financial management for school board members how to develop a ‘toolkit’ for improving fiscal...

Financial Management for School Board Members

How to Develop a ‘Toolkit’ for improving fiscal responsibility

Can School Finance be understood?

• YES!!!• Like other big-picture items, we’ll break it

into smaller parts.• You don’t need to be an accountant or a

financial wizard to understand school finance.

• You do need to get meaningful information in an understandable format on a regular basis.

Legislative Action for FY2007

• Requires school board member attendance for financial responsibility training.

• The addition of a third Local Financial Position Report, February 1.

• Authorization for DOE to intervene when a school district meets the criteria for financial distress.

• Authorization to hold remaining 25% share of state funds until Aug 31 report received.

Board and Administration Roles

• Administration – providing information• Administration – providing explanation• Administration – providing guidance• Board Members – making decisions

based on information, explanation and guidance provided.

Typical Problems

• The “accountant myth” – don’t fall for it.

• The myth says that an accountant is someone who explains to you a problem you didn’t know you had in a way you can’t understand.

• It’s not a myth – it’s an excuse.

• Financial matters should always be presented in a way you can understand and…..

Confusion is Not Acceptable

• Accurate and complete reporting is part of the finance officer’s job of communicating financial reality to the board, the administration and the community.

Financial Reports Should Be

• Relevant

• Reliable and Verifiable

• Comparable

• Consistent

Reports to Expect

• ALWAYS:– Budget: Budgets are planning documents showing

how your district intends to spend money. Board approved documents.

– Financial Report: Regular periodic statement showing revenues and expenses for the year and a comparison to budget.

– Financial Position Reports: Required three times annually; projected cash flows for Feb. 1, May 1 and Aug 31.• Must be accompanied by a financial plan if the district is

experiencing cash flow problems.

Timing of the Budget

• Preliminary Budget – customarily prepared in Spring. Serves as a “starting point” for the budget year. Presented in June/July.

• Final Budget – prepared after Unit Count is complete and state allocations are known.

Understanding a Budget

• Key concepts:– No “money” exists in the

budget. Budget is based on amount of money you have in the bank.

– It is a thoughtfully prepared plan.

– It should reflect the priorities of the district.

– It may need to be amended during the year.

State’s Financial Management System

• All School District funds are deposited with the state and are in a bank account managed by the state along with all other state agency funds. It’s the state’s bank account.

• State issues the checks.• Interest is earned on this state account and

distributed to school districts.• We don’t write checks. We send requests for

checks.

The Basics

• School districts rely primarily on three different funding sources.– State of Delaware Funds– Local Funds– Federal FundsThere are other funds that school districts

receive such as local grants.

There are separate “rules” for each category. We’ll look at each one separately.

State Funds

• Some state funding is restricted.– Division I funding (state salaries)

• Some state funding affords limited flexibility.– Division II (Energy; All Other Cost)

• Some state funding allows total flexibility.– Division III (Equalization)

Restricted

• Division I funds can only be used to pay for the state share of salary and benefits for positions that the state certified as part of the September Unit Count or for positions that the state categorically granted to the district through state laws – custodians, reading specialists, etc.

• State salaries are determined by published state salary scales.

Limited Flexibility

Division II State funds allow for some flexibility within the category of the fund.

Examples: Energy money may be used for electricity, or heating oil, or natural gas or propane.

All Other Costs: Funds may be spent for material, supplies, equipment and contractual services. Cannot be used for salaries or energy.

Flexibility

• State funds occasionally offer total flexibility. This means that we can spend this money on anything that the board approved in the budget – personnel costs, materials, contract services, equipment, etc. No restrictions. Division III Equalization

Local Funds

• Raised by the school district through local tax levies.

• Four categories:– Current Expense – funds general operations.– Tuition – funds special needs students in identified

programs (not special education). • In district; in other school districts; in private placements

– Match – funds state programs that authorize a local match.• Minor caps 60/40; technology maintenance and block

grant; extra time 70/30; Reading Resource teachers 70/30; Math Specialists 70/30.

– Debt Service – pays principal and interest on bonds authorized by referenda.

Basic Rules of Local Funds

• Funds are kept separate.

• Two rates are limited by referendum – Current Expense and

Debt Service

• Two rates are limited by Board Action– Tuition and Match

Federal Funds

• Federal funds are always restricted as to purpose and the time period during which the money may be spent.

• State approves application and grants funds to districts as “sub grantee” of state.

Federal Grant Components

• Specific Amount for Salaries • Specific Amount for Benefits• Specific Amount for Professional Services• Specific Amount for Material and Supplies• Specific Amount for Capital Outlay

• Cannot overspend any category without complying with the DOE amendment process.

Typical Federal Grants

• IDEA – this grant is spent on services and materials for special education students.

• Title I – this grant provides enhanced educational opportunities and materials for children who meet certain income standards.

Getting it All Together

• Once the district knows the total funds available then the spending plan is put together.

• It always requires balancing expectations and ability.

Budget Process

• School Districts establish internal procedures for development. – Information gathered from Unit Count– Spending requests gathered from schools and

departments– Fixed expenses determined; discretionary spending

planned.– Review and feedback to/from DO/Schools and

departments.

• State law requires the Superintendent to present a prepared budget to the Board and to the State.

You See the Budget – Now What?

• Is there a process for board review and comment? Do you want one?

• Is there a period for public comment? Do you want one?

Not a “Spectator Sport”

Your Role

• Official term for it is “fiduciary responsibility.”

• A legitimate effort of “due diligence” through which you have reason to conclude that the plan is reasonable.

Monitoring Financial Health

• Only one way to do it:– Periodic (Monthly/bi-monthly/quarterly)

financial reporting– Public discussion and Board Action– Methodology for review of reporting

• Supporting documents (state reports)• Internal review• Other review

But it’s SO TECHNICAL

• Approach it just as you would approach a bank statement– How much money is

there?– How much was

added?– How much was

spent?– How much is left?

Potential Signs of Trouble

• If a number of things are “missing” you should be concerned– No budget– No regular reporting– Answers not given– Concerns not

addressed

The Teachable Moment

• Learning difficult lessons• Becoming more involved• Becoming better informed• Establishing reasonable expectations –

self and others• The higher level of accountability• End of the teacher year is not the end of

financial responsibility.

Items to Remember

Remember

• Budgets must reflect “actual revenues” • Expenses cannot exceed revenues. In

other words, you can’t spend more than you actually have.

• “How we are doing” – the financial report – should be a regular reporting event and discussion.

• Don’t take “no” for an answer.

Board Member Suggested Actions

• Standardized Reporting• Complete annual financial audit