Report 96040 Summary - January 2000

California Community Colleges:

The Chancellor's Office Should Exercise Greater Oversight of the Use of Instructional Service Agreements for Training or Services

The State apportions funds to California's community college districts (districts) based on students' attendance in the districts' classes. Districts use the apportionment funds they receive to support their community colleges, including the instruction provided. Districts can use instructional service agreements (ISAs) to contract with public or private entities to provide specific training or services. Furthermore, community colleges can receive apportionment funding for classes given through such agreements; however, state regulations prohibit the districts from requesting such funding for activities fully funded through another source. Although most districts appear to be complying with these regulations, the Chancellor's Office is not properly monitoring the ISAs. As a result, the Chancellor's Office cannot assure that all districts receiving funds through these agreements have met state requirements for receiving the funds.

In response to legislation enacted after the Bureau of State Audits (bureau) May 1996 audit, the Board of Governors of the California Community Colleges adopted revised regulations to prevent districts from inappropriately receiving state apportionment funds. However, the Chancellor's Office has been slow to review and follow up on annual audit reports of districts for which the certified public accountants (CPAs) report the districts' compliance with regulations concerning ISAs. For example, the Chancellor's Office had received 65 of the 71 audit reports for fiscal year 1997-98 by the end of January 1999; however, it had only reviewed 18 as of December 1999. We reviewed the audit reports for all 71 districts and found that the CPAs failed to report 8 districts' compliance with regulations for ISAs. In addition, 2 other audit reports indicated the districts had not complied with the regulations. Because the Chancellor's Office has not yet followed up on these issues, it cannot assure that the $1.3 million of apportionment funds these districts received through ISAs were justified.

Currently, the Chancellor's Office cannot identify districts with ISAs or specify the number of full-time equivalent students (FTES) those agreements generated to obtain state apportionment funding. If the Chancellor's Office required each district to report sufficient information about the agreements and the number of FTES claimed, it could more readily pinpoint specific high-risk districts when it follows up on annual audit reports and could better ensure that districts comply with state regulations.