(Santa Fe, NM)—Today, State Auditor Hector Balderas announced the results of a “risk review” conducted by the Office of the State Auditor (OSA) related to the financial affairs of two Albuquerque charter schools: Southwest Secondary Learning Center (SSLC), and Southwest Aeronautics, Mathematics and Science Academy (SAMS), which are state-chartered charter schools under the oversight of the New Mexico Public Education Commission (PEC) and the Public Education Department (PED). The review found potential procurement violations, conflicts of interest and increased fraud risks related to substantial payments of public funds to the private business of Dr. Scott Glasrud, who is the charter schools’ Head Administrator. Balderas’ office launched the review in early 2014 after evaluating the charter schools’ prior audit findings and assessing concerns over the charter schools’ contractual arrangements with Southwest Educational Consultants (SEC). SEC, which also does business as “Diamond Aviation,” is co-owned by Dr. Glasrud and another charter school employee, Dr. Dalene “Dolly” Juarez. Since 2008 to the present, SSLC and SAMS have contracted to pay Dr. Glasrud’s private business, SEC/Diamond Aviation, a total of $1,116,000 for the lease of aircraft for the schools’ aviation program. Balderas detailed the results of his office’s review in a 24-page letter sent yesterday to the Governing Councils of SSLC and SAMS.
“I’m troubled that a public official’s private company may have unlawfully profited from school contracts,” Auditor Balderas said. “We must take aggressive measures to protect the State’s significant investment in education. In light of these findings, I am recommending that the charter schools’ boards and state education oversight agencies take immediate action to increase accountability and restore public confidence in the schools’ financial operations.”
In his letter, Balderas also informed the schools that during the course of the review his auditors and investigators identified certain risks that his office referred to the Federal Bureau of Investigation (FBI). Overall, the review identified numerous risks, internal control deficiencies and potential violations of law related to SSLC’s and SAMS’s procurement of aircraft and services for the schools’ aviation program. Fundamental to these problems is the direct conflict of interest between Dr. Glasrud’s personal financial interest in SEC/Diamond Aviation and his broad and influential authority as Head Administrator, particularly related to procurement processes. The review also revealed a lack of internal controls for the flight program and a general lack of transparency in certain areas regarding the charter schools. The OSA also identified certain risks related to the lease of building space to SSLC and SAMS by Dr. Glasrud’s and Dr. Juarez’s private business, SEC. Highlights of the risk review include:
1) Related to SSLC’s lease of aircraft from Diamond Aviation in fiscal years 2010, 2011 and 2012 totaling $588,000, the charter school did not provide OSA auditors any procurement documentation that evidenced SSLC followed any competitive bidding process or documented how it selected Diamond Aviation for the contracts;
2) In one instance, Dr. Glasrud, on behalf of his company, responded to bid invitations for plane rental services that SSLC never published yet awarded to Diamond Aviation. In another case which raises serious concerns about potential manipulation of the procurement process, auditors found that the schools’ request for proposals for aviation goods and services was tailored so restrictively that it appears to have given Diamond Aviation an unfair advantage over other potential bidders;
3) In one instance, auditors found the November 2012 meeting minutes for the Governing Councils of SSLC and Minutes inaccurately reflected that a lease between the schools and SEC/Diamond Aviation was negotiated by SSLC’s and SAMS’s Procurement Manager and Diamond Aviation. Auditors found that Dr. Glasrud represented Diamond Aviation in the negotiations, but SSLC’s and SAMS’s Procurement Manager was not in attendance;
4) Auditors were not provided sufficient documentation by SSLC or SAMS to indicate that the schools monitor or maintain adequate reporting on aircraft instruction provided to students. Because the OSA was unable to review detailed information on the aircraft, auditors could not determine or verify whether the costs charged by Diamond Aviation for the use of the planes were reasonable and necessary. Auditors were also unable to determine whether the aircraft were used solely for the purposes stated in the aircraft leases;
5) In fiscal years 2012 and 2013, SSLC paid SEC $243,573 to lease a portion of a building located on Montgomery Blvd. in Albuquerque. SAMS also paid SEC $15,000 to lease a portion of the same building in fiscal year 2012. Auditors were unable to determine whether the schools’ need for the building space was legitimate and necessary. There was also no documentation to support that SSLC and SAMS followed any procurement process related to the lease, and Dr. Glasrud denied the OSA’s request for documentation that auditors needed to determine whether his private business may have inappropriately profited from the leases;
6) Auditors found instances in which Dr. Glasrud signed charter school checks payable to his own private business. Auditors also identified an instance in which Dr. Glasrud in his official capacity made a direct recommendation to SSLC’s Governing Council that it approve a $30,500 contribution payment that enhanced his personal financial interest in his retirement plan. He also signed the school’s check for the contribution;
7) Auditors found particularly high base salaries and generous accruals of annual leave for top administrative staff of the charter schools. For example, Dr. Glasrud is employed as Head Administrator for four charter schools (SSLC, SAMS, Southwest Primary Learning Center and Southwest Intermediate Learning Center) under four separate employment contracts. Dr. Glasrud’s compensation totals approximately $240,000 per year under these contracts for the four schools for July 1, 2012 to June 30, 2014. The contracts also allow him to accrue 80 annual leave days (20 annual leave days per school per contract). Moreover, auditors found that the SSLC Governing Council did not appear to properly notice and openly vote on the execution of numerous employment contracts for the Head Administrator, which violates New Mexico administrative rules; and
8) The review identifies governance risks related to Dr. Glasrud’s significant and influential role as Head Administrator in selecting Board members for the charter schools. Because of this powerful influence over the governance structure, auditors cite heightened concerns about the independent and impartial evaluation of the charter schools’ transactions that enhanced Dr. Glasrud’s financial interest.
In addition to calling on SSLC and SAMS to take immediate corrective action to address the risks identified in his letter, Balderas also called on the PED, the PEC and the New Mexico Legislature to take appropriate oversight actions to strengthen the schools’ financial operations and reduce risks of fraud, waste and abuse.
Information from State Auditor's office