MINUTES OF THE MEETING OF THE DISTRICT FINANCE COMMITTEE January 13, :30 pm 5:30 pm

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1 MINUTES OF THE MEETING OF THE DISTRICT FINANCE COMMITTEE January 13, :30 pm 5:30 pm I. The meeting was called to order at 3:30 pm by Mr. Sternshein. II. III. IV. In attendance were: Committee Members Ms. Knerr, Mr. Sternshein, Mr. Frank, Mr. White, and Mr. Young Staff members Ms. McCabe, Dr. Murakawa Leopard and Dr. Woods Board Member Mr. Goldstein and Mr. Hall Visitor Ms. Nancy Yeang Mr. Young moved approval of the agenda; Mr. Frank seconded. The agenda was approved. Mr. White moved approval of the minutes; Mr. Frank seconded. The minutes of the meeting of December 16 were approved. V. Future Meeting Dates The committee revised its meeting schedules and will meet on January 30, March 6, May 1, and June 5 (generally on the first Thursday of each month, except for the meeting at the end of January, and foregoing a meeting in February and April) VI. Board Liaison/Superintendent s Report Dr. Woods reported that the District had attempted to hire General Counsel but had not filled this position at this time. This would have been a new position, but the hope had been that the savings in legal fees and the increase in staff efficiency would have more than offset the additional personnel cost. The Board has approved a resolution authorizing the allocation of the $990,000 that was held in the ending fund balance as a restricted resource. $344,000 will be transferred to the Bond fund to reimburse legal expenditures, and the remaining amount will be allocated to pay for future legal fees if and as they are incurred. This will leave an ending fund balance of $1.065M in and $569,231 in Of the $569,231, $136,702 is projected as unappropriated. The District has received December tax revenues and received a little over $12M. This amount is consistent with projections and at this time the District does not believe that its estimated revenue is significantly over or under projected. The Governor s budget proposal, while it includes factors that will be beneficial to most public school districts (e.g., the elimination of deferrals, increase to LCFF funding by twice as much as previously projected), will not have significant impact to BHUSD because of our Basic Aid status. There is a legislative proposal for universal transitional kindergarten. The legislation would establish a strict class size limit of 20:1 with one teaching assistant. Parents would not have to enroll their children, but districts would have to offer it. For Basic Aid districts, this would mean new ADA growth, new staffing needs, and new facilities needs with no additional funding. Although this bill has budget implications, it is independent of the Governor s budget proposal at this time. At the last Board meeting, the Board also approved the engagement of a new legal firm to defend the individuals named in the Christiansen lawsuit. There was a discussion of

2 the selection of counsel, and comment made that general counsel could have assisted with this selection and assignment. VII. VIII. Update on OPEB Liability/Funding of Retiree Benefits/OPEB Actuary The District is still waiting for the Actuary to remit some required forms (the Conflict of Interest forms). Once the forms are received, a Notice to Proceed will be issued and meetings will be held to determine what information is needed by the actuary. This information will be provided as soon as possible. This was due in the end of June, and the delay in this process is a finding in the District s audit. The previous study indicated that the current liability is $4.15M. This liability is for health insurance costs for retirees, both current and prospective. There was discussion regarding actuarial unfunded pension liabilities. BHUSD is one of 1700 districts that participate in CalSTRS and CalPERS for pension programs. These programs are not fully funded; they are 70% funded. The District pays a certain percentage of salary into CalSTRS and CalPERS. The Pension Reform Act will address benefit levels for future hires, though it does not address the liability for current employees and retirees. The contribution rates have been relatively stable for quite a long time, but there is current discussion on changing both the employee and employer contribution rates. Review and Discussion of Endowment Resolution /General Counsel Mr. Young read prepared comments on this topic as follows: At last month s committee meeting we discussed the district s establishment of an endowment fund, which we finally agreed was really a Reserve Account #17 and agreed that it was the Board s prerogative to call it whatever they wanted. We acknowledged that there is no Board of Trustees, there is no management of the funds, other than L.A. County Office of Education, there is no Treasurer, etc. It s nothing other than a reserve account. You can put lipstick on it and give it whatever name you wish but it is still a reserve account funded with $10,000,000. This committee went on record months ago and recommended that the Board establish a reserve account and place funds in it each year as a prudent thing to do for when an economic crisis should occur in the future, as happened in the recent past. On a related matter, we applaud the Board for wanting to hire in house counsel. The weekly newspaper reported in its last edition that the attorney identified to be hired was put on hold because of a lack of funds. In House Counsel will save this district money and should not be considered an expense. Some of the routine matters now assigned to law firms can be handled by the district s lawyer. He is the one that should be interfacing with outside counsel. The district has already spent several million dollars in attorneys fees concerning the MTA, and who knows what the cost will be on the Christiansen litigation. Who is competent in the district to see that these future legal expenditures are being spent judiciously? How can the Board say they don t have money to pay in house council at this critical time? We believe it is penny wise and pound foolish not to do so. We therefore propose a resolution to the Board of Education that they hire in house counsel.

3 Mr. Young reminded the committee that the DFC has long been recommending the establishment of a reserve account. He also commented that the General Counsel would help the District to realize overall cost savings. Mr. Young proposed a resolution, which Ms. Knerr seconded: The District Finance Committee urges the Board of Education to hire in house counsel as soon as possible. The resolution was approved unanimously. Mr. Young submitted his statement to be read at the January 21, 2014, Board meeting. IX. Peak Staffing Report (Comparison of Organizational Chart Then and Now) Organizational Charts describing staffing in and in were distributed. The District Finance Committee clarified that the request is for a comparison of management and support positions in Administrative Services (accounting, accounts receivable, accounts payable, purchasing, payroll, benefits, and human resources) at its peak and current. Staff will bring additional information to the next meeting X. Audit Report The June 30, 2013, Audit report was distributed, and findings were reviewed: o Overdue requirement for actuarial study on OPEB liability o Oversight/control over voids and reversed transactions at the HS ASB o Lack of proper approval of transactions as reflected in ASB minutes o Lack of inclusion of independent study ADA in attendance reports o Failure to meet timelines for holding a public hearing on instructional materials on or before the eighth week of the school year The DFC did not indicate a need to invite the Auditors to come to a future DFC meeting. The Auditors review pieces of the internal control manual. Pieces of the manual have been provided to Ms. Kirk Carter. The complete binder will be provided to Ms. Kirk Carter the next time that she is in the District. New business office employees can determine their assigned tasks by reviewing their job descriptions and the relevant portion of the internal control manual. In reviewing the Audit report, a member of the committee commented that he believes that the use of the term endowment in connection with Fund 17 is misleading as there is no Board of Trustees and no Treasurer, returns are based upon earnings of the entire County pool, and principal is not inviolable. Further, the only reference to this fund in the Audit report does not provide sufficient information to educate the public about the true nature of the fund. Mr. White proposed a resolution, which Mr. Young seconded: The District Finance Committee urges the Board of Education to change the tile of Fund 17 to Stabilization Reserve Account rather than Endowment Account The resolution was approved unanimously. It was pointed out that the most significant piece of the District s financial picture from was the shift in position from one in which the District anticipated to needing to make expenditure reductions in millions of dollars in order to address an anticipated deficit of over $2.5M to one in which the District ended the year showing a $6.4M excess of revenues over expenditures. It was noted that this should be a significant

4 component of the Management s Discussion and Analysis and should be explained to the community. Staff will adjust timelines in order to ensure that the District Finance Committee has the opportunity to review the draft Audit report before it is submitted to the state. XI. XII. XIII. XIV. XV. XVI. Quarterly Reports Attorney Fees and MTA Expenditures Staff presented a report on legal fees. To date, the District has spent $190K on general fund legal fees and $670K on Measure E legal fees. There was a question about Measure E legal fees which are at more than 50% of the budgeted amount. This may be a timing issue due to filing timelines but may also indicate that the budgeted amount for these purposes needs to be increased. Update on Proposed Bond Vote by Electorate The Board has engaged the services of Godbe Research, Inc., and that firm is in the process of conducting opinion research. Results will be shared with the Board, and the Board will then give direction as to the particulars and timing of a Bond Measure. The sizing is currently contemplated at $217M, which is the remaining unissued portion of the $334M Measure E program. Committee members expressed that it is important for the District to communicate with the community regarding current issues and concerns to explain the need for the passage of the contemplated Bond measure. Update on Internal Auditor The District is waiting for the Internal Auditor to be able to resume her duties and may need to utilize her services for other reasons. The District previously received proposals from a number of firms but no individual. The Finance Committee discussed the need to maintain this role and to find a suitable candidate. This topic will be revisited at the next meeting. Update on Internal Control Manual The current version of the manual was brought to the meeting, and a copy is ready to be provided to the internal auditor. It was noted that the manual will be continually revised. Other Matters/Future Items for Discussion The Board has voted to pay legal fees associated with the Christiansen matter and to indemnify individuals named in the suit. Members of the DFC asked whether there is a public education equivalent of Directors and Officers Liability Insurance. It was requested that additional information be brought to the next meeting. Public Comment Ms. Yeong introduced herself as a reporter for the Beverly Hills Weekly. A comment was made regarding recent news reports related to security breaches allowing access to Target and other organizations customers personal information. The District does not hold individual credit card information, except for possibly in the area of ASB. Other credit card information is held by Horizon on behalf of the District.

5 Questions were asked regarding security practices and procedures both for ASB and with Horizon. XVII. XVIII. Future meeting dates are calendared for first Thursdays except as noted by an asterisk January 30, 2014*; March 6, 2014 (Second Interim); May 1, 2014 (Quarterly Reports attorneys fees and MTA expenditures); June 6, 2014 (Adopted Budget); July date TBA (Budget Revision if necessary; Quarterly Reports attorneys fees including MTA expenditures; Annual Report; Real Property Update year end summary and prospective year projections) Mr. Sternshein adjourned the meeting at 5:33 pm.