Finance 101: For Charter School Board Members

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Finance 101 For Charter School Board Members
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Presented By

• Tammy Stanton, ExED
• John Vargas, ExED
• Luis Viramontes, ExED

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ExED

• A non-profit organization that assists Southern
• California charter schools with business
  services,
• securing affordable facilities, and charter
  petition
• development.
• Founded February 1998
• The mission of ExED is to dramatically improve
• the quality of public education by creating
  access
• to K-12 schools with high student achievement
• through the vehicle of community-based charter
• schools.

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ExEDs Goal

• Our goal is to have our services assist charter
  schools in directing more of their resources
  towards the classroom so that students can
  achieve their full potential.

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Agenda

• Introduction
• Charter School Finance
• Average Daily Attendance
• Cash Flow
• Planning Ahead
• Working with your Business Management Partner

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Handout 1

• Set of Standard Financial Statements
• Balance Sheet
• Income Statement
• Notes to Financial Statements
• Check Register

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Balance Sheet

• Provides a summary of an organizations
  financial condition at a specific point in time
  including, assets, liabilities, net equity and
  fund balance.

LIABILITIES Accounts Payable Debt Short-Term
vs. Long-Term Payroll Liabilities
ASSETS Cash Accounts Receivable Prepaid
Expense Furniture Equipment Building/Site
Improvements Land
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Balance Sheet Red Flags
LIABILITIES ACCOUNTS PAYABLE Remains constant or
steadily increases PAYROLL LIABILITES Payroll
Taxes constant or steadily increase
STRS/PERS/403b Retirement constant or steadily
increase CURRENT LONG TERM DEBT Amount ties to
debt schedule Borrowed amount excessively
high FUND BALANCE Amount ties to prior year
audit report Negative balance

• ASSETS
• CASH
• Negative balance
• ACCOUNTS RECEIVABLE
• Remains constant
• throughout year and does
• not decrease
• DEPRECIATION
• Depreciation is not moved
• to balance sheet either
• quarterly or at year-end

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Average Daily Attendance
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Attendance Accounting

• Attendance accounting polices and procedures must
  be carried out for each instructional day. This
  includes the verification of student absences.
• Daily attendance procedures must be followed out
  by designated school site staff. Volunteers are
  legally not permitted to be involved in this
  process.
• Source documents for attendance records must be
  signed by teachers at the conclusion of each
  attendance period and must be kept on file at the
  school site.

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Cash Flow Management

• Cash Flow vs. Net Income
• Tools to Manage Cash Flow

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Net Income vs. Cash

• There is a difference between your Net Income and
  Cash Balance
• Net Income relates to revenue and expenses in the
  current period whereas Cash takes into
  consideration the current period and all
  historical periods.

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Net Income vs. Cash

• There are many activities that will impact Net
  Income and not Cash and vice versa
• Increased Accounts Payable gt Expenses have
  increased and there is no impact on Cash.
• Receipt of a Loan gt Cash has increased but you
  have not impacted your Net Income.
• Prepaid Expenses gt Cash has decreased but you
  have not impacted your Net Income until the
  expense is incurred.

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Tools to Manage Cash Flow

• Plan your Cash Flow out for the next twelve
  months. If a loan is necessary, you will need at
  least 2-3 months of lead time. This also allows
  you time to cut expenses, recruit more students,
  or fundraise.
• When preparing your budget create a budget by
  month. Always budget for a 5 ending change in
  net assets (after loan repayments).
• When recording your actual information compare
  month end cash balance to your budget for that
  month. Be sure your Cash Balance is real.
  Reconcile Cash.
• Create a forecast by month that lists the actual
  data with a revised forecast for future months.
  Account for Balance Sheet Items in forecast e.g.,
  Prior year accounts receivables, loan repayments,
  etc.

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Tools to Manage Cash Flow in Emergency

• Increase Accounts Payable. Create payment plans
  with Vendors. Always be sure to communicate.
• Immediately cut costs. If your school doesnt hit
  enrollment numbers, you can not sustain the same
  level of expenses. You will need to understand
  your resulting revenue shortfall and cut the same
  amount of expenses.
• Recruit more students if viable.
• Focus on better attendance.

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Cash Flow All the Time

• It is crucial to understand when your revenue is
  coming.
• If you know when your school will have cash flow
  problems you can plan for the hard times.
• Be financially responsible when planning your
  budget.
• Cash Flow is an on going concerneven in the
  good times.

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Charter School Funding

• See Handout Revenue Timing

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Planning Ahead

• Develop a yearly Calendar for Finance, Funding
  and Compliance deadlines and goals (see handout).
• Include identification of responsible party for
  achieving deliverable
• Board of Directors
• School Administration Team
• Business Management Partner

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Working with your Business Management Provider

• Typical services offered (See ExED handout)
• Major business functions of a school
• Expectations
• How to be a good client (communication)
• Red flags and pit falls

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Business Functions of a School

• Budget
• Accounting and Finance
• Compliance Reporting
• HR and Payroll
• Business Management

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Budget

• The budget is your primary fiscal planning tool.
  Sound budget
• planning includes
• Educational Mission of the school
• Facilities adequate to mission and Average Daily
  Attendance (ADA)
• Realistic revenue and expenditure projections
  over three years of operation, including cash
  flow and buffers in case of shortfalls (reserves)
• An understanding of the timing of the receipts of
  various revenues and their relative relationship
  to timing of expenditures
• Including input from key stake holders
• Special Education (SPED)

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Accounting Finance

• The accounting process allows the school to
  police itself financially as well as generate the
  information necessary to pay bills, process
  payroll, purchase goods and services, and
  ultimately bind the schools systems together.
• Area where most schools try to save money
• Goal
• Bookkeeping done in timely manner
• Accuracy
• Proper record keeping and audit trail

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Accounting Finance Responsibilities
Audit Preparation Set up strong internal
controls Complete and submit financial reports
to the school, district, county and state
Manage all accounts payable and accounts
receivable Prepare annual budget and cash flow
projections Office Manager training

• Perform monthly, quarterly
• and annual financial
• reconciliations
• Establish maintain general
• ledger
• Strategic Planning
• Perform financial analysis on
• budget vs. actual and keep all
• stakeholders abreast of
• financial condition of the
• school

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Setting Expectations with a Business Management
Provider

• Set high standards (references key)
• Expect the business management provider to
  deliver reports on time
• Make sure business partner is presenting to your
  board at least quarterly, and
• Make sure your board or finance committee is
  receiving monthly updates
• Return phone calls or emails within 24 hours
  (both directions)
• Accuracy and Consistency of Reports

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Monthly Best Practices

• Boards should expect
• Income Statement (budget vs. actual)
• Balance Sheet
• Check Register
• Attendance reporting update and impact on budget
• STRS/PERS Reporting
• Clear and timely communications

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How to build an effective business partnership

• Learn what good internal controls are and set
  them up (provider can help).
• Communicate, Communicate, Communicate!
• When you use a business partner, there is always
  going to be a disconnect because they are not at
  your school site. They will not be able to
  notice that a new employee was hired but the
  office manager didnt notify them, or the roof
  started leaking so there will be a roofing bill,
  etc.

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How to be a good client

• Understand the financial condition of your school
  (Are you sticking to budget? What is your cash
  balance? Is there going to be a shortfall in the
  future?)
• If you know that you are going to need funds for
  construction or need to hire a special education
  coordinator that was not budgeted the best advice
  is to call your business partner and talk it
  through with them so an educated decision can be
  made. It will be important to determine where
  the funds will come from and if there is enough
  cash.

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How to be a good client

• Be nice. There will be mishaps on both sides
  (your side and the business partner side). It is
  the nature of the beast.
• Know that everyone has the same goal making sure
  your school is a success.
• Know that school accounting is not standard
  accounting. You may have a board member or a
  brother-in-law etc who is a CPA. They most
  likely will not be familiar with charter school
  accounting. Learn the differences.

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Business Operations Red Flags

• Not receiving timely nor correct financial
  statements
• Not having calls / emails returned promptly
• Errors that arent quickly corrected or are
  repeated
• High frustration
• But recognize that some frustration exists in
  almost
• all employee / contractor relationships

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Common Pitfalls

• Payroll Taxes
• Personal Loans
• STRS/PERS liability
• Not following Standardized Accounting Code
  Structure (SACS)
• Audit Issues
• Poor Internal Controls
• Lack of Board training

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Conclusion

• Additional Handouts
• Dos and Donts of Fiscal Management
• Online Resources
• Thank you