Melba Simpson conducted the audit
The previous year showed assets over liabilities by $1.7 billion, making for a 12-month swing of $5.9 billion, according to Melba W. Simpson, of Simpson & Simpson Certified Public Accountants, the company that has done audits for the past seven years for LAUSD.
“For the first time the district has a negative net position,” Simpson told the school board’s budget committee this week. “The biggest change is that you are going in the red now.”
LA Unified’s Chief Financial Officer Megan Reilly said the big swing reflects new reporting standards put in place by the non-governmental Governmental Accounting Standards Board, which now requires the district to post pensions and longterm liabilities.
“We are having to front-load the $5.2 billion (in retiree pensions); that’s why we’re going into the red in one year,” Reilly said, explaining that the entire amount is being posted in the audit rather than in a footnote as had been done previously. In the past, there was a concern that pension obligations were not reflected properly in audits, Reilly said, adding “This change is happening in government and financial statements and put longterm and pension benefits on the books.”
The numbers will only get worse, because LAUSD’s other post-employment benefits, which are unfunded for the district, are estimated at $10.9 billion. The total is only expected to increase because of rising medical costs and longer life spans.
The district’s retirement health plan costs $800 million a year, and it was eventually going to put the district in the red, Simpson said, but the new pension accounting escalated the numbers.
The audit report was made at the Budget, Facilities and Audit Committee and four of the seven board members were in attendance. The audit is required by law for the district and cost $879,000, taking 10,000 hours to complete, Simpson said.
The audit includes depreciation on buildings owned by the district. That resulted in capital assets decreasing by $44.7 million. The district also had to repay nearly $580 million in bonds.
Board member Richard Vladovic pointed out that the capital depreciation is unfair because it doesn’t include the value of the land.
Confirming the reliability of the report, Reilly said “We have to have discussions about what the trends are saying and peel that onion back a little bit.”
Mónica Ratliff, who chairs the budget committee, said it is important to have an independent analysis of the district finances. She said she attended some of the superintendent search forum meetings and was surprised about the number of people who did not trust the district’s budget and thought money was being hidden.
“It is essential to be transparent with the public and have an independent auditor and see that everything is under standard procedure. I greatly appreciate that,” Ratliff said. “Now we need to see recommendations to handle our total liability.”
This is really not new news. The good news is that the bad news is being reported in the audit and not dismissed+ignored in the footnotes; this content was previously reported in the Independent Financial Review Panel - the group formed in March by Superintendent Ramon Cortines - report last November. And it wasn't news then either.
The accounting standards have changed and the district is no worse off than it was last year, it’s just that the long-standing bad situation is more obvious. LAUSD is not alone in this situation, it's just bigger and the numbers are bigger.
The "swing" of $5.9 billion reported by LASR is moving the money from from one cell in the spreadsheet to another ...but where would we be without the LA School Report declaring that "The Sky is Falling" - and proving it w/data?The is. of course, a double standard in the application of the accounting standards. If a charter operator had an audit report like this the District would be wise (and correct) to shut them down. Hopefully LAUSD will begin to address this situation in the upcoming year.
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