Corruption and Conflicts of Interest

SITUATION

The Los Angeles Unified School District (LAUSD) is the second largest school district in the country with an annual budget in excess of $11 billion.  Mired with problems and a price tag estimated over $200 million, the LAUSD hired FSS to determine the sources and uses of funds for the Belmont Learning Center project.

The construction of the Belmont Learning Center on an old abandoned oil field raised questions about the site selection process.  These questions turned to public outrage when construction was halted on the project when it was 60 percent complete, due to the risks associated with methane gas that was discovered on the project site.

STRATEGY

Achieving fast results was critical given the daily media barrage focused on this high-profile project and the size of the expenditures.  The initial FSS assessment of the accounting processes identified multiple disparate sets of accounting records – some electronic, some manual.  Using advanced data analytics we normalized millions of transactions into a single platform for analysis.  Next, advanced data mining techniques were employed to quickly and efficiently uncover a range of abusive activities and lapses in financial controls from millions of lines of transactional data.

RESULTS

The FSS investigation revealed site selection process was only one of many problems caused by management of the Belmont Learning Center project. Those included conflicts of interest, fictitious vendors, duplicate payments and widespread violations of competitive bidding policies throughout the District.  FSS assisted the inspector general in naming individuals responsible for abuse, as well as making criminal referrals for those responsible for malfeasance.

Additional findings:

  • Overbilling of $2.1 million.
  • Improper payments and overpayment of contracts resulting from the override of system controls.
  • Circumventing bidding processes, contract limits and system controls that resulted in over $71 million of vendor payments paid through miscellaneous vendor codes
  • Budget transfers of $49,999 on 48 separate occasions over four months circumventing fund transfer policies, which required Board of Education approval for any spending greater than $50,000.
  • Circumvention of payment code requirements by making direct payments to vendors which resulted in outstanding encumbrances of over $77.8 million.