PSJA ISD Audit: Forensics uncovers some funky stuff
By Gregg Wendorf
Advance News Journal
The forensic audit commissioned by PSJA ISD’s new board majority, ushered in after last November’s school board race, was an eye opener, some said, as presented to the board and public in a special called meeting last Thursday evening.
To begin with, the man presenting the audit, Travis Casner, is no slouch when it comes to audits. A certified fraud examiner since 2008, according to his Linkedin profile:
“I have led numerous financial and forensic investigations involving allegations of fraud, embezzlement, misuse of funds, employee misconduct and theft and other types of white-collar crime. I also have extensive experience in analyzing financial statements, data analytics, asset tracing, evaluating governance practices and internal controls, as well as digital forensics. I have provided expert witness testimony and worked in tandem with law enforcement and regulatory agencies, including the FBI, Department of Justice, Texas Rangers, and (the) U.S. Attorneys Office.”
So, with his “street cred” well established in the world of forensic audits, what did Casner and his team at Weaver and Tidwell L.L.P discover as they poured through PSJA ISD business conducted between calendar years 2020 and 2023 when Dr. Jorge Arredondo (Ed.D) was superintendent operating under a board majority comprised of Jesse and Jorge Zambrano, Jesse Vela, Rick Pedraza, and George Palacios?
At the time, the board was split 5-2, with Cynthia Gutierrez and Carlos Villegas comprising the minority. Prior to the November 2022 election, which changed superintendents and board majorities, Gutierrez and Villegas made countless claims in multiple newspaper stories that they were being kept out of the loop when it came to school business. An allegation that the forensic audit would seem to support.
The Audit Arrives
The board presentation last Thursday took more than an hour-and-a-half, which was centered around the executive summary of the full forensic audit. If you want to watch and listen to the entire meeting, it’s already posted online. A simple search-engine will provide a link to the video: “PSJA ISD Board Meeting Sept. 22.”
If nothing else, the forensic audit points to a school district run in ways that many might describe as “outside the norm, unconventional.”
The primary scope of the forensic audit centered on: payments to vendors and contractors; purchasing and procurement practices; and (the handling of) federal funds and grants.
The audit included interviews with approximately 20 current and former district employees; analyzed approximately 750,000 email records responsive to search terms; analyzed expenditures from the district’s general ledger and check register; reviewed the district’s purchasing and procurement practices for vendors and contractors; and performed a review or purchases paid with federal funds, including a review of compliance with federal fund requirements.
“Okay, okay, enough with the ‘dry, boring’ stuff; let’s get to the juicy details of what was uncovered.”
Well, if anyone is looking for a “smoking gun” in this forensic audit (e.g. school official uses district money to buy an island condo before visiting a stripper joint), you’re not going to find it. Granted, some will argue that within the audit, there are smoking guns. You’re just talking how big is the caliber. Here are, though, highlights of what the audit did discover, uncover in terms of what went on behind closed PSJA ISD doors during calendar years 2020 through 2023:
• The district’s work on choosing a health-insurance plan — a company recommended to the board as the district’s health-insurance carrier wasn’t chosen by the board even though it had the lowest fees.
During the next week, the second-place carrier told the district that it would lower its pricing, even though the deadline for “best and final” offer had passed. A week after the first meeting, the board voted to give the contract to the second-place carrier.
What’s significant about this chain of events is that the offers were made public.
After that, the second-place carrier came back and said, I can do better.
Even though at this point in the process, no one is supposedly allowed to make corrections to their “best and final offer,” because, well, that ship has already sailed.
According to audit footnotes, the district’s insurance consultant, Gallagher Consulting, under paid contract, recommended that the reduced pricing offer submitted by (Ortegon) not be considered by the school board because it was submitted after the deadline for “best and final offer.”
Okay, thanks for your recommendation, but we’re good.
• A year later, the same health-insurance contract was back on the table. Now, the tables turned. The carrier who got the work the year prior was selected as the highest-ranked firm.
Yet, then-Superintendent Jorge Arredondo told the ranking-committee members that he was not yet ready to take their recommendation to the school board. He asked them to do a proposal re-evaluation. They did, and they came back with news: We have changed our collective minds and now consider (Puro Aseguro, Inc.) to be the best choice, as opposed to Ortegon.
The firm, Weaver et al, that did the forensic audit recommended that next time, campus and district representatives be included on the evaluation committee, as opposed to only members of the Finance Department,; and that ALL members of the school board be made aware that not only was a re-evaluation underway, but the reasons for it.
It also recommended that for future work, when the evaluation committee’s recommendation isn’t followed, an explanation as to “why not” be provided to ALL board members.
Not only that, but according to the audit’s executive summary:
“In 2021, it is our understanding that only certain Board members who participated in the Board review process were provided the original rankings from the evaluation committee.”
This adds credence to what the two board members in the two-member minority at the time (2020 thru 2022), Cynthia Gutierrez and Carlos Villegas, said at the time: “We’re being kept out of the loop with a lot of this information. The superintendent is playing favorites, and we can’t get any information from him.”
At the time, Arredondo would deny favoritism, but the audit seems to refute that; and health insurance wasn’t the only area where the entire board wasn’t made aware of what was transpiring:
• When PSJA ISD awarded Texas A&M work to review its dual-language program in March 2022 for an amount not to exceed $200,000 neither A&M or the district’s chief academic officer, Rudy Trevino, disclosed that nine months earlier, Trevino had been paid $2,000 in compensation from the university to participate in a think tank led by the very same Aggie guy now working the dual-language gig.
(The audit executive review referred to this as possibly representing a conflict-of-interest, certainly worthy of a current legal consult to check its legality, was the recommendation.)
In fact, giving a new definition to “inside info,” in an email to Trevino, the A&M official wrote:
“Tell me exactly what you want included in the RFP.”
• Related to that same dual-language evaluation work for the district, Texas A&M’s (TAMU) evaluation of the Dual Language Program was to begin in April 2022, and was anticipated to be completed the following year by August 31, 2023.
On July 19, 2022, however, TAMU sent an invoice to the PSJA ISD for the entire contractual amount: $200,000.
On July 21, 2022, in a normal turn-around process open to all, the district paid TAMU the full amount for the evaluation, $200k, when very little work had been done at that point, with the idea being – this isn’t going to be completed for at least a year.
In the end, though, no federal dollars were spent on this project. Rather, the money came from the district’s Bilingual Education allotment, paid for with state monies.
Casner also pointed out this to the audit summary last week:
“We recommend that the Finance Department review existing purchasing processes to ensure that payments are issued only after services have been rendered. Payments made in advance of services being rendered subjects the District to paying for goods or services not received, or receiving a lesser quality of work. For longer term projects such as the evaluation of the Dual Language Program, it is recommended that progress billing be utilized based upon completion of project phases or milestones.”
• In 2020, the district’s chief of operations, Nick Martinez, another former Houston ISD colleague that Arredondo had brought in to form his inner circle at PSJA ISD, which included Rudy Trevino, hired a contractor to cut district grass, paying him twice what another vendor had bid.
To top it off, the district paid the vendor sales tax, $1,860, under a line item on the invoice, when, in fact, districts are exempt from paying sales tax.
What happened to the $1,860? The audit doesn’t say.
Who usually performed procuring lawn care? The district’s Maintenance Department, which had the most expertise with regard to lawn maintenance, its costs, etc.?
Now making the call, Chief of Operations Nick Martinez picked G&G to do the work.
• For a construction project, two outdoor learning centers at Alamo Middle School and Cesar Chavez Elementary, the district executed a contract with a construction company for $5.4 million.
However, in the district’s projected construction cost for the two same centers named in a federal application (ESSER III app), the work was only worth $2.9 million.
In total, according to the audit summary review, “…the contract…was 90 percent higher than the District’s projected cost for construction the year prior…”
According to the audit:
“Based upon our review of the materials provided to the Board for the April 25, 2022 Board meeting, it did not appear that the Board was aware of the cost relative to the District’s projected cost in the 2021 ESSER III application. The only cost comparison provided to the Board was the comparison of Celso’s bid compared to G&G Contractors.”
In simple language, all the board members weren’t aware of the disparity: $2.9 million reported to the feds to complete the job, vs. the $5.4 million the board approved for the same work, to the same contractor.
The only numbers the board reportedly saw, at least all the board members, was the comparison in cost for the job between one vendor and another, according to the forensic audit.
• Extra laptops, apparently the district has approximately 1,500 computer laptops around, of which an estimated 500 are “damaged.” Reportedly, district personnel are now trying to locate them. Other questions include, if they were damaged, when were they damaged, and why weren’t they sent back to the vendor for a refund?
• The district paid one consulting firm approximately $114,000 without board approval, which kicks in at the $50k threshold.
This same consulting service had lost the right to work in Texas effective Aug. 20, 2021, according to the state comptroller, and yet the district paid it for three invoices submitted between August 2021 and October 2021, according to the audit. The owner of the firm was a former colleague of Arredondo’s at Houston ISD. The reviews also reportedly contained inconsistences, and some information was reportedly missing.
• Under then-Superintendent Jorge Arredondo, formerly of Houston ISD, the district hired an outside-the-area PR/Media agency and paid it $25,197 over a six-month period for basically the same work being done by the district’s paid staff. This was a contingency deal, but the agency billed the district for 30 hours each month.
• Looking to buy air purification systems for the district, then-PSJA ISD Chief of Operations Nick Martinez told the maintenance department that he wanted them (meaning, upper management) to buy the systems from a specific vendor (he named the company, even though its quote was the highest) because they could deliver them the fastest, and the district had done business with them before.
The vendor, however, missed the contractual delivery due date.
• Meanwhile, between 2020 and ’22, Superintendent Jorge Arredondo was making use of the district credit card, which totaled $700,767, the primary use of which went to Silicon-based social media advertising, travel, and certain subscription-based tools (e.g. Smartsheet and DigiCert — online security validation, etc.).
• In January 2020, PSJA ISD posted a job vacancy that was a new Executive Level Cabinet position, that of Director of Employee Relations. That same month, the board approved the superintendent’s recommendation to hire a man named Jorge “Jerry” Medina, who had previously worked with Arredondo at Houston ISD.
Subsequent to the hire, emails appeared to indicate that the PowerPoint presentation that was used by the superintendent in his recommendation to the board the following day, which asked it to hire Medina, had in fact been put together (the PowerPoint presentation) by Medina.
“The board’s approval of Arredondo’s recommendation to hire Mr. Medina less than ten (10) days from the date of the job posting is a possible violation of District Policy DC (Legal),” reads the audit’s executive summary.
• Approximately two months prior, PSJA ISD opened another new executive-level position at the district: Chief Academic Officer. The district received 18 applications and then paid Rudy Trevino (part of the later A&M deal mentioned at the top of this story) to fly in from Houston, where he and Arredondo had once worked side by side, to help with the selection process.
On February 2020, Arredondo made his recommendation to the board: Let’s hire Rudy Trevino for the job.
The board rubber-stamped the hire the same day. Two days later, Trevino formally applied for the position he already had in hand. Meaning, he filled out a job app for a job that he already had.
As a side note, in August 2022, Arredondo gave Rudy Trevino a pay raise of 16 percent, increasing his salary to almost $180,000 (plus a monthly travel allowance of $750). The salary increase was in addition to the anticipated salary increase expected later that same year. Arredondo’s rationale? Trevino was now also working as his chief of staff.