A recent confidential investigation of the San Francisco Unified School District reveals gross misuse of funds. Nearly amounting to blatant fraud, Superintendent Ackerman was forced to call in the FBI to investigate mishandling of millions of federal dollars. The city has begun internal criminal and civil investigations of several former and current district employees.

This revelation comes on the heels of a board decision giving the Edison Charter Academy 90 days to cure similar alleged violations or face revocation of its charter. This is the kind of appalling performance that San Franciscans have come to expect from their education establishment.

The recent audit report produced by private accounting firm Arthur Andersen shows that $30 million in bond funds intended for school construction and improvements instead went to other General Fund purposes. A full $15 million of the $30 million is allegedly unaccounted for.

The FBI is now investigating whether district employees fraudulently obtained a $50 million federal grant and mishandled a $32 million energy-savings contract.

When first leaked in April, Jackie Wright of the district’s Public Information Office argued that the report was “unethically leaked.” Also at that time, City attorney for the district, David Campos, characterized the report as a “working draft.” But neither would confirm nor deny any of the leaked allegations. However, the final report, just released, not only confirms these allegations but also reveals the extent of the district’s smoke-in-mirrors disclosure practices.

The district’s Public Information Office complained that it was both unfair and unethical to judge the district on the preliminary findings. Yet the board’s latest decision on Edison is based solely on the Superintendent’s preliminary report, which cites “inadequate” financial reporting as one of the charter school’s major violations. It is clear that the board does not practice what it preaches. The district has not yet released a final report on the Edison investigation.

The district’s financial mismanagement is no secret. However, as the past has shown, San Francisco Unified looks to its education monopoly to shield it from accountability, even for its latest gross misuse of funds.

In its April 2000 report, the state’s Fiscal Crisis Management Assistant Team (FCMAT) revealed “material internal control weaknesses in all areas of business operations” in San Francisco Unified. These deficiencies, it concluded, have “resulted in the district’s inability to operate efficiently or effectively, obtain reliable and timely financial information, or ensure compliance with all applicable laws and regulations.”

Other analyses have come to similar conclusions. For example, a 1999 Pacific Research Institute study of major California school districts found that San Francisco Unified had, by far, the most incoherent budget documents. The 412-page budget contained less than half the data necessary to understand costs at the district level.

Yet in 2000, the district’s own Annual Financial Report claimed its financial statements were “free of material misstatement.” However, that same report revealed the district’s misuse of nearly $5 million in 1997 bond proceeds specifically intended for facilities improvements and construction.

The annual report also revealed that the district had made more than 200 adjustments to its books prior to closing them late. Looking at capital spending, which includes construction costs, the report cited the district for incorrect accounting for capital project retention, and insufficient oversight for capital project escrow accounts.

The district’s financial reporting is unacceptable by any standard. Bond funds intended for facilities construction must be used for that specific purpose, according to the law. As a result of the district’s mismanagement of bond funding, children in already poor facilities will suffer as class sizes grow and aging facilities deteriorate.

According to the California Department of Education, we are facing a “school facilities crisis.” The billions of dollars set aside for K-12 construction and renovations by Proposition 1A are not enough. Growing enrollments are projected to exceed available space in school facilities by 2002, when the student population is expected to reach nearly six million.

San Francisco is the fifth largest district in the state, with school facilities between 65 to 70 years old, more than double the state’s 30-year average. Rather than meeting this challenge, San Francisco Unified has again failed students by squandering taxpayer’s money.

Before taking draconian action against the Edison Charter Academy, one of the district’s few bright spots, the district must put its own fiscal house in order.

Diallo Dphrepaulezz is a policy fellow at the Center for School Reform at the Pacific Research Institute for Public Policy. He can be reached via email at diallod@pacificresearch.org.