Child Care Group Told: Fire Officials or Lose Funding : Education: State schools chief Delaine Eastin issues warning after U.S. prosecutors give details of bribery and theft probe. The organization receives $8 million a year.

Education officials have ordered the state’s largest publicly funded child care organization to fire its top management and dump its board of directors after federal prosecutors released new details of their bribery and theft case against the group’s former executive director.

State Supt. of Public Instruction Delaine Eastin warned that unless the current management is replaced, all government funding could be cut off to the child care group known as the Foundation Center for Phenomenological Research Inc.

“I am extremely concerned about the continuing viability of the Foundation Center, as well as for the protection of state . . . funds,” Eastin said. “Unless some action is taken immediately to provide for an entirely new board of directors and upper management, I doubt seriously that the (state Department of Education) will enter into any future agreements with the foundation.”

The foundation, based in Sacramento, receives about $8 million a year in federal and state funds to provide child care services to 2,300 children, mostly Latinos from poor and single-parent families throughout California. It operates 22 centers, including three in Los Angeles, and has attracted widespread praise from child care experts for the quality of its Montessori-style program.

The indictment two weeks ago of its founder and executive director, Marilyn K. Prosser, on 19 counts of bribery, fraud and filing false income returns stunned the organization’s supporters and defenders, including some Democratic legislative leaders.

Over the years, lawmakers have often interceded with the Education Department on the organization’s behalf, and even Eastin, as an assemblywoman, wrote a letter in 1993 asking the department “that every consideration be given to their case.” At the time, the department was raising questions about the foundation’s handling of money.

A spokeswoman for the department said all Eastin knew about the foundation at the time was that it had an “excellent” program. “The letter was written without her having been briefed on the specifics of the financial audits,” spokeswoman Susie Lange said.

“She just noted that they were always applauded for the quality of their programs, and she didn’t have any kind of inside information about the management of their funds,” Lange said.

A week after the indictment was returned against Prosser, a federal judge unsealed a series of FBI affidavits detailing what prosecutors called “systematic theft” by Prosser of hundreds of thousands of dollars in government funds.

Although Prosser was the only one charged, education officials said her handling of the foundation’s finances raised questions about the board of directors’ ability to oversee the management of the organization. Over the years, they said, the board had access to numerous critical audits but took few steps to correct the financial problems.

James Mattesich, an attorney for the foundation, said he intends to ask Eastin for an opportunity to prove that the current managers are capable of running the organization and correcting its problems.

“We think the Foundation Center is a viable entity and are prepared to demonstrate that to the superintendent’s satisfaction,” he said. “We’re prepared to discuss those concerns with the superintendent and to satisfy her that the board and management are capable of providing first-class child development services.”

Mattesich said the organization had agreed to comply with two other requests from Eastin--that it provide financial guarantees to cover about $72,000 owed the state and that it allow the department’s fiscal adviser to sign all checks paid out of government funds.

He noted that since the indictment, Prosser has taken an administrative leave. Through her attorney, Prosser has said she intends to fight the federal charges and prove her innocence.

In the affidavits, FBI agents said their review of financial records seized during a raid of the group’s headquarters showed several instances in which foundation funds were used to purchase personal property for Prosser.

In one case, Prosser used $270,000 in government funds to buy and improve a child care center in South-Central Los Angeles that she named after former state Sen. David A. Roberti (D-Van Nuys). The ownership of the center was put in her name.

In another case, they said, foundation money was used to buy relocatable classrooms but--again--the ownership was put in Prosser’s name. Later, the affidavits said, Prosser sold the classrooms back to the organization.