Report of Audit From LAUSD To Magnolia Science Academy Outlining Fiscal Audit

Cliarter SchooCs (Division
JOHN E. DEASY, Ph.D.

Superintendent
LOS ANGELES UNIFIED SCHOOL DISTRICT
MATT HILL
333 South Beaudry Avenue, 20
th
Floor
Los Angeles, CA 90017
Office: (213) 241-0399 Fax: (213) 241-2054
June 27, 2014
Dr. Umit Yapanel, Board President
c/o Magnolia Educational and Research Foundation
Dr. Mehmet Argin, CEO
Magnolia Public Schools
13950 Milton Avenue Suite 200B
Westminster, CA 92683
Chief Strategy Officer
JOSE COLE-GUTIERREZ
Director. Charter Schools Division
VIA EMAIL & U.S. MAIL
RE: MAGNOLIA SCIENCE ACADEMY #6 (CDS #19647330117648) & MAGNOLIA
SCIENCE ACADEMY #7 (CDS #19647330117655)
Dear Board President Yapanel and Dr. Argin,
This correspondence is to inform Magnolia Educational and Research Foundation ("MERF"), as
the governing entity for Magnolia Science Academies 6 and 7 ("MSA 6" and "MSA 7"), that
MSA 6 and MSA 7 did not meet the conditions of its conditional renewal. Accordingly, the
conditional renewals of MSA 6 and MSA 7 are rescinded and the renewal petitions are
inoperative for the charter term beginning July 1, 2014. The material findings are set forth below.
BACKGROUND
Pursuant to Education Code section 47605 (b), the LAUSD Board of Education ("Board") held a
public hearing on March 4, 2014, to consider the renewal petitions ofMSA 6 and MSA 7. MERF
representatives attended the public hearing regarding the renewals. On that date, the Board
approved the conditional renewal petitions of MSA 6 and MSA 7. The renewals were
conditioned upon "further review of the schools' fiscal processes and operations that does not
result in any material findings." The conditions for the renewals of both schools were to be met
by June 30, 2014.
On March 27,2014 the District notified CDE and LACOE of the conditional renewals ofMSA 6
and MSA 7. (See attached). MERF was copied on the notifications.
The Office of Inspector General ("OIG"), through the accounting firm of Vicenti, Lloyd &
Stutzman ("VLS"), performed a forensic accounting review of MSA 6, MSA 7, and some
information related to MERF, the schools' Charter Management Organization, also known as
Magnolia Public Schools. Based on the significant material findings of the forensic review, the
District has concluded that MSA 6 and MSA 7 did not meet the conditions of its renewals,
thereby rendering the renewals inoperative.
Board President Yapanel and Dr. Argin
Re: Magnolia Science Academy #6 & Magnolia Science Academy #7
June 27,2014
MATERIAL FINDINGS
Page 2 0/8
Education Code section 47607(a)(2) provides that charter school renewals are governed by the
standards and criteria in Education Code section 47605, and shall include, but not be limited to, a
reasonably comprehensive description of any new requirement of charter schools enacted into
law after the charter was originally granted or renewed.
Education Code Section 47605(b) states: A school district governing board shall grant a charter
for the operation of a school under this part if it is satisfied that granting the charter is consistent
with sound educational practice. Section 4 7605(b) provides that the governing board shall not
deny a petition for the establishment of a charter school unless it makes written factual findings,
specific to the particular petition, setting forth specific facts to support one or more of the
following findings:
(1) The charter school presents an unsound educational program for the pupils to be enrolled
in the charter school.
(2) The petitioners are demonstrably unlikely to successfully implement the program set
forth in the petition.
(3) The petition does not contain the number of signatures required by subdivision (a) of
Education Code 47605. (Not applicable to a renewal petition)
(4) The petition does not contain an affirmation of each of the conditions described III
subdivision (d) of Education Code 47605.
(5) The petition does not contain a reasonably comprehensive description of all required
elements.
Education Code section 47607(a)(3)(A) also provides that the authority that granted the charter
shall consider increases in pupil academic achievement for all groups of pupils served the charter
school as the most important factor in determining whether to grant a charter renewal.
State regulations further provide:
When considering a petition for renewal, the district governing board shall consider the past
performance of the school's academics, finances, and operation in evaluating the likelihood of
future success, along with future plans for improvement if any. (Title 5, California Code of
Regulations, section 11966.4, subdivision (b)(1).)
MSA 6 and MSA 7 are demonstrably unlikely to successfully implement the program set forth
in the renewal petition pursuant to Education Code section 47605(b)(2), based on the
following findings:
1. Financial Solvency of the CMO and MSA 6 and MSA 7, or Lack Thereof
MERF:
Magnolia Science Academies are operated by the nonprofit corporation/charter management
organization (CMO) Magnolia Educational and Research Foundation (MERF). MERF operates
June 27,2014
Page 3 0/8
11 MSA charter schools, 8 of which are authorized by LAUSD. VLS performed some analysis
of the financial information of MERF and reviewed transactions that involved loans and/or
transfer of funds to MERF or to any of the MSA schools.
As of June 30, 2013, MERF meets the IRS definition of being insolvent. At the end ofFY 2013,
MERF had deficit net assets of ($1,661,985). This level of deficit spending raises substantial
doubt about the financial solvency of MERF. The forensic review revealed that MERF met its
cash flow by borrowing monies from the Magnolia charter schools. At the end of FY 2013,
MERF reported owing a net amount of $2.8 million to the various schools it oversees. This is a
very significant and material finding. MERF is a CMO established to provide support and
services to the schools it operates. The insolvency of the CMO not only raises significant
questions about the governance of the schools and overall health of the organization but also its
capacity to implement the educational program and its future likelihood of success.
The March 4, 2014 board report recommending the conditional renewal of MSA 6 and MSA 7
reported that the 2012-20l3 consolidated audit showed that the organization had positive net
assets in the amount of $4.8 million which was reported in the board report. CSD was provided
the 2012-20l3 consolidated audit of all the MSA schools and based its fiscal analysis on that
audit. VLS performed an evaluation on the individual audits provided of MSA 6, MSA 7, and
MERF which revealed a different and concerning fiscal picture of the schools as noted below
given the insolvent position of the CMO.
MSA6:
The forensic review revealed that MSA 6 meets the IRS definition of being insolvent with
liabilities exceeding assets by $351,461as of June 30, 2013.
1
This level of deficit spending raises
substantial doubt about the financial solvency and management of the fiscal affairs of the
school-particularly when considering that MERF, the CMO for the school, met the definition of
insolvency in its 2012-20l3 audit. Although audited financial information regarding fiscal year
20l3-2014 revenues was not yet available, based on the second interim report filed by MSA 6, it
is projected that the schools will still have negative net assets of ($238,029) for fiscal year 2013-
14.
MSA 7:
As of June 30, 2013, MSA 7 had negative net assets of ($218,978). In two of the last three
completed fiscal years, MSA 7 operated in a deficit mode with expenditures exceeding revenues.
The report noted that fiscal year ending June 30, 2013, resulted in increase to net assets of
$281,537 which is a positive trend for the school and helps alleviate concern about the entities
ability to meet its financial obligations; however, the school was still in a deficit financial
position at the end of June 30, 20l3. Again, this is particularly concerning when considering that
MERF met the definition of insolvency in its 2012-2013 audit.
2. Fiscal Mismanagement
The forensic review revealed Issues which nse to a level of fiscal mismanagement. The
following are material areas of concern:
1 Based on the latest audited financial information for MSA 6, MSA 7, and MERF gathered during the forensic
review.
June 27, 2014
a. Lack of Disclosures for Audited Financial Statements
Page 4 0/8
Generally Accepted Accounting Standards (GAAP) provide that an external auditor
performing a financial statement audit evaluate whether there is substantial doubt about
the entity's ability to continue as a "going concern" for a reasonable period of time. VLS
discovered that there were certain footnote disclosures that were not made by MSA 6,
MSA 7, and/or MERF. One of the critical disclosures that were not made was the
negative net assets of both schools. Also, there was no disclosure in the related party
notes identifying CMO fees paid by the schools to MERF. Specific to MERF, there was
no disclosure about the $2.8 million that MERF owed to the various MSA schools or
payment terms or interest rates.
b. Inter-schools BorrowinQ
The forensic review of MERF identifies monies that it receives from the MSA schools as
"intercompany borrowing." Each MSA school is not its own company or nonprofit.
Accordingly, it is more accurate to refer to the transactions as "inter-schools borrowing."
The following significant issues rise to a level of fiscal mismanagement:
No documentation of loans between the schools and MERF showing the terms
and conditions related to the loans. There was no documentation provided that
showed that the inter-schools borrowing were approved by the MERF governing
board. CSD had previously placed MERF on notice of this issue through
oversight.
The MSA schools lend MERF money. MSA 6 and MSA 7 also received loans
from MERF. There was no documentation that the transfers were approved by
the board. More importantly, it raises the question regarding the appropriateness
of lending money to a CMO that is established to provide support to the schools.
The District is not aware of any other CMO that borrows substantial money as is
the case for MERF from its schools, if any at all.
MSA 6 and MSA 7 did not keep detailed records of administrationiCMO fees
paid to MERF.
c. Failure to Follow GAAP Standards
Education Code section 47607(c)(1)(C) provides that a charter school may be revoked for
failure to meet generally accepted accounting principles, or engaged in fiscal
mismanagement. The forensic review noted instances in which MERF and the schools'
failed to abide by GAAP standards.
d. Weak Fiscal Controls
Principal Debit Cards: a sampling performed of the expenses showed that principals spent
more than $500 per transaction which exceeds the amount established by MERF in its
fiscal control policies. The samplings showed that there were no documented approvals
for purchases greater than $500 and some transactions did not appear in the ledger.
Although the purchases are reconciled with receipts, there is no documented approval
process for the expenses over $500.
e. Questionable/Unexplained Transactions
MERF's payments for immigration fees and immigration lawyers in the past 4 years
totaled $206,489, including fees paid to a contracted agency Accord for Accord's
June 27,2014
Page 5 0/8
immigration needs. In addition, MSA 6 and MSA 7 also made payments for
immigration fees and immigration lawyers. When expenditures were tested, 6 out of
9 individuals that MSA 6 paid for immigration related expenses were not employees.
In at least two instances, principals sought reimbursement for cash payment for day
laborers. This is not a recommended practice since the laborers would not be covered
under liability insurance. It also raises improper reporting payments or lack thereof to
the IRS.
Payroll accounting irregularities including payments made outside of the payroll
system, overstatement of payroll expenses, and payroll expenses recorded outside of
payroll object codes.
3. Governance and Administration of Services
The District has concerns regarding MERF's contract with Accord and the accountability and
governance of MERF. Accord is a nonprofit corporation providing services to MSA schools in
the areas of curriculum development, professional training, assessments, human resources,
business and financial support, teacher evaluation, and academic support services. The amount
paid to Accord from FY 2010 through February 28, 2104, amounted to $3 million. Payments to
Accord amount to 29.7% ofMERF's total expenditures in FY 2012 and 25.7% in FY 2013.
The charter petitions for MSA 6 and MSA 7 state that:
Magnolia Public Schools (MPS) has developed this proven model over the years with
services and support from Accord. As explained in Element 4, "Governance," MPS Central
Office (MPSCO) provides supervision, support, and services to all its schools to ensure its
education model is implemented efficiently and successfully. Central Office responsibilities
include curriculum development, professional development, data management, and other
services outlined in section 4.3, "MPSCO." MPSCO outsources some of those services to
Accord. Specifically, MSA 7 will receive services and support from Accord in areas
including, but not limited to, the following major categories:
Program accountability and evaluation reports (student achievement and growth
analysis including data triangulation, surveys, etc.)
Curriculum development (A + Advanced STEM program, Technology Integrated
Education (TIE), Computer Science curriculum, Get Ready For Life (GRFL)
curriculum, etc.)
Professional development (workshops for teachers, deans of academics/assistant
principals, and principals, STEM conference, data analysis workshops, teacher
observation and support)
Supplemental program development (STEMfocused after-school clubslcontests such
as MathMatters, etc.)
Aside from the affordability of the contract with Accord especially in light of MERF's negative
fiscal condition, it raises the question of MERF's responsibilities and accountability in the
operations of the school. The organizational chart in the charter petition states that
MERF/Magnolia Public Schools delegates operations to the MPSCO which comprises of a Chief
June 27, 2014
Page 6018
Academic Officer, Chief Operations Officer, Chief Financial Officer, Chief Accountability
Officer, Project Manager and a Credential Officer. The responsibilities of MPSCO include, but
are not limited to:
Overseeing operations of the schools to ensure compliance with the charter agreements
Making hiring recommendations regarding school principals to the CEO
Curriculum development
Professional development
Payroll
Purchasing
Budgeting
Financial and other reporting
Annual audit
Community outreach
Public relations
Information Technology (IT) support
Data management
Facility management
Human resources
The overlap of services MERF provides as a CMO and the services Accord provides raises the
question of the purpose of the CMO and the management fees it receives from the schools when
it appears that Accord is providing wholesale operations to the school.
Based on the above findings, MSA 6 and MSA 7 are demonstrably unlikely to successfully
implement the program set forth in the renewal petitions. The review of both schools' fiscal
processes and operations revealed material findings and therefore the schools have not met the
conditions of its renewal.
Academic Achievement of the School:
The District considered increases in pupil academic achievement for all groups of pupils served
by MSA 6 and MSA 7 in renewing the charter.
MSA 6: As noted in the March 4, 2014 board report for the conditional renewal of MSA 6,
MSA 6 has met the minimum academic performance criteria for renewal required under
Education Code section 47607(b). In 2013, the school achieved a school-wide Growth API of
828, a 17-point decrease from its Base API of 845. Since its opening in 2009, MSA 6 has
maintained its API score above 800. The school earned a 2013 Statewide Rank of 7 and a
Similar Schools Rank of 8. The school has outperformed the resident District schools with
comparable demographics in each year of its charter in API and in the percentage of students
scoring proficient and advanced on CST ELA and Mathematics. Further, all subgroups met their
API growth targets with the exception of the Socioeconomically Disadvantaged subgroup. Their
API growth target fell 39 points from the 2012 base of 817 down to 778 for 2013.
MSA 7: The March 4, 2014 board report for the conditional renewal of MSA 7 states that MSA 7
has met the minimum academic performance criteria for renewal required under Education Code
section 47607(b). In 2013, the school achieved a school-wide Growth API of 904. In the last
June 27,2014
Page 7018
three years, MSA 7 has consistently maintained its API score above 800. The school earned a
2013 Statewide Rank of 9. The school has outperformed the resident District schools with
comparable demographics in each year of its charter in Growth API and in the percentage of
students scoring proficient and advanced on CST ELA and Mathematics. MSA 7 was also
classified as an "excelling" school on LAUSD's School Performance Framework. Though not
considered numerically significant, all subgroups met their API growth targets for 2013 and two
of the last three years.
The District acknowledges MSA 6 and MSA Ts academic achievement and considers increases
in academic achievement for all groups of pupils as the most important factor in making renewal
decisions. The conditions for the renewal focused on the schools' fiscal processes and
operations. As the state renewal regulations indicate, authorizers must consider the past
performance of the school's academics, finances and operation in evaluating the likelihood of
future success along with future plans for improvement. In closely considering the totality of the
findings outlined herein, the foregoing deficiencies and concerns rise to a level of severity that
seriously questions the CMO's ability to operate the school let alone support itself. These types
of operational and financial issue permeate the overall health of the organization and its ability to
provide educational support to its students.
CONCLUSION
Based on the findings outlined above, MSA 6 and MSA 7 have failed to meet the conditions of
its renewal. LAUSD accordingly rescinds the conditional renewals of MSA 6 and MSA 7 and
the renewal petitions are inoperative for the charter term beginning July 1, 2014.
2
The renewals
are deemed denied as of March 4, 2014, the date the Board of Education acted on the renewal
petitions. Board reports #280-13/14 for MSA 6 and #283-13/14 for MSA 7 presented to the
Board on March 4, 2014 (see attached), and the findings above shall constitute the requisite
written factual findings supporting denial of a charter petition in accordance with Education
Code section 47605, subdivision (b).
The District understands that these are serious circumstances and the Charter Schools Division
staff will contact you so we can be available to provide appropriate support to the families and
students including providing information about possible educational options.
Sincerely,
~ Z - -
Director, Charter Schools Division
c: Dr. Richard Vladovic, Board President, LAUSD
Dr. John. E. Deasy, Superintendent, LAUSD
David Holmquist, General Counsel, LAUSD
2 On March 4, 2014, the Board also conditionally approved the material revisions requested by MSA 6 and MSA 7
to change grade levels and enrollment capacity. The related actions for the conditional approvals of the material
revisions for MSA 6 and MSA 7 are also rescinded and inoperative for the chmier telm beginning July 1,2014.
June 27,2014
Jefferson Crain, Board Secretariat, LAUSD
Julie Russell, Director, CDE Charter Schools Division
Charlene P. Schmid, CDE Charter Schools Division
Dr. Arturo Delgado, Superintendent, LACOE
Judy Higelin, LACOE Charter Schools Division
Attachments: Letter to CDE dated March 27, 2014
Page 8 0/8
LAUSD Board Reports #280-13114 and #283-13114 of 03104114 Board meeting

March 27, 2014

Julie Russell, Director
California Department of Education
Charter Schools Division
1430 N Street, Suite 5401
Sacramento, CA 95814-5901

RE: NOTIFICATION OF CONDITIONAL APPROVAL OF CHARTER RENEWAL FOR
MAGNOLIA SCIENCE ACADEMY 6 CHARTER No. 0988 WITH CDS CODE 19-64733-0117648
AND MAGNOLIA SCIENCE ACADEMY 7 CHARTER No. 0889 WITH CDS CODE 19-64733-
0117655

Dear Ms. Russell,

The District hereby notifies the California Department of Education of the conditional approval of the renewal
of the charter for Magnolia Science Academy 6 Charter No. 0988 with CDS Code 19-64733-0117648 and
Magnolia Science Academy 7 Charter No. 0889 with CDS Code 19-64733-0117655 on March 4, 2014.

The charter renewals are contingent upon a result of no material findings of the review of the schools fiscal
processes and operations by June 30, 2014. If the fiscal and operation review result in material findings, the
schools would not meet the terms of the conditional approval and the renewals will be inoperative (null and
void) for the 2014-2019 terms. I shared this with the organizations leadership, as well as publicly to the
LAUSD Board of Education in response to questions in open session at the March 4, 2014 meeting.

Magnolia Science Academy 6 and Magnolia Science Academy 7 is expected to operate its charter school in a
manner consistent with local, state, and federal ordinances, laws and regulations and with the terms and
conditions set forth in its petition. The measurable pupil outcomes and method by which pupil progress toward
outcomes will be measured as are set forth in the charter petition. Furthermore, the Charter Schools Division
(CSD) expects that the charter school and CMO provide the CSD quarterly financial reports reviewed by the
schools governing board and indicating an improving financial position for the school.

Please feel free to contact with me if you have any questions at (213) 241-0399 or via e-mail at jose.cole-
gutierrez@lausd.net.

Sincerely,

Jos Cole-Gutirrez
Director

c: Dr. John E. Deasy, Superintendent, LAUSD
Mr. Jefferson Crain, Board Secretariat, LAUSD
Dr. Robert Perry, Administrative Coordinator, CSD
Umit Yapanel, Board Chair , Magnolia Public Schools
Dr. Mehmet Argin, Executive Director, Magnolia Public Schools
Ms. Charlene P. Schmid, CDE
Dr. Arturo Delgado, Superintendent, LACOE
JOHN E. DEASY, Ph.D.
Superintendent

MATT HILL
Chief Strategy Officer

JOS COLE-GUTIRREZ
Director, Charter Schools Division

333 South Beaudry Avenue, 20
th
Floor
Los Angeles, CA 90017
Office: (213) 241-0399 Fax: (213) 241-2054
VIA EMAIL AND US MAIL
JRussell@cde.ca.gov

Report Number:
Date:
Subject:
Responsible Staff:
Name
Office/Division
Telephone No.
BOARD REPORT
Action Proposed:
Background:
Board of Education Report
280 - 13/14
March 4,2014
Conditional Approval of the Renewal of the Charter for Magnolia Science
Academy-6 (Public Hearing)
Jose 1. Cole-Gutierrez, Director
(213) 241-0399
Staff recommends the conditional approval of the renewal of the charter for
Magnolia Science Academy-6 for five (5) years, beginning July 1, 2014
until June 30, 2019 to serve up to 575 students in grades 6-11 by the end of
its charter term (related BR #282 - 13/14 changes the enrollment capacity
and grade levels to be served). The renewal is conditional upon further
review of the school's fiscal processes and operations with an expectation
of no material findings.
On November 6, 2013, Magnolia Science Academy-6 submitted its charter
renewal petition application to the Charter Schools Division. The charter
petition and supporting documents were reviewed by the Charter Schools
Division, the Office of the General Counsel, and other District staff.
Pursuant to a waiver executed by petitioners and the District, the statutory
timeline for Board action on this petition has been extended to March 6,
2014.
In accordance with Education Code sections 47605 and 47607, the Charter
Schools Division considers the following criteria when reviewing a
renewal petition submitted by a charter school:
Confirmation that the charter school's performance has met the
minimum criteria under Education Code section 47607(b), including
considering increases in pupil academic achievement for all groups of
pupils served by the charter school as the most important factor in
determining whether to grant a charter renewal;
Review of the charter petition to assess the soundness of the
educational program; ensure it contains the required affirmations; and
ensure it contains reasonably comprehensive descriptions of the 16
elements;
Bd. of Ed. Rpt. No. 280 - 13/14 Page 1 of7 Board of Education
March 4,2014
Assessment that the petitioners are demonstrably likely to successfully
implement the program;
Confirmation of the academic, operational, and fiscal soundness of the
charter school based on the Charter Schools Division oversight and the
school's achievement results on the District's School Performance
Framework.
Staff assesses that Magnolia Science Academy-6 has met the above
criteria.
Magnolia Science Academy-6 serves students in grades 6-8 in Board
District 1, Educational Service Center West (ESCW), at 3754 Dunn Drive,
Los Angeles, CA 90034, a private site. Per the December 2013 Secondary
Schools Classification report, the school's current enrollment is 140
students in grades 6-8. Magnolia Science Academy-6 has applied for
facilities under Prop. 39. In the event that the school does not elect to
occupy district facilities under Prop. 39, the school will seek a private site
that will allow the school to accommodate increased enrollment up to their
capacity.
On February 26, 2008, the LAUSD Board of Education approved the
charter petition for Magnolia Science Academy-6 for grades 6-11 for five
years beginning July 1, 2009. The school opened in the fall of 2009. For
the proposed 2014-19 charter term, the school plans to serve up to 575
students in grades 6-11 by year five. During the current charter term of
2013-14, the school's student body has reflected the community in which it
operates. According to October 2012 CDE data, the school's
demographics are approximately 49% Latino; 19% White; 15% African
American; 4% Asian; 6% Filipino; 1 % American Indian; 1 % Pacific
Island; and 4% Two or More Races. Magnolia Science Academy-6 has
chosen to implement its own English Learner Master Plan, and has
provided the Charter Schools Division supporting documentation.
Magnolia Science Academy-6 is managed by the Magnolia Educational &
Research Foundation which does business as Magnolia Public Schools
(MPS), a non-profit organization established in August 1997. MPS
oversees a network of charter schools throughout California dedicated to
inspiring students to choose career paths in science, technology,
engineering, and math (STEM), while providing a robust, standards-based
education program within a supportive culture of excellence. In the fall of
2002, the Foundation established its first charter school, Magnolia Science
Academy-l ("MSA-l"), in the San Fernando Valley. Since then, the
Foundation has replicated its educational program at 11 other charter
Bd. of Ed. Rpt. No. 280 - 13114 Page 2 of7 Board of Education
March 4,2014
school sites throughout California, eight of those authorized by LAUSD.
Magnolia Science Academy-6 has met the minimum academic
performance criteria for renewal required under Education Code section
47607(b) as evidenced below in the Summary of School Performance. In
2013, the school achieved a school-wide Growth API of 828, a 17-point
decrease from its Base API of 845. Since its opening in 2009, Magnolia
Science Academy-6 has maintained its API score above 800. The school
earned a 2013 Statewide Rank of 7 and a Similar Schools Rank of 8. The
school has outperformed the resident District schools with comparable
demographics in each year of its charter in API and in the percentage of
students scoring proficient and advanced on CST ELA and Mathematics.
The District-wide School Performance Framework (SPF) classification is
another criterion considered when reviewing a charter school renewal
petition. According to the 2013 SPF, Magnolia Science Academy-6 has
been classified as a "Service & Support" school, which is the third tier of
five possible tiers of performance. The school ' s placement in this tier is
due to decreases in student achievement on Math portions of the California
Standards Test. In order to address the school's performance levels in
Math, the school is implementing the following practices to monitor
student growth and achievement: (1) Magnolia Science Academy-6 is
using MAP assessments to assess all students and to monitor their
academic growth throughout the year. (2) Professional development has
focused on more frequent analysis of student data and identifying those
students who are below grade level in math to make the needed adjustment
to support students' mastery. (3) The school also offers interventions to
support students in Math including tutoring during the day and an after-
school program. According to its three-year Academic Growth Over Time
(AGT results for 2010-13), the school ' s ELA-AGT is within the range of
predicted growth. (See Summary of Charter School Performance.)
The Magnolia Schools are implementing the recommendations from the
2012 audit done by the LAUSD Office ofthe Inspector General. The area
requiring more attention at this time for full implementation is for the
organization to build the cash reserve of four of its schools to a
recommended 5%. The CMO provides fiscal support and the consolidated
audit for 2012/2013 shows the CMO and the schools have a combined cash
reserve of 7.3%, which is above the recommended amount. CSD staff
continues to monitor the implementation of the recommendations as part of
ongoing oversight. Furthermore, the Office of Inspector General will be
conducting another fiscal audit on the Magnolia Schools as a follow up to
the 2012 audit.
March 4,2014
As a high quality authorizer, LAUSD strives to share and leverage
promising and innovative practices across LAUSD schools to help generate
innovation and improve educational outcomes for all students. As part of a
CMO, Magnolia Science Academy-6 adheres with fidelity to four
promising practices that are signature marks at all Magnolia Schools. (1)
Home visits are part of each student's education program. Every school
year every teacher and administrators visit students in their homes to gain
insights and to create personal connections. (2) Magnolia Science
Academy-6 obtains student data from multiple sources: internal MAP
assessments administered three times per year, CST scores, and class
grades. The data is used by the leadership and staff to assess student
learning and to make instructional decisions to support student
achievement. (3) Magnolia Science Academy-6 implements an Open
Inquiry Instructional approach to enable students to investigate problems
and find solutions on their own. (4) As an extension of STEM courses,
Magnolia Science Academy-6's after-school Robotics club allows students
to combine and apply advanced computer and technology-based activities
with a focus on robotics. Teams of students have been awarded 2
nd
place
in the Teamwork Category (2011), 1
5t
place in Physics (2011), 2
nd
place in
Biology (2012), and an award of recognition for Project Design (2012).
Current Magnolia Public Schools Governing Board members completed
questionnaires regarding conflicts of interest. A due diligence review
performed by the Office of the Inspector General of the school ' s principal,
and on-site financial manager, revealed no material negative findings.
Prior to the Board approval of the charter renewal, the school must submit
any requested materials, including a signed Memorandum of
Understanding (MOU) for Special Education.
Magnolia Science Academy-6 has indicated that, prior to Board approval
of its charter renewal, it will agree to and execute the LAUSD SELPA
Option 2 Special Education MOU with the understanding that it intends to
apply to become a member of the Option 3 Charter Operated Programs for
Special Education Services (LAUSD SELPA Option 3). Unless and until it
is accepted for membership in the LAUSD SELP A Option 3 and executes
the LAUSD SELPA Option 3 Special Education MOU, the executed
LAUSD SELPA Option 2 Special Education MOU will remain in effect.
Upon Magnolia Science Academy-6's acceptance as a member of the
LAUSD SELPA Option 3 and execution of the LAUSD SELPA Option 3
Special Education MOU, the Option 3 MOU will supersede and render null
and void the previously executed Option 2 MOU.
March 4, 2014
Expected Outcomes:
Board Options and
Consequences:
The petition is available for perusal in the Charter Schools Division and
online at the District' s Board of Education website at
http://laschoo I board. orgl charterpeti tions.
Magnolia Science Academy-6 is expected to operate its charter school in a
manner consistent with local, state, and federal ordinances, laws and
regulations and with the terms and conditions set forth in its petition. The
benchmarks for achievement are set forth in the petition. Furthermore, the
CSD expects that the charter school and CMO provide the CSD quarterly
financial reports reviewed by the Governing Board and indicating an
improving financial position for the school. In addition, staff expects the
further review of fiscal processes and operations to yield no material
findings .
"Yes" - The conditional approval of the renewal of the charter term would
grant Magnolia Science Academy-6 the right to continue to operate as a
charter school under the terms of the renewal petition for a five (5) year
period beginning July 1, 2014, contingent upon a further review of fiscal
processes and operations that does not result in any material findings.
Moreover, should the Board of Education approve the related action for
material revision in BR #282 - 13114, the renewal petition shall be
amended to conform to provisions of the material revision reflecting a 300
student enrollment capacity and a 6-8 grade level configuration. Staff will
provide the Board of Education an update as soon as possible and prior to
June 30, 2014, as to the status of the school's meeting the condition of this
action.
"No" - The denial of the renewal of the charter term would cause the
charter to expire on June 30, 2014, unless Magnolia Science Academy-6
appeals the denial and the charter is granted by the Los Angeles County
Board of Education or the California State Board of Education.
Additionally, the denial of this renewal would render the action proposed
in BR #282 - 13114 moot. This BR #280 - 13114 and accompanying
documents shall constitute the Board of Education' s adopted written
findings of fact for the denial of the Magnolia Science Academy-6 renewal
petition.
Policy Implications: There are no policy implications at this time.
Budget Impact: State income and various other income sources to the District are reduced
when current District students enroll at a charter school, and comparable or
offsetting expenditure savings may not occur in such cases. Under
Education Code section 47604(c), a school district that grants a charter to
a charter school to be operated by, or as, a nonprofit public benefit
March 4, 2014
corporation is not held liable for the charter school ' s debts or obligations as
long as the school district complies with all oversight responsibilities. The
District will continue to have monitoring and oversight responsibility for
charter school finances, as specified in the Charter Schools Act. Any
modifications to the charter school's petition or operations with significant
financial implications would require District approval prior to
implementation. Petition approval is also contingent upon adequate liability
msurance coverage.
Magnolia Science Academy-6 is a current member of LAUSD SELPA
Option 2. Under the current LAUSD SELPA Option 2 Special Education
MOU, Charter School's fair share contribution for special education for the
first year of the charter petition will be 20% of the District's general fund
contribution rate per ADA for that fiscal year, which will be paid from the
Charter School ' s funds from the Local Control Funding Formula. The rate
will increase by 5% for each subsequent fiscal year until the applicable
percentage reaches 35%. The rate will remain at 35% for the remainder of
the Charter School ' s petition period based on the District's general fund
contribution rate for that fiscal year. At the conclusion of each fiscal year
during the entire charter petition period, any unspent special education
revenues shall be returned to the LAUSD SELP A.
Issues and Analysis: If all pending issues, including but not limited to special education
requirements, special education local planning area (SELP A) requirements,
and facilities matters, are not resolved at the time of the Board meeting, the
Office of General Counsel may recommend the denial of the renewal
petition.
Attachments:
o Informative
Desegregation
Impact Statement
Bd. of Ed. Rpt. No. 280 - 13114 Page 60f7 Board of Education
March 4, 2014
Respectfully submitted,
DR.l0
. SY \
APPROVED & PRESENTED BY:
JOSE 1. COLE-GUTIERREZ
Director
Chmter Schools Division
Bd. of Ed. Rpt. No. 280 - \3/14
APPROVED BY:
MICHELLE KING
Senior Deputy Superintendent
School Operations
REVIEWED BY:
DAVID HOLMQUIST
General Counsel
P Approved as to form.
TONY ATIENZA
Director of Budget Services and
Financial Plmming
kApproved as to budget impact statement.
Page 7 of7 Board of Education
March 4, 2014
DESEGREGATION IMP ACT STATEMENT (DIS)
MAGNOLIA SCIENCE ACADEMY-6
BOARD OF EDUCATION REPORT 280 - 13114
March 4, 2014
I. Category of Proposed Action:
The proposed action will approve the renewal of the charter for Magnolia Science Academy-6, beginning
July 1,2014 until June 30, 2019 and provide an approximate total of575 students served in grades 6-11 by
year 5.
II. Summary Description of Current District Practice:
Charter schools are schools of choice by legislation and are open to any student in the State of California.
Chal1er schools are granted single charter status for a maximum of five (5) years. It should be noted,
however, that although State legislation allows students to attend a chal1er school from any area in the state,
the Los Angeles Unified School District (LAUSD) is under C01ll1 Order, Crawford v. LAUSD, which
applies to all schools within or chartered through the LAUSD. Any modifications to the C01ll1-0rdered
Integration Program must first be approved by Student Integration Services.
Ill. Proposed Change:
The approval of this renewal of the chal1er would grant the charter of Magnolia Science Academy-6 for five
(5) years beginning July 1, 2014 until June 30, 2019.
IV. Effects of This Proposal:
The Los Angeles Unified School District (LA US D) does not guarantee availability of COlll1-ordered
Integration funding. The charter school will be responsible for maintaining the Court Order and providing
information requested by the LAUSD as set f0l1h in the Charter petition. Modifications or school decisions
cannot negatively impact or cause additional costs to the C01ll1-ordered Integration budget.
V. Analyze the Impact of This Proposal on Integration, Desegregation, Re-segregation and/or Segregation:
If the Chal1er goals are met, there should be positive results on the five (5) Harms of Racial Isolation which
are low academic achievement, low self-esteem, lack of access to post-secondary opportunities, interracial
hostility and intolerance, and overcrowded conditions. The Court-ordered Integration Program for
pal1icipating students will operate under various C01ll1 Orders for schools within the Los Angeles Unified
School District. Any modification of the C01ll1-ordered Integration Program must first be approved by
Student Integration Services.
VI. If proposed action affects negatively any desegregation program, list other optiones) identified:
If the District Court-ordered Integration Guidelines are followed, there will not be a negative effect on the
District's Court-ordered Integration Program.
PREPARED BY:
~ ~
ALEX GOMEZ
Specialist
Bd. of Ed. Rpt. No. 280 - 13114
APPROVED BY:
aRIA GINGER COLE, ED.o.
Interim Director
Student Integration Services
Page 1 of 1 Board of Education
March 4, 2014
Report Number:
Date:
Subject:
Responsible Staff:
Name
Office/Division
Telephone No.
BOARD REPORT
Action Proposed:
Background:
283 - 13114
March 4,2014
Conditional Approval of the Renewal of the Charter for Magnolia Science
Academy-7 (Public Hearing)
Jose J. Cole-Gutierrez, Director
(213) 241-0399
Staff recommends conditional approval of the renewal of the charter for
Magnolia Science Academy-7 for five (5) years, beginning July 1, 2014
until June 30, 2019, to serve 250 students in grades K-6 in year 1 and up to
425 students in grades K-8 by the end of its charter term (related BR #284 -
13114 changes the enrollment capacity and grade levels to be served). The
renewal is conditional upon further review of the school ' s fiscal processes
and operations with an expectation of no material findings.
On November 6, 2013 Magnolia Science Academy-7 submitted its charter
renewal petition application to the Charter Schools Division. The charter
petition and supporting documents were reviewed by the Charter Schools
Division, the Office of the General Counsel, and other District staff.
Pursuant to a waiver executed by petitioners and the District, the statutory
timeline for Board action on this petition has been extended to March 6,
2014.
In accordance with Education Code sections 47605 and 47607, the Charter
Schools Division considers the following criteria when reviewing a renewal
petition submitted by a charter school :
Confirmation that the charter school ' s performance has met the
minimum criteria under Education Code section 47607(b), including
considering increases in pupil academic achievement for all groups of
pupils served by the charter school as the most important factor in
determining whether to grant a charter renewal;
Review of the charter petition to assess the soundness of the educational
program; ensure it contains the required affirmations; and ensure it
contains reasonably comprehensive descriptions of the 16 elements;
Assessment that the petitioners are demonstrably likely to successfully
March 4, 2014
implement the program;
Confirmation of the academic, operational, and fiscal soundness of the
charter school based on the Charter Schools Division oversight and the
school's achievement results on the District' s School Performance
Framework.
Staff assesses that Magnolia Science Academy-7 has met the above criteria.
Magnolia Science Academy-7 serves students in grades K-5 in Board
District 3, Educational Service Center North (ESCN), at 18355 Roscoe
Blvd., Northridge, CA 91325, a private site. Per the December 2013
Elementary Classification Report, the school's current emollment is 302
students in grades K-5.
On February 26, 2008, Magnolia Science Academy-7 was originally
approved by the Board of Education to serve grades 6-11. While the school
was approved to serve grades 6-11 , the opening date was delayed because it
could not secure a facility large enough to operate a 6-11 program. Once a
site was secured in Northridge, the Governing Board submitted a material
revision request to amend its petition to offer a K-8 program because
Magnolia Public Schools was already operating a successful 6-12 charter
school within the same geographic area. The charter was amended by the
Board of Education on June 15, 2010 to allow the school to open in
September 2010 as a K-8 school. For the proposed 2014-19 charter term,
the school plans to serve up to 425 students in grades K-8 by the end of the
charter term.
During the current charter term of Magnolia Science Academy-7, the
school ' s student body has reflected the community in which it operates.
According to October 2012 CDE data, the school' s demographics are
approximately 62% Latino, 24% White, 3% African American, 4% Filipino,
and 4% Two or More Races. Magnolia Science Academy-7 has chosen to
implement its own English Learner Master Plan, and has provided the
Charter Schools Division supporting documentation.
Magnolia Science Academy-7 is managed by the Magnolia Educational &
Research Foundation ("Foundation") which does business as Magnolia
Public Schools (MPS), a non-profit organization established in August
1997. MPS oversees a network of charter schools throughout California
dedicated to inspiring students to choose career paths in science,
technology, engineering, and math (STEM), while providing a robust,
standards-based education program within a supportive culture of
excellence. In the fall of 2002, the Foundation established its first charter
March 4, 2014
school, Magnolia Science Academy-l ("MSA-l "), in the San Fernando
Valley. Since then, the Foundation has replicated its educational program at
11 other charter school sites throughout California, eight of which are
authorized by LAUSD.
Magnolia Science Academy-7 has met the minimum academic performance
criteria for renewal required under Education Code section 47607(b) as
evidenced below in the Summary of School Performance. In 2013, the
school achieved a school-wide Growth API of 904. In the last three years,
Magnolia Science Academy-7 has consistently maintained its API score
above 800. The school earned a 2013 Statewide Rank of 9. Form the data
provided by the Office of Data and Accountability per the CDE there is no
Similar Schools Rank. The school has outperformed the resident District
schools with comparable demographics in each year of its charter in Growth
API and in the percentage of students scoring proficient and advanced on
CST ELA and Mathematics.
The District-wide School Performance Framework (SPF) classification is
another criterion considered when reviewing a charter school renewal
petition. According to the 2013 SPF, Magnolia Science Academy-7 has
been classified as an "Excelling" school, which is the highest tier of five
possible tiers of performance. The school ' s placement in this tier is due to
high levels of student achievement on the ELA and Math portions of the
California Standards Tests coupled with at-predicted academic growth
levels in both English Language Arts and Math according to its three-year
Academic Growth Over Time (AGT) results. The school ' s 3-Year AGT
(2010-13) result in ELA is above predicted growth, while the school ' s 3-
Year AGT (2010-13) results in Math is within the range of predicted
growth. (See Summary of Charter School Performance. )
The Magnolia Schools are implementing the recommendations from the
2012 audit done by the LAUSD Office of the Inspector General. The area
requiring more attention at this time for full implementation is for the
organization to build the cash reserve of four of its schools to a
recommended 5%. Magnolia Science Academy-7 projects a cash balance
for 2013/2014 to be 5.5% based on the 201312014 First Interim Report
submitted by the school. The CMO provides fiscal support and the
consolidated audit for 2012/2013 shows the CMO and the schools have a
combined cash reserve of 7.3%, which is above the recommended amount.
CSD staff continues to monitor the implementation of the recommendations
as part of ongoing oversight.
As a high quality authorizer, LAUSD strives to share and leverage
promising and innovative practices across LAUSD schools to help generate
March 4, 2014
Expected Outcomes:
Board Options and
Consequences:
innovation and improve educational outcomes for all students. As part of a
CMO, Magnolia Science Academy-7 adheres with fidelity to four promising
practices that are signature marks at all Magnolia Schools. (1) Home visits
are part of each student's education program. Every school year every
teacher and administrators visit students in their homes to gain insights and
to create personal connections. (2) Magnolia Science Academy-7 obtains
student data from multiple sources: internal MAP assessments administered
three times per year, CST scores, and class grades. The data is used by the
leadership and staff to assess student learning and to make instructional
decisions to support student achievement. (3) Magnolia Science Academy-7
implements an Open Inquiry Instructional approach to enable students to
investigate problems and find solutions on their own. (4) Teachers in
grades 1-5 use chapter books and novels to facilitate and to develop
language proficiency skills.
Current Magnolia Public Schools Governing Board members completed
questionnaires regarding conflicts of interest. A due diligence review
performed by the Office of the Inspector General of the school's lead
petitioner, principal, and on-site financial manager, revealed no material
negative findings.
Prior to the Board approval of the charter renewal, the school must submit
any requested materials, including a signed Memorandum of Understanding
(MOU) for Special Education.
The petition is available for perusal in the Charter Schools Division and
online at the District's Board of Education website at
http://laschoo 1 board. orgl charterpetitions.
Magnolia Science Academy-7 is expected to operate its charter school in a
manner consistent with local, state, and federal ordinances, laws and
regulations and with the terms and conditions set forth in its petition. The
benchmarks for achievement are set forth in the petition. Furthermore, the
CSD expects that the charter school and CMO provide the CSD quarterly
financial reports reviewed by the Governing Board and indicating an
improving financial position for the school. In addition, staff expects the
further review of fiscal processes and operations to yield no material
findings.
"Yes" - The conditional approval of the renewal of the charter would grant
Magnolia Science Academy-7 the right to continue to operate as a charter
school under the terms of the renewal petition for a five (5) year period
beginning July 1, 2014 contingent upon a further review of fiscal processes
and operations that does not result in any material findings. Moreover,
March 4, 2014
should the Board of Education approve the related action for material
revision in BR #284 - 13114, the renewal petition shall be amended to
conform to provisions of the material revision reflecting a 300 student
enrollment capacity and a K-5 grade level configuration. Staff will provide
the Board of Education an update as soon as possible and prior to June 30,
2014, as to the status of the school ' s meeting the condition of this action.
"No" - The denial of the renewal of the charter term would cause the
charter to expire on June 30, 2013, unless Magnolia Science Academy-7
appeals the denial and the charter is granted by the Los Angeles County
Board of Education or the California State Board of Education.
Additionally, the denial of this renewal would render the action proposed in
BR #284 - 13114 moot. This BR #283 - 13114 and accompanying
documents shall constitute the Board of Education's adopted written
findings of fact for the denial of the Magnolia Science Academy-7 renewal
petition.
Policy Implications: There are no policy implications at this time.
Budget Impact: State income and various other income sources to the District are reduced
when current District students enroll at a charter school, and comparable or
offsetting expenditure savings may not occur in such cases. Under
Education Code section 47604(c), a school district that grants a charter to a
charter school to be operated by, or as, a nonprofit public benefit
corporation is not held liable for the charter school's debts or obligations as
long as the school district complies with all oversight responsibilities. The
District will continue to have monitoring and oversight responsibility for
charter school finances, as specified in the Charter Schools Act. Any
modifications to the charter school's petition or operations with significant
financial implications would require District approval prior to
implementation. Petition approval is also contingent upon adequate liability
Insurance coverage.
Magnolia Science Academy-7 is currently a member of LAUSD SELPA
Option 3 (Charter Operated Programs). Under the current LAUSD SELPA
Option 3 Special Education MOU, the charter school ' s fair share
contribution to special education will be 10% of charter schools' AB 602
(rate includes Base, COLA, and Growth/Decline reduced by the amount
withheld for Program Specialist/Regionalized Services) and Federal IDEA
revenues. The revenue rate will be adjusted to account for changes in the
State' s funding formula beginning fiscal year 2013-14. The amount
withheld by the District from the Program Specialist/Regionalized Services
in fiscal year 2012-13 will continue to be withheld and adjusted annually for
COLA. The fair share contribution will be paid from the charter school ' s
March 4, 2014
funds from the Local Control Funding Formula and will be allocated to
support the existing District-wide administration of special education
supports and services. An additional 10% of special education revenues
will be retained by the District and allocated as directed by the Advisory
Board and members of the Charter-operated Program, with the leadership of
the Charter-operated Program special education director. These funds will
be used to support the personnel for the Charter-operated Program section
of the SELP A; build management and operating procedures to create an
infrastructure to support schools in meeting the needs of students with mild
to severe disabilities; and, to create and implement new programs that serve
students in charter schools. At the conclusion of each fiscal year during the
entire charter petition period, any unspent special education revenues shall
be returned to the LAUSD SELPA.
Issues and Analysis: If all pending issues, including but not limited to special education
requirements, special education local planning area (SELP A) requirements,
and facilities matters, are not resolved at the time of the Board meeting, the
Office of General Counsel may recommend the denial of the renewal
petition.
Attachments:
o Informative
Desegregation
Impact Statement
March 4, 2014
Respectfully submitted,
DR.J
Superi

endent .
APPROVED & PRESENTED BY:
JOSE J. COLE-GUTIERREZ
Director
Bd. of Ed. Rpt. No. 283- 13114
APPROVED BY:
MICHELLE/ ING
Senior Deputy Superintendent
School Operations
REVIEWED BY:
DA VID HOLMQUIST
General Counsel
as to form.
/
TONY ATIENZA
Director of Budget Services and
Financial Planning
;R::Approved as to budget impact statement.
Page 7 of7 Board of Education
March 4, 2014
DESEGREGATION IMP ACT STATEMENT (DIS)
MAGNOLIA SCIENCE ACADEMY-7
BOARD OF EDUCATION REPORT 283 - 13/14
March 4, 2014
I. Category of Proposed Action:
The proposed action will approve the renewal of the chal1er for Magnolia Science Academy-7, beginning July
1, 2014 until June 30, 2019 and provide an approximate total of 425 students served in grades K-8 by year 5.
I I. Summary Description of Current District Practice:
Chal1er schools are schools of choice by legislation and are open to any student in the State of California.
Charter schools are granted single chal1er status for a maximum of five (5) years. It should be noted,
however, that although State legislation allows students to attend a charter school from any area in the state,
the Los Angeles Unified School District (LAUSD) is under Court Order, Crawford v. LAUSD, which applies
to all schools within or chal1ered through the LAUSD. Any modifications to the Court-Ordered Integration
Program must first be approved by Student Integration Services.
Ill. Proposed Change:
The approval of this renewal of the chal1er would grant the chal1er of Magnolia Science Academy-7 for five
(5) years beginning July 1,20 I 4 until June 30, 20 I 9.
IV. Effects of This Proposal:
The Los Angeles Unified School District (LAUSD) does not guarantee availability of Court-ordered
Integration funding. The charter school will be responsible for maintaining the Coul1 Order and providing
information requested by the LAUSD as set forth in the Charter petition. Modifications or school decisions
cannot negatively impact or cause additional costs to the COUl1-ordered Integration budget.
V. Analyze the Impact of This Proposal on Integration, Desegregation, Re-segregation and/or Segregation:
If the Chal1er goals are met, there should be positive results on the five (5) HarnlS of Racial Isolation which
are low academic achievement, low self-esteem, lack of access to post-secondary opportunities, interracial
hostility and intolerance, and overcrowded conditions. The Coul1-ordered Integration Program for
participating students will operate under various Court Orders for schools within the Los Angeles Unified
School District. Any modification of the Court-ordered Integration Program must first be approved by
Student Integration Services.
VI. If proposed action affects negatively any desegregation program, list other option(s) identified:
If the District COUl1-ordered Integration Guidelines are followed, there will not be a negative effect on the
District's Court-ordered Integration Program.
PREPARED BY:
ALEX GOMEZ
Specialist
Chal1er Schools Division
Bd. of Ed. Rpt. No. 283 - 13114
APPROVED BY:
ORIA GINGER COLE, ED.D.
Interim Director
Student Integration Services
Page 1 of 1 Board of Education
March 4, 2014

Report of Audit From LAUSD To Magnolia Science Academy Outlining Fiscal Audit

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