L.A. Unified Seeks to Improve Auditing Unit

Responding to allegations of inadequate financial controls leveled by an administrator who is being fired, Los Angeles school officials Thursday announced steps to shore up an internal auditing branch that has fallen into disarray.

Chief Administrative Officer David Koch said he is taking personal control of the auditing branch and has retained a management consulting firm to run its day-to-day operations and recommend improvements.

Koch said these measures were already under consideration, but were hastened by a Times article Thursday in which the director of the 41-member audit operation lambasted the district for having internal checks and balances too weak to catch waste and abuse in its $6-billion annual spending.

Wajeeh Ersheid, a seasoned corporate auditor who lasted seven months in the job, said his auditors were poorly qualified and unproductive and criticized his superiors for stifling his independence.

Ersheid is being fired over complaints of poor management style and allegations that he is biased against his mostly Filipino staff.

His attempts to dramatically overhaul the audit group led to friction that erupted in a confrontation last month with an employee who wrote “Freedom from the racist” on an office blackboard.

Chief Financial Officer Henry Jones fired Ersheid after learning that the administrator told the employee, “This is a civilized society. This is not the Philippines.”

Although rejecting Ersheid’s appeal to overrule his termination, Koch said in an interview Wednesday that there was merit to some of his criticisms, which echoed complaints that have been made for years by outside business consultants.

Koch addressed the most persistent of these criticisms by having the audit branch report to him, thus removing it from the authority of Jones, the chief financial officer.

It is widely considered poor financial practice for auditing to be under control of the same executive who oversees financial operations because of the potential for interference in the investigation of fraud and financial mismanagement.

Auditing standards promulgated by the U.S. General Accounting Office require state and local agencies that receive federal funds to ensure the independence of internal auditing by having the audit branch report directly to the agency head or a deputy.

Koch said he did not consider the district technically out of compliance because the audit branch has historically focused most of its resources on student activity funds, which do not fall under Jones’ oversight.

He acknowledged, however, that the audit branch has reviewed the spending of federal anti-poverty and earthquake recovery funds.

Koch, who was appointed business czar only last month, said he has not had time to thoroughly review how the branch uses its resources.

As part of his quick fix, Koch has engaged the management consultant KPMG Peat Marwick to oversee day-to-day operations of the audit staff until a new director is hired.

Also, Koch has asked Peat Marwick to review the effectiveness of the practices and approaches of the audit branch and to recommend efficiencies.

Supt. Ruben Zacarias, who was not consulted on Koch’s decision, said he concurred.