1. Internal Controls: Financial Management in an Era of Education Reform AEFFA 2012
Sheara Krvaric, Esq.
Federal Education Group, PLLC
@fededgroup

2. Relationship between Ed Reform and Financial Management?
The fiscal side of ed reform is often overlooked, but getting increasing attention:
CAP/AEI Joint Recommendations on Needed Changes to Title I
“Admittedly, our joint recommendations and the papers undergirding them focus on requirements that are often regarded as obscure, technical, or otherwise unglamorous. And while it is certainly true that No Child Left Behind’s accountability system gets the lion’s share of the attention, we would argue that these seemingly mundane provisions may well prove more significant when it comes to what goes on in America’s schools and school systems day-to-day.”
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3. Ed Reform and Financial Management (cont.)
Many of today’s education reforms are based on financial and spending data – for example:
ESEA Flexibility and school turnaround
“Return on Investment”
Civil rights enforcement
Equity
Yet, there is a disconnect between the data policymakers assume they can get and what state/local financial systems actually capture
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4. Role of Internal Controls
Internal controls are designed to help agencies meet specific objectives, but what happens when there are competing objectives?
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5. Potential Disconnect #1: School-Level Data
ED began collecting school-level financial data with SY
ED is continuing to collect that data under the Civil Rights Data Collection (CRDC):
Personnel salaries at the school level – total
Personnel salaries at school level – instructional staff only
Non-personnel expenditures at school level
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6. Key Challenges
Schools must report actual salary costs by school (cannot be based on averages)
Schools are also asked to report non-personnel expenditures
Includes:
Professional development
Instructional materials/supplies
Computers/software/technology
Contracted services
Library books/media center materials
Other non-personnel expenditures
Fine print says “if this information is available at the school level” – but that limitation is not always understood by users of the data
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7. Internal Control Issues
Capacity of HR systems
Can systems effectively tie specific staff members to specific schools?
What about staff members hired at the central level, but assigned to a school?
How quickly are changes input (e.g. transfers, departures, etc.)?
How often is data reviewed/verified?
Is data consistent across various platforms/reports?
HR vs. payroll
CRDC vs. NCES forms vs. comparability reports vs. FMS
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8. Internal Control Issues (cont.)
Capacity of inventory systems
Do systems track goods to the school level?
Capacity of FMS
Can non-personnel costs (e.g. contract costs) be traced to a specific school?
Distinguishing between “central-level” and “school-level” costs
What about central level initiatives on behalf of specific schools?
What about staff hired at the central level but assigned to schools?
What about “salary differentials” that might be captured at the district level, but relate to school-based staff?
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9. Emerging Issue: Comparability
A lot of attention to the “comparability loophole” that permits comparability calculations to be based on averaged salaries
Moves to require comparability based on actual school-level expenditures (personnel and non-personnel)
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10. Comparability (cont.) For example, Harkin-Enzi bill would require:
By LEA must show that the combined state/local expenditures in Title I schools are comparable to non-Title I schools
Must be based on actual personnel and non-personnel expenditures in each school
LEA must report the following information to the SEA for each of its schools:
Per-pupil expenditures
Personnel expenditures
Non-personnel expenditures
Total expenditures
SEA must report expenditure data publicly
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11. Potential Disconnect #2: Linking Costs to Program Initiatives
In May, ED proposed to collect information about how districts use Title I funds to support specific interventions under ESEA Flexibility
This potentially would have required linking specific costs to specific interventions for specific schools
In August, ED revised its proposal, and now will collect ranking and serving data instead
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12. Key Takeaway?
Despite the change, ED is moving closer and closer to expecting data on how federal funds are used to support specific program activities in individual schools:
“We are interested in how LEAs in ESEA flexibility states are using their Title I, Part A funds, particularly with respect to supporting their priority and focus schools.”
-- ED response to Public Comments on ESEA Flexibility Collection through EdFacts
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13. Internal Control Issues
Interoffice coordination
What program objectives need to be tracked?
Are objectives aligned (e.g. SIG vs. RTT vs. Title I, etc.)?
Capacity of financial management systems
Can systems handle additional levels of coding?
Do all districts in the state follow the same chart of accounts/coding conventions?
Does the SEA have authority over the chart of accounts, or is it controlled by other state agencies?
Can the FMS separately track school-level costs?
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14. Emerging Issue: Return on Investment
Goal is to determine whether education spending is effective by linking dollars to results
This would involve connecting individual costs to a program objective, and then tying those costs to specific students and student outcomes
For example:
What is the cost of implementing a new reading intervention (cost of the intervention plus associated costs such as new materials, professional development, etc.)?
Which students participate in the intervention?
What are those students’ outcomes?
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15. Other Issues to Think About
Impact of program specific fiscal rules
MOE
Comparability
Excess cost
District-level vs. school-level spending
Double duty for operational systems: HR
FMS
Procurement
Inventory
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16. Internal Control Strategies
Information and communication
Internal: Getting on the same page
External: Critically important to explain facts on the ground
Opportunities to comment – for example OMB grant reform proposals, ED ESEA Flex data collection
Our take on OMB proposals:
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17. Internal Control Strategies (cont.)
Define and align objectives
Performance
Financial management
Federal rules
State/local rules
GAAP requirements
Compliance
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18. Internal Control Strategies (cont.)
Strength in numbers - states/districts can be resources for each other:
RI UCOA initiative:
LA school-by-school financial data:
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19. Disclaimer
This presentation is intended solely to provide general information and does not constitute legal advice. Attendance at the presentation or later review of these printed materials does not create an attorney-client relationship with Federal Education Group, PLLC. You should not take any action based upon any information in this presentation without first consulting legal counsel familiar with your particular circumstances.
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