how to read the board secretary’s “interim” financial report thomas eldridge sba/board...

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How to Read The Board Secretary’s “Interim”

FinancialReport

Thomas EldridgeSBA/Board Secretary

Lawrence Township Board of EducationMercer County, New Jersey

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Why The report doesn’t seem to make sense!

• Why does excess revenue show as a negative? Isn’t excess revenue a good thing?

• Why do we show Resources as assets….when they are not yet earned?

• What about the rest of the assets? Or long term liabilities?

• What about the things we learned in school:• Current ratio?• Return on Assets?• Return on Equity?

• A small retained earnings, i.e. fund balance is better; Why ?

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Goals for today

•Understand how to read the Board Secretary’s Report.

•Understand how to use the Board Secretary’s Report as:• Managerial tool• Protection through disclosure• Talking points between you and

your board.

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Goal of Financial Reporting

•Agency Problem-Without standard reporting, we have the ability to present information in a light that is most favorable to us. Not a good thing. Why is this possible…..

•Information Asymmetry-A political problem. It is necessary to put into a standard format that which you already know so that users of information can make independent judgements about your work. Why? And Who uses this report?

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What is the Board Secretary’s Report? N.J.S.A. 18A:17-9 Defined: Also Require by 6A:23A-16.2 Principles and directives for accounting and reporting

• Total appropriations

• Total amount of orders charged against each appropriation account

• Total amount of warrants(checks) issued for each account, (18A:19-1) who signs them, and (18A:19-2) when they can be paid and by whom.

• Total cash receipts

• Cash and appropriation balances

• Reconciled bank account balances (Treasurer’s Report)

Not done yet……also look to 6A:23A-16.10( c) Why?

What do we do with this information?

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What does the Report tell the information user?

• Total appropriations

• Total amount of orders charged against each account

• Total amount of warrants issued for each account

• Total cash receipts

• Cash and appropriation balances

• Reconciled bank account balances

Spending plan & status of plan

How much we have contracted for through PO’s and Payroll

How much we have paid(Bills List)

Who funds the budget? What funds have been received?

Cash balances and how much is left in the spending plan available for use

Treasurer’s Report How do I find this information?

Manage Resources to Achieve Goals

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The Report as a managerial tool to manage resources:

Does my cash reconcile? Do I have enough cash to pay the bills? Funds 10, 20?, 30?, 40? Can I make an inter-fund loan? If so, How do I track it? How do I make sure my Reserve Liabilities reconcile to my

Reserve allocated cash? How do I proof my Accounts Receivable? What happens if I don’t regularly prove my Accounts Receivable? Can the report tell me if I made an Accounting Entry/Journal Error? Is there a way to make absolutely sure my A/P is accurate at a

glance? Did Transportation Department and Student Services Department

encumber their respective contracts? (Routes & Tuition) I don’t have time to communicate….but I’ll be in trouble if I

don’t…..How do I communicate financial information to my Board/Superintendent?

Focus on The Report…..twice a month(QSAC)…

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The report

•Understand

•Use it for your needs

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Revenue DetailReport

RESOURCES:-Cash-Acct. Rec.

-Revenue Summary

LIABILITIES:-Accts. Pay.-Reserves

-Appropriations Summary-Fund Balance

Appropriation Detail Report

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Balance Sheet

SUMMARY LEVEL

DETAIL LEVEL

Let’s start with what we know and keep touching base as we go. What we know…..

Demystifying the Report: The format

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Appropriations Objectives: Apply, Control, Comply

1. Original Budget Appropriations

2. Transfers between appropriations

3. Adjusted Budget Appropriations

4. Ordersa. Expenditures (18A:19-1)….signatures, etc.

b. Encumbrances

5. Funds Available

6. Answer the questions:a. What happens to Funds Available?

b. Do we have enough resources to accomplish the spending plan?

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Budgeted Appropriations

1. Budgeted Appropriations are a spending planapproved by the BOE during budget development

2. Appropriations are matched by Budgeted Revenue and Budgeted Fund Balance

3. “Budget” means estimate….18 months before final expenditure.

4. Budgeted Appropriations change and become “Adjusted Appropriations.” How do they change? Who can change them?

5. BOE certifies every month that there have been no “over-expenditures” and that there are “Sufficient funds”. NJAC 6A:23A-16.10c(3) Budgetary Controls, which refers to 18A:22-8 for the detail to which the certification applies. NJAC 6A:23A-16.10c(3) refers to the “Minimum Chart of Accounts.” Where do I find the Appropriations?

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Objective #1. Original Budget: Found in the Board Secretary’s Report (monthly)

Your spending plan = program(s)=Board goals/objectives

How much did we budget for……? Where did this number come from? How often do you proof it? What is a better number to use for your Appropriations proof?

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Proofing Original Appropriations

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Prove original to Final doe Budget

2015/201619 LIABILITIES 20 400's Accounts Payable are documented and itemized Yes 21 Interfunds Payable have corresponding Interfund Receivable in other funds NA -$ 22 601 Appropriations "601" = Final DOE Budget 68,497,899.00$

23 Less: (DOE) Budgeted Increase in Capital Reserve (shown in DOE budget-NonGAAP)

(1,600,000.00)$

24 Appropriations "601" = Original Appropriations 66,897,899.00$

PROOFING THE BOARD SECRETARY'S REPORT

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Quick check: Original Budget

• What is the original budget?

• What should the Board Secretary’s Report “Original Budget” equal?

• Who approved the “Original Budget?”

• I should always prove that the Board Secretary’s “Original Budget” is correct by comparing it to:• A. Power Points posted on the website• B. Budget Brochures• C. The final DOE Approved Budget

• Where can I find the Total Original General Operating Fund Budget within the Board Secretary’s Report?

How do we typically change the budget?

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Monthly certification6A:23A-16.10 Budgetary controls and overexpenditure of funds(a) A district board of education or charter school board of trustees shall implement controls over budgeted revenues and appropriations as follows:1. A district board of education or charter school board of trustees shall onlyapprove an encumbrance or expenditure (liability or payment) that, when added tothe total of existing encumbrances and expenditures, does not exceed the amountappropriated by the district board of education or charter school board of trusteesin the applicable line item account established pursuant to the minimum chart ofaccounts referenced in N.J.A.C. 6A:23-2.2(g)1.

(c) 3. A district board of education or charter school board of trustees shall obtain acertification from the school business administrator/board secretary each monththat the total of encumbrances and expenditures for each line item account do notexceed the line item appropriation in violation of (a) above.What practical thing do you need to do to make this true? ………….TRANSFERS

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Transfers: Statute

18A:22-8.1 Transfer of funds, conditions.

2.Except as otherwise provided pursuant to this section, whenever a school district desires to transfer amounts among line items and program categories, the transfers shall be by resolution of the board of education approved by a two-thirds affirmative vote of the authorized membership of the board; however, a board may, by resolution, designate the chief school administrator to approve such transfers as are necessary between meetings of the board. Transfers approved by the chief school administrator shall be reported to the board, ratified and duly recorded in the minutes at a subsequent meeting of the board, but not less than monthly.

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1. Transfers are changes to the spending plan:a. Changes due to estimates

b. Changes due to needs

2. Transfers are BOE approved on the agenda each month, 2/3 majority vote. 18A:22-8.1

3. Transfers occur between meetings with the superintendent’s approval. 18A:22-8.1

4. Restrictions: 10% Rule, Surplus1. What is an account? 6A:23A-13.3(a)

2. What is the “From” rule? 6A:23A-13.3 (f)

3. What is the “To” rule? 6A:23A-13.3(g)

5. Others: Reserve(s), Unbudgeted Revenue, Prohibitions…What do transfers look like?

Objective #2. Transfers Report (Found on the agenda) 18A:22-8.1(8.3), 6A:23A-13.3, 6A:23A-16.10, 6A:23A-14.1 (CAP. RES.)

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BOE approved as “SBM-2” on the 6/11/12 Agenda

Where do we find the effects of Transfers?

Objective #2. Transfers List

6A:23A-13.3 (a) All transfers shall be executed only by district board of education resolution approved in accordance with law and regulation applicable to the particular circumstances and each resolution shall indicate the exact amount of the transfers to and from the applicable accounts or fund balance6A:23A-16.10( c) district board of education or charter school board of trustees shall ensure the following occurs at every regular district board of education or charter school board of trustees meeting: 1. The school business administrator/board secretary shall present to the district board of education or charter school board of trustees a report showing all transfers between line item accounts as well as appropriations, adjustments to appropriations, encumbrances and expenditures for each line item account shown on the budget form prepared in accordance with N.J.S.A. 18A:22-8. This report is in addition to the report required by N.J.S.A. 18A:17-9 (Board Secretary’s Report)

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Total amount of transfers in/out to-date.

Increases and Decreases per line

This shows the reason from the “Transfers List”

Objective #2 & #3 Transfers….to Adjusted Budget

Result: Adjusted Budget...No Over-expenditures!

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Quick check• What is a good reason for a transfer to

occur?• A. Unforeseen circumstance• B. Incorrect budget estimate• C. Starting a new program• D. A & B

• Who approves a transfer?

• Restrictions: 10%, Surplus, Capital Outlay

How do we see the effect of a transfer?

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= (Original budget) +/- (Transfers + Prior Yr. Encumbrances “PO’s”)= Adjusted Budget

Objective #3. Adjusted Budget

So what do we know about our budget so far ?

How do we prove to the Adjusted Budget? What two total numbers must agree?

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Prove original and Adjusted to Final doe Budget

2015/201619 LIABILITIES 20 400's Accounts Payable are documented and itemized Yes 21 Interfunds Payable have corresponding Interfund Receivable in other funds NA -$ 22 601 Appropriations "601" = Final DOE Budget 68,497,899.00$ 23 Less: (DOE) Budgeted Increase in Capital Reserve (shown in DOE budget-NonGAAP) (1,600,000.00)$ 24 Appropriations "601" = Original Appropriations 66,897,899.00$ 25 Add: Prior Year Encumbrances 2,304,843.05$ 26 Add: Appropriation from Capital Reserve for BF Chimney 14,588.00$ 27 Add: Appropriation from Capital Reserve for Turf Project 3,600,000.00$ 28 This should be your new "601" under the "Adjusted Budget" Yes 72,817,330.05$

PROOFING THE BOARD SECRETARY'S REPORT

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Adjusted Appropriations agree with what?

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Quick Check: Adjusted Budget

• The Original Budget is the final budget and cannot be changed.• True or False

• How do we calculate the Adjusted Budget:A. Original budget +/- Transfers + Prior Yr. PO’s= Adjusted

budget

B. Original budget +/- Transfers = Adjusted budget

C. Original budget never changes

• What is the total amount of the Adjusted Budget?

• In what two places can you find the total “Adjusted Budget”, i.e. revised appropriation?

Ok, We know the plan. What has been spent ?

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“Orders” & Encumbrances, N.J.S.A. 18A:19-2: Bean Theory…..and bean counting

Objective #4.

NJSA18A:18A, NJAC 6A:23A-22.14, NJAC 5:30, NJAC 5:34

Adjusted Budget – “Orders” = Funds Available

-18A:18A Who signs-LFN 2015-20 BA’s Threshold -Encumbrances…no confirming orders!

-6A:23A-6.5 Segregation of duties

-Who reviews Aggregates?-Who tracks Compliance

AN OPPORTUNITY FOR INTERNAL CONTROLS!

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“Orders” & Expenditures, N.J.S.A. 18A:19-2

Objective #4.

Payments of Claims…..Bills list….

AN OPPORTUNITY FOR INTERNAL CONTROLS!

-Does the Board have a part in “Expenditures”?(on bills list-Typically “SBM-1”)

-18A:19-2 Who pays

-18A:19-1 Who signs

-18A:19-3 Affidavit

PAYMENTS/EXPENDITURES:

-18A:19-4.1 SBA…..Alone

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Orders proof Adjusted Budget – “Orders” = Funds Available

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Tie In: Budget to Balance Sheet

What happens to unspent Fund Available?CASH

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Reserve for Encumbrance

1. Encumbrance lowers your “owned” Liability

2. Reserve For Encumbrance Increases your “Non-owned” Liability, think of it as a pre- “Accounts Payable” liability.

CASH

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rEVIEW

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Review of Appropriations

• Original Budget

• Transfers

• Adjusted Budget

• Orders-Encumbrance-Expenditure

• Funds Available

• What is important about know these functions?

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Fund Balance

2015/2016 10 10

43 770 Fund Balance, July 1 equals audit Yes 3,812,383.87$ 44 771 Reserved Fund Balance NA -$ 45 303 Budgeted fund balance equals amount approved by BOE at budget time plus transfers Yes (2,066,210.00)$ 47 Closing entry for Excess interest to Capital Reserve (year end) NA -$ 48 Undesignated and Reserved together Yes 1,746,173.87$

PROOFING THE BOARD SECRETARY'S REPORT

From AuditFrom Final Budget

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Objective: Understand

1. Original Budgeted Revenues

2. Adjusted Budgeted Revenues

3. Actual Revenues, Receipts, Receivable

4. Unrealized Revenue

5. Answer the questions:a. What happens to excess revenue?

b. How much revenue will we collect?

c. How much revenue have we collected?

Revenue

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1. Budgeted revenue, along with surplus, is used as resource to fund the spending plan (Appropriations)

2. “Budget” means estimate

3. “Budget” does not mean we already have the cash.

4. We are paid the cash that matches the Budgeted Revenue in installments throughout the year.

5. Our revenue is primarily funded through property taxes (Ad Valorem taxes) and state aid.

Where do I find the Revenue Schedule?

Objective #1. Budgeted Revenue

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REVENUES=APPROPRIATIONS-BUDGETED FUND BALANCE

Objective #1. Budgeted Revenue: How to use the Schedule

Next: Where else can we find this?

Is this important?

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What does this tie into? Assets Side

+FICA

CASH

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Difference between 301 and 302

Why does this show on the Assets Side?............What if it didn’t?Why does this turn negative when we have “over-realized” revenue?

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Proof of Revenue & Receivables

Note 2: Receivables Proof Enter 141 $3,109,339.00Less: From Rev. Schedule:Parcc Aid 40,410.00 Growth Aid 40,410.00 Transportation Aid 612,017.00 Extraordinary Aid - Sp. Ed. Aid 1,898,053.00 Cat. Sec. Aid 417,886.00 Sup. Trans Aid - Total Aid A/R 3,008,776.00 Is this FICA A/R? $100,563.00 Ok

PROOFING THE BOARD SECRETARY'S REPORT

Final DOE Budget

Corresponding Payable in another Fund (Fund 20)

Tuition Due

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Revenue DetailReport

RESOURCES:-Cash-Acct. Rec.

-Revenue Summary

LIABILITIES:-Accts. Pay.-Reserves

-Appropriations Summary-Fund Balance

Appropriation Detail Report

=

Balance Sheet

SUMMARY

DETAIL

Part III. Balance Sheet

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The Balance Sheet: Assets =Liabilities

Cash should reflect the net results of Deposits(Receipts) and (Disbursements+Cash Transfers)

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What we learned:

1. Appropriations

2. Revenue

3. Interim Balance Sheet(Liquid Assets)• Summary of Appropriations• Summary of Revenue• Reserve Accounts• Fund Balance(Surplus)

• 100% TRANSPARENT-ONLINE and COMMUNICATED TO THE BOE MONTHLY

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What code citations govern the Board Secretary’s Report

• N.J.S.A. 18A: 17-9. Secretary; report of appropriations, bank reconciliations; custodial duties, etc.

• N.J.S.A. 18A: 17-10. Secretary; annual report

• N.J.A.C. 6A:23A-16.10 Budgetary controls and over expenditures of funds. See old 6A:23-2.2 re: 2R2

• N.J.A.C. 6A:23A-16.10(c)(vi)”The 60 day rule”

• NJQSAC!

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Questions