1. What Every School Business Administrator Should Know… About Certain Accounting, Auditing, and IRS Issues Presented by Juanita A. Petty, School Business Administrator, Wayne Public Schools Heidi A. Wohlleb, Partner, Nisivoccia, LLP Kathryn L. Mantell, Partner, Nisivoccia, LLP

2. Accounting Issues

3. Transfers Among Funds  N.J.S.A. 18A:22-8.2(3)(a) provides that no transfer may be made from appropriations or surplus accounts for interest and debt redemption charges. However, a district can transfer funds from the capital reserve account to the debt service fund to offset principal and interest payments for bonded projects in the LRFP.  Districts may not transfer from the general fund to the special revenue fund, except for the budgeted transfer to fund preschool education.  When specifically approved by the voters or board of school estimate or the Commissioner, districts may transfer surplus from the general fund to the capital projects fund.

4. Transfers Among Funds  Unexpended bond proceeds for pre-EFCFA bonds that are on hand one year or longer, for which there is no new purpose for the unexpended funds, may be transferred to either the general fund or the debt service fund by board resolution.  Any board contribution to the food service fund, including the payment of certain salaries or other identified specific expenditures should be budgeted and expended as a transfer to cover deficit in account 11- 000-310-930 and is reflected as an operating transfer in the district’s CAFR.

5. Line-item Transfers  For all line item transfers from an advertised appropriation account as defined under N.J.A.C. 6A:23 - 13.3(e), a two-thirds affirmative vote of the authorized membership of the school board is required pursuant to N.J.S.A. 18A:22-8.1.  Line-item transfers from an advertised appropriation account as defined under N.J.A.C. 6A:23A-13.3(e) which on a cumulative basis exceed 10 percent of the amount included in the original budget require Executive County Superintendent approval.

6. Line-item Transfers  Line-item transfers to an advertised appropriation account identified as general administration, school administration, central services and administrative information technology or other support services that, on a cumulative basis, exceed 10 percent of the amount included in the original budget, require Executive County Superintendent approval. N.J.A.C. 6A:23A–13. 3(g).  In addition to the above noted transfers, transfers to capital outlay excluding equipment (for non-referenda projects; all transfers to referenda projects require voter or board of school estimate approval) require approval by the Executive County Superintendent and may be approved only to supplement a capital project previously approved by the voters or board of school estimate for an “emergent circumstance.” N.J.A.C. 6A:23A-13.3(h).

7. Appropriation of Additional Revenue  Pursuant to N.J.A.C. 6A:23A-13.3, departmental approval is required for appropriation of surplus or other unbudgeted or underbudgeted revenue except for specific revenue sources identified in the administrative code (N.J.A.C. 6A:23A- 13.3(d)). The six specified revenue sources are as follows:  Exemption granted in the award notice of additional state aid.  Tuition revenue generated from a district specific program (excludes formal sending/receiving relationships).  School transportation revenue generated from a district or from a joint or Cooperative Transportation Service (CTS) agency pursuant to N.J.S.A.18A:39-11.  Restricted miscellaneous local revenue.  Federal revenue.  Any revenue amount excluded from the excess surplus calculation in the prebudget year.

8. Appropriation of Surplus  Prior to April 1, appropriation of surplus or other unbudgeted or underbudgeted revenue (except for those exempted under N.J.A.C. 6A:23A-13.3(d)) is not permitted unless by a two- thirds affirmative vote of the authorized membership of the school board petitioning the Commissioner for approval of an “emergent circumstance.” The district is required to submit to the department, board certification of an emergent circumstance that cannot be addressed and completed with current appropriations, and a copy of the most current board secretary report.  Between April 1 and June 30, Executive County Superintendent approval and two-thirds affirmative vote of the authorized membership of the school board are required for the appropriation of surplus or other unbudgeted or underbudgeted revenue. The district is required to submit to the department, board certification that the appropriation is necessary to achieve the thoroughness standards and a copy of the most current board secretary report. (N.J.A.C. 6A:23A-13.3(b).

9. Transfers to Various Reserve Accounts  Capital or Maintenance Reserve  A district may establish a capital or maintenance reserve by budget appropriations or through a transfer by board resolution (prior to June 30) any unanticipated revenue or unexpended line-item appropriation amounts, or both, to the capital reserve or the maintenance reserve account for withdrawal in subsequent school years.  Emergency Reserve  A district may establish an emergency reserve account by budget appropriations or through a transfer by board resolution at year end of any unanticipated revenue and unexpended line- item appropriation amounts. The account balance is not to exceed $250,000 or 1% of the district’s general fund budget up to a maximum of $1,000,000, whichever is greater.

10. Transfers to Various Reserve Accounts  Debt Service Reserve  Districts may establish a debt service reserve account in the debt service fund for proceeds from the sale of district property. Transfers may not be made to the reserve account if a district does not have any outstanding debt. The funds are to be used to retire outstanding debt obligations of the district within the lesser of five years from its inception or the remaining term on the obligations. Any remaining balance must be used for tax relief.  Tuition Reserve  A district can establish a tuition reserve in the general fund at June 30 by board resolution for up to 10% of the estimated tuition cost in the contract year for an anticipated tuition adjustment in the second year following the contract year.

11. Withdrawals from the Capital Reserve Account  Withdrawals for Local Amount of School Facilities Projects:  Withdrawals for referendum authorized school facilities projects may be made if the capital reserve use and amount is identified in the approved referendum question  Withdrawals for a non-referendum school facilities project may be made, by board resolution, up to 110% of the local share less excess costs. Withdrawals must be transferred to the capital projects fund and accounted for separately with the corresponding SCC/SDA grant.

12. Withdrawals from the Capital Reserve Account  Withdrawals for Excess Costs or Other Capital Projects:  Upon voter, board of school estimate, or capital project board approval, withdrawals may be made to fund excess costs of a school facilities project or other capital project (need a separate Statement of Purpose in the advertised budget).  Withdrawals for referendum approved other capital projects may be made if the capital reserve use and specific amount is identified in the approved question.  Withdrawals for additional funds for a referendum- approved project may be made if voter approved through the original budget certified for taxes which must include a Statement of Purpose which includes the amount of excess costs to be withdrawn, the date of the referendum, the amount of the local share in the approved referendum, and the reason needed to exceed the original approved amount.

13. Withdrawals from the Capital Reserve Account  Withdrawals for Debt Service:  A district, by board resolution, may withdraw and transfer funds to the debt service fund to offset principal and interest payments for bonded projects in the LRFP.

14. Withdrawals from the Emergency Reserve Account  Withdrawals from the reserve require the approval of the commissioner unless the withdrawal is necessary to meet an increase in total health care costs in excess of 4%.

15. Withdrawals from the Tuition Reserve Account  The maximum amount that may be restricted at year end is 10 percent of the estimated tuition cost of the contract year.  Upon certification of rates in the third year following the contract year, full appropriation of the applicable year’s reserve must be liquidated and any remaining balance related to that year must be reserved and budgeted for tax relief.

16. Title I/IDEA Grants - Nonpublic Portion  Title I Grant: The District must demonstrate that considerable effort was made to reach out to nonpublic schools (usually written correspondence that services were not necessary). Nonpublic allocation can then be carried forward for “unrestricted” use the following year.  IDEA Grant: The District should have documentation of its efforts to engage the nonpublic schools and approval from the NJDOE Grants Office in order to carry forward the remaining balance for “unrestricted” use in the following year.

17. Common (Correcting) Audit Journal Entries  Collection of prior year Extraordinary Aid or Non-Public Transportation Aid posted as current year revenue receipt and not as collection of prior year accounts receivable.  Current year Extraordinary Aid or Non-Public Transportation Aid not posted.  Debit/credit memos not posted or not posted correctly. These memo items should be posted as both a receipt and a disbursement. Should not be a payable at year end.  Nonpublic Aid – check to ensure expenditures per your records agree with final report.  Nonpublic Home Instruction – please record an expenditure and offsetting accounts receivable, if applicable.  Checks dated in June must be released no later than 10 days (preferably less) after month end.  TPAF reimbursement on Federally Funded grant programs – reimbursement for pensionable salaries only – not stipends. There is an expectation by DOE that the entire reimbursement will be charged to the grant.

18. GASB 68  Effective for fiscal year-end 6/30/15 audits  Will have PERS and TPAF pension liability not just current year pension expense recorded in the district-wide financial statements and disclosures of the liability in the notes to the financial statements.  Calculation of liability will be prepared by an actuary hired by the NJ Division of Pensions and Benefits.

19. Auditing Issues

20. Travel Expenditures/Regulations  A Board of Education shall include in its travel policy a requirement for the employee or board member to submit an appropriate party as designated, and within a timeframe specified by the Board’s policy, a brief report that includes the primary purpose for the travel and the key issues that were addressed at the event and their relevance to improving instruction or the operation of the school district.  The circular places certain restrictions on out-of-state travel.  School districts must obtain prior written approval of the Executive County Superintendent for a travel event that exceeds $5,000 as required by N.J.A.C. 6A:23A-5.9.

21. Travel Expenditures/Regulations  Workshop/Travel Reimbursement Workshop/Travel Reimbursement  Professional Leave Request Professional Leave Request  Travel Certification Travel Certification  Post-Professional Development Report Form Post-Professional Development Report Form  SOP – Reimbursement to Staff SOP – Reimbursement to Staff  Personal Expense Reimbursement Personal Expense Reimbursement  Mileage Claim Voucher Form Mileage Claim Voucher Form

22. State Consolidated Monitoring Results  Title I, IDEA Basic and Preschool, Title II, Title III, Race to the Top and Perkins  Common Financial/Fiscal Related Findings  Time and Activity Sheets were not prepared or did not meet the current requirements. If 100% of employee’s salary is charged to Title I, must complete semi-annual certification attesting to performance of Title I-related duties. If less than 100% of employee’s salary is charged to Title I, must complete monthly personal activity reports - signed by employee and supervisor.  District is contracting with other school district, ESC’s, independent consultants that provide services to students. Related contracts do not contain a per-service or hourly rate and a not-to-exceed amount. Also, contracts were not approved by Board resolution.  District did not appoint annually all individuals charged to federal grants by Board resolution.

23. State Consolidated Monitoring Results  Common Financial/Fiscal Related Findings  The District does not have a purchasing manual that details procedures for the procurement of goods and services.  For Title I schools operating a targeted assistance program, funds may be used for programs and services that benefit only identified Title I students who met the established criteria defined by the school district.  Supplanting of Title I funds used for salaries in a targeted assistance program – avoid by  Operating an after-school tutoring program for which Title I supported staff only assist Title I students, or  If used for in-class support for required existing Basic Skills teacher, use Title I funds for above and beyond expenses.

24. Single Audit Changes effective for Fiscal Year-end 6/30/16 Audits  Change in threshold from $500k to $750k.  Type A program - $750k.  Type B program – under $750k. Type B programs not subject to audit review are those less than 25% of Type A threshold.  Change in percent of required coverage of programs tested from 25% to 20% for low risk auditees and from 50% to 40% for non low risk auditees.  Reduced number of compliance requirements to review but auditors have option to add those removed to special tests and provisions.

25. IRS Issues

26. Employee vs. Independent Contractor Issues  IRS conducting field audits  Pay particular attention to occupational therapists, physical therapists, and sports officials (should be employees)  IRS now using three-prong test vs. the old 20 questions  Ensuring 1099s have been issued to all independent contractors  Penalty of 28% (assessed to District) for any non-issued 1099s

27. 403b Contributions/Accumulated Sick and Vacation Pay  Sometimes referred as “Terminal pay”  Saves Board cost of employer Social Security and Medicare taxes  Allows employee to shelter more income  Specific criteria need to be followed