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Charter schools: Audit finds missing, misused funds at LA network

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The Los Angeles Unified school district is investigating a network of eight charter schools for misuse of public school funds.

An audit showed Magnolia Public Schools used classroom cash to help six non-employees with immigration costs. The schools had trouble justifying another $3 million expense.

"These are taxpayer dollars, and we want to make sure they are spent correctly," said José Cole-Gutiérrez, director of L.A. Unified's charter school division.

A June audit, which the district is calling a "forensic review," revealed $2.8 million flowed from schools sites to the network’s management organization in the form of sloppy loans  - much of which were never paid back.  The management organization was then found to be operating on a $1.7 million deficit, meeting the IRS's definition of insolvent.

Magnolia did not return calls for comment.

Charter schools get taxpayer dollars just like traditional public schools, though opponents complain the financial independence and lax oversight of charters makes it easy to embezzle funds. Charter school supporters point out fewer than 2 percent of charter schools statewide close for fiscal reasons.

Ken Bramlett, L.A. Unified’s inspector general, said there is evidence some members of Magnolia Public schools had ties to a Turkish group under investigation in other states for questionable use of the U.S. visa program as well as misspending public funds.

According to the New York Times, Gulen followers, named after the Turkish preacher Fethullah Gulen, set-up several charter schools around the country, bringing in staff from Turkey and supporting Turkish vendors with lucrative contracts, from construction to school lunches and uniforms.

For years, the Magnolia’s books and bank account didn't match.

An audit in 2012 based on a sampling of transactions found $43,600 missing from accounts: school records showed double payments made to vendors with duplicate invoices attached.

"There was an increased risk of inappropriate or unauthorized expenditures to remain undetected and a potential risk of fraud, abuse and misuse of public funds," read the 2012 report.

L.A. Unified officials have refused to release the follow-up audit concluded in June 2014.

The school board gave the charter network two years to comply with recommendations based on the auditor’s first report.

By March 2014, a preliminary review showed accounts were in order: Cole-Gutiérrez reported to the board the schools were finally complying with state law to hold cash reserves.

Parents and students joined Magnolia Public Schools' chief executive officer, Dr. Mehmet Argin, at the March board meeting and pleaded for the two high-performing schools, Magnolia Science Academies 6 and 7, to remain open.

"We are taking serious measures to remedy the situation," Argin said, adding he hired a CPA firm and trained staff to improve expense reporting.

At the March meeting, the school board agreed to let the two schools continue operating on the condition their books are in order. But a deeper probe released in June uncovered new fiscal issues.

L.A. Unified sent a letter to Magnolia on June 27 announcing the schools’ closure.

The letter, published by local education blog L.A. School Report, said Magnolia spent $3 million over four years to outsource governance tasks such as curriculum development, professional training and human resources - duplicate services that Magnolia had reported doing itself.

Cole-Gutiérrez, the director of L.A. Unified’s charter school division, said the inspector general is reviewing whether to refer the case for criminal prosecution.

"You need to know where the public dollars are going - and they are supposed to be going to students," he said.

Magnolia administration is planning to fight the closures with the help of the California Charter School Association, which said in a statement the schools did not receive due process.

“It is troubling that more than 400 families, the majority of whom live in poverty, have very little information about why they have lost their high-performing schools,” California Charter School Association spokesman Jason Mandell wrote in a statement. He complained that L.A. Unified has not released the 2014 audit.

“State law also does not allow the district to conditionally renew a charter, let alone rescind that renewal without presenting its findings or providing the school with the opportunity to correct any issues,” he added.

Last fall, the group stood behind San Fernando Valley charter school administers facing trail for embezzlement and money laundering. Yevgency "Eugene" Selivanov, founder of  Ivy Academia Charter School, was then convicted and sentenced to almost five years in prison.