NBC4 Extra – Book Wars: Episode Two

While teachers face layoffs, the Los Angeles Unified School District continues to spend lavishly on construction projects. Last spring, NBC4's Colleen Williams reported on an ambitious elementary school library renovation program called Wonder of Reading that raised questions about accountability at LAUSD.

Since then, NBC4 has used the Public Records Act to access thousands of related LAUSD records and has discovered, with the help of whistleblowers, that the questions examined in the first report go much deeper -- to issues of possible corruption.

"There was a lot of double-dealing and a lot of people being hurt," says Jesse Soto, a former subcontractor for LAUSD who worked on Wonder of Reading projects.

"JQ required kickbacks," insists a preferably unnamed worker – call him Anonymous --  once associated with JQ Construction, the primary contractor for Wonder of Reading.

"Very often, when you cut corners, the quality goes down, safety goes down potentially" – this, from Chris Hamilton, a forensic accountant who examined thousands of LAUSD records on Wonder of Reading.  

All of these three knowledgeable observers register concern about Wonder of Reading – and what  it suggests about the District's management style.

"When you have every indication," says Hamilton, "that none of the internal controls were in place to prevent fraud, including kickback, that would tell me that LAUSD is not providing adequate oversight."

Wonder of Reading is sponsored by an LA-based non-profit that donates money to restock and renovate elementary school libraries, with added funding by the schools and the District. And the program claims to have trained many library volunteers.

Chris Forman, whose family owns Pacific Theaters in southern California, launched Wonder of Reading in 1994.

"Everything we do is a partnership between Wonder of Reading and the schools," says Forman, "a partnership aimed at inspiring in children the love of reading."

Forman declined to comment for this report, and his remarks are drawn from an interview months ago. But in that exchange he was insistent that he has no motive but public service and no better partner than LAUSD. He rebuffed suggestions that this partnership has resulted in his getting special treatment by the District.

"This is something you [NBC4] are telling me, that Wonder of Reading has preferred status," he maintained. "It's not something that I've directly experienced."

But the voluminous LAUSD files collected by NBC4 tell a different story. They show that beginning in 1998 the District gave up many of its oversight responsibilities for Wonder of Reading to the non-profit's own staff.

"It is apparent from reading the material and watching the interviews," says accountant Hamilton, "that LA Unified was not actively involved in the management of contracts or these construction projects."

Who was in charge, he argues based on the evidence, was one Chuck Gomez.

Gomez once worked for Forman and Pacific Theaters. He too declined to be interviewed for this report. But insiders say that as the designated "construction manager" for Wonder of Reading he turned the program into a huge cash cow for friends and family – and dealt ruthlessly with any challenger.

"He is the puppeteer of everything that is going to happen," says subcontractor Soto, who happens to be Gomez' nephew. "And anybody who went against what Chuck Gomez did would have his strings cut off."
   
Gomez hired Soto to build and install library furnishings, with another friend, Julio Quijano of JQ Construction, working out of his private residence, serving as general contractor. It was an arrangement that would eventually turn sour and, says Hamilton it was fraught with the potential for corruption."

"Often in a kickback scheme or a fraudulent setting," he says, "you see relationships between the person who is giving the contracts and those who actually win those projects."

Officials for JQ Construction ignored NBC4's interview requests. But Soto and a former colleague at JQ Construction – the one identified here as Anonymous -- say Gomez kept JQ in play by subverting the way LAUSD awards construction contracts, which is supposed to be done through competitive bidding.

"It wasn't competitive, it wasn't competitive at all," says Anonymous.

The way it worked, he and Soto maintain, is that Gomez would send Soto and others to the District to bid for Wonder of Reading contracts posing as rival contractors so it would appear that JQ had competition.

"He would tell us to go to these schools with phony documents and act like we were contractors," admits Soto.

Then, they say, Gomez would have his stand-ins offer inflated bids so JQ could always low-ball them, thus winning the contract.

"Chuck Gomez would instruct Jesse to bring in a bogus bid of a higher amount," says Anonymous, "so that JQ will be assured the job."

Soto insists LAUSD officials -- from the Maintenance and Operations Division (M&O) -- were in on the charade.

"M&O would call us up and say, ‘We're going to do this library. Can you send the phony bidders in?'" he explains. "Many times we wouldn't even send the bid in because it wasn't necessary. We would get the call back. We already got it, Don't show up. Don't even send the paperwork in.'"

LAUSD's Bruce Kendall isn't fazed by such allegations. He heads the District's Existing Facilities Division, including Maintenance & Operations.

"We, LAUSD, manage the construction portion of this program," he told the LAUSD Bond Oversight Committee last fall. He would not be interviewed for this story, but he assured the Committee that his staff is in full control of Wonder of Reading and that contract bidding for the program is on the up and up.

"It is a competitive process in place," he declared.

But a letter sent to LAUSD by another contractor in 2007 criticizes the district for favoring JQ Construction in the contract process and for failing to publicize bid meetings so other companies can compete.

And when NBC4 asked for proof that Wonder of Reading contracts have been awarded fairly, Kendall could produce paperwork for only half of the 177 LA district libraries built under the program.

Even more sobering, an examination of the available LAUSD paperwork reveals that all but four of these documented projects were awarded to Julio Quijano of JQ Construction, often with no competing bids at all.

"It's almost seemed like he knew what we were bidding and I didn't see how he knew that," says a competing construction manager, Debra Plante

She worked for one of the two companies that ever bid successfully against Julio Quijano for a Wonder of Reading contract. She says it often seemed that Quijano and JQ Construction were tipped off by the District to sealed, confidential bids from her own company.

"The only likely place that anybody could see what we were bidding before the bid time and date would be LAUSD," she asserts.

And, she adds, once her company did win a rare contract, Chuck Gomez acting as construction director for the project would delay payment or nitpick their work, making it too expensive to bid on such a job again.

"He would reject complete assemblies, and demand we rip it out," she recalls.

Gomez did not make such demands on JQ Construction, say insiders, and allowed this favored contractor to cut corners; to cut costs.

"They would cut costs by not painting the wall because the rest of the wall -- it was going to be covered by cabinet," says Anonymous, the former laborer for JQ Construction.

And who pocketed the money saved?

"It would go into either Chuck or JQ," says Anonymous. "They will share the money because JQ required kickbacks."

Jesse Soto's wife provided NBC4 with a series of checks, signed by her, with "Julio Quijano" or "JQ Construction" on the addressee line, which she says represent kickback payments.

According to Anonymous he witnessed Soto paying a kickback to Chuck Gomez, and Soto confirms that he did make such payments to Gomez to in order to protect his job

"He would threaten us that he had other companies, some place in LA, that can make [furniture] lower and better than us, obviously cheaper," says Soto, "so basically we gave Chuck paybacks."

Soto also says he did free work for LAUSD officials.

"The environment existed where kickbacks could have easily have been paid," observes forensic accountant Hamilton. "There was no pathway around Chuck Gomez."
   
Wonder of Reading libraries are hugely popular, and School Board members often throw bond money at them, driving up the price tag of some favored projects to $100,000 or more, way beyond the value of the basic seed money and donations. How well are such extra dollars spent?

"I would like to know that too," acknowledges contract manager Debra Plante, who competed for Wonder of Reading contracts. "When you find out, let me know."

An e-mail from a top LAUSD official, obtained by NBC4, acknowledges that the district does not keep track of subcontractors on projects like Wonder of Reading. So the district's paperwork is useless in identifying any over-spending by them.

But, says Debra Plante, when her company twice underbid JQ Construction, the cost of each Wonder of Reading library was kept in the $40,000 range, so she says the larger price tags and bond outlays seem excessive.

"I can't think of what would cost that much more," she says.

A basic Wonder of Reading library includes only basic shelving and furniture, and initially any extra woodwork was supplied by Jesse Soto. But in 2004 the school board shifted the extras to somebody else, awarding a $600,000 contract to Mica Industries. To add insult to injury, says Soto, Gomez and LAUSD hijacked his furniture blueprints and gave them to Mica so it could fulfill the contract.

"Everything I had designed for twelve years was now in the hands of Mica," he complains, "handed over to a competitor so the competitor could profit from it."

Soto says Mica quickly proved incapable of doing the extra work, and he sounded warning to LAUSD and Wonder of Reading.

"We told them the quality was horrible," he recalls. "There were sheets of glass [in the cabinets] that were not tempered, so if the kids would open up the doors, even scraping against [the glass], it would cut them." 

Wonder of Reading became concerned, says Soto, and in mid-2005 sent a letter to LAUSD, calling Mica's handiwork "unsafe" and urging higher furniture standards at the 15 schools affected by the Mica contract. Soto says he was brought back in by Gomez to fix some of the problems -- but was never paid.

"We came in there and repaired the cabinets at our own costs," he says. 
 
He was driven into bankruptcy and accused of forging inspection stamps for his own cabinets. Soto claims he was simply being scapegoated by the District and Wonder of Reading.

"I was upset," he says, "and I was beginning to tell everybody what was going on with the Wonder of Reading projects."

Three thousand documents obtained by NBC4 from LAUSD, trace what one of them describes as Mica's continuing "pattern of inefficiency" over the next two years, including its failure to satisfy the district's "cure notice" for the unsafe furniture.

In 2007, Mica fired back, complaining by letter that Gomez and LAUSD were using a "double standard" to sweep JQ Construction's mistakes "under the rug" while treating everybody else's like "the end of the world." Mica called for an investigation.

No investigation occurred, according to available district files, and in late 2007 Mica's contract expired, and the company was sold.

Recently, the District struck a new agreement with Wonder of Reading that increases donations from Forman's group and gives many of the same LAUSD officials who'd supervised Mica similar authority over future vendors. 

Forensic Accountant Hamilton warns that the new agreement is too ambiguous, imposing too few constraints on district officials and their vendors in this time of fiscal crisis.

"It allowed for a lot of interpretation on exactly how they were supposed to run the process," he says. "Ambiguity creates an environment where dishonest people can maneuver."

LAUSD's Bruce Kendall supports the new agreement -- and Wonder of Reading.

"This program we feel is an important and viable program for the District," he told the LAUSD Bond Oversight last fall.

As for the issues raised in NBC4's investigation, Kendall explained to the overseers that the investigative team simply misunderstands the complexities of Wonder of Reading

"WOR is really a multifaceted program. Renovate, restock and read," he said in his presentation to the Committee.

Behind the scenes, though, there's some acknowledgement of what NBC4 uncovered. In an internal memo, Will Rapp of the Facilities Division admits that NBC4 is "correct in that there appears to be some imprecision in LAUSD's own WOR [Wonder-of Reading]-related documentation."

In another report, a consultant to the oversight committee says of the District: "There is a problem with retention and filing of contract files, which…may extend to non-Wonder of Reading projects."

Accountant Chris Hamilton draws an even more sober conclusion about the problems detected in the Wonder of Reading program.
 
"I call it the perfect storm," he says, "because you have someone who admits they've paid a kickback. You have cowed and intimidated vendors. You have no oversight. You rarely see that all in one case and that's why I call this the perfect storm,"

As NBC4 prepared to air its report, the former owners of Mica Industries could not be located. And no one from Wonder of Reading or the District would comment for this report.

Since the investigation began, Chuck Gomez's name has disappeared from the Wonder of Reading website.

LAUSD says its Inspector General is investigating NBC4's findings, and that's why it can't comment, but no one from the IG's office has contacted any of NBC4'S sources.

Finally -- Soto says he will seek compensation from Pacific Theaters for all the unpaid work he did for Wonder of Reading, and for earnings he lost to Gomez.

Postscript: What about the Bond Oversight Committee's role in the Oversight Breakdown

To judge from the LAUSD records released to NBC4, the District's Facilities Division exercises fairly loose oversight over how Wonder of Reading spends construction money. But it's not the only watchdog charged with keeping tabs on the money flow.

The LAUSD School Construction-Bond Oversight Committee is a group of civic-minded citizens handpicked by the School Board to make sure public bond funds for the schools aren't wasted. The Committee Folsom convened a hearing last October to look into Wonder of Reading.

"There's a bit of controversy attached to this program," acknowledged Vice Chair Scott Folsom at the outset.

The controversy, the Committee noted, stems from NBC4's investigations and from allegations by activist Rebecca Constantino. She's complained to the School Board itself that LAUSD officials are giving unfair preferential treatment to Wonder of Reading.

"They have encouraged schools to work only with Wonder of Reading," she told the Board last September.

Constantino heads a rival non-profit called Access Books that restocks and refurbishes elementary school libraries. Its renovation work is far more modest than Wonder of Readings', but all of its services are free, while Wonder of Reading requires cost sharing by the schools.

And yet, Constantino told the Board, not only do District Officials favor Wonder of Reading, "they have called and threatened schools that if they work with us they will no longer receive any services from Librbary Services."

The District accuses Constantino of failing to follow proper procedures for library restocking and renovation. She says California and the District can't afford to turn down any free help.

"We are last in the nation for school library funding," she reminded the Board.

Meanwhile Wonder of Reading continues to draw on scarce public funds, including more than $3 million in bond money, to supplement its library donations.

"There is a little bit of bond money that goes to this process," Chairperson Constance Rice acknowledged to the Bond Committee in the hearing last fall, "but it's less than one hundredth of one percent of bond funds."

She also expressed impatience to her colleagues that they are even being bothered with questions about the Wonder of Reading program.

"This is a tempest in a teapot," asserted Vice Chair Scott Folsom. He even belittled the allegations of discrimination against Access Books .

"It has the appearance of having two non-profits having a little snit between each other about who's doing the best work," he said.

But is the Committee on top of the facts? In late 2007, it issued its only report on Wonder of Reading, concluding that some of program's new bond-funded libraries are only slightly over-budget. But NBC4 has discovered that data provided by LAUSD's Facilities Division to support this conclusion misidentify or omit certain Wonder of Reading projects, leaving the conclusion itself in doubt.

Chairperson Rice, in another recent oversight hearing, provided a clue to what may be the Committee's blind spot.

"This Committee has full confidence in the excellence of the Facilities Division," she said.

She even gave the Division high praise for operating without much oversight itself, as if it might be a model for other LAUSD operations.

"It is in effect a construction authority that is run by top professionals," she said, "The District holds it accountable, but it is not directed by the district."

So -- is Wonder of Reading symptomatic of an LAUSD management style that values loose oversight and gives too much authority to people who are not educators?

That seems a legitimate question at a time when the educators are down to their last dime while the construction professionals continue to set expensive priorities for the district.