In August 1985, the Commission on California State Government Organization and Economy initiated a study of California's community college system to assess the adequacy of financial accountability in the system. Two hearings, interviews, and analyses of extensive data, yielded the following findings: (1) 25% of the community college districts had "questionable" financial conditions, with four completing the year with deficits; (2) the financial problems of the districts with deficits were caused by long-term patterns of deficit spending, declines in average daily attendance (ADA), inadequate reserves, and poor management decisions; (3) the governance structure shared by state and local boards of trustees caused confusion resulting in a lack of accountability; (4) the State Board of Governors and State Chancellor had inadequate information and inadequate authority; (5) locally elected trustees were not as accountable to the local taxpayer as they were before Proposition 13; (6) the requirement that community college administrators hold one or two credentials limited the number of experienced professional administrators; and (7) the existing funding mechanism based on ADA was inappropriate and ineffective. Commission recommendations included the expansion of the authority of the Board of Governors and State Chancellor; elimination of the credential requirement for administrators; an "early warning" audit reporting system; and implementation of a categorical funding mechanism. The report includes specific allegations concerning management practices at the Los Angeles Community College District. (LAL)