SCO
California Department of Education (cde) - Education Protection Account Recorded in the State General Fund -
CALIFORNIA DEPARTMENT
OF EDUCATION
Audit Report
EDUCATION PROTECTION ACCOUNT
RECORDED IN THE STATE GENERAL FUND
July 1, 2017, through June 30, 2019
BETTY T. YEE
California State Controller
August 2022
BETTY T. YEE
California State Controller
August 12, 2022
The Honorable Tony Thurmond,
State Superintendent of Public Instruction
California Department of Education
1430 N Street
Sacramento, CA 95814
Dear Mr. Thurmond:
The State Controller’s Office audited the Education Protection Account (EPA), recorded in the
State of California’s General Fund, for the fiscal years ended June 30, 2018, and June 30, 2019.
Our audit found that the Proposition 30 incremental tax funds recorded in the EPA during the
audit period were used and accounted for in a manner consistent with Article XIII, Section 36 of
the California Constitution.
If you have any questions, please contact Joel James, Chief, Financial Audits Bureau, by
telephone at (916) 323-1573.
Sincerely,
Original signed by
KIMBERLY TARVIN, CPA
Chief, Division of Audits
KT/ls
The Honorable Tony Thurmond, -2- August 12, 2022
State Superintendent of Public Instruction
cc: Mary Nicely, Chief Deputy Superintendent
California Department of Education
Alice Lee, Director
Audits and Investigations Division
California Department of Education
Keely Martin Bosler, Director
California Department of Finance
Christopher Ferguson, Program Budget Manager
Education Systems Unit
California Department of Finance
Ryan Miller, Program Budget Manager
Forecasting Unit
California Department of Finance
Lizette Navarette, Executive Vice Chancellor
Institutional Supports and Success
California Community Colleges Chancellor’s Office
California Department of Education Education Protection Account Recorded in the State General Fund
Contents
Audit Report
Summary ............................................................................................................................ 1
Background ........................................................................................................................ 1
Objective, Scope, and Methodology ................................................................................. 3
Conclusion .......................................................................................................................... 4
Views of Responsible Officials .......................................................................................... 4
Restricted Use .................................................................................................................... 4
Schedule—Education Protection Account – Transfers In, Expenditures, and
Changes in Account Balances ....................................................................... 5
California Department of Education Education Protection Account Recorded in the State General Fund
Audit Report
Summary The State Controller’s Office (SCO) audited the Education Protection
Account (EPA), recorded in the State of California’s General Fund, for the
fiscal years ended June 30, 2018, and June 30, 2019.
Our audit found that the Proposition 30 incremental tax funds recorded in
the EPA during the audit period were used and accounted for in a manner
consistent with Article XIII, Section 36 of the California Constitution.
In November 2012, California voters approved Proposition 30, also known
Background
as “The Schools and Local Public Safety Protection Act of 2012.” The
measure, enacted in Article XIII, Section 36, subdivision (f) of the
California Constitution, imposed temporary, incremental tax increases to
stabilize funding for public education. The EPA was created to receive the
funds generated by Proposition 30, and to provide local education agencies
(LEAs) and community college districts (CCDs) with general-purpose
state aid funding pursuant to Article XIII, Section 36, subdivision (e)(3),
paragraphs (A) and (B), of the California Constitution.1
The EPA is administered by the California Department of Education
(CDE). It is a Special Account recorded in the State of California’s
General Fund, and is accounted for under the modified accrual basis of
accounting. Pursuant to Article XIII, Section 36, subdivision (e)(3) of the
California Constitution, all money in the EPA is continuously appropriated
for the support of LEAs and CCDs.
Proposition 30 provided for a one-quarter cent sales tax increase that
expired on December 31, 2016, and an increase in income taxes for
wealthier taxpayers that ends on December 31, 2031. Proposition 30 funds
are allocated quarterly; 89% is allocated to the State Superintendent of
Public Instruction to provide general-purpose funding to LEAs, and 11%
is allocated to the Board of Governors of the California Community
Colleges to provide general-purpose funding to CCDs.
LEAs and CCDs are required to have annual independent financial and
compliance audits. Specific audit procedures for verifying whether funds
from the EPA have been properly disbursed and expended are included in
the LEAs’ and CCDs’ audit guides.
California Department of Finance’s Process to Calculate Proposition 30
Funds Available for Transfer to the Education Protection Account
The California Department of Finance’s (DOF) Revenue and Taxation
section is responsible for estimating the State’s major General Fund and
special fund tax revenues for the Governor’s Budget. DOF monitors and
reports on monthly receipts compared to estimates. DOF is responsible for
estimating revenues for the State as a whole, and estimating the amount of
funds that will be available for transfer into the EPA. DOF prepares the
estimate by forecasting expected personal income tax and sales and use
tax revenues.
1 LEAs include school districts, county offices of education, and charter schools.
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California Department of Education Education Protection Account Recorded in the State General Fund
DOF calculates its estimate in May. In mid-June, DOF provides a
notification letter to the California State Controller of its Proposition 30
revenue estimate, which includes three estimated amounts. DOF’s first
estimate is the initial estimate of Proposition 30 funds that will be available
for the following fiscal year. The second estimate revises the prior fiscal
year’s estimate of Proposition 30 funds based on updated information. The
third estimate is the final estimate of Proposition 30 funds estimated two
years prior. The adjustments from the revenue estimate revisions could be
positive or negative.
California Department of Education’s Process to Account For, Allocate,
and Disburse Proposition 30 Funds to County Treasurers
CDE allocates EPA funds to LEAs based on their proportionate share of
the statewide revenue limit amount, which includes allowances for
Necessary Small Schools and charter school general-purpose funding. If
an LEA’s funding from local property taxes and the EPA exceeds the
LEA’s revenue limit or charter school general-purpose entitlement, then
the LEA’s EPA entitlement may be reduced, provided that it receives the
minimum amount of $200 per unit of average daily attendance.
CDE performs its allocation and disbursement calculations on a quarterly
basis, factoring in the EPA funding requirement criteria. Each quarter,
CDE also prepares a Notice of Apportionment, which includes a payment
summary schedule by county of the amount transferred to each county
treasurer. On its website, CDE provides a schedule of the EPA amounts
that are to be disbursed by the county treasurers to each LEA.
California Community Colleges Chancellor’s Office’s Process to Account
For, Allocate, and Disburse Proposition 30 Funds to County Treasurers
The California Community Colleges Chancellor’s Office (CCCCO)
allocates EPA funds to CCDs based on their proportionate share of the
statewide total computational revenue. The total computational revenue is
the amount that CCDs are guaranteed to receive in state aid, offset by
enrollment fees, local property taxes, and EPA revenues. The CCD’s EPA
entitlement amount is a minimum of $100 per full-time equivalent student
for those CCDs that receive more than their state entitlement amount from
local property taxes and enrollment fees.
CCCCO performs its allocation and disbursement calculations on a
quarterly basis, factoring in the EPA funding requirement criteria. Each
quarter, CCCCO also prepares a notification letter for the EPA’s
apportionment, which includes a payment summary schedule by county of
the amount transferred to each county treasurer. On its website, CCCCO
provides a schedule of the EPA amounts that are to be disbursed by the
county treasurers to each CCD.
Objective, Scope, We conducted this performance audit to determine whether the
Proposition 30 incremental tax funds recorded in the EPA for the fiscal
and Methodology
years ended June 30, 2018, and June 30, 2019, were used and accounted
for in a manner consistent with Article XIII, Section 36 of the California
Constitution.
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California Department of Education Education Protection Account Recorded in the State General Fund
To achieve our audit objective, we performed the following procedures:
We interviewed employees, completed internal control
questionnaires, and performed walk-throughs of the processes used by
DOF to calculate Proposition 30 funds available for transfer to
the EPA.
We interviewed employees, completed internal control
questionnaires, and performed walk-throughs of the processes used by
CDE and CCCCO to account for, allocate, and disburse
Proposition 30 funds to county treasurers.
We traced DOF’s calculations to supporting documentation and
verified the accuracy of its estimates.
We verified the accuracy of the EPA allocations to CDE and CCCCO
in accordance with the California State Constitution.
We verified the accuracy of CDE’s allocation to LEAs and
disbursement of funds to county treasurers for individual LEAs.
We randomly selected representative, non-statistical samples of
payments from county treasurers to individual LEAs to verify that
payments were made correctly and in a timely manner. We did not
project the results of testing to the intended (total) population.
We verified the accuracy of CCCCO’s allocation to CCDs and
disbursement of funds to county treasurers for individual CCDs.
We applied analytical procedures to all payments from county
treasurers to individual CCDs, in lieu of sampling, to verify that
payments were made correctly and in a timely manner. We did not
project the results to the intended (total) population.
We limited our review of internal control to gaining an understanding of
the processes established as follows:
By DOF to calculate Proposition 30 funds available for transfer to
the EPA;
By CDE to account for, allocate, and disburse the Proposition 30 funds
to the county treasurers; and
By CCCCO to account for, allocate, and disburse the Proposition 30
funds to the county treasurers.
Our audit scope did not include assessing the efficiency or effectiveness
of program operations. We did not audit the EPA’s financial statements.
The legal authority to conduct this audit is set forth in Article XIII,
Section 36, subdivision (g)(1) of the California Constitution, which
requires SCO to audit the EPA “to ensure that those funds are used and
accounted for in a manner consistent with this section.” We conducted this
audit in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for
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California Department of Education Education Protection Account Recorded in the State General Fund
our findings and conclusions based on our audit objective. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objective.
Conclusion Our audit found that the Proposition 30 incremental tax funds recorded in
the EPA for the fiscal years ended June 30, 2018, and June 30, 2019, were
used and accounted for in a manner consistent with Article XIII,
Section 36 of the California Constitution.
We also found that $6.3 million of disbursed EPA funds was illicitly
obtained through fraud perpetrated by an organization falsifying
enrollment data. CDE disallowed the funding, and, as a result of
indictment allegations and arraignment cooperation, the $6.3 million in
EPA funds was fully recovered. Final settlement hearings are in process.
Views of CDE, CCCCO, and DOF each indicated, in separate emails, that they had
no comments related to the information presented in this report.
Responsible
Officials
Restricted Use This audit report is solely for the information and use of CDE, CCCCO,
DOF, and SCO; it is not intended to be and should not be used by anyone
other than these specified parties. This restriction is not intended to limit
distribution of this audit report, which is a matter of public record and is
available on the SCO website at www.sco.ca.gov.
Original signed by
KIMBERLY TARVIN, CPA
Chief, Division of Audits
August 12, 2022
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California Department of Education Education Protection Account Recorded in the State General Fund
Schedule—
Education Protection Account – Transfers In, Expenditures, and
Changes in Account Balances
for Fiscal Years Ended June 30, 2018, and June 30, 2019
June 30, 2018 June 30, 2019
Transfers In
To CDE for LEAs:
Personal Income Tax $ 6 ,809,114,100 $ 7 ,697,384,830
Sales and Use Tax - -
Subtotal 6,809,114,100 7,697,384,830
To CCCCO for CCDs:
Personal Income Tax 841,575,900 951,362,170
Sales and Use Tax - -
Subtotal 841,575,900 951,362,170
Total Transfers In 7,650,690,000 8,648,747,000
Expenditures
Disbursements to County Treasurers:
For LEAs 6,809,346,829 7,697,381,721
For CCDs 841,575,900 951,362,170
Total Expenditures 7,650,922,729 8,648,743,891
Excess (Deficiency) of Transfers In Over Expenditures ( 232,729) 3,109
Beginning Account Balance 232,749 2 0
Ending Account Balance1 $ 20 $ 3 ,129
__________________________
1 Ending balances resulted from adjustments to LEA payments that were subsequently reallocated to other LEAs.
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State Controller’s Office
Division of Audits
Post Office Box 942850
Sacramento, CA 94250
http://www.sco.ca.gov
S21-P30-0001