FY14 OIG Annual Report.pdf

OfficeoftheInspectorGeneral

AnnualReporttothe

BoardofEducation

FiscalYear2014

LOSANGELESUNIFIEDSCHOOLDISTRICTAllYouthAchieving

LOSANGELESUNIFIEDSCHOOLDISTRICTOfficeoftheInspectorGeneral

VISIONTobeaproactiveagencystrivingforexcellenceandcontinuouspositivechangeinthe

managementandprogramsoftheLosAngelesUnifiedSchoolDistrict.

MISSIONTopromoteacultureofaccountability,transparency,collaborationandintegritythrough

theperformanceofauditandinvestigativeservicesdesignedtodrivecontinuousimprovement,supporteffectivedecisionmakingand

detectanddeterwaste,fraudandabuse.

COREVALUES

Accountability

Efficiency

Integrity

2014OIGAnnualReporttotheBoardofEducation

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AbouttheOfficeoftheInspectorGeneralThe Board of Education of the Los Angeles Unified School Districtcreated the Office of the Inspector General in 1998, and the Statelegislaturegranteditcertainstatutoryauthoritiesandpowersin2000andin2002.The OIG reports directly to the Board of Education. We conduct independent audits, reviews and investigations of District operations, contracts and vendors in order to: Find ways to improve processes, programs, functions and activities Provide information that supports effective decision making Identify real or potential misuse of District resources Prevent and detect waste, fraud and abuse within the District

Through our work, we strive to encourage a culture of accountability, transparency, collaboration and excellence and to assist the Board of Education and the Superintendent in their efforts to provide a high quality education for the students and parents of the Los Angeles Unified School District.


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TABLEOFCONTENTS

A. HIGHLIGHTSOFWORKPERFORMEDANDBENEFITSPROVIDED 3 B. BACKGROUNDOFTHEOIG 10C. ANALYSISOFWORKPRODUCTION 18D. ECONOMICIMPACT 21E. CONCLUSION 22APPENDIX1:SIGNIFICANTREPORTSUMMARIES 23 APPENDIX2:REPORTSISSUEDINDEX 27APPENDIX3:DISTRIBUTIONLIST 30FRAUDHOTLINE 31


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A.HIGHLIGHTSOFWORKPERFORMEDANDBENEFITSPROVIDED

INTERNALAUDITACTIVITIESInFY2014, theOIGcoveredavarietyofareaswithsomesignificantBoardrequestedreviewsbeingcompleted thisyear.Also, twosignificantprojectswere initiatedat therequestoftheInspectorGeneralthatwillultimatelyprovidemoreinsightintohowwellthe District is performing its asset management and security responsibilities overportablecomputerdevices. These twoprojects combined involvedvisits toover100schoolsaswellastotheDistrict’sSotoStreetWarehouse.Theresultsoftheseprojectswill be released in the first quarter of FY 2015. Finally, during this year, the OIGprepared a Trend Analysis Report that summarized the results of limited schoolreviews that were done in FY 2011 and FY 2012. This trend analysis report wasdesignedtohelpPrincipalsunderstandhowtobettermanageandoverseetransactionsoccurring in their imprest, student body and purchasing card accounts. The OIGworked closely with the Office of the Chief Financial Officer to ensure that theinformation in the report showed the importanceof schools’ adherence to applicablepolicies and procedures from both a management perspective and from an auditperspective.There were various audits that addressed key areas of importance this year. Forexample, our audit of School Crisis Teams was focused on determining whetherDistrictschoolswerecreatingandmaintainingschoolcrisisteamsasrequiredbybothDistrictpolicyandbyfederalandstateregulations.Schoolcrisisteamsareimportanttoensurethatschoolsarepreparedtodealwithvariouskindsofunexpectedemergencysituations. As part of this audit, 35 schools were visited covering all seven boarddistricts. Ingeneral,we found that theschoolsvisitedcreatedschool crises teams fortheircampuses.However,wealsonoticedthatmanyoftheschoolswerenotfollowingpolicies and procedures relating to these teams.We encouraged schools to take thestepsneededtomakesurethatschoolcrisisteammembersknewwhatwasexpectedofthem.This area is of such importance that a similar auditwas added to theFY2015annualworkplanexpandingthescopeoftheprojecttoincludecharterschools.During this fiscal year, we examined the prices of goods commonly purchased byschools. Specifically, the Board was interested in knowing how District prices forcommonly purchased items compared to prices charged by outside retailors. TheProcurement of Common Goods at School Sites audit was designed to be abenchmarkingstudy.Weselectedavarietyofgoodsthatarecommonlypurchasedbyschools,researchedwhattheDistrictchargesschoolsfortheseitemsbasedonMasterContractsandtheDistrictwarehouse,andcomparedthesepricestotheaveragepricescharged by outside retailors that schools often buy from.We found that through theDistrict’s general stores system, the District is able to realize economies of scalethroughvolumepurchasesandisabletopassthesesavingsontoschoolsintheformofcompetitivepricesforregularsuppliesandequipment.WealsonotedthattheDistrictneeded to do more to market and promote its merchandise to schools. This isparticularlyimportantsinceschoolshavethediscretiontopurchasemanycommoditiesfromoutsideretailors.


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Inasimilarareaofinterest,theBoardexpressedadesireformoreinformationonhowprices for computer equipmentpurchased throughmaster contracts compared to theprices for computer equipment purchased directly through outside vendors. Again,schoolshavethediscretiontopurchasecomputerequipmentthroughoutsidevendors,eventhoughtheDistricthasmastercontractsforthepurchaseofDell,HewlettPackard,Lenovo and Apple computers. In the audit Price Comparison of Computers andDeliverables, we conducted research to determine if purchasing computers fromoutside vendors was less expensive than purchasing the computers through mastercontracts.Wediscoveredthatcertaincomputerequipmentcouldbeobtainedatalowerprice from outside vendors. However, the price differential was offset becausecomputer equipment purchased through master contracts enjoy superior warrantyprotections as well as pre‐loaded Bios resident tracking software that facilitates thephysical tracking of equipment. Also, equipment purchased throughmaster contractshave repair and replacement protections that equipment purchased from outsidevendorsdonothave,andhavemoresupportforinitialset‐upandinstallation.Overall,we determined that purchasing computer equipment through master contracts wasmore cost effective in the long term. We recommended that the District needed tomonitor more effectively the volume of computer equipment purchased by schoolsfrom outside vendors using p‐cards and low‐value purchase orders. We alsorecommended that the District do more to communicate the benefits of purchasingcomputerequipmentthroughmastercontracts toschoolsandoffices.In the RandomMetal Detector Searches at School Sites audit, we explained theimportanceofdealingwiththeriskofviolenceonschoolcampusesandhowcriticalitisfor schools to follow District policies and procedures relating to this area. Districtpolicy relating to randommetal detector searches requires twomain things: (i) theperformance of random metal detector searches, and (ii) the maintenance ofdocumentationtoshowthatthesesearchesweredone.WenotedthattheDistricthadtaken the steps needed to create and disseminate polices concerning this importantarea.However, forvarious reasons, someschoolswerenot consistently following theprescribed policies and procedures. For example, some schools did not have signsposted on the campus alerting everyone that all persons on school premises weresubjecttosearchforweaponsbymetaldetectors.Also,someschoolsdidnotmaintaintherequirednumberofmetaldetectorwands.Andfinally,someschoolsdidnotensurethatmetaldetectorsearcheswereconductedonadailybasis.Althoughthemajorityofthe schools we visited were following the prescribed policies and procedures,corrective actions were needed in order to be consistent with the District’s “zero‐tolerance” policy with regard toweapons on school campuses.We recommended toSchoolOperationsthatPrincipalsshouldberemindedabouttheimportanceofadheringtopolicy,andthatPrincipalsshouldbetasked,alongwiththesearchteammembersattheir school locations, with reviewing the proper procedures for conducting randommetaldetectorsearches.Finally, in FY 2014 the OIG completed a significant audit entitled Charter SchoolsDivision (CSD)–ReviewofOversightPractices. Themain objectives of this auditwere to determine if the CSD (i) provided effective oversight and monitoring of aselectionofDistrictauthorizedcharterschoolsand(ii)hadaneffectivereviewprocess


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foraselectionofcharterschoolrenewalpetitions.WealsoassessedtheextenttowhichtheCSDhadadoptedtheessentialpracticesforacharterschoolauthorizeraslistedinthe2011NACSAIndexofEssentialPractices.WeconcludedthattheCSDwasorganizationallywellpositionedatthetimeofourauditto effectively oversee the District’s charter schools with sufficient staffing, clearreporting lines, and adequate policies and procedures which were in the process ofbeing updated.We also noted that the CSD did a commendable job of incorporatingNACSA’s index of essential practices into its foundational policies, procedures andpracticesbyhavingadopted11outofthe12essentialpracticesasarticulatedbyNACSAguidelines.ConcerningCSD’seffectivenessintheareasofoversight,monitoring,andeffectivenessover the renewal process over the charter schools thatwere reviewed as part of theaudit, we noted process gaps andmanagement decisions that raised concerns aboutwhether the CSD had provided themost effective level of oversight,monitoring, andcharter renewal review for these schools. We provided the CSD with numerousrecommendations thatwebelievewill significantly enhance its oversight capabilities.The CSD generally agreed with the recommendations, but asserted that the OIGrecommended actions “affirmed CSD practices in place.” However, most of theenhancedoversightpracticestheCSDreferredtoinitsresponsetotheauditreflectedinformation that was communicated to CSD during the audit. Therefore, wecommendedCSDmanagementformakingorplanningimprovementsthatincorporatedmuchoftheinformationprovidedaspartofouraudit.Internal auditing activities identified over $35,000 in potentialmonetary benefits forthe District. This amount consisted of potential cost savings and questioned costsidentifiedinvariousaudits.InFY2014,Districtstaffagreedwithover90%ofallInternalAuditrecommendations.

CONTRACTAUDITACTIVITIES

During FY 2014, the OIG conducted audits on contracts with a total value of $582million and issued 45 reports. The audit reports identified $558,273 in questionedcostsand$2.3millioninconstructioncostsavings. Inaddition,theBoardapproveda$900,000settlementwithavendorthattheOIGauditedinFY2012.TheOIGisconfidentthatcontractauditactivitieshaveservedasadeterrentfactortocontractors and to employees who would otherwise attempt to circumvent policies,procedures and the law. The following are some contract audits that supported theDistrict’s procurement efforts and School Construction, Repair & ModernizationProgramsduringFY2014.


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SupportingSchoolConstruction,Repair&ModernizationThe District entered into a development and construction contract with TurnerConstructionCompany(Turner)fortheconstructionofCentralRegionHighSchoolNo.16. The final approved price, including change orders and contingency/allowancedisbursements,amountedto$98,096,125.Ourauditidentified$191,771ofquestionedcosts related to the inclusion of general condition costs in the buyout savingscalculation.TheAssistantGeneralCounselindicatedthatTurneragreedtoresolvetheauditissuesbyrefundingtheDistrict$190,000.The District executed an agreement with Innovative Construction Solutions, Inc.(ICS)forenvironmentalremediationatSouthRegionHighSchoolNo.9.Ourauditfoundthat ICS overbilled $43,478 formaterial handling andbond cost. FSD’smanagementagreedwith the audit findings andwill request a refund from ICS for thequestionedamount.The District entered into a development and construction contract withTildenCoilConstructors (TildenCoil) for the construction ofSouthRegionSpanK‐8No.1. Thefinal approved price, including change orders and contingency/allowancedisbursements, amounted to $39,155,535. Our audit found that Tilden Coil did notcredit$4,144ofbondcostsavingstotheDistrictasrequiredbythecontract.TheFSDconcurredwith the$4,144ofquestionedbondcostsand indicated that itwill issueacreditchangeordertotransfer$4,144totheDistrictcontrolledcontingencyfund.The District entered into a development and construction agreement with SinanianDevelopment, Inc. (Sinanian) to develop and build the Central Region MacArthurElementarySchool addition onDistrict‐owned land located at 2300W. 7th Street, LosAngeles.Thescopeofworkincludedthedevelopmentandconstructionofclassrooms,alibrary,multipurposeroom,foodserviceandlunchshelter,playfields,andundergroundparking.OurreportdisclosedcostsavingstotheDistrictintheamountof$323,770.TheDistrictentered intoadevelopmentandconstructionagreementwithSwinertonBuilders(Swinerton)fortheconstructionofCentralRegionGlassellParkEECat3003N. Carlyle Street, Los Angeles. We performed an audit of this contract to determinewhether (i) theamountsbilledrepresentedcosts thatwereallowableandadequatelysupported, (ii) contract change orders were justifiable, properly approved andadequately documented, (iii) the terms and conditions on the use of allowance andcontingencyfundswereadheredtoandadequatelydocumented,(iv)thescopeofworkwas completed in compliance with the terms of the Development and ConstructionAgreement,and(v)tocalculatethebalanceofcostsavingsbetweenSwinertonandtheDistrict. Theresultsof theauditdisclosedquestionedcosts intheamountof$33,782andcostsavingstotheDistrictintheamountof$119,651.The District entered into a development and construction agreement with TurnerConstructionCompany(Turner)fortheconstructionofschoolimprovementsatValleyRegionHighSchoolNo.5.Weperformedanaudittodeterminewhether(i)theamountsbilledunderthecontractwereallowable,adequatelysupportedandinaccordancewith


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the terms and conditions of theContract; (ii) the terms and conditions on theuse ofallowance and contingency fundswere fully adhered to and adequately documented;(iii)determinewhethertheContractorperformedtheworkasrequiredbytheContract;andtocalculatethebalanceofcostsavingsbetweenTurnerandtheDistrict.Theresultsofourauditdisclosedquestionedcostsintheamountof$182,562andcostsavingstotheDistrictintheamountof$358,596.SupportingFacilitiesandBondRelatedProgramsWeperformedaConstructionManagementRateStudytodeterminethemarketratesandsalariesfor40constructionmanagementpositionspertherequestoftheFacilitiesServices Division (FSD). The results of the rate studywill assist FSD in determininghourlyratesfornewconstructionmanagementcontracts.WeconductedaContractProfessionalsConflictof InterestReview todetermine iftherewereanyconflictsofinterestintheFSD’sschoolconstruction,modernizationandrepairprogramasa resultof retainingcontractprofessionals toprovideconstructionmanagementservices.OurreviewfoundthattheDeputyDirectorofProjectExecutionapprovedchangeordersandcontingency/allowancedisbursementstohisfirmwhilehewasacontractprofessionalandduringthe12‐monthcoolingperiodafterbecomingaDistrict employee. We also found that two contract professionals appointed to thepositions of Senior Development TeamManager and Development TeamManager ofRealEstateparticipatedinpre‐constructionactivitiesoftwoprojectswhichtheirfirmssubsequentlyprovidedtheconstructionservices.Inordertoavoidanyfutureconflictsofinterest,werecommendedthattheFSDshouldlimitthecontractprofessionalfirmsto having only one type of contract with the District: either (i) construction, (ii)constructionmanagementor(iii)architect/engineeringservices.WeconductedaTimekeepingReviewofOEHSContractProfessionalsattherequestoftheOfficeofEnvironmentalHealth&Safety(OEHS).TheOEHSretainedeightcontractprofessionals in 2013 towork in the District’s Beaudry headquarters to oversee theworkperformedbyOEHSmaster serviceagreement contractors. Thepurposeof thereviewwastodetermine(i)ifthecontractprofessionalsweresigninginandouttheiractual arrival and departure time, (ii) how much of the time billed by the contractprofessionalswas for time spentoutsideof theBeaudryBuilding, and to recommendtimereportingpoliciesandprocedures,ifapplicable.Ourreviewfoundthat(i)mostofthecontractprofessionalswerenotnotingtheiractualarrivalanddeparturetimesonthe timecards, and (ii)most of the contract professionalswere billing formore timethantheyspentinthebuildingbecauseeithertheyhadfieldworkortheywereallowedto leave early or work at home. We recommended that OEHS management shouldestablish written policies and procedures to improve the accountability of the timebilledbythecontractprofessionals.We performed an audit of the contract awarded toMorlinAssetManagement,L.P.(Morlin)toprovide(i)full‐servicemanagementtotheDistrict’sBeaudryHeadquarters,(ii) management oversight services to 42 properties owned and/or leased by theDistrict,and(iii)movemanagementservicesformovesbetweenanyDistrict‐ownedor


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leased facility.Ouraudit found that,except foraminoroverbillingof$782, thebilledamountswereallowableandadequatelysupportedandthatMorlinperformedannualinspections of eachmanagedproperty as requiredby the contract. Morlin agreed tocredittheDistrict$782initsnextinvoice.WeauditedtwocontractsawardedtoAdvancedTechnologyLaboratories(ATL)fortestingthedrinkingwatersampledfromDistrictschoolsforlead.OurauditfoundthatATLoverbilledtheDistrict$1,174.TheFSDindicatedthatATLagreedtoreimbursetheDistrictthequestionedcost.WeconductedatechnicalevaluationofSolarCityCorporation(SolarCity)insupportoftheDistrict’sPhotovoltaic(PV)SolarEnergyProgram.ThePVSolarEnergyProgramispart of the District’s ongoing efforts to reduce greenhouse gas emissions and lowerenergy bills. This bond‐funded program had a goal of generating 20.7 mW of solarpower District‐wide. In order to assess whether this goal had been achieved, weconductedtechnicalevaluationsofeachofthefivevendorscontractedtoperformthiswork.OurtechnicalevaluationofSolarCityincludedcontractsfor27schoolsites. WereviewedSolarCity’scompliancewiththecontractdocuments,includingworkmanship,jobsiteadministrationandschedulemaintenance.Mostimportantly,wecomparedthedatashowingtheamountofenergyproducedduringthe“proving”(test)periodagainstthe guaranteed energy production in the contracts. We found that SolarCity’s PVinstallationsmetorexceededtheguaranteedproductionatalloftheschools.Wealsofound that, except for not promptly affixing safety signage at one school, SolarCityperformedexceptionallyonallthecontractsreviewed.WeconductedatechnicalevaluationoftheDistrict’sSustainabilityInitiativeforNewSchools.In2001,theBoardofEducationunanimouslyadoptedaresolutioncallingforthe District to work with the Collaborative for High Performance Schools (CHPS) todevelop criteria for energy efficient and sustainable schools. In 2003, the Boardresolved to continue this initiative by requiring all new construction andmodernizationstoachieveaminimumlevelofhighperformancedesign.Weconducteda technical evaluation of this initiative to determine whether the goals had beenachieved, at a time when the District had just concluded its largest constructionprogramofnewschools.Wefoundthatalthoughthenewschoolswerebuiltwithallthepotentialformeetingthesegoals,datashowedthattheDistricthassofarfallenshortofrealizing the energy cost savings and operational efficiencies originally projected.Amongtherecommendationswemadewere that there‐commissioningofequipmentshouldbeatoppriorityandthatDistrictpersonnelshouldbeproperlytrained.Wealsorecommendedthatconservationawarenessshouldbeemphasizedandthatafull‐timedirectorfortheDistrict’sSustainabilityInitiativesUnitberetained.


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INVESTIGATIVEACTIVITIES

The OIG Fraud Hotline exists so that anyone can easily report allegations of fraud,waste, and abuse. Due to technical difficulties, the OIG fraud hotline was notoperationalforthelatterhalfofFY2014resultinginadecreasednumberofallegationsreceived. Nonetheless, during FY 2014, the Investigations Unit received 218 hotlinereports, most of which required some level of follow‐up. Allegations received fromconcerned employees, vendors, and the public, are either investigated by the OIG orreferred to District administrators for investigation and disposition or to an outsideagencybettersuitedtohandlethematter.In FY2014, the InvestigationsUnit issued10Reportsof Investigation and17CaseMemorandums.Therewere29otherinvestigativemattersthatwerestill inprogressat the end of the fiscal year. Case Memorandums are issued during a preliminaryexamination when it is determined that the facts of the case do not warrant a fullinvestigation.The Investigations Unit also issued a total of 94DueDiligence Reports related tocharter schools, executive level employment, and contract and procurementmatters.Due Diligence Reports are public record investigations requested by various Districtofficesanddivisions. Duediligencereportshelptoreducetherisksofdoingbusinesswithoutsideentities,improvecontractandemploymentdecisions,helptoavoidcostlyliabilitysituations,andpromotegreateraccountabilityandeffectiveness.Duringthefiscalyear,threereferralsweremadetothePublicIntegrityDivisionoftheLos Angeles County District Attorney's Office that resulted in criminal investigationsbeinginitiatedagainstseveralDistrictemployeeswhomisappropriatedDistrictfunds.The Investigations Unit issued 10 subpoenas in FY 2014. The Inspector General isauthorized by state statute to subpoenawitnesses, administer oaths or affirmations,taketestimony,andcompeltheproductionofallinformationthatreasonablyrelatestoaninquiryorinvestigationundertakenbytheOIG.

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B.BACKGROUNDOFTHEOIGInAugust1998,theBoardofEducationoftheLosAngelesUnifiedSchoolDistrictbegantheprocessofestablishingadepartmentwithintheDistrictwhosemissionwouldbetodetectandpreventwaste,fraud,andabuseinDistrictoperationsandprograms.Thoseefforts resulted in combining the District’s auditors and investigators to form anInternal Audit and Investigations Department. In January 1999, the Board appointedthe Department’s first Director, and in February 2000, the Board adopted the name,Office of the Inspector General and changed the Director’s title to Inspector General.TheBoardresolutionwhichtookthisactionstated:

“TheBoardwishes to instillacultureofexcellenceandprofessionalism inallaspectsofthemissionoftheLosAngelesUnifiedSchoolDistrictandfindsthat an Inspector General approach to detecting and preventing waste,fraud and abuse in all District programs and operations enhances thiscultureofexcellence.”

FollowingtheBoard’saction,theDistrictsecuredlegislativesupportfortheOIGduringthe 2000 legislative session with the introduction of Senate Bill (SB) 1360 and itsenactment on September 26, 2000, which granted the OIG statutory authority toconduct investigations. The legislature again addressed the issue in 2002 withAssembly Bill (AB) 2425which amended Education Code Sections 35400 and 35401and authorized the InspectorGeneral to conduct audits, granted confidentiality to allinvestigative files and work‐product, and extended the original sunset provision toJanuary1,2015.ExtensionoftheOIG’sEnablingLegislationEducationCodeSections35400and35401granttheOIGstatutoryauthoritytoperformsomeofitsmostcriticalfunctions.ThecurrentOIGlegislation:

Establishes theOIG’sauthority to (i) conductaudits and investigationsand(ii) reportmatters to the localdistrictattorneyor theAttorneyGeneral forfurtheraction.

Grants the OIG power to (i) subpoena witnesses, (ii) administer oaths or

affirmations, (iii) take testimony, and (iii) compel the production of allinformationanddocumentaryevidencedeemedmaterialandrelevanttoaninquiryorinvestigationundertakenbytheinspectorgeneral.

Providesconfidentialityof(i)every investigation, including,butnot limited

to, all investigative files and work‐product and (ii) the identity of theindividualorindividualsinvolved.

Imposes penalties for (i) any disclosure of information by the inspector

generalorthatofficethatwasacquiredpursuanttoasubpoena,and(ii)any


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person that, after the administration of an oath or affirmation, states oraffirmsastrueanymaterialmatterthathe/sheknowstobefalse.

TheAssociationofInspectorsGeneral,astandardsettingbodyforInspectorsGeneral,believesthatthepreferablewayforanOIGtobeestablishedisbystatute.This isthemannerinwhichtheDistrictchosetogiveauthorityandcredibilitytoitsOIG.OnFebruary19,2014,AssemblymemberAdrinNazarian(D‐ShermanOaks)introducedAssembly Bill (AB) 1825 to extend the current sunset provision of Education CodeSections35400and35401toJanuary1,2025.

THEOIGCHARTERTheOIGCharter outlines its authority and responsibilities and alsoprovides that theBoard expects and encourages theOIG to be an independent voice that expresses itsviews without censorship by District management. Education Code Section 35400which authorizes the OIG to conduct audits and investigations is embodied in theCharter.TheEducationCodealsoauthorizestheOIGtosubpoenawitnesses,administeroathsoraffirmations,taketestimonyandcompeltheproductionofinformation.SomeofthekeyCharterprovisionsauthorizetheInspectorGeneralto:

AuditandinvestigateanyandallfunctionswithintheDistrict,aswellasprivateentitiesthatdobusinesswiththeDistrict.

Have full, free and unrestricted access to all District records, reports, audits,reviews, plans, projections, documents, files, contracts, memoranda,correspondence, data, media or information on audio/video/computer/tape/disk,orothermaterialsoftheDistrict.

Subpoena witnesses, administer oaths or affirmations, take testimony andcompeltheproductionofsuchbooks,papers,recordsanddocumentsasmaybedeemedrelevanttoanyinquiryorinvestigationundertaken.

HirestafforemploycontractserviceswithinthescopeofthebudgetauthorizedbytheBoard.

ORGANIZATIONALSTRUCTURE

TheOIG reports directly to theBoard to provide itwith thenecessary independencefrom District managers and staff who may attempt to protect the programs theyadministerorwhomayalsobeimplicated.Accordingly,theresponsibilityforauditingandinvestigatingisassignedtoindividualsfollowingprofessionalstandardswithclearindependencefromDistrictmanagement.TheOIGiscomprisedofauditorsandinvestigatorswhohavetheauthoritytoexamineanyandall functionswithintheDistrictandthoseofprivateentitiesthatdobusinesswith the District. The Internal Audit and Contract Audit Units, conduct performanceaudits andcontract audits that cover awide rangeofprograms,processes, functions,areas and topics. The Investigations Unit conducts due diligence investigations andinvestigations of malfeasance by individuals. Due diligence investigations are


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conducted in support of the District’s ongoing efforts to assess senior managementapplicantbackgroundsaswellas thoseofnewcharterschoolapplicants.Malfeasanceinvestigations, which often result from Hotline allegations, sort out the truth aboutallegationsofmisconductbyDistrictemployeesandcontractors.The Inspector Generalmanages theOIG, and is appointed by the Board for specifiedtermsthatmayberenewedattheBoard’sdiscretionattheconclusionoftheassignedterm. The InspectorGeneralmanages theOIGwith the assistance of threeDeputies.Thebasicorganizationalstructureissetforthbelow.

BUDGETANDSTAFFTheInspectorGeneralischargedwithmanagingtheOIG.DuringFY2014,theOIGhad52authorizedpositionsandabudgetof$3.9millioningeneralfunds,$3millioninbondfunds,and$162,000inworkerscompensationfunds.TheInspectorGeneralisassistedin managing the OIG by three Deputy Inspectors General who oversee audit andinvestigation activities. The OIG is supported by administrative staff and internalquality control staff tasked with ensuring that all work performed adheres toprofessionalstandards.TheOIGisahighlyeducatedprofessionalstaffwherenearlyallhaveatleastafour‐yeardegree, and most have either advanced degrees or one or more professionalcertificationsintheirareasofexpertise.ThestaffalsohasadiligentworkethicandiscommittedtoprovidingqualityservicetoallelementsoftheDistrict.Additionally,theethnic diversity of the OIG is reflective of every major ethnic group present in theDistrict.In all of our work, the OIG seeks to provide the Board and District staff withindependentandobjectiveinformationabouttheoperationsoftheDistrictandofthosewhodobusinesswithit.TheOIG’sVisionandMissionstatementsguideoureffortsas


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we seek tomeet the objectives set forth in the OIG Charter thatwas created by theBoardandtosupporttheDistrictintheachievementofitscoremission.

AUDITACTIVITIESANDORGANIZATION

TheOIG is comprisedof twoaudit units, an InternalAuditUnit and aContractAuditUnit.Theorganizationandactivitiesof theseauditunitsaredescribed inmoredetailbelow.InternalAuditUnitThe InternalAuditUnit conductsperformanceauditsonDistrictprograms,processesandfunctionsforefficiencyandeffectivenesstoensurethatadequateinternalcontrolsare in place and to verify that the reviewed areas are in compliance with laws,regulationsandDistrictpoliciesandprocedures. InternalAudit alsoperforms limitedschoolreviewsthatprovideinformationaboutbestpracticesforschooloperations.TheDeputyInspectorGeneralforInternalAuditmanagestheInternalAuditUnitwiththeassistanceofAuditManagerswhomanagetheauditstaffassignedtointernalauditprojects. Audit Managers are key “strategic thinkers” and “subject matter experts”within the OIG. They serve as “issue area managers” or “program managers”, whoduringthedevelopmentoftheannualworkplanprovidekeyinformationaboutareasthat are susceptible towaste, fraud or abuse, aswell as opportunities for improvingefficiency and effectiveness. They are also the main contacts with District staff,particularly senior management. They also track recommendations and ensure thatfollow‐upauditsareconductedwhenneeded.The Internal Audit Unit also includes Principal Auditors who are responsible forconducting,individuallyorwiththeassistanceofotherauditors,performanceauditsofcritical and complex processes, programs and functionswithin the Facilities ServicesDivision.ContractAuditUnitThe Contract Audit Unit conducts audits of the District’s procurement systemwhichinclude procurement contracts for goods and services as well as contracts for theconstructionandmodernizationprogram.TheUnitisresponsibleforconductingpre‐award and post‐award audits of all contracts and also provides support to Districtprocurement officials in areas such as conducting rate surveys, claims and litigationsupport. The Unit conducts audits of contracts to ensure that District vendors andcontractorscomplywiththerequirementsoftheircontractsandthatcontractedfunds,especiallybondfundsareexpendedas intendedandthattheDistrictreceivedwhat itpaid for. Contract Audit activities also help to ensure that all District programs andUnitsusingormanagingbondfundshaveadequateinternalcontrolsinplace.


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The Deputy Inspector General for Contract Audit heads the Contract Audit Unit anddirectlyreportstotheInspectorGeneral.TheDeputymanagestheContractAuditUnitwiththeassistanceofaprofessionalauditstaff,anarchitectandadministrativesupportstaff.

AuditingStandards

TheOIG audit units do theirworkprimarily in accordancewithGovernmentAuditingStandards issuedby theComptrollerGeneralof theUnitedStates. The InternalAuditUnitalsousestheStandardsfortheProfessionalPracticeofInternalAuditingissuedbytheInstituteofInternalAuditors. TheContractAuditUnitalsousestheStatementonStandardsforAttestationEngagementsandtheStatementonStandardsforConsultingServicesissuedbytheAmericanInstituteofCertifiedPublicAccountants.

AnnualRiskAssessmentProcess

The OIG performs a global risk assessment in the spring of every year that is thefoundation for the Work Plan that guides the OIG in deciding which projects toundertakethefollowingyear. Inaddition, theOIGperformsperiodicriskassessmentsthroughoutthefiscalyeartoascertainwhatissuesarethegreatestriskstotheDistrict.

AnnualWorkPlan

The OIG audit units perform their work primarily in accordance with GovernmentAuditingStandards thatmandatethatauditunitsoperatepursuant toanannualworkplan that identifies the specific areas of focus for an upcoming fiscal year andwhichmustbeapprovedbytheBoard.Theannualworkplanisa“working”documentthatismodified throughout the year as circumstances, priorities, and resource availabilitydictate.Theworkplanisavailableonourwebsite.EffectiveplanningintheDistrictrequiresextensiveknowledgeoftheDistrict’smissionand the programs and activities that implement that mission. Accordingly, the OIGinstituted issue areamonitoring to strengthen our internal coordination and overallplanningprocess.AuditManagersplayakeyroleinourplanningprocess.Theworkplandescribes theworkof the InternalAuditUnit, theContractAuditUnit,and the Investigations Unit, respectively. Due to the differences in the type of workperformed,eachunit followsa format that isbestsuited forpresenting theirwork intheworkplan.

AuditorCredentialsandQualifications

All auditors have four‐year degrees from accredited colleges or universities, andauditors assigned as contract auditors have a minimum of 3 years contract audit


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experience as SeniorAuditors.Many of our auditors hold advanced degrees, licensesandcertifications.1Additionally,membersoftheInternalAuditandContractAuditUnitsarealsoactiveinprofessional organizations, such as the American Institute of Certified PublicAccountants, Institute of Internal Auditors, Association of Certified Fraud Specialists,Association of Government Accountants, Association of Local Government Auditors,AssociationofCertifiedFraudExaminers,and InformationSystemsAuditandControlAssociation.StaffoftheContractAuditUnitisalsoactiveinprofessionalorganizationssuchastheNationalAssociationofConstructionAuditors.

ExternalAssistance

GovernmentAuditingStandardsrequirethatthestaffassignedtoconductauditsshouldcollectivelypossessadequateprofessionalproficiencyforthetasksrequired.Ifthestafflacksthatproficiency,thestandardsprovidethatanorganizationmayneedtoemploypersonnel or hire outside consultants knowledgeable in such areas as accounting,statistics,law,engineering,etc.DuringFY2014,weretainedtheoutsidefirmProtivititoprovideauditservices.

INVESTIGATIVEACTIVITIESANDORGANIZATIONThe Investigations Unit investigates allegations of improper or illegal activities byDistrictemployees,contractorsorotherentitiesdoingbusinesswiththeDistrict. TheInvestigationsUnitalsoperformsavarietyofotherserviceswhicharedescribedinthissection. Most of the investigativeworkload results from the receipt of allegations ofimproper activity. The Investigations Unit also receives referrals from the OIG auditsections. The remainingworkload consists of proactive projects designed to preventwaste,fraud,andabuse.TheDeputyInspectorGeneralforInvestigationscurrentlysupervisesthestaffandworkoftheInvestigationsUnit.FraudHotline ‐TheOIGreceivesallegationsofwaste, fraud,andabuse fromvarioussources, includingmail, in person, email, by referral fromotherDistrict departmentsandoutsideagencies,andtheDistrict’sFraudHotline.TheOIGChartermandatesthattheInvestigationsUnitmanagetheDistrict’sFraudHotline.AllreportsreceivedbytheFraud Hotline are reviewed and matters that warrant action are opened asinvestigations or referred to the proper District department for appropriateremediation. TheOIGFraudHotline numbers are (213) 241‐7778 and (866) LAUSD‐OIG.

1 Certified Internal Auditor; Certified Fraud Examiner; Certified Public Accountant; Certified Government Financial Manager; Certified Government Auditing Professional; Certified Financial Services Auditor; Master in Business Administration; Master in Information Systems; Master in Accountancy.


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General Investigations ‐Reports of Investigation are issued upon completion of aninvestigation and summarize the evidence disclosed during the investigation. Someinvestigations are concluded by a CaseMemorandumwhen it is determined that thefactsofthecasedonotwarranta full investigation.TheEducationCoderequiresthatevery investigation, including all investigative files and work product, be keptconfidential. The OIG is precluded from investigating allegations that involve crimesagainst children. Allegations involving crimes against children are referred to theappropriatelawenforcementagency.Due Diligence Reports ‐ The OIG has taken a proactive role to ensure the Districtcontractswithresponsiblevendorsandapprovesresponsiblecharterschooloperators.Investigativestaffperformspublicrecordinvestigations,commonlyreferredtoasduediligencereports.ThesereportsarerequestedbyvariousDistrictofficesanddivisions.Duediligencereportshelptoreducetherisksofdoingbusiness,improvecontractandemploymentdecisions,andpromotegreateraccountabilityandeffectiveness.Subpoenas‐EducationCodeSections35400and35401granttheOIGtheauthoritytoconduct investigations, subpoena witnesses, administer oaths or affirmations, taketestimony,andcompeltheproductionofall informationdeemedmaterial,reasonable,andrelevanttoanyOIGinquiryorinvestigation.Whistleblower Protection Policy ‐ The OIG investigates Whistleblower ProtectionPolicy complaints. The Board of Education approved the Whistleblower ProtectionPolicy on February 12, 2002. The Whistleblower Protection Policy protects Districtemployeeswhomakeallegationsofimpropergovernmentalactivityfromretaliationorreprisal from the District. To assure the reporting of any activity that threatens theefficient administration of the District, reports that disclose improper governmentalactivitiesshallbekeptconfidential.

InvestigatingStandardsThe Investigations Unit conducts its investigations according to the Principles andStandards for Offices of Inspectors General. The Association of Inspectors Generaldrafted these principles and standards based on the quality standards for FederalInspectors General issued by the President’s Council on Integrity and Efficiency. Theprinciples and standards represent generally accepted principles, quality standards,andbestpracticesapplicabletofederal,state,andlocalofficesofInspectorsGeneral.

InvestigatorCredentialsandQualifications

ThestaffoftheInvestigationsUnitpossessesavarietyofinvestigativebackgroundsandskills.Themajorityofinvestigatorshavefour‐yeardegreesfromaccreditedcollegesoruniversities,andmanyalsoholdadvanceddegrees,aswellasprofessionalcertificationsand accreditations, such as Certified Public Accountant (CPA) and Certified FraudExaminer (CFE). The staff includes former employees of investigative or regulatoryagencies such as theU.S. Department of JusticeOffice of the Inspector General (DOJ‐OIG),U.S.EnvironmentalProtectionAgency (EPA), InternalRevenueServiceCriminal


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Investigations Division (IRS‐CID), U.S. Federal Probations, Los Angeles PoliceDepartment,LosAngelesCountySheriff’sDepartment,andprivateandcorporatefirmsperforming Private Investigations, Loss Prevention Fraud Investigations, and PublicAccountancy(CPA)functions.

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C.ANALYSISOFWORKPRODUCTION

FISCALYEAR‐END2014

Projects Projects In CarriedOver

Planned* Completed Progress** toFY2015*** Canceled

InternalAudit 47 25 7 14 1

ContractAudit 69 45 12 6 6

Investigations 160 131 29 ‐ ‐

*ProjectsPlanned include additional project requests receivedby theOIGduring thefiscalyear.**InprogressincludesprojectsthatwerestartedinFY2014andwerenearcompletionattheendofthefiscalyear.***CarriedOvertoFY2015mayinclude(i)projectsthatwereplannedbutnotstartedinFY2014and(ii)projectsthatwerestartedbutnotcompletedinFY2014.The following sections provide additional analysis of the work produced by eachoperationalunitoftheOIG.InternalAuditWorkAnalysisTheInternalAuditUnitbeganthefiscalyearwith19plannedprojectsthatwerelistedintheFY2014annualworkplan.Inadditiontotheseprojects,therewere14projectscarried into FY 2014 from previous years thatwere in various stages of completion.Also during FY 2014, 14 projects were added based upon requests from keystakeholders including the Board, Districtmanagement and Principals. A total of 25projectswerecompletedduringFY2014.The InternalAuditUnitcarriedover14projects invariousstagesofcompletionasofJune30,2014intoFY2015.OneprojectthathadnotyetbeeninitiatedduringFY2014wascancelledduetotimingissues.


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ContractAuditWorkAnalysisTheContractAuditUnitbeganthefiscalyearwith46projectsthatwereauthorizedbytheFY2014annualworkplan.Inaddition,therewere14projectsthatremainedopenfrompriorfiscalyears.Asthefiscalyearprogressed,FSDandProcurementrequestedadditionalprojects,bothanticipated and not anticipated. By the end of the fiscal year, 69 projects wereultimatelyauthorizedconsistingof55newprojectsand14ongoingprojectsfromprioryears.ThefollowingisasummaryoftheUnit’sfiscalyearactivityendingJune30,2014:

* The Updated Plan column includes the additional projects requested by FSD andProcurementthroughouttheyear.DuringtheannualriskassessmentprocessforFY2015,theOIGmadeanassessmentoftheprojects that hadnotbeen initiatedduringFY2014.Basedon this assessment, 6projectswere carriedover to theFY2015annualworkplan.The remainingprojectsthatwerenot identified as having the level of risk required to be carried over to FY2015willno longerbeperformedunless theyare requestedby theBoardorDistrictmanagementandsufficientOIGresourcesareavailable.Duringtheyear,weprioritizedcompletingtheauditsthatwereceivedspecialrequestsforaswellascompletingtheongoingauditsfromprioryears.Asaresult,weissued45reports.

FY2014WorkPlanOriginalPlan

UpdatedPlan*

ProjectsCompleted

InProgress

CarryovertoFY15

Canceled

ConstructionContract 9 9 5 1 2 1ProfServicesContract 10 11 5 4 1 1SpecialReview 8 8 1 4 2 1TechnicalEvaluation 5 8 4 2 0 2Anticipated/As‐Needed 3 8 7 0 0 1CarryoverProject 11 11 9 1 1 0

FY2014Subtotal 46 55 31 12 6 6

PriorYearProjects 14 14 14 0 0 0

FY2014Total 60 69 45 12 6 6


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InvestigativeWorkAnalysisThetablesbelowsummarizetheworkeffortsoftheInvestigationsUnitforFY2014.

FY2014WorkProductionbyProjectType

TypeofProjectCompleted/Issued

ReportofInvestigation 10CaseMemorandum 17CharterSchoolDueDiligence 47Contractor/VendorDueDiligence 38ExecutiveLevelPre‐EmploymentDueDiligence 9Subpoena 10 TotalInvestigativeMatters 131

FY2014HotlineCallsSummary

Disposition #ofCallsReferred 101NotReferred 89PreliminaryInvestigation 28Investigation 0PendingEvaluation 0 TotalHotlineCalls 218

AsofJune30,2014,therewere29openinvestigativeandduediligencematters.

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D.ECONOMICIMPACTThe OIG is committed to identifying and reducing waste, fraud, and abuse and toidentifying opportunities for achieving greater economy, efficiency, and effectivenessthatmay result in the savingsor recoveryof funds that canbeused toward student‐relatedgoals.TheOIGclassifiesmonetarybenefitsintothefollowingmajorcategories:restitution,settlements,fundsputtobetteruse,questionedcostsandconstructioncostsavings.Restitution is the voluntary or court‐ordered repayment of District funds that wereobtained through fraudulentmeans. Settlements are formal legal agreementswherefunds are awarded to resolve damage claims. Funds put to better use incorporaterecommendations thatmay result inmore efficient use of District funds. Questionedcosts are costs that are disallowed or unsupported and are primarily incurred oncontracts,grants,andotherformsofcooperativeagreements.ConstructioncostsavingsarefundsreturnedtotheDistrictfromauditsof17406contracts.Thesefundsrelatetosavingsfromunusedallowancesandcontingencyfundsimbeddedinthecontracts.OIGinvestigative activities may also result in monetary benefits such as fines andrecoveries.QuantifyingthemonetaryvalueofOIGservicesforanyoneyearoftenmeansassigningvalueinagivenyearforeffortsthatoftenspanoverseveralyears.DuringFY2014,theOIGidentifiedover$2.9millioninmonetarybenefitsthroughitsaudits,investigations,andspecialreviews.

MonetaryReportType Benefits InternalAudit $35,038ContractAudit $2,906,629Investigation *

TOTAL $2,941,667*During FY 2014, the Investigations Unit identified funds that were gained throughimproper or illegal means. However, unlike audit savings, these funds cannot berealized or estimated with any accuracy until the case has been adjudicated andrestitutionhasbeenordered.RestitutionwillbereportedintheyearitisorderedandreceivedbytheDistrict.

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E.CONCLUSIONThisreport is intendedtoprovide informationthat informsthereaderabout theOIG,who we are, how we are organized, what we accomplished in FY 2014, and whatbenefitswebrought to theDistrict. FY2014wasaproductiveyear inwhich theOIGdemonstrated both a desire and ability to be highly proactive and responsive tostakeholder concerns. OIG staff takes pride in being an office that contributes, in asignificant manner, to the quality of education provided by the Los Angeles UnifiedSchoolDistrict.We thank the Board and the Superintendent and his staff for their support andcooperation,andwelookforwardtocontinuingthisimportantwork.

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APPENDIX1

SIGNIFICANTREPORTSUMMARIESThisappendixincludessummariesofsignificantauditsandinvestigationsthatarenotdiscussedinSectionAofthisreport.

InternalAuditsITDExpendituresReview–Wecompiled,summarized,andanalyzedITDexpenditureandcontract information for the fiveyearperiod from July1,2007 to June30,2012.Theresultsofthisanalysiswerepresentedinaclear,organizedmannerthatfacilitateda high level understanding of the District’s ITD expenditures. Our report included asummary of ITD expenditures, salary and benefit information for all ITD‐relatedpositions,totalexpendituresincurredbyeachITDcostcenter,sourceoffundingforallITDexpenditures,andtotalE‐Ratefundingamounts.Thereportalsoincludedthetotalamountofallapprovedcontractsforthe5‐yearperiodfrom2007to2012,aswellasabriefdescriptionoftheservicesprovidedundereachcontract. EffectivenessofWirelessNetworkConnectivityUpgrades–Thefocusofthisauditwas to assess the degree to which network connectivity upgrades at schools wereworking effectively. We found that network connectivity upgrades completed at 46schools had provided the infrastructure and equipment needed for schools to havewireless network access in all classrooms and critical areas of the school campus.However,wealsofoundthattherewerefactorsinfluencingtheeffectivenessofnetworkconnectivityand,asaresult,notall46schoolsexperiencedthebenefitsofthenewLANupgrades.TheOIGprovidedspecificrecommendationstoprovideanefficientsolutiontotherecurringissuesaffectingallschoolnetworks.Focused SAPConfigurableControlsReviewPhase II ‐Realization – The primaryobjectiveofthisauditwastoassesswhethercontrolsidentifiedduringapriorOIGaudithad been implemented and configured as designed for the following businessprocesses:ProcuretoPay,AcquiretoRetire,andPlantoReport.Wefoundthatoutofthe 53 control settings that the OIG recommended to the Information TechnologyDivision,theDistricthadconfigured50(or94%)ofthesettings.TheOIGrecommendedthat the remaining three control settings be reviewed by the District for furtherevaluation.ChemicalSafetyCoordinatorProgram‐WeauditedtheChemicalSafetyCoordinatorProgramatmiddleschoolsandhighschoolswithscienceorchemicallaboratories.Wefound partial compliance with the program at the 28 selected school sites and alsonoted that Reference Guide 1553.2 was outdated. The OIG provided eightrecommendations to OEHS. The OEHS agreed with all of the recommendations andstated that most of the recommendations were completed by April 30, 2014. Inaddition,theOEHSimplementedtheplannedtrainingincoordinationwithEducationalService Center (ESC) Operations personnel during a March 2014 meeting and willcontinuetodosoinfutureChemicalSafetyCoordinatortrainings.


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AnauditgroupformedafewyearsagowithintheInternalAuditUnittodobondrelatedfacilitiesandinformationtechnologyperformanceauditsandspecialreviewscontinueditsactivitiesthisfiscalyear.UseofDistrictCreditCardswithin the Facilities ServicesDivision (FSD) – Thefocusof this auditwas todeterminewhether theFSDhadadequate internal controlsovertheuseofDistrictcreditcards.Basedonourtesting,wefoundnoexceptionsforprohibited items in all three types of District credit cards and that controls wereworkingasintendedoverrecordretentionandtheapprovaloftransactionsforBuyerCard transactions. However, we also found that internal controls could have beenstrengthened in the pre‐approval process by the Approving Official, and the record‐retention process for Fuel Card transactions. The OIG provided specificrecommendationstostrengthencontrolsovercreditcardusagewithintheFSD.

ContractAuditsH.A.Lewis,Inc.(H.A.Lewis) ‐TheDistrictexecutedadevelopmentandconstructionagreement with H.A. Lewis for fire damage repair to the Pacoima Middle Schoolauditorium. The final approved price, including change orders and contingency/allowance disbursements, amounted to $3,481,124. Our audit found that the amountbilledbyH.A.Lewisunderthecontractwasadequatelysupportedandallowableunderthetermsandconditionsofthecontract.NSA Construction Group, Inc. (NSA) ‐ The District executed development and aconstructionagreementwithNSAintheamountof$1,343,895fortheconstructionofthe Northeast Community Clinic at Gage Middle School. We examined the invoicessubmittedbyNSAanddisclosed thatNSAwas in compliancewith the contract termsandconditions.Learn It Online, LLC (LION) – The District entered into a professional servicesagreementwithLIONtoprovideSupplementalEducationServices(SES)toalleligibleDistrict studentswhoseparents chooseLIONunder theNoChildLeftBehind (NCLB)Act.Weperformedanauditof this contract todeterminewhether (i) thebilled costscorresponding with the instructional services were adequately supported, (ii) thecontractor obtained signed enrollment log sheets from the participating parents, and(iii) the contractor provided the required tutoring services and new computers. TheresultsofthisauditdisclosedthatLIONwasincompliancewiththecontracttermsandconditions.Turner Construction Co. (Turner) – The District entered into development andconstruction agreementwith Turner for the construction of school improvements atCentralRegionHSNo.13.Weperformedanauditofthiscontracttodeterminewhether(i) the amountsbilledunder the contract are allowable, adequately supportedand inaccordancewiththetermsandconditionsofthecontract;(ii)thetermsandconditionson theuseof allowanceandcontingency fundswere fullyadhered toandadequatelydocumented;(iii)thecontractorperformedtheworkasrequiredbythecontract;andtocalculatethebalanceofcostsavingsbetweenTurnerandtheDistrict.Theresultsofthe


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auditdisclosedthatTurnerwas incompliancewiththecontracttermsandconditionsandcostsavingstotheDistrictintheamountof$621,854.Edessa Construction, Inc. (Edessa) – We conducted a technical evaluation of thecontractwithEdessabecauseitwasoneofmany,similarDistrictcontractstoupgradethe fire alarm systems of existing schools, in this caseWashington PreparatoryHighSchoolandEllingtonContinuationHighSchool.Thebreadthof the firealarmprogram,its safety implications and the impact of construction on occupied school sitescombined to make risk a crucial part of these undertakings. We inspected theconstruction site, interviewed both District and Edessa personnel, reviewed thecontract documents and observed tests to the fire alarm system. We found thatalthough the final fire alarm systemwas installed according to the contract andwascompliant with regulatory requirements, the project suffered from inaccurateconstruction documents, delays, cost overruns and poor management. These had anegative impact on school operations and resulted in Edessa being awardedcompensabledelaysofover$380,000.Wemaderecommendationsthattheerrorsandomissions clause be enforced to ensure that design‐engineers provide accuratedocuments, that District project management staff exercise more oversight and thatEdessacomplywithitscontractualobligationstoproperlysupervisetheirjob.Basedonour review,we also recommended compensable delays for Edessawhichwere about20%lessthanwhatwasnegotiatedbytheDistrict.

InvestigationsThe Education Code requires that every investigation, including all investigative filesandworkproductbekept“Confidential.”Accounting Technician – An allegation was received that an Accounts PayableemployeehadviolatedDistrictpolicybyinstallingunauthorizedcomputersoftwareandhardware on his District issued computer. The software is known to be used forhackingor theunauthorizeduseandaccessofothercomputersattached to thesameserver.Acomputerforensicanalysisrevealedthatthecomputer’shard‐drivecontainedCyber‐Hacking software capable of capturing other District employees’ logon namesand passwords for the purpose of accessing their accounts. The computer analysisfailed to determine any criminal cybercrime violations. However, the investigationdisclosednumerousDistrictpolicyviolationswithregardstotheDistrict’sAcceptableUsePolicy.TheemployeeresignedfromtheDistrict.Whistleblower – An allegation was received from a whistleblower alleging thatmanagement at the Los Angeles School Police Department (LASPD) was retaliatingagainst a police officer for requesting financial information regarding an LASPDsanctionedprogram.TheOIGinvestigationwasclosedbasedontheconfidentialresultsofaLASPDInternalAffairsinvestigationinvolvingthesamecomplaint.Whistleblower–Anallegationwasreceivedfromawhistleblowerallegingretaliatoryactions for reporting improper governmental activity regarding the misuse of grantmoney inassociationwith theLASPDPoliceAthleticLeague (PAL)Program. TheOIG


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investigationwas closedbasedon the confidential resultsofaLASPD InternalAffairsinvestigationinvolvingthesamecomplaint.Wasteful Spending – An allegation was received from a food service employeeregardingnepotism,conflictof interest,andwastefulprocurementpractices involvingtheDistrict’sCategoricalPartnerProgramanditsvendor.Asaresultofthecomplaintsandrelatedinvestigation,thevendor’scontractwasamendedtoremoveadeliveryfeeof$350fromthecontractwhichwasbeingchargedtotheDistrictoneachdelivery.Coercion–AnallegationwasreceivedthataneligiblecandidateforaDistrictpositionwascoercedtoremovehimselffromtheeligibilitylisttoallowtheDivision’smanagertoprovisionallyappoint someonenoton the list. The investigationsubstantiated theallegation.MisuseofProperty‐AnallegationwasreceivedthataDistrictemployeeusedDistrictequipmentinherprivatebusiness. Theinvestigationconcludedwithanadmissionbythe employee of using District equipment through her non‐District business andreceiving a fee, in violation of the District’s Employee Code of Ethics and DistrictBulletin953.1.Payroll Fraud ‐ An allegation was received that a “Housed” District employee wasreceiving pay from outside the District for work performed during “Housed” hours.The investigation substantiated the allegation and the matter was referred forprosecution.Theft ‐ An allegationwas received that a District employee failed to secure StudentBody Funds obtained through fundraising. The investigation substantiated theallegationandthematterwasreferredforprosecution.


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APPENDIX2

REPORTSISSUEDINDEXReportDate

ReportNumber

ReportTitle

InternalAuditReports 08/08/13 LSR13‐059 WashingtonPreparatoryHighSchool08/16/13 LSR13‐061 LatonaElementarySchool08/19/13 LSR13‐060 ByrdMiddleSchool08/27/13 LSR13‐062 DanielPearlMagnetHighSchool09/20/13 OA13‐506 ITDExpenditureReview09/23/13 LSR13‐063 93rdStreetElementarySchool09/24/13 OA13‐507 EffectivenessofWirelessNetworkConnectivityUpgrades09/30/13 OA13‐509 MiddleCollegeHighSchool:StudentBody,ImprestFundandP‐Card

Transactions10/18/13 LSR13‐064 MayberryElementarySchool10/18/13 LSR13‐065 PinewoodElementarySchool11/07/13 OA13‐508 ReviewofInternalControlsoverForce Account11/14/13 OA13‐510 SchoolCrisisTeams11/26/13 OA13‐511 ProcurementofCommonGoods12/03/13 OA13‐512 MaintainingSchoolCleanliness andSafety12/03/13 LSR13‐066 StanfordPrimaryCenter12/04/13 OA13‐513 FocusedSAPConfigurationControlsReviewPhaseII‐Realization12/13/13 OA13‐514 UseofDistrictCreditCardswithinFacilitiesServicesDivision12/24/13 LSR13‐067 SunValleyHighSchool02/12/14 LSR14‐068 CortinesSchoolofVisualandPerformingArts03/31/14 OA14‐518 ChemicalSafetyCoordinatorProgram05/21/14 OA14‐516 PriceComparisonofComputersandDeliverables06/06/14 SSR14‐069 SouthGateMiddleSchool06/13/14 OA14‐520 CityofLosAngelesElectionInvoiceNo.14‐0606/20/14 OA14‐517 RandomMetalDetectorSearchesatSchoolSites06/27/14 OA14‐519 CharterSchools Division:ReviewofOversightPractices

ContractAuditReports 07/17/13 CA13‐951 SwinertonBuilders,ContractNo.101013907/17/13 CA13‐952 NTIBlackboard08/13/13 TE‐13‐036 PermaCityConstructionCorp.,ContractNo.129001608/14/13 CA12‐953 SuffolkConstruction,ContractNo.091035208/20/13 TE13‐037 ChevronEnergySolutions,ContractNos.1180016&129001708/29/13 TE13‐038 SolarCityCorp.,ContractNo.1180017,1290019&129009409/06/13 AUP13‐954 WoodcraftRangers‐ GompersMS,ContractNo.100006909/23/13 AUP13‐955 WoodcraftRangers‐ BeachyEL,ContractNo.100006909/26/13 CA12‐957 TurnerConstruction,ContractNo.081016209/26/13 TE14‐039 SunPower,ContractNos.0980025&1180018


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09/26/13 TE13‐041 KomodoEnterprises/SolarMonkey,ContractNo.12900189/30/13 CA13‐958 ConstructionManagementSurvey10/08/13 AUP13‐959 WoodcraftRangers‐ SanAntonioEL,ContractNo.100006910/08/13 AUP13‐960 WoodcraftRangers‐ ElizabethLC,ContractNo.100006910/14/13 CA13‐956 SinannianDevelopment,Inc.,ContractNo.101010010/21/13 CA14‐961 AdvancedTechnologyLaboratories,ContractNo.099002610/22/13 TE13‐042 EdessaConstruction,ContractNo.091027110/26/13 CA14‐962 ConsolidatedDisposalServices,Inc.,ContractNo.129009311/13/13 CA13‐963 Smith‐EmeryCompany,ContractNo.119003411/13/13 TE14‐040 GoldenSunFirm&Co.,Inc.,ContractNo.121004512/04/13 CA14‐964 IBMCorporation‐ RFP200000003212/10/13 TE14‐043 APConstructionGroup,Inc.,ContractNo.131001512/13/13 CA14‐965 JohnsonControls‐ RFP200000003212/13/13 CA14‐966 Hewlett‐Packard‐ RFP200000003212/19/13 AUP13‐967 WoodcraftRangers‐ SouthEastHighSchool,ContractNo.100006901/17/14 CA13‐969 McCarthyBuildingCompanies,ContractNo.101011901/17/14 TE14‐044 K‐SonConstructionInc.‐ CanogaParkSH‐ GymnasiumRenovation,

ContractNo.131002801/23/14 CA14‐970 AdvancedTechnologyLaboratories,ContractNo.099004502/12/14 CA13‐971 Tilden‐Coil,ContractNo.101005802/19/14 CA11‐968 TurnerConstructionCompany,ContractNo.081013403/06/14 CA14‐974 H.A.Lewis,ContractNo.121004603/14/14 CA14‐975 ThePentaBuildingGroup,ContractNo.121006003/26/14 CA14‐976 SCSEngineering,ContractNo.129004904/02/14 CA12‐973 TurnerConstructionCompany,ContractNo.091001904/02/14 CA14‐978 NSAConstruction,ContractNo.121001804/10/14 CA14‐977 SwinertonBuilders,ContractNo.121000504/16/14 CA14‐979 OEHSContractProfessionalTimekeeping04/23/14 AUP14‐981 StarEducation,ContractNo.100006604/23/14 CA14‐982 MorlinAssetManagementCorp.,ContractNo.119004805/06/14 CA14‐980 FSDConflictofInterest05/28/14 CA14‐983 TurnerConstructionCompany,ContractNo.1210044COT‐75506/09/14 CA14‐984 LearnItOnline,ContractNo.130014806/13/14 CA14‐985 InnovativeConstructionSolutions,ContractNo.121003306/24/14 TE14‐045 SustainabilityLEED06/27/14 CA14‐986 #1At‐HomeTutoring,ContractNo.1300109

InvestigativeReports 07/24/13 13‐272 HighSchoolPrincipal;ViolationofDistrictPolicy07/25/13 13‐220 M&OContracts;AllegedContractFraud,Kickbacks07/29/13 13‐161 TransportationServicesDivision– Garage;AllegedTheft&Nepotism08/01/13 13‐107 AdultAlternativeEducationProgram;DistrictPolicyViolations08/01/13 14‐008 Whistleblowercomplaint08/08/13 14‐007 ElementarySchoolPrincipal;MisappropriationofStudentBodyFunds09/23/13 13‐056 FoodServicesDivision;ViolationofDistrictPolicy10/11/13 14‐054 HighSchoolSupervisionAide;AllegedExtortion10/22/13 14‐030 HighSchoolPermitCoordinator,OverChargingofFees


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10/23/13 14‐049 Maintenance&Operations;IllegalHiringPractices10/24/13 14‐026 Outsidevendor;MisrepresentationandDeceptivePractices11/04/13 13‐191 WhistleblowerComplaint11/04/13 13‐197 WhistleblowerComplaint11/20/13 13‐204 ElementarySchoolTeacher;MisuseofTeachingCredentials11/26/13 14‐104 FoodServiceWorker;AllegedTheftofDistrictProperty12/10/13 13‐150 DistrictNursingServices;ViolationofDistrictPolicy12/16/13 14‐135 Contractor/Vendor;AllegedMisappropriationofDistrictFunds12/18/13 14‐017 MiddleSchoolPrincipal;AllegedViolationofDistrictPolicy01/10/14 14‐009 WhistleblowerComplaint02/06/14 14‐006 ElementaryandSecondaryCDS;AllegedViolationofDistrictPolicy02/13/14 14‐110 HighSchoolteacher;AllegedViolationofDistrictPolicy05/01/14 14‐208 BeyondtheBell;ContractDispute05/23/14 14‐083 HighSchoolemployees;AllegedTheft06/03/14 14‐123 AccountsPayableDivision; AllegedViolationofAcceptableUsePolicy06/06/14 14‐174 HighSchoolteacher;PayrollFraudandDistrictPolicyViolations06/09/14 13‐304 ElementarySchoolSAA;TheftofPublicFunds06/24/14 14‐178 HighSchoolAthleticCoach;AllegedViolationofDistrictPolicy


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APPENDIX3

DISTRIBUTIONLISTBoardofEducationBondOversightCommitteeExecutiveOfficeroftheBoardSuperintendentSeniorDeputySuperintendentGeneralCounsel


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Know about fraud, waste orabuse?

Tellusaboutit.MaybeyouareaSchoolDistrictEmployee,ormaybeyouareaprivatecitizen.Eitherway,youareataxpayer.Maybe you know somethingabout fraud,orwaste,orsomeother type of abuse in theSchoolDistrict.The Office of the InspectorGeneralhasahotlineforyoutocall.Youcanalsowritetous.Ifyouwish,wewillkeepyouridentity confidential. You canremain anonymous, if youprefer. And you are protectedby law from reprisal by youremployer.

Callthehotline:(213)241‐7778

or(866)LAUSD‐OIGWritetous:FraudHotlineCenter333S.BeaudryAve.,12thFloorLosAngeles,CA90017

Documents

FY14 OIG Annual Report.pdf