the art of school district fiscal oversight ccsesa

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School District Fiscal Accountability Responsibilities

The Art of School District Fiscal OversightCCSESA1Stan Mantooth, Ventura County Superintendent of Schools

Misty Key, Merced COE Assistant Superintendent

Damon Smith, Alameda COE Associate Superintendent22Presentation OutlineOur Responsibilities

Our Tools

The Art

3Our ResponsibilitiesEducation Code 1240(a) Superintend the schools of his or her county(b) Maintain responsibility for the fiscal oversight of each school district in his or her county pursuant to the authority granted by this code55District Fiscal OversightAB 1200 Effective January 1st, 1992

At least 39 subsequent bills have been passed that amend or alter our responsibilities for fiscal oversightAs economic times evolve, the process and necessary legislation continues to be refined and definedAnd the art changes too

66We have many dutiesEducation Code

Government Code

Public Contract Code7Budget approvalWe examine the budgets for compliance with the state standards and criteria (adopted by the SBE)Determine if the budget allows the district to meet its financial obligationsWe may either approve, conditionally approve, or disapprove the submitted budget8The art examples:The budget approval process itself can be as much as an art as it can a science. Ed code define the budget approval process to include a budget for current year and subsequent two years.

10/11 budget approval process example.The 10/11 budget MYP included the cliff of 12/13. ARRA funding goes away. K3 CSR relaxed penalties sunset. 12/13 is out of balance. What does the budget approval process allow?

This is where the art appears. Some COEs allowed counties to recognize in their budget the dollar amount of expenditures needing to be reduced to meet minimum reserves in 12/13. Some COEs recommended a separate board action be taken to identify the dollar cuts and commit to resolving the deficit by a certain date. Some COEs required the necessary reductions be identified and quantified.

Risk tolerance within counties themselves with each district individually 8If we disapprove a budgetWe must recommend to the districts governing board revisions to the budget and reasons for the revisionsWe may assign a fiscal adviser (at our expense) or we may appoint a committee to review our recommendations99Many technicalities If the district makes budget modifications and the COE approves, all is wellIf we are not satisfied with the districts revised budget then steps continueLeading up to budget review committeesSPI involvementPossible severe measures against the district including an imposed budget10We review Interim reportsDistricts certify financial health:PositiveQualifiedor Negative

We may change a certificationAppeal process through SPI / CDE

11The art Anticipate the next step of the district.If you are contemplating a cert change, work with CDE first11PositiveA positive certification is assigned to any district that, based upon current projections, will meet its financial obligations for the current and subsequent two fiscal years12QualifiedA qualified certification is assigned to any district that, based upon current projections, may not meet its financial obligations for the current fiscal year or two subsequent years

Often viewed as a budget dilemma13NegativeA negative certification is assigned to any district that, based upon current projections, will not meet its financial obligations for the current fiscal year or subsequent fiscal year

Often viewed as a cash dilemma14Running out of cash is the precursor to an emergency appropriation or state loan.

Signs of the times:Cash does not align with the budget. It used to for the most part.With all of the cash deferrals and the deferrals in a constant state of change, cash is now more than ever, the most important aspect to monitor closely with the budget. A district can very quickly run out of cash nowadays. 14We also reviewUnaudited Actuals (year-end financial statements) for mathematical accuracy

Audits for exceptions and corrective plans of actions

15The art:

Damon actuals, first chance to truly assess financial position

Misty audit, review with caution. Could reveal an unknown underlying situation15Collective BargainingAgreementsAll districts must disclose the costs of an agreement with an exclusive representative at a public meetingDistricts with Qualified or Negative certifications must give us 10 days to comment on the agreementWe must notify the district within those 10 days if the agreement would endanger the fiscal well-being of the district16Gov Code 3540.2(a)(c)The art:Request districts to disclose all agreements. Even when they state there is no monetary value Best scenario is to always utilize the COE as a second set of eyes before an agreement is final.

Districts of Q or N should be working with COE on proposals, long before a TA is reached. 16Charter SchoolsAll charter schools must send us the following reports:BudgetInterimsUnaudited actuals year-end reportAnnual audit

We are not required to do anything with these reports1747604.33 (a) 47605 (m)17Community CollegesCounty Offices of Education may offer financial services to Community Colleges

Oversight authority is the responsibility of the Chancellors office1818Non-voter Approved DebtDistricts with qualified or negative certifications may not issue such debt without us first determining that the repayment of the debt is probable19Art caution42133 and 42133.5

Debt not secured by real property may not fall under these provisions. Secured by personal property may be a loop hole to our oversight provisions. Example: energy efficient projects

19Commercial WarrantsWe may audit commercial warrants issued by districts

If we determine there is evidence of fraud or misappropriation we are required to notify the governing board, the State Controller, SPI, and the local district attorney20More WorkSet the payroll processEmployer of record for PERS and STRS for all districts in your countyCertify attendance, deferred maintenance and other reportsDistribute apportionments21No RestCalculate revenue limitsWaive bid requirements in emergenciesReconcile county treasurer cash to school recordsReport local tax collections

22Calc RL Ed code 4223822The ToolsLack of Going ConcernLack of Going Concern = troubleEducation Code 42127.6If at any time during the fiscal year the CSS determines a school district may be unable to meet its financial obligations for the current or two subsequent years.Triggers an array of options almost identical to a qualified certification24Tool dont have to wait for an interim to assess a financial status

Art consult with SPI / CDE for 2 reasons:

Appeal process similar as interim certificationsSPI has oversight of CSS actions regarding 42127 et al. They can assume district oversight process at COE expense. 42127.6(K)24Receive / Give ReportsAll districts are required to give you a copy of any study, report, evaluation, or audit that contains evidence of fiscal distressWe are required to give an annual report addressing the fiscal status to the district governing board of a qualified or negative district 25Receive:COE should be expecting districts to report any known issues or situations. Doesnt mean they will admit or fully disclose right away but it is a legal requirement per 42127 et al

Give:Ed code 1240(e) by August 15th. This is outside of the budget or interim responses

25Authority to InvestigateExtraordinary audit - any time With reason to believe fraud, misappropriation, or other illegal fiscal practices have occurred Any district or charterAudit the expenditures and internal controls 26AB 139Ed code 1240(e)Ed code 1241.5

Similar to probable cause 26Criteria and StandardsThese standards help identify signs that a district is in danger of experiencing fiscal distress

Ensure a degree of uniformity across the state in interpretation of fiscal distress27Caution:

C&S lengthy, difficult to read and or assess.

Admin could minimize warnings and convince governing board not mets are actually okay. Board could do the same to district admin

Deficit spending is good example right now

27AuditorsSchool district auditors are required to provide us information on qualified, negative or lack of going concern districts as requestedWill not violate auditor client confidentiality28EC 41020.8

28Financial SystemsDistricts are not required to be on COE systems, but it sure helps!

Real-time information access

Many emergency loans are made to districts not on the COE system

29Damon examples: Oakland, Hayward29Access to ExpertsBASCSFSSCOFSFCMATFiscal Experts / Fiscal Advisers30Possible clarification point difference between expert and adviser and recommendations on how to do the switch (new person, take the time to explain to the district admin and or board the new role and new strings attached stay and rescind) 30$69,920 annuallyEvery COE in the state receives at least $69,920 to support fiscal oversight Larger COEs receive a little moreTrainingBASC has an annual training session on the technical aspects of fiscal oversight

31Important note: program fell into categorical lists and received the 20% reduction31The ArtDistrict RelationsMost Important of AllPositive relationships are powerfulDistricts are willing to disclose their mistakes, problems, and concerns to a COE they trust33CommunicationCommunicateOften, honest, sincereRespond to budgets, interims, collective bargaining agreementsEven when not technically requiredThe more often you say it, the greater chance it will be heardKeep the Superintendent and CBO in the loop even if communicating to the BoardMany

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