Special Audit Shows District Lost Millions : Finances: Shoddy management resulted in overspending, oversights and inept record-keeping, auditors say. The full extent of the damage is undetermined.

Shoddy management practices have cost the Compton Unified School District millions of dollars in recent years, a special audit has concluded.

Trustees ordered the wide-ranging audit to explain how administrators ran up deficits of about $6 million in the cafeteria fund over three years and why a stadium construction project cost more than twice as much as anticipated.

Auditors said their two-month examination found the district’s business operations in disarray.

They described administrators who lost control of a major construction project, hired unqualified managers and got stuck with slipshod work. They said some officials overspent budgets and then lied about the problem to the school board. They described a record-keeping system so inept that administrators were often in the dark about how much money was spent and for what.

Auditors said they were unable to determine the full extent of potential losses because key records had disappeared, and documentation of some expenses was either never submitted or never required. Although they found no evidence of criminal activity, they warned that there was ample opportunity for such abuse. “District assets could be misappropriated without being detected by the internal control system,” they wrote.

Supt. J. L. Handy said his administration already had been aware of most of the problems and was working to correct them.

“We weren’t sitting there asleep at the switch,” he said.

Handy has recommended hiring a permanent internal auditor and a construction manager to oversee building and renovation projects. The board will consider both proposals at its meeting Tuesday, he said.

Although Handy downplayed the findings, officials tried to keep the audit report a secret. They ignored or denied numerous requests from the Los Angeles Times to release the document under provisions of the Public Records Act. Board President John Steward agreed to discuss the audit only after learning that The Times had obtained it from an anonymous source.

“The audit was objective and very thorough,” Steward said. “It points out some weaknesses in the system that we suspected were there and that we ought to correct. The audit is the first step.”

Steward and other board members authorized the audit in January on the same evening that they fired business manager Kenneth Flood for “dereliction of duty, mismanagement and negligence.”

Flood subsequently sued the district for breach of contract and defamation. He also alleges that officials discriminated against him because he is white. Most of the top administrators and board members are African-American.

The school district has denied Flood’s allegations. In court papers, the district says Flood “failed to take timely action on a number of projects and, as a consequence, several millions of dollars of public resources were wasted.”

Officials declined to discuss Flood’s dismissal in detail, calling it a personnel matter. Pending the outcome of the litigation, Flood remains on paid administrative leave because of his tenure rights, Handy said.

The accounting firm of Coopers and Lybrand performed the audit, examining five years of records involving construction projects, the food budget, overtime pay and accounts for credit cards and petty cash.

Auditors found that district officials:

* Hired an outside company to run the cafeterias and then failed to monitor its performance. The result may have been millions of dollars in losses.

* Rebuilt Ramsaur Stadium at Compton High without a complete construction plan and without a qualified supervisor. The project has cost more than twice as much as anticipated and has taken more than twice as long.

* Required no expense reports for credit cards and failed to review monthly charges. Possible abuses could not be documented because of incomplete records.

* Used a petty-cash account to bypass the normal approval process for spending money. Once again, potential abuses could not be proved because of incomplete records.

* Paid substantial sums in overtime without keeping track of where the money went. Staff members told auditors that they could not even determine how much money the district spent on overtime.

Board members conceded that the management practices invited abuse, even if no misconduct could be proven. Some of the undocumented expenses were on Handy’s credit card and from a petty-cash account that Handy managed.

Handy insisted that he has not misused funds under his control, and that he has supplied additional documentation to justify his charges since auditors submitted their report. He added that the district’s own accounting department had determined that his spending was proper.

Nonetheless, auditors emphasized there is potential for abuse. “Cardholders are not required to fill out expense reports. The monthly charges are not subject to an independent review and/or approval process,” they noted. “Based upon the fact that card use procedures are unwritten and generally ambiguous, there are not controls in place to ensure or review the propriety of charges on the District credit cards.”

Board member Kelvin Filer said he suspected Handy of no wrongdoing, but he added that accounting methods would have to be improved.

“It gives the appearance of abuse, and we need to be concerned about that,” Filer said.

Filer said the audit was a positive step by the school board to end bad management practices. He said the audit could help the district avoid a repeat of the problems that plagued the construction of the new Ramsaur Stadium.

For board members and community leaders, the new stadium was envisioned as much more than a needed replacement for an aging facility. The new stadium was supposed to be a symbol of civil pride and positive accomplishment in Compton.

The stadium fills the bill in some respects. The 2,200-seat stadium has bleachers in the school’s colors of light blue and white, a grass field, an all-weather track, new floodlights and a new electric scoreboard that can scroll messages.

Ramsaur officially opened in November with great fanfare as Compton High played host at its first home football game in three years.

Mayor Walter Tucker III called the stadium a symbol of local rebirth. “When people drive by and see the new stadium, they’ll realize that many good thing are happening in Compton,” he said.

But officials were cutting the ribbon on an unfinished facility. Restrooms, locker rooms and concession stands remain uncompleted to this day. In 1987, officials envisioned an 18-month construction project.

Board members are awaiting estimates on how much more they will need to replace faulty wiring and to reposition walls. The district has filed suit, accusing a contractor of poor workmanship.

Construction started before the district had provided a complete list of features to be included in the stadium project. The district also failed to prepare a detailed list of costs or establish construction deadlines, auditors said. Supervisors lacked the experience to manage such a project, according to the audit. At one point, the administration relied on a district plumber to oversee the field work.

The project was delayed when workers unexpectedly ran into underground pipes and wiring. Other delays occurred when the district failed to pay contractors promptly.

Officials said they have not tallied the entire bill for Ramsaur, but that the cost has exceeded $3 million, more than double the figure originally budgeted.

Deficiencies cited in the management of the food-service contract may have been even more costly.

The school district hired a partnership of the Marriott Corp. and National Business Services Enterprises to run its food services starting in the 1988-89 school year. The idea was to save money by bringing in outside expertise.

Instead, auditors reported a $908,000 deficit in 1988-89. The deficit for the next year was $3.1 million, according to district administrators. The deficit in the third year was $2 million.

Those deficits had to be paid from money that could have been used to buy books or paint classrooms.

Staff members tried to hide the deficit, auditors said. They did not report the red ink until May, 1990--almost two years after the problem began. In addition, staff members lied to the board about the amount that the district paid for managing food services, the report said. Auditors also noted that district employees failed to monitor the outside managers and failed to keep records to ensure that they were spending money wisely.

Record-keeping was so inadequate, in fact, that the state has refused to reimburse the district for more than $500,000 in claims for subsidized meals provided to students from poor families, according to the auditor’s report.

The district jettisoned the Marriott partnership a year ago and once more manages its own food services. Partnership officials could not be reached for comment.

The experience with the food contract and Ramsaur Stadium has demonstrated a vital lesson for board members, President Steward said. No longer can trustees assume they will learn of any mismanagement and improprieties from district employees or others.

“What we have discovered . . . is probably not uncommon to school districts, period . . . because our board operated in the same vein as other boards,” Steward said. “We relied on paid professionals and gave them the autonomy to run the district. We relied on what they gave us in terms of progress reports and valid information.

“The audit demonstrated to this board that there are a number of areas where the system is not operating in a manner that provides the appropriate checks and balances. With this awareness, we can proceed to the appropriate action.”

Handy said the district was financially sound despite the problems. “We are still one of the few school districts operating in the black,” he said. “We must have done something right.”

But Steward conceded that the squandered money was badly needed elsewhere.

The point was underlined at a series of public forums earlier this year. Parents and students complained about shortages of textbooks, and restrooms that had to be closed because they could not be kept clean. Parents spoke of graffiti-marred walls that were not painted over for months. They asked for more security at schools in crime-plagued neighborhoods.

“You cannot educate the kids of this school system until you capture the resources,” Steward noted. “We’re trying to capture the resources.”