Report 2017-104 Recommendation 1 Responses

Report 2017-104: Montebello Unified School District: County Superintendent Intervention Is Necessary to Address Its Weak Financial Management and Governance (Release Date: November 2017)

Recommendation #1 To: Los Angeles County Office of Education

To ensure that Montebello takes the steps necessary to prevent state intervention and regain its positive financial certification, the county superintendent should direct Montebello to submit a corrective action plan to address the issues identified in this report including balancing its budget, amending and adhering to its hiring procedures, and establishing adequate safeguards to ensure that policies related to bond proceeds, conflicts of interest, and the approval of expenditures are implemented and followed.

Annual Follow-Up Agency Response From September 2023

On August 18, 2023, Montebello Unified School District's (MUSD) FY 23-24 budget and Local Control Accountability Plan (LCAP) were approved, however the following concerns were noted which may impact their fiscal solvency:

a. Projected deficit of approximately $29.65 million for FY 23-24 and projected deficits of $3.01 million for FY 24-25 and $10.33 million in FY 25-26

b. The Unrestricted General Fund ending balance is projected to decrease from a beginning balance of approximately $71.25 million in 2023-2024 to an ending balance of approximately $28.26 million in 2025-26.

c. The District's funded average daily attendance reflects a two-year decline totaling 2,390, a decrease of 11.54 percent when compared to FY 2023-24.

d. As of this response, certificated and classified labor contract negotiations for 2023-24 remain unsettled and potential changes have not been calculated and incorporated into projected salary and benefit expenditures at budget.

As of today, because of the concerns noted above, MUSD is required to submit a board-approved fiscal stabilization plan (FSP) with their first interim report; LACOE will be reviewing and commenting on MUSD's FY 23/24 1st interim report and FSP, which is due to our office by December 15th.

Although MUSD has demonstrated the ability to maintain the required level of reserves in the current and two subsequent fiscal years, we are unable to properly assess their internal controls and hiring practices, resulting in the action as being partially implemented.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Annual Follow-Up Agency Response From October 2022

In August 2022, the Los Angeles County Office of Education (LACOE) rescinded Montebello Unified School District's (MUSD) "Lack of Going Concern" designation, however concerns remain regarding the experience and knowledge of MUSD's executive business team. Due to the current chief financial officer's (CFO) unwillingness to meet with the LACOE-appointed fiscal advisor, we are unable to verify MUSD's implementation of this recommendation.

MUSD's FY 22/23 budget and Local Control Accountability Plan (LCAP) was approved by LACOE in September 2022, however the following concerns were noted which may impact their fiscal solvency:

a. Operating deficit of approximately $36.17 million for fiscal year 2022-23 and operating deficits of approximately $10.52 million for 2023-24 and $17.59 million in 2024-25.

b. The Unrestricted General Fund ending balance is projected to decrease from a beginning balance of approximately $93.09 million in 2022-2023 to an ending balance of approximately$28.81 million in 2024-25.

c. The District's funded average daily attendance reflects a two-year loss totaling 1,958, a decrease of 8.70 percent when compared to FY 2022-23.

d. Certificated and classified labor contract negotiations for 2022-23 remain unsettled and potential changes have not been calculated and incorporated into projected salary and benefit expenditures at budget adoption.

LACOE will be reviewing and commenting on MUSD's FY 22/23 1st interim report, which is due to our office by December 15th. At FY 21/22 2nd Interim, MUSD filed a positive certification, which was concurred by LACOE. We are anticipating MUSD filing a positive certification at the FY 22/23 1st interim reporting period. Because MUSD has demonstrated the ability to maintain the required level of reserves, and our inability to properly assess their internal controls, we are noting this action as partially implemented.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Annual Follow-Up Agency Response From October 2021

At the FY 20/21 Second Interim Reporting Period, the District filed a positive financial certification, to which LACOE concurred. LACOE approved the District's FY 21/22 budget. However, the District continues its "Lack of Going Concern" designation, subsequently maintaining the LACOE-appointed Fiscal Advisor. The LACOE Fiscal Advisor continues to work with the District to implement the recommendations. However, he continues to face a lack of responsiveness from the District administration. Due to continued vacancies in classified personnel, the District is unable to conduct a staffing analysis to assess possible overstaffing. In addition, the District is reluctant to curtail spending to compensate for declining enrollment. LACOE's assigned Business Services Consultant continues to monitor fiscal solvency and other budget-related matters.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Annual Follow-Up Agency Response From October 2020

LACOE's Fiscal Advisor continues to work with MUSD to implement the recommendations, however he continues to face resistance from district administration, the district governing board, and the district's personnel commission. Due to key vacancies in certificated and classified personnel, the district is unable to conduct a staffing analysis to assess possible overstaffing due to refilling positions previously vacated as a result of an early retirement incentive. The district is reluctant to curtail spending to compensate for declining enrollment. LACOE's assigned Business Services Consultant continues to monitor the fiscal solvency and other budget related matters on a monthly basis. The district submitted an approvable budget and is projected to maintain a positive certification. The district is currently projecting a healthy ending fund balance and exceeds the statutory 3 percent minimum required economic reserves (REU) for fiscal years 2020-21, 2021-22 and 2022-23.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Annual Follow-Up Agency Response From October 2019

The District continues to work on its action plan to address issues identified in the audit report. The budget submitted for 2019/20 was approved by LACOE. The District continues to have vacancies at key positions within the district leadership. The District has provided no clear evidence or documentation that validates they are adhering to any hiring practices. The Districts Personnel Commission and the Governing Board have been resistant to amending any hiring practice protocols and continue to block or delay the hiring of key district leadership positions. The Districts Citizens Bond Oversight Committee has been active in the past year and meets regularly to review district bond expenditures. Bond audits are current. The District has indicated they are current with filing Conflict of Interest documents (Form 700), but District could produce no validation. District expenditures approvals appear on the Board agendas and are reviewed and approved regularly by the governing board.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

1-Year Agency Response

While District has submitted a corrective action plan to address their budget issues, they continue to lack controls on hiring practices, ensuring adequate safeguards related to bond proceeds and other governance issues. 3 new Board members were elected in November 2018, but have not taken control of their governance. LACOE has provided additional Fiscal Expert staff to assist with addressing the concerns.

California State Auditor's Assessment of 1-Year Status: Pending

6-Month Agency Response

Fiscal Advisor still in place

California State Auditor's Assessment of 6-Month Status: Pending

LACOE should instruct Montebello to submit a corrective action plan to address issues identified in this report including balancing its budget, amending and adhering to its hiring procedures, and establishing adequate safeguards to ensure that policies related to bond proceeds, conflicts of interest, and the approval of expenditures are implemented and followed.

60-Day Agency Response

Communicated with the district leadership during the budget approval process providing direction including the placement of a Fiscal Advisor in the district.

California State Auditor's Assessment of 60-Day Status: Pending

LACOE provided us with its correspondence with Montebello on the various issues Montebello needs to address. LACOE should also instruct Montebello to submit a corrective action plan to address issues identified in this report including balancing its budget, amending and adhering to its hiring procedures, and establishing adequate safeguards to ensure that policies related to bond proceeds, conflicts of interest, and the approval of expenditures are implemented and followed.

All Recommendations in 2017-104

Agency responses received are posted verbatim.