FINANCIAL AND OPERATIONAL MANAGEMENT
This chapter reviews the financial and operational management of Westphalia Independent School District (WISD) in the following sections:
- A. Financial Management
- Financial Management (Part 1)
- Financial Management (Part 2)
- B. Asset and Risk Management
- C. Purchasing
- D. Food Service
- E. Facilities
A. FINANCIAL MANAGEMENT (PART 2)
COMMENDATION
WISD saves money and collects a high percentage of its taxes by contracting with Falls County to collect its current and delinquent taxes.
FINDING
WISD's fund balance in the general fund exceeds the recommended level established by School FIRST. Indicator 18 on the School FIRST rating worksheet asks whether the total fund balance in the general fund was more than 50 percent and less than 150 percent of the optimum level according to the fund balance and cash flow calculation worksheet in the annual financial report. WISD's fund balance ($288,191) exceeded its optimum ($49,900) by more than 477 percent.
TEA also recommends that districts maintain an undesignated, unreserved fund balance of about 10 percent of budgeted expenditures. WISD's fund balance in 2000-01 represented more than 41 percent of budgeted expenditures for 2001-02. The district maintained the second-highest fund balance, as a percentage of budgeted expenditures among the peer districts. Its fund balance, compared with expenditures, was more than twice the Region 12 average and more than three times the state average (Exhibit 3-10).
Exhibit 3-10 Source: TEA, AEIS, 2001-02.
2000-01 Fund Balance as a Percentage of Budgeted Expenditures
WISD, Peer Districts, Region 12 and the State
2001-02
WISD Gholson Mount
CalmMalone Region 12 State Fund balance $288,191 $239,343 $583,351 $222,177 $177,434,593 $3,574,637,703 Fund balance as a percentage of budgeted expenditures 41.3% 23.5% 80.4% 27.8% 20.7% 13.7% District leaders justify the high fund balance by noting in the district's audited financial report that WISD intends to use a portion of the fund balance for one-time expenditures related to the district's facilities. However, the district has made this notation for at least three years, but has not reserved or designated any portion of the fund balance. Exhibit 3-11 shows WISD's explanations for net undesignated unreserved general fund balance over three years.
Exhibit 3-11 Source: TEA, Lott, Vernon & Company, P.C., Audited Financial Statements, 1998-99 through 2000-01.
WISD's Explanations of Need and/or Projected Use of
Net Undesignated Unreserved General Fund Balance
1998-99 through 2000-01
8/31/1999 8/31/2000 8/31/2001 The district is planning to expand its facilities. Final decisions are expected to be made in the near future and the appropriate reservation or designation of fund balance will be made at the time. The district is planning to expand its facilities in the 2000-01 school year. Final decisions are expected to be made in the near future and the appropriate reservation or designation of fund balance will be made at the time. The district is in the process of expanding its facilities in the 2001-02 school year. Final decisions are expected to be made in the near future and the appropriate reservation or designation of fund balance will be made at the time. Exhibit 3-12 summarizes WISD's general fund balance over three years.
Exhibit 3-12 Source: TEA, Lott, Vernon & Company, P.C., Audited Financial Statements, 1998-99 through 2000-01.
Summary of WISD's General Fund Balance
1998-99 through 2000-01
8/31/1999 8/31/2000 8/31/2001 Total General Fund Balance $305,051 $299,179 $288,191 Total Reserved Fund Balance $0 $0 $0 Total Designated Fund Balance $0 $0 $0 Estimated Amount Needed to Cover Fall Cash Flow Deficits in the General Fund $0 $0 $0 Estimate of One Month's Average Cash Disbursements during the Regular School Session $49,700 $49,700 $49,900 Optimum Fund Balance and Cash Flow $49,700 $49,700 $49,900 Excess (Deficit) Undesignated Unreserved General Fund Balance $255,351 $249,479 $238,291 Sound financial management practices dictate that school districts accumulate and maintain adequate levels of undesignated, unreserved fund balances in the general fund to ensure their ability to finance monthly operating expenditures throughout each fiscal year. These prudent management practices, however, also suggest that school districts, as trustees of public dollars, take care not to over-tax their taxpayers by accumulating and essentially banking these funds in amounts that greatly exceed the amounts needed to adequately operate.
According to FASRG, designating a portion of unreserved fund balances represents a planned action, not an actual commitment, to be fulfilled within a reasonable period. While WISD has noted its intent to use a portion of its fund balance to finance facilities expansion, the leadership has taken no steps in three years to actually designate funds for the stated purposes.
Recommendation 14:
Establish a general fund management plan.
The district should develop a formal plan for managing its general fund balance. The plan should identify an unreserved, undesignated fund balance target amount that meets TEA guidelines and is monitored and reported to the board. The district should analyze its facility improvement needs and other bona fide needs that it anticipates completing in the next 12 to 18 months and prepare a summary for each project that fully describes the project, the amount of funding needed and the schedule for project completion. The board should approve projects it determines appropriate and the amounts should be designated in the district's financial records.
After formally designating amounts for facility improvements and other bonafide needs, the district should further analyze its fund balance requirements and determine appropriate actions necessary to reach its targeted balance. To the extent that the projected unreserved, undesignated fund balance exceeds the targeted amount, the district should take action during its budget and tax rate setting processes to lower the fund balance to the target amount. The district should determine if it is in the best interest of the district to reduce the fund balance during one year or over two or three years.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The superintendent develops a general fund management plan that includes establishing a target fund balance and reports to be presented to the board and presents it to the board for approval. June 2003 2. The superintendent analyzes the district's facility improvement needs and other bona fide needs for which funds can be formally designated and submits them to the board for approval. June 2003 3. The board reviews the superintendent's recommendations, approves the facility improvement projects and other bona fide needs, approves those that the it determines appropriate and formally directs the amounts to be recorded as designated in the district's financial records. July 2003 4. The superintendent develops a fund balance reduction plan, if needed, and submits it to the board for approval. July 2003 5. The board reviews the reduction plan, along with the review of the district's tentative budget, and provides direction where needed. August 2003 6. The superintendent prepares quarterly fund balance reports to the board for its review. November 2003 and Quarterly Thereafter 7. The superintendent includes the impact of proposed budget requests on the district's targeted fund balance. Annually FISCAL IMPACT
This recommendation can be implemented with existing resources.
FINDING
The district's administrative staff is not adequately trained in school district financial management. The secretary and secretary/bookkeeper, who are new to the district, have no prior experience in Texas school district financial management. The district's membership in the Texas Association of School Business Officials (TASBO) provides a resource for the administrative staff and superintendent. In addition, the district budgeted funds to provide training in financial management through TASBO in 2002-03.
Until May 2002, when the district purchased a site license for the Regional Service Center Computer Cooperative (RSCCC) software, the district used Region 12 to perform its financial accounting functions. Region 12 provides assistance and training for converting the financial accounting function to a district operation. Region 12 sends staff to the district to assist the secretary/bookkeeper with the input of financial transactions and to provide hands-on training in using the RSCCC software. Region 12 will continue to provide support for the secretary/bookkeeper after the training is completed. Region 12 will also continue to reconcile the district's bank statements.
The comprehensive RSCCC software provides all the financial information that a Texas school district needs. The program can generate all the financial information required by TEA, FASRG and the Public Education Information Management System (PEIMS). The software also contains modules for purchasing, payroll and accounts payable.
Although no deficiencies were noted in the district's financial accounting and reporting, school district financial accounting and reporting is extremely complex. Adequate training helps ensure the district remains in compliance with FASRG. The FASRG governs financial accounting and reporting in Texas school districts and contains more than 1,200 pages of information about school district financial accounting and reporting. The secretary/bookkeeper has access to the FASRG on the TEA Web site.
There are a number of organizations that provide training in school district financial accounting and reporting, such as the Texas Association of School Business Officials, the Texas Society of Certified Public Accountants, the Texas Association of School Administrators and the Regional Service Centers. Some of these organizations offer an extensive program of training and other resources for school personnel involved with school district financial accounting and reporting.
Recommendation 15:
Ensure the secretary/bookkeeper receives adequate training to effectively discharge the responsibility for WISD's financial accounting and reporting.
The district should provide numerous training opportunities for the secretary/bookkeeper during her first year of employment. Training opportunities should include seminars on the account code structure; laws, rules and regulations related to school district financial management; budget development and control; payroll; purchasing; and federal and state reporting. The secretary/bookkeeper should continue to participate in refresher courses throughout her employment with WISD.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The superintendent and secretary/bookkeeper obtain information about training opportunities and select courses based on the secretary/bookkeeper's needs. May 2003 2. The secretary/bookkeeper attends the selected training courses. June 2003 and Ongoing 3. The superintendent includes adequate funds in the budget for training and the board approves the budget. August 2003 and Annually 4. The superintendent ensures the secretary has opportunities to attend training. September 2003 and Ongoing FISCAL IMPACT
The fiscal impact of this recommendation was calculated by multiplying the average cost of each day's training by the number of days of training. The average cost of each day's training is $231 and is calculated by adding the cost of the course, meals and travel ($155 + $30 + (140 miles x .325 = $45.50) = $230.50). The cost for 2003-04 is based on the secretary/bookkeeper attending four courses ($231 x 4 = $924) and the cost for the remaining years is based on the secretary/bookkeeper attending two courses each year ($231 x 2 = $462).
Recommendation 2003-04 2004-05 2005-06 2006-07 2007-08 Ensure the secretary/bookkeeper receives adequate training to effectively discharge the responsibility for WISD's financial accounting and reporting. ($924) ($462) ($462) ($462) ($462) FINDING
WISD's budget process is not formalized and the budget is not linked to the campus improvement plan (CIP). The superintendent said the budget process begins in the spring. The district uses the summary of finance (SOF) report from TEA to project state revenues for the coming year. The superintendent uses the current year's needs and estimates of additional needs to prepare the budget for the coming year. The board and the administration discuss the budget during the summer. The board adopts the final budget in August.
A school district's annual budget represents planned expenditures for the year and provides the basis for determining the tax rate. The budget process is methodical and includes phases for development, presentation and adoption. Although the TEC states that a district's superintendent oversees budget preparation, the development phase includes opportunities for staff and the community to express their opinions. The TEC requires the involvement of the site-based decision-making committees in determining how to budget for the campus and how budgeted funds support the CIP. Once all the necessary information is compiled, the preliminary budget is ready for the presentation phase.
The presentation phase includes opportunities for the administration and board to review and discuss the revenue and expenditure estimates and the underlying assumptions and needs on which these are based. The final part of the presentation phase specifically allows for public input on the budget. TEC guidelines require districts to hold a public meeting before the board can legally adopt its budget.
The final step in the budget process is the board adoption of the budget. This must occur before the district can spend funds. Once adopted, the budget becomes the legal authority for the district to make and control expenditures. If expenditures are going to exceed the budget, the administration must prepare, present and have a budget amendment adopted by the board before the expenditure is made. WISD amends the budget each year.
Many school districts have formal budget calendars that outline the budget process. Dripping Springs ISD (DSISD) has a budget calendar that it presents to the community regarding the schedule of events surrounding the budget process. DSISD's budget process is tied to the planning and evaluation cycle of the district.
Recommendation 16:
Formalize the budget process and link the budget to the campus improvement plan.
The district should prepare a budget calendar that outlines the schedule of events in the budget process. The calendar should be disseminated to staff and made available to the community. The calendar should include opportunities for district employees to provide input into the discussions.
The district should link the budget to the campus improvement plan. The district should develop the campus improvement plan for the following year during the budget process. The plan should identify resources necessary to accomplish the goals and strategies of the plan and link those necessary resources to the budget.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The superintendent develops a calendar of events for the budget process. May 2003 2. The superintendent presents the calendar to the board for approval. June 2003 and Annually 3. The superintendent distributes the budget calendar to district employees and makes the calendar available to the public. June 2003 and Annually 4. The superintendent ensures the resources necessary to implement the CIP are included in the budget. July 2003 and Annually FISCAL IMPACT
This recommendation can be implemented with existing resources.
FINDING
The district does not have a formal system for tracking the amount of time that employees work. The clerical staff in the superintendent's office said that no one in the district documents the time that employees work. The district only pays overtime for special events such as sporting or community events that occur outside the normal workday. The superintendent approves the activity and the related overtime before the event occurs. In response to inquiries about how employees record regular and compensatory time, the staff said that the district did not maintain any formal records.
The Fair Labor Standards Act (FLSA) requires districts to document time worked by employees; failure to document time violates the law. The FSLA sets minimum wage, overtime pay, record keeping and child labor standards for employment subject to its provisions. Employees not exempt under the FLSA shall be paid minimum wage and receive compensation for overtime under the conditions specified in the act. Unless exempt, covered employees must be paid at least the minimum wage and not less than one and one-half times their regular rates of pay for overtime.
FLSA requires every employer to keep certain records for each non-exempt worker. FLSA requires no particular form for the records, but does require that the records include certain identifying information about the employee and data about the hours worked and the wages earned. Districts may use any timekeeping method they choose. For example, they may use a time clock, have a timekeeper keep track of employee's work hours or tell their workers to write their work times on the records. Any timekeeping plan is acceptable as long as it is complete and accurate. Many employees work on a fixed schedule from which they seldom vary. The district may keep a record showing the exact schedule of daily and weekly hours and merely indicate that the worker did follow the schedule. When a worker is on a job for a longer or shorter period of time than the schedule shows, the district must record the number of hours the worker actually worked, on an exception basis.
The districts must keep payroll records for at least three years. Districts must retain records used to compute wages for two years. This includes time cards; wage rate tables; work and time schedules; and records of additions to or deductions from wages. The law requires this information to be accurate.
Many districts record time worked using time clocks or other methods to comply with the requirements of FLSA. For example, Webb Consolidated ISD controls payroll expenditures by having all employees, including professional staff, on time cards. This allows the district to effectively monitor payroll costs and employee attendance.
Recommendation 17:
Record time worked for all employees subject to the Fair Labor Standards Act.
The district should record all time worked by employees not exempted from the FLSA. The district should determine the method that best suits them and implement that method.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The superintendent reviews various methods of timekeeping, discusses the methods with the nonexempt employees and selects a method based on the districts needs. May 2003 2. The superintendent presents the method to the board for consideration and approval. June 2003 3. The superintendent implements the method of timekeeping approved by the board. July 2003 4. The superintendent reviews and approves the time records before the employees are paid to ensure the timekeeping method is used. August 2003 and Ongoing FISCAL IMPACT
This recommendation can be implemented with existing resources.
FINDING
The superintendent can make debit card purchases without board approval. The superintendent has a debit card that draws on the district's depository bank account and is authorized by the board to use the card. The superintendent said that most of the purchases are travel related. While the superintendent submits the debit card receipts to the secretary/bookkeeper, the payments are never given to the board for approval as in the case of all other district expenditures.
Board approval of all accounts payable ensures a prudent internal control for small school districts. The WISD board reviews and approves all other payments made with district funds each month. This procedure is designed to help ensure that all district funds are spent for authorized and appropriate purchases.
The review team examined a sample of purchases the superintendent made in the month of September 2002 with the debit card. The team found that all of the charges related to travel by the superintendent and board to attend the annual TASB conference in Dallas. The review team did not find any inappropriate expenditure in the sample. Even though there is no evidence of abuse in the current system, the district is negating an important internal control mechanism with the current process.
Many small districts have the board approve all expenditures as part of the district's internal controls. These districts list expenditures made by checks for approval before the checks are issued. Many school boards also ratify credit card purchases before the bills are paid. This helps these districts ensure that expenditures of district funds are appropriate.
Recommendation 18:
Develop a process to ensure the board approves the superintendent's debit card purchases.
The secretary/bookkeeper should prepare a listing of all debit card purchases each month for the board to review and approve. The secretary/bookkeeper should compare the listing of debit card purchases to the bank statement to ensure all purchases were on the list.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The superintendent directs the secretary/bookkeeper to prepare a listing of all debit card purchases each month for the board to review and approve. June 2003 2. The secretary/bookkeeper prepares a listing of all debit card purchases each month based on the receipts the superintendent provided. July 2003 and Monthly 3. The superintendent submits the list of debit card purchases to the board with the accounts payable listing for board approval. July 2003 and Monthly 4. The superintendent answers any questions and provides documentation for the debit card purchases as necessary and the board ratifies the purchases. July 2003 and Monthly 5. The secretary/bookkeeper compares the listing of debit card purchases to the bank statement to ensure all purchases were on the list. August 2003 and Monthly FISCAL IMPACT
This recommendation can be implemented with existing resources.
Financial Management (Part 1)