This chapter reviews the financial management and purchasing functions of the Venus Independent School District (VISD) in the following sections:
- Organization and Management
- Planning and Budgeting
- Accounting and Payroll
- Tax Collections
- Purchasing Operations
- Contract Management
B. PLANNING AND BUDGETING
All Texas school districts must comply with Texas Education Code (TEC) sections 44.002 through 44.006 and the guidelines contained in TEA’s Financial Accountability System Resource Guide (FASRG) when preparing their budgets. The budget process consists of three major phases: planning, preparation and evaluation. The budgetary process begins with sound planning, which defines the goals and objectives of individual schools and the school district and develops programs to attain those goals and objectives. Budgets also allow citizens and taxpayers to hold policymakers and administrators accountable for their actions.
An effective school district budget links spending plans to the board’s strategic goals, priorities and initiatives. School district budget development becomes a collaborative effort requiring the input, participation and cooperation of various individuals and groups across the district. A school district budget reflects the financial stewardship of the administration, the board and the local community.
After districts develop their budgets, they need to evaluate the document. During development and evaluation of the budget, district officials must be aware of the fund balance. The fund balance helps measure district solvency and is probably the most meaningful reflection of the district’s financial condition.
VISD’s superintendent and business manager are new to the district. The district hired the current superintendent in July 2002 and the business manager in February 2003. The superintendent developed the budget for 2002-03, a process that included the development of five-year histories, budget status information, budget assumptions, staffing, enrollment projections, budget projections and tax rate information. The superintendent made presentations to the board concerning budget preparation and legal notice information. Upon board approval of the budget, the superintendent sent schools a printout of the non-salary budgeted amounts. Central office staff manages salary and benefit accounts.
The board does not have written goals or a formal policy to provide the superintendent with clear expectations concerning the fund balance. The district’s fund balance fluctuated greatly between 1999-2000 and 2001-02, and fell by $2.7 million, or 47 percent, from 2000-01 to 2001-02.
Exhibit 4-10 shows the actual change in the general fund balance from 1998-99 to 2001-02, and the 2002-03 budget. The 2002-03 fiscal year ends August 31, 2003. VISD can still amend the budget; the amounts shown do not represent the district’s actual revenue and expenditures for 2002-03.
VISD’s General Fund Actual Change in Fund Balance
1998-99 through 2001-02 and VISD’s 2002-03 Budget
Revenue Source 1998-99 Actual 1999-2000 Actual 2000-01 Actual 2001-02 Actual 2002-03 Budget Local & Intermediate $1,042,807 $1,543,131 $2,039,498 $1,867,260 $2,048,883 State $6,860,501 $8,679,437 $8,900,645 $7,654,622 $8,312,306 Federal $2,868 $1,768 $1,700 $1,356 $1,600 Total Revenue $7,906,176 $10,224,336 $10,941,843 $9,523,238 $10,362,789 Expenditure Category Salaries/Benefits $5,621,947 $6,350,698 $6,985,078 $7,763,939 $7,856,933 Contracted Services $606,389 $716,964 $890,283 $1,125,910 $1,102,850 Supplies & Materials $547,661 $569,178 $619,682 $918,740 $769,250 Other Miscellaneous Expenses $342,716 $392,420 $450,584 $498,424 $519,561 Debt Service $0 $0 $43,365 $15,887 $17,500 Capital Outlay $296,479 $399,484 $878,649 $671,199 $9,000 Total Expenditures $7,415,192 $8,428,744 $9,867,641 $10,994,099 $10,275,094 Revenue over Expenditures $490,984 $1,795,592 $1,074,202 ($1,470,861) $87,695 Other Resources $0 $2,622 $2,108 $12,125 Transfers Out $0 $0 $0 ($1,212,323) ($56,428) Adjustments $563,579 $15,867 ($634) $0 $0 Net Change in Fund Balance $1,054,563 $1,814,081 $1,075,676 ($2,671,059) $31,267
Source: VISD, Audited Financial Reports, 1999-98 through 2001-02, and TEA, PEIMS, 2002-03.
Exhibit 4-11 shows VISD’s ending general fund balance and the percent change from 1998-99 through 2001-02.
VISD’s General Fund Year Ending Balance and Percent Change
1998-99 through 2001-02
Fund Balance Type 1998-99 1999-2000 Percent Change 2000-01 Percent Change from 1999-2000 2001-02 Percent Change from 2000-01 Total Fund Balance $2,832,444 $4,646,525 64% $5,721,550 23% $3,051,142 (47%) Reserved/Designated ($2,000,000) ($3,000,000) 50% ($3,000,000) 0% ($1,500,000) (50%) Unreserved/Undesignated $832,444 $1,646,525 98% $2,721,550 65% $1,551,142 (43%)
Source: VISD, Audited Financial Reports, 1998-99 through 2001-02.
TEA’s FASRG provides a way for districts to calculate the optimum fund balance in their general fund. TEA requires districts to present the computation worksheet for their optimal general fund balances in their annual external audits. TEA recommends that each district maintain a fund balance 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 is the portion of fund balance that is not available for appropriation or that has been legally separated for specific purposes, such as a reserve for encumbrances. Designated fund balances require board action to earmark portions of the fund balance for a purpose that will be fulfilled within a reasonable period of time. A decrease to a district’s fund balance of 20 percent over two years creates a negative response to indicator 19 of FIRST.
VISD experienced a nearly 47 percent decrease in fund balance from 2000-01 to 2001-02 causing the district to operate with a general fund balance below the optimum level. Exhibit 4-12 compares the district’s general fund balance to TEA’s prescribed optimum fund balance.
Analysis of VISD General Fund Balance
1999-2000 through 2001-02
1999-2000 2000-01 2001-02 Ending Fund Balance $4,645,525 $5,721,550 $3,051,142 Optimum Fund Balance $4,200,000 $4,000,000 $4,000,000 Excess/(Deficit) $445,525 $1,721,550 ($948,858)
Source: VISD, Audited Financial Reports, 1999-2000 through 2001-02.
Laredo ISD (LISD) established a general fund balance goal that exceeds the guidelines established by the TEA. The district advances toward that goal by following board-established instructions. LISD board policy CA (LOCAL), issued September 20, 1999, sets a goal of attaining an unreserved, undesignated fund balance of at least two months’ operating costs within five years. To meet that goal, the policy instructs the superintendent and business manager to implement the following steps: develop and submit for board approval a balanced budget with input from site-based decision making committees and instructional programs; develop staffing patterns and funding formulas based on a per pupil basis; and restrict any surplus funds toward unreserved, undesignated fund balance. In the management letter for LISD’s 1998-99 external audit, the auditor commended the district for adopting the policy requiring maintenance of at least two months of operating expenditures as unreserved, undesignated fund balance. The auditor further encouraged the board to support management in complying with the policy. LISD’s 2001 external audit commended the board and staff for increasing the district’s unreserved, undesignated fund balance from $1.1 million in 1998 to $10.6 million in 2001.
Establish a general fund balance management policy.
The importance of fund balance cannot be understated. The balance of a district’s general fund is significant since the general fund supports most of the district’s activities until state aid and local maintenance taxes are received. For the district to avoid financial difficulties in the future, it must control spending and increase the general fund balance.
A board-approved general fund balance policy would enable the superintendent to make decisions to keep the fund balance at its optimum level. The policy should address reporting to the board so that the board understands the impact of financial decisions that will affect the fund balance. The policy should establish the optimum balance and provide clear direction as to how to achieve the goal.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The superintendent and business manager draft a fund balance management policy. September 2003 2. The superintendent presents the policy to the board for approval. October 2003 3. The board approves the policy and directs the superintendent to implement it. November 2003 4. The superintendent and business manager implement and follow the policy. November 2003 and Ongoing
This recommendation can be implemented with existing resources.
The district overestimated its state revenues by nearly $1.7 million for 2001-02. The incorrect estimation of state revenues contributed to the district’s decrease in fund balance of $2.6 million in 2001-02. According to the external auditor’s management letter, the error occurred because the district used the number of students shown in the legislative planning estimate (LPE) of the TEA Summary of Finances instead of the district’s estimate of student enrollment in the revenue forecast. The LPE uses student counts that were sent to TEA preceding a legislative session. TEA revises the estimates in March during the session. The set of estimates adopted by the Legislature is used to determine the payment amounts or cash flow for districts for each year of the following biennium. VISD’s state revenue comprised 80 percent of all revenue received for 2001-02.
Inaccurate estimates of state aid can create major financial problems for districts. TEA has a template located on its Web site to estimate state aid. The complex formulas involved include many factors that affect the revenue a district receives. The formula is broken into two categories called TIERS. Major factors used in TIER I of the formula include student attendance, student participation in special programs and the transportation allotment. Property wealth and tax collections affect TIER II. Because funding is based upon the entire year’s average, the estimates of student attendance and students participating in special programs must be monitored on a six weeks basis.
Obtain training on the TEA state aid template and begin using it to forecast revenue.
To ensure accurate revenue forecasting for state aid, the business manager must attend training on the use of the state aid template. In addition, he must use the tool on a six weeks basis to determine if the forecasts were correct.
The regional educational service centers and TASBO offer training opportunities through workshops that provide valuable instruction on the estimation of state aid.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The business manager determines the availability of training opportunities with regional educational service centers and TASBO. September 2003 2. The business manager obtains approval from the superintendent to attend appropriate workshops. September 2003 3. The business manager attends selected training workshops on the use of the TEA template. As soon as available 4. The business manager uses the template in forecasting and monitoring. Ongoing
The two-day TASBO training workshops usually costs $200 for member districts. The fiscal impact assumes the business manager will attend two workshops on the state aid templates annually beginning in 2003-04 ($200 x 2 = $400).
Recommendation 2003-04 2004-05 2005-06 2006-07 2007-08 Obtain training on the TEA state aid template and begin using it to forecast revenue. ($400) ($400) ($400) ($400) ($400)
The district exceeded its overall expenditure budget in the general operating fund by $139,279 during 2001-02. The district’s expenditures not only exceeded the budget at the functional level, but exceeded the total budget as well. According to the district’s audit management letter, the problem occurred because of coding errors that it corrected during the external audit.
A lack of purchasing procedures, internal controls and oversight contributed to the overages in the budget. VISD’s method of purchasing and lack of encumbrance accounting does not provide the necessary internal control to manage the budget. The district uses Regional Service Center Computer Cooperative (RSCCC) business system software, which can generate budget variance reports that are an essential tool used in monitoring budget status.
Exhibit 4-13 shows budget variances by category for 2001-02.
VISD Budget Variance
Expenditure Category Final Budget Actual Expenditures Variance +/(-) Instruction $6,268,440 $6,244,655 $23,785 Instructional Resources & Media Services $196,888 $170,887 $26,001 Curriculum & Instructional Staff Development $13,000 $10,859 $2,141 School Leadership $596,536 $571,406 $25,130 Guidance & Counseling $228,562 $204,182 $24,380 Health Services $90,641 $82,056 $8,585 Student Transportation $822,453 $1,077,888 ($255,435) Co-curricular/Extracurricular $412,575 $442,596 ($30,021) General Administration $454,000 $492,637 ($38,637) Plant Maintenance & Operations $1,184,985 $1,164,513 $20,472 Security & Monitoring $5,500 $2,658 $2,842 Data Processing Services $201,181 $196,851 $4,330 Community Services $13,915 $13,045 $870 Debt Services $26,100 $15,887 $10,213 Facilities Acquisitions & Construction $92,044 $86,008 $6,036 Payments to Fiscal Agents $248,000 $217,971 $30,029 Totals $10,854,820 $10,994,099 ($139,279)
Source: VISD, Audited Financial Report, 2001-02.
School districts must include budgets for the general fund, food service fund and the debt service fund in their official budget. Districts must prepare and approve these budgets at least at the fund and functional levels to comply with TEA’s legal requirements. A school district must amend the official budget before exceeding a functional expenditure category, such as instruction.
Generate and review budget variance reports and review the coding on the transactions flowing through the accounting system.
VISD should generate and review monthly budget variance reports. In addition, the business manager should monitor the codes on transactions flowing through the accounting system to ensure accurate function coding.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The business manager creates a system to ensure that Business Office staff generates budget variance reports and provides them on a monthly basis. September 2003 and monthly 2. The business manager reviews, analyzes and takes appropriate action based upon the information in the monthly report. Ongoing
This recommendation can be implemented with existing resources.