BILL ANALYSIS Ó
AB 2806
Page 1
Date of Hearing: April 6, 2016
ASSEMBLY COMMITTEE ON EDUCATION
Patrick O'Donnell, Chair
AB 2806
(Wilk) - As Amended March 29, 2016
SUBJECT: School districts: Los Angeles Unified School
District: inspector general
SUMMARY: Establishes conditions under which the inspector
general of the Los Angeles Unified School District (LAUSD) may
audit or investigate a charter school, if directed by the
governing board to an evaluation of the school, and makes
related changes. Specifically, this bill:
1)Requires an audit or investigation of a charter school to meet
the following conditions if it is directed by the school
district governing board:
a) The audit or investigation is approved by the governing
board of the Los Angeles Unified School District in
accordance with an approved scope and analysis that, at a
minimum, includes each of the following:
i) Identification of the charter school or entity that
operates charter schools that is subject to the audit or
investigation;
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ii) A description of the issues, leading to the request
and specific questions to which the audit or
investigation is expected to respond;
iii) The proposed scope of the work to be completed; and
iv) The estimated timeline, start date, and cost. If an
audit or investigation will exceed 90 days, the inspector
general shall justify the need for the extended time, for
which the approval of the governing board shall be
required, and the inspector general shall not exceed the
approved timeline without subsequent approval from the
governing board of the Los Angeles Unified School
District.
b) Any audit or investigation for which the governing board
of the Los Angeles Unified School District may consider
action related to a charter school shall be conducted in
accordance with Generally Accepted Government Auditing
Standards published by the United States Government
Accountability Office and the professional standards
published by the American Institute of Certified Public
Accountants.
c) The report shall be made public before any deliberations
on action related to the findings, and the charter school
shall be given a reasonable opportunity to respond to any
findings before publication of the report.
d) The inspector general shall make public its report and
the written response to the report from the charter school
as the same time that it provides the final report to the
governing board or to district staff.
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e) Neither the governing board of the Los Angeles Unified
School District nor the Los Angeles Unified School District
shall take any action based on any evidence or findings on
draft reports or any reports or evidence that has not been
made public before the action.
f) Any proposed action to consider revocation, nonrenewal,
or corrective action against a charter school as a result
of an audit or investigation by the inspector general shall
comply with existing provisions of law regarding charter
school revocation and nonrenewal and provide the charter
school a reasonable opportunity to cure any violation and
to address any finding in public.
g) If, in the course of a financial or performance audit of
a charter school, the inspector general determines that
there is reasonable cause to believe that an employee of a
charter school has engaged in any illegal activity, the
inspector general shall report the nature and details of
the activity on a timely basis to the local district
attorney or the Attorney General.
EXISTING LAW:
1) Authorizes, until January 1, 2025, the Los Angeles
Unified School District's Inspector General of the Office
of the Inspector General to conduct audits and
investigations.
2) Authorizes the inspector general to subpoena witnesses,
administer oaths or affirmations, take testimony, and
compel the production of all information, documents,
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reports, answers, records, accounts, papers, and other data
and documentary evidence deemed material and relevant and
that reasonably relate to the inquiry or investigation
undertaken by the inspector general when he or she has a
reasonable suspicion that a law, regulation, rule, or
school district policy has been violated or is being
violated.
3) Defines "reasonable suspicion" to mean means that the
circumstances known or apparent to the inspector general
include specific and articulable facts causing him or her
to suspect that a material violation of law, regulation,
rule, or school district policy has occurred or is
occurring, and that the facts would cause a reasonable
officer in a like position to suspect that a material
violation of a law, regulation, rule, or school district
policy has occurred or is occurring.
4) Requires the inspector general to report to the local
district attorney or Attorney General if he or she has
reasonable cause to believe that an employee or outside
agency has engaged in any illegal activity.
5) Specifies that the inspector general does not have any
enforcement power.
6) Requires every investigation to be confidential.
7) Provides that the disclosure of any information acquired
pursuant to a subpoena of private documents shall be
punishable as a misdemeanor, unless otherwise permitted by
law or required by a court.
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8) Requires the inspector general to submit to the
Legislature an annual interim report by July 1 of each
year, and a final cumulative report by December 1, 2024, on
all of the following:
a. The use and effectiveness of the subpoena
power authorized by this section in the successful
completion of the inspector general's duties;
b. Any use of the subpoena power in which the
issued subpoena was quashed, including the basis for
the court's order; and
c. Any referral to the local district attorney or
the Attorney General where the district attorney or
Attorney General declined to investigate the matter
further or declined to prosecute.
FISCAL EFFECT: This bill has been flagged nonfiscal by
Legislative Counsel
COMMENTS: The Office of the Inspector General (OIG) of the Los
Angeles Unified School District (LAUSD) was established in 1999
to conduct internal audits, investigate whistleblower
complaints, and investigate possible fraud or mismanagement.
Although most of the OIG's investigation are not related to
charter schools, it began auditing LAUSD-authorized charter
schools at the request of the district's Charter Schools
Division (CSD) in 2006. Between 2006 and 2010, charter schools
were selected for audit mostly on a random basis. Beginning in
2011, charter schools have been selected for audit more on the
basis of feedback the OIG received from the CSD regarding
concerns about specific schools. Between 2006 and 2015, 35
charter schools, out of a district total of 274 charter schools,
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were audited. A report from the OIG on December 8, 2015 noted
several "recurring conditions" in the charter schools it
audited, some of which include:
11 of 15 charter schools visited did not prepare bank
reconciliation reports on a regular basis;
23 of 33 charter schools visited did not adequately
support disbursements with proper documentation;
6 of 12 charter schools visited were overcharged
management fees;
5 of 6 charter schools visited lacked documentation to
support journal entries;
15 of 15 charter schools visited had inadequate reserve
funds;
7 of 12 charter schools visited did not deposit cash in
a timely manner;
9 of 9 charter schools visited did not always follow
Generally Accepted Accounting Principles (GAAP);
20 of 26 charter schools visited lacked enrollment
documentation;
18 of 19 charter schools visited had incomplete
personnel files; and
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5 of 7 charter schools visited did not always approve or
certify timesheets.
The 2016 work plan of the OIG includes a series of audits of
charter schools to determine compliance with the Charter School
Act of 1992 and their charter agreements and to determine
whether apportionment data are accurately recorded and reported.
The work plan also includes an audit of charter schools that
have ceased operation to determine the dispensation of funds and
assets and identify any unreported liabilities the school may
have incurred.
Reason for the bill. LAUSD's OIG began performing charter
school audits in 2006 at the request of the district's Charter
Schools Division. The audits are performed to assist the
district in fulfilling its statutory obligation to provide
oversite of the charter schools it authorizes. This bill
results from the audit of two Magnolia charter schools that led
to a district decision to not renew the charters. The charters
were ultimately renewed after legal action was taken.
According to information provided by the author's office, the
OIG overstepped its authority in these cases by acting in a
manner that "is inconsistent with the Charter Schools Act, which
emphasizes transparency and collaboration by authorizing the
chartering district to make reasonable inquiries regarding a
school's financial records (EC 47604.3) and to monitor the
fiscal condition of the charter school (EC47604.32)." This is a
misstatement of the law.
Specifically, EC 47604.3 does not simply authorize authorizing
districts to make reasonable inquiries of a charter school.
Rather, it requires charter schools to respond promptly to all
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reasonable inquiries from its chartering authority, "including,
but not limited to, inquiries regarding its financial records."
In addition, EC 47604.32 requires-not simply
authorizes--chartering authorities to "monitor the fiscal
condition of each charter school under its authority."
Accordingly, the district (through the OIG if it so chooses),
not only has the authority to monitor the fiscal condition of
its charter schools, but has the duty to do so.
Independence of the OIG. The Association of Inspectors General
has published "Principles and Standards for Offices of Inspector
General." The general standard for independence states, "The
inspector general and OIG staff involved in performing or
supervising any assignment should be free from personal or
external impairments to independence and should constantly
maintain an independent attitude and appearance." This is
necessary to ensure that "OIG opinions, conclusions, judgement,
and recommendations will be impartial and viewed by others as
impartial." The "Principles and Standards" also identifies six
conditions under which the OIG would not have complete freedom
to make an independent and objective judgement. Among these
conditions are:
Interference or undue influence in the OIG's selection
of what is to be examined, determination of scope and
timing of work or approach to be used, the appropriate
content of any resulting report, or resolution of audit
findings; and
Improper political pressures.
This bill is a direct violation of these professional standards
by requiring the LAUSD governing board to determine the scope,
cost, and timing of the investigations it authorizes.
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Public disclosure could undermine investigation. Since
authorizing agencies have the statutory duty to monitor charter
schools, charter schools should expect that they are always
subject to review. However, this bill prohibits an
investigation from going forward without first publically
disclosing the school being investigated and the scope of the
audit, including the specific allegations or concerns to be
addressed. This could undermine investigations by giving the
subject of the audit time to destroy or falsify documents and
hinder the cooperation of witnesses, who may fear retaliation or
retribution. This would also violate confidentiality
requirements in cases involving personnel matters.
Arguments in support. Supporters argue that it is unclear why
the OIG should be conducting oversight of charter schools, that
schools are not informed that they are being audited, and that
schools do not have an opportunity to respond to findings and
cure problems. Supporters also express "concerns about the
propriety of the OIG engaging in charter school oversight."
Arguments in opposition. Opponents argue that this bill would
"severely impair the ability of the OIG to audit or investigate
a charter school or an operator of a charter school." Since
charter schools are publically funded, any restriction on the
ability to audit or investigate them "is not in the best
interest of the public and ultimately, our students."
REGISTERED SUPPORT / OPPOSITION:
Support
AB 2806
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California Charter Schools Association
Numerous individuals
Opposition
Los Angeles Unified School District Governing Board, Steve
Zimmer, President
Analysis Prepared by:Rick Pratt / ED. / (916) 319-2087