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Report Number: 2017-104

Montebello Unified School District
County Superintendent Intervention Is Necessary to Address Its Weak Financial Management and Governance

November 2, 2017 2017-104

The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814

Dear Governor and Legislative Leaders:

As requested by the Joint Legislative Audit Committee, the California State Auditor presents this audit report, which outlines our findings regarding Montebello Unified School District's (Montebello) financial practices, performance, and related issues. This report concludes that intervention is necessary to address Montebello's weak financial management and governance. Montebello, which serves approximately 28,000 students in Los Angeles County, has been the subject of public scrutiny in the face of its declining financial situation. Most significantly, Montebello is in danger of becoming financially insolvent. The Montebello Unified School District Board of Education (board) has failed to take appropriate action to contain increasing costs in the face of declining enrollment, the primary driver for the district's funding. The board has continually ignored warnings from its oversight agency—the Los Angeles County Office of Education (LACOE)—which has repeatedly urged it to curtail deficit spending. Instead, the board continued to approve budgets in which expenditures exceeded revenues. In August 2017, LACOE rejected Montebello's fiscal year 2017–18 budget because Montebello projected being unable to meet its financial obligations in fiscal years 2018–19 and 2019–20.

Contributing to its financial challenges, Montebello exercised poor governance by failing to consistently follow its hiring processes and by employing individuals in extraneous high-paying positions. Specifically, Montebello failed to follow its hiring processes, such as advertising job postings and performing interviews, for eight of the 10 individuals we reviewed, most occupying high-ranking positions. Therefore, it did not ensure that it hired the most suitable executives and management. Further, our review determined that Montebello hired employees into positions for which they did not meet the minimum qualifications, including a high-ranking position responsible for overseeing Montebello's roughly $300 million budget.

Moreover, Montebello did not ensure the proper oversight of millions of dollars in bond funds, putting these funds at risk of abuse. Further, Montebello failed to ensure that its employees did not have conflicts of interest when they approved expenditures and contracts related to the bond funds. Also of concern, Montebello's lack of oversight over its expenditures led to Montebello wasting public resources during this period of financial distress. Lastly, the Montebello adult education program likely misrepresented its enrollment and imprudently managed two of its revenue sources—state funding and student fees—at the expense of the community that it serves.

Taken as a whole, the concerns raised in this report call for significant change if Montebello is to avoid financial insolvency. The Los Angeles County superintendent should take immediate actions to reverse Montebello's current trajectory, such as helping Montebello to justify its workforce size and cost compared to its enrollment projections.

Respectfully submitted,

State Auditor

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