Los Angeles County Office of Education – Wisdom Academy for Young Scientists Report

Los Angeles County Office of Education regarding the Wisdom Academy for Young Scientists AB 139 Extraordinary Audit March 19, 2014 Joel D. Montero Chief Executive Officer Fiscal crisis & ManageMent assistance teaM March 19, 2014 Arturo Delgado, Ed.D., Superintendent Los Angeles County Office of Education 9300 Imperial Highway Downey, CA 90242 Dear Superintendent Delgado: The contract between the Fiscal Crisis and Management Assistance Team (FCMAT) and the Los Angeles County Office of Education to provide an Assembly Bill 139 extraordinary audit of the Wisdom Academy of Young Scientists (WAYS) was signed in May 2013 and returned to FCMAT in June 2013. Specifically, the agreement stated that FCMAT would perform the following: Scope and Objectives of the Study 1. Evaluate the charter school’s internal control structure, policies and procedures to test transactions and reporting processes to determine if adequate procedures are in place to safeguard assets, including physical objects, charter school data, and intellectual property. Evaluation of policies and procedures will include the following: i. Review compliance with policies and procedures including, but not limited to, those related to human resources, finance, purchasing, granting agencies, and state and federal government programs and funding. ii. Review document and records retention procedures to determine whether the charter school provides reasonable assurance that asset records are safeguarded and transactions are correctly recorded. 2. Evaluate the reliability and integrity of information used for internal management decisions and external agency reports. 3. Determine if authorization procedures are appropriate and consistently followed. Review administrator and manager approvals and whether signature authority is delegated only to authorized employees. 4. Determine whether proper segregation of duties exists. The team will evaluate personnel, payroll, accounts payable and cash transactions, and will do the following: i. Review the authorization process for cash receipts ii. Determine if protective measures are in place for safeguarding assets, processes and data. iii. Determine whether safe combinations are changed periodically and anytime a staff member who knows the combination terminates employ- ment. 5. Evaluate reporting processes. The team will do the following: i. Evaluate monitoring and verify that controls are operating properly. ii. Evaluate controls that prevent management from overriding internal controls and thus prevent the potential misappropriation of funds. iii. Evaluate whether clearly established lines of authority and responsibility exist within and between departments for proper review and reporting purposes, and if these are shown on organizational charts. This final report contains the study team’s findings and recommendations in the above areas of review. FCMAT appreciates the opportunity to serve the Los Angeles County Office of Education, and extends thanks to all the staff for their assistance during fieldwork. Sincerely, Joel D. Montero Chief Executive Officer Fiscal crisis & ManageMent assistance teaM i TABLE OF CONTENTS Table of Contents Foreword .................................................................................................iii Introduction ............................................................................................1 Background .............................................................................................3 Scope and Procedures .........................................................................5 Findings and Recommendations Occupational Fraud ......................................................................................9 Related-Party Transactions and Significant Influence .....................19 Appendices ............................................................................................47 Los AngeLes County offiCe of eduCAtion - WAys ACAdemy ii Fiscal crisis & ManageMent assistance teaM iii ABOUT FCMAT About FCMAT FCMAT’s primary mission is to assist California’s local K-14 educational agencies to identify, prevent, and resolve financial and data management challenges. FCMAT provides fiscal and data management assistance, professional development training, product development and other related school business and data services. FCMAT’s fiscal and management assistance services are used not just to help avert fiscal crisis, but to promote sound financial practices and efficient operations. FCMAT’s data management services are used to help local educational agencies (LEAs) meet state reporting responsibilities, improve data quality, and share information. FCMAT may be requested to provide fiscal crisis or management assistance by a school district, charter school, community college, county office of education, the state Superintendent of Public Instruction, or the Legislature. When a request or assignment is received, FCMAT assembles a study team that works closely with the local education agency to define the scope of work, conduct on-site fieldwork and provide a written report with findings and recommendations to help resolve issues, overcome challenges and plan for the future. Studies by Fiscal Year 90 80 70 60 50 40 30 20 10 0 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 Los AngeLes County offiCe of eduCAtion - WAys ACAdemy seidutS fo rebmuN FCMAT also develops and provides numerous publications, software tools, workshops and professional development opportunities to help local educational agencies operate more effec- tively and fulfill their fiscal oversight and data management responsibilities. The California School Information Services (CSIS) arm of FCMAT assists the California Department of Education with the implementation of the California Longitudinal Pupil Achievement Data System (CALPADS) and also maintains DataGate, the FCMAT/CSIS software LEAs use for CSIS services. FCMAT was created by Assembly Bill 1200 in 1992 to assist LEAs to meet and sustain their financial obligations. Assembly Bill 107 in 1997 charged FCMAT with responsi- bility for CSIS and its statewide data management work. Assembly Bill 1115 in 1999 codified CSIS’ mission. AB 1200 is also a statewide plan for county offices of education and school districts to work together locally to improve fiscal procedures and accountability standards. Assembly Bill 2756 (2004) provides specific responsibilities to FCMAT with regard to districts that have received emergency state loans. iv ABOUT FCMAT In January 2006, SB 430 (charter schools) and AB 1366 (community colleges) became law and expanded FCMAT’s services to those types of LEAs. Since 1992, FCMAT has been engaged to perform nearly 850 reviews for LEAs, including school districts, county offices of education, charter schools and community colleges. The Kern County Superintendent of Schools is the administrative agent for FCMAT. The team is led by Joel D. Montero, Chief Executive Officer, with funding derived through appropriations in the state budget and a modest fee schedule for charges to requesting agencies. Fiscal crisis & ManageMent assistance teaM 1 INTRODUCTION Introduction In May 2013, the Fiscal Crisis and Management Assistance Team (FCMAT) received a request from the Los Angeles County Office of Education for an Assembly Bill (AB) 139 extraordinary audit of the Wisdom Academy for Young Scientists charter schools. The county office had received allegations of multiple fiscal irregularities, questionable expenditures and inappropriate related-party transactions at WAYS charter school. Concerned that these allegations may have violated various government and education codes related to fraud and/or misappropriation of assets, the county superintendent initiated an investigation to determine whether sufficient evidence of fraud, misappropriation of funds or other illegal activities may have occurred to report the matter to the local district attorney’s office for further investigation. Under the provi- sions of Education Code Section 1241, FCMAT entered into a contract with the Los Angeles County Office of Education to conduct an AB 139 extraordinary audit. FCMAT interviewed employees and reviewed documents to determine if instances of fraud, misappropriation of funds or other illegal practices occurred that would warrant further investi- gation by the local district attorney’s office. Study Guidelines FCMAT provides a variety of services to school districts and county offices of education upon request. Education Code Section 1241.5(b)(c) permits a county superintendent of schools to review or audit the expenditures and internal controls of any school district in that county if he or she has reason to believe that fraud, misappropriation of funds, or other illegal fiscal practices have occurred that merit examination. According to the Education Code, the review or audit conducted by the county superintendent will focus on the alleged fraud, misappropriation of funds, or other illegal fiscal practices and is to be conducted in a timely and efficient manner. This is in accordance with Education Code Section 42638(b), which states as follows: If the county superintendent determines that there is evidence that fraud or misappropriation of funds has occurred, the county superintendent shall notify the governing board of the school district, the State Controller, the Superintendent of Public Instruction, and the local district attorney. Therefore, FCMAT focused on the allegations of misappropriation of assets, misuse of grant funds and conflict of interest to determine whether Wisdom Academy for Young Scientists Charter School and/or its personnel were involved in or committed fraudulent activities. Audit Fieldwork Investigating allegations of fraud requires a number of steps that include interviewing potential witnesses and assembling evidence from internal and external sources. The FCMAT study team conducted initial county office interviews in June 2013 during the schools’ summer vacation and then visited the three charter school campuses in November 2013 to conduct interviews, collect data and review documents. Based on new information, additional interviews and fieldwork were scheduled in December 2013 through February 2014. Specifically, FCMAT reviewed, analyzed and tested records that included audited financial statements, financial records, grant documents, board minutes, the charter petitions and other documentation from independent third party Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 2 INTRODUCTION sources. The review also included interviews with a board member, management personnel, busi- ness service provider, and former charter school employees to evaluate information concerning any alleged mismanagement, fraud, or abuse. The fieldwork focused on determining whether there is sufficient information to ascertain fraud, misappropriation of funds, conflict of interest particularly with related-party transactions, self- dealing through privately owned company transactions of management and key employees and the former executive director of the charter school, and breach of fiduciary duty. Although there are many different types of fraud, a conflict of interest and breach of fiduciary duty exists when officers or employees of the organization have a personal financial interest in a contract or transaction and is considered to be a form of misappropriation of assets. All fraud has common elements including the following: Knowingly making an untrue representation or a false claim of a material fact; • Intent to deceive, or concealment of the act; • Reliance on untrue information; and • Damages or a loss of money or property. This report is the result of that investigation and is divided into the following sections: • Introduction • Background • Scope and Procedures • Findings and Recommendations • Occupational Fraud • Related-Party Transactions, Significant Influence, Self-Dealing • Audit Findings • Governing Board Oversight • Appendices Study Team The FCMAT study team was composed of the following members: Deborah Deal, CICA, CFE Michael W. Ammermon, CPA, CFE FCMAT Fiscal Intervention Specialist FCMAT Consultant Los Angeles, California Laguna Niguel, California Laura Haywood FCMAT Technical Writer Bakersfield, California Fiscal crisis & ManageMent assistance teaM 3 BACKGROUND Background Wisdom Academy for Young Scientists (WAYS) operates under the Merle Williamson Foundation, a non-profit 501(c)(3). WAYS charter school was authorized as a charter school by the California Department of Education (CDE) in September 2006. The first-year enrollment of 141 grew to 267 pupils by June 30, 2012. Originally approved by Los Angeles Unified School District Board of Education, the charter school was denied renewal of the petition effective July 1, 2011. The district cited several instances of Education Code violations that included: 1. Conflict of interest concerns between related parties, the executive director, the principal and members of the Board of Directors including self-dealing; 2. Violations of the Brown Act; 3. An ineffective governance structure; and 4. Failure to provide a reasonably comprehensive description in the petition for 12 of 16 required elements pursuant to EC 47605(b)(5) . The WAYS governing board is responsible for fiscal accountability and proper governance over all financial transactions but has limited involvement in the schools’ financial affairs. The inability for the governing board to exercise due diligence and implement internal controls has effectively allowed the former executive director, current executive director and related parties unrestricted access to the assets of the organization and implied authority to enter into a variety of business arrangements for personal gain without board authorization and/or approval. The involvement of the former executive director, related parties, business associates, former board members and numerous businesses owned by the former executive director and her husband has raised questions regarding potential conflict of interest, significant influence over financial transactions, self-dealing, control over fiscal management and related party transactions in violation of government and education codes. On June 7, 2011, the Los Angeles County Board of Education (LACBOE) granted conditional approval for the WAYS charter school. Since that time, the management of the charter school has repeatedly resisted implementation of the conditions for approval by ignoring requests by the county office staff for information to support that the conditions have been met. On several occa- sions, verification that the conditions have been met including required reports such as financial information, interim budget reports, audited financial statements and monthly reports have been submitted after repeated requests by Los Angeles County Office of Education (LACOE) staff or have not been submitted at all. County office staff cite several instances within the first year of operations where WAYS failed to comply with the conditions set forth in the original conditional approval. Some examples include: Management is unresponsive to reasonable requests for timely financial information for supporting documentation regarding implementation of the WAYS policy and procedure regarding internal control over credit card usage, attendance reports, contact information, student information, board minutes, board agendas, board meeting dates, failure to abide by Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 4 BACKGROUND conflict of interest laws, and interference in operations from the founder/former executive director, in addition to written and verbal complaints by board members, parents and staff. Following the conditional approval by LACBOE, the county office staff received written and verbal complaints alleging WAYS engaged in fiscal mismanagement, interference with the board in its fulfillment of fiduciary duties by the founder/former executive director, disbanding of board meetings caused by unruly behavior preventing unfavorable actions of the board, resignation of five of the nine board members in one month citing concerns over conflict of interest, ongoing board member resignations, dissention, verbal abuse of board members by the founder/former executive director and, most recently, her son, the director of operations. In January 2014, three of five board members resigned, citing similar complaints that are verified in the minutes and audio recordings of board meetings. LACOE staff note several irregularities and possible misappropriation of funds within the WAYS charter school organization that oversees three charter school sites. These allegations of fraud involve ongoing conflicts of interest and the mismanagement of charter school funds related to facility leases, related-party transactions between the former executive director who owns two of the properties leased by the school and is related to owners of private businesses that conduct business with the charter school, execution of a vehicle lease without board approval, and a substantial separation of service payment to the former executive director without sufficient supporting documentation. Governance issues include an ineffective governance structure caused by continued interference by the former executive director through her son and daughter that hold key positions of authority and decision making in the organization, effectively eliminating the governing board’s ability to exercise its fiduciary responsibilities and duty of care. Evidence of board meeting cancellations and disruption by the current executive director and the founder’s son (director of operations) are corroborated through emails, board minutes and audio recording of board meetings. Prior to the board president’s resignation in January 2014, threatening outbursts by the founder’s son at a specially scheduled board meeting ended the meeting, after which she obtained a restraining order for her personal protection. Based on these allegations, the Los Angeles County Office of Education, Charter Schools Division conducted a preliminary investigation, and based on the results of their initial findings, requested assistance from FCMAT pursuant to Education Code Sections 47604.4 and 1241.5(c). The county office requested FCMAT to provide for the assignment of professionals to study specific aspects of alleged fraud, misappropriation of funds or other illegal fiscal practices that may have occurred in the Wisdom Academy for Young Scientists organization that merit examination. EC Section 42638(b) requires action by the county superintendent to include the following: If the county superintendent determines that there is evidence that fraud or misappropriation of funds has occurred, the county superintendent shall notify the governing board of the charter school, the State Controller, the Superintendent of Public Instruction and the local district attorney. Sufficient evidence exists to demonstrate that WAYS’ management and governing board has failed to cooperate with its oversight agency; is engaged with fiscal mismanagement; violates California conflict of interest laws by engaging in related party transactions and self-dealing; and has breached its fiduciary responsibility and duty of care. Fiscal crisis & ManageMent assistance teaM 5 SCOPE AND PROCEDURES Scope and Procedures The fraud investigation consisted of gathering adequate information regarding specific allega- tions, establishing an audit plan, and performing various audit test procedures to determine whether fraud occurred, and if so, evaluate the loss, determine who was involved, and determine how it occurred. During the interviews, FCMAT study team members asked questions pertaining to levels of authority to enter into contracts, governing board oversight, financial management policies and procedures, job duties and responsibilities, and questions related specifically to the founder/former executive director’s settlement agreement, facility leases, automobile lease, excess fuel purchases and various purchases by selected vendors including the dance studio owned by the founder’s daughter. The primary focus of this review is to provide the Los Angeles County Office of Education with reasonable assurances based on the testing performed that adequate management controls are in place regarding the charter schools’ reporting and monitoring of financial transactions and that fraud, misappropriation of funds or other illegal activities have not occurred. Management controls include the processes for planning, organizing, directing, and controlling program oper- ations, including systems for measuring, reporting, and monitoring performance. FCMAT utilized fraud risk assessment tools to conduct sample tests of financial transactions, other data and contracts to determine if fraud, misappropriation of funds or other illegal activ- ities have occurred. Testing associated with this review is based upon sample selection and does not include the testing of the complete list of all transactions and records for this period. Sample testing and review results are intended to provide reasonable but not absolute assurance as to the accuracy of the district’s transactions and financial activity. Transaction Sampling Analysis To accomplish the objectives of this audit, a number of audit test procedures were developed to provide an in-depth analysis and understanding of the allegations and potential outcomes. The team had access to the general ledger records from July 1, 2008 through June 30, 2013. Specifically, FCMAT performed audit tests related to general ledger transactions, bank state- ments, check disbursements, and rent, facility and automobile lease agreements, including the following: • Review of the charter schools’ detailed QuickBooks general ledger records for the most recent five-year period from July 1, 2008 through December 31, 2013. • Review of bank statements covering the audit period. • Review of proper authorization and available supporting documentation. • Review of credit card transactions and payments. • Analysis of supporting documentation for credit card transactions. • Review of federal forms W-9, 990 and 1099 over the audit period. • Review of the charter schools’ fiscal policies and procedures handbook. • Review of the charter schools’ petition documents and bylaws. • Review of the governing board minutes and agendas. • Analysis of purchases for school materials and supplies. Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 6 SCOPE AND PROCEDURES • Analysis of the charter schools’ compliance with laws and regulations relating to conflict of interest and the Political Reform Act and review of Forms 700. • Review of the charter schools’ internal control process and procedures to determine possible weaknesses in prevention and detection of fraud, misappropriation and/or criminal activity. Transaction sampling was the method used to evaluate the vendor payments issued by WAYS. To evaluate WAYS’ management of expenditure decisions, FCMAT obtained a full copy of the WAYS accounting software, QuickBooks. Using QuickBooks, the team reviewed the WAYS general ledger and vendors over the last five years. The WAYS chart of accounts general ledger is comprised of 196 accounts. Vendor transactions are accounted for using the charter of accounts recorded in the general ledger to account for transactions in various like-kind groups such as office supplies, books, rent, loans, capital improvement, etc. For example, a typical purchase from Staples would be recorded as supplies and subsequently paid through accounts payable, eventually decreasing the cash account. The team reviewed all 42 customers and 667 WAYS vendors and scanned each transaction in the QuickBooks software to identify potential individual transactions to be examined further. An audit risk assessment involves sampling of both customer and vendor transactions. Customer transactions were consistent with audit risk parameters; therefore, no additional transactions were reviewed. However, the team identified 20 of the 667 vendors for an in-depth audit that included 137 individual transactions as demonstrated in the following table below. WAYS Transaction Sampling Customers Vendors Total Total Number 4 2 6 67 709 FCMAT Team Previewed 4 2 667 709 Percent Previewed 100% 100% 100% Selected For Detailed Review - 20 2 0 Percent Previewed of Total Number 0% 3% 3% Detailed Documentation Examined n/a 137 1 37 Selected vendor transactions were audited for supporting documentation for paid invoices based on specific criteria and depending on the type of purchase: • An invoice’s appearance, calculations of extended prices and quantities, description of invoice line items, and sales tax calculations • Invoice payments • Shipping documents • Bills of lading and/or packing slips • Receipt documentation such as notes, description of the business purpose • Proper authorization including governing board approval, management approval, and conformance to internal accounting policies and procedures Fiscal crisis & ManageMent assistance teaM 7 SCOPE AND PROCEDURES • Proper coding of the transaction into the chart of accounts general ledger • Vendor names and check payee names that are supported by valid business license, sales tax licenses and federal Form W-9 • Vendor invoices that present valid business addresses • Vendors that were issued a federal Form 1099 • Contracts that are valid for the appropriate time period and contain authorized signatures • Other proper documentation depending on the type of purchase or contract After reviewing 137 detailed transactions of the 20 vendors selected for detailed review, the following six vendors fit the profile of related parties and/or were business entities that received payments from WAYS business accounts for goods or services: 1. OSE Business Services 2. American Express credit card 3. Godfrey Okonkwo 4. Emeka Enwezor 5. Avatar Technology 6. Toyota Motor Corporation - Lexus purchase and sale The following findings and recommendations are the result of the audit procedures and analysis performed. Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 8 Fiscal crisis & ManageMent assistance teaM 9 OCCUPATIONAL FRAUD Findings and Recommendations Occupational Fraud The owners, executives, directors, managers and/or employees of an organization may commit occupational fraud, which has three primary classifications: schemes related to asset misappro- priation, corruption, and financial statements. Occupational fraud is the most common type of fraud that occurs in school settings. Asset misappropriation frauds include cash skimming, purchasing fraud, falsifying expense reports and/or forging company checks. Corruption schemes involve an employee(s) using his or her influence in business transactions to obtain a personal benefit that violates that employee’s duty to the employer or the organization; conflicts of interest fall into this category. Financial statement fraud includes the intentional misstatement or omission of material information in the financial reports. Occupational fraud is one of the most difficult types of fraud and abuse to detect; however, the most common method of detection is receiving tips from current and/or former employees, which occurs three times more frequently than any other fraud prevention method for this type of scheme, and accounts for 43.6% of detections overall. According to the 2012 Report to the Nations on Occupational Fraud and Abuse conducted by the Association of Certified Fraud Examiners (ACFE), corruption schemes accounted for approximately one-third of all occupa- tional fraud cases reported, with a median loss of $250,000. Based on this study, there is a direct correlation between the perpetrator’s position and authority in the organization and the losses incurred. Approximately 43% of fraudsters were employees; 34.3% were managers; 4.2% were “others,” and 18.5% were owner/executives. Although the second lowest percentage is from owner/executives, this group generated the largest median loss of $373,000 out of the 753 cases reported in the United States. WAYS is a tightly held small public charter school operation founded and primarily operated by one family and close associates. The founder/former executive director selected the board members, which gave her and other family members significant influence over financial decisions that benefited them financially. Even after the founder was removed from her executive director position as a condition of the newly executed charter petition by the county office of education, the founder/former executive director positioned her son, daughter and previous board president to hold key positions in the organization and run the day-to-day operations, and by this action still maintained effective control over the financial affairs of the organization. This report will demonstrate that there is an integral relationship between appointed board members and related family members and business associates – particularly between the former executive director, her son, daughter, former board president and their associated private busi- nesses and lease agreements – that created an environment that allowed and continues to allow access, opportunity and motivation for occupational fraud to occur. Internal Control Elements Internal controls are the principal mechanism for preventing and/or deterring fraud or illegal acts. Illegal acts, misappropriation of assets or other fraudulent activities can include an array of irregularities characterized by intentional deception and misrepresentation of material facts. Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 10 OCCUPATIONAL FRAUD Effective internal control processes provide reasonable assurance that a charter school’s operations are effective and efficient, that the financial information produced is reliable, and that the organi- zation operates in compliance with all applicable laws and regulations. Internal control elements provide the framework for an effective fraud prevention program. An effective internal control structure includes the policies and procedures used by staff, adequate accounting and information systems, the work environment and the professionalism of employees. An effective internal control structure includes the five interrelated components of the control environment: fraud risk assessment, control activities, information and communication, and monitoring. Internal Control Description Element Commonly referred to as “the moral tone of the organization,” the control environment includes a code of ethical conduct; policies for ethics, hiring and promotion guidelines; proper assignment of au- Control Environment thority and responsibility; oversight by management, the board or an audit committee; investigation of reported concerns; and effective disciplinary action for violations. Identification and assessment of organization’s objectives to establish and develop a strategy to react Fraud Risk Assessment timely. The development of policies and procedures to enforce the governing board’s directives. These include Control Activities the actions by management to prevent and identify misuse of the district’s assets, including the preven- tion of override of controls in the system by any employee. The establishment of effective fraud communication. This includes ensuring that employees receive Information and Communication information regarding policies and opportunities to discuss ethical dilemmas. Establishing clear lines of communication in an organization to report suspected violations. Ongoing monitoring that includes periodic performance assessments for fraud deterrence by managers Monitoring and employees. Examples of improper internal controls include, but are not limited to, the following: • Failure to adequately segregate the duties and responsibilities of authorization. • Failure to limit access to assets or sensitive data. • Not recording transactions, resulting in lack of accountability and the possibility of theft. • Unauthorized transactions, resulting in skimming, embezzlement or larceny. • Lack of monitoring or implementing internal controls by the governing board and management. • Collusion among employees where little or no supervision exists. A system of internal controls consists of policies and procedures designed to provide the governing board and management with reasonable assurance that the organization achieves its objectives and goals. Traditionally referred to as hard controls, these include segregation of duties, limiting access to cash, management review and approval, and reconciliations. Other types of internal controls include soft controls such as management tone, performance evaluations, training programs, and maintaining established policies, procedures and standards of conduct. Controls that have been established must also be implemented and monitored to ensure their effectiveness. Although WAYS had a fiscal policies and procedures handbook, the organization failed to imple- ment or monitor several of the adopted policies and procedures. Recent board minutes document Fiscal crisis & ManageMent assistance teaM 11 OCCUPATIONAL FRAUD that when board members expressed the need to review and approve certain financial transactions or asked for the back office provider to present the financial statements during open board meet- ings, management repeatedly ignored these requests. In some cases, management canceled board meetings and caused major disruptions that ended board meetings prematurely. The internal control environment is a critical component because it establishes the organization’s moral tone, commonly referred to as “the tone at the top.” The tone at the top is an intangible internal control element that consists of the perception of an organization’s employees regarding the ethical conduct displayed by the governing board and executive management. A strong system of internal controls that consists of all five elements can provide reasonable but not absolute assurance that the organization will succeed in achieving its goals and objectives. The failure to establish adequate internal controls limiting the ability of the founder, family members and other related parties to access assets coupled with a lack of accountability to the governing board created an environment for fraud and misappropriation to occur. To further demonstrate the lack of effective internal controls, independent audit reports for the last three fiscal years report 15 instances of significant and/or combined internal control condi- tions. Several of these findings have not been addressed by management and the governing board; therefore, these findings are repeated each year. The following table illustrates a complete list of audit findings from 2010-11 through 2012-13 prepared by annual independent auditors. Audited Financial Statements Schedule of Findings and Questioned Costs for Audit Years 2011, 2012 and 2013 Finding Description 2011 11-01/3000 – Combined Untimely deposit of cash receipts risk the Significant mismanagement of funds (either fraud or loss), Deficiency Untimely deposit of cash misstatement of revenue, receivable or cash, receipts and possible noncompliance with contracts, or Internal laws and regulations. control condition Bank reconciliation was not properly reviewed 11-02/3000 resulting in inconsistent bank to book balances. -Combined Significant Could result in a material misstatement of the Deficiency Bank Reconciliation Over financial statements. Site Internal Organization lacks adequate procedures to control ensure that bank reconciliations are reviewed condition monthly by a supervisor. The accounts receivable general ledger bal- ance was not reconciled to the accounts re- ceivable subsidiary ledger balances. 11-03/3000 – Combined Organization has not adequately established Significant written policies and procedures to ensure Deficiency Accounts Receivable accounts receivable balance is properly rec- Reconciliation onciled to subsidiary ledger balances and that Internal differences are investigated and cleared in a control timely manner. condition Could result in material errors or possible fraudulent activities going undetected resulting in materially misstated financial statements. Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 12 OCCUPATIONAL FRAUD Supporting documentation for several dis- bursements was not complete. Could result 11-04/3000 in duplicate payments, goods and/or services – Combined not received, or payments that are incorrect Significant Recording transaction with- or fraudulent. Deficiency out complete supporting documentation Could be a material misstatement of the finan- Internal cial statements. control condition Organization lacks clear policies and proce- dures for the approval of all disbursements. 11-05/3000 Payroll expenses are not properly reconciled – Significant and adjusted in a timely manner. Deficiency Payroll Expense Reconciliation Could be a material misstatement of the finan- Internal cial statements. control condition Organization does not have a written asset 11-6/3000 capitalization policy or procedures. This could – Significant result in unreliable financial reporting and Deficiency Written Asset compliance. Capitalization Policy Internal Could be a material misstatement of the finan- control cial statements. condition Finding Description 2012 Bank reconciliation was not properly reviewed resulting in inconsistent bank to book bal- 11-01/3000 ances. – Significant Deficiency Bank Reconciliation Over Could result in a material misstatement of the Site financial statements. Internal control Organization lacks adequate procedures to condition ensure that bank reconciliations are reviewed monthly by a supervisor. Payroll expenses were not consistently recon- 11-02/3000 ciled to the general ledger. – Significant Deficiency Could result in a material misstatement of the Payroll Expense financial statements. Reconciliation Internal control Organization has not adequately established condition written policies and procedures to ensure the timely reconciliation of payroll expenses. Finding Description 2013 Monthly adjustments are made to a “suspense” account. Correcting journal entries at year end were not reconciled or posted into the proper accounts. 2013-1/3000 Significant Questioned costs: $13,735 posted in suspense Deficiency accounts. Bank Reconciliations Internal Inadequate procedures to ensure that sup- control porting documentation is provided for all condition transactions associated with bank accounts. Management officials from the school are not providing information necessary to post cor- recting journal entries to back office provider. Fiscal crisis & ManageMent assistance teaM 13 OCCUPATIONAL FRAUD Payroll expenses were not consistently recon- 2013-2/3000 ciled to the general ledger resulting in a mate- Significant rial misstatement of the financial statements. Deficiency Payroll Expense Reconciliations Organization has not adequately established Internal written policies and procedures to ensure the control timely reconciliation of payroll expenses and condition liability. The organization did not record closing trans- actions for the accounts receivable, accounts payable, prepaid expenses, and capital assets. 2013-3/3000 Effect: Recording differences between unau- Significant dited actuals reported to oversight agency and Deficiency Year End Accruals and audited financial statements. Closing Process Internal Material misstatement of the financial state- control ments. condition Organization has not established clear written policies and procedures for year-end closing activities. Personnel Action Forms (PAFs) are not com- plete. In 100% of the PAFs reviewed there were missing approval signatures. 2013-4/3000 Federal Form I-9s were not completed cor- Significant rectly in nine out of 10 forms tested, exposing Deficiency the organization to risk of noncompliance with Payroll Documentation I-9 requirements. Internal control The organization is at risk for paying individu- condition als that are not approved. The organization has not established adequate procedures for hiring, including required doc- umentation. The organization was unable to provide detail of capital assets to support amounts recorded in the books of record. Purchases of capital assets were inappropri- 2013-5/3000 ately expensed instead of capitalizing these Significant assets appropriately. Deficiency Capital Assets Insufficient audit evidence to determine if Internal amounts recorded in capital assets are correct control or if there is a material misstatement in the condition financial statements. The organization has not established adequate procedures for tracking capital assets and ensuring that they are appropriately recorded in the financial statements. Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 14 OCCUPATIONAL FRAUD Expense items paid with credit cards are not adequately supported by itemized receipts and approval documentation. Credit cards are used to purchase items and subsequently repaid with a check. The organi- 2013-6/3000 zation is using the credit card statements for Significant supporting documentation without including Deficiency all receipts for the expenditures. Credit Card Documentation Internal Questioned costs: $5,858 from sample se- control lected. condition The organization has not established adequate procedures that require adequate supporting documentation. The organization is exposed to risk of misap- propriation of assets. Net assets were not in agreement with the 2013-7/3000 prior year audited ending net assets. The or- Significant ganization was unable to provide reconciling Deficiency items to support adjustments to beginning net Beginning Net Assets assets. Internal control The organization has not established adequate condition procedures in place to track prior year ad- justments. Financial reporting to the oversight agency is 2013-8/3000 based on a fiscal year and to the IRS on a cal- Significant endar year and should be consistent. Deficiency Inconsistent Reporting IRS regulations require tax returns to be pre- pared based on the fiscal year of operation. Federal Award Findings The organization failed to track expenditures separately for federal awards. This caused ma- jor delays with the timing of audit procedures associated with OMB Circular A-133 require- ments because management had to identify Tracking Expenditures each individual expenditure separately. Programs involved: National School Lunch Program: $212,061 Special Education Cluster: $99,925 State Award Findings Form J-7 CSR was prepared using the aver- age monthly enrollment based on the last day of the school month rather than average Class Size Reduction daily enrollment from the first day of classes Program through April 15. Questioned costs: Under-reported eligible students by 1 student. Fiscal crisis & ManageMent assistance teaM 15 OCCUPATIONAL FRAUD Conflict of Interest A conflict of interest exists when an individual has a private financial interest in the outcome of a contract or a public decision and does either of the following: 1. Participates in the decision-making process 2. Influences, or attempts to influence, others making a contract or decision Statues that govern conflicts of interest include the Political Reform Act, Government Code 1090, Government Code 87100, and Corporations Code Section 5233 for nonprofit organiza- tions. Governing board members and administrators should abstain from all discussions, negoti- ations and votes that are related to a contract in which they have a personal financial interest by removing themselves from the meeting and ensuring that abstention and departure are recorded in the board minutes. A conflict of interest can still exist with subsequent action on the contract, such as authorizing payment under a contract, negotiating disputes or contract terms; therefore, the governing board member or administrator should abstain from all discussions, negotiations and/or votes related to the contract in which he or she has a personal interest. The report will demonstrate that conflict of interest exists that allowed the founder/former execu- tive director, family members, and close associates interacting as “vendors” to gain financially. Political Reform Act – Disclosure, Conflicts of Interest and Enforcement The Political Reform Act (PRA), Government Code Sections 81000 - 91015, was enacted by Proposition 9 in June 1974. The stated intent of the act was to establish a process for most state and local officials as well as certain designated employees to publicly disclose their personal income and assets as follows: [a]ssets and income of public officials which may be materially affected by their official actions…[are] disclosed and in appropriate circumstances the officials…[are]disqualified from acting in order that conflicts of interest may be avoided. The PRA provisions are enforced by the Fair Political Practices Commission (FPPC) and require every state and local governmental agency to adopt a conflict-of-interest code. The commission is the state agency responsible for interpreting the provisions of the law and issuing California Form 700 – Statement of Economic Interests. Because charter school governing board members are considered “public officials” and governing boards are considered “legislative bodies,” board members and certain designated individuals must file Form 700 annually, or upon taking office/ position. Additionally, a consultant to the organization “who makes, participates in making, or acts in a staff capacity for making governmental decisions” may be required to complete Form 700. PRA provides an eight-step process to determine whether a conflict of interest exists as follows: 1. Is the individual a public official? 2. Is the public official making, participating in making, or influencing a governmental decision? 3. Does the public official have one of the six qualifying types of economic interests? (An economic interest will be discussed more fully in the next section of this report.) Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 16 OCCUPATIONAL FRAUD 4. Is the economic interest directly or indirectly involved in the governmental decision? 5. Will the governmental decision have a material financial effect on the public official’s economic interests? 6. Is it reasonably foreseeable that the economic interest will be materially affected? 7. Is the potential effect of the governmental decision on the public official’s economic interests distinguishable from its effect on the general public? 8. Despite a disqualifying conflict of interest, is the public official’s participation legally required? The WAYS governing board members, charter school officials and designated employees have filed Form 700. Only one Form 700, by a former board member, declared any financial interest. All the other forms examined showed that these individuals did not declare any financial interest in the schools’ affairs or disclosed any conflict of interest that would result in personal financial gain. Consultants that meet the conditions previously identified have not filed Form 700 to date. The charter petition for WAYS contains a conflict of interest policy that has been approved by the county board of education as a condition of WAYS’ petition approval. Board minutes and audio recordings, verbal and written complaints by former board members and direct observations by LACOE staff reveal instances where the founder/former executive director continued to be present and seated at the board table during discussions regarding facility leasehold agreements for her personal properties. Evidence in the board minutes indicate that at least two occurrences transpired when she was no longer employed by WAYS. The termination of her employment was a condition of the petition approved by LACOE. On September 16, 2011, subsequent to her departure from WAYS, the founder/former executive director was present at the board meeting. She refused to be unseated from the board table during discussions concerning the relocation of WAYS to a property not owned by the founder/ former executive director. Individuals at this meeting who supported continued use of her facili- ties by WAYS schools caused such a disruption that the board meeting was disbanded. During the September 22, 2011 board meeting one week later, the founder/former executive director was observed by LACOE staff seated at the board table having private conversations with one board member. The most recent independent audit report noted that facility leasehold agreements for 2013-14 were not approved by the governing board seven months into the new fiscal year, and that the sale of a school vehicle used by the director of operations was not approved by the governing board. Instead, the vehicle, a Lexus, was sold by the founder/former executive director’s son in December 2013 without board approval. Shortly after the independent auditors’ report, the governing board approved the facility leasehold agreements for 2013-14 and the sale of the director of operations’ Lexus. This report will demonstrate that facility leasehold agreements, leasehold facility improvement, payments made to the private dance studio owned by the founder/former executive director’s daughter and vice principal, as well as substantial purchases from a related vendor were not disclosed in accordance with laws and regulations set forth by the FPPC. Fiscal crisis & ManageMent assistance teaM 17 OCCUPATIONAL FRAUD The founder/former executive director and other family members were present and exercised significant influence during board meetings that provided a direct personal financial benefit. Government Code 1090 – Financial Interest of Public Officials, Officers and Employees Simply stated, the intent of Government Code 1090 is to prohibit a public official, officer or employee from engaging in a contract in which he or she has a financial interest in both a govern- mental and personal capacity. Section 1090 has broad implications, applies to school districts and can also apply to charter schools if included in the charter petition or the memorandum of understanding. Section 1090 provides as follows: Members of the Legislature, state, county, district, judicial district, and city officers or employees shall not be financially interested in any contract made by them in their official capacity, or by any body or board of which they are members. Nor shall state, county, district, judicial district, and city officers or employees be purchasers at any sale or vendors at any purchase made by them in their official capacity. As used in this article, “district” means any agency of the state formed pursuant to general law or special act, for the local performance of governmental or proprietary functions within limited boundaries. The WAYS charter petition states the governing board has adopted its own conflict of interest policy and will abide by the conflict of interest Government Code 1090. This report will establish that a business relationship exists between the founder/former executive director and the WAYS schools as evidenced by contracts, lease agreements and other related business as vendors. There is conclusive documentation to support that the founder/former executive director and her family members as well as close business associates have significant personal involvement and financial interest, violating the conflict of interest statutes. Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 18 Fiscal crisis & ManageMent assistance teaM 19 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE Related-Party Transactions and Significant Influence OCI Development Corporation – Building Leasehold Agreements The current WAYS petition is subject to specific conditions including adherence with conflict of interest laws and regulations. WAYS charter school appealed to LACBOE in the spring of 2011 following a denial by LAUSD Board of Education to renew its petition after five years of operation. The denial by LAUSD included concerns that WAYS failed to comply with the terms of the charter by allowing the charter school to enter “into a self-dealing transaction” with the founder/ former executive director and her privately owned facilities that were leased to two of the three schools. Specifically, WAYS could not provide “evidence that the governing board considered other sites or conducted an independent assessment of lease rates prior to entering into the agree- ment with the Executive Director.” In an attempt to address the conflict of interest with the facility lease agreements for the properties occupied by the schools, the founder/former executive director placed the properties in a revocable trust named OCI Development Corporation in 2010-11. It was subsequently determined and concurred by the WAYS legal counsel that transferring the property to a holding company through a revocable trust did not ultimately transfer property ownership under California law and therefore did not resolve the conflict of interest concern. The WAYS governing board approved the 2012-13 facility leasehold agreements August 3, 2012. These agreements were signed by the former governing board president and current executive director as the “tenant,” and by Dora Obienu, CEO for OCI Development Corporation. According to a report on the WAYS charter petition and appeal to LACBOE dated May 10, 2011 by the LACOE Charter School Review Team, it was revealed that WAYS’ governing board failed to disclose that LAUSD had awarded facilities under a Proposition 39 request for facilities on April 1, 2011. Subsequent to the approval for facilities by LAUSD that could have alleviated conflict of interest concerns, WAYS did not respond to LAUSD to indicate acceptance of the offer. As previously stated in this report, board meetings surrounding the relocation were met with strong opposition by the founder/former executive director and others during open board meet- ings ultimately exercising significant influence over the decision not to accept the LAUSD offer. WAYS continues to lease the facilities owned by the founder/former executive director through OCI Development Corporation. WAYS paid $1,070,921 to the founder/former executive director and her holding company, OCI Development Corporation, for leasehold agreements located at 706 E. Manchester Avenue, Los Angeles, CA and 8778 S. Central Avenue, Los Angeles, CA from the 2007-08 through 2012-13 fiscal years as shown in the following table. Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 20 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE OCI Development Corporation and Founder/Former Executive Director Facility Leasehold Payments, 2007-2008 through 2012-13 Fiscal Year Payee Annual Total 2007-08 Founder $110,400 2008-09 Founder 169,440 2009-10 Founder 179,560 2009-10 Founder - “Advanced Rent” 30,000 2010-11 (June - January) Founder 93,245 2010-11 (February - June) OCI 74,840 2011-12 OCI 226,450 2012-13 OCI 216,986 Grand Total $1,100,921 The facility leasehold agreement for 2013-14 was approved by the governing board in January 2014. Lease payments are estimated to be $223,878 for the current fiscal year and are not included in the table above. Other general ledger entries from the WAYS financial records show additional rent payments that are listed in the general ledger with no supporting documentation totaling $115,550: Loraine Turner 2007-08 – 2012-13 $89,350 Wisdom Pre-School 2007-08 2,900 Founder: Recruiting Students 2007-08 2,000 Founder: ERATE Consultancy 2007-08 500 Founder: “Good Faith Offer” 2008-09 10,000 Pre-School Rent 2008-09 10,800 Grand Total $115,550 There are three school sites under the WAYS name located in Los Angeles on Manchester Ave, S. Central and Central. Two are owned by the founder/former executive director and one leased with the Salvation Army. In addition, the school on Manchester Avenue pays $2,400 per year for additional parking spaces. No contracts or lease agreements exist for Loraine Turner, Wisdom Pre-School or Pre-School Rent. The payment of $10,000 made to the founder/former executive director for “Good Faith Offer” is unsubstantiated. Other payments for recruiting students and E-Rate consultancy fees paid to the founder/former executive director are questionable. WAYS’ balance sheet dated June 30, 2013 shows leasehold improvements totaling $341,710 plus $35,483 in federal E-Rate funding for leasehold improvements to the properties owned by the founder/former executive director. Summary of Payments - Facility Leasehold, Rent, and Other Payments, 2007-08 through 2012-13 Facility Lease Payments $1,070,921 Advanced Rent 30,000 Rent and Other Unsubstantiated Payments $115,550 Leasehold Improvements 341,710 Leasehold Improvements – E-Rate 35,483 Total $1,593,664 Fiscal crisis & ManageMent assistance teaM 21 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE Founder/Former Executive Director – Settlement Agreement As a condition of approval for WAYS’ charter school petition to LACOE in June 2011, the founder/former executive director was to terminate her employment with WAYS and be removed from any association with the school. Approximately seven months later in a letter dated January 20, 2012, the founder/former exec- utive director asserted claims totaling $700,000 for money owed including interest accrued and damages but said she would be “content with a settlement of $350,000 that will help me in the new project (Middle School) that I am currently working to establish.” In a separate letter dated May 21, 2012 three months later, the founder/former executive director revised her claim for $480,312.90 for unused vacation, sick and personal necessity leave for the entire time of her employment with WAYS commencing July 1, 2008 through June 30, 2011, claiming she took “zero” days off work during this period of time. The accompanying schedule of liabilities showed a calculation that included 150 days of vacation plus 50 days of “accrued time off due for five years” totaling $97,391.30. No time records or other documentation were supplied to substantiate this claim other than a single typed page identified as Attachment E by the founder/former executive director. The founder/former executive director claims that she loaned the charter school money from personal savings, mortgaged her personal residence and loaned funds from her private preschool, Wisdom Pre-School. A review of the QuickBooks records and audited financial statements show a short-term loan on December 18, 2007 from Los Angeles Unified School District and a line of credit from Wells Fargo Bank, both of which were fully repaid, but no mention of any other loans. On October 26, 2012, the Merle Williamson Foundation, doing business as Wisdom Academy of Young Scientists, entered into a settlement agreement with the founder/former executive director. This agreement was signed by the current executive director and former board president in the amount of $228,665.38. The breakdown of the final payment is as follows: Severance pay – one year. $112,960.60 Contractual leave and vacation days accrued at the time of separation. Last three years. $58,434.78 Lease of a 2004 Toyota Land Cruiser. 57,940.00 Total $228,665.38 The employment contract for July 1, 2008 through June 30, 2011 states that the founder/ former executive director shall be permitted to be paid upon termination. However, the contract provides that “written documentation of the Executive Director’s earned and accrued vacation days” shall be maintained through a third-party vendor providing business services to the schools. According to the business services provider, no vacation or time records were ever provided to its office to support the founder/former executive director’s claim for accrued vacation and other leave categories. The settlement agreement does not provide any documentation to support this claim; therefore, FCMAT cannot substantiate that the $58,434.78 paid for 90 days of vacation leave and 30 days of unused time off was substantiated with independent records by the business services provider in accordance with the employment contract. Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 22 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE The contract from July 1, 2005 through June 30, 2008 as well as the most current contract states that the executive director shall be provided an automobile vehicle and operating expenses for her use in conducting official business and reasonable personal use during the period of the contract. Attached to the settlement agreement is a closed end motor vehicle 60-month lease agreement identifying the founder/former executive director as the lessee for a new 2004 Toyota Land Cruiser dated December 20, 2004. The gross capitalized cost on the lease agreement is $57,940, which included extra add-ons: • Maintenance agreement for $1,800 • Credit life insurance premium for $995 The employment contract states that a vehicle shall be provided to her, not that she could enter into a vehicle lease for a luxury vehicle paid by the school and be reimbursed for the lease and extra items prior to her contract. It is unclear if the school had available and/or provided a different vehicle during the contract period. Professional Liability for Founder/Former Executive Director Documents from a lawsuit settled against the Merle Williamson Foundation (MWF) for wrongful termination of a former teacher at WAYS against the school show that the founder/ former executive director traveled to Omtsha, Nigeria and directed one of the school’s teachers to go with her to marry her sister’s husband (brother-in-law) for purposes of making the broth- er-in-law a United States citizen. Although the teacher married the brother-in-law, she ultimately refused to complete the Department of Homeland Security form I-130, Petition for Alien Relative, and brought suit against MWF. On December 4, 2012, a jury found in favor of the teacher plaintiff and subsequent judgment was awarded of $566,803. The contract dated July 1, 2008 through June 30, 2011 clearly states that the executive director shall be held harmless and be indemnified “from any and all demands, claims, suits, and legal proceedings brought against the Executive Director in her official capacity as agent and employee of the MWF, provided the incident arose while the Executive Director was acting within the scope of employment.” (emphasis added) Clearly this action by the “Executive Director” was not within the scope of employment, was conducted during winter break in Nigeria, and yet the settlement was paid by WAYS charter school. The Certificate of Marriage document from Federal Republic of Nigeria shows the founder/ former executive director’s signature as witness to the marriage between the teacher and Joseph Njor Enwezor (the founder/former executive director’s brother-in-law) on January 4, 2010. According to staff at LACOE who conducted interviews, these interviews with former teachers and board members indicate many trips to Nigeria to visit a personal residence in that country by the founder/former executive director, yet she asserts that she took “zero” days off during the last five years. OSE Business Services – Owner, Obiesie Enwezor The analysis of large increases in purchases of books and supplies during the 2011-12 and 2012-13 fiscal years was attributed to one vendor, OSE Business Services (OSE). OSE is owned by Obiesie Enwezor, who is related to other WAYS vendors: Godfrey Okonkwo, Emeka Enwezor, and DeDe Dance Studio and bears the same last name as the founder/former executive director’s brother-in-law, Joseph Njor Enwezor. Fiscal crisis & ManageMent assistance teaM 23 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE Godfrey Okonkwo is the husband of the founder/former executive director of WAYS and father of the owner of DeDe Dance Studio and vice principal of WAYS and director of operations. (These WAYS relationships are further described in detail later in this report.) FCMAT compiled all OSE vendor invoices to review and analyze expenditure transactions and spending patterns. Purchases totaling $158,871 for 20 invoices lacked any supporting documen- tation for the receipt of materials, supplies and snack food items. WAYS Back Office Service Provider Warned of Books and Supplies Expenditures Exceeding Budget During FCMAT’s interview of the WAYS back office business services provider on Monday, November 25, 2013, the back office provider stated to the team that the WAYS governing board and management had been advised during a board presentation and in the budget narratives that the books and supplies expenditures “… are expected to be over budget at the end of the year by about $70,000.” The back office provider presented for the team two samples of WAYS board and management reports for the periods ended January 31, 2013 and again on June 30, 2013 titled “Snap Shot Summary of Financial Condition of the School.” These reports showed that the actual expen- ditures for books and supplies exceeded current budgeted amounts. Even though the WAYS back office provider warned of excessive expenditures, the management of WAYS continued to purchase from OSE. WAYS Paid $158,871 to OSE Business Services Over Two Years The books and supplies category consists of textbooks, books other than textbooks, instructional materials, custodial supplies, automobile expenses, fuel, office supplies, other supplies, classroom furniture and equipment, computers, and other non-capitalized equipment. During the fiscal years 2011-12 and 2012-13, WAYS paid $57,533 and $101,338 respectively to OSE, totaling $158,871 for the two-year period. Of the combined 2011-2012 and 2012-13 payments to OSE, 98% was accounted for in WAYS’ books and supplies expenditures category. A total of 20 invoices were issued by OSE and paid by WAYS. All invoices were approved by the director of operations - the founder/former executive director’s son, along with the current execu- tive director/former board president. Ten of the payments to OSE were issued by cashier’s checks and nine of the payments by check. During the interview conducted with both the executive director and director of operations, the director of operations stated that cashier’s checks were used because WAYS “... bounced a check and OSE only wanted to be paid by cashier’s check.” FCMAT requested copies of the OSE cashier’s checks and regular checks, both front and back, from the director of operations and copied the executive director in an email dated Friday, December 13, 2013. One month later, on January 13, 2014, the team received nine of the 10 requested cashier’s checks. The missing cashier’s check was received on January 21, 2014. Repeated requests to management for the regular check copies were never received and no expla- nation was provided. Of the nine copies of the cashier’s checks provided to the team, it is not entirely clear that the copies came directly from the bank. The endorsement for OSE Business Services on the reverse side of the cashier’s checks is by signature. No account number or other identifying information is provided on the back of these cashier’s checks. The OSE cashier’s check that was provided on Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 24 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE January 21, 2014 showed that the check was printed through an online account at https://oibser- vices.wellsfargo.com/OIB/PrintImage.jsp. Because WAYS executive management failed to provide OSE’s regular checks front and back copies as requested by the team, and because OSE cashier’s checks did not contain account infor- mation identifying the account where funds were deposited, the team is unable to authenticate the OSE payments. OSE Business Services Irregular Invoices During the 2011-12 and 2012-13 fiscal years, WAYS received from OSE 20 invoices that were authorized for payment by both the director of operations and executive director and present the following irregularities: 1. Invoices fail to provide a contact phone number. 2. Invoices lack proper authorization to purchase and/or accept OSE merchan- dise that would authenticate the supplies shipped by OSE to WAYS. 3. Invoices are not accompanied by packing slips identifying the shipping contents and quantities. 4. Invoices fail to identify any “ship to” or delivery address. 5. Invoices fail to present a shipping cost line item, or indicate if there was a charge for shipping. 6. Invoices do not appear professional and consistent and appear to be produced on a spreadsheet. 7. Invoices fail to present consistent per-unit pricing calculating quantities of items purchased and extending the quantity multiplied by the per-unit pricing to the total amount for each inventory line item purchased. 8. Management could not provide an OSE product catalogue for review. 9. The OSE invoices fail to present consistent and clear descriptions of the supplies identified. 10. The OSE address of 6709 La Tijera Blvd., Suite 274, Los Angeles, California 90045 is a postal service location and is not a warehouse or physical store- front. 11. The address is identical to that of Innovative WAYS Academy, which is owned and operated by the WAYS vice principal, the founder/former executive director’s daughter. The team interviewed the WAYS back office provider on Monday November 25, 2013. During the interview, the back office provider claimed there were repeated requests to WAYS manage- ment to provide OSE’s approved purchase orders and packing slips in accordance with the back office provider’s procedures manual. WAYS management failed to comply with these requests to follow procedures, and failed to provide the requested documentation. Fiscal crisis & ManageMent assistance teaM 25 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE OSE Business Services Address at 6709 La Tijera Blvd., Suite 274, Los Angeles, California 90045 – Related Parties The audit fieldwork visit on November 13-15, 2013 revealed large quantities of supplies purchased from OSE. During the team’s joint interview with the executive director and director of operations, the team was told that none of the WAYS vendors were related. The team made further inquiries regarding any relationship between WAYS management team or family members and OSE. The director of operations said that OSE Business Services was a legitimate business with many customers and that no relationship existed between these two entities. During the fieldwork, the team visited the OSE address printed on their invoices at 6709 La Tijera Blvd., Suite 274, Los Angeles, California 90045. This same address is identified as the mailing address of Innovative WAYS Academy. The CEO of Innovative WAYS Academy is: • The founder of DeDe Dance Studio and vice principal of WAYS, • The daughter of the founder/former executive director of WAYS, • The sister of WAYS’ director of operations, and • The CEO of DeDe Dance Studio that operates business at the WAYS school site. The team interviewed the WAYS vice principal, Innovative WAYS Academy founder and CEO, and owner of DeDe Dance Studio on Friday, November 15, 2013 and discussed the 6709 La Tijera Blvd., Suite 274, Los Angeles, California 90045 address. In her statement to the team, she provided the following information for business operations associated with that address: 1. The 6709 La Tijera Blvd., Suite 274, Los Angeles, California 90045 address was the address used for Innovative WAYS Academy. 2. Stated that she “does not know much about the business side of Innovative WAYS” and said that her mother (founder of WAYS) operated Innovative WAYS Academy and is the most knowledge about its business operations. 3. She does not check the mail at the 6709 La Tijera Blvd., Suite 274, Los Angeles, California 90045 address. Instead, her mother, the founder/former executive director, is the only person who checks the mail and has the only key to the mailbox at that location. On December 11, 2013, FCMAT made an inquiry to the director of operations and copied the executive director to verify that 6709 La Tijera Blvd., Suite 274, Los Angeles, CA 90045 is the same address as Innovative WAYS Academy and OSE Business Services, and that the founder/former executive director is the only person that checks the mail and has a key. WAYS management did not provide requested supporting documentation other than to provide invoices from OSE. In an attempt to corroborate the $158,871 in materials and supplies purchased from OSE and concerns that OSE represented an undisclosed related-party, the team requested the following information to verify a legitimate business address and a warehouse facility with the ability to service numerous customers based on the statement from the director of operations: • OSE business information documents IRS W9, • IRS Form 1099 issued by WAYS to OSE, Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 26 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE • OSE’s actual physical address and business phone number, and • Notified the OSE business owner, Obiesie Enwezor, that FCMAT would like to review his supplier purchases to support the products OSE sold to WAYS. On January 10, 2014, one month after the FCMAT’s request for information, the director of operations provided the phone number and email address for OSE but failed to provide the actual physical address. The director of operations could not verify the WAYS vice principal’s statements regarding access to the 6709 La Tijera Blvd., Suite 274, Los Angeles, CA 90045 address, and suggested that the team speak with the founder/former executive director regarding the relationship between OSE and WAYS. He stated during the interview, “I am not aware of any related party business relationships … I have no expectations for the framework of OSE Business Services and infrastructure.” FCMAT attempted to contact the owner of OSE, Obiesie Enwezor, through a certified return receipt letter dated December 23, 2013 at the address on the invoices (6709 La Tijera Blvd., Suite 274, Los Angeles, CA 90045). This letter was returned on January 24, 2014, marked by the US Postal Service as Return to Sender, Unclaimed, and Unable to Forward. WAYS Failed to Issue an IRS Form 1099 to OSE FCMAT visited the back office provider to review records and conduct interviews. The team reviewed the IRS Federal Forms 1099 and W-9 files and was unable to locate either form in the back office provider files. Form 1099 is required for unincorporated vendors for payments in excess of $600 in a calendar year to report miscellaneous income to IRS. IRS Form W-9 is used to certify that payments made to vendors meet the IRS guidelines. These guidelines are intended to ensure that the taxpayer identification number to report Form 1099 is correct and that the vendor is not subject to backup withholding. Once complete, the W-9 form is signed by the owner or designated person. According to the back office provider, several requests made by staff to WAYS management for OSE’s W-9 were unsuccessful. Subsequent to FCMAT’s request on November 29, 2013 for a W-9 from OSE, the director of operations sent a copy of a W-9 prepared by OSE on December 9, 2013 to the back office provider, which was forwarded to the team. The document was dated November 11, 2011. On December 11, 2013, FCMAT requested the director of operations to provide a copy of Form 1099 issued to OSE but did not receive a response. There is no evidence that Form 1099 was sent either to the OSE or to the IRS. Shortly after FCMAT’s request on December 11, 2013 for these documents, the director of operations provided a email from OSE dated December 16, 2013, which stated, “I still have not received a 1099 from you.” The team was not provided prior requests or concerns by OSE before December 16, 2013 regarding the issuance of a Form 1099 from the prior two calendar years. Obiesie Enwezor, owner of OSE, refused to meet with FCMAT; therefore, the team cannot confirm that OSE is a legitimate business that properly reported income and sales taxes totaling $158,871 from WAYS to the taxing authorities, or that merchandise was actually delivered by OSE and received by WAYS. Fiscal crisis & ManageMent assistance teaM 27 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE OSE Business Services is Not a Resale Company or Store According to OSE On January 10, 2014, the director of operations sent FCMAT the OSE Fictitious Business Name Statement dated November 2011 and OSE’s W-9, Request for Taxpayer Identification Number and Certification, dated November 11, 2011. The OSE business address identified on both forms is 6709 La Tijera Blvd., Suite 274, Los Angeles, CA 90045, the same post office box service center address where the founder/former executive director has possession of the only key. The first OSE transaction entered into QuickBooks is dated August 17, 2011 as OSE Invoice Number One; however, the team was provided a copy of Invoice Number One that is dated December 5, 2011, approximately four months later. The 20 OSE invoices for the 2011-12 and 2012-13 fiscal years have 289 inventory items ranging from paper and office supply products to food items, stamps, and small equipment. A summary of the OSE invoice items and price per item calculated by the team is presented in Appendix A. WAYS manage- ment was unable to provide any supporting documentation that would attest to the authenticity of the OSE purchases approved by the director of operations and the current executive director. Each invoice that OSE issued to WAYS includes a total charge at the bottom of each invoice for sales tax on the inventory items purchased, providing evidence that WAYS is purchasing directly from OSE. According to OSE’s email dated December 16, 2013, the owner states that OSE does not buy or resell as follows: “Also, bear in mind that OSE Business Services is not a resale company or store, OSE is a service provider. We do not buy or resale. We provide and coordinate purchasing and delivery services to various agencies.” The owner’s statement that OSE is a service provider and is “not in the resale business” is not supported by the presentation of the paid invoices to his company. First, the invoices include charges for California sales taxes. This would only occur if the business was reselling products. Second, none of the invoices state that the amount due is for consulting, service or coordination fees as described in the owner’s statement to FCMAT. FCMAT sent three emails and four voicemails during January 10-13, 2014 in an attempt to meet and clarify the OSE owner’s assertion that the business was not a resale business, review records related to invoices sent to WAYS and ask general questions regarding suppliers that were utilized to provide merchandise. Mr. Enwezor initially responded by saying, “I recognize the situation that you are facing, and I will do everything I can to help.” However, on January 13, 2014, Mr. Enwezor sent the following statement declining to meet with the team: “I understand that you are auditing the school but are you attempting to audit my business also? Under what authorization? For what reason. I am unable to meet with you. Send me your questions and I will respond in the best interest of my company.” Because Mr. Enwezor rescinded his decision to cooperate with the audit and allow inspection of OSE’s sales and customer support documents, the following information cannot be confirmed: • Whether WAYS is OSE’s only customer, • Where OSE obtained the merchandise allegedly sold to WAYS, Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 28 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE • California State Board of Equalization report of sales tax payments that would assist in confirming the purchase and sale of merchandise, • Quarterly sales tax reports, • Documentation supporting OSE’s supplier relationships from which OSE provided supplies to WAYS. In addition, the team cannot audit and/or confirm if any of the alleged 288 OSE inventory items sold to WAYS representing payments of $158,871 are for actual books and supplies received by the school. OSE Business Services Product Inventory Sales to WAYS FCMAT prepared an analysis of the 20 OSE invoices representing 288 inventory items, focused on items that exhibited high volume, and compared those items with other charter schools located in the metropolitan area of Los Angeles of similar size. Pricing was compared to vendors that specialize in office and cleaning supplies as well as snack foods WAYS offered in the after school program. There are 6,696 per-unit inventory items on the OSE invoices that include cases of copier paper, numerous miscellaneous office supplies, various cleaning supplies and snack foods. In total there are 288 uniquely defined inventory products. One example of the volume of supplies WAYS purchased from OSE during the 2011-12 and 2012-13 fiscal years is 971 boxes of paper totaling $41,408.24 and representing 26.1% of the total purchases. Each box of paper contains 10 reams of paper, and each ream of paper contains 500 sheets representing a total of 4,855,000 sheets of paper. Based on the size of WAYS’ schools and compared with other charter schools in the Los Angeles area, this is an excessive amount of paper purchased from one vendor over a two-year period of time. Because this appeared excessive based on the average enrollment of 505 students over a two-year period from 2011-12 through 2012-13, the team compared copier paper purchases with a sample group of elementary charter schools. The team received information from the seven comparable elementary charter schools listed in the table below. This analysis compares purchases of copier paper from all vendors in the selection group with the WAYS purchases from OSE (even though paper was also purchased from other vendors described later in this report) and based on student enrollment for 2011-12 through 2012-13. Cases of Copier Paper Purchased per Student, 2011-12 through 2012-13 Average No. of Cases Cases of Copier School Enrollment Purchased Paper per Student Charter School #1 227 151 0.67 Charter School #2 304 186 0.61 Charter School #3 387 332 0.86 Charter School #4 416 332 0.80 Charter School #5 476 369 0.78 Charter School #6 601 551 0.92 Charter School #7 648 588 0.91 Averaged Totals – All Sample Schools 382 314 0.82 WAYS 505 971 1.92 Fiscal crisis & ManageMent assistance teaM 29 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE On a per student enrollment basis, WAYS averaged 1.92 cases of copier paper purchased per student over the two-year period, which is 2.34 times greater than the .82 average of all seven similar elementary charter schools combined. The quantity of 971 cases of copier paper allegedly sold to WAYS by OSE is even more significant considering that during FCMAT’s fieldwork visit on November 15, 2013, the team attempted to use the WAYS copy machine, which did not contain any copy paper. When the team asked the director of operations’ permission to use the copy machine, the director stated, “They use very little paper and it is tightly controlled.” He returned with a ream of copy paper that was locked in his office. The volume of paper purchased and the director of operations’ statement that the school uses very little paper do not reconcile. FCMAT anticipated that since WAYS’ use of copier paper was tightly controlled, the amount purchased would be significantly lower than that of the seven comparative elementary charter schools sampled, but found the opposite. OSE Sales Tax Calculations The OSE invoices each include a line item for sales tax. OSE invoice number three, dated February 25, 2012 in the amount of $6,172.39, is comprised of OSE inventory sales totaling $5,625.76 and sales tax stated of $546.63. The OSE invoice states that the sales tax rate is 8.75%; however, 8.75% of $5,625.76 is $492.25 rather than $546.63, which is a difference of an additional $54.38 that WAYS paid to OSE for sales tax. FCMAT reverse calculated what percentage the $546.63 in sales tax is compared to the total supplies WAYS purchased from OSE and arrived at a rate of 9.72%. In February 2012, the city of Los Angeles sales tax rate was 8.75%, not 9.72%. Because the OSE invoices present numerous irregularities including the extension of per unit pricing to total charges and the incorrect calculation of sales tax noted above, OSE does not present itself as a legitimate business. WAYS Purchases Office Supplies from Other Vendors in Addition to OSE, and OSE Inventory Pricing is Higher than Other Compared Vendors During FCMAT’s review of sampled WAYS American Express credit card statements, it was found that several statements were missing vendor receipts and other supporting documentation to support the purchases charged to that account. Without proper receipts, the team was unable to verify individual vendor purchases on the credit card statements. The sampling showed several purchases for office supplies and other similar products from Staples, Office Max, and Smart & Final including copier paper, three-ring binders, and food snacks. It is apparent from these purchases that OSE was not the exclusive provider of office supplies to WAYS. The following represent examples of purchases from other vendors with similar OSE merchandise discovered by FCMAT during the in-depth review of WAYS American Express credit card state- ment receipts compared with OSE’s pricing: Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 30 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE Office Depot – Receipt dated April 30, 2013 Item 675041- Paper, Copy, AST $12.49 Office Depot– Receipt dated April 30, 2013 Item 348037 – Paper, Copy DD $41.99 OSE Case of Paper 8 X 11.5 Ranging from $35.00 - $48.99 OSE O/I COPY-20# 8.5 C/6-9 Ranging from $39.99 - $48.99 Store brand 8.5 X 11, 20#/500 sheets, case of 10 Office Depot – online reams $43.99 OSE Office Impressions 92 Bright 20# 8.5 X 11 CASE $45.00 Staples – online Various 8.5 X 11 cases of paper, 92 Bright, 20# $26.99 - $43.99 The OSE invoice items are vague in description; therefore, an absolute comparison of products purchased is impossible. Without clarification from either OSE or WAYS management, FCMAT is unable to determine a reasonable explanation for the large variance in pricing based on OSE’s invoices and like kind vendors. FCMAT identified several OSE invoices with similar inventory items to those of other vendors, such as the Smart & Final receipt dated 04/10/13, inventory description, “Austin Cracker Vrt” at $8.39, and “Rice Krisp Orig” at $8.99. When FCMAT calculated the price per unit of the OSE inventory items, the amounts that OSE charged WAYS were varied and much higher. In some cases, OSE charged WAYS more than double the price for the same inventory items that WAYS also purchased from other vendors. Examples include: 1. OSE invoices list “Austin Variety 45 ct,” with pricing calculated by FCMAT from $7 per unit to $19.99 per unit depending on the month of purchase. 2. OSE invoices list “Rice Crispy,” with pricing calculated by FCMAT from $11.99 to $19.99 per unit, depending on the month of purchase. 3. Staples store location at 3701 W. Santa Rosalia Dr., Los Angeles, California, dated 06/15/12, inventory description “1.5 In Better Binde” at $9.49 per unit. WAYS purchased four units of binders. The OSE invoices vaguely described binders that FCMAT calculated the per unit pricing for as follows: 3” binders at $30 per unit, 3.5” binders at $24 per unit, 5” binders at $24 per unit, Premium View Binders at $29.99 per unit, and Premium Binder at $46.00 per unit. FCMAT searched prices at Staples online at www.staples.com and found 3” Avery Heavy-Duty View Binders with One Touch EZD Rings, item number 318402, Model 79-793 priced at $9.99 per unit. Because OSE invoice inventory descriptions are not specific and are not identified with an item number, FCMAT cannot determine how these same items are sold by OSE for three times the cost of other vendors. FCMAT also examined the WAYS vice principal reimbursements, which included receipts from the Staples store location at 3701 W. Santa Rosalia Dr., Los Angeles, California. One Staples receipt dated 11/27/12 contained the inventory description “PENTEL LEAD REFIL” at $2.79 per unit, and the reimbursement identified a quantity of three. OSE invoices have an inventory item called “Pencil” listed as $12 per pencil. OSE business sales documentation for products allegedly sold to WAYS cannot be confirmed because the documentation is limited to a one-sheet invoice from OSE similar to a spreadsheet, with no additional documentation to support the delivery of materials and supplies to WAYS. In addition, OSE has declined requests to meet and provide proof of its sales of merchandise to Fiscal crisis & ManageMent assistance teaM 31 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE WAYS. The irregularities described in this report attributable to alleged supplies purchased from OSE raise serious concerns about the OSE and WAYS business relationship and whether OSE actually sold any supplies to WAYS. The following summarizes the inconsistencies regarding WAYS purchases from OSE identified in this report: • WAYS purchased 2.34 times more cases of copier paper per student from OSE than the seven comparable elementary schools sampled. Additional purchases of copier paper from other vendors further increases the average of 2.34. • OSE invoices and other authorization to purchase and accept OSE merchandise that should be used to authenticate the supplies shipped by OSE to WAYS are missing packing slips that identify the shipping contents. • OSE invoices fail to identify any ship to address or contact phone number. • OSE invoices fail to present a shipping cost line item or indicate that shipping is waived and not charged. • OSE invoices do not present a professional and consistent look. • OSE invoices fail to present any per unit pricing calculating quantities of items purchased and extending the quantity multiplied by the per unit pricing to the total amount for each inventory line item purchased. • OSE product catalogue was not available for review. • OSE invoices appear to have been prepared from a spreadsheet program. • OSE invoices fail to present consistent and clear descriptions of the supplies identified in the invoices. • OSE address of 6709 La Tijera Blvd., Suite 274, Los Angeles, California 90045 is not a warehouse or store location. This same address is used for other WAYS vendors, including the private middle school previously operated by the vice principal of WAYS. This is the same address where the only key belongs to the founder and former executive director. • OSE will not allow inspection of its sales and customer documents that would verify if WAYS is the only customer and the location of the warehouse or suppliers. FCMAT was unable to confirm that OSE has paid $12,926.35 in sales taxes collected from WAYS to the California State Board of Equalization, or that OSE has a valid California sales tax identification number, because the sales tax number is not printed on OSE’s invoices or located on check requests that authorize payment to OSE by the director of operations. FCMAT is unable to audit and confirm that WAYS issued a IRS Form 1099 totaling $158,871 over the audit time period. WAYS Audited Financial Statement Reports and Qualified June 30, 2013 Audit Report FCMAT’s findings are consistent with the independent auditor’s reports for WAYS for the fiscal years ending June 30, 2012 and June 30, 2013. Both FCMAT and independent auditors find that WAYS has significant internal control conditions and has failed to ensure that adequate internal controls are in place. Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 32 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE The WAYS June 30, 2013 independent auditors report at Finding 2013-6, “Credit Card Supporting Documentation” states: “The school is using credit cards to purchase some items and subsequently repaying the credit cards with a check. The credit card statements are being used as supporting documentation for the check written; however, the credit card statements do not include receipts for all expenditures for which they are used.” “Expense items paid with credit cards are not adequately supported by itemized receipts and approval documentation. The Academy is exposed to risk of misappropriation of assets.” FCMAT has documented in this report that the necessary supporting documentation authen- ticating OSE Business Services payments was not available for the FCMAT audit. The team is unable to audit and confirm if any of the alleged inventory supplies purchased from OSE totaling $158,871 actually received, because WAYS and OSE have failed to present the necessary supporting documentation. The WAYS independent auditor issued its report dated January 15, 2014 on the WAYS financial statements for the year ended June 20, 2013. An integral component of the audit is a report titled Independent Auditor’s Report on Internal Controls Over Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards. This report describes various categories of deficiencies in internal controls that may exist. As reported by the independent auditors, a deficiency in internal control exists when a particular control does not allow management or employees in the normal course of business the ability to prevent, detect or correct misstatements in a timely manner. A material weakness presents a deficiency, or a combination of deficiencies, indicating a reasonable possibility that a material misstatement of the financial statements exists that cannot be detected, corrected or prevented in a timely manner. The auditors identified six findings and questioned costs to be classified as material weaknesses. A significant deficiency is a deficiency that is less severe yet represents enough merit to bring to the attention of those charged with governance. The auditors identified three findings that met this particular classification. Depending on the number and severity of the audit findings, independent audit reports are either unqualified or qualified in accordance with auditing standards contained in the Government Auditing Standards issued by the Comptroller of the United States. These standards require that auditors obtain reasonable assurance about whether the financial statements are free from material misstatement. When the independent auditors express an opinion regarding the reasonableness of the financial statements, the report is issued as either an unqualified or a qualified audit. A qualified audit report is issued when the auditors believe that the overall presentation of the financial statements does not represent a fair presentation that significant accounting estimates made by management and the overall presentation of the financial statements meet the auditing standards. The independent auditor’s report was qualified because the “audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion.” Auditors cited the following in the June 30, 2013 annual audit report: Fiscal crisis & ManageMent assistance teaM 33 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE 1. The WAYS Independent Auditor’s Report was Qualified because WAYS failed to maintain a detail of capital assets or depreciation. 2. The WAYS Independent Auditor’s Report on State Compliance was Qualified because WAYS failed to comply with requirements of the class size reduction program and after school education and safety program. 3. WAYS did not meet the state requirement for audits to be completed and sent to the State Controller’s Office, California Department of Education, and Los Angeles County Office of Education by the deadline date of December 15, 2013. 4. The WAYS operating facilities lease with OCI Development Corporation (OCI Development Corporation is the holder of the WAYS facilities property on behalf of the founder of WAYS) was entered into in July 2013; however, as of January 15, 2014, the date of the audit report, the lease agreement has not been approved by the WAYS governing board. 5. The WAYS operating facilities lease with the Salvation Army was entered into in August 2013; however, as of January 15, 2014, the date of the audit report, the lease agreement has not been approved by the WAYS governing board. 6. In December 2013, WAYS sold a vehicle (Lexus RX350) for $26,000; however, as of January 15, 2014, the date of the audit report, the payoff of the vehicle and sale of the vehicle has not been approved by the WAYS governing board. 7. The auditors had to amend their audit report because the management of WAYS provided the auditor with incorrect board member names as of June 30, 2013, including the chairperson of the board. 8. The Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards cited six WAYS deficiencies in internal controls and three signifi- cant deficiencies in internal controls. The report also identified three instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. 9. The Independent Auditor’s Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by OMB Circular A-133 cited one deficiency in internal control over compliance to be a mate- rial weakness in internal control. WAYS Irregular Van Lease – Vendors Godfrey Okonkwo & Emeka Enwezor During FCMAT’s review of the WAYS disbursement payments to various WAYS vendors, two vendors were identified as each receiving $4,800 for leasing a van to the charter school. The two Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 34 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE individuals are the husband of the founder of WAYS, Godfrey Okonkwo, and a vendor identified in the books and accounting records of WAYS as Emeka Enwezor. Godfrey Okonkwo was paid $2,400 with WAYS check number 8339, dated January 7, 2011 and $2,400 with check number 8950, dated June 27, 2011, totaling $4,800 during the WAYS 2010-11 fiscal year. Emeka Enwezor was paid $2,400 with WAYS check number 9513, dated December 9, 2011 and $2,400 with check number 9625, dated December 9, 2011, also totaling $4,800 during the WAYS 2011-12 fiscal year. The WAYS leasing of a van totaling payments over two fiscal years of $9,600 paid to Godfrey Okonkwo and Emeka Enwezor presents numerous irregularities. First, during FCMAT’s fieldwork at the WAYS back office business provider, the payment documentation for the van payments to Emeka Enwezor was reviewed. Documentation for the van lease payments authorized by the WAYS director of operations show that the van lease agree- ment and additional back-up documentation for lease was missing even though the back office provider had requested these documents on previous occasions. At the time of the FCMAT field- work in November 2013, the WAYS back office service provider still had not received from the WAYS any van lease supporting documentation dating back to the first payment from December 9, 2011 approximately two years later. According to the WAYS director of operations, the owner of the lease is Emeka Enwezor. The team requested the director, in an email dated November 29, 2013, to supply information to support the van lease agreement and board approval. In an email dated January 10, 2014, the WAYS director of operations replied to FCMAT stating: “I was able to locate the Van Lease Agreement from 2011-12. However I was unable to locate a signed copy of the agreement. During this year WAYS experienced significant turn-over in the Board of Directors and administration. Many official school documents were kept by those individuals who are no longer associated with WAYS, and have yet to be returned after several requests to do so. I suspect that the signed van lease and Board documentation, if any, may be within those lost documents.” The WAYS back office provider had been requesting van lease supporting documentation from various management personnel of WAYS since at least December 2011. Approximately two years later, the executive team of WAYS failed to provide signed copies of the van lease. The fiduciary duty of the executive level management of WAYS, which includes the executive director and the director of operations is the safeguarding of assets and proper administration of the financial affairs of WAYS. It is the fiduciary responsibility of the WAYS executive management team to ensure contracts receive proper authorization by the governing board prior to entering into agreements and to safeguard the school’s assets. WAYS’ executive management team failed in their fiduciary duty to obtain contracts, failed to have authorized signatures prior to entering into contracts, failed to obtain governing board approval for contracts, and failed to ensure that documents are safe- guarded. Fiscal crisis & ManageMent assistance teaM 35 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE 1. The van lease agreement provided by WAYS presents irregularities. a. The van lease agreement is not signed or dated by either WAYS executive management or Emeka Enwezor, b. The unsigned van lease agreement states, “Lessee may not sublease the vehicle under this contract without Emeka Enwezor prior consent.” (sic) Godfrey Okonkwo, father of the director of operations and husband of the founder/former executive director of WAYS, was paid $4,800 for the use of Emeka Enwezor’s van. This violated the sublease provision in the contract. c. The unsigned van lease is undated; therefore, language does not present any date that the lease is entered into; therefore, the team cannot deter- mine when the unsigned van lease was created. 2. The WAYS documentation of the payments for the unsigned van lease is irregular. a. The Emeka Enwezor invoice approved by the director of operations failed to identify an address for the payee. The van invoice is titled “VAN LEASE/RENTAL” and states at the bottom of the invoice, “Make all checks payable to Emeka Enwezor.” b. The WAYS check request the team examined approving payment of the unsigned van lease omits the invoice number and address of the payee. WAYS Related Parties – WAYS Founder/Former Executive Director, Godfrey Okonkwo, WAYS Director of Operations, WAYS Vice Principal, Emeka Enwezor & Obiesie Enwezor The Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 850-10-50 contains the disclosure requirements for related party relationships and transactions as follows: • “Affiliates” of the entity. • Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity. • Trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management. • Principal owners of the entity and members of their immediate families. • Management of the entity and members of their immediate families. • Other parties with which the entity may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 36 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE • Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests. The FASB ASC glossary also defines the terms: affiliate, control, immediate family, management, and principal owners. The executive management of nonprofit organizations such as WAYS have the responsibility to document in detail and fully disclose to the auditors, governing board, county oversight agencies, and the state for purposes of conflict of interest and full disclosure reporting requirements any and all potential related party transactions to comply with Generally Accepted Accounting Principles (GAAP). Failure to disclose related party transactions may be considered a departure from GAAP that could result in a qualified or adverse audit opinion and the potential for civil and criminal prosecution. The facts below demonstrate that several related party transactions exist between the founder/ former executive director, her family members, vendors and associates. The team discussed the WAYS van lease payments with the WAYS director of operations while on site at the WAYS offices located at 706 East Manchester Avenue, Los Angeles, California on Thursday, November 14, 2013. The director of operations is the son of Godfrey Okonkwo, and Godfrey Okonkwo is the vendor that received $4,800 representing van lease payments for a van owned by Emeka Enwezor, who also was paid $4,800 for the lease of the van. During the Thursday, November 14, 2013 discussion with the WAYS director of operations, he stated that Godfrey Okonkwo was paid for the van lease in the first year of the lease for the van from Emeka Enwezor, and the second year Emeka Enwezor was paid directly for the van lease. The team inquired whether Emeka Enwezor was related and was told that, “She is a friend of the family and we rent her van … but she gave the van to the school this year.” The association of the van lease payments establishes that Godfrey Okonkwo, father of the director of operations and husband of the founder/former executive director of WAYS, received payments for the van owned by Emeka Enwezor. Emeka Enwezor, a related party, shares several similar characteristics with Obiesie Enwezor, owner of OSE Business Services, as follows: 1. Obiesie Enwezor and Emeka Enwezor share the same unusual last name of Enwezor. 2. A Social Security number is comprised of three segments: XXX-XX-XXXX. The first segment represents the first three digits known as the area number, the middle segment representing two digits is the group number and the last four digits is known as the serial number. Obiesie Enwezor and Emeka Enwezor share the same area numbers and group numbers. The serial numbers, which are 12 digits apart, indicates that the two Social Security numbers were issued at approximately the same time. 3. Obiesie Enwezor; Emeka Enwezor, the founder/former executive director; Godfrey Okonkwo, the director of operations and the vice principal, share common addresses located at: 4326 Enoro Dr., Los Angeles, CA and 117 W. 112th Street, Los Angeles, CA. Both properties are owned by Godfrey Okonkwo and the founder/former executive director. Fiscal crisis & ManageMent assistance teaM 37 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE Based on the team’s analysis of possible relatives, transactions authorized by the director of operations do not represent an arm’s-length transaction. An arm’s-length transaction would be evidenced by signed agreements, board approvals, complete and detailed transaction documenta- tion, and comparative contracts. 1. The director of operations is the individual authorizing the check requests and financial transactions for WAYS and the son of the founder/former executive director and son of Godfrey Okonkwo, who was paid $4,800 by WAYS for a van rented from Emeka Enwezor. 2. Emeka Enwezor is a friend of the Okonkwo family according to the director of operations. Based on the team’s research, Emeka Enwezor is related to the Okonkwo family and Obiesie Enwezor, owner of OSE Business Services. a. Emeka Enwezor was paid $4,800 by WAYS for the van leased to WAYS. WAYS failed to obtain a signed contract and board authorization to lease the van. b. Emeka Enwezor shares addresses owned by Godfrey Okonkwo and the founder of WAYS. This same address is linked to the WAYS director of operations and the WAYS vice principal (brother and sister.) c. Emeka Enwezor also shares the same address as Obiesie Enwezor.. 3. OSE Business Services owner Obiesie Enwezor received $158,871 from WAYS. a. Obiesie Enwezor shares two addresses owned by Godfrey Okonkwo and/ or the founder/former executive director, who are related as family and/ or address to Obiesie Enwezor, the founder/former executive director, Godfrey Okonkwo, the director of operations, and the WAYS vice prin- cipal. b. Obiesie Enwezor has refused to meet with FCMAT to assist the team in substantiating the $158,871 in alleged supplies sold to WAYS by OSE and the existence of OSE as a legitimate business with customers other than WAYS. c. WAYS failed to issue 1099s to OSE and is missing significant corroborating financial information that FCMAT considers necessary to substantiate the office and food supply items approved by the director of operations for payment to OSE. d. OSE Business Services owner Obiesie Enwezor shares the identical business address location at 6709 La Tijera Blvd, Suite 274, Los Angeles, California 90045 as the WAYS vice principal’s own private middle school known as Innovative WAYS Academy. e. According to the WAYS vice principal, the founder/former executive director and mother of both the director of operations and vice principal is the individual who checks the mail and has the key to the OSE and Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 38 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE Innovative WAYS Academy address at 6709 La Tijera Blvd, Suite 274, Los Angeles, California 90045. 4. The director of operations and WAYS vice principal are brother and sister and are children of the founder/former executive director and Godfrey Okonkwo. 5. LACOE engaged the services of a private investigator following written and verbal complaints that the vice principal of WAYS was working at Innovative WAYS Academy, her private middle school of which she was the executive director. Direct surveillance and video on 16 separate occasions between March 5, 2013 and April 22, 2013 revealed that the WAYS vice principal spent 29.5 hours at her private middle school while employed full time at WAYS. 6. The WAYS vice principal is the owner of Innovative WAYS Academy private middle school, and a non-profit corporation known as DeDe Dance Studio. a. DeDe Dance Studio was paid a total of $73,800 by WAYS between April 2009 and April 2013. b. The address of DeDe Dance Studio is reported in the DeDe Dance Studio 2010 and 2011 nonprofit tax returns as 706 East Manchester Avenue, Los Angeles, CA, which is the same address as the WAYS primary school site and administrative offices location. c. The director of operations and brother of the WAYS vice principal and owner of DeDe Dance Studio authorized the checks from WAYS totaling $73,800 that were paid to DeDe Dance Studio. d. During the team interview of the WAYS vice principal on November 15, 2013, she stated that DeDe Dance Studio was paid from the ASES program funds for dance study during the after school program and that 10 volunteers are present for the dance activities. She further stated that there was also a manager present; however, the team did not observe students present in that facility during the fieldwork days. FCMAT also observed postings in the DeDe dance studio indicating that DeDe Dance studio has a check payment policy for payments and nonsufficient funds checks at the studio located at the WAYS property address. e. DeDe Dance Studio is operated at and identifies the business location as the WAYS school site. The team was unable to determine that any offset- ting rent for the facility was paid by DeDe Dance Studio to WAYS. f. The DeDe Dance Studio nonprofit tax returns for 2010 and 2011 do not identify any rent paid expense activity, including rent for occupying the same facility as the WAYS school site or for facilities use as DeDe Dance Studio services where dance instruction allegedly occurred at the WAYS school site. Fiscal crisis & ManageMent assistance teaM 39 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE The relationships and related parties are presented in the following table: Mother (controls mail & key) Daughter Husband Wife Mother & Son Father Son Relative Same Address Owner Relative Brother Sister Los AngeLes County offiCe of eduCAtion - WAys ACAdemy evitaleR Founder of WAYS (Settlement $228,665) Godfrey Okonkwo ($4,800 Van Lease) Owner Relative Brother Sister Board of Directors sserddA yb detaleR dna sevitaleR OSE Innovative Obiesie Enwezor WAYS Academy $158,871 Private School (6709 La Tijera Blvd. (6709 La Tijera Blvd. Suite 274 address) Suite 274 address) WAYS Director of Operations WAYS * Controls Authorization & Vice Principal Payments DeDe Emeka Enwezor Dance Studio ($4,800 Van Lease) ($73,800 Fees) WAYS Irregular Purchase and Sale of Lexus During FCMAT’s meetings and fieldwork in November 2013 at the WAYS back office provider, the team discussed WAYS Lexus payments of $891.94 per month identified in the WAYS accounting records. The WAYS back office service provider stated they had been requesting backup documentation for the Lexus transaction from the director of operations but never have received any. The back office provider was unable to determine if the Lexus payments were for a leased vehicle or purchase that should be capitalized and depreciated. 40 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE In an email dated Friday, November 29, 2013, FCMAT requested information about the Lexus from the director of operations: • The original board approval documentation and minutes authorizing the purchase of the Lexus, • Original Lexus purchase/lease documents, • The board approval documentation and minutes authorizing the sale of the Lexus, • The analysis that would have provided the WAYS board establishing the financial profitability, viability, or reasoning for the purchase and subsequent sale of the Lexus, • Copies of any Lexus payoff documentation, • Copies of any Lexus proposed sale documentation. The director of operations replied to the FCMAT November 29, 2013 request for Lexus infor- mation in an email dated Friday, January 10, 2014; however, the information provided was incomplete. Based on the information received from the director of operations, FCMAT has determined that the 2011 Lexus RX350 was purchased for $41,163.45 on August 19, 2012, to be used by the director of operations. The payments of $891.94 per month started October 3, 2012 for 47 months, at 1.90% annual percentage rate. The WAYS board approval for the purchase of the Lexus dated July 31, 2012 states, “Be it Resolved, that the Board of Directors of this corporation … authorize the Executive Director or designee to enter into a lease or purchase agreement for a vehicle for school use behalf of said corporation.” The current executive director of WAYS issued a letter dated August 6, 2012 authorizing the director of operations to “… lease or purchase a vehicle for school use …” The Lexus purchase analysis provided to the team by the director of operations is titled Capital Expense Analysis. • The Capital Expense Analysis identifies two separate dates, July 2012 and August 2013, and is not attached to the WAYS board minutes or agenda as a document reviewed by the WAYS board. • The Capital Expense Analysis fails to include any vehicle cost and/or terms of the Lexus and fails to identify that the vehicle is a Lexus only identifying the item as “SUV or Sedan (Vehicle).” Without any cost or terms of the Lexus purchase or specifically identifying the vehicle as a Lexus, the WAYS board may not have had sufficient information to make an informed decision regarding the purchase of the Lexus. • The Capital Expense Analysis fails to identify if the vehicle will be capitalized as an asset or is a vehicle lease. • The Capital Expense Analysis states, “Merle Williamson Foundation (MWF) may provide the Administrative Personnel an automobile vehicle and operating expenses for the use of conducting MWF business and reasonable personal use.” • The WAYS July 31, 2012 minutes omit the authorization to use the Lexus for personal use and omit language in the minutes that MWF or WAYS has agreed to pay for the vehicle and operating expenses. Fiscal crisis & ManageMent assistance teaM 41 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE • Since the WAYS Board July 31, 2012 minutes and the Capital Expense Analysis wording differ, FCMAT cannot confirm that the Capital Expense Analysis was ever presented to the WAYS board. The WAYS executive team failed to provide any information about the Lexus purchase to the WAYS back office provider so the back office service provider could properly account for the Lexus as a purchase, which would have resulted in capitalizing the Lexus in accordance with GAAP. The current executive director of WAYS and the director of operations failed to obtain WAYS governing board approval prior to selling the Lexus. The sale of the Lexus as identified in the Capital Expense Analysis presents significant irregulari- ties: a. The vehicle identity is not disclosed as a Lexus. b. Failure to disclose any Blue Book and/or fair market values of the Lexus. c. Failure to disclose the beginning and ending Lexus odometer reading. d. Failure to disclose if the Lexus had been in any accidents, if the maintenance was up to date, and what condition the Lexus was currently in such as excel- lent, good, fair, or poor condition, all of which are factors in avoiding any potential post sales liabilities. i. Based on the documents provided by WAYS, the team determined that the WAYS management team failed to disclose the Lexus Blue Book values as potentially excellent, $28,872; very good, $28,072; good, $27,172 and fair, $24,872. ii. The director of operations failed to provide any documentation explaining how the sales value of the Lexus was determined to be sold at $26,000 rather than at values of good, very good, or excellent. e. Failure to disclose the estimated gains or loss on the sale of the Lexus. f. Failure to present an amortization schedule showing the principal payments and remaining payoff on the Lexus as of the estimated date of the sale. g. Failure to disclose if the sale of the Lexus would be confined to California or sold out of state. Because the governing board was not provided any specific information as described above, FCMAT cannot determine how the governing board would be able to determine that the sale of the Lexus was a proper transaction for approval. The WAYS board approval authorized the “vehicle for school use” but did not identify the type of vehicle or that the vehicle was for the explicit use of the director of operations. FCMAT had observed the director of operations using the Lexus as his own personal vehicle. The team’s audit of WAYS’ American Express credit card statements reveal that vehicle fuel receipts failed to list to which vehicle the fuel receipts were attributable; therefore, the team cannot determine if the fuel receipts were for WAYS vehicles or if WAYS was subsidizing personal fuel costs of WAYS employees and management. Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 42 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE The team has determined that the sale of the Lexus resulted in a ($4,187) loss to WAYS. The purchase price of the Lexus was $41,163 on August 19, 2012 and the Bill of Sale dated December 17, 2013 states that the Lexus was sold for $26,000 to an individual in Canada. The Lexus was owned by WAYS for approximately 16 months between August 19, 2012 and December 17, 2013. Depreciation of the vehicle is calculated over five years or 60 months at $686 per month, and accumulated depreciation over 16 months is calculated as $10,976. The approximate net loss of $4,187 on the sale of the Lexus is calculated as: • Purchase Price $41,163 • Less Accumulated Depreciation ($10,976) • Book Value $30,187 • Less Selling Price of $26,000 • Net Loss on Sale of Lexus ($4,187) The sale of the Lexus also resulted in a net loss of cash of $4,345 because the amount of principal paid down as calculated by FCMAT based on an amortization of 16 months, interest rate of 1.9% is $10,818. The original purchase price of the Lexus of $41,163 less the principal paid on the Lexus loan of $10,818 leaves an approximate payoff balance of $30,345. The payoff to Toyota Motor Corporation of $30,345 less the selling price of $26,000 results in an estimated cash loss of $4,345. WAYS Failed to Obtain Governing Board Approved for Purchase of Computers and Issued an Irregular Payment During FCMAT’s meetings and fieldwork in November 2013 at the WAYS back office provider, the team discussed two payments to WAYS vendor Avatar Technology for a $37,986.51 purchase of computers dated January 23, 2012 and a $358.75 purchase dated February 10, 2012, totaling $38,345.26. The back office provider stated that the Avatar invoices received from the director of operations did not include governing board approval documents for this transaction. The team examined the WAYS check request authorized by the director of operations and the vendor invoice documentation for the $37,986.51 paid to Avatar, and found several irregularities: • The January 23, 2012 Avatar invoice stated that the purchase was for 85 “Legerro 13.3” items at $410 per item, with a total invoice price including sales tax of $37,540.63. • The amount authorized by the director of operations to be paid to the computer vendor in the WAYS check request was $37,986.51. • The difference between the computer vendor invoice of $37,540.63 and the amount WAYS paid to the computer vendor of $37,986.51 is $445.88. • The check request authorized for payment by the director of operations identifies an additional amount of $445.88, which the team believes to be one additional computer. In an email dated Friday, November 29, 2013, the team requested documentation from the director of operations of the governing board authorization, board agenda identifying the item for action on the agenda or any other documentation to support the purchase of the computers. His reply on Friday, January 10, 2014 states that: Fiscal crisis & ManageMent assistance teaM 43 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE “I was unable to locate any Board documentation regarding the purchase of the Avatar Computers. However, I can attest that the Board was fully aware of the purchase before it was executed and after they were purchased. I’ve attached the newsletter showing our students using the computers.” Based on the information the team received from the director of operations, the team has deter- mined that there are several irregularities concerning the purchase of computers authorized by the director of operations: 1. The WAYS board was not properly notified by the director of operations’ decision to purchase computers totaling $38,345.26. 2. There are no requests for quotes or for proposals. 3. There is no documentation of computers specifications. 4. The authorization for payment to Avatar by the director of operations in excess of the invoiced amount totaling $445.88 cannot be located. 5. The transaction lacks governing board approval and lacks supporting docu- mentation for payment. 6. The team cannot confirm if the computers presented by the director of opera- tions in a newsletter are in fact the computers purchased from Avatar. WAYS Automobile Fuel Purchase Irregularities The team examined WAYS fuel purchases, which consist of receipts for fuel from Costco Gas, Chevron, Shell Oil, Union 76, Exxon Mobil, and Valero gas stations. Over a two-year period from July 1, 2011 through June 30, 2013, according to the WAYS accounting records, the total paid for fuel and mileage reimbursements was approximately $18,261. The team calculated that over the two-year period, the amount spent on mileage reimbursement and other non-fuel expenses was approximately $2,305. Removing the mileage reimbursement and other non-fuel expenses of $2,305 from the total fuel cost of $18,261 left a remaining net fuel cost of $15,956. The team calculated that $15,956 in fuel purchases during WAYS fiscal years 2011-12 and 2012-13 at an estimated $3.79 per gallon represents 3,989 gallons ($15,956 / $3.79 per gallon = 4,210 gallons) of fuel used or approximately 175 gallons of fuel per month (4,210 gallons / 24 months = 175 gallons per month). The $3.79 per gallon price was calculated by the team based on fuel cost data from www. gasbuddy.com for the Los Angeles, California area. The price of fuel in Los Angeles at July 2011 was $3.79/gallon, June 2012 at $3.60/gallon, and June 2013 at $3.97/gallon. The average price per gallon between July 2011 and June 2013 was $3.79 per gallon (($3.79 + $3.60 + $3.97) / 3 = $3.79 per gallon). The non-board approved and unsigned Emeka Enwezor van lease identifies the van as a 1995 Ford model E-350 van. The team researched the fuel economy of a 1995 Ford model E-350 van at www.motortrend.com and found that the van’s fuel economy is 13 miles per gallon in the city, and 16 miles per gallon on the highway. Using the fuel economy of the van of 13 miles per gallon and 175 gallons of fuel per month represents that the WAYS vehicles traveled 2,275 miles per month for school business purposes. Students attending WAYS’ three charter school sites reside Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 44 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE in the local neighborhoods and all three school sites are within a mile or two of each other. The mileage of 2,275 per month is excessive based on the location of the students and school sites. The team was unable to determine if the fuel that WAYS management charged to the WAYS American Express credit cards was for official WAYS school business. Based on the examined fuel receipts, the team was unable to determine if any of the WAYS fuel purchases and fuel usage of an average 175 gallons per month were for personal vehicles or for personal trips because WAYS’ accounting for fuel purchases fails to identify in the fuel receipts which vehicle and business purpose each receipt represents. Failure by the management team of WAYS to document fuel purchases represents accounting irregularities, because the fuel purchases the team examined as reported by the executive manage- ment team and paid with the American Express credit card cannot be reconciled to any specific vehicle of WAYS. WAYS Charter School Summary of Related and Irregular Transactions The table below is a compilation of payments made through WAYS to the founder/former executive director, family members of the founder and close associates. Many of these payments were autho- rized by the director of operations and the current executive director (former board president.) Accounting WAYS Charter School Summary of Records Related and Irregular Transactions Time Period Type Amounts Founder/Former Executive Director 2007-08 through 2012-13 Facility Leasehold Agreements $1,100,921 Founder/Former Executive Director, Loraine Turner, Rent and Other Unsubstantial Wisdom Pre-School, Preschool Rent 2007-08 through 2012-13 Charges 115,550 Founder/Former Executive Director 2007-08 through 2012-13 Leasehold Improvements 341,710 Founder/Former Executive Director 2007-08 through 2012-13 Leasehold Improvements – E-Rate 35,483 Professional Liability Wrongful Founder/Former Executive Director 2004-05 Termination Lawsuit 566,803 Founder/Former Executive Director 2012-13 Settlement-Employment Contract 228,665 Director of Operations 2012-13 Avatar-Excess Payment Authorized 446 OSE Business Services 12/21/2011 - 06/27/2013 Alleged Supplies 158,871 DeDe Dance Studio 4/23/2009 - 4/12/2013 Alleged After School Dance 73,800 Godfrey Okonkwo 1/7/2011 - 6/27/2011 Alleged Van Lease 4,800 Emeka Enwezor 12/9/20111 Alleged Van Lease 4,800 Sale of Lexus 12/17/2013 Sale of Lexus 26,000 Fuel Purchases 7/1/2011 - 6/30/2013 Fuel 15,956 Total $2,673,805 The above transactions represent significant influence that the WAYS founder/former executive director, family of the founder and close associates had over financial decisions that personally benefitted them. Several of these transactions were authorized for payment by the director of operations, who is the son of the founder/former executive director, and the current executive director (the former board president) and gave these individuals the ability to simultaneously control and benefit from these transactions. The lack of documentation to support transactions Fiscal crisis & ManageMent assistance teaM 45 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE through board approval and records creates the perception of fraud, misappropriation of assets and possible criminal activity. There is little evidence of responsible governance by the board and clearly a lack of fiscal account- ability by the administration. The governing board has failed and often been prevented from its ability to maintain and exercise its responsibilities, authority, and control. Prevention and Detection As previously mentioned, the internal control environment includes ethical values and integrity displayed by the governing board and management as well as the underlying tone set by the orga- nization’s site administrators. The tone of the organization set by management through its words and actions demonstrates to others that dishonest or unethical behavior will not be tolerated. An atmosphere in which employees feel safe to communicate concerns is a fundamental component of a strong and effective internal control environment. The control environment is an essential element and provides the foundation for other internal controls to be effective in achieving the goals and objectives to prevent and/or deter fraud or illegal acts. Regular external audits are a strong deterrent to mismanagement and fraud, but they cannot serve as the only method of ensuring accountability. It is imperative for the county office and WAYS governing board to review the findings and recommendations of this audit to implement the appropriate internal controls and hold the responsible parties accountable for their actions. Internal controls clearly are among the most important aspects of any fraud prevention program. Managers are in a position of authority and therefore have a higher standard of care to establish the ethical tone and serve as examples to other employees. Employees with administrative respon- sibility have a fiduciary duty to the organization in the course of their employment to ensure that those activities are conducted in compliance with all applicable board policies, laws, regulations, and standards of conduct. Management personnel are entrusted to safeguard the charter’s assets and ensure that internal controls function as intended. Relatives of employees should not be employed on a permanent or part time basis by the charter where the relative reports directly to the employee or the employee exercises any direct influence with regard to the relative’s hiring, salary placement, promotions, evaluations or pay increases. While the governing board and all employees in the organization have some responsibility for internal controls, the founder/former executive director and family members and close associates holding key administrative positions had a fiduciary duty and responsibility to make certain that the assurances in the charter petition and the governing board fiscal policies and procedures were conducted responsibly and ethically. Based on the evidence presented to FCMAT, there is sufficient documentation to demonstrate that fraud, mismanagement and misappropriation of the charter school funds and assets may have occurred. There exists a significant material weakness in the charter school’s internal control environment, which increases the probability of fraud and/or abuse. These findings should be of great concern to the WAYS governing board and the LACOE governing board and require immediate intervention to limit the risk of fraud and/or misappropriation of assets in the future. Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 46 RELATED-PARTY TRANSACTIONS AND SIGNIFICANT INFLUENCE In accordance with Education Code Section 42638(b), action by the county superintendent shall include the following: If the county superintendent determines that there is evidence that fraud or misappropriation of funds has occurred, the county superintendent shall notify the governing board of the charter school, the State Controller, the Superintendent of Public Instruction and the local district attorney. Recommendation The county superintendent should: 1. Notify the governing board of WAYS charter school, LACOE’s governing board, the State Controller, the Superintendent of Public Instruction, and the local district attorney that fraud, misappropriation of assets or other illegal activities may have occurred. Fiscal crisis & ManageMent assistance teaM 4477 APPENDDRICAEFST Appendices Appendix A - Summary of OSE Invoice Items Appendix B – Study Agreement Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 4488 DARPPAEFNTDICES Fiscal crisis & ManageMent assistance teaM 4499 APPENDDRICAEFST SUMMARY OF OSE INVOICE ITEMS AND PRICE PER ITEM CALCULATION 2011 2012 2013 Price Per Type Item Quantity Quantity Quantity $39.99Book/Supplies HP 72XL InkJet Cartridge 0 2 2 $17.99Books/Supplies HEAVY DUTY VIEW 5 0 0 $20.00Books/Supplies #10 SEC ENV 0 3 0 $16.99Books/Supplies 3 Hole Punch 0 2 2 $30.00Books/Supplies 3" BINDER 0 1 0 $9.99Books/Supplies 3.18 M-M PATCH CABLE 1 0 0 $24.00Books/Supplies 3.5" Binder 0 4 4 $24.00Books/Supplies 5" Binder 0 4 4 $60.00Books/Supplies 8.5X11 GLOSS PREM 0 5 0 $14.58Books/Supplies Acco 72585 Jumbo Non-skid Paper Clips, 10/100 ct 0 0 2 $14.32Books/Supplies AVERY DURA VIEW 3 0 0 $16.00Books/Supplies AVI Cord 0 4 0 $5.78Books/Supplies Ball Pump and Neddle 0 4 0 $24.99Books/Supplies BANDAID 185CT 0 3 0 $9.99Books/Supplies BD SWAG 300 0 1 0 $6.98Books/Supplies Bicycle Pokr 0 0 4 $16.00Books/Supplies Canon MX882 Ink Jet Cartridge 0 4 4 $48.99Books/Supplies Case of Paper 8X11.5 0 60 126 $35.00Books/Supplies Cases of Paper 8x11.5 0 47 0 $39.99Books/Supplies Cases of Paper 8x11.6 0 60 0 $10.29Books/Supplies CLIP, BNDR, 30PK 0 1 0 $11.18Books/Supplies CLP,PPR,NSKD,J 0 12 0 $10.98Books/Supplies CLPBRD, OD,3PK 0 3 0 $63.33Books/Supplies College Ruled 8.5 x 11 Case 0 6 0 $52.49Books/Supplies COLORSPLASH PENCILS PK/240 14 0 0 $40.00Books/Supplies Copies X 400PGS 0 4 0 $87.60Books/Supplies Crayola Broad Washable Marker Asst 256 ct - Item 958201 0 0 11 $10.00Books/Supplies Crayola Broad Washable Marker Asst 8 ct - Item# 285484 0 0 10 $9.99Books/Supplies Crayola Long Colored Pencils Assorted 12 ct - Item #626637 0 0 10 $59.99Books/Supplies CRAYOLA MARKER CLSSPACK 16CO 6 0 0 $5.00Books/Supplies Crayon 0 10 10 $25.99Books/Supplies CS PASS AROUND PACK CRAYONS 36 0 0 $15.29Books/Supplies CVR, RPT,GRPLCK 0 1 0 $30.99Books/Supplies Custom Address Stamp 0 1 1 $125.00Books/Supplies DA LITE LAPTOP CART CHARGER 2PK 0 2 0 $12.25Books/Supplies DIVIDER PLASTIC TABS 0 4 0 $4.65Books/Supplies DIVIDERS STAB 0 2 0 $1,222.68Books/Supplies DOUBLE-SIDED MAGNETIC MARKBOARD W/WOOD FRAME 1 1 0 $34.99Books/Supplies DTR, SLF-INKXT 0 1 0 $30.99Books/Supplies Easel Pad-Stickable 0 2 0 $1.19Books/Supplies ECONOMY COMPOSITION BOOK 80 0 0 $1.00Books/Supplies Economy Games Misc 0 0 180 $0.88Books/Supplies Economy Games Misc 0 180 0 $59.98Books/Supplies Envelope #9, 2W 0 0 1 $14.99Books/Supplies Envelopes 500ct 0 4 12 $19.99Books/Supplies Envelopes 500ct 0 2 2 $32.00Books/Supplies Exec Fabric Exp F1 0 2 0 $25.96Books/Supplies EXPO D80989 Asst Chisel Tip Low Odor Dry Erase Marker Kit 0 0 12 $22.70Books/Supplies EXPO DRY ERASE 16CT 24 24 0 $120.00Books/Supplies FILE FOLDER 0 2 0 $14.98Books/Supplies FILE FOLDER 0 0 2 $32.99Books/Supplies FILE, CASE, POLY 0 1 0 $19.99Books/Supplies FILE, O/D, 13 PK 0 1 0 $16.80Books/Supplies Fish Drive 0 0 1 $36.00Books/Supplies First Aid Kit + Refills 0 8 8 $1.00Books/Supplies Fun Dough 0 12 0 $5.98Books/Supplies Geographics Award Certificates Blue Border 25 ct 0 0 4 $5.98Books/Supplies Geographics Award Certificates Gold Border 12 ct 0 0 14 $5.98Books/Supplies Geographics Award Certificates Green Border 25 ct 0 0 4 $5.98Books/Supplies Geographics Award Certificates Red Border 25 ct 0 0 4 $23.17Books/Supplies Green Folder 0 6 6 $29.99Books/Supplies Guestures 0 0 1 $12.00Books/Supplies Hanging File Folder pk 0 2 2 $5.75Books/Supplies HEAVY DUTY VIEW 0 8 0 $99.97Books/Supplies HLPNCHR SWINGLN ELEC 0 1 0 $82.50Books/Supplies HP CB5XL4 Toner All Colors 0 4 4 Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 5500 DARPPAEFNTDICES SUMMARY OF OSE INVOICE ITEMS AND PRICE PER ITEM CALCULATION 2011 2012 2013 Price Per Type Item Quantity Quantity Quantity $30.00Books/Supplies Ink CD-226-cy 688852 0 5 0 $110.00Books/Supplies Ink Canon 4pk 687147 0 2 0 $30.00Books/Supplies Ink Cll-228, bi 0 5 0 $30.00Books/Supplies Ink Cb-228-ye 0 4 0 $30.00Books/Supplies Ink C4-226-mg 0 1 0 $25.00Books/Supplies Jenga 0 0 2 $3.99Books/Supplies JUMBO PENCILS PK/12 NO ERAS 112 0 0 $3.20Books/Supplies JUMBO PENCILS NO ERAS 0 0 56 $153.98Books/Supplies Laser, Mono, TN3 0 0 2 $19.99Books/Supplies Legal Note Pad pk 0 1 1 $29.99Books/Supplies License Word 0 0 1 $40.00Books/Supplies MAGIC TAPE 0 2 0 $40.99Books/Supplies MAGIC TAPE 0 4 4 $12.99Books/Supplies Mancala 0 0 4 $13.00Books/Supplies Manilla Folder pk 0 4 4 $11.99Books/Supplies Mixed Highlighter pk 0 4 4 $8.00Books/Supplies Mixed Highlighter pk 0 4 4 $13.99Books/Supplies Number Divider 0 8 8 $39.99Books/Supplies O/I COPY-20#/8.5X11/6-9 60 188 280 $48.99Books/Supplies O/I COPY-20#/8.5X11/6-9 0 0 92 $46.99Books/Supplies O/I COPY-20#/8.5X11/6-9 0 0 10 $17.38Books/Supplies Office Impressions #90 Clasp Envelope 9 X 12 Kraft 100 ct 0 0 4 $45.00Books/Supplies Office Impressions 92 Bright 20# 8.5x11 Case 0 25 0 $45.00Books/Supplies Office Impressions 92 Bright 20# 8.5x11 Case #562633 0 23 0 $13.00Books/Supplies Office Scissor pk 0 6 6 $19.99Books/Supplies Paid Stamp 0 1 1 $25.26Books/Supplies Pendflex Lgl Top Tab Folder 3./4" Manila 150 ct 0 0 1 $12.00Books/Supplies Pencil 0 2 2 $18.79Books/Supplies Pencil Sharpener 0 2 2 $25.76Books/Supplies POST-IT 3X3 0 1 0 $16.00Books/Supplies Post-it pk 0 4 4 $45.96Books/Supplies POST-IT 559 White 25 X 30 Self-Stick Easel Pad 0 0 4 $16.99Books/Supplies Premium Specialty Paper - Blue 0 4 0 $16.99Books/Supplies Premium Specialty Paper - Gold 0 4 0 $16.99Books/Supplies Premium Specialty Paper - Tan 0 4 0 $29.99Books/Supplies PREMIUM VIEW BINDER 0 1 0 $46.00Books/Supplies Premium Binder 0 5 0 $15.98Books/Supplies RED BASELINE JUMBO NEWSPRINT 40 0 0 $10.58Books/Supplies RED BASELINE JUMBO NEWSPRINT-GR1 40 0 0 $10.58Books/Supplies RED BASEUNE JUMBO NEWSPRINT-GR2 16 0 0 $10.58Books/Supplies REO BASELINE JUMBO NEWSPRINT-GR3 16 0 0 $20.00Books/Supplies Scholatlc Workbooks K-5 0 100 0 $231.27Books/Supplies Spectrum Ball Pack & Mesh Bag 0 0 2 $3.39Books/Supplies SPLIT KEY RING PK/25 12 0 0 $40.00Books/Supplies SPLS 70 Crate Black 0 4 0 $25.00Books/Supplies STAPLER 0 2 0 $18.99Books/Supplies Stapler Pkg 0 6 6 $12.99Books/Supplies STICK PENS 0 6 0 $8.49Books/Supplies SUNWORKS GW CNSTR PAPER 9X1 96 0 0 $3.99Books/Supplies Swingline 1.4" Standard Staples 5000 ct 0 0 10 $10.58Books/Supplies Red Baseline Ruled Newsprint - Grade 1 0 40 0 $9.40Books/Supplies Red Baseline Ruled Newsprint - Grade 2 0 18 0 $9.40Books/Supplies Red Baseline Ruled Newsprint - Grade 3 0 18 0 $39.99Custodial Supplies SHIPLOCK PANELING 8'X4"X.8" 0 4 0 $25.00Custodial Supplies 1/2 Fold Seat Cover 0 4 0 $49.99Custodial Supplies 12"x10" 6PK TRAY -EATING TRAYS 0 10 10 $56.00Custodial Supplies 12-16g Clear Bag 0 0 8 $23.00Custodial Supplies 12-16g Clear Bag 0 18 6 $54.99Custodial Supplies 16"X12" 6PK TRAY -EATING TRAYS 0 10 0 $25.00Custodial Supplies 16g Bin Bag 500ct 0 8 0 $36.00Custodial Supplies 55g Industrial Bag 500ct 0 0 12 $26.99Custodial Supplies 55g Industrial Bag 500ct 0 24 8 $70.00Custodial Supplies 55g Recycled Material Bag 500ct 0 4 0 $54.99Custodial Supplies Antibactierial Hand Soap CS 0 2 12 $13.99Custodial Supplies ALL PURPOSE DRYWALL PATCH ANTI-MOLD 0 1 0 $29.99Custodial Supplies BAR RINSE 0 4 0 Fiscal crisis & ManageMent assistance teaM 5511 APPENDDRICAEFST SUMMARY OF OSE INVOICE ITEMS AND PRICE PER ITEM CALCULATION 2011 2012 2013 Price Per Type Item Quantity Quantity Quantity $19.98Custodial Supplies BarORinse Disinfectant 0 3 3 $10.00Custodial Supplies BarORinse Disinfectant 0 12 12 $31.12Custodial Supplies BAR TWL 0 6 0 $10.99Custodial Supplies BLACK PLUNGER 18" PLASTIC 1 0 0 $46.89Custodial Supplies Blu Hwk Roller Kit 0 0 1 $19.99Custodial Supplies Brooms 12" 0 0 7 $20.00Custodial Supplies Broom-Light Weight 0 2 0 $24.99Custodial Supplies Broom 0 1 1 $12.00Custodial Supplies Broom 0 4 4 $40.00Custodial Supplies CAN LINER 56G BLK 0 10 0 $4.00Custodial Supplies Clorox 1.5G 0 0 0 $49.99Custodial Supplies 12" X 10" 6PK Tray 0 10 0 $10.00Custodial Supplies Clorox Blch 3PK 0 12 24 $16.99Custodial Supplies Clorox Blch 3PK 0 0 4 $29.99Custodial Supplies CLOROX ULTRA GERM 6 0 0 $38.99Custodial Supplies Clorox Wipes 0 0 12 $19.78Custodial Supplies Clorox Wipes 0 0 12 $19.99Custodial Supplies Clorox Wipes 0 6 6 $19.94Custodial Supplies CO CAULK GUN 0 1 0 $19.99Custodial Supplies Corn Broom 10" 0 0 3 $8.89Custodial Supplies Doorstop Solid Brass 0 0 1 $40.00Custodial Supplies Drywall Package - 100SP Fill 0 1 0 $26.99Custodial Supplies Dust Pan w/Handle 0 0 5 $59.74Custodial Supplies Extra Soft BR 2000 0 4 12 $19.90Custodial Supplies Extra Soft BR 2000 0 10 10 $59.74Custodial Supplies Extra Soft BR 2001 0 0 4 $28.96Custodial Supplies Faucet Stem R 0 0 1 $17.98Custodial Supplies FEBREZELINE OCEANFRSH 0 3 0 $17.98Custodial Supplies FEBREZELINE TRPCL 0 3 0 $19.94Custodial Supplies GE ULT SL 0 1 0 $17.86Custodial Supplies Germ-X Original hand Sanitizer with Pump Top, 67.6 oz 0 0 24 $87.98Custodial Supplies Gloves Latex Large 100 0 0 1 $29.99Custodial Supplies H/D SPONGE 12PK 0 1 0 $44.99Custodial Supplies Hand Towel Single Fold 0 12 0 $20.00Custodial Supplies Hand Towel Single Fold 0 12 12 $19.78Custodial Supplies Hard Surface Wipes 4pk 0 0 48 $19.99Custodial Supplies Husky 9 PC SAE/MIRC Folding Hax Set 0 0 1 $15.57Custodial Supplies HVY DEG 1 0 0 $24.99Custodial Supplies Kleenex 0 36 42 $9.99Custodial Supplies KNOCKDOWN/SPATULA 0 1 0 $49.34Custodial Supplies KW TOILET SEAT HDC 0 2 0 $59.84Custodial Supplies KS Sig Lido Bed/Bath Satin Nickel 0 0 3 $10.00Custodial Supplies Lit Bulbs T18" 0 12 0 $33.50Custodial Supplies Lysol Disinfectant Spray 4/19 oz 0 0 1 $30.70Custodial Supplies Lysol Disinfecting Wipes, 4/80 ct 0 0 12 $39.67Custodial Supplies MICROFBR TOWEL 0 6 0 $27.96Custodial Supplies ML 2* BRASS RESET COMBINA 1 0 0 $25.00Custodial Supplies Mop Head 0 12 12 $22.50Custodial Supplies Mop Head 0 8 0 $9.35Custodial Supplies Mop Head (Single) 0 0 4 $49.99Custodial Supplies Natural 400 Single Fold 0 18 54 $26.67Custodial Supplies Natural 400 Single Fold 0 54 0 $45.00Custodial Supplies Natural 400 Single Fold 0 8 0 $17.97Custodial Supplies PAD LOCK 0 2 0 $95.00Custodial Supplies PALM LIQ ANTIBACT 4 0 0 $63.33Custodial Supplies PALM LIQ ANTIBACT 0 6 0 $10.00Custodial Supplies PAPER SEAT COVER 0 28 24 $20.00Custodial Supplies PineSol Lemon 0 12 24 $26.73Custodial Supplies PineSol Lemon 0 0 4 $39.99Custodial Supplies PlneSol LEM CS 0 3 0 $5.69Custodial Supplies PLUNGER CADDY 1 0 0 $54.99Custodial Supplies Poly Gloves 6PK 0 12 18 $36.00Custodial Supplies Poly Gloves 6PK 0 18 6 $93.96Custodial Supplies Schlage Acc Keyed SN 0 0 1 $95.99Custodial Supplies Soap Hand Anti-Bac 4PK16 0 5 10 $39.99Custodial Supplies SOFT TOUCH 4000 0 40 20 Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 5522 DARPPAEFNTDICES SUMMARY OF OSE INVOICE ITEMS AND PRICE PER ITEM CALCULATION 2011 2012 2013 Price Per Type Item Quantity Quantity Quantity $39.95Custodial Supplies SOFT TOUCH 4000 0 16 0 $14.11Custodial Supplies SOFTSOAP ANT1BACT 1 0 0 $39.96Custodial Supplies SPACKLNG 0 1 0 $25.00Custodial Supplies Tissue 0 0 12 $25.00Custodial Supplies Tissue 0 6 6 $30.00Custodial Supplies Tissue 0 8 0 $49.99Custodial Supplies Tissue Bath JJ 2PL 3.75" 0 0 8 $51.97Custodial Supplies TISSUE JUMBO 0 6 0 $29.24Custodial Supplies Tisue4000 0 8 0 $25.00Custodial Supplies Tisue4000 0 6 0 $30.00Custodial Supplies Toilet Paper Jumbo Dispenser 0 2 2 $39.99Custodial Supplies Towels 0 0 6 $15.57Custodial Supplies TOWEL ROLL WHITE 1 0 0 $35.88Custodial Supplies TP HLDR-PB 0 1 0 $24.99Custodial Supplies Tray Liner 0 3 11 $169.00Custodial Supplies Val Ext Mnsry Stc Wht Paint - 5G 0 0 1 $169.00Custodial Supplies Val Ext Mnsry Stc Tan Paint - 5G 0 0 1 $5.47Custodial Supplies Wall Protect 3-1/4" White 0 0 1 $29.99Custodial Supplies W/P H/E COMBI LCK 0 1 0 $4.00Custodial Supplies CLOROX 1.5G 0 24 0 $1.92Custodial Supplies Clorox Powder 32 oz 0 96 0 $5.00Custodial Supplies PineSol 2G 0 24 0 $19.99Custodial Supplies ANTIfBac Hand Soap 1G 0 10 0 $10.00Custodial Supplies ANTIfBac Hand Soap 1G 0 4 0 $434.98F & E Netgear R6300 AC Router 802.11AC Dual-Band 0 0 1 $830.25F & E Brother 8910DW Printer Dlux 0 0 1 $366.00F & E Brother TN350 0 1 1 $819.99F & E Sunroc SS Drinking Fountain 0 0 1 $725.87F & E Dalite Laptop Cart 0 3 0 $765.00F & E DOUBLE-SIDED MAGNETIC MARKBOARD W/WOOD FRAME (6' W X 4' H) 0 0 1 $649.00F & E Franklin Indoor Enclosed Bulletin Board W/Two Doors (5' X 3'H) 0 0 1 $489.00F & E ABC Magnetic Dry Erase Board (6'W X 4' H) 0 0 1 $50.19F & E Programable Micro Automatic Gate Remote (HomeLink Compatible) 0 0 10 $4,703.91F & E 6' x 8" H Freestanding Portable Partition - Nine Panels (16' 9"L) 0 0 1 $8.85F & E Quality Tray 10 X 14 0 0 48 $125.24F & E Quality Cart Black 0 0 3 $599.99F & E Epson EX-51 0 1 1 $462.37F & E ACER Note Book 0 2 0 $961.25F & E Toshiba Laptop 0 1 0 $1,299.99F & E PA Sound System - 2 Wired Mics, 1 Wireless Mic, Mixer 0 1 0 $1,000.00F & E JBL PA System 0 2 0 $20.00F & E Projector Case 0 3 0 $800.00F & E Mackie Thump PA Speakers 15" 0 2 0 $10.00Food Supplies ANIMAL CRACKER 0 11 0 $7.00Food Supplies Austin Variety 45ct 0 10 0 $12.99Food Supplies Austin Variety 45ct 40 254 290 $16.99Food Supplies Austin Variety 45ct 0 24 0 $17.99Food Supplies Austin Variety 45ct 0 0 16 $19.99Food Supplies Austin Variety 45ct 0 24 24 $12.50Food Supplies Austin Zoo 20 0 0 $12.99Food Supplies Austin Zoo 0 18 0 $12.50Food Supplies Cheeze It 20 0 0 $11.99Food Supplies Cheeze It 0 8 0 $10.00Food Supplies CINNAMON TOAST BAR 0 15 0 $10.00Food Supplies COCOA PUFFS BAR 0 12 0 $12.99Food Supplies Disney Cracker 0 5 5 $17.99Food Supplies Dnr Napkins 0 0 1 $10.00Food Supplies GOLD FISH CRACKERS 0 11 0 $7.99Food Supplies Honey Maid 25 0 0 $7.99Food Supplies Honey Maid 0 25 0 $8.99Food Supplies Honey Maid 0 90 72 $13.99Food Supplies Honey Maid 0 10 0 $12.99Food Supplies Honey Maid 0 18 80 $12.98Food Supplies Honey Maid 0 0 36 $12.97Food Supplies Honey Maid 0 12 0 $17.99Food Supplies Honey Maid 0 0 16 Fiscal crisis & ManageMent assistance teaM 5533 APPENDDRICAEFST SUMMARY OF OSE INVOICE ITEMS AND PRICE PER ITEM CALCULATION 2011 2012 2013 Price Per Type Item Quantity Quantity Quantity $19.99Food Supplies Honey Maid 0 24 16 $10.00Food Supplies MINI PRETZELS 0 11 0 $16.99Food Supplies Nature Valley - Oats n' Honey 0 0 14 $25.99Food Supplies Pape Plates 0 0 2 $19.99Food Supplies Quaker Chewy 0 0 37 $11.99Food Supplies Rice Crispy 20 20 0 $12.23Food Supplies Rice Crispy 0 0 17 $12.97Food Supplies Rice Crispy 0 20 0 $12.99Food Supplies Rice Crispy 0 80 0 $12.98Food Supplies Rice Crispy 0 0 36 $12.99Food Supplies Rice Crispy 0 32 118 $16.99Food Supplies Rice Crispy 0 24 20 $19.99Food Supplies Rice Crispy 0 24 28 $65.71Food Supplies S&F - Snacks and Fruits Variety 12/15 0 1 0 $10.00Food Supplies SCOOBY CRACKERS 0 11 0 $10.00Food Supplies STRAWBERRY CHERRIOS 0 12 0 $19.98Food Supplies Veg Tray 0 0 6 $7.99Food Supplies Water 8oz 35PK 0 0 30 $6.00Food Supplies Water 8oz 35PK 0 4 0 $39.98Other Supplies 68 SCHLAGEKEY 0 1 0 $153.00Postage Federal Exp 0 1 0 $0.44Postage USPS Stamps 0 1000 0 $182.07Postage USPS Stamps 0 1 0 $150.00Postage USPS Stamps 0 1 0 NSF Charge 0 0 0 0 0 0 Total 0 0 0 Sales Tax 0 0 0 Total With Tax 0 0 0 Quantity Totals 7 03 3 ,551 2 ,442 Grand Total 2011 - 2013 Quantities 6 ,696 Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 5544 DARPPAEFNTDICES Fiscal crisis & ManageMent assistance teaM 5555 APPENDDRICAEFST Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 5566 DARPPAEFNTDICES Fiscal crisis & ManageMent assistance teaM 5577 APPENDDRICAEFST Los AngeLes County offiCe of eduCAtion - WAys ACAdemy 5588 DARPPAEFNTDICES Fiscal crisis & ManageMent assistance teaM 5599 APPENDDRICAEFST Los AngeLes County offiCe of eduCAtion - WAys ACAdemy