Food Fight: Small team of state examiners no match for schools that divert student meal funds This report was prepared for the California Senate Rules Committee February 6, 2013 Prepared by Jim Sweeney John Adkisson California Senate Office of John Hill Saskia Kim Oversight and Outcomes Dorothy Korber Jim Sweeney California Senate Office of February 6, 2013 Oversight and Outcomes 2 Food Fight: Small team of state examiners no match for schools that divert student meal funds february 6, 2013 Prepared by Jim Sweeney California Senate Office of Oversight and Outcomes Table of Contents Executive Summary . 1 Introduction and Background . 9 Oversight Gaps . 15 Overview of Cafeteria Fund Misuse . 21 Case Studies . 29 Los Angeles Unified: Despite repeated warnings, district misappropriated cafeteria funds for years . 29 Oxnard Union High School District: Inflated meal counts went undetected for more than three years . 35 Santa Ana Unified: Troubled food service program ran up a $16 million surplus as staff vacancy rate exceeded 20 percent . 37 Baldwin Park Unified: Long impasse with the state ends with agreement to increase spending on fresh fruits and vegetables . 41 San Diego Unified: State cites faulty accounting and double-billing for costs . 44 Recommendations . 49 References . 51 California Senate Office of February 6, 2013 Oversight and Outcomes 6 California Senate Office of February 6, 2013 Oversight and Outcomes Executive Summary Squeezed by years of unrelenting budget cuts, some California school districts are illegally dipping into student meal funds, misappropriating millions of dollars intended to feed California’s poorest children. In recent years, in cases that seldom receive any public Students Shortchanged: attention, the California Department of Education Cafeteria fund diversions documented (CDE) has ordered eight in this report contributed to districts to repay nearly $170 conditions that discouraged the target million to student meal population – poor, often hungry programs. Perhaps more students – from seeking free or troubling, department officials reduced-price meals. candidly acknowledge they Cost-saving shortcuts included have no idea how big the serving processed rather than fresh problem may be and fear they foods, short lunch periods, rundown may have uncovered only a cafeterias and insufficient staff hint of the ongoing abuse, an to properly plan and manage an investigation by the Senate optimum food service operation. Office of Oversight and Los Angeles Unified, for example, Outcomes has found. has 20- and 30-minute lunch periods at many schools and continues to The uncertainty reflects a struggle with low participation rates challenged oversight system among eligible students. A former designed by the federal Santa Ana Unified food service government, but carried out by director said “the food was terrible” a small, overmatched team of and the meal program was woefully state examiners who are mostly understaffed although the district had nutritionists and dietitians, amassed an illegal $16 million surplus not accountants. Nutritional in its cafeteria account. standards are their top priority The Senate Office of Oversight and and the system is set up to be Outcomes found that state and federal collaborative, with prearranged checks fail to catch most violators and inspections of cafeterias that whistleblowers may be silenced and food service operations. by realistic fears of retaliation. Perhaps as a result, most of the 1 California Senate Office of February 6, 2013 Oversight and Outcomes recent investigations have been triggered by whistleblowers. In the biggest case, state officials identified more than $158 million in misappropriations and unallowable charges that Los Angeles Unified School District drained from its cafeteria fund over a six-year span. The department also has disallowed cafeteria fund charges at a dozen other districts, including San Diego, Santa Ana, San Francisco, Baldwin Park, Centinela Valley and Compton. San Diego and Santa Ana are challenging the department’s findings, which would force the districts to repay $4.5 million and $2.7 million, respectively. In every case, the funds involved were supposed to be spent primarily on free and reduced-price meals that experts say are frequently the best and often the only complete meals that many low-income children receive in a given day. “From my point of view, they are literally taking food out of the mouths of kids,” said Richard Zeiger, chief deputy state superintendent of public instruction. “They say, ‘Well, we can do it cheaper.’ I say you should do it better.” State and federal subsidies are paid as reimbursements for meals served. So, all eligible students who line up for lunch or breakfast at school are fed. But cafeteria fund diversions contributed to conditions that discouraged the target population – poor, often hungry students – from seeking free or reduced-price meals, school officials said. Cost-saving shortcuts included serving processed rather than fresh foods, short lunch periods, rundown cafeterias and insufficient staff to properly plan and manage an optimum food service operation. “Our core priority was to get kids in eating and to make it a good experience for them,” said Michael Eugene, a former business manager over food services at Los Angeles Unified. “But, in order to do that, we really needed to make sure that the money for the program was spent on the program.” Los Angeles Unified, which has 20- and 30-minute lunch periods at many schools, continues to struggle with low participation rates for its eligible students. “They refused to let the secondary students have more than 30 minutes for lunch and they turned them all loose at once,” said Dennis Barrett, Los Angeles Unified’s food service director until he retired last June. “I 2 California Senate Office of February 6, 2013 Oversight and Outcomes said, ‘We have 80 percent of them who are free and we’re only serving a third of them. The others can’t get in to eat if they wanted to.’” At Santa Ana Unified, former food service director Jan Monforte said “the food was terrible” when she was hired to run the program in October 2010. “None of the food met the requirements of what we were supposed to be serving,” she said. Santa Ana’s food service operation also was woefully understaffed although the cafeteria account had amassed a $16 million surplus that was more than double the federal limit for the program. At Baldwin Park Unified, where a $6.5 million cafeteria fund surplus also exceeded the federal limit, the district agreed to spend $2.7 million on salad bars, fresh fruits and vegetables under a mandatory five-year plan to trim the surplus. As part of a national focus on childhood obesity, the federal government recently ordered schools to improve the nutritional content of student meals. Obesity increases the risk of heart disease, diabetes, high blood pressure and other health problems. In California, 38 percent of children are obese or overweight, according to a 2012 University of California study. Numerous studies also have shown a link between proper nutrition and academic achievement. Federal regulations require schools to keep student meal funds in a separate account used only for “the operation or improvement of such food service.” When federal, state and other cafeteria revenues are held in the same account, as they are in most districts, all of the funds are subject to the strict federal guidelines. But the Senate investigation found an oversight system that offers glaring opportunities to disregard rules so complex that districts easily can and often do contest violations as arguable interpretations of the law. The misappropriations addressed in this report are not examples of funds skimmed or pocketed for personal profit. Instead, they are in most cases attempts by school districts to use cafeteria funds to pay for a greater share of personnel, utility and other costs. Some charges were clearly improper. Los Angeles Unified used cafeteria funds to buy lawn sprinklers and to pay salaries of employees at the district’s television station, Eugene and Barrett said. Auditors also found that L.A. Unified and other districts charged their cafeteria accounts twice for some expenses. 3 California Senate Office of February 6, 2013 Oversight and Outcomes Most of the money involved comes from the federal government. The U.S. Department of Agriculture sends more than $2 billion a year to California for the National School Lunch Program, breakfast, after- school and snack programs, as well as commodities used in student meals. California augments that with another $145 million a year. On average, the combined funds help pay for 2.4 million free and reduced-price lunches every day for lower-income students. The California Department of Education serves as the USDA’s steward of the subsidized meal programs. In that role, CDE is required to review school food operations every five years. Other food services, such as those at adult and child care centers, must be checked more frequently. The department has fewer than 60 field examiners to monitor nearly 3,000 school districts and other agencies that serve meals. It has not completed all of the reviews required in any single year since 2001. Moreover, the field examiners CDE sends in are nutritionists, not accountants or financial specialists, and they rarely take more than a cursory look at the books. The existing rules also provide what amounts to a three-year statute of limitations. That is how long districts must retain financial records, leaving two years in every five-year cycle that CDE does not review. Only when districts have a record of recent violations must they keep records longer than three years. And CDE does not always go back three years, even when it has reason to. In two cases, involving the Santa Ana and San Diego districts, the department inexplicably elected to review and hold the districts accountable for only one year of disallowed charges.