Financial Matters & Legal Compliance

1. Financial Matters & Legal Compliance New Operator Workshop March 26, 2009

2. Overview/Objectives • Cover Financial Reporting Requirements Applicable to Charter Schools • Discuss Certain Legal Compliance Areas • Provide Information/Tools to Help You Avoid Common Compliance Challenges

3. Financial Reporting Requirements • Requirements for Charter Schools the Same as for School Districts • Budget • Annual Financial Report (AFR) • Uniform System of Financial Records for Charter Schools (USFRCS) • Procurement Rules • Audit

4. Financial Reporting Requirements • Budget – Indicates How You Plan on Spending the Money • Annual Financial Report – Outlines How You Actually Spent the Money • Auditor General & ADE Jointly Issue Forms & Instructions for Completing Them

5. Budget & AFR Reminder • Uploaded Budget/AFR Files Must Process Successfully on/before Deadline Submission Proof Proof File Processed Successfully

6. Financial Reporting Requirements • USFRCS Contains: • A chart of accounts • Accounting policies and procedures • USFRCS Ensures: • Schools are following good accounting policies • Financial data reported to State are comparable among Arizona schools

7. Financial Reporting Requirements • Procurement Rules • Developed to avoid nepotism and conflicts of interest when making large purchases

8. Financial Reporting Requirements • ASBCS May Grant Exceptions to USFRCS and STATE Procurement Rules • Handled through amendment process • Must provide alternative policies (GAAP) • USFRCS Memorandum • Provide updates on various issues • Apply even if your school granted exceptions

9. Financial Reporting Requirements • Annual Financial Statement Audit • Must be conducted by independent CPA • Due by November 15th • Compliance Questionnaires • Legal • USFRCS • Procurement

10. Financial Reporting Requirements • Letter of Engagement • Stipulates services to be provided • Must be approved before audit commences • Audit Guidelines • Outline audit requirements • Distributed annually to auditors and schools

11. Common Mistakes - Financial • Not Obtaining Adequate Help for Business/Financial Matters • Relinquishing All Oversight of Business/Financial Matters • Not Knowing Your Financial Condition

12. Common Mistakes - Audit • Auditor Not Contacted Early Enough • Not too early to begin looking for an auditor in January of your first year • Issues Identified in Completed Audits • Documentation not retained to support each entry in accounting records • Inadequate segregation of duties

13. Financial Reporting Links Arizona State Board for Charter Schoolshttp://asbcs.az.gov/AuditRes.asp Arizona Office of the Auditor Generalhttp://www.auditorgen.state.az.us/manuals_charter.htm

14. FCCs vs. Fingerprint Checks

15. FCCs vs. Fingerprint Checks • Employee’s Position at School Determines Which Process Must Be Followed • Generally, instructional vs. non-instructional • Not based on whether contact w/students • Who Determines Employability? • For fingerprint clearance card, DPS determines whether an individual qualifies or not • For fingerprint check, school determines individual’s employability after reviewing results from DPS

16. FCCs vs. Fingerprint Checks • Law Does Not Allow Schools To Establish Policy Requiring All Employees Obtain FCCs • DPS cannot conduct criminal records checks and issue FCCs based on school policy; authority must be in law • Knowingly falsifying information to obtain a FCC is a Class 3 misdemeanor (A.R.S. §41-1758.05) • Two Processes Provide Schools Flexibility • School receives entire record with 15-512 check • Schools may run 15-512 checks as often as they want

17. Fingerprint Clearance Cards • Instructional/Teacher Aides • Substitute Teachers • Student Teachers & Contracted Tutors • Must obtain before they participate in field experience in which services will be provided directly to pupils • Specific Exceptions in Statute • Instructional volunteers & guest speakers • Must be accompanied in classroom by person with a valid FCC

18. Fingerprint Checks - ORI # • School Must Obtain ORI #, Ink & Roll Cards, & Inventory Sheets from DPS • To Obtain an ORI #, School Must Attend Initial Access Training Class • Upcoming training classes • April 17, 2009 & June 18, 2009 • Contact DPS (602.223.2223) to reserve a seat

19. School Bus Drivers • Must possess Arizona School Bus Driver Certificate issued by DPS • Process Includes a Fingerprint Check • Once Certified, Applicants Issued Card • Card valid ONLY if employer info is correct • New employer should notify DPS who will reissue card if individual still in compliance • ‘School Bus’ Defined in A.R.S. §28-101

20. Fingerprint Checks • Non-Instructional Volunteers • Required for volunteers who provide services directly to pupils w/o supervision of certificated employee • Exception for parents or guardians • A.R.S. §15-512.G permits school to fingerprint check volunteers not otherwise required to be fingerprinted • Non-Instructional Contractors, Subcontractors, Vendors & Their Employees • ‘Provide services on regular basis’ defined by A.R.S. §15-512.H • Cost may be passed on

21. Legislation To Watch • Among Its Provisions, House Bill 2031: • Requires contractors, subcontractors, vendors or any of their employees to have a valid FCC if they provide services on a regular basis on school property • Provides charter schools with the same immunity from liability school districts receive if they properly implement staff fingerprinting-related requirements • HB 2031 Currently Working Its Way Thru House • Although Other Fingerprinting Bills Introduced, At This Time, They Have Not Had Hearings

22. Fingerprinting Reminders • No Substitutes for FCCs • Not even other states’ teacher fingerprint cards • Substitutes for 15-512 Fingerprint Check • None, except for school bus drivers who a valid Arizona School Bus Driver Certificate issued by DPS • No Fingerprinting Exception Based Upon Time of Day Person Works

23. Fingerprinting Reminders • FCCs Expire and Must Be Renewed • Cards currently issued for 6 years • No Exception While Renewal Is Processed • Schools urged to establish mechanism to track FCC expiration dates for their staff • School should consider back-up plan • Instructional Employees Must Let School Know If Their FCCs May Be In Jeopardy • For additional information, see A.R.S. §15-183.C.6 and Frequently Asked Questions document

24. ‘Emergency Hire’ Reminder • May Hire Staff Prior to Obtaining FCC, However, School Must Meet Requirements • A.R.S. §15-183.C.4 specifies 7 steps schools must complete • See Fingerprinting Guidance for Schools – Emergency Hires • Applies to New Hires Only, Not Renewals • Common Mistakes Found During Site Visits • After application submitted, schools fail to follow-up to ensure it was received and processed by DPS • See Using ADE’s Common Logon to Determine Status of Fingerprint Clearance Cards • Schools fail to complete all required steps (e.g., DPS statewide criminal history check)

25. ‘IVP’ Reminder • Identity Verified Prints (IVP) Required: • When applying for fingerprint clearance card • Make sure employee/school requests and uses ‘IVP FCC application packet’ from DPS • When obtaining fingerprint check • Fingerprint roll card submitted to DPS. School retains documentation showing that prints were identity verified. • DPS and SBE Developed Guidance

26. Fingerprinting Compliance • Board Takes Violations Seriously • Civil Penalties • A.R.S. § 15-185(I) • Board policy statement • Compliance Monitored Through: • Annual audits • Site visits • Complaints

27. Fingerprinting Process Links Arizona State Board for Charter Schoolshttp://asbcs.az.gov/fingerprinting.asp Arizona Department of Public Safetyhttp://www.azdps.gov/reports/fingerprint/faq/default.asp http://studenttransportation.azdps.gov/default.asp Arizona Revised Statutes & Arizona Legislaturehttp://www.azleg.gov/ArizonaRevisedStatutes.asp http://www.azleg.gov/

28. State Equalization Unrestricted revenue School may use these monies for any legal purpose related to the charter school and its operations (e.g., salaries, rent, textbooks, computers, desks, utilities) Classroom Site Fund Restricted revenue School must spend on: Teacher base pay increases and ERE (20%) Teacher performance pay increases and ERE (40%) Maintenance & Operation Purposes (40%) Class size reduction Teacher compensation increases AIMS intervention programs Teacher development Dropout prevention Teacher liability insurance premiums CSF vs. State Equalization

29. Classroom Site Fund • Statute Specifies Not Only Uses, But Other Requirements School Must Follow • For additional guidance, please see: • A.R.S. §15-977 • USFRCS Memorandum No. 44 • Attorney General Opinions • CSF Must Supplement, NOT Supplant Existing Non-CSF Funding • USFRCS Memorandum No. 44

30. Classroom Site Fund Reminder • Funded Primarily Thru Sales Tax Revenue • By March 31st, JLBC Issues Projected CSF Per Pupil Amount for Upcoming FY • If projection too high, schools only receive what’s available (less than anticipated) • If projection too low, schools could potentially receive portion of surplus (more than anticipated) • Sales Tax Revenue Taking Hit In Current Economy, So Plan Accordingly

31. Common Mistakes - CSF • Cash Balances Not Monitored to Ensure Sufficient Cash at June 30th for Carryover • Law requires monies be used for certain items • Therefore, if entire allocation is not spent during FY, school must have enough cash in the bank to cover unspent amount • If there’s not enough cash in the bank, that means school has spent a portion of these monies inappropriately – although it may have been unintentionally

32. Common Mistakes - CSF • Insufficient Records Available to Determine School’s Compliance • Detailed payroll records for employees and expense records for programs must be retained • Lack of Communication with Teachers on Process to Receive CSF Monies

33. Classroom Site Fund Links Arizona Attorney Generalhttp://www.azag.gov/opinions/ Arizona Office of the Auditor Generalhttp://www.auditorgen.state.az.us/manuals_charter.htm Arizona Revised Statuteshttp://www.azleg.gov/ArizonaRevisedStatutes.asp

34. Attendance Reporting • ADE’s School Finance Procedures Manual FY 2009 (“EX-18”) • Replaces ADE’s Instructions for Required Reports • Other ADE Guidelines & Procedures • ADE Holds Many SAIS-Related Workshops • Records Must Be Compiled & Retained • For additional information, please see Attendance and Membership Record Keeping (“EX-34) & School Finance Memorandum 07-004

35. Common Mistakes • Computerized Attendance System Doesn’t Mirror Attendance Policies • No Policies for ½ or ¼ Day Absences • Except for kindergartners, schools are not allowed to establish policy where students are either counted as present or absent • ‘Reconcile’ Your School’s Data • Make sure your school’s data in SAIS are accurate and complete • ADE holds workshops on reconciling SAIS data

36. Common Mistakes • Records to Support What Is Reported to State Not Retained • Not Enough Instructional Hours Provided • Relevant ADE guidelines & procedures • GE-18 – Amended Instructional Hours & Programs • GE-19 – Passing Time • It’s not only about how long the school day is, but what students are doing during that time

37. Attendance Links Arizona Department of Educationhttp://www.ade.az.gov/Guidelines/Audit/ http://www.ade.az.gov/Guidelines/SchoolFinance/ School Finance, Arizona Department of Educationhttp://www.ade.az.gov/schoolfinance/ Arizona Attorney General http://www.azag.gov/opinions/

38. Payroll Tax Reminder • Failure to Remit Payroll Taxes or Contributions to IRS, AZ Dept of Revenue or State Retirement System Can Result In: • Significant penalties and interest being assessed • These entities taking your State aid directly and/or freezing your bank accounts

39. Questions? Andrea Leder Government & Financial Services Manager (602) 364-3106 Andrea.Leder@asbcs.az.gov