The Peralta Colleges Governing Board
Audit and Finance Committee Minutes
March 11, 2010
Present: Trustees Withrow and Gulassa, Presidents Herring and Adams, Wise Allen,
Connie Willis, Jennifer Seibert, Minh Lam, Tom Henry, James Grivich, Joseph J.
Bielanski, Jr., Pieter deHaan, MaryBeth Benvenutti, Sadiq B. Ikharo, Shirley A. Coaston,
Ryan Burial, Laney Tower, Karolyn van Putten, Helene Lecar, Helene Maxwell, David
Betts, Heidi White, Jeff Heyman, Debbie Budd, Linda Sanford, Bob Grill, and Reginald
James.
1.
Review the status of the external audit for fiscal year 2009 and discuss the
issues involved and strategies and timeline to address material and significant
deficiencies and recommendations. (Vice Chancellor Ikharo, Vice Chancellor
Allen, Heidi White and Tom Henry).
There is a weekly review on the status of the budget, and an update will also be given at
each of these meetings. Tom Henry gave an update on the current status from the
recovery team. Materials are being provided to help to complete the audit, and they are
optimistic that one will be completed soon. Every District in the state is required by
statute to be audited yearly. Trustee Withrow added that there are some material
deficiencies that will go back to the last 3-4 years. Heidi White reported on the audit, and
next year’s strategy. They have the next 3 weeks available to finish the audit. Trustee
Withrow asked Heidi to inform him, the Chancellor, and Tom Henry if she sees
outstanding items and corrective paths in her report. Our external auditors make a report
to the State and Federal Dept. of Ed. reporting agencies. March 31st is a key deadline
date for the Feds, with a possibility of a 2-4 week extension, and our lobbyist can assist
with this. Any issues of concern will be corrected as soon as possible. We could be put
on a watch list, with possible penalties, or removal of funding if we didn’t meet the
deadlines, but we’ve never been late before.
2.
Review and discuss preparations for the forthcoming Accreditation Visit as it
relates to financial and IT issues. (Tom Henry, Chancellor Harris, Vice
Chancellor Allen, and Associate Vice Chancellor Lam)
All community colleges are required to be accredited on a regular basis on a six year
cycle. The 07-08 audit reflected material deficiencies, which are of concern to the
accrediting agency. They will probably visit the District in mid-April. The process and
timeline was presented to the group. Trustee Gulassa asked how Tom feels going
forward with the accreditation team. It is a formidable process, but e feels that having an
audit and financial closure, which should all be done prior to June, will put us in a better
position. They will need the data for our decision making structure and evidence to
support our report. Most districts are struggling with this, due to the aggressive stand that
AACC is taking with this scrutiny. We initiated intervention outside of our District to
address issues, which will be seen as a favorable step. Trustee Withrow asked for
clarification on the 2 year sanction rule, which was explained. The 2 year rule has been
bent, especially when an institution gets outside intervention. The general rule is that a
District needs to be removed from sanctions or else they are shut down. Accreditation is
Board Audit and Finance Committee Minutes: March 11, 2010
a progressive model with levels of sanctions, including warning, probation, and show
cause (the most severe), and the models were explained. Warning means the
organization has the capacity and will to solve the problems, and the institution will have
ample time to correct any problems. Dr. Ikharo feels we should make plans to eventually
be able to take over work currently done by our consultants. This will also be a concern
to the accreditation team. ACCJC will look at sustainability. The worst thing that
consultants can do is to do the work and leave without necessary training and support.
Interims may be needed to help with stability and consistency. In time, the consultants
will leave. It has helped tremendously to have the recovery team onboard to improve our
systems. There is an HR crisis and knowledge-void in the state, and there are more
positions than qualified individuals, so we are not unique to bring in consultants. If it
took 3-4 years to get to this situation, then it could be estimated to take the same amount
of time to recover. Systemic changes take a long time, and we don’t have enough people
to do the work, with the state asking staff to do more with less. We are very lucky to
have Tom Henry here to help us. This won’t be easy, and everyone needs to work
together to solve the problems with our structural deficit. Trustee Gulassa shares that
there is resentment when added managers need to be hired, and he welcomes personnel
options from Tom Henry overtime.
3.
Review and discuss the proposed Budget for FY 2010 and FY 2011. (Tom
Henry, Vice Chancellor Allen and Chancellor Harris)
The Chancellor gave an update on the budget. Increased costs of fringe benefits are
anticipated to be $21.6 for health benefits, and $28M on overall benefits. We are looking
at April for additional cuts in areas such as travel, supplies, and a hiring freeze for the rest
of this fiscal year. The 2010-11 budget will proceed to the planning and budget
committee after the state budget is announced. It is felt that growth with go away, as well
as a negative COLA, with increased health and welfare fees. We’re preparing between a
3-10% budget cut for next year, with the colleges are looking at 3 scenarios. We have a
structural deficit, and retiring health costs of $7M for this year. $3.3M increase in health
benefits are anticipated next year, with a 15% increase. $249M is our full budget. The
09-10 budget will probably go to the Board on April 27th for adoption. 85% of our
budget is benefits and salary. Opportunities for savings are being discussed with our
unions. The state has downsized community colleges. It’s hard to maintain our current
structure of 4 colleges. This committee previously examined the issue, feeling that
smaller colleges actually receive more FTES due to having four colleges. We get a small
multi-college bonus from the State. Trustee Withrow feels we need to operate as if we
are structured as one college, to consider sharing functions or for certain colleges to take
the lead on certain projects. We are an undermanaged district with no redundancy. We
need to grow other sources of funding, other than general funds, such as fee-based
classes, and increase international student recruiting. 30% of our revenue comes from
out-of-state students at $30M. The Chancellor hopes that a budget document is available
by mid-April. Budget development is very difficult in an unsure environment. Mr.
Grivich has confidence that 95% of the numbers are accurate. Spending and revenue
estimates are holding to what was presented in the proposed budget.
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Board Audit and Finance Committee Minutes: March 11, 2010
Student receivables are possibly $5.1M as revenue, which may be uncollectable. We
need to maintain 5% of our budget as a minimum reserve, which is still unknown. There
are cash reserves as well as accounting reserves. A policy may proceed to make all
students pay all of their fees with a hard hold. The Chancellor will make it a high priority
to make the actual amount of the reserve known.
4.
Review and discuss the Budget Variance Report (Burn Rate) for FY 2010.
(Tom Henry, Vice Chancellor Allen and Chancellor Harris)
The recovery team has been working on the variance report, which has been updated
weekly. We are within a ballpark of knowing the bottom line, but we are deficit
spending. Speaker Maxwell asked if the process can be sped-up so that respective
corrections can be made at the colleges. Mr. Grivich is working on a variance report on
each site to help with this. We have a deficiency in our budget monitoring to post
periodic budget updates, but they are close to publishing this information. The State cut
the categoricals tremendously, but we continue to fund our mandated costs. Once we do
have a final budget, we will need to follow that strictly, which will limit spending. Every
community college district is preserving cash right now, and putting the brakes on object
codes 4, 5, and 6. We have encroached spending from the general fund into categorical
programs. He is also reconciling our bond funds accounts, and he suggests that projects
continue through June, but that we not continue business beyond that if not needed. The
District does provide some fund 1 monies to the categorical programs. We made a 2% cut
for this fiscal year. There may have to be layoffs if we need to make a 5% cut.
5.
Review and discuss a schedule for the Inspector General (IG) to audit the
status of the implementation and operational conformance to Board Policies,
irrespective of whether formalized administrative procedures have been
established. (Gail Waiters)
A legislative compliance audit was suggested to the committee by the IG, and a handout
was distributed. It will verify the existence of administrative procedures (APs), and then
see that they comply with the board policy (BP), assign responsibility to a manager, and
may provide some basic training and compliance roles. She’s identified some critical
policies. The audit and finance committee would review the compliance issues, and
policy review committee would recommend the Board policies. The policy review
committee is undergoing some changes to its operations, and those changes and will be
discussed at their next meeting. The chair of the policy review committee, Trustee
Gulassa, asked for as much corrective feedback from the IG as possible. Trustee Gulassa
feels this is very important to have the right policies, AP, and compliance issues in place.
The IG will handle the compliance element, and the General Counsel will work on APs
with the Chancellor. The IG reviews the AP to ensure that it is consistent in the spirit of
the BP. There is also a routing procedure through the shared governance committees.
LACCD has 8 full-time staff to write policies and procedures, which is hard with limited
staff and resources.
6.
Review and discuss a proposal to close out some or all of the SWAPS that
were established to hedge against interest rate variances associated with the
OPEB bonds. (Mark Harris, Chancellor Harris and Vice Chancellor Allen)
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Board Audit and Finance Committee Minutes: March 11, 2010
Chancellor Harris gave an update on the OPEB bonds. Retiree health benefit costs will
exceed the fund amount. Without the bond, we’d be up to $12M in these costs. It is a 45
year obligation, broken into 5 year series, to pay for the lifetime health care expenses of
employees in a pool hired before 2004, with increased costs coming from our general
funds. Health care benefit costs are increasing quickly, plus the state crisis, which are
anticipated to continue until 2014. We are not touching our employee or faculty base at
this time. Furloughs are preferred. The trustees don’t feel we can live with an 18%
health care fee increase within the current Peralta structure, and would suggest co-pay
and deductible fee increases. We are also paying almost 3000 unfunded FTES of $12M
this year. The Trustees requested a plan to work with the interest rate swaps, with a
profile of different possible scenarios, and its impact.
7.
Review a proposal to have the formal minutes of the Audit and Finance
Committee agendized as an action item for each of the regular bi-monthly
Board meetings for the next twelve months, to allow for full governing Board
and public discussion of all of the issues that have been raised.
This would allow the full Board and public to be able to discuss these same agenda items
on a regular basis. Trustee Gulassa suggested a future general assembly meeting with an
objective report from those who are bringing the budget up to date. The Chancellor
suggested topics of the 09-10 budget, 10-11 budget effects, and some of the issues
presented today. It could occur after Spring break in April or May. This will also help to
prepare the educational community for issues related to accreditation.
Next meeting: Tentatively scheduled for April 14th 3 – 5 p.m. District Boardroom.
Meeting materials are posted on the Peralta website:
http://www.peralta.cc.ca.us/apps/docs.asp?Q=1725
Respectfully submitted,
Roxanne Epstein
repstein@peralta.edu
466-7203
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