Schools Exposed to Potential $3-Million Theft Loss, Audit Finds

A state audit of the Los Angeles Unified School District released Tuesday said sloppy record-keeping and procurement practices exposed the district to $3 million in potential fraud or theft over the last two years, but found no evidence that the weaknesses resulted in losses.

The state auditor general’s report, requested by Assemblywoman Marian W. La Follette (R-Northridge) after the discovery last year of an embezzlement scheme involving high-level district officials, found “no major breakdowns” in procedures governing purchases and use of district property.

But the report urged district officials to more strictly enforce district rules designed to prevent theft by its employees, particularly those involved in purchasing.

“The audit demonstrated that the policies (to prevent theft and fraud) are there. It’s just that they were not being followed,” La Follette said at a press conference in Los Angeles.

La Follette said her concern about district management of purchases and property was prompted by the district attorney’s investigation last year into the theft and resale of more than $1 million in district supplies, ranging from pesticides to toilet paper, by a ring of district employees and outside vendors.

Twenty-one people have been charged in the embezzlement scheme, including the district’s director of custodial operations, James L. Riley, and his deputy, Melvin N. Tokunaga. Trials are pending for both men, a spokesman for the district attorney’s office said.

District officials suggested that the state auditor’s report exaggerated the problems in the district, although they said it offered some valid criticisms.

“It was very strongly worded for what amounted to a little bit of concern,” Supt. Leonard Britton said. “I think we have very good controls.” The auditor’s report noted that the district has corrected or is in the process of correcting the weaknesses cited.

One of the major problems found by the state auditor was a lack of adequate verification measures in district transactions. According to the auditor’s sampling of six schools and five district offices, 17% of small purchases (less than $400 each) and 19% of service contract orders were not verified by a person other than the employee who placed the order. In those cases, the audit report stated, the district could not be sure that it received the equipment and supplies it paid for.

State auditor Thomas A. Britting said the potential losses could have amounted to $3 million, or less than 1% of the approximately $557.7 million worth of purchases the district made during the 1985-86 and 1986-87 fiscal years.

The audit also criticized the district’s ability to keep track of expensive equipment, such as typewriters and computers. It found that a district policy regarding written check-in and check-out of equipment by employees was often ignored and that many items were not properly secured. However, the auditor was able to trace all but two of 84 pieces of district equipment selected for its sample inventory search.

Britton stressed that the report uncovered no wrongdoing. But he acknowledged that the district could be faulted for not doing a good enough job of clearly articulating district rules to all its employees.

He also said more could be done to strengthen the district’s purchase verification procedures.