Response of Kenneth M. Young Riverside County Superintendent of Schools*

Critical elements of the MVUSD implementation plan for financial independence were never implemented: . Disbursing Officer does not currently report to the Superintendent or governing board (Exhibit 2). This reporting relationship was required by RCOE and is critical to establishing independence and integrity from other financial functions such as accounting, purchasing, and to avoid conflict of interest. Response: The RCOE wholly disagrees. The RCOE did not require the Disbursing Officer to report directly to the Superintendent or governing board. It did, however, require the MVUSD to implement an organizational structure and a reporting relationship for the Disbursing Officer that ensured independence and integrity from other financial functions. Based on the reports from the Auditor, the RCOE concluded that the MVUSD had established and implemented the position of the Disbursing Officer in accordance with the requirements for Fiscal Independence. In its manual for fiscal independence, the RCOE states that assumption of responsibilities exercised by the County Superintendent of school by a fiscally independent school district "requires the disbursing officer to have a significant degree of independence in the process of approving or disapproving warrants" and the disbursing officer "must be independent from operational responsibilities." See p. 22 of Exhibit A. Therefore, the disbursing officer should report within the administrative hierarchy of a school district in such a manner that his or her independence is maintained with no conflict of interest. See p. 22 of Exhibit A. The primary concern of a disbursing officer should be related to legality, accuracy, and budget and cash sufficiency for the issuance of each warrant. See p. 22 of Exhibit A. Additional duties for the disbursing officer are permissible, but should be reviewed to determine that good internals controls are not compromised. See p. 22 of Exhibit A. On December 15, 2004, the Auditor reported finding that "[t]he critical position of Disbursing Officer/Internal Auditor, along with his support staff, has been filled and incorporated into the District's organizational structure. As such, the District is currently in the process of developing an in-house commercial and payroll warrant generation system and associated controls and procedures - specifically managed by the Disbursing Officer. See p. 4 of Exhibit G. In another finding, the Auditor found that the organizational chart proposed by MVUSD demonstrated "segregation of duties and attendant delegations of authority appear to be properly controlled. Duties have been divided so that persons authorizing or initiating a transaction are separated from those Response of Riverside County Office of Education September 11, 2007 recording it . . . The Disbursing Officer (acting as an internal auditor) does report directly to the District Superintendent or to the Governing Board." See p. 8 of Exhibit G. Later in the report, the Auditor also found that "[t]he primary responsibility for the Disbursing Officer is to determine compliance with the relevant policies, laws, internal controls, and accounting procedures." See p. 11 of Exhibit G. Based on these findings, the Auditor concluded that "the District has been successful in building a system capable of achieving Fiscal Independence status." See p. 16 of Exhibit G. On May 27, 2005, the Auditor concluded in a report that "[t]he Disbursing Officer and supporting staff positions appear to be properly manned, with significant development of policies and procedures." See Exhibit M. The Director of Budget and Finance job description, dated April 2004, was

MVUSD did not honor an agreement to give RCOE "view access" to certain screens of the new computer software, Quintessential School Systems (QSS). The RCOE agrees; however, MVUSD and the RCOE are Response: coordinating to provide full access by October 2007. Response of Riverside County Office of Education September 11, 2007 On March 1, 2005, MVUSD agreed to arrange direct access to QSS for RCOE. See p. 7 of Exhibit K. This commitment was reiterated by MVUSD at a meeting with RCOE on May 25, 2005. See letter from Rollin Edmunds and attachment dated January 19, 2006 identified as Exhibit N; hereinafter referred to as Exhibit N. The RCOE requires access to QSS to monitor financial transactions of MVUSD and to print monthly reports including the general ledger, historical cashflow and financial summary. See Exhibit N. On December 16, 2005, Mr. Crank sent a letter to Mr. Edmunds expressing concern about granting RCOE full access to QSS. See Exhibit N. In particular, Mr. Crank suggested that the concerns centered on RCOE staff adopting some of the QSS features for its system without paying licensing or royalty fees. See Exhibit N. Additionally, Mr. Crank expressed concerns about disparate treatment with respect to accessing QSS between MVUSD and Corona-Norco Unified School District, which was also fiscally independent and used QSS. See Exhibit N. In his letter, Mr. Crank implied that MVUSD would not be providing QSS access to RCOE. See Exhibit N. On January 19, 2006, Mr. Edmunds responded to Mr. Crank by reiterating the requirement of providing view access to RCOE for QSS. See Exhibit N. RCOE offered to enter into a disclosure agreement assuring QSS that it would not incorporate any QSS features into its own system. See Exhibit N. Mr. Crank responded, on January 23, 2006, to Mr. Edmunds and stated that MVUSD would not agree to let RCOE have full access to QSS. See letter from Robert Crank dated January 23, 2006 identified as Exhibit O; hereinafter referred to as Exhibit O. In fact, Mr. Crank suggested that RCOE was acting in an arbitrary and capricious manner towards MVUSD as a result of its decision concerning access to QSS. See Exhibit O. Mr. Edmunds requested QSS access on three different occasions between December 6, 2006 and May 31, 2007. See letter from Rollin Edmunds dated December 6, 2006 identified as Exhibit P, memorandum from Rollin Edmunds dated April 25, 2007 identified as Exhibit Q and memorandum from Rollin Edmunds dated May 31, 2007 identified as Exhibit R; hereinafter referred to as Exhibit P, Exhibit Q and Exhibit R. On June 5, 2007, Mr. Crank informed Mr. Edmunds that QSS would send a Limited and Restricted Use Software License Agreement to RCOE for the purpose of accessing the required financial data from MVUSD. See letter from Robert Crank dated June 5, 2007 identified as Exhibit S; hereinafter referred to as Exhibit S. Upon execution of the agreement, the RCOE would have full access to QSS. In July 2007, the RCOE executed the agreement from QSS. Currently, the RCOE has established access to the QSS system. The RCOE and MVUSD are coordinating full access to QSS and all necessary financial reports, and it should be fully operational as of October 2007. Response of Riverside County Office of Education September 11, 2007

The auditor's report of December 15, 2004, stated that MVUSD did not yet fully comply with the RCOE requirements as follows: The duties of the Disbursing Officer were never fully defined.

RCOE did not follow-up on items not completed in the auditor's report before forwarding it to the state for approval, even after being granted permission to inspect by MVUSD. Response: The RCOE wholly disagrees. After the December 15, 2004 report from the Auditor and approval of the MVUSD application for fiscal independence, the RCOE met with staff from MVUSD, on five different occasions, to review its progress towards satisfying the conditions required by the California Department of Education. See Exhibit J. These meeting often included the Auditor, the Riverside Auditor-Controller and representatives of the vendor for the automated financial system. See Exhibit J. At each of these meetings, Action/Notes were prepared to review and document the progress of MVUSD in satisfactorily meeting the conditions for approval. See Exhibit K. Response of Riverside County Office of Education September 11, 2007 On May 27, 2005, the Auditor reported that MVUSD appeared "to be in a position to take on the responsibility of fiscal independence, as of July 1, 2005." See Exhibit M. The Auditor stated that "[f]inancial and [b]udgetary management and accounting controls appear to be in place or will be in place prior to [July 1, 2005]." See Exhibit M. Additionally, the Auditor stated that "[t]he Disbursing Officer and supporting staff positions appear to be properly manned, with significant development of policies and procedures." See Exhibit M. The Auditor also noted that observations of the MVUSD financial management and accounting controls, in real-time, was performed in April and May 2005. The Auditor reported that, while only minor issues needed to be resolved, the results of the tests reflected a successful conversion of data from the RCOE system to the new system. Exhibit M. Based on this report and the progress meetings, the RCOE and the Riverside Auditor-Controller determined that MVUSD had met the conditions required by the California Department of Education for fiscal independence.

The Assistant Superintendent for Business Services provided the external auditor with an organization chart (Exhibit #1), and processes and procedures necessary to meet RCOE's requirements for financial independence. However, the organizational structure and many of the processes and procedures were never implemented. Response: The RCOE wholly disagrees. On December 15, 2004, the Auditor reported finding that "[t]he critical position of Disbursing Officer/Internal Auditor, along with his support staff, has been filled and incorporated into the District's organizational structure. As such, the District is currently in the process of developing an in-house commercial and payroll warrant generation system and associated controls and procedures - specifically managed by the Disbursing Officer. See p. 4 of Exhibit G. In another finding, the Auditor found that the organizational chart proposed by MVUSD demonstrated "segregation of duties and attendant delegations of authority appear to be properly controlled. Duties have been divided so that persons authorizing or initiating a transaction are separated from those recording it . . . The Disbursing Officer (acting as an internal auditor) does report directly to the District Superintendent or to the Governing Board." See p. 8 of Exhibit G. Later in the report, the Auditor also found that "[t]he primary responsibility for the Disbursing Officer is to determine compliance with the relevant policies, laws, internal controls, and accounting procedures." See p. 11 of Exhibit G. Based on these findings, the Auditor concluded that "the District has been successful in building a system capable of achieving Fiscal Independence status." See p. 16 of Exhibit G. On May 27, 2005, the Auditor reported that MVUSD appeared "to be in a position to take on the responsibility of fiscal independence, as of July 1, 2005." See Exhibit M. The Auditor stated that "[f]inancial and [b]udgetary management and accounting controls appear to be in place or will be in place prior to [July 1, 2005]." See Exhibit M. Additionally, the Auditor stated that "[t]he Disbursing Officer and supporting staff positions appear to be properly manned, with significant development of policies and procedures." See Exhibit M. The Auditor also noted that observations of the MVUSD Response of Riverside County Office of Education September 11, 2007 financial management and accounting controls, in real-time, was performed in April and May 2005. The Auditor reported that, while only minor issues needed to be resolved, the results of the tests reflected a successful conversion of data from the RCOE system to the new system. Exhibit M. Based on this report and the progress meetings, the RCOE and the Riverside Auditor-Controller determined that MVUSD had met the conditions required by the California Department of Education for fiscal independence.

There is no requirement for the annual independent auditor to review the operations of the Disbursing Officer or functions relating to financial independence. Response: The RCOE agrees. Annual audits of California school districts are governed by the requirements adopted by the State Board of Education and the State Comptroller. These requirements do not specifically require an annual review of the operations of the Disbursing Officer. Nonetheless, the scope and breath of an annual audit for school districts will detect deficiencies in the disbursement of funds, and in the operation of the Disbursing Officer for fiscally independent school districts, to the extent they exist. More importantly, the RCOE is authorized, under Education Code section 42647, to continually monitor the accounting controls of fiscally independent school districts. In fulfilling these responsibilities, the RCOE regularly monitors financial transactions and monthly reports, including the general ledger, historical cashflow and financial summary, of financially independent school districts. These responsibilities are also designed to monitor the operations of the Disbursing Officer of financial independent schools districts. The RCOE intends to fulfill such obligations with respect to MVUSD.

Some managers and subordinate personnel of MVUSD have not received an annual performance evaluation in over two years as required by Business Policy (BP) §4315. Response: The RCOE does not have sufficient information to determine whether it agrees or disagrees with the Finding. Please refer to response from MVUSD.

The Director of Budget and Finance/Disbursing Officer, who is a supervisor of personnel, is not authorized to evaluate his/her staff. Response: The RCOE does not have sufficient information to determine whether it agrees or disagrees with the Finding. Please refer to response from MVUSD. Response of Riverside County Office of Education September 11, 2007