School District Expenditures
SF101B Introduction to School Finance
Benny L. Gooden
ASBO
July 9, 2012
Why are you/we here?

ASBO Certification

Increase personal knowledge

Tier 1 Requirement—Expenditures

Tier 1 annual update

To make the day complete

Summer heat causes delirium

Bad economy prevents excessive shopping
Evolution of Account
Classifications

Handbook II, Financial Accounting for
Local and State School Systems:
Standard Receipt and Expenditure
Accounts, 1957
 Handbook II Revised, Financial
Accounting: Classification and Standard
Terminology for Local and State School
Systems, 1973
Account Classification
Standards-Present Edition



Handbook II R2- 1990
Reflects changes and
clarifications in generally accepted accounting
principles (GAAP)
Financial Accounting for Local and State School
Systems. 2003 Edition (NCES)
NCES Revised Edition published June, 2009.
http://nces.ed.gov/ppubsearch/pubsinfo.asp?pubid2009325

State Accounting Systems (ADE, etc.) adapt
Handbook II R2 for use by local school districts
Note: Account structures and codes are changed with
relative frequency—check latest ADE guidelines.
Access
on
APSCN
site
Legal Authority for School
District Revenue in Arkansas

Constitution of Arkansas

(1874 as Amended)
Article 14
§ 1. Free school system
§ 2. School fund—use –Purposes
§ 3. School tax—Budget—Approval of tax
rate
Amendments 11, 40 & 74
§ 4. Supervision of schools
Selected Statutory Guidelines for
School District Finance•
•
•
•
•
•
•
•
•
•
•
Attend meetings of school board.
Determine mission and direction of district.
Adhere to state and federal laws.
Enact, enforce and obey policies.
Employ staff.
Understand and oversee school district finances.
Manage facilities.
Approve curriculum and ensure that it is taught.
Visit district schools and classrooms.
Obtain training and professional development.
Do “all other things necessary and lawful..”
Revised 2009
§ 6-13-620 A.C.A.
Selected
Statutory Guidelines..continued
Board disbursing officer § 6-13-618
 Best Financial Practices § 6-15-2301
 Classified School Employee Minimum
Salary Act
§ 6-17-2203
 Teacher compensation guidelines

§ 6-17-2104 and § 6-17-2403

Independent Audit deadlines
•
Training Requirements
§ 6-20-1801
§ 6-20-1805
Basis of Accounting

Establishes point-in-time when revenues or
expenditures and related assets and liabilities
are recognized in district accounts and
reported in financial statements

Determines timing with which the accounting
system recognizes transactions
Basis of Accounting-Options

Cash Basis- Recognized when cash is
received or disbursed

Accrual Basis- Measures financial
position based on economic resources
and obligations

Single Entry/Double Entry Accounting
Cash Basis
Revenue recorded when cash is
received
 Expenses recorded when cash is paid
 Financial condition measured by cash
balance
 Receivables, payables or accrued items
are not recognized

Accrual Basis
Revenues are recognized when
earned—regardless of when received
 Expenses are recognized when
incurred—regardless of when paid
 Economic status reflects resources and
obligations—regardless of cash flow
timing

Single-Entry/Double Entry
Accounting
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Involves choosing method of recording
transactions
Many school districts use a combination of
single/double-entry records
Single-entry records can be converted to
double entry in the preparation of a balance
sheet
Electronic systems imbed these qualities into
their program features.
Double Entry Accounting
Provides for Equality of Debits and
Credits
 Maintains balance between assets and
liabilities
 Balances reserves and fund equities
 Provides date specific financial status
 Provides checks and balances in system
 Documents financial position of district

Good Expenditure Planning
begins with
Now Required by Law!
With a penalty clause!
Classification of Account
Revenues and Expenditures
Fund
 Source of Funds
 Function
 Location/Operational Unit
 Program
 Subject/Project
 Object

X
XXX
XXXX
XXX
XXX
XX
XXXXX
The Budget Strip-in practice
 2281-1105-040-987-00
Fund/Source
of Funds
Function
66100
Object
Program
Location
Subject
Fund/Source of Funds/Project
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Fiscal and accounting entity with a selfbalancing set of accounts recording cash and
other financial resources.
Funds are
established to account for financing or
specific activities of the district’s operations.
Source of funds codes are required for a
number of categories—ADE provides
Revenues may be segregated by source or
further classified using the program code.
Expenditures may be segregated by purpose
Fund Classifications
1
2
3
4
5
6
7
8
9
X
Teacher Salary Fund
Operating Fund
Building/Capital Projects Fund
Debt Service Fund
Capital Outlay/Dedicated M & O Fund
Federal Grants Fund
Activity Fund
Food Service Fund
Fixed Asset Fund
Function
Describes the activity being performed
when a service is provided or a material
object is received. Functions of a
school district are classified into five
broad categories.
 Functions and subfunctions consist of
activities which have somewhat the
same general operational objectives.

Function Classification XXXX

Instruction
 Regular Programs
 Special Education
 Workforce Education
 Adult/Contin. Education
 Compensatory Education
 Other Instruction
1000
1100
1200
1300
1400
1500
1900
Function Classification XXXX
continued

Support Services
 Student Support Services
 Instructional Staff Support
 General Administrative Support
 School Administration Support
 Business Support
 Operation/Maintenance Services
 Student Transportation
 Central Support
 Other
2000
2100
2200
2300
2400
2500
2600
2700
2800
2900
Function Classification XXXX
Continued

Operation of Non-Instructional Services
3000
 Food Service
3100
 Other Enterprise Operations
3200
 Community Service
3300
 Other Non-Instructional Services
3400
Function Classification XXXX
Continued

Facilities Acquisition & Construction
Supervision of Acquis/Constr.
 Site Acquisition
 Site Improvement
 Architect/Engineering Services
 Educational Spec/Development
 Building Acquisition/Construction
 Building Improvement Services
 Other

4000
4100
4200
4300
4400
4500
4600
4700
4800
Function Classification XXXX
Continued

Other Uses (Governmental Funds Only)
5000
 LEA Indebtedness
5100
 Fund Transfers
5200
 Payment to other LEA’s(AR)
5300
 Payment to LEA’s outside AR
5400
 Indirect Costs
5500
 Other Non-Programmed Costs
5900
Location/Operational Unit

Assigned by LEA’s to
 Identify attendance centers
 As designator of budgetary or cost
center indicator
 As means of segregating costs by
building structure
 As location code for payroll check
distribution
Location Classification


XXX
Assigned by local school district to designate
specific school units, sites and/or
location/centers
Regular school units must use the last three
digits of the schools LEA number in this field
Example: Fort Smith Public Schools
Ballman Elementary School 66-01-001
Program Code


Associated with a plan of activities and
procedures designed to accomplish a set of
objectives. This enables all expenditures
associated with a particular program to be
tracked across various functions, funds,
locations, etc.
Examples: NSLA salary supplements,
athletics, special education, alternative
education, gifted and talented, etc.
Object
Describes the service or commodity
obtained as a result of a specific
expenditure.
 Subdivisions of the major categories
provide for greater detail and analysis
for review and planning purposes.

Object Classification XXXXX
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Personal Services-Salaries
61000
Personal Services-Benefits
62000
Purchased Professional/Technical Services
63000
Purchased Property Services
64000
Other Purchased Services
65000
Supplies and Materials
66000
Property-Assets
67000
Other objects
68000
Other Uses of Funds
69000
Account Structure Concept
Salary Benefits Pur/Serv Mat/Supplies
Capital
Other
Instruction
Regular
Special
Support Services
Community Services
Facility Acquisition
Other
****Each Function & Object is also classified by Fund and Unit
Fund/Function/Object
Summary
Example
Foundation Aid Tracking


As noted in the discussion on Revenues, the
General Assembly has required separate
accounting for expenditures made from
Foundation Aid to document educational
services paid with these funds. Foundation
aid accounting in Fund 2000.
See ADE coding guidelines for specific
directions. Refer to Commissioner’s Memo’s
FIN-09-047, FIN-10-008 and FIN-11-080 for
details.
Interest—if not information—relative
to Handbook IIR2 is widespread

Account coding is required to reveal:
 Athletic expenditures
 Student transportation
 District administration
 School administration
 Instructional facilitators
 Supervisory aides
 Substitutes
 Property Insurance
Is Handbook IIR2 really designed
to account for these?

Act 1006 requires gathering information on these
expenditures:
 Student growth
 Declining enrollment
 Special education catastrophic occurrences
 Special education services
 Technology grants
 Debt service supplement
 General facilities
 Distance learning
 Gifted and talented
Do it Right…or Pay the Price!

Act 1006 provides for ADE to publish
rules to identify error rates by local
schools in reporting and provides that
fines or other penalties may be
assessed.
Keys to Sound Budget
Management
Systematic Classification of Revenue
and Expenditures
 Encumbrance of commitments
 Control of Account Structure
 Frequent Monitoring of Accounts
 Periodic Review by Third-Party
 Maintenance of Archives from Past

Salary Projections
Essentials for Accuracy



Orderly Schedule for Various Groups of
Employees
Calculation of Extended Terms for Selected
Groups of Employees
Benefit Calculation
Health Insurance-District Paid
FICA .0765
Employer Retirement Contribution .14
Other
Consider T-DROP Impact-- 14% for all
Other Salary Issues
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Educational Increments
Savings from Retirees vs. new hires
Early Retirement Incentives
Sick Leave Buyback
Severance Issues
Substitute Payroll
Multi-year impact of salary policy
Educational Excellence Trust Fund compliance
Salary Increases and NSLA funds
Act 1590 of 2007 governs the use of NSLA
funds for general classroom teacher
salaries.
•Bonuses only
•Conditions prior to use of NSLA
•Compliance with ACSIP, Accreditation, etc.
•Phase out if included in scheduled salaries
•Reports, reports, reports
Spending Requirements for
Categorical Funds Act 1220 of 2011
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Effective by June 30, 2012
At least 85% of NSLA Funds must be spent
Transfer authority among categories is
granted
Commissioner may grant waivers
Balance in categorical funds shall not
exceed 20% of annual allocation
Provisions for 10% annual reduction
required
Failure to comply results in deduction
Subject to rules promulgated by State Board of Education
Estimation of Unavoidable
Costs

Debt Payments-Principal & Interest

Property Insurance

Utilities

Salaries and Benefits
Required Costs
Facility Operation & Maintenance costs
equal to 9% of Foundation Aid
 Classified Salary increases if at
minimum wage—2012-2013 minimum
$8.02 per hr.
 Certified Salary schedule: minimum/inc.
 Other mandated services

Mandates with Financial Implications

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Full Credit for Service in higher education and private
schools
 Act 2307 of 2005
Certified staff base salary increase
 Act 2130 of 2005-Act 19 (First Extraordinary
Session of 2006) Act 272 of 2007
Certified staff annual experience step
 Act 59 of 2003 (2nd Extraordinary Session
Classified staff cost-of-living increase
 Act 1138 of 2001, Act 1773 of 2003
Scheduled teacher preparation periods during the
instructional day
 Act 1943 of 2005
Teacher Evaluation
System Training NEW
Mandates with Financial Implications
continued
Requirements for bonus payments in high
priority districts
 Act 1044 of 2007
 Duty-free lunch 100% of time
 Act 1881 of 2005
 Required music and art in elementary grades
taught by certified specialists
 Act 245 of 2005
 Vision screening standards
 Act 1438 of 2005
Certified Physical Education ratios in
elementary schools Act 1220 rules

Estimation of Essential but
Avoidable Costs—or NOT

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Materials and Supplies-$ 500/class
$20 per student
Equipment Replacement
Building Repairs
Vehicle Repair and Replacement
New Programs
Additional Staff-Required by mandates
Salary Increases-unless at minimum
Required
Purchasing Issues

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Bidding Requirements
 Commodities
 School Buses
 Construction
 Property Insurance
Sales and Use Tax Payments and Exemptions
Encumbrances
Credit Cards
Expenditure Responsibilities for
Leaders/Business Officials
Know areas of responsibility
 Inform and supervise others
 Be especially vigilant in problem areas
 Bidding Requirements
Credit Cards
 Careful shopping
 Travel Expenses
 Use available resources—ask questions
 Plan ahead and Check behind!

Specific Issues Relative to School
Buildings

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Engineer required if over $ 25,000
Architect required if over $ 100,000
Less than $10,000 by solicitation
$ 10,000-$50,000 advertised one time
Over $50,000 advertised two times
Bid Bond of 5% if over $ 20,000
Performance Bond if over $ 20,000
Contractor’s License if over $ 20,000
Federal Project Expenditures
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Review Specific Requirements of Categorical
Project Funds
Maintain time records for prorated employees
Maintain Adequate Documentation for Audit
Monitor Timelines for Obligation of Funds
Reconcile Federal Reporting with General
Ledger
Include program expenditures in required
ACSIP format
Other Federal Issues

Indirect Cost Rules

Maintenance of Effort Rules

Federal Education Jobs Fund

ARRA Funds
Classify Fixed Assets
Maintain Definition of “Supplies” and
“Equipment” in accordance with
Handbook IIR2 guidelines
 Record expenditures correctly classified
 Add fixed assets to Fixed Asset Fund
with proper accounting and controls
 Regularly verify inventory/location

Importance of Integrity in Data
Classification and Reporting
Legal Certification by Officials
 Public Disclosure by Local Districts and
ADE Reports-Web Site requirements
 Comparisons to Other Districts/States
 Sound Data for Decisions by Legislators
 Facts vs. Faulty Information

Reporting Requirements

Vendor/Beverage Contract Proceeds

Athletic Expenditures

Employee Contracts

Anything anyone wants to know
FISCAL DISTRESS
The rocky financial road to state
takeover of local schools
Indicators
And
Consequences
Targets of “Fiscal Distress”
Declining balance to jeopardize fiscal
integrity of a school district
 Act or violation to jeopardize fiscal
integrity
 Any other fiscal condition of a school
district deemed to have a material
detrimental negative impact on the
continuation of educational services by
that school district.

Potential “acts or violations”

Material failure to…
Properly maintain school facilities
 Violation of local, state, or federal fire,
health or safety code provisions
 Violation of local, state, or federal
construction code provisions or law
 Material state or federal audit exceptions
 Failure to provide timely and accurate
legally-required financial reports to ADE,
Division of Legislative Audit, General
Assembly or IRS

Other ways to violate….

Materially…
 Insufficient funds to cover payroll, salary,
employment benefits or legal tax
obligations
 Failure to meet legally binding minimum
teacher salary schedule obligations
 Failure to comply with state law governing
purchasing or bid requirements
 Default on any school district debt
obligations
 Discrepancies between budgeted and actual
school district expenditures
Other material ways…

Materially….
 Failure to comply with audit requirements
of 6-20-301
 Failure to comply with any provision of the
Arkansas Code that specifically places a
school district in fiscal distress based on
noncompliance.
What Happens then?
Finding by State Board of Education
 Publication of notices
 Limited rights of appeal
 Submit plan to ADE within 10 days
 ADE oversight of plan and
implementation
 Required ADE approval of plan
 ADE technical assistance
 ADE recommendations/mandated
staffing and fiscal practices

Other ADE actions…
Replace superintendent
 Suspend local board authority
 Transfer authority to new
board/superintendent
 Required reporting requirements
 ADE monitoring of accounts and
operations
 Training required for district board
members and employees

Final Action
Consolidation
 Annexation
 Reconstitution
 Other appropriate action

Certification or Report?
Tomato or Tomato? Rose or Thorn?
ADE requires numerous “reports,” “data
certifications” and “assurances of
compliance” with regard to information
maintained by local schools and relative
to various mandates, rules, statutes, etc.
Great care must be taken to be certain
that any document attested to be
accurate correctly represents factual data
or school activity.
ADE Annual Financial Report
and Budget – Fiscal XXXX
Required Certification
X 9
Due
October
15
Additional
Verification
And
Assurance
More……
And more……
Even More…
Yet More…..
Enough!
What??
Penalty
The Legal Fund Balance:
What is it?

Reported fund balance includes:
Cash
Ending Soon
Revenues receivable (36% pullback)
Taxes collected but not distributed
Accrued Expenditures (encumbrances)
Inventories
Designated reserves
Debt Service
Things are seldom what they seem.
What about balances in
targeted/restricted funds?
NSLA
 ELL
 ALE
 Professional Development
 Federal Funds

The fact that allocations are static makes fund
balances mandatory to ensure program
continuity. Controlled by Act 1220 of 2011.
What about Rules?

Many Acts provide…”The Department of
Education shall promulgate rules … to
implement the provisions of this Act…”

These rules are subject to the Administrative
Procedures Act and require notice, hearing,
comments, final adoption and Legislative
review.
READ THEM CAREFULLY!

Ethics Issues
Conflicts of Interest involving Board
Members and School Employees
 Employment
 Contracts
 Purchasing
 Approval by ADE
Act 1599 of 2003 as
amended by Act 1381

More Ethics Issues

Certified personnel are subject to the
Ethics Rules for Educators and may be
recommended for sanction by the
Professional Licensure Standards Board.
 Using resources improperly
 Using position for personal gain
 ……
 ……
The BIG Question?
The Best Expenditure
Estimate is one based on
past experience and upon
Reasonable Projections!