Essential Financial Reports for Your Board: A Discussion

1. Essential Financial Reports for Your Board:A Discussion November 2012

2. The Finance Committee Sample Finance Committee composition: • Board Treasurer • Back-up to Board Treasurer • Head of School • Director of Operations/Business Manager • Member of community (pref. w/financial expertise) The Finance Committee has the responsibility to • Create/Recommend a balanced budget for the upcoming fiscal year • Monitor implementation of the approved budget on a regular basis • Recommend proposed budget revisions • Review financial statements and audit findings • Recommend to the Board appropriate policies for the management of the school’s assets • Review Debt issuance

3. Board Needs to Know… • What is the school’s fiscal health status? • Where are we hurting financially? • Where can we make cuts w/o jeopardizing mission? • What are key financial covenants of school debt? • What are the financial drivers of school sustainability?

4. Annual Financial Education for Board • Standard 11 Rubric • CDE Chart of Accounts- how it relates to school’s accounting system • Financial Transparency Act • Education Funding Cycle: PPR, At-Risk, Title Funds • Review of Annual Audit & Beginning fund balance • School Balance Sheet & Income Statement • How Budget Variances are portrayed in reports • Tabor, Restricted and Non-restricted Funds • Nature & restrictions of pupil activity funds • Explanation/covenants of debt

5. The Financial Packet • Financial Overview cover sheet • Dashboard Report(s) • Supporting Documents: • YTD Budget vs Actual (incl. projected EOY) • Balance Sheet (compared to Previous Year) • Check Register • Cash Flow Statement (esp. new schools) • Annual Finance calendar • Verification of FTA compliance • Restricted Fund Spending Reports (qtrly)

6. Coaching the Right Questions • What is your plan of correction? • Is this a temporary situation? • No questions! Everything is fine.

7. Sample Financial Overview SUMMARY: Revenue: Revenues are over budget by $36, 124, or 1.4%. Revenues increased due to unanticipated grant funding received in October. YTD Operating revenue is $460,130 or 2.2% under budget (unaudited) Expenses: Total operating expenses were $78,971 over budget in Oct. by 3.1%. Overages relate to Director Salaries, travel expenses and supply purchases. YTD Operating expenses are $969,515 or 2.5% under budget (unaudited) Operations: Overall utilization was down in October from both budget and prior year. Enrollment count was higher than expected by 24 students or 11%, which will increase revenue receipts in December by $148,272. YTD utilization was up from prior year in all areas Notables: Water main needs to be repaired, estimated at $10,000; should end current doubling of water bill and prevent expense of new water tap at $40,000 State of the school: School is on track to exceed revenue projections and maintain estimated expense levels, providing flexibility for unforeseen cash needs, including noted plumbing repair need.

8. Sample Dashboard Report Note: should include high-level revenue & expense categories: State rev, Fed rev, Fundraising, Grants, Salaries & Benefits, Purchased Svcs, Facility Costs, Books, supplies, Equipment, Other

9. Sample Capital Budget Capital Projects Summary – Years 2009 - 2013 Source: Mark L. Holdt of Mountain Sage Consulting, CNPA Conference Presentation 2012

10. Sample Trend Analysis Salaries & Benefits as % of Revenue Source: Sam Todd, Financial Key Performance Indicators presentation, CDE Fin Seminar 2012

11. Compliance with FTA The following items must be posted online .All of this information must be updated within 60 days of the issuance of new data. The school must maintain the two prior years’ data online. The school must put a link on its webpage to CDE’s website where the public may access information submitted directly to CDE.

12. Annual Finance Calendar

13. Audit Prep Ratios Fiscal Health Analysis for Colorado School Districts (a 3-year trend analysis) • Asset Sufficiency Ratio: General fund total assets General fund total liabilities • Debt Burden Ratio: Total Government revenue of fund(s) paying debt Total governmental debt payments • Operating Reserve Ratio: Fund balance of the general fund Total general fund expenditures (net of transfers) • Operating Margin Ratio: General fund total revenue – (general fund total expenditures, net of transfers) General fund total revenue • Change in Fund Balance Ratio: Current year fund balance of the general fund – prior year fund balance Prior year fund balance of the general fund Source: Office of the State Auditor Aug. 2012

14. Sample Annual KPIs • KPI #1: Unrestricted Cash on Hand • Total unrestricted fund balance/total expenses • Goal > 3 months • KPI #2: Debt to Net Worth • Total liabilities/net assets • Goal < 4.5 • KPI #3: Salaries & Benefits as % of Revenue • Total salaries & benefits/total revenue • Goal 40 – 65% • KPI #4: Debt Service as % of Revenue • Total bond debt service/total revenue • Goal < 15% Source: Sam Todd, Financial Key Performance Indicators presentation, CDE Fin Seminar 2012

15. Sample Annual KPIs (con’t) • KPI #5: Budget Performance • Actual vs Budgeted Revenues • Goal > 100% • Actual vs Budgeted Expenses • Goal < 100% • KPI #6: Fund Development • Net funds raised, Actual vs Budget • Goal > 100% • KPI #7: Cash Reserves • Actual vs Required 20% Cash Financial Reserves • Goal > 20% of non-local expenses Source: Sam Todd, Financial Key Performance Indicators presentation, CDE Fin Seminar 2012

16. Facility Finance Planning Ratios • The following calculations are for government-wide accounting measures • Certain reconciliations between government fund accounting and government-wide accounting may need to be implemented to consistently calculate these ratios • For example, capital expenditures should not be included in expenses • TOTAL PER PUPIL REVENUE = (per-pupil revenues + grants + contributions + miscellaneous income - extraordinary items) / enrollment • DAYS CASH ON HAND = unrestricted cash and investments / (expenses – depreciation & amortization) x 365 • CASH-TO-DEBT = unrestricted cash and investments / long-term debt net of current portion • MADS COVERAGE = (increase in net assets + depreciation & amortization + interest expense [+ rent if applicable]) / maximum annual debt service [or current lease payment if applicable] • MADS AS A PERCENTAGE OF REVENUES = maximum annual debt service / total revenues • MADS AS A PERCENTAGE OF EXPENSES = maximum annual debt service / total expenses • DEBT-TO-CAPITALIZATION = long-term debt net of current portion / (long-term debt net of current portion + unrestricted net assets) • DEBT PER PUPIL = long-term debt net of current portion / enrollment Source: Matt O’Meara, Ziegler, Using Financial Benchmarks to Improve Borrowing Costs and Investor Relations, CDE Fin Seminar 2012

17. Who Should Be Sharing • Team Approach Recommended: • Board Member (Finance Committee Chair) opens presentation with highlights • Staff Member (CFO or Business Manager) shares the details of the report • Staff Member (HOS) redirects attention to the most critical data

18. Thank You The content of this presentation was compiled by Tiffany Kallevik, Director of Member Business Services at the League In collaboration with and from resources provided by: Lori Deacon, Abstract Consulting Doug Hering, Charter School Mgmt Corp Lori Grant, G&G Consulting Mark L. Holdt, Mountain Sage Consulting Sam Todd, Peak to Peak Charter School Matt O’Meara, Ziegler