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FIN21 CASH FLOW PROJECTIONS

FIN21 CASH FLOW PROJECTIONS. CASH FLOW PROJECTIONS. Session ID FIN21 Financial Services Professional Council Sacramento Section Friday April 5, 2013 11:00 a.m. – 12:00 p.m. Presented by Diane Lacombe El Dorado County Office of Education. Agenda. Cash Concepts and Challenges

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FIN21 CASH FLOW PROJECTIONS

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  1. FIN21CASH FLOW PROJECTIONS

  2. CASH FLOW PROJECTIONS Session ID FIN21 Financial Services Professional Council Sacramento Section Friday April 5, 2013 11:00 a.m. – 12:00 p.m. Presented by Diane Lacombe El Dorado County Office of Education

  3. Agenda • Cash Concepts and Challenges • Building Cash Flow Projections • Review and Analysis

  4. CASH CONCEPTS & CHALLENGES

  5. Cash Management is Vital • One of the 15 conditions that most frequently indicates fiscal distress is poor cash flow analysis and reconciliation • All districts that have been taken over by the state ran out of cash • Cost of running low on cash is high

  6. Cash ≠ Fund Balance Example: Cash is 10% of Fund Balance • Example: • Cash is 10% of • Fund Balance 714,636.96 7,716,085.10

  7. Cash vs. Fund Balance • Fund balance does not reveal what the cash level will be

  8. Cash vs. Fund Balance • High fund balance does not necessarily mean high cash levels • It is possible to have greater than minimum reserve levels, yet be out of cash

  9. Importance of Cash Flow Projections has grown • Funding reductions • 22% revenue limit (RL) deficit • Funded RL per ADA $1,500 less in 12-13 than in 07-08 for average unified school district • Deficit spending - less reserves, less cash • State has increased deferrals • One deferral for a few days June to July in 02-03 • Now, multiple deferrals over several months

  10. 2012-13 2013-14 Delayed Apportionment Funding Feb to Jul $2.0B now $532M Mar to Aug $1.3B now $1.029B Apr to Jul Cross-year deferrals $419M Apr to Aug Since Proposition 30 tax initiative passed, cross year deferrals are reduced by $2.1 billion $764M Apr to Aug / July $679M now $176M May to Jul $800M May to Aug / July $1.0B now $1.18B Jun to Jul 100% Within year deferrals Jul to Sep $700M Mar to Apr Jul to Dec End of Fiscal Year $500M Aug to Dec $900M $600M Oct to Dec $800M

  11. Revenue Limit – Deferrals • Districts that receive a higher percentage of RL as state aid are hit hardest

  12. Cash Flows • Need to be accurate • List assumptions • If borrowing will be needed • When & how much to borrow • Analyze, monitor, update monthly • After cash is reconciled, update cash flow for the new month’s actuals and re-project the rest of the year • Based on the latest version of the budget • All funds • At least current year and subsequent year

  13. BUILDING CASH FLOW PROJECTIONS

  14. Cash Flow Format

  15. Revised SACS Form CASH • Revised format began in SACS2012 budget software • Section Changes • Receipts • Revenue Limit Principal Apportionment and Property Taxes in object code order • Disbursements • 4000’s and 5000’s in two lines • Balance Sheet Transactions • Renamed from “Prior Year Transactions” • Subsections for Assets, Liabilities, Non-operating with more rows of detailed balance sheet accounts

  16. New SACS Form CASH • New columns • Beginning Balances (Balance Sheet Transactions) • Allows entry of beginning balances as reference • Example – enter beginning Accounts Receivable balance, can compare to total ARs projected to be received during months of cash flow projections • Adjustments • Noncash differences (not accruals) between cash transactions and amounts budgeted • Example -carryover that is budgeted but will not be spent this year • Budget • Facilitates comparison of cash flow totals to budget • Subsequent year cash flow tab available

  17. Building a Cash Flow Projection • Projected budget/interim • Best if it is done before starting cash flow projection • Columns • Completed months = actual amounts • Upcoming months = projected amounts • Accruals for cash in/out that will occur after June 30 • Adjustments column – noncash adjustments • Example: carryover that is budgeted but will not be spent this year • Estimating cash inflows and outflows • Dividing the budgeted amount by 12 months is not a good strategy

  18. Templates • Can use a template to help prepare cash flow • Create your own, modify an existing one • FCMAT Budget Explorer Cash Flow tool • EDCOE Cash Flow Template • http://edcoe.org/departments/business_services/CFO_Corner.html • EDCOE template tips • Start on “Welcome” and “Instructions” tab • Go slowly, step-by-step

  19. Templates • Template ideas • Format to make it easier • Match your financial system reports • Final result that matches SACS format • Make template do the math • Input budget and actuals to date, template calculates balance • Calculate % expected each month, monthly % x balance • Have detailed schedule that feeds into summary schedule • Break out elements in more detail – revenues, balance sheet, etc.

  20. Revenue Limit – State Aid Some ways to project month by month: • Spread remaining budget over upcoming months using estimated apportionment schedule percentages • Use Payment Schedule Summary Excel spreadsheet provided by CDE • InPrincipal Apportionment http://www.cde.ca.gov/fg/aa/pa/ • See applicable fiscal year / certification period • Look in Funding Excel Files

  21. Estimated Principal Apportionment Schedule *Source – 12/21/12 SSC article

  22. CDE Principal Apportionment Summary • Summary of certification by LEA TOTAL RL Other RL

  23. CDE Payment Schedule • Schedule of Principal Apportionment payments • Includes RL State Aid + others (Adult, GATE, etc.) Oct payment TOTAL

  24. Revenue Limit – Education Protection Account (EPA) • 2012-13, all EPA will be received in June • After 2012-13, EPA to be received quarterly

  25. Revenue Limit – Property Taxes • Paid based on actual collections • Main tax receipt months are December and April • Does your county auditor-controller have an estimated property tax schedule? • Education Revenue Augmentation Fund (ERAF) apportionments • Redevelopment Funds • Charter School In-Lieu Transfers

  26. Charter School In-Lieu Transfers • Education Code 47635 describes transfers in lieu of property taxes to charter schools from the sponsoring LEA • Annual amount Property Tax per ADA* x Charter ADA * Total District + Charter ADA • Schedule of transfers

  27. Charter School In-Lieu Transfers • EC schedule does not correspond to actual property tax collections • EC schedule was not affected by changes to RL State Aid schedule (5-5-9, deferrals) • Charter and District could agree upon alternate schedule of transfers

  28. Federal Revenues • SACS object codes 8100-8299 • Title I, Title II, etc • Special Education • When do you expect to receive these revenues? • May depend on when you spend them and when you report that you’ve spent them • Quarterly federal cash management reporting

  29. State Revenues • Some programs paid in Principal Apportionment • Tier 3 programs - 5-5-9 schedule • Economic Impact Aid - 20% x 5 • Lottery - quarterly • Class Size Reduction • Partly deferred across fiscal years • CDE provides an estimated cash flow schedule for select categorical programs • CDE  Finance & Grants  Allocations & Apportionments  Categorical Programs  Estimated Cash Flow Schedule • http://www.cde.ca.gov/fg/aa/ca/estcashflow.asp • Can use to calculate percent by month

  30. Local Revenues • SELPA apportionment transfers • Interagency revenues • Transportation Fees • Other local revenue • Consortium revenue • When do you expect to receive these revenues?

  31. Salaries • Historical percentage outflow by month is a reliable indicator • Will include periodic payments e.g. longevity, stipends • Takes into account salary roll backs or other % changes

  32. Salaries • Certificated and classified monthly patterns differ • Recent changes may not be reflected in prior year trends and should be addressed • Furlough days when not converted to a salary decrease • 10 paychecks to 12 paychecks • Program redesign, e.g. summer school • School year changes, e.g. instructional days, staff development days • One time restoration payments

  33. Benefits • Mostly driven by payroll • Prior year trends or consistent with salaries • Some independent of payroll • Retiree benefits • Golden handshake payments

  34. Supplies & Services • Prior year trends are more erratic but still better than dividing by 12 • Less working days in December to issue warrants • June crush to pay invoices instead of accruing • School year start-up ordering in early summer with payments coming due in August or September • Best to analyze big outflows separately • Utilities & phones…seasonal fluctuations, two payments in a month • Pass-thru/subagreement outflows link to inflow

  35. Capital Outlay • Capital expenditures in the general fund • Few • Infrequent • One-time • Some leases…recurring and predictable

  36. Other Outflows • Interfund transfers out • Should be in the budget • Some funds regularly receive annual transfers from the general fund, e.g. food services • Debt payments • Be sure to include these …make a big difference in cash balance

  37. Balance Sheet Accounts • Assets • Accounts Receivable • When will you receive them? • If cleared to revenue before receipt, consider tracking separately in revenue section of cash flow projection • Due from Other Funds • When will the other fund pay this fund? • Prepaid expenditures • When you clear, hits the expenditure and the balance sheet account (object 9330) – net $0 cash

  38. Balance Sheet Accounts • Liabilities • Accounts Payable from prior year • When will you pay them? • Use Tax Liability • Accumulates during the year, paid quarterly or yearly • Workers Compensation Liability • Accumulates when payroll is processed • Paid periodically, such as twice a year • Health & Welfare Liability • Accumulates when payroll is processed • May be higher in some months than others due to 10, 11, 12 month employees, etc • Paid to vendor monthly • Plans may not align with July to June fiscal year

  39. Balance Sheet Accounts • Liabilities (cont.) • Dues Liability • Voluntary Deductions • Summer Set Aside • 10 or 11 month employees paid in 12 months • Set aside amounts during the year from payroll • Paid out at the end in the summer • Due to Other Funds • When will this fund pay to the other fund? • Current Loans (TRANs) • When will you receive TRAN proceeds? • When will you have TRAN repayments? • Deferred Revenue • When you clear, hits revenue and deferred revenue (object 9650) – net $0 cash

  40. Balance Sheet Accounts – Example • The cash flow report from your financial system shows the following for Liability accounts 9500-9630 • Does this makes sense?

  41. Balance Sheet Accounts - Example • Here’s the detailed breakdown you didn’t see Timing of WC payments Timing of H/W payments

  42. Multiyear Cash Flow • Use current year cash flow and multiyear projection to build a multiyear cash flow projection • Projected ending cash for current year is beginning cash for subsequent year • Similar trends but adjust for changes • For example, EPA arrives in June in 2012-13 but quarterly in 2013-14

  43. REVIEW AND ANALYSIS

  44. Review the Cash Flow Projection • Totals column sums the cash in/out, accruals and adjustments for each type of category (revenues, expenditures, etc) • Do amounts match totals in budget? • Revenues • Expenditures • Net Increase/Decrease

  45. Is the Cash Flow Projection Reasonable? • Comparison to Fund Balance • Is the total ending cash plus accruals and adjustments shown in the cash flow projection reasonably close to the ending fund balance shown in the budget? Example • In the spring, district prepared cash flow projection to look at potential cash borrowing needs for the following fiscal year

  46. Comparison to Fund Balance • District’s initial cash flow • Negative balances in Oct, Nov, Feb, Mar, May, Jun • June ending cash $(113,335) • Accruals $ 366,699 • Total $ 253,363 • Looked like district would need some in-year and cross year borrowing • Looked like once all accruals received, the district would have $253,363 fund balance

  47. Comparison to Fund Balance • However… • Budget ending fund balance $521,792 • Cash flow total $253,363 • Why the difference? • After research, found • July 1 beginning balance was entered incorrectly • Estimated payables of $45,000 were not listed

  48. Comparison to Fund Balance • Revised projection showed • Negative balances only in Nov, Mar • June ending cash $ 200,094 • Accruals $ 321,699 • Total $ 521,792 • No cross year borrowing needed • Some in-year borrowing needed, able to borrow from other funds

  49. Negative Balances? • Look to see if there are projected negative cash balances • If so, what borrowing options are being considered? • Inter-fund borrowing • Need to know cash availability • May need separate cash flow projections for other funds • Borrowing from COE / County • TRANs

  50. Borrowing Options • Internal borrowing • From other funds of the LEA – EC 42603 • Up to 75% of the cash in the lending fund • Borrowing fund must earn enough to repay • Paid back generally within a year • External borrowing • From COE - EC 42621, 42622 and 47603 (thru 7/1/17) • Up to 85% of anticipated revenues • If COE is willing and able • From County Treasurer – EC 42620, CA Const. Art. XVI, § 6 • No loans after last Monday in April • Up to 85% of anticipated revenues • Tax and Revenue Anticipation Notes (TRANs) – GC 53852

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