State Controller Catches SMC's Hands in Cookie Jar

On March 1, 2006, Santa Monica College's propaganda publication for SMC employees entitled Missed Information, wrote a nice little gem toasting Thomas J. Donner's alleged financial and interim leadership to our school. The editor wrote the following:

Are we better off than we were a year ago? You betcha. Did Tom play a key role in helping to create a better campus climate, one in which trust between the various constituency groups is being restored? Absolutely.

Ahem... hasn't the editor watched the video footage of the SMC Faculty March and Rally or listened to the cries for a fair contract from the faculty at the April 10, 2006 Board of Trustees meeting? It seems to me that there is nothing but distrust and widespread discontent between the various constituency groups.

The editor goes on to state:

Perhaps most impressive, he served two chief executives whose ambitions often exceeded the modest amount of money that California state government provides to community colleges. Somehow, despite the demanding goals of his CEOs, Tom managed to find a way to balance the books at the end of each year.

And let's punctuate that statement with this editorial comment:

Tom would be the first to admit that he is not perfect and that budget matters are, by their very nature, controversial.

So, not everyone up above found Donner's creative balancing of our financial books to their satisfaction. Steve Westerly, the California State Controller, decided to do a little audit on Santa Monica College regarding its Health Fee Elimination Program. I've placed the entire March 2006 report online HERE, which is a public record under the California Public Records Act.

On March 17, 2006, Jeffrey V. Brownfield, Chief, Division of Audits for the State Controller's Office sent a letter to Thomas J. Donner, acting then as Interim Superintendent/President for Santa Monica Community College District. In this letter, based on an audit of costs between the periods of July 1, 2001 through June 30, 2003, it was revealed that SMC had claimed $364,407 for its mandated Health Fee Elimination Program. Brownfield wrote the following:

Our audit disclosed that the entire amount is unallowable, because the district claimed unallowable costs and understated revenue. The State paid the district $31,295, which the district should return.

The California State Controller's Office presents a rather thorough report of its audit procedures and statutes supporting its financial investigation. The audit scope examined such factors as whether costs were unreasonable or excessive based on appropriate source documents and if they were not funded by other sources. They did not audit the district's financial statements. The Controller wished to understand the "transaction flow" of money for these health fees.

We asked the district's representative to submit a written representation letter regarding the district's accounting procedures, financial records, and mandated cost accounting procedures as recommended by Government Auditing Standards. However, the district declined our request.

The district declined? Or, did the district refuse to cooperate with the State Controller's audit? Regardless of the district's cooperation in this serious matter, the State Controller made the following conclusion:

Our audit disclosed instances of non-compliance with the requirements outlined above.

In a January 4, 2006 letter from Thomas J. Donner, he quickly disagreed with the December 9, 2005 draft audit results. In his letter, he copies it to Keith Peterson and his San Diego firm, SixTen and Associates. How much money has SMC paid SixTen and Associates from our public funds for their consultant work? In the June 7, 1999 SMC Board of Trustees minutes, SixTen and Associates walked away with up to $15,000 for Mandated Cost Reimbursement and up to $25,000 for Mandated Cost Test claims. Fast forward to June 3, 2002, and SixTen and Associates ups the ante to $24,000 for Mandated Cost Reimbursement and again receives $25,000 for Mandated Cost Test claims. Two years later, around June 7, 2004, SixTen and Associates walks away with $24,000 for Mandated Cost Claim Services under the State Mandated Cost Program Reimbursement.

And what did the SMC students get for all this money? Only that SMC owes more money to the State Controller. As the State Controller's report makes clear:

The district understated authorized health fee revenue by $538,244 for the audit period.

That's over half a million dollars of understated authorized health fee revenues! Somehow, our student health and college's financial health has suffered as a result of all this consultation with SixTen. According to the State Controller's findings in its reports:

The district overstated its indirect cost rates, and thus overstated its indirect costs by $146,966 for the audit period. The district claimed indirect costs based on indirect cost rate proposals (ICRPs) prepared for each fiscal year by an outside consultant. However, the district did not obtain federal approval for its ICRPs.

The outside consultant was SixTen and Associates. But according to a statement by Keith Peterson to the Bee, "Having a committee of lawmakers do some soul searching about the complicated world of mandates is a good idea. It's worth letting some sunshine in on the process." Well, the spotlight is shining down in harsh scrutiny on SMC and other community colleges, which use Peterson's services. According to Deb Kollars of the Bee, (May 22, 2003) the state of California paid over $1 billion in mandated programs over a five-year period. To make matters worse, it owes $850 million in unpaid school mandated claims.

Of course Governor Arnold Schwarzenegger had to get his "six cents" into this fray. On April 21, 2006, he issued, through the Commission on State Mandates, a letter to Keith B. Petersen, acting on behalf of SixTen and Associates. The governor conveniently requested a hearing on or about May 25, 2006 regarding his draft proposal to change mandating requirements and requested SixTen's presence as a witness. Of course Schwarzenegger relies on Government Code 17514 just as Donner did in his letter. How much did all this bickering cost the taxpayers?

Of course we all know that Donner has retired from his employment at SMC. And this retirement came almost immediately after the State Controller's little letter to him. Is it little wonder that SMC fiscal employees such as Pat Green and Judy Fritz, acting under Thomas J. Donner's auspices, didn't want its handful of SMC students snooping around for public records last August back when they were being audited (the last day of fieldwork was September 22, 2005) and went so far as to use campus police force and harsh trumped up disciplinary measures to scare them away? This points a huge red flag of financial accounting at SMC that should be further investigated. What other claimed unallowable costs and understated revenue has SMC claimed over the years? Of course Thomas J. Donner will not be around to answer these questions.

-- Des Manttari,
Editor-in-Chief,
Phoenix Genesis

(c) 2006: Phoenix Genesis/MBS LP

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