LOS AN GELES UNIFIED SCHOOL DISTRICT CHARTER SCHOOLS DIVISION VIVIAN EKDHIAN 333 South Beaudry Avenue, 20th Floor, Los Angeles, CA 90017 Interim SUpermtendem Of?ce: (213) 241-0399 0 Prop. 39: (213) 241-5130 0 Fax: (213) 241-2054 FRANCES ph_D_ Chief Academic Of?cer Division of instruction JOSE COLE-GUTIERREZ Director, Charter Schools Division February 7, 2018 Distributed Via: Email Certi?ed US. Mail RESPONSE DUE: February 21, 2018 Juana Maria Valdivia, Governing Board President Partnership to Uplift Communities (PUC) Schools 1405 North San Fernando Boulevard, Suite 303 Burbank, CA 91504 SUBJECT: FURTHER FOLLOW-UP TO NOTICE TO CURE RE: IMMEDIATE ACTION REQUIRED Concerns of Fiscal Mismanagement and Lack of Internal Controls, Con?icts of Interest; Governance Concerns; and Breach of Charter for all Charter Schools Under PUC Los Angeles, PUC Lakeview Terrace, and PUC Valley Charter Numbers (0213, 0331, 0600, 0603, 0797, 0798, 1091, 1092, 1241, 1354, 1626, 1657, and 1820) Location Codes (8453, 8154, 5313, 8212, 8426, 2024, 7778, 7779, 7732, 7687, 5221, 2282, and 7554) Dear PUC Schools and Governing Board President of PUC Los Angeles, PUC Lakeview Terrace, and PUC Valley: Thank you for letter of December 15, 2017, following the Charter Schools Division?s (CSD) December 7, 2017 Notice to Cure Follow-Up, regarding the ongoing concerns about ?scal mismanagement and lack of internal controls, con?icts of interest, governance issues, and failure to respond and provide information. CSD staff has reviewed your December 8, 2017 email and December 15, 2017 response (the Response). We appreciate that Dr. Manuel Ponce expressed his desire to work with the CSD on these concerns, and were made aware at a February 6, 2018 oversight visit that Dr. Ponce is no longer serving on the respective PUC boards. We look forward to? working with you in your new role as chair. Please know that notwithstanding previous commitments to resolve these matters, latest correspondence raises new questions and does not resolve the concerns regarding potential con?icts of interest, misstatements, and serious errors in statements and documentation, many of which PUC admits. Partnership to Uplift Communities Further Follow-Up To Notice To Cure, February 7, 2018 Page 2 of 6 December 8, 2017 E-Mail On December 8, 2017, PUC emailed the CSD and attached copies of the following documents: 1. Business Ethics and Con?ict of Interests Policy; 2. Nepotism Policy and Disclosure Form; 3. Moonlighting Policy and Outside Activities Disclosure Form; 4. Whistleblower Policy; 5. Employee Policy Training and Receipt of Policies Acknowledgment; and, 6. Fiscal Policies and Procedures Con?dentiality Agreement and Acknowledgement of Training. The email states ?All of these documents were approved by the Board of each school corporation and will also be presented to the PUC National Board this month for approval.? Please help us understand why PUC is taking this action. PUC has consistently taken the position that PUC National is a service provider and, as such, is not a decision making body of the three Regional Boards. PUC has used this position as its basis for withholding PUC National documents from the CSD. This statement raises concerns about the independence of the current organizational structure and PU Governing Boards? decision-making ability. Misstatements in Responses response on November 1, 2017 continues to contain statements that the CSD considers inaccurate and inconsistent, which we invite you to address. For example, explanations of Dr. Elliot?s involvement with PUC have shifted several times and continue to contradict documents: 0 On November 1, 2017, PUC stated, ?Dr. Elliot was paid out of Partnerships to Uplift Communities - Lakeview Terrace and she never sat on that Board.? 0 In December 15, 2017 Response, PUC states ?The IRS Form 990 ended June 30, 2013 incorrectly states that Dr. Elliot was on the Board for Lakeview Terrace during the 2012-13 school year.? 0 Response further states, ?Dr. Elliot was an employee and received compensation from Lakeview Terrace in the 2012-13 school year, but she was not on the Board for Lakeview Terrace until August 28, 2013.? In contrast with the Response above, PUC Schools? independent audit report for the year ended June 30, 2013 shows that Dr. Elliot?s title was Secretary for Lakeview Terrace during the 2012-13 year, which is the same position she occupied in 2013-14. With respect to Mr. Rodriguez, PUC states, ?Dr. Rodriguez is not listed as an of?cer, director, trustee, or key employee on the PUC National Form 990 for the year ended June 30, 2015 because he was not a Corporate Treasurer or even an employee of PUC National for the 2014-15 school year.? Yet, PUC National, in its National-Board Member List 2014-2015? provided to the CSD on November 1, 2017, lists Dr. Rodriguez as the Corporate Treasurer of PUC National. With regard to Mr. Rodriguez?s disclosure of his ?nancial interest in Better For You Fundraising, PUC additionally asserts, never possessed Dr. Rodriguez?s November 2014 disclosure form that KPCC discovered.? However, the CSD collected the Form 700 at issue from PUC. Thus, the information was in possession. Finally, PUC continues to assert: ?Dr. Elliot did not use her position to in?uence a decision, did not participate in making a decision where she had a ?nancial interest, and did not make contracts Partnership to Uplift Communities Further Follow-Up To Notice To Cure, February 7, 2018 Page 3 of 6 where she has a ?nancial interest.? This statement is not supported by the evidence, as described further below. Errors and Lack of Internal Controls The CSD has concerns regarding ability to govern its operations accurately and maintain systems to identify and address problems. The CSD has uncovered multiple problems with documents, which PUC subsequently acknowledges after being raised by the CSD. The CSD noted several discrepancies between information shown in the documents that PUC produced in comparison with its November 1, 2017 Response. PUC acknowledged errors in the Forms 990 with respect to Dr. Elliot for 2012-13,1 Mr. Rodriguez for 2014-15,2 Ed Palmer for 2014-15, Gayle Nadler for 2014-15, and Angela Bass for 2013-14. Both the nature and extent of these errors are concerning. PUC is also now aware of the 2017-2018 Annual Performance-Based Oversight Visit Report, which cites continuing ?nancial discrepancies and problems with following own policies. Similar problems have been noted previously, both in earlier Oversight Reports and through an audit conducted by the LAUSD Of?ce of the Inspector General (OIG). The CSD has described that there is a continued failure to produce information. To this matter, PUC asserts: (hopefully) unintentionally but inaccurately states that did not provide any information to the CSD when requests were made for documents regarding Better For You Fundraising.? Yet, response to that request (cited verbatim in latest Response) does not give substantive information regarding Better For You Fundraising. Rather, PUC simply states that: PUC school employee has a role with Better For You Fundraising? and further advises the CSD that PUC will not produce and provide these documents to the CSD, under the guise that Better For You Fundraising is a separate company.3 Hopefully, assertion to the CSD (that PUC was not in possession of the November 2014 Form 700 that disclosed Mr. Rodriguez?s ?nancial interest in Better For You Fundraising), was merely an unintentional oversight. Finally, PUC continues to deny any responsibility for neglecting to uncover the con?ict of interest problems regarding Better For You Fundraising. In the latest Response, PUC appears to assert that, unless the CSD ?nds evidence of wrongdoing and points out the exact nature of that wrongdoing, there is nothing that PUC could or should do to discover such information. Combined with the multiple errors and misstatements in the correspondence referenced in the Notice to Cure, assertion here is troubling, and suggests a serious lack of capacity to ensure sound ongoing operations. Con?ict of Interest Concerns In part due to the above, the District continues to have serious concerns about potential con?icts of interest between individuals in the regional PUC entities and PUC National. 1 Although, admission of error contradicts the independent audit, as described above. 2 As described above, this admission of error contradicts other documents PUC produced on November 1, 2017. 3 This is the same shield PUC uses to withhold PUC National Documents. Partnership to Uplift Communities Further Follow-Up To Notice To Cure, February 7, 2018 Page 4 of 6 December 15, 2017 Response indicates that, from July 1, 2013 through June 30, 2015, Dr. Elliot was a member of the PUC Lakeview Terrace Board. The IRS Form 990 for PUC Lakeview Terrace for the ?scal year ended June 30, 2014 shows that PUC Lakeview Terrace paid Dr. Elliot $192,610.4 According to chart in its Response, Dr. Elliot was a PUC National employee from July 1, 2013 through June 30, 2015. Accordingly, Dr. Elliot had a ?nancial interest in any contract between PUC Lakeview Terrace and PUC National, including the service agreement during the 2013-2014 year. Even if Dr. Elliot had recused herself, under Government Code section 1090, recusal does not avoid the con?ict of interest violations. Moreover, several issues described below cast doubt on the independence and operational soundness of the regional PUC entities. In such a case, Dr. Elliot may have had con?icts between PUC National and every regional entity and governing boards? level of examination appears insuf?cient based on its responses to date. The CSD is also concerned that PUC has not reviewed and provided to the CSD all relevant information needed to determine whether con?icts exist, since a signi?cant amount of information given to the CSD thus far is inaccurate and incomplete. It is also disturbing that response twice appears to deny that Government Code sections 1090 and 82005 apply to PUC and its of?cers and employees. Every one of charters states that PUC agrees that ?all employees and representatives of Charter School, including members of Charter School?s governing board, members of Charter School or governing board committees and councils, Charter School administrators, and managers, shall comply with federal and state laws, nonpro?t integrity standards, and LAUSD charter school policy, regarding ethics and con?icts of interest? and the District?s Board-approved Policy on Charter School Authorizing cites legal authority under ?California Government Code sections 1090, 6250 et seq., 54950 et seq., 81000 et seq. 17)? Accordingly, PUC is expected to abide by Government Code sections 1090 and 82005 and no further legal discussion is necessary. Moreover, PUC has further demonstrated agreement that these sections apply through it ?ling of the complaint with the California Fair Political Practices Commission. Moreover, PUC has agreed to ?enter into all transactions and conduct business with all persons and entities at arm?s length or, in the case of otherwise permissible related party transactions, in a manner equivalent to arm?s length.? However, own statements establish that there is a problem with independence between regional entities and between them and PUC National. For example, there are multiple instances of overlapping memberships between all entities, combined board meeting minutes of all regional entities, combined audits for all regional entities with PUC National, as well as the requirement that PUC National approve documents, including its Ethics Policy, along with the use of the PUC - Lakeview Terrace tax ID number to pay employees of all entities (who each have their own tax ID numbers). It should be noted that the CSD has documented serious errors, as described above and in the previous Notices to Cure, many of which PUC agrees have occurred. These errors have been evident in documents PUC publishes to the public. Additionally, given the serious breaches of con?icts laws that PUC is aware of, and may have been prevented with suf?cient oversight, it is curious that PUC continues to contract with PUC National, the entity with whom PUC has contracted with to prevent such problems. It is especially 4 PUC has not claimed error in this IRS Form 990. Partnership to Uplift Communities Further Follow-Up To Notice To Cure, February 7, 2018 Page 5 of 6 concerning given the close relationship between PUC and PUC National and the apparent lack of a procurement process for services. Despite these con?icts, PUC continues to choose PUC National to provide services. Consequently, it is apparent that, at a minimum, PUC has failed to abide by the requirement to only engage in arm?s length transactions. Requested Actions Follow-up Items Based on the concerns described above, the CSD requests that PUC include the following items in its subsequent response to the CSD. Please number and name the responses and any electronic documents to be provided in correspondence with the items numerated below. 1. PUC National?s IRS Form 990 for the year ended June 30, 2016. 2. PUC National?s Audit for 2015-2016 (pending the ?nal report). 3. PUC National?s Audit for 2016-2017 (the ?eldwork for the 2016-2017 audit is expected to be completed in January or February 2018, based on Response). 4. Evaluations by PUC Schools of PUC National for the last two years. 5. PUC Regional Board meeting agendas and minutes where the evaluations of PUC National, by PUC schools, were reviewed and discussed in public meetings, for the last two years. Further Information the CSD is Requesting In addition to providing the information requested above, the CSD is requesting the following information, based on questions raised in the December 15, 2017 Response: 1. Explain what measures have been taken to ensure the accuracy of the IRS Forms 990 and audit reports moving forward. 2. Describe the quali?cations of Jesse Almeda to hold the position of Treasurer. 3. Explain why the 2014-2015 PUC Schools audit report did not disclose PUC National as a related party and did not disclose the management fees paid to PUC National. 4. The revised 2014-2015 PUC Schools audit report was provided to the CSD only on June 30, 2017. Provide speci?cs as to when the 2014-2015 PUC Schools audit report was revised and when the report was submitted to the California Department of Education (CDE). 5. Provide copies of the amendments made to PUC's and PUC National?s IRS Forms 990 mentioned in Dr. Ponce?s December 15, 2017 letter and January 24, 2018 letter. 6. Explain why the tax ID number of PUC Lakeview Terrace was used to pay employees of all PUC regional entities. Further, provide a complete accounting of any other PUC expenses that have been paid using the tax ID number of PUC Lakeview Terrace for other PUC entities. 7. Explain the purpose and/or functionality of the PUC Home Of?ce. Also, provide a detailed accounting of the $2,066,899 identi?ed as management and general expenses for the PUC Home Of?ce in the PUC 2016-2017 Audit Report. Further, explain the nature of these expenses. 8. Explain why the 1. Business Ethics and Con?ict of Interests Policy; 2. Nepotism Policy and Disclosure Form; 3. Moonlighting Policy and Outside Activities Disclosure Form; 4. Partnership to Uplift Communities Further Follow-Up To Notice To Cure, February 7, 2018 Page 6 of 6 Whistleblower Policy; 5. Employee Policy Training and Receipt of Policies Acknowledgment; and, 6. Fiscal Policies and Procedures Con?dentiality Agreement and Acknowledgement of Training need to be presented to the PUC National Board. 9. Provide assurances that PUC will review the Forms 700 that are in its possession. 10. Provide the governing board-approved meeting minutes where revised Fiscal Policies and Procedures Manual was discussed and approved. The CSD again acknowledges desire to cooperate to resolve these issues. However, the latest Response again neglects to provide comprehensive responses and accurate information. The CSD has repeatedly stressed that PUC has a duty to respond comprehensively and accurately to information requests and the failure to do so may constitute grounds for appropriate actions by the authorizer. The CSD additionally understands that PUC wishes to have a meeting to discuss the concerns. While there may be an appropriate time to meet in the future, given the numerous errors and contradictions in responses, it is appropriate at this time for the CSD to obtain all of the necessary documentation to inform any future meeting. The District fully expects that PUC will respond completely and with candor to the requests for information by close of business on February 21, 2018. If you have any questions, please contact Aida Tatiossian by email at atatioss@lausd.net or via telephone at (213) 241-0361, or Sandra Melendez by email at sandra.melendez@lausd.net or via telephone at (213) 241-0349. Thank you, in advance, for your cooperation. Sincerely, Aida Tatiossian Specialist -. . Jwgra Melendez/ {gag Fiscal Services Manager c: Vivian Ekchian, Acting Superintendent Frances Gipson, Chief Academic Of?cer Jose? Cole-Gutierrez, Director, CSD Robert Perry, Administrative Coordinator, CSD James Robinson, Charter Schools Fiscal Administrator, CSD Rene Cardona, Senior Coordinator, CSD Lillian Lee, Fiscal Oversight Administrator, CSD Christian Mendez, Specialist, CSD