2023 South Carolina Code of Laws › Title 59 - Education › Chapter 20 - Education Finance Act Of 1977 › Section 59-20-90. School district fiscal practices of concern, actions authorized.

(A) The State Department of Education shall work with district superintendents and finance officers to develop and adopt a statewide program with guidelines for:
(1) identifying fiscal practices and budgetary conditions that, if uncorrected, could compromise the fiscal integrity of a school district; and
(2) advising a district identified under item (1) to take appropriate corrective actions.
(B) The program must include a series of criteria that the department shall use to establish three escalating levels of fiscal and budgetary concern, which must be "fiscal watch", "fiscal caution", and "fiscal emergency".
(C) "Fiscal watch" is the first level and lowest level of concern.
(1)(a) The State Superintendent of Education shall declare fiscal watch if:
(i) upon review of the district's annual audit, the department determines financial practices occurring outside of acceptable accounting standards exist;
(ii) the district submits an annual audit more than sixty days after the December first deadline provided in Section 59-17-100;
(iii) there is any type of ongoing, related investigation by any state or federal law enforcement agency or any other investigatory agency of the State;
(iv) an outside, independent auditing firm declares that a school district's financial records are unauditable; or
(v) the department identifies significant deficiencies, material weaknesses, direct and material legal noncompliance, or management letter comments which, in the opinion of the department, the aggregate effect of the reported issues has, or could have, a significant effect on the financial condition of the district.
(b) If a district meets the criteria in subsection (A), the State Superintendent shall declare a fiscal watch only after prior notification with the district board chairman and district superintendent, who must begin immediate consultation with the chief financial officer of the district. The watch notification must include steps the district may take to avoid the declaration.
(2) After prior written notification with the district board chairman and superintendent, the State Superintendent of Education may declare fiscal watch if:
(a) an independent, outside auditing firm notifies the department that the district is not operating under generally accepted accounting principles; or
(b) the district does not maintain a general reserve fund of at least one month of general fund operating expenditures of the previous two completed fiscal years, or has not made progress in increasing the general reserve fund balance in accordance with department guidelines to meet at least one month of general fund operating expenditures within the previous two completed fiscal years.
(3)(a) Within sixty days after the State Superintendent of Education declares a fiscal watch for a district, the district board shall submit a financial recovery plan to the department.
(b) The State Superintendent shall evaluate and accept or reject the plan within thirty days after receipt of the financial recovery plan. If he disapproves the plan, he shall recommend modifications that would make the plan acceptable.
(c) A district shall not implement a recovery plan unless approved by the State Superintendent.
(d) The department shall provide technical assistance.
(e) The district board may amend the plan at any time with the State Superintendent's approval.
(f) The district board shall submit an updated recovery plan annually until the district is released from the fiscal watch.
(g) The State Superintendent shall accept or reject an updated plan no later than the anniversary of the date on which the first plan was approved.
(4) A district under a declaration of fiscal watch must not be released from fiscal watch in the same fiscal year in which the declaration was made, but may be released the following fiscal year if the department determines that the corrective actions have been or are being successfully implemented. The State Superintendent shall notify the local board chairman, district superintendent, and chief financial officer of the release of the district from fiscal watch.
(5) The district board of trustees may appeal a declaration of a fiscal watch to the State Board of Education within ten days after the declaration and the state board must hold a hearing on the appeal within thirty days after the filing of the appeal or at the next regularly scheduled State Board of Education meeting, whichever is later. However, the district shall continue to work with the department in the manner provided by this subsection when a fiscal watch is declared pending determination of the appeal.
(D) "Fiscal caution" is the second level of concern, and is the intermediate level of concern.
(1)(a) After consultation with the local board chairman and superintendent, the State Superintendent may declare fiscal caution if the district was previously on fiscal watch and if:
(i) the district's audits have been reviewed and there are conditions observed that could result in a declaration of fiscal emergency; or
(ii) the outside, independent auditing firm conducting the district's audit reports to the State Superintendent that any conditions or practices exist that could result in a declaration of fiscal emergency.
(b) The written communication between the department and the school district constitutes the consultation with the local board chairman required in subitem (a).
(c) The notice must be sent to the board chairman and district superintendent who must begin immediate consultation with the district Chief Financial Officer. The notice must include, but not be limited to, an explanation of the circumstances that led to the decision and if the school district may take any steps to avoid the declaration.
(2) The State Superintendent shall declare a school district to be in a state of fiscal caution if the district previously was on fiscal watch and if:
(a) upon review of the district's annual audit or otherwise with notice from an independent, outside accounting firm, the department determines financial practices occurring that are outside of acceptable accounting standards exist;
(b) a district submits an annual audit more than sixty days after the December first deadline as provided in Section 59-17-100;
(c) the department reviews a district's annual audit and determines the district is not maintaining the mandatory minimum of one month of general fund operating expenditures in its general reserve fund or has not made progress in increasing the general reserve fund balance in accordance with department guidelines to meet at least one month of general fund operating expenditures within the previous two completed fiscal years;
(d) an outside, independent auditing firm declares that a school district's financial records are unauditable;
(e) the department identifies significant deficiencies, material weaknesses, direct and material legal noncompliance or management letter comments which, in the opinion of the department, the aggregate effect of the reported issues has a significant effect on the financial condition of the district; or
(f) there is an ongoing investigation being conducted by any federal or state agency, law enforcement or otherwise, related to the district's finances or local board of trustees.
(3) The State Superintendent shall declare a school district to be in a state of fiscal caution if the department discovers any other fiscal practices or conditions that could lead to a declaration of fiscal emergency through the examination of a school district's past two years' audits.
(4) The State Superintendent shall notify the district in writing that a declaration of fiscal caution for the district is pending, the conditions leading to the declaration, and shall request a written recovery plan for correcting the conditions that led to fiscal caution and for preventing further fiscal difficulties that could lead to fiscal caution. This notification must be given within at least ten business days, excluding district holidays that are five days or more, before the effective date of the declaration. The notice must be sent to the board chairman, district superintendent, and chief financial officer, and must include, but not be limited to, an explanation of the circumstances that led to the decision and if there are any steps the school district could take to avoid the declaration.
(5) While a district is under a declaration of fiscal caution:
(a) the department shall:
(i) visit and inspect the district;
(ii) provide technical assistance in implementing the board's recovery plan; and
(iii) make recommendations concerning the board's recovery plan;
(b) the department may order a performance audit of the district at the department's expense and later may require full reimbursement from the district, which the district shall provide within sixty days after the request is made; and
(c) the district must:
(i) be required to provide written recovery plans for discontinuing or correcting the practices and conditions that led to the declaration of fiscal caution to the department; and
(ii) be given approximately sixty days to provide a written recovery plan, which the department may extend an additional thirty days at the request of the district, provided that no additional extension may be granted under any circumstances.
(6) If the State Superintendent finds a district has not made reasonable recovery plans or taken action to correct the practices or conditions that led to the declaration, he may report to the State Board of Education that a declaration of fiscal emergency is necessary to prevent further fiscal decline.
(7) A district under a declaration of fiscal caution must not be released from fiscal caution in the same fiscal year in which the declaration was made, but may be released the following fiscal year if the department determines that the corrective actions have been or are being successfully implemented. The State Superintendent shall notify the local board chairman, district superintendent, and chief financial officer of the release of the district from fiscal caution.
(8) The district board of trustees may appeal a declaration of a fiscal caution to the State Board of Education within ten days after the declaration, and the state board must hold a hearing on the appeal within thirty days after the filing of the appeal or at the next regularly scheduled State Board of Education meeting, whichever is later. However, the district shall continue to work with the department in the manner provided by this subsection when a fiscal caution is declared pending determination of the appeal.
(E) The third and most severe level of concern is "fiscal emergency". The State Superintendent of Education shall declare fiscal emergency if:
(1) a district under fiscal caution fails to submit an acceptable recovery plan within one hundred twenty days or fails to submit an updated recovery plan when required;
(2) the department finds that a district under fiscal caution is not complying with an original or updated recovery plan and determines that fiscal emergency is necessary to prevent further decline;
(3) a district is at risk of defaulting on any type of debt, to include, but not be limited to, tax anticipation notes, general obligation bonds, or lease-purchase installment agreements;
(4) a district has previously been under fiscal watch, fiscal caution, or any combination of fiscal watch and fiscal caution for a total of three fiscal years within the previous five fiscal years; or
(5) he determines that a declaration of fiscal emergency is necessary to correct the district's fiscal problems and to prevent further fiscal decline;
(6)(a) While a district is under a declaration of fiscal emergency, the department shall:
(i) visit and inspect the district;
(ii) provide technical assistance in implementing the board's recovery plans; and
(iii) make recommendations concerning the board recovery plans.
(b) In addition to the provisions of subitem (a), while a district is under a declaration of fiscal emergency, the district must:
(i) be required to provide written recovery plans for discontinuing or correcting the practices and conditions that led to the declaration of fiscal emergency to the department; and
(ii) be given approximately sixty days to provide a written recovery plan, which the department may extend for an additional thirty days at the request of the district, provided that no additional extension may be granted under any circumstances.
(7) If the State Superintendent finds a district has not made reasonable recovery plans or taken action to correct the practices or conditions that led to the declaration, the Superintendent may make a recommendation to the State Board of Education that the department take over financial operations of the district for the fiscal year in which a fiscal emergency is declared as part of the technical assistance offered to the district. Upon approval of the recommendation by the State Board of Education, the department may maintain financial operations until the district is released from a fiscal emergency.
(8) A district under a declaration of fiscal emergency must not be released from fiscal emergency in the same fiscal year in which the declaration was made, but may be released the following fiscal year if the department determines that the corrective actions have been or are being successfully implemented. The State Superintendent shall notify the local board chairman, district superintendent, and chief financial officer of the release of the district from fiscal emergency.
(9) The district board of trustees may appeal a declaration of a fiscal emergency to the State Board of Education within ten days after the declaration, and the state board shall hold a hearing on the appeal within thirty days after the filing of the appeal or at the next regularly scheduled state board meeting, whichever is later. However, the district shall continue to work with the department in the manner provided by this subsection when a fiscal emergency is declared pending determination of the appeal.
(F) The provisions of this section are supplemental to other provisions of law, but to the extent the provisions of this section conflict with another provision of law, the provisions of this section must prevail.
(G) The provisions of this section also apply to the statewide charter school district, any institution of higher education that authorizes charter schools, or any entity that registers to become a charter school sponsor.
(H) The requirements to place a district on fiscal watch, caution, or emergency must be suspended for the two fiscal years following any state-implemented midyear budget cut, if:
(1) the district fails to maintain a general reserve fund of at least one month of general fund operating expenditures;
(2) the State continues to fund at the current base student cost;
(3) the State reduces the base student cost below the appropriation provided in the previous fiscal year; or
(4) the State increases the base student cost appropriation provided in the previous fiscal year but the increase is less than the previous fiscal year's appropriation as adjusted by the Consumer Price Index.
(I) A school district or charter sponsor involved in restructuring or the transfer of a school under its governance to another district or charter sponsor shall:
(1) deliver complete replicas of the student information system to the State Department of Education no later than June thirtieth of the year of transfer; and
(2) maintain updated assessment records and deliver these updated assessments records to the department, or the district or charter sponsor where students are currently assigned, no later than July thirtieth of the year of transfer.
HISTORY: 2017 Act No. 23 (H.3221), Section 1.A, eff May 9, 2017; 2018 Act No. 230 (H.5042), Section 1, eff May 18, 2018.
Editor's Note
2017 Act No. 23, Section 1.B, provides as follows:
"(B) The State Board of Education shall promulgate regulations to carry out the provisions of this section."
Effect of Amendment
2018 Act No. 230, Section 1, rewrote the section, revising the conditions which prompt declarations of various escalating levels of fiscal and budgetary concern, providing appeals processes from such declarations, applying the provisions to institutions of higher education that authorize charter schools, and revising related definitions.