Report 2017-104 Recommendation 7 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 #7 To: Montebello Unified School District

To improve its current financial condition and ensure future viability, Montebello should, within 90 days, implement an effective budget monitoring process with regular budget-to-actual comparisons. This process should include safeguards against spending in excess of budgeted expenditures and require advance board approval of such spending before it occurs. For example, Montebello should require that the budget manager perform monthly reviews of budget-to-actual figures and provide detailed explanations to the board for any variances.

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 made significant changes to make financial reports more transparent. All account numbers have been changed to match the Goals in the LCAP plan. All of the individual school and program budgets are shared with personnel so budgets can be reviewed in real time. Furthermore, the Actuals to Budget spreadsheet is given to the accountants on a weekly basis to assist them in reconciling their programs.

In Fiscal Year 2020-2021, the District created user friendly Google spreadsheets for all schools and departments. This detailed report list updated daily and list all documents that have been processed through Fiscal Services.

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

Montebello did not provide evidence to show that the budget manager performs monthly reviews of budget-to-actual figures and provides detailed explanations to the board for any variances.

Further, 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.

Annual Follow-Up Agency Response From October 2020

MUSD has made significant changes to make financial reports more transparent. All account numbers have been changed to match the Goals in the LCAP plan. All of the individual school and program budgets are shared with personnel so budgets can be reviewed in real time. Furthermore, the Actuals to Budget spreadsheet is given to the Accountants on a weekly basis to assist them in reconciling their programs.

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

Montebello did not provide evidence to show that the budget manager performs monthly reviews of budget-to-actual figures and provides detailed explanations to the board for any variances. Further, 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.

Annual Follow-Up Agency Response From October 2019

MUSD continually reviews and refine its processes to ensure that spending does not exceed budgeted expenditures. The Interim Assistant Superintendent, Business Services monitors and works with staff to ensure monthly reviews continue to occur.

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

Montebello did not provide evidence to show that the budget manager performs monthly reviews of budget-to-actual figures and provide detailed explanations to the board for any variances. Montebello's documentation shows that it has a deficiency of revenues over expenditures in its multi-year projections.

1-Year Agency Response

MUSD continues to refine its processes to ensure that spending does not exceed budgeted expenditures. The Director of Fiscal Services monitors and works with staff to ensure monthly reviews continue to occur.

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 meet certain obligations, but its approved budget projects deficit spending in the two subsequent years.

6-Month Agency Response

The LACOE has informed MUSD that any unfunded expenditures exceeding $25,000 could not be approved by the Board without LACOE's approval (Nov. 28, 2017. The Director of Fiscal Services is working with staff to make sure monthly reviews of budget-to-actual figures becomes the norm.

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

This is a temporary measure while the LACOE Fiscal Advisor is assigned to Montebello and not part of the budget monitoring process. Montebello has not demonstrated that it has implemented safeguards against spending in excess of budgeted expenditures.

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 has not demonstrated that it has implemented safeguards against spending in excess of budgeted expenditures or that it requires advance board approval of such spending before it occurs.

All Recommendations in 2017-104

Agency responses received are posted verbatim.