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BL SPECIAL REPORT: The errors of their ways

After years of ignoring discrepancies and using unprofessional accounting practices when dealing with school districts, the county auditor’s office and county office of education are spending about $100,000 to get help with reconciling their books.
Joe Paul Gonzalez blames a clerk in his department for $700k error, but didn't explain 175 errors found in HSD audit. Photo by John Chadwell.
Supervisor Mark Medina says he wants to investigate into what went wrong. Photo by John Chadwell.

Shortly after arriving at Hollister School District (HSD) two years ago, Gabriel Moulaison noticed accounting inconsistencies between the school district and the San Benito County Auditor.

“As I started looking into things, I noticed some things were not quite right,” Moulaison, HSD’s assistant superintendent of business services, told BenitoLink on Oct. 4. “It finally got to a point where I had to sit down and do a complete reconciliation.”

Moulaison has now spent almost two years conducting an internal reconciliation of Hollister School District accounts and says he uncovered at least 175 accounting errors made between 2012 and 2016 that he attributes to County Auditor Joe Paul Gonzalez’s office in amounts ranging from 91 cents to $5.09 million.

Gonzalez has previously admitted that numbers between the county auditor’s office, the San Benito County Office of Education (SBCOE) and local school districts did not jibe.

In a 2017 BenitoLink investigative report, he disclosed there was also nearly $1.3 million in misdirected funds or over-expenditures among three school districts, the largest being $700,000 associated with HSD. This error led to a lawsuit between HSD and San Benito County which was confidentially settled in July.

“I’ve worked for school districts for 10 years and I’ve never seen anything like this,” Moulaison said. “Joe Paul is pointing at everyone else who should have known about the mistakes when he should be pointing at himself.”

 

Missing entries

In August 2016, Gonzalez presented a memo to the San Benito County Board of Supervisors admitting to a substantial error made by his office.

According to Gonzalez, in fiscal year 2012-13, the San Benito County Office of Education created and posted in its financial system two journal entries reflecting expenditures that resulted in reducing the district’s cash balance. He said the county received hard copies of those journal entries, but the clerk in his office misplaced them and they went unposted.

Gonzalez said in April 2016 that he discovered the missing journal entries and posted them a few months after that to the county’s books. He told BenitoLink that the 2016 discovery of unposted journal entries convinced SBCOE to initiate a massive reconciliation covering the past 15 years.

San Benito County is paying Parc Corp. LLC $69,000 for their side of the lengthy reconciliation; according to Shannon Hanson, SBCOE’s assistant superintendent of business services, the office of education is paying $41,500.

 

The way others do business

People familiar with county and school district finances suggested it would be a conflict for one company to represent two clients on the same job, but Parc Corp. CEO Nimrat Johal was not concerned. She told BenitoLink that her company’s objectivity and integrity are not threatened because she had met with both parties at SBCOE offices to discuss the projects and that they are not competitors or rivals.

“While the two agencies may be independent, for purposes of the reconciliation work being performed by us, they are related in that the transactions are originated by the County Office of Education and replicated by the county treasurer/auditor,” she said.

Johal pointed out that school districts and SBCOE are required to maintain all their cash deposits in the San Benito County Treasury, which must provide an accounting of each entity’s receipts and disbursements on a monthly basis.

“The treasurer is required to maintain moneys in separate funds when so required by law,” Johal said.

She went on to say the county treasury is required to maintain, at a minimum, multiple funds to account for revenues and expenditures of each school district.

“The county superintendent, as the oversight agency over the school districts, is required to reconcile the treasurer’s records with those it maintains for the dependent school districts,” Johal said. “This is to be done for each separate fund for each dependent school district.”

 

Special Ed questions

In 2013, before he began working at HSD, Moulaison said a single transaction of $5.09 million meant to pay for taxes and a tax revenue anticipation note was somehow unaccounted for on the county’s end.

One item in particular that still puzzles him involves money for special education.

Moulaison said the money came through then County Treasurer Mary Lou Andrade, who passed it on to SBCOE, which in turn notified the school districts and the County Auditor’s office. Even though every school district and the office of education seemed to know the money arrived, as of the date of this story, it is still not on the auditor’s ledger, according to Moulaison.

Auditor Gonzalez responded to BenitoLink by email: “I can verify the accuracy of the pooled cash. I have no knowledge, nor do I have the ability to determine whether the special education revenue that is the subject of your inquiry has been misallocated. That question can only be answered by [SBCOE] and the individual school district at issue. The auditor’s office does not deal with individual school districts’ revenues and expenditures.”

Moulaison said it was unclear why the cash for special ed hasn’t shown up on the county’s books.

“The auditor is saying they’re correcting our entries, so there is $1.145 million less,” he said. “I’m sitting here saying ‘I have this special ed revenue posted on your end, which should bring up our cash by $1.145 million.’”

Both Hanson and San Benito County Superintendent of Schools Krystal Lomanto declined to comment on possible shortages in district accounts or the special education funds, stating they could not do so until after the Parc LLC reconciliation was completed.

 

‘The state will bail them out’

Moulaison suspects neither the county, nor SBCOE, nor HSD have conducted regular reconciliations for many years.

“I had heard it had been a long time since there had been a reconciliation and that’s why I did my own,” Moulaison said, adding that there had been audit adjustments to HSD’s books. 

Moulaison said he could only speak for HSD’s ability to pay bills despite potential shortages.

“Hollister School District has general fund reserves that have been able to adequately cover the accounting errors without impacting the district's ability to meet its current obligations,” he said.

Still, the Hollister School District was motivated to file the lawsuit against San Benito County over developer fees, with the county ultimately paying $230,000 to the district.

HSD interim Superintendent William Barr told BenitoLink that it was highly unlikely the accounting errors that resulted in decreased cash balances hindered any district programs or teachers’ salaries.

Several people familiar with the county agency back offices but unwilling to go on record for this article agreed that there are many errors and a lack of checks and balances between agencies. “Ultimately the state will bail them out,” one insider stated.

The same person told BenitoLink, “They need to devote more resources and professional people in there. Both the county and SBCOE have poor internal controls. They never reconcile between the two offices and there are weaknesses in both offices.”

 

‘Cradle-to-grave reconciliation’

Gonzalez told BenitoLink that San Benito County undergoes a rigorous annual audit, with the most recent conducted June 30, 2017 by CliftonLarsonAllen (CLA).

The Parc Corp. LLC reconciliation will go back as far as 2003, when the Santa Clara County Office of Education began uploading school checks to San Benito County’s financial system for cash-balancing purposes. It was scheduled to be completed by the end of the year.

“We believe that the cradle-to-grave reconciliation of the county’s accounts payable and payroll checks clearing accounts against the SBCOE financial records will bring certainty pertaining to written and issued school checks and its effect on individual school district cash balances,” Gonzalez said.

On Dec. 27, BenitoLink contacted Gonzalez and Johal to see if the reconciliations were completed. Both were unavailable for comment.

Regarding the 2016 memo by Gonzalez about the error and the 2017 lawsuit between HSD and the county, BenitoLink asked then supervisors Robert Rivas and Jerry Muenzer, and current Supervisors Jaime De La Cruz and Anthony Botelho on Oct. 29 if, after reading Gonzalez’s 2016 memo, any of them had called for an investigation, and if they believed school districts’ operations were affected by the shortages.

Muenzer declined to comment and deferred to Gonzalez or County Administrative Officer Ray Espinosa. Supervisor De La Cruz, who ran unsuccessfully for county treasurer, and Rivas, now a state assemblyman, did not respond at the time.

However, Supervisor Botelho said in an email the same day that he had been painfully aware of ledger entry discrepancies for a while.

“I have had conversations with different school districts’ superintendents, San Benito County Office of Education and of course Mr. Gonzalez,” Botelho wrote. “I am far from being an expert in education finances and their process and the inter-relationship in how numbers flow from the state and tax dollars to the local school districts.”

But Botelho ultimately put the ball back in HSD’s court saying, “The school districts have a responsibility of knowing what their projected revenue is and budget accordingly with their expenses.”

Supervisor Mark Medina said he had very little knowledge of the issue and questioned, “In theory, if any of the districts are looking at their books, how come they didn’t do a reconciliation with the county every year or every quarter?”

He added, “If HSD has hundreds [175 according to Moulaison] of journal entry errors, I can guarantee you without a doubt in my mind the other districts have issues. If someone says it’s just HSD, they don’t know what they’re talking about.”

From Moulaison's perspective, the journey he has been on since taking a Hollister School District job two years ago is not about blaming the other county departments. He told BenitoLink he mainly wants to make sure nothing like this happens again.

 

 

Other related stories:

County and Hollister School District Agree to Confidential Settlement, Details Still SKetchy

Schools in the Dark about Budget Shortfall

Supervisor Botelho Slams Hollister School District Over Litigation

 

 

BL Special Reports

BL Special Reports are long-form articles. BenitoLink team members put extra time and effort into researching and investigating important issues for the benefit of the community. BL Special Reports are funded by individual donations made by San Benito county community members or friends of San Benito county who value high quality journalism. Help support more projects like these by Donating to BenitoLink, giving one time or by making monthly payments that fit your budget. Your support keeps these stories coming.

 

 

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About:
John Chadwell (John Chadwell)

John Chadwell is an investigative reporter for BenitoLink. He has many years experience as a freelance photojournalist, copywriter, ghostwriter, scriptwriter and novelist. He is a former U.S. Navy Combat Photojournalist and is an award-winning writer who has worked for magazine, newspapers, radio and television. He has a BA in Journalism and Mass Communications from Chapman University and underwent graduate studies at USC Cinema School. John has worked as a script doctor and his own script, God's Club, was released as a motion picture in 2016. He has also written eight novels, ranging from science fiction to true crime that are sold on Amazon. To contact John Chadwell, send an email to: johnchadwell@benitolink.com.

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