BB: BUNGLED BOND AUDIT SHOWS LAUSD LACKS ADEQUATE COST CONTROL.

Byline: Sonia Giordani Staff Writer

Five years after voters approved a $2.4 billion school bond measure, Los Angeles Unified has yet to develop an effective cost control system to track how the money is being spent to fix existing schools, according to a new Inspector General audit.

LAUSD - which already has spent $1.4 billion of the bond money - still relies on an antiquated finance system with no way of tracking and controlling project budgets, the audit concludes.

And it warns that costs have spiraled out of control because of the district's excessive reliance on outside consultants who charge exorbitant professional rates to do the work.

``Without a solid understanding of what the work is, how much it will cost, and how long it will take, it will be impossible for LAUSD to accurately plan or effectively manage the BB program work,'' the audit said.

The school district's inspector general, Don Mullinax, said the deficiencies make it hard for the school board to hold officials accountable and measure performance.

``It's troubling to see that the district is five years into this critical program, but it still has not established a structure to adequately identify, track, predict and control costs,'' he said.

The audit, conducted by the consulting firm Deloitte & Touche, is the third audit of LAUSD's management of the Proposition BB bond program which was passed by the voters in April 1997. It comes only months after LAUSD officials admitted they face a $600 million shortfall in funding projects promised with the $1.5 billion allocated to existing schools. The remaining $900 million is intended for new schools.

``With the district's ongoing budget challenges, it's imperative that the Facilities Division effectively manage this program to ensure that it gets the most from every dollar spent,'' Mullinax said.

New bond issue

The audit comes as Superintendent Roy Romer begins planning to ask taxpayers for a new bond issue as early as November, when a state bond is also expected to appear on ballots.

School board President Caprice Young said she is confident the district will be able to fix the problems and win approval for another bond issue.

``Nobody's in denial anymore,'' Young said, noting that Navy Capt. James McConnell now heads the facilities division and Romer recently hired a new chief operating officer.

``I'm confident that by the time voters are asked to cast their ballots in November, everything will be exactly on track.''

The problems detailed in the audit are mostly in the Existing Facilities division of LAUSD, which has been in charge of coordinating renovation and modernization projects at rundown public schools.

The audit found the division still lacks a final project execution plan or policies specifying work responsibilities. It's also plagued by a lack of coordination with local district officials and others involved in construction programs.

In March 2000, Mullinax issued his first BB report, finding 20 percent of the money being spent was going to management fees.

Last spring, district facilities staff issued reports claiming that major changes had been made and that more realistic project budgets and schedules and management structures were in place.

By November, the district acknowledged the shortfall, blaming poor management, miscalculated environmental and inflation costs and a lack of proper controls over projects.

The audit, released Friday, said new school construction is in far better shape than the repair program.

``New facilities spent a substantial amount of up-front time and energy in preplanning projects and laying the foundation for project controls,'' it states. ``In doing so they have a system in place that enables them to understand contract commitments, payment and cost incurred, progress versus contracts and trending of costs for future activities.''

At first, repair projects were plagued by poor planning and numerous costly change orders.

Without policies delegating authority or an effective finance system to track costs, there's no clear line of demarcation designating who can access budgets and plan. Sometimes, project managers at the local districts begin construction only to find that capital has been committed to other projects.

``The concern here relates to single point accountability for budget control,'' the report states.

LAUSD Facilities Director James McConnell said there have been serious problems.

``We are five years into a five-year program in which only half the jobs are finished,'' McConnell said. ``I don't know if anybody had a feel for how much would be required to complete the remaining projects until we finished the validation process in October.''

But he noted a pilot program for a cost control system is already under way in Local District A in the San Fernando Valley and will soon expand to the whole district.

``We have a very specific plan to get the cost control system in place for existing facilities that would parallel the system used in the new facilities division,'' he said.

The audit also suggests designating someone in the controller's office to be responsible for tracking the BB program budget. Chief Financial Officer Joseph Zeronian said the idea has been suggested to the board in the past and he would support it.

Recommendations

``We haven't succeeded in making the changes to date,'' Zeronian said. ``But as we're looking at at this program over the next few months and at the prospect of asking potentially for more bond money, that would require us to restructure how we do our accounting and controlling.''

The audit's other recommendations include:

--Reducing the number of project management firms to cut down on fees and streamline work.

--Improving communication among local and central district employees and consultants and management firms.

--Establishing a written policy outlining how future expenditures will be controlled and accounted for monthly.

Robert Garcia, chairman of the Proposition BB Citizens Oversight Committee, said he was disappointed by the audit because Mullinax's team failed to interview members of the committee.

``He could have done a better job for the children of Los Angeles if he asked the people most intimately involved in oversight and included the lessons for the future,'' Garcia said.

Major lessons

He said the BB program has taught three major lessons that should be kept in mind when the district and the BB oversight committee ask voters to pass another local bond measure.

``First of all, LAUSD needs to have in place a vision and plan for building new schools and modernizing new schools in a way that are efficient and cost effective,'' Garcia said. ``The district also needs to define effective oversight that it's willing to accept.''

School and oversight officials have said it will be imperative to pass the local bond to qualify for state matching funds if voters in California pass a state bond that will likely be on the ballot in the fall. But board member David Tokofsky said it's too soon to go back to the voters especially when the district has yet to get its house in order.

``That would require us to start right now with a propaganda mill to support the bond. And the bottom line is you have to tell the truth to the voters - not spin it,'' he said.

He noted the district still has nearly $700 million in BB funds it can use as state matching funds if California voters approve a statewide bond in the fall.

``Let's pass the state bond in November and concentrate on fixing our facilities division so that when we go back to the public,'' he said, ``the public will join us in supporting another bond.''

AUDIT AT A GLANCE

An audit by Deloitte & Touche identified five areas in the management of Proposition BB that need immediate attention from the Los Angeles Unified School District:

--There is ``substantial inadequacy'' in identifying, tracking, predicting and controlling costs and budgets for Prop BB projects.

--The reporting and communication structure may be inadequate to effectively plan, control and manage existing projects.

--Costs could be cut by hiring staffers to perform management tasks now being handled by consultants.

--There may be too many outside project management firms on board to effectively complete the projects.

--The district's Integrated Financial System may not be able to provide information in a reliable, detailed or timely manner in order to manage the projects.

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AUDIT AT A GLANCE (see text)