Report 2019-108 Recommendation 10 Responses

Report 2019-108: Sacramento City Unified School District: Because It Has Failed to Proactively Address Its Financial Challenges, It May Soon Face Insolvency (Release Date: December 2019)

Recommendation #10 To: Sacramento City Unified School District

To prevent a similar fiscal crisis in the future, Sacramento Unified should do the following by July 2020:

Have the board adopt a budget methodology, including guidance on the use of one-time funds, the use and maintenance of district reserves, and the maintenance of a balanced budget. The methodology should use the Government Finance Officers Association's best practices as a guide and should address at least the following areas:

Including administrators from different divisions of Sacramento Unified into the budget development process to help ensure the accuracy of projections.

Establishing criteria and measures for success in the budget process, such as whether budget decisions were made with adequate input and deliberation and whether the budget was balanced without using reserves or one-time revenues for ongoing expenditures.

Developing and adhering to a multiyear funding budget plan, with the goal of realigning resources where necessary to fund ongoing expenses with ongoing revenue.

Conducting an analysis of variances in budgeted and actual revenues and expenditures at each interim reporting period. Sacramento Unified should then use this information to inform its estimates for the upcoming fiscal year's budget.

Annual Follow-Up Agency Response From September 2023

In addition to its budgeting processes on the use of one-time funds, the District also continuously monitors revenue and expenditure trend data to revise its budget and prepare budget projections moving forward. As part of the budgeting process, the budget team continuously reviews budget versus expenditure variances and revises the budget for the current year interim reports as well as informing budgeting adjustments for multi-year projections. Additionally, in order to ensure adequate input is incorporated within the budget, the budget team meets in conjunction with the human resources team with every school site and department leader to make sure needs are met and staffing projections are finalized. The budget team also works closely with the executive leadership team to realign resources as necessary to support single and multi-year district initiatives. The District has also created a position control manager position to continuously monitor, reconcile, analyze and project positions throughout the district and ensure alignment between budget and human resources. The district also relies upon the School Services of California dashboard and the Common Message published by the California County Superintendents Business and Administration Services Committee.

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

SCUSD has yet to demonstrate that it has established criteria and measures for success in its budget process. To fully implement this recommendation, we would expect that SCUSD would develop acceptable levels of variation in its budgeted expenditures and investigate variances that exceed those levels to improve its budgets going forward.

Annual Follow-Up Agency Response From October 2022

See Board Policy 3100 on use of One-time funds and increased fund balance reserves to mitigate against deficits. https://www.scusd.edu/board-policies

See also use of one-time funds table included within the adopted budget executive summary. https://www.scusd.edu/2022-2023-fiscal-year

One time funds are used to fund one-time purchases and temporary positions throughout the district. As a part of the ongoing budget development and budget revision processes, the district analyzes one-time expenditures and eliminates, reduces, or transfers expenditures to an ongoing funding source upon expiration of the one-time funding source.

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

In addition to implementing a policy regarding the use of one-time funds, SCUSD also provided a budget development planning calendar, demonstrating that it was involving administrators from different divisions in the budget planning process.

However, SCUSD has yet to demonstrate that it has established criteria and measures for success in its budget process, nor has it demonstrated that it uses budget variances in planning for its future budgets.

Annual Follow-Up Agency Response From October 2021

On February 18, 2021, the Budget Department brought to the Board the proposed revised Board Policy 3100 (Reserves and Use of One-Time Funds), which was approved. See https://www.scusd.edu/sites/main/files/file-attachments/7.3_item.pdf. As such, the 2021-22 adopted budget and 2020-21 unaudited actuals include the schedule of one-time funds. See https://www.scusd.edu/sites/main/files/file-attachments/10.2_item_2.pdf and https://www.scusd.edu/sites/main/files/file-attachments/10.1_item_8.pdf.

The Business Department has obtained a template for budget assumptions and methodologies from a neighboring district and based on that model, is working to prepare a formal procedural document for the District that is consistent with its policies and practices. The District expects that this work will continue and has a goal of completing the document by February 2022 for the 2022-23 budget development cycle.

The department and staff responsible are Superintendent Aguilar and Chief Business Officer Rose Ramos.

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

Sacramento Unified addressed part of our recommendation by adopting a policy regarding the use of one-time funding and detailing the use of those funds in its budget. The policy also requires that Sacramento Unified provide a rationale and a plan for supporting ongoing expenditures in cases where one-time funds are used for such purposes. As we discuss in our report, Sacramento Unified should not rely on one-time funds to support ongoing expenditures. To the extent that it refrains from doing so, it would have addressed this aspect of the recommendation.

1-Year Agency Response

The Budget Department will bring to the Board the proposed revised Board Policy 3100 that provides guidance on the appropriate use of one-time funds and the maintenance of a District reserve above the state required minimum at the second board meeting in January 2021.

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

Although appropriate guidance on the use of one-time funds and maintaining reserves is a portion of our recommendation, the total recommendation goes further to address the problematic budgeting practices we observed during our audit. To fully address this recommendation, the district will need to develop more thorough policies and guidance for use in developing its budget.

6-Month Agency Response

Subsequent to the February 6, 2020, Board Meeting, at the May 21, 2020, Board Meeting, the District brought forward a revised draft of the above Board Policy for a first reading. The Board provided comments and suggestions which staff will address and present at the June 18, 2020 Board Meeting. https://www.scusd.edu/sites/main/files/file-attachments/10.2_31.pdf

Beginning in the spring of 2019, Fiscal and budget staff have been meeting regularly with the LCAP/SPSA Coordinator and Director of State and Federal Programs to review key issues in developing the LCAP and SPSA budget plans. These meetings have resulted in enhancements in LCFF supplemental and concentration reporting to ensure greater alignment between what is base versus supplemental. There is stronger collaboration on the reporting of LCAP variances to ensure that responses reflect the thinking of both the State and Federal team and fiscal services.

During the fall of 2019, a cross department team including the academic office, fiscal, human resources, instructional assistant superintendents, guidance and counseling, master scheduling, technology, and continuous improvement met to redesign the district's one stop staffing and resource allocation process to ensure greater alignment and integration of key discuss processes such as core course pre-registration and SPSA action planning/budgeting. The team has created an integrated planning calendar to ensure that all resource allocation decisions are framed through a financial and student centered return on investment. The work on the additional items of this recommendation will continue into the summer and fall of 2020.

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

We look forward to Sacramento Unified adopting policies that would address our recommendations regarding the use of one-time funds and maintenance of district reserves and we will review its revised budget policies when the district completes them.

60-Day Agency Response

The District agrees with the recommended budget development improvements and with the recent hiring of a Budget Director, the District will work on a plan to implement for the upcoming 2020-21 budget development cycle.

At the February 6, 2020, Board Meeting, the District brought forward a first draft of a revised Budget Policy that includes guidance on the use of One-Time Funds and the maintenance of a district reserve above the State Required Minimum. https://www.scusd.edu/sites/main/files/file-attachments/combined_2-6-20.pdf

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

All Recommendations in 2019-108

Agency responses received are posted verbatim.