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Repayment Plans

Letter Head, Delaine Eastin, Previous State Superintendant of Public Instruction
Date:          December 8, 2000

To:             County and District Superintendents
                   County and District Chief Business Officials
                   Charter School Administrators

From:         Janet Sterling, Director
                   School Fiscal Services Division

Subject:     Audit Resolution Process--Repayment Plans

 

On September 10, 1999, and December 1, 1999, the California Department of Education (CDE) and the Department of Finance (DOF) jointly provided information to county and district superintendents regarding the Education Code Section 41344 audit resolution process, as added by Assembly Bill (AB) 1115 (Chapter 78, Statutes of 1999). This letter provides important additional information about the procedures and timelines for requesting a repayment plan under that process.

AB 1115 established procedures for addressing apportionment significant audit exceptions reported in audits finalized after July 7, 1999.This process provides for appeals of audit findings, and for repayment, at the next principal apportionment, of any amount owed to the State as the result of an audit finding. In addition, AB 1115 provides that the State Superintendent of Public Instruction and the Director of Finance may establish a repayment plan if they concur that payment of the full liability in the current fiscal year would constitute a severe financial hardship for the local educational agency (LEA).

Repayment plans are to be of equal annual payments over a period of up to eight years and shall include interest on each year's outstanding balance at the rate earned on the state's short term pooled money investment fund. Notification of such a repayment plan must be given to the State Controller's Office within 90 days following the LEA's receipt of a final audit report. If a repayment plan is not established within that time period, and the audit finding is not otherwise resolved, the State Controller will withhold the entire disallowed amount at the next principal apportionment.

Our December 1, 1999 letter indicated that the provisions of Section 41344 regarding repayment plans and appeals of audit findings would not take effect until the appropriate administrative procedures and timelines were determined. The process for appealing an audit finding was conveyed to LEAs on March 6, 2000. This letter is to advise you of the procedures and timelines for requesting repayment plans.

Procedures

Our overriding concern about the repayment of audit exceptions is that the repayment should not unduly affect the educational programs or financial health of the school districts and county offices of education. We also recognize the enormous paperwork burden frequently placed on LEAs and want to avoid adding to that workload, if at all possible.

With the above in mind, we are offering school districts and county offices of education a couple of options for requesting repayment plans. One option is for a plan that will be automatically approved, that is dependent on the amount of the audit finding in relation to the size of the LEA's budget. The paperwork necessary to request such a plan would be minimal. A second option is available should this minimum guarantee approach not be a viable option. LEAs may choose to submit more detailed information supporting a repayment plan tailored to their individual circumstances and needs.

The specific options are described below:

Option 1 repayment plan

If the amount owed to the State as a result of any audit finding is greater than 1% of the LEA's total General Fund expenditures, transfers out, and uses, as reflected in the most recent annual audit report, then the LEA automatically qualifies for an Option 1 repayment plan, as follows:


Audit Finding as a %
of total General Fund Expenditures

Number of years over which
repayment would be made

Between 1% and 2%
2
Between 2% and 3%
3

Between 3% and 4%

4
Between 4% and 5%
5
Between 5% and 6%
6
Between 6% and 7%
7
Greater than 7%
8

If an LEA is interested in taking advantage of this automatic repayment plan, a letter detailing your request should be submitted to the CDE. Districts should provide a copy of this request to their county office of education.

Option 2 repayment plan

For those LEAs that believe the above "formula driven" Option 1 will result in a fiscal hardship, Option 2 provides the flexibility to establish a unique repayment plan to address the LEA's particular needs. However, the LEA will need to support such a request with documentation as follows:

  1. The number of years (not to exceed eight) for repayment that the LEA is requesting.
  2. A narrative explaining the financial need for the extended repayment period, including the impact to the LEA if the extended repayment period is not established.
  3. The July 1/September 8 budget or most recently approved interim report, whichever is most current, and the corresponding multiyear projections. Any budget, report or projections should have been reviewed and approved by the county office of education for school districts, or approved by the CDE for county offices.
  4. Financial projections illustrating the mitigated impact of payments spread over the requested repayment period.
  5. For districts, a letter from their county offices of education indicating that without such a repayment plan the district would face severe financial hardship.

Please note that all projections should include:

  • expenditures and revenues by major object group and components of ending fund balance.
  • funding obligations such as significant long-term debt and all assumptions, such as average daily attendance growth, cost of living adjustments, and negotiated or possible salary increases.
Timelines

The CDE and DOF must jointly review any repayment plan request, and notify the State Controller's Office of their approval of any repayment plan within 90 days of the final audit report. LEAs submitting requests pursuant to Option 1 may do so at any time within the 90 ay window. We recommend that such requests be submitted within 60 days of the final audit, in order to allow time to process the requests. For those LEAs requesting repayment plans pursuant to Option 2, it is important that the requests be submitted as quickly as possible to ensure that the CD and DOF have adequate time for their review. We recommend that such requests be submitted within 30 days of the final audit. This will give us time to review the requests and, should additional information be needed, allow the LEAs to provide that additional data in time to meet the 90 day time constraint.

If a final audit report was received after July 7, 1999, but before the date of this letter, we are asking that any requests for repayment plans be submitted within 30 days from the date of this letter. That will give us the time to review the request and, if appropriate, incorporate any repayments into the 2000-01 First Principal Apportionment.

If an LEA appeals an audit finding, a repayment schedule will not commence until the Education Audit Appeal Panel reaches a determination; however, the approval of a repayment plan must still be made within the timelines described above. Thus LEAs should submit their requests in time to allow for our review and consideration.

Please submit Education Code Section 41344 audit repayment requests to the following address:

California Department of Education
School Fiscal Services Division
Fiscal Policy Office
560 J Street, Suite 150
Sacramento, CA 95814

If you have any questions or if we can be of further assistance, please contact the School Fiscal Services Division, Fiscal Policy Office at 916-323-8068 [Note, the preceding unit is no longer valid and has been replaced by Office of Principal Apportionment and Special Education at 916-324-4541] or by fax at 916-322-5102.

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