The California legislature, responding to reports of imprudent spending practices in some school districts, has approved a new program to monitor the audit reports that districts receive annually from outside accounting firms.
Under legislation appended to the 1984-85 state-budget bill, State Comptroller Kenneth Cory, who is an elected official, will have the authority to review school districts’ financial and compliance audits beginning in January. That responsibility is currently assigned to the department of finance, which is directed by Gov. George Deukmejian.
David L. Axelson, audit manager for Mr. Cory, said the comptroller’s office will distribute a new audit guide in January to school districts and certified public accountants. The guide will require schools’ fiscal and compliance audits to be based on “generally accepted accounting principles,” Mr. Axelson said, in an effort to make the audit reports consistent and comparable statewide.
With the state now providing about 75 percent of the money for local districts, “We’d better look after it more carefully,” Mr. Axelson said. “We’re disbursing some $8 billion, including $900,000 in federal funds, to K-12 agencies. We need some assurance those dollars are spent as the law appropriated them.”
He said the comptroller’s office will also want more information in the reports on whether district expenditures for state and federal categorical programs comply with the laws that established the programs.
Additionally, school boards will be required to withhold 5 percent of their audit fees until the comptroller certifies that the audit report conforms to the reporting provisions of the new audit guide.
13 Districts Surveyed
The legislation that places audit review in the hands of the comptroller arose from a report by the comptroller based on a five-month survey of 13 school districts, including eight with known financial difficulties.
“Several of the leas [local education agencies] we visited did not expend funds with due consideration given to their overall financial situation,” the report said. “Several constraints hamper the formative budgetary process, and budget processes were further weakened by problems at the leas themselves.”
Mr. Cory’s investigators found a “wide range of quality” in the financial, internal-control, and categorical-aid-program disclosures in the6lea audit reports they reviewed. “We also noted that ... the auditors did not question costs or have dollar findings in the federal and state categorical-aid programs, despite the fact that those audit reports stated that accounting records did not support costs claimed.”
‘Lack of Consistency’
The comptroller’s review found inconsistency in the quality of the reports and in adherence to state guidelines; insufficient “information pertinent to decisionmaking, initiating corrective measures, or long-range planning"; and, in some cases, a failure by outside accountants to notify school boards and superintendents of problems turned up by the audits.
Some recommendations in the comptroller’s report did not draw immediate legislative support and were assigned to a study group. Included were recommendations to:
Require the annual audit reports to contain a three-year projection of expected revenues and expenditures.
Direct districts to place a fixed percentage of their adopted budget in reserves, to avoid “financial difficulty.”
Require each local school board to appoint an audit committee to select the outside auditor and to review the audit report and any management letter.
