State board approves temporary rule tightening consequences for missing audits, citing district fiscal risk
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Summary
The State Board approved a temporary rule change to Appendix H that shortens the threshold for serious financial sanctions and clarifies actions for districts with outstanding audits, citing persistent missing audits and a shortage of qualified audit firms.
The State Board of Education voted Jan. 15 to send a temporary rule to the Administrative Procedures Act process revising Appendix H of the accountability standards, a change MDE staff said is intended to strengthen remedies for districts that fail to submit required annual financial audits.
Agency staff explained the revision would return the threshold for the most serious sanctions to two consecutive serious financial findings (from the four-consecutive threshold adopted in 2011), and would explicitly distinguish minor violations (such as a single late audit or routine reporting errors) from serious violations (negative fund balances, less than 7% in the district maintenance fund, disclaimers of opinion, or one or more outstanding audits). "When we talk about these strong sanctions...we're not talking about being a few days late; we're talking about outstanding audits where there's no known information within the agency regarding their financial status," one presenter told the board.
Staff and commissioners discussed the statewide shortage of qualified CPA firms doing school audits and the resulting backlog. MDE said it has identified 17 districts with two outstanding audits and warned that the March 31 submission deadline for FY25 audits could increase that number. MDE's proposed sequence for a district with a missing audit includes designation as a high-risk subrecipient under federal rules (2 CFR 200.206), enhanced monitoring, corrective action requirements, potential restrictions on federal drawdowns, and, if circumstances warrant, further state oversight including withholding federal funds.
Board members asked whether the agency has capacity for increased monitoring and whether the state or districts could expand the pool of auditors; staff said the Office of State Auditor maintains the list of qualified firms and that MDE would coordinate with that office and expand in-house monitoring and technical assistance where possible.
The board voted to approve the temporary rule request and move it forward in the APA process; a separate process will publish the precise proposed regulatory text and solicit public comment under APA timelines.
Why it matters: the change narrows the time window before strong sanctions can be applied to districts with missing audits and defines enhanced monitoring steps. MDE officials said the change is intended to protect federal and state funds and to provide clearer remedies when districts cannot or do not produce required financial audits.
What's next: the temporary rule will go out for public notice under APA procedures; staff said MDE will immediately intensify technical assistance and begin targeted financial assessments for identified high-risk districts.