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									      Tier 1 Training
     Annual Updates
  2010-2011 School Year

School Management Issues & Updates
  School Finance Issues & Updates

           Required Training
         ACA Section 6-20-2204
• Tier 1 & Tier 2 apply to school districts,
  open-enrollment charter schools and
  education service cooperatives.
• Tier 1 required for:
  – Superintendents
  – Cooperative Directors
  – Charter Schools Directors
  – Person responsible for preparing budget or
    overall accounting responsibility (GBM)

      General Business Manager
       ACA Section 6-15-2302
• A chief financial officer or business
  manager, however the position is titled,
  – Is responsible for fiscal operations
  – Under direction of superintendent
  – Meets minimum qualifications specified by
    ADE Rule

       Required Tier 1 - Content
        ACA Section 6-20-2204
• School laws of Arkansas;
• Laws and rules governing the expenditure
  of public education funds, fiscal
  accountability, and school finance;
• Ethics; and
• Financial accounting and reporting of
  schools, school districts, open-enrollment
  public charter schools, and cooperatives.

      Tier 1 Initial Training-12 Hours
          ACA Section 6-20-2204
•   School Revenues – 2 hrs
•   School Expenditures – 2 hrs
•   School Ethics & Audit Compliance – 2 hrs
•   School Purchasing – 2 hrs
•   School Finance Issues & Updates – 2 hrs
•   School Management Issues & Updates-

          Tier 1 Annual Training
          ACA Section 6-20-2204
• 4 hours of annual training and instruction
  in order to maintain basic proficiency in the
  topics required in the initial 12 hours of
  Tier 1 training.
  – Must receive training by December 31st for the
    current school year.
     • Accreditation citation for failure to meet December
       31st deadline.
     • Unable to continue in position if training not
       received by March 1st of following calendar year.

         Tier 2 Annual Training
         ACA Section 6-20-2204
• For employees who do not make decisions
  about selecting codes or who have a
  limited number of codes that they can use.
  – Principals
  – Assistant Principals
  – School Secretaries
  – Program Directors

         Tier 2 Annual Training
         ACA Section 6-20-2204
• 4 hours per year
• School district, charter school or
  cooperative responsible for providing the
• Trainers required to attend Tier 1 training
• Maintain records of all employees required
  to have Tier 2 training and who have
  completed Tier 2 training.

School Finance Issues &

  Educational Financial Accounting and
    Reporting Act of 2004 (6-20-2201)
• Budget report (6-20-2202)
   – Submitted to ADE through APSCN with cycle 1
     due September 30th.
   – To be approved by board in a legally held
     meeting and signed by president and ex- officio
     financial secretary.
   – If budget not submitted by September 30th:
         – Warrants and checks issued after September 30 not valid
         – Ex officio financial secretary or surety liable for
           checks/warrants issued after September 30th
         – State funding suspended until budget submitted

 Educational Financial Accounting and
   Reporting Act of 2004 (6-20-2201)
• Annual financial report (6-20-2202)
  – Submitted to ADE through APSCN with cycle
    9 due August 31st.
  – Information required:
     • Daily expenditures and receipts
     • Fund balances
     • Reasons for maintaining rather than spending fund
     • Transfers between funds

 Educational Financial Accounting and
   Reporting Act of 2004 (6-20-2201)

• Final Close of General Ledger
  – Required by September 15th for year ended
    the previous June 30th.
  – No changes can be made to the prior year
    financial data after September 15th.
    • If changes are made after submitting cycle 9, cycle
      9 must be re-submitted by September 15th.
    • If a change is needed after final close but before
      September 15th, APSCN can assist.

 Educational Financial Accounting and
   Reporting Act of 2004 (6-20-2201)

• Uniform budget and accounting system
  – Arkansas Educational Financial Accounting
    and Reporting System
    • Establish and implement process and procedures
      for financial reporting.
    • Uniform chart of accounts-Arkansas Financial
      Accounting Handbook (Arkansas Handbook).
       – To comply with federal reporting requirements
       – Provide valid comparisons of expenditures of schools,
         school districts, charter schools and cooperatives.

 Educational Financial Accounting and
   Reporting Act of 2004 (6-20-2201)
• Arkansas Handbook shall include, but not
  be limited to:
  – Categories to allow for the gathering of data
    on separate functions and programs;
  – Categories and descriptions of expenditures
    to be reported on the annual school
    performance report; and
  – Categories and descriptions of expenditures
    that allow for the gathering of data required by

 Educational Financial Accounting and
   Reporting Act of 2004 (6-20-2201)
• Examples of categories of expenditures
  required to be reported:
  – Annual School Performance Report:
    •   Total expenditures
    •   Instructional expenditures
    •   Administrative expenditures
    •   Extracurricular expenditures
    •   Capital expenditures
    •   Debt Service expenditures

 Educational Financial Accounting and
   Reporting Act of 2004 (6-20-2201)
• Examples of categories of expenditures
  required to be reported-Continued:
  – Functions and programs provided by law:
    •   Athletic expenditures
    •   Student transportation expenditures
    •   School district level administrative costs
    •   School level administrative costs
    •   Instructional facilitators
    •   Supervisory aides

 Educational Financial Accounting and
   Reporting Act of 2004 (6-20-2201)

• Functions and programs provided by law-
  – Substitutes
  – Property Insurance

 Educational Financial Accounting and
   Reporting Act of 2004 (6-20-2201)
• Examples of categories of expenditures
  required to be reported-Continued:
  – From following sources of revenue:
    •   Student growth
    •   Declining enrollment
    •   Special education catastrophic occurrences
    •   Special education services
    •   Technology grants
    •   Debt service funding supplement

 Educational Financial Accounting and
   Reporting Act of 2004 (6-20-2201)

• From following sources of revenue-
    • General facilities funding
    • Distance learning
    • Gifted and talented

 Educational Financial Accounting and
   Reporting Act of 2004 (6-20-2201)

• Examples of categories of expenditures
  required to be reported-Continued:
  – Categories and descriptions of restricted fund
  – Categories and descriptions of expenditures
    that each education service cooperative shall
    report on its annual report authorized by law.

 Educational Financial Accounting and
   Reporting Act of 2004 (6-20-2201)

• Arkansas Financial Accounting Handbook
  and APSCN
  – Web site location of Handbook is
    • FMS>Financial Management System-Training
       – Arkansas Financial Accounting Handbook 2009/2010
       – Commissioner’s Memos on Coding
       – Frequently asked questions

  Educational Financial Accounting and
    Reporting Act of 2004 (6-20-2201)
• Arkansas Handbook modeled after the Financial
  Accounting for Local and State School Systems,
  2003 Edition (National Center for Education
  Statistics, U.S. Department of Education-
  Institute of Education Sciences, NCES-2004-
• A new NCES edition was published June, 2009.
  Online version can be found at:

     Arkansas Financial Accounting

• ADE’s Arkansas Public School Computer
  Network (APSCN) is responsible for
  maintaining the Arkansas Handbook and
  implementing revisions necessary to
  gather and report financial data required
  by state and federal law.

      Arkansas Financial Accounting
• Financial coding structure (chart of accounts)
  within Arkansas Handbook
  – Fund
  – Source of Fund
  – Function
  – Location
  – Program
  – Subject Area
  – Object

      Arkansas Financial Accounting
• Fund
   – Teacher Salary Fund (Fund 1)
   – Operating Fund (Fund 2)
   – Building Fund (Fund 3)
   – Debt Service Fund (Fund 4)
   – Dedicated M & O/Capital Outlay (Fund 5)
   – Federal Fund (Fund 6)
   – Activity Fund (Fund 7)
   – Food Service Fund (Fund 8)

    Arkansas Financial Accounting
• Source of Fund
  – Examples:
    • Student Growth Funding (217)
    • Declining Enrollment (218)
    • Professional Development (223)
    • Alternative Learning Environment (275)
    • English Language Learners (276)
    • National School Lunch Act-State (281)

     Arkansas Financial Accounting
• Function
  – Instruction (1000-1999)
  – Support Services (2000-2999)
  – Operation of Non-Instructional Services(3000-
  – Facilities Acquisition and Construction (4000-
  – Other Uses (5000-5999)

     Arkansas Financial Accounting
• Instruction Function-direct interaction
  between teachers and students
  – Regular Programs (1100-1199)
  – Special Education (1200-1299)
  – Workforce Education (1300-1399)
  – Adult/Continuing Education (1400-1499)
  – Compensatory Education (1500-1599)
  – Other Instructional Programs (1900-1999)

     Arkansas Financial Accounting
• Support Services Function-provide
  administrative, technical and logistical
  support to facilitate and enhance
  – Includes:
     •   Student Support (2100-2199)
     •   Instructional Staff Support (2200-2299)
     •   General Administration (2300-2399)
     •   School Administration (2400-2499)

     Arkansas Financial Accounting
• Support Services Function-provide
  administrative, technical and logistical
  support to facilitate and enhance
  – Includes:
     • Central Services (2500-2599)
     • Operation & Maintenance of Plant (2600-2699)
     • Student Transportation (2700-2799)

     Arkansas Financial Accounting

• Operation of Non-instructional Services
  – Food Service Operations
  – Other Enterprise Operations
  – Community Services Operations

     Arkansas Financial Accounting

• Facilities Acquisition and Construction
  Services Function
  – Land Acquisition
  – Land Improvement
  – Architectural & Engineering Services
  – Building Acquisition and Construction
  – Site Improvement
  – Building Improvements

     Arkansas Financial Accounting
• Other Uses Function
  – Debt payments (principal & interest)
  – Transfers to other district funds
  – Indirect costs
  – Payments to state for prior year overpayment
  – 98% URT collection rate exceeded per 6-20-

     Arkansas Financial Accounting

• Location Code – The three-digit ADE
  assigned LEA number for schools that
  identifies the campus where funds are

     Arkansas Financial Accounting
• Program Code – a program is a plan of
  activities and procedures designed to
  accomplish a predetermined objective or
  set of objectives. This code will enable all
  expenditures pertaining to a particular
  program to be tracked across funds,
  sources of funds, functions and locations.

     Arkansas Financial Accounting
• Program Code Examples:
  – NSLA Supplementing Salaries of Teachers
  – State Academic Facilities Funded (070-099)
  – Athletics (115)
  – Non-athletic extracurricular activities (116)
  – Special Education (200)
  – Gifted & Talented (270)
  – Alternative Education (438)

     Arkansas Financial Accounting
• Subject Area – Use of this code is not
  currently required by ADE. School
  districts use this code for a variety of
  purposes pertaining to their own needs.
  State or federal reporting requirements
  could require designated subject area
  codes at some point in the future.

     Arkansas Financial Accounting
• Expenditure Budget Unit – The sixteen-
  digit number entered for all expenditures
  that includes the fund, source of fund,
  function, location, program, and subject
  area codes.
• Revenue Budget Unit – The four-digit
  number entered for all revenue that
  includes the fund and source of fund codes.

       Arkansas Financial Accounting
• Revenue Object /Account – A five digit number
  that describes the revenue.
• Expenditure Object – A five digit number that
  describes the type of expenditure:
  –   Salary (61000-61999)
  –   Employee Benefit (62000-62999)
  –   Purchased Services (63000-65999)
  –   Supplies and Materials (66000-66999)
  –   Capital Outlay (67000-67999)
  –   Other (68000-68999)

      Coding Changes for 2009-2010
• Expenditures from Foundation &
  Enhanced Funding (FIN-09-047, 1/29/09)
• Fund/Source of Fund Codes Required for
  all expenditures paid with Foundation and
  Enhanced Educational Funding:
  – Fund 1-Teacher Salary Fund
  – Fund 2-Operating Fund
  – Source of Fund 000
  – Source of Fund 100-199    See Appendix A-1 for
                                   Adequacy Funding Matrix

     Coding Changes for 2009-2010
• Revenue included in foundation funding
  – State foundation funding (31101)
  – 25 mills Uniform Rate of Tax (URT)
    •   Property Taxes (11110-11140)
    •   Excess Commission (11150)
    •   Land Redemption (11160)
    •   Penalties & Interest (11400)
    •   Interest on Unapportioned Property Taxes (11500)
  – Miscellaneous Funds (per formula found in
    ACA 6-20-2303(11)

     Coding Changes for 2009-2010
• Miscellaneous Funds-ACA 6-20-2303(11)
  – Federal Forest Reserves (42100)
  – Federal Grazing Rights (42400)
  – Federal Mineral Rights (42300)
  – Federal Impact Aid (42500)
  – Federal Flood Control (42200)
  – Wildlife Refuge Funds (41200)
  – Severance Taxes (21200)
  – Revenue in Lieu of Taxes (12800)
  – Local Sales & Use Tax for Education (11200)

     Coding Changes for 2009-2010
• Enhanced Educational Funding-Revenue
  Code 31102
  – ACA 6-20-2305(a)(2)(C)
    (iii) “The General Assembly has determined that the
       funding provided by the subdivision (a)(2)(C),
       which is known as “Enhanced Educational
       Funding”, is in addition to, and in excess of, the
       amount of funds necessary to provide an adequate
       education as required by the Arkansas

     Coding Changes for 2009-2010
• Enhanced Educational Funding-Revenue
  Code 31102-Continued
  – ACA 6-20-2305(a)(2)(C)
    (iv) “Enhanced Educational Funding is available
      from a combination of fortunate economic factors,
      conservative budgeting of all state government,
      and the favorable forecast of state revenues. As a
      result, the enhanced component of Enhanced
      Educational Funding cannot be ensured and may
      not be relied on beyond the 2009-2010 school

       Athletic Expenditures Coding
• Tracking and accounting for the amount of state
  funds that are used to support interschool
  athletic programs in public schools. (ACA 6-20-
  2001 – 6-20-2004)
  – State funds-All money derived from state revenues,
    specifically including, but not limited to, distributions
    from the Department of Education Public School Fund
    Account and ad valorem property taxes distributed to
    a public school or school district.
  – Athletic expenditures-All direct and indirect expenses
    related to interschool athletic programs, prorated if

     Athletic Expenditures Coding
– Interschool athletic program:
  • Any athletic program that is organized
    primarily for the purpose of competing with
    other schools, public or private; or
  • Any athletic program that is subject to
    regulation by the Arkansas Activities

        Athletic Expenditures Coding
• Athletic expenditures to include but not be
  limited to:
   – Salaries and fringe benefits related to
     athletic programs.
   – Travel, including bus-related operation
     and maintenance, to and from any
     interschool athletic program event for
     students, faculty, spirit groups, band, or
     patrons of the school district.

        Athletic Expenditures Coding
• Athletic expenditures to include but not be
  limited to: Continued
  – Equipment
  – Meals
  – Supplies
  – Property and medical insurance
  – Medical expenses
  – Utilities
  – Maintenance of facilities

       Athletic Expenditures Coding
• Rules Governing Athletic Expenditures for Public
  School Districts-September 2007 (See Appendix B-1)
• Commissioner’s Memo COM-08-156, 6/06/2008-
  Athletic Expenditures and Allocations (See
  Appendix B-2)
• Commissioner’s Memo FIN-10-049, 12/30/2009 –
  Athletic Expenditure Audits (See Appendix B-3)
• Commissioner’s Memo FIN-10-051, 1/14/2010 –
  FY10 Transportation Rates (See Appendix B-4)

       Athletic Expenditures Coding
• Problems reported by Arkansas Division of
  Legislative Audit in Special Report on
  Athletic Expenditures.
  – For 2008-2009 (48 SE Arkansas districts
    • Review adjustments totaled $3.4M (14.7%)
    • Athletic expenditures for 23 districts adjusted in
      excess of 10%, ranging from $7,759 to $2.0M.
    • 27 districts improperly allocated coaches’ salaries
    • 9 districts improperly allocated construction costs

    Athletic Expenditures Coding
– For 2007-2008 (51 NW Arkansas districts
  • Review adjustments totaled $3.3M (6.8%)
  • Athletic expenditures for 14 districts adjusted in
    excess of 10%, ranging from $11,694 to $457,191.
  • 4 districts did not properly code athletic related
    construction costs.
  • 18 districts did not code the salaries of spirit group
    sponsors and athletic directors as athletic
  • Program code 115 not used in the budget unit of
    all athletic expenditures.

    Athletic Expenditures Coding
– For 2007-2008 (51 NW Arkansas districts
  • 17 districts coded positions such as gatekeepers
    and bus drivers to ―direct instruction-function
  • 16 districts improperly allocated coaches’ salaries.

    Athletic Expenditures Coding
– For 2006-2007 (50 Central Arkansas districts
  • Review adjustments totaled $4.3M (18.9%)
  • Athletic expenditures for 19 districts adjusted in
    excess of 10%, ranging from $7,518 to $1.1M.
  • 9 districts failed to properly code athletic related
    construction costs.
  • Salaries of spirit group sponsors and athletic
    directors not coded to athletics.
  • Function code 1150 for ―direct instruction‖ used for
    all athletic expenditures.

    Athletic Expenditures Coding
– For 2006-2007 (50 Central Arkansas districts
  • 20 districts improperly allocated coaches’ base
    contract amounts between athletics and

  • Select ―Special Reports” –
    on the next screen type ―Athletic Expenditures” in
    the search box.

       Athletic Expenditures Coding
• Sanctions for improper coding of Athletic
  expenditures (or other material
  misstatements in reported data):
  – Section 8.00 of ADE Rule-Arkansas Financial
    Accounting and Reporting System and Annual
    Training Requirements: (See Appendix B-5)
     • Fiscal Distress (Also in Rule Governing Athletic
       Expenditures for Public School Districts-9.00)
     • Probation, suspension or revocation of
       professional license.
     • Accreditation citation/probation.

Chapter 4 of Arkansas Financial Accounting
 Handbook- “A Guide for a Minimum Property
             Accounting System”
• Expenditures for acquiring capital assets,
  including land, buildings, equipment,
  vehicles, furniture, technology related
  hardware and software, and infrastructure
  are coded to object codes in the 67100-
  67499 range if the unit cost is $1,000 or

Chapter 4 of Arkansas Financial Accounting
 Handbook- “A Guide for a Minimum Property
             Accounting System”
• Capital Outlay must meet all of the
  following criteria:
  – Retains original shape, appearance and/or
    character with use.
  – Does not lose its identity through fabrication
    or incorporation into a different or more
    complex unit or substance.

Chapter 4 of Arkansas Financial Accounting
 Handbook- “A Guide for a Minimum Property
             Accounting System”
  – It is non-expendable; that is, if the item is
    damaged or some of its parts are lost or worn
    out, it is more feasible to repair the item than
    to replace it with an entirely new unit.
  – Under normal conditions of use, including
    reasonable care and maintenance, it can be
    expected to serve its principal purpose for at
    least two years.
  – Unit cost of at least $1,000.

      Coding ARRA Revenue &
• Commissioner’s Memo FIN-09-077,
  5/07/2009, provides the following for
  American Recovery and Reinvestment Act
  (ARRA) funds:
  – Fund/Source of Fund Codes
  – Revenue Codes
  – CFDA#
  – Program Code for Expenditures

       Coding ARRA Revenue &
• Expenditure Program Codes:
  –   050   Buildings/Additions, $2500 or more
  –   051   Major Renovations, $2500 or more
  –   052   Equipment, $2500 or more
  –   053   Vehicles, $2500 or more
  –   054   Tech. Hardware/Software, $2500 or more
  –   055   Infrastructure, $2500 or more
  –   056   Program Direct Service (to students)
  –   057   Professional Services
  –   058   All Other

       Fiscal Assessment and
       Accountability Program
• Indicators of fiscal distress (ACA 6-20-1904):
  – Declining balance determined to jeopardize the fiscal
    integrity of a school district or education service
  – An act or violation determined to jeopardize the fiscal
    integrity of a school district or cooperative.
  – Any other fiscal condition of a school district or
    cooperative deemed to have a detrimental negative
    impact on the continuation of educational services by
    that district or cooperative.

      Fiscal Assessment and
      Accountability Program
• Fiscal Integrity – To comply completely
  and accurately with financial management,
  accounting, auditing, and reporting
  procedures and facilities management
  procedures as required by state or federal
  laws and regulations in a forthright and
  timely manner.

          Fiscal Assessment and
          Accountability Program
• Examples of acts or violations:
   – Failing to properly maintain facilities
   – Violation of fire, health or safety codes
   – Violation of construction codes
   – State or federal audit exceptions or violations
   – Failure to provide timely and accurate required financial reports
   – Insufficient funds to cover legal obligations
   – Failure to meet state expenditure requirements
   – Failure to comply with purchasing or bid requirements
   – Default on debt obligations
   – Material variances between budget and actual
   – Failure to comply with audit requirements

               Fiscal Assessment and
               Accountability Program
•   Fiscal Distress Early Intervention (Act 798 of 2009)
     – Commissioner’s Memo FIN-10-018 provides a checklist superintendents
        can use to determine if early intervention should be considered.
     – Early intervention is provided by ADE if it is determined that a school
        district has experienced two or more indicators at a ―nonmaterial‖
        level—but without intervention could place the district in fiscal distress.
     – Communication requirement is a two-way street:
          • By August 31 ADE notifies superintendent if it is aware of two or
             more nonmaterial indicators having occurred in the prior school
          • By August 31 the superintendent notifies ADE if he or she is aware
             of two or more nonmaterial indicators having occurred in the prior
             school year.
          • ADE and superintendent to review all data and make a
             determination regarding the need for early intervention.

           Fiscal Assessment and
           Accountability Program
• Fiscal Distress Early Intervention (Act 798 of
   – Within 30 days of determination ADE shall:
      • Provides notice to the school district’s
        superintendent and board of directors that:
           – Describes the nonmaterial indicators
           – Identifies the support available from ADE
  – The board of directors shall place on the agenda for its next regularly
    scheduled meeting a discussion of the notice of nonmaterial indicators
    of fiscal distress.

School Management Issues and

      Frequent Audit Findings
• Review of 237 Audits (85% of total)
  – 462 Audit Findings
     • 201 findings related to failure to maintain time
       certification records for federally funded personnel.
     • 185 findings related to internal control and lack of
       segregation of duties. (See Appendix C-1)

                   Time Distribution
• Federal law requires for all employees paid with federal funds. This
  includes Child Nutrition and Special Education.
• Time distribution records are also called PARs (personnel activity
• ―Time distribution‖ refers to the requirement that an employee paid
  from federal funds ―allocate‖ his time among the funding sources
  that pay his salary.
• Records must be maintained that reflect this distribution of effort, or
  time distribution records.
• Rules for Time Distribution are found in OMB Circular A-87.
• Federal funds can pay for goods or services to the extent that there
  is a benefit to the federal program.
• This benefit must be documented.

       Time Distribution Records

–     Does the employee work on one federal program or multiple

– An employee working 50% of time for Title I and 50% for district would
  have two programs.
– An employee working 50% for Title I and 50% for Title V would also
  have two programs.
– An employee working 100% of his time on Title I would have a single

          Time Distribution Records

• Example:
   – Targeted Assisted school wants to set up a computer lab. An aide
     works in the lab. The lab is used for Title I - 50% of the time. District
     uses the lab 50% of the time. Time Distribution Records would indicate
     the aide time for federal funds Title I – 50% of time and district funds -
     50% of time.
   – If appropriate time distribution records are maintained to document
     services, then Title I can pay for half the aide’s salary and benefits.

  Time Distribution Record Keeping
• Time distribution records are above and beyond the normal payroll
  records used by an organization to document time and attendance.
• If an employee works for one federal program, then time distribution
  records are simple.
  Periodic, semi-annual certifications signed and dated by employee
  or supervisor with firsthand knowledge of the work performed are
  required – twice a year.
• Federally-funded employees working for multiple programs must
  keep monthly Personnel Activity Reports (PARs). Must be signed
  and dated by the employee, detailing the actual time spent engaged
  in the various programs.

  Time Distribution Record Keeping
• Maintain PARS in central audit file by fiscal year.
• Time Distribution rules apply to teachers paid with federal funds.
  This includes Special Education.
• Can I use lesson plans as the required time record?
• Yes:
    – If written schedules were followed.
    – If notes are made after the fact to indicate completion of each activity.
    – If lesson plans account for the total time compensated for.
    – If lesson plans are prepared at least monthly and coincide with pay
    – If completed lesson plan is signed by the employee.
    – If lesson plans are retained and maintained as time and attendance.

    Blanket PARS Certification
• If several employees work full time on
  the same program, then blanket semi-
  annual certification can be filed.
• The supervisor filing the blanket
  certification must have actual, firsthand
  knowledge of the work that the
  employees perform.
• Required once every six months.

    Sample Personnel Activity
 Reports/Time Certification Forms

Commissioner’s Memo FIN-10-041 dated
 11/06/2009 includes Sample PAR and
 Time Certification forms.

Solving Internal Control
    Audit Findings

             Internal Control
A process to:
• Create reliability of financial reporting
• Assess risk
• Control preventable loss
• Promote efficiency and effectiveness of
• Ensure compliance with applicable law/rules
• Promote public trust

 Purpose of Internal Control Policy

Internal control gives the school board and
administration reasonable assurance that the
district/charter will:
•Achieve its goals
•Operate effectively and efficiently
•Provide accurate and reliable financial data
•Operate in compliance with current federal and
state laws and rules

    What are the Goals of Internal Control?
•   Limit opportunity for theft or unauthorized use
•   Ensure proper and legal expenditure/disbursement
•   Detect errors and fraud in a timely manner
•   Alert management of relevant required courses of
•   Provide accurate financial information
•   Provide documentation of proper accounting
•   Provides reasonable assurance that
    misstatements, losses, noncompliance with
    laws/rules would be prevented
•   Promote public trust and confidence

Five Components of Internal Control

1. Control Environment
2. Risk Assessment
3. Control Activities
4. Information and Communication
5. Monitoring
  See Appendix D-1 for Discussion of Each Component

           Key Control Activity
• Segregation of Duties
  – Lack of segregation of duties is one of the
    most frequent audit findings.
  – Idea is for individuals responsible for making
    entries to the general ledger, to not have
    access to subsidiary records that support
    entries to the general ledger.
  – Districts with one person accounting offices
    often have inadequate segregation of duties.

Control Activities (Continued)
• Examples of Needed Duty Segregation:
  – Authorization and maintenance of approved
    vendor files and entry of accounts payable.
  – Set up new employee records and issue
    payroll checks.
  – Fixed asset physical inventory and maintain
    fixed asset inventory in computer system.
  – Process checks or bank deposits and
    reconcile bank account.

Control Activities (Continued)
• Cost/Benefit analysis for having adequate
  segregation of duties:
  – The cost of adding personnel can be easily
  – The benefit of having adequate segregation of
    duties is not as easily measured.
  – The superintendent and the board should
    carefully assess the risk of having too much
    control in the hands of one person.

 How will you know Internal Controls
            are working?
1.   Risks are appropriately identified and managed;
2.   Interaction of the various governance groups occurs;
3.   Significant financial, managerial, and operating information
     is accurate, reliable, and timely;
4.   Employees’ conduct and actions are in compliance with
     policies, applicable laws and regulations;
5.   Employees are trained to be responsible for notifying the
     superintendent/director of irregular circumstances;
6.   Resources are acquired economically, used efficiently, and
     adequately safeguarded;
7.   Quality and continuous improvement are encouraged;
8.   Significant regulatory issues are recognized and addressed

Other School Management
   Issues and Updates

            Federal Contracts
 1. Davis-Bacon Act (DBA)
 2. Debarment (EDGAR, 34 CFR Part 85
    covers debarment for contracts which
    include federal funds.)

 Legislative Audit and the U. S. Department
 of Labor are monitoring school districts’
 compliance on these issues.

         Davis-Bacon Act (DBA)
1. Applies to federal contracts of $2,000 or
2. Applies to federal contracts for
   construction, renovation, and/or repair.
   This would include painting, running
   conduit, and installing white boards.
3. Applies to the entire project if any part of
   the project is paid with federal funds.

        Davis-Bacon Act (DBA)
4. District is responsible for ensuring that
   contractors comply with DBA.
5. Monitoring Requirements include:
   * Requiring contractors to provide
     weekly copies of certified payroll with
     original signature and maintain for audit
   * Verifying rates in all classes of

       Davis-Bacon Act (DBA)
*   Conducting interviews to verify pay
    received and hours worked per week.
    (Prevailing rate is the rate of pay
    established in approved contract.
    Rate may change in market, but not
    for the approved contract.)

       Davis-Bacon Act (DBA)
6. Legislative Audit and the U. S.
   Department of Labor are monitoring to
   determine district compliance.
7. Required to keep all records and
   documentation for three (3) years under
   federal law.

        Davis-Bacon Act (DBA)
8. It is the Department of Labor’s
   interpretation that any school district,
   charter school, or educational cooperative
   that accepts funds for construction
   purposes assumes the role of the federal
   government becoming the ―Contracting
   Officer‖ referred to in the wage law.

The Education Department General
Administrative Regulations (EDGAR)34
CFR Part 85 contains the requirements for
entities receiving contracts paid with federal
funds. Part 85 covers all federal education
programs including ARRA.

The Excluded Parties List System (EPLS) identifies
parties excluded from receiving federal contracts.

EPLS includes the names and other valid information for
all contractors debarred, suspended, excluded, or
disqualified for procurement contracts.

This list can be found at

Commissioners Memo FIN-10-047 found at
contains the Arkansas Department of Education
guidance on debarment.

Contractors debarred are excluded from
receiving contracts, and districts shall not
award contracts to these contractors.

After receiving bids or proposals, the district
shall review the EPLS. Keep a printout from
EPLS to document the district verified the
contractor’s status and complied with the

Bids received from debarred contractors
shall be entered on the list of bids and

Prior to the awarding of the contract, the
district shall again review EPLS to ensure
that no contract is made with a debarred

Debarment applies when federal contract is
 expected to equal or exceed $25,000.

Debarment shall not exceed three (3)

Districts need to verify status before
 awarding a federal contract equal to or
 exceeding $25,000.

Three methods to comply with debarment
requirements as per Legislative Audit:

1. Verify status of contractor by accessing the
   EPLS system. Print report to verify for audit.
2. Vendor could provide certification that they
   have not been debarred and are not currently
   on the excluded parties list.


3. District can make it a requirement of the
contract that in order to contract with any vendor
where the cost of the contract exceeds $25,000
   that the contract must include a statement that
the vendor is not currently on the federal
   government excluded parties list (EPLS).

Homeless Expenditure Requirements

Districts and Charter Schools are required
to serve Homeless children.

Districts are required to reserve Title I,
Part A funds as ―may be necessary‖ to
serve Homeless students attending both
Title I and non-Title I schools.

Homeless Expenditure Requirements
Services provided to Homeless students must be
 comparable to services provided to students
 attending Title I schools.

Districts may provide Homeless students with
 educationally-related support services such as
 tutoring, an item of clothing to meet a school’s
 dress or uniform requirements, summer school,
 medical, dental, eyeglasses, immunization,
 and/or school supplies. (Must document not
 readily available from other sources.)

Homeless Expenditure Requirements
Title I funds may not be used to pay for a
Homeless student’s living expenses,
driver’s license fees, extracurricular
activities, or transportation to and from
their school of origin.

Homeless students may receive services
not offered to other Title I students.

     Homeless Student Definition:
Children who lack a fixed, regular, and adequate
nighttime residence including:
• Students who are sharing housing with friends
or relatives because of a loss or hardship.
• Families living in transitional housing that is
designed to move people from homelessness to a
housed state.
• Children who are abandoned in hospitals or
are awaiting foster care.

     Homeless Student Definition:

• Children living in hotels and motels that are
  designed for low-income residents.
• Students living in inadequate housing or
  housing not appropriate for habitation, such
  as campgrounds, cars, parks, public spaces,
  abandoned buildings, bus or train stations, or
  other inadequate facilities like garages or sheds.

     Homeless Student Definition:
• Unaccompanied youth who have run away or
  been ―pushed out‖ by parents and are living in
  shelters or with friends or relatives.
• Migrant students who qualify as homeless
  because of their living situation.

All Homeless students are eligible for Title I
  regardless of whether they are enrolled in a Title
  I school or are struggling academically.

   Required Set Aside Homeless

• Federal law requires that districts set
  aside funds to serve Homeless students.
• Statute does not define a formula for
  determining the appropriate amount to
  set aside.

  Required Set Aside Homeless
Suggested method: Obtain estimated
count of Homeless students in district and
multiply the number by the district’s Title I,
Part A per pupil allocation. Set that
amount aside in the ACSIP budget.
Currently, Homeless is budgeted under
―3351 Welfare.‖

         Homeless Caution

Recent states monitoring has cited
districts for under-identifying homeless

 Identifying Homeless Students

Use the comprehensive Homeless
definitions in estimating Homeless

Do not pick out one or two of the
Homeless definitions, use all seven!

             Homeless Resource

    U. S. Department of Education Non-
    Regulatory Guidance for Education for
    Homeless Children and Youth Program can
    be found at the website below:

11/13/2010                                    108
                Section 1120A(a) of Title I
                 Section 9521 of ESEA
                      34 CFR 299.5

• Maintenance of Effort (MOE) is required by
  federal law to ensure that federal funds are
  not used to replace state and local funds.

• Maintenance of Effort (MOE) is a district-level
  test that measures whether a district is
  providing a consistent level of local and state
  support from year to year.



Districts may seek a waiver of MOE by
demonstrating that the decline in MOE was
the result of an exceptional or uncontrollable
event or a drastic decline in financial
(Section 9521(c))

The following ESEA programs are subject to the
  maintenance of effort requirement:
• Title I, Part A
• Title I, Part A, ARRA
• Title I, Part D, Neglected/Delinquent Programs
• Title II, Part A Improving Teacher Quality
• Title II, Part D Educational Technology
• Title III, Part A English Language Learners
• Title IV, Part B 21st Century Community Learning
• Title VI, Part B, Subpart 2 Rural Education

• The MOE provision requires that LEA’s
  maintain at least 90% of their level of
  expenditures for programs from state and
  local funds from one year to the next.
• The LEA cannot reduce the amount it
  spends for educational programs from
  state and local funds and just pay for
  those programs from federal funds.

• A district may receive its full allocations of
  ESEA funds only if it has met the MOE
• If a district’s expenditures from state and
  local funds fall below the 90% threshold,
  the state must reduce the district’s ESEA
  allocations by the percentage below the
  minimum that expenditures fell short.

    What expenditures are included in
          the MOE calculation?
•   State and local funds for education
•   Administration
•   Instruction
•   Attendance and Health Services
•   Transportation
•   Operation and Maintenance of Facilities
•   Fixed Charges
•   Net expenditures to cover deficits for food services and
    student activities

     MOE calculations should not
• Community services
• Capital outlay
• Debt services
• Expenses incurred as a result of a presidentially
  declared disaster
• Expenditures from funds provided by federal

        Maintenance of Effort
• If a district is using ARRA funds as local
  funds for purposes of meeting the MOE
  provision, districts must remember that
  in FY 2011 when the ARRA funds
  expire, the district will have to maintain
  the MOE obligation from regular local
  and state funds.

     Maintenance of Effort

For the latest ADE guidance, see
FIN-10-040 issued November 17,

       Special Education
      Maintenance of Effort

Reminder Special Education has a 100%
requirement on Maintenance of Effort.

         Special Education
        Maintenance of Effort
Exceptions to 100% requirement are:
• The voluntary departure, by retirement or
  otherwise, or departure for just cause, of
  special education personnel;
• A decrease in the enrollment of identified
  children with disabilities;

         Special Education
        Maintenance of Effort
• The termination of the obligation to
  provide special education program to a
  particular child with a disability that is an
  exceptionally costly program because the
  child has left the district, has reached the
  age at which the LEA obligation has
  ended, or the child no longer needs
  special education services; or

        Special Education
       Maintenance of Effort
• The termination of long-term costly
  expenditures in a special education
  project, such as construction.

For further special education requirements
 see IDEA Section 613.

         Current NSLA Funding

Current NSLA funding levels:

• 90% or above F/R    =    $1,488

• 89% to 70% F/R      =        $992

• 69% and below F/R =          $496

     NSLA Transitional Funding

• Beginning in 2009-2010, if the percentage of
  eligible F/R students changes enough to
  result in a change in the level of NSLA
  funding, then NSLA Transitional Funding
  goes into effect.

     NSLA Transitional Funding

• The amount of NSLA funding per eligible
  F/R student shall be increased or decreased
  in each year of a three-year transition period
  by one-third of the difference between the
  NSLA funding per student for the current
  year and the amount of NSLA funding in the
  immediately preceding school year.

      NSLA Transitional Funding

For 10-11 the district has lost NSLA poverty
  students and a decrease is due—

  Level 09-10    $l,488
  Level 10-11    $ 992
                 $ 496 ÷ 3 = $165.33/year

 Example District Lost NSLA Poverty
• Year 1     $1,488.00
           - $ 165.33
             $1,322.66 x # eligible F/R students

• Year 2     $1,322.66
           - $ 165.33
             $1,157.34 x # eligible F/R students

• Year 3     $1,157.34
           - $ 165.34
             $ 992.00 x # eligible F/R students

      NSLA Transitional Funding

For a district that has increased in NSLA poverty
  students and an increase is due –

Level 09-10      $ 992
Level 10-11      $1,488
                 $ 496 ÷ 3 = $165.33/year

    Example District Increased NSLA
• Year 1      $ 992.00
            + $ 165.33
              $1,157.33 x # eligible F/R students

• Year 2     $1,157.33
           + $ 165.33
             $1,322.66 x # eligible F/R students

• Year 3     $1,322.66
           + $ 165.34
             $1,488.00 x # eligible F/R students

       Website Requirements

Current laws related to school district/
charter school website requirements

            A.C.A. 6-11-129
            A.C.A. 6-13-619
            A.C.A. 6-13-620
            A.C.A. 6-15-2202

        Website Requirements
As per A.C.A. 6-13-620, district/charter school
must publish and maintain a website populated
with the most current information, including:
           Board minutes
           Monthly expenses
           Salary schedules for ALL employees
           Annual audit
           Annual financial report
           Annual contract information

          Website Requirements
A.C.A. 6-11-129 increased the information that
must be on a district’s/charter’s website.
•Minutes of regular and special meetings of the
•Current year budget within 30 days after
submission to ADE
•Monthly expenditures of the district/charter school
•Financial reports indicating local and state

          Website Requirements
• School district/charter school balances
• Salary schedules for all employees, including
  extended contracts and supplemental pay
• Current contract information for all current school
• Annual statistical/financial report for district/charter
• Current annual budget
• Personnel policies

          Website Requirements
A.C.A. 6-15-2202 increased information required
by districts/charters to be posted on their website.
•ACSIP School Improvement Plan
•Uses of NSLA funding - current and previous year
•Annual district/school report card
•School Improvement status of each school in
parent friendly language
•Supplemental services available

            Website Requirements

•   District status on any type of distress
•   Distress plans
•   Parent Involvement Plan and Policy
•   Teacher qualifications for all schools

Compliance is required for accreditation. Data
 must be easily accessible and shall be the actual
 data for two previous school years.

       Website Requirements

As per A.C.A. 6-15-2202, the Department
of Education shall monitor annually for
compliance with website requirements
and shall report failures in compliance to
the State Board of Education.

       Website Requirements

A.C.A. 6-13-619 requires that school board
meeting notice must be published on the
website 10 days prior to meeting.

If a school board meeting date is changed,
district/charter school must publish new meeting
date, time, and location not less than 24 hours
prior to rescheduled meeting.

               IT Security

• A.C.A. 6-11-128 requires ADE to formulate
  security policies.

• Commissioner’s Communication RT-09-
  010 outlined the security requirements
  established by ADE. (See Appendix E-1)

                IT Security
• ADE implemented security policies in
  cooperation with DIS and a security
  vendor, Coalfire.
• ADE established standards for districts/
  charters to implement regarding
  information/data security, access
  procedures, continuity plans, and
  emergency procedures.

                  IT Security

• Legislative Audit is auditing for security
  compliance. Currently, problem is identified as a
  supplemental finding when missing. Beginning
  in 2010-2011, any failure to comply will be a
  more serious finding.

                    IT Security

Policy Statements
  1. District management and IT staff will plan,
     deploy, and monitor IT security mechanisms,
     policies, procedures, and technologies
     necessary to prevent disclosure, modification or
     denial of sensitive information.
  2. Physical access to computer facilities, data
     rooms, systems, networks and data will be
     limited to those authorized personnel who
     require access to perform assigned duties.

                  IT Security
Policy Statements, continued
  3. Network perimeter controls will be
      implemented to regulate traffic moving
      between trusted internal (District) resources
      and external, untrusted (internet) entities.
      All network transmission of sensitive data
      should enforce encryption where
      technologically feasible.

                  IT Security
Policy Statements, continued
  4. System and application access will be granted
     based upon the least amount of access to data and
     programs required by the user in accordance with a
     business need-to-have requirement.
  5. Application development and maintenance for in-
     house developed student or financial applications
     will adhere to industry processes for segregating
     programs and deploying software only after
     appropriate testing and management approvals.

                  IT Security
Policy Statements, continued
  6. Monitoring and responding to IT related
      incidents will be designed to provide early
      notification of events and rapid response
      and recovery from internal or external
      network or system attacks.
  7. To ensure continuous critical IT services, IT
      will develop a business continuity/disaster
      recovery plan appropriate for the size and
      complexity of District IT operations.

                 IT Security

Policy Statements, cont’d
  8. Server and workstation protection software
     will be deployed to identify and eradicate
     malicious software attacks such as viruses,
     spyware, and malware.

                  IT Security
• Audit checklist for IT practices is on the
  Legislative Audit website.

  (Check Resources, then Publications, then IS
  Application Audit Checklist)

• Requirements include Location Security,
  Access, Disaster Plan, Network Security,
  Continuity Procedures

    Continuity Plan Requirements
Legislative Audit and DIS have established that
a district/charter continuity plan must contain
the following elements, which are FEMA
•Essential daily processes for all divisions/ units
at a school. Examples are Administration,
Information Technology, Maintenance,
Instructional Staff, Food Services

    Continuity Plan Requirements
• Order of Succession. Include the primary,
  secondary, and tertiary persons to take
  over a specific essential job if the person
  assigned to that position is no longer
• Delegation of Authority. List the essential
  management/leadership positions and the
  line of authority to be followed if needed.

    Continuity Plan Requirements
• Employee Communications must include all
  employee home, work, cell, and emergency
  contact numbers as well as alternate e-mail
• Current vendor contact Information. Suggest
  vendors from the last two years.
• Vital Records essential to conducting
  district/charter business. Examples are fiscal
  records, accounts payable, accounts
  receivable, APSCN, licensure

    Continuity Plan Requirements
• All members of the organization and the
  specific skills they are capable of
  performing if substitutes are required.
• Alternate locations to conduct essential
  processes. Back up sites, homes,
  restoration sites, offsite storage locations
  pre-identified with existing memorandums
  of understanding on file.

    Continuity Plan Requirements

• Dissolving the entity. Who will take
  responsibility for essential processes if no
  one is available to continue them.
  Example, one district elementary facility is
  totally destroyed and all elementary staff
  were killed.

    Continuity Plan Requirements

• Reconstitution procedures to return to
  normal operations. Supplies and
  equipment needed, vital records, software
  or access required, etc. that would be
  needed from day one (1) - prioritized to
  week four (4)

  Continuity Plan Requirements

Arkansas Continuity of Operations
Program (ACOOP)

For further information see:

       Title I Equitable Services
            Private Schools
Under the Child Benefit Theory Title I

• benefit the individual child, NOT the private school.
• are provided by the LEA, NOT the private school.

(This theory was developed to comply with the Constitutional
  prohibition against Federal funding to private schools.)

     Title I Equitable Services
          Private Schools
• An LEA must only use Title I funds to meet
  the needs of the Title I participant.
  – An LEA cannot use any Title I funds to meet
    the needs of the private school or the general
    needs of the private school children.
  – Private schools may not operate schoolwide
                            See Appendix F-1

    Special Needs Funding Rule
•    The Special Needs Funding Rule
     includes the requirements for receiving
     and spending the following state
     categorical funds (See Appendix G-1)
    –   Professional Development (PD)
    –   National School Lunch Act (NSLA)
    –   Alternative Learning Environment (ALE)
    –   English Language Learner (ELL)

           Act 1599 of 2001
        A.C.A. 6-24-100 et.seq.

• Prohibit self-dealing in transactions
  between public educational entities and
  board members, administrators, or
• See Commissioner’s Memo FIN-09-036,
  12/05/2008. (See Appendix H-1)

       A.C.A. 6-21-301 et.seq.
• Commissioner’s Memo FIN-09-071,
  04/20/2009 (See Appendix I-1)
  – Provides:
    • Definitions
    • Bid requirements pertaining to commodities
    • Bid protest procedure requirements to be
      established by school board

         A.C.A. 6-21-301 et.seq.
• Commissioner’s Memo FIN-09-071,
  – Commodities – All supplies, goods, materials,
    equipment, machinery, facilities, personal
    property, and services, other than personal
    and professional services, purchased for or
    on behalf of the school district.
  – Bids required if estimated purchase price
    equals or exceeds $10,000.

        A.C.A. 6-21-301 et.seq.
• Exceptions to bids:
  – Emergency purchases
  – Single sources
  – Used equipment (school buses 2 yrs or older)
  – Commodities available only from federal
    government and utility services

          A.C.A. 6-21-301 et.seq.
• Exceptions to bids-Continued:
  – Professional services listed in 19-11-801(b)
    (legal, financial advisory, architectural,
    engineering, construction management, land
    surveying professional consultant services)
  – A school board may elect to not use
    competitive bidding for other professional
    services not listed in 19-11-801(b) with a two-
    thirds vote of the board.

         A.C.A. 6-21-301 et.seq.
• State contracts have gone through the bid
  process and school districts may purchase
  those commodities without soliciting
  additional bids.
• Purchasing cooperatives that have
  complied with state procurement laws (and
  federal if district is using federal funds)
  may be utilized without soliciting additional

         Budget Suggestions
• Develop a written budget process and
  timeline that is approved by the board.
• Begin early March by using the Personnel
  Budgeting module in APSCN.
  – Will calculate salaries and benefits of all personnel
    employed as of the date of your pull from live files.
    Changes anticipated in salary schedules and
    positions can be included.
• Use the Budget Preparation module for
  remainder of budget process.

        Budget Suggestions
• Begin in early May to project revenue for
  following year. Most of the variables
  necessary to calculate revenue will be
  known by this time. (3QTR ADM,
  Assessments, Per-student funding rates,
• Accept budget requests from appropriate
  personnel for non-salary related
  expenditures March-May.

        Budget Suggestions
• Schedule board workshop(s) during June
  to explain revenue and expenditure
  projections and seek board input.
• Finalize budget during month of July.
  Compare projected revenue and
  expenditures to prior year actuals to check
  for reasonableness and completeness.
• Obtain school board approval in August,
  submit cycle 9 in September.

        Budget Suggestions
• Obtain school board approval in August.
• Submit budget to ADE in cycle 1 by
  September 30.
• Compare budget to actual at least monthly
  throughout the remainder of the fiscal

         Personnel Policies
          Changes May 1-June 30
     Act 1180 of 2009, A.C.A. 6-17-204
• Personnel policies (including salary
  schedules) adopted by board between
  May 1 and June 30, that are not required
  to ensure compliance with state or federal
  law or regulation, shall be considered a
  part of personnel contracts July 1st if:

          Personnel Policies
          Changes May 1-June 30
     Act 1180 of 2009, A.C.A. 6-17-204
• Notice of change mailed to affected
  employees by first class letter within five
  working days of final board action. Notice
  to include:
  – The new or modified policy
  – Modified policy must clearly show additions
    underlined and deletions stricken

         Personnel Policies
          Changes May 1-June 30
     Act 1180 of 2009, A.C.A. 6-17-204

• Affected employees will have 30 days from
  date of final board action to unilaterally
  rescind their contract.


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