Home » Santa Clarita News » Education » UPDATE: Draft Report Of Einstein Academy Audit Notes Accounting Concerns
LAPD Detectives with the Sexually Exploited Child Unit’s Juvenile Division are investigating an allegation of crimes against multiple Einstein Academy students, LAPD officials said this week.

UPDATE: Draft Report Of Einstein Academy Audit Notes Accounting Concerns

Ed. note: Edward Gika contacted KHTS AM-1220 on Thursday and said he had not received any money for biofeedback consulting. He provided one of two $500 invoices for Steven Kassel. FCMAT declined to comment Thursday.

A draft of an Einstein Academy audit report cited missing board meeting minutes and “significant deficiencies” in financial controls, according to information obtained by KHTS AM-1220.


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Albert Einstein Academy for the Letters, Arts and Sciences operates a K-6 charter school in Newhall, which is chartered by the Acton Agua Dulce Unified School District, as well as a high school in Valencia, which is chartered through the William S. Hart Union High School District.

The first recommendation in the draft report to the county’s superintendent of education, who requested the Extraordinary Audit, was: “Notify the governing board of AEALAS that insufficient documentation exists that fraud, misappropriation of charter funds and/or assets or other illegal activities may have occurred and that the county office has concluded its review.”

The report also notes there is not sufficient evidence to demonstrate fraud, but “the lack of internal controls increase the probability of fraud and/or abuse.”

When reached for comment, Einstein officials said they haven’t seen the report or acted upon any recommendations, yet.The charter schools’ officials said the recommendations have not been acted upon because while there’s been discussion, the formal report has not been submitted to the school.

A board meeting agenda item lists adoption of the FCMAT audit recommendations as an action item for the board’s November meeting; however, AEALAS Executive Director Jeffrey Shapiro said the item was put on there in anticipation of the FCMAT report’s release, which hasn’t happened, yet.

Minutes for the Nov. 17 AEALAS board meeting were unavailable because they had not yet been approved officially, he said, a step that takes place during the following month’s meeting as standard procedure to ensure the accuracy of the minutes.

When asked about the report, Los Angeles County Office of Education officials said no comment was available yet because the report has not been released.

Why the Einstein Academy audit was conducted

The financial review was requested by the county’s Office of Education, after alleged indications of fraud and commingling funds within the AEALAS organization were presented to county Superintendent Arturo Delgado, the draft states.

Related: Auditors Continue Probe Of Einstein Academy Charter School Finances

The draft report didn’t find substantiation for the fraud claims. It acknowledges the FCMAT team lacks any such legal authority to declare an occurrence of fraud, with its role being one of independent operational review.

The goal of the audit was to present the requested information to Delgado. Delgado has authority to make recommendations to the District Attorney’s Office if he suspects illegal activity occurred.

A FCMAT official said after the review is complete, the auditing team submits the report to the requesting agency, which, in this case, is LACOE.

The requesting agency then generally reviews the report for fact-checking purposes and sends it back to FCMAT, which publishes the report on its website, according to Anthony Bridges, deputy executive officer.

The report is currently in the review process, and has not yet been published by FCMAT. The commenting period review usually takes about 10 days, Bridges said.

There are usually not drastic differences between the draft and final published reports, he added.

Acton Agua Dulce Superintendent Brent Woodard said he didn’t believe the issues with Einstein Academy reached a “red flag” level of concern.

The issues would be discussed at a public hearing Thursday in Acton, Woodard said, where a new charter petition for the school would be reviewed.

An overview of the FCMAT draft audit report for Einstein Academy

The report is broken down into three sections: an explanation of what FCMAT is and the study conducted into the operations for Einstein Academy’s various schools; an explanation of Albert Einstein Academy for the Letters, Arts and Sciences operations they reviewed; and a review of the team’s findings.

The audit was requested in December 2013, and then amended in March 2014, and the audit was underway by April.

During interviews, “FCMAT study team members asked questions pertaining to levels of authority to enter into contracts, governing board oversight, financial management policies and procedures, job duties and responsibilities, the business practices processing of transactions through the various back office service providers, and management’s process for preserving documents and the overall internal control structure and line of authority,” according to the report.

The audit also sampled transactions between three organizations identified in the audit, the schools’ management organization, the nonprofit AEALAS Foundation and the schools’ operating entity, AEALAS Inc.

 What is considered a significant deficiency

“Based on the findings of the FCMAT extraordinary audit, the team concludes that significant deficiencies (emphasis theirs) exist within the internal control structure, particularly with monitoring procedures, internal controls over operations and management’s ability to override internal controls,” according to the findings in the report.

The initial audits found a lack of what financial experts refer to as material weaknesses, which are financial irregularities indicating illegal activity, such as deliberate fraud, according to the report.

The report defines significant deficiencies as a combination of problems with internal controls that are “less severe than a material weakness, yet important enough to merit attention by those charged with governance.”

Examples of significant deficiencies would include failure to adequately segregate duties and responsibilities, failure to limit access to sensitive data, unauthorized transactions and collusion among employees where little or no supervision exists.

According to the draft report: “FCMAT’s findings conclude that AEALAS’ internal controls continue to exhibit significant deficiencies based on reoccurring internal control findings and questioned costs reported in the 2011-12 and 2012-13 independent auditor’s reports of the consolidated AEALAS Inc. financial statements.”

The findings noted in the report ranged from a lack of formal authorization from the governing board for the founder or the executive director to cut checks and loans on behalf of AEALAS Inc. to inconsistencies in the cash disbursement systems missing board meeting minutes.

The report also states efforts have been made to remedy the issues, however, Einstein officials said they wouldn’t comment on specifics because they haven’t seen the report.

 Einstein Academy audit finds missing information, inconsistent policy

In response to the auditors’ questions, AEALAS’ CFO provided organizational charts and lines of financial authority for the charter schools’ operations, according to the draft report.

The updated charts provided clear and detailed lines of authority and reporting responsibility for the school, its supporting organization

“FCMAT found that consistent and complete audit trail documentation continues to be unavailable,” according to the draft report.

An example stated in the report points to a request for board meeting minutes for the 2012-13 and 2013-14 fiscal years, which AEALAS was unable to provide.

Some of the board minutes verifying governing board approvals for the financial transactions sampled by FCMAT were also unavailable, according to the draft report. An Einstein official said past concerns had been noted and addressed, but declined to discuss specifics.

One entry in the report identified the schools’ nonprofit wing the AEALAS Foundation accounting  records identified a vendor as “Pizza Place” with four transactions in October 2013 totaling $13,847.65, “however, the supporting documents indicated that the transactions were for legal services, consulting and reimbursements.”

The draft report stated that of that money, $10,000 went to legal services for a charter school in Thousand Oaks; $2,000 went to Mark Blazer for reimbursements, however details were unavailable to the auditors; $1,000 went to Edward Gika for “biofeedback consulting”; and $847.65 went to Mark Blazer for reimbursements for trips regarding charter school operations.

On Thursday, Gika provided KHTS AM-1220 one of two $500 invoices he and Einstein Academy CFO Seleste Sakato said were referenced in the report to explain the reimbursement.

At the time of the audit, the school’s manual for fiscal policy contained insufficient controls and wasn’t consistently followed, according to the report.

The report also found a statement in the charter petition: “There are no financial arrangements for any charter school operated by AEALAS Inc. to provide financial assistance to any other entity.”

However, the FCMAT draft report found loans between the charter school, its charter management organization and the schools’ nonprofit foundation had occurred. This is not considered “commingling,” which was initially alleged, because the funds were used within the AEALAS organizations.

 Recommendations for Einstein Academy officials

FCMAT officials were unable to determine whether students were improperly charged fees, due to the aforementioned significant deficiencies in the financial controls.

“Based on the FCMAT sample of cash receipt transactions of AEALAS and because of the significant deficiencies in AEALAS cash receipt internal controls,” the draft report stated, “FCMAT was not able to determine if prohibited student fees are or have been charged to students.”

In many of the sampled transactions in the audit, only a deposit slip was available and the deposit was missing receipt copies to verify the deposit amounts, or the photocopies were available, but they were missing a deposit slip or date, according to FCMAT.

An Einstein official refused to comment on any specifics in the draft report.

Other suggestions include updating its accounting policies and procedures with more detailed policy.

Einstein Academy hearing Thursday

While LACOE officials are denying the release of the draft report because the office has not officially reviewed and commented, Einstein Academy is set to re-apply for its charter from the Acton Agua Dulce school board on Thursday, at a public hearing at Meadowlark School at 3015 Sacramento Ave. in Acton.

A FCMAT official indicated LACOE was given the report Nov. 24.

The school site AADUSD officials are considering is the elementary school currently in operation at the old Pinecrest School site on 25443 Orchard Village Road in Newhall.

Related: Einstein Academy To Seek Charter School Approval Again

The AADUSD school district already approved a charter for the Albert Einstein Academy for the Letters, Arts and Sciences once in May 2013 with a 3-2 vote.

However, a judge set that approval aside and ordered the school to re-apply for its charter after the Newhall School District sued the Acton Agua Dulce Unified School District and Einstein Academy officials.

They claimed the school and district were “invalidating the process by which the local community participates in the decision of whether there should be a charter school in that community.”

The judge also told AADUSD that any financial gains to the district can not be considered as a factor in considering the charter school’s application.

The letter that prompted the audit included allegations of fraud, Woodard said in a previous interview, which seem unfounded based on his communications with FCMAT.

“That was my primary concern was, ‘How is that audit going to come out?’” he said, “just to make sure our fiduciary commitments were being met.”

The school district’s governing board is expected to make a decision about the charter school in the weeks following the meeting.

Woodard said the charter review process Thursday, which was commended by the judge in that same lawsuit, would be similar a second time around.

“It’s going to be like a  new petition and we’re going to treat it as such,” said Woodard. “If it meets the elements and conditions of the law, then we’ll discuss that.”

Do you have a news tip? Call us at (661) 298-1220, or drop us a line at community@hometownstation.com.

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UPDATE: Draft Report Of Einstein Academy Audit Notes Accounting Concerns

2 comments

  1. Did reporting sink to this level or are we seeing something much more diabolical going on here..

    How unethical are the auditors that “leaked” this information or did they even leak it?
    Why after both sides deny the proposed facts would someone continue to publish this?

    There are legal terms when a “person” makes or contributes to actions or statements that are intended to do harm to another “person”. At school we call this bullying and we claim we have a zero tolerance. I have yet to see that from those in charge of the traditional school districts towards the Charter Schools. They do not practice inclusion either…

    Until the auditors issue their report and it is published, this is not fact or news, this is dirty pool and should not be protected by the first amendment.

  2. I have serious concerns with the credibility of any of the information when the city the charter school is listed as Newhall…..really ? Last I checked the corner of Wiley and Orchard village was Valencia..

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About Perry Smith

Perry Smith is a print and broadcast journalist who has won several awards for his focused, hyperlocal community coverage in several different regions of the country. In addition to five years of experience covering the Santa Clarita Valley, Smith, a San Fernando Valley native, has worked in newspapers and news websites in Los Angeles, the Northwest, the Central Valley and the South, before coming to KHTS in 2012. To contact Smith, email him at Perry@hometownstation.com.