Applying FCMAT’s Quartile Analysis

to Assess Risk

Kate Lane Tom Cassida Senior Director, Business Marin COE San Bernardino COE

About the presentersTom Cassida, San Bernardino CSS

thomas_cassida@sbcss.k12.ca.usAfter serving in the Marines for over 10 years, Tom joined the Kern County Supt of Schools in a clerical capacity. He became CBO for a small district in Kern County in 2001, was a Fiscal Advisor in Kern County for a short time, moved to North Carolina in 2008 where he worked for the Dept of Public Instruction, and returned to California in 2009 with SBCSS as an Advisor. Tom earned his MBA in 2010.

Kate Lane, Marin COE klane@tehamaschools.org Kate has been in the accounting field for over 30 years, almost all of which has been spent in governmental, not-for-profit and public accounting. After auditing school districts, Kate joined the Mendocino COE Business Services team moving to Tehama COE in 2008 and to Marin COE in 2012. Kate earned her masters in public administration in 2009, and maintains an active CPA license to perform audit services.

Topics to CoverWhy perform a Risk Assessment?Adaptation of FCMAT’s toolApplying weighting factors to the toolCounty-specific risk factors Communicating your findings

Risk Assessment and AB1200

AB1200 was enacted to protect the State from district insolvency.

AB1200 fiscal oversight requires:Analysis of each district’s financial

condition An assessment of the risk associated with

that condition.

Why perform a Risk Assessment?

No-one has the resources to devote equal time to each district’s AB1200 review.

Nor should we. Focus on districts at risk.And the areas in which they are at risk.

Identifying risk…

FCMAT IndicatorsThe FCMAT Indicators tool provides a

sound base for your county-wide risk assessment

Fiscal Health Risk AnalysisPredictors of School Agencies Needing Intervention

Risk Management

FCMAT IndicatorsFCMAT Fiscal Health Risk Analysis

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

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District A a a a a a 5 7

District B a a a a 4 3

District C a a 2 1

District D a a 2 2

District E a a a 3 2

District F a a 2 2

District G a a a a a 5 UP 2

District H a 1 2

District I a a 2 UP 0

District J a 1 0

District K a a a 3 2

District L a a 2 1

District M a 1 0

District N a a a a 4 3

District O a a a a a 5 7

District P a a a a a 5 8

District Q a a a a a a a a a 9 UP 6

District R a a a a a 5 UP 3

All Districts 18 5 1 12 5 0 0 5 3 1 1 4 7 1 0 4 1 68 59

Applying Weight to the FCMAT toolDeficit

Spending

How many Years

Level of Concern

Interfund Borrowing/ Cash Flow

% Borrow to Ending

Cash

Preparation

% Cash to EFB

Borrowing –

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TRANs

Bargaining Agreements

S/B Ratio

Benefits Cap?

Status of Negotiatio

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3 - projecting very unrealistic increases 3 - Material mistakes or omissions

1 - projecting decline at a lesser rate than historical 2 - 15% - 24.99% 1 - Incorrect Accruals, items in wrong place, no effect on cash balances2 - projecting flat or slight increase 3 - 25% or more 2 - Mistakes that cause monthly cash balances to be incorrect

CY plus 2 ADA/Enroll Proj Reasonable? 0 - 0-4.99% Cash Flow Preparation0 - projections are reasonable 1 - 5% - 14.99% 0 - No errors, totals balance to Form 01, Cash + Accruals = FB

0 - Not in historical declining enrollment 1 - OPEB with unfunded liability 2 - 75% to 90%1 - Historical Declining enrollment %Current OPEB Liability to GF Expenditures 3 - Above 90%

3 - Does not meet reserve in any year OPEB 0 - Below 60%Historically Declining ADA/Enroll? 0 - No OPEB or No OBEP unfunded liability 1 - 60% to 75%

1 - Meets reserve % in current plus 1 2 - 15% - 24.99% 3 - Less than 40%2 - Meets reserve only in current year 3 - 25% or more State Aid %

Reserve Percentage 0 - 0-4.99% 1 - 60% - 80%0 - Meets reserve % in all years 1 - 5% - 14.99% 2 - 40% - 60%

2 - Big problem but still able to meet reserves in all years 1 - District did not use position control to build Cash Flow - % Cash to EFB3 - Big problem and not meeting reserves/causing negative EFB Non-Voter Approved Long-Term Debt 0 - Above 80%

0 - Not a problem/Planned Deficit Spending/Not Deficit Spending for ongoing costs

Position Control 2 - Two elements missing or inadequate

1 - minor problem; some deficit spending for ongoing 0 - District used position control to build budget/Interim 3 - Three elements missing or inadequate

2 - Two Years 1 - Increase less than the standard in all years 0 - Clear, complete supporting docs, using proper assumptions, no material errors, reports in on time3 - Three Years 2 - Increase greater than the standard in one year

Deficit Spending - Level of concern 3 - Increase greater than the standard in two or more 1 - One element from above list missing or inadequate

0 - None Encroachment 3 - Significant findings and/or significant audit adjustments1 - One Year 0 - Decreasing Reporting

2 - 61% to 80% 1 - 80% - 84.99% 1 - Minor findings and/or material adjustments3 - Above 90% 2 - 85% - 89.99% 2 - Findings that could have a material effect on revenues and/or major

audit adjustmentsDeficit Spending CY+2 3 - 90% +

0 - 0% to 30% Salaries and Benefits Ratio Current Year Audit Report (2nd Interim)1 - 31% to 60% 0 - Below 80% 0 - No findings and no material adjustments

2 - At Ed Code Limit but no approved waiver 3 - district uses interfund, TRANs, X-Year TRANs, as a continuous source of general fund cash

2 - At least one charter with issues and the district is not demonstrating proper oversight3 - Above Ed Code Limit, no approved waiver, and/or needs additional cuts

% Borrowing To Ending Cash 4 - Borrowing 90% or more of accrued revenues 3 - Multiple charters with issues and lack of oversight

2 - No cap 1 - district uses interfund or TRANs but does not have a continuous borrowing stream

0 - No charters or no charters with issues and district appears to be doing its oversightEd Code Class Size Limits

0 - Below Ed Code Limit 2 - district uses interfund and TRANs but not to a maximum extent

1 - At least one charter with issues or the district is not demonstrating proper oversight1 - At Ed Code Limit or Approved Waiver

Certificated Benefits Type Borrowing - Interfund and TRANs 3 - At least two leadership or stability issues that have more than a minor effect on the district0 - Hard cap 0 - District has no interfund borrowing or TRANs or

borrowing has minimal effect1 - Soft or Variable cap Charter Schools with Potential Risk Factors

1 - Settled with Certificated but not Classified 1 - Meets ratio in current and one subsequent year 1 - New CBO and/or Superintendent2 - Settled with Classified but not Certificated 2 - Meets ratio in current year only 2 - New CBO/Supt. and at least 1 of the following: Labor Strife, Board

ineffectiveness/disfunction, fraud, waste, abuse, or other issues3 - Not settled 3 - Does not meet ratio in current plus 2

Status of Negotiations ADA to Enroll Ratio meets Standard? Leadership/Stability0 - Settled with all units 0 - Meets ratio in current plus 2 0 - Stable and good leadership

Applying Weight to the FCMAT tool

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District 1 3 2 0 3 3 3 3 1 2 3 3 3 2 1 3 1 0 3 2 1 1 3 3 3 52 77.61% Status of Negotiations 0-3

District 2 3 0 1 3 3 3 3 0 0 3 3 2 3 1 2 1 1 1 1 1 2 3 3 3 46 68.66% Certificated Benefits Type 0-2

District 3 3 0 2 3 3 3 3 2 0 1 4 2 3 1 1 1 1 1 0 1 2 3 3 1 44 65.67% Ed Code Class Size Limits 0-3

District 4 2 0 2 3 1 2 0 1 2 0 3 2 3 0 3 1 2 0 1 1 2 3 3 3 40 59.70% % Borrowing to Ending Cash 0-3

District 5 0 1 2 3 3 3 1 1 1 0 3 3 3 0 3 1 1 0 0 1 1 2 3 3 39 58.21% Deficit Spending CY+2 0-3

District 6 1 2 0 3 3 2 2 2 2 3 3 3 0 0 1 1 0 3 0 0 1 1 3 3 39 58.21% Deficit Spending - Level of concern 0-3

District 7 0 1 0 3 3 3 2 2 1 0 3 3 2 0 1 1 1 2 0 1 1 2 3 3 38 56.72% Reserve Percentage 0-3

District 8 3 2 1 3 1 3 2 1 2 3 1 3 3 0 1 1 0 1 0 0 0 0 3 3 37 55.22% Historically Declining ADA/Enroll Average? 0-2

District 9 2 2 1 3 3 3 3 1 1 0 2 3 2 0 1 1 0 0 0 1 1 1 3 2 36 53.73% CY plus 2 ADA/Enroll Proj Reasonable? 0-3

District 10 3 0 0 0 3 3 1 2 2 3 0 1 3 1 3 0 0 2 0 1 1 0 3 2 34 50.75% ADA to Enroll Ratio meets Standard? 0-3

District 11 0 1 0 2 3 3 2 2 1 3 2 2 2 0 0 1 0 0 0 1 2 3 3 0 33 49.25% Borrowing - Interfund/TRANs 0-4

District 12 1 2 0 3 2 2 2 1 0 3 2 2 1 1 2 1 0 1 1 0 1 1 3 1 33 49.25% Salaries and Benefits Ratio 0-3

District 13 3 2 0 3 1 2 0 1 0 3 2 3 0 1 2 1 1 0 1 0 0 2 3 1 32 47.76% Encroachment 0-3

District 14 3 0 0 3 3 2 0 1 2 1 1 3 2 0 1 1 1 1 0 0 1 1 3 2 32 47.76% Position Control 0-1

District 15 3 0 0 3 2 2 0 2 1 0 2 3 3 0 1 1 0 1 0 1 0 1 3 2 31 46.27% Non-Voter Approved Long-Term Debt 0-3

District 16 3 1 0 3 2 2 0 1 2 0 2 1 1 0 0 0 0 1 0 1 2 3 3 2 30 44.78% OPEB? 0-1

District 17 0 0 0 3 1 3 1 2 0 0 2 3 3 0 1 1 1 0 0 1 1 1 3 3 30 44.78% OPEB Current Liability 0-3

District 18 3 0 0 2 3 3 1 2 1 0 2 2 0 1 0 1 0 1 1 1 1 1 2 2 30 44.78% Leadership/Stability 0-3

District 19 0 1 0 1 3 3 1 0 1 0 0 2 3 0 1 1 0 0 0 0 3 3 3 3 29 43.28% Charter Schools 0-3

District 20 0 0 0 2 3 3 1 2 1 0 0 1 3 0 3 0 0 1 1 1 1 1 3 2 29 43.28% Audit Report 0-3

District 21 3 0 0 0 3 3 1 2 0 0 2 3 3 0 1 1 0 0 0 2 0 1 2 2 29 43.28% Reporting 0-3

District 22 0 0 1 3 1 3 2 2 2 3 3 1 1 0 0 1 0 0 0 1 1 2 0 1 28 41.79% Cash Flow Preparation 0-3

District 23 1 1 0 3 3 3 2 2 0 0 3 2 0 0 1 1 0 0 0 0 0 1 3 2 28 41.79% Cash Balance 0-3

District 24 0 0 2 0 3 2 0 2 2 0 1 0 2 1 0 0 0 3 0 1 1 2 3 1 26 38.81% Percent State Aid 0-3

District 25 0 1 2 0 3 2 0 2 1 0 0 1 3 0 3 1 1 0 0 1 1 1 1 1 25 37.31% Total Points 67

District 26 0 0 2 0 3 2 0 2 1 0 0 3 2 0 3 0 0 0 0 1 0 1 3 2 25 37.31% 0 = Low to No Risk

District 27 3 0 0 0 3 2 0 1 2 0 0 3 1 0 2 1 0 0 0 1 0 1 1 2 23 34.33% 3/4= High Risk

District 28 0 0 0 0 1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 1 1 19 28.36% New Indicators

Risk Factor Weight Matrix

How things changeThe economic, demographic, geographic, and

social factors impacting California School Districts differ widely across the State.

As a result each County Office AB1200 team has unique data elements and risk factors to track

Developing a county-specific risk assessment tool

Gather data

Look for emerging patterns

Meet with your team and discuss your districts

Apply weighting to the final factors

Developing Risk Factors

Initial Risk IndicatorsBased on pure count of risk factors

Deficit Spending

Deficit Spending

=> 10% exp

EFB reduced

by =>50% over MYP

2014/15 does not meet REU w trigger

Unbudgeted Trigger Risk

OTHERMATERIAL

RISKS

Reliance on State

& Federal Aid

Capital Projects OPEB

LTD other

than GO Bonds

Salary Ratio =>

90%

Units Not

Settled

Total Revenue/ ADA < Co.

avg

Key Personnel

Change

OUT OF 14

TOTAL RISK

FACTORS

District A a a a a a 5District B a a a a a a a a 8District C a a a a a 5District D a a a 3District E a a a a a 5District F a a a a a a a a a 9District G a a a 3District H a a a a a a 6District I a 1District J a a a a a a a a a a a 11District K a a a a a 5District L a a a a a 5District M a a a a a a a a 8District N a a a a a a a a a 9District O a a a a a 5District P a a a a a a 6District Q a a a a 4District R a a a a a 5District S a a a a 4

16 3 7 5 5 6 9 14 4 12 6 5 0 107

Weighting the indicators

Determine maximum weight

Not all risk factors are equal

Are there any critical risk factors?

Group related factors

Weighting for critical risks

Entire group43/75

pts

Unbudgeted

Trigger Risk

10pts

Deficit spending

>=10% exp

5pts

Deficit Spending3pts

EFB reduced by 50% over MYP10pts

Fails to meet REU in MYP-1

15pts

Results of WeightingBased on weighted factorsWEIGHT 3 5 10 15 10 8 5 4 3 3 3 2 2 2 75

Deficit Spending

Deficit Spending

=> 10% exp

EFB reduced

by =>50% over MYP

2014/15 does not meet REU w trigger

Unbudgeted Trigger Risk

OTHERMATERIAL

RISKS

Reliance on State

& Federal Aid

Capital Projects OPEB

LTD other

than GO Bonds

Salary Ratio =>

90%

Units Not

Settled

Total Revenue/ ADA < Co.

avg

Key Personnel

Change

TOTAL RISK

FACTORSDistrict A 3 10 3 3 2 21District B 3 10 15 10 3 3 2 2 48District C 15 10 3 3 3 34District D 3 5 5 13District E 3 10 4 2 2 21District F 3 10 15 10 4 3 3 2 2 52District G 3 5 5 13District H 3 10 4 3 3 2 25District I 2 2District J 3 10 15 10 5 4 3 3 3 2 2 60District K 3 10 3 3 2 21District L 3 3 3 2 2 13District M 5 4 3 3 3 2 2 2 24District N 3 15 10 5 4 3 3 3 2 48District O 3 4 3 3 2 15District P 3 4 3 3 2 2 17District Q 3 3 3 2 11District R 3 4 3 3 2 15District S 3 5 8 5 21

48 15 70 75 50 8 30 36 42 42 12 24 12 10 474

Communicating risk

The development of district profiles is an excellent way to visually communicate your risk assessment

The profile you develop should include elements of your risk assessment

Include data elements of specific interest to the County Superintendent to make the profile a more fully integrated dashboard