1. How to Read The Board Secretary’s “Interim” Financial Report Thomas Eldridge SBA/Board Secretary Lawrence Township Board of Education Mercer County, New Jersey 1

2. 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 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?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 rest of the assets? Or long term liabilities? What about the things we learned in school:What about the things we learned in school: Current ratio?Current ratio? Return on Assets?Return on Assets? Return on Equity?Return on Equity? A small retained earnings, i.e. fund balance is better; Why ?A small retained earnings, i.e. fund balance is better; Why ? 2

3. Goals for today Understand how to read the Board Secretary’s Report.Understand how to read the Board Secretary’s Report. Understand how to use the Board Secretary’s Report as:Understand how to use the Board Secretary’s Report as: Managerial tool Managerial tool Protection through disclosure Protection through disclosure Talking points between you and your board. Talking points between you and your board. 3

4. 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…..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?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? 4

5. 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 appropriationsTotal appropriations Total amount of orders charged against each appropriation accountTotal 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 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 receiptsTotal cash receipts Cash and appropriation balancesCash and appropriation balances Reconciled bank account balances (Treasurer’s Report)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? 5

6. What does the Report tell the information user? Total appropriationsTotal appropriations Total amount of orders charged against each accountTotal amount of orders charged against each account Total amount of warrants issued for each accountTotal amount of warrants issued for each account Total cash receiptsTotal cash receipts Cash and appropriation balancesCash and appropriation balances Reconciled bank account balancesReconciled 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 6

7. 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)… 7

8. The report UnderstandUnderstand Use it for your needsUse it for your needs 8

9. Revenue Detail Report RESOURCES: - Cash -Acct. Rec. -Revenue Summary LIABILITIES: -Accts. Pay. -Reserves -Appropriations Summary -Fund Balance Appropriation Detail Report = 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 9

10. Appropriations Objectives: Apply, Control, Comply 1.Original Budget Appropriations 2.Transfers between appropriations 3.Adjusted Budget Appropriations 4.Orders a.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? 10

11. Budgeted Appropriations 1.Budgeted Appropriations are a spending plan approved 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? 11

12. 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? 12

13. Proofing Original Appropriations 13

14. Prove original to Final doe Budget 14

15. Quick check: Original Budget What is the original budget?What is the original budget? What should the Board Secretary’s Report “Original Budget” equal?What should the Board Secretary’s Report “Original Budget” equal? Who approved the “Original Budget?”Who approved the “Original Budget?” I should always prove that the Board Secretary’s “Original Budget” is correct by comparing it to:I should always prove that the Board Secretary’s “Original Budget” is correct by comparing it to: A. Power Points posted on the websiteA. Power Points posted on the website B.Budget BrochuresB.Budget Brochures C.The final DOE Approved BudgetC.The final DOE Approved Budget Where can I find the Total Original General Operating Fund Budget within the Board Secretary’s Report?Where can I find the Total Original General Operating Fund Budget within the Board Secretary’s Report? How do we typically change the budget? 15

16. Monthly certification 6A: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 only approve an encumbrance or expenditure (liability or payment) that, when added to the total of existing encumbrances and expenditures, does not exceed the amount appropriated by the district board of education or charter school board of trustees in the applicable line item account established pursuant to the minimum chart of accounts 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 a certification from the school business administrator/board secretary each month that the total of encumbrances and expenditures for each line item account do not exceed the line item appropriation in violation of (a) above. What practical thing do you need to do to make this true? ………….TRANSFERS 16

17. 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. 17

18. 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, Surplus 1.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.) 18

19. 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 balance 6A: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) 19

20. 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! 20

21. Quick check What is a good reason for a transfer to occur?What is a good reason for a transfer to occur? A. Unforeseen circumstanceA. Unforeseen circumstance B. Incorrect budget estimateB. Incorrect budget estimate C. Starting a new programC. Starting a new program D. A & BD. A & B Who approves a transfer?Who approves a transfer? Restrictions: 10%, Surplus, Capital OutlayRestrictions: 10%, Surplus, Capital Outlay How do we see the effect of a transfer? 21

22. = (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? 22

23. Prove original and Adjusted to Final doe Budget 23

24. Adjusted Appropriations agree with what? 24

25. Quick Check: Adjusted Budget The Original Budget is the final budget and cannot be changed.The Original Budget is the final budget and cannot be changed. True or FalseTrue or False How do we calculate the Adjusted Budget: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? What is the total amount of the Adjusted Budget? In what two places can you find the total “Adjusted Budget”, i.e. revised appropriation? In what two places can you find the total “Adjusted Budget”, i.e. revised appropriation? Ok, We know the plan. What has been spent ? 25

26. “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! 26

27. “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: 27 -18A:19-4.1 SBA…..Alone

28. Orders proof 28 Adjusted Budget – “Orders” = Funds Available

29. Tie In: Budget to Balance Sheet What happens to unspent Fund Available? CASH 29

30. 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 30

31. rEVIEW 31

32. Review of Appropriations Original BudgetOriginal Budget TransfersTransfers Adjusted BudgetAdjusted Budget Orders-Encumbrance-ExpenditureOrders-Encumbrance-Expenditure Funds AvailableFunds Available What is important about know these functions?What is important about know these functions? 32

33. Fund Balance From Audit From Final Budget 33

34. 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 34

35. 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 35

36. REVENUES=APPROPRIATIONS-BUDGETED FUND BALANCE Objective #1. Budgeted Revenue: How to use the Schedule Next: Where else can we find this? Is this important? 36

37. What does this tie into? Assets Side +FICA CASH 37

38. 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? 38

39. Proof of Revenue & Receivables Final DOE Budget Corresponding Payable in another Fund (Fund 20) Tuition Due 39

40. Revenue Detail Report 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 40

41. The Balance Sheet: Assets =Liabilities Cash should reflect the net results of Deposits(Receipts) and (Disbursements+Cash Transfers) 41

42. What we learned: 1.Appropriations 2.Revenue 3.Interim Balance Sheet(Liquid Assets) Summary of Appropriations Summary of Appropriations Summary of Revenue Summary of Revenue Reserve Accounts Reserve Accounts Fund Balance(Surplus) Fund Balance(Surplus) 100% TRANSPARENT-ONLINE and COMMUNICATED TO THE BOE MONTHLY 100% TRANSPARENT-ONLINE and COMMUNICATED TO THE BOE MONTHLY 42

43. 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: 17-9. Secretary; report of appropriations, bank reconciliations; custodial duties, etc. N.J.S.A. 18A: 17-10. Secretary; annual reportN.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: 2R2N.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”N.J.A.C. 6A:23A-16.10(c)(vi)”The 60 day rule” NJQSAC!NJQSAC! 43

44. Questions 44