Superintendent of Public Instruction – Options for Youth, Inc. and Opportunities for Learning, Inc. Charter Schools (ofyofl) Follow-Up Report

Followup Audit of the Options for Youth, Inc. and Opportunities for Learning, Inc. Charter Schools Commissioned by the Superintendent of Public Instruction in Cooperation with the Los Angeles, Administrative Agent Larry E. Reider Orange, Sacramento, San Bernardino, and Offi ce of Kern County Superintendent of Schools Siskiyou County Offi ces of Education Chief Executive Offi cer Joel D. Montero April 11, 2007 Table of Contents Executive Summary .........................................................................1 Charter School Funding and Financial Analysis ...................................................1 Options for Youth ...........................................................................................1 Opportunities for Learning .............................................................................1 Charter School Pupil-to-Teacher Ratios ................................................................2 Options for Youth ...........................................................................................2 Opportunities for Learning .............................................................................2 Summary of Key Recommendations .............................................2 Introduction ......................................................................................5 Charter School Funding .........................................................................................5 Request for an Audit of OFY and OFL .................................................................5 Scope and Methodology ........................................................................................7 Investigate Certifi cated Staff and Instructional Expenses ..............................7 Investigate Pupil-to-Teacher Ratios ................................................................7 Audit Standards ..............................................................................................7 Audit Team .....................................................................................................8 Audit Results ....................................................................................9 Charter School Funding and Financial Analysis ...................................................9 Financial Data Used in the Funding Determination for OFY Charter Schools ...10 Financial Data Used in the Funding Determination for OFL Charter Schools...11 Charter School Pupil-to-Teacher Ratios ..............................................................11 OFY Pupil-to-Teacher Ratios .......................................................................12 OFL Pupil-to-Teacher Ratios ........................................................................14 Recommendations .........................................................................15 Responses to Audit of Options for Youth and Opportunities for Learning and Audit Team's Rebuttals to Responses ............. 17 1 Executive Summary In August 2006, the Fiscal Crisis and Management Assistance Team (FCMAT) and MGT of America, Inc. (MGT) issued an audit report entitled “Extraordinary Audit of the Options for Youth, Inc. and Opportunities for Learning, Inc. Charter Schools.” The report, complet- ed at the request of the state Superintendent of Public Instruction (State Superintendent) and the county offi ces of education in Los Angeles, Orange, Sacramento, San Bernardino, and Siskiyou counties, examined the fi scal and administrative conditions of the Options for Youth (OFY) and Opportunities for Learning (OFL) charter schools for fi scal years 2002-03 through 2004-05. The report revealed serious concerns regarding the fi scal opera- tions of the schools and that the charter schools potentially overclaimed as much as $57 million in funding from the state. In November 2006, the State Superintendent and the fi ve county offi ces of education initi- ated an expansion of the audit to include the fi nancial calculations and pupil-to-teacher ratios for fi scal year 2001-02. This report presents the fi ndings from the audit team’s inves- tigation of the six OFY and two OFL charter schools for fi scal year 2001-02. Charter School Funding and Financial Analysis When applying for funding, nonclassroom-based charter schools such as those operated by OFY and OFL must submit a Nonclassroom-Based Senate Bill 740 (Chapter 892, Statutes of 2001) Funding Determination form (SB 740 form). Charter schools may be eligible for partial or full funding depending on the ratio of expenditures to revenues for instruction- related activities and certifi cated staff salaries and benefi ts reported in the SB 740 form. The State Board of Education (SBE) uses the data in this form to determine the percentage of funding that the school is eligible to receive in the upcoming year. Options for Youth The audit team identifi ed one issue with the fi nancial data that the OFY charter schools reported on a fi scal year 2002-03 SB 740 form. The OFY-Upland charter school incor- rectly included $26,166 in salary and benefi ts for one noncredentialed administrator in the certifi cated staff compensation category. This misallocation of expenses resulted in OFY incorrectly reporting a higher percentage of expenses for certifi cated staff at the OFY-Upland charter school. Opportunities for Learning The audit team also identifi ed issues with the fi nancial data the OFL charter schools re- ported on their fi scal year 2002-03 SB 740 forms. Specifi cally, in reviewing the documents used to compile expenses reported on the SB 740 forms for 2002-03, the audit team found that OFL incorrectly included $43,974 in teacher automobile expenses, reimbursements, and education costs in the certifi cated staff compensation category. In addition, OFL incor- rectly included $120,783 in salaries and benefi ts for two administrators in the instruction OFY-OFL Followup Audit 2 and related services expenditures category. These misallocations of expenses resulted in OFL incorrectly reporting higher percentages for certifi cated staff compensation and in- struction and related services expenditures for the two charter schools it operated in fi scal year 2001-02. Charter School Pupil-to-Teacher Ratios Nonclassroom-based schools must also maintain a pupil-to-teacher ratio that does not ex- ceed the equivalent ratio for all other educational programs operated by the unifi ed school district with the largest average daily attendance (ADA) of pupils in that county. Only units of ADA with a pupil-to-teacher ratio that does not exceed the comparison ratio are eligible for funding. Options for Youth The support OFY provided for its full-time equivalent credentialed teachers (FTE) for inclusion in the pupil-to-teacher ratio did not always agree with the amount of FTE that OFY claimed on its SB 740 forms, and OFY lacked support for fi ve FTEs. The OFY also did not always round properly in its calculations and utilized inaccurate pupil-to-teacher ratio numbers from the largest unifi ed school districts. However, correcting OFY’s round- ing errors and using verifi ed pupil-to-teacher ratio numbers from the largest unifi ed school districts does not cause OFY’s pupil-to-teacher ratios to exceed the ratios of the compari- son districts. Opportunities for Learning The OFL lacked support for more than 13 FTEs it claimed in 2001-02 and claimed more than six questionable teacher FTEs. The OFL also appears to have rounded incorrectly and utilized inaccurate pupil-to-teacher ratio numbers from the largest unifi ed school districts, resulting in an apparent overpayment to OFL-William S. Hart of approximately $601,271 from the state. Summary of Key Recommendations To establish compliance with state requirements for funding, OFY and OFL should: • Maintain accurate and reliable documentation to support the expenses used in the SB 740 forms. • Establish procedures to ensure that the staff properly records expenses to the cor- rect accounting categories, and performs periodic reviews to verify accuracy. To improve their controls and practices over the calculations of FTE and pupil-to-teacher ratios, OFY and OFL should establish appropriate monitoring and review to ensure that they: Fiscal Crisis & Management Assistance Team 3 • Calculate FTE in accordance with established rules utilizing proper rounding tech- niques and maintaining adequate support for FTEs claimed. • Obtain accurate reports of the pupil-to-teacher ratios for the largest unifi ed school districts, if applicable. To ensure that OFL received an appropriate amount of funding, the state should determine whether to seek reimbursement or withhold funds for the approximately $601,271 related to the inaccurate or unsupportable pupil-to-teacher ratio data the OFL-William S. Hart reported on its 2002-03 SB 740 form. OFY-OFL Followup Audit 4 Fiscal Crisis & Management Assistance Team 5 Introduction Charter School Funding OFY and OFL charter schools receive funding from the state based on the program sites’ ADA. This is similar to the funding mechanism for public schools. Schools claim ADA based on the aggregate attendance of students during each reporting period. For example, one student who attends school each day for the entire reporting period is eligible for 1.0 ADA. School districts and charter schools calculate ADA and report it to the California Department of Education (CDE) three times per year. After the charter schools report their ADA to CDE, the state Superintendent apportions state school funds to the charter schools. Senate Bill 740 amended the Charter School Act of 1992, which established criteria for funding charter schools offering nonclassroom-based instruction. Education Code Sec- tion 47634.2 authorized the SBE to establish criteria for evaluating funding requests and to determine the total amount of funding each nonclassroom-based charter school should receive. When applying for funding, nonclassroom-based charter schools such as those operated by OFY and OFL must also submit an SB 740 form, containing revenue and expenditure data from the previous school year. Charter schools may be eligible for partial or full funding depending on the ratio of expenditures to revenues for instruction and related services and certifi cated staff compensation. The SBE uses this data as a basis for determining the per- centage of funding the school is eligible to receive in the upcoming year. For instance, the SB 740 form used to determine funding levels for 2002-03 is based on actual fi nancial data from the 2001-02 school year. The previous audit report, issued in August 2006, contains a background of charter schools in California and a more detailed description of charter school funding. Request for an Audit of OFY and OFL In 2005, the state Superintendent and the county offi ces of education in Los Angeles, Orange, Sacramento, San Bernardino, and Siskiyou counties initiated an audit request of the fi scal and administrative conditions of the OFY and OFL charter schools. FCMAT contracted with MGT of America, Inc. to perform this audit. The request required the audit team to perform tests to ensure that the charter schools were complying with nonclass- room-based requirements, and to determine whether the schools had engaged in related- party transactions with vendors or contractors. The subsequent audit report, issued in August 2006, revealed serious concerns regarding the fi scal operations of the schools and indicated that they had potentially overclaimed as much as $57 million in state funding. OFY-OFL Followup Audit 6 In November 2006, the original audit requestors initiated an expansion of the audit to include the 2001-02 school year results included in the 2002-03 funding determination requests of the charter schools. The expansion is smaller in scope than the fi rst phase, and deals only with the fi nancial calculations in the SB 740 forms and pupil-to-teacher ratio calculations for fi scal year 2001-02. Scope and Methodology Exhibit I-1 summarizes the limited scope of this audit report. Exhibit I-1 Scope of Investigative Audit (Summarized) Issue Objectives Determine the accuracy of the ratios of certifi cated Investigate certifi cated staff compensation and instruction and related services staff and instructional expenditures to the amount of total public revenues for the expenses 2001-02 school year, as reported to the state. Validate the accuracy of the OFY and OFL calculation of the ratio of nonclassroom-based teachers to average Investigate pupil-to- daily student attendance generated through full-time, teacher ratios nonclassroom-based study pursuant to state law. Calculate the amount of any overclaimed revenues from the state. Investigate Certifi cated Staff and Instructional Expenses To determine the accuracy of the OFY and OFL reported amounts of certifi cated staff com- pensation and instruction and related services expenditures compared to the amount of to- tal public revenues and total revenues for the 2001-02 school year reported in each charter school’s SB 740 forms, the audit team matched the amounts to the audit reports prepared by the entities’ external auditors. The audit team also summarized and agreed the charter schools’ general ledgers to the numbers reported on the SB 740 forms. The audit team test- ed a sample of the reported fi nancial transactions to supporting evidence such as invoices, receipts, and payroll records to determine whether the amounts were adequately supported and that the charter schools properly reported and classifi ed these amounts. Using verifi ed amounts, the audit team recalculated certifi cated staff and instruction and related services expenditures percentages using the state-approved methodology and formulas. Investigate Pupil-to-Teacher Ratios To test the OFY and OFL pupil-to-teacher ratio calculations pursuant to California Educa- tion Code Section 51745.6; Title 5, California Code of Regulations, Section 11704; and the Instructions for Ratio Calculations published by the Independent Study Offi ce at the CDE, the audit team reviewed each charter’s Period 2 (P-2) classroom-based ADA, FTEs, and pupil-to-teacher ratios reported in audited fi nancial statements, SB 740 forms, and in Fiscal Crisis & Management Assistance Team 7 internally generated tracking documents, as applicable. (The Second Period Report of At- tendance, or P-2, is the funding apportionment claim report that is the basis for a nonclass- room-based charter school’s pupil-to-teacher ratio calculations.) The audit team verifi ed the pupil-to-teacher ratios of the largest unifi ed school district in the counties in which the charter schools operated in fi scal year 2001-02 by contacting staff at these districts to obtain their information. To determine the validity of the claimed FTEs, the audit team reviewed a sample of teach- ers’ fi les and payroll records and verifi ed credential and employment start and end dates. The audit team tested all credentialed teachers claimed as FTE in 2001-02 for OFY-Burbank and OFL-Baldwin Park. The audit team also focused on teachers the charter schools had reported as FTEs but who had no student records listed in the charter schools’ student information system. When the audit team noted discrepancies, it requested addi- tional information from the OFY and OFL charter schools. To the extent that the charter schools could not provide adequate explanations and support, the audit team excluded these teachers and recalculated the FTE counts and pupil-to-teacher ratios. To assess the reliability of the data contained in the electronic student information system that tracks the ADA reported by the charter schools, the audit team summarized student data contained in the system for fi scal year 2001-02 and compared this to ADA the char- ter schools reported in audited fi nancial statements and subsequently reported to the state. The audit team also matched a sample of electronic records to the student fi les. The audit team was able to reconcile its calculation of ADA from the electronic records to reported amounts and noted no material discrepancies in its tests. Audit Standards The audit was conducted in accordance with generally accepted government auditing standards promulgated by the Comptroller General of the United States. These standards pertain to the auditor’s professional qualifi cations, the quality of the audit effort, and the characteristics of professional and meaningful audit reports. Specifi cally, the audit team followed the general standards pertaining to qualifi cations, independence, and due professional care. The audit team also followed standards pertaining to conducting the audit fi eldwork and preparing the audit report. By following these standards, the audit team ensured the independence and objectivity of the audit team, the analysis, and the resulting fi ndings and recommendations offered in this report. The audit team limited its review to those areas specifi ed in the scope section of this report. OFY-OFL Followup Audit 8 Audit Team For FCMAT: Joel Montero, Chief Executive Offi cer Frank Fekete, General Counsel Laura Haywood, Public Information Specialist For MGT: Tyler Covey, CPA, CMA, Senior Associate Jonathan Finley, Consultant Celina Knippling, CPA, Senior Consultant Fiscal Crisis & Management Assistance Team 9 Audit Results Charter School Funding and Financial Analysis When applying for funding, nonclassroom-based charter schools such as those operated by OFY and OFL must submit a SB 740 form. The SBE uses this data as a basis for determin- ing the percentage of funding that the school is eligible to receive in the upcoming year. Charter schools report revenue and expenditure data from the previous school year. For instance, the SB 740 form used to determine funding levels for 2002-03 is based on actual fi nancial data from the 2001-02 school year. As shown in Exhibit 1, to receive 100% of available funding, a charter school must ensure that its ratios of certain expenses to revenues meet specifi c thresholds. If a charter school’s ratios do not meet these levels, it can still receive partial funding, usually determined as a reduced percentage of the total available funding. As illustrated below, charter schools that did not spend at least 50% of their total public revenues on certifi cated staff in fi scal year 2001-02 did not meet the criteria for 100% funding in fi scal year 2002-03. Exhibit 1 Criteria Used to Determine Charter School Funding Level, School Year 2002-03 Ratio of Certifi cated Staff Ratio of Expenditures Funding Compensation to Total and/or for Instruction and Related Services Eligibility** Public Revenues* to Total Revenues* Equals or exceeds 50% ⎯ ⎯ 100% Equals or exceeds 35%, and Equals or exceeds 55% 80% but less than 50% Less than 35% or Less than 55% 70% Source: California Code of Regulations, Title 5, Division 1, Chapter 11, Subchapter 19, Section 11963.4. * Prior year’s revenues and expenses are used in these calculations. ** A charter school must meet an additional requirement to receive funding by ensuring that its ratio of ADA for nonclassroom- based pupils to full-time certifi cated employees responsible for nonclassroom-based study does not exceed the equivalent ratio of pupils to full-time certifi cated employees for all other educational programs operated by the largest unifi ed school district in the county or counties in which the charter operates. In addition to the criteria listed above, the Advisory Commission on Charter Schools could recommend to SBE for the 2002-03 funding determination that charter schools receive a different funding level than shown in the table, if “… there is a reasonable basis to recom- mend otherwise.” In fact, the SBE determined the appropriate funding level for OFY and OFL for 2002-03 was 60%. However, this funding determination was subsequently invali- dated, as the regulations relied on to determine the funding had not been properly adopted. (EMS-BP et al. v. California Department of Education et al. [May 31, 2005, C046457] [nonpubl. opn.].) The SBE is required to make a new funding determination for OFY and OFL for 2002-03. OFY-OFL Followup Audit 10 Because the funding determination depends to a large extent on the amounts that the char- ter schools report spending for certifi cated staff and instructional and related services on their funding determination forms, the accuracy of the amounts reported as expended in the various categories is very important. Certifi cated instructional staff are defi ned as those who hold a valid certifi cate, permit, or other document equivalent to that which a teacher in other public schools would be required to hold from the California Commission on Teacher Credentialing. The instructions for completing the SB 740 form guide schools in how to properly catego- rize revenues and expenditures. The laws pertaining to the funding determination process became operative in January 2002, and were retroactive to the beginning of the 2001-02 school year. The following sections describe the issues identifi ed in the audit team’s review of fi nancial data pertaining to OFY and OFL. Financial Data Used to Determine Funding for OFY Charter Schools The audit team identifi ed one issue concerning the administrative staff salaries and benefi ts reported on one SB 740 form submitted by the OFY charter schools. Specifi cally, one administrative staff member at the OFY-Upland charter school did not possess a valid credential. Without a valid credential, this staff member’s $26,166 in salary and benefi ts is ineligible to be included in the SB 740 funding determination ratio of certifi cated staff compensation to total public revenues. Exhibit 2 OFY Claimed and Verifi ed Percentages for Certifi cated Staff Compensation Fiscal Year 2002-03 SB 740 Forms Certifi cated Staff Compensation Percentage Calculated by Auditors Charter School Using Financial Data Using Financial Data Reported by OFY in Reported by OFY in the SB 740 Forms and Removing Noncer- the SB 740 Forms tifi cated Administrator Compensation Burbank 29.7% no change Mount Shasta 28.5 no change San Gabriel 24.5 no change San Juan 34.5 no change Upland 26.7 26.1%↓ Victor Valley 29.1 no change Source: OFY 2002-03 SB 740 forms, accounting records, and payroll data. Fiscal Crisis & Management Assistance Team 11 Financial Data Used to Determine Funding for OFL Charter Schools The audit team also identifi ed issues with the fi nancial data OFL charter schools reported on their SB 740 forms. The two OFL charter schools improperly included $120,783 for two administrative staff (salaries and benefi ts) in the instruction and related services ex- penditures category in the SB 740 forms. In addition, OFL incorrectly included $43,974 in teacher automobile expenses, reimbursements, and education costs in the certifi cated staff compensation category. According to the instructions for completing the SB 740 form, these types of expenses should be reported under the category of “All Other Instruc- tion and Related Services and Other Operating Costs.” That category specifi cally includes travel, conference, and professional development costs for instructional or related person- nel. As shown in Exhibit 3, the combined effects of these issues resulted in OFL incorrect- ly calculating and reporting infl ated expense percentages for both charter schools. Exhibit 3 OFL Claimed and Verifi ed Percentages for Certifi cated Staff Compensation and Instruction and Related Services Expenditures Fiscal Year 2002-03 SB 740 Forms Instruction and Related Services Certifi cated Staff Compensation Expenditures Percentage Percentage Calculated by Auditors Calculated by Auditors Using Financial Using Financial Using Financial Using Financial Data Reported Data Reported by Data Reported Data Reported Charter School by OFL in the OFL in the SB 740 by OFL in the by OFL in the SB 740 Forms Forms and Remov- SB 740 Forms SB 740 Forms ing Automobile, and Removing Reimbursements, Certifi cated and Education Administrator Costs Compensation Baldwin Park 36.6% 36.0%↓ 57.1% 55.9%↓ William S. Hart 32.9 32.7↓ 40.5 39.4↓ Source: OFL 2002-03 SB 740 forms, accounting records, and payroll data. Charter School Pupil-to-Teacher Ratios California Education Code and CDE instructions specify that the ratio of ADA for non- classroom-based pupils 18 years of age or younger to FTE certifi cated employees directly responsible for nonclassroom-based study shall not exceed the equivalent ratio of pupils to full-time certifi cated employees for all other educational programs operated by the uni- fi ed school district with the largest average daily attendance of pupils in that county. The computation of these ratios is to be performed annually by the reporting entity at the time of, and in connection with, the second principal apportionment report to the state Superin- tendent. Only the ADA units for nonclassroom-based study that refl ect a pupil-to-teacher ratio within the comparison ratio are eligible for apportionment. OFY-OFL Followup Audit 12 The previous audit report, issued in August 2006, contains a more detailed background of state laws and regulations related to nonclassroom-based charter schools and a description of the methodology that OFY and OFL use to determine their FTE certifi cated teachers. Although each teacher at OFY and OFL that was claimed as an FTE in calculating the pu- pil-to-teacher ratios and tested by the audit team held a valid teaching credential, the audit team found FTE miscalculations at both entities and the inclusion of a few staff at OFL that do not qualify. Additionally, some of the pupil-to-teacher ratio calculations were incor- rect because of improper rounding. In the SB 740 forms, the entities also overstated and understated the comparison pupil-to-teacher ratios for the largest unifi ed school districts. In fact, none of the pupil-to-teacher ratios reported by OFY or OFL for their charter schools or largest unifi ed school districts matched the pupil-to-teacher ratios verifi ed by the audit team. As a result, OFL-William S. Hart appears to have been overpaid by the state. OFY Pupil-to-Teacher Ratios The audit team found the following issues that adversely affected the OFY’s reported pu- pil-to-teacher ratios: • The support OFY provided for its pupil-to-teacher ratio claims for each of its six charter schools did not agree with the pupil-to-teacher ratios that OFY claimed in its SB 740 forms. • The OFY could not provide support for fi ve FTEs (rounded) it claimed in its pupil- to-teacher ratios for OFY-San Juan (1 FTE), OFY-Upland (1 FTE), and OFY-Victor Valley (3 FTEs). • The OFY-Mount Shasta and OFY-San Juan rounded their pupil-to-teacher ratios up instead of rounding down as specifi ed in the pupil-to-teacher ratio instructions. • The OFY-Upland and OFY-Victor Valley used San Bernardino City USD for the largest unifi ed school district in their SB 740 forms, but used a different district (Victor Valley Union High) as the largest unifi ed school district for their supporting documentation. In fact, San Bernardino City USD was the largest unifi ed school district in San Bernardino County during the 2001-02 school year. • The OFY-Burbank and OFY-San Gabriel used a comparison pupil-to-teacher ratio for the largest unifi ed school district (Los Angeles USD that is signifi cantly higher (26 to 1) than the actual ratio LAUSD provided to the audit team (21 to 1). How- ever, OFY relied upon calculations provided to it by its external auditors. • The OFY-Mount Shasta used a comparison pupil-to-teacher ratio for the largest uni- fi ed school district (Yreka Union School District) that was higher (19 to 1) than the actual ratio that Yreka Union School District provided to the audit team (18 to 1). Fiscal Crisis & Management Assistance Team 13 • The OFY did not round the FTEs down when calculating the pupil-to-teacher ratios. The pupil-to-teacher ratio instructions specify that FTEs are to be rounded down when calculating pupil-to-teacher ratios. The OFY made this error when calculating the pupil-to-teacher ratios for all six OFY charter schools. The audit team found these issues that positively affected the OFY’s reported pupil-to- teacher ratios: • The OFY-Upland and OFY-Victor Valley used a comparison pupil-to-teacher ratio for the largest unifi ed school district (San Bernardino City USD) that was lower (21 to 1) than the actual ratio that San Bernardino City USD provided to the audit team (22 to 1). • The OFY-San Juan used a comparison pupil-to-teacher ratio for the largest unifi ed school district (Sacramento City USD) that was lower (21 to 1) than the actual ratio that Sacramento City USD provided to the audit team (22 to 1). • The OFY did not remove the ADA of students over the age of 19 when calculating its charter schools’ pupil-to-teacher ratios, and therefore reported more conserva- tive pupil-to-teacher ratios to the state. As Exhibit 4 shows, removing the ADA for students over age 19, unsupported FTEs, and using proper rounding techniques changes the pupil-to-teacher ratio calculations for all of the charter schools. However, all are still within the pupil-to-teacher ratios from the largest unifi ed school districts. Exhibit 4 Differences in OFY Pupil-to-Teacher Ratio Calculations Pupil-to-Teacher Ratios Auditor Calculated Largest Unifi ed Charter School OFY Claimed Using Supporting School District on SB 740 Documents Provided OFY Claimed Reported to by OFY on SB 740 Audit Team Fiscal year 2001-02 Burbank 18 19 26 21 Mount Shasta 17 18 19 18 San Gabriel 23 21 26 21 San Juan 14 16 21 22 Upland 16 20 21 22 Victor Valley 18 20 21 22 Sources: Auditor generated using data from OFY, the SB 740 forms, and the comparison districts. OFY-OFL Followup Audit 14 OFL Pupil-to-Teacher Ratios The audit team found these issues that adversely affected the OFL’s reported pupil-to- teacher ratios: • The support OFL provided for its pupil-to-teacher ratio claims for OFL-Baldwin Park and OFL-William S. Hart did not agree with the pupil-to-teacher ratios that OFL claimed in its SB 740 forms. • The OFL-Baldwin Park could not provide support for 13.44 FTEs, and claimed 6.64 FTEs for staff who did not provide direct instruction to students, or who only worked part-time. • The OFL-Baldwin Park and OFL-William S. Hart used a comparison pupil-to- teacher ratio for the largest unifi ed school district (LAUSD) that is signifi cantly higher (26 to 1) than the actual ratio LAUSD provided to audit team (21 to 1). • The OFL did not round the FTEs down when calculating the pupil-to-teacher ratios. The pupil-to-teacher ratio instructions specify that FTEs are to be rounded down when calculating pupil-to-teacher ratios. The OFL made this error when cal- culating the pupil-to-teacher ratios for both OFL charter schools. As Exhibit 5 shows, OFL-William S. Hart’s pupil-to-teacher ratio exceeds the verifi ed pu- pil-to-teacher ratio numbers from the largest unifi ed school district. As a result, OFL-Wil- liam S. Hart appears to have been overpaid $601,271 by the state for ineligible ADA. Exhibit 5 OFL May Have Been Overpaid Approximately $600,000 Due to Its Inaccurate Pupil- to-Teacher Ratio Calculations Charter School Pupil-to-Teacher Ratios OFL Auditor Largest Unifi ed Amount of Claimed Calculated School District Recommended on Using OFL Reported Apportionment SB 740 Supporting Claimed to Audit Disallowance Documents on Team Provided by SB 740 OFL Fiscal Year 2001-02 Baldwin Park 13 21 26 21 - William S. Hart 14 24 26 21 $601,271 Total $601,271 Sources: Auditor generated using data from OFL, the SB 740 forms, and the comparison districts. Fiscal Crisis & Management Assistance Team 15 Recommendations To establish compliance with state requirements for funding, OFY and OFL should do the following: • Maintain accurate and reliable documentation to support the expenses claimed in the SB 740 forms. • Establish procedures to ensure that staff properly record expenses to the correct ac- counting categories and perform periodic reviews to verify accuracy. To improve their controls and practices over the calculations of FTE and pupil-to-teacher ratios, OFY and OFL should establish appropriate monitoring and reviewing of funding determination worksheets to ensure that they: • Calculate FTE in accordance with established rules utilizing proper rounding tech- niques. • Maintain adequate support for FTEs claimed. • Claim only allowable FTE staff. • Obtain accurate reports of the pupil-to-teacher ratios for the largest unifi ed school districts, if applicable. To ensure that OFL received an appropriate amount of funding, the state should determine whether to seek reimbursement or withhold funds for the approximately $601,271 related to the inaccurate or unsupportable pupil-to-teacher ratio data OFL-William S. Hart report- ed on its 2002-03 SB 740 form. OFY-OFL Followup Audit 16 Fiscal Crisis & Management Assistance Team 17 Responses to Audit of Options for Youth and Opportunities for Learning and Audit Team's Rebuttals to Responses OFY-OFL Followup Audit 18 Fiscal Crisis & Management Assistance Team 19 1 OFY-OFL Followup Audit 20 2 3 3 Fiscal Crisis & Management Assistance Team 21 3 3 4 3 OFY-OFL Followup Audit 22 5 3 3 6 Fiscal Crisis & Management Assistance Team 23 OFY-OFL Followup Audit 24 Fiscal Crisis & Management Assistance Team 25 OFY-OFL Followup Audit 26 Fiscal Crisis & Management Assistance Team 27 Rebuttal to the Options for Youth Response To provide clarity and perspective, the audit team is commenting on the Options for Youth response to the audit. The numbers below correspond to the numbers the audit team has placed in Options for Youth’s response. 1. The audit team fails to see the point of this statement. The fi ndings presented in the audit report are unaffected whether the fi scal year 2001-02 audit was an extension of the 2002-03 through 2004-05 audit or a new audit. Further, the au- dit was initiated in November 2006 by entities with the legal authority to do so: the State Superintendent of Public Instruction and the county offi ces of educa- tion in Los Angeles, Orange, Sacramento, San Bernardino, and Siskiyou coun- ties. 2. The Options for Youth’s (OFY’s) statement is misleading. While OFY did provide the audit team with information regarding the pupil-to-teacher ratio for the Los Angeles Unifi ed School District, the audit team believes that the information provided by OFY to support its pupil-to-teacher ratio arguments contained questionable assumptions and estimates. In fact, OFY acknowledges in its response on page 4 that it based its calculations on “information avail- able at the time,” and that the “actual pupil-to-teacher ratios had not as yet been published by the districts and, as such, were not available at the time OFY had to fi le its Senate Bill 740 funding requests.” The audit team directly contacted LAUSD to obtain its pupil-to-teacher ratio. 3. The OFY is wrong. Conducting an audit of the pupil-to-teacher ratios for LAUSD, Yreka Union School District, Sacramento City Unifi ed School District and the San Bernardino City Unifi ed School District is not within the author- ity of the audit team and was not within the scope of the audit team’s review. Therefore, OFY’s assertions that the audit team did not follow Generally Ac- cepted Governmental Auditing Standards or the law are baseless. The audit team obtained the comparison district pupil-to-teacher ratio data directly from the school districts and has no reason to believe that this information is not ac- curate. 4. The OFY is wrong. The OFY has based its response to the audit report on an inaccurate interpretation of a May 2002 memo from the California Department of Education without consulting the appropriate statute, California Education Code Section 51745.6, which states that nonclassroom-based school apportion- ment funding shall be reduced to the extent that its units of average daily at- tendance result in a pupil-to-teacher ratio that exceeds that of the comparison district (please see the statute below). While meeting this provision is a require- OFY-OFL Followup Audit 28 ment for receiving full funding, not meeting this requirement is still a basis for reductions in funding, regardless of the funding percentage received as deter- mined by the Senate Bill 740 funding process. Under OFY’s interpretation, it could have any pupil-to-teacher ratio if it does not receive 100% funding. 51745.6. (a) The ratio of average daily attendance for independent study pupils 18 years of age or less to school district full-time equivalent certifi cated em- ployees responsible for independent study, calculated as specifi ed by the State Department of Education, shall not exceed the equivalent ratio of pupils to full-time certifi cated employees for all other educational programs operated by the school district. The ratio of average daily attendance for independent study pupils 18 years of age or less to county offi ce of education full-time equivalent certifi cated employees responsible for independent study, to be calculated in a manner prescribed by the State Department of Education, shall not exceed the equivalent ratio of pupils to full-time certifi cated employees for all other educa- tional programs operated by the high school or unifi ed school district with the largest average daily attendance of pupils in that county. (b) Only those units of average daily attendance for independent study that re- fl ect a pupil-teacher ratio that does not exceed the ratio described in subdivision (a) shall be eligible for apportionment pursuant to Section 42238.5, for school districts, and Section 2558, for county offi ces of education. 5. The OFY is wrong. The pupil-to-teacher ratio given to the audit team by LAUSD was calculated on July 31, 2003. In addition, the audit team contacted the districts directly for their pupil-to-teacher ratios. The audit team believes that OFY should have directly contacted the school districts for their pupil-to- teacher ratios in the past, whether or not they were “published.” 6. The OFY’s statement is inaccurate. While Title 5, California Code of Regula- tions, Section 19853(c)(4) does state that the audit should verify “… the pu- pil-teacher ratio of the largest unifi ed school district in the county or counties in which the charter school operates,” the audit team did just that by directly contacting the school districts. Fiscal Crisis & Management Assistance Team 29 1 2 OFY-OFL Followup Audit 30 3 4 4 Fiscal Crisis & Management Assistance Team 31 5 4 5 4 OFY-OFL Followup Audit 32 4 4 6 4 Fiscal Crisis & Management Assistance Team 33 7 5 5 OFY-OFL Followup Audit 34 Fiscal Crisis & Management Assistance Team 35 OFY-OFL Followup Audit 36 Fiscal Crisis & Management Assistance Team 37 Rebuttal to the Opportunities for Learning Response To provide clarity and perspective, the audit team is commenting on the Opportunities for Learning response to the audit. The numbers below correspond to the numbers the audit team has placed in Opportunities for Learning's response. 1. Opportunities for Learning (OFL) is wrong. As described below, the audit team does not believe it made any errors or inaccurate conclusions. 2. The audit team fails to see the point of this statement. The fi ndings presented in the audit report are unaffected whether the fi scal year 2001-02 audit was an extension of the 2002-03 through 2004-05 audit or a new audit. Further, the au- dit was initiated in November 2006 by entities with the legal authority to do so: the state Superintendent of Public Instruction and the county offi ces of educa- tion in Los Angeles, Orange, Sacramento, San Bernardino, and Siskiyou coun- ties. 3. The OFL is wrong. The OFL did not provide the audit team with corrections or additional information with regard to the pupil-to-teacher ratio for the Los An- geles Unifi ed School District (LAUSD). Rather, Options for Youth provided the audit team with additional information on the pupil-to-teacher ratio. In fact, the audit team believes that the information provided by OFY to support its pupil- to-teacher ratio arguments contained questionable assumptions and estimates. 4. The OFL is wrong. Conducting an audit of the pupil-to-teacher ratio for LAUSD was not within the authority of the audit team or within the scope of the audit team’s review. Therefore, OFL’s assertions that the audit team did not follow Generally Accepted Governmental Auditing Standards or the law are baseless. The audit team obtained the comparison district pupil-to-teacher ratio data directly from the school district, and has no reason to believe that this information is inaccurate. Of greater concern is that both OFL charters claimed pupil-to-teacher ratios that were signifi cantly lower than those verifi ed by the audit team. 5. The OFL is wrong. The OFL has based its response to the audit report on an in- accurate interpretation of a May 2002 memo from the California Department of Education without consulting the appropriate statute, California Education Code Section 51745.6, which states that independent study school apportionment funding shall be reduced to the extent that its units of average daily attendance result in a pupil-to-teacher ratio that exceeds that of the comparison district (please see the statute below). While meeting this provision is a requirement for OFY-OFL Followup Audit 38 receiving full funding, not meeting this requirement is still a basis for reductions in funding regardless of the funding percentage received as determined by the Senate Bill 740 funding process. The OFL seems to acknowledge this point in its response on page 5: “OFL ... should not be subjected to any adverse adjust- ment of its ADA.” Further, under OFL’s interpretation, it could have any pupil- to-teacher ratio if it does not receive 100% funding. 51745.6. (a) The ratio of average daily attendance for independent study pupils 18 years of age or less to school district full-time equivalent certifi cated em- ployees responsible for independent study, calculated as specifi ed by the State Department of Education, shall not exceed the equivalent ratio of pupils to full-time certifi cated employees for all other educational programs operated by the school district. The ratio of average daily attendance for independent study pupils 18 years of age or less to county offi ce of education full-time equivalent certifi cated employees responsible for independent study, to be calculated in a manner prescribed by the State Department of Education, shall not exceed the equivalent ratio of pupils to full-time certifi cated employees for all other educa- tional programs operated by the high school or unifi ed school district with the largest average daily attendance of pupils in that county. (b) Only those units of average daily attendance for independent study that re- fl ect a pupil-teacher ratio that does not exceed the ratio described in subdivision (a) shall be eligible for apportionment pursuant to Section 42238.5, for school districts, and Section 2558, for county offi ces of education. 6. The OFL’s statement is inaccurate. While Title 5, California Code of Regula- tions, Section 19853(c)(4) does state that the audit should verify “… the pupil-teacher ratio of the largest unifi ed school district in the county or counties in which the charter school operates,” the audit team did just that by directly contacting the school district. 7. The audit team disagrees. The audit team believes that OFL should have directly contacted LAUSD for its pupil-to-teacher ratio. In addition, the OFL auditors used questionable assumptions in calculating LAUSD’s pupil-to-teach- er ratio. Finally, LAUSD used its pupil-to-teacher ratio to calculate disallowed average daily attendance from its own independent study programs, just as the audit team did for OFL. Fiscal Crisis & Management Assistance Team