AUDITS: RED INK, TAPE FOR LAUSD STATE SCRUTINY COSTS MILLIONS.

Byline: HARRISON SHEPPARD

Sacramento Bureau

SACRAMENTO -- In the past five years, Los Angeles Unified School District officials have been forced to return all but a fraction of $62 million in state reimbursement funds because of flawed or incomplete applications.

Reviewing nine separate programs, auditors with the State Controller's Office ruled that out of the district's total claims it must return nearly $58 million to the state -- or more than 90 percent.

Auditors cited a range of problems with the district's claims, including a lack of supporting documentation and failure to file paperwork on time.

But education experts said districts throughout California face similar problems, and frustrated LAUSD officials fault a complicated state reimbursement and auditing process.

"It's hugely inefficient," said Joseph Zeronian, the district's interim chief financial officer. "What do we want principals and teachers to be doing? We want them to be teaching kids to read and write (rather than filling out paperwork). The priorities are not where they should be."

Frequent audits

Zeronian said it often takes more staff and effort to fill out paperwork for reimbursements of mandated costs -- worth about $50 million to $70 million a year -- than to develop the reports to receive roughly $3.5 billion in state revenue-limit funding.

"There have been several well-run districts that have basically thrown up their hands and said the system is broke," said Zeronian, who previously worked for the district from 2000 to 2003.

"What you're asking me about is not a unique situation to Los Angeles Unified. It's unfortunate."

But the state's largest district is by far its most-audited.

In the past five years, LAUSD has been audited more often than the next five-largest school districts combined, according to Controller's Office records.

LAUSD also has been forced to return more money than at least the next 11-largest school districts combined, according to records.

California's second-largest district, San Diego Unified, was the target of four mandated audits over the past five years -- and actually was found to be eligible for additional money as a result of the audits.

The third- and fifth-largest, Long Beach and Sacramento, were not audited at all.

The fourth-largest, Fresno Unified, was subject to two reviews that disallowed about 56 percent of the $1.2 million the district had received for the audited programs.

"Part of it is the large size and dollar amounts," Garin Casaleggio, spokesman for State Controller John Chiang, said of the frequent LAUSD audits.

Risk assessment

He could not say whether LAUSD faces any broader problems that may be causing it to fare worse than other school districts during audits.

But he said that LAUSD gets heightened scrutiny simply by being the biggest district.

"When it comes to deciding what audits are coming when, we do a risk assessment: How large is the school district, how much money are they claiming, is it a large amount?

"Have there been audit findings in the past that have worked negatively against the district? Have we uncovered problems in the past?"

The state audits focus on programs that have been required by the state Legislature. The state is supposed to pay school districts for the cost of those activities, but only after a lengthy application process.

The nine LAUSD audits have focused on state reimbursements for a range of activities including chemical removal from schools, police notification of campus crimes, and parent notification of education policies.

Not in new budget?

The most recent audit -- the findings of which were uncontested by LAUSD -- required the district to return all but $1 million of $46 million it had received for fulfilling requirements of the Pupil Promotion and Retention Program.

While that was the largest amount LAUSD has been ordered to return, it was consistent with a series of previous audits.

In an audit of an LAUSD graduation requirements program, records show the district sought $5.7 million in state reimbursements. Ultimately, the state allowed just $1.5 million of the claim. Auditors eventually disallowed even that amount.

In an audit of a law enforcement notification program, LAUSD claimed and received $1.6 million in state reimbursement -- but auditors disallowed all but $70,000.

LAUSD is not alone in struggling with the state-mandated reimbursement process.

Any time legislators mandate new school requirements, districts must go through a lengthy process of filing "test claims" with the Commission on State Mandates to establish precedent for reimbursement.

The commission currently has a backlog of at least 35 test claims -- some as old as 11 years.

Even after a test claim is established, districts must apply to the Controller's Office for reimbursement, which can take another two years.

And, too, the amounts the state awards for mandated reimbursements can fluctuate. Zeronian said the district got about $2.5 million in 2005-06, but then got $61 million in '06-07.

The state Legislature is not expected to allocate any money toward reimbursement funding in 2007-08.

Reform process

Education experts throughout the state say the process is complex, with inconsistent or unclear rules.

"It causes huge problems for school districts and the state," said Brian Lewis, executive director of the California Association of School Business Officials. "It's not so much that it's complicated -- it's that it's a moving target."

Chiang's office is currently working with state lawmakers, the Department of Finance and local school districts to try to improve the process.

"The controller thinks something needs to be done to shorten the mandate process," Casaleggio said.

"Schools have to perform the task as soon as the mandate is imposed, yet still have to wait many years before the commission adopts parameters and guidelines and a statewide cost estimate, and allows districts to be reimbursed for services they've been performing.

"When it comes to claiming the funds, we're always willing to work with schools."

harrison.sheppard(at)dailynews.com

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Giving it all back

SOURCE: State Controller's web site; Daily News research

Gregg Miller/Staff Artist