How to account for this isn't controversial -- you put the expected money to be received on your balance sheet, either under "Accounts Receivable", which is listed as an asset, or another similarly related account that shows the money is due. Of course, you can't have "Accounts Receivable" for eons with no update, at some point an auditor will say the money should be collected, or you have to write it off as a bad debt. But you must account for it one way or another.

The article seems to say that this money was not accounted for at all in the documents, and that in general, the accounting is a mess. If you don't know all your financial information, then how do you make financial decisions?

Well it doesn't matter in CA apparently, you just ask the state govt for more, who then either says they are underfunded and need to raise taxes, and/or ask the federal govt for more. The whole thing is a racket - be very very suspicious of any entity that is purposefully opaque by design, and gives you a shrug/"gee-willickers" reply to how this is just the way it is and can't be changed.