FINANCIAL MANAGEMENT
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
B. PLANNING AND BUDGETING
Effective budgeting provides a district with a solid financial foundation. Costs must be accurately reported and effectively controlled. Everyone involved in the budget process must have sufficient and accurate information to ensure that when budget reductions are required, they will not be to the detriment of the district's primary goal, providing quality education to its children.
The district instituted a new budget process effective for the 2001-02 budget. As shown in
Exhibit 7-15, the district's budget process begins in April when all department heads and campus administrators attend budget-training workshops. Following the workshop, each department and school is required to submit its budget requests for the upcoming year.Exhibit 7-15 Source: SAISD Budget Department, April 2001.
SAISD's Budget Calendar
Preparation of 2001-02 Budget
Date Description April 2 - 6 Budget Department conducts budget workshops for department heads and campus administrators. April 2 - 6 Budget Department distributes budget materials to schools and departments. April 12 Last day for all purchases for current fiscal year. April 26 Schools and departments return budget documents to the Budget Department. April 27 - May 16 Budget Department staff inputs budget information into the budget development module of district's financial accounting system. Budget Department staff verify all input. May 17 - 24 Departments and schools present preliminary budget to the Budget Review Team. May 25 - June 7 Budget Review Team reviews expenditure budget information and reduces requests where appropriate based on historical expenditure trends and individual department and school needs. Staffing and capital outlay requests are also reviewed and prioritized. June 9 Preliminary budget drafted. June 22 Finance Committee reviews preliminary budget. June 26 First Budget Board Workshop tentatively scheduled. July 1 - 30 Budget Office prepares and calculates the projected tax collections and projected revenues. July 31 Second Budget Board Workshop is scheduled. August 1-20 Additional budget workshops held if necessary. August 21 (Regular 3rd Tuesday Meeting) School board holds public hearing on 2000-01 budget and tax rate; final amendment of 2001-02 budget is made. School board adopts budget and final tax rate. The director of Budget provides each school with a projected budget allocation based on projected enrollment figures. Using these initial allocations, principals, staff and site-based management teams prepare the school's preliminary budget. Departments are provided with their base budget from the prior year. In May, the departments and schools present their preliminary budgets to the Budget Review Team. The Budget Review Team is composed of the assistant superintendent of Business and Finance, the assistant superintendent of Personnel, the deputy superintendent, the assistant superintendent of Curriculum and Instruction, the executive director of Support Staff Services and the director of Technology. The Budget Review Team makes initial budget reductions based on historical expenditure trends. In late June, the Budget Review Team presents the preliminary budget to the Finance Committee. Once the Finance Committee has reviewed the preliminary budget, budget workshops for the remaining board members are scheduled as needed. The school board must adopt the budget by the end of the fiscal year.
All schools and departments are required to monitor their budgets during the year. When a budget transfer becomes necessary, the department or school involved is responsible for submitting a budget transfer request via e-mail to the director of Budget. All transfer requests are reviewed by the director of Budget and are either approved, denied or returned for more detailed information. Each month, the director of Budget presents the budget amendments from the prior month to the Finance Committee.
The district's budget and accounting system uses an encumbrance feature for budgetary control. The encumbrance feature prohibits any expenditure transaction from being processed unless adequate funds are available in the account, with the exception of payroll expenditures. The system allows all payroll transactions to be entered to the system regardless of whether or not adequate funds exist.
In accordance with Texas Education Code section 44.006, the school board has the authority to amend the approved budget or to adopt a supplementary emergency budget to cover necessary unforeseen expenses.
Public input into the SAISD budget process is provided in two ways. First, all site-based decision-making (SBDM) teams have community members. In addition, parents, teachers and others in the community not serving on a team are invited to SBDM meetings to discuss and help prepare a school's budget. Secondly, community input to the budget is made available through open board meetings. Specifically, the board holds an annual budget hearing to discuss the adoption of the budget and tax rate for the upcoming year. Community members are allowed to address the school board at this time. However, public input is not limited to the public hearing. The public is invited to address the board during any regularly scheduled meeting.
The last three years' external audits reflect that the district's general fund actual expenditures have been significantly under budget. (Exhibit 7-16).
Exhibit 7-16 Source: SAISD Audited Financial Statements, 1997-98 through 1999-2000.
General Fund Actual versus Budgeted Expenditures
General Fund and Food Services
1997-98 through 1999-2000
Expenditure Budgeted Actual Variance
Favorable/ (Unfavorable)1997-98 Instruction and Instructional Related Services $50,664,515 $48,103,274 $2,561,241 Instructional and School Leadership 8,059,426 7,423,176 636,250 1997-98 Support Services - Student 7,978,403 7,071,004 907,399 Administrative Support Services 3,594,232 3,082,104 512,128 Support Services - Non-Student 11,200,123 9,996,351 1,203,772 Debt Service 26,176 26,175 1 Capital Outlay 2,968,660 1,977,546 991,114 Total $84,491,535 $77,679,630 $6,811,905 1998-99 Instruction and Instructional Related Services $52,451,788 $49,906,645 $2,545,143 Instructional and School Leadership 7,717,162 6,977,043 740,119 Support Services - Student 9,232,352 8,634,831 597,521 Administrative Support Services 3,876,245 3,330,363 545,882 Support Services - Non-Student 11,145,188 10,614,224 530,964 Debt Service 26,176 26,175 1 Capital Outlay 1,850,620 1,135,572 715,048 Total $86,299,531 $80,624,853 $5,674,678 1999-2000 Instruction and Instructional Related Services $55,585,003 $53,581,724 $2,003,279 Instructional and School Leadership 7,998,394 7,326,882 671,512 Support Services - Student 10,367,027 9,465,017 902,010 Administrative Support Services 4,404,307 3,604,390 799,917 Support Services - Non-Student 14,281,749 13,236,180 1,045,569 Debt Service 1,063,844 1,044,714 19,130 Capital Outlay 290,927 190,783 100,144 Total $93,991,251 $88,449,690 $5,541,561 FINDING
In April 2001, the budget office prepared a detailed budget preparation manual. This manual was distributed to all district personnel responsible for preparing the 2001-02 budget. This is the first time that a detailed budget preparation manual has been issued to department heads and campus administrators. It provides a general background of the goals and objectives of the budget process to assist each responsible party in understanding their role in the process.
The manual provides a summary of the district's budget requirements and general instructions. Budget worksheets are formatted for each department and school to complete for their specific needs. Previous year's budget data is included as a guideline and basic departmental and school allocations are included to provide the district staff with a starting place.
A description of each type of expenditure that must be included in the budget is clearly provided with a sample and accompanying worksheet. Included as types of expenditures are personnel, campus expenses such as teaching supplies, travel, facility improvements, capital outlay and campus activities.
Special revenue funds are defined and the guidelines for grant applications are included in the manual.
The budget manual defines account codes, fund codes, function costs, object codes, sub-object codes and organization codes. Finally, the manual contains the budget worksheets for each department and/or school to complete and return to the budget office.
The district has instituted budget workshops for department heads and school administrators. During these workshops, the budget preparation manual was thoroughly reviewed. Each staff member who has responsibility for preparing any information for the annual budget was required to attend. They were given the opportunity to ask questions, informed as to how the entire process works and informed as to how critical accurate budgeting is to the future financial health of the district. In the past, district department heads, principals and budget clerks/secretaries were not adequately trained in preparing their annual budgets.
COMMENDATION
SAISD compiled a detailed budget preparation manual to clearly explain the budget process and provides mandatory training for all personnel involved in the process.
FINDING
Each department head and campus administrator can access their respective budgets online with the district's financial accounting system. It provides department heads and school administrators the opportunity to make informed decisions based on current data. Each one has the authority to move funds within the same function code. This also provides the flexibility to ensure that department and school expenditures are allocated most effectively. When funds must be moved from a different function, the director of Budget must be involved.
COMMENDATION
SAISD's budget system provides the ability for each department and school to access its budget electronically.
FINDING
The Finance Committee does not take an active role in monitoring the district's budget. The committee is composed of three board members, and meets immediately before the regular board meeting that is held on the third Tuesday of each month.
The review team attended a Finance Committee meeting while on-site. The committee approved the check register after very little discussion. Few questions were asked about the financial operations of the district. For example, one large check for computer equipment appeared on the check register. The comptroller reported that there was no purchase order attached to the check and there were no questions raised by the committee. Asking the Finance Committee to approve after-the-fact expenditures that are not accompanied by proper documentation creates significant risks for the district and undermines the value of the committee.
During the committee meeting, the review team observed amendments to the budget presented without any discussion. The Finance Committee's report to the board is a part of the consent agenda. No discussion of the financial condition of the district was presented to the board. It is impossible for the board to make informed decisions without sufficient information both in the Finance Committee meeting itself and in the report the committee gives to the board.
Recommendation 59:
Provide the board's Finance Committee with detailed financial reports every month.
The director of Budget should provide detailed financial reports each month, including an explanation of variances between actual expenditure and revenues to budgeted amounts and a projection of the fund balance for the end of the year. The director should prepare an easy-to-understand report that includes bar charts comparing actual expenditures to budgeted expenditures for the major functions such as instruction. This will identify problem areas easily and timely so that necessary action can be taken before the problem escalates.
Budget amendments should not be approved by the director of Budget and then presented later to the Finance Committee without a clear and detailed explanation of the reasons behind the change. When presented with the amendments, the Finance Committee should discuss the change and determine if it was justified. Discussion should include the reasons why the amendment is necessary and if the budget process should be modified to eliminate the same kinds of amendments from being necessary.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The director of Budget develops recommended report formats and presents to the Finance Committee for approval. September 2001 2. The director of Budget prepares monthly reports using the approved formats and presents to the Finance Committee. November 2001 and Ongoing 3. The Finance Committee reviews and discusses all reports and supporting documentation. November 2001 and Ongoing FISCAL IMPACT
This recommendation can be implemented using existing resources.
FINDING
The Finance Committee does not provide adequate information to the board. The committee's report is buried in the consent agenda. In the board meetings attended by the review team, the Finance Committee's report lasted less than three minutes. The board is unable to obtain a clear understanding of the district's financial operations and condition based on the limited information provided by the Finance Committee. The committee is not adequately representing the district's financial operations to the board nor can it present the amount of information needed as a line item on the consent agenda.
The financial operations and condition of the district are extremely important. For board members to fulfill their responsibilities of managing the district's financial resources, they must be provided sufficient data in an easily understandable format. Sufficient time must be provided during board meetings for board members to ask questions and discuss the financial operations of the district.
Recommendation 60:
Include the Finance Committee report as an agenda item at every board meeting.
After each Finance Committee meeting, the committee chair should provide a summary of the prior month's financial activity to the board. Included in this report should be any budget amendments, any large expenditures made, any unplanned expenditures and an explanation of any variances between budget and actual to-date expenditures.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The superintendent and board president make the Finance Committee report a separate agenda item for the next board meeting. September 2001 2. The Finance Committee chair presents and discusses the Finance Committee's report to the board. October 2001 and Ongoing FISCAL IMPACT
This recommendation can be implemented using existing resources.
FINDING
The district's ending fund balance does not match the amount carried forward in the budget from year to year. Theoretically, last year's ending fund balance should be the next years' beginning fund balance. This is not the case at SAISD.
The district does not close its books until after the annual financial audit has been completed. It appears that the budget worksheets are not using the audited ending fund balance. The balance used in the budget worksheets do not agree with the balances shown in the audited financial statement. Exhibit 7-17 compares the fund balances on the district budget worksheets to the audited fund balances.
Exhibit 7-17 Source: SAISD Business and Finance Department Budget and audited financial statements for the
SAISD General Fund Balance
Budget Worksheets compared to Audited Financial Statements
1997-98 through 1999-2000
1997-98 Beginning Ending 1997-98 SAISD Budget Worksheet $19,650,000 $19,719,567 1997-98 Audited Financial Statements $20,871,307 $23,222,299 Variance ($1,221,307) ($3,502,732) 1998-99 Beginning Ending 1998-99 SAISD Budget Worksheet $21,324,228 $21,645,139 1998-99 Audited Financial Statements $23,222,299 $22,889,100 Variance ($1,898,071) ($1,243,961) 1999-2000 Beginning Ending 1999-2000 SAISD Budget Worksheet $27,429,299 $17,337,732 1999-2000 Audited Financial Statements $22,889,100 $14,400,885 Variance $4,540,199 $2,936,847
years indicated.There must be consistency between the ending balance and the beginning balance carried forward on financial reports to ensure that all financial data has been reported. It is not unusual for the actual ending balance to be different from projections made before the end of the year. However, the audited fund balance should always be used as soon as it is available. Reports that use a projected fund balance that is determined to be different from the subsequent audited fund balance should be revised as soon as possible after the audited fund balance is available.
Recommendation 61:
Ensure that audit adjustments are made in the general ledger and audited fund balances are used to formulate budgets.
The district's accounting records and budget reports must be consistent. The accounting records must be adjusted when necessary to reflect corrections identified during the annual financial audit. Budget worksheets must use the audited fund balances to ensure that budget decisions are made using accurate data.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The comptroller reviews the audited financial statements and determines what adjustments need to be made to the district's financial records. January 2002 2. The comptroller makes any necessary audit adjustments to bring the district's financial records in balance with the audited financial statements. January 2002 3. The Budget director reviews the audited financial statements to ensure that the beginning general fund balance used to formulate the next budget matches the audited fund balance. February 2002 FISCAL IMPACT
This recommendation can be implemented with the existing resources.
FINDING
SAISD does not include performance measures in its budget process, so performance of departments and schools are not an issue when budgets are evaluated and approved. The budget preparation process in SAISD begins in April following the budget workshop. Each principal and department head is asked to complete a budget request form. The forms provided for the upcoming regular budget show prior-year budget amounts, with space for inserting current-year budget requests. Budget requests do not require justification from principals or administrators for requested amounts except for capital outlay. Departments and schools are thus not evaluated as to whether they meet goals.
The Governmental Accounting Standards Board (GASB), which sets the financial reporting rules for state and local governments, and the Government Finance Officers Association (GFOA) highly encourage the use of performance measures in local government budgets. Performance measurements are indicators that establish identifiable measures in key areas and provide managers a tool to compare performance over time. An example of a performance measure for a purchasing function would be the cost of issuing a purchase order. Without a system of performance measures, it is difficult to evaluate the effectiveness of funding for various programs. This, in turn, hinders quality decision-making with respect to how funding is to be allocated.
Recommendation 62:
Implement performance-based budgeting and provide training to district staff.
GASB is considering mandating the use of performance measures for local governments. In April 2000, GASB released 12 case studies for performance measurement for government at its annual conference in Austin, Texas.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The board directs the superintendent to begin implementing a system of performance-based budgeting for the fiscal year 2003 budget. September 2001 2. The director of Budget contacts sources such as the GASB, GFOA and the Texas Association of School Boards to obtain information on performance-based budgeting training. October 2001 3. The director of Budget submits a funding request for performance-based budgeting training. October 2001 4. The assistant superintendent of Business and Finance and director of Budget attend training. November -December 2001 5. The assistant superintendent of Business and Finance develops the district's performance-based budgeting program and training material to use in budget workshops. January - April 2002 6. The assistant superintendent of Business and Finance and the director of Budget incorporate training into budget workshops. March 2002 7. The assistant superintendent of Business and Finance and the director of Budget work closely with all departments and schools to implement performance-based budgets. March 2002 8. All departments and schools submit performance-based budgets. April 2002 FISCAL IMPACT
The cost of implementing this recommendation includes the one-time cost of sending the assistant superintendent of Business and Finance and the director of Budget to training in performance-based budgeting. The GASB and similar organizations can provide training for approximately $400 per person. Most likely, training would be available in the Dallas/Fort Worth area, so travel expenses would be approximately $1,500 per person. The total cost for training would be $3,800 ($400 + $1,500 x 2).
Recommendation 2001-02 2002-03 2003-04 2004-05 2005-06 Implement performance-based budgeting and provide training to district staff. ($3,800) $0 $0 $0 $0 FINDING
SAISD provides an automobile allowance of $6,000 per year to the three assistant superintendents: the assistant superintendent of Business and Finance, the assistant superintendent of Personnel and the assistant superintendent of Curriculum and Instruction. The district allows 28 cents per mile for the reimbursement of auto expenses to staff for business-related travel. At $6,000, this constitutes 21,428 miles per year or 97.4 miles per day in a 220-day year.
The three assistant superintendents spend the majority of their time each day at the central administration offices. Therefore, the auto allowance primarily reimburses staff for driving their personal vehicle to and from work each day. The district also has a policy to reimburse these administrators for mileage for out-of-district travel in addition to the annual allowance.
Recommendation 63:
Eliminate the annual auto allowance for the assistant superintendents.
Given the size of San Angelo, the current auto allowances are excessive. The district is already reimbursing these individuals for travel outside of the district.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The superintendent updates the policy on reimbursing employees for the use of their personal vehicles when traveling out-of-town on district business. September 2001 2. The board approves the policy and directs the superintendent to eliminate the auto allowance for the assistant superintendents. October 2001 3. The assistant superintendent of Business and Finance directs staff to stop processing travel allowances for the assistant superintendents. October 2001 4. The assistant superintendent of Business and Finance revises district travel procedures and distributes to all staff. November 2001 FISCAL IMPACT
The district will save $18,000 per year ($6,000 x 3 assistant superintendents) by implementing this recommendation.
Recommendation 2001-02 2002-03 2003-04 2004-05 2005-06 Eliminate the annual auto allowance for the assistant superintendents. $18,000 $18,000 $18,000 $18,000 $18,000 FINDING
The district is not using all of the available budgeting tools provided by the district's financial accounting system. The position control module of the budgeting system has not been activated. This module provides the district with an inventory of positions that are authorized by the budget for each department and school by job class. It identifies each authorized position and tracks the actual salaries paid versus budgeted amounts. The system also tracks the number of positions authorized versus the number of positions filled. The module supports the budget process by providing various staffing scenarios so that the district can effectively plan its optimal staffing levels.
Currently, budgeting for payroll is supported by a spreadsheet application. Actual salaries are maintained on a separate spreadsheet and are compared against what was budgeted at the end of the school year. A budget amendment is made in September to record any necessary adjustments.
The use of separate spreadsheets does not allow the district to run various staffing scenarios based on historical data during the budget development process. Payroll expenditures are the district's largest expenditure. As enrollment decreases, it becomes increasingly important that the district adjust its staffing levels downward. The district estimates the payroll budget based on the prior year's budget. There is no simple way of projecting the impact of different staffing scenarios using the current process. The assistant superintendent of Business and Finance told the review team that payroll estimates were not entered into the budget until after the year's actual expenditures were finalized. This is after the board has approved the budget.
Recommendation 64:
Use the full capabilities of the financial accounting system's position control module.
According to the director of Technology, staff was trained on the use of the position control module in March 2001. The department is currently collecting the information needed, including the individual positions to populate the system so that it can be used. This module's full capabilities should be used immediately to provide a more accurate representation of the district's largest expenditure, payroll.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The director of Budget completes the collection of information needed to populate the position control database. October 2001 2. The director of Budget and the chief information officer load the information into the position control database. November 2001 3. The chief information officer and the director of Budget test the module by comparing the output with the spreadsheet totals. December 2001 4. The chief information officer and director of Budget make all necessary revisions to the database. December 2001 5. The director of Budget begins using the position control module in administration of the budget. January 2002 6. The assistant superintendent of Business and Finance and director of Budget incorporate the position control module training into budget workshops. March 2002 7. The assistant superintendent of Business and Finance and director of Budget utilize the position control module in preparing budget documents. March 2002 FISCAL IMPACT
The district is already paying for the position control module. Therefore, this recommendation can be implemented with existing resources.