JILL ROSENFELD

Staff Reporter

David Koch has been chief administrative officer of the Los Angeles Unified School District for only about two and a half months. If he hangs in another three months, he will have outlasted both his predecessors.

William Magee, a former Atlantic Richfield Co. executive, was the first to accept a CAO-type job with the district four years ago. He left after about five months, citing lack of support from the superintendent. Next came Hugh Jones, a former Kaiser executive, who came in about a year ago and who resigned two months later.

Now it’s Koch’s turn. As CAO, he is in charge of putting the district’s operations and finances in order, a daunting task.

The district has been repeatedly criticized for overspending, mismanagement of funds and poor auditing procedures. Reviews by Arthur Andersen LLP in 1993 and again in 1997 found ineffective financial management, particularly in the computer division, where employees were doing work by hand because they had not been trained to use the computer system.

In addition to righting such deficiencies, Koch is responsible for overseeing the use of $2.4 billion in Proposition BB funds for repairs and construction of 51 new schools.

In mid-August, following the departure of Internal Auditing Director Wajeeh Ersheid, Koch retained KPMG Peat Marwick to run day-to-day operations of the auditing branch. Ersheid was only one in a series of executives from private companies to leave, complaining about the difficulty of reforming an entrenched bureaucracy.

For better or worse, Koch long has been part of that bureaucracy. He has worked for the district continuously since 1977, and was manager of the business division for the last 12 years, until taking his current post.

Question: Originally the idea was to bring in an outsider to take the CAO position. Why do outsiders seem to have such a tough time?

Answer: It’s a little different culture here, let’s say that. It’s a big organization, and there’s a political element that people from the private sector aren’t used to dealing with. And there’s the fish-bowl element, like reading about how horrible we are on the front page of the newspaper. You can’t just “do your job.” You also have to consider all these other elements. In some ways that’s unfortunate, but that’s the reality of doing the public’s business you do it in public.

Q: What’s your top priority?

A: Improving the credibility of the (Proposition) BB (school repair) operation. There’s nothing more important on my plate. We’re changing the governance of the BB operation. We’re shifting the responsibility for the BB projects to the program managers. (Two construction management firms, O’Brien Kreitzberg and 3D/International, are jointly serving that function.) We’re restructuring the contracts at the end of this month. Under the current contract, they are used as needed. They backfill for district staff. They are on what is called a “work authorization contract.” I have to sign off on everything they do.

Q: And under the new configuration?

A: They will be totally and clearly responsible for the entire BB program. They can bring in the resources they feel are appropriate to get the job done. They will report directly to me. Hopefully this contract will also have consequences of success, and consequences of failure.

Q: When Wajeed Ersheid, the district’s internal auditing director, was fired, he said the district’s purchasing, contracting, maintenance, transportation, and central shop operations were not monitored. Is this true?

A: No, that’s not true. We are audited by internal auditors every year. We have an internal audit function that needs work. I brought in KPMG (Peat Marwick) to do a complete evaluation and review of the internal audit function. I expect their report back in three weeks. It will deal with how to restructure that department and make it more effective.

In addition, KPMG is reviewing and evaluating all the procedures on the business side. They’re looking at our purchasing practices, our contracting processes, their efficiencies and their internal controls.

Q: School Board member David Tokofsky proposed hiring a general inspector who would be accountable not to the district but to the school board. Is that going forward?

A: It’s on hold right now, pending the outcome of KPMG’s review. Right now we have a regular internal audit department, and a separate unit that’s called special investigations. That’s the unit that might become the inspector general. There are some serious questions about the bifurcation of those functions, however. If you do that, you lose the critical mass and the flexibility.

Q: What about the much-criticized computer division?

A: I have (Arthur) Andersen in there right now, looking at some things. But basically we need a technology blueprint. We have a draft of a master plan for technology. I’m reviewing that now and we’ll move forward when I’m satisfied. What we’re missing is the front end that’s user friendly, that you or I could walk up to and use without extensive four-week training.

Q: There have been a number of reports about mismanagement and theft of funds by officials at individual schools. Are you looking at ways to make individual schools more financially accountable?

The principal who misbehaves is a blip on the radar screen. We have 65,000 employees. If just one half of 1 percent of those are bad apples, that’s 325 bad apples and every one you’ll read about on the front page of the Metro section. Every institution has bad apples. You just have to take care of them.

We’re dealing in an environment where we want to decentralize and give schools autonomy. There are risks associated with that, the main one being that the schools will lack uniformity. These are the things that policymakers have to balance.

Q: Mayor Riordan’s task force has been looking for candidates to run against incumbent school board members. How would a reconstituted board affect you as CAO?

A: Now there’s a place I don’t want to go. (Laughs.) I love my school board. I think what the mayor has in mind is a school board that is more reflective of the way a board operates in the private sector. That is, a board that looks at the overall big-picture review of the operation of the administration, on a more policy level. Some board members do indeed focus on the big-picture policy issues, but others are more inclined to get into, let’s say, more detail.