Minutes – June 23, 2010

June 23, 2010 6:00 – 8:00 pm

Meeting Minutes

Procedural Items:

1. Welcome/Call to Order: Meeting called to order by Chair Naomi Swinton at 6:10 PM

2. Establish quorum: Quorum established

3. In attendance: Governing Council members Naomi Swinton (Chair), Kim Kirkpatrick (Vice-Chair), Diana Whitten, Chris Cudia, Pat Leahan (Secretary)

Excused: GC members Diane Moore, Sally Flores, Suzanne DeVos-Cole, Caroline Garduño-Lopez; Director Cindy McLeod; No student reps present due to summer break

4. Approval of agenda: Motion by Pat, Second by Diana, all approved, motion passed

5. Approval of 26 May 2010 minutes: Motion by Chris, Second by Diana, all approved, motion passed

6. Confirm date of next 2 regular meetings: Wednesday, July 28th, 6:00 pm and Wednesday, August 25th, 6:00 pm


Public Comments, Student and Amigos Reports:

7. Director’s Report: None (Absent—Excused)

8. Business Manager’s Report: No report

9. Amigos de Rio Gallinas Report – There is now a draft calendar for 2010 – 2011 that Naomi will send out once it is finalized. Finance report given by Diana Whitten: End of May balance $3,346.82; 8th gr. trip was more expensive than expected; ending balance is now $619.13; Annie Ruge was elected new president of Amigos; Diana Whitten is now the treasurer. Amigos has an excited group that wants to work hard to raise money for the school, but needs to continue to pay attention to budgeting and stay within budget. An Amigos administrative structure needs to be strengthened and followed. Amigos will be working on this. Naomi will submit Amigos minutes to Kim to post to RGS website. Letter to parents/guardians will be sent out in August to invite their participation. Next Amigos meeting will be Friday, June 25th, 3:45 PM, Travelers Café.


Executive Session: none needed


Action Items:

10. Approval of budget transfers: No budget transfers

11. Approval of notice resolution (see attached)

Motion by Chris, Second by Diana, all approved, motion passed

12. Approval of report to WLV School Board regarding audit finding

(see attached)

Motion by Diana, Second by Chris, all approved, motion passed

13. Accept the bid for a lease on the 301 Socorro St. facility:

Motion to accept the bid from Amigos de Rio Gallinas for a lease on the 301 Socorro St. facility for $35,400 for the period July 1, 2010 to June 30, 2011, and to certify that the Director of the School was not involved through decision, approval, disapproval, recommendation, formulation of any part of a purchase request, influencing the content of any specification, investigation, auditing or the rendering of advice in the procurement of the lease.

Motion by Kim, Second by Chris, all approved, motion passed (Diana recused herself from voting)

14. Approve lease of 301 Socorro St. facility

Motion by Naomi, Second by Chris, all approved, motion passed

15. Request WLV district to purchase 301 Socorro St. facility for lease to Rio Gallinas School at $35,000/year.

A letter of request from the GC will be sent to the WLV School Board; Kim will follow up with Caroline Garduño-Lopez on this.

Motion by Kim, Second by Diana, all approved, motion passed

16. Election of Members and Officers:

A. MEMBERS: Three people (Diane Moore, Naomi Swinton, and Kim Kirkpatrick) responded to the published “Rio Gallinas School Governing Council Community Member Notice of Election” by sending their resume and application letter to GC Secretary Pat Leahan prior to the 16 June 2010 deadline. (See attached documents from all three applicants.) No other applications were received.

Motion by Chris to elect by acclamation the 3 Community Member applicants, Second by Diana, all approved, motion passed

B. OFFICERS: Diana nominated Pat for Secretary; Kim moved that the nomination of secretary be closed, Second by Chris, all approved, nomination closed. Kim made a motion that Pat be accepted by acclamation, Second by Diana, all approved, motion passed. Kim nominated Naomi as Chair. Pat moved that the nomination of chair be closed, Second by Kim, all approved, nomination closed. Kim made a motion that Naomi be accepted by acclamation, Second by Diana, all approved, motion passed.

17 A. Changes to Bylaws:

III 1 C 1b and 4c: Remove “either the Director of the School or”

And 5: Remove “or School’s Director”

Motion by Naomi, Second by Pat, all approved, motion passed

17 B. Changes to Bylaws:

III 4 B 4 Change “with their election at” to “upon adjournment of”

Motion by Naomi, Second by Pat, all approved, motion passed


Old Business:

18. Outstanding Items from Previous Meetings –

Review committee charges and composition

By July 14th, Naomi will send out to the GC the charges and composition of committees after hearing back from the NM Coalition of Charter Schools. GC members are invited to say which committee(s) they’d like to serve on.


This is what we have thus far:

Charter Review/Renewal Committee — Kim, Sally, Pat, Chris

Finance Subcommittee– Kim

Audit Committee — Caroline

Governance and (Strategic) Planning Committee – Suzanne, Naomi


New Business:

19. Grants update – Suzanne is pursuing grant funding for the trip to Montana. Naomi is going to actively pursue looking for a grant-writer (e.g., an intern or volunteer grant-writer who already has some expertise).

20. Evaluation Process – Naomi and Cindy are in the process of drafting an evaluation based on what they’re looking at from the NM Coalition of Charter Schools. The PED eval is already being used.

21. Report progress on purchase of building: We are considering the alternatives of the WLV School District purchasing or a lease-to-purchase agreement which involves several steps with the state that are difficult.


Adjournment:

Motion by Chris, Second by Diana, all approved, motion passed

Meeting adjourned at 8:00 PM


Date: July 8, 2010
To: Board and Superintendent, West Las Vegas School District
From: Governing Council, Río Gallinas School
Report on the FY 2008 audit finding  FS-07-11  Río Gallinas School building lease

I. The Situation The ownership of the building and its lease
Cindy McLeod is the Director of Río Gallinas School.  Her husband, John McLeod, is a teacher at the school.  They (along with Randy Barron) are the founders of the school.
The building at 301 Socorro St was purchased by the McLeods and leased to Río Gallinas School to allow its opening in 2004.  At the time, it was expected that the building would be purchased by the non-profit Amigos de Río Gallinas (established for that purpose).  However, changes in state law (particularly the “2010 law”) made that impractical.
Amigos leases the building from the McLeods and sub-leases it to Río Gallinas School. The Río Gallinas School lease is bid (following 13-1-102 NMSA 1978), negotiated, and signed by the Governing Council without the participation (as defined at 13-1-53 NMSA 1978) of the Director.  The lease with the McLeods is negotiated and signed by the board of Amigos de Río Gallinas.  The members of the two boards are independent of one another and are all independent of the McLeods.  There is no business relationship whatsoever between the School and the McLeods.
This isolation of the Director from all matters regarding procurement of the building prevents a conflict of interest (that is, a violation of 13-1-190 NMSA 1978, the only relevant statue).  But facts regarding the cost of the lease show the lack of conflict of interest even more strongly.  One, the per square foot rate for the Socorro St  building is less than 80% of the rate for the district-owned Montezuma building, even though the Socorro St building is more valuable (it has a kitchen and larger outdoor area).  And two, because no other facility whatsoever is available for lease, the owner (any owner) could as much as double the rent, and the school would have no choice but accept the lease — regardless of the identity of the director!
The School is pursuing two parallel paths to purchase the building.  One, we are working with PSFA and PED to purchase the building in a lease-to-purchase agreement with Amigos, once Amigos purchases the building from the McLeods.  Two, we continue to request that the district purchase the building using bond monies, and lease it to us.  The first path will eventually work, but may take time.  The second path will work just as soon as certain priority decisions are made by the district.  Time will tell which way the resolution will occur.

II. The Audit Finding (see last page for text of finding)
A finding’s Effect is the statement of harm done – the core of the problem found by the audit.  So it is important to note that this finding’s Effect claims only appearances – no actual illegal or improper action is asserted.  It seems excessive to issue a finding on the basis of mere appearance.  Furthermore, those “appearances” could appear only to one who doesn’t know that the Director is excluded from all lease procurement activities as they are carried out by the Governing Council.  Thus even those appearances do not exist; this finding’s Effect is vacuous.
A serious error of fact is stated twice, in the Condition and in the Cause, making the claim that Río Gallinas School did not issue an Invitation to Bid on the lease.  However, it is documented that we followed all the provisions of the procurement code, specifically 13-1-103 through 13-1-110. (The appearance, in the Cause, of “2009″ is clearly a typographical error; it should be “2008″.  The Recommendation acknowledges that the lease was bid in 2009.)
A second error is the ranking of this finding as a Repeat.  For FY2007, note that the finding claimed an actual violation of 22-21-1, whereas for this audit the finding claims a mere appearance of violation of the very different 13-1-190.  This audit finding is clearly not a repeat.
The Auditor’s recommendation states “The school must not contract either directly or indirectly with any Governance Council Member or employees for services other than assigned duties.”  This has no relevance to the building lease, for which no contract with an employee exists.  (Further, there is no basis in law or practice for any such prohibition; for example, a school may contract with an employee to do after-school cleaning.)  And the recommendation goes on to require that which we already have been doing for several years, to go out to bid on the lease.  Thus the Auditors’ recommendation contains no useful recommendation whatsoever; we already follow it completely.

A note on indirect participation
In the Effect, the auditor claimed the “appearance of indirect participation” (that is, a violation of 13-1-190) in the procurement of the lease, without explanation.  This is the statutory definition of participation:
13-1-53. Definition; direct or indirect participation.   “Direct or indirect participation” means involvement through decision, approval, disapproval, recommendation, formulation of any part of a purchase request, influencing the content of any specification, investigation, auditing or the rendering of advice.
Because the Director is the owner of the building, it is such participation that is prohibited by 13–190.  All of these factors of participation are carried out exclusively by the Governing Council with no involvement of the Director.  There is no violation of 13-1-190.

III. Is There A Risk In This Situation?
We are particularly disappointed that, after finding what he considered to be a risk, the auditor failed to examine critically the safeguards we have put in place – the isolation of the Director from matters of the lease, the separation of the owners from the school by the independent Amigos board, and so forth.  If such an analysis showed them insufficient to protect us, we could with his advice then establish more extensive safeguards.  That would seem to be his responsibility, and what his fee should cover.  Of course, we believe them to be adequate, and feel certain that there is no risk of “fradulent activity or abuse.”
Is there any indication of an improper influence by the Director on the amount paid for the building?  The Montezuma building, owned by the district, is leased at the annual rate of $8.36 per square foot.  The McLeods’ Socorro St building is leased for only $6.55 per square foot, even though it contains a  kitchen, making it more valuable than the Montezuma St facility.  Thus the taxpayer benefits from this arrangement –  by as much as $20,000 per year, if the building were to be leased, as it easily could be, for $10 per square foot.  
Note that no alternative facility is available – given the present situation, we either lease 301 Socorro St or we close the school.  Thus there is no decision to be made regarding the selection of facilities that the Director could improperly influence.  
Furthermore, because the Socorro St building is the only building available, the owners could, say, double the rent and the Council would have no recourse but to adjust its budget and pay.  And the owners could do this even if another person were Director.  The fact is, the owners have not done, and will not do, any such thing, specifically because they are involved in the school and care more about it than about increased profit.  Rather than a conflict of interest, this is actually a confluence of interest.

IV. The Future
1. Future audit findings
There will be at least one more finding.  The audit this coming Fall will consider the situation for FY 2009, and that is unchanged from FY 2008.  Now, at the start of FY 2010, the same situation will be in effect for at least part of the year that will be audited in 15 months.  However, a change in the situation during this fiscal year should prevent yet another finding.
2.  Appeal
We will file corrections to the audit report based on the errors (failure to bid, repeat finding) discussed above.  If the corrections are accepted, the finding becomes innocuous.  This is not likely to happen this year, for the technical point that we had only 30 days from receipt of the audit report to file such corrections.  Although I think we are not likely to prevail this year, such filed corrections should affect the audit next year.  
3. Purchase of building
The Governing Council of Río Gallinas School is pursuing one potential solution, a lease-to-purchase arrangement, in which Amigos negotiates the purchase of the building from the McLeods, and Río Gallinas School sets up a least-to-purchase agreement with Amigos.  State approval of this arrangement is, unfortunately, a slow process with a high risk of failure.  First we must obtain a PSFA determination that the facility is adequate, and then obtain PED approval of the lease-to-purchase agreement.  Even if we receive all the approvals, it is unlikely that the ownership situation can be changed within FY2010.
Alternatively, the district could purchase the Socorro St building and lease it to Río Gallinas School; the Governing Council of Río Gallinas School requests the West Las Vegas School District to do so immediately. This would bring the district an income of about $36,000 per year, and put an end to the findings.  The building is being appraised; we anticipate a result between $250,000 and $300,000.  We will soon receive the results of the recent PSFA inspection, which should verify our belief that the building is in very good shape, with no significant repairs or improvements needed.

The FY2008 Audit Report Finding  
FS-07-11 – Charter School Lease- Repeat
Criteria: Per 13-1-190. Unlawful employee participation, “A.  Except as permitted by the University Research Park and Economic Development Act [21-28-1 NMSA 1978] or the New Mexico Research Applications Act [53-7B-1 NMSA 1978], it is unlawful for any state agency or local public body employee, as defined in the Procurement Code [13-1-28 NMSA 1978], to participate directly or indirectly in a procurement when the employee knows that the employee or any member of the employee’s immediate family has a financial interest in the business seeking or obtaining a contract.” Procurement is defined in 13-1-74 to mean “A. purchasing, renting, leasing, lease purchasing or otherwise acquiring items of tangible personal property, services or construction; and B. all procurement functions, including but not limited to preparation of specifications, solicitation of sources, qualification or disqualification of sources, preparation and award of contract and contract administration.” In addition, per 13-1-102, competitive sealed bids required; “all procurement shall be achieved by competitive sealed bid pursuant to Sections 13-1-103 through 13-1-110 NMSA 1978”.
Condition: During a prior year audit for the year ended June 30, 2008, the Río Gallinas Charter School, leased the building in which the School operates from the Principal and another employee. During the year ended June 30, 2009, the School leased the same building from Amigos de Río Gallinas, a non-profit foundation. Amigos de Río Gallinas leased the building from the Principal and employee of the School and subleased the building to Río Gallinas Charter School. The transaction is defined in Note 16 of the financial statements. In addition, the situation results in a transaction that is not in compliance with 13-1-102 of the State of New Mexico Procurement Code as the lease was entered into without issuing a Request for Bid.
Effect: The transaction results in the appearance of indirect participation of an employee in a financial transaction. Transactions such as the lease noted may cause the appearance of violation of 13-1-190. In addition, transactions such as the lease noted cause the appearance of a conflict of interest which indicate a potential weakness within the internal control structure (internal control structure components as illustrated in SAS 109) which may provide opportunities for potential neglect and possible fraudulent activity or abuse.  
Cause:  Río Gallinas Charter School maintains that there were no public facilities available; however, in fiscal year 2009 they did not go to bid prior to the award of the Lease.  The building lease was awarded to Amigos de Río Gallinas.  The board of Amigos de Río Gallinas has leased the facilities from the owners of the building (the director of the school and a teacher, as described in Note 16 of the financial statements), and subleases the building to Río Gallinas Charter School.  
Auditors’ Recommendation:  The school must not contract either directly or indirectly with any Governance Council Member or employees for services other than assigned duties. Each year the school must issue a bid request for a lease of a suitable facility and follow the requirements of the purchasing act.  The school did issue an Invitation for Bid during the 2009 fiscal year.  The school must not contract with any Governance Council Member or employees for services other than assigned duties. The School has proceeded with the transaction as advised by legal counsel; however, the transaction appears to violate state procurement and potential create, at least the appearance, of a lack of proper internal control structure.
Management’s Response:  The Río Gallinas Charter School Governing Council, with no participation from the Director, has for the past two years (the year of this audit, 2008-2009, and the current year) leased a building from the independent non-profit Amigos de Río Gallinas.  In past years the school has first advertised in newspapers and made inquiries of realtors before establishing the lease.  (In no year were responses for any other facilities received.)  In the current year (in May, 2009) the school issued a formal Invitation for Bid, and followed the requirements of the Purchasing Act in processing it.  The single bid was from Amigos de Río Gallinas, and the lease was awarded to them.  The board of Amigos de Río Gallinas is independent of the Governing Council and the School, and the Director is not a member of that board.  Amigos chose to lease a building from the director and her husband, and subsequently offered it in response to the School’s IFB.  The School will continue in future years to issue an IFB for a lease of a facility, will consider any and all offers which meet the bid specifications, and will follow the purchasing act in choosing an offer. The Invitation for Bid, the lease agreement between the school and Amigos, lease payment documentation, and a legal opinion concerning this contract arrangement, is available for review.