School Finance Expenditures for the Novice

1. School Finance Expenditures for the Novice IASBO Annual Conference May 17, 2007 Susan Husselbee, Director of Fiscal Services Niles Township High School District #219 847.626.3974 sushus@niles-hs.k12.il.us

2. Ways Expenditures Are Incurred • 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 • Payroll processes paychecks • Paychecks are distributed to employees

3. Ways Exp. Are Incurred (cont.) • 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

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

5. 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

6. Fund Uses • #10 - Educational • Largest fund • Instructional exp. & support costs such as food service, social workers, librarians • Tort/liability (#11) • Combined with Ed. Fund for ISBE reports • Workers’ comp, unemployment insurance, property insurance • Legal services, risk management exp.

7. Funds Uses (cont.) • #20 - Operations and Maintenance • Maintaining, improving or repairing buildings and grounds • #30 - Bond and Interest • Bond principal and interest payments • Must maintain separate bond and interest fund for each bond issue

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

9. Fund Uses (cont.) • #60 - Site and Construction • 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 • The District’s “savings” account

10. Fund Uses (cont.) • #80 - Rent • Not used much • Tax is levied to pay rent for state-owned school buildings • #90 - Fire Prevention & Safety (Life/Safety) • In order for the county to levy property taxes for this purpose, your architects must certify plans that are submitted to the Regional Office of Education (ROE) & ISBE (IL State Board of Education)

11. Definition and Examples of Functions • 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. Function Examples (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. Function Examples (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. Function Examples (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. Definition and Examples of Objects • 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 • Dues & fees • Transfers (#700) • Interest earned in one fund may be transferred to another fund (some limitations) • Reported as other financing use not exp. • Tuition (#800) • Paid to other educational agencies

19. How to Code Expenditures • Think of how the exp. best fits within your account structure (fund, function, object, location, program) • Examples • Bus trips (40-2550-331) • Elem. ed. class supplies (10-1110-410) • New plumbing system (20-2540-520) • Paid bond principal that has taxies levied (30-5140-610)

20. How to Code Exp. (cont.) • 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 • Familiarize your self with the form • Need to have reports that summarize all the exp. accounts by fund, function & object • Review which areas need your direct input • 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 • Revenue by fund and source • Exp. by fund, function & object • Est. limitation of admin. costs

23. Budget Due Dates • Budget must be BOE approved within 90 days of fiscal year end • For most school districts, this will be by Sept. 30 • 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) • 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 or website

25. Deficit Budget Summary • Was new for FY 2007 • Compares the total excess/(deficiency) of direct revenues over direct expenditures with the June 30, 2007 estimated fund balances • Funds used in calculation: • Ed. & Tort, O & M, Transportation & Working Cash

26. Deficit Budget Summary (cont.) • If page 21 indicates that the budget is not balanced, you need to file a deficit reduction plan for FY 2007 – FY 2010. • The plan shows the summaries of revenue by source (local, state, federal) and exp. by function (instruction, support service)

27. Deficit Budget Summary (cont.) • Need to include narratives & assumptions • Foundation levels for general state aid • Equalized assessed valuation & tax rates • Employee salaries & benefits • Short & long-term borrowing • Educational impact • Other assumptions

28. Deficit Budget Summary (cont.) • Preparing this takes time and will involve your superintendent & board of education (BOE) • Since it’s part of the form that the BOE signs, it will need their approval. • Financial projections will assist you in determining which year you may need to comply • Plan ahead!

29. Reporting of Public Vendor Contracts of $1,000 or More • Also new for FY 2007 • Public Act (PA) #94-0714 requires school districts to file this report as an attachment to their budget. • “All contracts & agreements that pertain to goods & services that were intended to generate additional revenue & other remunerations in excess of $1,000.”

30. 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?

31. Public Vendor Contracts (cont.) • Report the following: • Vendor name • Product or service provided • Net revenue • Non-monetary remuneration • Purpose of proceeds • Distribution method & recipient of non-monetary remunerations distributed

32. Common Mistakes • Dept. 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

33. 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.

34. 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

35. 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!

36. Questions?