(1)Existing law, until January 1, 2025, authorizes the Los Angeles Unified School Districts Inspector General of the Office of the Inspector General of the Los Angeles Unified School District to conduct audits and investigations, as specified, including administering oaths or affirmations. Existing law makes it a misdemeanor, punishable as specified, for a person, after the administration of an oath or affirmation, to state or affirm as true any material matter that he or she knows to be false. Existing law also requires the inspector general to submit annual interim reports by July 1 of each year, and a final cumulative report by December 1, 2024, that includes specified information. when it has a reasonable suspicion that a law, regulation, rule, or school district policy has been violated or is being violated.

This bill would prohibit would require that, if the inspector general from auditing or investigating a charter school or an entity that operates charter schools for the purpose of evaluating a charter school for consideration of revocation, renewal, or ongoing oversight, unless the audit or investigation is authorized is directed by the governing board of the Los Angeles Unified School District and meets to participate in the evaluation of a charter school, the audit or investigation is required to meet each of several conditions, as provided.

Existing law, until January 1, 2025, authorizes the Los Angeles Unified School Districts Inspector General of the Office of the Inspector General to conduct audits and investigations, as specified, including administering oaths or affirmations. Existing law makes it a misdemeanor, punishable as specified, for a person, after the administration of an oath or affirmation, to state or affirm as true any material matter that he or she knows to be false. Existing law also requires the inspector general to submit annual interim reports by July 1 of each year, and a final cumulative report by December 1, 2024, that includes specified information.

This bill would prohibit the inspector general from auditing or investigating a charter school or an entity that operates charter schools for the purpose of evaluating a charter school for consideration of revocation, renewal, or ongoing oversight, unless the audit or investigation is authorized by the governing board of the Los Angeles Unified School District and meets each of several conditions, as provided.

The bill would, except as provided, make any disclosure of information by the inspector general or that office that was acquired pursuant to a subpoena of the private books, documents, or papers of the person subpoenaed punishable as a misdemeanor. By creating a new crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Date of Hearing: April 6, 2016

ASSEMBLY COMMITTEE ON EDUCATION

Patrick O'Donnell, Chair

ABPCA Bill Id:AB 2806 (

Author:Wilk) – As Amended Ver: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:
   1. 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:
      1. Identification of the charter school or entity that operates charter schools that is subject to the audit or investigation;
      2. A description of the issues, leading to the request and specific questions to which the audit or investigation is expected to respond;
      3. The proposed scope of the work to be completed; and
      4. 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.
   2. 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.
   3. 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.
   4. 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.
   5. 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.
   6. 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.
   7. 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, 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.
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:
   1. The use and effectiveness of the subpoena power authorized by this section in the successful completion of the inspector general’s duties;
   2. Any use of the subpoena power in which the issued subpoena was quashed, including the basis for the court’s order; and
   3. 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, 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
• 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 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.

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

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