Of No Account: The Accountability Crisis in California Education

Introduction

Education is so important to the future of California that Proposition 98 requires that it receive 40 percent of the state’s budget, more than any other item. Currently, the state spends more than $40 billion per year for K–12 education alone. Legislators look askance at a process in which those funds, rather than being spent in a way that increases student achievement, are wasted on fraud, abuse, and political payoffs. That situation currently exists with the California Department of Education (CDE) and is of sufficient gravity that the U.S. Department of Justice is investigating the CDE for possible criminal and civil violations.1

As the California State Auditor has twice noted in the past year, the process under which education funds are spent is currently out of control. The CDE’s responses to these conditions are evasive, frequently erroneous, and ultimately irresponsible. Unless legislators take corrective action and implement deep reforms, the accountability crisis will worsen, diminishing the prospects for the state’s students, already among the lowest achievers in the nation.

The CDE is responsible for nearly six million children and administers approximately 100 state programs and 40 federal programs with expenditures of $22.6 billion and $3.4 billion respectively. A careful accounting for spending of that magnitude is not an option but a requirement, one that the CDE is not fulfilling.

"We found performance measures to be virtually nonexistent during our review of the department’s overall monitoring process," said the California State Auditor in a January, 2000 report (emphasis added). "When they did exist, the divisions made little effort to achieve them."2

 

CDE Negligence and "Serious Irregularities"

CDE staff, charged the Auditor’s report, "do not review recipients based on the risk they present for noncompliance, nor does the department routinely use performance measures to assess quality and effectiveness." Further, the CDE has "no comprehensive tracking system, and current systems kept by some divisions are inferior."3

When they did perform reviews, the CDE did so less frequently than required. When violations were found, the CDE failed to implement sanctions. In fiscal year 1997–98 alone, the State Auditor found, "at least 21 percent of the schools reviewed had non-compliance issues for more than a year, and we found no evidence of any sanctions."4

The CDE operates a Division of Audits and Investigations but the State Auditor found that, contrary to its job description, this division "contributes little to the department’s oversight capability."5 This was more than mere opinion on the Auditor’s part.

Aside from conducting its own investigations, the audits division also reviews independent certified public accountant (CPA) reports of non-profit organizations receiving federal child nutrition, child development, and adult education money. On average, the division’s external unit receives 600 reports annually and has six months to complete its review. However, according to the State Auditor’s report, there is a backlog of more than 500 reports, ranging from fiscal years 1996– 1998. In FY 1998 alone, the division received approximately 600 reports but only managed to complete about half that number within the same year.6 Other agencies have also cited problems with the CDE.

The U.S. Department of Agriculture (USDA), the Auditor’s report noted, "recently found serious irregularities, including the diversion of funds for personal gain, at 10 nonprofit organizations receiving federal Child and Adult Care Food Program funds." The USDA also "found a high incidence of fraud and abuse in the state’s Child and Adult Care Food Program" and concluded that "the department has been negligent in its administration of this program."7 (emphases added).

A full eight out of 10 Community-Based Organizations (CBOs) receiving millions of dollars through the CDE "could not support their claims for reimbursement." The California Department of Education "failed to detect these problems even though it claimed to have conducted on-site reviews of the same organizations."8

These and other charges in the report would be serious enough on their own, but they follow a July 1999 State Auditor’s Report that also found extensive CDE misconduct. While little publicity has followed this scandal, it remains unresolved and, according to auditors, involves as much as $50 million. That report also focused on the flow of money to CBOs, some, as the Sacramento Bee reported, with ties to prominent state politicians.9

 

Grand Theft Education

Education funds are intended for education, but CBOs receiving millions in education funds could not substantiate how they spent the money and in some cases submitted bogus records. Some of the classrooms were open fields or empty houses. A report of the State Auditor noted that the CDE’s own auditors, as well as those brought in from outside, warned the Department’s leadership of the violations.10 However, the CDE did not respond in a manner befitting an agency whose duty is to oversee state and federal spending on California’s children.

Instead of taking swift and appropriate action to halt fraud and abuse, the CDE, headed by State Superintendent of Public Instruction Delaine Eastin, reprimanded, demoted, and transferred those who had brought the misconduct to light. The CDE not only gave the delinquent CBOs a clean bill of health but continued funding them at high levels.

Hermandad Mexicana Nacional, for example, an organization headquartered in Los Angeles, where it serves the immigrant community, is the biggest CBO recipient of federal adult education funds through the CDE. The group, which could not account for how it spent money, was under investigation by other agencies, including the FBI, and was delinquent in its tax payments. It is not the job of the CDE to make tax payments for outside organizations. But as the Auditor’s report noted, the director of the CDE’s Adult Education Division approved payment of Hermandad’s tax obligations. The CDE also approved grants to this organization of $2.1 million in October 1996 and $3.5 million in 1997.11 The CDE has been unable to recover any of the money, more than $4 million, and the Auditor’s report does not cover the full extent and source of the problem.

"Those who operated within these organizations had political pull, especially with Latino legislators," said the Sacramento Bee. "[Delaine] Eastin and [State Controller] Kathleen Connell did not want to upset anyone."12

The U.S. Department of Justice says CDE misconduct raises possible criminal and civil violations.13 The CDE was slated to respond formally to the charges by January 17, 2000, but has not yet done so. However, the CDE’s leadership has responded to the State Auditor with the claim that the Department’s financial mismanagement should be cured by increased funding.

 

The CDE Response

In her response to the January 2000 State Auditor’s report, Superintendent Eastin claims the CDE is "the smallest state department of education in terms of state administration funds per pupil and as a percentage of total funding." She complains the Department has been forced to monitor additional state and federal programs without a boost in administrative funding. The Superintendent also blames former Governor Pete Wilson for slashing the CDE’s budget. She could not, she said, "in good conscience, exceed my budget, even to achieve my goal of appropriate administrative oversight."14 These excuses fail to reflect fiscal realities.

The Superintendent fails to account for the federal money that is used for administrative purposes. During the last fiscal year, the federal government provided more than 40 percent of the CDE’s operations’ funding—costs associated with maintaining state bureaucracy.15 The audits division receives the majority of its funding from federal sources.16 Federal authorities already allocate basic levels of administrative funding, including money used for monitoring child development, child nutrition, and adult education programs, some of the very areas where the Auditor found patterns of abuse.17

In response to the State Auditor’s findings of fraud in distributing federal money to various CBOs, the CDE claims the legislature passed a state mandate forcing the Department to act as it did.18 The CDE also claims the organizations the Auditor reviewed "clearly did not represent a cross-section of all CBOs … and may, therefore, contribute to false conclusions."19 Also, the CDE’s response mentions that the Auditor’s sample "does not well represent the ethnicity of the students served by the 86 CBOs." Nine of the 10 groups reviewed by the Auditor served predominantly Hispanic students.20

This round of responses is particularly egregious. The CDE was not merely accommodating a state mandate in distributing federal money to CBOs. Begin-ning in 1994–95, the legislature allocated federal adult education money to all agencies providing citizenship and naturalization services. It was the California Department of Education that distributed a disproportionate share to the CBOs.21 If the CDE was merely following through on a state mandate, why were employees reassigned and demoted when they reported money was being improperly handled?

Further, the Auditor selected a cross-section of CBOs based on the amount of federal money they received. The CDE seems more concerned with the Auditor’s statistical techniques than with the uncovering of fraud and waste. Contrary to the Department’s claims, the CBOs that were examined did not enroll disproportionate numbers of Hispanic students. More than 80 percent of the students enrolled in all the CBOs receiving federal money were Hispanic.22

For the CDE to blame its failure on a lack of money is predictable and understandable but completely without validity, comparable to state employees who refuse to perform their jobs on the grounds that their salaries are too low. As the state Auditor noted, "Although the department contends that it receives no or insufficient administrative funds for program oversight, it is still accountable for this function."23

The Auditor has made suggestions as to how the CDE might take the basic steps it has been unwilling to perform in the past.

 

The Need for Change

The changes include developing and monitoring goals for the current fiscal year, analysis of risk in distributing funds, and scheduling start and completion dates for monitoring activities.24 The Auditor also urges the CDE to comply with auditing schedules set forth by the federal government, to make on-site visits to groups receiving federal and state money, and to establish a central database to track the status and results of audits. The CDE, says the Auditor, "must continually evaluate and design a more effective approach to monitoring entities it funds."25

The Auditor proposes borrowing personnel from the Department of Finance and using more overtime hours to complete monitoring assignments. According to the report, despite "ample opportunities to work a reasonable amount of overtime and reduce the backlog, external unit staff have worked very little overtime for this purpose."26 For example, between June 1996 and August 1999, the audits division staff, excluding the director and support staff, have worked 2,636 overtime hours. Of that total, less than 800 overtime hours were devoted to reducing the backlog, and only 24 hours were spent on this task in the last 14 months.27

Similarly, the Auditor proposed common-sense recommendations for improving the CBO funding model. Organizations receiving money should have to demonstrate student gains, monitor benchmarks such as attendance rates, and submit audit reports. The CDE should also track funding requests relative to previous appropriations and "ensure that decisions to award or deny funds are consistent and defensible."28 These changes should be made as a matter of course but should not stand alone.

 

Calling the CDE to Account

During her 1998 reelection campaign, Superintendent Eastin touted her managerial acumen and years of experience at the helm of the California Department of Edu-cation. On her watch, the CDE has made it difficult for charter schools, one of the state’s most promising reforms, to expand their innovations, particularly home-study programs. Overall, the CDE has consistently opposed increased parental choice in education. Two highly critical Auditor’s reports and a Department of Justice investigation make it clear that the CDE holds a different standard when it comes to its own duties and responsibilities. These are issues to consider for policymakers calling the Department to account.

If the CDE is found guilty of criminal and civil violations, that would make the case for new leadership. But even without a criminal or civil conviction, the most recent State Auditor’s report makes it clear that the CDE is failing to perform its most important job. It is hard to see how, under its current leadership, accountability can be restored, further waste and fraud avoided, and millions in squandered revenue recovered.

The governor and legislators should also consider restoring the jobs of those whom the CDE leadership fired, demoted, or transferred for calling attention to the fraud. Further, as a matter of both accountability and justice, the legislature should demand that the CDE identify and account for those who transferred millions to ineligible recipients. In addition to its oversight, the legislature should also use this crisis as the occasion to consider deeper reforms that will make massive misconduct less likely and improve student achievement.

 

The Path to Accountability and a Better Future

The California constitution says that the state shall provide students with an education but does not specify the means. In the current system, taxpayers’ money flows directly to an education bureaucracy which makes the key decisions for millions in the state. This type of transfer facilitates waste, irresponsibility, and corruption. In higher education, on the other hand, the money goes not to a system but to individual students, who make the choice of which school they will attend. That was the pattern of the G.I. Bill, one of the most successful educational programs in U.S. history. Charter schools have also shown that increased choice, autonomy, and deregulation are the path to true reform.

If California legislators want to expand accountability, they should consider extending the choices currently enjoyed by those in higher education, as well as the affluent, to the entire population of the state. This would empower individual students and families to make the key decisions about education. This model is already succeeding in cities such as Milwaukee and is now being considered by more than 20 states.29 It promotes accountability from an education establishment which constantly demands more money and uses spending issues to explain not only the continued poor level of student achievement but also its own lapses in oversight.

California’s system of K–12 education does not exist for personal gain or partisan politics. Its role is to equip the children of this state for higher education and an increasingly technical, demanding, and competitive job market. If Cali-fornia’s children are to enjoy the future they deserve, legislators must make deep and lasting reforms. Based on the gravity of the current crisis, these reforms should be made sooner rather than later.

End Notes

1 Daniel Yi, "Misuse of Education Funds Cited: U.S. Prosecutors say evidence suggests state Education Department misspent millions earmarked for immigrant classes," Los Angeles Times, December 23, 1999.

2 Department of Education: Its Monitoring Efforts Give Limited Assurance That It Properly Administers State and Federal Programs, California State Auditor, Bureau of State Audits, January 2000, p. 18.

3 Ibid, p. 1.

4 Ibid, p. 29.

5 Ibid, p. 2.

6 Ibid, pp. 23–24

7 Ibid, pp. 13–14.

8 Ibid, p. 22.

9 Dan Walters, "Whistle Blowers Owed Apology," Sacramento Bee, July 29, 1999.

10 Department of Education: Lax Monitoring Led To Payment of Unsubstantiated Adult Education Claims and Changes in the Program May Seriously Impact its Effectiveness, Report of the California State Auditor, Bureau of State Audits, July 20, 1999.

11 Ibid, pp. 23–24.

12 Dan Walters, "Whistle Blowers Owed Apology," Sacramento Bee, July 29, 1999.

13 Daniel Yi, "Misuse of Education Funds Cited," Los Angeles Times, December 23, 1999.

14 Department of Education: Its Monitoring Efforts Give Limited Assurance That It Properly Administers State and Federal Programs, Report of the California State Auditor, Bureau of State Audits, January 2000, p. 43.

15 Thomas Dawson, Rethinking the Federal Role in California Schools: Proposals for Reform (San Francisco, Pacific Research Institute for Public Policy, January 2000, p. 2).

16 Department of Education: Its Monitoring Efforts Give Limited Assurance That It Properly Administers State and Federal Programs, Report of the California State Auditor, Bureau of State Audits, January 2000, p. 7.

17 Ibid, p. 19.

18 Department of Education: Lax Monitoring Led to Payment of Unsubstantiated Adult Education Claims and Changes in the Program May Seriously Impact Its Effectiveness, Report of the California State Auditor, Bureau of State Audits, July 20, 1999, p. R-3.

19 Ibid, R-4.

20 Ibid.

21 Ibid, R-15.

22 Ibid.

23 Department of Education: Its Monitoring Efforts Give Limited Assurance That It Properly Administers State and Federal Programs, Report of the California State Auditor, Bureau of State Audits, January 2000, p. 61.

24 Ibid, pp. 32-34.

25 Ibid, p. 61.

26 Ibid, p. 24.

27 Ibid.

28 Department of Education: Lax Monitoring Led to Payment of Unsubstantiated Adult Education Claims and Changes in the Program May Seriously Impact Its Effectiveness, Report of the California State Auditor, Bureau of State Audits, July 20, 1999, pp. 17, 31.

29 Michael Janofsky, "Poor Parents Are Leading the Way as States Debate School Voucher Plans," New York Times, January 31, 2000.

K. Lloyd Billingsley is editorial director of the Pacific Research Institute and co-author of Expanding the Charter Idea: A Template for Legislative and Policy Reform. Thomas Dawson is a policy fellow in PRI's Center for School Reform and author of Rethinking the Federal Role in California Schools: Proposals for Reform.