A formal State audit has found evidence that two administrators at a local school district may have committed fraud and misappropriation of funds by granting themselves unearned payments and life insurance benefits without proper approval from their board.

The State’s Fiscal Crisis & Management Assistance Team (FCMAT) conducted an extraordinary audit at the request of the San Diego County Office of Education to review actions taken by San Ysidro School District’s former Superintendent Julio Fonseca and Deputy Superintendent Arturo Sanchez-Macias.

“Based on the findings in this report, there is sufficient evidence to demonstrate that fraud, misappropriation of funds, and other illegal fiscal activities may have occurred,” the report concluded.

La Prensa San Diego first reported the unusual actions of Fonseca in an October 26, 2017 article that explained the process used to approve the life insurance payout. Fonseca and Sanchez-Macias had requested in March 2016 that they be allowed to cash out the full benefit value of their respective term life insurance policies.

The article outlined the actions taken at a December 2016 school board meeting where the issue of the life insurance payouts was discussed, and how the Board members did not seem to understand or carefully examine the issue before them.

During that Board meeting, two board members expressed frustration at even having to talk about the issue which they thought had already been settled.

“And, frankly, to me it’s a waste of time,” Board President Rosaleah Pallasigue said during the December 2016 meeting. “If I were in [Fonseca’s and Sanchez-Macias’] position, I would be offended if anyone looked at my employment agreement after the fact and tried to renege on something that they gave me.”

During the meeting, both Fonseca and Sanchez-Macias downplayed the significance of the policy change and never clearly outlined that they would be cashing out $107,000 and $100,000 respectively.

“I suggest we don’t waste more time in terms of this discussion,” Board Member Antonio Martinez said at the same meeting. “Frankly I find it, as Ms. Pallasigue said, it’s a waste of my time, a waste of our time.”

The recent state audit found that both Fonseca and Sanchez-Macias convinced the board to approve modifications to their employment contracts that would allow them to forgo term life insurance policies and, instead, receive the money the District would have otherwise paid in annual premium payments. The report concluded that the annual insurance premiums would have been $98.40 for Fonseca’s $125,000 death benefit coverage, and $73.80 for Sanchez-Macias’ $100,000 death benefit coverage.

Instead, Fonseca and Sanchez-Macias manipulated the process to receive their full death benefit values. Fonseca received a payment of $107,000, and Sanchez-Macias received $100,000.

The report concluded that “[b]oth the former superintendent and the former deputy superintendent failed their fiduciary duty to ensure that proper administrative steps were taken” which respect to their own contracts and benefits.

During that December 2016 meeting, Fonseca spoke out in what now seems like a ploy to deflect from his actions.

“We’re here to do a job,” Fonseca said at the time. “And when these kinds of things keep coming back to use as some type of a devious intent to rob the District, I think that it is not only hurtful to us, and the mission we’re trying to carry out here, but also disrespectful to the Board. For full clarity, I’m hopeful that this issue goes to bed forever.”

The report found that the “Executive staff used the board’s lack of fiscal knowledge… so they could use the district’s resources for their personal benefit.”

In addition to the insurance payouts, Fonseca and Sanchez-Macias were also found to have received overpayments for unearned vacation days they each cashed out.

The report found that Fonseca received a total overpayment of $55,826.72 in unearned vacation days, and Sanchez-Macias received an overpayment of $47,380.64.

Fonseca resigned at a special board meeting on September 1, 2017, after a complaint was filed by Alexis Rodriguez, a female District employee that was in a relationship with Fonseca. During that meeting, the Board held a four and a half hour closed door meeting to discuss Fonseca. At the end of the meeting, the Board announced that Fonseca had resigned, and that he would receive 18 months compensation, totaling nearly $400,000.

Within two weeks of that meeting, a lawsuit was filed by a taxpayer watchdog group claiming the payout was not allowable under Fonseca’s contract. Since then, the District has joined in that lawsuit to recover the money it paid Fonseca upon his resignation.
After Fonseca’s resignation, Sanchez-Macias was appointed as Interim Superintendent by the Board. He served for September 2 to November 4, 2017, when he abruptly resigned at a Board meeting. Just three days before that meeting, one of the Board members, Rodolfo Linares, had called for Sanchez-Macias to resign after it was discovered that he too had taken the unearned payouts.

“I’m calling for the immediate resignation of Interim Superintendent Arturo Sanchez-Macias and the return of monies, after I have discovered Macias conspired with former Superintendent Julio Fonseca in an illegal scheme where they both cashed out excessive vacation days and illegally took District money in exchange for life insurance policies,” Linares wrote in a press release on November 1, 2017.

After Sanchez-Macias resigned, the Board appointed another Interim Superintendent in Mary Willis, who served until March of this year when the Board appointed Edward Velasquez to fill the temporary role. Velasquez has also served as the District’s interim leader in 2014 and 2015, then went on the serve as Superintendent of the San Diego County Office of Education before retiring last year.

In April 2018, the Board selected Lemon Grove School District Deputy Superintendent Gina Potter to serve as a permanent leader for the District. Potter will now handle the ongoing legal issues surrounding the former administrators.

“Deficiencies and exceptions noted during FCMAT’s review of the financial records and the district’s internal control environment increase the probability of fraud, mismanagement and/or misappropriation,” the reports concluded in its findings. “These findings should be of great concern to the San Ysidro School District and the San Diego County Office of Education and require immediate intervention to limit the risk of fraud, mismanagement and/or misappropriation of assets, or other illegal fiscal activities in the future.”

San Ysidro School District serves approximately 5,300 students in seven K-8 schools in the communities of San Ysidro, Ocean View Hills, and Otay Mesa.