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The San Ramon Valley Unified School District’s Board of Education is set to continue discussing the district’s financial challenges this week following the conclusion of a review by the California Department of Education.
The report comes following the downgrading of the district’s budget by the Contra Costa County Board of Education earlier this year that shifted the status of its budget from “positive” to “qualified” amid stalled negotiations with the San Ramon Valley Education Association over $13.6 million in cuts that would impact the union.
SRVEA members later ratified an amended agreement with the district after rejecting a first draft that union members said did not provide clear enough language about the possibility of returning to the bargaining table should a block grant from the state be secured in the current school year’s budget, allowing the approval process for the current year’s budget to move forward.
However, the results of a study by the California Department of Education’s Fiscal Crisis Management Assessment Team point to ongoing concerns about the district’s financial management and its ongoing deficit spending, including a marked decrease in General Fund reserves in recent years, a lack of oversight ability from the county, and a lack of fraud prevention practices.
The FCMAT’s report was triggered by the county’s downgrade of the district’s second interim financial report in May, with the team performing fieldwork throughout the district the week of May 19.
Although SRVUSD’s overall score – 38.7% – puts it within the range for “moderate” risk, the FCMAT team concluded instead that the district’s financial situation is overall a “high” financial risk, given its marks on key quantifiers in the report regarding budget and fiscal status.
Concerns raised in the district’s budget development and adoption processes include a lack of board policy or other regulation for evaluating the acceptance of grant money, as well as a lack of process for calculating the projected impact of grant funding on multi-year projections.
Although district staff interviewed for the report said that there were efforts underway to form a grant committee, the report notes that there are “no adopted guidelines, board policies, or evaluation criteria in place to govern the acceptance or review of new grant-funded programs,” or how they could impact financial obligations or credit risk.
The report further found that the district “does not have a detailed budget calendar to effectively organize and guide its budget development,”with the calendar provided for review listing general topics, but no specific tasks and deadlines.
“Although the calendar is posted on the district’s website, interviewees indicated that
staff members with budget-related responsibilities were unaware of its existence and
had not received or used the calendar as part of their regular planning processes,” FCMAT staff wrote in the report. “As a result, the district is not using the calendar as an effective management or communication tool.”
Inaccurate expenditure projections were another major issue noted in the report, despite appearing to be in line with the budget at first glance.
“A review of the financial system report with account line details for the current year revealed several instances of negative balances, indicating that budgeted amounts were insufficient based on actual expenditures to date,” FCMAT staff wrote. “These overages, identified with two months remaining in the fiscal year, suggest a need to strengthen the accuracy of expenditure projections and improve ongoing budget monitoring practices.”
In situations where a purchase might exceed the available funds budgeted, the report notes that the district has what it calls a “budget blocker” in place to stop those purchases, but that “the control is not active throughout the fiscal year.”
“Because there is no established timeline for when the budget blocker is enabled, the district does not consistently prohibit processing of requisitions or purchase orders when the budget cannot support the expenditure,” FCMAT staff wrote.
While the district uses a standard reconciliation form across its more than 50 bank accounts, the absence of a date of reconciliation in that documentation makes it difficult to know whether or not it is happening in a timely manner, “which is required for sound internal control and fiscal oversight of these accounts by business services,” according to the report.
The district was given negative marks in some other cash management attributes ranked in the report, including its lack of future-year cash flow projections, negative balances, and lack of a documented repayment plan for interfund borrowing, without which “the borrowing does not meet statutory requirements for temporary fund transfers,” according to the state’s education code.
The district’s financial outlook is further hampered by declining enrollment over the past decade that is expected to continue for the foreseeable future, resulting in another ding to its score for the operation of some middle and elementary school sites below the 70% minimum standard for the state.
Overall, the report noted concerns over projections of the General Fund balance dropping to “critically low” levels in the coming years, as well as a reliance on budget cut agreements that had not been fully agreed to or implemented yet as of the district’s second interim financial report.
Another major concern identified was the reliance on one-time funds for ongoing expenses, including salaries and benefits, which made up 92.5% of the unrestricted general fund budget in the past fiscal year, above the state average of 86% in the previous fiscal year.
With the district using a different internal financial system than the county’s, FCMAT staff noted that “no automated interface exists to allow real-time sharing between the district and the county office,” according to district staff they’d interviewed. The county’s lack of access to the district’s financial system “limits its ability to efficiently provide oversight, review and assistance,” according to the report.
“It is a best practice to ensure that a county office has read-only access to a district’s financial system,” FCMAT staff wrote.
The district also failed to meet guidelines for a number of internal control and fraud prevention measures according to the report, which found a lack of clarity in whether or not accounts payable and accounts receivable duties are appropriately segregated, supervised, and monitored.
“Although the district has established procedures to ensure cash counts are performed and verified by two individuals, interviewees indicated that some schools and departments may not follow them consistently, suggesting a lack of oversight in accounts receivable processes,” FCMAT staff wrote. “In addition, bank reconciliations are not completed or reviewed in a timely manner, further weakening oversight and internal control in this area.”
Interviews conducted by FCMAT further indicated that district staff “were not aware of any processes or procedures to discourage and detect fraud,” and that the district does not have a process for reporting and investigating possible fraud cases.
Although the district was dinged under leadership and stability metrics for the relatively short tenures of chief business officer Danny Hillman and Superintendent CJ Cammack, FCMAT staff noted that both were returning after previous stints as administrators in the district, and coming from work in their respective roles at the Fremont Unified School District. However, the report found that training and preparation for those positions was lacking.
“In interviews, staff indicated that the district does not have a formal process for
providing training on financial management and budgeting to school and department administrators who are responsible for managing budgets,” FCMAT staff wrote.
While the district was credited with providing multi-year-projections overall, “it has not
effectively used projections to guide its recent financial decisions,” according to the report, with the unrestricted general fund balance shrinking drastically from $28.2 million at the start of the 2021 to 2022 fiscal year to an estimated $1 million at the end of the past fiscal year.
“Despite the fact that its MYPs clearly showed this downward trend, the district continued to approve increased ongoing obligations without taking action to address the structural deficit,” FCMAT staff wrote. “This approach suggests that financial decisions were made without much regard for the district’s projected financial position.”
One reason for this could be another finding, which was that there are no regularly scheduled meetings between HR, payroll, and budget staff in order to “discuss issues and improve processes,” according to the report.
The FCMAT team is set to present its findings to the SRVUSD Board of Education on Tuesday (July 29) at 6 p.m. The agenda is available here.
