SB 0881 - Fiscal Note

Fiscal Note - SB 0881 - Directs auditor to audit financially distressed school districts and counties that elect auditor

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO. 3596-01

BILL NO. SB 881

SUBJECT: State Auditor: School Districts and Counties

TYPE: Original

DATE: February 24, 1998

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FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
Financially Distressed School District Audit Revolving Trust	$0	$0	$0
General Revenue	($296,675)	($333,381)	($341,922)
Total Estimated Net Effect on All State Funds**	($296,675)	($333,381)	($341,922)

**Does not include potential savings if the distressed school district, county and city audits conducted by the State Auditor's office would replace the current external audits. It also does not include potential losses of state aid under the Foundation Program to districts that do not comply.

ESTIMATED NET EFFECT ON FEDERAL FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
None	$0	$0	$0
Total Estimated Net Effect on All Federal Funds	$0	$0	$0

ESTIMATED NET EFFECT ON LOCAL FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
Local Government	$0	$0	$0

Numbers within parentheses: ( ) indicate costs or losses

This fiscal note contains 5 pages.

FISCAL ANALYSIS

ASSUMPTION

Officials from the Office of the State Auditor (SAU) assume the proposed legislation would result in the addition of six FTE to implement the proposal. These would include one Manager (1 FTE at $56,340 per year) to manage the audits, two Senior Auditors (2 FTE at $38,484 per year) to be in charge of daily field work and three Audit Staff (3 FTE at $29,328 per year) to assist the Senior Auditors.

Based on current state law and the federal single audit act, it appears that both counties with auditors and financially distressed school districts would still continue to have annual audits by CPA firms, and the State Auditor's Office audits would be in addition to those audits. The State Auditor would review the CPA audits and working papers and do only other limited work deemed necessary. The estimated hours and costs for the 21 counties/cities and 12 schools (approximate number of financially stressed schools each year from DES) reflect costs to do the limited reviews.

Officials from the Department of Elementary and Secondary Education (DES) assume the proposed legislation would have no fiscal impact on their agency. The school districts would incur the costs of the audits in addition to employee(s) time to provide information to the Auditor. The most recent data reflect the average cost to a school district for an audit is $4,700. The assumption is made that the State Auditor would charge the same amount. State statute requires school districts to be audited by an independent auditor; therefore, the school districts would have two audits and double the costs. Since school districts are not notified they are stressed until October or November, there would not be sufficient time for the State Auditor to perform an audit by the statutory deadline of December 31. An already stressed school district would then lose aid. School districts that do not comply will be ineligible for state aid under the Foundation Program until it is in compliance. In FY 97, there were ten (10) financially stressed school districts.

Officials from the City of St. Louis assume the proposal would not apply to them, since they do not elect an auditor. Therefore, they would have no fiscal impact. Also, the School Board of the City of St. Louis is not financially distressed. That designation was removed recently.

Officials from the St. Louis Public School District assume the proposal would not result in fiscal impact, since they are no longer classified as financially distressed. However, should they be designated as such again, they would have double audit costs. The District has no information available for potential costs, since those costs would be set by the State Auditor.

ASSUMPTION (continued)

Officials from the Office of the Attorney General (AGO), Office of the State Treasurer (STO) and the Department of Revenue (DOR) assume the proposed legislation would have no fiscal impact on their agencies.

Officials from the Kansas City Manager's Office, City of St. Joseph, and County Auditors of Callaway, Cass, Boone Buchanan, Cape Girardeau, Greene, Jackson, Jasper, Johnson, Pettis and St. Charles Counties did not respond to our fiscal impact request.

Oversight assumes the state would reimburse the school districts, counties and cities for the costs of the audits to the school districts, counties and cities in accordance with Article 10, Section 21, of the Constitution of Missouri.

FISCAL IMPACT - State Government	FY 1999	FY 2000	FY 2001
	(10 Mo.)
FINANCIALLY DISTRESSED SCHOOL
DISTRICT AUDIT REVOLVING TRUST
FUND
Income-Office of the State Auditor (SAU)
Fees from School Districts/Counties/Cities	$296,675	$333,381	$341,922
Costs-SAU
Personal Service (6 FTE)	($184,410)	($226,825)	($232,496)
Fringe Benefits	(51,635)	(63,511)	(65,099)
Expense and Equipment	(60,630)	(43,045)	(44,327)
Total Costs - SAU	($296,675)	($333,381)	($341,922)
ESTIMATED NET EFFECT TO
FINANCIALLY DISTRESSED SCHOOL
DISTRICT AUDIT REVOLVING TRUST
FUND	$0	$0	$0
FISCAL IMPACT - State Government	FY 1999	FY 2000	FY 2001
(continued)	(10 Mo.)
GENERAL REVENUE FUND
Costs-School Districts/Counties/Cities
Audit Costs	($296,675)	($333,381)	($341,922)
ESTIMATED NET EFFECT TO
GENERAL REVENUE FUND	($296,675)	($333,381)	($341,922)
FISCAL IMPACT - Local Government	FY 1999	FY 2000	FY 2001
	(10 Mo.)
SCHOOL DISTRICTS/COUNTIES/CITIES
Income
Reimbursement from General Revenue	$296,675	$333,381	$341,922
Costs
School District, County and City Audits	($296,675)	($333,381)	(341,922)
ESTIMATED NET EFFECT TO
SCHOOL DISTRICTS/COUNTIES/CITIES	$0	$0	$0
FISCAL IMPACT - Small Business

No direct fiscal impact to small businesses would be expected as a result of this proposal.

DESCRIPTION

This proposal would require the state auditor to audit school districts that are designated as financially distressed. The school district would pay for the cost of the audit. Non-cooperation renders the school district ineligible to receive state aid until the state auditor determines the district has complied. The bill also sets forth the procedure for collecting the money paid by the district for the audit. The money would be deposited into the state treasury and credited to a newly created fund, the Financially Distressed School District Audit Revolving Trust Fund.

DESCRIPTION (continued)

The act would also require an audit of the counties that elect their own auditor. There are approximately 21 counties that elect their own auditor. Such audit by the state would be required at least once every two years at the cost of the county. This bill would also provide for St. Louis City to undergo similar audits.

This legislation is not federally mandated, would not duplicate any other program and would not require additional capital improvements or rental space.

This proposal would affect Total State Revenues.

SOURCES OF INFORMATION

Office of the State Auditor

Department of Elementary and Secondary Education

City of St. Louis

St. Louis Public School District

Office of the Attorney General

Office of the State Treasurer

Department of Revenue

NOT RESPONDING: Kansas City Manager's Office, City of St. Joseph, and County Auditors of Callaway, Cass, Boone Buchanan, Cape Girardeau, Greene, Jackson, Jasper, Johnson, Pettis and St. Charles Counties

Jeanne Jarrett, CPA

Director

February 24, 1998