Payroll Fraud Rampant, District Auditor Reports

Waste and fraud are widespread in the Los Angeles schools’ multibillion-dollar payroll because of antiquated accounting practices that encourage improper activities, the district’s top auditor said.

Don Mullinax, director of the district’s internal audits and special investigations unit, called for an immediate review of ways to modernize a manual payroll system that he described as “one of the most antiquated I have seen in the public sector.”

In a memo to Chief Operating Officer Howard Miller, Mullinax said payroll investigations have consumed a large portion of his time in the 10 months since he was hired for the watchdog position, and that investigators have repeatedly uncovered abuses. They include failure of employees to sign in and out on time cards, excessive overtime paid with little or no evidence of approval, sharing of confidential payroll certification codes and significant waste of employees’ time preparing, reporting and adjusting the payroll.

Miller said there are ghost employees in the system.

“Unless the school district implements a more efficient and cost-effective payroll system with sound internal controls, more and more dollars will be wasted and taken away from classrooms,” Mullinax said.

About 70% of the district’s $7.4-billion budget goes to salaries, Mullinax said. In the past two years, overtime cost about $86 million, he said.

Ramon Cortines, who will become the interim superintendent in January, has asked the district’s chief financial officer to respond to the memo early next week.