This chapter reviews the San Angelo Independent School District's (SAISD's) financial management function in the following sections:
- A. Fund Balance
- B. Planning and Budgeting
- C. Accounting Operations
- D. Payroll
- E. External and Internal Audit
A. FUND BALANCE
Governmental funds such as SAISD's General Fund report their equity as a "fund balance." A fund balance is the difference between the assets and liabilities as reflected on the balance sheet. It is the measure of the district's financial resources available for future use after all obligations have been met.
The fund balance of a district's general fund is significant since it is the primary fund that supports most of the district's activities and receives state aid and local maintenance taxes. It is one of the primary measures of solvency for the school district. The fund balance is viewed as the most meaningful reflection of the district's financial condition.
TEA's Financial Accountability System Resource Guide (FASRG) provides a computation of the optimum fund balance for the General Fund. The "Computation Worksheet" for optimal General Fund balance is a required schedule in the annual external audit. TEA recommends that the optimal fund balance be equal to the total reserved fund balance, total designated fund balance, an amount needed to cover Fall cash flow deficits in the General Fund and one month of average cash disbursements during the regular (non-summer) school year. Reserved fund balances are those that are legally earmarked for a specific future use, such as a reserve for encumbrances. Designated fund balances are those that are identified by the school district management to reflect tentative plans or commitments.
SAISD has operated with a fund balance below the optimum level for the last two years. Over the last five years, there has been a 71.8 percent decrease in the district's general fund balance. During 2000-01, the district spent 59.1 percent of its general fund balance that was available at the beginning of the year. At the end of 2000-01, the district projects that it will have a general fund balance of $5,887,942. Exhibit 7-11 shows the district's general fund balance at the end of the 1997-98 through 1999-2000 years compared to TEA's recommended optimum fund balance.
Exhibit 7-11Source: SAISD's audited financial statement 1997-98 through 1999-2000.
Analysis of SAISD General Fund Balance
1997-98 through 1999-2000
1997-98 1998-99 1999-2000 Ending Fund Balance $23,222,299 $22,889,100 $14,400,885 Optimum Fund Balance $20,471,144 $27,434,488 $16,114,992 Excess/(Deficit) $2,751,155 $4,545,388 ($1,714,107) Total Months Covered 3.6 3.0 2.0
Exhibit 7-12 compares SAISD with its peer districts in terms of projected fund balances at August 31, 2001 and the total number of months the fund balances would cover expenditures. None of the peer districts meet the recommended level. SAISD has the second lowest reserve balance of its peer districts.
Exhibit 7-12Source: TEA, PEIMS 2000-01 and internal SAISD projections.
SAISD Projected General Fund Balance Compared to Peer Districts
As of August 31, 2001
Abilene $24,926,777 2.8 Waco $15,759,345 2.1 Midland $12,079,740 1.3 San Angelo $5,887,942 0.8 Ector $6,498,742 0.5
Exhibit 7-13 summarizes the revenues and expenditures per student over the past four years and the percent of expenditures funded by using amounts from the district's general fund balance. In 1999-2000 and 2000-01, a portion of every dollar spent on students was taken from the general fund balance. In 1999-2000, 9.2 cents and in 2000-01, 9.4 cents of every dollar spent on students had to be funded from the general fund balance.
Exhibit 7-13Source: SAISD's Audited Financial Statements 1997-98 through 1999-2000 and May 22, 2001 SAISD Business and Finance Department Projections.
Per Student Revenues, Expenditures and General Fund Balance Contributions
1997-98 through 2000-01
1997-98 1998-99 1999-2000 2000-01 Revenues per Student (General Fund) $4,642 $5,464 $4,898 $5,103 Expenditures per Student (General Fund) $4,506 $5,400 $5,392 $5,631 General Fund Balance Contributions per Student 0% 0% 9.2% 9.4%
The district does not have an effective fund balance management policy. SAISD's fund balance has dropped from a high of $23.2 million in 1997-98 to a low of $5.9 million projected for year-end 2000-01 (Exhibit 7-14).
Exhibit 7-14Source: SAISD Audited Financial Statements 1996-97 through 1999-2000 and May 22, 2001
SAISD General Fund Balance
1996-97 through 2000-01
SAISD Business and Finance Department Projections.
Board members have not monitored the fund balance while approving deficit spending. Deficit spending occurs when the district spends more than it collects in revenues. Although the district has been under budget with its expenditures, except in 2000-01 when actual expenditures exceeded budgeted by $449,315, the district has been operating under a deficit budget for each of the last five years. Each year, the board has approved spending from the fund balance to cover district expenses. Based on district projections, the district currently has only 24 days of reserves in its fund balance.
The board has not historically reviewed its fund balance on a regular basis to recognize the impact that deficit spending was having on the district's financial reserves. If this trend is not reversed, the district will deplete its general fund balance.
Board members effectively manage a school district's financial resources by having a thorough understanding of the financial condition of the district. Each board member must understand the impact any decision the board makes will have on the financial well being of the district.
Establish a general fund balance management policy and require reports to the board.
This policy should establish goals concerning what the district's optimum fund balance should be at all times. It should include a means of attaining and maintaining the desired level. The policy should provide the superintendent with clear directions as to how to increase revenues or decrease expenditures in order to meet the district's fund balance goals. It should also require that every agenda item contain a fiscal impact statement.
One of the essential elements of the policy should be a means of keeping the board informed about the status of the fund balance. In every board packet, the superintendent should include a summary of the beginning fund balance, the revenues received during the month, the month's expenditures and the ending fund balance. Any significant events that have had a major impact on the fund balance during that month should be explained. This will ensure that the board and district administration are always aware of the financial position of the district.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The board Finance Committee drafts a fund balance policy with the assistance of the assistant superintendent of Business and Finance. September 2001 2. The Finance Committee presents the policy to the board for approval. October 2001 3. The board approves the policy and directs the superintendent to implement. October 2001 4. The assistant superintendent of Business and Finance develops the required reports that will be submitted to the board through the Finance Committee. November 2001 5. The assistant superintendent of Business and Finance prepares the reports for the board. December 2001 and Ongoing
This recommendation can be implemented using existing resources.
The district does not use cash flow forecasts or financial modeling to evaluate whether the district is meeting its financial goals.
A financial model allows the district to analyze revenues and expenditures and to project the financial condition of the district to the end of the year. It provides the opportunity to evaluate a number of different scenarios to determine what scenario should be followed to realize the greatest benefit for the district. Financial modeling provides an essential tool to assist the administration in guiding the future of the district. By setting specific financial targets, a financial model can establish measurement criteria to track the success of the plan. If used regularly, a financial model can help the district achieve its goals. When budgeted amounts are judged against projected amounts on a monthly basis, necessary adjustments can be identified and made in a timely manner.
For a district to limit the impact or take advantage of changes in its anticipated revenues and expenditures, it must identify the variances in a timely manner. A sound method of identifying variances is by preparing monthly reports comparing actual revenues and expenditures to budgeted amounts and then making projections using the most current data available. Using the projections enable the district to identify where revenues and expenditures will exceed or not meet budgeted amounts for the year.
Prepare monthly projections of revenues, expenditures and cash flows and compare to budgeted amounts.
If the district prepared monthly financial projections, steps could be taken to identify problems before they reach a critical level. The district's financial condition is such that financial projections must become a part of the monthly accounting procedures. Financial projections will enhance the financial accountability of the district.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The assistant superintendent of Business and Finance and the comptroller determine what analysis and projections are necessary to enhance the district's financial accountability. September 2001 2. The assistant superintendent of Business and Finance presents recommended reports to the Finance Committee for review and approval. October 2001 3. The comptroller prepares monthly revenue and expenditure projections and monthly cash flow projections based on the prior month's activity. November 2001 and Ongoing 4. The superintendent and assistant superintendent of Business and Finance review the projections and develop recommendations for change when needed. November 2001 and Ongoing 5. The assistant superintendent of Business and Finance presents the projections and actual results to the Finance Committee each month and presents any recommendations at that time. November 2001 and Ongoing 6. The Finance Committee presents the projections and actual results to the board each month and presents any recommendations at that time. November 2001 and Ongoing
This recommendation can be implemented with the district's existing resources.