DISSOLUTION COMMITTEE FOR THE FORMER … and Possible Selection of a Law Firm to Support the...

Dissolution Committee Meeting Monday, December 4, 2017 10:00 AM

DISSOLUTION COMMITTEE FOR THE FORMER BOARD OF DALLAS COUNTY

SCHOOLS TRUSTEES

Agenda of Dissolution Committee Meeting

For the Former Board of Dallas County Schools Trustees

A Dissolution Committee Meeting for the Former Board of Dallas County Schools Trustees will

be held December 4, 2017, beginning at 10:00 AM in Conference Room - B at 5151 Samuell

Boulevard, Dallas, Texas 75228.

1. CALL TO ORDER

2. PLEDGE OF ALLEGIANCE

3. ACTION ITEMS

A. Consider Approval of Minutes for Meeting Held November 15, 2017 4

B. Consider Authority Approval Levels to Settle Insurance Claims and Litigation

Suits

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C. Consider selling of the furniture located at 8035 E R.L. Thornton Frwy 9

D. Consider Approval of Contract for Legal Services 10

E. Consider providing notice to terminate lease at 8035 E R.L. Thornton Frwy 21

4. DISCUSSION ITEMS

A. Financial Update 108

B. Crossing Guard Contract 169

C. School Year 182

5. INFORMATION ITEMS

A. Weaver Report 183

6. EXECUTIVE SESSION will be held for purposes permitted by the Texas Open

Meetings Act, Texas Government Code Section §551.001 et seq. Including but

not Limited to Sections §551.071 Consultation with Attorney; §551.072 Real

Property; §551.074 Personnel Matters. All matters relating to the following:

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A. Legal Advice Regarding Payments of Debt Obligations

B. Debt Payments

C. CEO Employment Agreement

7. ACTION RELEVANT TO EXECUTIVE SESSION: For action relative to items

considered during Executive Session.

225

A. Legal Advice Regarding Payments of Debt Obligations

B. Debt Payments


8. ADJOURNMENT 226

A Closed Executive Session may be held if the discussion of any of the above agenda items concerns one of the

following:

1. Contemplated or pending litigation or matters where legal advice is requested of the Attorney.

Section §551.071 of the Texas Open Meetings Act

2. The purchase, exchange, lease or value of real property, if the deliberation in an Open Meeting would have

detrimental effect on the position of Dallas County Schools in negotiations with a third person.


3. A contract for a prospective gift or donation to Dallas County Schools, if the deliberation in an Open Meeting

would have a detrimental effect on the position of the District in negotiations with a third person. Section

§551.073 of the Texas Open Meetings Act

4. Personnel matters involving the appointment, employment, evaluation, reassignment, duties, discipline or

dismissal of a public officer or employee or to hear a complaint against an officer or employee.


5. The deployment, or specific occasions for implementation of security personnel or devices.


6. Considering discipline of a public school child, or complaint or charge against personnel.


7. Considering the standards, guidelines, terms of conditions the Board will follow, or will instruct its

representatives to follow in consultation with representative of employee groups.


8. Excluding witnesses from a hearing. Section §551.084 of the Texas Open Meetings Act

9. Deliberations regarding Economic Development negotiations.


DISSOLUTION COMMITTEE MEETING

DATED 12/04/2017

ACTION ITEMS

AGENDA

ITEM NUMBER:

3. (A)

TOPIC OF

AGENDA ITEM:

Consider Approval of Minutes for Meeting Held on

November 15, 2017

BACKGROUND: The minutes have been prepared and submitted for your

examination.

RECOMMENDATION: Consider approval of minutes for meeting held on

November 15, 2017.

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1

MINUTES

Dissolution Committee Wednesday, November 15, 2017

Dallas County Schools Office

5151 Samuell Boulevard, Dallas, Texas 75228

1. CALL TO ORDER AND ESTABLISH QUORUM

a. Michael Hinojosa, Interim Chair – Meeting Called to Order at 9 a.m. Committee Members Present: Michael Hinojosa (Interim Chair); Matt Boles, Chuck Yaple, Celina Miller, Robert Dransfield, Jose Parra, Greg Buchanan, Mike Moses, Kellie Spencer, Brent Ringo, Sandra Hayes, Bobby Burns, Bobby LaBorde, and Derek Citty

2. PLEDGE OF ALLEGIANCE

3. ADMINISTRATIVE ACTION ITEMS

a. Administration of Oath of Office – Kay Gulley, Notary, administered the Oath of Office to all committee members.

b. Election of Officers, Chair and Vice Chair

Nominations were open for the election of officers. The Interim Chair presided over the meeting during election of officers until a Committee Chair was elected. The first person to receive a majority vote ends the voting process for that particular position.

Nominations were opened for the office of Committee Chair. Jose Parra nominated Mike Moses for Committee Chair. There were no other nominations for the office of Committee Chair. Mike Moses was declared elected Chair of the Dissolution Committee by acclamation.

Nominations were opened for the office of Vice Chair.

Robert Dransfield nominated Sandra Hayes for Vice Committee Chair. There were no other nominations for the office of Vice Committee Chair. Sandra Hayes was declared elected Vice Chair of the Dissolution Committee by acclamation. Senator Don Huffines spoke before the Dissolution Committee and asked them to focus on the elimination of DCS assets and to work with the existing bus drivers. The agenda was taken out of order without objection by the committee. The committee moved to agenda 6 a. Overview and Discussion of Legislative Charge of Dissolution Committee. Carlos Lopez, an attorney with Thompson and Horton Law Firm, gave a briefing on the legislative charge of the Dissolution Committee.

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4. CLOSED SESSION- as authorized by the Texas Open Meetings Act, Texas

Government Code Chapter 51.

a. 551.071 For private consultation with its attorney regarding all matters related to the Appointment of a Dissolution Committee.

b. 551.072 To deliberate the purchase, exchange, lease, sell or value of real

property.

c. 551.074 To deliberate the appointment, employment, evaluation, reassignment, duties, discipline, or dismissal of a public officer or employee, including interviewing candidate(s) for Chief Executive Officer.

The Committee retired to closed session at 9:34 a.m. The Committee returned to open session at 11:20 a.m. No action was taken in closed session.

Chuck Yaple did not return to open session. 5. ADMINISTRATIVE ACTION ITEMS

a. Consideration and Possible Appointment of Chief Executive Officer It was moved by Robert Dransfield and seconded by Bobby Burns to appoint Alan King as Chief Executive Officer of the Dissolution Committee. The motion passed unanimously to appoint Alan King as Chief Executive Officer. b. Consideration and Possible Selection of a Law Firm to Support the Dissolution Committee It was moved by Matt Boles and seconded by Bobby LaBorde to select Thompson and Horton Law Firm to represent the Dissolution Committee. The motion passed unanimously to employ Thompson and Horton Law Firm to represent the Dissolution Committee.

6. GENERAL DISCUSSION

a. Overview and Discussion of Legislative Charge of Dissolution Committee

– Carlos Lopez, attorney with Thompson and Horton Law Firm, gave a brief

overview on the legislative charge of the Dissolution Committee.

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b. Current Financial Status of Dallas County Schools – Alan King, Chief Executive

Officer, gave a brief overview of the financial status of DCS.

c. Canvassing the November 7, 2017 Special Election – DCS election results were

canvassed November 11, 2017.

d. Communications Protocol – All questions, thoughts, or comments should be

directed to Alan King, Chief Executive Officer. If questions and comments are directed

to Mike Moses, he will receive them and immediately pass them on to Alan King for his

recommendation and resolution.

e. Meeting Dates and Times – Dissolution Committee Meetings will be held at Dallas County Schools Office, located at 5151 Samuell Boulevard, Dallas TX 75228, starting at 10 a.m. Proposed future meeting dates for the next four months:

December 4, 2017

December 18, 2017

January 8, 2018

January 22, 2018

February 12, 2018

February 26, 2018

March 12, 2018

March 26, 2018 7. ADJOURNED at 11:38 a.m.

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DATED 12/04/2017

ACTION ITEMS

AGENDA

ITEM NUMBER:

3. (B)

TOPIC OF

AGENDA ITEM:

Consider Authority Approval Levels to Settle

Insurance Claims and Litigation Suits

BACKGROUND: The majority of claims to be settled are associated with

the self-insured auto liability program and are typically

settled under $15,000 at the claims adjuster level prior

to law suits being filed. All claims involving law suits

are referred to an outside counsel to negotiate either

direct or through mediation settlement. There have

been few cases that the settlement was above $50,000.

RECOMMENDATION: Consider and take action allowing the Director of Risk

Management to approve suits not to exceed $15,000;

the CEO to approve suits from $15,000.01 and not to

exceed $50,000. All claims over $50,000 must receive

committee approval.

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DATED 12/04/2017

ACTION ITEMS

AGENDA

ITEM NUMBER:

3. (C)

TOPIC OF

AGENDA ITEM:

Consider selling of the furniture located at 8035 E

R.L. Thornton Frwy

BACKGROUND: The office space occupied at this location is not being

utilized at this time. The furniture will not be needed in

the future and can be sold.

RECOMMENDATION: Consider and take action on selling the furniture to for

the agreed upon price.

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DATED 12/04/2017

ACTION ITEMS

AGENDA

ITEM NUMBER:

3. (D)

TOPIC OF

AGENDA ITEM:

Consider Approval of Contract for Legal Services

BACKGROUND:

RECOMMENDATION: Consider Approval of Contract for Legal Services

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Houston David ThompsonDallas PartnerAustin

Fort Worth

(972) 734-5490 Office(972) 534-1495 Fax

[email protected]

Thompson & Horton LLPRoss Tower, Suite 3150500 N. Akard St.Dallas, Texas 75201-3302

November 30, 2017

Dr. Mike MosesChairmanDissolution Committee for former Board of County School Trustees5151 Samuell Blvd.Dallas, TX 75228

Dear Chairman Moses:

Thank you for the opportunity to present this proposed engagement letter to provide legalservices to the Dissolution Committee for the former Board of County School Trustees(“Dissolution Committee” or “Committee”). The purpose of this letter is to describe theproposed terms on which our law firm would provide legal services and to set forth the role andresponsibilities of both Thompson & Horton LLP (“T&H”) and the Dissolution Committee.

Terms of Engagement. T&H will represent the Committee in connection with specificlegal matters as requested by the Committee. Requests for legal advice or representation on anyother specific matters will be submitted through the Committee or individuals authorized by you,such as Alan King. This Engagement Letter and Terms of Engagement (Attachment A) shallserve as the written contract between the Committee and T&H.

This letter may be supplemented or amended to reflect new matters that deviate from thecurrent engagement in complexity, scope, nature or risk, or that requires a substantial change interms and conditions.

Fees and Staffing. The current partners at T&H are Chris Borreca, Dianna Bowen, LisaBrown, Philip Fraissinet, Chris Gilbert, Sandy Hellums, David Hodgins, John Hopkins, JanetHorton, Katie Long, Carlos Lopez, Lisa McBride, Arturo Michel, Merri Schneider-Vogel,Maureen Singleton, and David Thompson; Counsel Jim Byrom, David Giddens, Holly McIntush,Jim Nelson, and Joe Tanguma; and current associates Rebecca Bailey, Frances Broussard, BradDomangue, William McElhiney, Oleg Nudelman, Van Pham, Matt Reed, Kunal Shah, AudreyShakra, Lissette Villarruel, Ben Wells, and Jessica Witte. Under this proposed engagement,Carlos Lopez and I will serve as your primary attorneys and will charge an hourly rate of $350.

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mailto:[email protected]

Mike MosesNovember 30, 2017Page 2

Other Partners and Counsel will charge a flat hourly rate of $295 and Associates’ rates will rangefrom $200-$230. Paralegals will be billed at $95 per hour.

We bill in increments of fifteen minutes. We will not require a retainer; the Committeewill be billed for services provided. Additionally, the rates charged may vary if needed, due toarrangements with involved insurance companies in litigation matters. Billing rates areevaluated on an annual basis, but any adjustments will be made only after notice to theCommittee. T&H will staff each legal and litigation matter in a manner that is most economicalto the Committee based on the nature of the project.

Under the terms of this Engagement Letter, the Committee will have specific obligationsto T&H, for example, the obligation to provide complete and accurate information to the firm. Ifyou have any questions about this document or the Committee’s rights and obligations respectingthis engagement or relationship with T&H, please feel free to contact me or any other partner ofthe firm.

It is T&H’s practice to comply with the professional standards and ethics requirementsapplicable to Texas attorneys. Based on the information of which we are aware, it does notappear that this engagement is materially adverse to any substantially related matter that T&H ishandling for other clients of the firm, with the exception of matters identified in Attachment “A”.

T&H also has previously disclosed to the Committee that David Thompson and Dr. MikeMoses from time to time are engaged to assist public school district Boards of Trustees inSuperintendent searches. Neither T&H nor the Committee anticipates that this work by Mr.Thompson and Dr. Moses will conflict with the firm’s representation of the Committee.

Please call me concerning questions about any aspect of this engagement. Additionally,please note that the Committee has the right to seek, and should consider seeking independentcounsel regarding whether to accept the terms of this agreement. If this letter and the Terms ofEngagement meet with your approval, we request that the Chairman of the Committee or AlanKing other authorized agent sign both original letters. We request that you keep one letter for theCommittee’s file and return one original to me.

Thank you again for the opportunity to provide legal services to the Committee.

Very truly yours,

THOMPSON & HORTON LLP

David Thompson

933830

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AGREED AND ACCEPTED:

______________ Dissolution Committee

Print Name

Date:

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Attachment A

Thompson & Horton LLPTerms of Engagement

Introduction

These are the Terms of Engagement adopted by Thompson & Horton LLP ("T&H") and referredto in our Engagement Letter as the basis for our representation of the Dissolution Committee(hereafter referred to as “the Client,” “the Committee” or “you”). Because this document is anintegral part of our agreement to provide representation, we ask that you review this documentcarefully. If you have any questions about this document, please contact us.

Identification of the Client

Under this engagement, our client is the Dissolution Committee and not individualappointees to the Committee, officers, or employees. In the event that the Committee requeststhat we undertake representation of a specific individual, such as an individual defendant in alawsuit, a new engagement letter will need to be prepared that defines the scope of therepresentation of the individual.

Conflicts of Interest

T&H represents many educational entities, public entities, businesses, and individuals.We attempt to identify actual and potential conflicts at the outset of any engagement.Occasionally, other clients or prospective clients may ask us to seek a conflict waiver from youso that we can accept an engagement on their behalf, or T&H may be asked to represent someonewhose interests may be adverse to you. Please do not take such a request to indicate that we willrepresent you less zealously; we make such requests because we take our professionalresponsibilities to all clients and prospective clients very seriously. Except as described below,we will not undertake representation of adverse or conflicting parties without your express andinformed consent. If conflicts arise or become apparent after work begins on an engagement, wewill comply with applicable rules of professional responsibility under state law in resolving anysuch situations.

In that regard, T&H has disclosed to the Committee that the firm regularly representsfrom time to time, public school districts that received services from Dallas County Schools andthat will receive transportation services overseen by the Committee. The firm has represented,prior to its engagement by the Committee, and continues to represent Dallas ISD, RichardsonISD and Irving ISD in transportation related matters or matters unrelated to transportation orboth. Neither T&H nor the Committee anticipates that the firm’s representation of public schooldistricts will conflict with the firm’s representation of the Committee. However, if any suchconflict should arise, the parties will promptly bring the issue to the attention of the other andattempt to resolve the issue. If the conflict is not resolved, T&H will not represent theCommittee on the issue in question, or shall withdraw from representation of the Committee

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entirely, depending on the nature of the conflict. The Committee has the right to seek, andshould consider seeking independent counsel regarding whether to accept the terms of thisagreement. By execution of this agreement, the Committee specifically acknowledges andagrees that T&H may continue to represent its public school district clients, and the Committeewaives any conflict and hereby agrees not to assert any conflict that would disqualify or in anyway impair T&H’s representation of its public school district clients. In the event of any suchconflict, T&H shall cooperate with other legal counsel secured to represent the Committee, tofacilitate an appropriate transition of representation of the Committee.

The Firm has many lawyers in different cities in Texas. Our conflicts check process willnot necessarily reveal and we do not check to determine whether other clients of the Firm may beyour competitors or may take positions on the subject matter of certain issues that may beadverse to or inconsistent with positions you favor respecting that subject matter. We ask thatyou acknowledge by signing below, that these other Thompson Horton clients may require thatwe take positions on issues in connection with other matters that are inconsistent with yourinterests in the subject matter at issue.

Our Firm may from time to time concurrently represent one client in a particular case ormatter and an adversary of that client in such case or matter in an unrelated case or matter, if it isthe Firm’s professional judgment that the Firm can undertake the concurrent representationimpartially and without any adverse effect on the other responsibilities the Firm has to eitherclient. The Dissolution Committee acknowledges that it does not consider such concurrentrepresentation in unrelated matters, to be inappropriate and consents to any such present andfuture concurrent representations.

It is also understood that the Firm has existing (and possibly future) clients whoseinterests may be or may become adverse to the Dissolution Committee’s interests. It is agreedthat the Firm will have the right to continue to represent or to undertake to represent existing ornew clients in any matter that is not substantially related to our work for the DissolutionCommittee as described above, even if the interests of such client in those other matters aredirectly adverse to the Dissolution Committee. Additionally, you expressly acknowledge thatyou understand that T&H currently represents Richardson Independent School District in CauseNo. CC-17-05829-C; James and Laura Hoag et al. v Richardson Independent School Districtand Dallas County Schools (the “Hoag matter”) pending in Dallas County Court at Law No. 3.You understand that the interests of Richardson Independent School District may be adverse tothe interests of the Dissolution Committee in the pending Hoag matter. You acknowledge thatT&H may continue to represent Richardson ISD in the Hoag matter, and that if necessary, theDissolution Committee will retain other counsel to represent the Committee in the Hoag matter.

The Committee also acknowledges that prior to the abolition of Dallas County Schools,T&H previously represented Dallas Independent School District in their dealings with DallasCounty Schools. Further, you acknowledge that the Committee consists of representatives fromindividual school districts, some of whom are currently clients of T&H. You expresslyunderstand that T&H will continue to represent these school districts, some of whom have

15


representatives on the Committee. The Committee further agrees that if a dispute should arisebetween the Committee and a new or existing firm client, with regard to representation by T&H,we may withdraw from our representation of the Committee in connection with the matter atissue, while continuing to represent the other client.

Staffing

The current Partners at T&H are Chris Borreca, Dianna Bowen, Lisa Brown, PhilipFraissinet, Chris Gilbert, Sandy Hellums, David Hodgins, John Hopkins, Janet Horton, KatieLong, Carlos Lopez, Lisa McBride, Arturo Michel, Merri Schneider-Vogel, Maureen Singleton,and David Thompson; Counsel Jim Byrom, David Giddens, Holly McIntush, Jim Nelson, andJoe Tanguma; and current associates Rebecca Bailey, Frances Broussard, Brad Domangue,William McElhiney, Oleg Nudelman, Van Pham, Matt Reed, Kunal Shah, Audrey Shakra,Lissette Villarruel, Ben Wells, and Jessica Witte.

Carlos Lopez and David Thompson will serve as your primary attorneys and will chargean hourly rate of $350. Other Partners and Counsel will charge a flat hourly rate of $295 andAssociates’ rates will range from $200-$230. Paralegals will be billed at $95 per hour. Billingrates are evaluated on an annual basis, but any adjustments will be made only after notice to theCommittee.

The Committee may, of course, choose to contact any attorney at the firm. Additionally,a certain attorney may be the most appropriate attorney to handle a specific project due thenature of the legal issues and the expertise of the particular attorney. T&H will attempt to staffeach legal and litigation matter in a manner that is most economical to the Committee based onthe nature of the project.

Fees, Billing Arrangements, and Terms of Payment

T&H issues invoices on a regular basis, normally each month, for fees and other charges.Invoices are due on presentment and are considered past due 30 days after receipt. It isimportant to review invoices that are presented each month and to bring any concerns regardingthe invoice, services or staffing to the attention of the firm within 30 days of receipt of aninvoice.

Fees for professional services and reimbursable expenses are not contingent on theoutcome of the project, matter, or lawsuit.

Clients frequently ask us to estimate the fees and other charges they are likely to incur inconnection with a particular matter. Any estimate is based on our professional judgment and thefacts and circumstances that appear at the time. As such, any estimate is subject to theunderstanding that, unless we agree otherwise in writing, it does not represent a maximum,minimum, or fixed-fee quotation. The ultimate cost frequently is more or less than the amountestimated.

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As an adjunct to providing services, we may incur and pay a variety of charges on yourbehalf or charge for certain ancillary support services. Whenever we incur such charges on yourbehalf or charge for such ancillary support services, we will bill them to you as part of yourmonthly invoice. Examples include charges for photocopying, postage, long-distance telephonecalls, travel expenses, delivery charges, computerized research, and facsimile transmissions.Outside expenses generally will be billed at cost, while some in-house expenses (e.g., copying,telecopying, and computer services) may include a reasonable allocation of overhead.

In appropriate cases, reimbursable expenses also may include overtime charges fordedicated services for secretaries and other staff. Such overtime charges will be incurred onlywith your advance permission. This particular type of charge is most likely to occur if we areworking on a project after regular business hours at your request. As a general matter, you willnot be charged for staff overtime.

It may be necessary for us to retain third parties, such as consultants, experts,investigators and court reporters, in order to represent you adequately. We will consult with youregarding recommended vendors for these services and obtain your approval for the engagementof such services, and we will comply with applicable procurement rules. Although we mayadvance third-party disbursements in reasonable amounts, we will ask you to pay larger third-party invoices (usually those over $500) directly to the third party providing the services. TheCommittee ultimately will be responsible for the payment of the invoices of those third parties.We also ask that you pay such bills promptly and send us notice of your payment.

We generally make and retain copies of all documents generated or received by us in thecourse of your representation. Should you request documents from us at the conclusion of ourrepresentation (other than your original documents), you agree to compensate the firm forreproduction charges and professional fees required to review the files.

Although an insurer’s payment of defense costs may be applied to billings of the firm, thepayment obligation remains with the Committee. Failure of any insurer to pay all or part of thebillings for any matter does not relieve you from the obligation to pay billings in full and in atimely manner.

Should the Committee’s account become delinquent and satisfactory payment terms arenot arranged, we may take steps, as permitted under the rules regulating our profession, towithdraw from the representation, cease representation, or terminate the engagement.

If the representation will require a concentrated period of activity, such as a trial,arbitration, or hearing, we reserve the right to require the payment of all amounts owed and theprepayment of the estimated fees and expenses to be incurred in completing the trial, arbitration,or hearing, as well as arbitration fees likely to be assessed. If you fail to timely pay the estimatedfees and expenses, we will have the right to cease performing further work and the right towithdraw from the representation, subject to any applicable rules of court or other applicabletribunal.

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Cooperation and Communication

To enable us to provide effective representation, the Committee agrees to: (1) disclose tous, fully and accurately and on a timely basis, all facts and documents that are or might bematerial or that we may request; (2) keep us apprised on a timely basis of all developmentsrelating to the representation that are or might be material; (3) attend meetings, conferences, andother proceedings when it is reasonable to do so; and (4) cooperate fully with us in all mattersrelating to the engagement.

Insurance Coverage

We will only represent you, and not your insurer, on matters.

Unless we specifically agree to do so, we will not evaluate any aspect of insurancecoverage, advise you with respect to such coverage, or become involved in any policy orcoverage dispute. If your matter involves coverage questions, we ask that you let us know inadvance so that we do not inadvertently transmit information to your insurer that might somehowaffect coverage.

Termination

Our engagement is “at will” and may be terminated by either of us any time by writtennotice to the other party, subject to any applicable State Bar of Texas rules regarding withdrawalof attorneys.

You may terminate the engagement at any time, with or without cause, by notifying us inwriting. The firm may terminate the engagement before the completion of its representation ofyou if (a) the continued representation would result in a violation of the applicable rules ofprofessional conduct; (b) the termination can be accomplished without material adverse effect onyour interests; (c) the firm has a fundamental disagreement with the objective in thisengagement; (d) you substantially fail to discharge an obligation regarding this engagement,including the payment of fees and expenses and the duty of cooperation as provided in the Termsof Engagement; or (e) other good cause for termination exists. In the event that the firm intendsto terminate the engagement, the firm will give reasonable notice and allow you access to yourfiles relating to this engagement.

The termination of our services will not affect your responsibility for payment of legalservices rendered and other charges incurred before termination and in connection with anorderly transition of the project.

After completion of the representation, changes may occur in the applicable laws orregulations that could affect your future rights and liabilities in regard to matters that wepreviously handled. T&H will have no continuing obligation to give advice with respect to anyfuture legal developments that may relate to the projects.

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Confidentiality and Document Retention

T&H will treat all communications received from you during the engagement asconfidential. In addition to the normal protections afforded to our clients, T&H will maintain asconfidential all documents received or generated during our representation to which anyconfidentiality provision applies.

You will have a right of access to case-related or project-related materials prepared onyour behalf. At the close of any matter, we may return relevant documents to the client, maysend remaining pertinent parts of our files to a private storage facility or may destroy certaindocuments. The attorney closing the file will determine, subject to the following paragraph andotherwise with the client, which portion should be returned to the client, which portion should besent to private storage (and for how long) and which portions are to be destroyed.

You agree that we will own and retain our own business files pertaining to theengagement and that you will not have the right or ability to require us to deliver such files (orcopies thereof) to you, including, for example, firm administrative records, time and expensereports, personnel and staffing materials, credit and accounting records, electronic mailcorrespondence (other than such correspondence which was sent to you by a member of ourfirm) and lawyer's internal work product, such as drafts, notes, and internal memoranda preparedby or for the internal use of lawyers. Further, at the discretion of the responsible partner for theproject in question, we may destroy any such documentation which is the property of the firm orany documentation which such partner determines to be duplicative or unnecessary and in allcases without having to obtain your consent.

Disclaimer

We cannot guarantee the outcome of any matter. Any expression of our professionaljudgment regarding any particular matter or the potential outcome is limited by our knowledge ofthe facts and based on the law at the time of expression. It is also subject to any unknown oruncertain factors or conditions beyond our control.

Either at the commencement or during the course of the representation, we may expressopinions or beliefs about the matter or various courses of action and the results that might beanticipated. Any expressions on our part concerning the outcome of the representation, or anyother legal matters, are based on our professional judgment and are not guarantees.

By signing the Engagement Letter or otherwise indicating your acceptance of theEngagement Letter, you acknowledge that T&H has made no promises or guarantees to youabout the outcome of the representation, and nothing in these Terms of Engagement shall beconstrued as such a promise or guarantee.

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Scope of the Representation

As you may be aware, the Treasury Department has issued Regulations, commonlyreferred to as Circular 230, that dictate how attorneys must communicate with their clientswhenever they render “written advice” on tax issues. The regulations are very broad and willfrequently restrict ordinary communications between attorney and client. We can avoid thecostly and time-consuming process of preparing a formal opinion to comply with Circular 230 byincluding a legend on written advice similar to the following: “As required by United StatesTreasury Regulations, you should be aware that this communication is not intended or written bythe sender to be used, and it cannot be used, by any recipient for the purpose of avoidingpenalties that may be imposed on the recipient under United States federal tax laws.” It isunlikely that we will be providing written advice on tax issues but if we do, unless we agree inadvance to the contrary, any written advice that we prepare for you will contain this legend.

Complaints

The State Bar of Texas investigates and prosecutes complaints of professionalmisconduct against attorneys licensed in Texas. A brochure entitled Attorney ComplaintInformation is available at all of our offices and is likewise available upon request. A client thathas any questions about the State Bar's disciplinary process should call the Office of the GeneralCounsel of the State Bar of Texas at 1-800-932-1900 (toll free).

Modification of Our Agreement

The Terms of Engagement reflect our agreement on the terms of all engagements, and arenot subject to any oral agreements, modifications, or understandings. Any change in theseTerms of Engagement must be made in writing signed by both T&H and the Committee.

We look forward to a long and mutually satisfying relationship with you and theCommittee. If at any time you have a question or concern about any aspect of ourrepresentation, please feel free to contact any partner of the firm.

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DATED 12/04/2017

ACTION ITEMS

AGENDA

ITEM NUMBER:

3. (E)

TOPIC OF

AGENDA ITEM:

Consider providing notice to terminate lease at 8035

E R. L. Thornton Frwy

BACKGROUND: Facilities were being utilized and are no longer needed

at this time.

RECOMMENDATION: Consider and take action providing a 30 day notice to

lessor terminating the lease.

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DATED 12/04/2017

DISCUSSION ITEMS

AGENDA

ITEM NUMBER:

4. (A)

TOPIC OF

AGENDA ITEM:

Financial Update

BACKGROUND:

RECOMMENDATION:

108

Dissolution CommitteeFinancial Update

December 4, 2017

109

2017-18 Budget

• The 2017-18 approved budget has an operating deficit of $7.9 million.

• The appropriations included in the 2017-18 budget were $42 million less than the previous year’s budget.

• $29 million of the reduction is the result of eliminating a budget for capital outlay, which will impact the bus replacement schedule and defer costs to the future.

• Approximately $6 million is the result of the elimination of cost for Coppell ISD, White Settlement ISD, and Weatherford ISD, who are no longer served by DCS.

• Approximately 48 positions were eliminated in January of last year, which reduced cost by approximately $2 million.

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Dallas County Schools

Budget Comparison

2016-17 2017-18 Inc (Dec)

Budget Budget

Local Revenues 118,994,606$ 94,978,582$ (24,016,024)$

State Revenue 27,121,030$ 24,236,963$ (2,884,067)$

Total General Fund 146,115,636$ 119,215,545$ (26,900,091)$

Proprietary Revenues 34,579,149$ 11,117,563$ (23,461,586)$

Total Revenues 180,694,785$ 130,333,108$ (50,361,677)$

Payroll Costs 87,629,342$ 78,041,025$ (9,588,317)$

Contracted Services 19,636,846$ 16,496,391$ (3,140,455)$

Supplies 16,587,281$ 9,184,716$ (7,402,565)$

Other Operating 4,182,854$ 8,026,767$ 3,843,913$

Debt 23,075,321$ 27,080,213$ 4,004,892$

Capital Outlay 29,632,142$ 215,980$ (29,416,162)$

Total Expenditures 180,743,786$ 139,045,092$ (41,698,694)$

111

66%

15%

19%

2016-17 Revenue by Object

Local State Enterprise

112

73%

19%

8%

2017-18 REVENUE BY OBJECT

State Local Enterprise

113

2017-18 Budget

• Debt and Payroll accounted for 76% of the total budget in 2017-18.

• Capital outlay represented 16% of the total budget in 2016-17 and less than 1% of the total budget in 2017-18.

114

49%

11%

9%

2%

13%

16%

2016-17 APPROPRIATIONS BY OBJECT

Payroll Contracted Supplies Other Debt Capital Outlay

115

56%

12%

7%

5%

20%

2017-18 APPROPRIATIONS BY OBJECT

Payroll Contracted Supplies Other Debt Capital Outlay

116

Fund Balance

• At June 30, 2017, the total Unrestricted Fund Balance had a deficit of $4.6 million.

• At June 30, 2017, the Unrestricted Fund Balance in the governmental fund was $7.9 million.117

Will the projected Deficit at June 30, 2018 increase?• The adopted budget included an operating deficit of approximately $8

million, which will increase the unrestricted deficits.

• Budget Amendment #1, which was approved in September increased the operating deficit by an additional $997,000.120

What will the deficit be at June 30, 2018?

• Based on the false assumption that the 2017-18 budget is 100% correct, the total unrestricted deficit would grow by $9 million to $13.5 million at June 30, 2018.

• Based on the false assumption that the 2017-18 budget is 100% correct, the governmental funds unrestricted fund balance would have a deficit of $1.1 million at June 30, 2018.

121

Consequences of Unrestricted Deficit Fund Balances • A lack of cash or current assets to cover operating needs.

• A need to re-prioritize spending so that available resources are utilized for the organization’s purpose of safe and dependable transportation of students.

• A need to obtain short-term financing.

• A need to liquidate fixed assets to generate cash.

• Lower bond ratings.

122

Is the estimated revenue in the 2017-18 budget correct?

123

Revenue Included in the 2017-18 Budget

• Total general fund revenue included in the 2017-18 budget is $39 million less than the previous year’s actual collections.

124

DALLAS COUNTY SCHOOLS

REVENUE COMPARISON REPORT

Fiscal Years 2014 Thru 2017 & Year 2018 Budget

FUND - - - - - TITLE - - - - - ACTUAL 2014 ACTUAL 2015 ACTUAL 2016 ACTUAL 2017 2018 BUDGET INC (DEC)199 Total General Fund 115,741,234.31$ 135,823,450.23$ 139,933,375.66$ 159,169,131.81$ 119,215,545.00$ (39,953,586.81)$

$-

$20,000,000.00

$40,000,000.00

$60,000,000.00

$80,000,000.00

$100,000,000.00

$120,000,000.00

$140,000,000.00

$160,000,000.00

$180,000,000.00

ACTUAL 2014 ACTUAL 2015 ACTUAL 2016 ACTUAL 2017 2018 BUDGET

Total General Fund Revenue

125

Revenue included in the 2017-18 Budget

• Property tax revenue increased $3.4 million over the previous year actual collections.

• The 2017 adjusted levy was $22.2 million, which will yield $21.7 million in current year tax collections.

• An adjustment will be needed to reduce estimated property revenue by $500,000.

126




FUND - - - - - TITLE - - - - - ACTUAL 2014 ACTUAL 2015 ACTUAL 2016 ACTUAL 2017 2018 BUDGET INC (DEC)199 TAXES CURRENT YR 16,117,418.06$ 17,169,930.76$ 18,482,382.13$ 18,825,668.41$ 22,289,167.64$ 3,463,499.23$

$-

$5,000,000.00

$10,000,000.00

$15,000,000.00

$20,000,000.00

$25,000,000.00


History of Property Taxes

127

Revenue included in the 2017-18 budget

• Revenue from charges for transportation services to school districts were decreased $6 million from the previous year’s actual collections.

• $1.8 million of this revenue decrease is the result of Coppell ISD switching to another bus provider. This revenue decrease is offset by a decrease in expenditures.

• Estimated Revenue from districts should not be decreased when there is a budget with an operating deficit. If the appropriation budget is correct and no further spending adjustments are made year end settlements charges to districts could be increased to cover the operating deficit.

128


Operational Billings by District

Districts 17-18 Operational Billings

Dallas 34,482,867.00$

Cedar Hill 1,598,232.00$

CFB 4,206,343.00$

Desoto 2,075,258.00$

Highland Park 241,284.90$

Irving 5,246,666.30$

Lancaster 1,636,891.00$

Richardson 5,121,021.80$

129




FUND - - - - - TITLE - - - - - ACTUAL 2014 ACTUAL 2015 ACTUAL 2016 ACTUAL 2017 2018 BUDGET INC (DEC)199 OPER COST REIMB 52,926,147.70$ 44,124,141.05$ 50,598,987.52$ 59,339,056.88$ 53,359,262.00$ (5,979,794.88)$

$-

$10,000,000.00

$20,000,000.00

$30,000,000.00

$40,000,000.00

$50,000,000.00

$60,000,000.00

$70,000,000.00


History of Operation Cost Payments by Districts

130


• Monitor payments from districts were reduced by $458,000.

• Last year’s collections included payments from Coppell ISD of $214,000.

131




FUND - - - - - TITLE - - - - - ACTUAL 2014 ACTUAL 2015 ACTUAL 2016 ACTUAL 2017 2018 BUDGET INC (DEC)199 MONITOR REIMB 6,212,193.55$ 6,613,062.65$ 6,817,449.90$ 6,710,466.54$ 6,251,628.00$ (458,838.54)$

$5,900,000.00

$6,000,000.00

$6,100,000.00

$6,200,000.00

$6,300,000.00

$6,400,000.00

$6,500,000.00

$6,600,000.00

$6,700,000.00

$6,800,000.00

$6,900,000.00


Monitor Reimbursements

132

Revenue Included in 2017-18 Budget

• Revenues from Extra Curricular services were increased by $381,000.

• Last year’s collection included $222,000 in payments from Coppell ISD for extra curricular services.

• DCS had initially planned to increase charges for these services but changed directions after the budget was approved and decided against the price increase.

• This will require a budget amendment that will decrease fund balance by $500,000.

133




FUND - - - - - TITLE - - - - - ACTUAL 2014 ACTUAL 2015 ACTUAL 2016 ACTUAL 2017 2018 BUDGET INC (DEC)199 EXTRA CURRICULAR REVENUE 7,961,607.82$ 7,068,070.45$ 7,926,840.63$ 7,868,408.84$ 8,250,000.00$ 381,591.16$

-$

$6,400,000.00

$6,600,000.00

$6,800,000.00

$7,000,000.00

$7,200,000.00

$7,400,000.00

$7,600,000.00

$7,800,000.00

$8,000,000.00

$8,200,000.00

$8,400,000.00


History of Extra Curricular Revenue

134


• Revenues from payments for the use of activity buses were increased by $442,000.

• Based on past history, this estimate appears to be overstated, and a budget amendment to reduce fund balance in the amount of $450,000 will be needed.

135




FUND - - - - - TITLE - - - - - ACTUAL 2014 ACTUAL 2015 ACTUAL 2016 ACTUAL 2017 2018 BUDGET INC (DEC)199 ACTIVITY BUS 315,888.76$ 433,954.65$ 457,787.42$ 494,623.89$ 937,000.00$ 442,376.11$

$-

$100,000.00

$200,000.00

$300,000.00

$400,000.00

$500,000.00

$600,000.00

$700,000.00

$800,000.00

$900,000.00

$1,000,000.00


History of Activity Bus Revenue

136


• Revenue from the use of coach buses was decreased $523,000.

• DCS decided to discontinue the coach bus service in 2017-18, which has resulted in a loss of this revenue stream.

• There are currently 13 charter buses in the DCS lot. In addition, some of these buses are tied to current debt instruments.

137




FUND - - - - - TITLE - - - - - ACTUAL 2014 ACTUAL 2015 ACTUAL 2016 ACTUAL 2017 2018 BUDGET INC (DEC)199 COACH BUS 365,379.09$ 408,490.96$ 446,221.72$ 523,680.10$ -$ (523,680.10)$

$-

$100,000.00

$200,000.00

$300,000.00

$400,000.00

$500,000.00

$600,000.00


History of Coach Bus Revenue

138


• Revenue from e-rate reimbursement was increased $242,000 over prior year actual collections.

• This increase is not supported by prior year’s collection trends, and a budget adjustment will be needed which, will decrease fund balance.139




FUND - - - - - TITLE - - - - - ACTUAL 2014 ACTUAL 2015 ACTUAL 2016 ACTUAL 2017 2018 BUDGET INC (DEC)199 E-RATE PRIOR YEAR 825,602.56$ 71,038.98$ 823,100.95$ 840,716.70$ 1,083,000.00$ 242,283.30$

$-

$200,000.00

$400,000.00

$600,000.00

$800,000.00

$1,000,000.00

$1,200,000.00


History of E Rate Revenue

140


• Crossing guard reimbursements from the City of Dallas are projected to decrease by $352,000.

• This entire amount may be reduced another $450,000 if the program is no longer funded by DCS along with the associated expense with an initial budget of $4.9 million.

141




FUND - - - - - TITLE - - - - - ACTUAL 2014 ACTUAL 2015 ACTUAL 2016 ACTUAL 2017 2018 BUDGET INC (DEC)199 CITY OF DALLAS CG -$ 538,977.00$ 433,818.00$ 802,780.00$ 450,000.00$ (352,780.00)$

$-

$100,000.00

$200,000.00

$300,000.00

$400,000.00

$500,000.00

$600,000.00

$700,000.00

$800,000.00

$900,000.00


History of Crossing Guard Revenue from City of Dallas

142


• Assets were sold in 2016-17, which resulted in one-time revenues of $11.3 million.

• The budget did not anticipate the sale of additional assets during the current fiscal year.143




FUND - - - - - TITLE - - - - - ACTUAL 2014 ACTUAL 2015 ACTUAL 2016 ACTUAL 2017 2018 BUDGET INC (DEC)199 PROCEEDS FROM SALE 1,103,337.50$ 2.00$ 101,834.04$ 11,306,605.27$ -$ (11,306,605.27)$

$-

$2,000,000.00

$4,000,000.00

$6,000,000.00

$8,000,000.00

$10,000,000.00

$12,000,000.00


History of Proceeds from Sales

144

Revenue Included in 2017- 18 Budget

• Total State aid from the foundation program was decreased by $390,000.

145




FUND - - - - - TITLE - - - - - ACTUAL 2014 ACTUAL 2015 ACTUAL 2016 ACTUAL 2017 2018 BUDGET INC (DEC)Total State Foundation Aid 19,115,379.26 47,112,517.37 20,433,977.00 21,273,560.00 20,883,480.00 (390,080.00)$

-

5,000,000.00

10,000,000.00

15,000,000.00

20,000,000.00

25,000,000.00

30,000,000.00

35,000,000.00

40,000,000.00

45,000,000.00

50,000,000.00


Total State Foundation Aid

146

Revenue Include in 2017-18 budget

• Last year’s budget included collections from capital lease proceeds totaling $24 million.

147




FUND - - - - - TITLE - - - - - ACTUAL 2014 ACTUAL 2015 ACTUAL 2016 ACTUAL 2017 2018 BUDGET INC (DEC)199 LOAN PROCEEDS -$ -$ -$ 23,913,912.85$ -$ (23,913,912.85)$

$-

$5,000,000.00

$10,000,000.00

$15,000,000.00

$20,000,000.00

$25,000,000.00

$30,000,000.00


History of Loan Proceeds

148


Explanation of General Fund Revenue Changes

Between 2016-17 Collections and 2017-18 Budget

Increase (Dec)

Over prior year

Property Taxes 3,463,499$

District payments for operations (5,979,794)$

District payments for monitors (458,838)$

District payments for Extra curricular 381,591$

District payments for Activity Buses 442,376$

District payments for Coach Buses (523,680)$

E rate reimbursements 242,283$

Crossing Guard payment from City (352,780)$

Sale of property (11,306,605)$

Revenue from State for insurance (390,080)$

Loan proceeds (23,913,912)$

Other (1,557,646)$

Total (39,953,586)$

149

Revenue included in 2017-18 Budget

• Revenue from tickets paid in Dallas County has been decreased by $727,000.

• Current Collections are around $185,000 per month; so further reductions will be required.

• It appear that citations are being issued by a vendor who is not under contact with DCS.

150




FUND - - - - - TITLE - - - - - ACTUAL 2014 ACTUAL 2015 ACTUAL 2016 ACTUAL 2017 2018 BUDGET INC (DEC)Total In County Stop Arm 7,133,662.33 6,196,573.69 1,675,152.27 3,549,198.12 2,822,030.00

-

1,000,000.00

2,000,000.00

3,000,000.00

4,000,000.00

5,000,000.00

6,000,000.00

7,000,000.00

8,000,000.00


In County Stop Arm Revenue

151


• The revenue from FXS was increased from the previous year’s collections by $3.2 million.

• No proceeds have been received at this point in time so the revenue budget is overstated by $4.8 million.

• A budget amendment to reduce fund balance by $2.5 million will be needed to decrease the revenues and expenditures associated with this contract.

152




FUND - - - - - TITLE - - - - - ACTUAL 2014 ACTUAL 2015 ACTUAL 2016 ACTUAL 2017 2018 BUDGET INC (DEC)471 PROGRAM ADMIN FEES -$ -$ -$ 1,600,000.00$ 4,800,000.00$ 3,200,000.00$

$-

$1,000,000.00

$2,000,000.00

$3,000,000.00

$4,000,000.00

$5,000,000.00

$6,000,000.00


Contract Payments for FXS

153


• Payments received for out of district transportation services have been reduced $2.6 million.

• This is the result of no longer providing services to Weatherford ISD and White Settlement ISD. Last year the district received $2.5 million from these districts for transportation services.

154




FUND - - - - - TITLE - - - - - ACTUAL 2014 ACTUAL 2015 ACTUAL 2016 ACTUAL 2017 2018 BUDGET INC (DEC)711 OPER COST REIMB 2,795,553.00$ 3,247,930.06$ 3,371,023.63$ 4,631,610.12$ 2,043,705.00$ (2,587,905.12)$

$-

$500,000.00

$1,000,000.00

$1,500,000.00

$2,000,000.00

$2,500,000.00

$3,000,000.00

$3,500,000.00

$4,000,000.00

$4,500,000.00

$5,000,000.00


Out of County Transportation Services

155

Revenue Included in the 2017-18 Budget

• State aid for out of county transportation services did not change.

156




FUND - - - - - TITLE - - - - - ACTUAL 2014 ACTUAL 2015 ACTUAL 2016 ACTUAL 2017 2018 BUDGET INC (DEC)711 TEA STATE AID 611,013.23$ 608,757.69$ 595,555.00$ 692,290.73$ 692,291.00$ 0.27$

$540,000.00

$560,000.00

$580,000.00

$600,000.00

$620,000.00

$640,000.00

$660,000.00

$680,000.00

$700,000.00


State Revenue for out of county transportaion

157


• Revenues for technology services in fund 7117 were decreased $1.9 million from the previous year.

• This is offset by a decrease in fund 7117 expenditures of $2.3 million.

• For fiscal year ending June 30, 2017, technology expenditures exceeded technology revenues in fund 7117 by $400,000.

158




FUND - - - - - TITLE - - - - - ACTUAL 2014 ACTUAL 2015 ACTUAL 2016 ACTUAL 2017 2018 BUDGET INC (DEC)711 TECH 2,235,807.93$ 2,629,554.79$ 2,156,267.98$ 1,978,559.70$ -$ (1,978,559.70)$

$-

$500,000.00

$1,000,000.00

$1,500,000.00

$2,000,000.00

$2,500,000.00

$3,000,000.00


History of Technology Revenues

159

How will identified budget estimates impact fund balance?• A budget amendment will be needed to decrease fund balance by

$6.2 million.

• After this amendment, the operating deficit will be approximately $15 million.

• The June 30, 2018, total unrestricted budgeted fund balance will have a deficit of $19.6 million.

• The June 30, 2018, governmental funds unrestricted budgeted fund balance will have a deficit of $7.1 million.

160


Possible Budget Amendment

Revenue Inc (Dec)

Property Taxes (500,000)$

Extra Curricular (500,000)$

Activity Buses (450,000)$

E Rate (242,000)$

Out of County Stop Arm (4,800,000)$

In County (2,000,000)$

Total (8,492,000)$

Expense

Out of County Stop Arm (2,300,000)$

Impact on Fund Balance (6,192,000)$

161

Other Issues Impacting Fund Balance

• If the 2017-18 revenue from operations was budgeted correctly, most of the remaining budget variances will be offset by corresponding changes in budgets for revenues and expenses. In the past this was accomplished at year’s end via a settle up with districts.

• The year-end settle up will need to be projected, billed and collected prior to year end.

• The use of resources must be re-prioritized so that district can focus on stated purpose of safe and dependable transportation of students.

• Outstanding Debt has reduced net position.

162

DISSOLUTION COMMITTEE OF Former DCS Board of Trustees

Outstanding Debt - All Obligations

Effective December 1, 2017, Through Maturity

Debt Instrument Principal Interest TOTAL Use of Debt Proceeds

Note Payable - Preston Hollow Capital 709,290.65$ 2,660.95$ 711,951.60$

Acquisition of business license to operate Stop Arm

Program in Texas

Note Payable - Texas Capital Bank 14,223,959.47 2,046,475.45 16,270,434.92 Acquisition of School Buses and camera equipment

Note Payable - Wells Fargo Leasing 7,212,061.23 803,105.17 8,015,166.40 Acquisition of School Buses and camera equipment

Tax and Revenue Anticipation Note 8,750,000.00 420,182.00 9,170,182.00 Short-term borrowing for working capital

Equipment Lease, Contract #20150625-01 1,934,788.31 176,927.44 2,111,715.75 Acquisition of School Bus camera equipment



Equipment Lease, Contract #20150625-04 614,166.64 70,661.38 684,828.02 Acquisition of School Bus camera equipment




Equipment Lease, Contract #20150625-08 951,008.61 117,065.84 1,068,074.45 Acquisition of School Bus camera equipment





Equipment Lease, Contract #20150306-03 958,001.31 117,926.63 1,075,927.94 Acquisition of School Bus camera equipment

Public Property Finance Contractual Obligations, Series 2012 2,380,000.00 23,800.00 2,403,800.00 Acquisition of School Buses and camera equipment

Public Property Finance Contractual Obligations, Series 2012-A 6,290,861.01 670,642.08 6,961,503.09 Acquisition of School Buses and camera equipment

Public Property Finance Contractual Obligations, Series 2013 6,770,355.18 722,041.39 7,492,396.57 Acquisition of School Buses and camera equipment

Public Property Finance Contractual Obligations, Series 2014 14,255,000.00 2,298,100.00 16,553,100.00 Acquisition of School Buses and camera equipment

Public Property Finance Contractual Obligation, Taxable Series 2014 6,095,000.00 917,887.50 7,012,887.50 Acquisition of School Buses and camera equipment

Public Property Finance Contractual Obligations, SERIES 2012-B 11,680,000.00 795,900.00 12,475,900.00

Purchase of School of School Bus camera equipment for

outside Dallas County

Corporate Trust Lease - Total Rent Due on Leased Service Centers 40,539,793.18 - 40,539,793.18 General operations, including Stop Arm debt obligations

Totals As of December 1, 2017 134,056,432.05$ 10,245,935.11$ 144,302,367.16$

163

Due Date Vendor Amount Payment Type Description of Payment

11/24/2017 Leasing Inovations 157,070.00 ACH Camera Equipment for sublease with FMS

12/1/2017 Preston Hollow 355,975.76 Wire Business License Promissory Note

12/1/2017 Corporate Trust Lease 187,402.98 Wire Property Lease

12/1/2017 Lakeside Bank 98,953.96 Wire Camera Equipment for sublease with FMS

12/1/2017 Leasing Inovations 58,116.00 ACH Camera Equipment for sublease with FMS

12/1/2017 US Bank 2,403,800.00 Wire 2012 Bond

12/1/2017 US Bank 1,520,175.00 Wire 2012A Bond

12/1/2017 US Bank 192,481.25 Wire 2012B Bond

12/1/2017 US Bank 195,225.00 Wire 2013 Bond

12/1/2017 US Bank 320,925.00 Wire 2014 Bond

12/1/2017 US Bank 101,388.75 Wire 2014 Bond

12/8/2017 Lakeside Bank 71,728.53 Wire Camera Equipment

12/8/2017 Prime Alliance 56,023.00 ACH Camera Equipment

12/10/2017 Lakeside Bank 174,521.97 Wire Camera Equipment for sublease with FMS

12/11/2017 Grinnell State Bank 239,650.00 ACH Camera Equipment

12/14/2017 Wells Fargo 105,201.20 Wire Lease of Buses and Camera Equipment

12/14/2017 Growth Funding 71,205.96 ACH Camera Equipment

12/15/2017 Origin Bank 165,446.82 Wire Camera Equipment

12/15/2017 Leasing Inovations 57,069.00 ACH Camera Equipment

12/21/2017 Texas Capital Bank 60,575.10 Wire Lease of Buses and Camera Equipment

12/22/2017 Growth Funding 34,032.78 ACH Camera Equipment

1/15/2017 Willmington Trust 2,350,911.00 Wire 2017 Tran



Total Amount Due 15,797,140.06

164

What is current cash position?

• DCS did not borrow enough funds to resolve cash flow issues.

• The tax and revenue anticipation note agreement requires the deposit of taxes into an escrow agreement.

• DCS has not complied with the required escrow agreement.

• DCS has been holding checks in order to meet payrolls. If the Escrow agreement is followed and all payments are released the cash balance at December 1 would be overdrawn by $400,000. At December 31, 2017, the cash overdraft would grow to $3.7 million.

• DCS is currently projected to have a year end cash balance of $700,000.

165


Projection of Cash Position

Per June 30, 2017 Unaudited Financials

Governmental

Cash 6,926,848$

Due from other Govt 15,151,305$

Proprietary Funds

Cash 3,079,766$

Due from other Govt 1,989,457$

Cash Available 27,147,376$

Governmental

Liabilities 8,763,134$

Proprietary Funds

Accounts Payable 1,905,552$

Accrued Interest 166,194$

Due to other Govt 529,274$

Deficit Budget 15,000,000$

Cash Uses 26,364,154$

Cash June 30, 2018 783,222$

168


DATED 12/04/2017

DISCUSSION ITEMS

AGENDA

ITEM NUMBER:

4. (B)

TOPIC OF

AGENDA ITEM:

Consider providing the City of Dallas a 30 day notice

that Dissolution Committee will no longer be

providing Crossing Guards.

BACKGROUND: Per an Interlocal Agreement signed and dated July 18,

2012, the City of Dallas has received Crossing Guard

Services from Dallas County Schools. The District has

budget expenses of $4.9M for this program

RECOMMENDATION: In order to reprioritize our resources, committee

approval is requested to provide the 30 days written

notice at the next committee meeting.

169

Year Crossing Guard Salary ssing Guard Supp Total

2013‐2013 2,834,264.00 26,592.00 2,860,856.00

2013‐2014 3,249,663.00 3,358.00 3,253,021.00

2014‐2015 3,638,786.00 89,783.00 3,728,569.00

2015‐2016 3,997,872.00 54,643.00 4,052,515.00

2016‐2017 4,137,022.00 22,224.00 4,159,246.00

2017‐2017 YTD 1,176,009.00 4,633.00 1,180,642.00

Public Schools

Dallas ISD

Richardson ISD

CFB ISD

Plano ISD

Mesquite ISD

Highland Park ISD

Charter Schools

Trinity Basin

Life School

Parochial Schools

St. Thomas

St. Monica

All Saints

Crossing Guard Services

City of Dallas Schools Served

170


DATED 12/04/2017

DISCUSSION ITEMS

AGENDA

ITEM NUMBER:

4. (C)

TOPIC OF

AGENDA ITEM:

School Year

BACKGROUND: The Dissolution Committee can determine the last day

of operations from a range of days but no later than

August 31, 2018

RECOMMENDATION: Meeting with Districts will be conducted to determine

any future recommendations.

182


DATED 12/04/2017

INFORMATION ITEMS

AGENDA

ITEM NUMBER:

5. (A)

TOPIC OF

AGENDA ITEM:

Weaver Report

BACKGROUND: The limited scope review performed by Weaver at a

cost of $132,119 is attached for your information.

RECOMMENDATION:

183

weaver Assurance • Tax • Advisory

65 14 v- .255.870,00

92.130,00 150.264,00 370.454,00 65.807,00

3.266.410,00 20.147,00

325.612,00 5,012.569 00 045.7

Report of Forensic Accounting Investigations:


November 28, 2017

By:

Jeffrey G. Matthews, CPA, CFE National Partner in Charge, Forensics and Litigation Services Direct: 972 448 [email protected]

12221 Merit Drive, Suite 1400 Dallas, Texas 752511weaver.com

Page 1 Weaver L.L.P.

Forensic Accounting Services

184

weaver Assurance ,aA 'Advisory _

November 28, 2017

Alan King Dallas County Schools 5151 Samuell Blvd. Dallas, TX 75228

Dear Mr. King:

Thank you for providing Weaver with this opportunity to conduct forensic accounting services to Dallas County Schools. We are pleased to submit our final report.

If you have any questions regarding this information, or need additional infonnation upon which to base your decision, please do not hesitate to contact me at (972) 448-9280.

Very truly yours,

Weaver L.L.P.

1.(2244A a

Jeffrey G. Matthews, CPA, CFE National Partner-in-Charge Forensics and Litigation Services

Weaver L.L.P. Page 2


185

weaver Assurance iOA • Advisory

I. INTRODUCTION

I am a partner-in-charge in the Forensics and Litigation Services group of Weaver based in Dallas,

Texas. Dallas County Schools ("DCS") retained me to provide forensic accounting services in

connection with the Stop-Arm Camera Program and transactions surrounding the sale of certain

real properties, known as the Sale-Leaseback Transaction. In addition, DCS requested

recommendations regarding their contract processes in particular, and a corrective action plan, as

needed.

Weaver is the largest independent accounting firm in the Southwest. Weaver has offices

throughout Texas, as well as California, New York and Connecticut. Weaver's Forensics and

Litigation Services group focuses on all stages of the litigation process: discovering and

documenting evidence, reconstructing events, conducting interviews, analyzing complex financial

transactions, and providing expert testimony, among others.

A copy of my CV is attached to this Report as "Exhibit A". As set forth therein, I have significant

experience as a qualified expert (admitted by multiple state and federal courts) in financial

investigations, forensic accounting, and litigation support. I have spent twenty-two years

practicing for Big Four accounting firms, consulting firms, and state, local, and federal

Governmental bodies. I have analyzed and testified on damages arising from breach of contract,

breach of fiduciary duty, fraud, diminution of value, and misappropriation of trade secrets claims,

among others.

Weaver is being compensated for my time in this matter at an hourly rate of $435. Rates of

consultants working under my direction range from $135 to S295. Weaver's compensation is not

dependent on the outcome of this matter.

Our analysis is limited in scope to the two transactions mentioned above, as well as to the

information provided as of November 9, 2017. While we had access to certain publicly available

third party information, we do not have subpoena power, and thus, we cannot require witnesses

and vendors to cooperate or produce documents. As such, our analysis is limited and preliminary

Weaver L.L.P. Page 3 Forensic Accounting Services

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weaver Assurance bak Advisory

at this time. Exhibit B represents a complete list of the documents I reviewed. As I receive and

review additional information, I reserve the right to supplement my report as needed.'

II. BACKGROUND

DCS was founded in 1846 as the first school district in Dallas County. Over time DCS became an

agency, providing services to newly created independent school districts and government entities

in Dallas County. In 2012, DCS created Texserve as a DBA, providing services and solutions to

districts and government entities outside of Dallas County, throughout the state of Texas.2 The

primary services include student transportation services. DCS currently operates a fleet of over

2,000 buses transporting more than 75,000 students each day. In 2016, School Bus Fleet Magazine

ranked DCS #5 of the top 100 School District Fleets. DCS also provides additional services,

including a School Bus Safety Program, a police department, risk management offerings and a

Crossing Guard Program.3 Previously, DCS provided various technology services and solutions

to a number of school districts throughout the state.

In 2014, DCS entered into an agreement4 with FMS to purchase the exclusive license for the state

of Texas to market and sell camera systems and provide services for the Stop-Arm Camera

Program. In 2015, DCS (after a REP) sold, and leased back four service center properties to

Wedgewood in an effort to provide capital. I have listed the parties involved in these two

transactions, as it appears they are all related.

• FMS: Force Multiplier Solutions, Inc. ("FMS") was established in 2009. FMS developed

bundled solution products trademarked BusGuard systems specifically designed to address

security and safety needs of the transportation industry, particularly logistical issues related

to driver performance, fleet management, and on time performance.5 Robert Leonard owns

FMS and serves as its Director and Executive Vice President.

1 My analysis is based on documents I was provided through November 9, 2017. 2 www.dcschools.com/about-us/history/ accessed on August 9, 2017. 3 http://www.dcschools.com/about-us/ accessed on August 24, 2017. 4 Asset Purchase Agreement ("APA") dated February 28, 2014.

http://asinc.com/about/ accessed on August 9, 2017.


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weaver Assurance ,ay, • Advi )ry

• Equipment Leasing Group of America, LLC. ("ELGA") is an equipment leasing company

that offers custom equipment leasing solutions.6 ELGA is located in Northfield, Illinois

and founded in 2009. Brian Trebels, son of Rudy Trebels, serves as the Chief Executive

Officer of ELGA.7

• Elf Marketing LLC. DBA Slater Swartwood Jr., ("Elf Marketing") is a Marketing

Consulting Services company located in Austin, Texas and founded in 2012.8

• 2015 Acquisitions 5, LLC. c/o Wedgewood Investment Group, LLC. ("Wedgwood") is a

private Commercial Real Estate Investment Management fitiji assisting real estate

companies and developers finance the construction, acquisition, re-capitalization and

development of real property assets.9 Lee A. Trebels aka Rudy Trebels serves as the

registered agent of Wedgewood.

• DCS paid real estate broker commission to Anrock Realty for the sale transaction.1°

Anrock Realty Services, LLC. ("Anrock Realty") is a Real Estate Brokers and Agents

company located in Harahan, Louisiana and founded in 2012.11 Slater Swartwood serves

as the Manager and owner of Anrock Realty. See Table 1 for Organization Relationship

Chart for details.

6 www.elgallc.com/ accessed on August 9, 2017. 7 Background Investigation of ELGA was completed on July 17, 2017; per email from Brian Trebels to DCS, dated November 16, 2017, it appears that ELGA is associated with Equipment Lease and Finance Association ("ELFA"). 8 www.buzzfile.com/business/Elf-Marketing-LLC accessed on August 9, 2017. 9 www.wedp_ewoodllc.com/ accessed on August 9, 2017. 1° Seller's Final Settlement Statement. 11 www.buzzfile.com/business/Anrock-Realty-Services-LLC accessed on August 9, 2017.


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- County

Loans Dcs money and pays for cameras pays finders fee

RickSorrek approved

Believed to share the same apartmelt complex unit in New Orleans, LA

Elf Mario--ting LLC [Swartwoo4 Jr.)

Force Multiplier Sdutions LLC

lLe_onard)

Leusiing Group of

Arnerfaci,LIC

Common agent Tzetf,••

Same aclarers

weaver Assurance 10X Advisory

Stop-Arm Cameras Land Lease-Back

Mr_ Swartwood Jr. is the son of Sla er waft,' Sr.

Table 1. Organizational Relationship Chart

III. SUMMARY OF INVESTIGATION

We analyzed DCS' Stop-Arm Camera Program and transactions surrounding the sale of certain

real estate property, known as the Sale-Leaseback Transaction.12 Further, we have provided

suggestions for DCS' contract processes and a corrective action plan. My review, results and

recommendations can be broken down into the following four categories:

A. Stop-Arm Camera Program

B. Sale-Leaseback Transaction

C. Conflict of Interest

12 Our analysis of the Stop-Arm Camera Program and Sale-Leaseback Transaction is different from a fmancial statement audit, which is perfolined under AICPA and GAAS to provide a reasonable assurance of whether the financial statements are fairly stated in all material respects.



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D. Policies and Procedures Compliance Review (which will be concurrent to the investigative

procedures above)

In connection with the executive summary, I relied on infonnation and documents provided by

DCS, discussions with DCS employees and board members, publicly available information, such

as Board minutes, online investigative databases, and my own experience in analyzing transactions

similar to those surrounding the Stop-Arm Camera Program and the Sale-Leaseback

Transaction (see "Exhibit B").

I also considered the memorandums issued by Denshaw Group LLC ("Denshaw Group"), a private

investigations film previously hired by DCS. Denshaw Group conducted the following interviews:

Dr. Rick Sorrells, DCS Superintendent; Alan King, fanner DCS Interim CFO; Martin Clarke, DCS

then the Interim CFO (current Executive Director); Wesley Simmons, then the Payroll and

Accounts Payable Manager (current Payroll Manager); Peggy Coffman; Leatha Mullins, Assistant

Superintendent/Chief Information Officer; Marie Anderle, point of contact for investigators to

schedule interviews and acquire records; and JP Burd, Interim Executive Director of

Transportation.13 I noted that the Denshaw Group report failed to reference documents they

reviewed or considered. The report did not mention any procedures taken to corroborate

statements made by the interviewees. I also understand that the relationship between Denshaw

Group with DCS is strained due to the perceived lack of supporting documentation to statements

contained in their report, as well as numerous disagreements regarding their approach. On

November 3, 2017, DCS provided us with a voicemail from a Denshaw representative. The

representative stated the report was not intended to be final or forensic. As such, I used the

Denshaw Group's interview notes to request documentation and gain an understanding of the

transactions' background.

I was further told that the computer forensic firm mentioned in the Denshaw memorandum,

Pathway Forensics, provided no work product, analysis or findings. I have informed DCS that his

analysis could yield additional clarity into the anomalies discussed earlier herein, and I highly

recommended completing the computer forensic analysis.

13 Several of these staff have new titles or are no longer with DCS.



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weaver Ass c -once tax Advisory

Lastly, I relied on interviews with DCS management. I spoke with DCS General Counsel Amanda

Davis, and Interim Superintendents Leatha Mullins and Gary Lindsey. I also attempted to

interview Larry Duncan and Dr. Sorrells. Mr. Duncan was President of the DCS board during the

time these transactions were approved. Founer DCS Superintendent Dr. Sorrells approved the

Asset Purchase Agreement ("APA") dated February 28, 2014 (an agreement between DCS and

FMS to purchase an executive license in Texas to market and sell the camera systems and provide

services for the Stop-Arm Camera Program), the Real Estate Purchase Agreement, and the Board

Minutes ratifying the Stop-Arm Camera Program and Sale-Leaseback Deal. However, Mr.

Duncan failed to respond to our request, despite multiple attempts. Mr. Duncan resigned on

October 13, 2017. And while responsive, we encountered multiple scheduling conflicts in meeting

with Dr. Sorrells, and were unable to meet prior to issuing this report, or ahead of the real-estate

allegations that surfaced in the media on October 15, 2017.

A. Stop-Arm Camera Program

DCS sought to increase students' safety by installing Stop-Arm Camera on its entire fleet of buses

to detect drivers who run the stop signs. FMS would then issue citations to drivers who violated

this safety rule on behalf of DCS.

DCS submitted a Request for Proposal ("RFP") on December 19, 2008.14 The RFP was broken

down in three phases. Per conversation with DCS' personnel, approximately 20 vendors

responded to the RFP. Among these vendors, Ongo Live, Inc. ("Ongo")15 and Gatekeeper were

the vendors that could meet DCS' criteria for all three phases. I saw no evidence that DCS

performed background or reference checks for Ongo or FMS. Nonetheless, DCS chose Ongo,

which was subsequently purchased by FMS in 2012. 16

Through my review of documents provided to date, I identified significant examples of potential

waste and abuse related to the Stop-Arm Camera Program.

14 RFP 01-28-09-01 Transportable Audio Video Solutions. 15 Per the Assignment Agreement dated April 25, 2012, FMS purchased the assets of Ongo, including the agreement between Ongo and DCS to purchase school bus video monitoring systems pursuant to DCS RFP #01-28-09-01. 16 Ibid.


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weaver Assurance d wry -

1. Waste and/or Abuse

The APA between DCS and FMS does not specify the quantity of equipment to be purchased,

nor did I see any receiving documents or other evidence of cameras being delivered. As a

result, it is nearly impossible for DCS to complete an inventory reconciliation at the time. For

example, based on the ELGA agreements and schedules prepared by or for Weaver, I was able

to identify the number of cameras purchased, yet we received no records indicating how many

were actually delivered. Further, I was told that FMS determined which purchased cameras

would ultimately be installed on the buses and activated to capture violators. In fact, DCS

management told me that a large portion of cameras installed were deactivated when DCS

entered into the Service Agreement in January 2017 due to the lack of citations issued in the

previous 6 month or yearlong period. This has a detrimental impact on revenue, which I

discuss later.

Records from fiscal year 2016 (as of June 30, 2016) show that DCS purchased 5,811 cameras,

yet only installed 2,248." Nonetheless, DCS continued to purchase units. It is unclear why

DCS spent approximately $11 million for additional 1,300 units when DCS had, or should

have had 3,300 units available in inventory. See Table 2. Summary of Cameras Purchased

from FMS.

17 The schedule prepared by Weaver is based on the review of all contracts where cameras were purchased in fiscal year 2016. Martin Clarke, DCS the Interim CFO (current Executive Director) provided installation costs for cameras for fiscal year 2015 and fiscal year 2016 based on the invoices incurred in fund 471 (Fund 471 is general ledger capturing all costs associated with installing cameras). It should be noted that DCS was unable to provide Weaver installation reports for camera and only provided a list of the cameras installed.


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weaver Assurance • faA -Advisory

ameras purchased from FMS Source: ELGA Agreements and Bank Transfers 2015 -2017 (provided by DCS) and Schedules prepared by Weaver as of June 30, 2016

No. Description Total Amount No. of Units No. of Units

Installed No. of Units in

Inventory Notes

1

Cameras purchased with financing

through 2012 bonds and ELGA $41,745,650 5,811 2,448 3,363 Paid by ELGA loans and 2012 bonds

2 Cameras purchased then leased to FMS $8,400,000 975 N/A N/A

Cameras purchased through ELGA loans and leased back to FMS

for notes receiable for a total of $8.4 million in principal.

3 Prepaid cameras $2,999,990 334 334 - Cameras pre-paid by DCS.

Per Weaver's discussion with Scott Peters, Director of Support

Services at DCS, on 4/10/17, the camera's received were

simultaneously installed onto buses in several locations around

Texas. Scott Peters provided installation reports that noted the

bus number that was on the invoice upon receiving the cameras.

Per Weaver's discussion with Martin Clark, they were installed

within DCS's Texserve Fund (out of county) in FY17 (147 -Judson

ISO, 26-South San Antonio ISO, and 161- Pflugerville !SD).

Table 2. Summary of Cameras Purchased from FMS

In 2017, after the fiscal year 2016 financial statement audit and the schedule referenced above,

DCS' leadership changed, and they sought to improve their operations. As part of the

improvements, DCS performed a physical inventory of cameras on hand.18 Based on the

inventory reconciliation performed, DCS identified approximately 5,558 units were delivered,

and approximately 4,972 units were installed.19 DCS had no explanation as to why the business

records were inconsistent with the physical inventory, nor was I afforded the opportunity to

assess the procedures undertaken to complete the inventory.

2. Operating Effectiveness

I have seen no evidence that DCS performed any due diligence, conducted a "pilot program"

or analyzed the results of other school districts prior to entering into the FMS agreements,

which would have helped them assess the viability of this program.2°

DCS did provide their preliminary "projections", which contained estimated ticket revenue for

2014 _2015.21 DCS' goal was to collect approximately 86% of the issued citations. However,

18 The DCS reconciliation includes analysis of FMS' records, DCS' records, as well as conducting an inventory walkthrough in all warehouses. 19 Stop Arm Kits Master prepared by DCS. 20 "Professional Services" agreement dated July 1, 2012, and APA. 21 2014 —2015 Estimated Ticket Revenue provided by DCS.



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weaver Assurance tax Advisory

Total Amount Total Amount Current

Collected Outstandinkli Collection Rpi-ti 20,853,664.14 $19,792,061.09 51%' 73%! 40,645,725.23

Potential Violations Citations

Jurisdiction Submitted to DCi Issued by De • 22 Partici pate d Ju risdictions: 185,529 136,345 '

'Summary of Citation Monthly Report

,Source: Citation Monthly Report - All Jurisdictions.xls (provided by DCS)

Period: Oct 2012 - March 2017 (varies for each jurisdition)

percentaLJ Total Amount Dui 7.1

records indicate that DCS only collected one half of the issued citations. See Table 3. Summary

of Monthly Citation Report.

Table 3. Summary of Monthly Citation Report

Per my review of the financial records, DCS has spent a total of approximately $70 million for

the program from the beginning of 2012 to mid-year 2017.

Summary of DCS Payments related to Stop-Arm Camera Program

Period: January 2012 to June 2017

Sources: Check registers and bank transfer registers provided by DCS

No. Name Associated with Total Payments

1 Force Multiplier Solutions Inc. or LLC Robert Leonard 21,388,169

2 ONGO LIVE, INC. Robert Leonard 29,594,786

3 Robert Leonard Robert Leonard 280,201

4 Elf Marketing/Slater Swartwood Slater Swartwood Jr. 198,250

5 ELGA Stop-Arm Financing 952,800

6 Grinnell State Bank Stop-Arm Financing 958,600

7 Growth Funding Equipment Finance Stop-Arm Financing 71,206

8 Origin Bank Stop-Arm Financing 1,246,003

9 Prime Alliance Bank Stop-Arm Financing 168,066

10 Preston Hollow Capital, LLC Stop-Arm Financing 9,967,321

11 Lakeside Bank Stop-Arm Financing 2,528,231

12 Leasing Innovations Stop-Arm Financing 2,605,115

Total 69,958,747

Table 4. Summary of DCS Payments related to Stop-Arm Camera Program



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weaver Assurance tax Aawsory

Stop-Arm Camera Revenue vs Cash Expenditures

I Cash Expenditures

II Stop-Arm Cameras Revenue

FY2013 FY2014 FY2015 FY2016

$30,000

$25,000

$20,000

$15,000

$10,000

$5,000

$-

Th

ou

san

ds o

f d

olla

rs

Financial records also show Stop-Arm Camera revenues declined significantly in fiscal year

2016 and have failed to cover their related expenditures.22

Table 5. Stop Arm Camera Revenue vs. Cash Expenditures

As a result of the annual debt service requirements, DCS debt payments will total $22 million

between 2016 and 2018. However, the declining income from the stop-arm-program will not

support the debt repayments.23 As disclosed in the DCS 2016 Comprehensive Annual Financial

Report, during fiscal years 2013, 2014, and 2015, the Student Safety/Stop Arm Camera Program

experienced collectability challenges and declining revenues. The program operated at a deficit

by incurring operating losses and negative changes in net position and cash flows. 24

22 DCS started generating revenues from Stop-Arm Camera program in fiscal year 2013. Revenue for fiscal year 2017 is currently not available. Cash expenditures are payments made related to Stop-Arm Cameral Program, calculated based on check registers and bank transfer registers. Revenues are as reported on the Comprehensive Annual Financial Reports. 23 Comprehensive Annual Financial Report. 24 2016 Comprehensive Annual Financial Report, note 18. Going Concern, p. 64.


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weaver Assurance la. • Advaory _

At the end of fiscal year 2016, the loss from the Stop Aim Camera Program exceeded $8 million.25

Stop-Arm Camera Gains and/or Losses

FY 2012 FY 2013 FY 2014 FY 2015 FY 2016

Th

ou

san

ds $0

-$1,000

-$2,000

-$3,000

-$4,000

-$5,000

-$6,000

-$7,000

-$8,000

-$9,000

Stop Arm Gains/Losses

Table 6. Stop-Arm Camera Gains and/or Losses

It is clear this program cannot be effective under the current structure. I have had extensive

discussions with DCS, and collectively, with objective outside counsel. I understand that FMS is

under new management, and that DCS is actively seeking to rescind and renegotiate the contracts

to include terms that are more amicable. Additional changes to the controls surrounding vendor

selection and approval process are discussed in depth later in the report.

B. Sale-Leaseback Transaction

In 2015, DCS' Board unanimously approved the sale of the four service center properties to help

DCS' financial situation.26 I reviewed Board Minutes during the time of the transaction and DCS'

Comprehensive Annual Financial Reports from fiscal years 2013 through 2015. The results of my

analysis are as follow:

25 2016 Comprehensive Annual Financial Report, p. 26. 26 DCS Board Minutes on February 26, 2015.


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weaver Assurance Vox Advisory

1. Financial condition of DCS at the time of sale

The land sale-leaseback transaction occurred in June 2015.27 I reviewed DCS'

Comprehensive Annual Financial Reports for fiscal years 2013, 2014 and 2015 to assess

the financial condition of DCS before the Sale. My review shows DCS' net position

deteriorated since fiscal year 2012, after the Stop-Arm Camera program was implemented

in fiscal year 2013.

DCS' Net Losses

FY2012 FY2013 FY2014 FY2015 FY2016

Th

ou

san

ds

of do

llars

(5,000)

(10,000)

(15,000)

(20,000)

(25,000)

(30,000)

(35,000)

Table 7. DCS' Net Losses

27 Seller's Final Settlement Statement.


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weaver Assuranc Jim .Advaory

Further, Comprehensive Annual Financial Reports show DCS' Long-Term Liabilities28

have been increasing each year from fiscal year 2012 to fiscal year 2016.29

DCS' Long-Term Liabilities

Th

ou

san

ds

of

do

llars

140,000

120,000

100,000

80,000

60,000

40,000

20,000

-

FY12 FY13 FY14 FY15 FY16

Table 8. DCS' Long-Term Liabilities

2. Impact of Stop-Arm Camera Program on DCS' financial condition

In fiscal year 2013, DCS issued an $18.2 million Series 2012-B bond to purchase the

equipment used in the Stop-Arm Camera Program.3° In addition to the Series 2012-B, in

fiscal year 2014, DCS issued a privately financed note payable to FMS for $18 million to

finance the purchase of a software license and franchise rights to operate a student safety

program on a fee-for-service program basis within Texas. Additionally, in fiscal year 2016,

DCS entered into twelve separate promissory notes payable to ELGA at a total cost of

$20.8 million to finance the purchase of additional digital video equipment and software.

The increased borrowings required to finance the investment in the Stop Arm Camera

Program resulted in a tremendous increase in DCS long-term debt repayment obligations.

28 Long-Tenn Liabilities include governmental activities and business-type activities (Stop-Arm Camera program). 29 Comprehensive Annual Financial Report for fiscal years 2012 through 2016. 3° 2013 Comprehensive Annual Financial Report, p. 14.


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weaver ,-,ssurance 'a.' • Advisory

Long-Term Debt Outstanding

$50,000

rt $45,000

-0 $40,000

ID $35,000

$30,000 rts

$25,000

-1? $20,000

$15,000

$10,000

$5,000

$0

FY2012 FY 2013 FY 2014 FY 2015 FY 2016

long-term Debt outstanding

Table 9. Long-Term Debt Outstanding

At the end of fiscal year 2014, DCS had generated a loss of $303,52231 for the Dallas

County Stop-Arm and TexServe Stop-Arm combined.32 In February 2015, DCS decided

to sell the land properties to provide additional capital to sustain the DCS operations.

3. Options considered other than the sale transaction

DCS submitted an RFP on February 4, 2015. Two vendors responded to the RFP on

February 18, 2015.33 I have seen no evidence to suggest that any evaluation was performed

on the two proposals received. Further, per conversation with DCS personnel, Dr. Sorrells

would be the individual who has the knowledge in regards to the RFP. Due to the multiple

scheduling conflicts in meeting with Dr. Sorrells, we were unable to meet to discuss the

sale-lease back transaction.

I reviewed the Board of Trustees' minutes from June 2010 to June 2015, and there was no

documented discussions regarding alternative options to improve DCS' financial

'2014 Comprehensive Annual Financial Report, p. 26. 32 For the purpose of the report, Stop-Arm and TexServe Stop-Arm are referred to "Stop-Ann" program.

Wedgewood Investment Group, LLC and Realtenn NAT. It should be noted that Realterm NAT also retained Slater Swartwood / Anrock Realty Services, LLC for brokerage services.


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weaver Assurance lax Advisory

situation.34 The Board minutes documented only one bid; the one accepted from

Wedgewood. There was no documentation pertaining to the bid received from Realterm

NAT.35 Per conversation with DCS personnel, the Board approved Realterm NAT as a

back-up offer after February 2015.

Further, the Board minutes contained few details of their discussions related to the sale

transaction. For example, I saw no evidence of DCS challenging FMS to improve their

collections or increase volume of citations issued. I also saw no attempt to borrow

additional funds through more traditional means. Two members of the Board, C.W.

Whitaker and Kyle Renard, M.D. moved for approval of RF'P No. 02-17-15-01 for the Sale-

Lease Back on DCS Properties.36

Ms. Renard shared her understanding of the Board's approval process through a Facebook

post on November 4, 2017. According to this post, the Board was presented with the deal

of selling the four large DCS-owned bus lots as an efficiency and cost savings measure in

February 2015. DCS was to use the proceeds from the sale of the four lots to purchase

several smaller, decentralized lots that would be closer to the schools whose routes were

being run by those buses. The Board agreed that by moving closer to the schools, it would

cut down on driving time, be more efficient, and decrease fuel costs, which would

ultimately be more cost-effective. The lease-back portion was supposed to be only

temporary until the smaller lots could be identified and purchased, and DCS expected to

discontinue the leases within the following year or so. She further stated, "The Board

NEVER intended to continue leasing the property and to have to pay the interest rates for

20 years".37

DCS Board Minutes on February 26, 2015. " Ibid. 36 Ibid. 37 Kyle Renard, M.D. Facebook page, accessed on November 16, 2017 (https://www.facebook.com/permalink.php?story_fbid=2069532089934461&id=1618067095080965).



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4. Financials of the sale-lease back transaction

The property consisting of land, buildings and equipment sold for $25 million38 with a net

book value of $7.4 million.39 DCS received $22.6 million from the property sale after

paying for initial rent, commissions to real estate agent4° and miscellaneous title fees.41

DCS leased the property back and agreed to make monthly rent payments for 20 years.

DCS recorded the transaction using the financing method, with no sale recognized on the

books. Instead, the sale price of the property of $25 million was recorded as a lease finance

obligation and each lease payment as an interest expense. As of June 30, 2015, the interest

expense recognized over the term of the leases was recorded as $45.8 million. The records

indicates that DCS received cash of $22.6 million from the sale transaction, but in reality,

DCS will ultimately pay $45.8 million that they otherwise would not have owed, and lose

ownership of the property.42

I had extensive conversations with DCS management, and objective outside counsel. I understand

new DCS leadership is analyzing the merits of this transaction, and are attempting to determine

whether, in light of additional facts, it represents a true arms-length transaction.

C. Conflict of Interest

During my investigation, I identified significant issues related to the campaign contributions

received by Mr. Duncan, the Chair of the Board of Trustees, and allegations surfaced regarding

Superintendent Dr. Sorrells.

Mr. Duncan received a total of $241K in political contributions from 2009 to 2016.43 The

Campaign Finance Reports filed by Mr. Duncan indicates that 87% of the total political

contributions, or approximately $210K, came from significant DCS' vendors. Mr. Leonard,

" Seller's Final Settlement Statement. 2016 Comprehensive Annual Financial Report, note 10. Sale-Leaseback of Property, p.46.

40 DCS paid commission to Anrock for $195K for the sale-lease back deal. I have seen no contract between DCS and Anrock. Further, NBC reported that Slater Swartwood Sr., the Manager and Executive of Anrock, had also been Mr. Leonard's (owner of FMS) real estate consultant for over 40 years. 41 Seller's Final Settlement Statement. 42 2016 Comprehensive Annual Financial Report, note 10. Sale-Leaseback of Property, p.46. 43 Campaign Finance Reports.



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weaver Assurance tax Advisory ---

Director and Executive of FMS, his relatives and associates, and Slater Swartwood, the real estate

agent for the land sale/leaseback, and whose son owns a company that also provides consulting

services to DCS, made the majority of the contributions. See table 10. Summary of Political

Contributions for details.

Summary of Political Contributions Larry Duncan Received

Source: Campaign Finance Reports - All (received from DCS)

Year Received Amount Contributions from FMS'

Contributions from

Swartwood'

Total

Contributions from FMS and

Swartwood

2016 $90,000 100% 0% 100%

2015 $58,713 60% 17% 77%

2014 $40,000 38% 38% 76%

2013 $15,000 50% 17% 67%

2012 $35,000 71% 29% 100%

2011 $0 0% 0% 0%

2010 $0 0% 0% 0%

2009 $2,215 0% 0% 0%

Tota l $240,928

Table 10. Summary of Political Contributions

The timing of the above contributions also raised questions, as most of these parties' contributions

began after the APA, i.e. the contributions were made while the DCS Board approved the Asset

Purchase Agreement and License between DCS and FMS for the Stop-Arm Camera Program, and

the Real Estate Purchase Agreement between DCS and 2015 Acquisitions 5 LLC for the Sale-

Leaseback deal. Additionally, per the Campaign Finance Report, Mr. Duncan paid to C. W.

Whitaker ("Mr. Whitaker"), one of the Trustees on the Board, $19,000 in March 2013. It should



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weaver Assurance tax • Advisory

Eicarell.finuies acfled 11121/2013 approving Assel•

Purchase Agreerreni and

License isefWeen DCS and FMS

doted /24/2015 caproVng Land

Sales/Lease Back Deal

Asset Purchase Agreement and License between DCS and Fru13 on

02/28/2014

Peal Estate Purchme

Agreement between DC-S

and 2015 Acquisiions 5 i_LC

an 06105/2015

2012 2013 2014 2015 2016

Lam( Duncan Lam/ IDLmcan Lamy Duncan Larry Duncan received total

Lam{ Dvncan received total

received •Forzi received total received foie cor-ib n: from contributions from con'-bul'ons from conifoUilans from con=rbu'ons from FFS and FMS of $25 CDC

FL1S and

sccco f

'1C07E.

- A f .%cbc of

15.0:03 175;E, o'

and F

12.±,.L.00 FE% of

rh.ocf F at con'.-ik _fa r.s: on

12/2015 contributions) on 0212015 cc-.tr:outionsi cn con-iE_Iicni, on cc -trioutions] on

10/1912012 09/2013 03/2014 Lmmy Duncor ,received total

confrib.dic-s 4DrIl HOS cf

[1DZW, of conirbufions) from

Feb - Jun 2015

Agreemen between DCS and Fin For Sic o-Arrr, Camera Prog-am

"Profesic-ol Services-on 07/01/2012

be noted that Mr. Whitaker was one of the Board members who approved the APA44 and the

Sales/Lease Back dea1.45 It is unclear if Mr. Whitaker knew the source of Mr. Duncan's funds.

Table 11. Contributions Timeline

The fact that Mr. Duncan received political contributions from significant DCS' vendors from

2009 to 2016 may have caused DCS to violate its own policy manual and state requirements.46

Prior to October 3, 2017, I see no evidence that Mr. Duncan filed a "Conflict of Interest" affidavit

required by the DCS' policy manual rule 5.004.47 On October 3, 2017, a signed affidavit from Mr.

44 DCS Board Minutes on November 21, 2013. DCS Board Minutes on February 26, 2015.

46 DCS Policy Manual Section §5.008. Restrictions on Gifts. DCS Policy Manual section §5.004. Conflicts of Interest of Trustees.



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weaver Assurance tax Adwsory

Duncan dated February 21, 2017 was provided.48 Mr. Duncan listed FMS as the entity and Mr.

Leonard as the contributor.

Weaver also required the board to confirm, in writing, their compliance with various regulations.49

Mr. Duncan signed Weaver's confirmation form on September 29, 2016.50 The representation

contained the following question:

"I am aware of the laws regarding conflict of interest, nepotism, political activity,

pecuniary interest and the provisions of the Davis Bacon Act. I know of no violations of

these laws that should be considered for disclosure in the financial statements, except as

explained below".51

Mr. Duncan answered, "none except any previously reported".52 He failed to disclose that Mr.

Leonard, who made significant political contributions to his campaign, was the CEO of FMS,

DCS' stop-aim program vendor.

DCS also contracted with Elf Marketing, LLC ("Elf Marketing") or Slater Swartwood Jr. to

provide consulting services53 and paid a total of $198K. Supporting documents indicate that:

• Elf Marketing's invoices have no itemized details for services rendered (the description of

services rendered on the invoices only states: List Service: Market Development).

• The lack of detail on the invoices is a violation of the Independent Contractor Agreement

between DCS and Slater Swartwood Jr. which states:

"Consultant shall submit written, signed reports of the time spent performing

Consulting services, itemizing the dates on which services were performed, the

" Mr. Duncan did not list the contribution of $30,000 received from Mr. Leonard on February 17, 2016, as shown in the Campaign Finance Report. Further, he received an additional contribution of $15,000 from Mr. Leonard on November 11, 2016. The updated Campaign Finance Report was not provided as of the date of this report, therefore, we did not capture the November contribution in table 10.Summary of Political Contributions. 49 DCS Compliance Representation letter. Weaver obtained representations from the Board members including Larry Duncan, Dr. Paul A. Freeman, Kyle Renard, MD., C.W. Whitaker, Gloria Tercero-Levario and James Hubener that DCS is in compliance with certain Constitutional provisions, statutory law, public policy established by common law, Title 19 of the Texas Administration Code and the Texas Education Agency Regulations. 50 ibid.

51 Ibid. 52 ibid.

53 Independent Contractor Agreement dated August 1, 2015.



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number of days spent on such dates and an itemized description of the services

rendered."

• The majority of the invoice numbers are sequential which suggests that DCS might be

Slater Swartwood Jr.'s only client.

During my initial meeting with DCS management, I was told that Dr. Sorrells had been accused

of having real estate interests involving Mr. Leonard in New Orleans, Louisiana. We perfolined

background investigations on Dr. Sorrells; Margaret Sorrells, his wife; Jerry Allegro, his brother

in law; and his children, David Alexander Sorrells, Meredith Allegra Sorrells, Michael Austin

Sorrells, and Ryan Christopher Sorrells. We found no New Orleans addresses registered for any

of the names mentioned above. However, prior to our scheduled interview with Dr. Sorrells, Scott

Friedman, Senior Investigative Reporter from NBC 5 reported on October 15, 2017 that he had

identified the apartment complex that Mr. Leonard and Dr. Sorrells shared.54 Further, Mr.

Friedman included social media posts that indicate that Dr. Sorrells and family used apartments

registered to Mr. Leonard on a number of occasions for gatherings.55 See below the fioorplan

obtained by officials in New Orleans that shows the layout of the building.56

54 Email from Scott Friedman to Rick Sorrells dated September 20, 2017. 55 Ibid. 56 NBC 5 Investigation reported on October 15, 2017 (http://vvww.nbcdfw.com/investigationsiEx-DCS-Superintendent-Rick-Sorrells-French-Quarter-Vacation-Pad-Raises-Questions-About-Relationship-with-Vendor-451020163.html).



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The DCS employment handbook provides the following provisions regarding relationships and

gifts

§ 10.004. Conflicts of Interest

a) An employee shall not intentionally or knowingly offer, confer, agree to confer on

another, solicit, accept, or agree to accept a benefit as consideration for the

employee's decision, opinion, recommendation vote or other exercise of discretion, or

as consideration for a violation of a legal duty imposed on the employee by law.

Benefit means anything reasonably regarded as pecuniary gain, including benefit to

any other person in whose welfare the Trustee has a direct and substantial interest.

Texas Penal Code § 36.01; 36.02.



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b) An employee who exercises discretion in connection with contracts, purchases,

payments, claims, or other pecuniary transactions shall not solicit, accept, or agree to

accept any benefit from a person the employee knows is interested in or likely to

become interested in any such transactions involving the exercise of the employee's

discretion. Texas Penal Code § 36.08(d).

Similar restrictions are contained in § 10.009, Improper Gifts and Solicitation.

In connection with the 2016 financial statement audit, the auditors completed "Inquiries of

Management and Others within the Entity about the Risks of Fraud." Dr. Sorrells confirmed that

he was unaware of any transactions with related parties.

I understand that new DCS management has referred these issues to state and federal law

enforcement officers to determine whether they represent violations of the law, and that more

information is forthcoming.

D. Policies and Procedures Compliance Review

I also analyzed the policies and procedures of DCS. I identified a number of policies and controls

in regards to Board Governance, Employees, and Operations. My observations based on

documents provided are summarized as follows:

1. Completeness of DCS' policies and procedures

DCS has policies and procedures that include internal controls designed to strengthen

the overall control environment. DCS also has control and compliance requirements

relevant to county government, because it is a county-wide entity. It also has control

and compliance requirements relevant to an independent school district because it is an

educational entity.

However, by maintaining the Risk Assessment Management function under the

supervision of the Chief Financial Officer ("CFO"), the Board did not have objective

and independent information regarding the financial vulnerability of DCS.


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In addition, the Chair of Trustee and the Superintendent have the ability to exert control

over the major policy decisions made by DCS' Trustees and effectively dictate, through

control of information provided (to the Trustees), the outcome of Trustees' decisions.

Further, DCS' Trustees did not have an independent, objective assurance and

consulting activity designed to evaluate and improve the effectiveness of overall

operations, assess risk management, verify compliance with policies and strengthen the

governance processes.

DCS does have policies for Fraud and Financial Impropriety, Whistleblower Protection

and Fraud Investigation. However, it is worthy to note these three significant policies

are included in Chapter II "Employees" section of the DCS Policy Manual.

2. Financial Accountability

DCS' accounting and procurement practices did not always comply with regulatory

requirements, their policies or best practices. The failure to require a reevaluation and

rewrite of the "Request for Proposals" by the Chair of the Trustee and/or

Superintendent left DCS dependent on only one qualifying bid. By accepting that bid,

the Chair of the Trustee and/or Superintendent put DCS at risk for poor financial

decisions based on inadequate preparation and deficient analysis of significant financial

impact. As a result, DCS has long-teini financial insolvency, insufficient cash flow,

and its going concern as an entity is in jeopardy. Further, DCS also does not have

sufficient accounting policies to protect its assets.

3. Transparency

I reviewed the Board Minutes and the detail in the minutes, including the explanation

by the Superintendent. Prior to July 2017, these minutes do not provide sufficient

infoimation for the public to understand what took place during the meeting. The

Board Minutes are very vague and provide no adequate explanation of the particular

transaction's impact on the overall financial condition or operations of DCS. For

example,



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"The Dallas County Schools Regular Meeting of Board Trustees Thursday,

April 16, 2015, MINUTES state that "Mr. Hubener moved for approval of

REALTERM NAT as back-up for RFP No. 02-17-15-01. Mr. Whitaker

seconded the motion. Dr. Sorrells explained the RFP and the back-up

position being recommended. The motion passed unanimously."

On July 18, 2017, the Board proposed a policy regarding online posting of Audio

Recordings of Board and Committee Meetings.57 This policy was implemented in

September 2017.58

4. Others

The attorney or firms hired to act as legal counsel to DCS may have had undisclosed

relationships with a Trustee on the Board. 59 Additionally, Dr. Sorrells, the

Superintendent, had broad authority to enter in to contracts on behalf of DCS with no

oversight.60

IV. RECOMMENDATIONS

Based on the observations above, I compiled a list of recommendations for DCS based on "best

practices" for the contract processes and a corrective action plan.

1. Considering the information contained herein, as well as the additional information

mentioned in the press, DCS should conduct additional interviews with those individuals

mentioned in the Denshaw memorandums, and others, to gain additional insight into the

Stop-Arm Camera Program and the Sales-Leaseback Transaction. I would also highly

recommend conducting a review of the associated hard drives.

2. DCS should perform a thorough legal review of the contracts surrounding the Stop-Aim

Camera Program, and the Sales-Leaseback Transaction to determine whether they were in

fact arms-length transactions and made within appropriate market terms.

Notice of Regular Board Meeting dated July 18, 2017. 58 DCS Board Minutes on September 19, 2017. 59 DCS Policy Manual section §6.005. Board Attorney. 60 DCS Policy Manual Title I, Chapter 7, § 7.001, pp. I - 57.


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3. DCS, together with objective legal counsel, should detettnine whether there are affittnative

actions available to pursue recoveries for unauthorized, unnecessary or inappropriate

transactions.

4. DCS should seek financial information regarding all financial transactions between DCS,

FMS, and entities or persons associated with each, such as all bank statements including

personal bank statements.

5. The Board should establish a Finance and Audit Committee of the Board of Trustees with

the authority to recommend to the Board actions related to all significant financial

transactions, including, but not limited to, contracts, capital purchases, sale of assets,

capital equipment and real estate. The Finance and Audit Committee should also be

empowered by the Board to initiate, review and recommend Board actions regarding all

financial related issues.

6. Establish an Internal Audit ("IA") reporting to the Board of Trustees through the Finance

and Audit committee. The Internal Audit function should include, but not be limited, to

sufficient staff with relevant expertise, a hotline, email and mail for receiving calls and

correspondence regarding complaints of potential fraud, waste and abuse from employees,

vendors, school districts and the public. The Chief Internal Auditor would present reports,

reviews, and special reports to the Finance and Audit Committee.

The IA should adopt the standards promulgated by the Institute of Internal Auditors, an

annual risk assessment and an annual internal audit plan of the various functions of DCS.61

61 The Texas Association of School Boards has published a comprehensive document on the role of the internal auditor in an Independent School District ("ISD"). DCS should adopt the ISD policy and structure for implementing an internal auditor function. This policy pursuant to the TASB model: "The Role of the Internal Auditor in Texas School Districts" The school Board has a fiduciary duty to oversee the district's use of taxpayer dollars. Engaging a qualified professional to conduct regular reviews of the district's budget and operations can be an important part of the Board's fiscal management. The benefits of hiring an internal auditor also go far beyond balancing the budget. While districts must undergo an independent audit every year, independent auditors are not tasked with looking for fraud, corruption, or inefficient practices; districts must address these areas using internal controls. This article will describe the unique role of the internal auditor and answer some frequently asked legal questions regarding internal auditors in Texas school districts." ("The Role of the Internal Auditor in Texas School Districts" Financial Guide, 2014 Texas Association of School Boards.)


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Internal auditors perform many different types of services, such as compliance with

policies and procedures, procurement audits, detection of fraud, waste or mismanagement,

operational audits and special projects including investigations. 62

7. DCS should assign the risk assessment function to the aforementioned Internal Audit

Function, and not the Chief Financial Officer ("CFO") as it currently stands.

8. DCS should amend its policy manual to include the Fraud and Financial Impropriety,

Whistle-Blower Protection, and Fraud Investigation policies in Title I. Administration

section of the DCS policy manual.

9. DCS should adopt a rule that directs any member of the Board of Trustee to file an ethics

complaint or a conflict of interest complaint with the Texas Ethics Commission, Texas

Attorney General's Office, Dallas County, or District Attorney if the member has any

indication of a violation of the conflict of interest policy or state law. The member should

provide a copy of the complaint to all members of the DCS' Board.

10. DCS should adopt a rule to require the Chaittnan of the Board to sign and provide annually

to every member of the Board of Trustees an affidavit annually that he or she complied

with those provisions regarding receipt of campaign contributions from DCS' vendors

and/or bidders for contracts. Failure to file a "Conflict of Interest" affidavit should result

in removal of the Chairman of the Board by the Trustees and a referral to Texas Ethics

Commission, the Texas Attorney General, the Dallas County or District Attorney of a

complaint by any individual Trustee.

11. Rule 5.004, "Conflict of Interest of the Trustees and Superintendent" should be amended

to require that the affidavit go to "each of the Trustees."

12. DCS should establish a policy and procedures for detettnining inventory obsolescence and

procedures for write-offs.

62 Definition of Internal Auditing states "the fundamental purpose, nature, and scope of internal auditing. Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes." Institute of Internal Auditors, North America Definition of Internal Auditing (https://na.theiia.org/standards-guidance/mandatory-guidance/Pages/Definition-of-Internal-Auditing.aspx) accessed 07/14/17.


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13. The Board should adopt a rule requiring full explanation in the minutes of actions taken by

the Board. This explanation should include documents supporting the action, position paper

provided by the Superintendent and staff and cost estimates, long-term and short-tem', of

fiscal impact on the operation of DCS.

14. DCS should adopt the State of Texas Contract Management Guide in principle for all major

procurements. Specifically, the Trustees should require that the following components of

contract management be presented to the full Board in a public hearing for approval; needs

assessment, bid specifications, solicitation for proposals, evaluation and scoring of

proposals, vendor/contractor selections and contract terms. Further, DCS should

established centralized procurement procedures for administering competitive purchases

that ensure compliance with all regulatory requirements.

15. DCS should establish a contract monitoring team consisting of the Chief Procurement

Officer, the Chief Financial Officer, the Chief Legal Counsel, the Chief Administrative

Officer, and the Chief Risk Assessment Officer. This team should adopt in principle the

Texas Contract Management Guide for "Contract management and monitoring." This

team should issue an annual report to the Board of Trustees.

16. Attorneys or law films hired to act as general counsel to DCS should not be professionally

associated with any Board member.

17. The Board should adopt established criteria for contracts, for example a dollar threshold,

that requires Trustee's approval and prohibiting the Superintendent from signing any

contracts that do not have Trustee's approval by recorded vote in a public meeting. The

Board should delete under powers of the Superintendent, item (d) "The Superintendent is

delegated authority to execute contracts necessary for the operation of DCS, unless

otherwise prohibited by law...."

V. CONCLUSIONS

DCS has incurred significant expenditures pertaining to the Stop-Arm Camera Program. As a

result, DCS' financial condition has deteriorated and the program cannot continue under the

current arrangements. It also appears the parties involved in the Stop-Arm Camera Program and

the Sales-Leaseback Transaction are related. Further, former DCS President Larry Duncan and


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Superintendent Rick Sorrells failed to disclose these relationships, and they may represent conflicts

of interest with former DCS leadership. Legal counsel and DCS management should review those

contracts and determine whether they can be rescinded, or renegotiated to achieve temis that are

financially viable. Lastly, DCS internal controls, policies and procedures should be improved to

guard against conflicts of interest and accepting contracts detrimental to operations, and which

will provide more transparency to significant business decisions.

Jeffrey G Matthews, CPA, CFE

November 28, 2017


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AN INDEPENDENT MEMBER OF BAKER TILLY INTERNATIONAL

WEAVER AND TIDWELL LLP CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS WWW.WEAVERLLP.COM

DALLAS 12221 MERIT DRIVE, SUITE 1400, DALLAS, TX 75251 P: (972) 490 1970 F: (972) 702 8321

Jeffrey G. Matthews, CPA, CFE National Partner In Charge Forensics and Litigation Services

BBA, Accounting University of Louisiana at

Monroe Jeffrey G. Matthews, National Partner In Charge of Forensics and Litigation Services in Weaver’s

Dallas office, has significant experience in financial investigations, forensic accounting, and litigation

support. Mr. Matthews’ clients include the nation’s top law firms, Fortune 100 legal departments, and

government investigative agencies. He has calculated damages resulting from breach of contract,

breach of fiduciary duty, diminution of value, and misappropriation of trade secrets. Mr. Matthews

has also testified in multiple civil and criminal accounting fraud matters at state and Federal levels.

Mr. Matthews was instrumental in developing proprietary anti-fraud and compliance tools for two of

the five largest accounting firms in the world. As such, he has served as a consulting expert in

developing and implementing numerous risk management programs for companies in various

industries.

Further, Mr. Matthews developed and currently teaches the University of Texas at Arlington’s

Forensic Accounting and Fraud Investigations Class for the MBA program. Mr. Matthews is also the

executive creator and producer of "The Forensic Forum", a web-based CPE/CLE production that

airs quarterly across the globe. The Forum has featured current and former SEC Enforcement

Directors, attorneys and luminaries from many industries. He also currently serves as a Faculty

Member for the Association of Certified Fraud Examiners and provides continuing education

programs to organizations and entities throughout the country.

Awards

Mr. Matthews was the 2013 Certified Fraud Examiner of the Year, the prestigious honor

awarded annually to one of more than 65,000 members of the Association of Certified Fraud

Examiners.

Mr. Matthews is a four-time national All-Star speaker, voted on by members of the Institute of

Internal Auditors.

Representative cases

Commercial damages

Mr. Matthews directed a team hired to calculate damages on behalf of an international bank in

which the government, and others, sought to recoup billions in losses stemming from

mortgage-backed securities. Mr. Matthews valued the underlying securities and re-created the

“waterfall” from the underlying mortgage payments, as well as constructed the damages

models.

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Mr. Matthews provided expert testimony in a dispute between two large mortgage brokers

involving the alleged raid of key employees and related branches. Mr. Matthews forecasted

revenues and net income and created a damage model considering a number of different

variables.

Mr. Matthews calculated a business interruption loss for an international resort property that

was impacted by a hurricane. Mr. Matthews forecasted revenues after computing historical

occupancy rates, seasonal trends and restaurant traffic, as well compiling industry-wide growth

percentages. Further, Mr. Matthews calculated the extra expenses, as well as those saved as

a result of the damage.

Mr. Matthews provided testimony in a False Claims matter, involving an international

manufacturing company. Mr. Matthews’ scope involved analyzing the alleged claims, and

rebutting the opposing expert’s damage calculation. Further, Mr. Matthews built a proprietary

cost model to depict various cost accounting scenarios.

Mr. Matthews provided testimony in an anti-trust, Lanham Act mater, between two national

telecommunications companies. Mr. Matthews’ scope involved Generally Accepted Accounting

Principles, solvency, going concern principles, and related disclosure requirements. Further,

Mr. Matthews provided rebuttal testimony regarding the opposing expert’s damage

calculations.

Mr. Matthews managed and led a cross-disciplined team assisting an international insurance

company in the calculation of damages arising from a re-insurance treaty dispute. The case

involved manipulating large quantities of data and re-creating a complex, proprietary insurance

rating system. The system was validated through extensive statistical sampling. The case also

evolved into a multifaceted bankruptcy fraud investigation in which Mr. Matthews testified as

the expert.

Mr. Matthews was designated as an arbitrator in a manner involving two of the world’s largest

financial institutions, in which investors alleged theft, inflated asset values, unsuitable

investments, and many other fraudulent actions.

Mr. Matthews directed a business interruption matter involving a group of technology

companies that experienced extensive damage. Mr. Matthews calculated lost profits, extra

expenses, saved expenses and participated in the mediation.

Mr. Mathews directed an international effort that included interviews, electronic discovery,

background investigations and damage calculations for a publicly traded company that was

accused of paying a major competitor’s long-term employee(s) for trade secrets and diverting

revenue.

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Mr. Matthews was admitted as an expert in a dispute involving the insurance investments

offered by one of the world's leading financial management and advisory companies. Mr.

Matthews conducted extensive research and performed various analyses to determine the

appropriate rates of return and the impact of market conditions had on the investment portfolio.

Mr. Matthews participated in the FINRA arbitration.

Mr. Matthews was designated as the expert in a breach of contract dispute involving a

technology company, whereas he performed a valuation and lost profit analysis based on

extensive industry analysis and forecasting. He provided two depositions in the matter.

Mr. Matthews served as the expert in a complex royalty dispute between two large

manufacturing companies. Mr. Matthews reviewed thousands of transactions based on

statistical methodology, calculated the appropriate royalty calculations, and testified in state

court.

Mr. Matthews served as the expert for a telecommunications company and their higher

educational affiliate in a breach of contract and wrongful termination matter. Mr. Matthews

served as an expert and provided extensive reports in the matter that included unique damage

calculations for more than 40 individuals. The methodology ranged from wrongful death to

breach of contract. Mr. Matthews’ client prevailed and the case was largely dismissed in

Summary Judgment.

Mr. Matthews was designated as the expert and provided testimony in an arbitration involving a

well-known national retailer. Mr. Matthews conducted extensive industry research, projected

financial results, calculated reasonable royalties owed relating to a breach of contract and

salaries due under wrongful termination, as well as opined on certain professional

responsibilities of a CPA.

Mr. Matthews provided an expert report and calculated damages on behalf of one of the world’s

largest energy companies in a wrongful death matter.

Mr. Matthews served as the expert in a pre-litigation matter involving an employment dispute,

by which he calculated damages resulting from alleged corporate misbehavior and a wrongful

termination.

Fortune 500 Corporation with international presence in the telecommunications industry alleged

that a number of its employees misappropriated trade secrets and had been tortuously

interfered with by a competitor. Mr. Matthews managed the Dallas team in the antitrust and

intellectual property suit.

Mr. Matthews served as an expert in a dispute involving an international retail company and a

telecommunications company. Mr. Matthews calculated damages arising from breach of the

agreements, unjust enrichment, misappropriation of intellectual property, and breach of

fiduciary duty. He also was asked to analyze the opposing party’s damage calculation. Mr.

Matthews testified in Federal court.

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Forensic accounting and investigations

A publicly traded manufacturing company experienced significant reconciliation issues and

allegations surrounding its financial reporting process. Mr. Matthews directed an effort in 13

countries, consisting of data mining and manipulation to identify anomalies, tracing the sources

and uses of cash, identifying internal control gaps, balancing the accounts, and investigating

various FCPA allegations. Mr. Matthews also lead the effort relating to the company’s

restatement of four years’ financial statements and their compliance with Sarbanes Oxley.

Mr. Matthews directed an investigation into revenue recognition issues involving multiple

element arrangements and the alleged manipulation of accounting records for an international

software company. The findings resulted in the entity re-auditing and restating its financial

statements for the previous four years.

Mr. Matthews was the court appointed accountant, designated as an expert and provide

testimony in hearings and the trial in state and Federal Bankruptcy court on a real estate

investment matter involving 16 investment partnerships and 5 management companies. Mr.

Matthews led a team that recreated the books and records, as well as identified inappropriate

use of partnership funds, breaches of the offering memorandums, and calculated damages to

the investors.

Mr. Matthews was the court-appointed independent accounting over a post-acquisition dispute

involving two physician practices and the related pharmacies. Mr. Matthews reconstructed the

books and records on both a GAAP and cash basis, and provided the recommended earn-out

payments. The parties successfully mediated the dispute.

Mr. Matthews served as an expert for a clean energy company that was seeking to recover

losses under unique and proprietary insurance policy. Mr. Matthews’ report addressed various

accounting concepts that included going concerns, contingencies, accruals, asset values, and

materiality. Mr. Matthews testified at arbitration.

A major electronics manufacturer provided that its president and vice president conspired to

manipulate accounting records and override internal policies and controls in an effort to reduce

the company’s value allowing a group of investors, including themselves, to obtain ownership.

Mr. Matthews performed an investigation into these allegations, including the preservation and

review of the individual’s hard drives. It was discovered that the allegations were merited and it

resulted in a change of corporate officers.

Mr. Matthews served as the expert in an investment dispute brought forth by the Securities

Exchange Commission alleging a misappropriation of partnership funds, inadequate financial

disclosures, and elements of a Ponzi scheme. Mr. Matthews traced the sources and uses of

cash for more than 30 investment vehicles and several public companies, analyzed certain

disclosures and financial transactions and provided testimony.

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Mr. Matthews directed a team through a large due diligence assignment involving a national

lending institution making a sizeable investment in an insurance conglomerate. The complex

corporate structure included numerous managing general agencies, re-insurance companies,

and offshore captive associates. The team analyzed the agreements, re-calculated the case

reserves, and deferred acquisition costs and reconciled hundreds of intercompany

transactions.

Mr. Matthews served as the expert and provided testimony in a dispute involving the sale of

certain real estate and oil producing properties by a Trust. Mr. Matthews assessed damages,

opined and identified the breach of fiduciary duties, discussed wrongful termination, and

highlighted Generally Accepted Accounting Principles and various IRS regulations.

An international semiconductor manufacturer purchased a large carve-out from a Fortune 500

company. A dispute arose over the accounting treatment for material balance sheet and

income statement line items which had an impact on the earn-out provisions. Mr. Matthews

testified as an expert in Federal court and calculated the provisions, as well as addressed the

appropriate treatment under Generally Accepted Accounting Principles and IRS regulations.

Mr. Matthews served as the expert in complex litigation matter involving a Trust’s sale of certain

assets. Mr. Matthews provided testimony regarding Generally Accepted Accounting Principles,

IRS regulations, and damages suffered by the Trust caused by the potential breaches of

fiduciary duties by various parties.

A high-ranking official at a publically traded company turned “whistleblower” and identified a

large accounting fraud at their company. Mr. Matthews directed the engagement in which the

team calculated damages stemming from wrongful termination and provided a report suitable

for the potential Qui Tam claim.

Mr. Matthews served as the outsourced Forensic Accountant for the world’s leading

international insurance company, managing dozens of assignments spanning many industries.

Compliance and management consulting

Mr. Matthews served as the consulting expert on two large, separate litigation matters involving

medical centers involving breach of contract, tortious interference, and various claims. Mr.

Matthews created alternative damage models and the cases settled.

Mr. Matthews consulted as an expert for two global financial institutions to implement their

compliance, risk, and audit functions with respect to financial industry regulations. These

assignments incorporated numerous federal and state regulations such as the CFPB, BSA,

FCRA, and UDAAP, and also included a focus on anti-money laundering internal controls and

precise work plans.

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Mr. Matthews assisted two of the country’s largest tribal entities in performing compliance risk

assessment over their lending operations, which included drafting their compliance program manuals,

policies and procedures, as well performing due diligence on their high risk third-party vendors.

Mr. Matthews established an accounting system for a local petroleum company. During the assignment,

we reconciled the company’s production program joint interest billing statements to the leases signed by

the lease owners and investors. As such, the team determined the proper production allocation for

each program, calculated the corresponding royalty and separated the funds that had been comingled

between the programs.

Selected publications and presentations

“Subprime Crisis and Strategies – A Forensic Accountant’s Perspective.” Provided to various sections of the

American Bar Association.

“False Claims Act and Qui Tam Actions – What Small Companies Need to Know.” Presented to various

organizations, including the Business Professionals Network, Institute of Internal Auditors, and Association of

Certified Fraud Examiners.

“Occupational Fraud and Abuse; a Qui Tam primer.” Texas Chapter of CPAs.

“Ensuring Accurate Royalty Determination and Payment.” Professional Development Institute.

“Advanced Interviewing Techniques.” SEC, FINRA, TSSB Annual Southwest Securities Conference.

“Hitting Pay Dirt: Drilling Down to Discover Litigation Risks during joint venture and M&A opportunities.”

Provided at the AICPA National Conference.

“Ponzi Schemes and Preventive Controls.” ABA White Collar Crime Seminar Round Table Participant.“War

of the Worlds; When Attorneys and Auditors Collide.” Thompson Reuters Westlaw Journal.

“Cooperation in Financial Fraud Investigations - What are the benefits?” XPRT Forum Magazine.

“Treading into International Waters; What fraud risks lurk beneath the surface of your foreign affiliates?”

Institute of Internal Auditors.

“Calculating Commercial Damages: Case theories and strategies.” Presented to various law firms in the

Dallas/Fort Worth area.

“Storm Troopers; Becoming a First Responder to Fraud Risks during an Economic Storm.” Provided to the

Association of Certified Fraud Examiners, the Institute of Internal Auditors and the American Institute for

Certified Public Accountants.

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“Time for Kickoff; Readying your team to face the competition.” Created and moderated an extensive panel

discussion for the ACFE covering the FCPA, Ponzi schemes, intellectual property disputes and various

international scandals.

“Ensuring Integrity of Financial Reporting – the Role of Outside Counsel.” Presented to several large law

firms in the Dallas

“Developing Sound Anti-Fraud Controls – Sarbanes Oxley and Fraud.” Presented to various organizations

throughout the United States.

Mr. Matthews has been quoted in the ProPublica, Dallas Observer, Dallas Morning News, Dallas Business

Journal, the Collin County Business Journal, the Texas Lawyer, Smart Business Magazine, and Private

Equity International.

The Forensic Forum

Mr. Matthews is the executive creator and producer of "The Forensic Forum", a web-based CPE/CLE

production that has aired quarterly across the globe

November 2014: Business Partner fraud/vendor management

August 2014: Fraud in the M&A environment

May 2014: Fraud and your responsibility

February 2014: Fraud in the global marketplace

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No. Documents Received

1 1. Real Estate Purchase Agreement dated June 5, 2015 (Original)

2 2. Leases (Originals) a. Lawnview

3 2. Leases (Originals) b. Kleberg

4 2. Leases (Originals) c. Raney

5 2. Leases (Originals) d. North Dallas

6 2nd Amendment to Services Agreement (Royalties)

7 0412 Report of DCS Investigation ‐ with approved modification

8 Appraisals

9 Asset Purchase Agreement ‐ Full Document

10 Board Minutes 2016

11 Current LeMaster Agreement

12 ELGA Agreements

13 Exclusive License Promissory Note Aug 1 Amendment

14 Seller's Final Settlement Statement

15 Services Agreement 2.1.17

16 Denshaw Group ‐ Initial Report

17 DC‐17‐07325_Complaint of Interconnect Cable Technologies Corp vs FMS

18 No. 1 ‐ DCS Board Policy ‐ Title_I_‐_Board Governance

19 No. 1 ‐ DCS Board Policy ‐ Title_II_‐_Employees

20 No. 1 ‐ DCS Board Policy ‐ Title_III ‐ Operations

21 AG Letter 2017 Refunding Bonds and TANS 5.6.17

22 Anthony Ordinance

23 Austin Charter under Austin Ordinance

24 Austin Ordinance

25 Buckholts Ordinance

26 Capital monthly report ‐ All jurisdictions

27 Denshaw Group LLC Letter of Engagement

28 Eanes ISD under West Lake Hills Ordinance

29 Elgin Ordinance

30 FMS Service Agreement

31 Letter to Superintendent from Leatha Mullins dated May 19, 2017

32 Lorena Ordinance

33 Pflugerville ISD ‐ Durham Services under Austin Ordinance

34 Revenue Sharing Percentages

35 Salado Ordinance

36 San Antonio ‐ South Ordinance

37 San Marcos Ordinance

38 Schulenburg Ordinance

39 Senate Bill 112 (Sub and Amended) Ordinance

40 Socorro Ordinance

41 West Lake Hills Ordinance

42 Wortham Ordinance

43 1. RFP 01‐28‐09‐01 Transportable Audio video solutions

44 2. Addendums RFP #01‐28‐09‐01, Transportable Audio Video

45 3. Award Letter ‐ ONGO Live DCR RFP#01‐28‐09‐01 (3)

46 4. Agreement to Extend Request for Proposal no. 01‐28‐09‐01 (executed) (2) 04.26.2012

47 5. ONGO (Now FMS) submittal, RFP #01‐28‐09‐01, Transportable, ONGO Live, Inc.

48 6. Amendment to Standard Terms and Conditions for RFP 01‐28‐09‐01

49 Campaign Finance Reports ‐ ALL

50 0412 Report of DCS Investigation

51 0412 Report of DCS Investigation ‐ with approved modification

52 Denshaw Group ‐ First report

EXHIBIT B

221


EXHIBIT B

53 Denshaw Group Email RE FMS signatories (2)

54 Denshaw Group LLC Contract 02.28.2017 (2)

55 Denshaw email ‐ RE Report of Investigation

56 Service Center addresses ‐ Sales leaseback

57 Eval of Business Processes

58 W001143‐111816_Redacted

59 W001344‐022017_Agreements

60 W001344‐022017_ALL Pos

61 W001344‐022017_RFPs

62 W001344‐022017_Payments redacted

63 W001344‐022017_PayRequest

64 W001352‐022017

65 W001358‐022417_Requestor

66 W001359‐022417_Requestor

67 W001360‐022717_ILA

68 W001360‐022717_Redacted

69 W001362‐030117_Redacted

70 W001368‐030817

71 W001373‐031417

72 W001377‐032117

73 W001378‐032117 v2

74 W001382‐032317

75 W001386‐032817_redacted

76 W001388‐040317

77 W001396‐041817

78 W001398‐041917

79 W001406‐042717

80 W001410‐050317

81 Why List

82 Buses with Modems Operational

83 DFW Inactive Service 2017‐06‐26 (002)

84

ELF Agreement, PO, checks and invoices (same form as released in response to Public Info

Act request no. W001335‐021017)

85 Bank Wire transfer 2012





90 Band transfer Jan‐Apr 2017

91 Buses with Modems Operational

92 Check register 2016

93 Check register Jan ‐ June 2017

94 DFW Inactive Service 2017‐06‐26 (002)

95

ELF Agreement, PO, checks and invoices (same form as released in response to Public Info

Act request no. W001335‐021017)

96 Operating_Check_Register_2014

97 Operating_Check_Register_2015

98 Board Minutes April 2012

99 Board Minutes Aug 2012

100 Board Minutes July 2012

101 Board Minutes May 2012

102 Board Minutes November 2012

103 Board Minutes October 2012

222


EXHIBIT B

104 Board Minutes September 2012

105 POs, Invoices, Check copies, etc.

106 Capital Lease Receivable Summary (FMS Subleases)

107 Contracts 20150307; schedules 01 thru 04

108 contracts (ELGA)

109 ELGA Contract 20150307 ‐ payment schedule 03

110 ELGA Note #20150625 Schedule 03 & FMS Lease 20150625 Schedule 03

111 Equipment Sublease Schedules (with FMS)

112 Voided check and email discussion on cameras FMS sent POs for FMS

113 FMS & DCS sublease Agreement schedule 03 12.02.2015

114 FMS & DCS sublease Agreement schedule 03 12.02.2015 (2)

115 FMS & Texserve Revenue sharing Agreement

116 FMS 2nd Amendment Stop Arm Professional Services

117 FMS Bill of Sale, Assignment and Assumption Agreement

118 FMS Promissory Note

119 FMS service agreement

120 FMS Technology License Agreement

121 Termination of Lease Agreement

122 FMS ‐ DCS Sublease Ex. A to ML Receivable Assignment Agreement 11.2

123 Agreement between DCS and ONGO/BUSGUARD

124 purchase order #13000189







131 purchase order #16000158‐7









140

ONGO Live Agreement dated 9/26/2011, ONGO Busguard Revised Lease Agreement, ONGO

Live BUSguard CSMO agreement, etc.

141 DCS voucher to pay FMS for Royalty July dated 9/18/16

142 DCS voucher to pay FMS for Royalty July dated 9/28/16

143 Check register 2014‐2017

144 Copy of Bank Transfers 2012

145 Copy of Bank Transfers 2013 ‐02014

146 Copy of Bank Transfers 2015‐Apil 2017

147 Check register 2012 ‐ 2013

148 Business plan ‐ City of Dallas partnership reduced fine‐v3

149 Rick Sorrells' Fraud Questionnaire

150 Stop Arm Kits Master

223


DATED 12/04/2017

EXECUTIVE SESSION

AGENDA

ITEM NUMBER:

6.

TOPIC OF

AGENDA ITEM:

EXECUTIVE SESSION will be held for purposes

permitted by the Texas Open Meetings Act, Texas

Government Code Section §551.001 et seq.

Including but not Limited to Sections §551.071

Consultation with Attorney; §551.072 Real

Property; §551.074 Personnel Matters. All matters

relating to the following:

A. Legal Advice Regarding Payments of Debt

Obligations.

B. Debt Payments


BACKGROUND:

RECOMMENDATION:

224


DATED 12/04/2017

ACTION ITEMS

AGENDA

ITEM NUMBER:

7.

TOPIC OF

AGENDA ITEM:

ACTION RELEVANT TO EXECUTIVE SESSION

for items considered during Executive Session

A. Legal Advice Regarding Payments of Debt

Obligations.

B. Debt Payments


BACKGROUND:

RECOMMENDATION:

225


DATED 12/04/2017

AGENDA

ITEM NUMBER:

8.

TOPIC OF

AGENDA ITEM:

ADJOURNMENT

BACKGROUND:

RECOMMENDATION:

226

DISSOLUTION COMMITTEE FOR THE FORMER … and Possible Selection of a Law Firm to Support the...

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