Unbudgeted spending, poor estimate of actual costs and lack of
communication
The Morgan Hill School District cannot continue some of its fiscal practices, the district’s auditor has warned trustees.
Auditor John Goodell, of Goodell, Porter & Fredericks said he believes the district can pull itself out of its present financial difficulties, but only if there is sufficient oversight.
“We are reminding the district that even if there is not an electronic system available (to monitor the budget and spending), there needs to be someone who’s job that is,” Goodell said last week during an annual review of district financial management practices.
“Each program budget needs oversight and you need to receive reliable monthly reports. There needs to be someone who says that if the money is not in the budget for something, it cannot be paid out. The business office should not be paying money out without this.”
Board watcher Harlan Warthan told board members they should read the audit report very carefully.
“You have a serious situation here which continues to plague the financial position of the district,” he said. “You need to take the time to make this (the topic of) a special meeting.”
Deputy Superintendent Bonnie Tognazzini, who heads the business services department, said she takes the audit report seriously, but believes the trustees and district officials are aware of the financial predicament.
“I believe he (Goodell) was cautioning the board that you must continue to cut or you won’t make it,” she said Friday. “We’re being diligent, and we will stay that course … It’s my job to raise the red flag. (The cuts that have been made) don’t give you much margin for unexpected items. But we have to stay the course and find a way in the general fund to give ourselves larger margins.”
“The district should institute procedures to assure that no funds are spent without budget authorization, and the district should implement a position control system in order to more effectively control personnel expenditures and to ensure accurate budget projections,” Goodell recommended in the report.
The audit report findings included the fact that the 2003-2004 budget approved by the School Board “may not account for all district employees.” The report also said supplies were purchased and contracts entered into “without district knowledge” by employees, and the employees then requested reimbursement.
Other findings included: the budget did not reflect actual operations; that there was “poor estimate” of actual costs, unbudgeted expenditures, and a “lack of communication and incorrect data exchanged between departments.”
The report recommended greater controls, such as monthly bank reconciliations and either an electronic oversight system or a person in each department whose job it is to monitor the budget for that department or school site.
Goodell also noted that the district reserves have dipped below 3 percent.
The board approved cuts of more than $3 million, proposed by the performance-based budget committee, from this year’s budget and the year before cut $2.6 million. The district has pulled money from economic uncertainty reserves required by the state, until they are 1.7 percent of the general fund, rather than the required 3 percent. The district was allowed to dip into these reserves without penalty last year, but the audit report recommends the balance be built up to 3 percent again.
Trustee Mike Hickey asked Goodell what would happen if the district doesn’t have reserves.
“The county is going to be requiring additional reports,” said Goodell. “County officials will take a more active role in insuring there is an active fiscal recovery program in place.”
Trustee Jan Masuda asked Goodell to give trustees his opinion of the audit.
“Is this a clean audit,” she asked. “Are we a district that has problems that other districts in the state have, or are we on the verge of bankruptcy?”
The district can recover, Goodell said.
“The district has a strong financial management team,” he said. “If I didn’t feel that way, I’d be very concerned. These issues can be overcome, the district can improve. My firm audits about 70 California districts, and it is the trend that we have seen, that districts’ reserves have dipped below the 3 percent.
“Everyone was surprised with mid-year cuts last year. But it doesn’t mean you can be less diligent. These are issues that can be solved, and I think Morgan Hill will solve them. But the trend cannot continue.”
With statewide education funding up in the air and unknown operating costs for the new Sobrato High School, trustees may be looking at more cuts for next year.
