Report 2017-104 Recommendation 6 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 #6 To: Montebello Unified School District

To improve its current financial condition and ensure future viability, Montebello should create a robust budgeting process within 90 days using best practices of the Government Finance Officers Association to ensure Montebello's ability to meet its priorities while maintaining the required level of reserves that buffers the district from drastic cuts in times of economic instability.

Annual Follow-Up Agency Response From October 2023

The district has developed a robust automated process to aid in budget development and monitoring and has maintained the required level of reserves since the state audit of 2016.

Schools and departments have up-to-date budget worksheets that are maintained on a Google drive. The worksheets are updated daily and include detailed listings of account activity by account string. Finance personnel regularly collaborates with Administrators on budget development and monitoring to ensure that district priorities are being met.

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

According to an August 2023 letter from the Los Angeles County Office of Education (LACOE), LACOE remains extremely concerned about the projected trend of deficit spending and its impact on the district's ability to maintain minimum required reserves in future years. Montebello's budgeting practices should address this deficit spending concern by ensuring that actual amount spent does not exceed budgeted amounts.

Annual Follow-Up Agency Response From October 2021

MUSD has established a robust budgeting process to determine necessary reductions and to ensure it maintains the required level of reserves. Furthermore, on August 5, 2021 for the fourth consecutive year, district and school leadership hosted the Leadership Colloquium to review allowable and non-allowable district expenditures with Administrators and Managers. MUSD is utilizing the Government Finance Officers Association's budget monitoring to guide our budgeting process.

The District follows the California Department of Education (CDE) timelines and submits the budget to the Los Angeles County Office of Education (CDE) prior to July 1st of each year, submits quarterly Interim Reports in December and March, and Estimated Actuals by July.

As of June 30, 2021, the District had a reserve of approximately $88 million, of which approximately $12 million was needed to meet the minimum 3% required Reserve for Economic Uncertainties.

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

A January 2021 report by the Fiscal Crisis and Management Assistance Team (FCMAT) indicated that Montebello is at high risk of insolvency. FCMAT stated that the loss of revenue due to the year-over-year enrollment decline is of significant concern, which the district projects will continue into the subsequent fiscal years. It added that the erosion of the unrestricted general fund ending balance because of ongoing deficit spending is also an area of concern. In addition, FCMAT cited Montebello's budget development and monitoring as significant risk factors. Until Montebello creates a budgeting process that addresses these risks, this recommendation would not be fully implemented.

Annual Follow-Up Agency Response From October 2020

MUSD has established a robust budgeting process to determine necessary reductions and to ensure it maintains the required level of reserves. Furthermore, on August 4, 2020, for the third consecutive year, district and school leadership hosted the Fiscal Crisis and Management Assistance Team to review allowable and non-allowable district expenditures. MUSD is utilizing the Government Finance Officers Association's budget monitoring to guide our budgeting process.

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

According to the Los Angeles County Office of Education (LACOE), Montebello 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. However, Montebello's multi-year projections from its 2020-21 budget shows its general fund expenditures are expected to exceed its revenue from 2020-21 through 2022-23--resulting in a declining fund balance. LACOE further notes that Montebello is reluctant to curtail spending to compensate for declining enrollment.

Annual Follow-Up Agency Response From October 2019

MUSD continues to work closely with the Los Angeles County Office of Education to establish a robust budgeting process to determine necessary reductions and to ensure it maintains the required level of reserves. Furthermore, on August 8, 2019 district and school leadership hosted a second annual Fiscal Crisis and Management Assistance Team to review allowable and non-allowable district expenditures. MUSD is utilizing the Government Finance Officers Association's budget monitoring to guide our budgeting process.

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

Montebello has not demonstrated that it has fully implemented our recommendation. Montebello's documentation shows that it has a deficiency of revenues over expenditures in its multi-year projections.

1-Year Agency Response

MUSD has worked closely with the Los Angeles County Office of Education to establish a robust budgeting process that ensures maintaining the required level of reserves while it continues to provide and enhance education programs for the students it serves. Furthermore, on August 9, 2018 district and school leadership hosted the Fiscal Crisis and Management Assistance Team to review allowable and non-allowable district expenditures. MUSD is utilizing the Government Finance Officers Association's budget monitoring to guide our budgeting process.

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

Montebello had not demonstrated that it has fully implemented our recommendation. It used one-time transfers to help meet certain obligations, but its approved budget projects deficit spending in the two subsequent years.

6-Month Agency Response

MUSD continues to work with staff to discuss budget development including review of expenditures across all funding sources. Departments have been directed that funding level will be at a ten percent reduction across the board for fiscal year 2018-2019 and 2019-2020. This will be included in our adopted budget and narrative for the 2018-2019 fiscal year provided to the Los Angeles County Office of Education (LACOE) for the next three years and will be subject to their approval.

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

Montebello should review the best practices of the Government Finance Officers Association when creating its budgeting process.

60-Day Agency Response

MUSD continues addressing its ongoing commitments and ability to meet its priorities, including maintaining the legally required level of reserves. Effective November 8, 2017, MUSD was assigned a Los Angeles County Office of Education (LACOE) Fiscal Adviser, Mr. Mark Skvarna, who on an on-going manner is assisting with all fiscal matters. Furthermore, on December 21, 2017, the Board of Education approved the First Interim Budget with a "Positive" certification. A budget monitoring process is also evident via the Revenue and Expense Committee whereby representatives from the District Office, Classified School Employees Association (CSEA), Montebello Teacher Association (MTA), and Association of Montebello School Administrators (AMSA) meet to review the annual allocated budget and expenditures on a monthly basis.

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

Montebello's proposed monitoring process does not address the recommendation. Montebello needs to create a budgeting process to develop and implement a planned budget. Montebello should review the best practices of the Government Finance Officers Association when creating its budgeting process.

All Recommendations in 2017-104

Agency responses received are posted verbatim.