ValleyVote has converted the LAUSD's inspector general's report to standard html. This is a section of the the report. This form will be easer to read, searchable and sections can be down loaded for reports and other uses.. It is not the official report which is a slow loading PDF and is the official report.
Index of Chapter 1 to 3
Chapter 1
The Role Of The Internal Auditor And The Nature Of The Belmont
Investigation
A. School Board’s Authorizing Resolution
B. Purpose Of This Belmont Report of Findings – Part II
C. Scope And Methodology Of This Belmont Report of Findings – Part II
Chapter 2
Selected California Laws Governing Public School Budget &
Accounting And School Contractors.
A. The California Education Code
1. Budget
2. Deposit of Moneys
3. Accounting
B. The California False Claims Act
Chapter 3
LAUSD’s Internal Payment System
I. LAUSD – Organization For Financial Management
A. School Board
B. Office Of The Superintendent
C. LAUSD Chief Financial Officer
D. Divisions
E. Branches
F. Office Of Planning And Development
II. LAUSD – Internal Payment System
A. The Payment Process For Temple Beaudry Partners
1. Payment Authorization:
2. Accounts Payable Section
3. County Of Los Angeles
B. The Payment Process For Personal And Professional Service Contracts
1. Office Of General Counsel
2. Office Of Planning And Development:
3. Environmental Health And Safety Branch
4. Accounts Payable Section
III. Internal Auditor’s Comments On Payment System
The Role Of The Internal Auditor And The Nature Of The Belmont Investigation
A. School Board’s Authorizing Resolution
Following widespread public concerns regarding the manner in which the LAUSD selected, acquired and developed property for the Belmont Learning Complex (" Belmont"), [1] the LAUSD’s Office of Internal Audit and Special Investigations Unit (" Internal Auditor") was directed by the LAUSD School Board (" School Board") on February 23, 1999, [2] to investigate the following six issues relating to Belmont:
1. The acquisition, environmental assessment, and remediation of all land associated with Belmont;
2. All contracts and payments to outside consultants and attorneys involved with Belmont;
3. Alleged existences of conflicts of interest relating to Belmont;
4. Any account(s) controlled by the former Bond and Asset Management/ Planning and Development offices;
5. The selection, negotiation, and contracting process for the development and construction of Belmont; and
6. Pursue all legal rights and remedies including restitution in the event of the discovery of any wrongdoing regarding Belmont. To assist the Internal Auditor in this investigation, the School Board also authorized funds by which the Internal Auditor retained investigators and outside counsel to assist in the Belmont investigation [3]. Back to Index
B. Purpose Of This Belmont Report of Findings – Part II
Pursuant to the School Board’s six- point charge regarding Belmont, this Belmont Report of Findings – Part II addresses points 2, 4 and 6 set forth above. Proceeding according to recently enacted California Education Code §35401(c), [4] the Internal Auditor specifically deems this investigation and resulting Belmont Report of Findings – Part II necessary to serve the interests of the LAUSD. As a result, the Internal Auditor in this Belmont Report of Findings – Part II makes specific findings of fact regarding the financial accounting for the development and construction of the Belmont project and makes recommendations to remedy identified deficiencies in the LAUSD’s current policies and procedures for the budgeting and accounting for the development and construction of school facilities, including payments to outside contractors, consultants and vendors as reflected in this review of Belmont.
The Internal Auditor issued the first Report of Findings on September 13, 1999, which primarily addressed environmental and conflict of interest issues in points 1, 3, 5 and 6. The Internal Auditor’s Belmont Report of Findings – Part II is issued after making a review of all available contracts and payments to contractors, outside consultants and attorneys, as well as a review of the accounts controlled by the former Bond and Asset Management/ Planning and Development Offices. Back to Index
C. Scope And Methodology Of This Belmont Report of Findings – Part II
The scope of the Internal Auditor’s inquiry has been retrospective in focus to investigate the payment history of certain Belmont project- related contracts, and to provide an assessment of the LAUSD’s existing financial accounting systems based on the review of the Belmont project. The Internal Auditor was not directed to provide technical financial analysis regarding the decision to go forward with the Belmont project. Therefore, in this report the Internal Auditor has not undertaken a comprehensive financial analysis regarding the LAUSD’s decision to complete the Belmont project.
During the review, the Internal Auditor and his staff were assisted by independent professionals, including the law firm of Preston Gates & Ellis LLP and a number of professional investigation firms, including Orswell/ Walt and Associates, Owens & Associates Investigations, and Wisdom, Wight and Associates. The Internal Auditor also retained Summerford Accounting, P. C., to assist his team on financial accounting analysis, procedures and policy issues. This assembled team conducted the following tasks in carrying out the review of Belmont.
· Interviewed current and former personnel of the District’s staff who were responsible for all aspects of the Belmont accounting.
· Interviewed personnel of the outside consultants who worked on Belmont.
· Requested and examined supporting documents, including original LAUSD correspondence, invoices, warrants, documents obtained from state agencies, and documents obtained from outside vendors and consultants who worked on Belmont.
· Requested and examined electronic data created on the LAUSD Integrated Financial System pertaining to the Belmont project.
· Performed a detailed review of more than 16,000 individual documents, including more than 260,000 pages.
· Performed reviews of other source or secondary materials as deemed necessary.
This review was conducted from September to December 1999. Documents cited in this Belmont Report of Findings – Part II are attached to this volume in both its hard copy and electronic versions [5]. Back to Index
Foot Notes for chapter 1
[1] The Internet websites for the Daily News and the Los Angeles Times can be accessed at www.dailynews.com and www. latimes.com, respectively, to obtain news articles relating to Belmont. "Belmont" will be used generally in this Belmont Report of Findings – Part II to describe the 35-acre site that now makes up the Belmont Learning Complex.
[2] Resolution of the Los Angeles Unified School District’s Board of Education dated February 23, 1999. See first Report of Findings Attachment 2.
[3] For Resumes of the Internal Auditor and his team see the first Report of Findings Attachment 1.
[4] SB 1260 (Hayden), Stats. 1999, c. 295 (signed by Governor Davis on August 31, 1999.)
[5] Documents deemed by the LAUSD to be (or contain) attorney/ client privileged communications and/ or attorney work product are shown as redacted wherever such redactions were required to protect these asserted privileges. Back to Index
Selected California Laws Governing Public School Budget & Accounting And School Contractors
A. The California Education Code
Under state law established in the California Education Code, the LAUSD is required to comply with specific requirements in regard to establishing procedures for their budget and accounting standards. The obligations of the LAUSD to ensure that it is in compliance with budgetary and accounting principles under the California Education Code are as follows: Back to Index
LAUSD budgets are required to include a complete plan and statement of all proposed expenditures of the school district and of all estimated revenues for the following fiscal year, together with a comparison of revenues and expenditures for the existing fiscal year. [6]
On or before July 1st of each year the governing board of each school district shall hold a public hearing on the budget to be adopted for the subsequent fiscal year [7]. Not later than five days after a budget is adopted, the governing board is required to file that budget with the county superintendent of schools, in the Los Angeles County Office of Education [8]. The county superintendent of schools is required to either approve or disapprove the adopted budget for each school district on or before August 15th [9]. If the county superintendent of schools disapproves of the budget submitted by the school district, he or she must communicate to the governing board of the school district the disapproval along with recommendations for revisions to the budget, no later than August 15th.
The Internal Auditor understands that LAUSD’s Superintendent submits to the LAUSD Board of Education early in the calendar year a proposed budget based in large part on the Governor’s proposed annual budget. The LAUSD Board of Education adopts a "Final Budget" by the end of June, though they typically adopt an "Adjusted Final Budget" following the final adoption (including gubernatorial budget vetoes) of the state’s budget later in the summer or early fall.
The governing board of a school district that has its budget disapproved by the county superintendent shall adopt a revised budget and resubmit the revised budget to the county superintendent [10]. The county superintendent is required to approve or disapprove the revised budget [11]. If the county superintendent of schools disapproves the revised budget, he or she shall call for the formation of a budget review committee [12].
The budget review committee shall review the proposed budget of the district and transmit to the Superintendent of Public Instruction, the county superintendent of public schools, and the district governing board either a recommendation of approval or a report of disapproval for the school district budget [13]. The county superintendent of schools shall approve the school district budget if the budget review committee recommends approval [14]. If the budget review committee disapproves of the school district budget, the school district governing board shall send a response to the report of disapproval to the Superintendent of Public Instruction [15]. The Superintendent of Public Instruction shall then have the discretion to approve or disapprove of the school district budget. Pending budget approval, the school district shall continue to operate on the basis of the budget adopted by the governing board for the previous fiscal year or the unapproved budget for the current fiscal year depending on whichever contains a lower total spending authority [16]. Back to Index
The LAUSD is required to deposit all moneys received or collected from any source and all moneys apportioned to it from taxes levied and collected under the authority of city councils for school purposes, into the county treasury to be placed to the proper fund of its district [17]. School district deposits, along with funds from other local agencies, make up a pool which the county treasurer manages for investment purposes. Return to index
The accounting system used to record the financial affairs of the LAUSD must be in conducted in accordance with the definitions, instructions, and procedures published in the California School Accounting Manual (" Accounting Manual") [18]. The Accounting Manual is approved by the State Board of Education and furnished by the Superintendent of Public Instruction.
The Accounting Manual describes various procedures for accounting for revenue and expenditures. Specifically, the manual explains in basic accounting terms, the accounting cycle, categories of funds, allowable funds, account groups, and budgetary accounts. Budgeting procedures are not addressed in the manual, except for a reservation made for future inclusion upon development of a budget development manual.
In regard to certificates of participation (" COPs"), procedure number 606, contained in the Accounting Manual addresses accounting procedures for COPs. An issuance of COPs is a mechanism for providing capital to school districts and county offices to purchase equipment, finance construction projects, or refinance existing leases. The COPs financing technique provides long- term financing through a lease with an option to purchase or a conditional sales agreement. The major disadvantage of a COP is that there is no repayment source connected to its issuance.
Procedure numbers 203, 204 and 205 in the Accounting Manual address capital project funds accounting procedures. Capital project funds are established to account for financial resources to be used for the acquisition or construction of major capital facilities. The capital facilities fund is used primarily to account separately for moneys received from fees levied on developers or other agencies as a condition of approving development. The authority for these levies may be county or city ordinances or private agreements between the school district and the developer [19].
The Accounting Manual does not provide guidance on every transaction that might occur in a school district. A notable omission in the Accounting Manual is the failure to provide budgeting procedures (see reserved procedure number 101).
Procedure numbers 701 and 702 provide guidance on classifying expenditures by program and distributing costs. The Accounting Manual provides that direct charges to the facilities program include:
· The costs of obtaining land and buildings through purchase, lease, rental or lease with option to purchase.
· Major remodeling.
· Construction of buildings and additions to buildings.
· Initial installation or extension of service systems and other built- in equipment.
· Initial improvements to sites.
· Books and equipment for new buildings.
· Salaries and other expenses of district employees assigned specifically to the facilities program.
· Architects, engineers, and contractors hired for capital improvement projects.
· Initial installation and extension of service systems and other built- in fixtures.
If problems are encountered which are not addressed in the Accounting Manual, the Governmental Accounting Standards Board’s (" GASB") publication Codification of Governmental Accounting and Financial Reporting Standards should be consulted pursuant to the Accounting Manual. GASB establishes financial reporting and accounting requirements for state and local governments throughout the United States. Under GASB principles, governing bodies (such as state legislatures, city councils, or school boards) are required to submit annual reports. The annual reports show restrictions on the planned use of resources and measure the revenues and expenditures arising from certain activities. GASB’s objective is to assist governing bodies in determining their compliance with finance- related laws, rules and regulations. Back to Index
B. The California False Claims Act
Contractors and consultants who submit bids to officers of the LAUSD are subject to the California False Claims Act False Claims Act.
The False Claims Act was enacted in 1987 [20]. The False Claims Act imposes liability on a person who knowingly presents or causes to be presented to an officer of the state or a political subdivision thereof a false claim (having a threshold value of $500 or more) for payment or approval. [21]. The False Claims Act also imposes liability on a person who: (1) knowingly uses a false record or statement to get a false claim paid or approved; (2) conspires to defraud the state or subdivision by getting a false claim paid or approved; (3) knowingly delivers less property to a state or a subdivision; (5) knowingly buys or receives as a pledge or debt, public property from a person who may not sell or pledge the property; (6) knowingly makes, uses or causes to be made or used a false record or statement to conceal, avoid or decrease an obligation to pay or transmit money or property to the state or subdivision; or (7) is a beneficiary of an inadvertent submission of a false claim to the state or political subdivision, subsequently discovers the falsity of the claim, and fails to disclose the false claim to the state or political subdivision within a reasonable time after the discovery of the false claim [22]. A school district is covered as a political subdivision of the state [23].
The False Claims Act states that "knowing" or "knowingly" means that a person, with respect to information, does any of the following: (1) has actual knowledge of the information; (2) acts in deliberate ignorance of the truth or falsity of the information; or (3) acts in reckless disregard of the truth or falsity of the information. The specific intent to defraud is not required [24].
The False Claims Act imposes treble damages against a person or entity that violates the Act. In addition, even where no actual damages have been suffered by the public entity, the False Claims Act imposes civil penalties of up to $10,000 per each false claim. 25 Notwithstanding, the quasi- criminal nature of the available remedies, including treble damages and civil penalties, the burden of proof applicable to civil actions under the False Claims Act is preponderance of the evidence[26].
A civil action on behalf of a political subdivision shall be prosecuted by the prosecuting authority which includes, the local government official charged with investigating, filing, and conducting civil legal proceedings on behalf of, or in the name of, a particular subdivision [27]. Criminal liability may also attach to a False Claims Act violation [28]. Back to Index
Foot Notes for chapter 2
[6] See California Education Code § 42122
[7] See California Education Code § 42127 (a)( 1)
[8] See California Education Code § 42127 (a)( 2)
[9] See California Education Code § 42127 (d)
[10] See California Education Code § 42127 (e)
11] See California Education Code § 42127 (g)
[12] See California Education Code § 42127.1
[13] See California Education Code § 42127.2 (1)--( 2)
[14] See California Education Code § 42127.3 (a)
[15] See California Education Code § 42127.3 (b)
[16] See California Education Code § 42127.4
[17] See California Education Code § 41001
[18] See California Education Code § 41010
[19] See California Government Code §§ 65970 - 65981Back to Index
[20] The California Act was modeled after the Federal False Claims Act, 31 U. S. C. 3729- 3732.
[21] See Govt. Code § 12651 (a)( 1). The LAUSD is a political subdivision of the State.
[22] See Govt. Code § 12651 (a) (2)--( 8)
[23] See Govt. Code § 12650 (c), which defines political subdivision to include, "any city, city and county, county, tax or assessment district, or other legally authorized local government entity with jurisdictional boundaries.
[24] See Govt. Code § 12650 (b)( 2)
[25] See Govt. Code § 12651 (a)
[26] See Govt. Code § 12654 (c)
[27] See Govt. Code § 12650 (b)( 4)
[28] See e. g. , Govt. Code § 12654 (d) Back to Index
Lausd’s Internal Payment System
This chapter describes the LAUSD’s system for the review and approval of payment applications made by consultants and contractors involved in the development and construction of the Belmont project. This chapter describes the following subjects: (1) LAUSD’s organizational structure as it pertains to the payment approval process for Belmont- related contracts; (2) the review and payment process for construction contracts; and (3) the review and payment process for personal and professional service contracts.
The Internal Auditor received a briefing from LAUSD employees on October 11, 1999, on the internal accounting and financial control systems applicable to costs related to the development and construction of the Belmont project. This information, supplemented by further informal discussions and formal one- on- one interviews, along with other information developed during the course of this investigation, provide the basis for the following description of the LAUSD’s internal payment system. Back to Index
I. LAUSD – Organization For Financial Management
The Internal Auditor’s review of the financial accounting and payment systems used to track and pay for the development and construction of the Belmont project primarily focused on the activities of LAUSD personnel, contractors and consultants to the LAUSD. In order to properly assess the responsibility for the accounting of the Belmont project, it is important to understand the organization of LAUSD for the period of 1997 to the present. 1997 is an important date because construction began in the Fall of 1997. The organizational charts for the LAUSD, for the Business Services Division and Facilities Services Division [29] for the period of 1990 to 1999 were attached to the first Report of Findings as Attachment 3 to that Report. The organizational charts for the Financial Division are attached to this Belmont Report of Findings – Part II as Exhibits 149. The following LAUSD offices and personnel were involved in the financial accounting and payment of costs for the development and construction of the Belmont project. Return to index
The LAUSD School Board is authorized by the California Education Code to act as the governing body in establishing overall policy and direction for the LAUSD [30]. In addition, the Education Code imposes specific obligations on the LAUSD Board in approving school budgets, and in committing public funds for school construction purposes [31]. As described more fully in the first Report of Findings, beginning in 1990, the LAUSD School Board took a number of official actions to approve the development and construction of the Belmont project. Return to index
B. Office Of The Superintendent
As described in the first Report of Findings, the chief executive officer of the LAUSD is the Superintendent, who establishes general management and oversight of all LAUSD personnel, operations, programs, buildings and funds. The Belmont site acquisition began in 1990 under Superintendent William Anton. Mr. Anton left the LAUSD in late 1992. At that time Mr. Sidney Thompson became Superintendent of the LAUSD. Mr. Thompson’s superintendency extended during the majority of the time in which Belmont’s land was acquired and planned for development. In describing his management style, Mr. Thompson has stated that he depended on a superintendent’s cabinet consisting of the heads of the various divisions within LAUSD. At least ten units of LAUSD’s professional staff reported directly to Mr. Thompson. Mr. Thompson retired from service to the LAUSD in July 1997.
Upon Mr. Thompson’s retirement in 1997, Dr. Ruben Zacarias became Superintendent of the LAUSD. Prior to becoming superintendent, Dr. Zacarias served the LAUSD as the Deputy Superintendent from 1992 to 1997. Under an organizational change in the 1993- 1994 school year, all Divisions of the LAUSD reported through the Deputy Superintendent’s office to the Superintendent’s office.
During the time of the development and construction of the Belmont project, the Superintendent’s office had responsibility for managing and coordinating the activities of the LAUSD Divisions to ensure that project management and financial accounting responsibilities were carried out. Return to index
C. LAUSD Chief Financial Officer
The Chief Financial Officer is the responsible officer for all finance- related operations of the LAUSD. The Chief Financial Officer plans, organizes, assigns, directs and reviews the financial services functions of the LAUSD and participates in the planning and implementation of financial policies and programs. The primary responsibilities include preparation, implementation and financial reporting for all budgets, the development of financial planning for all revenues and expenditures of the LAUSD, monitoring financial performance, reporting financial results, and controlling the District’s financial resources. The Chief Financial Officer also provides leadership, coordination and control of financial and related activities between the LAUSD and federal, state and city or other funding agencies.
The Chief Financial Officer has oversight responsibility for all operations related to budgeting and financial planning, accounting and financial reporting, payroll, disbursement of funds, collecting and investing funds, and borrowing funds through the issuance of debt instruments. The Chief Financial Officer must have the ability to analyze present problems, identify potential problems and develop and evaluate possible solutions.
From June 1994 to November 1998, [32] Mr. Henry Jones was the Chief Financial Officer of the LAUSD. Mr. Jones was employed in that position until November 1998, when Mr. Olonzo Woodfin was appointed as the acting LAUSD’s Chief Financial Officer. Mr. Woodfin was appointed Chief Financial Officer in the Spring of 1999.
The Chief Financial Officer reports to the Chief Administrative Officer, who was David Koch at all times relevant to this Belmont Report of Findings – Part II Return to index.
Outside of the Chief Financial Officer’s staff, the first level of LAUSD’s senior financial management is the Accounting and Disbursement Division. In addition, other LAUSD divisions with responsibility for Belmont development and construction costs include the following: Business Services Division, Facilities Services Division, and the General Counsel [33].
· Accounting and Disbursement Division: Mr. Olonzo Woodfin served as controller and head of this Division from at least the 1996- 1997 school year to the 1997- 1998 school year. Ms. Yoshi Fong became acting controller during the 1998- 1999 school year and is currently in that position.
· Business Services Division: During the period of 1990 to this year, Mr. David Koch was head of the Business Services Division; first as Business Manager, or Division Administrator, Business Services, and later as the Chief Administrative Officer. In the Fall 1999, Mr. Howard Miller was retained as the Chief Operating Officer.
Facilities Services Division: In the 1995- 1996 school year, Ms. Elizabeth Louargand assumed the position of division head of the Facilities Services Division. Ms. Louargand served as head of the Facilities Services Division until May 1999. Ms. Lynn Roberts is currently head of the Facilities Services Division.
· General Counsel: The General Counsel’s office was created in the 1994- 1995 school year. Rich Mason assumed that position when it was created until the Fall of 1999. Mr. Richard Sheehan is currently employed as interim General Counsel to the LAUSD. Return to index
Following division heads, the next level of LAUSD Supervisory staff are branch heads. The following branch offices had key responsibilities for Belmont. Within the Facilities Services Division, the Project Management and Construction Branch had the responsibility for overseeing the construction of LAUSD school facilities.
· Project Management and Construction Branch: During the period of 1990 to 1999, the Design and Construction Branch functioned separately from the Real Estate Branch [34]. In the 1994- 1995 school year, Janalyn Glymph became Director of the Facilities Planning & Analysis Branch, which was renamed the Project Management and Construction Branch the next year. Ms. Glymph was Director of the Project Management and Construction
Branch until the February 1999. Mr. Raymond Rodriquez has been the Director of the Project Management and Construction Branch for the period of February 1999 to September 1999. This function has now been renamed to the Construction Support Services Office [35].
Within the Accounting and Disbursement Division, the Business Accounting Branch had the role of processing payments for the development and construction of the Belmont project. Within the Business Accounting Branch, the Accounts Payable Section and the Contract Unit within that section provide crucial accounting functions.
· Business Accounting Branch: During the 1996- 1997 and 1997- 1998 school years, Yoshi Fong was Director of Accounting and head of this Branch. In the 1998- 1999 school year Mr. Fred Lising became the Director of Accounting and head of this Branch.
· Accounts Payable Section: Since the 1996- 1997 school year, Mr. Howard Kaplowitz has been the Head Accountant within the Accounts Payable Section. Return to index
F. Office Of Planning And Development
As indicated in the first Report of Findings, the Office of Planning and Development was established by the LAUSD Board in the 1993- 1994 school year and reported at all times directly to the Superintendent’s office [36]. This Office of Planning and Development was established by the Superintendent to function outside the normal division and branch reporting relationships. The Superintendent and LAUSD School Board assigned Office of Planning and Development a variety of chores, including the general administrative management of Belmont through its development and pre- construction phases. Dominic Shambra was the first and only Director of the Office of Planning and Development. Mr. Shambra’s statement to the Internal Auditor indicates that his overall project management responsibility for the Belmont project did not begin until August 1, 1994, when the LAUSD School Board formally approved the Belmont project concept.
Mr. Shambra reported to Superintendents Anton, Thompson and briefly to Superintendent Zacarias, who dissolved the Office of Planning and Development in the summer of 1997 [37]. The LAUSD School Board also authorized the Office of Planning and Development to retain outside expertise in several areas, including financial, legal and project/ development consulting [38]. According to his March 1997 job description, Mr. Shambra’s responsibilities included the following:
· Serves as District representative to government agencies including the State Allocation Board, the Office of Public School Construction, the Community Redevelopment Agency and the state and federal departments of education.
· Administers the budget for all funds generated by special agency agreements; resolves conflicts related to technical implementation of agreements; negotiates new agreements and implementation procedures in association with District and non- District legal counsel and the appropriate District divisions.
· Directs and monitors the activities of District architectural, financial, legal and negotiation consultants.
· Serves as a resource to the Superintendent, executive staff and Board of Education members; prepares and presents correspondence and reports regarding negotiations with government agencies and the private sector and information about potential public and/ or political ramifications of District facility development activities [ 39].
With regard to the scope of Mr. Shambra’s authority and responsibility over the development of the Belmont project, it was made clear by Superintendent Anton and Superintendent Thompson that Mr. Shambra was assigned the lead management responsibility for Belmont, especially for the site acquisition and funding phases [40]. Mr. Shambra has informed the Internal Auditor that he acted as a project "coordinator" from August 1994 to February 1998. Mr. Shambra also informed the Internal Auditor that, prior to mid- 1994, he was a member of the team assigned to acquire property generally for LAUSD [41]. The LAUSD School Board also designated Mr. Shambra as the authorized LAUSD representative to file applications for all new construction projects under the State School Facilities Act [42]. The Internal Auditor has received contradictory statements from the majority of LAUSD staff, who have stated that Mr. Shambra was the project executive for the Belmont project. The Office of Planning and Development was formally disbanded in July 1997 by Superintendent Ruben Zacarias. Mr. Shambra retired from the LAUSD in February of 1998. Return to index
II. LAUSD – Internal Payment System
A. The Payment Process For Temple Beaudry Partners
There have been twenty- eight payment applications submitted by Temple Beaudry Partners for the construction costs at the Belmont project. The first payment to Temple Beaudry Partners was approved by Dominic Shambra, Director of the Planning and Development Office. No one in the Facilities Services Division reviewed this first payment. Thereafter, LAUSD staff and paid consultants reviewed payment applications from the developer. LAUSD hired two consultants to assist in the review of developer payment applications. The LAUSD’s owner job site representative was Daniel, Mann, Johnson & Mendenhall, and LAUSD’s consultant who was hired to review all developer payment applications for reasonableness and work completion was Hanscomb, Inc.
The LAUSD Facilities Services Division supervised the processing of Temple Beaudry Partners’ payment requests nos. 2 through 9. Approximately two weeks prior to the end of the month, representatives of the contractor, developer and the LAUSD met to review the upcoming payment request. The stated purpose of this committee was to review anticipated subcontractor work and verify that the percentage of completion was accurate.
On or about the first of each month, payment requests were delivered to Mr. Paul Hurley of Daniel, Mann, Johnson & Mendenhall, who was the LAUSD’s job site representative. Mr. Hurley of Daniel, Mann, Johnson & Mendenhall, along with the consultants from Hanscomb concurrently reviewed the payment requests for accuracy. The LAUSD’s project manager, Rodger Friermuth, reviewed the payment requests to classify costs into six established programs. These programs were established to conform with State mandated categories (1025 -- sites, 1026 -- construction, 1027 -- tests, 1028 -- inspection, 1029 -- plans and 1030 -- furniture and equipment). Mr. Friermuth then sent the payment request to the LAUSD’s Planning and Development Office. The Planning and Development Office reviewed the payment requests again, and then delivered them to the Accounts Payable Section.
The LAUSD Facilities Services Division also supervised the processing of Temple Beaudry Partners’ payment requests nos. 10 through 25. Approximately two weeks prior to the end of the month, representatives of the contractor, developer and the LAUSD met to review the upcoming payment request. Again, the stated purpose of this committee was to review anticipated subcontractor work and verify that the percentage of completion was accurate. On or about the first of each month, payment requests were delivered to LAUSD project manager, Raymond Rodriquez. The LAUSD’s project manager, Raymond Rodriquez reviewed the payment request and submitted them to the Accounts Payable Section for payment. The LAUSD Facilities Services Division also supervised the processing of Temple Beaudry Partners’ payment requests nos. 26 and 27. Approximately two weeks prior to the end of the month, representatives of the contractor, developer and the LAUSD met to review the upcoming payment request. Again, the stated purpose of this committee was to review anticipated subcontractor work and verify that the percentage of completion was accurate.
However, these two payment applications were delivered simultaneously to both Hanscomb and the Accounts Payable Section for simultaneous review to expedite payments. After approximately one week, the parties along with representatives from Turner/ Kajima and Temple Beaudry Partners met to compare issues found in each respective review. A memorandum was prepared and faxed to Temple Beaudry Partners for corrective action, and a deadline for corrective action was established. If requested information or corrections were not provided by Temple Beaudry Partners, LAUSD would edit the payment application and process it for payment. Items edited out of the payment application would then be processed as a supplemental payment application if the requested information or corrections were provided.
Payment application no. 28 was processed under the supervision of the Facilities Services Division and the project director Edwin Weyrauch, with the assistance of the law firm of Weston Benshoof Rochefort Rubalcava MacCuish LLP. The results of this payment application are reported, in part, in Chapter 8. Return to index
Once a Belmont payment is approved by the Facilities Services Division and the project manager, it is sent to the Accounts Payable Section, which follows the following procedures:
The Accounts Payable payer (" payer") examines the developer Temple Beaudry Partners’ payment request package for content of contract forms and proper signatures affixed to the forms.
· The payer reviews the developer Temple Beaudry Partners’ payment request (usually a spreadsheet) and checks all back- up documentation to assure agreement to the terms and conditions of the Disposition and Development Agreement contract as well as compliance with LAUSD procedures.
· The payer reviews Turner/ Kajima’s request for payment, which is submitted on a spread sheet (Form G703). The payer traces back- up documentation to assure agreement to the terms and conditions of the Disposition and Development Agreement contract as well as compliance with LAUSD procedures.
· Any questionable items in a billing are referred to the developer Temple Beaudry Partners and the Facilities Services Division. If requested responses and documentation are not provided, the questionable items are not paid. The particular amounts are subtracted from the billing and the remainder is paid.
· The payer approves and processes for payment that portion of the payment request that conforms with the terms and conditions of the Disposition and Development Agreement contract as well as compliance with LAUSD procedures. The payment request is transmitted electronically to the Los Angeles County Office of Education for review and warrant generation.
· Payment is posted to the vendor’s payment record card, and supporting documentation is filed.
· After the warrant is received from the County, the Warrant Production Unit verifies the payee’s name and address and the amount of the warrant, which are on warrant listings, against the payment supporting documents. This unit sends remittals and other documents that are attached to the warrant to the Job Cost Accounting Section, which retains the warrant until instructed to release it by the Warrant Production Unit. Return to index
The Los Angeles County Office of Education audits any payments over $100,000, and all contracts upon receipt of a request for payment associated with a contract. Commercial warrants are issued by the Los Angeles County Office of Education to pay properly documented payments approved by LAUSD. Return to index
B. The Payment Process For Personal And Professional Service Contracts: In the course of the development and construction of the Belmont project, the LAUSD employed the services of a number of consultants and professional services. The LAUSD has developed an internal document to provide guidance on personal and professional service contracts – the Personal and Professional Services Contract Handbook , Contract and Insurance Services Branch, September 1996 (" Contract Handbook "). According to the Contract Handbook , personal and professional service contracts may be used to engage the services of qualified individuals (independent contractors) to provide temporary special services in such areas as financial, economic, accounting, engineering, legal or administrative matters. Contract Handbook , page 1- 2, Exhibit 9. The authority to negotiate and approve personal and professional service contracts is dispersed throughout the LAUSD organization at the branch level and above. Return to index
O’Melveny & Myers LLP were the attorneys hired to provide advice and counsel to the LAUSD on the development and construction of the Belmont project. The LAUSD Office of General Counsel was established as of July 1, 1994. Prior to that time, O’Melveny & Myers’ invoices were generally reviewed by Ron Apperson of the LAUSD’s Legal Adviser’s Office. O’Melveny & Myers invoices for land acquisition/ real estate matters would involve eminent domain activity and real estate transactional activity. Eminent domain matters were supervised under the auspices of the Real Estate Branch, while the transactional activity (primarily David Cartwright of O’Melveny & Myers) was generally supervised under the auspices of Dominic Shambra in the Office of Planning and Development.
Legal bills were approved by either the Real Estate Branch or the Office of Planning and Development and submitted for review by the Office of General Counsel for processing. Administrative Assistants reviewed all charges for accuracy, and the General Counsel reviewed charges for appropriateness. Bills were then forwarded to the Real Estate Branch, which itemized the bills into various projects and then submitted them for payment to the Accounts Payable Section. Return to index
2. Office Of Planning And Development:
The Office of Planning and Development entered into a number of professional service contracts to retain consulting services related to the development and construction of the Belmont project. Dominic Shambra, who was director of the Office for the length of its existence was the "sponsor" for these contracts, including Ernst & Young LLP, O’Melveny & Myers LLP, Wedin Enterprises, and California Financial Services. Return to index
3. Environmental Health And Safety Branch:
The Environmental Health and Safety Branch was authorized to retain contractors for technical environmental assessment. Prior to approval, the Environmental Assessment Coordinator compares each invoice to work completed before approving and sending the invoice to the Principal Administrative Analyst. The Principal Administrative Analyst compares invoice rates to fee schedules and contract amounts before forwarding to the Document Processing Unit within the Accounts Payable Section. Return to index
Once invoices are approved by the contract sponsors, they are sent to the Accounts Payable Section. According to LAUSD procedures, the Accounts Payable Section must complete the following:
· Sort incoming mail by vendor - current or rush payment request.
· Verify that each invoice is supported by a purchase order or contract or board report. Indicate fund number and vendor code on invoices, amount, date and address.
· Verify that invoices are signed and approved by authorized district personnel. · Verify the accuracy of the amount to be paid, address, name of payee. Scan the corresponding purchase order table into the Integrated Financial System.
· Review the contract and make sure invoices are in accordance with specifications of the contract. Attach all supporting documents needed for county approval.
· Enter the vendor invoice into the "system."
· Request additional/ missing document from vendors and/ or different department in the district. Periodic follow- up may be needed.Return to index
III. Internal Auditor’s Comments On Payment System
As described more fully in Chapters 4 and 7, the Internal Auditor has reasonable cause to believe that individual LAUSD staff are unable to meet their financial accounting performance requirements because of antiquated financial information systems. Further system inadequacies have resulted in a breakdown in the checks and balances needed in a proper internal payment system.Return to index
Foot Notes
[29] The names of these Divisions have been changed periodically during the past nine years.
[30] California Education Code §5200.
[31] California Education Code §42100 and §42120.
[32] Construction of the Belmont project began in 1997.
[33] The names of these Divisions have changed during the 1990 to 1999 period. Letter from Richard Mason to Bryan Steele, dated February 12, 1999. [IA- 92142- 158] See Exhibit 245 to the first Report of Findings .
[34] See Attachment 3 for LAUSD organization charts to the First Report of Findings .
[35] Interview with Raymond Rodriquez, dated May 20, 1999.
[36] Interview with Sidney Thompson, dated August 9, 1999.
[37] Interviews with Dominic Shambra, dated March 29, 1999 and August 9, 1999.
[38] Interviews with Dominic Shambra, dated March 29, 1999 and August 9, 1999.
[39] Attachment to Letter from Richard Mason to Bryan Steele, dated February 12, 1999. [IA- 92142- 158] See Exhibit 245 to the First Report of Findings .
[40] Interview with Sidney Thompson, dated August 9, 1999.
[41] Interviews with Dominic Shambra, dated March 29, 1999 and August 9, 1999.
[42] LAUSD Board Report No. 2, February 1, 1993. [BL- 00039- 40] See Exhibit 247 to the First Report of Findings .