LAUSD Probing Charter Schools, Says They're Financially Insolvent

Originally posted at 10:03 a.m. July 22, 2014.

Los Angeles Unified School District officials say they have expanded their financial probe of a charter school organization to include all eight locally operated institutions after moving to shut down two learning academies because of fiscal problems, it was reported today.

District officials are not disclosing the findings of an earlier audit that prompted them to decide to close Magnolia Science Academy 7 elementary school in Van Nuys and Magnolia Science Academy 6 in Los Angeles a few weeks ago, the Los Angeles Daily News reported. Both schools had outperformed their district-run peers in the classroom.

The expanded questions about the organization's finances "will assure us that there are no other fiscal issues looming," Superintendent John Deasy said in a statement quoted by the newspaper.

Magnolia Science academies under review include two San Fernando Valley schools: MSA1 in Reseda and MSA2 on Victory Boulevard. The district's audit will also look at MSA3 in Carson, MSA4 in Venice, MSA5 in Hollywood and MSA8 in Bell, the Daily News reported.

On Thursday, district lawyers will argue in court against Magnolia's request for a restraining order that would stop district officials from shutting down academies 6 and 7, according to the Daily News. Magnolia will seek a permanent injunction while it appeals the district's decision through county and, perhaps, state education agencies, the newspaper reported.

In court documents, LAUSD officials say an audit they commissioned of the two academies shows their management organization, Magnolia Educational and Research Foundation, meets the IRS's definition of "insolvency" because its net assets were at a deficit of nearly $1.7 million for the fiscal year ending June 2013, according to the district's summary of the audit.

Magnolia officials, meanwhile, enclosed in court filings a letter from an auditor they hired putting Magnolia's assets at $4.8 million for the fiscal year ending June 30, 2013.

Magnolia "is certainly solvent and liquid and has the ability to successfully fund the operations of its schools," according to the letter, which was filed in court.

A second accounting firm's findings also refuted the district's contentions, Magnolia officials contend in court documents quoted by the Daily News.

--City News Service