BILL ANALYSIS Ó
SENATE COMMITTEE ON EDUCATION
Senator Carol Liu, Chair
2015 - 2016 Regular
Bill No: AB 625
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|Author: |Bonta |
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|Version: |June 17, 2015 Hearing |
| |Date: June 24, 2015 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Lenin Del Castillo |
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Subject: School finance: emergency apportionments: compliance
audits
SUMMARY
This bill requires the State Controller, the Superintendent of
Public Instruction (SPI), and the school district superintendent
to meet before each audit of a school district that has received
an emergency apportionment to discuss the terms of the audit and
the timeline under which it will proceed.
BACKGROUND
Existing law provides the authority for emergency loans to be
given to school districts that are unable to meet their current
operating expenses. Such loans are provided by legislation
enacted at the request of the district. Existing law requires
districts that receive an emergency loan to agree to statutory
terms and conditions regarding repayment of the loan and the
steps to be taken to return the district to financial solvency.
If a district receives an emergency loan of up to 200% of its
recommended budget reserve, the SPI is required to appoint a
trustee who has the authority to stay and rescind any action of
the school district governing board. Further, the appointed
trustee serves until the loan is repaid and the district has
adequate fiscal systems and controls in place. If a school
district receives an emergency loan of more than 200% of its
recommended budget reserve, then the SPI is required to assume
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all legal rights, duties, and powers of the governing board and
to appoint an administrator to act on his or her behalf in
exercising this authority. The SPI may return power to the
governing board after specified conditions are met. The costs
of the trustee and administrator and other related oversight and
monitoring activities are borne by the district. Since 1991,
nine school districts have received emergency loans, including:
Oakland Unified, Vallejo City Unified, King City Joint Union
High School District (formerly South Monterey County Joint Union
High School District), West Fresno, and most recently, Inglewood
Unified.
Additionally, existing law:
1)Requires an annual audit for a school district that has
received an emergency apportionment due to an inability to
meet its financial obligations.
2)Provides that the audit may be conducted by the State
Controller or his or her designee or an auditor selected by
the school district and approved by the State Controller.
3)Requires the Superintendent of Public Instruction (SPI), in
the case of an appeal, to either approve or disapprove of the
school district's budget.
4)Requires the SPI, if he or she disapproves the budget, to
notify the school district in writing of the decision.
5)Requires the county superintendent of schools, in the case of
a district with a disapproved budget, and until the county
superintendent of schools certifies the district's first
interim report, to do the following as necessary:
a) Develop and adopt, by November 30, in consultation with
the SPI and the district governing board, a fiscal plan and
budget that will govern the district and allow the district
to meet its financial obligations, both in the current
fiscal year and with regard to the district's multiyear
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financial commitments;
b) Cancel purchase orders, prohibit the issuance of
non-salary warrants, and otherwise stay or rescind any
action that is inconsistent with the budget;
c) Monitor and review the operation of the district;
d) Determine the need for additional staff and may employ,
subject to approval by the SPI, short-term analytical
assistance or expertise to validate financial information
if the district staff does not have the expertise or staff;
e) Require the school district to encumber all contracts
and other obligations, to prepare appropriate cash flow
analyses and monthly or quarterly budget revisions, and to
appropriately record all receivables and payables;
f) Determine whether there are any financial problem areas
and may employ, subject to approval by the SPI, a certified
public accounting firm to investigate financial problem
areas; and
g) Withhold compensation of the members of the governing
board of the district and the superintendent of the
district for failure to provide requested financial
information.
ANALYSIS
This bill requires the State Controller, the Superintendent of
Public Instruction (SPI), and the school district
superintendent, or their respective designees, to meet before
each audit of a school district that has received an emergency
apportionment to discuss the terms of the audit and the timeline
under which it will proceed.
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STAFF COMMENTS
1)Need for the bill. According to the author's office, the annual
audit process for school districts that have been taken over
by the state and received an emergency apportionment has been
a recent point of contention. In prior years, because of the
unique difficulties posed by school audits and the exceptional
workload placed upon the State Controller, audits took
consistently longer than their private sector counterparts and
were more expensive. While a single late audit would be a
surmountable challenge, the delay of subsequent audits had the
effect of compounding the adverse impacts and increasing the
burden on the audited district.
2)Late audits. The author's office indicates that of 38 audits for
five different school districts in receivership, only four
have been completed by the due date. The others have been
late by periods ranging from 43 to 961 days (more than two and
a half years). Late audits may occur for several reasons such
as problems with locating old records or failure for school
districts to submit information. The late audits can cause
several problems for districts, including a lower credit
rating resulting in higher interest rates, difficulties in
projecting financial needs because the current financial
condition is not known, and compounded audit exceptions
because problems are not identified in time to be corrected
prior to the next year's audit.
3)Argument in support. The sponsor of this measure, the
Superintendent of Public Instruction has indicated its intent
to establish communication between the State Controller prior
to an audit to develop a plan, establish coordination, and
help ensure that needed documentation is available and shared
in order to meet the audit's deadline.
4)Fiscal impact. According to the Assembly Appropriations
Committee, this bill would result in minor/absorbable costs to
the State Controller and the State Department of Education to
meet prior to each audit.
SUPPORT
Oakland Unified School District
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Superintendent of Public Instruction (sponsor)
OPPOSITION
None received.
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