(1)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 by the inspector general, to state or affirm as true any material matter that they know to be false. Existing law requires the inspector general to submit to the Legislature annual interim reports and a final cumulative report.

This bill would extend the authority of the inspector general of the Los Angeles Unified School District indefinitely. By extending the operation of a crime, the bill would impose a state-mandated local program. The bill would require the inspector general to instead submit an annual report to the Legislature on or before July 1 of each year. The bill would expressly require the inspector general to be appointed by the Board of Education of the Los Angeles Unified School District for a term of 3 years, subject to the terms of the inspector generals employment contract, and would require the Office of the Inspector General to conform to the Principles and Standards for Offices of Inspector General and would require audits performed by the Office of the Inspector General to be conducted in accordance with generally accepted auditing standards, as provided.

(2)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.

(3)This bill would make legislative findings and declarations as to the necessity of a special statute for the Los Angeles Unified School District.

(1)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 by the inspector general, to state or affirm as true any material matter that they know to be false. Existing law requires the inspector general to submit to the Legislature annual interim reports and a final cumulative report.

This bill would extend the authority of the inspector general of the Los Angeles Unified School District indefinitely. By extending the operation of a crime, the bill would impose a state-mandated local program. The bill would require the inspector general to instead submit an annual report to the Legislature on or before July 1 of each year. The bill would expressly require the inspector general to be appointed by the Board of Education of the Los Angeles Unified School District for a term of 3 years, subject to the terms of the inspector generals employment contract, and would require the Office of the Inspector General to conform to the Principles and Standards for Offices of Inspector General and would require audits performed by the Office of the Inspector General to be conducted in accordance with generally accepted auditing standards, as provided.

(2)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.

(3)This bill would make legislative findings and declarations as to the necessity of a special statute for the Los Angeles Unified School District.

(1)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 by the inspector general, to state or affirm as true any material matter that they know to be false. Existing law requires the inspector general to submit to the Legislature annual interim reports and a final cumulative report.

This bill would extend the authority of the inspector general of the Los Angeles Unified School District indefinitely. By extending the operation of a crime, the bill would impose a state-mandated local program. The bill would require the inspector general to instead submit an annual report to the Legislature on or before July 1 of each year. The bill would expressly require the inspector general to be appointed by the Board of Education of the Los Angeles Unified School District for a term of 3 years, subject to the terms of the inspector generals employment contract, and would require the Office of the Inspector Generals audits, investigations, inspections, and reviews General to conform to the Principles and Standards for Offices of Inspector General. General and would require audits performed by the Office of the Inspector General to be conducted in accordance with generally accepted auditing standards, as provided.

(2)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.

(3)This bill would make legislative findings and declarations as to the necessity of a special statute for the Los Angeles Unified School District.

(1)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 by the inspector general, to state or affirm as true any material matter that they know to be false. Existing law requires the inspector general to submit to the Legislature annual interim reports and a final cumulative report.

This bill would extend the authority of the inspector general of the Los Angeles Unified School District indefinitely. By extending the operation of a crime, the bill would impose a state-mandated local program. The bill would instead require the inspector general to instead submit a an annual report to the Legislature upon the Legislatures request. on or before July 1 of each year. The bill would expressly require the inspector general to be appointed by the Board of Education of the Los Angeles Unified School District for a term of 3 years, subject to the terms of the inspector generals employment contract, and would require the Office of the Inspector Generals audits, investigations, inspections, and reviews to conform to the Principles and Standards for Offices of Inspector General.

(2)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.

(3)This bill would make legislative findings and declarations as to the necessity of a special statute for the Los Angeles Unified School District.

(1)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 by the inspector general, to state or affirm as true any material matter that they know to be false. Existing law requires the inspector general to submit to the Legislature annual interim reports and a final cumulative report.

This bill would extend the authority of the inspector general of the Los Angeles Unified School District indefinitely. By extending the operation of a crime, the bill would impose a state-mandated local program. The bill would instead require the inspector general to submit a report to the Legislature upon the Legislatures request. The bill would expressly require the inspector general to be appointed by the Board of Education of the Los Angeles Unified School District for a term of 3 years, and would require the Office of the Inspector Generals audits, investigations, inspections, and reviews to conform to the Principles and Standards for Offices of Inspector General.

(2)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.

(3)This bill would make legislative findings and declarations as to the necessity of a special statute for the Los Angeles Unified School District.

 UNFINISHED BUSINESS  

Bill No: SB 991

Author: Gonzalez (D)

Amended: 6/17/24

Vote: 21

SENATE EDUCATION COMMITTEE: 6-0, 4/3/24

AYES: Newman, Ochoa Bogh, Cortese, Gonzalez, Smallwood-Cuevas, Wilk

NO VOTE RECORDED: Glazer

SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/16/24

AYES: Caballero, Ashby, Becker, Bradford, Wahab

NOES: Jones, Seyarto

SENATE FLOOR: 31-8, 5/20/24

AYES: Allen, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Caballero, Cortese, Dodd, Durazo, Eggman, Glazer, Gonzalez, Hurtado, Laird, Limón, McGuire, Menjivar, Newman, Ochoa Bogh, Padilla, Portantino, Roth, Rubio, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener

NOES: Alvarado-Gil, Dahle, Grove, Jones, Nguyen, Niello, Seyarto, Wilk

NO VOTE RECORDED: Min

ASSEMBLY FLOOR: 74-0, 8/26/24 - See last page for vote

SUBJECT: School districts: Los Angeles Unified School District: inspector general

SOURCE: Los Angeles Unified School District

DIGEST:

This bill requires the office of the inspector general (OIG) of the Los Angeles Unified School District (LAUSD) to submit a report to the Legislature upon request rather than annually, as specified, and removes the sunset date, extending the authority of the OIG of LAUSD indefinitely.

Assembly Amendments

require the LAUSD OIG to conform to the Principles and Standards for Offices of Inspector General, published by the Association of IG. Require audits performed by the LAUSD OIG to be conducted in accordance with generally accepted auditing standards, including either the Generally Accepted Government Auditing Standards issued by the Comptroller General of the United States, or the Standards for the Professional Practice of Internal Auditing issued by the Institute of Internal Auditors.

ANALYSIS:

Existing Law:

1. Authorizes the LAUSD’s OIG until January 1, 2015, to conduct audits and investigations, as specified, including the ability to subpoena witnesses, administer oaths or affirmations, take testimony, and compel the production of all information and documentary evidence deemed material and relevant and that reasonably relate to the inquiry or investigation undertaken by the Inspector General when there is reasonable suspicion that a law, regulation, rule, or district policy has been violated or is being violated. (Education Code (EC) § 35400 (a))
2. Defines "reasonable suspicion" to mean specific and articulable facts causing the Inspector General and would cause a reasonable officer in a like position to suspect that a material violation of law, regulation or policy has occurred or is occurring. (EC § 35400 (a))
3. Provides that the first instance of false sworn testimony to the Inspector General is a misdemeanor publishable by up to six months in jail or a fine of up to $5,000 or both; and that each subsequent violation shall be punishable by up to 12 months in jail or a fine of up to $10,000 or both. (EC § 35400 (d))
4. Requires the Inspector General to submit annual reports to the Legislature and a final cumulative report by December 1, 2024, on all of the following:
   1. The use and effectiveness of the subpoena power in the successful completion of the Inspector General's duties;
   2. Any instance in which the subpoena was quashed; and
   3. Any instance in which the local district attorney or Attorney General declined to investigate further or to prosecute a referred case. (EC § 35400 (e))
5. A person who intentionally engages in acts of reprisal, retaliation, threats, coercion, or similar acts against a public school employee or applicant for employment with a public school employer for having made a protected disclosure is subject to a fine not to exceed ten thousand dollars ($10,000) and imprisonment in the county jail for a period not to exceed one year. Any public school employee, officer, or administrator who intentionally engages in that conduct shall also be subject to discipline by the public school employer. (EC § 44114)
6. All laws of a general nature have uniform operation. A local or special statute is invalid in any case if a general statute can be made applicable. (Cal. Const. Art. IV § 16 )

This bill:

1. Requires the OIG of the LAUSD to submit a report to the Legislature upon request rather than annually and removes the sunset date, extending the authority of the OIG of the LAUSD indefinitely.
2. Requires the Inspector General to be appointed By the Board of Education of the LAUSD for a term of three years.
3. Requires audits, investigations, inspections, and reviews conducted by the OIG shall conform to the Principles and Standards for OIG, published by the Association of Inspectors General.
4. Finds and declares that a special statute is necessary and that a general statute cannot be made applicable within the meaning of Section 16 of Article IV of the California Constitution because of the unique circumstances concerning the LAUSD.

Comments

1. Need for the bill. According to the author, “LAUSD is the second largest school district in the nation; serving over 540,000 students in a district that covers 710 square miles and serves portions of 25 cities. For close to 25 years, the LAUSD Office of Inspector General (OIG) has demonstrated its efficacy as an auditing and oversight tool for the district, and has shown that its unique authority can deter fraud and save the district millions of dollars annually. Unfortunately, the OIG’s authority to investigate, audit, and subpoena witnesses is set to sunset on January 1, 2025. SB 991 (Gonzalez) will remove the 2025 sunset date, and allow the LAUSD OIG to continue its transparent oversight responsibilities and protect the programs and funding of California’s largest school district.”
2. Los Angeles Unified School District – Office of the Inspector General.

In August 1998, the Board began the process of establishing a department within the LAUSD whose mission would be to detect and prevent fraud, waste and abuse in District operations and programs. The Board combined auditors and investigators and adopted the name Office of the Inspector General. Granted the OIG power to (i) subpoena witnesses, (ii) administer oaths or affirmations, (iii) take testimony, and (iv) compel the production of all information and documentary evidence deemed material and relevant. Provided confidentiality of (i) every investigation, including all investigative files and work‐product and (ii) the identity of the individual or individuals involved. Imposed penalties for (i) any disclosure of information by the inspector general or that office that was acquired pursuant to a subpoena, and (ii) any person that, after the administration of an oath or affirmation, states or affirms as true any material matter that he/she knows to be false. The OIG is comprised of auditors, investigators and other professional staff who have the authority to examine all functions within the LAUSD and those of private entities that do business with the LAUSD. The Audit Unit conducts audits and evaluations that cover a wide range of programs, processes, functions, areas, and topics. The Investigations Unit investigates allegations of improper or illegal activities by LAUSD employees, contractors, or other entities doing business with the LAUSD. The OIG also takes a proactive role by performing due diligence reviews to help reduce the risk of doing business, improve contract and employment decisions, and to promote greater accountability and effectiveness.

Whistleblower Protections

An employee of the LAUSD is prohibited from using their official authority or influence, either directly or indirectly, to interfere with an individual's right to provide information. Furthermore, they are not allowed to engage in any acts of retaliation, threats, coercion, or similar actions against an individual who provides such information or refuses to obey an illegal order. These protections currently exist in Education Code.

Audit Standards and Investigations

According to the OIG webpage, “the audit unit conducts its audits in accordance with Generally Accepted Government Auditing Standards, Statements on Standards for Attestation Engagements and the Federal Acquisition Regulations. The investigation unit conducts its investigations in accordance with the Principles and Standards for Offices of Inspectors General.”

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

According to the Assembly Appropriations Committee, “This bill has no direct fiscal impact to the state, as LAUSD uses about $10 million annually in Proposition 98 General Fund it already receives from the state and other local funds to support the OIG. However, absent this bill, the OIG would sunset and could therefore relieve cost pressure of about $10 million that LAUSD could use toward other purposes. However, LAUSD indicates operations of the OIG consistently provide savings to the district through successful recoveries and the deterring of waste, fraud, and abuse.

SUPPORT: (Verified 8/27/24)

Los Angeles Unified School District (source)

OPPOSITION: (Verified 8/27/24)

California Charter Schools Association

ARGUMENTS IN SUPPORT: According to the LAUSD writes, “Due to the unique nature of Los Angeles Unified’s size and budget, the Legislature passed SB 1260 (Hayden) in 1999, granting the District the authority to conduct audits and investigations. Without opposition, the Legislature extended the OIG’s authority multiple times since the OIG’s creation, most recently in 2014. After 25 years of protecting the students and taxpayers from potential waste, fraud or abuse, the OIG consistently upholds the integrity of Los Angeles Unified.”

ARGUMENTS IN OPPOSITION: The California Charter Schools Association writes, “We do not take issue with the OIG’s ability to investigate or audit LAUSD or its charter public schools. Where we do have concerns is with the transparency of those investigations or audits when relied upon by LAUSD and its Board to take formal action in relation to charter school renewals or revocations. In 2014, LAUSD attempted to close at first two, then three Magnolia charter schools based on information from an OIG report that was in draft form and was not public information. The charter school was forced to sue and received a preliminary injunction that blocked LAUSD from closing their schools…If the LAUSD OIG is to be permanently authorized, then they must be held to a higher standard of transparency, and protections must be added to ensure an incident like this will not happen again in the future.”

ASSEMBLY FLOOR: 74-0, 8/26/24

AYES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Chen, Connolly, Davies, Dixon, Essayli, Flora, Mike Fong, Friedman, Gabriel, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, Mathis, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Rendon, Reyes, Luz Rivas, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

NO VOTE RECORDED: Cervantes, Megan Dahle, Ortega, Soria, Ta

Prepared by: Kordell Hampton / ED. / (916) 651-4105

8/27/24 11:39:21

**** END ****

SENATE THIRD READING

STR Bill Id:SB 991

Author:(Gonzalez)

As Amended Ver:June 17, 2024

Majority vote

SUMMARY

Removes the sunset on the Los Angeles Unified School District (LAUSD)'s Office of the Inspector General (OIG).

Major Provisions

1. Permanently establishes the LAUSD's OIG, and authorizes the Inspector General (IG) to conduct audits and investigations.
2. Requires the IG be appointed by the Board of Education of the LAUSD for a term of three years, subject to the terms of the IG's employment contract.
3. Requires the LAUSD OIG to conform to the Principles and Standards for Offices of Inspector General, published by the Association of IG. Requires audits performed by the LAUSD OIG to be conducted in accordance with generally accepted auditing standards, including either the Generally Accepted Government Auditing Standards issued by the Comptroller General of the United States, or the Standards for the Professional Practice of Internal Auditing issued by the Institute of Internal Auditors.
4. Requires the IG to submit to the Legislature, on or before July 1 of each year, an annual report.

COMMENTS

LAUSD OIG. The LAUSD OIG was initially established by SB 1260 (Hayden), Chapter 295, Statutes of 1999, at the request of the school district. At that time, the district's Internal Audits and Special Investigation Unit had been in existence for one year, but its director reported that it was difficult or impossible to conduct investigations, especially those that involve an outside party, such as a contractor, and that the unit had no authority to compel to provide documents or other types of information. According to the LAUSD OIG website, "The OIG is comprised of auditors, investigators and other professional staff who have the authority to examine all functions within the LAUSD and those of private entities that do business with the LAUSD, including conducting audits and evaluations of LAUSD programs, processes, and functions, and investigates allegations of improper or illegal activities by LAUSD employees, contractors or other entities doing business with the LAUSD. The OIG also performs due diligence reviews to help reduce the risk of doing business, improve contract and employment decisions, and to promote greater accountability and effectiveness."

Existing law grants the OIG statutory authority to conduct audits and investigations and report matters to the local district attorney or the AG for further action. Further, the OIG is granted the power to subpoena witnesses, administer oaths or affirmations, take testimony, and compel the production of all information and documentary evidence deemed material and relevant. Existing law provides confidentiality of every investigation, including all investigative files and work‐product and the identity of the individual or individuals involved. Penalties are imposed for any disclosure of information by the IG or the OIG that was acquired pursuant to a subpoena, and any person that, after the administration of an oath or affirmation, states or affirms as true any material matter that they know to be false.

LAUSD OIG statutory authorization dates. SB 1260 had a sunset date of January 1, 2001. The sunset date was subsequently extended by SB 1360 (Hayden), Chapter 750, Statutes of 2000, AB 2425 (Richman), Chapter 462, Statutes of 2002, extended the sunset date to January 1, 2015, and AB 1825 (Nazarian), Chapter 208, Statutes 2014, extends the sunset date of the LAUSD's OIG to January 1, 2025.

LAUSD Annual Reports. The OIG's "Annual Report to the Board of Education" for the 2023 fiscal year reports that the work of the office issued 51 reports on completed contract audits that resulted in a cost savings to the district of approximately $6.5 million. The OIG's most recent annual report to the Legislature, dated June 30, 2023, reports that, during 2012-13, three subpoenas for business or financial records were issued. The report also states that the power of subpoena "serves as a deterrent to those who may consider committing fraudulent acts against the School District," and that it "substantially aids in the performance of our work."

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: 1) 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 2) Improper political pressures. This bill would codify the LAUSD's OIG's existing use of guidance produced by the Association of Inspectors General to conduct audits, investigations, inspections, and reviews.

Specific to audits, Principles and Standards for Offices of Inspector General further states, "Audits performed by OIGs should be conducted in accordance with generally accepted auditing standards. The Association of Inspectors General recommends that OIGs perform audits pursuant to one of the following: Generally Accepted Government Auditing Standards issued by the Comptroller General of the United States, or Standards for the Professional Practice of Internal Auditing issued by the Institute of Internal Auditors. Each OIG should follow the audit standards appropriate to the OIG's mission and authority." The LAUSD states, "The LAUSD OIG has adopted the Generally Accepted Government Auditing Standards (GAGAS) issued by the Comptroller General of the United States. This standard is articulated in the LAUSD OIG's operating manual. OIG operations manuals provide policies and procedures to ensure that our work, including audits, is performed in accordance with these standards. Further, these standards require periodic external peer reviews to ensure that OIG work conforms to these standards. Every peer review we have undergone, as early as 2004, has determined that we are/were in compliance with the GAGAS standards."

According to the Author

"LAUSD is the second largest school district in the nation; serving over 540,000 students in a district that covers 710 square miles and serves portions of 25 cities. For close to 25 years, the LAUSD OIG has demonstrated its efficacy as an auditing and oversight tool for the district, and has shown that its unique authority can deter fraud and save the district millions of dollars annually. Unfortunately, the OIG's authority to investigate, audit, and subpoena witnesses is set to sunset on January 1, 2025. SB 991 (Gonzalez) will remove the 2025 sunset date, and allow the LAUSD OIG to continue its transparent oversight responsibilities and protect the programs and funding of California's largest school district."

Arguments in Support

The LAUSD writes, "Due to the unique nature of Los Angeles Unified's size and budget, the Legislature passed SB 1260 (Hayden) in 1999, granting the District the authority to conduct audits and investigations. Without opposition, the Legislature extended the OIG's authority multiple times since the OIG's creation, most recently in 2014. After 25 years of protecting the students and taxpayers from potential waste, fraud or abuse, the OIG consistently upholds the integrity of Los Angeles Unified."

Arguments in Opposition

The California Charter Schools Association writes, "We do not take issue with the OIG's authority to investigate or audit LAUSD or its charter public schools. Where we do have concerns is with the transparency of those investigations or audits when relied upon by LAUSD and its Board to take formal action in relation to charter school renewals or revocations. We request a further clarifying amendment that the LAUSD OIG be required to follow Generally Accepted Government Auditing Standards when conducting audits specifically of independent charter schools. This amendment would continue to allow LAUSD the flexibility to continue to conduct internal audits according to either Yellow or Red Book standards, including conducting audits of charter schools directly run by LAUSD under Red Book standards, but would limit the LAUSD OIG to the Yellow Book when an audit is being done of an external charter school that is incorporated as an independent non-profit public benefit corporation."

FISCAL COMMENTS

According to the Assembly Appropriations Committee:

This bill has no direct fiscal impact to the state, as LAUSD uses about $10 million annually in Proposition 98 General Fund it already receives from the state and other local funds to support the OIG. However, absent this bill, the OIG would sunset and could therefore relieve cost pressure of about $10 million that LAUSD could use toward other purposes. However, LAUSD indicates operations of the OIG consistently provide savings to the district through successful recoveries and the deterring of waste, fraud, and abuse.

VOTES

SENATE FLOOR: 31-8-1

YES: Allen, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Caballero, Cortese, Dodd, Durazo, Eggman, Glazer, Gonzalez, Hurtado, Laird, Limón, McGuire, Menjivar, Newman, Ochoa Bogh, Padilla, Portantino, Roth, Rubio, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener

NO: Alvarado-Gil, Dahle, Grove, Jones, Nguyen, Niello, Seyarto, Wilk

ABS, ABST OR NV: Min

ASM EDUCATION: 7-0-0

YES: Muratsuchi, Addis, Alvarez, Bonta, Flora, Hoover, McCarty

ASM APPROPRIATIONS: 13-0-2

YES: Wicks, Sanchez, Arambula, Bryan, Calderon, Wendy Carrillo, Dixon, Mike Fong, Grayson, Haney, Hart, Pellerin, Villapudua

ABS, ABST OR NV: Jim Patterson, Ta

UPDATED

VERSION: June 17, 2024

CONSULTANT: Marguerite Ries / ED. / (916) 319-2087 FN: 0003944

Date of Hearing: August 7, 2024

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Buffy Wicks, Chair

SBPCA Bill Id:SB 991

Author:(Gonzalez) – As Amended Ver:June 17, 2024

Urgency: No State Mandated Local Program: Yes Reimbursable: No

SUMMARY:

This bill extends the authority of the Office of the Inspector General (OIG) of the Los Angeles Unified School District (LAUSD) indefinitely. The bill also requires OIG to use certain auditing standards and extends annual reporting requirements.

Specifically, this bill removes the January 1, 2025, sunset date for operation of LAUSD OIG. The bill requires the OIG be appointed by the LAUSD Board of Education for a term of three years. The bill also requires the OIG to conform to the Principles and Standards for Offices of Inspector Generals and requires that audits performed by the OIG be conducted in accordance with generally accepted auditing standards, including either the Generally Accepted Government Auditing Standards issued by the Comptroller General of the United States, or the International Standards for the Professional Practice of Internal Auditing issued by The Institute of Internal Auditors.

The bill also requires the OIG to continue its annual reporting to the Legislature. Specifically, the OIG is to report by July 1 annually certain information, including information on the OIG’s use of subpoena power.

FISCAL EFFECT:

This bill has no direct fiscal impact to the state, as LAUSD uses about $10 million annually in Proposition 98 General Fund it already receives from the state and other local funds to support the OIG. However, absent this bill, the OIG would sunset and could therefore relieve cost pressure of about $10 million that LAUSD could use toward other purposes. However, LAUSD indicates operations of the OIG consistently provide savings to the district through successful recoveries and the deterring of waste, fraud, and abuse.

COMMENTS:

1. Purpose. According to the author:

LAUSD is the second largest school district in the nation; serving over 540,000 students in a district that covers 710 square miles and serves portions of 25 cities. For close to 25 years, the LAUSD OIG has demonstrated its efficacy as an auditing and oversight tool for the district, and has shown that its unique authority can deter fraud and save the district millions of dollars annually.

This bill is sponsored by LAUSD.

1. Background.

LAUSD OIG. Prior to 1999, LAUSD had an Internal Audits and Special Investigation Unit. The unit was tasked with detecting and investigating fraud at LAUSD, among other duties. However, the unit lacked authority to compel entities to provide information or to conduct certain audits investigations. SB 1260 (Hayden), Chapter 295, Statutes of 1999, created the LAUSD OIG, at the request of LAUSD. Current law grants OIG authority to conduct audits and investigations and report matters to the local district attorney or the Attorney General for further action, subpoena witnesses, administer oaths or affirmations, take testimony, and compel the production of all information and documentary evidence deemed material and relevant. In addition, 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.

The OIG's “Annual Report to the Board of Education” for the 2023 fiscal year reports that the work of the office issued 51 reports on completed contract audits that resulted in a cost savings to the district of approximately $6.5 million.

Current law requires annual reporting to the Legislature. Current law sunsets the OIG on January 1, 2025. This bill eliminates the OIG’s sunset and requires annual reporting.

Auditing Standards. Generally accepted auditing standards include the Generally Accepted Government Auditing Standards issued by the Comptroller General of the United States, known as the “Yellow Book” standards, and the International Standards for the Professional Practice of Internal Auditing issued by The Institute of Internal Auditors, known as the “Red Book” standards. These two standards are recommended for use by Inspectors General by the Association of Inspectors General. Yellow Book standards are designed by a government entity and typically used by government entities while Red Book standards are designed by a member organization and typically used in other auditing instances. This bill requires the OIG to conduct audits in accordance with either the Yellow Book standards or the Red Book standards.

This bill requires the LAUSD OIG to use the aforementioned auditing standards.

1. Opposition. The California Charter School Association (CCSA) has an oppose-unless-amended position due to the audit standards the bill permits. In 2015, the LAUSD OIG audited two charter schools. This audit led to a district decision to not renew the charter schools. The charter schools sued and received a preliminary injunction that blocked LAUSD from closing the schools. The Bureau of State Audits (BSA) later conducted an audit of the schools and reviewed the OIG’s actions and report. The BSA concluded the OIG should develop procedures to discuss relevant findings in draft form and develop procedures to provide charter schools with a reasonable amount of time for an appropriate response or to potentially remedy concerns. According to CCSA, if OIG had used Yellow Book standards in 2015, these issues would not have arisen. Therefore, CCSA requests the bill be amended to require that the OIG use only Yellow Book standards.

Analysis Prepared by: Natasha Collins / APPR. / (916) 319-2081

Date of Hearing: June 12, 2024

ASSEMBLY COMMITTEE ON EDUCATION

Al Muratsuchi, Chair

SBPCA Bill Id:SB 991

Author:(Gonzalez) – As Amended Ver:April 4, 2024

SENATE VOTE: 31-8

SUBJECT: School districts: Los Angeles Unified School District: inspector general

SUMMARY: Removes the sunset on the Los Angeles Unified School District (LAUSD)’s Office of the Inspector General (OIG). Specifically, this bill:

1. Permanently establishes the LAUSD’s Office of the OIG, and authorizes the Inspector General (IG) to conduct audits and investigations.
2. Requires the IG be appointed by the Board of Education of the LAUSD for a term of three years, subject to the terms of the IG’s employment contract.
3. Requires audits, investigations, inspections, and reviews conducted by the Office of the IG to conform to the Principles and Standards for Offices of IG, published by the Association of IG.
4. Requires the IG to submit to the Legislature, on or before July 1 of each year, an annual report on all of the following:
   1. The use and effectiveness of the authorized subpoena power in the successful completion of the IG’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 (AG) where the district attorney or AG declined to investigate the matter further or declined to prosecute.

EXISTING LAW:

1. Authorizes the LAUSD’s IG of the OIG to conduct audits and investigations. Authorizes the IG 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. (Education Code (EC) 35400)
2. Defines “reasonable suspicion” to mean that the circumstances known or apparent to the IG 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. (EC 35400)
3. Requires subpoenas to be served in the manner provided by law for service of summons. Authorizes a subpoena issued by the IG to be subject to challenge pursuant to Chapter 2 (commencing with Section 1985) of Title 3 of Part 4 of the Code of Civil Procedure. (EC 35400)
4. Requires, for purposes of Section 35400 of the EC, Sections 11184, 11185, 11186, 11187, 11188, 11189, 11190, and 11191 of the Government Code (GOV) to apply to the subpoenaing of witnesses and documents, reports, answers, records, accounts, papers, and other data and documentary evidence as if the investigation were being conducted by a state department head, except that the applicable court for resolving motions to compel or motions to quash shall be the Superior Court for the County of Los Angeles. (EC 35400)
5. Requires, notwithstanding any other law, a person who, after the administration of an oath or affirmation, states or affirms as true any material matter that he or she knows to be false is guilty of a misdemeanor punishable by imprisonment in a county jail not to exceed six months or by a fine not to exceed $5,000, or by both that fine and imprisonment for the first offense. Requires any subsequent violation to be punishable by imprisonment in a county jail not to exceed one year or by a fine not to exceed $10,000, or by both that fine and imprisonment. (EC 35400)
6. Requires the IG 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 in the successful completion of the IG’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 AG where the district attorney or AG declined to investigate the matter further or declined to prosecute.
7. Requires the report to be submitted to the Legislature to be submitted in compliance with Section 9795 of the GOV.
8. Authorizes the LAUSD IG and OIG to remain in effect only until January 1, 2025, and as of that date repeals the authorization, unless a later enacted statute, that is enacted before January 1, 2025, deletes or extends that date.

FISCAL EFFECT: According to the Senate Appropriations Committee:

This bill would have no direct fiscal impact to the state. However, to the extent that the LAUSD chooses to continue and fund the Office of the Inspector General, there would be continued local costs to the district. The Office of the Inspector General currently has a budget of approximately $10 million from several fund sources. In addition, this bill could potentially result in local savings to the extent that investigations and recoveries are successful or deter waste, fraud, and abuse.

COMMENTS:

Need for the bill. According to the author, “LAUSD is the second largest school district in the nation; serving over 540,000 students in a district that covers 710 square miles and serves portions of 25 cities. For close to 25 years, the LAUSD OIG has demonstrated its efficacy as an auditing and oversight tool for the district, and has shown that its unique authority can deter fraud and save the district millions of dollars annually. Unfortunately, the OIG’s authority to investigate, audit, and subpoena witnesses is set to sunset on January 1, 2025. SB 991 (Gonzalez) will remove the 2025 sunset date, and allow the LAUSD OIG to continue its transparent oversight responsibilities and protect the programs and funding of California’s largest school district.”

LAUSD OIG. The LAUSD OIG was initially established by SB 1260 (Hayden), Chapter 295, Statutes of 1999, at the request of the school district. At that time, the district's Internal Audits and Special Investigation Unit had been in existence for one year, but its director reported that it was difficult or impossible to conduct investigations, especially those that involve an outside party, such as a contractor, and that the unit had no authority to compel to provide documents or other types of information.

According to the LAUSD OIG website, “The OIG is comprised of auditors, investigators and other professional staff who have the authority to examine all functions within the LAUSD and those of private entities that do business with the LAUSD, including conducting audits and evaluations of LAUSD programs, processes, and functions, and investigates allegations of improper or illegal activities by LAUSD employees, contractors or other entities doing business with the LAUSD. The OIG also performs due diligence reviews to help reduce the risk of doing business, improve contract and employment decisions, and to promote greater accountability and effectiveness.”

Existing law grants the OIG statutory authority to conduct audits and investigations and report matters to the local district attorney or the AG for further action. Further, the OIG is granted the power to subpoena witnesses, administer oaths or affirmations, take testimony, and compel the production of all information and documentary evidence deemed material and relevant. Existing law provides confidentiality of every investigation, including all investigative files and work‐product and the identity of the individual or individuals involved. Penalties are imposed for any disclosure of information by the IG or the OIG that was acquired pursuant to a subpoena, and any person that, after the administration of an oath or affirmation, states or affirms as true any material matter that they know to be false.

LAUSD OIG statutory authorization dates. SB 1260 had a sunset date of January 1, 2001. The sunset date was subsequently extended by SB 1360 (Hayden), Chapter 750, Statutes of 2000, and AB 2425 (Richman), Chapter 462, Statutes of 2002, which extended the sunset date to January 1, 2015.

LAUSD Annual Reports. The OIG's “Annual Report to the Board of Education” for the 2023 fiscal year reports that the work of the office issued 51 reports on completed contract audits that resulted in a cost savings to the district of approximately $6.5 million.

The OIG's most recent annual report to the Legislature, dated June 30, 2023, reports that, during 2012-13, three subpoenas for business or financial records were issued. The report also states that the power of subpoena “serves as a deterrent to those who may consider committing fraudulent acts against the School District,” and that it “substantially aids in the performance of our work.”

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.

The Principles and Standards for Offices of Inspector General contains quality standards for the management, operation, and conduct of OIGs. The Association states:

In accomplishing their missions, OIGs use a variety of approaches. For example, audits, investigations, inspections, evaluations, and reviews are used as a basis for evaluating agency programs and operations, for identifying and presenting for prosecution criminal and civil wrongdoing and addressing administrative misconduct. Reviews of allegations received through hotlines and other means help to identify high-risk areas and determine where internal controls should be strengthened. Some OIGs use a variety of techniques and titles, such as fraud control programs, inspections, operational surveys, contract and operational monitoring, and other special activities to focus attention on agency needs to improve operations. OIG reviews of legislation and regulations serve to strengthen controls and ensure that the public interest is protected without imposing unnecessary burdens. OIG reports to public officials, agency heads, agency management, legislative bodies, and prosecutorial authorities keep appropriate officials apprised of the results of OIG activities.

This bill would codify the LAUSD’s OIG’s existing use of guidance produced by the Association of Inspectors General to conduct audits, investigations, inspections, and reviews.

Specific to audits, Principles and Standards for Offices of Inspector General further states:

Audits performed by OIGs should be conducted in accordance with generally accepted auditing standards. The Association of Inspectors General recommends that OIGs perform audits pursuant to one of the following:

• Generally Accepted Government Auditing Standards issued by the Comptroller General of the United States, or
• Standards for the Professional Practice of Internal Auditing issued by the Institute of Internal Auditors.

Each OIG should follow the audit standards appropriate to the OIG's mission and authority.

The LAUSD states, “The LAUSD OIG has adopted the Generally Accepted Government Auditing Standards (GAGAS) issued by the Comptroller General of the United States. This standard is articulated in the LAUSD OIG’s operating manual. OIG operations manuals provide policies and procedures to ensure that our work, including audits, is performed in accordance with these standards. Further, these standards require periodic external peer reviews to ensure that OIG work conforms to these standards. Every peer review we have undergone, as early as 2004, has determined that we are/were in compliance with the GAGAS standards.”

LAUSD OIG charter school audit of two Magnolia Charter Schools in 2014. According to the Assembly Education Committee’s analysis of AB 2806 (Wilk) of the 2015-16 Session:

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. AB 2806 resulted 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 (EC 47604.32)." 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.

The California Charter Schools Association (CCSA) has an oppose unless amended position for this bill, and are asking that the LAUSD OIG be required to follow the Generally Accepted Government Auditing Standards issued by the Comptroller General of the United States. This bill would codify the LAUSD’s OIG’s existing use of the Principles and Standards for Offices of Inspector General to conduct audits, investigations, inspections, and reviews. Specific to audits, the Principles and Standards for Offices of Inspector General states that they should be conducted in accordance with generally accepted auditing standards, including the Generally Accepted Government Auditing Standards issued by the Comptroller General of the United States.

Los Angeles Unified School District overview. The LAUSD is the second largest school district in the nation, and in the 2021-22 school year enrolled nearly 398,000 students in kindergarten through 12th grade (this figure does not include charter school enrollment). The district covers 710 square miles and includes the City of Los Angeles as well as all or parts of 31 smaller municipalities plus several unincorporated sections of Los Angeles County.

2021-22 LAUSD Enrollment by Subgroup for Charter and Non-Charter Schools

Source: California Department of Education, DataQuest

2021-22 Enrollment by Ethnicity for Charter and Non-Charter Schools

Source: California Department of Education, DataQuest

Recommended Committee Amendments. Staff recommends that the bill be amended as follows:

• Require the LAUSD OIG to conform to the Principles and Standards for Offices of Inspector General, published by the Association of IG. Require audits performed by the LAUSD OIG to be conducted in accordance with generally accepted auditing standards, including either the Generally Accepted Government Auditing Standards issued by the Comptroller General of the United States, or the Standards for the Professional Practice of Internal Auditing issued by the Institute of Internal Auditors.

This amendment will highlight the requirement for the LAUSD OIG to conduct audits in accordance with generally accepted auditing standards. The LAUSD has already adopted the Generally Accepted Government Auditing Standards issued by the Comptroller General of the United States.

Related legislation. AB 2806 (Wilk) of the 2015-16 Session would have established conditions under which the LAUSD IG would be authorized to audit or investigate a charter school, if directed by the governing board to an evaluation of the school. This bill was held in the Assembly Education Committee.

AB 1825 (Nazarian), Chapter 208, Statutes 2014, extends the sunset date of the LAUSD’s OIG by 10 years, from January 1, 2015, to January 1, 2025.

AB 2425 (Richman), Chapter 462, Statutes of 2002, extended the sunset date to January 1, 2015.

SB 1360 (Hayden), Chapter 750, Statutes of 2000, extended the sunset date to January 1, 2005.

SB 1260 (Hayden), Chapter 295, Statutes of 1999, established the LAUSD OIG at the request of the school district, with a sunset date of January 1, 2001.

Arguments in support. The LAUSD writes, “Due to the unique nature of Los Angeles Unified’s size and budget, the Legislature passed SB 1260 (Hayden) in 1999, granting the District the authority to conduct audits and investigations. Without opposition, the Legislature extended the OIG’s authority multiple times since the OIG’s creation, most recently in 2014. After 25 years of protecting the students and taxpayers from potential waste, fraud or abuse, the OIG consistently upholds the integrity of Los Angeles Unified.”

Arguments in opposition. The California Charter Schools Association writes, “We do not take issue with the OIG’s ability to investigate or audit LAUSD or its charter public schools. Where we do have concerns is with the transparency of those investigations or audits when relied upon by LAUSD and its Board to take formal action in relation to charter school renewals or revocations. In 2014, LAUSD attempted to close at first two, then three Magnolia charter schools based on information from an OIG report that was in draft form and was not public information. The charter school was forced to sue and received a preliminary injunction that blocked LAUSD from closing their schools…If the LAUSD OIG is to be permanently authorized, then they must be held to a higher standard of transparency, and protections must be added to ensure an incident like this will not happen again in the future.”

REGISTERED SUPPORT / OPPOSITION:

Support

Los Angeles Unified School District

Opposition

California Charter Schools Association

Analysis Prepared by: Marguerite Ries / ED. / (916) 319-2087

 THIRD READING  

Bill No: SB 991

Author: Gonzalez (D)

Amended: 4/4/24

Vote: 21

SENATE EDUCATION COMMITTEE: 6-0, 4/3/24

AYES: Newman, Ochoa Bogh, Cortese, Gonzalez, Smallwood-Cuevas, Wilk

NO VOTE RECORDED: Glazer

SUBJECT: School districts: Los Angeles Unified School District: inspector general

SOURCE: Los Angeles Unified School District

DIGEST:

This bill requires the office of the inspector general (OIG) of the Los Angeles Unified School District (LAUSD) to submit a report to the Legislature annually, as specified, and removes the sunset date, extending the authority of the OIG of LAUSD indefinitely.

ANALYSIS:

Existing law:

Education Code (EC)

1. Authorizes the LAUSD’s OIG until January 1, 2015, to conduct audits and investigations, as specified, including the ability to subpoena witnesses, administer oaths or affirmations, take testimony, and compel the production of all information and documentary evidence deemed material and relevant and that reasonably relate to the inquiry or investigation undertaken by the Inspector General when there is reasonable suspicion that a law, regulation, rule, or district policy has been violated or is being violated. (EC § 35400 (a))
2. Defines "reasonable suspicion" to mean specific and articulable facts causing the Inspector General and would cause a reasonable officer in a like position to suspect that a material violation of law, regulation or policy has occurred or is occurring. (EC § 35400 (a))
3. Provides that the first instance of false sworn testimony to the Inspector General is a misdemeanor publishable by up to six months in jail or a fine of up to $5,000 or both; and that each subsequent violation shall be punishable by up to 12 months in jail or a fine of up to $10,000 or both. (EC § 35400 (d))
4. Requires the Inspector General to submit annual reports to the Legislature and a final cumulative report by December 1, 2024, on all of the following:
   1. The use and effectiveness of the subpoena power in the successful completion of the Inspector General's duties;
   2. Any instance in which the subpoena was quashed; and
   3. Any instance in which the local district attorney or Attorney General declined to investigate further or to prosecute a referred case. (EC § 35400 (e))
5. A person who intentionally engages in acts of reprisal, retaliation, threats, coercion, or similar acts against a public school employee or applicant for employment with a public school employer for having made a protected disclosure is subject to a fine not to exceed ten thousand dollars ($10,000) and imprisonment in the county jail for a period not to exceed one year. Any public school employee, officer, or administrator who intentionally engages in that conduct shall also be subject to discipline by the public school employer. (EC § 44114)

California Constitution

1. All laws of a general nature have uniform operation. A local or special statute is invalid in any case if a general statute can be made applicable. (Cal. Const. Art. IV § 16 )

This bill:

1. Requires the OIG of the LAUSD to submit a report to the Legislature annually and removes the sunset date, extending the authority of the OIG of the LAUSD indefinitely.
2. Requires the Inspector General to be appointed By the Board of Education of the LAUSD for a term of three years, subject to the terms of their contract.
3. Requires audits, investigations, inspections, and reviews conducted by the OIG shall conform to the Principles and Standards for OIG, published by the Association of Inspectors General.
4. Finds and declares that a special statute is necessary and that a general statute cannot be made applicable within the meaning of Section 16 of Article IV of the California Constitution because of the unique circumstances concerning the LAUSD.

Comments

1. Need for the bill. According to the author, “LAUSD is the second largest school district in the nation; serving over 540,000 students in a district that covers 710 square miles and serves portions of 25 cities. For close to 25 years, the LAUSD Office of Inspector General (OIG) has demonstrated its efficacy as an auditing and oversight tool for the district, and has shown that its unique authority can deter fraud and save the district millions of dollars annually. Unfortunately, the OIG’s authority to investigate, audit, and subpoena witnesses is set to sunset on January 1, 2025. SB 991 (Gonzalez) will remove the 2025 sunset date, and allow the LAUSD OIG to continue its transparent oversight responsibilities and protect the programs and funding of California’s largest school district.”
2. Los Angeles Unified School District – Office of the Inspector General.

In August 1998, the Board began the process of establishing a department within the LAUSD whose mission would be to detect and prevent fraud, waste and abuse in District operations and programs. The Board combined auditors and investigators and adopted the name Office of the Inspector General. Granted the OIG power to (i) subpoena witnesses, (ii) administer oaths or affirmations, (iii) take testimony, and (iv) compel the production of all information and documentary evidence deemed material and relevant. Provided confidentiality of (i) every investigation, including all investigative files and work‐product and (ii) the identity of the individual or individuals involved. Imposed penalties for (i) any disclosure of information by the inspector general or that office that was acquired pursuant to a subpoena, and (ii) any person that, after the administration of an oath or affirmation, states or affirms as true any material matter that he/she knows to be false. The OIG is comprised of auditors, investigators and other professional staff who have the authority to examine all functions within the LAUSD and those of private entities that do business with the LAUSD. The Audit Unit conducts audits and evaluations that cover a wide range of programs, processes, functions, areas, and topics. The Investigations Unit investigates allegations of improper or illegal activities by LAUSD employees, contractors, or other entities doing business with the LAUSD. The OIG also takes a proactive role by performing due diligence reviews to help reduce the risk of doing business, improve contract and employment decisions, and to promote greater accountability and effectiveness.

Whistleblower Protections

An employee of the LAUSD is prohibited from using their official authority or influence, either directly or indirectly, to interfere with an individual's right to provide information. Furthermore, they are not allowed to engage in any acts of retaliation, threats, coercion, or similar actions against an individual who provides such information or refuses to obey an illegal order. These protections currently exist in Education Code.

Audit Standards and Investigations

According to the OIG webpage, “the audit unit conducts its audits in accordance with Generally Accepted Government Auditing Standards, Statements on Standards for Attestation Engagements and the Federal Acquisition Regulations. The investigation unit conducts its investigations in accordance with the Principles and Standards for Offices of Inspectors General.” This bill codifies LAUSD’s OIG existing use of guidance produced by the Association of Inspectors General to conduct audits, investigations, inspections, and reviews.

Related/Prior Legislation

AB 2806 (Wilk, 2016) would have established conditions under which the inspector general of the LAUSD may audit or investigate a charter school, if directed by the governing board to an evaluation of the school, and makes related changes. This bill was pulled by the author in Assembly Education Committee.

AB 1825 (Nazarian, Chapter 208, Statutes 2014) extended the sunset date of the LAUSD’s OIG by 10 years, from January 1, 2015, to January 1, 2025.

SB 1260 (Hayden, Chapter 295, Statutes of 1999) established the LAUSD’s OIG until January 1, 2001.

SB 1360 (Hayden, Chapter 750, Statutes of 2000) extended the authorization of LAUSD’s OIG to conduct hearings, administer oaths, and subpoena witnesses and records from January 1, 2001 to January 1, 2005.

AB 2425 (Richman, Chapter 462, Statutes of 2002) extended the authorization of LAUSD’s OIG to conduct hearings, administer oaths, and subpoena witnesses and records from January 1, 2005 to January 1, 2015, and authorizes the LAUSD Inspector General to perform audits, as specified.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

According to the Senate Appropriations Committee analysis, “This bill would have no direct fiscal impact to the state. However, to the extent that the LAUSD chooses to continue and fund the Office of the Inspector General, there would be continued local costs to the district. The Office of the Inspector General currently has a budget of approximately $10 million from several fund sources. In addition, this bill could potentially result in local savings to the extent that investigations and recoveries are successful or deter waste, fraud, and abuse.”

SUPPORT: (Verified 5/16/24)

Los Angeles Unified School District (source)

OPPOSITION: (5/16/24)

California Charter School Association

ARGUMENTS IN SUPPORT: According to the Los Angeles Unified School District, “Due to the unique nature of Los Angeles Unified’s size and budget, the Legislature passed SB 1260 (Hayden) in 1999, granting the District the authority to conduct audits and investigations. Without opposition, the Legislature extended the OIG’s authority multiple times since the OIG’s creation, most recently in 2014. After 25 years of protecting the students and taxpayers from potential waste, fraud or abuse, the OIG consistently upholds the integrity of Los Angeles Unified. For these reasons, Los Angeles Unified is pleased to sponsor SB 991.”

ARGUMENTS IN OPPOSITION: According to the California Charter School Association, “The OIG is a statutory creation to detect and prevent waste, fraud, and abuse at LAUSD. The OIG is authorized to subpoena witnesses, take testimony and compel the production of all material information and documentary evidence. Specific violations of the school district laws can lead to criminal penalties, and the OIG has the authority to refer specific cases to the District Attorney or Attorney General. We do not take issue with the OIG’s ability to investigate or audit LAUSD or its charter public schools. Where we do have concerns is with the transparency of those investigations or audits when relied upon by LAUSD and its Board to take formal action in relation to charter school renewals or revocations. In 2014, LAUSD attempted to close at first two, then three Magnolia charter schools based on information from an OIG report that was in draft form and was not public information. The charter school was forced to sue and received a preliminary injunction that blocked LAUSD from closing their schools. The Bureau of State Audits (BSA) then conducted an audit of these schools and as part of their audit, also reviewed the OIGs actions and report.

The Bureau of State Audits found that:

1. The OIG did not provide the LAUSD charter schools division with a copy of the draft report, because they had anticipated litigation and considered the document to be protected under attorney-client privilege: “The inspector general told us that… he did not provide the [charter school] division with a copy [of the draft report] because he anticipated litigation and considered the document protected under attorney client privilege.” (Page 56)
2. The OIG had instead drafted a memo summarizing the draft report, which they had done inaccurately: “Rather than allowing the division access to the full draft report that an outside accounting firm prepared on these academies, the inspector general provided the division with a memo that summarized the findings. This memo did not accurately and comprehensively represent either the draft report’s findings or the complete financial status at the Magnolia Education and Research Foundation (Foundation) and the two academies.” (Page 53)
3. The school was never allowed to comment on the draft findings, let alone seek to cure the problems: “The inspector general’s decision to provide the division with only limited information was further complicated by the fact that neither the inspector general nor the division allowed the Foundation to comment on the draft findings or the memo, despite the fact that such comments would have likely provided valuable insight and context into the financial positions and operations of the Foundation and the academies” (Page 53)

and

“The Inspector general had asked [their auditing firm] not to complete Phase 2 of the review, which would have included interviews of former employees, current employees, and third parties in an attempt to gain additional information not apparent from records and supporting documents. This explains why the draft report is missing a critical component—the Foundation’s perspective and explanations regarding [the auditing firms] findings. Further, the division did not allow the Foundation a reasonable amount of time or the opportunity to respond to or remedy its concerns.” (Page 59)

Thanks to the lawsuit and the settlement, these schools were able to remain open, and continue to be high performing charter schools today. However, this situation should not have happened in the first place, and it was due to LAUSD’s attempts to rush and deny transparency and due process to these charter schools that such a lawsuit was necessary in the first place.

If the LAUSD OIG is to be permanently authorized, then they must be held to a higher standard of transparency, and protections must be added to ensure an incident like this will not happen again in the future. We ask that:

1. OIG reports be made public prior to any deliberations on actions related to the findings of the report by the LAUSD board against charter schools.
2. Charter schools are given a reasonable opportunity to respond to any findings prior to the publication of the report.
3. LAUSD be prohibited from taking action based on non-public information, such as draft reports or any other evidence that has not been made public before the action.
4. Actions to consider revocation, nonrenewal, or corrective action against a charter school as a result of an OIG audit or investigation should comply with existing law, Education Code section 47607 and its implementing regulations, which provide a reasonable opportunity for the charter school to cure any violation and address any finding in public.

If these protections are not added, then we do not believe that the LAUSD OIG deserves permanent authorization. For these reasons, CCSA opposes SB 991.”

Click here to enter text.

Prepared by: Kordell Hampton / ED. / (916) 651-4105

5/17/24 18:50:06

**** END ****

SENATE COMMITTEE ON

Senator Anna Caballero, Chair

2023 - 2024 Regular Session

SB 991 (Gonzalez) - School districts: Los Angeles Unified School District: inspector general

Bill Summary:

This bill removes the sunset date and permanently extends the authority of the Office of the Inspector General of the Los Angeles Unified School District (LAUSD).

Fiscal Impact:

This bill would have no direct fiscal impact to the state. However, to the extent that the LAUSD chooses to continue and fund the Office of the Inspector General, there would be continued local costs to the district. The Office of the Inspector General currently has a budget of approximately $10 million from several fund sources. In addition, this bill could potentially result in local savings to the extent that investigations and recoveries are successful or deter waste, fraud, and abuse.

Background:

Existing Law authorizes the LAUSD’s Office of the Inspector General until January 1, 2015, to conduct audits and investigations, as specified, including the ability to subpoena witnesses, administer oaths or affirmations, take testimony, and compel the production of all information and documentary evidence deemed material and relevant and that reasonably relate to the inquiry or investigation undertaken by the Inspector General when there is reasonable suspicion that a law, regulation, rule, or district policy has been violated or is being violated.

Existing law requires the Inspector General to submit annual reports to the Legislature and a final cumulative report by December 1, 2024, on all of the following:

• 1. The use and effectiveness of the subpoena power in the successful completion of the Inspector General's duties;
  2. Any instance in which the subpoena was quashed; and
  3. Any instance in which the local district attorney or Attorney General declined to investigate further or to prosecute a referred case.

Proposed Law:

This bill removes the sunset date, extending the authority of the Office of the Inspector General of the LAUSD indefinitely.

This bill requires the Inspector General to be appointed By the Board of Education of the LAUSD for a term of three years, and provides that audits, investigations, inspections, and reviews conducted by the OIG shall conform to the Principles and Standards for the Office of the Inspector General, published by the Association of Inspectors General.

This bill specifies that the Inspector General, who is appointed by the LAUSD Board of Education for a term of three years, be subject to the terms of their employment contract.

Related Legislation:

AB 1825 (Nazarian, Chapter 208, Statutes 2014) extended the sunset date of the LAUSD’s OIG by 10 years, from January 1, 2015, to January 1, 2025.

Staff Comments:

This bill permanently extends the LAUSD’s authority to have an Office of the Inspector General, which was originally authorized by SB 1260 (Hayden, Chapter 295, Statutes of 1999). Since its creation, the Office has been fully funded at the local level. This legislation authorizes the continuance of a local program, and is unlikely to result in additional state costs.

-- END --

SENATE COMMITTEE ON EDUCATION

Senator Josh Newman, Chair

2023 - 2024 Regular

Bill No: Hearing Date: April 3, 2024

Subject:

SUMMARY

This bill requires the office of the inspector general (OIG) of the Los Angeles Unified School District (LAUSD) to submit a report to the Legislature upon request rather than annually, as specified, and removes the sunset date, extending the authority of the OIG of LAUSD indefinitely.

BACKGROUND

Existing Law

Education Code (EC)

1. Authorizes the LAUSD’s OIG until January 1, 2015, to conduct audits and investigations, as specified, including the ability to subpoena witnesses, administer oaths or affirmations, take testimony, and compel the production of all information and documentary evidence deemed material and relevant and that reasonably relate to the inquiry or investigation undertaken by the Inspector General when there is reasonable suspicion that a law, regulation, rule, or district policy has been violated or is being violated. (EC § 35400 (a))
2. Defines "reasonable suspicion" to mean specific and articulable facts causing the Inspector General and would cause a reasonable officer in a like position to suspect that a material violation of law, regulation or policy has occurred or is occurring. (EC § 35400 (a))
3. Provides that the first instance of false sworn testimony to the Inspector General is a misdemeanor publishable by up to six months in jail or a fine of up to $5,000 or both; and that each subsequent violation shall be punishable by up to 12 months in jail or a fine of up to $10,000 or both. (EC § 35400 (d))
4. Requires the Inspector General to submit annual reports to the Legislature and a final cumulative report by December 1, 2024, on all of the following:
   1. The use and effectiveness of the subpoena power in the successful completion of the Inspector General's duties;
   2. Any instance in which the subpoena was quashed; and
   3. Any instance in which the local district attorney or Attorney General declined to investigate further or to prosecute a referred case. (EC § 35400 (e))
5. A person who intentionally engages in acts of reprisal, retaliation, threats, coercion, or similar acts against a public school employee or applicant for employment with a public school employer for having made a protected disclosure is subject to a fine not to exceed ten thousand dollars ($10,000) and imprisonment in the county jail for a period not to exceed one year. Any public school employee, officer, or administrator who intentionally engages in that conduct shall also be subject to discipline by the public school employer. (EC § 44114)

California Constitution

1. All laws of a general nature have uniform operation. A local or special statute is invalid in any case if a general statute can be made applicable. (Cal. Const. Art. IV § 16 )

ANALYSIS

This bill:

1. Requires the OIG of the LAUSD to submit a report to the Legislature upon request rather than annually and removes the sunset date, extending the authority of the OIG of the LAUSD indefinitely.
2. Requires the Inspector General to be appointed By the Board of Education of the LAUSD for a term of three years.
3. Requires audits, investigations, inspections, and reviews conducted by the OIG shall conform to the Principles and Standards for OIG, published by the Association of Inspectors General.
4. Finds and declares that a special statute is necessary and that a general statute cannot be made applicable within the meaning of Section 16 of Article IV of the California Constitution because of the unique circumstances concerning the LAUSD.

STAFF COMMENTS

1. Need for the bill. According to the author, “LAUSD is the second largest school district in the nation; serving over 540,000 students in a district that covers 710 square miles and serves portions of 25 cities. For close to 25 years, the LAUSD Office of Inspector General (OIG) has demonstrated its efficacy as an auditing and oversight tool for the district, and has shown that its unique authority can deter fraud and save the district millions of dollars annually. Unfortunately, the OIG’s authority to investigate, audit, and subpoena witnesses is set to sunset on January 1, 2025. SB 991 (Gonzalez) will remove the 2025 sunset date, and allow the LAUSD OIG to continue its transparent oversight responsibilities and protect the programs and funding of California’s largest school district.”
2. Los Angeles Unified School District – Office of the Inspector General.

In August 1998, the Board began the process of establishing a department within the LAUSD whose mission would be to detect and prevent fraud, waste and abuse in District operations and programs. The Board combined auditors and investigators and adopted the name Office of the Inspector General. Granted the OIG power to (i) subpoena witnesses, (ii) administer oaths or affirmations, (iii) take testimony, and (iv) compel the production of all information and documentary evidence deemed material and relevant. Provided confidentiality of (i) every investigation, including all investigative files and work‐product and (ii) the identity of the individual or individuals involved. Imposed penalties for (i) any disclosure of information by the inspector general or that office that was acquired pursuant to a subpoena, and (ii) any person that, after the administration of an oath or affirmation, states or affirms as true any material matter that he/she knows to be false. The OIG is comprised of auditors, investigators and other professional staff who have the authority to examine all functions within the LAUSD and those of private entities that do business with the LAUSD. The Audit Unit conducts audits and evaluations that cover a wide range of programs, processes, functions, areas, and topics. The Investigations Unit investigates allegations of improper or illegal activities by LAUSD employees, contractors, or other entities doing business with the LAUSD. The OIG also takes a proactive role by performing due diligence reviews to help reduce the risk of doing business, improve contract and employment decisions, and to promote greater accountability and effectiveness.

Whistleblower Protections

An employee of the LAUSD is prohibited from using their official authority or influence, either directly or indirectly, to interfere with an individual's right to provide information. Furthermore, they are not allowed to engage in any acts of retaliation, threats, coercion, or similar actions against an individual who provides such information or refuses to obey an illegal order.

These protections currently exist in Education Code.

Audit Standards and Investigations

According to the OIG webpage, “the audit unit conducts its audits in accordance with Generally Accepted Government Auditing Standards, Statements on Standards for Attestation Engagements and the Federal Acquisition Regulations. The investigation unit conducts its investigations in accordance with the Principles and Standards for Offices of Inspectors General.”

This bill codifies LAUSD’s OIG existing use of guidance produced by the Association of Inspectors General to conduct audits, investigations, inspections, and reviews.

1. Committee Amendments. Committee staff recommends, and the author has agreed to accept, the following amendments:
2. Require the OIG to submit a report to the legislature annually.
3. Specifies that the inspector general, who is appointed by the LAUSD board of education for a term of three years, be subject to the terms of their employment contract.
4. Related Legislation.

AB 2806 (Wilk, 2016) establishes conditions under which the inspector general of the LAUSD may audit or investigate a charter school, if directed by the governing board to an evaluation of the school, and makes related changes. This bill was pulled by the author in Assembly Education committee.

AB 1825 (Nazarian, Chapter 208, Statutes 2014) extended the sunset date of the LAUSD’s OIG by 10 years, from January 1, 2015, to January 1, 2025.

SB 1260 (Hayden, Chapter 295, Statutes of 1999) established the LAUSD’s OIG until January 1, 2001.

SB 1360 (Hayden, Chapter 750, Statutes of 2000) extended the authorization of LAUSD’s OIG to conduct hearings, administer oaths, and subpoena witnesses and records from January 1, 2001 to January 1, 2005.

AB 2425 (Richman, Chapter 462, Statutes of 2002) extended the authorization of LAUSD’s OIG to conduct hearings, administer oaths, and subpoena witnesses and records from January 1, 2005 to January 1, 2015, and authorizes the LAUSD Inspector General to perform audits, as specified.

SUPPORT

Los Angeles Unified School District (Sponsor)

OPPOSITION

California Charter Schools Association

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