INTER-OFFICE CORRESPONDENCE Los Angeles Unified School District Office of the Inspector General

Transcription

1 INTER-OFFICE CORRESPONDENCE Los Angeles Unified School District Office of the Inspector General TO: Members, Board of Education DATE: January 20, 2004 FROM: Don Mullinax SUBJECT: MANAGEMENT CHALLENGES This is the fifth annual memorandum titled Management Challenges that I have provided to the Board of Education ( Board ) highlighting some areas that the Office of the Inspector General ( OIG ) has been tracking, but has seen only limited improvement. As I highlighted in my January 2003 memorandum regarding management challenges, the District leadership has made some meaningful reforms, such as raising test scores in elementary schools, improving classroom technology, increasing teacher and principal professional development, and building a team of skilled facilities professionals. While these reforms should be commended, more effort is needed to produce tangible and lasting improvements within several other District functions and operations, as well as instill a sharper focus on performance and accountability. Last year, the OIG identified 10 management challenges Ethics, Information Technology, Payroll System, Accounts Payable, Risk Management, Budget Process, Contract Management, Restitution Process, Personnel Management, and School Financial Operations. Most troubling is that we have repeatedly expressed concerns about 8 of these challenges during the past 5 years and have seen only limited improvements. We remove challenges from our annual memorandum when we see a demonstrated strong commitment and top leadership support to address the identified challenges. This commitment and leadership includes naming a senior staff member to take the lead in addressing the challenge, setting estimated timelines for completing reforms, developing performance measures to track progress, and regularly reporting on the results achieved. The following paragraphs highlight: (i) those challenges where the OIG has seen some improvement, (ii) how the District s organizational culture impacts performance, and (iii) the management challenges that continue to need a greater focus by District leadership. PROGRESS Over the past year, District staff demonstrated commitment in addressing five management challenges, but we will continue to closely monitor these areas because it is still unclear whether there is top leadership support in addressing these challenges.

2 ! Information Technology: We have previously highlighted that the District began tackling the broad scope of problems involving information technology by implementing an OIG recommendation recruit and hire a Chief Information Officer. We have also reported that the District still has a long way to go to meet the challenges of managing its vast and complex information technology operations with the business-like efficiency demanded by the public. Specifically, we have recommended, at a minimum, that the Chief Information Officer develop an integrated District-wide technology architecture, manage and measure the performance of technology investments, and assist in work-process improvements. During the past year, the Chief Information Officer issued a Strategic Technology Plan, which addressed most of our concerns. Now, it will take a focused, sustained effort, including adequate funding and Board support to fully implement the Plan.! Payroll System and Accounts Payable: It appears that the District is making a focused effort to address the long-standing weaknesses in its payroll system and accounts payable process. District leadership should note, however, that computer modernizations are typically risky ventures, especially if organizations do not take basic steps in planning projects and controlling costs. As such, the District needs to ensure that it has a disciplined system development effort, including requirements management, project planning, project tracking and oversight, quality assurance, configuration management, and risk management. There are a number of examples across the country where organizations have failed in modernizing their computer systems and operations because the organizations chose to short-cut a structured, disciplined approach to the planning, acquisition, and management of their new systems. It is imperative that the District be successful in modernizing its information infrastructure because it presently continues to waste millions of dollars a year on its outdated, cumbersome and inefficient processes and systems. These inefficiencies deplete valuable labor and financial resources from the District that could otherwise be used to meet its strategic goals.! Risk Management: The District recently hired an Insurance Risk Manager. District leadership, however, should be cautious to ensure that it does not make the same mistake as some other organizations by too narrowly defining risk management. The term is often thought to simply mean a safety program. Or, it is thought of as being the arm of the organization that deals only with insurance matters. Safety and insurance are both components of a risk management program. Because risk exposures exist in all areas of the organization, a comprehensive risk management program within the District should involve accounting and finance, budget, legal, human resources, facilities, environment, special education, school police, transportation, food services, as well as all other major programs and operations. In fact, in February 2002, the OIG offered to assist the District s senior staff with implementing an enterprise risk management program by retaining a team of risk management experts to identify and document the critical risks associated with District operations. The team had planned to 2

3 provide recommendations to assist in managing, monitoring, and controlling these risks. This information would have helped District senior staff: (i) proactively manage issues, (ii) identify opportunities to reduce costs, (iii) reduce liability exposures, and (iv) provide more reliable management reports. In addition, the District would have had meaningful information to assist with developing a more effective strategic plan and to make future budget decisions. The senior staff, however, rejected the OIG s offer because, in most instances, the staff felt that risk management was not a priority.! Contract Management: Although the District has made improvements in its procurement policies and procedures, we still have serious concerns about whether the District has a sustained commitment to addressing this challenge because significant weaknesses still exist in the District s contract management infrastructure. For example, some of the principal elements of an effective contracting system including monitoring and evaluating contractor progress and performance are absent in the District. The sustained drive to improve contract management must result from a cultural change within the District that places high-level emphasis on the resolution of contracting problems and long-term commitment to any corrective actions that are implemented. Contracting deficiencies result in part from an environment within the District that too often stresses accomplishing the mission at the expense of cost-effective contract management. The cost to the District and taxpayers of such practices is enormous. With the budget crisis facing the District, it cannot afford to ignore the potential cost of poor contractor oversight. In the absence of adequate staffing, funding, and training, the District will continue to waste millions of dollars due to poorly planned, administered, and monitored contracts. ORGANIZATIONAL CULTURE In June 1993, a consultant conducted a review of the District s management practices and organization structure, and reported that, Key management practices adopted by other large organizations are not fully employed by the District. Specifically, the consultant concluded that:! The District s Administration should be more empowered by its Board to make key management decisions relating to contracts and personnel.! The District does not use objective performance measures to hold the Administration accountable.! The District s progressive disciplinary procedures are extremely cumbersome. This means non-performers cannot be corrected on a timely basis.! The District performs little long-term planning. This has resulted in slow reaction to major changes in its environment.! The District s budgeting process is unduly complex and does not encourage accountability. 3

4 ! The District currently lacks management information systems which provide timely, consistent and accessible data for operational decisions.! The District has ineffective processes for assessing the needs of its customers.! The District has no process in place to achieve continuous improvement in its service level and cost structure. The consultant further reported that, the District s organization structure is characterized by excessive layers of management, unclear lines of responsibility, and bureaucratic red tape. The consultant concluded that this organization structure resulted in: (i) decisions being driven by rules rather than customer needs, (ii) unwillingness to accept responsibility, (iii) delays in approvals, and (iv) lack of accountability. It has been over 10 years since the consultant s report, and several of the consultant s findings and concerns are still relevant today. One of the primary reasons that meaningful reforms are difficult to make throughout the District is that a number of its employees embrace a culture of protect your turf, avoid accountability, and resist change. To change this culture and improve performance, particularly as measured by efficiency and effectiveness, the District must make transparency and accountability a priority throughout the school system. Transparency means being able to see clearly what an office or program is doing, how it is doing it, what resources it is consuming along the way, how it is expending those resources, and what results it is achieving or impact it is having. Accountability is taking the information gleaned from that transparency, comparing it to pre-established goals or other expectations, and then initiating some appropriate action with respect to the office, program or responsible individuals, based upon the degree of fulfillment of those pre-established expectations. MANAGEMENT CHALLENGES If not effectively addressed, the following challenges could expose District programs and operations to unnecessary risk, excessive costs, and chronic performance shortfalls. Resolving these challenges offers the potential to save scarce resources and will help enhance the public s confidence in our school system. Ethics Management needs to place a greater priority on setting and maintaining an ethical tone for the District. This includes providing guidance for proper behavior and removing temptations for unethical behavior. The success of any organization rests on a solid foundation of ethical principles and values. As District employees, each of us must place loyalty to high ethical standards above private gain. We must recognize that the ends are not more important than the means. The true public servant combines personal integrity with service in the public interest and, among other attributes, is eager to accept responsibility, has the courage of his or her conviction, and is willing to tell the boss what the boss needs to hear. 4

5 In February 2001, the District hired its first Ethics Officer. However, after almost 3 years on the job, the Ethics Officer has made little progress in implementing an effective ethics program. For example, the Ethics Office has provided ethics training to only about 5,000 of the District s 80,000 employees, and did not refer any allegations of improper or unethical behavior to the OIG for investigation during calendar year Further, the Ethics Office conducts investigations using individuals with little or no investigative experience, and does not issue reports of its ethics investigations. In addition, it has been almost a year since the Ethics Officer submitted a progress report to the Board (last progress report submitted was for the quarter ended March 31, 2003). All District employees are part of one of the nation s most important public educational institutions. As such, they have special legal and ethical obligations arising from two distinct disciplines government service and education. The governmental dimension of these responsibilities imposes duties inherent in public service, including the promotion and protection of public trust and confidence, and avoidance of conflicts of interest and appearances of impropriety. Each District employee should be expected to accept and encourage ethical responsibility and work toward creating an ethical environment that fosters public and collegial trust, personal and institutional integrity, and high levels of competence and accountability. A fully and effectively implemented Ethics Program would greatly enhance these expectations. Budget Process The District s budget is not tied to performance to ensure that funds are spent in the most efficient and cost-effective manner. Budgets of government organizations have traditionally been based on history with increases or cuts applied across the board rather than on customer needs or outcomes. In fact, organizations that save money during the year are often penalized for their efficiency, receiving a smaller piece of the pie in the following year. Now innovative governments are transforming that balance through performance-based budgeting, which shifts the focus from what the organization spends to what it accomplishes, and helps align the existing budget structure with program goals. Performance budgeting is an ongoing process that involves every manager within an organization, from department heads to individual managers of programs. This includes a feedback cycle, which provides senior managers at all levels with improved information to manage their activities. As a result, managers are able to deploy resources more effectively so that anticipated budget outcomes may be achieved. 1 Further, when given more flexibility to manage their operations, managers are willing to be more accountable for the results. Using well-defined, fully costed activity measures (what it cost to perform a specific District function or task), a performance budget provides a valuable tool for assessing how spending changes affect results. 2 Performance budgeting can further enhance the 1 Performance Budgeting for Federal Agencies: A Framework, John Mercer in partnership with AMS, March 18, Id. 5

6 District s capacity to assess competing claims in the budget by providing the Board with better information on the results of both individual programs, as well as cross-functional programs addressing common performance outcomes. With the District s current budget shortfall, it is imperative that the District gets the most from every dollar spent. Each dollar that is spent inefficiently is a dollar that is unavailable to meet other priorities, such as the reading and math programs. Using performance budgeting would enhance the ability of the Board and District management to effectively measure performance, reduce costs, and maintain funds control. The District as a whole, and each division, office and school site needs to be able to demonstrate what results they are achieving with the resources and authorities they have given. In this regard, I am not talking about performance measurement in a narrow sense, but also whether departments can show that they are making a difference towards meeting the needs of students, teachers, and parents. This type of performance information and related cost/benefit analyses needs to become a standard part of District reporting and operations. Unfortunately, for the most part, this is not being done adequately at the present time. Personnel Management The classified personnel management system does not create a performance-oriented culture. Leading organizations understand that effectively managing employees is essential to achieving results. Only when the right employees are on board and provided the training, tools, structure, incentives, and accountability to work effectively, is organizational success possible. People are an organization s most important asset. An organization s people define its character, affect its capacity to perform, and represent the knowledge base of the organization. Attracting the talent is only half the battle. The District must find ways to streamline the current cumbersome, restrictive hiring process. In some cases, it has taken over 6 months to fill an open position. In today s fast paced market, such lead times render the District non-competitive. The District should not rule out pursuing changes to state laws and regulations. Joining forces with other public organizations to seek reform of current policies is a viable strategy. During fiscal year 2002, the District placed significant priority on making reforms in the management of certificated personnel. Specifically, the District issued a Teacher Quality Strategic Plan, which places emphasis: (i) on the ways in which the District develops, engages, and enlists new teachers, (ii) inducts teachers and advances their careers, (iii) uses teacher talent, and (iv) rewards excellence among veteran teachers. The same priority is also needed for classified personnel. A useful first step for the District would be to adopt a classified personnel strategy (a strategic plan) to put the spotlight on its most important asset. Specifically, the District should: 6

7 ! Ensure that skill needs are continually assessed and that the District is able to obtain a workforce that has the required skills that match those necessary to achieve organizational goals.! Focus training on developing and retaining employee skill levels to meet changing District needs.! Provide qualified and continuous supervision to ensure that internal control objectives are achieved.! Design performance evaluation and feedback, supplemented by an effective reward system, to help employees understand the connection between their performance and the District s success. As a part of its personnel strategy, the District should also consider how best to retain valuable employees, plan for their eventual succession, and ensure continuity of needed skills and abilities. Restitution Process In November 2000, the OIG completed a review of the Restitution Process. The OIG concluded that the District experiences losses each year due to fraud, theft, vandalism, and other misconduct. However, the system is so disjointed, an estimate of the total dollar amount lost each year could not be calculated. Specific recommendations included that the District should:! Consolidate and update restitution guidance into one restitution and collection bulletin.! Designate a single office to direct the restitution and collection program to reduce duplication of duties and responsibilities.! Appoint an attorney in the Office of the General Counsel to handle all restitution, civil recoveries, and collection agreements.! Create a case management database to track payments, telephone calls, and correspondence sent to individuals. Over 3 years have passed and District staff have not adequately addressed the recommendations contained in the report. School Financial Operations The District has not placed sufficient priority on managing school financial operations. Our most recent audits of school financial operations disclosed some of the most serious management lapses in the past 5 years. For example, we found a high school s imprest 7

8 fund that was not reconciled for almost 3 years (monthly reconciliations are required), and the financial operations at another high school were unauditable due to almost no available records for transactions related to student body funds, imprest funds, payroll, equipment, and attendance. Since school site personnel manage the majority of the District s multi-billion dollar budget, it is imperative that District leadership be totally committed, in both words and actions, to making school financial management a Districtwide priority. This commitment includes building a foundation of control and accountability that supports accurate reporting and performance management, providing clear and strong executive leadership, and using training to change the organizational culture and engage school site managers. Failure to do so will continue to breed an environment susceptible to waste, fraud, and abuse. District Operations Given the District s stark fiscal realities, it needs to streamline and simplify its operations to make them more economical, efficient, effective, flexible, responsive, and accountable. Streamlining the District to eliminate redundancy and inefficient operations will help address the growing fiscal problems. This action will not by itself solve the problems, but it certainly will help. The OIG s work has documented fragmentation, overlap, and conflicting policies in various District offices, programs, and operations. Some examples were:! Investigations: The Board has designated the OIG responsible for conducting investigations of waste, fraud, and abuse. However, on any given day, at least seven different District offices conduct investigations. These offices include the Office of the General Counsel, Ethics Office, Personnel Commission, Equal Employment Opportunity Office, Labor Compliance Office, School Police, as well as attorneys from outside law firms.! Grants: During the past three fiscal years, the District received almost $4 billion in federal and state grants. The District, however, does not have a centralized grants management and compliance office or one employee who has the sole responsibility for managing and monitoring these funds. The responsibility for managing grants is fragmented among at a number of offices, including the Grants Assistance Unit, Facilities Services Division, Business Services Division, Adult and Career Education Division, and Specially Funded Programs Division. As a result, there is no assurance that (i) the District is aware of and receiving the maximum amount of funds available, (ii) funds are spent in accordance with applicable laws and regulations, and (iii) funds are distributed to schools and offices accurately and timely.! District Rules and Policies: The District has 1,041 Board Rules, Bulletins, Memorandums, and Reference Guides. Some of these items are outdated, inaccurate, and provide conflicting guidance. For example, Bulletin No. 10, dated August 1, 1996, identifies the District s Child Abuse Prevention Unit as the office responsible for coordinating child abuse reporting. However, the District closed 8

9 this office in July Another example is Bulletin No. C-49 (Rev.), dated January 29, 2001, which authorizes secondary schools to sell carbonated beverages during meal periods and in their student stores. This policy appears to contradict a motion to promote healthy beverage sales that was approved by the Board in August The District simply cannot afford redundancy and inefficiency, especially in light of impending fiscal challenges. Summary Although educating students is the District s primary mission, it is not all it must do. Financial services, purchasing, technology, facilities, food services, transportation, and personnel are just a few of the functions that the District must accomplish. These various functions or services all impact the delivery of educational programs and are essential to success. The challenge for the District is to minimize the cost of these related services in order to maximize the resources available to support instruction. Doing nothing is simply not an option, nor will marginal efforts be enough. Tough, difficult choices will have to be made. Clearly, the District must start to exercise more fiscal discipline, as well as instill a sharper focus on performance and accountability. The OIG continues its commitment to assist District management in addressing these challenges. c: Superintendent of Schools Chief of Staff Chief Operating Officer General Counsel Special Counsel to the Board Executive Officer of the Board Chief Financial Officer Chief Facilities Executive Chief Information Officer Personnel Director Business Manager Ethics Officer 9