2025-108 California Community Colleges Reserve Funds
Some Community Colleges Have Growing Reserves but Lack Clear Spending Plans That Would Improve Student Outcomes
Published: August 6, 2026
Audit Recommendations Disclosure
When an audit is completed and a report is issued, auditees must provide the State Auditor with information regarding their progress in implementing recommendations from our reports at three intervals from the release of the report: 60 days, six months, and one year. Additionally, Senate Bill 1452 (Chapter 452, Statutes of 2006), requires auditees who have not implemented recommendations after one year, to report to us and to the Legislature why they have not implemented them or to state when they intend to implement them. Below is a listing of each recommendation the State Auditor made in the report referenced and a link to the most recent response from the auditee addressing their progress in implementing the recommendation and the State Auditor’s assessment of auditee’s response based on our review of the supporting documentation.
Recommendations to the Legislature
| Recommendation | Current State Auditor Assessment Status |
|---|---|
| Recommendation 1 To ensure that community college districts transparently disclose and substantiate their reserves, the Legislature should consider requiring, similar to elementary and secondary school districts, each community college district to include the following in its annual budgets: – The minimum and maximum recommended reserve amounts established by that district. – The combined assigned, unassigned, and committed ending fund balances that fall short of the minimum or exceed the maximum reserve amounts established by that district. – A statement of reasons that substantiates the need for a projected ending fund balance that falls short of the minimum or exceeds the maximum reserve amounts established by that district. | Pending |
| Recommendation 2 To ensure that districts develop and implement plans to spend funds that exceed their reserve goals, the Legislature should direct the Chancellor’s Office to do the following: – Ensure that districts develop risk‑based reserve policies. – Review a selection of districts’ reserve policies and supporting analyses every year to ensure that it agrees with the district’s minimum and maximum reserve levels. – Annually review appropriate data to ensure that districts adhere to their own reserve policies. – Develop a mechanism, such as requiring quarterly reporting, establishing spending timeframes, or appointing a special trustee, by which to require districts to develop plans to spend unrestricted funds that exceed their reserve goals. | Pending |
| Recommendation 3 To ensure that districts appropriately implement spending plans for excess reserves, the Legislature should direct the Board of Governors to establish a policy to require the Chancellor’s Office to adjust a district’s apportionment in subsequent years if the Chancellor’s Office determines that the district did not develop a maximum reserve policy, did not develop a spending plan for excess reserves, or did not implement its spending plan for a duration of three consecutive years. | Pending |
Recommendations to the CA Community Colleges Chancellor’s Office
| Recommendation | Current State Auditor Assessment Status |
|---|---|
| Recommendation 4 To ensure that it can consistently and accurately monitor districts’ fiscal stability, the Chancellor’s Office should, effective immediately, revise its calculation of the districts’ reserve percentages to reflect their unrestricted general fund balances as a percentage of their total general fund expenditures, as stated in its guidance. | Pending |
| Recommendation 5 To ensure that districts maintain appropriate levels of reserves, the Chancellor’s Office should, by January 2027, develop a process to monitor districts’ reserve levels annually. If a district falls below its minimum or exceeds its maximum reserves, the Chancellor’s Office should require the district to provide a plan to bring its reserve levels within those required by the district’s policy. | Pending |
| Recommendation 6 To ensure that districts develop and implement comprehensive risk-based reserve policies, the Chancellor’s Office should, by January 2027, develop a process to require all districts to conduct a risk-based assessment of their reserve needs and develop or revise their reserve policies and procedures to quantify the minimum and maximum reserves they should maintain. | Pending |
| Recommendation 7 To ensure that districts develop and implement comprehensive risk-based reserve policies, the Chancellor’s Office should, by January 2027, develop a process to require all districts to specify the reason for the reserve limits they set, the circumstances under which they can use reserves, and the actions they will take when reserves fall short of or exceed the designated reserve range. | Pending |
| Recommendation 8 To ensure the sufficiency of districts’ reserve policies, the Chancellor’s Office should, by January 2027, develop a process for reviewing these policies to determine whether they are reasonable and whether the districts have performed risk analyses to support them. | Pending |
| Recommendation 9 To ensure that districts comply with its guidance and report accurate financial information, the Chancellor’s Office should, by January 2027, develop comprehensive policies, procedures, and practices for monitoring districts’ financial reporting, including ensuring that the districts maintain and report accurate and consistent financial records. Policies, procedures, and practices should include verifying that revenue, expenditures, fund balances, and classifications of fund balances that districts report in their adopted budgets are consistent with those they report in their fiscal reports to the Chancellor’s Office. | Pending |
| Recommendation 10 To ensure that districts comply with its guidance and report accurate financial information, the Chancellor’s Office should, by January 2027, develop comprehensive policies, procedures, and practices for monitoring districts’ financial reporting, including ensuring that the districts maintain and report accurate and consistent financial records. Policies, procedures, and practices should include verifying that revenue, expenditures, fund balances, and classifications of fund balances for all fund types that districts report in their audited financial statements are consistent with those that they report in their annual fiscal report to the Chancellor’s Office. | Pending |
| Recommendation 11 To ensure that districts comply with its guidance and report accurate financial information, the Chancellor’s Office should, by January 2027, develop comprehensive policies, procedures, and practices for monitoring districts’ financial reporting, including ensuring that the districts maintain and report accurate and consistent financial records. Policies, procedures, and practices should include that to the extent that the Chancellor’s Office identifies reporting inaccuracies or inconsistencies, it should notify the district and require it to correct the errors. | Pending |
| Recommendation 12 To ensure that the Chancellor’s Office maintains current and accurate financial information provided by the districts, the Chancellor’s Office should, by October 2026, include in its written guidance and remind districts of its expectations that districts provide it with updated, accurate budgeted information. | Pending |
| Recommendation 13 To ensure that the Chancellor’s Office has accurate financial data from the districts to conduct its monitoring, the Chancellor’s Office should, by January 2027, establish a policy to require districts to report all governmental and business type activities in their audited financial statements or, at minimum, obtain audit reconciliations that support the districts’ annual audits. If the Chancellor’s Office requires districts to include governmental reporting in their audited financial statements, it should also direct districts to follow government accounting standards in reporting their fund balances under the appropriate classifications. | Pending |
| Recommendation 14 To ensure efficient and effective use of state funds, the Chancellor’s Office should, by October 2026, require districts to disclose in their budgets the classification of all fund balances as nonspendable, restricted, committed, assigned, and unassigned, as appropriate. | Pending |
Recommendations to the Legislature
Recommendation 1
To ensure that community college districts transparently disclose and substantiate their reserves, the Legislature should consider requiring, similar to elementary and secondary school districts, each community college district to include the following in its annual budgets:
- The minimum and maximum recommended reserve amounts established by that district.
- The combined assigned, unassigned, and committed ending fund balances that fall short of the minimum or exceed the maximum reserve amounts established by that district.
- A statement of reasons that substantiates the need for a projected ending fund balance that falls short of the minimum or exceeds the maximum reserve amounts established by that district.
Agency response status:
Pending
Recommendation 2
To ensure that districts develop and implement plans to spend funds that exceed
their reserve goals, the Legislature should direct the Chancellor’s Office to do
the following:
- Ensure that districts develop risk‑based reserve policies.
- Review a selection of districts’ reserve policies and supporting analyses every year to ensure that it agrees with the district’s minimum and maximum reserve levels.
- Annually review appropriate data to ensure that districts adhere to their own reserve policies.
- Develop a mechanism, such as requiring quarterly reporting, establishing spending timeframes, or appointing a special trustee, by which to require districts to develop plans to spend unrestricted funds that exceed their reserve goals.
Agency response status:
Pending
Recommendation 3
To ensure that districts appropriately implement spending plans for excess reserves, the Legislature should direct the Board of Governors to establish a policy to require the Chancellor’s Office to adjust a district’s apportionment in subsequent years if the Chancellor’s Office determines that the district did not develop a maximum reserve policy, did not develop a spending plan for excess reserves, or did not implement its spending plan for a duration of three consecutive years.
Agency response status:
Pending
Recommendations to the CA Community Colleges Chancellor’s Office
Recommendation 4
To ensure that it can consistently and accurately monitor districts’ fiscal stability, the Chancellor’s Office should, effective immediately, revise its calculation of the districts’ reserve percentages to reflect their unrestricted general fund balances as a percentage of their total general fund expenditures, as stated in its guidance.
Agency response status:
Not fully implemented
Date of implementation:
June 2027
State Auditor assessment status:
Pending
60-Day Agency Response
As recommended, the Chancellor’s Office currently calculates unrestricted general fund reserves as a percentage of total general fund expenditures when conducting Fiscal Forward analyses and preparing the Annual Fiscal Resiliency Report. To ensure districts receive information based on this methodology, beginning in Spring 2027, the Chancellor’s Office will identify and prioritize Fiscal Forward sessions for districts that have not previously participated in a session. Additionally, the Chancellor’s Office is currently reviewing the ability to include this calculation within annual fiscal resiliency report.
Recommendation 5
To ensure that districts maintain appropriate levels of reserves, the Chancellor’s Office should, by January 2027, develop a process to monitor districts’ reserve levels annually. If a district falls below its minimum or exceeds its maximum reserves, the Chancellor’s Office should require the district to provide a plan to bring its reserve levels within those required by the district’s policy.
Agency response status:
Not fully implemented
Date of implementation:
Jan. 2027
State Auditor assessment status:
Pending
60-Day Agency Response
The Chancellor’s Office is reviewing the recommendation and evaluating options for an annual reserve monitoring process, including procedures for obtaining reserve policies and spending plans from selected districts as part of future monitoring activities.
Recommendation 6
To ensure that districts develop and implement comprehensive risk-based reserve policies, the Chancellor’s Office should, by January 2027, develop a process to require all districts to conduct a risk-based assessment of their reserve needs and develop or revise their reserve policies and procedures to quantify the minimum and maximum reserves they should maintain.
Agency response status:
Not fully implemented
Date of implementation:
Jan. 2027
State Auditor assessment status:
Pending
60-Day Agency Response
The Chancellor’s Office is reviewing the recommendation and evaluating approaches for developing guidance related to risk-based reserve assessments and reserve policies. Implementation options and policy considerations are currently under review.
Recommendation 7
To ensure that districts develop and implement comprehensive risk-based reserve policies, the Chancellor’s Office should, by January 2027, develop a process to require all districts to specify the reason for the reserve limits they set, the circumstances under which they can use reserves, and the actions they will take when reserves fall short of or exceed the designated reserve range.
Agency response status:
Not fully implemented
Date of implementation:
Jan. 2027
State Auditor assessment status:
Pending
60-Day Agency Response
The Chancellor’s Office is reviewing the recommendation and evaluating potential approaches related to risk-based reserve assessments and reserve planning practices. Implementation options and related considerations are currently under review and will be discussed with stakeholders.
Recommendation 8
To ensure the sufficiency of districts’ reserve policies, the Chancellor’s Office should, by January 2027, develop a process for reviewing these policies to determine whether they are reasonable and whether the districts have performed risk analyses to support them.
Agency response status:
Not fully implemented
Date of implementation:
Jan. 2027
State Auditor assessment status:
Pending
60-Day Agency Response
The Chancellor’s Office is reviewing the recommendation and evaluating potential procedures for reviewing district reserve policies and supporting documentation related to reserve levels and risk assessments. Implementation options and related considerations are currently under review and will be discussed with stakeholders.
Recommendation 9
To ensure that districts comply with its guidance and report accurate financial information, the Chancellor’s Office should, by January 2027, develop comprehensive policies, procedures, and practices for monitoring districts’ financial reporting, including ensuring that the districts maintain and report accurate and consistent financial records. Policies, procedures, and practices should include verifying that revenue, expenditures, fund balances, and classifications of fund balances that districts report in their adopted budgets are consistent with those they report in their fiscal reports to the Chancellor’s Office.
Agency response status:
Not fully implemented
Date of implementation:
Jan. 2027
State Auditor assessment status:
Pending
60-Day Agency Response
The Chancellor’s Office has communicated its expectation that districts maintain and report accurate financial information and promptly correct identified inaccuracies. These expectations were communicated during the Budget Workshop on July 29, 2026, and the Community Colleges Internal Auditors Conference on October 2, 2026.
The Chancellor’s Office will continue to communicate these expectations through listserv email notifications distributed to chief business officers and other district leadership, reminders to Fiscal Portal users, trainings, and presentations at major conferences, including the Association of Chief Business Officials (ACBO) Conference on October 28, 2026. The Chancellor’s Office reviews district-submitted financial information and follows up with districts when reporting discrepancies are identified. The Chancellor’s Office is also reviewing the potential to add another clear-up time period within its fiscal reporting structure to capture local revisions so that inaccuracies can be noted and corrected.
Recommendation 10
To ensure that districts comply with its guidance and report accurate financial information, the Chancellor’s Office should, by January 2027, develop comprehensive policies, procedures, and practices for monitoring districts’ financial reporting, including ensuring that the districts maintain and report accurate and consistent financial records. Policies, procedures, and practices should include verifying that revenue, expenditures, fund balances, and classifications of fund balances for all fund types that districts report in their audited financial statements are consistent with those that they report in their annual fiscal report to the Chancellor’s Office.
Agency response status:
Not fully implemented
Date of implementation:
Jan. 2027
State Auditor assessment status:
Pending
60-Day Agency Response
The Chancellor’s Office has communicated its expectation that districts maintain and report accurate financial information and consistently report financial data across reporting submissions. These expectations were communicated during the Budget Workshop on July 29, 2026, and the Community Colleges Internal Auditors Conference on October 2, 2026.
The Chancellor’s Office will continue to communicate these expectations through listserv email notifications distributed to chief business officers and other district leadership, reminders to Fiscal Portal users, trainings, and presentations at major conferences, including the Association of Chief Business Officials (ACBO) Conference on October 28, 2026. The Chancellor’s Office reviews district-submitted financial information and follows up with districts when reporting discrepancies are identified, while evaluating potential approaches related to the consistency of financial information reported in district audited financial statements and annual fiscal reports submitted to the Chancellor’s Office.
Recommendation 11
To ensure that districts comply with its guidance and report accurate financial information, the Chancellor’s Office should, by January 2027, develop comprehensive policies, procedures, and practices for monitoring districts’ financial reporting, including ensuring that the districts maintain and report accurate and consistent financial records. Policies, procedures, and practices should include that to the extent that the Chancellor’s Office identifies reporting inaccuracies or inconsistencies, it should notify the district and require it to correct the errors.
Agency response status:
Not fully implemented
Date of implementation:
Jan. 2027
State Auditor assessment status:
Pending
60-Day Agency Response
The Chancellor’s Office has communicated its expectation that districts maintain and report accurate financial information and promptly correct identified inaccuracies. These expectations were communicated during the Budget Workshop on July 29, 2026, and the Community Colleges Internal Auditors Conference on October 2, 2026.
The Chancellor’s Office will continue to communicate these expectations through listserv email notifications distributed to chief business officers and other district leadership, reminders to Fiscal Portal users, trainings, and presentations at major conferences, including the Association of Chief Business Officials (ACBO) Conference on October 28, 2026. The Chancellor’s Office reviews district-submitted financial information and follows up with districts when reporting discrepancies are identified. The Chancellor’s Office is also reviewing the potential to add another clear-up time period within its fiscal reporting structure to capture local revisions so that inaccuracies can be noted and corrected.
Recommendation 12
To ensure that the Chancellor’s Office maintains current and accurate financial information provided by the districts, the Chancellor’s Office should, by October 2026, include in its written guidance and remind districts of its expectations that districts provide it with updated, accurate budgeted information.
Agency response status:
Pending
Recommendation 13
To ensure that the Chancellor’s Office has accurate financial data from the districts to conduct its monitoring, the Chancellor’s Office should, by January 2027, establish a policy to require districts to report all governmental and business type activities in their audited financial statements or, at minimum, obtain audit reconciliations that support the districts’ annual audits. If the Chancellor’s Office requires districts to include governmental reporting in their audited financial statements, it should also direct districts to follow government accounting standards in reporting their fund balances under the appropriate classifications.
Agency response status:
Not fully implemented
Date of implementation:
April 2027
State Auditor assessment status:
Pending
60-Day Agency Response
The Chancellor’s Office will discuss options with stakeholders regarding possible implementation approaches for requiring districts to report governmental and business-type activities in their audited financial statements or provide audit reconciliations that support their annual audits.
Recommendation 14
To ensure efficient and effective use of state funds, the Chancellor’s Office should, by October 2026, require districts to disclose in their budgets the classification of all fund balances as nonspendable, restricted, committed, assigned, and unassigned, as appropriate.
Agency response status:
Not fully implemented
Date of implementation:
Fall 2027 (applicable in FY 2028-29)
State Auditor assessment status:
Pending
60-Day Agency Response
The Chancellor’s Office is reviewing the recommendation and evaluating potential approaches for requiring districts to disclose fund balance classifications in their budget submissions. Stakeholder feedback will be considered as part of the evaluation process.
