Auditors Find L.A. Schools in Deep Trouble : Education: Sweeping inspection of the district’s finances concludes that budget cuts and poor management have created ‘a crisis atmosphere.’

A sweeping management audit of the Los Angeles Unified School District describes a system in deep trouble, “caught in a downward spiral” brought on by inadequate funding and poor management.

The three-volume, five-inch thick document, which was reviewed by The Times late Friday, concluded that deep budget cuts coupled with little or no long-term planning have led to “a crisis atmosphere” that has caused demoralized employees, deteriorating facilities and services, the loss of top talent and a drop in public confidence.

The report gives the district poor marks for its management and budgeting practices. It says top managers are often not allowed by the school board to make key decisions, that ineffective or poor managers are not held accountable for their work and are seldom disciplined, and that the district’s budget process is “unduly complex” and discourages accountability.

The report presents a long list of recommendations for restructuring the district and improving services, but auditors at Arthur Andersen & Co., which conducted the review, expressed little faith that their recommendations would be implemented.

“We expect high resistance to change,” given the district’s past history of failed reform programs and its highly dispirited work force, the report said. Change will only occur if it is phased in gradually and closely monitored by the school board, the auditors wrote.

The report called for a dramatic restructuring to bring decision-making closer to schools sites and recommended eliminating the district’s four regional offices in favor of about two dozen “community clusters” of high schools and their feeder campuses.

It also identified many management, accounting and secretarial positions that can be eliminated in the central administration to streamline the bureaucracy.

The audit also called for several of the district’s financial and business service units to be reorganized. It emphasized that the units are hampered by antiquated computers and equipment.

In conducting their evaluation, auditors spent 4,500 hours interviewing district employees, visiting schools and surveying parents, teachers and other employees.

The $500,000 study was ordered last fall by Supt. Sid Thompson and the Board of Education to evaluate the district’s management structure and improve efficiency.

The audit became an important issue during negotiations with United Teachers-Los Angeles. The union insisted on hiring its own auditors to review the final recommendations. Union President Helen Bernstein said Friday the union “made a deal” with the district to delay public release of the document until union officials could evaluate it.

Teachers union leaders had hoped the report would identify administrative waste to support their calls for further cuts in central administration. Instead, the report suggests that the district is not necessarily top-heavy, but is poorly organized, saddled with a structure that allows incompetence and provides employees with little incentive to excel.

A draft of the auditors’ report was released Friday to school board members, top district officials and leaders of its employee unions. They all refused to make the document public or allow reporters to review a copy. The Times privately reviewed a copy late Friday night.

Thompson refused to comment on the audit report Friday afternoon and could not be reached Friday night.

Among other observations included in the report:

* School police need more basic equipment, such as up-to-date bulletproof vests and tear gas. They also need to better coordinate their operations with the Los Angeles Police Department and should improve recruitment and training of campus safety aides.

* The district has such an inadequate computer system and confusing bookkeeping practices, it cannot even accurately count the number of employees on its payroll.

* Equipment is so outmoded that some administrative employees are using rotary dial phones.

* Computer equipment sits idle in some schools because it was purchased with restricted funds and can only be used by certain students.

* Some administrative buildings should be sold or converted to classroom use and some offices should be consolidated.

* The district should consider hiring a professional public relations firm.