School districts are one of the largest state and local entities that receive huge funding. This makes them subjected to a significant amount of public scrutiny and regulations regarding appropriate reporting requirements. School district funds can be subjected to mismanagement by various individuals that manage the funds. Proper accounting practices should be followed so as to prevent any form of mismanagement. Financial endeavors in education that can be done to prevent mismanagement include proper accounting, auditing, and budgeting. This paper discusses incidents of misuse of funds, accounting practices, and risk management procedures by the Los Angeles Unified School District.
Incidents of Misuse of Funds
There have been several incidences on the misuse of funds in the Los Angeles Unified School District (LAUSD). One incident that increasingly caught the public eye was when David Blinkle, a former director for the Los Angeles Unified School District was charged with misappropriation and embezzlement of public funds. The accusations came after an audit revealed that he diverted $65,000 in district money to a club which he controlled. He was accused of forging the district vendor application, failing to report his financial interests to the school district and funneling a portion of the public funds to his bank account. He diverted the funds into the culinary club where he was president between 2010 and 2014 (“Ex-LAUSD food services boss charged with embezzling public funds”, 2017). The audit also revealed that he had wasted millions of dollars in expensive hotel stays.
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The mismanagement of funds could have been avoided by following the required monitoring and auditing practices. Ongoing monitoring could have played a big role in ensuring that the embezzled funds were noticed way earlier. The senior management should have had employees that would monitor and supervise the financial processes. Proper yearly auditing of the company’s finances could have revealed the lost finances several years before it was discovered in 2015.
The allocation of spending by the Los Angeles Unified School District has also been under scrutiny over the past few years. A review of the financial structure reported that the budget deficit would grow to about $600 million between the year 2019 and 2020 and this would result in a fiscal crisis (Snell et al., 2018). Poor financial practices by poor budgeting practices resulted in the problem of a debt crisis. Proper budgeting finances would have ensured that there were proper budgetary allocations for the long-term debt.
Salary Schedules in the District
An analysis of salary schedules in the district revealed the hourly pay for the administrative, instructional, and classified personnel. An analysis of the document showed that it was prepared comprehensively. The different individuals that worked in the institutions were allocated pay based on the job group. For instance, the adult teacher hourly rate day-to-day substitute (0806) was $50.16427 (“Los Angeles Unified School District 2017-2018 Preparation Salary (T) Table”, 2018). The pay schedules were prepared accurately and comprehensively and would be critical in ensuring that the budgeting process would be prepared easily.
The budget for the Los Angeles Unified School District showed the budgeting allocations for various employees. The 2017-2018 Superintendent’s Final Budget showed the different allocation of funds for various activities. The internal service funds were 9% of the total budget of $13,367.86 million. The internal service funds amounted to $1,233.76 million (“Los Angeles Unified School District 2017-2018 Superintendent’s Final Budget”, 2018). The funds were allocated to various salary payments such as worker’s compensation, payment of employee health & welfare benefits, and liability insurance.
Further analysis of the district's funds revealed that the costs of the benefits towards the district’s employees had increased by 44% since 2014. The expenditure on outside consulting services had also increased by 110 percent since the year 2014 (Snell et al., 2018). The decisions had resulted in challenges of the financial structure of the school district. For instance, the long-term debt liability had tripled from $8 billion in the year 2007 to $25 billion for the year 2017 (Snell et al., 2018). An analysis of various internal expenditures such as special education programs, health care, and pensions showed that it will be consuming more than 57% of the district’s money (Snell et al., 2018). The analysis shows that there is a significant problem in the budgeting procedures and budgeting allocations done by the school district.
Approaches Undertaken for Risk Management
The Los Angeles Unified School District employs several approaches to ensure risk management through its budgeting allocation procedures. The school district makes use of several policies that are outlined in the “Budget and Finance Policy Summary” document. The document highlights the district policy, budgeting, and financing principles. One principle indicates that the budgeting followed should be based on financial principles that are sound. It indicates that the budget should be created by ensuring proper asset management, GASB compliance, program sustainability, equipment replacement, and prudent debt management (“Adopted Budget and Finance Policy”,2018). A keen consideration of these policies ensures that the institution follows risk management policies.
The financial structure of the school district is quite shaky because of the increasingly huge amount of long-term debt. In order to manage the risk, the school district allocates a significant amount of its budget towards servicing the debt. The debt service funds were approximately 7% amounting to $922 million for the year 2017 and 2018. Additionally, the school district has set one of its goals to ensure that it can properly handle all the risks presented as a result of the debt situation. One of the principles for the budgeting policy is to ensure that the budget is based on the goals of the board and superintendent. Considering the primary goals of the board and superintendent ensures that the goal of proper management of the risk caused by the huge debt will be met.
The accounting system followed by the school district is a financial reflection of the goals, philosophies, and mission of the institution. The accounting structure of the Los Angeles Unified School District is usually first revealed through the budget and later used for auditing the system. The accounting structure for the school district is analyzed based on the spending procedures, costing, spending categories, and line items.
The Los Angeles Unified School District policy on budgeting also requires that the accounting procedure and presentation of budgets should be made in a manner that is clear and easy to understand. The budget should thus be consistent with the GFOA standards. The budget presented has to be organized in a manner that all readers can easily understand. The budget presented should also be made in a timely manner and should be easy to manage at the school level.
Proper Auditing Procedures
The state and the school district also follow proper risk management procedures by ensuring that there is a financial audit of the school district. The audit reveals various section of the financial structure that could be considered somewhat risky. The school district a public agency that has its raising and spending of finances audited and reviewed every year. The audit and reviews are done continually to ascertain that the accuracy of the information presented and to prevent fraud.
The school district is required to perform both an external audit and internal audit. The three types of external audits performed include a financial compliance audit, a program compliance audit, and a performance audit. An audit on financial compliance reveals the alignment of the presentation to the Generally Accepted Accounting Principles (GAAP) and other accounting standards. The program compliance audit reveals the financial and educational requirements of specific funding sources like that of the federal grant. The performance audit shows the efficiency of the school district. The weaknesses in the internal control are examined for weakness so as to expose any possible fraud or mismanagement of funds.
An internal audit is performed by the school district’s system of checks, internal control procedures, and balances so as to ensure that there is ongoing accountability. Certain members of the school district may be required to perform an audit. The internal audit is also done before some purchases or significant financial procedures. Multiple signatures from various members of the board should be gained in order to approve a certain purchasing.
In conclusion, the analysis of the Los Angeles Unified School District revealed some of the compliance and non-compliance with proper accounting procedures. There have been some incidents that resulted in mismanagement of funds. This has created several challenges such as the huge long-term debt. The allocation of personnel salary is done accurately. One challenge with the budgeting was that there was a significant increase in the internal service funds expenditure and this could have resulted in several other problems. However, over the years, the school district has improved its accounting practices by focusing on the mission and goals and following proper auditing practices.
References
Adopted Budget and Finance Policy. (2018). Retrieved from https://achieve.lausd.net/cms/lib/CA01000043/Centricity/Domain/123/20_2018-19%20Budget%20and%20Finance%20Policy%20Adopted%20November%202013%20%202018%200503.pdf
Ex-LAUSD food services boss charged with embezzling public funds. (2017). Retrieved from https://www.dailynews.com/2017/08/08/ex-lausd-food-services-boss-charged-with-embezzling-public-funds/
Los Angeles Unified School District 2017-2018 Preparation Salary (T) Table. (2018). https://achieve.lausd.net/cms/lib/CA01000043/Centricity/Domain/280/Salary%20Tables/salary%2017-18/Unclassified.pdf
Los Angeles Unified School District 2017-2018 Superintendent’s Final Budget. (2018). https://achieve.lausd.net/cms/lib/CA01000043/Centricity/Domain/123/01_2017-18%20Superintendents%20Final%20Budget%20at%20a%20Glance.pdf
Snell, L., Smith, A. G., Koteskey, T., Joffe, M., & Bui, T. (2018). Five Recommendations to Solve LAUSD’s Looming Fiscal Crisis. Retrieved from https://reason.org/commentary/five-recommendations-to-solve-lausds-looming-fiscal-crisis/
