Education Grants Are Target of U.S. Probe

By JANET WILSON and MICHAEL G. WAGNER

May 18, 1998 12 AM PT

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TIMES STAFF WRITERS

Federal investigators have launched a wide-ranging probe into the awarding of millions of dollars in public funds by the California Department of Education and possible misuse of some of those funds by 10 organizations that provide English and citizenship classes.

In recent weeks, agents from the U.S. Department of Education inspector general’s office and the FBI have collected about 5,000 files and interviewed at least a dozen people, including personnel at the state Department of Education and the 10 organizations, which have obtained more than $15 million in public moneys under the English and citizenship program since 1994.

The state Department of Education documents subpoenaed by the inspector general--copies of which were obtained by The Times through California Public Records Act requests--contain allegations that public funds intended to help poor Latino and Asian immigrants may have been used improperly by the 10 organizations, most of which were nonprofits.

Among the alleged financial irregularities being investigated, according to the documents, is whether organizations may have been paid for classes that were never held and equipment that was never purchased. Other possible irregularities include the backdating of invoices; auditing discrepancies, and whether two organizations were actually for-profit ventures not eligible for government money.

Beyond scrutinizing how the 10 organizations were granted the money and how it was spent, the probe also appears to be focusing on whether state Department of Education officials ignored or quashed complaints from their staff about alleged misuses, according to the subpoenaed documents and interviews with knowledgeable sources.

In one instance, an organization was awarded $1 million despite lingering questions about whether previous grant money had been used to pay for high salaries and inflated rent.

An internal auditor from the state Department of Education concluded in a March 1997 memo that, “Adult Ed administrators were aware of misconduct by some grantees, but . . . have never taken action to reclaim funds or refer the misconduct for investigation. Management may not be acting responsibly when it comes to its duty to report suspicious and apparent misconduct or other violations of the law to proper authorities.”

In another example, representatives from one organization told state officials they had held classes at numerous sites in 1996, but documents show that state monitors could find evidence that only one class had been held.

“This is a clear case of fraud . . .” wrote one state Department of Education program inspector in an April 23, 1997, letter to his boss that was among those subpoenaed by the federal government. “We must pursue it until the funds are returned. We must use this as an example to let other [community organizations] understand the consequences of misusing the federal funds.”

The state has never sought to reclaim those funds or any other funds thought to have been used in the questionable transactions, according to documents.

Numerous representatives of the 10 organizations condemned the federal probe as groundless, and one dismissed it as politically motivated.

The federal investigation stems from a whistle-blower lawsuit--now under court-ordered seal--filed by Robert Cervantes, a former assistant state superintendent of education who oversaw adult education statewide. In late 1995 and early 1996, documents show, he alerted state department lawyers and auditors to the alleged financial irregularities, and tried to cut off funds to several of the 10 groups. In May 1996, he was fired, but then was ultimately placed in a low-ranking civil service job when the department realized he had to be reinstated because of his civil servant status. Cervantes declined to comment for this story.

Richard Whitmore, California’s chief deputy education superintendent, said the timing of Cervantes’ demotion was “purely coincidental” but would not discuss it further.

Whitmore acknowledged that the department failed to provide adequate oversight of the programs and the funds. Asked to explain why the department continued to give money to organizations despite the serious concerns raised by internal state monitors, Whitmore said, “I don’t have a good answer.”

Allegations involving the funds were initially raised in late 1995 after Cervantes brought in a certified fraud examiner, J. Alan Cates, from the state controller’s office. Cates also declined to comment for this story. Byron Tucker, a spokesman for the controller, said the office had no knowledge of what Cates was working on, because, at the time, he was on loan to the FBI. An FBI spokesman declined to comment.

Cates reviewed the financial records of nearly three dozen of the nearly 100 community-based agencies--which collectively serve 100,000 students in California--and found that the majority had accounted for their funds properly, the documents show. Others had not, he concluded.

Among the groups and transactions under review, according to state Education Department documents:

* At Colegio de Amnistia in Fresno, director John Flores and his wife told auditor Cates, and department staff who monitored the programs, that they conducted classes in 1996 at a work camp in the middle of a Fresno County grape field, and also in the tiny town of Mendota. But according to documents, Flores could not provide proof of 8,500 hours of instruction that he billed the state for in the 1995-1996 period for which the organization received $24,750. A state monitor who attempted to corroborate whether the classes were taking place found evidence of only one session being held.

Farm workers at the camp, and Eloisa Lopez, the woman whose Mendota home was listed as a class location, told The Times that classes had been held for a few months in 1991, but none since.

Jim Lindberg, an adult education monitor for the state education department, told an Education Department auditor in 1997 that Colegio de Amnistia “is a complete rip-off,” the documents show.

Flores, when pressed by the state to provide attendance sheets or other documentation, quit the program in April 1997. In a letter that month to Cervantes’ successor, he said he was withdrawing his application because of “insinuations bordering on accusations of intentional wrongdoing by your staff.”

In an interview with the Times, Flores denied wrongdoing. “I think if somebody else did something wrong, hell, more power to [the investigators],” Flores said. “But my company did nothing wrong.”

* El Sol Neighborhood Educational Center, based in San Bernardino, was able to justify only $10,000 of the $103,815 payments it received in the 1994-95 period for classes, according to an August 1996 memo by state adult education administrator Ray Eberhard.

“The agency provided falsified documents to attempt to support their claims,” Eberhard wrote. “For example, vendors confirmed that at [El Sol’s] request, they backdated computer invoices. The organization also prepared false, backdated employee records.”

Earlier, in a March 1996 letter to state education officials, El Sol executive director Lilia Ramirez said, “our fiscal procedures were erratic and not conforming to state regulations.”

* The Bell-based Templo Calvario Legalization and Education Center has received more than $1 million in federal funds the past two years, despite not having resolved “audit issues” involving $400,000 it received from an earlier federal immigration assistance program, according to numerous subpoenaed documents.

Those issues included whether two directors had improperly paid themselves $180,000 in 1993 for salaries they said they had meant to pay themselves in 1991; and the payment of $200,000 in rent for classroom space to the agency’s affiliated church--a “self-dealing” transaction Cates described as questionable.

According to the subpoenaed files, when the state repeatedly asked to review the agency’s tax returns, Templo Calvario said they were being prepared. In February 1996, Cervantes notified the organization that only half of its allocated funds would be released until it provided tax forms documenting the salaries. Templo’s director of education, Michael Guzman, signed a letter saying the conditions would be met, and the funds were released. Later, however, Templo claimed it was a branch of a Springfield, Mo., church, and was exempt from filing tax forms, according to a memo.

Guzman told the Times federal investigators visited his office on April 28. “It wasn’t very clear on why they were doing this, they just showed up and wanted us to turn over some documents by May 15th,” he said, “They wouldn’t elaborate past that.”

Of the earlier audit questions about the salaries and the rent, Guzman said, “I knew there was a concern, but we felt we had taken care of that.”

* Castillo Adult School in Orosi southeast of Fresno received $48,500 in the 1994-95 period, even though it was operating as a for-profit venture and should not have received federal grant funds, according to the Education Department documents.

Ronnie and Romelia Castillo, the owners, told Cates and education monitors that they had not received any public funds when, in fact, they had, according to memos in the subpoenaed documents and Education Department spokesman Doug Stone.

When asked to provide bank records, the Castillos said someone had broken into their office, Cates wrote in a 1996 memo.

Lindberg, the state adult education monitor who reviewed Castillo’s student test forms, told an internal auditor, “they had phony records. . . . all in the same handwriting.”

Romelia Castillo told the Times, “We have nothing to hide.”

* Investigators are also reviewing apparent auditing discrepancies at Hermandad Mexicana Nacional, a well-known organization in Los Angeles and Santa Ana that is receiving about $3.5 million, by far the largest sum granted to any nonprofit adult education program in the state.

According to the subpoenaed documents, internal auditors have raised questions as far back as 1996 about Hermandad’s use of Education funds, even as Education officials continued to give the organization increased amounts.

For example, after state education officials learned in 1996 that Hermandad had broken the law by failing to pay taxes on its payroll and was forced to pay the taxes with Education funds, they not only continued to fund the group but gave Hermandad an additional $1.6 million.

In a March 1996 memo after a visit to Hermandad’s headquarters, Cates wrote that the organization could produce receipts and other fiscal records for about a third of the $669,475 it had been paid by the state Department of Education for classes in the 1994-95 period. He recommended that future payments be withheld pending proof that the education funds were spent on English and citizenship classes.

One internal state Education Department document shows that state education Sup. Delaine Eastin believed that Hermandad should have been cut from the program in January 1997--in part because Hermandad also could not account for an additional $400,000 it had received in federal public health funds.

After Hermandad promised to account for the federal health funds, the state Education Department relented and continued to fund it.

Hermandad still has not provided a documented accounting for how it spent the health funds, and the inspector general for the U.S. Department of Health and Human Services is reviewing the grant, according to department spokesman Michael Kharfen.

Bert Corona, Hermandad’s executive director, said he believes that the current investigation arose because “people are not happy with the growing numbers of Latinos who are registering to vote, so they would seek to find some blemish with the work that we’ve been doing.”

Besides possibly forcing the state to pay back the federal government, sources say the federal probe also could result in the matter landing in front of a federal grand jury, which would decide whether there was any criminal wrongdoing.

Michael Hersher, chief counsel for the state Department of Education, said that community organizations like those being examined received “more slack” from state education officials because they were not as sophisticated as for-profits about proper fiscal procedures, and because they were providing unique programs to often overlooked people.

“If it looks like they’re making a good faith effort to clean up their act we usually continue with them,” Hersher said. “It’s not that we accept abuse after abuse and turn a blind eye to it. . . . When we come across a flat-out case of fraud there are all sorts of sanctions in the law for people who take money for themselves or their own organizations.”

But, Hersher said, he was unaware of any instances when a community organization had its funding cut, was reported to other authorities, or had been required to return funds.

“We are not by any stretch of the imagination trying to defend all the decisions made [by the state Education Department],” Hersher said. He said the department’s own internal audit reports “demonstrated that it [the adult education program] wasn’t well administered or properly staffed, and those systemic issues had to be addressed and will be addressed.”

Times staff writers Jodi Wilgoren in Washington and Nick Anderson contributed to this story.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Under Suspicion

The FBI and inspector general’s office for the U.S. Department of Education are investigating 10 organizations that received money for adult education. Here’s how much they received during recent fiscal years:

Rank: 1

Organization: Hermandad Mexicana Nacional (L.A., Orange Counties)

1995-96: $1.7 million

1996-97: $2.0 million

1997-98: $3.5 million

Rank: 2

Organization: Templo Calvario Legal and Educational Center (Bell)

1995-96: 874,000

1996-97: 232,514

1997-98: 575,175

Rank: 3

Organization: One Stop Immigration Center Inc. (L.A.)