The District Attorney should investigate a local nonprofit for skimming money from its employees’ retirement funds, according to a report commissioned by the County Office of Education.
The District Attorney should investigate a local nonprofit for skimming money from its employees’ retirement funds, according to a report commissioned by the County Office of Education.
The 38-page report “found evidence of apparent illegal fiscal practices and misappropriation of funds” by the Mexican American Community Service Agency, County Superintendent Charles Weis wrote in a letter to the District Attorney’s Office and other public agencies. The nonprofit – which ran Gilroy’s only charter school and a charter school in San Jose – secretly did not make about $400,000 in payments to its employees’ retirement accounts and instead used those funds to pay for operational costs, according to the report.
MACSA’s Interim Chief Executive Officer, Maria Elena De La Garza, said the agency is currently undergoing a drastic overhaul, including a 100 percent change in leadership, the closure of both agency-run charter schools, the outsourcing of payroll services, a 42 percent reduction in workforce, and a new set of policies and procedures.
“It is important to state that the employees responsible for making these past fiscal decisions are no longer with the organization and a new management structure has been implemented,” De La Garza wrote in a letter sent to MACSA’s “supporters and friends.”
After the Gilroy Dispatch discovered and reported the questionable financial practices at the agency earlier this year, then-Chief Executive Officer Olivia Soza-Mendiola resigned June 30 and then-Chief Financial Officer Ben Tan also either left the agency or was dismissed. De La Garza did not specifically mention these two former employees, however.
In addressing the most obvious manifestation of the agency’s financial troubles – the money owed to employee pension funds – De La Garza pointed out that the agency has fully repaid the former employees of the Gilroy charter school, El Portal Leadership Academy. At one point, MACSA owed those employees more than $140,000.
If the agency hadn’t paid back its El Portal employees, the Gilroy Unified School District would have been held liable for the debt, said Superintendent Deborah Flores. When an El Portal employee brought the deficiency in his retirement fund to the district’s attention last fall, the district approached MACSA to develop a repayment plan and is happy to say MACSA is “100 percent caught up,” Flores said.
“I don’t know what the district would have done had they not (paid),” she said. “There’s a good chance the district would have had to absorb the cost.”
Still unsure of how the issue eluded her staff, Flores said the failure to pay the retirement accounts won’t happen in the future if the district has anything to do with it. However, with the charter school closed, the issue is moot, she said.
Although the nonprofit processes its own payroll, it can’t make payments directly into the public pension funds, Flores said. The agency forwards its retirement contributions to the district, who in turn sends the money on to the state. To put MACSA’s retirement contributions, or lack thereof, in perspective, Flores said Gilroy Unified processes $25 million annually in retirement funds.
“I’m not offering excuses,” she said. “Somehow it was overlooked. I can’t offer an explanation. Since we became aware of the problem, we have put systems in place to avoid it in the future.”
In the meantime, MACSA still owes former employees of its San Jose charter school, Academia Calmecac, about $175,000, according to De La Garza. The balance owed to Academia Calmecac employees neared $270,000 in May, according to the county report.
“While the reason for the misuse of these funds was the lack of revenue to meet operating expenses, we hold ourselves fully accountable for rectifying the situation as well as ensuring that this practice has been stopped and will never occur again,” De La Garza wrote.
Although she initially reviewed the report Friday afternoon, De La Garza said she and the board would dig into and craft a formal response at a future study session.
“We’re still in the discovery phase,” she said. “But we’re taking the findings very seriously.”
Like MACSA’s staff, the District Attorney’s Office received the report Friday afternoon, but neither District Attorney Dolores Carr nor Bud Frank, the deputy district attorney assigned to the case, were available for comment.
“We have just received the County Office of Education’s audit report on allegations regarding MACSA’s use of pension funds,” Carr wrote in a brief statement. “We are currently reviewing the report, and after that review, we will consider its implications and will coordinate possible future actions with the County Office of Education.”
Particularly significant was the lack of new information the $22,000 report brought to the table.
“In order to move ahead, we had to confirm the allegations … we suspected all along – that this is an illegal fiscal practice and (the money) needs to be paid back,” Weis said. “The real question before the DA now is should she prosecute and, if so, whom. The two people who had immediate oversight are no longer working at the agency. I don’t think that absolves them from guilt but that will be up to the DA to decide.”
The report, conducted by the state’s Fiscal Crisis & Management Assistance Team, concluded that illegal activity had taken place when MACSA staff misappropriated pension dollars to cover operational costs.
“We don’t use those two terms lightly,” Weis said of the report’s use of “illegal” and “misappropriation.” He said the report’s price tag was “not that bad” for what the taxpayers got out of the deal.
“Taxpayers deserve to have that kind of oversight of their funds,” he said. The county’s investigation “sends a clear message to others that they can’t do this.”
The report, which did not implicate any particular employees at the nonprofit, was also sent to the State Superintendent of Public Instruction, the State Controller, the involved school districts and De La Garza.
strong>Read the documents yourself:
The 38-page report
Weis’ letter to the Gilroy Unified School District
Weis’ letter to the District Attorney’s Office
