ENCINITAS — The San Dieguito Union High School District is at high risk of financial insolvency unless leaders can address the year-over-year spiral of multimillion-dollar deficit spending and other issues, a state fiscal analysis agency found in a recent study.
The 10-school district approved a contract with the state’s Financial Crisis and Management Assistance Team (FCMAT) to assess their finances, systems and processes back in November 2021. The team spoke in person and over the phone with district staff, reviewed documents and collected data in the winter of 2022, and then presented their findings to the district Board of Trustees at their June 23 meeting.
Risk levels were calculated via a series of questions focused on 20 categories including budget, cash management, deficit spending, internal controls and fraud prevention, leadership stability and other factors. A score at or above 40% is considered high risk, 25% to 39.5% is moderate risk, and a score of 24.9% or lower indicates low risk.
Even though San Dieguito’s score of 36.7% indicates overall moderate risk, FCMAT Intervention Specialist Robbie Montalbano said the presence of material weaknesses in deficit spending, as well as cash flow analysis, collective bargaining and enrollment projections pushes the district into the high risk category.
“There are a series of questions where if the district is deficient, the district is automatically considered higher risk,” Montalbano said.
The district projected deficit spending of around $9.8 million not only for the current fiscal year, but additional deficits of $4.4 million for 2022-23 and $3.1 million in 2023-24. In addition, the study found the district has no plans in place to reduce this deficit over the coming years besides awaiting growing revenues.
“Available unrestricted funds are projected to drop rapidly over the next three years. While the district can withstand the deficit spending at the moment, it can’t withstand it forever, and it goes pretty quickly. The sooner a district addresses that deficit spending, the less they lose in their funds balance,” Montalbano said.
FCMAT representatives also broke down their findings of the other study categories and the specific issues they found.
One major risk factor, analysts said, is that the district does not adequately monitor student attendance and enrollment data on a regular basis before sending it to the state, and larger studies regarding enrollment are completed in time for findings to be used for budgets or staffing projections.
FCMAT found that the district’s lack of stability in leadership also increases financial risks, as San Dieguito has had four superintendents over a one-year period. The school board recently fired the district’s most recent superintendent, Dr. Cheryl James-Ward, after placing her on administrative leave less than a year after she took the position, with Tina Douglas serving in an interim role since then.
“This one is tougher to address quickly,” Montalbano said of leadership instability issues. “Whenever there is turnover of superintendents or CEOs, there is a higher risk for financial crisis.”
The five-person board itself is also currently short one member after the sudden resignation of Melisse Mossy in April, with the remaining members unable to come to a consensus on how to select a replacement.
In addition, not all current board members have attended training on the budget and governance at least every two years, the study found.
Another major concern identified in the report was the district’s lack of safeguards against fraud, although FCMAT noted that the district is already addressing some of these issues. While no actual incidents of fraud were identified in the report, analysts identified material weaknesses in this category.
The study found that as of early 2022, there were no restrictions on who could access the district’s financial system, and the same staff members are responsible for multiple steps of the accounts payable process rather than having responsibilities segregated out.
“You never want to have one person in charge of an entire process. Tina [Douglas] and her staff are already working on making some changes here,” Montalbano said.
Montalbano emphasized to board members that the purpose of the report was to identify areas of improvement, rather than highlight the systems that are working well.
“Even a perfect [local educational agency’] in the state of California isn’t gonna come up with a 0% health risk. There is inherent risk. Every district is gonna have room for improvement and things to work on,” she said. “The report is written in a deficit model, but that doesn’t mean there aren’t great things going on in the district.”
FCMAT made several recommendations to the board on how to avoid further risk, advising leaders to monitor average daily attendance and enrollment data at each budget checkpoint and avoid using one-time funds for ongoing costs such as staffing. If they do use one-time funds, they recommended that the district have plans for how to finance these costs in the long term.
Douglas emphasized the importance of using these findings in order to make positive changes, and said staff will return to the board with updates in July as well as in the following months.
“This is not a report that will sit on the shelf. We will come back and let the board know what we are doing,” Douglas said.
At the same June 23 meeting, a separate state review agency also highlighted areas for improvement within the district’s administrative structure and function.
Representatives from the School Services of California, which conducted the administrative review, said there is significant overlap in the work of some administrative roles and identified a sense of confusion among staff in Human Resources and other departments regarding who to go with issues or concerns.
When compared with four other school districts of similar sizes throughout California, San Dieguito has the highest average number of educational services administrators per student. This is particularly prevalent among lower-level managers such as coordinators, specialists and supervisors who set department goals, where the district has 8 full-time equivalent staff compared to the average of 3.67 in other districts.
School Services of California Executive Vice President Suzanne Speck recommended that the district reduce the 17 full time equivalent managerial roles to 13 by eliminating four lower-level managerial positions.
“These are difficult recommendations to make, but I believe that based on our review and meeting with people, if you eliminate some of the existing duplication and create role clarity, then I think that this may be possible,” said Speck.
