AUDIT RIPS PROP. BB STATE FINDS LAUSD WAS DECEPTIVE, UNORGANIZED.

Byline: Sonia Giordani Staff Writer

State Controller Kathleen Connell has found that LAUSD officials deceived voters in winning approval in 1997 for the Proposition BB school bond measure, paid exorbitant private management fees and improperly spent $90 million on employee salaries, consultants and legal settlements.

Connell's audit, to be released Monday but obtained by the Daily News, found that the Los Angeles school district was poorly organized in administering the massive $2.4 billion bond measure and that the citizens oversight committee failed taxpayers as the watchdog group it was promised to be.

``Prop. BB was a disappointment,'' Connell said in an interview Friday. ``There was exaggeration and an inflated expectation for what it could accomplish. Not all the facilities received the level of repair initially discussed.''

Connell laid the ultimate blame on predecessors of the current superintendent, Roy Romer, and credited new leadership over the last two years for bringing new accountability to the district.

The report concludes that the district should have been ``more prudent in spending the bond proceeds'' and details specific problems with LAUSD's management of the bond since it was approved in 1997.

It criticizes the district harshly for using bond proceeds to pay for consultants who work in administrative capacities in violation of the original bond language barring use of bond money for administrators' salaries.

School district officials defend the practice, saying it would be impossible to pay for construction management any other way.

``We think it's perfectly appropriate. We simply disagree with the controller on that point,'' said Chief Facilities Executive Jim McConnell.

``The entire new construction organization is built by consultants, and the notion that we shouldn't pay for consultants doing BB work is illogical.''

The culmination of a six-month review, the report in its final form moderated some of its earlier findings after Romer and McConnell personally visited Connell to object to some of the language used in a draft.

The district was originally accused of lying deliberately to voters but that was toned down to making statements that turned out to be false.

``I want to emphasize that this current administration inherited this problem. This was not the result of mismanagement by Superintendent Romer,'' said Connell.

``To the contrary, he walked in in the middle of this fiscal problem and has been very supportive in helping us to identify the range of problems and to put in the control mechanisms to avoid them in the future,'' she said.

That point is critical to Romer, who wants voters to approve an even larger bond issue in November to provide $3.3. billion in local property tax increases to help fund a massive school construction program.

Connell said she believes the district appears to have learned important lessons from BB and may be better suited to manage a new bond more effectively.

The oversight committee, which the audit said had members who `'did not ask probing questions'' and still needs to assume more fiscal authority, has evolved to be more active.

LAUSD board President Caprice Young said the report recognizes the gains that the district has made in the last year in restoring credibility to the management of its facilities division.

``We're getting better every day. There's still a lot of work to do, but the improvements have really been measurable,'' Young said. ``We have a professional management team in place now.''

Connell also praised the district's inspector general, Don Mullinax, for his aggressive efforts to hold the district to a higher standard than it was used to in the past.

``Having an inspector general is essential. It's fundamental to the reform going on in the Los Angeles Unified School District,'' Connell said. ``It's the reason we've seen such a rapid change in the attitude of LAUSD, and I have the greatest respect for the inspector general.''

Mullinax's office has completed three audits of LAUSD's management of the Prop. BB bond program, detailing everything from problems in the way the district handled change orders to construction projects to problems in the excessive management fees charged by the district.

Connell's audit confirms many of Mullinax's findings.

For instance, construction management firms alone have comprised nearly 20 percent of construction costs for BB projects - compared with 4 percent to 11 percent in Chicago and New York City.

BB funds were also used to pay out legal settlements worth more than $26 million, including one $19.3 million settlement with a consortium hired to install air conditioning and provide energy services to 150 schools. The district paid off the companies involved - PG&E Energy Services and CH2M Hill Contractors - to break the contract though the firms did virtually no work.

Young blamed those costs, in part, on poorly written contracts that made it virtually ``impossible to hold contractors accountable.''

``Now we have much better-written and much fairer contracts, so we have a way of turning projects around and fixing them before they turn into something litigious,'' Young said.

The audit said the bond language used to sell the idea to voters was unclear and contained inaccurate statements. The report points to the Voter Information Pamphlet, for instance, noting that it implied that all the funds would be used to repair and modernize existing schools though the district intended to allocate $900 million for new schools.

The pamphlet also promised projects at 800 neighborhood schools and 800 school sites, though detailed estimates weren't done until after the election `'so the extent of coverage could not have been known.''

And the report noted that the bond specifically barred the district from paying administrator salaries with BB funds but concludes that $87.9 million has been spent on ineligible costs, including legal settlements, salaries and benefits for office personnel and construction management fees.

The audit report said $724,000 was spent on consultants who, while technically not administrators, performed supervisory and administrative duties and functioned as district employees.

One section details thousands of dollars spent on a single consultant - Acting Deputy Chief Facilities Executive Jim Delker, who heads up the existing facilities division.

He was not only paid $180 per hour but also was reimbursed for expenses that ``were not considered to be reasonable.'' The cost of one meal, for instance, was $165. One round-trip airplane ticket cost $1,824. Other expenses covered were $2,200 monthly rent, newspaper subscriptions, laundry and meals.

``All of these costs were charged against the BB bond program,'' the report noted.

McConnell acknowledged that BB funds were used to pay a portion of those expenses but have since been reimbursed.

``General fund money paid for his expenses,'' McConnell said.

Delker said the BB funds were used to cover a temporary shortfall in the general fund for facilities expenses, adding that district accountants used the BB funds to cover the cost without conferring with him or seeking the approval of the citizens oversight committee.

``They're accountants. They keep the bills paid by moving money back and forth. They should not have done that in this case,'' he said.

Connell's report also found that change orders were improperly processed and lacked monitoring.

Of 327 approved change orders, the district was unable to locate the paperwork for 141 of them. Of those they could find, 31 lacked the required approval signature and about six of them had inaccurate amounts recorded.

McConnell said the district has since instituted a new policy on change orders that he assures is being enforced.

``I now have an organization in place,'' McConnell said, ``that is following policies and procedures.''