Comprehensive Review Financial Management

Vallejo City Unified School District Financial Management Comprehensive Review November 2004 Administrative Agent Larry E. Reider Office of Kern County Superintendent of Schools Chief Executive Officer Thomas E. Henry Financial Management The Financial Management review focused on the consistent, accurate and effective management of the district’s many resources to overcome the current fi scal crisis, eliminate defi cit spending, and reinstate the district’s required state reserve for economic uncertainty. The district's current and future fi scal status is unstable. Senate Bill 1190 provided a $60 million loan to the district. $50 million was drawn down by the district on June 23, 2004, two days after SB 1190 was signed into law. The size of the emergency appropriation for Vallejo was predi- cated on the district making signifi cant and substantial changes in the expenditure side of the budget beginning immediately with state administration. To date, the cash management strategy of the district has not been suffi cient to leverage the emergency appropriation while the budget recovery steps are put in place. Although state funding for the 2004-05 year is based on previous year’s average daily attendance (ADA), the district is experiencing declining enrollment with more than 1,500 fewer students this year than last. Language in employee bargaining agreements grants salary increases even though the district is in fi scal crisis. The district’s previous adminis- trators entered into costly contracts for technology and legal services that the district may not be able to renegotiate or terminate. Senate Bill 1190 also provided authorization to the district to sell district property to use to repay the emergency loan. The district is considering this, and other possible resources, as it works to develop its fi scal recovery plan. A review of all district property and assets is being conducted. Staff in top management positions are new to the district, and many of the top positions are fi lled by consultants rather than permanent staff. Many staff members are not fully familiar with or un- derstand the events leading up to the District’s present condition. Building staff competence and capacity is critical, requiring strong staff development programs. The district lacks formal written policies and procedures to direct district operations. Systems and controls to ensure accurate, accountable and understandable data are not in place. Staff ap- pears to understand that more structure is needed, and welcome the changes anticipated through the assessment and improvement plan process. The fi scal areas affected by the lack of formal policies, procedures, systems and controls include: • Budget development and monitoring • Attendance accounting • Collective bargaining implications • Categorical programs • Controls on cash and accounting Financial Management 1 County Offi ce Oversight The Solano County Offi ce of Education (SCOE) worked with the Vallejo City USD throughout the 2003-04 fi scal year to assist the district in managing its fi nances. In August 2003, the Solano COE notifi ed Vallejo City USD that the county was unable to approve the district’s 2003-04 bud- get and suggested a work plan for a revised budget to be submitted by September 8, 2003. The county provided an analysis of their areas of concern. On September 15, 2003, the SCOE sent a budget disapproval letter to the district and requested a revised budget. On October 8, 2003, the SCOE disapproved the district’s submitted revised budget and appointed School Services of California as the Fiscal Advisor to the district. In December 2003, the dis- trict governing board approved their First Interim Report as qualifi ed. The Fiscal Advisor, SSC, recommended a negative First Interim Report, and the SCOE certifi ed the district’s First Interim Report as negative. Joint meetings between the district, the SCOE, the Fiscal Advisor SSC, and the district auditors began in January 2004. On February 18, 2004, the SCOE imposed a 2003-04 budget upon the district based on the line item budget developed by the joint committee. The Fis- cal Advisor had stay and rescind power over any expenditures not in alignment with this revised budget. The Vallejo City USD, the SCOE, and the Fiscal Advisor created a plan to address im- pending cash shortages during 2003-04 which included a request for a $60 million state loan. The district’s chief business offi cer resigned from his position at the end of January 2004. On March 25, 2004, the district governing board placed the superintendent on administrative leave. Communications The governing board indicated that they believed they were asking the appropriate fi scal ques- tions of the district administration and receiving the appropriate answers in response to their fi scal questions and concerns. They learned later that important fi nancial information and specifi c issues concerning the district’s negative fi scal position were not shared with them. Specifi cally, it was reported to the review team that the letter sent to the district administration and board in October by the SCOE, was not transmitted to the governing board. By the time the board became aware of all the fi scal information, there was no recourse but to ask the State of California for a loan in order to maintain a positive cash balance to meet the district’s current obligations. Along with the loan, a state administrator was assigned to administer the district and the governing board became advisory in nature. Under the prior administration, communication on the budget shared at the board level was not complete. In addition, there was no sharing of budget information into or out of the business offi ce to ensure that budget expectations were understood and followed. There has been little or no budget and fi scal training for district staff, and no beginning of the school year informational meeting to outline policies, procedures, responsibilities and expectations for business functions. Written communication from the budget department is rare, and when information is provided, it is often late and/or confusing. 2 Financial Management Budget Development The district does not have a set procedure, either verbal or written, that outlines steps occurring during budget development, what is to be included in the budget and/or what is to occur in bud- get maintenance during the fi scal year. The approved budget has been basically a rollover version from past years with new budget cuts and some additions based on updated data. The board’s goals, priorities and strategic plan do not appear with the adopted budget narrative, making it dif- fi cult for stakeholders to understand the connection between the two. The prior administration did not accurately project revenues and expenditures. Enrollment num- bers were overstated in the proposed 2003-04 budget, as an ADA to enrollment percentage of 94% was used for estimating the revenue limit funding amounts. Data comparing this ratio over the past fi ve years refl ects a consistent percentage from 90% to 91.6%, not the 94% fi gure used to build the budget. The district offi ce does not generate monthly budget and expenditure reports for each site and department. The sites and departments are not held responsible for managing or monitoring their own budgets. Internal Controls Internal control is the series of processes that are implemented in organizations with sound busi- ness practices to provide reasonable assurance that the accounting and fi nancial operations are ef- fective, effi cient and reliable. The internal control structure includes the policies and procedures implemented and followed by the district staff, the accounting and other information systems being used, the work environment, and the attitude and culture of those who work in the district, especially the administration, management, and the board of trustees. A school district with strong effective internal controls will have staff who understand and sup- port board policies and maintain a high level of integrity in the accuracy and reliability of their work. The District currently does not have strong internal control practices or policies in place. There is a lack of internal control understanding by staff. Data is unreliable and not available to make timely, accurate decisions. Department and site personnel do not receive the level of service needed to adequately support the educational programs district wide. Board policies do not properly address the misuse of funds and fraud prevention. Internal ac- counting controls and separation of duties are weak. The controls that are in place are not always followed or enforced. There is no process in place for employees to report wrongdoing. Collective Bargaining The disclosure of the district’s collective bargaining agreements at regular governing board meet- ings in the past have lacked detailed information regarding the agreement’s impact to the current operating budget, total cost including statutory benefi ts, and the impact on a multiyear basis. Any Financial Management 3 district with a qualifi ed or negative certifi cation under Education Code 42131 needs to allow the county offi ce of education at least six working days to review and comment on any proposed col- lective bargaining agreement prior to ratifi cation. The recent passage of AB 2756, has increased the number of days for COE review from six to ten. In 2002-03, the district paid out over $1.8 million in contractually obligated salary increases equating to 1.84% for all employees without proper notifi cation to the COE. The district has not developed parameters and guidelines for collective bargaining that ensure that the collective bargaining agreements are not an impediment to the fi nancial solvency of the district. Approximately 90% of the district’s proposed 2004-05 budget will be expended for contractually obligated salaries and benefi ts. A similar trend and ratio of expenditures for salaries and benefi ts have occurred in 2002-03 and 2003-04. 4 Financial Management 1.1 Internal Control Environment Professional Standard Integrity and ethical behavior is the product of the district’s ethical and behavioral standards, how they are communicated, and how they are reinforced in practice. All management-level per- sonnel exhibit high integrity and ethical values in carrying out their responsibilities and directing the work of others. [SAS-55, SAS-78] Sources and Documentation 1. Board policies and administrative regulations 2. Prior year independent audit reports 3. Interviews with district offi ce and school site employees Findings 1. It was reported that the prior administration did not practice appropriate ethical and behavioral standards. 2. Appropriate ethical and behavioral standards were not communicated to employees. 3. Employee trust and morale are low. 4. Disciplinary action for inappropriate behavior was not uniformly enforced. 5. Board policies do not adequately address integrity or behavioral expectations of the staff. 6. New administrators are beginning to set proper examples and standards of behavior for all employees to follow. Employees should be encouraged to adapt to the changes, accept more responsibility, and become more effi cient in their daily work activities. Recommendations and Improvement Plan 1. Clear, concise board policies to address integrity and ethical behavioral expectations for employees to follow should be developed and approved. 2. Administrators should be required to set the example of high integrity and ethical behavior in all activities. 3. New policies and expectations should be communicated to employees and ways found to improve morale and rebuild trust at all levels. 4. New lines of communication with employees should be established to encourage teamwork and more effective and effi cient work procedures. 5. Employees should be held accountable for appropriate behavior at all times. 6. Employee discipline should be enforced in a fair and consistent manner. Financial Management 5 Standard Implemented: Partially November 1, 2004 Rating: 2 Implementation Scale: 6 Financial Management 1.2 Internal Control Environment Professional Standard The district has an audit committee to: (1) help prevent internal controls from being overridden by management, (2) help ensure ongoing state and federal compliance, (3) provide assurance to management that the internal control system is sound, and (4) help identify and correct ineffi cient processes. [SAS-55, SAS-78] Sources and Documentation 1. Board policies and administrative regulations 2. Prior year independent audit reports 3. Interviews with district offi ce administrators and business offi ce employees Findings 1. The district does not have an audit committee. 2. Desk procedure manuals do not exist for most business offi ce functions. 3. Internal accounting controls are not adequate or enforced in many areas of the busi- ness operations. 4. Proper segregation of duties is not universally practiced throughout the district. 5. There is no specifi c person assigned to oversight of the accounting procedures for categorical programs to ensure compliance. 6. High employee turnover at the district and school site level has created the need for more training and employee supervision than is currently in place. 7. Some employees have been assigned job duties for which they did not apply, test for, or are not qualifi ed or properly trained to perform. 8. The district has an internal auditor but that person is not functioning in that capacity at this time. 9. Expectations as to proper internal accounting controls are not expressed to employees. Recommendations and Improvement Plan 1. An audit committee should be created to oversee the activities recommended in the professional standard described above. 2. Adequate internal accounting procedures need to be implemented and necessary changes made to segregate job duties and properly protect the assets of the district. 3. Desk procedures manuals for each business offi ce function should be developed. Financial Management 7 4. Firm employment guidelines should be established to ensure that only qualifi ed em- ployees are hired or assigned to accounting and/or business positions. 5. Proper employee training for all employees should be provided. 6. A qualifi ed employee should be hired or assigned to oversee the categorical program accounting function to ensure compliance. 7. The district should require the internal auditor to perform the appropriate duties for that position. 8. Appropriate internal control expectations should be communicated to employees throughout the organization and all employees held accountable for adhering to proper procedures. Standard Implemented: Not Implemented November 1, 2004 Rating: 0 Implementation Scale: 8 Financial Management 1.3 Internal Control Environment Professional Standard The attitude of the Governing Board and key administrators has a signifi cant effect on an organization’s internal control. An appropriate attitude balances the programmatic and staff needs with fi scal realities in a manner that is neither too optimistic nor too pessimistic. [SAS- 55, SAS-78] Sources and Documentation 1. Board policies and administrative regulations 2. Prior year independent audit reports 3. Interviews with district offi ce and school site employees Findings 1. The prior administration did not always practice appropriate behavioral standards or properly manage the fi nancial activities of the district. 2. Accurate fi nancial information was not provided to the board of trustees and commu- nity. 3. The Governing Board did not adequately monitor the fi nances of the district. 4. The new administration is keeping the Governing Board and the public better in- formed through regularly scheduled meetings. Employees at all levels must be in- formed of the new behavioral standards and be expected to follow good business practices. Recommendations and Improvement Plan 1. Board policies should be developed that clearly establish acceptable standards of be- havior for board members, administrators, and employees. 2. Appropriate standards and expectations should be discussed at board meetings. 3. All board policies and standards of behavior should be enforced. 4. Expected standards of behavior should be communicated to employees and all em- ployees should be held accountable for adhering to those standards. 5. Highly qualifi ed administrators and managers should be hired. Financial Management 9 Standard Implemented: Partially November 1, 2004 Rating: 2 Implementation Scale: 10 Financial Management 1.4 Internal Control Environment Professional Standard The organizational structure clearly identifi es key areas of authority and responsibility. Reporting lines are clearly identifi ed and logical within each area. [SAS-55, SAS-78] Sources and Documentation 1. Board policies and administrative regulations 2. Prior year independent audit reports 3. Interviews with district offi ce and school site employees 4. Evaluation of work procedures and supervisory responsibilities Findings 1. The organizational lines of authority and supervision are blurred. 2. Some business operational areas, such as payroll and warehousing, do not have ad- equate supervision. 3. Some supervisors function as clerical staff, perform duties that are not within their job description, or are ineffective in their capacity as a supervisor. 4. Accounting employees often ask one long-term employee for assistance, even though that person has been given a different job assignment. 5. Interim directors and new managers are attempting to make positive changes. Em- ployees need to be kept informed about performance expectations and changes to their work procedures. Recommendations and Improvement Plan 1. An organizational structure within the business division that clearly delineates the responsibilities of managers, supervisors and employees should be developed. Job descriptions should be realigned as necessary. 2. Supervisors should be held accountable for performing their job duties effectively and effi ciently. 3. Only highly qualifi ed managers and staff should be recruited to fi ll vacancies. 4. Changes in work procedures and performance expectations should be clearly commu- nicated to all employees. 5. The district should work closely with bargaining units to implement changes in orga- nizational structure and work procedures. Financial Management 11 Standard Implemented: Partially November 1, 2004 Rating: 2 Implementation Scale: 12 Financial Management 1.5 Internal Control Environment Professional Standard Management has the ability to evaluate job requirements and match the requirements to the employee’s skills. [SAS-55, SAS-78] Sources and Documentation 1. Board policies and administrative regulations 2. Interviews with district offi ce and school site employees 3. Evaluation of work procedures 4. Job descriptions Findings 1. Employee job descriptions for business offi ce assignments are not up to date. 2. Employee tasks have changed over time and job descriptions have not been revised to refl ect new responsibilities. 3. Many employees have been assigned new jobs without applying, testing or competi- tively qualifying for the position. 4. Some employees are not working within the job descriptions for their positions. Recommendations and Improvement Plan 1. Job descriptions should be updated regularly, especially when positions become va- cant. 2. Managers and administrators should be required to review and revise job descriptions within their areas of responsibility on a regular basis. 3. A schedule should be created to review and update all classifi ed job descriptions in the business offi ce as soon as possible. 4. The district should work closely with bargaining units to facilitate the implementation of new job descriptions. 5. Firm employment guidelines should be established to ensure that only qualifi ed em- ployees are hired or assigned to accounting and business positions. 6. Proper employee training should be provided for all employees. 7. Employees should be required to perform the duties in their job descriptions. Financial Management 13 Standard Implemented: Partially November 1, 2004 Rating: 1 Implementation Scale: 14 Financial Management 1.6 Internal Control Environment Professional Standard The district has procedures for recruiting capable fi nancial management and staff and hiring competent people. [SAS-55, SAS-78] Sources and Documentation 1. Board policies and administrative regulations 2. Interviews with business offi ce and human resources managers Findings 1. Staff members reported that during the past administration, favoritism and nepotism may have occurred in district hiring practices. 2. The district has experienced high turnover at the management level, both in certifi - cated and classifi ed positions. 3. Good hiring practices are not followed consistently. 4. Many employees have been assigned jobs without applying, testing or competitively qualifying for the position. 5. Some employees are not working within the job descriptions for their positions. 6. New administrators are working to improve hiring practices, but vacancies are not always fi lled quickly. 7. Until all positions are fi lled with highly qualifi ed personnel, employees will continue to feel overworked and stressed, and improved procedures will not be implemented in a timely manner. Recommendations and Improvement Plan 1. Uniform hiring standards should be established and enforced. 2. Management and other vacancies should be widely advertised in appropriate venues. 3. Only highly qualifi ed employees at all levels should be recruited. 4. The hiring of new employees should be speeded up by streamlining and implementing effi cient procedures. 5. Methods should be prepared to select the most qualifi ed candidates through paper screening, testing, and interviews. 6. References for all new employees should be verifi ed. Financial Management 15 Standard Implemented: Partially November 1, 2004 Rating: 2 Implementation Scale: 16 Financial Management 1.7 Internal Control Environment Professional Standard All employees are evaluated on performance at least annually by a management-level employee knowledgeable about their work product. The evaluations criteria are clearly communicated and, to the extent possible, measurable. The evaluation includes a follow-up on prior performance is- sues and establishes goals to improve future performance. Sources and Documentation 1. Board policies and administrative regulations 2. Interviews with district offi ce and school site employees Findings 1. Managers and supervisors are not held accountable for evaluating employees on an annual basis. 2. If standard evaluation forms are available, they are not used regularly. 3. Employees have not been evaluated annually. Some employees have not been evalu- ated for several years. 4. Processes are not in place or are not followed to ensure that employee evaluations are prepared regularly. 5. Evaluation criteria may be outdated and not appropriate for the current job functions. Measurable goals and objectives are not in place for all positions. 6. Employees do not know the standards by which they will be evaluated. 7. The Human Resources department is working toward better evaluation practices and to ensure that employee performance evaluations are prepared regularly. Recommendations and Improvement Plan 1. Standard procedures and forms for employee performance evaluations must be devel- oped, implemented, and used by all managers and supervisors. 2. Employee performance evaluations must be conducted at least annually. 3. Appropriate and measurable goals, objectives, and evaluation criteria for all positions must be developed. 4. The district should work closely with bargaining units to implement new evaluation standards. 5. Managers and supervisors should be held accountable for evaluating all employees under their supervision in a timely manner. Financial Management 17 6. Managers and supervisors should be fully trained to properly evaluate employees. Training should include following district procedures, proper use of district evaluation forms, bargaining unit restraints, and discipline/performance improvement procedures. Standard Implemented: Partially November 1, 2004 Rating: 1 Implementation Scale: 18 Financial Management 1.8 Internal Control Environment Professional Standard The responsibility for reliable fi nancial reporting resides fi rst and foremost at the district level. Top management sets the tone and establishes the environment. Therefore, appropriate measures are implemented to discourage and detect fraud (SAS 82; Treadway Commission). Sources and Documentation 1. Board policies and administrative regulations 2. Prior year independent audit reports 3. Interviews with district offi ce employees 4. Evaluation of work procedures Findings 1. Board policies do not properly address fraud prevention and confl ict of interest. 2. It was reported that the prior administration did not provide accurate fi nancial infor- mation to the Governing Board. 3. Employees do not know of ways to report concerns or problems that they notice dur- ing routine daily activities. 4. Employees indicated that they feared retaliation if they reported concerns. 5. Not all employees are following Generally Accepted Accounting Principles (GAAP) due to lack of knowledge and training. 6. A new county data processing system has been installed with many enhanced account- ing controls in place. Employees expressed concern that they have not received proper training to use the new county computer system effectively. 7. Internal accounting controls have not been fully implemented or enforced in the dis- trict offi ce to protect against inappropriate behavior. 8. New administrators are making improvements in the overall internal accounting con- trol process. Changes and revised expectations should be regularly communicated to employees. Recommendations and Improvement Plan 1. Board policies should be developed and/or revised to properly address confl ict of interest and accountability, strengthen internal accounting controls, set performance standards, and prevent misuse of funds and fraud. 2. Only highly qualifi ed new administrators with integrity and high ethical standards should be hired. Financial Management 19 3. A reliable system should be devised to encourage employees to report abuses or fraud. 4. The new county data processing accounting system should continue to be used. 5. All employees should be properly trained to use the new county computer system cor- rectly. 6. All employees should follow proper procedures. 7. Adequate training should be provided so that employees know, understand, and follow Generally Accepted Accounting Principles (GAAP). Standard Implemented: Partially November 1, 2004 Rating: 2 Implementation Scale: 20 Financial Management 2.1 Inter- and Intra-Departmental Communications Professional Standard The business and operational departments communicate regularly with internal staff and all user departments on their responsibilities for accounting procedures and internal controls. The communications are written whenever possible; particularly when they (1) affect many staff or user groups; (2) are issues of high importance; or, (3) refl ect a change in procedures. Procedures manuals are necessary to the communication of responsibilities. The departments also are re- sponsive to user department needs, thus encouraging a free exchange of information between the two (excluding items of a confi dential nature). Sources and Documentation 1. Interviews with site administration and classifi ed staff responsible for business-related functions 2. Interviews with district offi ce staff responsible for business-related functions 3. Available procedure manuals for business-related functions 4. Available memos and letters from the business department to other departments and school sites regarding business-related matters Findings 1. With the exception of a new purchasing and associated student body (ASB) manual, updated procedure manuals or similar resources regarding business-related functions are not available to business users to outline policies, procedures, responsibilities and expectations related to business functions. 2. Desk references do not exist on specifi c business-related desks. 3. A Business Services Division Procedures Manual was located at one of the school sites, but it was dated 1990 with no updates since that year. 4. When phone calls are made to the business department regarding questions or even asking for clarifi cation, it is often diffi cult to know who to call to get a correct re- sponse. 5. For many years, there has not been any type of in-service training prior to the begin- ning of the new school year to outline policies, procedures, responsibilities and expec- tations related to business functions. When this in-service session was offered, updates to the previous year’s Procedures Manual were handed out and explained. 6. Written communication from the business department is rare, and the information pro- vided is often late and/or confusing. For example, a chart of accounts was distributed when the Standardized Account Code Structure (SACS) was put into place, but there was no training or detailed materials explaining what all of the SACS conversion and codes meant. Consequently, many budget administrators do not understand the new report/account code formats and don’t really have an avenue to ask detailed questions. Financial Management 21 7. In-service training/workshops are rarely provided to business system users. When they do occur, such as in summer 2004 on the new attendance system (Aeries), there is too much information given in too little time, causing frustration and requiring extra time to perform duties because not enough information is shared. 8. Financial system reports are not sent out on a set schedule, but have appeared at sites and departments in an infrequent, unexpected manner. When they do appear, there is no type of cover sheet with questions, requests and/or explanations. 9. There are quarterly District Leadership Meetings where information is shared. There are also monthly principals’ meetings for all like schools (all elementary, all middle or all high) to receive updates and share information. There used to be periodic offi ce manager/clerical and other specifi c type meetings for similar purposes, but these have not occurred for some time. Recommendations and Improvement Plan 1. The district should develop procedure manuals for all business and business-related functions. Manuals should explain in detail the processes and procedures that are expected and/or necessary to comply with rules, regulations and board and district policies and procedures. This manual should be updated at least annually. 2. Procedure manuals covering business and business-related functions would also func- tion as a training tool for staff, help to ensure the accurate and appropriate discharge of job duties, and provide some level of continuity in the case of staff turnover. 3. The Business Services Division Procedures Manual, apparently last revised in 1990, should be updated and distributed to business operations customers. 4. Organizational charts need to be updated and kept up to date so that sites and depart- ments know who to contact when they have questions at any given time. 5. The district should formalize the process for communicating changes in policies and procedures related to business and business related services by offering in-service training prior to the new school year beginning. At this in-service, updates to the pre- vious years’ Procedures Manual would be handed out and explained. This would help ensure that staff at sites and in other departments understand and properly implement the changes. 6. The business department should issue timely communications regarding changes in processes and/or procedures. Explanations should be clearly written. Contact informa- tion should be provided with each communication so employees know who to contact should they have questions. 7. In-service training/workshops should occur annually to update business systems users and to issue reminders on important policies and procedures. Training also needs to occur in a timely manner when systems change, with enough time allotted to ensure training is adequate and the new system is successfully implemented. 22 Financial Management 8. Financial system reports need to be sent to sites and departments on a set schedule, such as monthly. A response should be required, whether there are revisions to be made or not, to ensure the report is actually received and reviewed. 9. District leadership meetings and principals’ meetings should continue. Time should be set aside so that periodic fi nancial and other information can be shared with managers of support departments, principals and program managers on business and business- related functions. Periodic offi ce manager/clerical and other specifi c classifi ed type meetings should also occur for information sharing and updates on policy/procedure changes. Open and ongoing communication is integral to creating an environment of cooperation and trust. Standard Implemented: Partially November 1, 2004 Rating: 1 Implementation Scale: Financial Management 23 2.2 Inter- and Intra-Departmental Communications Professional Standard The fi nancial departments communicate regularly with the Governing Board and community on the status of district fi nances and the fi nancial impact of proposed expenditure decisions. The communications are written whenever possible, particularly when they affect many community members, are issues of high importance to the district and board, or refl ect a change in policy. Sources and Documentation 1. Governing Board Meeting agendas and offi cial minutes for 2002-03 and 2003-04 2. Interviews with various staff members 3. Budget Advisory Committee minutes 4. Interviews with board members Findings 1. The adopted budget, interim reports and unaudited actuals have been brought to the board in compliance with statutory deadlines. In the few instances that there have been delays, the county offi ce has been notifi ed and has given its approval. 2. The statutory reports, such as interim, adopted and unaudited actuals are brought to the board in the statutory format (SACS). Some board members feel this format is too confusing. 3. Additional business-related items are brought to the board, such as developer fee stud- ies, audit contracts, claim rejections, average daily attendance (ADA) and enrollment reports, and various other items. It does not appear that business items were given any particular priority. In addition, the amount of information contained in board agendas and minutes was minimal. 4. Many budget PowerPoint presentations have been brought to the board. Much of the information comes from School Services of California’s workshops, but additional information specifi c to the district was added by the district’s CBO. 5. A Budget Advisory Committee (BAC) is in place and meets routinely. The committee includes members of the community, employee unions, board members and district administrators. Information provided to the committee is prepared by the business staff. 6. Purchase orders and contracts over the amount of $5,000 are brought to the Governing Board for approval, which is required by statute. Payroll expenditures are not brought to the board for approval. 7. Community meetings were held February 24, 2004, March 10, 2004 and March 24, 2004 to discuss the district’s budget issues and to allow for questions from attendees. 24 Financial Management Recommendations and Improvement Plan 1. Adopted budget, interim reports and unaudited actuals should always be brought to the board in compliance with statutory deadlines. Board members need training so they can more easily interpret the state-mandated reports. 2. Statutory reports must be approved by the board in the state SACS-compliant format, but additional, more understandable information should be part of the packet to the board and stakeholders. For example, User-Friendly Budget software that comple- ments the required state budget reports is available at no cost through School Services of California. 3. When additional business related items are brought to the board, adequate information should accompany the reports to make them easily understood. In addition, business items should be given high priority in the agenda due to the district’s fi nancial issues. 4. The district should adopt policies and procedures that require budget and fi nancial information to be presented monthly. These updates should include issues that will have an effect on district fi nances as well as routine budget reports on the status of the general fund, including categorical programs. 5. The Budget Advisory Committee (BAC) should discuss various methods of commu- nicating so that fi nancial issues can be shared and discussed with the community and staff. Many districts have a “Fingertip Facts” document that makes the district’s fi nan- cial status available in a user-friendly manner. The document is distributed throughout the district, community and media. Board meetings should include information identi- fi ed and discussed at the BAC meetings so that the concerns and ideas of the commit- tee can be heard by the whole board and others in attendance. 6. Payroll expenditures should be brought to the board for approval. 7. Community meetings should continue to be held to include the community in the pro- cess of fi nancial recovery. Standard Implemented: Partially November 1, 2004 Rating: 2 Implementation Scale: Financial Management 25 2.3 Inter- and Intra-Departmental Communications Professional Standard The Governing Board is engaged in understanding globally the fi scal status of the district, both current and as projected. The board prioritizes district fi scal issues among the top discussion items. Sources and Documentation 1. Interviews with board members 2. Board minutes and agendas 3. Board policies Findings 1. Board members have continuously asked specifi c fi scal and budget-related questions during board meetings. The answers given from administration sounded reasonable and provided the board reassurance regarding their concerns on fi nance issues. 2. It was later found that many of the reports and answers were not complete or correct and that specifi c information items had been produced outlining the true impact of the district’s fi scal position, but those reports were not included in the board report until they were later discovered. 3. In December, 2003, the board was notifi ed by district administration that the district had a defi cit of approximately $3 to $5 million. There was documentation in Octo- ber 2003 showing that the district had a defi cit of about $8 million, but that was not received by the board until January 2004. 4. In September 2003, when budgeted revenue limit estimates decreased signifi cantly, it was explained by the CBO that enrollment had declined unexpectedly by 1,200 stu- dents. The board questioned the validity of that statement. Subsequently, the decrease in revenue was explained by staff as a fi nancial system issue. This second explanation caused the board to be suspicious of the data that was being shared with them. Prior to this time, the board had not had major suspicions or concerns about the validity of the data. 5. The board was not consistently receiving Budget Advisory committee meeting min- utes as requested. 6. All budget reports, including multiyear projections, were presented to the board in an understandable format. Until the 2003-04 fi scal year, the board had not questioned the administration on the reliability of the numbers, as all explanations of discrepancies had made sense. 7. Board meeting agendas are not organized by business items, human resource items, and/or curriculum items. Instead, it is categorized by recognition, community forum, reports, public hearings, board business information items, consent, action and person- nel items. 26 Financial Management Recommendations and Improvement Plan 1. The Governing Board should utilize the Budget Advisory Committee to assist in the process of budget and audit review. 2. To increase communication with the community, a “Fingertip Facts” document should be produced. This would be a user-friendly version of the district budget. It should be made available to the public at board meetings and school sites. Summary information about the budget should be dispensed with school communications. 3. The Budget Advisory Committee should be used to encourage broader community participation in the budget process, to obtain community input into the budget and to assist in monitoring fi nancial issues in detail. This would provide additional review, consideration and oversight for fi scal matters. Although the BAC has been in exis- tence, it has not had this type of oversight. 4. Detailed information should accompany budget reports explaining the funding that exists and how long that funding will be available to the district. This will allow the board to make expenditure decisions in a more informed and accountable manner. 5. The board needs to consistently receive Budget Advisory Committee meeting minutes to assist the board with its fi duciary duties. 6. The budget offi ce needs to provide multiyear projection information even more frequently than at interim reporting periods while the district’s fi scal health is being restored. This will help the board understand the impact of all fi scal decisions that it makes and the overall effect on the budget in future years. The multiyear projections should be explained in more detail so that the board will more easily comprehend and trust the data. 7. The board meeting agenda should place business and business-related functions toward the beginning of the agenda so that board members are not rushed to make important decisions in these areas. Standard Implemented: Partially November 1, 2004 Rating: 1 Implementation Scale: Financial Management 27 2.4 Inter- and Intra-Departmental Communications Professional Standard The district has formal policies and procedures that provide a mechanism for individuals to report illegal acts, establish to whom illegal acts should be reported, and provide a formal inves- tigative process. Sources and Documentation 1. Board policies Findings 1. The board has various approved board policies, but none of them specifi cally address the employee and management responsibility to report illegal acts. 2. There is a board policy addressing management of district assets and accounts that discusses audits and quality control reviews, and also addresses internal controls. Another board policy addresses fi scal accountability, adopting fi scal policies and over- seeing the district’s fi nancial condition. But there are no established policies or proce- dures regarding potential illegal acts or how to report illegal acts, suspected or known. 3. The district has an internal audit function, but it is not currently being implemented or staffed in a manner that would pinpoint fraud or illegal acts. 4. The district does not have an anonymous fraud hotline that employees can use to re- port suspected fraud. Recommendations and Improvement Plan 1. The Governing Board should adopt a policy specifi cally addressing fraud and stating that the board will have zero tolerance for employee theft or fraud. The policy should also facilitate the development of controls that will aid in the detection and preven- tion of fraud, impropriety or irregularity within the district. The policy should address the actions that will be taken when fraud is disclosed, including termination, criminal prosecution, and restitution. 2. The board’s intent should be to promote consistent organizational behavior by provid- ing guidelines and assigning responsibility for the development of controls and con- duct of investigation. 3. An awareness program with specifi c procedures should be implemented to inform staff about the common types of fraud and theft, red fl ags for potential misuse, em- ployee responsibilities to deter and prevent fraud and theft, and process and proce- dures for reporting suspected fraud through an anonymous fraud hotline or other mechanism. 28 Financial Management 4. The district’s designated internal audit employee should function as a true internal auditor. The position should provide an ongoing review of district operations and as- sist in deterring and detecting fraud and theft. This position should have the primary responsibility for investigating reported instances of fraud and theft. Standard Implemented: Not Implemented November 1, 2004 Rating: 0 Implementation Scale: Financial Management 29 2.5 Inter- and Intra-Departmental Communications Professional Standard Documents developed by the fi scal division for distribution to the Governing Board, fi nance committees, staff and community are easily understood. Those who receive documents devel- oped by the fi scal division do not have to wade through complex, lengthy computer printouts. Sources and Documentation 1. Board meeting agendas and minutes 2. Interviews with board members Findings 1. Various Power Point presentations were brought to board meetings refl ecting current budget information and overall assumptions for specifi c budgets. 2. Board members felt the information shared with them clearly refl ected the district’s fi nancial status. It was later found that many of the reports and verbal information were not complete or correct and that specifi c documents had been produced outlining the true impact of the district’s fi scal position, but those reports were not given to the board. 3. The statutory reports, such as interim, adopted and unaudited actuals are brought to the board in the statutory format (SACS). Some board members feel this format is too confusing. 4. Additional business related items are brought to the board, such as developer fee stud- ies, audit contracts, claim rejections, average daily attendance (ADA) and enrollment reports, and various other items. It does not appear that business items are given any particular priority. In addition, the amount of information contained in board agendas and minutes is minimal. 5. All budget reports, including multiyear projections, were presented to the board in an understandable format. Until the 2003-04 fi scal year, the board had not questioned the administration on the reliability of the numbers, as all explanations of discrepancies had made sense. Recommendations and Improvement Plan 1. Statutory reports must be approved by the board in the state SACS-compliant format. However, additional, more understandable information should be part of the packet for the board and other stakeholders. The User-Friendly Budget software mentioned in Standard 2.2 can help facilitate this process. 2. When additional business-related items are brought to the board, adequate explanatory information should accompany the reports. In addition, business items should be given priority in the agenda due to the district’s fi nancial issues. 30 Financial Management 3. The district should adopt policies and procedures that require budget and fi nancial information to be presented monthly. These updates should include issues that will have an effect on district fi nances as well as routine budget reports on the status of the general fund, including categorical programs. 4. Detailed information should accompany budget reports explaining the funding that exists and how long that funding will be available to the district. This will allow the board to make expenditure decisions in a more informed and accountable manner. 5. The budget offi ce needs to provide multiyear projection information even more frequently than at interim reporting periods while the district’s fi scal health is being restored. This will help the board understand the impact of all fi scal decisions that it makes and the overall effect on the budget in future years. The multiyear projections should be explained in more detail so that the board will more easily comprehend and trust the data. Standard Implemented: Partially November 1, 2004 Rating: 1 Implementation Scale: Financial Management 31 3.1 Staff Professional Development Professional Standard The district has developed and uses a professional development plan for training business staff. The plan includes the input of business offi ce supervisors and managers, and, at a minimum, identifi es appropriate programs offi ce-wide. At best, each individual staff and management em- ployee has a plan designed to meet their individual professional development needs. Sources and Documentation 1. Interviews with staff 2. Purchase orders specifi cally for workshop attendance 3. Board goals Findings 1. There is a board goal refl ecting a commitment to ensure staff development and sup- port for district leaders to carry out the goal of fi scal solvency, but there did not appear to be a plan for achieving that goal. 2. The district does not have a professional development plan in place for employees, including business or business support staff. 3. There have been allowances for specifi c business staff to attend training, including: • CalPERS: October 2001, 2 employees; October 2002, 3 employees; October 2003, 4 employees • CalSTRS: March 2002, 3 employees • CASBO trainings in various areas including GASB 34, Leadership for First-Level Supervisors, Budget Basics, Payroll Concepts, Short Term Independent Study, Pu- pil Attendance, Standardized Account Code Structure, Year-end Closing, Accounts Payable, Legal Aspects of Student Body Organizations and Independent Study. 4. Staff members are not always aware of potential training opportunities that may ben- efi t their job performance. 5. Identifi cation of individual staff training needs is not done. 6. The district does not place notices in the personnel fi les of employees who participate in staff development. Recommendations and Improvement Plan 1. An annual staff development plan should be prepared for each department. The con- tents of the plan should be based on a needs assessment and should include both routine update training and specialized training. 32 Financial Management 2. Each employee should have an individual development plan that is consistent with the department’s plan, the employee’s job duties, and current skill and knowledge levels. The evaluation of employee training needs can be done as part of the annual perfor- mance appraisal. 3. Staff development can be conducted through a variety of methods, including in-house training, one-on-one mentoring and training, and outside workshops and conferences. 4. Specifi c training should occur for payroll functions to ensure that applicable rules and information are understood, such as those related to CalPERS and CalSTRS. 5. Employee evaluations should be done annually and should include the employee de- veloped individual training plan, as well as the supervisor’s identifi ed training needs. Training plans should be correlated to the training catalog and employee evaluation. Subsequent evaluations should address the completion of identifi ed training needs and document updated plans. 6. The district should establish a practice to place notices in the personnel fi les of em- ployees who complete staff development as listed in the professional development plan. These employees also should be recognized with some type of award or certifi - cate. 7. The district should increase efforts to notify classifi ed staff members about specifi c in- service training. Standard Implemented: Not Implemented November 1, 2004 Rating: 0 Implementation Scale: Financial Management 33 3.2 Staff Professional Development Professional Standard The district develops and uses a professional development plan for the in-service training of school site/department staff by business staff on relevant business procedures and internal con- trols. The plan includes the input of the business offi ce and the school sites/departments and is updated annually. Sources and Documentation 1. Interviews with staff at the district offi ce and specifi c school sites 2. Business Services binder dated 1990 Findings 1. A professional development plan is not in place for annual school site/department staff on relevant business procedures and internal controls, such as attendance accounting or ASB procedures. 2. Training is done on an informal, as-needed basis. Often an inadequate amount of time is allotted, such as when conversions to new systems are done. 3. In the past, in-service training was offered each August on business and related func- tions. Both new information and reminders of prior information were shared in this setting. A binder from 1990 was found, which may indicate the last time this training was offered. Recommendations and Improvement Plan 1. The Assistant Superintendent should develop an annual staff development plan for both business and non-business personnel regarding internal control procedures that need to be followed. The program should include all business and operational func- tions for sites and departments, as well as changes that have been made within the last year, including conversions to new software and/or systems. 2. An annual staff development plan should be developed to update departments and sites on changes in business procedures and the application of routine internal control processes. The areas covered should include purchasing, attendance, ASB proce- dures, changes in policies and/or procedures, and changes in law/statute. The annually updated binder of business and business related functions would be explained and distributed at this training. 3. Each staff training session on business and operations should be established for a spe- cifi c audience, with mandatory or optional attendance as dictated by the subject mat- ter. The district should ensure the topics covered pertain to the staff members invited to the training. 34 Financial Management Standard Implemented: Not Implemented November 1, 2004 Rating: 0 Implementation Scale: Financial Management 35 4.1 Internal Audit Professional Standard The Governing Board has adopted policies establishing an internal audit function that reports directly to the Superintendent/State Administrator and the audit committee or Governing Board. Sources and Documentation 1. Interview with Internal Auditor 2. Interview with Interim Director of Fiscal Services 3. Job description 4. Board policy Findings 1. The Internal Auditor reports directly to the Director of Fiscal Services. 2. The functions of this position are unclear to the incumbent. 3. There is no audit committee. 4. No board policy was found. Recommendations and Improvement Plan 1. The Internal Auditor should report to the State Administrator and/or Superintendent and an audit committee. 2. The district should adopt policies requiring the establishment of an audit committee and internal audit function. 3. Duties of this position should be clarifi ed in board policy. 4. The functions of the position should include: identifying ineffi ciencies in the system, updating policies and procedures and keeping the board/State Administrator updated on areas of risk. Standard Implemented: Not Implemented November 1, 2004 Rating: 0 Implementation Scale: 36 Financial Management 4.2 Internal Audit Professional Standard Internal audit functions are designed into the organizational structure of the district. These func- tions include periodic internal audits of areas at high risk for non-compliance with laws and regulations and/or at high risk for monetary loss. Sources and Documentation 1. Internal Auditor 2. Letters regarding overtime investigation 3. Letter regarding student body funds at a middle school 4. Board policy Findings 1. Reviews of overtime investigation and student body funds (numbers 2 and 3 above) were requested of, and not initiated by, the incumbent. 2. No requests were made for any area audits at the district offi ce, such as Accounts Payable or Revolving Cash fund, or for other departments, such as Food Service. The incumbent does not clearly understand the job description, which includes periodic audits of these other areas. Recommendations and Improvement Plan 1. A calendar should be established so that audits are scheduled on a regular basis. 2. A comprehensive list of the types of audits to be done should be developed by the State Administrator, audit committee and Internal Auditor. 3. Establishment of the internal audit function should include, but not be limited to: a. Providing internal auditing activity that supplies all levels of management with information to control the operations for which they are responsible. b. Using the internal auditor as an independent appraiser who examines and evalu- ates district activities. c. Assisting district personnel in performing their responsibilities by furnishing rec- ommendations and information concerning the areas reviewed. d. Authorizing full access to district records, physical property and personnel rel- evant to each area being audited. Standard Implemented: Not Implemented November 1, 2004 Rating: 0 Implementation Scale: Financial Management 37 4.3 Internal Audit Professional Standard Qualifi ed staff members are assigned to conduct internal audits and are supervised by an inde- pendent body, such as an audit committee. Sources and Documentation 1. Internal Auditor 2. Interim Director, Fiscal Services 3. Job description Findings 1. The incumbent has no previous experience as an internal auditor. 2. The incumbent does not understand what her functions should be and states she has not seen a job description. 3. The Interim Director of Fiscal Services believes the functions are clearly stated in the job description. 4. The job description seems clear on the duties and responsibilities for this position. 5. The incumbent reports directly to the Director of Fiscal Services. 6. This position was vacant for three years until January 2004. Currently, the position is responsible for more of the day-to-day operational duties than internal audit functions. Recommendations and Improvement Plan 1. Continuation of this position requires the following: a. Clear guidelines outlined in board policy. b. Establishment of an audit committee. c. Procedures and time lines developed by the Internal Auditor and audit committee. d. The position reports directly to the State Administrator and audit committee. e. Hiring of a trained internal auditor. Standard Implemented: Not Implemented November 1, 2004 Rating: 0 Implementation Scale: 38 Financial Management 4.4 Internal Audit Professional Standard Internal audit fi ndings are reported on a timely basis to the audit committee, Governing Board and administration, as appropriate. Management then takes timely action to follow up and re- solve audit fi ndings. Sources and Documentation 1 Internal Auditor 2. Job description Findings 1. There have only been two audits in the past ten months. 2. One audit was reported directly to the Deputy Superintendent, with copies to the Director of Fiscal Services. The other was reported to the site principal, with copies to the Director of Fiscal Services. 3. Neither audit was reported to the board, superintendent or audit committee. 4. The district has no standardized process for requesting or reporting internal audits. Recommendations and Improvement Plan 1. Any internal audits, and the results, should be presented to the board/State Adminis- trator and audit committee. 2. Any action taken by management should be in writing to all concerned parties, with copies to the board/State Administrator and audit committee. 3. The district should establish a process and procedure for requesting and reporting internal audits. Standard Implemented: Not Implemented November 1, 2004 Rating: 0 Implementation Scale: Financial Management 39 5.1 Budget Development Process (Policy) Professional Standard The budget development process requires a policy-oriented focus by the Governing Board to develop an expenditure plan that fulfi lls the district’s goals and objectives. The Governing Board focuses on expenditure standards and formulas that meet the district goals. The Governing Board avoids specifi c line-item focus, but directs staff to design an entire expenditure plan focusing on student and district needs. Sources and Documentation 1. Interviews with two of the fi ve board members 2. Board Policies 3000, 3400, and 3460 3. Board meeting minutes for 2003-04 4. Independent audit schedule of fi nancial trends and analysis from audited actuals for fi scal years 1998-99 through 2002-03 Findings 1. Board goal statement #2 refl ects a commitment to fi scal solvency through sound busi- ness policies and practices that will be evidenced by a balanced budget and a higher reserve. While the board received verbal confi rmation and fi nancial reports identifying what might be considered a qualifi ed budget status at best, the information was not ac- curate. 2. Board goal statement #4 refl ects a commitment to ensure staff development and sup- port for district leaders to carry out the goal of fi scal solvency. Participation in staff development activities did not ensure fi scal solvency. 3. Board policies defi ning the role of the board in budget approval and monitoring are based on CSBA standard policy language. 4. The district’s general fund budget did not maintain the minimum reserve level in any of the fi scal years 1998-99 through 2003-04. Recommendations and Improvement Plan 1. Board goals should include both long-term and incremental goals that refl ect a com- mitment to a recovery plan and restoring fi scal solvency through revenue and expendi- ture adjustments. 2. Goals and objectives developed by both the board and the district administration should be reviewed to ensure a common districtwide commitment to fi scal recovery and fi scal solvency. 3. Administrative goals should incorporate expected levels of accountability in the per- formance of district administrators. 40 Financial Management 4. A section within the formal budget document should link the allocated expenditures by programs and/or departments to the district’s stated strategic priorities and core values. This should help clarify the expenditure plan for the Governing Board and for interested community members. Standard Implemented: Partially November 1, 2004 Rating: 3 Implementation Scale: Financial Management 41 5.2 Budget Development Process (Policy) Professional Standard The budget development process includes input from staff, administrators, board and community. Sources and Documentation 1. Budget Advisory Committee agendas and minutes 2. Board meeting calendar 3. Interviews with department managers/directors 4. Interviews with business offi ce staff 5. Budget development calendar Findings 1. The Budget Advisory Committee (BAC) includes two board members, two business offi ce administrators, two VEA and two CSEA representatives, two site principals, a Chamber of Commerce representative, a parent representative, and a recording secre- tary, refl ecting a good cross section of district and community members. 2. The information provided to the committee is prepared by the business offi ce and reviewed with the committee members. 3. Although the committee discussed proposed items for a recovery plan at the Decem- ber 15, 2003 meeting, the items were not discussed with the board at the December 17, 2003 meeting. 4. The board meeting schedule includes study session meetings to review proposed bud- gets or budget reductions several times during the year. 5. The budget development calendar has not been followed. 6. Department managers/directors indicate that fi nal budgets often do not refl ect the cur- rent needs of their programs when the budgets have been independently completed by the business offi ce. Recommendations and Improvement Plan 1. The board should consider adding a monthly BAC report to the board meeting agenda. The report should identify the concerns of all stakeholders rather than only providing the business offi ce perspective. 2. The continued budget study sessions for the board and public will allow for overall participation in the development and implementation of a fi scal recovery plan to re- store fi scal solvency. 3. Budget development within departments should follow the guidelines and time lines identifi ed in the budget development calendar. 42 Financial Management Standard Implemented: Partially November 1, 2004 Rating: 3 Implementation Scale: Financial Management 43 5.3 Budget Development Process (Policy) Professional Standard Policies and regulations exist regarding budget development and monitoring. Sources and Documentation 1. Board policies 2. Discussions with the business offi ce staff 3. Budget documents 4. Discussions with department managers/directors Findings 1. The budget development process is defi ned in the budget calendar. 2. The actual procedures for budget development did not follow the identifi ed process. 3. Department managers interviewed did not have and were not aware of written policies regarding budget development and monitoring. 4. Although appropriate procedures are defi ned in district records, previous budget de- velopment processes have not been conducted in an interactive and collaborative man- ner. The 2004-05 fi scal year budget prepared by the Interim Chief Financial Offi cer did include interaction with department and program managers. Recommendations and Improvement Plan 1. Effective immediately, budget development or budget revision activities should incor- porate the processes identifi ed in the budget calendar and board policies in an interac- tive manner. 2. The proposed development budget and interim report budget revisions should be jointly discussed by the Chief Financial Offi cer and the Director of Fiscal Services as a means of testing and validating the assumptions and variables used. Standard Implemented: Partially November 1, 2004 Rating: 2 Implementation Scale: 44 Financial Management 5.4 Budget Development Process (Policy) Professional Standard The district has a clear process to analyze resources and allocations to ensure that they are aligned with strategic planning objectives and that the budget refl ects district priorities. Sources and Documentation 1. Discussion with business offi ce staff 2. Discussion with two of the fi ve board members 3. Budget planning calendar 4. Staffi ng and formula allocations 5. District annual audit reports Findings 1. Both the board and the business offi ce have found it diffi cult to pursue the goals of the board with revenue levels that have been reduced by state funding defi cits, declining enrollment, and increased costs. 2. The actions of the board and district administration refl ected attempts to reduce costs and meet state reserve requirements. However, expenditures have exceeded revenues, resulting in defi cit spending, in four of the past six years. Recommendations and Improvement Plan 1. The process to accurately project student enrollment for use in revenue projections and staffi ng allocations must become an annual priority. If necessary, the district should work with a demographer to use statistical information and proven projection methods to obtain a reasonable estimate of student enrollment. Only then will the dis- trict budget be based on a sound projection of revenue amounts. 2. The goals and objectives of the district must be revised to include a commitment to restoring fi scal solvency, with budgets that address core functions and provide the required instructional programs. 3. The process to analyze resources and allocations should be conducted in each depart- ment as well as districtwide. Department managers can conduct a portion of the analy- sis. The results should be reviewed by at least two senior administrative employees to confi rm the reasonableness of the variables and assumptions used. 4. In all cases, supporting documentation should be maintained for all revenue and ex- penditure allocations and subsequent revisions. An audit trail must exist. Financial Management 45 Standard Implemented: Partially November 1, 2004 Rating: 2 Implementation Scale: 46 Financial Management 5.5 Budget Development Process (Policy) Professional Standard The district has policies to facilitate development of a budget that is understandable, meaningful, refl ective of district priorities, and balanced in terms of revenues and expenditures. Sources and Documentation 1. Budget calendar 2. Interviews with business offi ce staff 3. Interviews with department managers/directors 4. Interviews with two of the fi ve board members 5. Budget Advisory Committee agendas and minutes Findings 1. The district’s policies are documented but not fully utilized or implemented in the budget development process. 2. The district has experienced defi cit spending in four of the past six years. 3. Budgets were often developed in the business offi ce without input from department or program managers. 4. The Child Nutrition and Transportation departments do internally prepare and monitor their budgets. Recommendations and Improvement Plan 1. Adherence to existing policies and time lines must be required to reinforce a global commitment by all stakeholders in all activities related to the district’s budget and fi nancial condition. 2. All department, program, and administrative staff must adhere to budget calendar guidelines and responsibilities to ensure participation, collaboration, and accountabil- ity during budget development and revision activities in order to maintain balanced budgets refl ecting district priorities. Standard Implemented: Partially November 1, 2004 Rating: 3 Implementation Scale: Financial Management 47 5.6 Budget Development Process (Policy) Professional Standard Categorical funds are an integral part of the budget process and have been integrated into the en- tire budget development. The revenues and expenditures for categorical programs are reviewed and evaluated in the same manner as unrestricted General Fund revenues and expenditures. Categorical program development is integrated with the district’s goals and used to respond to district student needs that cannot be met by unrestricted expenditures. The superintendent, superintendent’s cabinet and fi scal offi ce have established procedures to ensure that categorical funds are expended effectively to meet district goals. Carryover and unearned income of cat- egorical programs are monitored and evaluated in the same manner as General Fund unrestricted expenditures. Sources and Documentation 1. Budget worksheets 2. Discussion with business offi ce staff 3. Discussion with the Special Projects administrator 4. Annual audit reports Findings 1. School sites receive information on the available dollars by program and submit budget worksheets to identify the distribution of funds in expenditure categories after salary and benefi t data is considered. 2. The use of site funds in categorical programs is appropriately determined by school site councils. 3. Many departments maintain internal spreadsheets to monitor actual expenditures be- cause fi nancial reports do not generally refl ect real time data. 4. The majority of categorical programs adhere to the requirement to operate within grant or entitlement allocations. 5. Restricted general fund year-end balances refl ect material carryover balances. This may have been due, in part, to an effort to support cash needs. Recommendations and Improvement Plan 1. The business offi ce should confi rm that fi nancial data recorded in the mainframe fi nancial system is as up to date as possible and assist departments in addressing their concerns about timely reports. This may reduce the dependence on spreadsheets that is common to multiple departments within the district. 2. Journal entries or transfers initiated and posted by the business offi ce should be provided to the departments with adequate communication regarding the need for the correcting entries. 48 Financial Management 3. The use of available categorical funds should be maximized in accordance with pro- gram guidelines in order to provide qualifying students with the appropriate levels of supplies and instructional support needed to achieve success. Standard Implemented: Partially November 1, 2004 Rating: 4 Implementation Scale: Financial Management 49 5.7 Budget Development Process (Policy) Professional Standard The district has the ability to accurately refl ect its net ending balance throughout the budget monitoring process. The fi rst and second interim reports provide valid updates of the district’s net ending balance. The district has tools and processes that ensure an early warning of any discrep- ancies between the budget projections and actual revenues or expenditures. Sources and Documentation 1. 2003-04 fi scal year Proposed Budget document 2. 2003-04 interim reports 3. 2000-01 through 2002-03 independent audit reports 4. Fiscal Advisor report dated December 17, 2003 Findings 1. The projected general fund ending balance of $6,583,938 for 2002-03 was overstated by nearly $5 million when compared to the audited ending balance of $1,594,996. 2. Recording of interfund payables and receivables was not reconciled to ensure that the projected fund balances of interactive funds included the correct entries. 3. In multiple cases, the 2003-04 adoption budgets for a number of funds other than the general fund were submitted with projected negative fund balances. If the general fund had to make contributions to these funds to ensure a positive ending balance, the impact would have been over $6 million. 4. Both the initial 2003-04 board-adopted budget and the fi rst revised 2003-04 budget were disapproved by the County Offi ce of Education. A budget prepared in collabora- tion with the appointed fi scal advisor was approved by the county in December. 5. The Fiscal Recovery Steering Committee and the Fiscal Review Committee worked closely to revise the projected 2003-04 ending balance after a thorough review of pro- jected revenues and expenditures. 6. The difference between the original 2003-04 projected ending balance of $4,938,601 and the fi nal adopted 2003-04 budget ending balance of -$16,259,185 represents a dif- ference of over $21 million. 7. The review conducted by the Fiscal Advisor identifi ed concerns at a level that should have dictated immediate concern and resolution, with a commitment to provide any needed outside assistance to fully identify the complete status of the district’s fi scal solvency. 50 Financial Management Recommendations and Improvement Plan 1. The Director of Fiscal Services and the Chief Financial Offi cer should conduct thor- ough monitoring and trend analysis at each fi scal reporting period to correctly project ending fund balances. Draft fi scal reports should be provided to the County Offi ce and Fiscal Advisor for validation prior to being presented to the board for approval in order to restore an acceptable level of confi dence in the district’s fi nancial position. 2. During the period of time needed for fi scal recovery, the district should conduct a monthly analysis and projection of general fund balances. The result of this analysis should be compared to actual revenue and expenditure data in the subsequent month as an early warning process to detect budget variances. 3. The setup of accounts receivable entries should be supported with documentation veri- fying the ability of the district to receive accounts receivable funds within 90-120 days following June 30. 4. The district must develop and maintain each fund budget to the extent that no fund has a projected negative fund balance. Standard Implemented: Not Implemented November 1, 2004 Rating: 0 Implementation Scale: Financial Management 51 5.8 Budget Development Process (Policy) Professional Standard The district utilizes formulas for allocating funds to school sites and departments. This can include staffi ng ratios, supply allocations, etc. These formulas should be in line with the board’s goals and directions, and should not be overridden. Sources and Documentation 1. Budget documents 2. Discussion with business offi ce staff 3. Discussion with department managers/directors 4. Staffi ng allocation worksheet Findings 1. The district has formula-based allocations for discretionary supplies funding, based on site enrollment levels. 2. In 2003-04, departments were instructed to reduce budgets by 10 percent from the prior year level. 3. The Human Resources department prepares a two-year staffi ng comparison document to identify changes in classroom teacher and counselor staffi ng levels based on formu- las. 4. School sites are able to use categorical dollars for additional staff when permitted by grant or entitlement funds. 5. A business offi ce budget analyst monitors the unrestricted certifi cated staffi ng levels and rejects any requests that exceed approved staffi ng levels. Classifi ed levels are nor- mally maintained by a second position, which has been vacant for an extended period due to a medical leave. This responsibility is being covered by an accounting techni- cian. Recommendations and Improvement Plan 1. The Budget Advisory Committee should review the formulas used for staffi ng and supply allocations and submit recommendations for changes to the board in order to meet the goal of fi scal solvency. Staffi ng allocations must conform to collective bar- gaining agreements. 2. Circumstances wherein formulas do not support required services and support levels must be considered on an individual basis for budgeting purposes. 3. Responsibility for monitoring classifi ed staffi ng levels is a priority that must be ad- equately maintained until the employee on leave returns. 52 Financial Management 4. Reductions in program and department budgets should be determined following a thorough analysis instead of using across-the-board percentages for all departments. This recommendation alone supports the need for the budget development process to begin on time, in early spring. Standard Implemented: Partially November 1, 2004 Rating: 3 Implementation Scale: Financial Management 53 6.1 Budget Development Process (Technical) Professional Standard The budget offi ce has a technical process to build the preliminary budget that includes: the forecast of revenues, the verifi cation and projection of expenditures, the identifi cation of known carryovers and accruals, and the inclusion of concluded expenditure plans. The process clearly identifi es one-time sources and uses of funds. Reasonable ADA and COLA estimates are used when planning and budgeting. This process is applied to all funds. Sources and Documentation 1. Budget documents 2. Discussion with business offi ce staff 3. Discussion with department managers/directors 4. 2003-04 and 2004-05 adoption budgets Findings 1. FCMAT was unable to locate supporting documentation used in the development of the 2003-04 fi scal year budget. General information from outside sources was con- tained in district fi les, but few specifi c worksheets or reports were available for re- view. 2. Enrollment numbers appear to be overstated. In the proposed 2003-04 budget, an ADA to enrollment percentage of 94% was used for estimating revenue limit fund- ing amounts. Data comparing the ratio over the past fi ve years refl ects a consistent percentage ranging from 90% to 91.6%. Use of the 94% factor resulted in a material overstatement of revenue. 3. Revenue accruals were materially overstated in the 2002-03 year, resulting in an over- stated beginning balance for the 2003-04 adoption budget. 4. While the district does use a position control system to identify and budget salary and benefi t costs, the actual annual expenditures in this category exceeded budgeted amounts. This is largely related to year-end payments for stipends and extra duty assignments. During budget development, the projected cost of these assignments should be documented in budget expenditure detail lines. Recommendations and Improvement Plan 1. The budget building process should be conducted by multiple parties in order to pro- vide a cross check and test of the assumptions and variables used. 2. A series of budget binders or fi les with supporting worksheets and calculations should be maintained throughout the fi scal year. 3. Fiscal analysis should include a review of revenue and expenditure trends over a fi ve- year period. 54 Financial Management 4. Enrollment projections should be prepared based on demographic trends and known variables. The district should consider using a professional demographer to prepare enrollment projections for at least a fi ve-year period. The projections should be used for ADA calculations based on the district’s actual ADA-to-enrollment ratios, assess- ing staffi ng and facilities needs, and preparing multiyear fi nancial projections. 5. Revenue accruals and expenditure liabilities established during year-end closing should be based on amounts that will be realized or paid within 90-120 days of the beginning of the new fi scal year. The accruals and liabilities should be supported with documentation. 6. Budgeted salary and benefi t costs must include all types of compensation, including regular employee, substitute, overtime, prep periods, extra duty, stipends, and staff development buyback costs. 7. When the rollover budget method is used, one-time revenue and expenditure amounts included in the prior year must be backed out of the current year allocations. 8. Grant and entitlement amounts should be budgeted at documented current funding levels for each budget year. Carryover amounts should be included as revenue and expenditure allocations in the budget only after actual amounts have been calculated during the closing of the prior year fi nancial statements. Standard Implemented: Not Implemented November 1, 2004 Rating: 0 Implementation Scale: Financial Management 55 6.2 Budget Development Process (Technical) Professional Standard An adopted budget calendar exists that meets legal and management requirements. At a mini- mum, the calendar identifi es statutory due dates and major budget development activities. Sources and Documentation 1. District budget calendar 2. California Department of Education Financial Reporting Calendar 3. Correspondence between the Solano County Offi ce of Education and the district Findings 1. The district has an approved budget calendar, although in past years not all steps have been included in the budget development process. 2. The district meets the statutory deadlines, although the integrity of the data is ques- tionable. 3. Letters from the county offi ce did not indicate that fi nancial reports were fi led untime- ly. Recommendations and Improvement Plan 1. The business offi ce must develop and provide accurate fi nancial data utilizing the checkpoints in the adopted budget calendar and CDE fi nancial reporting calendar time lines. 2. All staff involved in the budget development processes should be held accountable for producing timely and accurate and documented budget information and projections throughout the fi scal year. Standard Implemented: Partially November 1, 2004 Rating: 3 Implementation Scale: 56 Financial Management 6.3 Budget Development Process (Technical) Professional Standard Standardized budget worksheets are used in order to communicate budget requests, budget al- locations, formulas applied and guidelines. Sources and Documentation 1. Budget worksheets 2. Discussion with business offi ce staff 3. Budget transfer request form 4. Discussion with department managers/directors Findings 1. The district has a budget worksheet that is used by school sites to identify how discre- tionary or categorical dollars other than salary and benefi ts will be used. 2. Many departments use their own spreadsheet during budget development while others use the district worksheet. Recommendations and Improvement Plan 1. The budget worksheet should be provided to all departments in a timely manner early in the budget development process. The worksheet should include annual salary and benefi t costs for all employees currently being charged to the department or school site. 2. Departments should notify the business offi ce of any additions, changes, or deletions in staffi ng as soon as possible and request a revised salary and benefi t cost document. 3. The budget worksheets should include cost/benefi t analysis as well as identifi cation of the issues and guidelines that will affect the availability of resources for the current year. Standard Implemented: Partially November 1, 2004 Rating: 3 Implementation Scale: Financial Management 57 7.1 Budget Adoption, Reporting, and Audits Professional Standard The district adopts its annual budget within the statutory time lines established by Education Code Section 42103, which requires that on or before July 1, the Governing Board shall hold a public hearing on the budget to be adopted for the subsequent fi scal year. Not later than fi ve days after that adoption or by July 1, whichever occurs fi rst, the Governing Board shall fi le that budget with the county Superintendent of Schools. [EC 42127(a)] Sources and Documentation 1. Budget and interim reports 2. Board agendas and minutes 3. Discussion with two of the fi ve board members 4. Discussion with business offi ce staff 5. Correspondence between the Solano County Offi ce of Education and the district Findings 1. The district adopts the budget within the statutory time lines. 2. The district fi les the adopted budget with the county offi ce by July 1. 3. The Solano County Offi ce of Education disapproved both the district’s adopted budget and revised adopted budget in the 2003-04 fi scal year. 4. Correspondence from the county offi ce did not indicate that fi nancial reports were fi led untimely. Recommendations and Improvement Plan 1. The district must take steps to ensure that the budget adopted in accordance with the statutory time lines accurately refl ects the anticipated revenue and expenditures al- locations for the fi scal year. Standard Implemented: Partially November 1, 2004 Rating: 3 Implementation Scale: 58 Financial Management 7.2 Budget Adoption, Reporting, and Audits Legal Standard Revisions to expenditures based on the state budget are considered and adopted by the Governing Board. Not later than 45 days after the governor signs the annual Budget Act, the district shall make available for public review any revisions in revenues and expenditures that it has made to its budget to refl ect funding available by that Budget Act. [EC 42127(2) and 42127(i)(4)] Sources and Documentation 1. Board minutes and agendas Findings 1. The district follows the fi nancial reporting calendar in meeting statutory reporting guidelines. 2. The accuracy of the information provided has been poor. Recommendations and Improvement Plan 1. The processes and procedures used by the business offi ce to meet reporting deadlines must include appropriate analysis and monitoring to support the validity of the data. Standard Implemented: Partially November 1, 2004 Rating: 3 Implementation Scale: Financial Management 59 7.3 Budget Adoption, Reporting, and Audits Professional Standard The district has procedures that provide for the development and submission of a district budget and interim reports that adhere to criteria and standards and are approved by the county offi ce of education. Sources and Documentation 1. Annual budget and interim report documents 2. Budget calendar 3. County offi ce correspondence on interim reports Findings 1. Although the reports were developed and submitted according to required time lines, the accuracy of the reports was poor. 2. Reports were discussed with the board at work sessions conducted during the year. 3. Reports were discussed with the Budget Advisory Committee. Recommendations and Improvement Plan 1. The procedures for development of the budget and interim reports must be revised to include suffi cient time for a thorough analysis and validation of the revenue and expenditure allocations. 2. The integrity of the data represented in the reports must be refl ected in supporting documentation in order for the criteria and standards review to be credible. 3. Although time lines may limit the available time needed to properly evaluate the over- all budget picture prior to taking fi nancial reports to the board for approval, the district fi scal advisor should review the reports prior to board approval and submittal to the county offi ce. Standard Implemented: Partially November 1, 2004 Rating: 3 Implementation Scale: 60 Financial Management 7.4 Budget Adoption, Reporting, and Audits Legal Standard The district completes and fi les its interim budget reports within the statutory deadlines estab- lished by Education Code Section 42130, et seq. Sources and Documentation 1. Interim report documents 2. Annual independent audit reports 3. County offi ce correspondence on interim reports Findings 1. The district completes and fi les the required interim reports according to statutory time lines. 2. The integrity of the data has been poor. Recommendations and Improvement Plan 1. The completion and fi ling of interim reports must include adequate time to validate the revenue and expenditure projections for the fi scal year. 2. The business offi ce should conduct a monthly analysis to ensure that revenue and ex- penditure allocations are tracking to budgeted amounts and revise projected balances, as needed. Standard Implemented: Partially November 1, 2004 Rating: 2 Implementation Scale: Financial Management 61 7.5 Budget Adoption, Reporting and Audits Professional Standard The fi rst and second interim reports show an accurate projection of the ending fund balance. Ma- terial differences are presented to the Governing Board with detailed explanations. Sources and Documentation 1. Interim report documents 2. Discussion with two of the fi ve board members 3. Discussion with county offi ce representatives who conducted a fi scal analysis 4. School Services of California fi scal analysis Findings 1. Financial projections are not supported with corresponding documentation or fi scal analysis information. 2. The district might have considered additional budget revisions during the 2002-03 and 2003-04 fi scal years if the projections of ending balance had been accurate. 3. The board asked questions and received answers that appeared to be reasonable. The board did not receive more detailed fi scal analysis information prepared by the county offi ce that identifi ed the actual fi scal distress of the district until well after the delivery date. Recommendations and Improvement Plan 1. The district should prepare and submit required fi nancial reports to a fi scal advisor for review prior to presenting the information to the Governing Board for approval, while at the same time meeting statutory reporting time lines. 2. The budget should be reviewed regularly with the Budget Advisory Committee prior to presentation to the board. This review should include supporting documentation so that committee members have a high confi dence level in the budgeted allocations and so assumptions can be validated. 3. The processes of the business offi ce should be prioritized to conduct ongoing analy- sis and evaluation of available revenues and corresponding expenditures, rather than conducting these functions only at fi scal reporting periods. Standard Implemented: Not Implemented November 1, 2004 Rating: 0 Implementation Scale: 62 Financial Management 7.6 Budget Adoption, Reporting, and Audits Professional Standard The district has complied with Governmental Accounting Standard No. 34 (GASB 34) for the period ending June 30, 2003. GASB 34 requires the district to develop policies and procedures and report in the annual fi nancial reports on the modifi ed accrual basis of accounting and the ac- crual basis of accounting. Sources and Documentation 1. Independent audit reports for fi scal years 2000-01, 2001-02, and 2002-03 Findings 1. As required in GASB 34, the annual independent audit for fi scal years 2001-02 and 2002-03 includes the Management Discussion and Analysis (MD&A). 2. The district has recorded the fi xed asset valuation in the fi nancial records. 3. The 2002-03 MD&A documents the dollar value of unrealized accounts receivable accruals, as well as a special education overpayment. The value of these adjustments created a net overstatement of approximately $5 million, thus wiping out the unre- stricted ending balance and reserve when reversed. 4. The MD&A comments on the tight staffi ng controls that were used during the 2002- 03 fi scal year, maintaining that the budget was very closely monitored. Subsequent information contradicts this statement. 5. The MD&A discusses the level of defi cit spending in the 2001-02 and 2002-03 years, even with what is described as careful monitoring. In 2001-02 and 2002-03, the dis- trict granted contractually required cost of living increases to all regular employees of 4.02% and 1.84% respectively, while noting that all sites still managed to keep within their respective allocations. This suggests that the defi cit spending levels were inten- tional. 6. The MD&A discusses how enrollment projections missed the mark by 1,200 students, resulting in a material revenue loss. More realistic enrollment projections would have indicated a need for fewer certifi cated positions. Recommendations and Improvement Plan 1. The MD&A identifi es the results of poor planning and bad decision making based on inaccurate information but places the blame on decreasing state funding levels. In the future, all budget and interim report data should be based on realistic and documented revenue information. All expenditure data should be based on documented calcula- tions and staffi ng costs. Financial Management 63 2. The district must ensure that fi scal analysis is a year-long process so that the informa- tion and depleted reserve levels are known well before the year is closed and audited. Standard Implemented: Partially November 1, 2004 Rating: 1 Implementation Scale: 64 Financial Management 7.7 Budget Adoption, Reporting, and Audits Legal Standard The district has arranged for an annual audit (single audit) within the deadlines established by Education Code Section 41020. Sources and Documentation 1. Annual audit reports Findings 1. The district audit has been completed within the time lines established by Education Code Section 41020. 2. The district requested an extension of the delivery of the audit for the 2001-02 and 2002-03 fi scal years. Recommendations and Improvement Plan 1. The annual audit for fi scal years beginning with 2003-04 will be conducted by the State Controller’s audit team in accordance with SB1190. The district may anticipate an extended period for completion of the audit report for 2003-04, as the Controller’s team conducts an extensive evaluation of the district’s fi nancial data and reports. Standard Implemented: Partially November 1, 2004 Rating: 3 Implementation Scale: Financial Management 65 7.8 Budget Adoption, Reporting, and Audits Legal Standard The district should include in its audit report, but not later than March 15, a corrective action for all fi ndings disclosed as required by Education Code Section 41020. Sources and Documentation 1. Certifi cation of Corrective Action regarding the resolution of the 2002-03 audit fi nd- ings Findings 1. The district received a letter from the Department of Education requesting additional follow-up to clear up four audit fi ndings. 2. The district indicated plans for improvement in the four areas and that the process would include the review of the fi scal advisor to ensure appropriate compliance. Recommendations and Improvement Plan 1. The district must take audit fi ndings under serious consideration. Findings related to attendance accounting errors may result in ADA adjustments and the loss of revenue. 2. The district should respond to all requests for supporting documentation and informa- tion from the Controller’s audit team in a timely manner and follow the audit recom- mendations and corrective action plans during the following year in order to restore fi scal credibility within the district. Standard Implemented: Partially November 1, 2004 Rating: 4 Implementation Scale: 66 Financial Management 7.9 Budget Adoption, Reporting, and Audits Legal Standard The district must fi le certain documents/reports with the state as follows: • J-200 series (Education Code Section 42100) • J-380 series - CDE procedures • Interim fi nancial reports (Education Code Section 42130) • J-141 transportation report (Title V, Article 5, Section 15270) Sources and Documentation 1. Interviews with business offi ce staff Findings 1. The district does fi le appropriate reports with the state. Recommendations and Improvement Plan 1. The district must ensure that the fi ling of the required reports is completed following thorough fi scal analysis and reconciliation. Standard Implemented: Partially November 1, 2004 Rating: 4 Implementation Scale: Financial Management 67 7.10 Audit Review Legal Standard Education Code Section 41020(c) (d) (e) (g) establishes procedures for local agency audit obli- gations and standards. Pursuant to Education Code Section 41020(h), the district submits to the county superintendent of schools in the county that the district resides, the State Department of Education, and the State Controller’s Offi ce an audit report for the preceding fi scal year. This report must be submitted “no later than December 15.” Sources and Documentation 1. Annual audit reports 2. Solano County Offi ce letter to the State Controller’s offi ce requesting an extension on the 2001-02 annual audit report, dated December 3, 2002 Findings 1. The district has submitted audit reports to the appropriate agencies each year. 2. The district followed the appropriate procedure to request an extension of the 2001-02 and 2002-03 annual audits. 3. Although the district requested an extension on the 2001-02 annual audit, the Inde- pendent Auditor’s Report on Financial Statements included in the fi nal audit is dated December 6, 2002. The 2002-03 audit report fi ndings are dated January 27, 2004. 4. The 2003-04 audit is being conducted by the State Controller’s audit team and may be completed after the statutory deadline, based on the need for additional testing and investigative procedures. Recommendations and Improvement Plan 1. The district should continue to submit the audits to the appropriate agencies. Standard Implemented: Partially November 1, 2004 Rating: 5 Implementation Scale: 68 Financial Management 8.1 Budget Monitoring Professional Standard All purchase orders are properly encumbered against the budget until payment. Sources and Documentation 1. District fi nancial reports 2. Interviews with staff 3. Board minutes and agendas Findings 1. When purchase orders are created in the accounting system, funds are encumbered either until a payment is made or the order is canceled. The purchasing system is in- tegrated with the budget and accounting modules. If adequate funds are not available or the budget code is not valid in the system, the purchase order cannot be fi nalized or moved forward. Until the point that the purchase requisition is input into the fi nancial system to create a purchase order, these are manual processes that lengthen the time it takes to get a purchase order through the system. 2. The purchasing system is not utilized in a manner that provides full online control and effi ciency. Although the encumbering of funds and generation of purchase orders is online, most of the procurement process is handled manually. As a result, budget and account code verifi cation is cumbersome, time consuming, and vulnerable to timing differences. 3. Manual and ineffi cient processes can result in lengthy delays of purchase orders. From the date of fund availability to the date the funds are encumbered can be from a few days to one month. Many transactions can be processed during the time gap that can adversely affect the purchase order. 4. Salaries and benefi ts are not encumbered. They are expensed after each payroll run. 5. The district does use the position control system to drive payroll. 6. The district’s online position control system is the beginning point of the budget, but there are also manual modifi cations when needed. Preventative controls should also be put in place for substitutes and extra hire budgets as well, so the salary and benefi t lines are vulnerable to over expenditure. Unless all salary accounts are input into the position control system, there will still be various ways that these accounts can be overspent. 7. The district uses an automated substitute calling system that is controlled and located in the Human Resources department. It does not interface with the payroll system, nor is it reconciled against the manual absence forms that are fi lled out at sites and depart- ments. Financial Management 69 Recommendations and Improvement Plan 1. The district should implement the online purchase requisition, running budget reports and online budget transfer processes for sites and departments. This will reinforce departmental responsibility for budgets, and will improve the timeliness of fi nancial information, effi ciency, and internal controls. 2. A properly implemented purchase control system will automatically verify fund avail- ability and account coding when the site prepares the purchase requisition. If funds are not available, a budget transfer will be required before processing. Funds will be pre- encumbered immediately to avoid timing problems. For categorical funds, the system could be set so that the program manager must sign off or the order cannot go through. 3. When the purchase order is prepared, it will reference the online requisition and bring forward the needed information, reducing double entry. When completed, the pur- chase order will liquidate the pre-encumbrance and fully encumber the funds. Budget and account code verifi cation will not need to be manually verifi ed by district offi ce personnel, as it will be validated at the time a site or department enters the requisition. 4. Salaries and benefi ts need to be encumbered in the fi nancial system to accurately re- fl ect and reconcile these amounts to projections. 5. The district should fully use the online position control system. So that the system is fully dependable, substitutes and extra hire budgets will need to be input so these salaries and benefi t lines are not vulnerable to over expenditure. 6. The district should consider utilizing a substitute calling system that can interface both with payroll and with the employee absence system so that personal necessity, illness, vacation and other absence transactions for employees can be properly interfaced and tracked. Standard Implemented: Partially November 1, 2004 Rating: 3 Implementation Scale: 70 Financial Management 8.2 Budget Monitoring Professional Standard There are budget monitoring controls, such as periodic reports, to alert department and site man- agers of the potential for over-expenditure of budgeted amounts. Revenue and expenditures are forecast and verifi ed monthly. Sources and Documentation 1. Interviews with site and department staff 2. Interviews with district offi ce staff Findings 1. Periodic budget reports, until recently, were not sent to sites/departments on their as- signed budgets unless specifi cally requested. 2. Upon review of the reports, the site or department fi lls out a request for budget transfer if adjustments are desired. Upon receipt of a budget transfer form or journal request in the business offi ce, the assigned staff member makes the appropriate entry. Categorical fund transfers are approved by the State and Federal Offi ce for compli- ance. Forms are then sent to the business offi ce for approval. 3. The accounts payable, budget and purchasing modules are integrated. The budget offi ce sets up and makes revisions to the budget. Purchasing encumbers funds when processing purchase orders. When accounts payable pays invoices, encumbrances are liquidated and the available budget is reduced. 4. In theory, the fi nancial system should not allow purchases/expenditures to occur un- less there is an available balance in the specifi ed accounts. Budget transfers must be made manually when suffi cient budget does not exist. Nevertheless, the review team found that some budgets had been overspent. 5. Sites notify the district offi ce when they see that expenditures, especially payroll, have been recorded to the incorrect budget. Moving the past expenditures to the right ac- count and recording future expenses must be done correctly, because both issues are not normally corrected at the same time. Recommendations and Improvement Plan 1. Sites/departments should be required to notify the business offi ce that budget reports have been received and reviewed by the appropriate manager. 2. Journal vouchers to correct payroll coding should be sent to Human Resources fi rst to ensure that the coding is changed in the position control system. After Human Resources corrects the error, the voucher should be sent to the business offi ce so the costs can be adjusted. Financial Management 71 3. Sites and departments should be allowed to run their own budget reports. This would save time in the budget offi ce and would allow the sites to choose the most helpful type of report to run, such as a consolidated report or a fi nancial activity report. 4. Online budget revisions should be implemented to allow more effi cient, accurate and timely processing of budget transactions. The district also should investigate instances where transactions were processed despite insuffi cient funds and initiate proper con- trols so that it does not continue. 5. The budget offi ce should work with sites and departments to provide them with ad- ditional resources for budget review. Standard Implemented: Partially November 1, 2004 Rating: 1 Implementation Scale: 72 Financial Management 8.3 Budget Monitoring Professional Standard The routine restricted maintenance account is routinely analyzed to ensure that income has been property claimed and expenditures are within the guidelines provided by the State Department of Education. The district budget includes specifi c budget information to refl ect the expenditures against the routine maintenance account. Sources and Documentation 1. Interviews with staff 2. Financial reports for 2002-03, 2003-04 and 2004-05 Findings 1. The district has received signifi cant funding for modernization at various sites over the past several years. 2. The district has established a separate resource, Ongoing Major Maintenance, Re- source 8150, in the three years of fi nancial reports reviewed per Education Code Sec- tion 17070.75(b)(1). 3. A special budget report is not prepared for the board detailing the uses of the 3% re- serve account. Recommendations and Improvement Plan 1. The district should annually prepare a special budget document detailing the goals of and expenditures from the 3% reserve account. Standard Implemented: Partially November 1, 2004 Rating: 6 Implementation Scale: Financial Management 73 8.4 Budget Monitoring Professional Standard Budget revisions are made on a regular basis and occur per established procedures, and are ap- proved by the Governing Board. Sources and Documentation 1. Budget revisions 2. Board minutes 3. Interviews with staff Findings 1. While the district prepared interim reports for anticipated changes to the budget, no formal approval to implement the changes was noted in the board minutes. 2. It could not be verifi ed that budget revisions were made based on the actions of the Governing Board. Recommendations and Improvement Plan 1. The district should regularly submit budget revisions to the board for approval. 2. If the interim reports are to be used as part of the approval of any proposed budget revisions, the actual amounts to be approved should be provided to the board as a separate agenda item. Standard Implemented: Partially November 1, 2004 Rating: 5 Implementation Scale: 74 Financial Management 8.5 Budget Monitoring Professional Standard The district uses an effective position control system that tracks personnel allocations and expen- ditures. The position control system effectively establishes checks and balances between person- nel decisions and budgeted appropriations. Sources and Documentation 1. Interviews with staff 2. Position control systems documentation 3. Personnel action request forms Findings 1. The position control system is maintained by the Business and Human Resources of- fi ces. 2. Each position is given a unique number. 3. New positions are initiated using a Personnel Action Request form. The form identi- fi es all pertinent information regarding funding, location and category where it will be charged. The form is prepared by the site, program or department requesting the posi- tion. 4. Position control includes all district employees, but does not include substitute sala- ries, extra hire salaries, overtime salaries or any other type of salary over and above actual district positions. 5. After review and approval, if suffi cient funds and an open position exist, the position goes to the board for fi nal review and approval. 6. After board approval, Human Resources sets up the position and forwards the infor- mation to the budget offi ce, which assigns a position number. Since the budget offi ce is notifi ed of the new position after the fact, control over salaries and benefi ts budgets is diminished. 7. Business offi ce staff monitor the number of FTEs. All changes in FTE are tracked and variances between the budget and the position control system are reconciled. Position control runs both budget and payroll. 8. Proper checks and balances are in place between budget and human resources to en- sure internal controls are in place. Recommendations and Improvement Plan 1. The position control function should reside mostly in the business offi ce. All person- nel transactions related to a position should be processed through the budget offi ce fi rst to ensure the availability of a position and adequate funding. Financial Management 75 2. The budget offi ce should be responsible for verifying the completeness and accuracy of personnel action forms, as account coding is a budget function. 3. The district has initiated effective internal controls for position control. 4. The district should implement a procedure requiring all hiring to be done through the Human Resources department, which conducts references, fi ngerprints, and other safeguards that ensure the staff member is appropriate for the district. Also, decentral- ized hiring greatly increases the chance for budgets to be exceeded. 5. Substitute employees and employees on time cards should be included in the position control system. There is extensive use of time cards in the district, and if those posi- tions are not included in the system, budget overruns could occur. Standard Implemented: Partially November 1, 2004 Rating: 6 Implementation Scale: 76 Financial Management 8.6 Budget Monitoring Professional Standard The district monitors both the revenue limit calculation and the special education calculation at least quarterly to adjust for any differences between the fi nancial assumptions used in the initial calculations and the fi nal actuals as they are known. Sources and Documentation 1. Interviews with staff 2. Revenue limit calculations Findings 1. The district is in a single district SELPA, so there is no reconciliation issue with the AB 602 funding model. 2. Payroll expenditures are often incorrectly charged for personnel in both the special education program and/or special education transportation. 3. Revenue limit calculations are done by the district and validated by the county, so there is a control in place to ensure accuracy. Recommendations and Improvement Plan 1. Ensure that special education staff are correctly recorded to their work location so that comparisons between years and other analyses can be considered reliable. 2. The district should review and revise, if necessary, the revenue limit and special edu- cation calculations as a part of the fi rst, second and third interim report processes to adjust for any anticipated changes. 3. The district should also review and revise, if necessary, the revenue limit and special education calculations once the fi rst, second and annual attendance reports are submit- ted to the county for any adjustments that may need to be made to the district budget. 4. The district should revise its budget as soon as the revenue limit or special education calculations refl ect material changes in revenues. Standard Implemented: Partially November 1, 2004 Rating: 6 Implementation Scale: Financial Management 77 8.7 Budget Monitoring Professional Standard The district monitors the site reports of revenues and expenditures provided. Sources and Documentation 1. Interviews with site and department staff 2. Interviews with district offi ce staff 3. Budget reports Findings 1. The district does not generate monthly budget and expenditure reports for each site and department on any sort of set schedule. They often arrive without any notice. Sites and departments can also request them at any time. 2. Sites and departments do not have online access to the fi nancial system. 3. Sites and departments are not held responsible for managing/monitoring their own budgets. Recommendations and Improvement Plan 1. Site administrators and department managers should be responsible for monitoring and managing their budgets. These employees should be evaluated on fi scal adminis- tration in their annual performance reviews. 2. The district should implement online access for its sites and departments. This will allow budget managers immediate access to the most current information to make spending decisions. Access for online budget transfers should also be allowed. This will eliminate the time-consuming manual process currently in place. Security param- eters should be set up to control the levels of approval required before acceptance of the transaction, with the budget offi ce approving the revision before it occurs. 3. Until online capabilities are available, the Business Offi ce should provide sites and de- partments with frequent budget reports (at least monthly) to allow the administrators the information to monitor their assigned budgets. A memo should accompany each budget report asking for some type of action or signature to confi rm that the budget was received and reviewed. Standard Implemented: Not Implemented November 1, 2004 Rating: 0 Implementation Scale: 78 Financial Management 9.1 Budget Communications Professional Standard The district budget is a clear manifestation of district policies and is presented in a manner that facilitates communication of those policies. Sources and Documentation 1. Board policies 2. Budget documents 3. Interviews with staff Findings 1. The district does not have a set procedure, either verbal or written, that outlines steps occurring during budget development, what is to be included in the budget and/or what is to occur in budget maintenance during the fi scal year. 2. Approved board policies and administrative regulations address the budget adop- tion process (BP and AR3100) and the Financial Reports and Accountability (BP and AR3460), but they were last approved in 1995 and do not appear to be followed by staff. 3. The approved budget has been basically a rollover version from past years with new budget cuts and some additions based on updated data. 4. The Budget Advisory Committee has been operational and has allowed a forum for stakeholders in the district and community to ask questions and have a better under- standing of the budget as a whole. 5. The adopted budget as presented to the board at board meetings is in the state-required SACS format, and includes graphics and system generated budget sheets. 6. Questions from the board during the presentation of adopted budgets have always been answered completely and understandably. It has since been found that the data in the reports was fl awed, which was not explained at the presentations. 7. The board’s goals, priorities and strategic plan do not appear with the adopted budget narrative. Thus it is diffi cult for stakeholders to understand the connection between the two. Recommendations and Improvement Plan 1. The district should develop a written procedure detailing each step of budget develop- ment to promote continuity and assist staff in this important process. 2. The district needs to consider zero-based budgeting for budget development in future years rather than rolling over the previous year’s budget. This way the budget can be analyzed by line and by department, and determinations made to continue or eliminate funding, if deemed appropriate. Financial Management 79 3. All budget managers should be asked to justify and explain their own specifi c as- signed budgets and identify the correlation with the board’s goals. This may help iden- tify areas that can be cut, and could decrease the number of districtwide cuts necessary for the 2005-06 budget development. 4. Board policies should be developed and updated to ensure that the board clarifi es its budget priorities and goals for the adopted budget. 5. The district should continue to utilize the budget advisory committee and hold com- munity meetings so that the staff, the community and the board are active participants in the budget process. Eventually, the district should hold several study sessions for the board and community to ensure that the budgeting process is understood and to consider various priorities, comments and ideas from the community. 6. The budget document should include a message from the superintendent, a mission statement, and the district’s core values and strategic priorities. It could also include the previous year’s highlights and information on specifi c programs the district oper- ates. Additional summaries and illustrations could also be included to simplify the budget document for public review. Standard Implemented: Not Implemented November 1, 2004 Rating: 0 Implementation Scale: 80 Financial Management 9.2 Budget Communications Professional Standard The district budget clearly identifi es one-time sources and uses of funds. Sources and Documentation 1. Discussions with staff 2. Budget documents Findings 1. The budget document outlines the district’s unrestricted and restricted funds because the state SACS software clearly separates these two funding categories. 2. The district utilizes information from the governor’s budget proposal in January as well as the May revise in the development of the budget, incorporating prior year deleted or current year identifi ed one-time new monies. Although these are taken into account, they are not outlined or discussed in the budget assumptions/narrative. Recommendations and Improvement Plan 1. Unrestricted and restricted programs should be further detailed in the budget docu- ment so that the board and the community can view the various types of funding/re- sources that the district receives and can understand how the various funds are used. 2. The district should consider submitting additional information to the board on alloca- tions to specifi c school items in the budget document. 3. The budget should link allocated expenditures by programs and/or departments to the district’s stated goals, strategic plan and priorities. 4. The budget document should identify one-time revenues and expenditures, those that the district has had for some time, and those that have been eliminated at the state, federal or local level. 5. The budget development process should be formally documented so it can be fol- lowed in future years. Standard Implemented: Not Implemented November 1, 2004 Rating: 0 Implementation Scale: Financial Management 81 10.1 Investments Professional Standard The Governing Board reviews and approves, at a public meeting and on a quarterly basis, the district’s investment report and compliance with district policy. [GC 53646] The quarterly report shall include the type of investments, issuer, date of maturity and the dollar amount invested on all securities, investments and moneys held by the district. Sources and Documentation 1. Board policy 2. Board minutes 3. Interview with Interim Director of Fiscal Services 4. Government Code 5. School Services of California, Mandated Cost Claims Review Findings 1. The Assembly Special Committee on State Mandates carried forward a proposal to suspend and/or repeal the reporting requirement of investment reports in the 2004- 05 budget. The governor’s budget approved the recommendation that when the state budget does not allocate funding for specifi c mandates, the local agency does not have to perform the mandate. 2. The district is unable to claim at this time previously allowable time spent on prepar- ing and submitting quarterly and/or annual investment reports to the board as a man- dated cost claim. 3. No documentation could be provided that demonstrated the district is in compliance with submitting quarterly or annual investment reports in accordance with Govern- ment Code Section 53646. 4. The district temporarily transferred approximately $8.4 million from the county school facility fund for cash fl ow purposes during the 2003-04 fi scal year. No docu- mented evidence could be provided to demonstrate that interest was repaid to the fund or reported to the Governing Board. 5. The district required a line of credit in the amount of $60 million from the state in the 2004-05 fi scal year to ensure that cash fl ow requirements and all fi nancial obliga- tions of the district could be met for the current and two subsequent fi scal years. Any residual dollars should be maximized and monitored through investment reporting. 6. During the 2003-04 fi scal year, the district issued Tax and Revenue Anticipation Notes (TRANS) in the amount of $10.5 million to bridge the cash shortfall between the 2002-03 and 2003-04 fi scal years. The district then issued additional TRANS notes in the amount of $16 million to meet operational needs and make repayment to the facili- ties funds in order to continue construction projects. 82 Financial Management Recommendations and Improvement Plan 1. Due to the district’s current fi scal status and appointment of a State Administrator, the district should provide quarterly reports per Government Code Section 53646 that are consistent with best practices utilized by school districts throughout California. The recommended investment report should include a cash fl ow statement that will demonstrate that the district’s revenue projections are consistent with the expenditure blueprint in the Adoption Budget. 2. The Assistant Superintendent of Business Services should provide quarterly and an- nual investment reports that meet or exceed the fi nancial objectives of the district. The report should demonstrate that investments specifi cally provide safeguards regarding principal funds, meet liquidity requirements and generate a competitive yield that meets or exceeds the current market rate. The report should be fi led with the Offi ce of the State Administrator no later than 45 days after the end of each quarter. 3. Because of the number of temporary loans, state line of credit and the state Attorney General’s opinion regarding the use of interest on bond funds, investment reports should be detailed on a fund-by-fund basis and summarize temporary loan activity within the report. 4. The district should monitor and prepare claims regarding any allowable time spent on the preparation of investment reporting for future reimbursement as a mandated cost claim. The district can only claim reimbursement for the annual preparation and reporting to the Governing Board or State Administrator. Standard Implemented: Not Implemented November 1, 2004 Rating: 0 Implementation Scale: Financial Management 83 11.1 Attendance Accounting Professional Standard An accurate record of daily enrollment and attendance is maintained at the sites and reconciled monthly. Sources and Documentation 1. Audit reports for 2001-02 and 2002-03 2. District level attendance staff 3. Principal and attendance staff at an elementary, middle and high school Findings 1. The district installed the Aeries attendance accounting system in August. Previously, the district had been on two different systems. 2. Elementary sites keep attendance by hand entry, middle schools use Scantron and high schools do attendance online. 3. Monthly reports are turned in to the district offi ce from all sites. 4. External audit reports indicate possible problems in that teachers do not sign atten- dance registers. This was verifi ed by site staff. 5. There is a districtwide lack of training on the new attendance system. 6. There is no districtwide documentation for attendance taking procedures. Recommendations and Improvement Plan 1. The attendance system change has ensured that all sites are on the same attendance system and are taking attendance. 2. The methods of taking attendance have not changed. The district should consider on- line attendance taking at all sites. This would reduce data entry at the site offi ce level, leaving more time for calls home and other attendance duties. 3. Although the reports are being turned in monthly, district staff should make site visits to ensure that correct procedures are in place and understood. 4. The State Administrator should establish and implement an evaluation component for principals and teachers related to the accurate and timely completion, signing and submission of attendance reports. 5. The district should set up more in-depth trainings on the Aeries system as soon as pos- sible. In the future, annual in-service training days should be set up during the summer for all staff. 84 Financial Management 6. The district should develop a manual of standard procedures for attendance taking and reporting. Review of these procedures should be a part of an annual in-service training for all staff. Standard Implemented: Partially November 1, 2004 Rating: 1 Implementation Scale: Financial Management 85 11.2 Attendance Accounting Professional Standard Policies and regulations exist for independent study, home study, inter-/intra-district agreements and districts of choice, and should address fi scal impact. Sources and Documentation 1. Board policies 2. Principals and site staff 3. Newsletters from principals 4. Student handbooks Findings 1. No board policies were found regarding independent study or home study. 2. Board policies regarding inter-/intra-district transfers were the boilerplate CSBA poli- cies and forms. 3. The district-level attendance technician did not have copies of the independent study forms and did not know how to calculate the ADA. However, site personnel had the district regulations and forms and seemed versed in their use and the calculation of ADA. Recommendations and Improvement Plan 1. Policies for independent study and home study should be written and approved. 2. Copies of forms, regulations and board policies should be included in all student handbooks or information packets sent home. 3. District staff should have copies of and a complete understanding of policies, regu- lations and forms regarding independent study, home study and inter-/intra-district transfers. Standard Implemented: Partially November 1, 2004 Rating: 1 Implementation Scale: 86 Financial Management 11.3 Attendance Accounting Professional Standard Students are enrolled by staff and entered into the attendance system in an effi cient, accurate and timely manner. Sources and Documentation 1. District-level attendance staff 2. Site attendance staff Findings 1. Students are enrolled by each site. 2. District staff are concerned that sites are not dropping “no shows” in a timely manner. 3. Site staff input new enrollees within a day or two of entrance. All had unenrolled no shows by September 8, 2004. Recommendations and Improvement Plan 1. District staff should make site visits to validate timely entries and address any uncer- tainties about the process at the site level. 2. The district should develop a handbook that outlines the step-by-step instructions from registering a student through reporting on the J18/19. This handbook should also include forms, common attendance codes, dropping students, compulsory laws, and pertinent education codes. Standard Implemented: Partially November 1, 2004 Rating: 2 Implementation Scale: Financial Management 87 11.4 Attendance Accounting Professional Standard At least annually, the school district verifi es that each school bell schedule meets instructional time requirements for minimum day, year and annual minute requirements. Sources and Documentation 1. District-level staff 2. Assistant Superintendent, Curriculum 3. Copies of bell schedules and worksheets for calculation of instructional minutes Findings 1. The district attendance offi ce does not see bell schedules or calendars. 2. The instructional minutes and bell schedules are reviewed and approved by the Assis- tant Superintendent, Student Achievement. Recommendations and Improvement Plan 1. Even though the Student Achievement Offi ce verifi es and approves bell schedules and instructional minutes, copies should be given to the district attendance offi ce. 2. The district should develop a handbook with instructions, forms, and calculations so that all sites perform this task in the same format and manner. Standard Implemented: Partially November 1, 2004 Rating: 4 Implementation Scale: 88 Financial Management 11.5 Attendance Accounting Professional Standard Procedures are in place to ensure that attendance accounting and reporting requirements are met for alternative programs, such as ROC/P and adult education. Sources and Documentation 1. District offi ce attendance staff 2. Assistant Director of Adult Education Findings 1. The attendance offi ce only receives the information and does not validate any ADA for these programs. 2. The attendance offi ce was unaware that there was not a district-run Regional Occupa- tional Program. 3. The Assistant Director of Adult Education personally does the ADA preparation and is making amendments to 2003-04 where there were miscalculations. 4. Alternative Education ADA is verifi ed by the Alternative Education program director. Recommendations and Improvement Plan 1. The district staff should have a complete list of alternative programs and who is in charge of attendance. 2. Training should be given to appropriate staff on the differences in attendance taking for alternative programs. 3. At this time, it seems appropriate for the Assistant Director of Adult Education to con- tinue to do the ADA preparation. However, district staff should review and validate the calculations. Standard Implemented: Partially November 1, 2004 Rating: 1 Implementation Scale: Financial Management 89 11.6 Attendance Accounting Professional Standard The district utilizes standardized and mandatory programs to improve the attendance rate of pu- pils. Absences are aggressively followed up by district staff. Sources and Documentation 1. District attendance staff 2. Assistant Superintendent, Student Achievement Findings 1. The attendance offi ce believes that some sites use shortened days as an incentive to get students to school. However, the site is reporting full day attendance even when the student does not attend a minimum day. 2. The district as a whole lacks standardized procedures or a plan to improve student at- tendance. Recommendations and Improvement Plan 1. Training for principals and site attendance staff must be provided regarding the issues of reporting attendance correctly and increasing student attendance. 2. The district should develop policies and procedures for instituting and implementing programs that would increase student attendance. Standard Implemented: Not Implemented November 1, 2004 Rating: 0 Implementation Scale: 90 Financial Management 11.7 Attendance Accounting Professional Standard School site personnel receive periodic and timely training on the district’s attendance procedures, system procedures and changes in laws and regulations. Sources and Documentation 1. District-level attendance staff 2. Site principals and attendance staff Findings 1. Site staff have not attended outside professional development conferences. 2. With the district having implemented several systems in the last few years, site staff have been trained on each of the systems. 3. Written documentation on the new system is inadequate. 4. District in-service trainings on attendance have not occurred for several years. Recommendations and Improvement Plan 1. If the district cannot afford to send all applicable personnel to attendance workshops, it should consider bringing in a professional development group such as CASBO to do a district training or sending two or three people who could then do district in-service training. 2. All new or amended laws, regulations and/or policies, both state and district, should be reviewed with all applicable staff. 3. Desk reference manuals should be developed for both site and district attendance staff that include clear instructions, forms, and laws. 4. Thorough systems manuals should be distributed to site personnel. 5. The district should provide periodic “job alike” meeting opportunities. This would enable site and district staffs to share ideas and methods for attendance taking and monitoring. Standard Implemented: Not Implemented November 1, 2004 Rating: 0 Implementation Scale: Financial Management 91 11.8 Attendance Accounting Legal Standard Attendance records are not destroyed until after the third July 1 succeeding the completion of the audit (Title V, CCR, and Section 16026). Sources and Documentation 1. Site attendance staff 2. District level attendance staff Findings 1. Sites keep their attendance records on site for at least three fi scal years. Then they are sent to district storage or boxed up for storage on site. 2. Adult Education keeps their records on site for two years and then sends them to stor- age. Recommendations and Improvement Plan 1. Sites and programs seem to know the importance of maintaining attendance records and the time required in the retention manual. Standard Implemented: Partially November 1, 2004 Rating: 5 Implementation Scale: 92 Financial Management 11.9 Attendance Accounting Professional Standard The district makes appropriate use of short-term independent study and Saturday school pro- grams as alternative methods for pupils to keep current on classroom course work. Sources and Documentation 1. District level attendance staff 2. Site attendance staff 3. Independent study forms and regulations 4. J18/19 for three years Findings 1. The district reported the following supplemental hours on the J18/19’s: 129,585 hours in 2001-02, 341,598 hours in 2002-03 and only 82,375 hours in 2003-04. The discrep- ancies are extraordinary. 2. The sites are using independent study forms that seem to be consistent and appropri- ate. Recommendations and Improvement Plan 1. The inordinate differences in the hours reported from year to year require an in-depth audit of the hourly programs by the district. If the programs are being offered, then a review of how attendance is taken must be done and corrections made to methodolo- gies used. The district may be required to re-fi le its J18/19’s after the audit has been completed. 2. The district should ensure that sites are making the most effective use of the short- term independent study process. Site visits and a desk reference manual are two ways of monitoring and regulating the process. Standard Implemented: Not Implemented November 1, 2004 Rating: 0 Implementation Scale: Financial Management 93 12.1 Accounting, Purchasing, and Warehousing Professional Standard The district adheres to the California School Accounting Manual (CSAM) and Generally Ac- cepted Accounting Principles (GAAP) as required by Education Code Section 41010. Adherence to CSAM and GAAP helps to ensure that transactions are accurately recorded and fi nancial state- ments are fairly presented. Sources and Documentation 1. Board policies and administrative regulations 2. Prior year independent audit reports 3. Interviews with district offi ce and school site employees 4. Evaluation of work procedures Findings 1. Employees do not fully understand Generally Accepted Accounting Principles; how- ever, many employees have taken accounting classes at the local community college to improve their skills. 2. When used properly, the newly implemented County Offi ce Accounting System used by the district incorporates adequate internal controls and standards to assure compli- ance with Generally Accepted Accounting Principles and the California School Ac- counting Manual. 3. Employees in the Accounting, Payroll, and Purchasing departments need training to effectively use the new county offi ce accounting system. 4. Some employees are not properly trained to perform the job duties as assigned. 5. Not all employees have access to a copy of the California School Accounting Manual. Recommendations and Improvement Plan 1. All employees should be trained to properly use the county offi ce accounting system. 2. Employees should be encouraged to take accounting classes at the community college or adult education program to improve skill levels. 3. The district should provide copies of the California School Accounting Manual to all business division employees and train them to use and understand the manual as it pertains to their job duties. 4. Employees should be provided training to fully understand the requirements of their job duties and to follow Generally Accepted Accounting Principles. 94 Financial Management Standard Implemented: Partially November 1, 2004 Rating: 2 Implementation Scale: Financial Management 95 12.2 Accounting, Purchasing, and Warehousing Professional Standard The district timely and accurately records all information regarding fi nancial activity (unrestrict- ed and restricted) for all programs. Generally Accepted Accounting Principles (GAAP) requires that in order for fi nancial reporting to serve the needs of the users, it must be reliable and timely. Therefore, the timely and accurate recording of the underlying transactions (revenue and expen- ditures) is an essential function of the district’s fi nancial management. Sources and Documentation 1. Board policies and administrative regulations 2. Prior year independent audit reports 3. Interviews with district offi ce and school site employees 4. Evaluation of work procedures Findings 1. Systems are not in place or enforced to assure the timely processing of accounting activities. 2. Deadlines are not enforced. For example, payroll due dates are often overridden be- cause school sites do not submit time cards on time. 3. Diffi cult work is occasionally set aside rather than researched and processed in a timely manner. 4. Employees do not understand how their job functions fi t into the big picture; therefore, they do not adhere to sound business practices that assure timely, accurate fi nancial reporting. 5. Employees do not always notify supervisors or managers when problems are encoun- tered. Recommendations and Improvement Plan 1. Internal controls should be strengthened and good business practices implemented to ensure that accounting activities are performed in a timely manner. 2. The district should establish and enforce deadlines. 3. Managers and employees should be held accountable for performing job duties accu- rately. 4. Accountability should be enhanced by including compliance standards and rules in the annual employee evaluation process. 5. Employees should be encouraged to communicate problems and/or ask supervisors for help. 96 Financial Management Standard Implemented: Partially November 1, 2004 Rating: 2 Implementation Scale: Financial Management 97 12.3 Accounting, Purchasing, and Warehousing Professional Standard The district forecasts its revenue and expenditures and verifi es those projections on a monthly basis in order to adequately to manage its cash. In addition, the district reconciles its cash to bank statements and reports from the county treasurer on a monthly basis. Standard accounting practice dictates that, in order to ensure that all cash receipts are deposited timely and recorded properly, cash is reconciled to bank statements on a monthly basis. Sources and Documentation 1. Board policies and administrative regulations 2. Prior year independent audit reports 3. Interviews with district offi ce and school site employees 4. Evaluation of work procedures Findings 1. There is no indication that the administration or management has adequately overseen the cash management. 2. The prior administration did not accurately project revenues and expenditures. 3. The Governing Board has not been kept apprised of problems relating to the shortage of cash. 4. Budget line items have not been projected accurately or monitored for accuracy. 5. Procedures to analyze cash fl ow or monitor cash are not in place. 6. Monthly bank reconciliations are prepared, but staff assigned to that responsibility has turned over frequently. 7. One person is assigned to count and deposit cash, but no procedures to follow up on cash shortages are in place. For example, when several cash deposits from one school ASB were not received by the district offi ce, nothing was done to resolve the loss. The school ASB has carried the shortage on its books for several years. 8. Conversion to the new county offi ce accounting system has created major cash rec- onciliation issues that need immediate resolution by the county and district. Cutoff procedures are not working correctly. 9. Controls over petty cash are weak. Each site has a petty cash checking account, but there does not appear to be adequate control over the use of these accounts or the pur- chases run through them. 10. Procedures and accountability standards are not in place to prevent unauthorized bank accounts opened by school sites and other district employees. 98 Financial Management Recommendations and Improvement Plan 1. Clear lines of responsibility and the authority to manage and project cash fl ow should be established. 2. The responsibility for all fi nancial activities of the district should be assigned to highly qualifi ed, ethical administrators. 3. The district should develop internal controls and cash management procedures, and insist that all employees follow the proper procedures at all times. 4. Reliable procedures for forecasting revenues and expenditures should be implement- ed. 5. The district should prepare the budget accurately and monitor account detail on a regular basis. 6. Financial reports should be presented to the Governing Board monthly. 7. Financial reports should be clearly explained to the Governing Board. 8. Employees should be trained in proper cash management techniques. 9. The district should work with the county offi ce to solve cutoff problems and facilitate the timely and accurate reconciliation of cash. 10. Controls and procedures regarding the use of petty cash should be strengthened. 11. The district should determine that no unauthorized bank accounts exist. Standard Implemented: Partially November 1, 2004 Rating: 1 Implementation Scale: Financial Management 99 12.4 Accounting, Purchasing, and Warehousing Professional Standard The district’s payroll procedures are in compliance with the requirements established by the County Offi ce of Education, unless fi scally independent (Education Code Section 42646). Stan- dard accounting practice dictates that the district implements procedures to ensure the timely and accurate processing of payroll. Sources and Documentation 1. Board policies and administrative regulations 2. Prior year independent audit reports 3. Interviews with district offi ce and school site employees 4. Evaluation of work procedures Findings 1. Employees in payroll do not process work in a uniform manner. 2. Payroll employees lack proper supervision without a designated supervisor. 3. The district processes payroll using the County Offi ce CECC computer system. Pay- roll employees preferred the old system and have not fully accepted the change. 4. Employees have not received adequate training to fully utilize the new system effec- tively. 5. Deadlines are not adhered to for submitting time report documents. 6. School sites often submit time sheets late, causing problems such as an increased need for handwritten checks from revolving cash. 7. Management does not enforce compliance with deadlines, thus overriding the author- ity of the payroll staff, and creating time pressure for processing payroll. 8. Paychecks are processed for regular employees prior to receiving time reports from sites, occasionally causing overpayments because docked time is not known in a timely manner. 9. Frequent overpayments occur due to the late processing of personnel paperwork by the Human Resources department. 10. The overpayment collection process is fl awed. There is no defi ned method or process in place to collect overpayments from active employees. 11. Invoices for overpayments are mailed to former employees, but no procedures are in place to follow up or collect the funds if they do not pay. 100 Financial Management 12. Paychecks are mailed to all employees instead of being personally distributed at work sites. 13. It is possible that terminated and/or fraudulent employees could receive paychecks due to the lack of proper controls, overriding deadlines, and untimely processing of paperwork in Human Resources. 14. There is a lack of communication and teamwork within the Payroll department and between Payroll and Human Resources. 15. The county offi ce system incorporates adequate internal controls as they relate to the overall payroll processing functions. Recommendations and Improvement Plan 1. A payroll supervisor should be hired immediately. 2. Training on the new county CECC system should be provided to payroll employees. 3. Communication should be improved and teamwork encouraged. 4. Meetings between Payroll and Human Resources should be conducted at least month- ly to resolve ongoing issues and problems between the two departments. 5. Management should enforce payroll deadlines and support payroll staff in their effort to maintain payroll processing time lines. 6. All principals and managers should be held accountable for meeting payroll deadlines. 7. Internal control procedures and good business practices should be developed and implemented immediately to ensure that payroll employees are processing work uni- formly. 8. Human Resources should process employment paperwork in a timely manner and forward all pertinent documents to Payroll immediately. 9. Paychecks and direct deposit remittance slips should be distributed at work sites, with signatures required. This would save money and provide protection against illegal or inaccurate payments to terminated and/or fraudulent employees. 10. Procedures to collect overpayments should be developed and implemented immedi- ately. All overpayments should be followed up and resolved. 11. The dates that time reports are submitted to the payroll department should be analyzed to determine if changes would enhance the controls over handwritten paychecks and prevent overpayments. Financial Management 101 Standard Implemented: Partially November 1, 2004 Rating: 1 Implementation Scale: 102 Financial Management 12.5 Accounting, Purchasing, and Warehousing Professional Standard Standard accounting practice dictates that the accounting work is properly supervised and work reviewed in order to ensure that transactions are recorded timely and accurately, and allow the preparation of periodic fi nancial statements. Sources and Documentation 1. Board policies and administrative regulations 2. Prior year independent audit reports 3. Interviews with district offi ce and school site employees 4. Evaluation of work procedures Findings 1. Vacant management and supervisory positions need to be fi lled. 2. Supervision is lax and the lines of supervision are blurred. Some employees do not know who they answer to. 3. Employees do not perform the duties in their job descriptions. Job descriptions are outdated or not followed. 4. Some staff are misassigned based upon their skills and experience. 5. Morale is low. 6. Managers/supervisors are not held accountable for managing their departments effec- tively. For example, employees complained that favoritism exists and that the work- loads are not distributed fairly. 7. Employees fear retaliation if they speak up or go over the heads of their supervisors to report abuses. 8. The district has experienced a high level of management and administrative turnover. 9. Direction to employees changes frequently and performance expectations are incon- sistent. 10. Employees seek answers from former supervisors who are currently in new positions. 11. Certain managers are not functioning within their job descriptions. 12. The Interim Director of Fiscal Services is making positive changes, but a full-time director is vital to the recovery of the district. Financial Management 103 Recommendations and Improvement Plan 1. The recruitment of management and supervisory employees, especially a new Director of Fiscal Services, should be a high priority of the district. 2. Filling management vacancies with highly qualifi ed employees is imperative to ensure compliance with internal controls and good business practices. 3. The district should provide management training for supervisors and managers, in- cluding training on the evaluation and discipline of employees. 4. Supervisors and managers should be held accountable for properly managing their departments and should be evaluated regularly by administration. 5. Employees should be informed as to whom they report, and performance expectations should be clearly explained. 6. Job descriptions should be updated as needed and employees assigned duties within their job descriptions. 7. Employees should have a means to report irregularities. Favoritism must be stopped. 8. Management should fi nd ways to rebuild trust, encourage teamwork and improve em- ployee morale. 9. Managers and supervisors should work within the scope of their authority. 10. When a manager changes from one position to another, he/she should be discouraged from participating in activities or answering questions that relate to the former assign- ment. Standard Implemented: Partially November 1, 2004 Rating: 1 Implementation Scale: 104 Financial Management 12.6 Accounting, Purchasing, and Warehousing Professional Standard Federal and state categorical programs, either through specifi c program requirements or through general cost principles such as OMB Circular A-87, require that entities receiving such funds must have an adequate system to account for those revenues and related expenditures. Sources and Documentation 1. Board policies and administrative regulations 2. Prior year independent audit reports 3. Interviews with district offi ce and school site employees 4. Evaluation of work procedures Findings 1. No one is assigned to oversee the accounting responsibilities for state and federal cat- egorical programs. 2. Grants are solicited by various people within the district. The budgets and applications are not reviewed or approved by the business offi ce to ensure the inclusion of indirect and/or administrative costs. 3. The district may be out of compliance with grant requirements. 4. Grant reports are not reviewed or approved by the accounting department. There are no procedures in place to ensure the accurate and timely fi ling of state and federal categorical reports. 5. Coordination between the categorical program managers and the accounting depart- ment is lax. 6. Restricted contributions to categorical programs may be excessive due to poor ac- counting and budget oversight. Recommendations and Improvement Plan 1. A qualifi ed accountant and/or manager should be assigned to exclusively oversee the accounting responsibilities for state and federal categorical programs. 2. The director of fi scal services or designee should approve all grant applications to ensure the inclusion of indirect and/or administrative costs. 3. The business offi ce and program directors should work together to ensure compliance with all grant requirements. 4. A schedule of due dates for fi ling categorical grant reports should be developed and one person assigned the responsibility to make sure deadlines are met. Financial Management 105 5. Proper oversight of budget and accounting for categorical programs will prevent ex- cessive encroachment of unrestricted general fund resources. Standard Implemented: Partially November 1, 2004 Rating: 1 Implementation Scale: 106 Financial Management 12.7 Accounting, Purchasing, and Warehousing Professional Standard Generally accepted accounting practices dictate that, in order to ensure accurate recording of transactions, the district have standard procedures for closing its books at fi scal year-end. The district’s year-end closing procedures should comply with the procedures and requirements es- tablished by the county offi ce of education. Sources and Documentation 1. Board policies and administrative regulations 2. Prior year independent audit reports 3. Interviews with district offi ce and school site employees 4. Evaluation of work procedures Findings 1. Year end closing procedures were inadequate or non-existent prior to the appointment of the interim director of fi scal services. 2. The 2003-04 fi nancial records were not closed as of 9-15-04, largely due to issues with the new county offi ce CECC fi nancial system and reconciling cash. 3. All open items were identifi ed by the Interim Director of Fiscal Services, who is man- aging the 2003-04 year end closing because the position has been vacant for a consid- erable amount of time. 4. A high level of management turnover has created a leadership void in the business of- fi ce. 5. The county offi ce year end procedures and internal controls are strong. The district should always follow county guidelines. 6. The district should develop written year end procedures for all positions. 7. Employees should be trained to follow county and district year end procedures. Recommendations and Improvement Plan 1. Written year end closing procedures should be developed for each position in the busi- ness offi ce. 2. The district should work closely with the county offi ce to solve the year end closing problems pertaining to implementation of the new computer system. 3. The 2003-04 fi nancial records should be closed, with all reconciliations completed prior to closing. 4. Employees should be trained to follow county and district year end procedures. Financial Management 107 5. Recruitment for a highly qualifi ed Director of Fiscal Services should begin immedi- ately. 6. The district should develop written yearend procedures for all positions. Standard Implemented: Partially November 1, 2004 Rating: 1 Implementation Scale: 108 Financial Management 12.8 Accounting, Purchasing, and Warehousing Professional Standard The district complies with the bidding requirements of Public Contract Code section 20111. Standard accounting practice dictates that the district have adequate purchasing and warehousing procedures to ensure that only properly authorized purchases are made, that authorized purchases are made consistent with district policies and management direction, that inventories are safe- guarded, and that purchases and inventories are timely and accurately recorded. Sources and Documentation 1. Board policies and administrative regulations 2. Prior year independent audit reports 3. Interviews with district offi ce and school site employees 4. Purchasing, Reproduction and Risk Management Services Procedures Manual 5. Evaluation of work procedures Findings 1. District policies pertaining to purchasing are outdated. 2. It is unclear whether all staff understand the district procedures for bidding and ob- taining price quotes. 3. Principals submit purchase orders requesting a specifi c vendor. 4. Better prices may be available by combining orders or preparing annual bids and/or price quotes for regularly purchased items. 5. The warehouse is used mainly for food distribution. 6. No one was able to state how many non-food items are carried in the warehouse. 7. No specifi c delivery schedule exists. Warehouse deliveries are made daily as schools request items. 8. Going to a just-in-time purchasing system may reduce costs. 9. The county offi ce CECC stores module is not working properly. 10. Employees are frustrated with the system. 11. Job descriptions may be outdated for warehouse employees. Duties have changed over time. 12. There appears to be excessive dissension among the employees within the purchasing/ warehouse departments. Financial Management 109 13. Supervision of the warehouse is weak, therefore productivity may be lower than ex- pected for a staff this size. 14. The new purchasing procedure manual is good, but most school sites stated that they do not have copies readily available. User training has not taken place. Recommendations and Improvement Plan 1. District policies should be updated to refl ect new laws and regulations. 2. Staff within the purchasing department should continue training to use the county of- fi ce CECC system effi ciently. 3. Procedures for bidding and soliciting price quotes should be established and followed at all times. 4. Procedures should be implemented and followed to discourage principals and other managers from requesting specifi c vendors. Buyers should seek the best prices and quality only from vendors on the authorized vendor list. 5. Buyers should look for better prices by combining orders or preparing annual bids and/or price quotes for regularly purchased items. 6. The warehouse operations should be carefully analyzed to determine if food should be separated from general merchandise. 7. Items stocked in the warehouse should be limited to products widely used by all sites. 8. Obsolete and/or slow-moving items should be discontinued. 9. Research into a just-in-time purchasing system should be evaluated for non-food items to determine if overall costs may be reduced. 10. Job descriptions for purchasing and warehouse positions should be updated to ensure that all employees are performing duties within their job descriptions. 11. Communication and team-building within the department should be improved to make sure that employees know the expectations of management and work together more effectively. 12. Closer supervision of the warehouse is needed to increase productivity and ease ten- sions among the employees in the department. 13. Training should be scheduled to inform sites and departments about the new purchas- ing procedure manual. Most sites state they have not received or used the manual. 110 Financial Management Standard Implemented: Partially November 1, 2004 Rating: 2 Implementation Scale: Financial Management 111 12.9 Accounting, Purchasing, and Warehousing Professional Standard The district has documented procedures for the receipt, expenditure, and monitoring of all con- struction-related activities. Included in the procedures are specifi c requirements for the approval and payment of all construction-related expenditures. Sources and Documentation 1. Board policies and administrative regulations 2. Prior year independent audit reports 3. Interviews with district offi ce and school site employees 4. Evaluation of work procedures Findings 1. Written policies should be updated to refl ect all current laws and restrictions. 2. Work procedures should be reviewed to make sure that written policies are being fol- lowed. 3. The facility accounting records appear to be in good order but have not been reviewed recently by upper management. 4. The department has two accounting/budget employees that may not be fully utilized. 5. The majority of the accounting paperwork is performed by the business offi ce. 6. There is no process in place to perform internal audits of the facilities department. 7. The facilities budgets are well monitored and cost overruns are low. 8. Proper bidding procedures appear to be followed. Recommendations and Improvement Plan 1. Update board policies and document procedures for the receipt, expenditure and monitoring of construction-related activities. 2. Prepare written desk procedures for job functions. 3. Schedule regular internal audits or reviews of facilities operations, including bidding procedures. 4. Review the job descriptions of the two accounting/budget employees in the facilities department to maximize effi ciency and properly delegate the workload to the appro- priate employees. 5. Continue to monitor the facilities budgets. 112 Financial Management Standard Implemented: Partially November 1, 2004 Rating: 3 Implementation Scale: Financial Management 113 12.10 Accounting, Purchasing, and Warehousing Professional Standard The accounting system has an appropriate level of controls to prevent and detect errors and ir- regularities. Sources and Documentation 1. Board policies and administrative regulations 2. Prior year independent audit reports 3. Interviews with district offi ce and school site employees 4. Evaluation of work procedures Findings 1. Board policies do not properly address the misuse of funds and fraud prevention. 2. Internal accounting controls and separation of duties within the accounting department are weak. 3. The controls that are in place are not always followed or enforced. 4. Not all employees have been adequately trained to follow Generally Accepted Ac- counting Principles (GAAP). 5. Supervision of the accounting/payroll staff is lax. 6. There is no process in place for employees to report wrongdoing. 7. The new County Offi ce CECC data processing system has many enhanced account- ing controls in place. Employees expressed concern that they have not received proper training to use the new county computer system effectively. 8. New administrators are making improvements in the overall internal accounting con- trol process. Recommendations and Improvement Plan 1. Board policies should be developed and/or revised to properly address the misuse of funds and fraud prevention. 2. A reliable system should be devised to encourage employees to report misdeeds. 3. Internal controls for all accounting and payroll procedures should be strengthened. 4. The district should properly supervise and evaluate accounting and payroll employees. 5. The new county data processing accounting system should continue to be used. 114 Financial Management 6. Adequate training should be provided so that employees know, understand, and follow Generally Accepted Accounting Principles (GAAP) and operate the county CECC system properly. Standard Implemented: Partially November 1, 2004 Rating: 2 Implementation Scale: Financial Management 115 12.11 Accounting, Purchasing, and Warehousing Professional Standard The district has implemented the new Standardized Account Code Structure (SACS). SACS ensures the district is in compliance with federal guidelines, which will ensure no loss of federal funds, E.G., Title 1 federal class size reduction. Sources and Documentation 1. Board policies and administrative regulations 2. Prior year independent audit reports 3. Interviews with district offi ce and school site employees 4. Evaluation of work procedures Findings 1. School site and other employees in the district expressed a desire to learn more about the Standardized Account Code Structure (SACS). 2. The county offi ce CECC data processing system includes full implementation of the SACS. 3. The district uses the county offi ce CECC system to process all accounting and payroll activities. 4. Employees in the business division are trained and use SACS in their daily work ac- tivities. Recommendations and Improvement Plan 1. Training should be provided for all district staff members working with budgets to learn more about SACS. 2. Business offi ce employees should continue to be trained to properly use the county offi ce CECC computer system. Standard Implemented: Partially November 1, 2004 Rating: 5 Implementation Scale: 116 Financial Management 13.1 Student Body Funds Professional Standard The Governing Board adopts policies and procedures to ensure compliance regarding how student body organizations deposit, invest, spend, raise, and audit student body funds. [EC 48930-48938] Sources and Documentation 1. Board policies and administrative regulations 2. Interviews with district offi ce and school site employees 3. Prior years’ independent audit reports Findings 1. The audit report dated June 30, 2003 and prior year audit reports included fi ndings re- lated to student body accounting. Board policies and administrative regulations should provide direction about proper school site administrative oversight and how student body accounting functions are to be managed. 2. Board policies and administrative regulations on student body funds exist but should be updated. Adequate and consistent procedures for school site personnel to follow should be included in administrative regulations. 3. Not all school site personnel are aware of or have been trained to understand board policies or administrative regulations pertaining to ASB activities. 4. Copies of board policies and administrative regulations have not been provided to all employees working with student funds. Recommendations and Improvement Plan 1. The board policies and administrative regulations related to student body organiza- tions should be approved and updated regularly to refl ect proper business procedures, internal controls, generally accepted accounting principles, and the latest requirements from the state. 2. Current board policies and administrative regulations should be provided to all school site personnel working with student body funds. 3. Employees working with student body funds should be properly trained as to board policies and expected to follow proper procedures and policies at all times. Standard Implemented: Partially November 1, 2004 Rating: 4 Implementation Scale: Financial Management 117 13.2 Student Body Funds Legal Standard Proper supervision of all student body funds is provided by the board. [EC 48937] This includes establishing responsibilities for managing and overseeing the activities and funds of student or- ganizations, including providing procedures for the proper handling, recording, and reporting of revenues and expenditures. Sources and Documentation 1. Board policies and administrative regulations 2. Prior year independent audit reports 3. Interviews with district offi ce and school site employees 4. Evaluation of work procedures 5. VCUSD Associated Student Body Policies and Procedures Manual Findings 1. The district has a delegated person in the accounting department to work with school site personnel and process deposits and disbursements for elementary and middle school ASBs. Another designated district offi ce person reconciles bank statements. 2. Separating the cash collection, disbursement, and bank reconciliation functions by having designated district offi ce staff preparing vendor payments and reconciling bank statements is a good internal control. 3. Not all employees are familiar with Generally Accepted Accounting Practices regard- ing the handling of cash. 4. Procedural training for site ASB administrators and clerical staff has not occurred regularly. 5. The VCUSD Associated Student Body Policies and Procedures Manual was recently developed but is not readily used by all school sites. 6. Procedures and controls over cash collections at various school sites are not consis- tent, especially at the elementary schools. 7. High staff turnover has resulted in untrained staff overseeing student funds at selected school sites. 8. At some sites, cash other than ASB funds is collected by the designated ASB clerk. Recommendations and Improvement Plan 1. All employees handling ASB funds should be properly trained, including principals. 2. The VCUSD Associated Student Body Policies and Procedures Manual should be distributed to school sites, and employees trained to use the procedures as outlined in the manual. 118 Financial Management 3. Generally Accepted Accounting Practices and proper cash collection controls should be developed and implemented immediately to ensure that all cash collection proce- dures are consistently followed by students and/or advisors and that the cash is sub- mitted to the ASB bookkeeper in a timely manner. 4. Employees must be held accountable for following proper procedures. Annual em- ployee evaluations should include this requirement. 5. At the secondary level, the principal should assign one specifi c administrator to oversee all ASB activities. This administrator should be given the authority to require various club and activity advisors to follow proper procedures. 6. School administrators should be familiar with proper ASB procedures and supervise both certifi cated advisors and classifi ed staff appropriately. 7. No funds other than ASB funds should be processed through the ASB offi ce. Standard Implemented: Partially November 1, 2004 Rating: 4 Implementation Scale: Financial Management 119 13.3 Student Body Funds Professional Standard The district provides training and guidance to site personnel on the policies and procedures gov- erning the Associated Student Body account. Sources and Documentation 1. Board policies and administrative regulations 2. Interviews with district offi ce and school site employees 3. Evaluation of work procedures 4. VCUSD Associated Student Body Policies and Procedures Manual Findings 1. Most school site personnel have attended CASBO or other ASB training workshops. 2. Board policies and administrative regulations have not been provided or discussed with school site personnel. 3. The VCUSD Associated Student Body Policies and Procedures Manual was available at some sites. Other sites have either not received or been advised that the manual is available. 4. The district has a delegated person in the accounting department to train school site personnel and answer questions. 5. No annual in-service trainings to review procedures are conducted for classifi ed staff at school sites. 6. High staff turnover has resulted in untrained staff overseeing student funds at some school sites. Recommendations and Improvement Plan 1. All employees handling ASB funds should be properly trained, including principals. 2. The district should provide annual training regarding ASB accounting procedures. This training should be mandatory for all certifi cated and classifi ed employees collect- ing or working with student funds. 3. All employees involved with student activities should have access to and be familiar with the VCUSD Associated Student Body Policies and Procedures Manual, including coaches and club advisors. 4. Employees must be held accountable for following proper procedures. Annual em- ployee evaluations should include this requirement. 120 Financial Management 5. School administrators should be familiar with proper ASB procedures and supervise both certifi cated advisors and classifi ed staff appropriately. Standard Implemented: Partially November 1, 2004 Rating: 4 Implementation Scale: Financial Management 121 13.4 Student Body Funds Professional Standard In order to provide adequate oversight of student funds and to ensure proper handling and re- porting, the California Department of Education recommends that periodic fi nancial reports be prepared by sites, and then summarized by the district offi ce. Sources and Documentation 1. Board policies and administrative regulations 2. Interviews with district offi ce and school site employees 3. Evaluation of work procedures 4. VCUSD Associated Student Body Policies and Procedures Manual Findings 1. Periodic fi nancial reports are not regularly prepared and are not required to be submit- ted to the district offi ce. 2. Financial statements are not reviewed by district offi ce accounting administration. 3. Financial reports are not presented to the Governing Board. 4. Monthly reconciliation reports for elementary and middle schools are prepared by the designated district offi ce accounting employee and sent to sites, but accuracy is not always followed up or confi rmed with the district. 5. High schools prepare their own fi nancial statements, but they are not submitted or reviewed by the district. 6. The format of fi nancial reports is not consistent from site to site. Recommendations and Improvement Plan 1. Preparation of periodic fi nancial reports should be required for all sites. 2. Periodic fi nancial reports should be reviewed by district accounting administration. 3. Financial reports should be included in board agendas at least quarterly. 4. Standardized report formats should be developed and used by all sites. Standard Implemented: Partially November 1, 2004 Rating: 2 Implementation Scale: 122 Financial Management 13.5 Student Body Funds Professional Standard In order to provide adequate oversight of student funds and to ensure proper handling and report- ing, the California Department of Education recommends that internal audits be performed. Such audits should review the operation of student body funds at both district and site levels. Sources and Documentation 1. Interviews with district offi ce and school site employees 2. Evaluation of work procedures Findings 1. Internal audits of student body funds at school sites have not been performed. 2. The separation of ASB duties performed by the designated district offi ce personnel for elementary and middle schools provides some internal control and internal oversight. 3. High school ASBs are the largest district programs but have no internal audit or over- sight functions conducted by the district. 4. The district has an internal auditor position, but that employee is not currently acting in that capacity. Recommendations and Improvement Plan 1. Assign the ASB internal auditor the task of overseeing the internal audit function for all student body funds, especially at each of the high schools. 2. District offi ce ASB operations should also undergo internal audits. Someone other than the employee currently serving as the ASB accounting clerk and the employee reconciling bank statements should be assigned to this task. Standard Implemented: Partially November 1, 2004 Rating: 2 Implementation Scale: Financial Management 123 14.1 Multi-Year Financial Projections Professional Standard A reliable computer program that provides reliable multiyear fi nancial projections is used. Sources and Documentation 1. Review and analysis of available multi year projections 2. Interviews with staff Findings 1. The available multiyear projections that were done in the past utilized the School Ser- vices of California, Inc. (SSC) software. The format was collapsed and did not contain specifi c data by resource or other detailed level. The information was broken out by restricted and unrestricted, without additional assumptions or information to explain the data. A narrative to go with the projection was not found to explain the multiple assumptions and estimations used in development. 2. In the past, the Assistant Superintendent of Business is the one who has prepared the multiyear projections, with no higher review prior to being brought to the board for approval. Recommendations and Improvement Plan 1. The district can produce MYPs in a number of ways. Whatever software is chosen, more detail will need to be added so that individual resources can be reviewed. If the district continues to use the SSC software, the information can be shown in detail for all restricted programs. 2. A narrative should accompany the multiyear projection explaining the projection vari- ables used in the analysis and any other relevant information. 3. More than one district employee needs to understand the district’s projection software. There should be a review by another administrator to validate the data, and who would also be available to prepare the multiyear projection if necessary. Standard Implemented: Not Implemented November 1, 2004 Rating: 0 Implementation Scale: 124 Financial Management 14.2 Multiyear Financial Projections Legal Standard The district annually provides a multiyear revenue and expenditure projection for all funds of the district. Projected fund balance reserves are disclosed. The assumptions for revenues and expen- ditures should be reasonable and supportable (EC 42131). Sources and Documentation 1. Review and analysis of available multiyear projections Findings 1. Multiyear projections were found for the district’s general fund only at the time of interim reports. The available multiyear projections were delivered using School Ser- vices of California, Inc. software without refl ecting the information by resource. 2. The multiyear projections have been limited to the general fund. 3. The projections do not include information on what funds are one-time, what funding streams only exist for a certain number of years and any other information that the board may need to make correct spending decisions based on the length of the specifi c funding. 4. Projections have not been made available at budget adoption. Recommendations and Improvement Plan 1. Multiyear projections for the general fund should be made available to the Governing Board at the time of budget adoption, at each interim report, during collective bargain- ing and after bargaining concludes. 2. Projections should also be made for funds other than the general fund at least annually at budget adoption. 3. Projected fund balance reserves should be fully disclosed when the projection is pre- sented, along with all reasonable and supportable revenue and expenditures assump- tions used. 4. Additional information should be included in the projection software or in the narra- tive explaining what funding sources are ongoing, which ones are one-time and which ones are available only within specifi c time parameters. 5. If possible, multiyear projections should be made available for public and board review prior to board meetings where they will be introduced so that the public and board can ask questions and request additional data. Financial Management 125 Standard Implemented: Not Implemented November 1, 2004 Rating: 0 Implementation Scale: 126 Financial Management 14.3 Multiyear Financial Projections Legal Standard Multiyear fi nancial projections are prepared for use in the decision-making process, especially whenever a signifi cant multiyear expenditure commitment is contemplated. [EC 42142] Sources and Documentation 1. Review and analysis of available multiyear projections 2. Interviews with staff 3. Review of board minutes and agendas Findings 1. The available multiyear projections were done utilizing School Services of Califor- nia’s software at the time of interim reports without resource detail. 2. While potential salary and benefi ts costs are identifi ed in the projections, the informa- tion has not been used when developing negotiation positions or making decisions on other signifi cant issues. 3. It appears that cursory attention has been given to the projections in the district offi ce and that projections have been considered a county offi ce requirement rather than a tool for making important fi nancial decisions. Recommendations and Improvement Plan 1. The district should continue to develop and use reliable multiyear projections to help administrative staff make sound fi scal decisions. 2. Additional data and information needs to be included in the projections so that ad- ministration can bring fi scally accountable recommendations to the board that will not have long-term unhealthy effects. 3. Multiyear projections should be used when considering negotiated agreements or any other large expenditures to show the long-term effect on the district. Without this type of analysis, the board may not realize how such expenditures will limit the decisions they can make in the future. Standard Implemented: Not Implemented November 1, 2004 Rating: 0 Implementation Scale: Financial Management 127 15.1 Long -Term Debt Obligations Legal Standard The district complies with public disclosure laws of fi scal obligations related to health and wel- fare benefi ts for retirees, self-insured workers compensation, and collective bargaining agree- ments. [GC 3540.2, 3547.5, EC 42142] Sources and Documentation 1. Interview with Interim Director of Fiscal Services 2. Independent Audit Report for 2002-03 3. Interview with Risk Manager 4. Review of Board Agenda 5. Review of Actuarial Report by Bay Actuarial Consultants 6. AB 1200 Submittal dated 05-19-2004 Findings 1. The district’s collective bargaining agreements have not been disclosed properly at regular Governing Board meetings in accordance with AB 1200 (Statutes of 1991, Chapter 1213) and Government Code section 3547.5. The documents fi led meet the reporting standards required for the documentation format only. However, the content lacks detailed information regarding the impact to the current operating budget, total cost including statutory benefi ts, and the impact on a multiyear basis. The proper pro- cess for the public hearing was not followed. On June 15, 2004, the board rescinded the approval of the CSEA agreement because of the district’s failure to properly hold the required public hearing for AB 1200 disclosure requirements. Government Code Section 3540.2 provides additional oversight requirements related to the collective bargaining process. Any district with a qualifi ed or negative certifi ca- tion under Education Code Section 42131 shall allow the county offi ce of education at least 10 working days to review and comment on any proposed collective bargaining agreement prior to ratifi cation. In the 2002-03 fi scal year, the district paid out over $1.8 million dollars in contractually obligated salary increases equating to 1.84 % for all employees without proper notifi cation to the COE. 2. The district initiated its self-insurance program for workers’ compensation losses on April 1, 2003. The district self-insures its workers’ compensation claims up to a limit of $500,000 per loss. The revised budget prepared by School Services of California projects a negative fund balance of $1,780,543 for the 2003-04 fi scal year. 3. Projections for 2004-05 workers’ compensation claims are expected to increase 7.5% over the prior fi scal year. 4. The average cost of each workers’ compensation claim is approximately 17% below the statewide average. The district attributes this fi gure to the “Return to Work Pro- gram” that accommodates job duties relevant to the employee’s sustained injury and accelerates their return to work. 128 Financial Management 5. The district’s liability for unpaid losses will be $4,301,000 on June 30, 2004 on an undiscounted basis and $3,560,000 discounted at 3% interest. 6. The district’s actuarial report for workers’ compensation claims was disclosed at the regular board meeting on July 7th, 2004 as required every three years in accordance with Education Code Section 42141. 7. The district offers health and welfare retiree benefi ts for all qualifi ed employees through the 2004-05 fi scal year in accordance with agreements with the Vallejo Edu- cation Association and CSEA members. In the 2001-02 fi scal year, the district imple- mented a 1% payroll surcharge to fund this requirement. Actuarial data at that time reported the “pay as you go” requirement to be $748,000 annually for twenty years. In the 2002-03 audit report, the district reported a defi cit of $15,825,948 to fund the fu- ture cost of post employment retiree benefi ts. The last actuarial study of retiree health benefi ts was performed as of June 30, 2002. Recommendations and Improvement Plan 1. The district is not in compliance with the reporting requirements under AB 1200 regarding the disclosure of the terms of collective bargaining agreements. The district needs to adhere to the public disclosure process that includes a public hearing for all collective bargaining agreements. In addition, the document submittal should be completed in detail and make the appropriate calculations that demonstrate the budget impact to the current and two subsequent fi scal years. 2. Due to the current personnel changes in the area of risk management, and the potential fi scal impact of the district’s self-insured program for workers’ compensation claims, the district should request and report annual actuarial information to the Offi ce of the State Administrator. 3. The district should request proposals to perform an actuarial study regarding health and welfare benefi ts for qualifi ed retirees exceeding the age of 65 years. In accordance with Education Code Section 42140, the district should report annually the estimated accrued but unfunded cost of retiree benefi ts at a public meeting. Standard Implemented: Partially November 1, 2004 Rating: 3 Implementation Scale: Financial Management 129 15.2 Long-Term Debt Obligations Professional Standard When authorized, the district uses only non-voter approved, long-term fi nancing such as certifi - cates of participation (COPS), revenue bonds, and lease-purchase agreements (capital leases) to address capital needs, and not operations (Unrestricted General Fund). Further, the general fund is used to fi nance current school operations, and in general is not used to pay for these types of long-term commitments. Sources and Documentation 1. Discussion with Business Offi ce staff 2. Discussion with Director of Student Housing 3. District’s independent audit report for 2002-03 4. 2004-05 Adoption Budget 5. 2003-04 Adoption Budget 6. 2001-02 Independent Audit Report 7. February 18 report prepared by School Services of California Findings 1. The district’s 2002-03 independent audit performed by Goodell, Porter &Fredericks reports a negative unrestricted ending fund balance of $2.3 million. The report further demonstrates that the district is unable to meet the recommended 3% reserve level for economic uncertainties. 2. The audit report further identifi es an outstanding loan derived from Tax and Revenue Anticipation Notes (Short Term) in the district’s general ledger account in the amount of $16 million. The auditor states it is unlikely that the district will be able to make timely payments on this loan. 3. On June 1, 2003, the district issued Certifi cates of Participation (COPS) in the amount of $25,425,000 to refund previously issued COPS, and variable rate real property leases. The payments for this refunding are from multiple sources including the Gen- eral Fund. The General Fund and Self Insurance Fund are both obligated to make debt service payments in the amounts of $500,000 and $150,000 over a seven-year period. 4. The district’s 2003-04 budget stated the district’s long term debt at $145,843,689. Due to the number of potential restatements and adjustments for reclassifi cation, dollar amounts presented by the district may not accurately represent or refl ect the district’s total long term debt. Recommendations and Improvement Plan 1. The district will need to devise a fi nancial recovery plan that includes relieving the general fund from debt service payments. 2. The district needs to report and record all long-term debt of each governmental fund in the long-term debt account group. 130 Financial Management 3. The district should develop a comprehensive debt service plan that includes COPS, capital leases and other debt by fund and demonstrates the necessary debt payment structure for cash fl ow purposes to assist in the recovery plan. 4. The district must adhere to Education Code Section 42133(a), which states that any district with a qualifi ed or negative budget certifi cation in any fi scal year or the next succeeding fi scal year may not issue Certifi cates of Participation, Tax and Revenue Anticipation Notes, Revenue Bonds or any other debt instruments that do not require approval by the voters of the district. Standard Implemented: Partially November 1, 2004 Rating: 2 Implementation Scale: Financial Management 131 15.3 Long-Term Debt Obligations Professional Standard For long-term liabilities/debt service, the district prepares debt service schedules and identifi es the dedicated funding sources to make those debt service payments. The district projects cash receipts from the dedicated revenue sources to ensure that it will have suffi cient funds to make periodic debt payments. The cash fl ow projections are monitored on an ongoing basis to ensure that any variances from projected cash fl ows are identifi ed as early as possible to allow the dis- trict suffi cient time to take appropriate measures or identify alternative funding sources. Sources and Documentation 1. District’s Independent Audit Report for 2002-03 2. Discussion with Business Offi ce staff 3. 2003-04 budget 4. Schedule of long-term debt Findings 1. No cash fl ow statement has been developed to account for the debt service payments related to the district’s long term debt. Cash fl ow for budgeting purposes to comply with the interim reporting process was inaccurate and misrepresented the cash position of the district for 2002-03 and the fi rst interim report for 2003-04. 2. The district’s 2002-03 audit did not disclose the details for bonds payable and the required disclosure for refunded and defeased debt. The audit report presents the 2003 Refunding Certifi cates of Participation in a brief statement and discloses only that the COPS will be utilized to defease the 1999 COPS and other leases of the district. 3. The general obligation bonds, community facilities district bonds and certifi cates of participation represent approximately 90% of the district’s long-term debt prior to the issuance of a loan of $60 million by the state in the 2004-05 fi scal year. 4. The district’s 2002-03 unaudited actuals were overstated by approximately $5 million, negating any accuracy in the cash fl ow statements prepared by the district. 5. The district’s cash fl ow projection in December of 2003 demonstrated that the general fund would have a projected shortfall of $2.2 million by February of 2004 and would need to borrow from other funds in accordance with Education Code Section 42603. These temporary loans are in addition to the largest Tax and Revenue Anticipation Note issued in the history of the district in the amount of $16 million. The district’s cash fl ow debacle is evident by the use of one temporary loan to repay the previous loan. Recommendations and Improvement Plan 1. Cash fl ow statements should be prepared for all funds and specifi cally identify long term debt payments within the projection. 132 Financial Management 2. Cash fl ow statements should be prepared and monitored monthly to ensure that the projected cash fl ow statements accurately refl ect the district’s budget for revenues and expenditures for all reportable funds. 3. All cash in the County Treasury should be reconciled on a monthly basis for all funds. Standard Implemented: Partially November 1, 2004 Rating: 2 Implementation Scale: Financial Management 133 15.4 Long-Term Debt Obligations Professional Standard The district has developed and uses a fi nancial plan to ensure that ongoing unfunded liabilities from employee benefi ts are recognized as a liability of the school district. A plan has been estab- lished for funding retiree health benefi t costs as the obligations are incurred. Sources and Documentation 1. District’s Independent Audit Report for 2002-03 2. Discussion with Business Offi ce staff 3. 2003-04 budget 4. Schedule of long-term debt 5. 2004-05 budget Findings 1. The district offers retiree benefi ts for health & welfare benefi ts for all qualifi ed em- ployees in accordance with agreements for the Vallejo Education Association and CSEA members. In the 2001-02 fi scal year, the district implemented a 1% payroll surcharge to fund this requirement. Actuarial data at that time reported the “pay as you go” requirement to be $748,000 annually for 20 years. In the 2002-03 audit report, the district reported a defi cit of $15,825,948 to fund the future cost of post employment retiree benefi ts. 2. No formal written plan or accurate documentation existed for funding retiree health benefi t costs. FCMAT was unable to ascertain present value data that would validate the current cost of retiree benefi ts stated in Fund 71 of the 2003-04 or 2004-05 budget documents. 3. Certifi cated employees who retire with at least 15 years of service qualify for fully paid health and welfare benefi ts for a period not to exceed fi ve years or age 67. 4. Classifi ed employees who retire with at least 15 years of service qualify for fully paid health and welfare benefi ts for a period not to exceed fi ve years. Recommendations and Improvement Plan 1. In accordance with Education Code Section 42140, the district is required to present annually the accrued but unfunded cost of health and welfare benefi ts for retired em- ployees over the age of 65. 2. Due to the recent fi scal takeover by the State of California and potential fi scal impact of this issue, the district should contract for an annual actuarial report to evaluate the present and future costs. 3. The district should disclose annually as a separate agenda item whether or not the district will reserve suffi cient funds in its budget to pay for the present value or “pay as you go” cost of retiree benefi ts. 134 Financial Management 4. The district should develop a database or spreadsheet application of retired and ac- tive employees to assist in the calculation of present and future costs of retiree health benefi t costs. 5. The district should conduct a comprehensive re-enrollment process for all active em- ployees and retirees that receive health and welfare benefi ts. Standard Implemented: Partially November 1, 2004 Rating: 1 Implementation Scale: Financial Management 135 16.1 Impact of Collective Bargaining Professional Standard The district has developed parameters and guidelines for collective bargaining that ensure that the collective bargaining agreement is not an impediment to effi ciency of district operations. At least annually, collective bargaining agreements are analyzed by management to identify those characteristics that are impediments to effective delivery of district operations. The district iden- tifi es those issues for consideration by the Governing Board. The Governing Board, in the devel- opment of its guidelines for collective bargaining, considers the impact on district operations of current collective bargaining language and proposes amendments to district language as appro- priate to ensure effective and effi cient district delivery. Governing Board parameters are provided in a confi dential environment, refl ective of the obligations of a closed executive board session. Sources and Documentation 1. Interview with Interim Director of Fiscal Services 2. Interview with Interim Assistant Superintendent of Personnel 3. VEA and CSEA contracts 4. AB 1200 disclosure for collective bargaining agreements Findings 1. The district has not developed parameters and guidelines for collective bargaining that ensure that the collective bargaining agreements are not an impediment to the fi nan- cial solvency of the district. In order to provide effective guidelines, the district must improve the fi nancial reporting that will accurately refl ect the budget projections for revenues and expenditures of the district. 2. Approximately 90% of the district’s proposed 2004-05 budget will be expended for contractually obligated salaries and benefi ts. Similar trends and ratio of expenditures for salaries and benefi ts have been followed for the 2002-03 and 2003-04 fi scal years. Recommendations and Improvement Plan 1. The district should develop a review team consisting of but not limited to the assis- tant superintendents of Business and Personnel to evaluate and recommend proposed changes to the respective collective bargaining agreements. Potential cost saving issues should be identifi ed and quantifi ed for evaluation by the Governing Board in special sessions. Any proposed modifi cations to the collective bargaining agreements should be submitted to the bargaining units for review and consideration. 2. The district will need to review the respective collective bargaining agreements and incorporate proposed modifi cations into the district’s fi nancial recovery plan. 136 Financial Management Standard Implemented: Partially November 1, 2004 Rating: 1 Implementation Scale: Financial Management 137 16.2 Impact of Collective Bargaining Professional Standard The Governing Board ensures that any guideline developed for collective bargaining is fi scally aligned with the instructional and fi scal goals on a multiyear basis. The Superintendent ensures that the district has a formal process in which collective bargaining multiyear costs are identi- fi ed for the Governing Board, and those expenditure changes are identifi ed and implemented as necessary prior to any imposition of new collective bargaining obligations. The Governing Board ensures that costs and projected district revenues and expenditures are validated on a multiyear basis so that the fi scal issues faced by the district are not worsened by bargaining settlements. The public is informed about budget reductions that will be required for a bargaining agreement prior to any contract acceptance by the Governing Board. The public is notifi ed of the provisions of the fi nal proposed bargaining settlement and is provided with an opportunity to comment. Sources and Documentation 1. Interview with Interim Director of Fiscal Services 2. Interview with Interim Assistant Superintendent of Personnel 3. VEA and CSEA contracts 4. AB 1200 Disclosure for collective bargaining agreements Findings 1. The district’s collective bargaining agreements have not been disclosed properly at regular Governing Board meetings in accordance with AB 1200 (Statutes of 1991, Chapter 1213) and Government Code Section 3547.5. The documents fi led meet the reporting standards required for the documentation format. However, the content lacks detailed information regarding the impact to the current operating budget, total cost including statutory benefi ts, and the impact on a multiyear basis. The proper process for the public hearing was not followed. On June 15, the board rescinded the approval of the CSEA agreement because of the district’s failure to properly hold the required public hearing for AB 1200 disclosure requirements. 2. In the 2002-03 fi scal year, the district provided a 1.89% salary increase to all em- ployees as required by the respective collective bargaining agreements. The district reported that with the salary compensation, the district would still maintain the recom- mended reserve requirement of 3% for economic uncertainties. The district’s 2002-03 independent audit performed by Goodell, Porter & Fredericks reported a negative unrestricted ending fund balance of $2.3 million. The report further demonstrates that the district is unable to meet the recommended 3% reserve level for economic uncer- tainties. 3. The district’s 2002-03 and 2003-04 adoption budgets lack multiyear projection work- sheets including assumptions as required by AB 1200. 4. The district’s 2004-05 October revised budget includes multiyear projection work- sheets required by AB 1200 but does not indicate any adjustment for salaries in the current or two subsequent fi scal years. 138 Financial Management 5. The 2003-04 October revised budget was understated by approximately $3.5 million for certifi cated salaries. 6. The 2003-04 adoption budget was understated by approximately $1.2 million for clas- sifi ed salaries. Recommendations and Improvement Plan 1. The position of Assistant Superintendent of Business Services or Chief Business Of- fi cial should be fi lled by someone who has demonstrated experience and knowledge of reporting and accounting practices as required in California. This employee should have additional experience with a school district experiencing fi scal insolvency and the ability to develop short and long range fi nancial recovery strategies; develop fi nancial reporting requirements that are reliable; and evaluate whether the district is operating in compliance with all applicable laws and regulations. 2. As notifi ed by the Solano County Offi ce of Education and in accordance with Govern- ment Code Section 3547.5, the district needs to properly prepare the public disclosure documents including but not limited to the costs of proposed collective bargaining agreements for the current and subsequent fi scal year and allow for the proper submit- tal and response from the COE. In accordance with AB 2756 (Daucher), the COE has 10 working days to review and comment on the district’s proposed collective bargain- ing agreement. 3. The district should prepare the annual cost of 1% for each bargaining unit including statutory benefi ts that will be included in the assumptions of the Adoption Budget. Total compensation should include the associated cost of salary, benefi ts, step and column, and cost of living increases (COLA), if any. 4. Staff should be provided technical training in the preparation of multiyear projections using software that will assist the district in demonstrating the fi scal impact to the district’s budget for the current and two subsequent fi scal years. Employees require suffi cient training to update skill sets and to ensure operations continue effi ciently. 5. Study sessions with the Governing Board regarding collective bargaining issues should be provided. Information that will assist the district in developing short and long range goals consistent with the fi scal recovery plan and instructional goals of the district should be presented. Standard Implemented: Partially November 1, 2004 Rating: 1 Implementation Scale: Financial Management 139 17.1 Management Information Systems Professional Standard Management information systems support users with information that is relevant, timely, and accurate. Needs assessments are performed to ensure that users are involved in the defi nition of needs, development of system specifi cations, and selection of appropriate systems. Additionally, district standards are imposed to ensure the maintainability, compatibility, and supportability of the various systems. The district ensures that all systems are compliant with the new Standard- ized Account Code Structure (SACS), year 2000 requirements, and are compatible with county systems with which they must interface. Sources and Documentation 1. Staff interviews Findings 1. The technology department recently has gone through changes in leadership. The current instability of the department is further complicated by an abrupt change of the district to a new student information system. 2. There is little evidence that needs assessments are being performed or that school sites are involved in technology decisions. 3. Current systems such as network infrastructure, server operating systems and applica- tions seems to be compliant with current standards. This is also true with regard to the business fi nancial and student information systems. Recommendations and Improvement Plan 1. The district should document the organizational structure of the department and assess all positions. Changes in leadership and positions should refl ect the needs of the new student information system implementation as well as maintain other functions of the department. The district should look for ways to build stability within the department. 2. The needs of all school sites and departments should be assessed. The transition to the new student information system should be monitored, including help desk requests. Technicians should be required to send e-mails of 50 words or less each day to site administration describing the work completed. These e-mails should be copied to the department leadership. Department leadership should assess e-mails to help set depart- mental priorities. 3. The network structure should be documented. Physical and logical layout and trans- port control protocol and Internet protocol (TCP/IP) information should be included. 140 Financial Management Standard Implemented: Partially November 1, 2004 Rating: 3 Implementation Scale: Financial Management 141 17.2 Management Information Systems Professional Standard Automated systems are used to improve accuracy, timeliness, and effi ciency of fi nancial and re- porting systems. Needs assessments are performed to determine what systems are candidates for automation, whether standard hardware and software systems are available to meet the need, and whether or not the district would benefi t. Automated fi nancial systems provide accurate, timely, relevant information and conform to all accounting standards. The systems are designed to serve all of the various users inside and outside the district. Employees receive appropriate training and supervision in the operation of the systems. Appropriate internal controls are instituted and reviewed periodically. Sources and Documentation 1. Staff interviews Findings 1. The district has recently implemented a network infrastructure overhaul that included a Voice over Internet Protocol (VOIP) telephone system. 2. The fi nancial system is made by the California Educational Computer Corporation (CECC) and appears to be stable and operational. Recommendations and Improvement Plan 1. There are no recommendations at this time. Standard Implemented: Fully - Substantially November 1, 2004 Rating: 8 Implementation Scale: 142 Financial Management 17.3 Management Information Systems Professional Standard Selection of information systems technology conforms to legal procedures specifi ed in the Public Contract Code. Additionally, there is a process to ensure that needs analyses, cost/benefi t analy- ses, and fi nancing plans are in place prior to commitment of resources. The process facilitates involvement by users, as well as information services staff, to ensure that training and support needs and costs are considered in the acquisition process. Sources and Documentation 1. Staff interviews Findings 1. There was no evidence obtained that proper procedures are being followed for the procurement of equipment, software, or information systems. The recent change of the student information system did not go through an inclusive needs assessment, RFP, or bidding procedure. Recommendations and Improvement Plan 1. The procurement procedures should be revised in order to be consistent with board policy, Public Contract Code and legal compliance. Standard Implemented: Not Implemented November 1, 2004 Rating: 0 Implementation Scale: Financial Management 143 17.4 Management Information Systems Professional Standard Major technology systems are supported by implementation and training plans. The cost of implementation and training is included with other support costs in the cost/benefi t analyses and fi nancing plans supporting the acquisition of technology systems. Sources and Documentation 1. Staff interviews Findings 1. All staff interviewed stated that training is given a low priority in the district. Recommendations and Improvement Plan 1. All job descriptions in the technology department should be updated and should iden- tify critical training needs. Standard Implemented: Not Implemented November 1, 2004 Rating: 0 Implementation Scale: 144 Financial Management 17.5 Management Information Systems Professional Standard Access to administrative systems is reliable and secure. Communications pathways that connect users with administrative systems are as free of single points of failure as possible, and are highly fault tolerant. Sources and Documentation 1. Staff interviews 2. Network analysis Findings 1. An analysis of the physical and logic layout of the network showed that administrative systems are reliable and secure. 2. An external company manages most of the WAN equipment and security under a managed services contract. 3. A procedure for backing up critical operating systems and data is not unifi ed and failures have occurred. Some data is taken off site by an independent company. There may be issues that deal more with licensing than with back-up equipment. 4. There is no evidence that an Acceptable Use Policy is signed annually by all staff. Recommendations and Improvement Plan 1. The district should start the process of training Vallejo City USD technology depart- ment personnel in areas that will enable the district to manage its own networks and security. 2. A back-up policy should be created that ensures all critical operating systems and data are incrementally backed up, secured and taken off site at least once a week. A plan should be developed for testing back-up reliability at least two times a year on specifi c dates. 3. All employees should sign an Acceptable Use Policy annually. Standard Implemented: Partially November 1, 2004 Rating: 3 Implementation Scale: Financial Management 145 17.6 Management Information Systems Professional Standard Hardware and software purchases conform to existing technology standards. Standards for copi- ers, printers, fax machines, networking equipment, and all other technology assets are defi ned and enforced to increase standardization and decrease support costs. Requisitions that contain hardware or software items are forwarded to the technology department for approval prior to be- ing converted to purchase orders. Requisitions for non-standard technology items are approved by the technology department unless the user is informed that district support for non-standard items will not be available. Sources and Documentation 1. Staff interviews Findings 1. The district has standardized on a particular desktop computer and a tier one vendor for servers. 2. Technology purchases are sent to the technology department, but there were fi ndings that not all technology purchases are approved by the department. 3. The technology department is often in a defensive position as they attempt to support whatever software/hardware that is ordered by school sites. 4. There was no evidence of a centralized location for all software licenses. Recommendations and Improvement Plan 1. The technology department should work with the business department to ensure that there is a procedure for a designated employee in the technology department to obtain approval for technology purchases. 2. A plan for managing district software licensing should be developed. This plan should include a procedure for doing a self-audit once a year on a specifi ed date. 3. A policy should be developed that states who is responsible for licensing, whether licensing will be a site issue or a district issue, and where licenses will be stored. Standard Implemented: Partially November 1, 2004 Rating: 3 Implementation Scale: 146 Financial Management 17.7 Management Information Systems Professional Standard Computers are replaced on a schedule based on hardware specifi cations. Sources and Documentation 1. Staff interviews Findings 1. There is no evidence that the district has a schedule for computer replacement. Recommendations and Improvement Plan 1. The district should develop and publish to all school sites and departments a schedule for computer equipment replacement. Total Cost of Ownership (TCO), specifi cally the support cost for older equipment, should be considered. 2. A database should be kept that matches support request to the type of computer equip- ment in order to do an analysis of TCO. 3. A sample schedule might state that any Intel computer that is less than a Pentium 300 MHz or Macintosh computer that cannot run at least a 9.x operating system should be replaced fi rst. The following year the standard would be moved up to Intel Pentium 550 MHz and Macintosh OS X. 4. Monitors, printers, and peripheral equipment should be included in the schedule. Standard Implemented: Partially November 1, 2004 Rating: 2 Implementation Scale: Financial Management 147 17.8 Management Information Systems Professional Standard The following network standards, established for school districts, are being followed by the dis- trict: • A stable fi rewall is used with a separate DMZ and “inside” network. • The district follows EIA/TIA 568-B for all network cabling. • A Web content fi lter is used for all outbound Internet access. • The district uses an e-mail spam fi lter for all inbound e-mail. • Administrative and academic network traffi c is kept separate. • Switches and network hubs are installed, and the district ensures that switches support certain features. • Log-in banners are added to all network elements that will support them. • The district has transitioned from all non-TCP/IP protocols. • The district uses a virtual private network for any access to the internal network from the outside. Sources and Documentation 1. Staff interviews 2. Network analysis Findings 1. Each item in this standard has been completed through the district managed services contract and is in good working order. 2. See fi ndings for Standard 17.5. 3. Network switching equipment does not have robust password protection from physi- cal connections to equipment. 4. At each MDF/IDF location in the district there is Cisco switching equipment that is no longer in use. Recommendations and Improvement Plan 1. See also the recommendations for Standard 17.5. 2. An administrative password should be created for all switch equipment. The password should be more than eight characters, contain upper and lower case letters, a number and a shift command, such as Shift-5 for the % character. 3. All Cisco equipment should be inventoried and a plan developed to utilize equipment as a backup to the current system or auction it per the California Education Code: 148 Financial Management “The governing board may sell for cash any personal property of the district that is not required for school purposes, or if it should be disposed of for replacement, or if it is unsatisfactory or not suitable for school use.” [EC §§ 17545(a), 81450(a)] Standard Implemented: Partially November 1, 2004 Rating: 4 Implementation Scale: Financial Management 149 18.1 Maintenance and Operations Fiscal Controls Professional Standard The district has a comprehensive risk management program that monitors the various aspects of risk management including workers’ compensation, property and liability insurance, and main- tains the fi nancial well-being of the district. Sources and Documentation 1. Interview with Interim Director of Business Services 2. Interview with Risk Manager 3. Telephone interview with Community Relations and Compliance Offi cer 4. Telephone interview with Bay Actuarial Consultants 5. Board agenda item for Workers’ Compensation Findings 1. The supervision of the district’s risk management function is divided between the Risk Manager and Human Resources Department. The Risk Manager receives and fi les claims for the property and liability area and the Human Resources Department handles claims for Workers’ Compensation. 2. The district initiated its self insurance program for workers’ compensation losses on April 1, 2003.The district self insures its Workers’ Compensation claims up to a limit of $500,000 per loss. The revised budget prepared by School Services of California projects a negative fund balance of $1,780,543 for the 2003-04 fi scal year. 3. Projections for 2004-05 Workers’ Compensation claims are expected to increase 7.5% over the prior fi scal year. 4. The average cost of each Workers’ Compensation claim is approximately 17% below the statewide average. The district attributes this fi gure to the Return to Work Program that accommodates job duties relevant to the employee’s sustained injury and acceler- ates their return to work. 5. The district’s liability for unpaid Workers’ Compensation losses will be $4,301,000 on June 30, 2004 on an undiscounted basis, and $3,560,000 discounted at 3% interest. 6. The district’s actuarial report for workers’ compensation claims was disclosed at the regular board meeting on July 7, 2004, as required every three years in accordance with Education Code Section 42141. 7. The district participates in a joint powers agreement (JPA) to pool the risk for property and liability claims through the Alliance of Schools for Cooperative Insurance Pro- grams (ASCIP). The limits of liability are set at $1,000,000 net loss per occurrence. The district has excess coverage limits for property and liability of $14,000,000 net loss per occurrence through Schools Excess Liability Fund (SELF). . 150 Financial Management 8. All claims submitted for property and liability are processed through the risk manager and presented to the Governing Board for consideration. Recommendations and Improvement Plan 1. The district should perform quarterly reconciliations by the district of paid claims refl ected on the loss run reports for property and liability insurance. 2. The district’s accrued liability for Workers’ Compensation claims on an undiscounted basis was $4,301,000 as of June 30, 2004. This amount represents self-insured claims and deductibles in the self-insurance fund, including claims incurred but not reported. The district needs to review and evaluate annually the Workers’ Compensation rates charged in the payroll benefi t mapping and accounts to fund the Workers’ Compensa- tion Self-Insurance Fund. This fund is projected to have a negative balance for the 2003-04 fi scal year. 3. Due to the recent fi scal takeover by the State of California and potential fi scal im- pact of this issue, the district should contract for an annual actuarial report for Work- ers’ Compensation claims to evaluate the present and future costs and fully fund the district’s claims liability. 4. All personnel should receive technical training in the area of self-insurance, under- standing actuarial data, claims processing, subrogation recoveries, and reinsurance claims to better assist the district in this area. Standard Implemented: Partially November 1, 2004 Rating: 3 Implementation Scale: Financial Management 151 18.2 Maintenance and Operations Fiscal Controls Professional Standard The district has a work order system that tracks all maintenance requests, the worker assigned, dates of completion, labor time spent and the cost of materials. Sources and Documentation 1. Interview with Director of Facilities 2. Interview with Director of Student Housing 3. Work order system input requirements, system reports, etc.; for SPMMS 4. Work order system input requirements, system reports, etc.; for PM+4 Findings 1. Work order or maintenance requests are input and submitted to the Maintenance Department through the online network. The district operates two work order systems that track the request, assignment date, labor and materials cost, and completion date. 2. Each work order system serves the district with distinct functionality differences. The SPMMS system receives work orders online to the maintenance department. A determination is made by the supervisor whether the request is for maintenance of the existing plant or another type of request. This system only generates a work order after all the information is input and the work order is closed. 3. A secondary maintenance work order system is utilized by the district’s internal main- tenance staff to track and maintain, pumps, HVAC systems, fi lters, etc. This system is called PM+4 and comes from the hospital industry. It has the ability to generate open work orders for the purpose of planning regular plant maintenance. 4. Data entry for closing out maintenance work orders is approximately six months or 500 work orders in arrears. This is attributed to an unfi lled vacancy in the maintenance department. 5. Any work orders for health and/or safety are given priority status and assigned imme- diately for remediation. Follow-up for maintenance work orders is performed by the director for accuracy, cost and effi ciency. Due to the data input problem the district is currently experiencing, this process is backlogged and does not refl ect the normal operating procedures of the department. Recommendations and Improvement Plan 1. The district should transition to one work order system that will reduce the overall input and tracking time for the district. The PM+4 system appears to have mainte- nance tracking advantages for systems, preventative maintenance, etc., and should be reviewed for modifi cations to fulfi ll the district’s work order system needs. 152 Financial Management 2. Due to the critical importance and potential high cost maintenance, the district should implement cross training of all clerical staff on the present work order systems. Standard Implemented: Partially November 1, 2004 Rating: 3 Implementation Scale: Financial Management 153 18.3 Maintenance and Operations Fiscal Controls Professional Standard The district controls the use of facilities and charge fees for usage in accordance with district policy. Sources and Documentation 1. Interview with Director of Facilities 2. Interview with Director of Student Housing 3. Board policies and administrative regulations 4. District facility use permit 5. District facility master schedule 6. Startup procedures for the new fi scal year 7. Invoice process and accounting records Findings 1. The district utilizes Microsoft Schedule Worksheets to track and monitor facility use and the permit process. Each school processes its facilities calendar at the beginning of the fi scal year. Days are blocked out for holidays, non-student days, school events, etc., on each school calendar. 2. The appropriate fee schedules determining the type of group (nonprofi t or profi t) and direct cost or fair market rental value are present and documented. 3. The district’s board policy and administrative regulations appear to be aligned with Education Code Section 38130 regarding the use and permit of school facilities as a civic center. 4. The district’s current fee schedule for facility use permits granted under the authoriza- tion of the district’s board policy and administrative regulations does not accurately refl ect the current cost for custodial, cafeteria and other related labor classifi cations. 5. The reimbursement process to the different departments for labor related expenditures does not document the procedures to be used. Questions existed in the Cafeteria de- partment specifi cally regarding the reimbursement for labor related expenditures and how the process would transpire, either from a holding account or a budget transfer. 6. All forms were pre-numbered for identifi cation and tracking purposes and detailed the history of specifi c transactions. Recommendations and Improvement Plan 1. The district should consider adopting a new fee schedule that aligns with Board Policy 1330 and that accurately refl ects the current facility and labor costs associated with the use of the district’s facilities as a civic center. 154 Financial Management 2. The district should clarify the reimbursement process for costs associated with facility use with written procedures and documentation to all departments. Standard Implemented: Partially November 1, 2004 Rating: 6 Implementation Scale: Financial Management 155 18.4 Maintenance and Operations Fiscal Controls Professional Standard The Maintenance Department follows standard district purchasing protocols. Open purchase orders may be used if controlled by limiting the employees authorized to make the purchase and the amount. Sources and Documentation 1. Interview with former Director of Purchasing 2. Interview with Director of Facilities 3. Purchase orders 4. Open purchase orders 5. Discussion with Director of Facilities regarding signature process Findings 1. The Maintenance Department regularly uses open purchase orders for parts and materials in conjunction with work order requests or operational requirements. The department is the largest user of this purchasing method in the district and employs strict controls with all participating vendors. The Director of Facilities sets up all open purchase orders prior to the new fi scal year. The open purchase order can have up to four employees registered on the document and requires a not-to-exceed amount. 2. There are strict controls for all employees who utilize the open purchase order pro- cess to procure supplies. The vendor only allows transactions to be completed after the employee produces identifi cation of the employee listed on the purchase order. Employees are then required to submit receipts with the work order attached to verify the work to be performed. All invoices require a signed receipt and authorization to be processed. 3. A complete listing of all invoices, the date mailed to accounts payable, dollar amount, balance of open purchase order, description including work order number and invoice number are attached and on fi le with each open purchase order in the Maintenance Department. 4. All open purchase orders are submitted and approved on the consent agenda at regu- larly scheduled board meetings. Recommendations and Improvement Plan 1. The district’s board policy regarding purchasing through the use of open purchase or- ders should be updated to include maximum dollar amounts, capital equipment restric- tions, and signature authorization. 156 Financial Management Standard Implemented: Partially November 1, 2004 Rating: 6 Implementation Scale: Financial Management 157 18.5 Maintenance and Operations Fiscal Controls Professional Standard Materials and equipment/tools inventory is safeguarded from loss through appropriate physical and accounting controls. Sources and Documentation 1. Open purchase orders 2. Interview with Director of Facilities 3. Inventory records Findings 1. The district provides all power and hand tools utilized by the Maintenance Depart- ment. The department utilizes a very antiquated manual tracking system for tools be- ing assigned to various employees. 2. Materials that are purchased through the open purchase order process must identify the related work order. Materials that are in stock are identifi ed on the work order and included in the total cost. 3. The district’s equipment inventory is manually updated and is not reconciled to any districtwide inventory listing for fi xed assets. 4. The work order system provides advantages for the maintenance staff to anticipate and plan material needs for future projects. The maintenance staff can achieve fi scal sav- ings regarding purchasing of materials by procuring in advance and saving valuable time by eliminating unnecessary trips to vendors. Recommendations and Improvement Plan 1. GASB 34 requires the district to maintain complete and current fi xed asset records for accounting purposes. The district implemented fi xed accounting in the 2001-02 fi scal year but has failed to properly maintain records of additions and deletions. The proce- dures and reporting time lines for fi xed assets should be updated and distributed to all departments. 2. The maintenance department should automate its tracking and monitoring process for all power and hand tools either checked out or permanently located on district vehicles. Standard Implemented: Partially November 1, 2004 Rating: 1 Implementation Scale: 158 Financial Management 18.6 Maintenance and Operations Fiscal Controls Professional Standard District-owned vehicles are used only for district purposes. Fuel is inventoried and controlled as to use. Sources and Documentation 1. Interview with Director of Facilities 2. Budget documents Findings 1. The district supplies vehicles to the maintenance and grounds staff as necessary to complete district business. 2. Fuel is obtained for all maintenance and grounds vehicles through the transportation department yard. The district transportation department maintains fuel logs for all vehicles by department. Each department is charged for its usage. 3. The Maintenance and Grounds employees are required to fuel their own vehicles and log the appropriate vehicle identifi cation number, gallons of fuel and oil for inventory and charge back purposes. The tracking system is manual and is not followed consis- tently by the maintenance and grounds employees. 4. Specifi c fueling times are allocated for each department. This requirement is not fol- lowed by all maintenance and grounds employees. 5. The district’s vehicles are diffi cult to monitor without proper documentation due to the rollover of odometer readings for many vehicles. 6. The district’s maintenance department does not have a vehicle replacement plan to maintain the fl eet. 7. Due to the lack of accurate documentation on maintenance and grounds vehicles, the Transportation Department utilizes average costing methods based on the total number of gallons of fuel on an annual basis. 8. Bill backs to the maintenance department are in arrears due to the arduous bookkeep- ing required to track and monitor fuel consumption. 9. All other vehicles in the Transportation Department such as school buses are fueled and the proper documentation recorded by the district’s mechanics. Recommendations and Improvement Plan 1. The maintenance department should require that all employees follow the written fuel- ing procedures to allow the district to monitor and track each vehicle from a cost and effi ciency standard. Financial Management 159 2. Due to the number of labor hours required to record fuel information, the district should evaluate cost proposals to convert the existing fueling system to an automated card lock system. Standard Implemented: Partially November 1, 2004 Rating: 2 Implementation Scale: 160 Financial Management 18.7 Maintenance and Operations Fiscal Controls Legal Standard Vending machine operations are subject to policies and regulations set by the State Board of Edu- cation. All vending machine contracts refl ect these policies and regulations. An adequate system of inventory control also exists. [EC 48931] Sources and Documentation 1. Discussion with Director of Food Services 2. Interview with Director of Facilities 3. Board policy and administrative regulations Findings 1. Vending machines and operations are not under the supervision and control of the Maintenance Department. 2. Vending machines are non-existent at the elementary schools and are only located on the secondary campuses. 3. The district’s board policy regarding food sales and specifi cally regarding vending machines is not up to date. 4. All contracts for vending machine sales must be approved by the Governing Board. 5. Competitive sales of vending machine products exist between the Food Service De- partment and student organizations. 6. Cash sales from vending machines operated by the food service department are through commission check for carbonated sales and manual cash collection for milk machines. Recommendations and Improvement Plan 1. The district should update its board policy regarding the operation of vending ma- chines located in the school district. 2. The district should provide each site a copy of the administrative regulations regard- ing competitive food sales by student or other organizations. 3. All contracts for vending machine sales should be reviewed by the Director of Food Service and approved by the Governing Board. 4. The district should maintain a centralized master contract fi le regarding all vending machines located in the district. Financial Management 161 Standard Implemented: Partially November 1, 2004 Rating: 3 Implementation Scale: 162 Financial Management 18.8 Maintenance and Operations Fiscal Controls Professional Standard Capital equipment and furniture is tagged as district-owned property and inventoried at least an- nually. Sources and Documentation 1. Director of Facilities 2. Interview with Business Services staff 3. 2001-02 Audit Report 4. 2002-03 Audit Report Findings 1. The district implemented a fi xed asset accounting process with procedures in the 2001-02 fi scal year. 2. During the 2002-03 fi scal year, no supervision or direction was assigned to maintain the fi xed assets inventory and record additions or deletions to the inventory records. Recommendations and Improvement Plan 1. The district should assign a specifi c employee or department to maintain the district’s fi xed asset records and inventory as required by GASB 34. 2. The district should develop procedures that require all equipment that is received to be physically marked, tagged or etched prior to the delivery of each qualifying fi xed asset to the appropriate district location. Standard Implemented: Partially November 1, 2004 Rating: 2 Implementation Scale: Financial Management 163 18.9 Maintenance and Operations Fiscal Controls Legal Standard The district adheres to bid and force account requirements found in the Public Contract Code (Sections 20111 and 20114). These requirements include formal bids for materials, equipment and maintenance projects that exceed $56,900; capital projects of $15,000 or more; and labor when the job exceeds 750 hours or the materials exceed $21,000. Sources and Documentation 1. Board policy 2. Copies of bid documents 3. Copies of bid awards including legal advertisements, bid documents and board agenda approval 4. Interview with Director of Facilities 5. Interview with Director of Student Housing 6. Interview with former Director of Purchasing Findings 1. The district’s bid process is in compliance with the public contract code and board policy and was validated by source documentation. 2. Staff is experienced and utilizes internal bid processes and the California Multiple Award Schedule (CMAS) to procure materials, equipment and maintenance projects that exceed the legal authority provided by the public contract code. 3. The district has not implemented the uniform-cost accounting program that allows for cost accounting methods to perform work internally by the maintenance staff versus the formal bidding process. 4. The district’s board policies are in compliance with the bidding procedures required by the Public Contract Code. Recommendations and Improvement Plan 1. The district should review the requirements of the uniform cost construction account- ing program for possible future implementation. Standard Implemented: Partially November 1, 2004 Rating: 7 Implementation Scale: 164 Financial Management 18.10 Maintenance and Operations Fiscal Controls Legal Standard Standard accounting practices dictate that the district has adequate purchasing and contract controls to ensure that only properly authorized purchases are made and independent contracts approved, and that authorized purchases and independent contracts are made consistent with district policies, procedures and management direction. In addition, appropriate levels of signa- ture authorization are maintained to prevent or discourage inappropriate purchases or contract awards. Sources and Documentation 1. Board policy 2. Copies of bid documents 3. Copies of bid awards including legal advertisements, bid documents and board agenda approval 4. Interview with Director of Facilities 5. Interview with Director of Student Housing 6. Interview with former Director of Purchasing Findings 1. The Maintenance Department maintains fi les for each contract for materials or supplies. 2. The Director of Facilities reviews all expenditures for materials and supplies and re- quires employee signatures, work orders and the appropriate purchase order number to be attached to all invoices submitted for payment. 3. The Director of Facilities reviews all requisitions to determine the bid requirements and alleviate potential for bid splitting in accordance with the requirements of the Public Contract Code. 4. Any invoice that exceeds the purchase order must have a written explanation attached or only the original amount of the purchase order is approved for payment. Recommendations and Improvement Plan 1. Due to the volume of purchase orders and contracts of the Maintenance Department, the Business offi ce should conduct a semi-annual external audit for contract and pur- chase order compliance. Vendor totals should be examined and selected for testing. Standard Implemented: Partially November 1, 2004 Rating: 6 Implementation Scale: Financial Management 165 19.1 Food Service Fiscal Controls Professional Standard In order to accurately record transactions and to ensure the accuracy of fi nancial statements for the cafeteria fund in accordance with generally accepted accounting principles, the district has adequate purchasing and warehousing procedures to ensure that: 1. Only properly authorized purchases are made consistent with district policies, federal guidelines, and management direction. 2. Adequate physical security measures are in place to prevent the loss/theft of food inventories. 3. Revenues, expenditures, inventories, and cash are recorded timely and accurately. Sources and Documentation 1. Interview with the Director of Student Nutrition Services 2. Budget documents for 2002-03, 2003-04 and 2004-05 3. Independent audit reports for 2001-02 and 2002-03 4. Inventory adjustments for 2003-04 5. November 2003 Coordinated Review Effort from CDE Findings 1. The Director of Student Nutrition Services authorizes all purchase orders and moni- tors purchase order spending through fi nancial activity reports and internal spread- sheets. 2. The Food Service Department’s purchases of materials and supplies are consistent with district policies and federal guidelines for nutrition. 3. Food products at schools and the warehouse are stored in safe and locked locations. Menu production worksheets are prepared and utilized in an effort to assist the cafete- ria program in monitoring and tracking inventory. 4. Deposit procedures are documented and cash deposits are prepared from the Daily Food Service Report. Sites are required to perform currency counts by denomina- tion, total currency, total coin, bag number and total deposit. All deposits are required within 24 hours of the previous day. 5. In the 2002-03 audit report, verifi cation through interfund receivables and payables substantiated that claims for federal and state reimbursement were not submitted timely, and temporary loans were required in excess of $2 million. 6. The district is experiencing its second consecutive fi scal year since 2002-03 of de- creased meal production due to declining enrollment. 7. Increased costs for salaries and benefi ts continue to provide challenges for the Food Service Department. 166 Financial Management 8. The district utilizes the PANDA point of sale program to track and monitor free and reduced lunch activity. 9. The Food Service Department is reducing the cost of staffi ng through attrition and planned layoffs to offset the increased cost of food and supplies. Recommendations and Improvement Plan 1. Claims for federal and state reimbursement should be fi led no later than 30 days in arrears to alleviate interfund borrowing from an already depleted general fund for cash fl ow purposes. 2. Review annual personnel requirements for food services no later than March of the preceding fi scal year and make recommendations for staffi ng based on projected en- rollment trends. Standard Implemented: Partially November 1, 2004 Rating: 7 Implementation Scale: Financial Management 167 19.2 Food Service Fiscal Controls Professional Standard The district operates the food service programs in accordance with applicable laws and regula- tions. Sources and Documentation 1. Interview with the Director of Student Nutrition Services 2. Budget documents for 2002-03, 2003-04 and 2004-05 3. Independent Audit Reports for 2001-02 and 2002-03 4. Inventory adjustments for 2003-04 5. November 2003 Coordinated Review Effort from CDE Findings 1. In November of 2003, the district received a Coordinated Review Effort performed by the California Department of Education. The review indicated that the district’s corrective action documentation had been approved. The review included but was not limited to requirements for Dietary and Nutrition Standards, Free and Reduced Price Process, Monitoring Site Responsibilities/Sanitation, USDA Donated Products and other technical assistance areas. 2. All School Food Authorities (SFAs) are required to have detailed written meal count and collection procedures approved by the Child Nutrition and Food Distribution Di- vision (CNFDD) on fi le. The district utilizes the PANDA point of sale software system and is in compliance with this regulation to track and monitor student eligibility. 3. The fi nancial solvency of the cafeteria fund is in jeopardy due to the continual decline of student enrollment, increases in salary and benefi ts and decreased meal productiv- ity. 4. The 2004-05 budget projects an ending fund balance of $0.17, refl ecting a rollover projection from the 2003-04 fi scal year, and does not accurately refl ect the potential impact of the cafeteria fund to the fi nancial solvency of the district. Recommendations and Improvement Plan 1. Revise the 2004-05 budget to accurately refl ect the projected revenues and expendi- tures. 2. Establish specifi c fi scal standards for the cafeteria fund to remain fi scally solvent and to alleviate any potential future encroachment. 3. Establish monthly meetings with the Food Service Department and the Business Of- fi ce to closely monitor any changes necessary to maintain the projected positive end- ing fund balance. 168 Financial Management Standard Implemented: Partially November 1, 2004 Rating: 7 Implementation Scale: Financial Management 169 19.3 Food Service Fiscal Controls Professional Standard Food service software permits point of sale transaction processing for maximum effi ciency. Sources and Documentation 1. Interview with the Director of Student Nutrition Services 2. Budget documents for 2002-03, 2003-04 and 2004-05 3. Independent Audit Reports for 2001-02 and 2002-03 4. Inventory adjustments for 2003-04 5. November 2003 Coordinated Review Effort from CDE Findings 1. All School Food Authorities (SFAs) are required to have detailed written meal count and collection procedures approved by the Child Nutrition and Food Distribution Di- vision (CNFDD) on fi le at their central site or sites serving lunch and/or breakfast. In order to have accurate claims and to ensure students are receiving benefi ts, the system in place must have the ability to accurately transfer and process eligibility informa- tion. The district utilizes the PANDA point of sale software system and is in compli- ance with this regulation to track and monitor student eligibility through the National School Lunch Program. Recommendations and Improvement Plan 1. None. Standard Implemented: Partially November 1, 2004 Rating: 7 Implementation Scale: 170 Financial Management 20.1 Charter Schools Professional Standard In the process of reviewing and approving charter schools, the district identifi es/establishes minimal fi nancial management and reporting standards that the charter school will follow. These standards/procedures will provide some level of assurance that fi nances will be managed appro- priately, and allow the district to monitor the charter. The district monitors the fi nancial man- agement and performance of the charter schools on an ongoing basis in order to ensure that the resources are appropriately managed. Sources and Documentation 1. Interview with the Interim Director of Business Services 2. 2001-02 Audit Report 3. 2002-03 Audit Report 4. Board policy 5. AB 1200 reporting requirements Findings 1. The district is the sponsoring district for the Mare Island Technology (MIT) Academy Middle and High School Charter Schools. 2. The 2001-02 audit reported that expenditures exceeded appropriations in the charter fund by $160,643. 3. The charter school maintains separate commercial bank accounts and is not included in the fi nancial statements of the district. 4. As of June 30, 2003, the charter schools had an outstanding revolving loan from the State of California in the amount of $400,000. This potential district liability is not included in the fi nancial statements of the district. 5. The current Memorandum of Understanding between the district and Mare Island Technology Academy is under review. MIT is requesting fi scal separation from Vallejo due to the lack of accurate and timely fi scal reporting. 6. Inconsistencies exist in posting timely apportionments and property tax transfers for charter schools by the district. 7. The district did not review the annual audit report and recommendations regarding any fi ndings for charter schools. Recommendations and Improvement Plan 1. The district should complete the Memorandum of Understanding with Mare Island Technology Academy Charter Schools. Financial Management 171 2. The district should review newly enacted legislation AB 1137 that requires charter schools to submit fi rst and second interim reports in accordance with Education Code Section 47604.33. The district should meet with each charter school representative and review the reporting requirements and format for submittal. 3. The district’s board policy should be updated to refl ect the new educational and fi scal accountability issues between the charter and the district in accordance with AB 1137. 4. Audit reports should be requested annually from the Charter Schools and meetings held to review fi ndings and recommendations. Standard Implemented: Partially November 1, 2004 Rating: 1 Implementation Scale: 172 Financial Management 21.1 State Mandated Costs Professional Standard The district has procedures that provide for the appropriate oversight and management of man- dated cost claim reimbursement fi ling. Appropriate procedures cover: the identifi cation of chang- ers to existing mandates; training staff regarding the appropriate collection and submission of data to support the fi ling of mandated costs claims; forms, formats, and time lines for reporting mandated cost information; and review of data and preparation of the actual claims. Sources and Documentation 1. Discussions with Business Offi ce staff 2. Contract with Mandated Cost Services (MCS) 3. Adoption Budget for 2003-04 4. 2001-02 Audit Report 5. 2002-03 Audit Report 6. Report prepared by School Services on February 18, 2004 Findings 1. The district currently utilizes an outside consulting fi rm to provide services for the preparation of mandated claims. The fi rm collects supporting documentation in order to fi le claims with the State of California. 2. The 2002-03 budget was overstated by $1,322,276 for anticipated mandated cost claims in accordance with the fi nal audited records. 3. Reimbursement for mandated claims has been suspended and the state Legislature has only appropriated funding for claims through the 1998-99 fi scal year, with some funds remaining to fund 1999-00 claims. 4. The consulting fi rm trains staff on what claims are to be fi led, how to complete the necessary documentation, how to fi le the claims, and the time line for submitting claims to obtain reimbursement from the state. The consultant also ensures that man- dated claim forms are completed and fi led correctly. 5. At the time of FCMAT’s fi eldwork at the district, the Interim Director of Fiscal Ser- vices was assigned to this area of responsibility. Recommendations and Improvement Plan 1. The district should assign a permanent staff member to review and assist in the fi ling of mandated cost claims. The district should review all past claims and departments fi ling claims to ensure that revenues are being maximized for the future when the state begins to fund mandates. 2. The budget should not include any amounts that are considered as an ongoing funding source for mandated cost claims. Financial Management 173 3. The district should consider establishing an incentive program for all sites and depart- ments to maximize the number of claims submitted. The fi ling of claims is often con- sidered time-consuming, but due to the current fi scal status of the district, all available sources will be required to regain the district’s fi nancial solvency. 4. The district will need to implement a consistent reporting and fi ling process that will ensure district revenues are maximized for all allowable claims. Although the state is not reimbursing mandated claims in the current fi scal year, potential future revenues may be decreased if the district does not align its current reporting process by the time the state appropriates funding for mandates. Standard Implemented: Partially November 1, 2004 Rating: 2 Implementation Scale: 174 Financial Management 22.1 Special Education Professional Standard The district actively takes measures to contain the cost of Special Education services while still providing an appropriate level of quality instructional and pupil services to Special Education pupils. Sources and Documentation 1. Director of Special Education 2. J18/19 for 2002-03 and 2003-04 3. Encroachment amount in relation to total budget Findings 1. The district has been assisted by School Services of California in validating that it is within the statewide average for encroachment level and student numbers. 2. The district has a 20.1% encroachment. 3. Approximately 10% of the district student population is identifi ed as Special Educa- tion. 4. Special Education staff work hard to build a positive relationship with parents from the fi rst day they enter the system. This has resulted in few legal issues, keeping that cost very low. 5. The district has approximately 90 non-public school placements. This low number is also a result of the relationship between parents and Special Education staff. 6. Because the program specialists and psychologists are management level, there are more controls on the way students are assessed for placement in Special Education and on the individualized educational plans written for students who are placed in Special Education programs. 7. Although the encroachment number seems reasonable for this district, there seems to be a question as to the proper coding of all positions and expenditures. Recommendations and Improvement Plan 1. The Special Education department seems to be aware of the program’s impact on the general fund and has instituted many strategies for keeping encroachment at the state average. 2. A thorough analysis of the coding of expenditures for Special Education must be per- formed and any discrepancies corrected for future spending and budgeting. Financial Management 175 Standard Implemented: Partially November 1, 2004 Rating: 4 Implementation Scale: 176 Financial Management Nov. May Standard to be addressed 2004 2005 Rating Focus 1.1 PROFESSIONAL STANDARD - INTERNAL CONTROL ENVIRON- MENT Integrity and ethical behavior are the product of the district’s ethical and behavioral standards, how they are communicated, and how they are reinforced in practice. 2 ❑ All management-level personnel exhibit high integrity and ethical values in carrying out their responsibilities and directing the work of others. [State Audit Standard (SAS) 55, SAS-78] 1.2 PROFESSIONAL STANDARD - INTERNAL CONTROL ENVIRONMENT The district has an audit committee to: (1) help prevent internal controls from being overridden by management; (2) help ensure ongoing state and federal compliance; (3) provide 0 assurance to management that the internal control system is sound; and (4) help identify and correct ineffi cient processes. [SAS-55, SAS-78] 1.3 PROFESSIONAL STANDARD - INTERNAL CONTROL ENVIRONMENT The attitude of the Governing Board and key administrators has a signifi cant effect on an organization’s internal control. 2 An appropriate attitude balances the programmatic and staff needs with fi scal realities in a manner that is neither too opti- mistic nor too pessimistic. [SAS-55, SAS-78] 1.4 PROFESSIONAL STANDARD - INTERNAL CONTROL ENVIRON- MENT The organizational structure clearly identifi es key areas 2 ❑ of authority and responsibility. Reporting lines are clearly identifi ed and logical within each area. [SAS-55, SAS-78] 1.5 PROFESSIONAL STANDARD - INTERNAL CONTROL ENVIRONMENT Management has the ability to evaluate job requirements and 1 match the requirements to the employee’s skills. [SAS-55, SAS- 78] 1.6 PROFESSIONAL STANDARD - INTERNAL CONTROL ENVIRONMENT The district has procedures for recruiting capable fi nancial 2 management and staff and hiring competent people. [SAS-55, SAS-78] The identifi ed subset of standards appears in bold print. These standards, indicated by ❑, will be targeted for in- depth review for the May 2005 report. Financial Management 177 Nov. May Standard to be addressed 2004 2005 Rating Focus 1.7 PROFESSIONAL STANDARD - INTERNAL CONTROL ENVIRON- MENT All employees are evaluated on performance at least an- nually by a management-level employee knowledgeable 1 ❑ about their work product. The evaluation criteria are clearly communicated and, to the extent possible, measurable. The evaluation includes a follow-up on prior performance is- sues and establishes goals to improve future performance. 1.8 PROFESSIONAL STANDARD - INTERNAL CONTROL ENVIRON- MENT The responsibility for reliable fi nancial reporting resides fi rst and foremost at the district level. Top management 2 ❑ sets the tone and establishes the environment. Therefore, appropriate measures are implemented to discourage and detect fraud (SAS 82; Treadway Commission). 2.1 PROFESSIONAL STANDARD - INTER- AND INTRADEPARTMEN- TAL COMMUNICATIONS The business and operational departments communicate regularly with internal staff and all user departments on their responsibilities for accounting procedures and in- ternal controls. The communications are written whenever possible, particularly when they (1) affect many staff 1 ❑ or user groups, (2) are issues of high importance, or (3) refl ect a change in procedures. Procedures manuals are necessary to the communication of responsibilities. The departments also are responsive to user department needs, thus encouraging a free exchange of information between the two (excluding items of a confi dential nature). 2.2 PROFESSIONAL STANDARD - INTER- AND INTRADEPARTMEN- TAL COMMUNICATIONS The fi nancial departments communicate regularly with the Governing Board and community on the status of district fi nances and the fi nancial impact of proposed expendi- 2 ❑ ture decisions. The communications are written whenever possible, particularly when they affect many community members, are issues of high importance to the district and board, or refl ect a change in policy. The identifi ed subset of standards appears in bold print. These standards, indicated by ❑, will be targeted for in- depth review for the May 2005 report. 178 Financial Management Nov. May Standard to be addressed 2004 2005 Rating Focus 2.3 PROFESSIONAL STANDARD - INTER- AND INTRADEPARTMEN- TAL COMMUNICATIONS The Governing Board is engaged in understanding globally 1 ❑ the fi scal status of the district, both current and as pro- jected. The board prioritizes district fi scal issues among the top discussion items. 2.4 PROFESSIONAL STANDARD - INTER- AND INTRADEPARTMEN- TAL COMMUNICATIONS The district has formal policies and procedures that provide 0 ❑ a mechanism for individuals to report illegal acts, estab- lish to whom illegal acts should be reported, and provide a formal investigative process. 2.5 PROFESSIONAL STANDARD - INTER- AND INTRADEPARTMEN- TAL COMMUNICATIONS Documents developed by the fi scal division for distribu- tion to the Governing Board, fi nance committees, staff and 1 ❑ community are easily understood. Those who receive docu- ments developed by the fi scal division do not have to wade through complex, lengthy computer printouts. 3.1 PROFESSIONAL STANDARD - STAFF PROFESSIONAL DEVELOP- MENT The district has developed and uses a professional develop- ment plan for training business staff. The plan includes the input of business offi ce supervisors and managers, and, at 0 ❑ a minimum, identifi es appropriate programs offi ce-wide. At best, each individual staff and management employee has a plan designed to meet their individual professional development needs. 3.2 PROFESSIONAL STANDARD - STAFF PROFESSIONAL DEVELOP- MENT The district develops and uses a professional development plan for the in-service training of school site/department 0 ❑ staff by business staff on relevant business procedures and internal controls. The plan includes the input of the busi- ness offi ce and the school sites/departments and is up- dated annually. The identifi ed subset of standards appears in bold print. These standards, indicated by ❑, will be targeted for in- depth review for the May 2005 report. Financial Management 179 Nov. May Standard to be addressed 2004 2005 Rating Focus 4.1 PROFESSIONAL STANDARD - INTERNAL AUDIT The Governing Board has adopted policies establishing an internal audit function that reports directly to the Super- 0 ❑ intendent/State Administrator and the audit committee or Governing Board. 4.2 PROFESSIONAL STANDARD - INTERNAL AUDIT Internal audit functions are designed into the organiza- tional structure of the district. These functions include 0 ❑ periodic internal audits of areas at high risk for non-com- pliance with laws and regulations and/or at high risk for monetary loss. 4.3 PROFESSIONAL STANDARD - INTERNAL AUDIT Qualifi ed staff are assigned to conduct internal audits and are 0 supervised by an independent body, such as an audit commit- tee. 4.4 PROFESSIONAL STANDARD - INTERNAL AUDIT Internal audit fi ndings are reported on a timely basis to the audit committee, governing board and administration, as ap- 0 propriate. Management then takes timely action to follow up and resolve audit fi ndings. 5.1 PROFESSIONAL STANDARD - BUDGET DEVELOPMENT PROCESS (POLICY) The budget development process requires a policy-oriented focus by the Governing Board to develop an expenditure plan that fulfi lls the district’s goals and objectives. The Govern- 3 ing Board focuses on expenditure standards and formulas that meet the district goals. The Governing Board avoids specifi c line-item focus, but directs staff to design an entire expendi- ture plan focusing on student and district needs. 5.2 PROFESSIONAL STANDARD - BUDGET DEVELOPMENT PROCESS (POLICY) 3 The budget development process includes input from staff, administrators, board and community. 5.3 PROFESSIONAL STANDARD - BUDGET DEVELOPMENT PROCESS (POLICY) 2 Policies and regulations exist regarding budget development and monitoring. The identifi ed subset of standards appears in bold print. These standards, indicated by ❑, will be targeted for in- depth review for the May 2005 report. 180 Financial Management Nov. May Standard to be addressed 2004 2005 Rating Focus 5.4 PROFESSIONAL STANDARD - BUDGET DEVELOPMENT PROCESS (POLICY) The district has a clear process to analyze resources and 2 ❑ allocations to ensure that they are aligned with strategic planning objectives and that the budget refl ects district priorities. 5.5 PROFESSIONAL STANDARD - BUDGET DEVELOPMENT PROCESS (POLICY) The district has policies to facilitate development of a 3 ❑ budget that is understandable, meaningful, refl ective of district priorities, and balanced in terms of revenues and expenditures. 5.6 PROFESSIONAL STANDARD - BUDGET DEVELOPMENT PROCESS (POLICY) Categorical funds are an integral part of the budget process and have been integrated into the entire budget development. The revenues and expenditures for categorical programs are reviewed and evaluated in the same manner as unrestricted General Fund revenues and expenditures. Categorical program development is integrated with the district’s goals and used to 4 respond to district student needs that cannot be met by un- restricted expenditures. The superintendent, superintendent’s cabinet and fi scal offi ce have established procedures to ensure that categorical funds are expended effectively to meet district goals. Carryover and unearned income of categorical programs are monitored and evaluated in the same manner as General Fund unrestricted expenditures. 5.7 PROFESSIONAL STANDARD - BUDGET DEVELOPMENT PROCESS (POLICY) The district has the ability to accurately refl ect its net ending balance throughout the budget monitoring process. The fi rst and second interim reports provide valid updates 0 ❑ of the district’s net ending balance. The district has tools and processes that ensure that there is an early warning of any discrepancies between the budget projections and actual revenues or expenditures. The identifi ed subset of standards appears in bold print. These standards, indicated by ❑, will be targeted for in- depth review for the May 2005 report. Financial Management 181 Nov. May Standard to be addressed 2004 2005 Rating Focus 5.8 PROFESSIONAL STANDARD - BUDGET DEVELOPMENT PROCESS (POLICY) The district utilizes formulas for allocating funds to school 3 sites and departments. This can include staffi ng ratios, sup- ply allocations, etc. These formulas should be in line with the board's goals and directions, and should not be overridden. 6.1 PROFESSIONAL STANDARD - BUDGET DEVELOPMENT PROCESS (TECHNICAL) The budget offi ce has a technical process to build the preliminary budget amounts that includes: the forecast of revenues, the verifi cation and projection of expenditures, 0 ❑ the identifi cation of known carryovers and accruals and the inclusion of concluded expenditure plans. The process clearly identifi es one-time sources and uses of funds. Rea- sonable ADA and COLA estimates are used when planning and budgeting. This process is applied to all funds. 6.2 PROFESSIONAL STANDARD - BUDGET DEVELOPMENT PROCESS (TECHNICAL) An adopted budget calendar exists that meets legal and man- 3 agement requirements. At a minimum the calendar identifi es statutory due dates and major budget development activities. 6.3 PROFESSIONAL STANDARD - BUDGET DEVELOPMENT PROCESS (TECHNICAL) Standardized budget worksheets are used in order to communi- 3 cate budget requests, budget allocations, formulas applied and guidelines. 7.1 LEGAL STANDARD - BUDGET ADOPTION, REPORTING, AND AU- DITS The district adopts its annual budget within the statutory time lines established by Education Code Section 42103, which re- quires that on or before July 1, the governing board shall hold 3 a public hearing on the budget to be adopted for the subse- quent fi scal year. Not later than fi ve days after that adoption or by July 1, whichever occurs fi rst, the governing board shall fi le that budget with the county superintendent of schools. [EC 42127(a)] The identifi ed subset of standards appears in bold print. These standards, indicated by ❑, will be targeted for in- depth review for the May 2005 report. 182 Financial Management Nov. May Standard to be addressed 2004 2005 Rating Focus 7.2 LEGAL STANDARD - BUDGET ADOPTION, REPORTING, AND AU- DITS Revisions to expenditures based on the State Budget are con- sidered and adopted by the governing board. Not later than 45 days after the governor signs the annual Budget Act, the 3 district shall make available for public review any revisions in revenues and expenditures that it has made to its budget to refl ect funding available by that Budget Act. [EC 42127(2) and 42127(i)(4)] 7.3 PROFESSIONAL STANDARD - BUDGET ADOPTION, REPORTING, AND AUDITS The district has procedures that provide for the development 3 and submission of a district budget and interim reports that adhere to criteria and standards and are approved by the county offi ce of education. 7.4 LEGAL STANDARD - BUDGET ADOPTION, REPORTING, AND AU- DITS The district completes and fi les its interim budget reports 2 within the statutory deadlines established by Education Code Section 42130, et. seq. 7.5 PROFESSIONAL STANDARD - BUDGET ADOPTION, REPORTING, AND AUDITS The fi rst and second interim reports show an accurate pro- 0 ❑ jection of the ending fund balance. Material differences are presented to the board of education with detailed explana- tions. 7.6 LEGAL STANDARD - BUDGET ADOPTION, REPORTING, AND AU- DITS The district has complied with Governmental Accounting Standard No. 34 (GASB 34) for the period ending June 30, 1 2003. GASB 34 requires the district to develop policies and procedures and report in the annual fi nancial reports on the modifi ed accrual basis of accounting and the accrual basis of accounting. 7.7 LEGAL STANDARD - BUDGET ADOPTION, REPORTING, AND AU- DITS The district has arranged for an annual audit (single audit) 3 within the deadlines established by Education Code section 41020. The identifi ed subset of standards appears in bold print. These standards, indicated by ❑, will be targeted for in- depth review for the May 2005 report. Financial Management 183 Nov. May Standard to be addressed 2004 2005 Rating Focus 7.8 LEGAL STANDARD - BUDGET ADOPTION, REPORTING, AND AU- DITS The district should include in its audit report, but not later 4 than March 15, a corrective action for all fi ndings disclosed as required by Education Code Section 41020. 7.9 LEGAL STANDARD - BUDGET ADOPTION, REPORTING, AND AU- DITS The district must fi le certain documents/reports with the state as follows: J-200 series - (Education Code Section 42100); J- 4 380 series - CDE procedures; Interim fi nancial reports - (Educa- tion Code Section 42130); J-141 transportation report (Title V, article 5, Section 15270). 7.10 LEGAL STANDARD - BUDGET ADOPTION, REPORTING, AND AU- DITS Education Code Section 41020(c) (d) (e) (g) establishes proce- dures for local agency audit obligations and standards. Pursu- ant to Education Code Section 41020(h), the district submits 5 to the county superintendent of schools in the county that the district resides, the State Department of Education, and the State Controller’s Offi ce an audit report for the preceding fi scal year. This report must be submitted "no later than December 15." 8.1 PROFESSIONAL STANDARD - BUDGET MONITORING All purchase orders are properly encumbered against the 3 ❑ budget until payment. 8.2 PROFESSIONAL STANDARD - BUDGET MONITORING There are budget monitoring controls, such as periodic re- ports, to alert department and site managers of the poten- 1 ❑ tial for overexpenditure of budgeted amounts. Revenue and expenditures are forecast and verifi ed monthly. 8.3 PROFESSIONAL STANDARD - BUDGET MONITORING The routine restricted maintenance account is routinely ana- lyzed to ensure that income has been properly claimed and expenditures are within the guidelines provided by the State 6 Department of Education. The district budget includes specifi c budget information to refl ect the expenditures against the routine maintenance account. The identifi ed subset of standards appears in bold print. These standards, indicated by ❑, will be targeted for in- depth review for the May 2005 report. 184 Financial Management Nov. May Standard to be addressed 2004 2005 Rating Focus 8.4 PROFESSIONAL STANDARD - BUDGET MONITORING Budget revisions are made on a regular basis and occur per 5 established procedures, and are approved by the Governing Board. 8.5 PROFESSIONAL STANDARD - BUDGET MONITORING The district uses an effective position control system that tracks personnel allocations and expenditures. The position 6 ❑ control system effectively establishes checks and balances between personnel decisions and budgeted appropriations. 8.6 PROFESSIONAL STANDARD - BUDGET MONITORING The district monitors both the revenue limit calculation and the special education calculation at least quarterly to adjust 6 for any differences between the fi nancial assumptions used in the initial calculations and the fi nal actuals as they are known. 8.7 PROFESSIONAL STANDARD - BUDGET MONITORING The district monitors the site reports of revenues and expendi- 0 tures provided. 9.1 PROFESSIONAL STANDARD - BUDGET COMMUNICATIONS The district budget is a clear manifestation of district policies 0 and is presented in a manner that facilitates communication of those policies. 9.2 PROFESSIONAL STANDARD - BUDGET COMMUNICATIONS The district budget clearly identifi es one-time sources and uses 0 of funds. 10.1 LEGAL STANDARD - INVESTMENTS The Governing Board reviews and approves, at a public meeting 0 and on a quarterly basis, the district’s investment policy. [GC 53646] 11.1 PROFESSIONAL STANDARD - ATTENDANCE ACCOUNTING An accurate record of daily enrollment and attendance is 1 ❑ maintained at the sites and reconciled monthly. 11.2 PROFESSIONAL STANDARD - ATTENDANCE ACCOUNTING Policies and regulations exist for independent study, home 1 study, inter/intradistrict agreements and districts of choice, and address fi scal impact. 11.3 PROFESSIONAL STANDARD - ATTENDANCE ACCOUNTING Students are enrolled by staff and entered into the atten- 2 ❑ dance system in an effi cient, accurate and timely manner. The identifi ed subset of standards appears in bold print. These standards, indicated by ❑, will be targeted for in- depth review for the May 2005 report. Financial Management 185 Nov. May Standard to be addressed 2004 2005 Rating Focus 11.4 PROFESSIONAL STANDARD - ATTENDANCE ACCOUNTING At least annually, the school district verifi es that each school 4 bell schedule meets instructional time requirements for mini- mum day, year and annual minute requirements. 11.5 PROFESSIONAL STANDARD - ATTENDANCE ACCOUNTING Procedures are in place to ensure that attendance accounting 1 and reporting requirements are met for alternative programs such as ROC/P and adult education. 11.6 PROFESSIONAL STANDARD - ATTENDANCE ACCOUNTING The district utilizes standardized and mandatory programs 0 ❑ to improve the attendance rate of pupils. Absences are ag- gressively followed-up by district staff. 11.7 PROFESSIONAL STANDARD - ATTENDANCE ACCOUNTING School site personnel receive periodic and timely training 0 ❑ on the district’s attendance procedures, system procedures and changes in laws and regulations. 11.8 LEGAL STANDARD - ATTENDANCE ACCOUNTING Attendance records are not destroyed until after the third July 5 1 succeeding the completion of the audit. (Title V, CCR, Sec- tion 16026) 11.9 PROFESSIONAL STANDARD - ATTENDANCE ACCOUNTING The district makes appropriate use of short-term independent 0 study and Saturday school programs as alternative methods for pupils to keep current on classroom course work. 12.1 LEGAL STANDARD - ACCOUNTING, PURCHASING, AND WARE- HOUSING The district adheres to the California School Accounting Manual (CSAM) and Generally Accepted Accounting Principles (GAAP) 2 as required by Education Code Section 41010. Adherence to CSAM and GAAP helps to ensure that transactions are accurate- ly recorded and fi nancial statements are fairly presented. The identifi ed subset of standards appears in bold print. These standards, indicated by ❑, will be targeted for in- depth review for the May 2005 report. 186 Financial Management Nov. May Standard to be addressed 2004 2005 Rating Focus 12.2 PROFESSIONAL STANDARD - ACCOUNTING, PURCHASING, AND WAREHOUSING The district timely and accurately records all information regarding fi nancial activity (unrestricted and restricted) for all programs. Generally Accepted Accounting Principles 2 ❑ (GAAP) require that in order for fi nancial reporting to serve the needs of the users, it must be reliable and timely. Therefore, the timely and accurate recording of the under- lying transactions (revenue and expenditures) is an essen- tial function of the district’s fi nancial management. 12.3 PROFESSIONAL STANDARD - ACCOUNTING, PURCHASING, AND WAREHOUSING The district forecasts its revenues and expenditures and verifi es those projections on a monthly basis in order to adequately manage its cash. In addition, the district rec- 1 ❑ onciles its cash to bank statements and reports from the county treasurer reports on a monthly basis. Standard ac- counting practice dictates that, in order to ensure that all cash receipts are deposited timely and recorded properly, cash is reconciled to bank statements monthly. 12.4 PROFESSIONAL STANDARD - ACCOUNTING, PURCHASING, AND WAREHOUSING The district’s payroll procedures are in compliance with the requirements established by the County Offi ce of Educa- 1 ❑ tion, unless fi scally independent. (Education Code Section 42646) Standard accounting practice dictates that the district implement procedures to ensure the timely and ac- curate processing of payroll. 12.5 PROFESSIONAL STANDARD - ACCOUNTING, PURCHASING, AND WAREHOUSING Standard accounting practice dictates that the accounting 1 work is properly supervised and work reviewed in order to en- sure that transactions are recorded timely and accurately, and allow the preparation of periodic fi nancial statements. The identifi ed subset of standards appears in bold print. These standards, indicated by ❑, will be targeted for in- depth review for the May 2005 report. Financial Management 187 Nov. May Standard to be addressed 2004 2005 Rating Focus 12.6 PROFESSIONAL STANDARD - ACCOUNTING, PURCHASING, AND WAREHOUSING Federal and state categorical programs, either through specifi c program requirements or through general cost principles such 1 as OMB Circular A-87, require that entities receiving such funds must have an adequate system to account for those revenues and related expenditures. 12.7 PROFESSIONAL STANDARD - ACCOUNTING, PURCHASING, AND WAREHOUSING Generally accepted accounting practices dictate that, in order to ensure accurate recording of transactions, the district have 1 standard procedures for closing its books at fi scal year-end. The district’s year-end closing procedures should comply with the procedures and requirements established by the county of- fi ce of education. 12.8 LEGAL STANDARD - ACCOUNTING, PURCHASING, AND WARE- HOUSING The district complies with the bidding requirements of Public Contract Code Section 20111. Standard accounting practice dictates that the district have adequate purchasing and ware- 2 housing procedures to ensure that only properly authorized purchases are made, that authorized purchases are made con- sistent with district policies and management direction, that inventories are safeguarded, and that purchases and invento- ries are timely and accurately recorded. 12.9 PROFESSIONAL STANDARD - ACCOUNTING, PURCHASING, AND WAREHOUSING The district has documented procedures for the receipt, expen- 3 diture and monitoring of all construction-related activities. Included in the procedures are specifi c requirements for the approval and payment of all construction-related expenditures. 12.10 PROFESSIONAL STANDARD - ACCOUNTING, PURCHASING, AND WAREHOUSING 2 The accounting system has an appropriate level of controls to prevent and detect errors and irregularities. The identifi ed subset of standards appears in bold print. These standards, indicated by ❑, will be targeted for in- depth review for the May 2005 report. 188 Financial Management Nov. May Standard to be addressed 2004 2005 Rating Focus 12.11 PROFESSIONAL STANDARD - ACCOUNTING, PURCHASING, AND WAREHOUSING The district has implemented the new Standardized Account 5 Code Structure. SACS ensures the district is in compliance with federal guidelines, which will ensure no loss of federal funds, e.g., Title I federal class size reduction. 13.1 LEGAL STANDARD - STUDENT BODY FUNDS The Governing Board adopts policies and procedures to ensure compliance regarding how student body organizations deposit, 4 invest, spend, raise and audit student body funds. [EC 48930- 48938] 13.2 LEGAL STANDARD - STUDENT BODY FUNDS Proper supervision of all student body funds is provided by the board. [EC 48937] This includes establishing responsi- bilities for managing and overseeing the activities and funds 4 of student organizations, including providing procedures for the proper handling, recording and reporting of revenues and expenditures. 13.3 PROFESSIONAL STANDARD - STUDENT BODY FUNDS The district provides training and guidance to site personnel 4 on the policies and procedures governing the Associated Stu- dent Body account. 13.4 PROFESSIONAL STANDARD - STUDENT BODY FUNDS In order to provide adequate oversight of student funds and to ensure the proper handling and reporting, the California 2 Department of Education recommends that periodic fi nancial reports be prepared by sites, and then summarized by the district offi ce. 13.5 PROFESSIONAL STANDARD - STUDENT BODY FUNDS In order to provide adequate oversight of student funds and to ensure proper handling and reporting, the California De- 2 partment of Education recommends that internal audits be performed. Such audits should review the operation of student body funds at both district and site levels. 14.1 PROFESSIONAL STANDARD - MULTIYEAR FINANCIAL PROJEC- TIONS 0 A reliable computer program that provides reliable multiyear fi nancial projections is used. The identifi ed subset of standards appears in bold print. These standards, indicated by ❑, will be targeted for in- depth review for the May 2005 report. Financial Management 189 Nov. May Standard to be addressed 2004 2005 Rating Focus 14.2 LEGAL STANDARD - MULTIYEAR FINANCIAL PROJECTIONS The district annually provides a multiyear revenue and expen- diture projection for all funds of the district. Projected fund 0 balance reserves are disclosed. The assumptions for revenues and expenditures are reasonable and supportable. [EC 42131] 14.3 LEGAL STANDARD - MULTIYEAR FINANCIAL PROJECTIONS Multiyear fi nancial projections are prepared for use in the decision-making process, especially whenever a signifi cant 0 ❑ multiyear expenditure commitment is contemplated. [EC 42142] 15.1 LEGAL STANDARD - LONG-TERM DEBT OBLIGATIONS The district complies with public disclosure laws of fi scal obligations related to health and welfare benefi ts for retirees, 3 self-insured workers compensation, and collective bargaining agreements. [GC 3540.2, 3547.5, EC 42142] 15.2 PROFESSIONAL STANDARD - LONG-TERM DEBT OBLIGATIONS When authorized, the district uses only non-voter approved, long-term fi nancing such as certifi cates of participation (COPS), revenue bonds, and lease-purchase agreements (capital 2 leases) to address capital needs, and not operations. Further, the general fund is used to fi nance current school operations, and in general is not used to pay for these types of long-term commitments. 15.3 PROFESSIONAL STANDARD - LONG-TERM DEBT OBLIGATIONS For long-term liabilities/debt service, the district prepares debt service schedules and identifi es the dedicated funding sources to make those debt service payments. The district projects cash receipts from the dedicated revenue sources to ensure that it will have suffi cient funds to make periodic debt pay- 2 ments. The cash fl ow projections are monitored on an ongoing basis to ensure that any variances from projected cash fl ows are identifi ed as early as possible to allow the district suffi - cient time to take appropriate measures or identify alternative funding sources. 15.4 PROFESSIONAL STANDARD - LONG-TERM DEBT OBLIGATIONS The district has developed and uses a fi nancial plan to ensure that ongoing unfunded liabilities from employee 1 ❑ benefi ts are recognized as a liability of the school district. A plan has been established for funding retiree health ben- efi t costs as the obligations are incurred. The identifi ed subset of standards appears in bold print. These standards, indicated by ❑, will be targeted for in- depth review for the May 2005 report. 190 Financial Management Nov. May Standard to be addressed 2004 2005 Rating Focus 16.1 PROFESSIONAL STANDARD - IMPACT OF COLLECTIVE BAR- GAINING The district has developed parameters and guidelines for collective bargaining that ensure that the collective bar- gaining agreement is not an impediment to effi ciency of district operations. At least annually, collective bargaining agreements are analyzed by management to identify those characteristics that are impediments to effective delivery of district operations. The district identifi es those issues 1 ❑ for consideration by the Governing Board. The Governing Board, in the development of its guidelines for collective bargaining, considers the impact on district operations of current collective bargaining language, and proposes amendments to district language as appropriate to ensure effective and effi cient district delivery. Governing Board parameters are provided in a confi dential environment, refl ective of the obligations of a closed executive board session. 16.2 PROFESSIONAL STANDARD - IMPACT OF COLLECTIVE BAR- GAINING The Governing Board ensures that any guideline developed for collective bargaining is fi scally aligned with the in- structional and fi scal goals on a multiyear basis. The Super- intendent ensures that the district has a formal process in which collective bargaining multiyear costs are identifi ed for the Governing Board, and those expenditure changes are identifi ed and implemented as necessary prior to any imposition of new collective bargaining obligations. The 1 ❑ Governing Board ensures that costs and projected district revenues and expenditures are validated on a multiyear basis so that the fi scal issues faced by the district are not worsened by bargaining settlements. The public is informed about budget reductions that will be required for a bar- gaining agreement prior to any contract acceptance by the Governing Board. The public is notifi ed of the provisions of the fi nal proposed bargaining settlement and is provided with an opportunity to comment. The identifi ed subset of standards appears in bold print. These standards, indicated by ❑, will be targeted for in- depth review for the May 2005 report. Financial Management 191 Nov. May Standard to be addressed 2004 2005 Rating Focus 17.1 PROFESSIONAL STANDARD - MANAGEMENT INFORMATION SYSTEMS Management information systems support users with infor- mation that is relevant, timely, and accurate. Needs assess- ments are performed to ensure that users are involved in the defi nition of needs, development of system specifi ca- tions, and selection of appropriate systems. Additionally, 3 ❑ district standards are imposed to ensure the maintain- ability, compatibility, and supportability of the various systems. The district ensures that all systems are compliant with the new Standardized Account Code Structure (SACS), year 2000 requirements, and are compatible with county systems with which they must interface. 17.2 PROFESSIONAL STANDARD - MANAGEMENT INFORMATION SYS- TEMS Automated systems are used to improve accuracy, timeliness, and effi ciency of fi nancial and reporting systems. Needs as- sessments are performed to determine what systems are candi- dates for automation, whether standard hardware and software systems are available to meet the need, and whether or not 8 the district would benefi t. Automated fi nancial systems pro- vide accurate, timely, relevant information and conform to all accounting standards. The systems are designed to serve all of the various users inside and outside the district. Employees receive appropriate training and supervision in the operation of the systems. Appropriate internal controls are instituted and reviewed periodically. 17.3 PROFESSIONAL STANDARD - MANAGEMENT INFORMATION SYSTEMS Selection of information systems technology conforms to legal procedures specifi ed in the Public Contract Code. Additionally, there is a process to ensure that needs analy- 0 ❑ ses, cost/benefi t analyses, and fi nancing plans are in place prior to commitment of resources. The process facilitates involvement by users, as well as information services staff, to ensure that training and support needs and costs are considered in the acquisition process. The identifi ed subset of standards appears in bold print. These standards, indicated by ❑, will be targeted for in- depth review for the May 2005 report. 192 Financial Management Nov. May Standard to be addressed 2004 2005 Rating Focus 17.4 PROFESSIONAL STANDARD - MANAGEMENT INFORMATION SYSTEMS Major technology systems are supported by implementation and training plans. The cost of implementation and train- 0 ❑ ing is included with other support costs in the cost/benefi t analyses and fi nancing plans supporting the acquisition of technology systems. 17.5 PROFESSIONAL STANDARD - MANAGEMENT INFORMATION SYS- TEMS Access to administrative systems is reliable and secure. Com- 3 munications pathways that connect users with administrative systems are as free of single-points-of-failure as possible, and are highly fault tolerant. 17.6 PROFESSIONAL STANDARD - MANAGEMENT INFORMATION SYS- TEMS Hardware and software purchases conform to existing technol- ogy standards. Standards for copiers, printers, fax machines, networking equipment, and all other technology assets are defi ned and enforced to increase standardization and decrease 3 support costs. Requisitions that contain hardware or software items are forwarded to the technology department for approval prior to being converted to purchase orders. Requisitions for non-standard technology items are approved by the technology department unless the user is informed that district support for non-standard items will not be available. 17.7 PROFESSIONAL STANDARD - MANAGEMENT INFORMATION SYS- TEMS 2 Computers are replaced on a schedule based on hardware specifi cations. The identifi ed subset of standards appears in bold print. These standards, indicated by ❑, will be targeted for in- depth review for the May 2005 report. Financial Management 193 Nov. May Standard to be addressed 2004 2005 Rating Focus 17.8 PROFESSIONAL STANDARD - MANAGEMENT INFORMATION SYS- TEMS The following network standards, established for school dis- tricts, are being followed by the district: • A stable fi rewall is used with a separate DMZ and "inside" network. • The district follows EIA/TIA 568-B for all network cabling. • A Web content fi lter is used for all outbound Internet access. • The district uses an e-mail spam fi lter for all inbound e-mail. 4 • Administrative and academic network traffi c is kept separate. • Switches and network hubs are installed, and the district ensures that switches support certain features. • Login banners are added to all network elements that will support them. • The district has transitioned from all non-TCP/IP protocols. • The district uses a VPN for any access to the internal network from the outside. 18.1 PROFESSIONAL STANDARD - MAINTENANCE AND OPERATIONS FISCAL CONTROLS The district has a comprehensive risk-management program 3 ❑ that monitors the various aspects of risk management in- cluding workers compensation, property and liability insur- ance, and maintains the fi nancial well being of the district. 18.2 PROFESSIONAL STANDARD - MAINTENANCE AND OPERATIONS FISCAL CONTROLS The district has a work order system that tracks all mainte- 3 ❑ nance requests, the worker assigned, dates of completion, labor time spent and the cost of materials. 18.3 PROFESSIONAL STANDARD - MAINTENANCE AND OPERATIONS FISCAL CONTROLS 6 The district controls the use of facilities and charges fees for usage in accordance with district policy. 18.4 PROFESSIONAL STANDARD - MAINTENANCE AND OPERATIONS FISCAL CONTROLS The Maintenance Department follows standard district purchas- 6 ing protocols. Open purchase orders may be used if controlled by limiting the employees authorized to make the purchase and the amount. The identifi ed subset of standards appears in bold print. These standards, indicated by ❑, will be targeted for in- depth review for the May 2005 report. 194 Financial Management Nov. May Standard to be addressed 2004 2005 Rating Focus 18.5 PROFESSIONAL STANDARD - MAINTENANCE AND OPERATIONS FISCAL CONTROLS Materials and equipment/tools inventory is safeguarded 1 ❑ from loss through appropriate physical and accounting controls. 18.6 PROFESSIONAL STANDARD - MAINTENANCE AND OPERATIONS FISCAL CONTROLS 2 District-owned vehicles are used only for district purposes. Fuel is inventoried and controlled as to use. 18.7 LEGAL STANDARD - MAINTENANCE AND OPERATIONS FISCAL CONTROLS Vending machine operations are subject to policies and regula- 3 tions set by the State Board of Education. All vending machine contracts refl ect these policies and regulations. An adequate system of inventory control also exists. [EC 48931] 18.8 LEGAL STANDARD - MAINTENANCE AND OPERATIONS FISCAL CONTROLS 2 Capital equipment and furniture is tagged as district-owned property and inventoried at least annually. 18.9 LEGAL STANDARD - MAINTENANCE AND OPERATIONS FISCAL CONTROLS The district adheres to bid and force account requirements found in the Public Contract Code (Sections 20111 and 20114). 7 These requirements include formal bids for materials, equip- ment and maintenance projects that exceed $50,000; capital projects of $15,000 or more; and labor when the job exceeds 750 hours or the materials exceed $21,000. 18.10 PROFESSIONAL STANDARD - MAINTENANCE AND OPERATIONS FISCAL CONTROLS Standard accounting practices dictate that the district has adequate purchasing and contract controls to ensure that only properly authorized purchases are made and independent 6 contracts approved, and that authorized purchases and inde- pendent contracts are made consistent with district policies, procedures, and management direction. In addition, appropri- ate levels of signature authorization are maintained to prevent or discourage inappropriate purchases or contract awards. The identifi ed subset of standards appears in bold print. These standards, indicated by ❑, will be targeted for in- depth review for the May 2005 report. Financial Management 195 Nov. May Standard to be addressed 2004 2005 Rating Focus 19.1 PROFESSIONAL STANDARD - FOOD SERVICE FISCAL CONTROLS In order to accurately record transactions and to ensure the accuracy of fi nancial statements for the cafeteria fund in accor- dance with generally accepted accounting principles, the district has adequate purchasing and warehousing procedures to ensure 7 that: 1. Only properly authorized purchases are made consis- tent with district policies, federal guidelines, and management direction. 2. Adequate physical security measures are in place to prevent the loss/theft of food inventories. 3. Revenues, expendi- tures, inventories, and cash are recorded timely and accurately. 19.2 PROFESSIONAL STANDARD - FOOD SERVICE FISCAL CONTROLS The district operates the food service programs in accordance 7 with applicable laws and regulations. 19.3 PROFESSIONAL STANDARD - FOOD SERVICE FISCAL CONTROLS Food service software permits point of sale transaction pro- 7 cessing for maximum effi ciency. 20.1 PROFESSIONAL STANDARD - CHARTER SCHOOLS In the process of reviewing and approving charter schools, the district identifi es/establishes minimal fi nancial management and reporting standards that the charter school will follow. These standards/procedures will provide some level of assur- 1 ance that fi nances will be managed appropriately, and allow the district to monitor the charter. The district monitors the fi nancial management and performance of the charter schools on an ongoing basis in order to ensure that the resources are appropriately managed. 21.1 PROFESSIONAL STANDARD - STATE-MANDATED COSTS The district has procedures that provide for the appropriate oversight and management of mandated cost claim reimburse- ment fi ling. Appropriate procedures cover: the identifi cation of changes to existing mandates; training staff regarding the 2 appropriate collection and submission of data to support the fi ling of mandated costs claims; forms, formats, and time lines for reporting mandated cost information; and review of data and preparation of the actual claims. 22.1 PROFESSIONAL STANDARD - SPECIAL EDUCATION The district actively takes measures to contain the cost of special education services while still providing an appro- 4 ❑ priate level of quality instructional and pupil services to special education pupils. The identifi ed subset of standards appears in bold print. These standards, indicated by ❑, will be targeted for in- depth review for the May 2005 report. 196 Financial Management