School Finance Expenditures for the Novice

1. School Finance Expenditures for the Novice IASBO Annual Conference May 15, 2013 Susan Husselbee, CPA Director of Fiscal Services Niles H.S. Dist. 219 847.626.3974 sushus@d219.org

2. Expenditures Incurred Via Payroll • Employees are hired by the Board of Education as recommended by Human Resources/Superintendent • Substitute pay & overtime is authorized by the appropriate dept. administrator & forwarded to Payroll in the Business Office

3. Payroll Processing • Contracts are set up for employees with annual & hourly rates • Payroll maintenance is performed (e.g., change deductions) • Contract gross pay is balanced with prior payroll • Timesheets entered & balanced • Gross pay is balanced (contracts + timesheets) • Paychecks are processed & distributed

4. Exp. Via Purchasing (Site Based) • Staff member wants to purchase an item • Supervising administrator verifies available budget balance, and that purchase is allowed (e.g., no bidding required) • Purchase requisition is prepared by dept. • Business Office converts requisition to a purchase order (PO) & sends PO to vendor • After invoice is received and Accounts Payable is notified of goods being received, checks are processed • Checks are held pending Board of Education approval, then mailed to vendor

5. How Expenditures Are Coded • IL Program Accounting Manual (IPAM) for Local Education Agencies (LEAs) • www.isbe.net • Exp. coded on ISBE AFR & budget by: • Fund • Function • Object • Your acct. structure may also include location, program, source of funds

6. Definition of Funds • Independent accounting entity with a self-balancing set of accounts including its own assets, liabilities & fund balance • Within each fund • Debits = credits

7. Fund Descriptions • #10 - Educational • Largest fund • Instructional exp. & support costs such as food service, social workers, librarians #20 - Operations and Maintenance • Maintaining, improving or repairing buildings and grounds • Includes custodial/maintenance staff & utilities • #30 – Debt Service • Bond principal and interest payments

8. Funds (cont.) • #40 - Transportation • Pupil transportation costs for any purpose such as bus purchases, payments to bus transportation vendors, taxi, van & airfare • #50 - IMRF/FICA • Board’s share of social security and Medicare taxes and IMRF obligations

9. Funds (cont.) • #60 – Capital Projects • Bond proceeds for construction are placed here • Construction project costs, land purchase • #70 - Working Cash • Property tax is levied or bonds sold for this purpose • Loans and transfers of interest to other funds that levy taxes • The District’s “savings” account

10. Funds (cont.) • #80 Tort • Workers’ compensation, unemployment insurance, property insurance • Legal services, risk management exp. • #90 - Fire Prevention & Safety (Life/Safety) • Fire prevention, safety, energy conservation & school security • County only can levy property taxes for this purpose if your architect submits certified plans to the Regional Office of Education (ROE) & ISBE (IL State Board of Education)

11. Function Definition and Examples • Action or purpose for which person or thing is used • Instruction (#1000) • Teaching of pupils or the interaction between teacher and pupils (includes aides that assist in instructional process) • Regular programs, special education, vocational, interscholastic, summer school, gifted, bilingual

12. Functions (cont.) • Support services (#2000) • Services which provide administrative, technical & logistical support to facilitate & enhance instruction • Transportation, food service, library/media services, social work/psychological services, nursing services, guidance/counselors, improvement of instruction, superintendent & business offices, office of principal, O & M, data processing

13. Functions (cont.) • Community services (#3000) • Services provided by LEA for community in part or whole • Public forums, child care centers, welfare activities (stipends for school attendance) • Nonprogrammed charges (#4000) • All payments to other LEAs (e.g., special education tuition)

14. Functions (cont.) • Debt services (#5000) • Principal & interest payments • Provisions for contingencies (#6000) • Used only for budgeting purposes • Actual exp. recorded in proper account • Other financing uses (#8000) • Operating transfers to other funds • Example: Working Cash Fund interest transferred to Educational Fund

15. Object Definition and Examples • Describes service or commodity obtained • Salaries (#100) • Amounts paid to permanent, temporary or substitute employees on the district’s payroll • Types: Regular, temporary & overtime

16. Objects (cont.) • Employee benefits (#200) • Amounts paid by the district on behalf of the employee • Not paid directly to the employee or included in gross salary • Payroll related benefits • TRS, IMRF, FICA & Medicare • Health, dental & life insurance

17. Objects (cont.) • Purchased services (#300) • Services rendered by personnel who are not on the District’s payroll • Audit & legal services • Telephone & water utilities • Supplies & materials (#400) • Items consumable in nature • Paper, periodicals, gasoline • Natural gas & electricity

18. Objects (cont.) • Capital outlay (#500) • Fixed assets (more permanent in nature) • Building improvements, equipment, vehicles • Other objects (#600) • Principal & interest payments • Tuition • Dues & fees • Transfers between funds • Interest earned in one fund may be transferred to another fund (some limitations) • Reported as other financing use not exp.

19. Objects (cont.) • #700 Non-capitalized equipment • Items that would be classified as capital assets except that they cost less than the capitalization threshold but more than the $500 minimum value established for purposes of calculating per capita cost • #800 Termination benefits • Payments made to terminated or retiring employees as compensation for unused sick or vacation days

20. Coding Expenditures • The function & object codes can be as detailed as you want • Determine how much detail is necessary & beneficial • Example: #41000 General Supplies and #41400 Instructional Materials • Is it beneficial or redundant to have multiple supply accounts within each instructional budget (e.g., math)?

21. Development of ISBE Budget Form • Need reports that summarize/sub-total all exp. accounts by fund, function & object • Review which areas need your direct input • Example: Public vendor contracts • Many parts of the budget have formulas that will carry forward totals to the summary pages

22. Budget Form Sections • Cover page requiring BOE signatures • Summary of revenue, exp., other financing sources/uses & fund balances by fund • Estimated cash balances by fund • Can’t have negative cash balances • Revenue by fund and source • Exp. by fund, function & object

23. Budget Due Dates • Budget must be BOE approved within 90 days of fiscal year end • Sept. 30 for most school districts • Certified copy (including revenues) must be filed with the county clerk within 30 days of adoption per Property Tax Code (35 ILCS 200/18-50) • They’re verifying deficit budget summary & reduction plan and public vendor contracts are included. • File electronically with ISBE within 30 days of adoption

24. Post Budget on District Website • Must be done if your district has a website • Annual budget with itemized receipts & exp. (most use ISBE form) • Must inform parents of its posting & provide web address • May use any means of communication • Consider adding notice to your student handbook that parents receive

25. Deficit Budget Summary • Compares the total excess/(deficiency) of direct revenues over direct expenditures with the June 30, 2014 estimated fund balances • Funds used in calculation: • Educational, O & M, Transportation & Working Cash

26. Deficit Reduction Plan • Required if budget is not balanced • Rev. & exp. summaries for 4 yrs. • Narratives regarding background & key assumptions • Foundation levels for general state aid • Equalized assessed valuation & tax rates • Salaries & benefits • Short & long-term borrowing • Educational impact

27. Plan Ahead • Budget Reduction Plans • Involve your superintendent & Board of Education • Needs BOE approval • Financial projections will assist you in determining which year you may need to comply • Limitation of administrative costs • Est. FY 13 actual & compare to FY 14 budget • Within allowable 5% increase?

28. Reporting of Public Vendor Contracts of $1,000 or More • Part of budget form • Report prior year actual activity • “All contracts & agreements that pertain to goods & services that were intended to generate additional revenue & other remunerations in excess of $1,000.” • List vendor, product/service provided, net revenue, non-monetary remuneration & how distributed and purpose of proceeds

29. Public Vendor Contracts (cont.) • Includes without limitation: • Vending machine contracts • Sports & other attire • Class rings • Photographic services • Contracts need BOE approval • What about fundraisers & activity accounts?

30. Public Vendors Clarified • Student fundraisers are excluded from reporting as long as the fundraiser benefits student activity accounts (e.g., student clubs), & the Board does not control the spending of the funds • Do report vending machine commissions even if being deposited in activity accounts • ISBE views this as principals/administrators (i.e., Board of Ed.) control how funds are spent

31. Common Mistakes • Departments use account codes where they have money not where the item should be charged per ISBE • Instructional & support service exp. being misstated in financial system which carries errors forward to the annual financial report (AFR) & ISBE school report card

32. Common Mistakes (cont.) • Charging an employee’s pay to purchased service instead of salary • Total salary exp. won’t agree with 941s & W-2s • Coding capital outlay as supplies • The operating exp. per pupil will be overstated as capital is backed out of this calculation. This calculation appears in the AFR & school report card.

33. Other Comments • Local Government Prompt Payment Act • 50 ILCS 505/1-9 • Approved bills shall be paid within 30 days, not 10 as some vendors require • See if your financial system can lock out certain object codes from certain Business Office functions • Allows Payroll to input only salary codes • Allows Purchasing to input only non-salary codes • Reviewing/changing account codes takes time due to the large volume of accounts utilized by districts

34. Other Resources • http://www.iasbo.org • http://www.asbointl.org (internat’l) • http://www.gfoa.org (Government Finance Officers Assoc.) • http://www.gasb.org (Governmental Accounting Standards Board) • IASBO, IASB, IASA publications • Legislative updates • Contact your colleagues!

35. Questions?