Year-End Accounting Transfers

1. Year-End Accounting Transfers Dr. Christensen Missouri Financial Accounting Manual http://dese.mo.gov/divadm/finance/acct_manual/documents/sf-AStateRequirements_000.pdf

2. School Accounting Overview • Chapter 165, RSMo, provides that all school monies must be accounted for within a framework of four funds: • Incidental Fund (Fund 1) • Teachers Fund (Fund 2) • Debt Service Fund (Fund 3) • Capital Projects Fund (Fund 4)

3. Incidental Fund (Fund 1) The General (Incidental) Fund is used to account for all financial resources except those required to be accounted for in another fund. This fund accounts for transactions involving local taxes; Foundation Program payments such as Basic Formula, Transportation, Early Childhood Special Education, Career Ladder, Educational Screening Entitlement/PAT and Vocational/At-Risk; along with various other transactions associated with federal projects.

4. Teacher’s Fund (Fund 2) The Special Revenue (Teachers) Fund is used to account for revenue sources legally restricted to expenditures for the purpose of teachers’ salaries and benefits and tuition payments to other school districts. This fund does not carry a balance from year to year. At the end of each fiscal year, this fund balance is zero.

5. Debt Service Fund (Fund 3) The Debt Service Fund is used to account for the resources accumulated for and the payment of long-term debt. Amounts in the Debt Service Fund are generated from the Debt Service Fund tax levy and are used solely to retire bonded debt. While paying agent fees are always a legitimate expense of the Debt Service Fund, other expenses associated with the issuance of bonds are paid from the various funds (depending on whether the bond issue is a new issue or a refunding issue).

6. Capital Projects Fund (Fund 4) The Capital Projects Fund is used to account for all facility acquisition, construction, lease purchase principal and interest payments and other capital outlay expenditures. Expenditures for ordinary repairs to school property will not be made from the Capital Projects Fund. Capital expenditures are defined as expenses paid or incurred for the acquisition or repair of assets that will remain useful for more than one year. Examples of these expenditures would be the cost of acquisition, construction, or erection of buildings, remodeling or reconstruction of buildings and the furnishing thereof, and similar property having a useful life substantially beyond the current fiscal year. Expenses in this fund shall be capitalized and Internal Revenue Service guidelines will be used to determine the appropriateness of specific expense items in the Capital Projects Fund.

7. Capital Projects Fund (Fund 4) • Revenue placed in the Capital Projects Fund may come from the following sources: • tax rate set in the Capital Projects Fund • money received from Basic Formula Classroom Trust Fund • bond sale proceeds • net insurance recoupment for a capital loss • money received from the sale of capital assets including real estate, school houses, other buildings, furniture and equipment • interfundtransfers • money received from any other source for buildings, equipment, lease purchase obligations, or other capital purposes

8. Budgeting Process • A school’s budget cycle (fiscal year) starts in July. • A school’s budget must be adopted prior to July • The new budget is adopted before the end of the fiscal year • The school is still receiving revenue and making expenditures after the new budget has already been approved • The new budget is approved in June prior to knowing or setting the tax rate in August • There are many “changes” and “unknowns” when a budget is initially adopted, so multiple changes to the budget are necessary.

9. Budget Changes For the 2012-2013 budget, we made numerous changes in both revenue and expenditure accounts. The budget is a working document. Changes are made to the budget to reflect the most current informaton.

10. January Budget Amendments

11. April Budget Amendments

12. June Budget Amendments

13. Effect on Budget after June Budget Amendments

14. Budget Summary after June Amendments

15. Auditor The school district gets a financial audit every year. The auditor typically comes the second week in July. The auditor makes recommendations and changes to account postings to keep the district in compliance. The audit and budget transfers are done to finalize total expenditures and revenues in each fund. It is typical for numerous budget transfers to take place during the audit. For this reason, the school board approves budget amendments to be made during and as a result of the audit.

16. Budget Amendment Approval In the June school board meeting, the school board approved, as they do every year, amendments to be made during the audit. The minutes for that board meeting state the following: Don Christensen, Superintendent, presented the 2012-2013 year-end financial report and budget amendments. Motion made by Lisa Reece, seconded by Doug Renshaw, to approve the proposed 2012-2013 year-end financial report and budget amendments and any final amendments made by the auditor. Vote: Unanimous

17. Final Budget Transfers

18. Final Budget Transfers

19. Revenue Allocated to Fund 2

20. Revenue Allocated to Fund 2 We had originally allocated all of our formula revenue and all of our Classroom Trust Fund revenue to fund 2. We had budgeted to spend $3,978,926 in fund 2.

21. 2012-2013 ASBR Data

22. Revenue vs. Expenditures After all revenues and expenditures were accounted for by the auditor, our total fund 2 expenditures for the year were $3,760,087– not the 3,978,926 we had originally budgeted ($218,839 less). Most of this discrepancy comes from having to budget to pay teachers eligible to retire for their accumulated sick leave. When they don’t retire, they don’t get paid their sick leave until they do, so we don’t use the budgeted amount. Our formula revenue ended up at $2,712,953--$45,622 less than we had originally budgeted. However, there were enough gains in other revenue areas to offset this difference. Prop. C (state sales tax) revenue accounted for much of this.

23. Fund Allocation By the end of the audit, there was ample revenue in fund 2 to meet our obligations without using any of our Classroom Trust Fund revenues. Fund 2 is zeroed out, so it doesn’t carry a balance. So, the Classroom Trust Fund revenues had to go somewhere else. Classroom Trust Fund revenues are some of the only revenues that can be placed in any fund (1-4) as desired. In looking at our schools’ current and future needs, the best placement of those funds was in fund 4. There was no “7%” transfer of funds, there was just an allocation of Classroom Trust fund revenues that couldn’t stay in Fund 2 because that fund has to be zeroed out at the end of the fiscal year.

24. Fund Allocation In the original adopted budget, we had estimated having an unrestricted reserve of 42.38%. After all of our budget amendments through the year, including June, our unrestricted reserve estimate was at 37.91%. The budget for the new year (2013-2014) showed an estimated unrestricted reserve of 42.1%. In discussions with the auditor regarding the placement of the Classroom Trust Fund revenues, I told him that what I had discussed with the board in our budget discussions was having an unrestricted reserve of at least 42%. By allocating our Classroom Trust Revenues to Fund 4, we were left with an unrestricted reserve of 43.55%-- this was a higher percentage than what the original budget had indicated, higher than what the most recent budget approval had indicated after making the June budget amendments, and it was higher than the percentage which the board had just approved in the new year’s budget.

25. Need For Fund 4 Balances In looking at our schools’ financial future for the next few years, there will be fewer opportunities to allocate funds to fund 4, so we will have to live off our balances for several years in that fund. We are starting this year with a budget balance of $1,378,352 in Fund 4. This year, we had originally planned to deficit spend in Fund 4 by $366,296– taking our fund balance down to an estimated $1,012,056.

26. Need For Fund 4 Balances • We chose to pay outright for the new bus rather than paying thousands of dollars in interest in lease purchase payments. That means we will deficit spend in Fund 4 by an additional $51,245– taking our fund balance down to $960,811. • We currently have the following older route busses: • Two busses built in 1995 • One bus built in 1996 • Two busses built in 1997 • One bus built in 1998 • Each bus costs approximately $80,000 to purchase. We need to replace at least the two oldest busses before they turn 20 years old.

27. Need For Fund 4 Balances • Roofing • Most of our roofs are in good shape at this time. The only roof that hasn’t been replaced is the roof on the gym at Bois D’Arc. • The majority of the roof on the high school (other than the two-story part of the building) was replaced in 1998. It had a 10 year warranty. It is now five years out of warranty and we will need to start replacing it (older sections first) before we start having serious leaks.

28. Need For Fund 4 Balances • Technology Infrastructure • All of our new state testing will now be digital– taken on computers. • Much of our technology infrastructure is 10 years old. • Our costs associated with replacing the infrastructure as it fails is high.

29. Need For Fund 4 Balances • Instructional Technology • Using technology in the classroom for instructional purposes is important in order to teach students what they will need to know when they graduate and get jobs or go to college. • Purchasing and maintaining instructional technology is expensive. • We replaced all the computers in one elementary computer lab this year. We have multiple labs that need to be updated/replaced regularly. • We need to purchase enough technology to meet our testing needs by the end of the year. We also need to have the bandwidth available in order for all students to be testing at the same time in the district. We will probably need to double our band width again this year.

30. Need For Fund 4 Balances • Yearly Expenses • Athletic uniforms– replaced on a rotating basis. • Sports equipment and scoreboards • Our football, baseball and softball scoreboard are no longer supported– they quit making parts. • Desksand chairs—they wear out and need to be replaced on a rotating basis. • Replacing copy machines and printers. Printers are relatively cheap, copy machines cost $12,000-$15,000 each. • Custodial and kitchen equipment– it wears out with use and has be to replaced.

31. Bottom Line • According to school board policy (CB and DB): “The superintendent of schools shall be the chief executive officer of the Board of Education and the administrative head of all divisions and departments of the Ash Grove R-IV School District…The Board designates the superintendent to serve as the budget officer of the district.”

32. Bottom Line Classroom trust fund revenue can be allocated into any account. The board approved an unrestricted reserve amount in all approved budgets and amendments varying from 37.91% to 42.38% The board approved any transfers at the time of the audit. As the “Chief Executive Officer” and “Budget Officer” of the district, I approved the allocation of last year’s Classroom Trust Fund revenue ($295,989) into Fund 4 because it best met the current and future financial needs of the school district. That allocation resulted in a year-ending unrestricted reserve of 43.55% which exceeded all board approved estimates.