CITY CONTROLLER RELEASES PERFORMANCE AUDIT OF LAUSD’S FACILITIES SERVICES DIVISION, NEW CONSTRUCTION BRANCH: SELECTION PROCESS OF CONTRACT PROFESSIONALS USING CONSTRUCTION MANAGEMENT CONTRACTS

October 27, 2010

Ray Cortines, Los Angeles Unified School District Superintendent
John Deasy, Los Angeles Unified School District Deputy Superintendent
The Honorable Los Angeles Unified School District Board Members

The enclosed audit represents a new chapter in the relationship between the City Controller and the LAUSD, because it’s the first time the City Controller has audited the school district. I appreciate that you sought out my Office to conduct an independent audit and look forward to partnering with you in the future as we strive to ensure that taxpayer dollars are spent both efficiently and effectively.

As you are well aware, since 1997, voters in Southern California have approved more than $20 billion in bonds, overseen by the LAUSD, to finance the largest school construction program in America. From July 2002 to present, the LAUSD hired more than 1,000 Contract Professionals to provide a range of construction and project management services to the New Construction Program (NCP).

You sought our assistance immediately following the April, 2010 indictment of a Contract Professional (CP) acting as a District employee, who allegedly funneled business from the NCP to a company he co-owned. We agreed to audit the Program to identify any other potential conflicts of interest.

Overall, we found that from 2002 to 2006 the LAUSD’s policies and oversight for the selection of Cps were lax. While LAUSD has a requirement that Cps selected to participate in hiring panels should not be from the same firm as the CP seeking to be hired, we found that in more than 225 instances during this time, a CP or a regional director sat on a panel which selected a person employed by their employer – thus creating a potential conflict of interest.

The audit uncovered 80 CP appointments that were made without any hiring panel being convened. We also identified four instances where someone participating in a hiring panel stood to receive a direct financial benefit because they selected a CP from a firm in which they had an investment.

However, since 2006, the LAUSD’s oversight and adherence to its own policies have improved dramatically. While some policies still need to be strengthened, the district has done a much better job reducing the potential for a conflict of interest to occur and ensuring the integrity of the program.

Some of the specific audit findings include:

• From 2002 to 2006 LAUSD’s hiring policies are unclear and the district lacks documentation of whether policies were followed.
• LAUSD was unable to locate their original Staff hiring Procedures policy making it difficult to determine the strength of their policies and whether they complied with them.
• In the first 12 months of the program, nearly 80 percent of the selection panels, which decide the CP that is hired, did not meet with the LAUSD’s updated policies requiring that there are at least 3 panelists and that at least one of them be an LAUSD employee.
• Since 2006 the district has created clearer policies and more thorough documentation, which reduces the risk of a conflict of interest.
• The District has greatly improved its processes and requires specific steps and recordkeeping procedures that include uniform candidate information forms and post-interview summaries from individual hiring panelists, which provides greater transparency of the panel’s decision.
• Moreover, the District is currently following these CP hiring processes that will reduce potential conflicts of interest.
• There is still room to improve the program’s oversight and certain policies need to be strengthened.
• CPs should file a Form 700 (Statement of Economic Interest) when they are hired and when they leave LAUSD employment, not just every April.
• Ensure that newly hired Cps – particularly those in senior management are trained on LAUSD’s conflict of interest policies, Form 700 filing requirements and New Construction hiring procedures.

As City Controller, I believe that ensuring our children are receiving a quality education requires everyone in our community – parents, teachers, non-profits and the City – be involved. I’m glad this historic partnership could occur and I’m optimistic we can work together in the future to ensure our taxpayer dollars are being spent appropriately by the LAUSD.

Sincerely,

/s/Wendy Greuel

City Controller

THE COMPLETE AUDIT IS AVAILALE HERE: http://bit.ly/cktdjb

smf notes:

• This is a commissioned performance audit, neither a financial audit nor an investigation.
• It was commissioned and paid for by the School District from bond funds - who contracted with the Controller as an independent auditor.
• The Controller’s Office contracted the audit out to an outside firm: SJOBERG-EVASHENK CONSULTING INC. of Sacramento.
• The City Controller has appointed a member to the LAUSD Bond Oversight Committee since the first BB Bond in 1997.