Skip to content
Quick Start for:

Chapter 5
Asset and Risk Management

This chapter reviews the asset and risk management function of Venus Independent School District (VISD) in the following sections:

  1. Cash and Investment Management
  2. Risk Management
  3. Fixed Assets


A. CASH AND INVESTMENT MANAGEMENT

Prior to hiring a business manager in February 2003, the VISD superintendent supervised district cash and asset management. The business manager now handles cash and asset management. Exhibit 5-1 shows the positions and reporting relationships of the district’s cash and asset management operations.

Exhibit 5-1
VISD Cash and Asset Management Personnel
2002-03

Source: VISD superintendent.

The superintendent and business manager serve as district investment officers. In addition to serving as insurance officer, the business manager manages bank relations and the depository bid; fixed and controlled assets; and cash management procedures. The accounts payable/receivable/purchasing clerk handles the intra bank and TexPool transfers; manual checks; non-sufficient funds (NSF) check processing; purchase order reviews and disbursements; and bank deposits. The bookkeeper reconciles bank statements.

Effective cash management practices ensure that the district collects and deposits funds in a timely manner and invests them in secure instruments with competitive yields. Application of these practices provides the district with additional revenue to fund essential programs and operations by providing market rates of return on monies not required for the district’s daily operations.

Texas school districts must comply with the Texas Education Code (TEC), Chapter 45 and Subchapter G when selecting a depository bank. VISD bid the depository contract for a two-year period that runs from September 2001 through August 2003. After two banks submitted bids, the district evaluated the bids based on fees and service. VISD selected First Financial Bank, which offered lower fees, as the district’s depository bank. Exhibit 5-2 presents VISD depository bank fees. The district paid $3,217 in 2002 for bank services.

Exhibit 5-2
VISD Bank Service Fees
Bank Service Fees Account Analysis Charge
Account maintenance per account $10.00
Check serial sort per account $25.00
Coin rolls purchased $0.06
Currency straps purchased $0.50
Debits/checks paid $0.10
Deposit clearing $0.04
Deposit encoding $0.02
Deposit/credit posted $0.30
Returned items $2.00
Stop payment $15.00
Wire transfers per transaction $5.00

Source: First Financial Bank depository bid, 7/12/2001.

The depository agreement provides VISD with banking services on a fee for service basis and pays 2.5 percent in interest on the daily ledger balances in each account. The contract states that estimated day-to-day balances should not exceed $1 million; however, the depository bank provides pledged securities well in excess of this amount. Exhibit 5-3 presents the various annual bank account collected balances and interest earnings.

Exhibit 5-3
Annual VISD Bank Account Information
February 2002 through January 2003
Account Name Purpose Average Collected Balance Interest Earned
Activity Fund Account for Student Activities $69,675 $1,760
Capital Projects Account for Building Projects $56,675 $1,407
CED 21 County Education District (CED) Tax Revenues $2,382 $0
General Operating Account for daily operations $406,273 $10,174
Interest & Sinking Account for bonded debt $62,711 $1,554
Lunch Room Account for Food Service operations $292,427 $1,097
Payroll Account Account for payroll activities $1,143 $7,347
Payroll Account 2 Account for employee benefits $35,320 $29
Special Revenue Federal Funds Account for special revenue activities $717 $894
Workers’ Compensation Used to pay workers’ compensation claims $43,284 $19
Total   $970,515 $24,281

Source: VISD bank statements.

VISD invests exclusively in TexPool, a local government investment pool created by the Comptroller of Public Accounts and managed by Lehman Brothers and Federated Investors. The investment objectives are preservation and safety of principal, liquidity and yield consistent with the Texas Public Funds Investment Act (TPFIA). TexPool seeks to maintain a $1.00 value per share as required by the TPFIA. Exhibit 5-4 presents VISD’s TexPool interest earnings and ending market value for 2002.

Exhibit 5-4
VISD TexPool Accounts
2002
Account Name Market Value
as of 12/31/2002
Interest Earned
01/01/02 thru 12/31/02
Federal Fund $186,477 $1,403
General Fund $4,463,495 $80,348
Interest & Sinking $1,050,330 $14,696
Lunch Room Fund $68,375 $185
Total $5,768,677 $96,632

Source: TexPool statement, 12/31/2002.


FINDING

Individuals other than the designated VISD investment officers handle district investment transactions violating current board policy CDA (Legal). The policy states that unless authorized by law, a person may not deposit, withdraw, transfer or manage in any other manner the funds of the investing entity.

The board designated the superintendent and three board members as the district’s investment officers. Although the board investment officers do not make daily investment decisions, as policymakers board members should not be involved in the district’s daily operations. The accounts payable/receivable/purchasing clerk and the business manager actually decide district investment transactions. Each business day, the accounts payable/receivable/purchasing clerk checks bank balances online and, with the approval of the business manager or superintendent, makes decisions concerning the investment of excess funds.

CDA (Legal) requires that the chief financial officer and the investment officers attend at least one training session related to their respective responsibilities under the Public Funds Investment Act. The training must be completed within 12 months of taking office. The superintendent has completed investment officer training. The business manager, who serves as the district’s chief financial officer, has attended five hours of the required training and plans to attend the remaining training within the one-year requirement.

School districts often designate business managers as investment officers. Smithville ISD’s director of Business, who manages investment activities, makes decisions concerning the investment of excess funds.

Recommendation 32:

Designate the business manager as the district’s investment officer and ensure he receives the necessary training.

As policy makers, board members should not be involved in the district’s daily operations and should remove themselves from being designated as investment officers.


IMPLEMENTATION STRATEGIES AND TIMELINE

1. The superintendent recommends that board members remove themselves as investment officers and designate the business manager as an investment officer. September 2003
2. The board approves the recommendation. October 2003
3. The business manager completes 10 hours of investment training. November 2003
4. The superintendent and business manager attend 10 hours of refresher training every other year. Ongoing


FISCAL IMPACT

The Texas Association of School Business Officials (TASBO) and other organizations offer investment officer training. TASBO courses cost $125 for TASBO members and $150 for non-members. Two courses are needed to complete initial investment officer training. This initial training would cost $300 ($150 x 2). In addition, the superintendent and business manager need to attend biennial investment training. The annual cost for this training is $150.

Recommendation 2003-04 2004-05 2005-06 2006-07 2007-08
Designate the business manager as the district’s investment officer and ensure he receives the necessary training. ($300) $0 ($300) $0 ($300)


FINDING

VISD lacks a cash management procedures manual, which has resulted in poor cash handling

practices. For example, the following outlines the cash handling practice in restocking high school vending machines:

  • principal or designee restocks the machines with product and collects the receipts;
  • uncounted cash is given to the secretary;
  • secretary counts the cash and prepares a deposit;
  • petty cash is retained if required;
  • deposit slip is prepared and placed along with the cash into a bank deposit bag;
  • the locked deposit bag is transported to the Business Office;
  • the Business Office maintains a log of bag numbers and depositors;
  • the Business Office personnel transport deposits to the bank; and
  • deposit bags and receipts are returned to the school.

This process has no internal control since it permits the unsupervised secretary to count, control and deposit funds without verification. This practice also increases the potential for theft and the associated liability. In addition, there is no process to verify receipts. The district handles deposits for other schools and food service in a similar manner.

Internal control provides reasonable assurance financial reporting reliability; operations’ effectiveness and efficiency; and compliance with applicable laws and regulations. A strong system of internal control enables the school district to properly handle and properly use resources, while ensuring their availability for management and the board’s designation. Procedure manuals provide staff detailed information regarding critical and reporting functions and serves as a training tool for new employees.

Many Texas school districts that have developed business-related procedures manuals willingly share these manuals with other districts. For example, Round Rock ISD (RRISD) has established an online Financial Information Resource Manual, which outlines procedures for all business-related activities. RRISD makes this information available to other school districts on its Web site http://www.roundrockisd.org/financialserv/firm.htm.

Recommendation 33:

Develop a procedures manual on cash handling to ensure proper internal control.


IMPLEMENTATION STRATEGIES AND TIMELINE

1. The business manager contacts other districts to obtain copies of their procedures manual. September 2003
2. The business manager develops a draft procedures manual and reviews the draft with the superintendent. October 2003
3. The superintendent and board review the completed manual. November 2003
4. The superintendent approves the procedures manual and copies are printed. November 2003
5. The business manager provides mandatory in-service training. December 2003
6. The business manager implements the procedures. January 2004


FISCAL IMPACT

This recommendation can be implemented with existing resources.


FINDING

VISD issues an excessive number of manually prepared checks, which is time consuming and increases the chance for error. Exhibit 5-5 summarizes the manual and system-generated checks that cleared the bank during a 12-month period.

Exhibit 5-5
Checks Issued in the General Operating Bank Account
Month Manual Checks System Checks Total Issued
Issued Percent Issued Percent
February-02 100 37% 167 63% 267
March-02 108 48% 117 52% 225
April-02 106 34% 208 66% 314
May-02 89 38% 143 62% 232
June-02 93 42% 129 58% 222
July-02 67 31% 149 69% 216
August-02 72 40% 110 60% 182
September-02 91 33% 182 67% 273
October-02 98 37% 164 63% 262
November-02 62 27% 168 73% 230
December-02 54 23% 183 77% 237
January-03 75 38% 125 63% 200
Annual Information 1,015 35% 1,845 65% 2,860

Source: VISD bank statements from February 2002 through January 2003.

Although the accounts payable/receivable/purchasing clerk and bookkeeper issue manual checks for a number of reasons, the primary reason is to reimburse teachers for out-of-pocket expenditures. During the review, staff told the team it was not unusual for coaches or sponsors to drive up to the administrative office on the way to an event with a busload of students to ask for a manual check.

The district uses Regional Service Centers Computer Cooperative (RSCCC) Business System software, which is provided and maintained by the Regional Education Service Center XI (Region 11). The software supports all business functions including system-printed checks.

System-printed checks ensure better internal controls than manual hand checks because they are entered into the computer system one time, contain all vendor information and can be printed in batches, facilitating quality control review. Typically, districts issue checks once a week or two times per month. The RSCCC system prints accounts payable checks that clear in the general operating bank account.

Recommendation 34:

Limit the number of manual checks.

Normally manual checks are issued only in unusual situations such as extra curricular student travel expenses occurring immediately after a grading period where “No Pass No Play” cannot be determined in advance. The district should establish an internal procedure requiring the approval of the business manager and superintendent before issuing a manual check.


IMPLEMENTATION STRATEGIES AND TIMELINE

1. The business manager and superintendent develop a manual check procedure. September 2003
2. The business manager trains the budget managers on the manual check procedure and the budget managers communicate the changes to their staff. October 2003
3. The procedures are implemented. November 2003


FISCAL IMPACT

This recommendation can be implemented with existing resources.


FINDING

VISD does not use a cash flow spreadsheet to project cash flows, which would help determine monies available for investment. The district presently invests in money market funds. These investment decisions are made by reviewing current bank balances and investing excess funds into a money market account. A cash flow spreadsheet allows the investment officer to determine if a portion of available cash could be invested long term. Long-term investment normally produces a higher yield than money market funds.

The Comptroller of Public Accounts publication, Banks to Bonds, states that when a district develops its investment strategy, all assets should be considered and placed in interest-earning vehicles if possible. The publication recommends that a cash flow analysis be used to determine the amounts of cash that will be needed and the length of time that funds can be invested.

The Texas Education Agency’s (TEA’s) Financial Accountability System Resource Guide (FASRG) contains a simple cash flow spreadsheet located on the TEA Web site at http://www.tea.state.tx.us/school.finance/audit/resguide10/far/cashflow.xls.

Recommendation 35:

Perform cash forecasting on at least a monthly basis.


IMPLEMENTATION STRATEGIES AND TIMELINE

1. The business manager develops a monthly cash flow spreadsheet. September 2003
2. The business manager trains the accounts payable/receivable/purchasing clerk to enter balance information into the spreadsheet. October 2003
3. The business manager implements the use of the cash flow spreadsheet to make investment decisions. November 2003 and Monthly Thereafter


FISCAL IMPACT

This recommendation can be implemented with existing resources.


FINDING

The district maintains 10 bank accounts, many of which are not required for the efficient operation of the district. Exhibit 5-6 shows the accounts and number of checks issued annually for each account.

Exhibit 5-6
List of Accounts and Checks Issued
February 2002 through January 2003
Account Name Checks Issued
Activity Fund 556
Capital Projects 15
CED 21 1
General Operating 2,860
Interest and Sinking 5
Lunch Room 59
Payroll Account 2,624
Payroll Account 2 0
Special Revenue Federal Funds 88
Workers’ Compensation 63

Source: VISD bank statements.

VISD issues system-generated checks in the payroll and general operating bank accounts. Other accounts require manual checks. The district maintains an activity fund bank account, however, it accounts for school activities in the Business Office. Although the district maintains centralized operation of activity funds and could use the district’s computer system to issue checks, it does not. The special revenue federal funds account issues only 88 checks annually.

Several district bank accounts have limited activity. These accounts include the lunch room account, which is mostly used to account for deposits; the payroll account 2, which is used to transfer funds to the district’s benefit provider; and the CED account, which accounts for County Education District (CED) revenue and should be allocated to the general and debt service funds according to the FASRG.

Wall ISD operates efficiently with six bank accounts, while Lyford CISD, which has no outstanding bond debt, operates with five accounts. Five appears to be the optimum number of district accounts including: general operating, payroll, capital projects, debt service and interest and sinking for districts with outstanding bond payments.

Recommendation 36:

Evaluate and close unnecessary bank accounts.

Bank accounts should be opened only as part of a legal or other operational requirement.


IMPLEMENTATION STRATEGIES AND TIMELINE

1. The business manager contacts bank and closes excess accounts. September 2003
2. The accounts payable/receivable/purchasing clerk reconciles closed accounts until outstanding items clear. Until Completed


FISCAL IMPACT

This recommendation can be implemented with existing resources.


FINDING

VISD does not charge a fee for processing non-sufficient funds (NSF) checks. The district processed 96 NSF checks from February 2002 through January 2003 without charging processing fees. Most NSF checks come from the family of students to purchase meals or pay for activity fundraisers. All NSF checks cleared in the following bank accounts: Activity Fund—34 and Lunch Room—62.

The accounts payable/receivable/purchasing clerk established a process to handle NSF checks in the lunchroom account. The district follows these steps when an NSF check is charged back to the district:

  • makes a copy of the check for the bookkeeper;
  • redeposits the check into the proper bank account;
  • sends a certified letter to the issuer if the NSF does not clear the second time; and
  • maintains a file of checks not redeemed.

Most businesses and government agencies charge a fee for processing and collecting NSF checks.

Recommendation 37:

Establish a fee and procedures for collecting non-sufficient funds checks.

The fee should cover bank charge back and redeposit fees, mailing and associated costs and the district’s personnel time involved in the collection process. A $25 processing fee seems reasonable for NSF checks.

The Johnson County District Attorney’s office will aid the district in the collection process. The county has established procedures, which must be followed. A packet containing the collection procedures is available from the district attorney’s office.


IMPLEMENTATION STRATEGIES AND TIMELINE

1. The business manager contacts the County District Attorney’s office and obtains a copy of its NSF check collection procedures. September 2003
2. The superintendent and business manager meet to establish a collection fee and draft a procedure. September 2003
3. The board approves the superintendent’s recommendation. October 2003
4. The business manager trains staff on the collection process and implements procedures. October 2003


FISCAL IMPACT

There were 96 NSF checks processed. A processing fee of $25 would result in a $2,400 increase in revenue (96 x $25) and potentially prevent an undetermined amount of lost revenues for the district from NSF checks by deterring individuals from writing NSF checks. All NSF checks were issued during the 10-month school year. The first year saving was computed based on implementation in November (2,400/10 months x 8 months = $1,920).

Recommendation 2003-04 2004-05 2005-06 2006-07 2007-08
Establish a fee and procedures for collecting non-sufficient funds checks. $1,920 $2,400 $2,400 $2,400 $2,400