. This lack of redundant power presents vulnerability in major or prolonged power outages.

It is unclear in the City of Ripon’s Organization Chart where responsibilities for IT and IT security lie, creating confusion over who is responsible to act in a disruptive event. 69

The City of Ripon has a rudimentary network diagram outlining the City’s router and firewall relationship with networks used, but the diagram lacks detail, leaving uncertainty about data security.

Although the City of Ripon met expectations in the areas of data confidentiality and security, lack of IT staff and leadership leaves these areas vulnerable to cyberattack.

The City of Ripon lacks a Business Continuity Plan, rendering the City relatively unprepared to restore essential services in a disruptive event.

The City of Ripon does not have a Disaster Preparedness Plan, leaving the City at risk for significant delay and cost to restore IT systems in the event of a disaster.

The City of Ripon does not have a formal policy or procedure to address ransomware attacks. This absence of policy could cause confusion, delay and greater loss of security in the event of an attack.

The City of Stockton does not have a formal internal policy concerning payments or procedures in ransomware attacks. This absence of policy could cause confusion, delay and greater loss of security in the event of an attack.

The City of Stockton has a large IT Department which places cybersecurity and disaster preparedness at a high priority, minimizing risk to the City’s information and service systems.

Lacking a requirement for encryption of thumb drives used on City devices exposes the City of Tracy to potential data theft and contamination.

The City of Tracy lacks a completed Business Continuity Plan, rendering Tracy relatively unprepared to restore essential services in a disruptive event. 71

The City of Tracy lacks a completed Disaster Preparedness Plan, leaving Tracy at risk for delay and cost to restore IT systems in the event of a disaster.

Stockton Unified School District does not utilize financial software that aligns with the San Joaquin County Office of Education software, making analysis and review by the San Joaquin County Office of Education difficult.

Stockton Unified School District Business Services staff lacks necessary training and guidance to execute complex District business needs, resulting in the need to hire outside consultants at an increased cost to the District.

The current Chief Business Officer was hired without following Board Policy 4211.2, creating an appearance of partiality and creating diminished internal and external confidence.

Not all change orders are brought to the Board of Trustees for approval or ratification, leaving the Board and senior management unaware of overruns and total cost of projects and causing possible cost overages and budget deficits.

The elimination of the Stockton Unified School District Grant Development Office in a February 2021 District reorganization resulted in grants no longer being monitored by a specific department or individual, risking additional and unnecessary spending from the General Fund.

Stockton Unified School District does not identify and pursue all grant opportunities due to a lack of coordinated leadership, potentially resulting in unnecessary spending from the General Fund, contributing to a budget shortfall and missing opportunities for additional funding for the benefit of the students.

Stockton Unified School District’s purchasing policies and procedures are not clearly defined, allowing for deviation from California Association of School Business Officers best practices by the Business Services Department.

Stockton Unified School District’s purchasing policies and procedures are not clearly defined, causing inaccurate evaluations of actual cost and delivery of products and services.

Stockton Unified School District is inconsistent in use of Invitation for Bid, Request for Qualifications and Request for Proposal, resulting in providers not being strategically vetted and thereby allowing opportunity for misuse of funds and/or malfeasance. 30

Stockton Unified School District inconsistently uses a Request for Proposal for legal services as required by Board Bylaw 9124, potentially resulting in greater costs for legal services.

The Board of Trustees routinely disregards Stockton Unified School District staff

Lack of detailed billing and incomplete invoices for Board review creates risks of paying for services not received.

Consultant forms are accepted and forwarded to the Board without all sections completed and/or answered appropriately, impairing the Board’s ability to make informed decisions.

Stockton Unified School District paid at least one consultant for services not delivered, resulting in a misuse of public funds.

Stockton Unified School District current budget projections indicate there will be a budget deficit of more than $30 million in fiscal year 2024-2025, a deficit which could cause layoffs and elimination or reduction of student programs. 33

Stockton Unified School District has no plan in place to deal with deficit spending, putting Stockton Unified School District at risk of fiscal insolvency.

Stockton Unified School District Departments do not have clear operational budgets, decreasing the effectiveness of planning and implementation of student-focused decision making.

Stockton Unified School District has no defined and documented plan to pay for essential and on-going costs once one-time funds are depleted or unavailable, increasing the risk of General Fund depletion.

Stockton Unified School District has no Multi-Year Financial Projection to monitor the one-time fund expenditures as Stockton Unified School District moves into 2022-2023, potentially causing the projected deficit to occur earlier.