Financial Practices and Oversight
Financial and Business Services
Charter School Summer Conference
July 25, 2014
Overview
• Roles and responsibilities of the Board
of Directors
• Why Sound Financial Practices are
important
• Key fiscal accountability issues and
recommended best practices
• Financial Monitoring and audits
• Implications of Financial Noncompliance
Governance Structure
SBE
Policy
State & Fed
Legislation
Charter
Non Profit
Board of Directors
Policies and Procedures
School Administration
Other
Laws
Interested Parties
Federal
Agencies
Financial
Audits
The
Public
Public Financial
Records
Financing
Entities
Media
SBE /
DPI
General
Assembly
Governance vs Operations
Board of Directors
Governance
–
–
–
–
–
–
–
Creates and monitors the strategic plan
Allocates human, material, and fiscal
resources for systemic and sustainable
implementation of educational
programs
Develops policies
Hires and evaluates School Director
Reviews and approves operating
budget
Reviews and approves financial
statements as documented in board
agendas and minutes
Holds staff accountable for budget
management
Administration
Operations
–
–
–
–
–
–
Creates procedures to facilitate policies
Hires and evaluates school staff
Develops the school’s annual operating
budget and provides to board for
review and approval
Ensures charter school utilizes an
acceptable and appropriate system for
maintaining financial records
Provides timely financial reports to
board
Regularly provides the board with
reports comparing the budget to actual
transactions as a financial
management tool and explains
discrepancies
Board of Directors
An important and often overlooked responsibility of the
Board of Directors
fiduciary responsibility to the school to ensure
sound financial management
Board of Directors – Fiduciary
Responsibilities
•
•
•
•
Understand financial condition of school.
Oversee the operating budget to protect the
resources of school.
Hold school staff accountable for budget
management.
Ensure that the necessary financial policies are in
place to prevent fraud, waste and misappropriation.
Board of Directors
Every Board should have a financially
literate member, who has an understanding
of:
• Budgeting
• Financial processes
• Financial Statements and
• Financial Audits
Finance Committee
Develop finance and audit committee to monitor
financial activity in greater detail and meets at least
monthly to provide:
• Effective financial oversight
• Realistic budgeting and ongoing budget
monitoring
• Appropriate internal controls and procedures
• Timely and accurate financial reporting
• Maintenance of adequate financial resources to
ensure stable operations
Budgeting - Planning
Defines goals and objectives for school administration and
support services and develops program to attain those goals
• The educational objectives should drive the budget
• Begin early in the year in defining the short term and long
term objectives that need to be funded
Budgeting - Preparation
Resource allocations are made to support established
objectives
• Be realistic and honest!!
•
Begin with projected student enrollment which drives revenue
estimation and staffing expenditures
–
Example: An additional 25 students will require an additional teacher at a cost of
$40,000, causing not only the school’s revenues to increase but its expenditures as
well.
• Prepare several budgets based on different revenue
scenarios
• Allocate a portion of fiscal year revenues for
contingencies (especially schools in the first three
years of operation)
• Breakout by restricted revenue source
Budgeting
Revenue - Average Daily Membership
Fixed Costs – Facility, utilities, insurance,
administration
Variable Costs – Teachers, materials, paper
Cyclical Costs – Textbooks, computers
“Nice to haves” – new playground, enrichment
classes
Budgeting - Evaluation
• Monitor budget-to-actual comparisons
on a monthly basis and report results to
the board with explanations of any
significant variances.
• At the end of the year, determine its
effectiveness in attaining goals and
objectives
• Explain differences
Budgeting- Cash Flow
Breakout the budget by monthly
expenditures
Incorporate cash flow projections to
consider the timing of funding to
expenditures
Goals of DPI Financial Oversight
•
•
•
•
Ensure compliance with laws and regulations
Identify financial weakness to prevent financial failure
Required by the Federal Agencies for grants
Assess financial health as part of the
recommendations for charter renewal.
Financial Oversight Components
•
•
•
•
•
•
•
Monthly expenditure and payroll files
Annual Audited Financial Statements
Student accounting records
Desk top reviews
Monitoring visits
Notice of delinquencies from other entities
Whistleblower
Financial Statements
The audited financial Statements:
• Provide significant information about the financial health of
the school
• Request that the audit firm present the audit to the Board
and administration and explain them in easy terms
• Use the audit findings to improve and develop and
implement corrective action plans to resolve identified
issues
If there is effective budget review, nothing in the audit
should be a surprise
Financial Statements
Ensure audits are submitted to the Local Government Commission
(LGC) by October 31st
– LGC will analyze financial data from audit reports, and submitted
report approved will forward report to the pass through entity (DPI)
If the financial statements are going to be late, write to LGC and DPI
explaining the reason.
DPI review
• Analyze financial data – Financial
Performance Framework
• Significant changes in footnotes
• Audit Findings
What is the Financial
Performance Framework
a monitoring tool that provides key data:
• to assess the financial health
– past financial performance
– Current financial health
– Potential financial trajectory
• to assess the viability of the school
• to determine whether deeper analysis or
monitoring is required.
Financial Performance Framework
Uses:
•
•
•
•
Assessment and General Monitoring
Intervention
Renewal
Revocation
Example of Financial Information
Cash
Current Assets
Total Assets
Current Liabilities
Total Liabilities
Deferred Inflows of Resources
Net Assets / Fund Balance
2011
Audit
763,285
851,372
1,413,462
404,421
466,000
0
947,462
2012
Audit
553,025
716,488
2,367,088
369,569
1,108,119
0
1,258,969
2013
Audit
763,861
958,820
2,779,469
351,150
1,001,911
0
1,777,558
Financial information
2011
Audit
Total Revenue*
3,570,192
Total Expenses*
3,321,987
Expenditures Under (Over) Rev
248,205
Other Financing Sources (Uses)
Transfers to other funds
0
Loan proceeds
0
Proceeds from capital lease
6,173
Proceeds from notes payable
0
Special Item:
Insurance reimbursement
0
Net Change in Fund Balance
254,378
2012
Audit
3,776,518
4,671,598
(895,080)
0
0
0
760,000
0
(135,080)
2013
Audit
3,944,421
3,673,041
271,380
0
0
0
0
0
271,380
Ratio Analysis
R A T I O S A N A L Y S I S…
2011
2012
2013
m Indicators
2.11
Current Ratio
83.87
Unrestricted Days Cash
ADM Variance (Increase or De 1.05
Default
No
Revenue over expenditures
248,205
ility Indicators
Total Margin
Debt to Asset
Cash Flow
Debt Service Coverage Ratio
Fund Balance
1.94
2.73
43.21
75.91
1.05
1.03
No
No
(895,080)
271,380
7%
-4%
7%
0.33
0.47
0.36
120,896
(210,260)
210,836
2.93
0.19
4.81
17%
9%
19%
Report
A report of financial concerns is created for
each school with the following:
• Indicators of financial weakness
• Audit findings
• Student accounting concerns
• Other issues from other areas with
financial implications eg. EC non
compliance
RED Flags
• Fund Balance decline or negative
• Expenditures exceed revenue
• Student count decline during the year or between
years
• Low or negative cash balance
• Failure to pay health insurance and/or employee
retirement plan payments
• Current & Long Term Debt excessively high or
increasing
• Operating expenses higher than budget
• Audit findings
Financial Statements (concluded)
Most Common Audit Findings
• Absence of Conflict of Interest Policy
• Absence of Required Language on Contracts
– No indebtedness of any kind shall constitute an indebtedness of the State or
its political subdivisions, and no indebtedness of the charter school shall
involve or be secured by the faith, credit, or taxing power of the State or its
political subdivisions.
• Internal Control Deficiencies
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–
–
–
–
Segregation of Duties*
Procurement - suspension and debarment
Review and signoff
Claims in excess of eligible cost
Costs claimed lacked supporting documentation
DPI Follow up Action
• Contact school
• Request additional information or
explanation
• Place on financial non compliance
Financial Noncompliance
What are three stages of noncompliance for charter
schools?
• LEVEL 1 = Cautionary Stage (30days)
Minimal level warning to encourage immediate compliance.
• LEVEL 2 = Probationary Stage (30days)
State funds may be allotted on a monthly basis.
• LEVEL 3 = Disciplinary Stage (10 days)
10 days to respond to noncompliance issues. Last step before
recommendation revocation of charter.