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State audit criticizes Magnolia charters and also LA Unified

Vanessa Romo | May 7, 2015

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Magnolia-Charter-schools-2A state audit of Magnolia Public Schools, a charter network operating in LA Unified, has found that the group’s financial controls need improvement but that the district acted too hastily in its attempts to close three of the chain’s eight campuses.

The report, issued today, brings to a close a long running episode involving Magnolia’s parent company and LA Unified efforts last year to revoke the charter renewal applications for three Magnolia Science Academy schools — in Palms, Van Nuys and Bell — over fiscal mismanagement and other financial irregularities.

The audit confirmed that the schools were insolvent at points during the past three fiscal years, but said that was due to a delay in state funding. As a result, the cash-strapped academies borrowed from schools with surplus revenues to pay off debts. While the district was critical of Magnolia for engaging in these types of inter-agency loans, the state audit concluded that “these loans served a useful purpose because they enabled the struggling academies to continue to serve their students.”

As of July, all but one of the loans was repaid, and eight academies are operating in the black with sufficient reserve funds.

However, despite an overall clean fiscal bill of health auditors say Magnolia must strengthen its financial and management processes, especially with respect to fundraising and documenting expenditures.

Another failing by Magnolia identified in the report is that it “grossly underreported truancy data to the California Department of Education.”

About 2,300 students attend Magnolia academies. Complaints of fiscal mismanagement and low enrollment have plagued nearly all of the campuses since the first charter was founded in 2002.

Still, Magnolia officials put a positive spin on the report.

Caprice Young, a former LA Unified school board president and the newly hired CEO, told LA School Report that the audit was long-awaited good news and proves that the organization is fiscally stable.

“It is a real vindication for us,” she said, adding that, “it is very, very critical of the way that LAUSD treated Magnolia.”

Young explained that Magnolia has implemented more stringent policies allowing for more transparency, including the manner in which schools report student truancies. “The problem there was that the staff was not counting all of the tardies as truancies,” she said. “But it didn’t have any impact on test scores or the amount of money we received for funding.”

“What the auditor came up with is a fix-it ticket. What LAUSD came up with was a death sentence,” Young said.

Ultimately, the report determined that “LAUSD may have acted prematurely when it rescinded the charter renewal petitions of two academies.”

Further, it said, the district did not provide sufficient time for the charter school company to respond to criticisms.The audit also said the district failed to share the complete results of an independent audit commissioned by the district with Magnolia until after it had rescinded the academies’ charter petitions.

The two sides reached reached a settlement agreement in March, resulting in the renewal of all three academies’ charters.

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