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Report: San Carlos Elementary School District made mistakes in loan transfer
March 26, 2014, 05:00 AM By Angela Swartz Daily Journal

Long-awaited audits commissioned because of the timing of a money transfer for a $1.3 million home loan given to the San Carlos Elementary School District Superintendent Craig Baker have been released and one found neither Baker nor the chief operations officer “fully appreciated” the fact the loan couldn’t be approved until a public board meeting.

Additionally, one of the two reports completed by third parties found Chief Operations Officer Robert Porter wrote a personal check for $36,000 to assist Baker on Sept. 2, who did not have funds readily available. The escrow on the San Carlos home Baker purchased was scheduled to close Sept. 13, but went through on Sept. 11 after Baker realized the correct closing date was actually Sept. 12.

Two reports were completed by third parties about the transfer of funds for Baker’s bridge loan occurred one day prior to the board taking formal action to approve it with a 5-0 vote. The first looked into the financial aspects of the transaction and another to review the process leading up to the funding of the loan.

“We want to reiterate that we as a board have full faith and confidence in our superintendent and COO, and we look forward to continuing our focus providing outstanding education for the children and families we serve,” board President Adam Rak wrote in a statement.

The financial report, completed by Wilkson Hadley King & Co., stated the transaction, from an accounting position, was properly entered into and properly recorded in the financial records of the district. The $1.3 million loan was repaid by Nov. 3, 2013, with an additional $4,087 in interest.

“We believe the district’s financial interests were properly protected and the investment earnings generated by the promissory note were above that which the district would have been able to generate in any other similar type investment,” the report stated.

As for the process review completed by attorney Jean Savaree, she writes that, had the full board been involved and informed in this process, this early transfer of funds could have been avoided. Baker erred in failing to advise the board regarding the change in dates for the close of escrow and in requesting Porter have funds transferred prior to the board’s approval since he “failed to comprehend” the necessity of their approval in a public meeting before the wire could go through. Despite having been advised of the need for board action to approve the loan, neither Baker nor Porter “fully appreciated” this fact, according to the report.

“Despite the fact that by late in the day on Sept. 5, 2013, both … Baker and … Porter knew that escrow was scheduled to close Sept. 12, 2013, not Sept. 13, 2013, and a request had been made to wire funds on Sept. 11, 2013, neither … Baker or … Porter advised the board of these facts because they believed it was the board’s intent to approve the loan,” Savaree’s process report stated. “As a result of this belief, they didn’t focus on the need for the public meeting to approve the transaction because they saw the public meeting as a formality. This mindset is demonstrated by … Porter’s email of Sept. 3, 2013, to Denise Porterfield where he states ‘The board approved his [loan] in closed session and will be on public agenda for Sept. 12.’”

Still, the report stated both Porter and Baker now understand the mistakes.

“During interviews conducted for this investigation, it was apparent that … Baker and … Porter now understand they made mistakes by failing to communicate with the board and allowing escrow to close prior to the Sept. 12, 2013, board meeting at which the board approved the housing assistance loan,” Savaree’s report stated.

The board issued a statement in support of Baker.

“The financial report indicates the district’s financial interests were well protected throughout the course of the transaction and that the transaction yielded the district a positive return and the interest rate charged to Dr. Baker was at or above a prevailing fair market rate for a similar type loan,” Rak wrote. “The process report confirms that it was an error to have funded the loan one day in advance of the board meeting at which the loan was approved but that this mistake does not manifest any intent to engage in wrongdoing.”

Back in October 2013, former board president Beth Hunkapiller resigned over the loan transfer issue.

“In my view, the superintendent has shortchanged opportunities for fuller public discussion and feedback on significant issues for the district and public, and the board majority has seen too late the losses after permitting such supposed ‘efficiency,’” she wrote at the time. “In my view, such shortcuts in the name of efficiency don’t always save time. Time savings versus better process have been subjects of debate in the district and on the board. ... I have made an issue of open process several times prior to the loan transaction issue. Shortcuts cost.”

Meanwhile, training for staff regarding the district’s fiscal policies and procedures, best practices for governance, conflicts of interest and ethics were decided on by the board. Additionally, the San Mateo County Office of Education has implemented changes to its procedures regarding wire transfers for larger loans. Whether it be for something like a gap loan or for a property transaction, the county office has implemented a 24-hour hold after the time a school board might take action, before the wire transfer is initiated. Usually wire transfers occur first thing in the morning of the requested date, while most school boards meet at night.

“The 24-hour hold is to ensure that the school board has had adequate time to take action on the item,” said Nancy Magee, administrator for board support and community relations at the county Office of Education, in an email. “In the case where a board votes down the action, the wire transfer process can be interrupted. While [the Office of Education] has implemented this change, it is important to note that ultimately, each local school district is responsible for its own fiscal status and solvency.”

The full report can be found at

(650) 344-5200 ext. 105



Tags: board, baker, report, process, porter, meeting,

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