CSA
Summary
Read the report at California State Auditor ↗
The Fiscal Crisis
and Management
Assistance Team:
Its Recommendations, if Implemented,
Should Help Financially Troubled
School Districts
June 2004
2003-129
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June 16, 2004 2003-129
The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814
Dear Governor and Legislative Leaders:
As requested by the Joint Legislative Audit Committee, the Bureau of State Audits presents its audit report
concerning the effectiveness of the Fiscal Crisis and Management Assistance Team (FCMAT).
This report concludes that FCMAT’s recommendations, if implemented, should help financially troubled school
districts improve their financial conditions. Although all of the school districts we reviewed appeared to have
implemented or partially implemented some of the recommendations we selected to review, many of them continue
to experience financial problems. Full recovery can take several years, depending on the nature and severity of a
district’s problems. Since its formation, FCMAT’s scope of responsibilities has significantly expanded, primarily as
a result of legislation, to include comprehensive reviews and periodic progress reports of specific school districts
that received state emergency loans, and projects such as the California School Information Services system, which
is an electronic statewide system that facilitates the exchange of student information. FCMAT’s studies cost an
average of $3.1 million annually for fiscal years 2000–01 through 2002–03, including $2.1 million per year for
management assistance studies and $1 million per year for comprehensive reviews as mandated by legislation.
Its billing rate of $400 per person per day spent working on site at school districts and county education offices
is on the low end of what FCMAT pays its consultants, which is consistent with FCMAT’s understanding that the
Legislature intended it to assist financially troubled school districts to avert a financial crisis, such as bankruptcy.
Finally, FCMAT’s administrative costs appear reasonable and although FCMAT is not subject to competitive bidding
rules, it uses a fair process for selecting consultants for its large comprehensive reviews of school districts.
Respectfully submitted,
ELAINE M. HOWLE
State Auditor
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CONTENTS
Summary 1
Introduction 5
Audit Results
The Fiscal Crisis and Management Assistance Team
Provides Valuable Advice to Troubled School Districts 19
FCMAT’s Consultant Selection Process Is Fair, but
Improvements Can Be Made 31
FCMAT Has Good Reasons to Keep Its Billing Rate
Artificially Low 33
FCMAT’s Administrative Costs Appear Reasonable 34
Recommendations 37
Response to the Audit
Kern County Superintendent of Schools 39
SUMMARY
RESULTS IN BRIEF
The Fiscal Crisis and Management Assistance Team
(FCMAT) provides fiscal and management assistance
Audit Highlights . . .
services to county offices of education (county offices)
Our review of the Fiscal Crisis and school districts. The Legislature authorized the creation of
and Management Assistance FCMAT in 1991 when it passed Assembly Bill 1200 (Chapter 1213,
Team (FCMAT) disclosed:
Statutes of 1991). This law provided county offices with tools
þ FCMAT’s reports include to oversee the fiscal health of the school districts under their
recommendations that purview. One of these tools was the ability to request FCMAT’s
are valuable and should
assistance at troubled school districts.
help improve the financial
health of school districts.
Since FCMAT’s inception, it has completed 369 school district
þ Most of the school studies and other services, including acting as a fiscal adviser
districts we reviewed
to school districts and county offices and assisting the State
have implemented or
partially implemented Superintendent of Public Instruction. Although helping
many of FCMAT’s California’s local educational agencies fulfill their financial and
recommendations.
management responsibilities continues to be FCMAT’s main
þ Fiscal recovery of a school purpose, its responsibilities have grown over the years, almost
district can take several exclusively as the result of other legislation, to include preparing
years depending on the comprehensive assessments and recovery plans for four of the
nature and severity of
six school districts that received emergency loans from the State,
its problems.
facilitating fiscal training for county offices and school districts,
þ Since its formation, and developing and maintaining two separate statewide
FCMAT’s responsibilities
information systems.
have expanded, primarily
as a result of legislation.
Our review of FCMAT’s involvement at 10 school districts
þ FCMAT’s process for
revealed that FCMAT provides findings and recommendations
selecting consultants
that are valuable and should help improve the financial health
to work on its large
comprehensive reviews of school districts. All of the school districts we reviewed
is fair, but FCMAT can appeared to have implemented or partially implemented some
improve by sending
of the recommendations we selected to review, although due
application packets to a
to various factors, including the severity and nature of their
larger group of consultants.
problems, several of them continue to experience financial
þ FCMAT’s governing board
difficulties. Because FCMAT’s recommendations are standards-
has good reasons to
based, they have resulted in improved practices, which can
keep the rate FCMAT bills
school districts low. lead to improved overall fiscal health for the school districts
that implemented them. However, FCMAT’s recommendations
þ The percentage of FCMAT’s
can be effective only if school districts take action on them.
administrative and overhead
costs seems reasonable. School districts are not required to implement FCMAT’s
California State Auditor Report 2003-129 11
recommendations and, except for those districts that received
emergency loans, FCMAT is not required to report the progress
the districts make in implementing its recommendations.
Additionally, staff at some of the school districts believe that
having FCMAT as an independent, external consultant added
credibility to the problems they faced and the solutions they
proposed to their communities and governing boards. This
credibility helped the districts make difficult but necessary
decisions, such as reducing spending for transportation and
special education programs.
FCMAT has a list of nearly 70 consultants it can use on any given
request for management assistance services to school districts.
Although it is not subject to state contracting laws, which would
require it to use a competitive bid process to select its consultants,
FCMAT requests bids when contracting for consultant services
for its bigger comprehensive studies, such as for the Compton
Unified School District and Oakland Unified School District.
Generally, FCMAT’s contracting process appears fair, although
it could invite more consultants to bid on these jobs, providing it
with a broader group of experts from which to choose.
To offset some of the costs of performing management
assistance studies, the Legislature authorized FCMAT to charge
school districts that are not declared as fiscal emergencies a
daily rate for these services. Currently, FCMAT’s governing
board has approved a $400 rate per team member for every
day that FCMAT or its consultants are on site at the districts.
This rate is on the low end of what FCMAT pays its consultants
for these services, but it appears reasonable given FCMAT’s
understanding that the Legislature intended FCMAT to assist
financially troubled school districts to head off financial crises,
such as bankruptcy, thereby avoiding the need for emergency
loans from the State. FCMAT generally does not bill school
districts that have received state emergency loans or that
FCMAT’s board has designated as being in a fiscal emergency for
its services. Rather, the State pays FCMAT’s costs in such cases,
either through FCMAT’s annual appropriation for management
assistance studies or through separate appropriations specific to
particular school districts.
For the three fiscal years 2000–01 through 2002–03, FCMAT’s
studies cost an average of $3.1 million annually, including
$2.1 million per year for management assistance studies and
an average of $1 million during each of the three fiscal years
22 California State Auditor Report 2003-129 California State Auditor Report 2003-129 33
for comprehensive studies of school districts as mandated by
legislation. Of the $2.1 million, it billed approximately $632,000,
or 31 percent of its average costs per year, to the school districts
that received the services. Also during this period, FCMAT spent, on
average, $419,000 per year, or 13.5 percent of the $3.1 million,
on administrative costs, including costs for office space, utilities,
office supplies and equipment, and other costs not directly
associated with its studies.
We noted that the administrative costs do not include the
portion of two managers’ salaries that is related to administrative
duties, such as approving staff time sheets and attending
FCMAT’s board meetings. However, it is not likely that including
the portion of their salaries associated with performing those
tasks would cause FCMAT’s total administrative costs to exceed
a reasonable proportion of the total costs. Further, given the
small size of FCMAT, it is reasonable that its administrative
costs, most of which would remain the same regardless of the
number of studies it performs, represent a higher proportion of
its total costs when compared to larger organizations because
FCMAT cannot benefit from the economies of scale that large
organizations enjoy.
Finally, according to its bylaws, the FCMAT governing board
provides policy direction and broad operational guidance to the
Kern County Superintendent of Schools (Kern superintendent’s
office), which houses and administers FCMAT. The FCMAT
governing board meets quarterly to discuss topics including
FCMAT’s reports, to prioritize requests for FCMAT’s assistance,
and to oversee its projects.
As one of several divisions of the Kern superintendent’s office,
FCMAT is subject to the same administrative policies and
procedures as other divisions within that office. Through its
other divisions, the Kern superintendent’s office handles certain
administrative aspects of FCMAT’s operations, such as providing
personnel and information technology support services.
RECOMMENDATIONS
To obtain the broadest range of consultants to choose from,
FCMAT should expand its list of consultants who receive request
for application packets.
22 California State Auditor Report 2003-129 California State Auditor Report 2003-129 33
AGENCY COMMENTS
FCMAT agrees with our findings and recommendations and will
develop, in coordination with its governing board, a corrective
action plan for the two recommendations. n
44 California State Auditor Report 2003-129 California State Auditor Report 2003-129 55
INTRODUCTION
BACKGROUND
In September 1991, the Legislature passed Assembly Bill 1200
(Chapter 1213, Statutes of 1991), which authorized the
creation of the Fiscal Crisis and Management Assistance Team
(FCMAT) and established its governing board. The legislation
also expanded the responsibility and authority of the county
offices of education (county offices) in monitoring their school
districts’ budgets and required county offices to intervene under
certain circumstances to ensure that the districts meet their
financial obligations. The Legislature passed this law in part to
establish accountability standards, but also to address concerns
arising from the bankruptcy of the Richmond Unified School
District, now the West Contra Costa Unified School District
(West Contra Costa), and the financial collapse of other school
districts that were preparing to seek emergency loans from the
State. The Legislature envisioned FCMAT as a service to help local
educational agencies meet their fiscal accountability standards.
FCMAT’s enabling legislation requires it to operate under
the immediate direction of an appropriate county office
selected jointly, through an application process, by the State
Superintendent of Public Instruction (state superintendent)
and the State Secretary of Child Development and Education
(education secretary). According to FCMAT’s annual report for
fiscal year 2002–03, four county offices submitted applications,
and the state superintendent and education secretary awarded
the FCMAT contract to the Kern County Superintendent of
Schools (Kern superintendent’s office), which signed a contract
in June 1992 with the Department of Education.
From FCMAT’s inception through fiscal year 2003–04, the
Legislature’s annual appropriation to the Kern superintendent’s
office to fund FCMAT’s management assistance has increased
from $500,000 to $2 million. In total, the State allocated more
than $9.6 million to the Kern superintendent’s office to fund all
of FCMAT’s operations in fiscal year 2003–04. Of that amount,
the Legislature appropriated more than $4.6 million for FCMAT’s
operation of the California School Information Services system
(CSIS), $2 million for FCMAT’s provision of management
assistance, nearly $1.2 million for FCMAT to reimburse county
offices for performing their enhanced responsibilities, and more
44 California State Auditor Report 2003-129 California State Auditor Report 2003-129 55
than $1.8 million for FCMAT’s other responsibilities. These other
responsibilities include the administration of the Education
Data Partnership, which provides financial and demographic
data and allows the sharing of that data among stakeholders; the
professional development of district and county office business
officials; and FCMAT’s ongoing studies at the Compton and
Oakland unified school districts. Figure 1 shows the breakdown
of FCMAT’s appropriations for fiscal year 2003–04.
FIGURE 1
Breakdown of FCMAT’s Appropriations
Fiscal Year 2003–04
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Source: FCMAT.
CSIS is a statewide electronic school information system that
facilitates the exchange of student information within the
California public school system for the purposes of state reporting
and records transfer. It was created in 1997, when the Legislature
required FCMAT to develop a plan to administer, coordinate, and
manage the development and implementation of such a statewide
system, and FCMAT has administered it since 1999.
FCMAT’s mission is to help California’s local educational
agencies fulfill their financial and management responsibilities
by providing fiscal advice, management assistance, training, and
other related school business services. This mission is consistent
with the mandate of its enabling legislation, which states that
FCMAT shall provide management assistance at the request of
any school district or county office and shall assist the state
66 California State Auditor Report 2003-129 California State Auditor Report 2003-129 77
superintendent with his or her statutory responsibilities. One
way in which FCMAT accomplishes its mission is by issuing
study reports to the school districts and county offices it assists.
From its inception in June 1992 through March 10, 2004,
FCMAT has completed 369 reports, and 29 more studies
are pending completion. Most of these 398 studies are
management assistance studies. Figure 2 shows the number
of management assistance studies that FCMAT has completed or
that are pending since its formation.
FIGURE 2
FCMAT’s Management Assistance Studies by Fiscal Year
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FCMAT’s chief executive officer attributed the sharp increase in
the number of management assistance studies from fiscal years
1999–2000 through 2001–02 to several causes. For example,
many school districts and county offices used the deficit
reduction payments they received from the State in fiscal year
66 California State Auditor Report 2003-129 California State Auditor Report 2003-129 77
1999–2000, a one-time source of funds, to finance recurring
costs, such as employees’ salaries. During this same time period,
many school districts experienced flat or declining enrollment;
habitual deficit spending; and continual encroachment by
categorical programs, like special education, on their general
funds. As a result, many districts and county offices requested
FCMAT’s management assistance and fiscal crisis intervention
in the years immediately after the deficit reduction payments.
Furthermore, some school districts and county offices asked
FCMAT to help them develop implementation plans for a
statewide accounting code structure.
FCMAT’s governing board helps FCMAT fulfill its mission
by exercising its own statutory authority and overseeing
FCMAT’s operations. (We discuss the governing board’s
oversight of FCMAT in another section of this Introduction.)
The education code establishes FCMAT’s 23-member
governing board, consisting of one representative chosen by
the California County Superintendents Educational Services
Association (CCSESA) from each of its 11 county service
regions; 11 superintendents of school districts chosen by the
Association of California School Administrators (ACSA), one
from each of the county service regions; and one representative
from the Department of Education, chosen by the state
superintendent. To choose its representatives, CCSESA requires
the county superintendents in each region to select a peer
to serve on FCMAT’s governing board. ACSA’s executive
director recommends school district superintendents from
its membership to serve on the governing board; the ACSA
board must then approve the recommendations. Generally,
county superintendents serve two-year terms and district
superintendents serve three-year terms.
FCMAT’S ENABLING LEGISLATION ALSO EXPANDED
THE FISCAL OVERSIGHT RESPONSIBILITIES OF COUNTY
OFFICES OVER SCHOOL DISTRICTS
The law that created FCMAT also gave county offices greater
responsibilities for the fiscal oversight of the school districts
within their boundaries. A different law provides reimbursement
through FCMAT of a portion of the costs the county offices
incur in carrying out these responsibilities. These expanded
responsibilities include the following:
88 California State Auditor Report 2003-129 California State Auditor Report 2003-129 99
• If, based on the recommendations of a budget review
committee, with input from the district’s governing board, the
state superintendent disapproves a school district’s budget,
the county office must monitor and review the operation
of the school district, develop and adopt a fiscal plan and
budget for the district, and stay or rescind actions that are
inconsistent with that budget.
• The county office must monitor the operation of each school
district pursuant to each district’s adopted budget and, if
the county office determines that a school district will be
unable to meet its financial obligations, it may assign a fiscal
adviser to assist the district. It may also conduct a study of the
district’s finances and recommend actions to the district that
will help it meet its obligations.
• After notifying the state superintendent that a school district
will be unable to meet its financial obligations, the county
office may request additional information from the district
regarding its budget or operations, revise the district’s budget,
and stay or rescind any district action that is inconsistent with
those revisions. The county office may take similar actions
for any school district that has a negative certification of its
financial and budgetary status.
• The county office may permit a school district having a
qualified or negative certification to issue debt instruments
that do not require the approval of the voters of the district,
which the law otherwise prohibits, if the county office
determines that repayment of the indebtedness is probable.
All of the activities just described relate to a county office’s
responsibility to certify the financial and budgetary status of a
school district. The education code defines the process that leads
to the certification of a school district’s financial and budgetary
status, which is based on the school district’s interim reports.
To begin the certification process, the superintendent of each
school district must submit two reports to the governing board
of the district during each fiscal year. The first report must
cover the financial and budgetary status of the district for the
period ending October 31, and the second report covers the period
ending January 31. For each report, the district’s governing
board must certify the school district’s financial and budgetary
status as positive, qualified, or negative. Definitions of the
three types of certifications are shown in the text box on the
following page.
88 California State Auditor Report 2003-129 California State Auditor Report 2003-129 99
By law, each district’s governing board must submit
its interim reports to its county offi ce. A county
Three types of certifi cations for a local
educational agency’s interim reports: offi ce may change a certifi cation to negative or
qualifi ed, and the school district may appeal the
Positive—the local educational agency will change. The appeals process ends with the state
be able to meet its fi nancial obligations
superintendent’s determination of the school
for the current fi scal year and subsequent
two fi scal years. district’s certifi cation.
Qualifi ed—the local educational agency may
not be able to meet its fi nancial obligations Any school district that has a qualifi ed or negative
for the current fi scal year or subsequent
certifi cation on its second interim report must
two fi scal years.
submit a third interim report to its county offi ce,
Negative—the local educational agency will the state superintendent, and the state controller
not be able to meet its fi nancial obligations
by June 1. The report must provide fi nancial
for the remainder of the current fi scal year or
the subsequent fi scal year. statements that project the school district’s fund
and cash balances through June 30. The education
According to the education code, the
certifi cations are based on current code contains similar provisions that cover the
fi nancial projections.
certifi cation of the fi nancial and budgetary status
of county offi ces.
Source: California Education Code, sections 1240(l)
and 42131(a)(1).
LEGISLATION IS THE PRIMARY CAUSE OF
FCMAT’S EXPANDED RESPONSIBILITIES
In addition to authorizing the creation of FCMAT, the law also
described FCMAT’s original responsibilities, which include
assisting county offi ces with their obligation to oversee
the fi scal condition of school districts at the request of the
state superintendent, reviewing a school district’s budget as
part of a budget approval process as requested by the state
superintendent, and providing management assistance at
the request of school districts or county offi ces. Subsequent
legislation has given FCMAT other responsibilities that
complement its original responsibilities, such as facilitating fi scal
management training for the staffs of county offi ces; facilitating
training on fi scal matters for school district governing board
members, district and county superintendents, and some of their
employees; and producing a training calendar for fi scal training
services that are being offered at the local, regional, and state
levels. Figure 3 shows the legislation that expanded the scope of
FCMAT’s responsibilities since its formation.
Among FCMAT’s legislated responsibilities are assignments
to perform studies of certain school districts. For fi ve of these
studies—those for the Berkeley, Compton, Oakland, West
Contra Costa, and West Fresno school districts—the Legislature
assigned FCMAT to prepare comprehensive assessments and
1100 California State Auditor Report 2003-129 California State Auditor Report 2003-129 1111
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1100 California State Auditor Report 2003-129 California State Auditor Report 2003-129 1111
improvement plans. Except for Berkeley, these school districts
had received or would receive a state emergency loan at the
time of FCMAT’s legislative assignment. The subject of another
legislated study, Emery Unified School District (Emery), also
received a state emergency loan, but the Legislature did not
require FCMAT to prepare a comprehensive assessment and
improvement plan for it. Instead, the Legislature required the
state superintendent to appoint FCMAT as Emery’s fiscal adviser.
In addition, the Legislature required FCMAT to perform audits of
the average daily attendance data for adult education at certain
school districts in the Central Valley that requested one, and an
audit of the San Francisco Unified School District.
The Legislature has also expanded FCMAT’s scope of
responsibilities beyond providing management assistance to
school districts and county offices to administering allocations
of funds to reimburse county offices for some of the costs of
their oversight responsibilities and to help pay for development
of school finance and business personnel. However, according to
FCMAT, in fiscal year 1994–95 reimbursements were distributed
to only nine county offices. As a result, the Department of
Finance reduced the amount of funding available for these
reimbursements and FCMAT, the Department of Education,
and the steering committee of CCSESA developed a proposal
wherein, on a onetime-only basis, FCMAT would use the unused
reimbursement funds to provide teleconferencing capabilities
in all county offices. In 1999, FCMAT completed facilitating
the installation of satellite dishes and the necessary downlink
capabilities at each county office in the State to receive training
workshops and other educational staff development.
Furthermore, FCMAT administers or helps administer two
separate statewide information systems: CSIS and the Education
Data Partnership. As mentioned earlier, in 1997 the Legislature
required FCMAT to develop plans for administering and
managing CSIS, and in 1999 it gave FCMAT full responsibility
for administering CSIS. CSIS’s inception in 1997 coincided with
the establishment of the Education Data Partnership, which
provides financial and demographic data to local educational
agencies and allows those agencies, other governmental agencies,
and the broader educational community (including parents)
to share that data. FCMAT’s partners in the project are the
Department of Education, the Alameda County Office of
Education (Alameda county office), and EdSource, which is a
not-for-profit organization.
1122 California State Auditor Report 2003-129 California State Auditor Report 2003-129 1133
FCMAT has also performed two types of studies that legislation
authorizes certain entities to perform, but which the law does
not specifically require FCMAT to perform. Specifically, FCMAT
assumed the role of an external evaluator under the Public
Schools Accountability Act of 1999 (act), a role it no longer
performs. According to FCMAT’s chief executive officer, the
Department of Education and the education secretary encouraged
FCMAT to become an external evaluator so that it could establish
a protocol for evaluations under the act. By October 1999 FCMAT
had established the protocol, and it released the last of its five
studies as an external evaluator in February 2001. In addition,
FCMAT has performed fraud audits under legislation that took
effect in 2002. FCMAT’s deputy executive officer told us that if the
audit specifications fall within FCMAT’s scope and the expertise of
its staff, FCMAT may perform the audit. Since the law took effect
in January 2002, FCMAT has completed five such audits and is
working on another.
Finally, according to FCMAT, its expertise and familiarity with
the Compton Unified School District (Compton) resulted in
FCMAT being designated for a court-ordered responsibility
resulting from a lawsuit against the State. On February 7, 2000,
the court approved a consent decree in the Serna v. Eastin1
case, in which the plaintiffs claimed that children attending
public schools in Compton were deprived of basic educational
opportunities available to children elsewhere in California. The
consent decree requires continued improvement in Compton’s
school facilities and sites and in its classroom environment,
and it appointed FCMAT to oversee compliance with the
decree. From the date of the consent decree’s approval through
December 11, 2001, when the state superintendent officially
returned governing authority to Compton’s school board,
FCMAT had both statutory and court-ordered responsibilities
at the district. Since December 11, 2001, FCMAT’s sole
responsibilities to Compton have been under the consent
decree. FCMAT reported in its February 2004 progress report
that Compton has made significant progress under the consent
decree and that all consent decree stipulations but one have
been met.
1 Roxanne Serna, et al., v. Delaine Eastin, State Superintendent of Public Instruction, et al.
Los Angeles County Superior Court, Case No. BC174282.
1122 California State Auditor Report 2003-129 California State Auditor Report 2003-129 1133
OVERSIGHT OF FCMAT COMES PRIMARILY
FROM ITS GOVERNING BOARD AND THE KERN
SUPERINTENDENT’S OFFICE
FCMAT’s governing board and the Kern superintendent’s office
oversee different aspects of FCMAT’s operations. According to
the bylaws of the FCMAT governing board, the board provides
policy direction and broad operational guidance to the Kern
superintendent’s office, which houses and administers FCMAT. The
governing board also oversees the operations involving FCMAT’s
core mission, which is to provide fiscal advice and management
assistance, and its other projects. The Kern superintendent’s office
oversees FCMAT’s administrative operations.
In its role of providing oversight, the governing board performs
several functions. For example, the education code requires
the governing board to establish the rates that FCMAT charges
school districts and county offices for the on-site personnel and
travel costs it incurs in providing management assistance. Since
October 1999, the rate has been $400 per FCMAT team member
per day, plus travel costs. Another way in which the governing
board oversees FCMAT’s core operations is through its statutory
authority to declare fiscal emergencies at local educational
agencies. For example, at the request of the state superintendent
and the Alameda county office, the governing board declared
on October 22, 2000, that a fiscal emergency existed at Emery.
This situation eventually led to the district’s receiving a state
emergency loan.
The governing board’s bylaws note other significant oversight
responsibilities. For example, the bylaws state that the governing
board is to develop criteria and prioritize requests for assistance,
including requests from the state superintendent, and that it
must ensure that FCMAT is kept free from real or perceived
interference or conflicts of interest that might impair its
independence and objectivity. Furthermore, the governing board
meets quarterly to discuss FCMAT’s reports, prioritize requests
for its assistance, and oversee its projects. The governing board’s
authority prevents FCMAT’s staff from undertaking significant
projects without the board’s knowledge and authorization.
The Kern superintendent’s office oversees FCMAT’s
administrative operations. For example, the human resources
divisions of the Kern superintendent’s office handle the process
of hiring some of FCMAT’s staff. Other divisions assist FCMAT
with its information technology needs, provide vehicles for its
employees’ use, and ensure that it has office space and furniture.
1144 California State Auditor Report 2003-129 California State Auditor Report 2003-129 1155
As a division of the Kern superintendent’s office, FCMAT is
subject to the same administrative policies and procedures as the
other divisions and subunits of that office.
Except for having a representative on FCMAT’s governing board,
the Department of Education does not provide any oversight
of FCMAT. In accordance with state law, the Department of
Education has selected one of its deputy superintendents to
serve on the governing board, and as a member of the board,
that individual helps to oversee FCMAT’s projects. According to
the deputy superintendent who was appointed, she and other
representatives of the Department of Education meet monthly
with FCMAT’s deputy executive officer to exchange mutually
beneficial information, such as notes on troubled school districts
and the CSIS project. However, she would not characterize these
meetings as oversight.
Additionally, as one would expect, the Department of Finance’s
oversight of FCMAT is related to fiscal matters. As part of the
State’s annual budget process, the Department of Finance
reviews FCMAT’s budget and makes recommendations to the
Legislature regarding its annual appropriations.
THE STATE SUPERINTENDENT APPOINTS
ADMINISTRATORS AND TRUSTEES FOR
SCHOOL DISTRICTS
When a school district receives an emergency loan from the
State, the state superintendent may assume control of the
district’s operations. Under the education code, for larger loans,
the state superintendent may appoint a state administrator to
operate the district on his or her behalf. For smaller loans or
after the state superintendent determines that a school district
no longer needs an administrator, the state superintendent must
appoint a state trustee to monitor and review the operation
of the district. When we asked the Department of Education
how the state superintendent selects administrators and
trustees for districts that receive emergency loans, it told us
that the state superintendent considers the needs and relevant
unique circumstances of the district in question. The state
superintendent also consults with the county superintendent
of schools, as provided in statute. Table 1 on the following page
shows the terms of service and contracted salaries for currently
serving state administrators and trustees.
1144 California State Auditor Report 2003-129 California State Auditor Report 2003-129 1155
TABLE 1
Salaries of State Trustees and Administrators Currently Serving
School Districts That Received State Emergency Loans
School District Trustee or Administrator Dates of Assignment Contracted Annual Base Salary
Emery Unified Administrator November 2003 to present $110,000
Oakland Unified Administrator June 2003 to present 233,025
Richmond/West Contra
Costa Unified Trustee May 1992 to present 51,180
West Fresno Elementary Administrator March 2003 to present 120,000
Source: Department of Education and FCMAT.
SCOPE AND METHODOLOGY
The Joint Legislative Audit Committee (audit committee)
requested that the Bureau of State Audits conduct a performance
and financial audit of FCMAT, including a review of its
prescribed roles and responsibilities in connection with school
districts requesting emergency apportionment loans from
the State. Specifically, we were asked to evaluate the mix of
responsibilities that FCMAT has been asked to assume since its
formation. This included assessing the level of involvement
FCMAT has had with the various school districts receiving state
emergency loans. In addition, we were asked to determine
whether FCMAT can demonstrate that its involvement has
improved the fiscal health of school districts, and to what
extent its involvement has prevented the need for state
emergency loans to school districts. We were also asked to
examine the policies and procedures that FCMAT uses to acquire
the services of contractors, including determining whether
FCMAT reasonably justifies the use of noncompetitive personal
services contracts and how FCMAT monitors and evaluates the
performance of its contractors. The audit committee asked us to
review FCMAT’s financial statements to determine the amount
of administrative and overhead costs and, for a sample of school
districts that received state emergency loans, to determine the
amount FCMAT charged for its services.
Additionally, we were asked to determine the level of
oversight other entities have over FCMAT, including FCMAT’s
management of its annual budget. We were also asked to
determine, where appropriate, the amounts received by the
1166 California State Auditor Report 2003-129 California State Auditor Report 2003-129 1177
trustees or administrators of the school districts. Finally, we were
asked to review and evaluate the process for selecting FCMAT’s
board members and staff, including whether it has defined
minimum qualifications for the various employment levels.
To determine the role FCMAT plays in connection with school
districts that have requested state emergency loans, we researched
relevant state laws and regulations. To assess FCMAT’s level of
involvement and effectiveness at these districts, we reviewed
its work at five of the six school districts that had received state
emergency loans. We did not include the Coachella Valley
Unified School District (Coachella) in our sample because
FCMAT was not involved with the district’s recovery. Coachella
received its state emergency loan on June 16, 1992, a week after
the Kern superintendent’s office signed the contract with the
Department of Education to create FCMAT as one of its divisions,
so FCMAT did not perform a study of Coachella at the time of
the loan. Furthermore, FCMAT has not subsequently performed a
comprehensive fiscal review of Coachella.
To assess the effectiveness of the assistance that FCMAT
provides to its clients, we reviewed FCMAT’s reports for the
school districts that received state emergency loans and for
five other districts we sampled. From those reports, we selected
recommendations that have fiscal implications from the areas
of internal controls, budget preparation and monitoring,
attendance accounting, facilities improvements, and collective
bargaining. We also interviewed staff at eight of the 10 school
districts to determine the status of their implementation of the
recommendations. We obtained documentation supporting
the school districts’ assertions that they had implemented the
recommendations that we selected, and if they had not
implemented a recommendation, we requested an explanation.
We did not interview staff at Compton, because the district has
repaid its loan and the State returned control of the district to
its governing board. Instead, we reviewed several of FCMAT’s
six-month progress reports to determine whether FCMAT’s
involvement helped it recover from its fiscal crisis. In addition,
we did not interview staff at the Oakland Unified School District
(Oakland) because at the time of our fieldwork, FCMAT was
in the process of completing its second progress review of the
district. FCMAT focused its review on Oakland’s progress toward
implementing certain recommendations that Oakland’s state
administrator, FCMAT, and the Department of Education had
previously identified as high priority. Therefore, rather than
selecting other, lower-priority recommendations that the district
1166 California State Auditor Report 2003-129 California State Auditor Report 2003-129 1177
had not focused on, we selected some of the high-priority
recommendations to review. Then, to avoid further burdening
Oakland’s staff by interviewing them about some of the same
recommendations that FCMAT covered in its report, we reviewed
FCMAT’s report after it was completed to determine whether the
district had implemented the recommendations we selected.
To determine whether the school districts improved fiscally
after FCMAT’s report, we compared each school district’s fiscal
status to certain criteria, including the type of certification
the district received on its interim reports; the repayment of
its state emergency loan, where applicable; the recovery of its
school board powers from the State; the presence of a state-
appointed adviser, administrator, or trustee at the district; and
whether the districts implemented or partially implemented
FCMAT’s recommendations.
To understand whether FCMAT reasonably justifies the use of
noncompetitive personal services contracts, we interviewed
staff of both FCMAT and the Kern superintendent’s office and
reviewed the process that FCMAT used to award the contracts. To
determine whether FCMAT’s clients were satisfied with its services
and to determine the steps FCMAT takes to address its clients’
concerns, we reviewed a sample of evaluation forms that FCMAT’s
clients completed and interviewed FCMAT’s staff to determine
whether FCMAT followed up on the clients’ concerns.
To determine FCMAT’s administrative and overhead costs, we
obtained the direct and indirect costs for its fiscal oversight
activities for fiscal years 2000–01 through 2002–03. We also
used this data to determine the costs of FCMAT’s services for the
Berkeley, Compton, Emery, Oakland, West Contra Costa, and
West Fresno school districts.
To determine the level of oversight other entities have over FCMAT,
we interviewed staff members of the departments of Finance and
Education. We also reviewed some of the minutes from meetings of
FCMAT’s governing board and other relevant documents.
To understand the process of selecting FCMAT’s board members,
we reviewed FCMAT’s enabling law and interviewed the executive
directors of CCSESA and ACSA. We also determined whether
FCMAT’s current staff met established minimum qualifications. n
1188 California State Auditor Report 2003-129 California State Auditor Report 2003-129 1199
AUDIT RESULTS
THE FISCAL CRISIS AND MANAGEMENT ASSISTANCE
TEAM PROVIDES VALUABLE ADVICE TO TROUBLED
SCHOOL DISTRICTS
The reports prepared by the Fiscal Crisis and Management
Assistance Team (FCMAT) provide findings and
recommendations that are valuable and, if implemented
effectively, should improve the fiscal health of school districts.
However, FCMAT’s effectiveness in assisting school districts
is contingent upon the districts’ willingness and ability to
implement its recommendations, which depends on various
factors, including the severity and nature of the districts’
financial problems.
For example, in its July 2003 report on the West Fresno
Elementary School District (West Fresno), FCMAT stated that
the conflict and controversy surrounding the board and the
district’s administration during the prior two years had left
West Fresno in the position of having to reestablish virtually all
of its financial management policies, procedures, systems, and
controls. Until these basic structural improvements are in place,
West Fresno cannot be expected to recover its financial health as
quickly as a district with less severe problems.
Because FCMAT’s recommendations appear sound and
are based on standards it developed, implementation of
the recommendations should result in improved business
practices for the districts, which in turn can lead to fiscal
recovery or improvement. However, school districts are not
required to implement FCMAT’s recommendations, and
for most of its studies, the law does not require FCMAT to
report on the progress the districts make in implementing
the recommendations. Therefore, the decision to implement
FCMAT’s recommendations is left to the discretion of the school
districts and county offices that receive its services.
1188 California State Auditor Report 2003-129 California State Auditor Report 2003-129 1199
Most School Districts That Received State Emergency Loans
Show Improvement in Their Financial Condition After
Receiving FCMAT’s Assistance
We reviewed five of the six school districts that received
emergency loans from the State and FCMAT’s assistance. We
did not review one school district, Coachella Valley Unified
School District, because it received its loan just one week
after FCMAT was formed, and so FCMAT was not involved
with its recovery. One of the five school districts, West Contra
Costa Unified School District (West Contra Costa), formerly
Richmond Unified School District, received its loan before the
Legislature formed FCMAT; however, in 2000, as a condition
of West Contra Costa receiving other funding, the Legislature
required FCMAT to conduct a comprehensive assessment and
develop improvement plans for the school district.
Figure 4 shows the six school districts that received state emergency
loans. Three of the five school districts we reviewed either
implemented or took meaningful steps toward implementing
most of the recommendations we reviewed. These actions, over
time, should help improve the districts’ financial condition. The
Compton Unified School District (Compton) has repaid its loan,
and the State has returned control of the district to its governing
board. The governing board of the Emery Unified School District
(Emery) has regained partial control of the district’s operation.
Also, according to FCMAT, West Contra Costa has made significant
improvements in the area of financial management in the two
years since it was reviewed. The other two districts, West Fresno
and Oakland Unified School District (Oakland), continue to
experience financial difficulties and may not fully recover for
several years. We discuss each of these districts in more detail next.
Compton Took Eight Years to Achieve Substantial Recovery
As the first district for which FCMAT performed a comprehensive
review, Compton provides an example of how long it can take
for a district to achieve substantial recovery. Its financial recovery
process spanned more than eight years. Compton received an
emergency loan amounting to $10.5 million in July 1993 after
Compton and the Los Angeles County Office of Education
(Los Angeles county office) became concerned that the district
would not be able to meet its immediate fiscal obligations.
According to FCMAT’s initial report in February 1999, the
Department of Education and the Los Angeles county office
had previously developed recovery plans clearly indicating that
Compton was virtually near collapse. Specifically, Compton’s
2200 California State Auditor Report 2003-129 California State Auditor Report 2003-129 2211
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2200 California State Auditor Report 2003-129 California State Auditor Report 2003-129 2211
educational programs lacked direction and focus, its fiscal
systems were unreliable, its management and governance
structure was ill-defined, and the facilities were aging and
showing signs of neglect.
As a result of these issues, for Compton to receive the loan,
the Legislature required that it meet certain conditions,
including submitting a progress report on its implementation of
recommendations made in a May 1993 recovery plan developed
by the Department of Education and the Los Angeles county office.
The loan also required that the State Superintendent of Public
Instruction (state superintendent) appoint a state administrator
who would exercise the powers and responsibilities of the district’s
governing board. Soon after the state administrator assumed the
governance responsibilities for the district, a more detailed analysis
of the district’s financial position revealed that for the district to
be solvent by the end of fiscal year 1993–94, it needed another
$9.5 million in addition to the original loan. In October 1993,
Compton received a second emergency loan of $9.45 million.
In 1997, the Legislature passed Assembly Bill 52 (Chapter 767,
Statutes of 1997), stating its intention to incrementally return
control of Compton to its governing board, contingent upon
Compton’s improvement in five major functional areas: pupil
achievement, financial management, facilities management,
personnel management, and community relations. This
legislation also required FCMAT and Compton’s state
At Compton, part of administrator to conduct comprehensive assessments and
FCMAT’s role was develop recovery plans in these five areas and to report at six-
to recommend when to month intervals on whether Compton had made substantial and
return control of specific sustained progress in those areas, until the state superintendent
operations to the returned full control of the school district to its governing board.
district’s board. Specifically, FCMAT was required to make recommendations
regarding when to return control over specified areas of the
school district’s operations to the district’s board.
In February 1999, FCMAT published its comprehensive assessment
and recovery plan for Compton. In the report, FCMAT noted
that Compton had made progress over the six years since it had
received its first emergency loan, but that deficiencies still existed.
Specifically, in the area of financial management, FCMAT found
significant deficiencies:
2222 California State Auditor Report 2003-129 California State Auditor Report 2003-129 2233
• A number of weaknesses existed in its internal controls.
• The organizational structure of the business and operational
departments provided inadequate supervision and ineffective
lines of communication.
• A high number of entry-level job classifications existed,
causing some departments to be overstaffed but underskilled
for the requirements of their positions.
• Salary schedules within the departments were not competitive.
FCMAT’s subsequent reports on Compton’s progress indicated
that it was clear to FCMAT that Compton had implemented
some of FCMAT’s recommendations and was moving toward
recovery. For example, FCMAT recommended that Compton
reconfigure its organizational structure, establish supervisory
functions, revise job descriptions for supervisors and managers,
implement formal staff training and development plans, and
evaluate salaries for competitiveness with other districts. By the
end of August 1999, Compton had completely reorganized its
business and administrative services division, improved staff
supervision, evaluated the skills of each employee, provided
appropriate training and individual counseling, and was in the
process of evaluating salaries for competitiveness with other
districts. On other recommendations, such as establishing
an internal audit function to ensure compliance with laws,
regulations, internal controls, and district policies, Compton
had made little progress. However, by February 2000, FCMAT
reported that Compton had established an internal audit
function and that the internal audit staff had performed reviews
of areas at high risk for monetary loss or noncompliance with
laws and regulations.
Table 2 on the following page shows that since FCMAT conducted
its initial study, Compton has received positive certifications on its
interim reports. Additionally, our review of Compton revealed that
the district has implemented or partially implemented all of the
recommendations we selected. We selected recommendations that
have fiscal implications in the areas of internal controls, budget
development processes, attendance accounting, and adherence
to legal and professional standards. Moreover, in June 2001,
Compton paid back its state loan, and in December 2001, the state
superintendent returned full control of the district to the governing
board, which is further evidence of the district’s improvement.
2222 California State Auditor Report 2003-129 California State Auditor Report 2003-129 2233
TABLE 2
Status of School Districts That Received State Emergency Loans and FCMAT’s Assistance
Compton Emery Oakland West Contra Costa West Fresno
Unified Unified Unified Unified Elementary
Date of FCMAT’s initial study February 1999 July 2001 January 2000 July 2001 July 2003
Number of interim reports filed since FCMAT’s initial study* 10 5 8 5 3
Number of positive certifications 10 0 4† 5 0
Number of recommendations from FCMAT’s study that we
selected for follow-up 13 8 10 7 10
Number of selected recommendations the district
implemented or partially implemented 13 8 5 6 5
* As of first interim report certification for fiscal year 2003–04.
† The fiscal year 2002–03 Alameda County Grand Jury reported that, although the Alameda County Office of Education (Alameda county office)
raised concerns about Oakland’s fiscal year 2001–02 budget and interim reports, questioning Oakland’s enrollment projections and its ability to
cover the mandated reserve requirement, it approved the budget and gave positive certifications to both interim reports. Further, in the grand jury
report, the Alameda county office stated that it did everything it could under the law, and that districts are ultimately responsible for keeping their
financial houses in order.
Emery Will Soon Regain Control Over Its Fiscal Affairs
Emery has also made progress toward improving its financial
condition since FCMAT’s involvement. According to FCMAT,
Emery identified financial difficulties early in fiscal year 1999–2000,
and in March 2000 submitted a qualified certification on its second
interim report, projecting a negative fund balance of approximately
$93,000. A qualified certification indicates that a district may not
be able to meet its financial obligations in the current or next two
subsequent fiscal years. Because of Emery’s qualified status and the
departure of its business manager, the Alameda county office
required Emery to prepare a third interim report, and with the
assistance of Alameda county office fiscal staff, Emery reported
a projected negative ending fund balance of $638,000. As a
result, the Alameda county office made a $650,000 emergency
loan to Emery.
In early October 2000, the state superintendent and the Alameda
county office requested that FCMAT’s board declare a fiscal
emergency at Emery, which it did later that month. According to
FCMAT, under Education Code Section 42127.8(e), this provided
for immediate assistance from FCMAT. Subsequently, the
Alameda county office appointed FCMAT as the district’s fiscal
adviser with authority to rescind any actions of the district’s
governing board that were inconsistent with the district’s revised
budget. Furthermore, the Legislature passed Assembly Bill 96
(Chapter 135, Statutes of 2001), giving Emery a $1.3 million
2244 California State Auditor Report 2003-129 California State Auditor Report 2003-129 2255
emergency loan from the State and a $1 million line of credit.
This legislation also required the state superintendent to appoint
an administrator to manage the district and FCMAT to act as
fiscal adviser to the district until it became financially solvent.
Our visit to Emery revealed that the district implemented or
partially implemented most of the recommendations we selected
for review. For instance, FCMAT recommended that Emery
reflect in its financial reports not only the actual expenditures
it incurred, but also amounts not yet paid, such as purchase
orders, so that it could properly monitor its budget. Also,
Emery implemented new budgeting software that automatically
reserves a portion of the available budgeted funds as the district
staff enters purchase orders into the system.
In April 2004, the state superintendent announced that Emery
is expected to end the fiscal year with a positive fund balance
Because of Emery’s of approximately $1.1 million and will meet the state-
improved financial recommended reserve levels. Furthermore, because of the
condition, the state district’s improved financial condition, the state superintendent
superintendent anticipates returned control over facilities to Emery’s governing board and
returning all fiscal anticipates returning all fiscal responsibilities and powers to the
responsibilities and powers governing board by July 1, 2004, three years after the State took
to the district’s governing over control of the district.
board by July 1, 2004.
Despite such improvements, Table 2 shows that Emery has
not received a positive certification on its recent interim
reports since receiving assistance from FCMAT. According to
Emery’s chief business officer, the school district could have
filed a positive certification for its second interim report for
fiscal year 2003–04; however, it decided that filing a qualified
certification was prudent in light of the fact that it cannot
confidently project whether it will maintain its current
enrollment level. Between 40 percent and 45 percent of Emery’s
students are transfers from neighboring school districts that are
also experiencing financial difficulties, and these districts may
be reluctant to grant such transfers as readily as they did in the
past. As a result, Emery is unable to quantify the number of
students who will transfer in from other school districts in the
next few years, and it has therefore based its fiscal year 2003–04
budget and future projections on a flat enrollment figure.
However, upon consulting with the Department of Education
about this matter, Emery intends to file a positive certification
for its third interim report of fiscal year 2003–04.
2244 California State Auditor Report 2003-129 California State Auditor Report 2003-129 2255
Neither West Fresno nor Oakland Has Made Much Progress
Toward Financial Recovery
Our reviews of West Fresno and Oakland revealed that neither
has made significant progress toward implementing the
recommendations we selected. Furthermore, they have
shown almost no measurable improvement in their financial
conditions, and because the extent and severity of their
problems are similar to those Compton experienced, these
districts may not fully recover for several years. According to
FCMAT, West Fresno, which has drawn $1.3 million of the
$2 million emergency loan authorized in March 2003, must
reestablish virtually all of its financial management policies,
procedures, systems, and controls. According to West Fresno,
Both West Fresno and the district staff is currently attempting to reestablish internal
Oakland have significant controls and governing board policies and procedures, and it
deficiencies in their has already re-created job descriptions and is in the process of
financial management developing job manuals for the district employees.
policies and procedures,
indicating that these FCMAT reviewed Oakland in 1999, noting significant deficiencies in
districts may not fully the school district’s financial management policies and procedures.
recover for several years. In April 1999, Oakland’s board voted to ask for a comprehensive
review from FCMAT. The vote was contingent upon acquiring
funds from the Legislature to conduct the study. Assembly Bill 1115
(Chapter 78, Statutes of 1999) allocated $750,000 to FCMAT to
conduct a comprehensive assessment and complete a recovery
plan for the district. FCMAT issued its report to Oakland’s board in
January 2000, indicating that the district was having great difficulty
and emphasizing that Oakland’s financial solvency was in serious
question. FCMAT reported that Oakland had challenges that are
more serious and difficult to overcome than those faced by most
districts. For example, the district’s facilities were unsafe, it was
unable to attract and retain high-quality professional staff, and it
experienced inadequate communication and a pervasive perception
that the district was mismanaged.
By October 2002, the district’s fiscal health had worsened, and it
clearly had not implemented most of FCMAT’s recommendations.
Consequently, the Alameda county office disapproved Oakland’s
budget for fiscal year 2002–03 and appointed FCMAT as the
district’s fiscal adviser. In June 2003, the Legislature granted the
school district a $100 million loan for which funds could be
disbursed only if the state administrator and FCMAT determined
it was necessary. According to FCMAT, in June 2003, the district
requested $65 million of the loan to cover its June payroll and
severe negative cash position. According to the state administrator
for Oakland, the district plans to request another $25 million
2266 California State Auditor Report 2003-129 California State Auditor Report 2003-129 2277
in June 2004 for bond repayment and a new student information
system. The remaining balance of the loan is available to the district
as a line of credit, which FCMAT expects the district to use.
As a condition of Oakland receiving the state loan, the
Legislature required that the state superintendent appoint an
Although it is too early administrator to manage the district. Because of the severity of
to expect significant Oakland’s financial problems, and since the district received
improvement, Oakland its loan less than a year ago, it is too early to expect significant
has made progress in improvement. The district has fully implemented one and
implementing five of partially implemented another four of the 10 recommendations
the 10 recommendations we selected; however, because a state administrator is working
we reviewed. with Oakland, it is reasonable to assume that the district will
continue to make progress over time.
West Contra Costa Has Made Significant Improvements
West Contra Costa received a $28.5 million emergency loan from
the State in 1990, but it received FCMAT’s assistance for a different
reason than did the other districts receiving state emergency
loans. Specifically, the State Allocation Board allocates to school
districts, on a per student basis, funding for new construction and
modernization of school facilities. However, under the Education
Code, Section 17017.1, West Contra Costa was generally ineligible
for any state school facilities funding until June 1998 or until it
paid off its emergency loan, whichever was later. Nevertheless, in
2000, Assembly Bill 2265 (Chapter 578, Statutes of 2000) authorized
the state superintendent to allocate up to $800,000 annually for
fiscal years 2000–01 through 2004–05 to the district for projects
that would otherwise have been eligible for state funding between
1993 and 1998. The Legislature did this because it believed that
the matter of the loan repayment was separate from the issue
of providing access to adequate school facilities for the district’s
pupils. This legislation authorized the district to use the funds
for any discretionary school purpose. As a condition of receiving
the funding, the legislation required West Contra Costa to allow
FCMAT to conduct an assessment of the district. In addition, it
required FCMAT to complete improvement plans in the areas
of instruction, finance, facilities, personnel management, and
community relations, and to report on West Contra Costa’s progress
in implementing FCMAT’s recommendations.
From our review of FCMAT’s final progress report, published in
July 2003, it appears that West Contra Costa’s largest financial
problem is an unfunded liability amounting to approximately
$275 million for lifetime health benefits for its employees.
2266 California State Auditor Report 2003-129 California State Auditor Report 2003-129 2277
According to West Contra Costa’s assistant superintendent of
fiscal services, during contract negotiations 30 years ago the
district’s employees struck a bargain wherein, in exchange for
accepting lower salaries, employees who worked for the district at
the time and who were hired afterward, and their spouses, would
receive health coverage paid in full by the district for the rest of
the employees’ lives. After the death of the employee, spouses
were eligible to continue coverage at their own expense, but
this benefit was later changed to allow the surviving spouse to
continue receiving health care coverage at the district’s expense.
This type of retirement benefit is rare among California’s school
districts. In fact, most school districts that offer their employees
coverage for health benefits offer it only until age 65, when
the retiree enrolls in Medicare. West Contra Costa’s assistant
superintendent of fiscal services told us that the district has
approached its bargaining units to discuss employee health
benefits and will continue to raise this issue until the school
district and the unions reach a satisfactory alternative.
In addition, in its final report, FCMAT commended
West Contra Costa for its efforts and stated that the district had
made significant improvements in its finances, particularly in
its board policies on fraud and its detection, and in its budget
projections, adoption, reporting, filing, and monitoring. As
shown in Table 2 on page 24, we found that West Contra Costa
implemented six of the seven recommendations we selected and
has received positive certifications on all of its interim reports
since FCMAT became involved with the district.
School Districts Can Improve by Implementing
FCMAT’s Recommendations
Most of FCMAT’s management assistance studies are much
Although FCMAT’s narrower in scope than those that were mandated by statute,
management assistance such as those for districts that received state emergency loans.
studies are narrower in Nevertheless, some of the school districts and county offices that
scope, implementing request the studies experience financial problems that may take
its recommendations time to overcome. Although several of the school districts we
should, over time, help a reviewed have shown little improvement in their fiscal health,
school district improve its implementing FCMAT’s recommendations has helped these
financial condition. districts make important improvements in areas such as internal
controls, budget monitoring, and attendance accounting, which
can ultimately lead to the districts’ fiscal recovery. However,
as with the districts that received state emergency loans, the
fiscal recovery of these school districts may be gradual because
2288 California State Auditor Report 2003-129 California State Auditor Report 2003-129 2299
many of FCMAT’s recommendations take time to implement.
Moreover, the implementation of certain recommendations may
be contingent upon longer-term improvements occurring first.
Table 3 shows that the five school districts we reviewed that requested
FCMAT’s assistance implemented or partially implemented at least
some of FCMAT’s recommendations, and three of them received
positive certifications after FCMAT completed its study. It may
be too soon to determine the recovery status of the other two
districts, Berkeley Unified School District (Berkeley) and Orchard
School District (Orchard), because of the severity of their problems in
comparison with other districts we reviewed. For example, Orchard
and Victor Valley Union High School District (Victor Valley) received
FCMAT’s assistance within a couple of months of each other;
however, Victor Valley has improved significantly, while Orchard
still has not received a positive certification on its interim financial
reports. FCMAT reviewed Victor Valley in November 2002, after the
district’s county office rejected its budget twice. Although the school
district had previously received positive certifications on its interim
reports, it was showing a deficit of $1.5 million and needed help in
reducing its expenditures. Our testing at Victor Valley revealed that
the district has implemented all of FCMAT’s recommendations and
has continued to receive positive certifications on its interim reports
since FCMAT’s study.
TABLE 3
Status of Sampled School Districts That
Received Management Assistance Studies From FCMAT
Monterey
Berkeley Peninsula Victor Valley
Antioch Unified Unified Unified Orchard Union High
Initiator of FCMAT’s study Contra Costa COE* Legislature Monterey COE Santa Clara COE San Bernardino COE
Date of FCMAT’s study August 1998 July 2003 March 2000 September 2002 November 2002
Number interim reports filed since FCMAT’s
study 12† 2† 8‡ 4‡ 4‡
Number of positive certifications 8 0 4 0 3
Number of recommendations from FCMAT’s report
that we selected for follow-up 5 12 10 10 6
Number of selected recommendations the district
implemented or partially implemented 4 11 9 8 6
* County Office of Education.
† As of the second interim report certification for fiscal year 2003–04.
‡ As of the first interim report certification for fiscal year 2003–04. The second interim certification for fiscal year 2003–04 was not available.
2288 California State Auditor Report 2003-129 California State Auditor Report 2003-129 2299
According to FCMAT’s review of Orchard, the school district
not only had a $2 million budget deficit, but many of its
records were missing or incomplete, its board policies and
procedures were not complete or did not exist, and the district’s
staff did not follow proper business procedures. FCMAT’s
recommendations addressed issues such as the district’s fiscal
solvency, inadequate monitoring, overspending of funds, and
application of internal controls. In its report, FCMAT projected
that the recovery process for Orchard would take approximately
three years.
Our review of Orchard revealed that, although it has not filed
positive certifications on its interim reports since FCMAT’s
study, it has addressed many of FCMAT’s recommendations. For
instance, upon beginning fieldwork in December 2001, FCMAT
found that Orchard’s business staff entered dollar amounts into
the computer system for salaries and benefits with no logic or
supporting documentation while developing a budget. Similarly,
revenues were not calculated correctly and program budgets
did not reflect the current level of anticipated revenues or
expenditures. FCMAT recommended that Orchard develop and
monitor its budgets for accuracy on a regular basis. Although
implementing this recommendation may not correct the
district’s financial problems immediately, it can help the district
to develop an accurate budget, which should ultimately lead to
an improvement in the district’s fiscal status.
Staff at some of the school districts we visited believed they
had benefited from FCMAT’s assistance. Specifically, some
Some school districts school districts felt that FCMAT’s credibility drew the public’s
believed that FCMAT’s attention to key issues and helped governing boards make critical
credibility drew the public’s decisions about the districts’ business management in areas such
attention to key issues and as cuts to transportation and special education. For example,
helped governing boards the business services department at Victor Valley told us that
make critical decisions although the San Bernardino County Superintendent of Schools
about the districts’ disapproved the district’s budget, the governing board was
business management. resistant to making certain budget reductions that the district
recommended until FCMAT made recommendations for similar
reductions to the district. In another example, Berkeley staff
commented that they sometimes had trouble convincing their
board to agree to make important changes, and having FCMAT
as an independent reviewer gave district staff the credibility they
needed to convince the board to make the necessary changes.
Berkeley added that it cites FCMAT’s standards at board meetings
to bolster its credibility when proposing certain changes.
3300 California State Auditor Report 2003-129 California State Auditor Report 2003-129 3311
FCMAT’S CONSULTANT SELECTION PROCESS IS FAIR,
BUT IMPROVEMENTS CAN BE MADE
FCMAT uses a fair process to identify and select consultants for
its studies, but it does not solicit a sufficiently large number of
consultants to bid on its comprehensive reviews. FCMAT is not
subject to state contracting laws, but it does follow some best
practices, such as putting its more extensive, comprehensive
review work out to bid and requesting that its clients evaluate
its performance on each job. Although most of its clients who
completed an evaluation form are pleased with its performance,
FCMAT does not keep records of its resolution of complaints
and thus cannot ensure that it addresses the concerns they raise.
Using this information from its customers, FCMAT should be able
to improve its service over time and continue using consultants
that its customers have found helpful and professional.
Due to its small number of core staff, FCMAT uses consultants
to assist in performing the work at the school districts and
Due to its small number county offices but uses its own staff to supervise the consultants’
of core staff, FCMAT uses work and write final reports. Through its professional network,
consultants to assist in FCMAT’s staff recommend qualified consultants to the chief
performing the work at administrative officer, who gives the final approval to add a
the school districts and consultant to the list. Currently, FCMAT has compiled a list of
county offices. 68 consultants with expertise in the fields of accounting, budget
development, curriculum and instruction, human resources,
maintenance and operations, special education, technology,
and transportation, among other areas. These consultants
include county office and school district employees on leave
from their jobs, retirees, and independent consultants. The
rates they charge FCMAT range from $240 to $1,000 per day,
with an average rate of $475 per day; the highest rates are
charged by information technology consultants. To ensure
the quality of their work, FCMAT consultants sign a protocol
agreement requiring them to follow the scope and objectives of
the study and to support their findings and recommendations.
In addition, FCMAT requires its consultants to be independent
during their assignments and to maintain confidentiality about
their findings and recommendations. According to FCMAT,
its policy is that if a consultant does not follow the protocol
or meet performance expectations, FCMAT will not ask the
consultant to work on future studies. Although we did not
see evidence of this in practice, with only a small number of
negative evaluations, FCMAT has had limited opportunity to
apply this policy.
3300 California State Auditor Report 2003-129 California State Auditor Report 2003-129 3311
Although FCMAT is not subject to state contracting laws, which
would require it to follow competitive bidding rules for its
FCMAT is exempt from contracts, beginning with the Compton comprehensive review
competitive bidding rules in 1998, FCMAT has used a formal request for application
for its contracts, but has (RFA) process to select consultants for its larger studies. As part
used a formal request for of the selection process, FCMAT’s managers rank and review
application process to select applications based on the criteria in the RFA. Based on the RFAs
consultants for its larger and responses for Compton, Oakland, West Contra Costa, West
comprehensive studies. Fresno, and Berkeley, we determined that FCMAT’s selections
appeared reasonable, although it used the same consultants
multiple times. For the first comprehensive study of Compton,
FCMAT published an open RFA and received numerous
responses. However, for the first Oakland study in 1999 and the
subsequent studies in West Contra Costa and Berkeley, FCMAT
did not publish an open RFA; instead, it mailed invitations to
bid to only a short list of applicants. FCMAT may have received
more bids from qualified applicants if it had sent invitations to
bid to a larger group. By not soliciting bids from a larger group
of consultants, FCMAT did not ensure that it had a sufficiently
broad pool of experts from which to choose.
FCMAT uses another prudent business practice by soliciting
feedback from its clients at the end of each job. From its
formation in 1992 through January 15, 2004, FCMAT completed
357 management assistance studies and received 207 client
evaluations representing 190 jobs, a 53 percent response rate. In
176, or 85 percent, of the evaluations received, the client rated
FCMAT’s performance a 4 or 5, meaning the client believed
that FCMAT had provided a great deal of assistance or excellent
assistance. Of the remaining 31 evaluations, 29, or 14 percent,
ranked its assistance a 3 or below, and two did not give a rank.
According to FCMAT, the deputy executive officer will discuss
with the client any evaluation that is rated a 3 or less to
determine the strengths and weaknesses of the study and how
FCMAT might improve its services. However, we reviewed five
of the 29 evaluations receiving a 3 or below, and for four of them
we were unable to determine how FCMAT had handled them and
whether it addressed the concerns raised. The percentage of
FCMAT’s clients who expressed dissatisfaction is low, but almost
half of its clients did not return their evaluation forms, and
some of these clients may also be dissatisfied. Although FCMAT
cannot be expected to address concerns it does not know about,
it can be more effective in addressing those concerns that are
brought to its attention.
3322 California State Auditor Report 2003-129 California State Auditor Report 2003-129 3333
FCMAT HAS GOOD REASONS TO KEEP ITS BILLING
RATE ARTIFICIALLY LOW
To offset some of the costs of performing the management
assistance studies, the Legislature authorized FCMAT to charge
school districts that are not declared as fiscal emergencies a daily
By law, FCMAT charges rate for these services. In October 1999, FCMAT’s governing
its daily rate of $400 per board approved the current rate of $400 per team member per
team member only for days day. The law allows FCMAT to charge this rate only for days that
that its staff or consultants its staff or consultants spend at a school district or county office.
spend at a school district or As a result, the time spent on activities away from the school
county office. districts, such as report writing, is paid for from FCMAT’s annual
appropriation for management assistance studies.
As we discussed earlier, FCMAT’s consultants charge FCMAT
rates ranging from $240 to $1,000 per day, with an average rate
of $475 per day. Thus, the $400 rate FCMAT charges school
districts and county offices is on the low end of this scale but
appears reasonable given that it is FCMAT’s understanding that
the Legislature intended for it to assist financially troubled
school districts to avert financial crises, such as bankruptcy, and
avoid the need for emergency loans from the State. Keeping
the rate low affords these entities a lower-cost alternative to
contracting for consulting services on the open market.
In January 2004, FCMAT’s governing board reviewed the
$400 per day rate and agreed that FCMAT’s services should be
cost-effective for school districts to use. It also indicated that
although the rate does not fully cover FCMAT’s actual costs,
the current amount of its annual management assistance
appropriation is sufficient to make up the difference. Therefore,
the board approved keeping the rate at $400 per day but agreed
to review it again should the appropriation for management
assistance activities be insufficient to cover the difference in
FCMAT’s actual costs.
School districts that have received state emergency loans or
that FCMAT’s board determines to be in a fiscal emergency
are generally not billed for FCMAT’s services. Rather, the State
pays the costs for these services, either through an annual
appropriation or through separate, one-time appropriations for
specific school districts. State law requires FCMAT’s governing
board to reserve at least 25 percent but not more than 50 percent
of its revenues for management assistance studies for school
districts it deems as being in a fiscal emergency. Over the last
four fiscal years, FCMAT’s governing board has designated
3322 California State Auditor Report 2003-129 California State Auditor Report 2003-129 3333
four school districts as being in a fiscal emergency. As a result
of this designation, FCMAT can, at its discretion, choose not to
charge these districts for the days its teams spent on-site.
For fiscal years 2000–01 through 2002–03, FCMAT spent an
average of $2.1 million per year to provide management
Given FCMAT’s under- assistance studies and billed an average of $632,000, or
standing that the 30 percent of its average costs per year, to the school districts or
Legislature intended for it county offices that requested FCMAT’s management assistance
to assist troubled school services. Given FCMAT’s understanding that the Legislature
districts to avert financial intended for it to assist troubled school districts to avert
crises, it is reasonable financial crises, it is reasonable that the State subsidizes the
that the State subsidizes management assistance studies.
the management
assistance studies. To help control the costs of these studies, FCMAT typically
develops a study agreement. In the study agreement, FCMAT
describes the scope and objectives of the study, indicates the
services it will provide, and includes a list of documents and
other information that it will need the school district to provide
for the study. In addition, as part of its consultant contracts for
these studies, FCMAT prohibits consultants from altering the
scope and objectives defined in the study agreement without its
approval. FCMAT also limits to seven days the amount of time
consultants may spend finalizing their work before providing it
to FCMAT after they conclude their work at the district site.
FCMAT’S ADMINISTRATIVE COSTS APPEAR REASONABLE
As we discussed in the Introduction, FCMAT’s studies cost an
average of $3.1 million annually for fiscal years 2000–01 through
2002–03, including $2.1 million per year for management
assistance studies. For the larger comprehensive studies it
worked on during that time period, which were funded under
other school district-specific appropriations, it spent an average
of about $1 million per year. Figure 5 shows that FCMAT’s
administrative costs related to both types of studies are
composed of two components: (1) costs incurred for services
performed by the Kern County Superintendent of Schools
(Kern superintendent’s office), such as information technology
and human resources; and (2) overhead costs for office space,
utilities, office supplies, and equipment that are not directly
related to school district studies but are necessary costs of FCMAT’s
operations. From fiscal years 2000–01 through 2002–03,
FCMAT spent, on average, $419,000, or 13.5 percent of its
budget, per year on administrative costs.
3344 California State Auditor Report 2003-129 California State Auditor Report 2003-129 3355
FIGURE 5
FCMAT’s Costs of Studies for Fiscal Years 2000–01 Through 2002–03
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Source: FCMAT.
The overhead portion of FCMAT’s total administrative costs
was approximately $195,000 higher for fiscal year 2001–02
than for fiscal year 2000–01. This difference is due primarily
to increased computer equipment purchases and a shift in
the mix of FCMAT’s work. FCMAT’s chief executive officer
explained that a significant portion of the increase in overhead
costs in fiscal year 2001–02 is because FCMAT purchased more
computer equipment than it did in fiscal year 2000–01. FCMAT’s
accounting records support this assertion, indicating that in
fiscal year 2001–02 FCMAT spent more for computer equipment
and other technology-related purchases. When compared with
the overhead costs for fiscal year 2000–01, these purchases
account for approximately $51,000, or 26 percent, of the
increase. The remaining $144,000 difference is due primarily
to the fact that in fiscal year 2000–01 FCMAT spent more of
3344 California State Auditor Report 2003-129 California State Auditor Report 2003-129 3355
its time working on projects, such as the California School
Information Services system and the professional development
program, that are not related to FCMAT’s school district studies
and for which costs are not shown in Figure 5. As was shown
previously in Figure 2 on page 7, FCMAT worked on more
school district studies in fiscal year 2001–02 than in fiscal
year 2000–01, leaving less time to work on other projects. As a
result, for fiscal year 2001–02, a higher percentage of FCMAT’s
costs related to school district studies.
Similarly, compared to fiscal year 2001–02, FCMAT’s overhead
costs were approximately $81,000 lower in fiscal year 2002–03.
Approximately $29,000, or 36 percent, of this decrease can again
be attributed to higher computer-related purchases in fiscal year
2001–02. Most of the remaining difference represents costs for a
study for the Kern superintendent’s office for which FCMAT was
reimbursed in fiscal year 2002–03.
Not included in FCMAT’s overhead cost component are the costs
for its chief executive and deputy executive officers to perform
administrative duties, such as approving staff time sheets
and attending meetings of FCMAT’s governing board. FCMAT
accounts for the entire salaries of these two managers as being
directly related to its school district studies and other projects
because most of their time is spent in these areas. Although the
portion of time the chief executive officer and deputy executive
officer spend on administrative tasks is part of the overall cost
of administering FCMAT, it is not likely that including the
portion of their salaries associated with performing those tasks
would cause FCMAT’s total administrative costs to exceed a
reasonable proportion of its total costs. Specifically, even if the
total amount of the salaries for FCMAT’s chief executive and
deputy executive officers were included as administrative costs,
the percentage of FCMAT’s total administrative costs would not
exceed 26 percent of its total expenditures. Given FCMAT’s small
size, it is reasonable that its administrative costs, most of which
would remain the same regardless of the number of studies
FCMAT performs, represent a higher proportion of its total costs
when compared to larger organizations, because FCMAT cannot
benefit from the economies of scale that large organizations
enjoy. Also, in order to be responsive to school districts located
in Northern and Southern California and so it can be close
to Sacramento, FCMAT maintains its main office in the Kern
superintendent’s office in Bakersfield and a satellite office in
Petaluma, which results in higher administrative costs.
3366 California State Auditor Report 2003-129 California State Auditor Report 2003-129 3377
The component of FCMAT’s administrative costs related to
the Kern superintendent’s office is below the amount that the
Department of Education allows. Specifically, the Department
of Education annually specifies a percentage of the total
administrative costs of a grant or program, such as FCMAT,
that the costs of administrative agents, such as the Kern
superintendent’s office, may not exceed. For fiscal years 2000–01
through 2002–03, the established rate ranged from 7.65 percent
to 7.33 percent, while the portion of FCMAT’s costs for the
services the Kern superintendent’s office provided did not exceed
7.15 percent.
RECOMMENDATIONS
To obtain the broadest range of consultants to choose from,
FCMAT should expand its list of consultants who receive request
for application packets.
To improve its customer service, FCMAT should ensure that it
adequately addresses the issues its customers raise in post-study
evaluations by developing a process for tracking the concerns
and documenting the steps it takes to resolve them.
We conducted this review under the authority vested in the California State Auditor by
Section 8543 et seq. of the California Government Code and according to generally accepted
government auditing standards. We limited our review to those areas specified in the audit
scope section of this report.
Respectfully submitted,
ELAINE M. HOWLE
State Auditor
Date: June 16, 2004
Staff: Nancy C. Woodward, CPA, Audit Principal
Debra L. Maus, CPA
Phillip Burkholder, CPA
Michelle R. Ludwick
John J. Romero
Leonard Van Ryn
Lea Webb
3366 California State Auditor Report 2003-129 California State Auditor Report 2003-129 3377
Blank page inserted for reproduction purposes only.
3388 California State Auditor Report 2003-129 California State Auditor Report 2003-129 3399
Agency’s comments provided as text only.
Kern County Superintendent of Schools
Larry E. Reider, Superintendent
1300 17th Street - City Centre
Bakersfield, CA 93301-4533
May 27, 2004
Ms. Elaine Howle, State Auditor
Bureau of State Audits
555 Capitol Mall, Suite 300
Sacramento, CA 95814
Dear Ms. Howle:
As the Administrative Agent for the Fiscal Crisis and Management Assistance Team (FCMAT), I
took receipt of the draft Bureau of State Audit (BSA) report of the Fiscal Crisis and Management
Assistance Team on Tuesday May 25, 2004. This letter represents our formal response to the
draft audit.
We embrace the audit findings and recommendations and will develop, in coordination with the
FCMAT Governing Board on June 23, 2004, a corrective action plan for the two recommendations.
Recommendation 1:
To obtain the broadest range of consultants to choose from, FCMAT should expand its list of
consultants who receive request for application packets.
FCMAT Response:
We appreciate the Bureau of State Audits acknowledging that FCMAT uses a fair process to identify
and select consultants for its studies and that FCMAT follows some best practices, such as putting
more extensive, comprehensive review work out to bid.
FCMAT supports the Bureau’s recommendation and will expand its list of consultants who receive
requests for application packets. The corrective action plan approved by the FCMAT Governing
Board relative to this recommendation will be submitted to the Bureau of State Audits as
documentation of follow-up by FCMAT.
3388 California State Auditor Report 2003-129 California State Auditor Report 2003-129 3399
Bureau of State Audits
May 27, 2004
Page 2
Recommendation 2:
To improve its customer service, FCMAT should ensure that it adequately addresses the issues its
customers raise in post-study evaluations by developing a process for tracking the concerns and
documenting the steps it takes to resolve them.
FCMAT Response:
We appreciate the Bureau of State Audits acknowledging that FCMAT uses prudent business
practices in this area by soliciting feedback from its clients at the end of each job. Thank you for
providing an independent analysis verifying that 85% of FCMAT’s clients responding to the client
evaluation form rated FCMAT’s performance as “a great deal of assistance” to “excellent assistance”.
FCMAT supports the Bureau’s recommendation and will track the concerns of any FCMAT client by
documenting the steps taken to resolve the concerns expressed through the client evaluation form.
The corrective action plan approved by the FCMAT Governing Board relative to this recommendation
will be submitted to the Bureau of State Audits as documentation of follow-up by FCMAT.
Summary Comments:
Finally, we would like to extend our appreciation for the Bureau’s professional staff throughout
the audit. They were professional, objective, and thorough.
Sincerely,
(Signed by: Larry E. Reider)
Larry E. Reider
Kern County Superintendent of Schools
FCMAT’s Administrative Agent
4400 California State Auditor Report 2003-129 California State Auditor Report 2003-129 4411
cc: Members of the Legislature
Office of the Lieutenant Governor
Milton Marks Commission on California State
Government Organization and Economy
Department of Finance
Attorney General
State Controller
State Treasurer
Legislative Analyst
Senate Office of Research
California Research Bureau
Capitol Press
4400 California State Auditor Report 2003-129 California State Auditor Report 2003-129 4411