Report 2014-135R All Recommendation Responses

Report 2014-135R: Magnolia Science Academies: Although the Financial Condition of These Charter Schools Has Improved, Their Financial Controls Still Need to Be Strengthened (Release Date: May 2015)

Recommendation #1 To: Magnolia Educational and Research Foundation

Consistent with their charter petition terms, the Foundation should ensure that each academy maintains the minimum required cash reserve.

6-Month Agency Response

The organization has been monitoring the minimum required cash reserves for all of the schools, and has kept track of all operating expenditures and revenues in order to maintain minimum cash reserves. The organization monitors cash balance on a daily basis to ensure that cash balances are adequate and on monthly basis to ensure compliance with minimum reserves in accordance with the charter requirements.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

60-Day Agency Response

The organization has been monitoring the minimum required cash reserves for all of the schools, and has kept track of all operating expenditures and revenues in order to maintain minimum cash reserves. As part of this process, the organization is redrafting the policies and procedures manual to reflect the current changes and requirements. It is expected that the revised policies and procedures manual will be completed by October 30, 2015.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #2 To: Magnolia Educational and Research Foundation

To ensure the CMO fees it charges to its academies are accurate, the Foundation should develop procedures to ensure that CMO fees are accurately calculated and recorded, including performing regular reconciliations of the CMO fees recorded in the Foundation's and academies' general ledgers.

6-Month Agency Response

The organization has implemented a cost allocation methodology that has been reviewed by external consultants and approved by Magnolia's board. Cost allocation is reconciled on a monthly basis.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

60-Day Agency Response

The organization has implemented a cost allocation methodology that has been reviewed by external consultants and approved by Magnolia's board. Magnolia staff is in the process of reconciling the month of June 2015, and starting July 1, 2015, The cost allocation will be reconciled on a monthly basis by the external back office service provider. The finance department is currently working with the back office service provider to draft the new policies and procedures relating to the CMO allocation and reconciliation.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #3 To: Magnolia Educational and Research Foundation

To ensure that the academies' spending aligns with their budgets, the Foundation should create and retain standardized reports with a sufficient level of detail to allow its staff and the academy principals to compare the academies' spending to their budgets.

6-Month Agency Response

The organization has contracted a back office service provider that provides the organization with monthly financial statements and reports. The financial reports allow the school principals and senior management to review income statements, actual vs budget, cash flow reports, among others.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

60-Day Agency Response

The organization has contracted a back office service provider that will be providing the organization with monthly financial statements and reports. The financial reports will allow the school principals and senior management to review income statements, actual vs budget, cash flow reports, among others.

It is expected that the new reports will be available to the organization and school principals real-time.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #4 To: Magnolia Educational and Research Foundation

To reduce the risk of misappropriation, the Foundation should ensure that it appropriately authorizes all of its expenditures and the academies' expenditures. It should also ensure that it includes sufficient supporting documentation for each expense, including documenting the purpose of each transaction.

6-Month Agency Response

The organization has reviewed the current policies and procedures in order to enhance the internal control process and to ensure that all supporting documentation and approvals are included.

The organization works with the back office service provider to ensure that all required controls are followed during all purchase transactions.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

60-Day Agency Response

The organization has been reviewing the current policies and procedures in order to enhance the current process and to ensure that all supporting documentation and approvals are included.

The organization is currently working with the back office service provider to ensure that all required controls are incorporated in the new payment process, and it is expected that the new controls and system will be implemented on or before September 30, 2015.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #5 To: Magnolia Educational and Research Foundation

To strengthen its controls over purchases that principals make at the academies, the Foundation should update its accounting manual to require academy principals to obtain written authorization before processing purchases on their debit cards that are higher than established thresholds. The Foundation should also revise its accounting manual to prohibit the use of debit cards for travel except in the case of a documented emergency.

6-Month Agency Response

As of June 30, 2015, the organization has discontinued the use of debit cards and has assigned credit cards to all school principals and key employees. The new credit cards are the responsibility of the cardholders, and the expenditures are reimbursed in accordance with the policies and procedures manual.

The new policiy "CSH111 COMPANY-ISSUED CREDIT CARDS" has been board approved and is currently in effect for the organization.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

60-Day Agency Response

As of June 30, 2015, the organization has discontinued the use of debit cards and has assigned credit cards to all school principals and key employees. The new credit cards are the responsibility of the cardholders, and the expenditures are reimbursed in accordance with the policies and procedures manual.

The new policiy "CSH111 COMPANY-ISSUED CREDIT CARDS" has been board approved and is currently in effect for the organization.

California State Auditor's Assessment of 60-Day Status: Pending

Although it claims that it has fully implemented this recommendation through a new credit card policy, the Foundation--despite our requests--has not provided us with the new policy to substantiate its claim.

Recommendation #6 To: Magnolia Educational and Research Foundation

To ensure that it can locate documentation supporting its expenditures and the academies' expenditures, the Foundation should develop a stronger document filing system that links all supporting documentation for expenditures to its authorization and justification included in the CoolSIS system by using a unique identifier such as a purchase order number.

1-Year Agency Response

Magnolia Public Schools (MPS) has incorporated a unique system generated identifier number that is used during the submittal, review, approval and payment process of expenditures incurred by the academies. As part of the documentation process, MPS has revised the policy and procedure to provide additional clarification regarding authorization and approval limits. For your reference, we are including the Accounts Payable workflow, example of the system generated report, sample selections and supporting documentation for five (5) transactions, and the Accounts Payable and Cash Disbursements policies and procedures.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

The organization is in the process of implementing a document filing system that will link all supporting documentation for expenditures to its authorization and justification. In order to implement the new system, the organization is working with the back office service provider to ensure that a unique identifier is provided in CoolSIS and the Accounts Payable system.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The organization is in the process of implementing a document filing system that will link all supporting documentation for expenditures to its authorization and justification. In order to implement the new system, the organization is working with the back office service provider to ensure that a unique identifier is provided in CoolSIS and the Accounts Payable system.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #7 To: Magnolia Educational and Research Foundation

To strengthen its contracting process, the Foundation should define who has authority to sign vendor agreements.

1-Year Agency Response

Based on the California State Auditor's recommendation No 7, relating to strengthening the contracting process and defining who has vendor authority to sign vendor agreements, Magnolia Public Schools (MPS) has developed procedures to provide clarification regarding who has authority to sign vendor agreements. For your reference, we are including our Board approved policies and procedures regarding the MPS' staff who has authority to sign vendor agreements.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

The organization has made various changes to the policies and procedures in order to provide additional clarity to the approval process and limits. The organization is in a continuous process of reviewing the current policies and procedures manual and will be making additional changes to strengthen the vendor agreement approval process.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The organization is in the process of reviewing the current policies and procedures manual and will be reviewing the current signing limits and approval process.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #8 To: Magnolia Educational and Research Foundation

To increase transparency and reduce the risk of misuse of funds, the Foundation should update its policies and procedures regarding vendor selection to require that it maintain independence in its relationships with vendors.

1-Year Agency Response

Magnolia Public Schools (MPS) has increased transparency by including a conflict of interest policy, acceptance of gratuities disclosures, and disciplinary actions. MPS is including the Board approved policies and procedures regarding the MPS' bidding requirements, conflict of interest, acceptance of gratuities, and disciplinary actions.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

The organization has established revisions to the policies and procedures in order to enhance vendor selection, and is currently in the process of reviewing the current process in order to ensure that the organization maintain independence in its relationship with vendors.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The organization has established revisions to the policies and procedures in order to enhance vendor selection, and is currently in the process of reviewing the current process in order to ensure that the organization maintain independence in its relationship with vendors.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #9 To: Magnolia Educational and Research Foundation

To ensure that it provides proper oversight over its process for hiring employees who are not citizens of the United States and that it meets all legal requirements for the employees it sponsors, the Foundation should enhance its human resources policies and procedures and implement a centralized system to track and maintain sponsored employees' files and publicly available documentation. Moreover, the Foundation should use the centralized system to ensure that proper notification is sent to Homeland Security for any material changes to sponsored employees' employment. The Foundation should also review all of its past and present noncitizen employees' files and notify Homeland Security of any material changes that it has not previously reported.

1-Year Agency Response

Magnolia Public Schools (MPS) has enhance its human resources policies and procedures and implemented a centralized system to track and maintain sponsored employees' files and publicly available documentation. The current centralized system is used to ensure that proper notification is sent to Homeland Security for any material changes to sponsored employees' employment.

MPS reviewed all of its past and present noncitizen employees' files and notify Homeland Security of any material changes that has not been previously reported.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

The organization has conducted an internal audit of all sponsored employees and is in the process of implementing a centralized system to ensure that proper notifications are sent in accordance with Federal and State guidelines. A new HR system will be implemented with the start of the new year 2016.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The organization has conducted an internal audit of all sponsored employees and is in the process of implementing a centralized system to ensure that proper notifications are sent in accordance with Federal and State guidelines.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #10 To: Magnolia Educational and Research Foundation

To hold its management accountable for meeting their responsibilities related to the payroll process, the Foundation should continue to implement its new desk procedures of requiring review and documentation of that review at each stage in the payroll process.

6-Month Agency Response

The organization has implemented the payroll desk procedure, and works with the back office service provider to ensure that all steps are followed on a bimonthly basis.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

60-Day Agency Response

As of June 30, 2015, the organization has implemented the payroll desk procedure, and is currently working with the back office service provider to ensure that the system is incorporated with the new process. The organization is currently drafting the new policies and procedures that will incorporate the new desk procedure to the new back office process.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #11 To: Magnolia Educational and Research Foundation

To safeguard the funds that the academies raise, the Foundation should ensure that academy staff follow the fundraising procedures in its accounting manual, especially with regards to timeliness of bank deposits and sign-offs on cash-count forms. The Foundation should also annually train its staff to ensure compliance with fundraising procedures.

6-Month Agency Response

As of June 30, 2015, the organization has trained all school principals in regards to current fundraising procedures. This training will be conducted on an annual basis, and includes the review oversight of the finance department.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

60-Day Agency Response

As of June 30, 2015, the organization has trained all school principals in regards to current fundraising procedures. This training will be conducted on an annual basis, and includes the review oversight of the finance department.

California State Auditor's Assessment of 60-Day Status: Pending

Although it claims that it has fully implemented this recommendation with staff training on fundraiser procedures, the Foundation--despite our requests that it do so--has not provided us with evidence to substantiate its claim.

Recommendation #12 To: Magnolia Educational and Research Foundation

To ensure their compliance with state and federal laws, the Foundation should continue to develop procedures for the academies to follow when they report truancy data to Education. The Foundation's procedures should include a process for the academies to document their calculations.

1-Year Agency Response

Based on the California State Auditor's recommendation No 12, relating to truancy reporting and documentation of calculations, Magnolia Public Schools (MPS) has developed procedures to provide the methods for collecting, documenting, reviewing, and approving truancy information in accordance with California Education Code section 48260. As part of the documentation process, MPS has implemented a policy and procedure that provides clarification regarding responsibilities, reporting process and documentation, and truancy calculation.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

The organization has implemented a new process that allows accurate reporting of truancy data, and is in the process of documenting the policies and procedures to include the process.

The organization is working in conjunction with the back office service provider in order to ensure compliance with state and federal laws.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The organization is in the process of enhancing the policies and procedures to include a process for the academies to document the calculation and reporting process.

The organization is working in conjunction with the back office service provider in order to ensure compliance with state and federal laws.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #13 To: Los Angeles Unified School District

To improve communication between the inspector general and the division, LAUSD should develop procedures for discussing relevant findings in draft form and for determining how those findings should affect the decisions that the division or the board makes.

1-Year Agency Response

In furtherance of responding to recommendation #13 of California State Auditor Report 2014-135R, the Office of the Inspector General (OIG) has developed procedures for discussing relevant findings with the LAUSD Charter Schools Division (CSD). The procedures have been added to the OIG's Internal Audit Manual as Appendix F to Chapter 7 entitled "Other Types of Reports Issued by Internal Audit." The appendix describes the procedures that will be followed when an audit or forensic accounting project is prepared by the OIG or its designee in support of the CSD's oversight function. These procedures also include the steps taken to determine the scope of projects as well as the parameters of how the information in forensic accounting projects will be used by the CSD in the event that such information is provided to the CSD in draft form. The OIG worked with the CSD to develop these procedures. These procedures serve as a contingency and do not change the overriding policy that audits and forensic accounting projects will only be provided to the CSD in final form.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

The District's 6-month implementation report is as follows:

In furtherance of responding to the recommendation, the OIG will prepare an additional appendix to be included in Chapter 7 of its Internal Audit Manual. Chapter 7 is entitled "Other Types of Reports Issued by Internal Audit." This appendix will describe the procedures that will be followed when a forensic accounting project is to be prepared by the OIG or its designee in support of the Charter Schools Division oversight function. These procedures will include the steps taken to determine the nature, scope and timing of the project as well as the steps that will be taken to ensure that there is agreement by all parties as to the parameters of how the information in the forensic accounting project will be used by the CSD in the event that such information is provided to the CSD in draft form. These procedures will be shared with the CSD prior to adoption by the OIG. The development of these procedures will be done as a contingency and will not change the overriding policy that forensic accounting projects will typically only be provided to the CSD by the OIG when they are in final form.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The Office of Inspector General ("OIG") is an independent, statutorily created entity the functions of which include investigating whether a law, regulation, rule or school district policy has been violated. (Ed. Code, section 35400 et seq.) To avoid any future issues that may arise as a result of draft forensic accounting review reports or portions thereof being used as the basis for decisions and actions by the District and/or the Board of Education, the OIG will provide CSD with copies of final forensic review reports. This will be done unless the report is confidential since it is part of an investigation. (Ed. Code, section 35401(c).) OIG audit reports will undergo the regular procedures for gathering comments from the audited entities as required by generally accepted government auditing standards.

California State Auditor's Assessment of 60-Day Status: Partially Implemented

Although the LAUSD's response states that the inspector general will provide the division with final reports, it does not indicate that it has developed procedures for discussing relevant findings in draft form or procedures for determining how those findings should affect the decisions that the division or the board make. Without such procedures the LAUSD risks making decisions on incomplete information.

Recommendation #14 To: Los Angeles Unified School District

To improve its process for considering whether to rescind a charter school's conditionally renewed petition, LAUSD should develop procedures to provide charter schools with a reasonable amount of time for an appropriate response or to potentially remedy concerns.

1-Year Agency Response

The District has revised the Independent Charter School Renewal Petition Application Guide ("Guide") for the 2016-2017 school year which now includes a section addressing "Recommendations of Approval with Conditions." This section provides the following: Recommendations of Approval with Conditions - On rare occasion, the petition review process may culminate in a staff recommendation to the Board of "approval with conditions" of a renewal petition. Staff ordinarily reserves recommendations of approval subject to conditions for those instances in which petitioners cannot satisfy or otherwise have not satisfied one or more legal or policy requirements within the statutorily prescribed time frame for Board action on the charter school petition. In the event that staff makes a determination to recommend approval subject to conditions, the CSD will notify the charter school of the recommendation of approval, specifying the conditions, prior to Board action on the renewal petition. If the Board of Education adopts a staff recommendation of approval with conditions of a renewal petition, staff will monitor the charter school's efforts to satisfy the conditions and endeavor to complete any necessary due diligence and/or other applicable activity or process related to the charter school's fulfillment of the conditions as expeditiously as possible. If and when the charter school does not meet or satisfy the conditions of the approval, at that time staff will submit a recommendation to the Board for its deliberation and decision at a public meeting that the Board rescind the "approval with conditions" of the renewal petition. See page 5 in the "Independent Charter School Renewal Petition Application Guide" (updated May 4, 2016).

The CSD will be disseminating Guide on 05/09/16 to charter school leaders, post the Guide on the District website at http://achieve.lausd.net/site/Default.aspx?PageID=1825 and will send a mass e-mail to all LAUSD-authorized charter schools.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

The District's 6-month implementation report is as follows:

The Charter Schools Division will be revising the "Independent Charter School Renewal Petition Application Guide" which is updated annually to revise the District's procedures in determining if the school is progressing successfully to renewal and serves as an indicator of the school's status and progress vis-a-vis renewal criteria, and also to include procedures regarding conditional renewals, if the recommendation is necessary, and the procedures to recommend rescission of the conditional renewal to the Board of Education.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The District will strengthen its procedures in determining if the school is progressing successfully to renewal and serves as an indicator of the school's status and progress vis-a-vis renewal criteria, with the goal of minimizing the need for recommending conditional renewals. Procedures handbook will be updated and professional development trainings will be provided to staff. Should it be necessary that the District recommend a conditional renewal, any decision to rescind the conditional renewal will be agendized before the Board of Education at a public meeting for board consideration.

California State Auditor's Assessment of 60-Day Status: Pending

All Recommendations in 2014-135R

Agency responses received are posted verbatim.