External Auditor Finds PPS Bond Program Is at Heightened Risk of Fraud

A draft audit of the $1.83 billion property tax bond being used to rebuild three Portland high schools says the bond program is at heightened risk for fraud because Portland Public Schools outsourced its management to a Texas-based construction firm without sufficient oversight.

The draft, obtained Tuesday by WW, adds fuel to an existing controversy over the district inking a $61.5 million contract with the firm Procedeo to oversee program management services for the 2025 bond. In four findings, auditors determined PPS had failed to establish a sound business case to offload bond management services to Procedeo, and cautioned that the district had become overreliant on the external consultant. Auditors said the district followed Procedeo’s advice to reduce PPS’s own in-house staff, gutting the district’s ability to operate independently while increasing Procedeo’s billings.

The external auditor, Sjoberg Evashenk Consulting, has audited the district for years and recommends that the district renegotiate its bond program contract with Procedeo. And the audit sternly criticizes both the district’s leadership and the School Board for what it describes as a rash decision to outsource bond work that was being performed ably by in-house staff.

The findings may also create new political difficulty for PPS Superintendent Dr. Kimberlee Armstrong, who championed the Procedeo contract even as some critics questioned whether it was advisable.

A PPS spokesperson says the draft audit is still a work in progress, and that PPS staff is currently preparing responses to 38 recommendations included within it.

“While we do not agree with every finding in the draft audit, we value the opportunities it identifies to strengthen our processes and have already begun making improvements,” the spokesperson says. “We welcome the scrutiny and remain committed to transparency, accountability and delivering on the commitments we made to Portland voters.”

Procedeo also defended its work.

“The voters and taxpayers who say yes to education deserve to see every one of those dollars turn into real improvements for students, and that’s why we’re here,” Procedeo CEO Brian Johnson said in a statement. “Since joining the Portland Public Schools bond program in December 2025, the Procedeo team has instituted disciplined financial tracking, contract oversight, and program reporting to a complex program that was facing challenges moving projects forward on established timelines and containing costs for several simultaneous school modernization projects, each with a different general contractor.”

But the audit finds that PPS has engaged in an agency-contractor relationship that the draft says “has become insufficiently arm’s-length to ensure objective scrutiny and oversight of contract provisions impairing its independence in monitoring Procedeo’s performance and actions.”

For starters, the audit delves into PPS’s process to engage Procedeo as its bond program management services contractor, finding risks around favoritism and bias as PPS selected the firm. Auditors cataloged several instances in which PPS, ahead of contract solicitation and awarding, communicated about its intents and plans with Procedeo around proposed services and how Procedeo could help PPS. “Although PPS asserted that it talked with other consultants on similar topics, PPS did not provide documentary evidence to support this assertion,” the audit notes.

It also finds that the district’s request for proposals process was also potentially subject to bias, pointing to scoring practices by certain evaluators as one example.

Based on market comparisons, the audit further finds that PPS, once at the awarding stage, overspent on the Procedeo contract. And while district officials said it was a “virtual impossibility” that Procedeo make $61.5 million from its contract because the district is meant to deduct its own staff work from payments to Procedeo, it has thus far failed to thoroughly review invoices, according to auditors. That’s resulted in overpayments of more than $762,000 to Procedeo.

And the auditors found that PPS’s contract with Procedeo stands to “disproportionately benefit” the construction firm. One such example: About half of the department of 30 was terminated in January on Procedeo’s recommendation, the report notes, and PPS did not “incorporate adequate personnel with expertise” in its new model. Notably, the auditor mentions that the district’s choice to terminate staff on Procedeo’s recommendation allowed for “inherent financial conflict” because the firm stands to benefit from fewer staff being reduced from its invoices.

Auditors noted that a mass termination would lead to a loss of institutional knowledge and damage bond execution. Termination of OSM staff “resulted in additional cost for contracted services, loss of historic knowledge and long-term project delivery capacity, and gaps in the ability to provide contractor oversight at the owner level,” the audit reads.

In pushing for the Procedeo contract, the auditors write, district officials misled both the School Board and members of the general public by drumming up a sense of urgency around the contract. The audit finds that, contrary to PPS’s claims that work on bond projects would stall without the external firm, its previous Office of School Modernization was largely effective in completing projects and that projects could have carried on accordingly.

Leadership painted “a more dire picture” than was warranted when they told board members that OSM was not delivering to expectations and stifled the board’s ability to digest information and engage in thorough deliberation, the audit finds. It also finds that officials provided information to the board that lacked context or at times was inaccurate as board members weighed the contract decision. And the audit is not kind to the seven members of the Portland School Board, finding the board “did not adequately scrutinize its contract for bond program management services” and that it generally “has a narrow view” of its fiscal responsibility.

“This audit revealed that PPS leadership took several actions that increased risks to the bond program without requisite controls or activities to mitigate those risks,” the audit reads in part. “While management and the Board have the discretion to outsource operational activities, the manner in which PPS outsourced management of its capital bond program was, in our judgment, problematic.”

Though most of the audit is devoted to scrutinizing the district’s contract with Procedeo, external auditors did mention that the district has generally met obligations around its 2012, 2017, and 2020 bonds, and is “off to a good start” with the 2025 bond.

The PPS spokesperson tells WW that “most importantly,” the draft audit confirms PPS is delivering bond promises to voters: “We have already broken ground this year on modernizing two high schools with a third to follow in November.”

Among the audit’s many recommendations include one to rebuild the district’s internal capacity for bond management and project oversight, and a recommendation to adjust Procedeo’s consultant invoice. It also asks the School Board to develop better practices around its fiduciary duties.

Auditors also spent one finding noting that the district needed to strengthen fiscal controls around the bond, and needed to correct several instances of “unallowable and unsupported bond spending.” Auditors found PPS charged its bond program about $193,400 in unallowable bond project costs and nearly $1 million in unsupported payroll changes.