FCMATJoel D. Montero, Chief Executive O�cer

1300 17th Street - CITY CENTRE, Bakers�eld, CA 93301-4533 . Telephone 661-636-4611 . Fax 661-636-4647755 Baywood Drive, 2nd Floor, Petaluma, CA 94954 . Telephone: 707-775-2850 . Fax: 661-636-4647 . www.fcmat.org

Administrative Agent: Mary C. Barlow - O�ce of Kern County Superintendent of Schools

March 14, 2017

Keith Snow-Flamer, Ph.D., President/SuperintendentRedwoods Community College District7351 Tompkins Hill RoadEureka, CA 95501

Dear Dr. Snow-Flamer,

The purpose of this management letter is to present the Fiscal Health Risk Analysis prepared by the Fiscal Crisis and Management Assistance Team (FCMAT) resulting from the request of, and review of, Redwoods Community College District (RCCD), more commonly known as College of the Redwoods (the district). As indicated in the study agreement dated December 21, 2016, FCMAT was to perform the following scope of work:

1. Review RCCD’s 2016-17 general fund budget and multiyear financial projection (MYFP) for the current and two subsequent fiscal years to validate the district’s finan-cial status based on current economic forecasts to sustain recommended reserve levels and to maintain financial solvency and stability. Based on the review, make recom-mendations for expenditure reductions and/or revenue enhancements to maintain financial solvency if needed.

2. Using FCMAT’s Fiscal Health Risk Analysis for Community Colleges, complete a fiscal health analysis of the district and its risk of insolvency in the current and two subsequent fiscal years based on key fiscal indicators.

FCMAT, in conjunction with Cambridge West Partnership, LLC, spent three days in the district meeting with staff in-person and online, toured the main campus, researched district documents and attended a board meeting.

FCMAT reviewed and provided guidance to the district on its 2016-17 general fund budget and MYFP for the current and two subsequent fiscal years. FCMAT also completed a Fiscal Health Risk Analysis to provide an overview of its fiscal condition and a blueprint to help determine the next steps in developing an overall financial plan. FCMAT did not complete a comprehensive audit or review of the district’s financial reports.

The district, established in 1964, is located on northern California’s Redwood Coast and serves a diverse population of communities in Del Norte and Humboldt counties as well as the northwest section

of Mendocino and western edge of Trinity counties. The main campus is located south of Eureka in Humboldt County, education centers are in Fort Bragg and Crescent City, instructional sites are located in Hoopa and Garberville, and the district’s community education office is located in downtown Eureka.

The district should work with community and Native American advocates to seek enhanced educational funding for the reservations. Although there are 10 tribes in the district’s geography, they are small. A multi-constituency effort will be required.

The combination of a large sparsely populated district with one of the smallest number of Full Time Equivalent Students (FTES) in the state qualifies the district to be included in a group of 11 districts that are classified in statute as small rural districts in terms of receiving state funding. Because of current state funding models and the unique difficulties faced in small rural districts, the district should consider focusing the district’s new advocacy representative on increasing funding that is authorized in California Code of Regulations, Title 5, Section 58771(i)(12). The district has already taken steps in that direction with the January 2017 action of approving an advocacy contract.

Based on FCMAT’s Fiscal Health Risk Analysis for Community Colleges, the district’s risk level is moderate with a score of 37% (7 no/19 total). The district has experienced a steep decline in FTES, resulting in an equally steep decline in revenue. The district has faced the difficulty of identifying expen-diture reductions to balance the budget, while still maintaining essential educational services to offer to its communities.

The district has faced major challenges from over a 30% decrease in enrollment as compared to 2008-09, when the district’s FTES peaked at 5,483. The district is projecting to teach approximately 3,950 appor-tionment generating FTES in 2016-17. The district must pursue every possible option to regain FTES as in 2016-17 the district is projected to lose over $3.1 million available apportionment funding if FTES is not restored to its funded cap of 4,564. Cap is the total FTES that would be funded if the district teaches the FTES. That earning potential would be permanently lost from the district’s base funding since the district will no longer qualify for stabilization funding through the statutes and codes that implemented the Senate Bill (SB) 361 funding formula.

There is no demographic evidence for significant FTES increases before the funding formula permanently reduces the base funding level of FTES, and there is also no evidence from the district of a compre-hensive plan to address the decline in FTES and FTES-generated revenue. Although an enrollment committee is tasked with enrollment management and outreach, the district should consider creating a separate task force to identify and create cost-effective strategies to regain enrollment. This task force should include creative stakeholders, both in and outside the district. Curriculum and student outreach experts also should be included. To increase enrollment, and thus revenue, innovative K-12/commu-nity college programs in California and the rest of the country should be reviewed. Two examples in California include the Long Beach College Promise (www.longbeachcollegepromise.org) 1 and Santa Barbara Promise (www.sbccpromise.org)2. Another possible way to increase revenue is a voter-approved

1 The Long Beach College Promise (The Promise) extends the promise of a college education to every student in the Long Beach Unified School District to create a more “vibrant community.” The Promise is a partnership between Long Beach Unified School District, Long Beach City College, California State University, Long Beach and the city of Long Beach to place higher education within reach for all. The Promise creates a culture of college expectation, increases college readiness and improves graduation rates among Long Beach students.

2 The SBCC Promise will provide any local student who completes their secondary education within the Santa Barbara Community College District with the opportunity to attend SBCC full-time for two years free of charge. The Promise, a project of the SBCC Foundation, uses privately raised funds to cover all enrollment and required fees, required books, and required supplies in an effort to remove economic barriers, making the community college fully accessible to all local students.

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parcel tax. Previously, voters have approved two Proposition 39 bonds that provided additional financial assistance to the district for capital improvement projects. Although the proceeds of the Proposition 39 bonds may not be used for any operational expense, the proceeds of a parcel tax measure can be used for operations.

Given the district’s drastically reduced funding, resources should be focused on the highest priority programs as identified by the program review process to meet the needs of the community. The district has approved Administrative Procedure (AP) 4020, Program and Curriculum Development. AP 4020 is comprehensive and would allow the district to identify programs to meet the community’s needs within limited resources; however, FCMAT could find no evidence that AP 4020 has been uniformly or compre-hensively implemented. Similarly, AP 4021, Program Revitalization and Discontinuation Process, should be followed. This process is excellent on paper, but there is no evidence that it has been consistently and effectively implemented.

The lack of a coordinated plan to address the FTES decline, in addition to the probability of a downturn in the economy, is worrisome. In the past, economic downturns have had major impact on California community college districts. At the same time that state revenues decrease, enrollments and the unem-ployment rate increase. The net result has been less overall funding combined with a greater demand for services. Historically, the situation has also led to higher but unfunded district FTES, and an inadequate level of unrestricted reserves necessary to absorb a multiyear recessionary decline in funding. With the high fixed-cost component of expenditures related to serving a geographically large but low-population district with areas of extremely low-income citizens, there is concern over the future demand for services as well as the potential drain on fund balance. With over 85% of its budget committed to total employee compensation, the district will continue to face the challenge of reducing those costs enough to compen-sate for the declining revenue while offering basic community college services to its communities.

The district has many senior faculty and classified staff, yet there is also a high turnover of top-level administrators. It has been challenging to recruit qualified faculty for some disciplines, and to recruit and retain qualified business division staff. Some of the most challenging disciplines to recruit for have been Agriculture, Automotive Technology, Construction Technology, Digital Media, Drafting Technology, Manufacturing Technology, Welding, Technology and Nursing. FCMAT has concerns about the inability of the district to recruit, hire, train and retain adequately qualified business division staff so that annual audits and required California Community Colleges Chancellor’s Office (CCCCO) reports are submitted within required timelines. Training programs for business division staff at all levels are needed. Additionally, a business processes/workflow study should be considered in the Administrative Services Division, as outlined in Appendix B. Given the small number of staff in the Business Services Division (accounting, fiscal and budget departments) and the recent history of missed deadlines, it is critical that the processes and procedures are as efficient as possible. For staff outside of the business division FCMAT suggests offering an in-house business processes training program at least for those who generate purchasing and budgeting documents, especially in the categorical and specially funded programs.

Many staff throughout the district lack confidence in the district’s fiscal reporting and projections. This appears to be largely due to a lack of clarity and documentation concerning assumptions and processes, insufficient participation in staff development, and inadequate communications. The district could help in this area by initiating ongoing communication and presentation skill and technique training for the Administrative Services Division leadership, and perhaps ongoing mentoring.

The district should consider adopting and following a board policy committed to establishing a minimum level of unrestricted general fund ending balances, including any dedicated reserves in the

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ending balance, to retain fiscal solvency as expenditures continue to increase. There is a non-board-ap-proved goal of increasing the ending balance by .5% per year, but the 2015-16 Final Budget notes that, “Balancing the District’s 2016-17 and 2017-18 budgets without major spending cuts or increased FTES revenue will require additional State base budget increases or some other relief.”3

The Accrediting Commission for Community and Junior Colleges, Western Association of Schools and Colleges, California Community Colleges Chancellor’s Office and FCMAT recommend a California community college maintain a minimum fund balance (which is generally interpreted to mean the same as reserve for economic uncertainty) of 5%, since a 5% reserve covers only a portion of any district’s monthly payroll costs. Other areas to consider including in unrestricted general fund reserve board policy are funds equivalent to any deferrals of the college’s state apportionment, amounts for facility and infra-structure maintenance, and set asides for equipment. Currently, no amounts are set aside for liabilities or one-time costs above the recommended reserve level.

RecommendationsThe district should:

1. Pursue every possible option to regain FTES before the funding is permanently lost.

2. Create a task force to identify and create cost-effective strategies to regain enrollment.

3. Consider focusing the newly contracted advocacy representative on increasing funding for small rural districts.

4. Work with community and Native American advocates to seek enhanced educational funding for the reservations.

5. Investigate innovative K-12/community college initiatives in California and the rest of the country.

6. More vigorously and uniformly implement AP 4020, Program and Curriculum Development.

7. Fully implement AP 4021, Program Revitalization and Discontinuation Process.

8. Investigate the feasibility of a voter-approved parcel tax.

9. Commission a business processes/workflow study to help ensure that processes and procedures are as efficient as possible.

10. Offer training programs for business division staff.

11. Offer an in-house business processes training program for all staff who generate purchasing and budgeting documents.

12. Initiate ongoing communication and presentation skill and technique training for the Administrative Services Division leadership.

3 2015-16 Final Budget approved on 9/8/15, page 4.

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13. Consider a mentoring resource for the business division leadership.

14. Consider developing a new board policy to specifically document the desired level of unrestricted reserves.

FCMAT would like to thank the college and administration for their cooperation and assistance during the fieldwork. If you have any questions or require additional information, please contact me at (415) 987-3104.

Sincerely,

Michelle GiacominiFCMAT Chief Management Analyst

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FCMAT Fiscal Health Risk Analysis Key Fiscal Indicators for Community Colleges

The Fiscal Crisis and Management Assistance Team (FCMAT) has developed this Fiscal Health Risk Analysis for California community colleges as a management tool to evaluate key fiscal indicators that may help measure a community college’s risk of insolvency in the current and two subsequent fiscal years.

The presence of any single criteria is not necessarily an indication of a district in fiscal crisis. However, districts that answer “No” to seven or more of the 19 key indicators may have cause for concern and could require some level of fiscal intervention. The more indicators identified, the greater the potential risk of insolvency or fiscal issues. Identifying issues early is the key to success when it comes to maintaining fiscal health. Diligent planning will enable a district to better understand its financial objectives and strategies to sustain a high level of fiscal efficiency. A district must continually update its budget as new information becomes available both from within the district and from other funding and regulatory agencies. Each of the 19 key indicators below contains several questions. The response given to each key indicator (Yes, No, or N/A) should be approximately the same as that given to a simple majority of its constituent questions.

FCMAT will continue to update this document as additional changes occur in education finance.

Is the district’s fiscal health acceptable in the following areas? Yes No N/A1. Deficit Spending 4

• Isthedistrictavoidingdeficitspendinginthecurrentyear?

The2016-17FinalBudgetadoptedbytheboardonSeptember6,2016isreasonablyconservativeandprojectsamodestincreasetotheendingfundbalance.

TheMonthlyFinancialStatusReportapprovedbytheboardonJanuary10,2017givesnoindicationthatadeficitsituationisdevelopinginthecurrentyear.

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•Isthedistrictavoidingdeficitspendinginthetwosubsequentfiscalyears?

The2016-17FinalBudgetincludesprojectionsforthetwosubsequentfiscalyears.Largeassumed“intrafundtransfersin”areusedtoreflectabalancedbudgetonpaperinbothyears,andtoshowanannual.5%increasetotheendingbalance.FCMATcouldfindnoevidenceoffundingsourcestosupportthemagnitudeofthoseprojectedtransfersin.Infact,itappearsthatthetwotransferamountswerecalculatedtoachievea.5%increaseintheendingbalanceeachyearaftertheconstructionofreasonablyconservativeincomeandexpensebudgets.

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• Hasthedistrictdecreasedoreliminateddeficitspendingoverthepasttwofiscalyears?

Thedistrict’sCCFS-311FinancialStatusReportsfor2012-13,2013-14,and2015-16donotreportdeficitspending.The2014-15CCFS-311doesreportdeficitspending.

Thedistrict’sauditedfinancialstatementsfor2012-13and2013-14donotincludedeficitspending.Theaudited2014-15financialstatementsindicatedeficitspending.

The2015-16columnincludedonpage15ofthe2016-17FinalBudgetdoesnotincludedeficitspending.

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• Isdeficitspendingcoveredbyfundbalance,ongoingrevenues,orexpenditurereductions?

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• Hastheboardapprovedaplantoeliminatedeficitspending? 4

Is the district’s fiscal health acceptable in the following areas? Yes No N/A2. Fund Balance 4

• Isthedistrict’sfundbalanceatorconsistentlyabovetherecommendedreserveforeconomicuncertainty?

TheAccreditingCommissionforCommunityandJuniorColleges(ACCJC),WesternAssociationofSchoolsandColleges,CaliforniaCommunityCollegesChancellor’sOffice(CCCCO)andFCMATrecommendaCaliforniacommunitycollegeminimumfundbalance(whichisgenerallyinterpretedtomeanthesameasreserveforeconomicuncertainty)of5%.

Asdocumentedinthe2016-17FinalBudget,theCCFS-311reportsfor2012-13,2013-14,and2014-15,the2015-16FinalBudgetandinthehistoricalinformationintheboard-approvedMonthly Status Report(agendaItemNo.3.1,January10,2017),thedistrict’sfundbalancehasexceeded5%ofexpendituresandisprojectedtoexceed5%in2016-17.

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• Isthefundbalancestableorincreasingduetoongoingrevenuesand/orexpenditurereductions?

Recentlythefundbalancehasbeenincreasing,butafterthe2016-17fiscalyearitwilldecreaseunlessasourceoffundsfortheintrafundtransfersinisrealized.

Asdocumentedinthe2012-13CCFS-311report,theunrestrictedfundbalancewas5%.

Asdocumentedinthe2015-16CCFS-311Qreport,dated6/30/16,theunrestrictedfundbalancewas6.2%.Theprojectedactual2015-16unrestrictedfundbalanceinthe2016-17FinalBudgetis6.4%.

The2016-17FinalBudgetprojectsfundbalancesof6.9%,7.4%and7.9%for2016-17,2017-18,and2018-19.However,the.5%increasein2017-18and2018-19fundbalancesisachievedbyassumingunidentifiedintrafundtransfersin.Nofundingsourceisidentifiedforthoseintrafundtransfersin.

Intermsofexpenditurereductions,theCaliforniaCommunityCollegesBoardofGovernors(BOG)approvedatransferofterritoryofthedistrict’sremoteMendocinoserviceareatoMendocinoCollegeonJuly18,2016.ThattransferwilltakeeffectonJuly1,2017.Thisisasignificantcost-savingstrategythatdoesnotnegativelyimpactcurrentandpotentialstudents.BecausetheMendocinoCenterwassofaraway(morethanathree-hourdrive)fromtherestofthedistrict,operationssupportstaffcouldnotbesharedamongthedistrict’slocations.Thatresultedinveryhighoperationalcostsassociatedwiththissmallcenter.

Eventhoughthedistricthasreducedsalaryschedules(currentfacultysalariesarestillcloseto2009levels),laidoffpermanentclassifiedstaffin2013,anddiscontinuedacademicprograms,thefundbalancestillisnotstableorincreasing.

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• Doesthefundbalanceincludeanydesignatedreservesforunfundedliabilitiesorone-timecostsabovetherecommendedreservelevel?

ThereisnomentioninBoardPolicyorAdministrativeProcedures(BP/APs6200,6250or6300)ofdesignationswithinthefundbalance.

Nodesignatedreservesforunfundedliabilitiesaresetupinthegeneralfundbudget.Thedistrictdoesholdset-asidesinotherfunds;forexample,anOPEB(OtherPost-EmploymentBenefits)fund.

Thereisnoindicationofdesignationsinthe2016-17FinalBudget.

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Is the district’s fiscal health acceptable in the following areas? Yes No N/A3. Reserve for Economic Uncertainty 4

• Isthedistrictabletomaintainitsreserveforeconomicuncertaintyinthecurrentandtwosubsequentyearsbasedoncurrentrevenueandexpendituretrends?

Asdocumentedinthe2016-17AdoptedBudget(Page15,ExhibitB)unidentifiedintrafundtransfersinarerequiredtomaintainanadequateendingfundbalance.

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• Doesthedistricthaveadditionalreservesinotherfunds?In2015-16thedistricttransferred$700,000tothecapitalfundtoestablishastatebondmatchingset-asideforanInitialProjectProposal(IPP)andtofundthedemolitionofbuildingsthathadbeenreplacedbystatefunds.Thestatefundingbuiltandequippedthenewbuildingsbutdidnotprovidefundingtoremovethebuildingsthatcouldnolongerbeoccupiedduetoearthquakeissues.

Thedistricttransferred$300,000toarevocablePERS/STRSfundonJune30,2016.

Thedistrict’sOPEBfundisnotirrevocable.Previously,theboardauthorizedthepresidenttotransferOPEBfundstothegeneralfundifnecessaryforfiscalstability;thisisnotanannualtransfernordoesthe2016-17budgetincludesuchatransfer.

Therearemoniesinthecapitalfund,OPEBfund,andPERS/STRSfundthatcouldbetransferredbackintotheunrestrictedgeneralfund.

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•Ifnot,doesthedistrict’smultiyearfinancialprojectionincludeaplantorestorethereserveforeconomicuncertainty?

Asstatedabove,eventhoughthe2016-17FinalBudgetprojectsfundbalancesof6.9%,7.4%and7.9%for2016-17,2017-18,and2018-19,theamountofintrafundtransfersinisbackedintotoproduceanendingfundbalancethatincreasesby.5%peryearin2017-18and2018-19.Nofundingsourceisidentifiedforthoseintrafundtransfersin.

The2015-16FinalBudgetnotesthat,“BalancingtheDistrict’s2016-17and2017-18budgetswithoutmajorspendingcutsorincreasedFTESrevenuewillrequireadditionalStatebasebudgetincreasesorsomeotherrelief.”4

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4. Enrollment and FTES 4

• Hasthedistrict’senrollmentbeenincreasingorstableformultipleyears?

Residentandnon-residentFTESforthemostrecentyearsare:2015-163,8902014-15 4,1812013-14 3,9482012-13 4,5662011-12 4,7332010-11 5,455

Thedistricthasfacedmajorchallengesfromamorethan30%decreaseinenrollmentascomparedto2008-09,whenitsFTESpeakedat5,483.Thedistrictisprojectingtoteachapproximately3,950apportionment-generatingFTESin2016-17.ThedistrictmustpursueeverypossibleoptiontoregainFTESbecausein2016-17itisprojectedtoloseover$3.1millionavailableapportionmentfundingifFTESisnotrestoredtoitsfundedcapof4,564.CapisthetotalFTESthatwouldbefundedifthedistrictteachestheFTES.Thatearningpotentialwouldbepermanentlylostfromthedistrict’sbasefundingsincethedistrictwillnolongerqualifyforstabilizationfundingthroughthestatutesandcodesthatimplementedtheSenateBill(SB)361fundingformula.

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Is the district’s fiscal health acceptable in the following areas? Yes No N/A• Isthedistrict’senrollmentprojectionupdatedatleastsemiannually?

Thedistrictupdatestheenrollmentprojectionsatleasttwiceperyear.

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• Arestaffingadjustmentsforcertificatedandclassifiedemployeegroupsconsistentwiththeenrollmenttrends?

Sincethebeginningofthedownwardtrendinenrollmentsin2010-11,FTEShavedeclinedbyover30%.

Althoughthedistricthaslaidoffclassifiedemployees,frozenmanyacademicandclassifiedopenpositions,andreducedtheuseofhourlyacademicandnon-academicemployees,thedistricthasnotbeenabletoreduceitspersonnelcostsbythesamemagnitudeasthereductioninFTESandrelatedfunding.

ThedistrictiscurrentlyaboveitsFacultyObligationNumber.

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• DoesthedistrictanalyzeenrollmentandFTESdata?

ThedistrictadministrationcloselymonitorsenrollmentandFTESdata.Dailyenrollmentreportsbyclassandsectionareproducedandelectronicallydistributed.Thereisalsorobustandeasytoaccessenrollmentinformationinthedistrict’sprogramreviewsoftware.

AFCMATreviewoftheEnrollmentManagementCommittee(EMC)minutesformultipleyearsindicatesthattheEMCisconsciousoftheenrollmentandFTESandtakestherevenuegenerationimpactsofenrollmentdecisionsintoaccountwhendecisionssuchasthetimingofsummercoursesaremade.The2015-2018 General Goalsincludeachievingbaseandcap(capisthetotalFTESthatwouldbefundediftheFTESaretaughtbythedistrict)andearningFTESabovecap.

AllconstituentrepresentativesinterviewedbyFCMATwereacutelyawareoftheenrollmenttrendsandimpactonthefinancialconditionofthedistrict.

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• DoesthedistricttrackhistoricalenrollmentandFTESdatatoestablishfuturetrendsforprojectionpurposes?

ThedistrictmaintainshistoricalenrollmentandFTESdata.FCMATreviewedasampleofthatdata,whichiseasilyaccessedonline.

EMCminutesindicatethattheEMCtrackshistoricalenrollmentandFTESdata.

Althoughthedataisavailable,thehistoricalinformationappearstohavelittlevalueinattemptingtoforecastfuturetrendsduetotheclosecorrelationbetweentheunemploymentrateandeconomiccyclesandcommunitycollegeenrollments.

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•HasthedistrictimplementedanyprogramstoincreaseFTES?

ThedistricthasbegunofferingclassesatPelicanBayStatePrison,expandeditsnon-creditofferings,increasedonlinecourses,openedupaccesstothecurriculumbyofferingcoursesinNativeAmericantribalcommunities(SmithRiver,Klamath,Wiyottribes),andofferingclassesincountyjails.

ThedistrictisworkingwithHumboldtStateUniversitytodevelopanAssociateDegreeinNursingtoBachelorofScienceinNursingpathwaytostartfall2018.

However,areviewofEMCminutesandtheenrollmentmanagementandmarketingandoutreachplansdonotindicateanactive,ongoingandvibrantbigpictureefforttoanalyzeinnovativeenrollmentgrowthoptionsanddevelopinstitutionalplanstopursuethoseoptions.

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Is the district’s fiscal health acceptable in the following areas? Yes No N/A• DoesthedistrictmaintainanaccuraterecordofenrollmentandFTESthatisreconciledonaregularbasis?

Californiacommunitycolleges(CCCs)generallydonotreconcileenrollmentandFTESinformationmonthly.ItismuchmorecommontoreconcilequarterlywhentheCCFS320reportsarepreparedandduringtheannualauditcycle,whichisthepracticeinthedistrict.

ToofficiallyreportFTESandenrollmentinformation,CCCsfilethreeCCFS-320reportsforeachfiscalyear:First,Second,andRecalculation.

Thedistricthasroutinelyfiledrequiredattendancereports.

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5. Debt 4

• Doesthedistricthavearecentactuarialstudyandaplantosetfundsasideforunfundedliabilities?

Thedistrict’ssingleunfundedliabilityisforOPEB.Thedistrictfundstheongoingcostofthosebenefitsonapay-as-you-gobasis.AsdocumentedintheauditedJune30,2015financialstatements,theOPEBannualliabilityonJune30,2015wasapproximately$549,000.

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• Doesthedistrictmaintainlowlevelsofnonvoter-approveddebt(suchasCOPs,bridgefinancing,BANS,RANSandothers)?

Thetotalofthenonvoter-approveddebtpaymentsfor2016-17isestimatedtobelessthan$100,000.

Page28ofthe2014-15auditedfinancialstatements(http://www.redwoods.edu/Portals/34/Documents/Redwoods%20CCD%20FS%2015.pdf?ver=2016-03-28-083444-227)providesachartofthedistrict’sdebtservicepaymentsandbalances.

Thedistricthastwononvoter-approveddebts:aCertificateofParticipation(COP),whichwillbepaidoffthisyear;anda2012retirementincentivethatisbeingpaiddownovereightannualpayments,usingthesalarysavingsfromtheincentiveplansavings.TheSERP(SupplementalEarlyRetirementPlan)savingsresultprimarilyfromtheretirementandreplacementofmoreseniorandmorehighlycompensatedemployeeswithnewemployeeswhoreceivelowercompensation.Partofthesavingsisalsoduetothetimeittakestofillvacantpositions,asclassesaretaughtbylessexpensivehourlyinstructors.

Thedistricthasvoter-approveddebtforProposition39constructionbonds,whicharerepaiddirectlybythecountyfrompropertytaxproceeds.

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• IsthedistrictconformingtoGASB68requirementsbyrecognizingandreportingitsproportionateshareofnetliabilityforpensionprograms?

Thedistrict’scompliancewithGASB68isdocumentedonpage2oftheJune30,2015auditreport,whichstates:

Asdiscussedinnote1tothebasicfinancialstatements,thedistrictimplementedtheprovisionsofGovernmentalAccountingStandardsBoard(GASB)StatementNo.68,AccountingandFinancialReportingforPensions–AnAmendmentofGASBStatementNo.27,asamendedbyGASBStatementNo.71,PensionTransitionforContributionsMadeSubsequenttotheMeasurementDate,forthefiscalyearendedJune30,2015.Ouropinionisnotmodifiedwithrespecttothismatter.

The2015-16auditedfinancialstatementsarenotyetfinalizedasoflateFebruary2017,butthereisnoindicationthatthedistrictwillnotcontinuetocomplywithallGASBrequirements,includingGASB68.

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Is the district’s fiscal health acceptable in the following areas? Yes No N/A6. Cash Monitoring 4

• Canthedistrictmanageitscashinallfundswithoutinterfundborrowing? 4

• Ifinterfundborrowingisoccurring,doesthedistrictrepaythefundswithinthestatutoryperiodinaccordancewithEducationCodeSections85220to85223?

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• Doesthedistrictforecastitscashreceiptsanddisbursementsandverifythematleastmonthlytoensurethatcashflowneedsareknownwithplentyofnotice?

Thechiefbusinessofficial(CBO)andthesenioraccountingmanagerformallymonitorcashneedsmonthly.

BoththeCBOandthesenioraccountingmanagerstatedtheyareconstantlyawareofthecashstatusbutdonotmonitorcashasintensivelyastheyhadtodowhenthestatewasdeferringpaymentstothedistrict.

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• Doesthedistricthaveaplantoaddressshort-termcashflowneeds?

Thedistrictdoesnothaveaformalplantoaddressshort-termcashneeds,butitappearsthatboththeCBOandsenioraccountingmanagerconstantlymonitorthecashpositionandtheydonotexpecttohavetoissueaTRANS(short-termbridgefinancingoftenusedbyCaliforniaK-12andcommunitycollegedistrictsduringthecourseofafiscalyear).

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• Arecashbalancesreconciledtobankstatementsmonthly?

Therehavebeenissueswithtimelyreconciliations,partlyduetoissueswiththecountyanditsbank.Forexample,theOctober2016statementwasnotprovidedtothedistrictbythecountyuntilJanuary5,2017.ThattimelaghasbeentypicalovertheperiodreviewedbyFCMAT.

Thecountychangeditsdepositorybankattheendof2016anddistrictstaffishopefulthatthetimelinessofbankstatementswillimprove.

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7. Bargaining Agreements 4

• HasthedistrictsettledthetotalcostofthebargainingagreementsatorunderCOLAduringthecurrentandpastthreeyears?

Thedistricthasprovidedstepincreasessince2013-14.Nocost-of-livingadjustment(COLA)hasbeenprovided.

In2012-13,thedistrictprovidedastepincreaseanda1.5%COLAtofacultyandnon-representedstaff.ClassifiedstaffreceivedastepincreasebutnoCOLAthatyear.

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• Didthedistrictconductapre-settlementanalysis,includingmultiyearprojections,identifyingongoingrevenuesourcesorexpenditurereductionstosupporttheagreement,aswellasthelong-termeffectsonthedistrict?

Thedistrictperformedpre-settlementanalysisandthoseanalysesweresharedwiththeemployeecollectivebargainingrepresentativesduringinterest-basednegotiations.

TheCEOandCBOsharedthefiscalanalysesandprojectionswiththeboardinclosedsessionasallowedbytheBrownActbeforeactionwastakeninopensession.Thoseclosedsessiondocumentsarecollectedafterthediscussionsandarenotavailabletothepublic.However,boththeCEOandCBOstatedthatthecontentsarecongruentwiththeinformationsharedinthecollectivebargainingnegotiationssessions(whichareinterest-based,andintrueinterest-basednegotiationsallinformationisopenlyshared).

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• DidthedistrictcorrectlyidentifytherelatedcostsabovetheCOLA(i.e.,statutorybenefits,stepandcolumn)?

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Is the district’s fiscal health acceptable in the following areas? Yes No N/A• Didthedistrictaddressbudgetreductionsnecessarytosustainthetotalcompensationincreases,includingaboard-adoptedplan?

Budgetreductionswerenotnecessaryandtheimpactsofthesettlementswerereflectedinthemultiyearboardreports.

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• Didthesuperintendent/presidentandCBOverifytheaffordabilityoftheagreementpriortoratification?

AlthoughFCMATdidnotdiscoveranyverificationdocumentation,theCBOandtheactingCEOassuredFCMATthattheyverifiedtheaffordabilityofallcompensationincreasesbeforetakingtherecommendationstotheboard,andtheoutcomesfromtheagreementswerewithinreasonablerevenueexpectations.

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• Isthegoverningboard’sactionconsistentwiththesuperintendent/president’srecommendationafterverificationofaffordability?

Boardagendasandsignedcollectivebargainingagreementsarecongruentwiththesuperintendent/president’srecommendations.

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• Didthedistrictdisclosethecostsassociatedwithatentativecollectivebargainingagreementbeforeitbecamebindingonthedistrict?

Althoughnotsharedwiththepublic,theadministrationsharedtheinformationinboardclosedsessionsasallowedbytheBrownActaspartofthecollectivebargainingprocess.

Districtstaff(includingmembersofcollectivebargainingteams)whowereinterviewedindicatedthatthedistrict’scostprojectionsweresharedandactivelydiscussedduringthecollectivebargainingprocess.

AlthoughcostanalysesarenotcommonlysharedinapublicforumbeforetheboardapprovesafinalagreementintheCaliforniacommunitycollegesystem,FCMATrecommendsthisbeconsideredasabestpractice.

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8. General Fund 4

• Isthepercentageofthedistrict’sgeneralfundunrestrictedbudgetallocatedtosalariesandbenefitsatorunderthestatewideaverage?

AsdetailedinAppendixA,Small Rural College Fiscal Comparisons 2014 – 2015, district andstatewidetotalcompensationis85%.

However,whencomparedtotheother10smallruraldistricts(asdefinedinTitle5)asapercentoftotalexpenditures,thedistrict’sacademicsalariesweresecondfromthehighest;classifiedfifth;employeebenefitsthird;andtotalcompensationwassecondfromthehighest.

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• Isthedistrictmakingsurethatonlyongoingdollarspayforpermanentstaff?

Thedistrict’s2016-17FinalBudgetdoesnotincludeadirectcorrelationofongoingandone-timefundstospecificexpenditures.

Page5ofthefinalbudgetdiscussesone-timeandongoingfundingandexplainswhy$333,000ofone-timepotentialfundingisinthebudget.

Neitherthecontentsofthegovernor’sJanuary2017budgetmessagenorthematerialspresentedattheJanuaryAssociationofCaliforniaCommunityCollegeAdministrators(ACCCA)/AssociationofChiefBusinessOfficials(ACBO)/CaliforniaCommunityCollegesChancellor’sOffice(CCCCO)statebudgetworkshopconflictwiththeone-timerevenueassumptionsinthefinalbudget.

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Is the district’s fiscal health acceptable in the following areas? Yes No N/A• Doesthebudgetidentifyfuturereductionsinexpendituresproportionatetoone-timerevenuesources,suchasparceltaxes,thatwillterminateinthecurrentortwosubsequentfiscalyears?

Thedistrictdoesnotmaintainaparceltax.

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• Doesthedistrictensurethatparceltaxisnotpayingforongoingexpenditures? 4

• Isthedistrictensuringthatlitigationand/orsettlementsareminimized?

FCMATreviewedthedistrict’sexpenditureaccounts,aswellastheauditedfinancialstatements’disclosures,whichdonotindicateexcessivelitigationorsettlementcosts.

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9. Encroachment 4

• Isthedistrictawareofthecontributionstorestrictedprogramsinthecurrentyear?(Identifycost,programsandfunds)

OntheFebruary2017boardagenda,thereisadocketitemthatwouldauthorizetransfertotworestrictedprogramsifneeded:

ChildDevelopmentCenter:upto$90,000ShivelyFarm:upto$88,000

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• Doesthedistricthaveareasonableplantoaddressincreasedencroachmenttrends?

Thisisnotanincreasedtrend.

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• Doesthedistrictmanageencroachmentinallfunds?

Thesenioraccountingmanagercloselymonitorsthecategoricalandrestrictedprogramsthroughouttheyear.Itisextremelyrarethataprogramisoutofbalancebythetimethebooksareclosed.

Thesenioraccountingmanagerreportsthatifanoutofbalancesituationisdiscoveredduringclosing,theamountsareusuallynomorethanafewthousanddollarsandthesituationiscorrectedbyadjustingtheallocationpercentagesamongdifferentfundingsourceswhenthatstrategyislegalandcongruentwithprogramrestrictions.

Ifamid-yearbudgettransferwerenecessary,theinterfundorintrafundtransferwouldappearonthemonthlyfiscalstatusreportontheactionpartoftheboardagenda.

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10. Management Information Systems 4

• Isthedistrict’sfinancialdataaccurateandtimely?

Recentauditedfinancialstatementshavebeenunmodifiedandunqualified,indicatingthattheaccountingrecordsareaccurateandproperlyrecordedaccordingtorelevantaccountingrules.However,duetoalackofstaffing,theyareconsistentlylateduetothedistrict’sinabilitytogivethenecessaryfinancialinformationtotheauditorsonatimelybasis.

TheJune30,2014auditwaspresentedtotheboard’sauditsubcommitteeonJanuary15,2016;theJune30,2015auditwaspresentedtothesubcommitteeonApril4,2016;asoflateFebruary2017theJune30,2016auditreporthasnotbeenpresentedtothesubcommittee;theCCCCOdeadlineisDecember31.

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• Arethemandatedreportsfiledinatimelymanner?

TheCCFS-311,CCFS-320,andauditedfinancialstatementshavenotbeenfiledtimely.

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Is the district’s fiscal health acceptable in the following areas? Yes No N/A• Arekeyfiscalreports—includingthoseonpersonnel,payrollandbudget—accessible,timely,andunderstandable?

Althoughkeyfiscalreportsareaccessible,theyarenottimely.

Keyfiscalreportsareunderstandabletosomebutnotall,basedoninterviews.Itdependsonthereportandthetargetconstituency.

Tenstaffmemberswereinterviewedandeachwasspecificallyquestionedaboutthesubjectofaccessible,timelyandunderstandablefiscalreports.Withoutexception,theresponseswerepositiveintermsofaccessibilityforpeoplewhohadreceivedbasictraining.

Theprogramreviewsystem,TableauPublic,wasspecificallymentioned.Theprogramreviewonlinesystemprovidesveryeasytoretrieveandunderstandhistoricalprogramdata.

Thefinancialreportingsystemisa100%opensystem,soifastaffmemberhasbeentrainedonthebasicsofthesystem,theycanseeanydistrictaccountsonaread-onlybasis.

Thefiscalreportsarereal-timeandprovidetheabilitytoviewtherecordsthatmakeupaccountlineitemsinthebudgetstatusreports.

Althoughtheinternalfiscalsystemisaccessibleandeasytouse,thegeneralledgerandresultingexternalreportsareconsistentlylateandfailtomeetdeadlinessetbytheauditorsandtheCCCCO.Forexample,theJune30,2015auditdidnotgototheboardauditcommitteeuntilApril2016,whichisoverfourmonthsaftertheCCCCOdeadline.AsoflateFebruaryof2017thedistrict’sbooksareclosed,butthedistrictisstillprovidingmaterialstotheauditorsandtheauditisnotexpectedtogototheboarduntilAprilforthesecondyearinarow.

Atthehighestlevel,itappearsasiftheadministrationcoulddoabetterjobofunderstandingtheneedsoftheconstituentsinvolvedinthebudgetingprocess.Experiencedstaff,comfortablewiththefiscalsystemsoftheirowndepartments,sharedthathighlevelinformationisnotclearlypresented,suchasprojectionsandreconciliationsofactualresultstobudgetssharedatthedistrictbudgetcommittee,bargainingandboardlevels.Lackofclaritycanresultinalackofconfidenceintheprojections,reportsandreconciliations.Severalintervieweesindicatedthatfiscalreportsandpresentationsarenotpreparedandpresentedwithanunderstandingthattheaudiencesarenotasinvolvedorknowledgeableaboutthefiscaldata,andmoreinformationisneededtoensurethatitisunderstoodbyallstakeholders.

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11. Position Control and Human Resources 4

•Doesthedistrictmaintainanduseaneffectiveandreliablepositioncontrolsystemthattrackspersonnelallocationsandexpenditures?

ThepositioncontrolsystemreliesonmultiplelevelsofapprovaluptoandincludingtheCEO,toapprovepositions.

Humanresources(HR)doesnotcommenceaneworreplacementregularpositionsearchandrecruitmentprocessuntilcompletionoftheapprovedhiringdocuments.Thehiringdocumentsrequirevarioussignaturesthatincludeareviewofthebudget.Afterarecruitmentandhiringprocessisapproved,thebudgettechnicianidentifiestheexistingvacantpositioninthepositioninventorydatabaseorcreatesanewposition.

HRandpayrolldepartmentapprovalsareneededbeforethehiringprocessmaybegin.

Giventheverysmallsizeofthedistrict,thepositioncontrolsoftwareinuseisadequate.

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Is the district’s fiscal health acceptable in the following areas? Yes No N/A• Ispositioncontrolintegratedwithpayrollandthefinancialsystem?

Positioncontrolisinaseparatedatabasefromthefiscalsystem,butpositioncontrolsystemdataismanuallyintegratedintothebudgetpreparationandcontrolprocesses.

Giventheverysmallsizeofthedistrict,thecurrentprocessandcontrolsareadequatetoensurethedataisaccurate.

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•Doesthedistrictcontrolunauthorizedhiring?

Anapprovedandbudgetedpositionmustexistforapositiontobefilled.

Allrequeststofillopenpositionsgotopresident’scabinetforreview,withmultiplelevelsofapprovalrequired.

Hourlyinstructionalassignmentsaremanuallymonitoredtoensurethatanindividual’sloaddoesnotexceed67%,whichhassuccessfullypreventedunintentionalandunauthorizedtenuretrackeligibility.

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• Isthedistrictabletocontroloverstaffing?

Controlsareinplacetoensurethatunauthorizedhiringdoesnotoccur;allpermanentstaffhiringrequiresmultiplelevelsofapproval,includingtheCEOandboardlevels.

OverstaffinginthecontextofthisquestiondoesnotincludetheissueofpermanentstaffreductionsinthefaceofdecliningFTESandFTESrelatedrevenuetothedistrict.

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•Aretheappropriatelevelsofinternalcontrols(i.e.,checksandbalances)inplacebetweenthebusinessandpersonneldepartmentstopreventfraudulentactivity?

Appropriatechecksandbalancesandseparationofdutiesexist,buttheyarenotalwaysfullydocumented.

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•Ispositioncontrolreconciledagainstthebudgetduringthefiscalyear?

Thebudgettechnicianupdatesthepositioninventorydatabasemanuallyduringtheyear.Reportsareprovidedtodivisionheadsandtodepartmentsatleastonceayearforvalidation.TheCBOandtheCEOalsoreviewapositioninventoryreportatleastannually.

TheCBOreportsthattheadditionalbudgettechnicianpositionaddedoverayearagohashelpedimprovethepositioncontrolupdatesandcontrols.

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• Doesthedistrictofferorensurethatstaffmembersattendprofessionaldevelopmentregardingfinancialmanagementandbudget?

Thedistrictoffersandencouragesoutsideprofessionaldevelopmentopportunitiestothebusinessdivisionstaff,butthetrainingsarenottrackedorrequired.

Thereisnoevidencethatfinancialandbudgetmanagementtrainingisofferedtostaffoutsideofthebusinessdivision.Thereisnoroutinescheduledbudgetmanagementtrainingforstaffinsideoroutsidethebusinessdivision.

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12. Budget Development and Adoption 4

• Isabudgetcalendarusedthatcontainsstatutoryduedatesandthemajorbudgetdevelopmentmilestones?

FCMATreviewedandconfirmedtheexistenceofacomprehensivebudgetdevelopmentcalendar.

BP/AP6200,BudgetPreparation,requiresacomprehensivebudgetcalendar.

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Is the district’s fiscal health acceptable in the following areas? Yes No N/A• Arethereclearprocessesandpoliciesinplacetoanalyzeresourcesandallocationstoensurethattheyalignwithstrategicplanningobjectivesandthatthebudgetreflectsthedistrict’spriorities?

FCMATconfirmedthatthe2016-17ResourceRequestsspreadsheetmaintainedbythebudgetcommitteecontainsafieldforRelationshiptoPlans,whichreferencesspecificstrategicplangoalsand,whenapplicable,programreviewinformationfromtheonlineprogramreviewsystem,TableauPublic.

BP/AP6200,BudgetPreparation,includestherequirementthat“Theannualbudgetshallsupportthedistrict’sapprovedoperationsandinstitutionalplans.”

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• Isthe50%Lawcorrectlycalculatedandunderstood?

The50%Lawcalculationisauditedaspartoftheannualauditofthedistrict’sfinancialstatements.ThedistricthasbeenfoundcompliantintheauditreportsthatFCMATreviewed.

FCMATreviewedthe50%LawcalculationsinthemostrecentthreeCCFS-311reportsandfoundthecalculationsaccurate.

AsoflateFebruarythedistrictisstillproviding50%Lawcalculationmaterialstotheauditorsforthe2015-16audit.

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Is the district’s fiscal health acceptable in the following areas? Yes No N/A• AreprojectionsforFTES,enrollment,andrevenueaccurateandreasonable?

FTESandenrollmentprojectionsappearreasonablebasedontheassumptionsthatwereused.

Althoughthedataisavailable,thehistoricalinformationappearstohavelittlevalueinattemptingtoforecastfuturetrendsduetotheclosecorrelationbetweentheunemploymentrateandeconomiccyclesandcommunitycollegeenrollments.Thedistricthasfacedmajorchallengesfromamorethan30%decreaseinenrollmentascomparedto2008-09,whenitsFTESpeakedat5,483.Thedistrictisprojectingtoteachapproximately3,950apportionment-generatingFTESin2016-17.ThedistrictmustpursueeverypossibleoptiontoregainFTESbecausein2016-17itisprojectedtoloseover$3.1millionavailableapportionmentfundingifFTESisnotrestoredtoitsfundedcapof4,564.CapisthetotalFTESthatwouldbefundedifthedistrictteachestheFTES.Thatearningpotentialwouldbepermanentlylostfromthedistrict’sbasefundingsincethedistrictwillnolongerqualifyforstabilizationfundingthroughthestatutesandcodesthatimplementedtheSB361fundingformula.

Therelationshipbetweenbudgetedandactualrevenue,expensesandendingbalancenumbersisnotaseasilyassessedortransparentbecauseofthenatureofthefinalbudgetformat.Inthefinalbudget,theprioryearactualcolumnisnotactuallythepost-closingandpost-auditamountofprioryearactualexpenditures.Rather,itistheamountthatwascalculatedforinclusionintheJunetentativebudget.Whilenothingistechnicallywrongwiththatpracticeandtherearestrongargumentstocarrythesameprioryearnumberthatisusedinthetentativebudgetonthroughthefuturebudgetingdocuments,itmeanstherewillbeadiscrepancyifthepost-closingauditedamountiscomparedwiththeprioryearamountinthepost-closingandauditedgeneralledgerstatements.TheonlyvariancenumbersthatanybodyoutsidethebusinessdivisionseesarebasedonthefinalbudgetcomparedtotheestimatedactualnumbersfromMaythatareinthetentativebudget.FCMATisnotawareofanydocumentsthatcomparetheactualresultsafterclosingtothefinalbudget.

Theboarddoesnotapprovetheassumptionsuponwhichthebudgetprojectsarebased,norisadocumentedandboard-approvedsetofassumptionsandparametersusedinmakingbudgetprojections.Theresultofanyfinancialprojectionwilldependontheassumptionsuponwhichtheprojectionisbased,soitisdesirabletohaveaclearunderstandingamongallconstituenciesconcerningtheassumptionsthatwillbeusedinfinancialprojections,andthoseassumptionsshouldbedocumentedandeasilyaccessed.

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• Isthedistrictdecreasingdeficitspendingandmaintainingadequatereservesandfundbalancewhencomparedwiththeprioryear?

Thedistrictisnotdeficitspendingin2016-17.

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• Isthebudgetdevelopedusingazero-basedmethodratherthanbeingarolloverbudget?

Thedistrictusesarolloverclassscheduleandarolloverbudget.

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• Doesthedistrictusepositioncontroldataforbudgetdevelopment?

Thepositioncontrolinventoryisusedtodevelopcostsfortheannualbudgetandbudgetforecast,andtomanagethebudget.

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Is the district’s fiscal health acceptable in the following areas? Yes No N/A• Doesthebudgetdevelopmentprocessincludeinputfromstaff,administrators,boardandcommunity,aswellasthebudgetadvisorycommittee(ifthereisone)?

BP6200requiresbroadparticipation.

FCMATinterviewsconfirmedthattheprocessisperceivedtobeinclusionaryandparticipatory.

Thereisadistrictbudgetcommitteewithamembershiprepresentingthedistrict’sinternalconstituencies.

Althoughthecommunityhastheopportunitytoparticipateatthemandatedboardbudgetworkshops,participationdoesnotoccur.

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• IsthetentativebudgetadoptedbythegoverningboardnolaterthanJune30?

Thereisnorecordofalateadoptionofthetentativebudget.

BP6200requiresadoptionofthetentativebudgetbeforeJune30.

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13. Multiyear Projections 4

• IsthefinalbudgetadoptedbythegoverningboardnolaterthanSeptember15,andisitbasedonstandardsandcriteriaforfiscalstability?

The2016-17budgetwasadoptedonSeptember6,2016.BoardminutesandfiscalofficerecordsindicatethatadoptionhashistoricallyoccurredbeforeSeptember15.

Thedistrict’sfundbalanceincreasehascomeinontargetforthelastthreeyears.

Budgetshavebeenconservativelypreparedtoensurethatexpenseswereoverestimatedandrevenuesunderestimatedtoensuretheunrestrictedgeneralfundbalancewouldgrow.Althoughthismaybeconsideredasoundbudgetingpractice,qualitativelyitisaproblem.Thisisbecausetheperceptionofexcessivelyconservativebudgetingcausesconstituentstolosetrustinthevalidityofthebudgetsandtoignorethembecauseofarelianceonadditionalendingbalancesbeingavailableafterthefiscalbooksareclosed.

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• Hasthedistrictdevelopedmultiyearprojectionsthathavereasonableassumptions?

ThefinalbudgetadoptedonSeptember6,2016includesmultiyearprojectionswithreasonableassumptions.However,asnotedearlier,balancingthebudgetsandincreasingtheendingbalanceby.5%ayearisonlypossiblebecauseofintrafundtransfersof$927,000and$1,677,000respectivelyinthe2017-18and2018-19projections.Nosourcesareidentifiedforthosetransfers.

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• Areprojectedfundbalancereservesdisclosedandbasedonthemostreasonableandaccurateinformationavailable?

Theprojectedfundbalancesarecontainedinthetentativeandadoptionbudgetdocuments.

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• Ataminimum,arethemultiyearprojectionscompiledatbudgetadoptionandatthetimeofquarterlyfiscalstatusreports?

Multiyearprojectionsarecompiledandpresentedatleastannually,includingatadoptedandtentativebudgets.

Multiyearprojectionsareincludedandapprovedbytheboardaspartofthemonthlyfiscalstatusreports.

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Is the district’s fiscal health acceptable in the following areas? Yes No N/A14. Budget Monitoring and Updates 4

• Arebudgetassumptionsupdatedthroughouttheyearasupdatedinformationbecomesavailable?

Budgetassumptionsareupdatedthroughouttheyearandtheresultingstatementsareapprovedbytheboardmonthlywhenthemonthlyfiscalstatusreportisapproved;however,theassumptionsunderlyingtheinitialprojectionsareneithertransparentnorapprovedbytheboard.

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• Areactualrevenueandexpensesinlinewiththemostcurrentbudget?

Historicallythedistricthasbudgetedconservativelycomparedtoactualresults.

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• Arebudgetrevisionscompletedinatimelymanner?

Internally,budgetrevisionsaredonecontinuously.

BudgetchangesaretakentotheboardmonthlyforapprovalintheMonthlyFinancialStatusReport,whichisanactionitemonwhichtheboardvotes.Forexample,AgendaItemNo.3.1ontheJanuary10,2017agendais“ApproveMonthlyFinancialStatusReport.”

FCMAT’sopinionisthattheMonthlyFinancialStatusReportthatisincludedasanaction/discussionitemontheboardagendameetsthestatutory,regulatory,andCCCCOrequirements;acceptedandnormalCCCpractice;andtheBrownAct’sdirectionforopennessandtransparency.

FCMATfoundthatbudgetrevisiondocumentshavebeenconsistentwithstatutoryauthority,meetthegenerallyaccepteddefinitionofaresolutionastypifiedbyarecentlegalopinionforanotherdistrict,meetthestandardsestablishedbytheGovernmentFinanceOfficersAssociation(GFOA),5andmeetthecoreintentofCalifornia’sBrownAct,whichisopennessandtransparency.

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• Doesthedistrictopenlydiscusstheimpactofbudgetrevisionsattheboardlevel?

StafftoldFCMATthatboardmembersactivelydiscussindividualbudgetchanges,butFCMATwasnotabletoconfirmthisbasedonboardmeetingminutes.Althoughthebudgetchangeappearsintheagendasandintheminutes,thatinformationdoesnotindicatethelevelofboardmemberdiscussionthattookplace.

Thepublishedminutesdoindicatethattheboardmembersactivelyparticipateintentativeandfinalbudgetdiscussion.

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• Arebudgetrevisionsmadeorconfirmedbytheboardatthesametimethecollectivebargainingagreementisratified?

Thereisnorecordofbudgetrevisionsbeingmadeorconfirmedbytheboardatthetimethecollectivebargainingagreementisratified.

Districtfiscalstaffalsoverballyconfirmthatthisisnotdoneattheboardlevel.Thereasoningisthatthechangeshavenotbeenbetweenmajorobjectcodesand,therefore,boardapprovalisnotrequired.

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• Hasthedistrict’slong-termdebtdecreasedfromthepriorfiscalyear?

Thedistricthastwononvoter-approveddebts:aCOPthatwillbepaidoffthisyearanda2012SERPthatwillbepaidby2020overeightannualpaymentsusingthesalarysavingsfromtheincentiveplan.

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Is the district’s fiscal health acceptable in the following areas? Yes No N/A• Arecontributionstorestrictedprogramscontrolledandmonitored?

OntheFebruary2017boardagenda,thereisadocketitemthatwouldauthorizetransfertotworestrictedprogramsifneeded:

ChildDevelopmentCenter:upto$90,000ShivelyFarm:upto$88,000

Historically,iftheboardhasnotapprovedatransfertoacategoricalorarestrictedprogramandifthatprogramoverspendsinafiscalyearitmustrepaytheunrestrictedgeneralfundthenextyear.

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• Hasthedistrictidentifiedtherepaymentsourcesforlong-termdebtornonvoter-approveddebt(e.g.,certificatesofparticipation,capitalleases)?

Repaymentsourcesareincludedintheboard-approvedfinalbudget.

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• Doesthedistrict’sfinancialsystemhaveahard-codedwarningregardinginsufficientfundsforrequisitionsandpurchaseorders?

Thedistricthashard-codedblocksthatrequireadequatebudgettoenterpurchasingrequisitionsandpurchaseorders.

Theonlywaythatbudgetscanbeoverriddenisthroughanadministrativereviewandapprovalprocess.

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• Doesthedistrictencumbersalariesandbenefits?

FCMATverifiedthatthedistrictencumbersregularsalariesandbenefitsannually.Theencumbrancesarereducedbytheactualexpenseseachmonth.

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• Arethebalancesheetaccountsinthegeneralledgerreconciledregularly?

FCMATverifiedthatbalancesheetaccountsarereconciledannuallyaspartofthepreparationoftheauditedfinancialstatements.

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• Doesthedistrictcompleteandfileitsquarterlyfiscalstatusreportswithinthestatutorydeadlinesandensurethattheyarebasedonstandardsandcriteriaforfiscalstability?

CCFS-311reportshavenotalwaysbeenfiledtimely.

ThereportsreviewedbyFCMATappeartobeincompliancewiththestandardsandcriteriaforfiscalreporting.FCMAT’sscopeofworkdidnotincludeanauditofthefiscalstatusreportstoensurecompliance.

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15. Retiree Health Benefits 4

• HasthedistrictcompletedanactuarialvaluationtodeterminetheunfundedliabilityunderGASB45requirements?

TheGASB45actuarialvaluationisdocumentedinthe2014-15auditedfinancialstatements.

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• Doesthedistricthaveaplanforaddressingtheretireebenefitsliabilities?

Thedistrictpaystheactualannualcostofthebenefitsonapay-as-you-gobasis.

Inadditiontothepay-as-you-goamount,thedistricthassetasidesmallcontributionsinanaccountthatisrevocable,soitcan’tbeconsideredasactuallyreducingtheactuarialaccruedliability.

TheaccruedliabilityasofJune30,2015,wasapproximately$6.5million.

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Is the district’s fiscal health acceptable in the following areas? Yes No N/A• Hasthedistrictconductedare-enrollmentprocesstoidentifyeligibleretirees?

Duetothesmallnumberofretireesandthecostofare-enrollmentprocess,thedistrictstaffhasnotdeemeditnecessarytoexpendtheresourcesnecessarytoperformthisprocess.

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16. Leadership/Stability 4

• Doesthedistricthaveasuperintendent/presidentand/orchiefbusinessofficialwhohasbeenwiththedistrictmorethantwoyears?

Thepresident/superintendenthasbeenwiththedistrictfor10years,butnotastheCEO.Hispositionwasoriginallythechiefinstructionalandstudentservicesofficial.Hebecamethepermanentpresident/superintendentofthedistrictonMarch3,afterservingastheactingpresident/superintendentsinceJuly2015.

Thevicepresident,businessservices,istheCBOandhasbeenwiththedistrictfiveyears.

Thesenioraccountingmanagerhasbeeninthepositionforfiveyears;hehasbeenwiththedistrictforeightyears.

Thechiefhumanresourcesofficialhasbeenwiththedistrictforlessthanoneyear,anddoesnothaveprevioushighereducationhumanresourcesorcollectivebargainingexperience.

Theactingchiefinstructionalandstudentservicesofficialhasbeeninthepositionforlessthanoneyear,andsheisstillalsodoingherregularposition,whichisasinstitutionalresearcher.

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•Doesthegoverningboardadoptandreviseunderstandableandtimelypoliciesandsupporttheadministrationtoensureimplementation?

Theboardpolicyadoptionandrevisiondatesarecurrent.AllboardpoliciesthatwerereviewedbyFCMAThavebeenreviewedandrevisedafter2012.

Thepoliciesareclearlywritten,concise,andfollowthetemplatesandguidancefromtheCommunityCollegeLeagueofCalifornia(CCLC).

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Is the district’s fiscal health acceptable in the following areas? Yes No N/A• Doesthesuperintendent/presidentadoptandreviseunderstandableandtimelyadministrativeregulationsandensurethatadoptedboardpoliciesandapprovedadministrativeregulationsarecommunicatedtostaffandfollowed?

Althoughtheboardpoliciesandadministrativeproceduresarecurrent(reviewedandrevisedsince2012),clearlywritten,conciseandconformtotheCCLCtemplatesandguidance,FCMATrecommendsrevisionofseveralofthe6000seriesandthebusinessservicesseriesoftheadministrativeprocedurestoclarifyterminologyandprocessesconcerningbudgetmodifications.

UpdateBP6100andAP6100,DelegationofAuthority,toincludeinformationonhow“ratification”isdefined.TheAPshouldalsobeupdatedtoincludeadditionalinformationonwhathappenswhentheCEOorhis/herdesigneeapprovesabudgetmodification,contract,etc.congruentlywiththeBP/AP,andwhetherornotthattransactionisconsideredfinalatthattime.IftheboarddelegatesauthoritytotheCEOtoapproveitemsontheboard’sbehalf,boardratificationundersuchdelegatedauthorityissimplyaformality.

UpdateBPandAP6200,BudgetPreparation,todefinetheterm“generalreservesforeconomicuncertainty.”Aclarificationisalsoneededonwhethertheunrestrictedgeneralfundbalanceisdefinedasthedifferencebetweenbudgetedbeginningbalancesplusrevenueslessbudgetedexpenditures;or,ifthegeneralreserveisthetotalfundbalance,aftercertaindedicatedset-asidereserves.ItiscommonforCCCdistrictstodefineaminimumendingbalanceforeconomicuncertaintyasapercentofbudgetedexpenditures,andthenanyamountabovethatminimumisdedicatedtooptionssuchasstrategicplanninginitiatives,technologyinfrastructure,employeecompensationenhancements,andboardinitiatives.TheAPshouldalsobemorespecificonthebudgetpreparationprocess,especiallytheboard’srole.Forexample,theAPcouldincludetheboard’sapprovalofinitialenrollmentandrevenueprojectionsthatwillbeusedinthepreparationofthetentativebudgetasearlyasJanuary.Inaddition,theinclusionofmilestonesfortheboard’sapprovalofbudgetassumptionscouldhelpmitigateexistingfacultyconcernsaboutbudgetmodifications.

UpdateBP6250andAP6250,BudgetManagement,toclearlydefineand/ordocument:

Thatadocketitemontheboardagendasatisfiesthedefinitionofawrittenresolutionunlessacertainspecificformatisrequiredbyanoutsideentityforaspecificpurpose.

Whatlevelofdetailandnarrativearerequiredinthemonthlybudgetstatusdocuments.

Whenatwo-thirdsvoteisrequiredratherthanasimplemajority.

WhattypesofbudgetmodificationscanbeapprovedbytheCEOorhis/herdesigneebyratification;generallythosemodificationswouldincludeanychangeswithinamajorexpenditureclassification(majorobjectcode)andbetweenmajorobjectcodesuptoacertaindollaramount.

ThatamajorexpenditureclassificationisdefinedthesameasinthemostcurrentversionoftheCaliforniaCommunityCollegesBudgetandAccountingManual.

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Is the district’s fiscal health acceptable in the following areas? Yes No N/AFurtherclarifywhattypesofbudgetrevisionsrequirepriorboardapprovalversusratificationwithintheboard-approveddelegatedauthoritytotheCEOandhis/hersubordinates.TerminologydifferswithintheCaliforniacommunitycollegesystem,sospecificityisimportant.Onedefinitiontoconsiderfor“budgettransfer”ismovingbudgetfromonemajorexpenditureclassificationtoanother;anotherfor“budgetrevision”ischangingthetotalamountpreviouslyauthorizedbytheboardforamajorexpenditureclassification(andthusdoesnotrequireboardaction);“budgetadjustment”ismovingbudgetwithinsubobjectandactivityaccountswithinamajorexpenditureclassification.

• Doesthegoverningboardrefrainfrommicromanagingdistrictadministrationandstaff?

Basedonreviewofboardmeetingminutes,attendanceataboardmeeting,andinterviews,itappearsthattheboardrefrainsfrommicromanagement.

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17. Internal Controls and Annual Independent Audit Report 4

• Doesthedistrictimplementappropriatemeasurestodiscourageanddetectfraud?

Giventhesmallsizeofthedistrict,thedelegationandseparationofdutiesinthefiscal,accounting,purchasing,contractingandpayrolldepartmentsisappropriate.

Thedistricthasappropriatesignaturerequirements(wetandelectronic)fordisbursingfundsandassignment/paymentofstaff.

Thedistricthashaddifficultyhiringandretainingbusinessdivisionstaffandlessthanoptimumworkflowmanagement,causingthedistricttoconsistentlymissthestatedeadlinesforsubmittingtheannualauditandotherCCCCOrequiredreports.BoththeCBOandthesenioraccountingmanagerexpressedadesiretohavetheworkflowprocessesandproceduresreviewedbyanoutsideentitytoensuretheyareasefficientaspossible.

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• Didthedistrictreceiveanindependentauditreportwithoutmaterialfindings?

Theauditsfor2012,2013,2014and2015wereunmodified/unqualifiedandwithoutmaterialfiscalfindings.

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• Cantheauditfindingsbeaddressedwithoutaffectingthedistrict’sfiscalhealth?

Therewerenoauditfindingsthatwouldnegativelyaffectthedistrict’sfiscalhealth.

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•Hastheindependentauditreportbeencompletedandpresentedwithinthestatutorytimeline?

The2015-16closingandauditpreparationsarestillinprogress,wellafterthedeadlines.PresentationtotheboardisnotexpecteduntilApril.

ThedistricthasconsistentlymissedthestatedeadlinesforsubmittingtheannualauditandotherCCCCOrequiredreports.

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•Areauditfindingsandrecommendationsreviewedwiththeboard?

AnauditorfromtheCPAfirmthatperformedtheauditpresentstheinformationtotheboard’sfiscalcommittee.

Theauditisalsopresentedtothefullboardinopensession.

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•DidtheauditreportmeetbothGAAPandGASBstandards?

FCMAT’sscopeofworkdidnotincludeafullCPApeerauditoftheauditedfinancialstatements,butageneralreviewoftheauditdocumentsallowsFCMATtoconcludethattheauditscomplywithGAAPandGASBstandards.

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Is the district’s fiscal health acceptable in the following areas? Yes No N/A18. Facilities 4

• Hasthedistrictpassedageneralobligationbond?

OnNovember2,2004districtvotersapprovedMeasuresQandBforatotalof$40million.MeasureQwaspresentedtoandapprovedbythevotersofHumboldt,northwestMendocinoandwesternTrinitycounties.MeasureBwaspresentedtoandapprovedbythevotersinDelNorteCounty.

4

• HasthedistrictmettheauditandreportingrequirementsofProposition39?

Areviewofthereportspostedonthedistrict’sCitizens’BondOversightCommitteewebpageindicatesthatthecontentoftherequiredreportsandauditsreportingrequirementshavebeenmet.

Althoughthereportingrequirementsforcontenthavebeenmet,therequiredauditshavenotbeenprepared,submittedormadeavailabletothepubliconatimelybasis.AsoflateFebruary2017,the2015annualreportrequiredbyProposition39stillhadnotbeenissued.

4 4

• HasthedistrictmetIRSspendingtimelinecompliancerequirementsforbondmoniesissuedtothedistrict?

AlthoughFCMATdidnotperformanauditofallexpendituresintheMeasureQandBprogram,interviewsindicatedthatthedistrictwasawareoftheIRSrequirements.

Ageneralreviewofthebondissuanceandexpendituretimelines,theMeasureQandBaudits,andtheCitizens’BondOversightCommitteewebsiteindicatethereisnobasisforsuspectingthattheIRSrequirementsarenotbeingmet.

4

• Doesthedistricthavesufficientpersonneltoproperlytrackandaccountforfacility-relatedprojects?

Thedistrict’sstaffingandorganizationappeartobeadequatetoproperlytrackandaccountforfacility-relatedprojects.ThisistruepartiallyduetorentalincomereceivedfromPG&Efortheuseofvacantdistrictfacilities.TheincomefromPG&Eisnotdedicatedonlytothefacilitiesdivision,butmostoftheproceedsareusedtomaintainthephysicalplant,includingthestaffingrequiredforthatmaintenance.

4

• Doesthedistrictprioritizefacilityissueswhenadoptingabudget?

Facilityfundingrequestsaresubmittedthroughthesameprocessasallotherrequestsforfunds.

In2015-16,$700,000wastransferredtothecapitalfundtoprovideamatchingfundforstate-fundedprojects.

AnnuallyAdministrativeServicesincludesaresourcerequestthatcombineslifesafetyandADA(AmericanswithDisabilitiesActandrelatedaccessibilitycompliancerequirements).OtherresourcerequestsmayincludespecificADAorlifesafetyissuesaswell.

ThehighestprioritycategoryintheBudgetPlanningCommittee(BPC)prioritizationrubricisimmediatelifesafetyandADAaccessibility.TheBPCrubrictodosoisshowninthetableimmediatelyfollowingthisFiscalHealthRiskAnalysis.

4

Is the district’s fiscal health acceptable in the following areas? Yes No N/A• Ifneeded,doesthedistricthavesurpluspropertythatmaybesoldorusedforleaserevenues?

ThedistrictisleasingunusedspaceattheEurekacampustoPG&E,andhasaleasewiththeSmallBusinessDevelopmentCenterandateenhealthclinicattheDelNorteCenter.Thedistrictindicatedthereareotherpotentialopportunitiesthatcanbeinvestigated,butpendingmoreconstituentinvolvementandboard-leveldiscussionsitwouldbeprematuretodiscussthemwithFCMAT.

4

• Ifneeded,arethereotherpotentialstatutoryoptionsthedistrictcanuseratherthandeclaringthepropertyassurplus;suchasenteringintoagreementswithsomeentitiesforjointuseorjointoccupancy,pertheEducationCode?

Thedistrictindicatedthereareotherpotentialopportunitiesthatcanbeinvestigated,butpendingmoreconstituentinvolvementandboard-leveldiscussionsitwouldbeprematuretodiscussthemwithFCMAT.

4

19. General Ledger 4

• Doesthedistrictrecordallfinancialactivityforallprogramsaccuratelyandinatimelymanner,ensuringthatworkisproperlysupervisedandreviewed?

The2012,2013,2014and2015annualauditswereall“unqualified”or“unmodified”withnomaterialfiscallyrelatedfindings.

AnnualauditsandotherreportshaveconsistentlybeenpreparedandsubmittedaftertheCCCCOdeadlines,causedbythechallengesrelatingtotherecruitment,trainingandretentionofcapablestaffforkeybusinessofficepositions.

Therewasanissuewiththemajordistrictbankaccountbeingreconciled;however,thatissueappearstohaverelatedtothepriorfiscalinstitutionandhasbeensinceremedied.

FCMATvalidatedasamplingofcollegeproceduresandpracticesandfoundnomajorissuesexceptforrequiredCCCCOreportsandauditsconsistentlysubmittedlate.

4

• Hasthedistrictclosedthegeneralledger(books)withinthetimeprescribedbythechancellororsuperintendent/president’soffice?

Deadlinesareconsistentlymissedbymonths.

Therehavebeenauditcommentsorexceptionsintheauditors’managementlettersaboutthegeneralledgerbeingclosedlate.Thosecommentshavenotyetrisentothelevelofgeneratingamodifiedorqualifiedaudit.

4

• Doesthedistrictfollowayear-endclosingschedule?

Thedistricthasadetailedclosingschedulefrom2009;however,ithasnotbeenfollowed.

Staffingandworkloadissueswerethereasonsgivenfornotfollowingayear-endclosingschedule.Therehavealsobeendifficultiesrecruitingandretainingqualifiedstaff,andofbeingabletotrainthecategoricalprogramstafftoperformthebasicaccountingfortheirprograms.Intermsofcategoricalprogramaccountingandreporting,itisusuallynecessaryforstaffmemberstoexperienceatleastonefullannualcycletobecomfortableandabletoperformthenecessaryjobfunctions,butthehighturnoverhasresultedinstaffmemberssimplynotgainingthatfull-cycleexperience.Also,therealitiesofstaffinginaverysmallcollegeincludesalackofbackupwhenemployeesareabsent.

4

Is the district’s fiscal health acceptable in the following areas? Yes No N/A• Havebeginningbalancesinthenewfiscalyearbeenrecordedcorrectlyforeachfundfromthepriorfiscalyearinthedistrict’sfinancialstatements?

Theprioryearauditedfinancialstatementsdonotcontainanyindicationthatthebeginningbalanceshavenotbeenrecordedcorrectlyinthegeneralledgerorauditedfinancialstatements.

However,therehavebeentimingissuesresultinginthefinalbudgetgeneralfundbeginningbalancesnotbalancingwiththeauditedfinancialstatements.ThisoccursbecausetheSeptemberdeadlineforthefinalbudgetadoptiondictatesthattheendingandbeginningbalancesarecalculatedbeforethebooksareclosedaswellaspriortotheauditedfinancialstatements.Thisisespeciallytruebecauseofthedistrict’sinabilitytofollowitsclosingscheduleandmeetthestate’sdeadlineforcompletingtheaudit.

4

• Doesthedistrictadjustprioryearaccrualsiftheamountsreceived(A/R)orpaid(A/P)aregreaterorlessthantheamountsaccrued?

FCMATverifiedthatthedistrictadjustsprioryearaccrualsthataregreatertoorlessthantheaccruedamountsbyreviewingtheauditedfinancialstatementsandreviewingtheprocedureswiththesenioraccountant.

4

• Doesthedistrictreconcileallsuspenseaccounts,includingpayroll,atthecloseofthefiscalyear?

FCMATverifiedthatallsuspenseaccountsarereconciledannuallybyreviewingtheauditedfinancialstatementsandreviewingtheprocedureswiththesenioraccountant.

Thereareoutstandingissueswithbaddebts,includingthelevelandtimingofwrite-offs,collection,andthelevelofdebt.Forexample,inthemostrecentlycompletedfiscalauditfortheyearended6/30/15,theallowancefordoubtfulaccountswas67%ofnettuitionandfees.

4

4 2015-16 Final Budget approved on 9/8/15, page 4.5 http://www.gfoa.org/accurately-displaying-total-expenditures-budget-presentation

Committee Rubric for Determining Resource Request Rankings to the Budget Planning Committee, College of the Redwoods

Priority ScoreRequired by law, mandate or to support accreditation? (includes life safety and ADA) (1, 0)

1 = required. 1’s are sorted by first and get priority over all 0’s.

Impact on student success? (supported by assessment or achievement data) (1, 2, 3)

1 = no impact, 2 = indirect impact, 3 = direct impact

Support strategic planning initiatives? (e.g., annual plan, Ed master, strategic) (1, 2, 3)

1 = no support, 2 = indirect support, 3 = direct support

Appropriate support and facilities to implement and maintain request-ed technology? (1, 0)

1 = yes, 0 = no

Number of students and faculty impacted? ( 1, 2, 3) 1 = fewer than 100 students and staff, 2 = 100 to 500 students and staff, 3 = greater than 500.

Appendices

Appendix A - Small Rural College Fiscal Comparisons

Appendix B - Business Process Guidelines Outline

Appendix C - Study Agreement

Appendix A

Small Rural College Fiscal Comparisons, 2014-15

Eleven Small Rural Districts*Barstow

Copper MountainFeather River

GavilanLake Tahoe

LassenMendocino Lake

Palo VerdeRedwoodsSiskiyou

West Kern

Percentage of Total Expenditures**Redwoods Statewide Rank from Highest of 11

Academic Salaries 41% 41% 2Classified Salaries 23% 23% 5Employee Benefits 22% 21% 3Total Compensation 85% 85% 2

Dollars per FTES*** Redwoods’ Rank from the Highest of 11 DistrictsRevenues per FTES 8Expense per FTES 6

Footnotes/Sources:*California Code of Regulations, Title 5, 58771(i)(12)

** Excel Workbook: 2015FiscalDataAbstract-Redwoods-B.XLS; Sheet: Small Rural Group B

*** Excel Workbook: 2015FiscalDataAbstract-Redwoods-B.XLS; Sheet: Small Rural Basics

2014-15 is the most current fiscal year’s Fiscal Data Abstract available from CCCCO.edu.

Appendix B

Business Process Guidelines

Outline

“Are we working smart? Are we performing the essential tasks of the job in the most efficient way possible?”

Outline of Report

I. Title/Organization of Business Activity

• Includes organization chart of employees in the business activity.

II. Core Business of Business Activity

• These are the collection of work processes performed.

• Key function – How the business activity contributes to the organization. III. Data Management

• Information/data used by business activity.

• Sources of information/data.

• Person(s) responsible for accuracy of data.

• Adequacy of data to ensure business activity efficiency.

IV. Process Controls

• Procedures available that delineate employee responsibilities (including separation of duties). This also shows required skills and how each job assignment contributes to the output of the business activity.

• Employee assignments are thoroughly discussed and understood.

• Sufficient documentation and protection of information.

V. Evaluation of Product and Employee Responsibilities

• Evaluate business activity output.

• Comparison with prior period output and if possible, industry average.

• Adequacy of employee assignments.

• Results discussed by business activity management with their staff.

• Method of identifying areas for improvement including additional equipment of workspace, as necessary (administrative review).

VI. Reporting

• Timely reporting of results to management.

• Recommendation for improvement of business activity and justification.

Appendix C