For many years, school districts, cities and counties have gotten away with "guesstimating" how much the state owes them for doing a wide array of day-to-day services and programs mandated by law.

Now, as part of an auditing crackdown on the murky "mandate reimbursement" system, the state controller's office is requiring much tighter documentation of claims or it won't pay the bills.

The harder line is aggravating schools officials and their consultants, who file millions of dollars worth of mandate claims a year and depend on the cash to balance their budgets. The tighter record-keeping requirements, they say, are onerous, unnecessary and likely to significantly cut the funding schools so desperately need.
But according to the controller's office, the situation is akin to an employee turning in an expense account claim, or a citizen filing an income tax return -- dated receipts and accurate records are an expected part of the process.

"The fact is, they're asking the state to give them money, and they have to show the state that they're entitled to that money," said Richard Chivaro, chief counsel for the controller's office.

Mandates are based on a simple premise in the California Constitution: If the state imposes new programs or services on schools or local governments, it must pay for them.

Schools, cities and counties are reimbursed by tracking their costs and submitting bills to the state controller's office. It's a lot of paperwork.

There are about 80 mandate areas for local agencies, related to things such as animal adoptions and police training.

An additional 55 mandates apply to education, such as holding earthquake drills, keeping immunization records and bargaining with labor unions. The amount of money involved is enormous: Over the past five years, the state paid nearly $1 billion for school mandates and has a backlog of close to $850 million in unpaid claims.

In the past, the mandate system was an obscure corner of school finance that received little attention.

But recent government audits have found serious problems, with the lack of adequate documentation being high on the list of concerns. In a recent summary of audits of eight districts, $30 million of the $39 million claimed was deemed unallowable by state auditors, much of it because of documentation issues.

An investigation published by The Bee on May 18, called "Paying for Schools," revealed that the mandate reimbursement process has evolved into a Byzantine system filled with deep inequities, excessive red tape, lack of auditing and questionable claiming practices, including casual and imprecise record-keeping.

In some places, districts have calculated their bills to the state for handling student transfers by estimating -- at the end of the month, or even the end of the year -- how much time they devoted to the transfers, rather than by keeping careful records at the time they did the work.

In other cases, districts have conducted ministudies of the hours or minutes it typically takes to perform a task -- say holding a conference with parents about their truant child -- then multiplying that time block by the number of times that task was performed to come up with a billable amount.

At times, districts have simply reported the same amount of time they spent in previous years on mandated tasks rather than logging actual current times.

Those "guesstimating" days are over. The controller's office is stepping up its audits of mandate claims, assisted by 21 new auditors joining the current staff of 12. From now on, they will be demanding what they are calling "contemporaneous source documents" -- actual records created at or near the time of the activity.

"It's going to get more contentious," Chivaro said.

A major impetus for the controller's crackdown was last year's audit of a mandate called School Bus Safety II, which imposed new requirements, including monitoring students to make sure they got on and off buses safely. In its report, the Bureau of State Audits described a quagmire in which most of the claims were not only huge, but lacked adequate supporting paperwork. In addition, the audit said the state's guidelines for making the bus claims were unclear.

The state withheld payment on the bus claims and has since begun the gradual process of amending mandate guidelines to make it clear that on-the-spot documentation is needed.

According to school district employees and consultants who prepare claims for some of them, the claiming process already is laborious, and the new rigid standards are in many cases unreasonable.

"Documentation is the rub," said Keith Petersen, whose Southern California firm, SixTen and Associates, handles claims for 50 school and community college districts. "Schools are not used to this kind of documenting."

Schools use bona fide proof whenever they can, he and others said. But they also want to be able to rely on the old approach of using time studies, prior years' numbers or other methods to estimate their hours and efforts -- then signing declarations promising that they are accurate.

Time studies that satisfy auditors may still be allowed in some cases, Chivaro said, but the controller's office will no longer accept employee declarations.

Rob Roach, who prepares mandate claims for the Grant Joint Union High School District, said it is impractical to expect schools to formally log every moment, phone call or meeting related to mandates.

"Schools are up-and-down places," Roach said. "Nobody has time to sit around thinking about the 50 mandates and how much time they spend on each one."

Because the controller's office may review claims going back up to three years, the tougher requirements will create unfair situations for those who filed under the previously accepted standards, said John Conshafter, compliance auditor for MCS Education Services.

Conshafter's consulting firm, based in Rancho Cordova, prepares mandate claims for about 700 school systems in the state.

"We're not against audits," he said. "We're against inconsistencies."

Documentation is a sensitive subject at MCS. The company, formerly known as Mandated Cost Systems, recently settled a state whistle-blower lawsuit that alleged the company routinely altered or fabricated data from districts to create bigger mandate claims. The company denied the accusations, paying a $3.4 million to settle the suit.

The firm previously was criticized in the bus safety audit for aggressive claiming practices and lack of adequate documentation.

Conshafter said MCS has worked hard to improve its practices since he was hired 18 months ago as its compliance auditor. It has trained its consultants to help them understand and convey to their school district clients what kinds of paperwork will survive audits. "Guesstimates or estimates," as well as employee declarations, are no longer being used in MCS claims, Conshafter said.

"We're trying to do everything we can to tighten it to fit what the state controller's office is asking us to do," he said, noting that even that process can be a guessing game because mandate guidelines and claiming instructions often are vague or confusing.

The more extensive record keeping may be harder for districts and consultants, but it will be better for taxpayers, said Marianne O'Malley, an analyst with the state Legislative Analyst's Office and an expert on mandates.

"We don't want public employees documenting every time they exhale or inhale," O'Malley said. "But they're asking for taxpayer dollars, so adequate documentation is very important."