Conflict of Interest Law Update: FPPC Fines School Director $12K and Sends Case to DA’s Office

The California Fair Political Practices Commission’s recent decision in an enforcement action involving a former director of a charter school provides valuable insight to all public agencies, municipalities and special districts on the importance of understanding State conflicts of interest laws, having a conflict of interest policy, the impact of filing Form 700, factors the FPPC considers when assessing a fine, the statute of limitations for investigations and the issue of willful violation.

On July 18, the FPPC found that Juanita Perea, the former executive director of Oasis Charter Public School, violated conflict of interest laws when she approved maintenance and landscaping work on school grounds for her husband’s company, of which she was also a manager. The commissioners voted 4-0 to approve a settlement in which Perea will pay $12,000. However, the commissioners’ debate over the significant difference between $12,000 and the $132,000 amount of work that was sent to her husband’s company led the commissioners to agree to also refer the case to the District Attorney’s office for possible criminal law violations.

Should the Fine Be $12,000 or $132,000 or $200,000?
The FPPC found that the work done by Perea’s husband’s company totaled $132,069.51 from 2015-2017. Perea approved work totaling $39,840 in 2015; $45,434.51 in 2016; and $46,795 in 2017. The FPPC counted each year’s worth of work as one violation, for a total of three counts. The maximum allowable penalty for each violation is $5,000. Based on various factors outlined below, the commission assessed $4,000 for each calendar year violation with a total penalty of $12,000 instead of the allowable maximum of $15,000. However, some commissioners expressed concern that $12,000 was not adequate restitution for more than $132,000 of public funds at issue. One commissioner also noted that Perea signed approximately 40 checks and thought that each check could be treated as a separate violation, which would have resulted in a total penalty of $200,000 if each violation was assessed at the allowable maximum of $5,000 per violation.

What Factors Did the FPPC Consider When Determining the Fine?
To determine the fine against Perea, the commissioners discussed a variety of factors, some of which were in Perea’s favor and others that were not, including:

• School board did not know.  Perea approved contracts and payments to her husband’s company without the school board’s approval. Perea also did not solicit or consider bids from other companies that could have provided the same services.
• Timing of school’s conflict of interest policy.  The school did not have an anti-nepotism policy in its conflict of interest code until November 2017 and the payments being investigated were made between 2015 and 2017. FPPC investigators found that Perea did not know that hiring her husband’s company could present a conflict of interest until during a school retreat in the summer of 2017. After that retreat, she terminated the business relationship between the school and her husband’s company. The last payment to the company was in August 2017.
• Perea disclosed relevant information in Form 700.  Perea filed Form 700 statements of economic interests that publicly disclosed her financial interest in her husband’s company and the potential for financial gain as manager of that company. She filed the forms prior to the school adopting its conflict of interest policy and, according to the investigators’ report, prior to knowing a potential conflict of interest might exist.
• Statute of Limitations. Perea also approved and paid $35,400.58 for work between 2012-2014. The FPPC did not pursue violations for those years because: (1) “in the interest of settlement” (according to the investigation report) and (2) the statute of limitations to investigate those contracts with her husband’s company expired.
• Perea’s cooperation.  The FPPC investigation report stated that Perea cooperated with FPPC investigators.

Criminal Law Violations — Were Perea’s Actions Willful?
According to the investigators’ report, “The violations appeared to be the result of negligence, at most.” However, when the commissioners discussed the report and the proposed settlement, one commissioner described “each of those signatures and instances of knowing—or at least wildly wanton and reckless disregard.” Another commissioner commented that “I hate to invoke it, but does crime pay? There is a pocket. And it was enriched by her knowing, right? It’s a payment essentially to herself out of public charter school funds. I struggle to determine for myself that $12,000 compared to $132,000—that we know of—that this is, for lack of a better, word fair. This case does make one pause, and maybe we could refer this to the district attorney, as well. The penalty says crime does pay.” The commissioners voted 4-0 to approve the proposed settlement agreement in which Perea will pay $12,000, but also to refer the case to the District Attorney’s office for further consideration.