Activity Fund Accounting. Principals

Transcription

1 Activity Fund Accounting For Principals By Gary W. Williams Assistant Superintendent for Support Services La Vega I.S.D. TASSP New Principal Academy Trinity University July 15, 2001

2 Table of Contents Activity Funds Management... 2 Introduction... 2 Creation of Activity Funds... 2 General Principles Governing Activity Funds... 3 FASRG Fund Code Definitions... 5 Activity Fund Sample Policies... 7 Student Group Management... 9 Definition of a Student Group... 9 Management of Student Groups... 9 Management of Fund-Raisers - Student Groups... 9 Funds Management and Accountability Daily Operation of Activity Funds Summary and Conclusion Fund Classification of Activity Funds Responsibility for Activity Funds Accounting Procedures for Activity Funds Activity Fund Receipts Activity Fund Disbursements Emergency Activity Fund Checks Deposit Slips Bank Statements Bank Accounts Check Cashing Policies Advance Payments Supplemental Payments to Employees from Activity Funds Payments to Non-Employees for Contracted Services Petty Cash Transfers of Funds between Activity Fund Accounts Purchase or Donation of Fixed Assets from Activity Funds Audit of Activity Funds Retention of Records Competitive Procurement Requirements Vending Machines Taxable Status of Purchases Exempt Items School-Sponsored Trips Taxable Sales One-Day Tax-Free Sales Toll-Free Numbers Fund-Raising Activities Insurance Monthly To-Do List Budgeting for Activity Funds..24 Sample Independent School District Student Activity Fund Procedures Decision Making Tree for Activity Funds Activity Funds Example Forms July TASSP New Principal Academy

3 Introduction Activity Funds Management It is a long-standing tradition that public education in the United States of America is publicly supported and locally controlled. This belief, though widely held, is in fact no longer accurate. The widespread proliferation of laws and regulations, and court interpretations of various laws and regulations, severely limit the amount of control available to the local community. All decisions of the local district and its governing body are closely scrutinized and open to legal challenge from any number of individuals and/or groups. Oftentimes these groups and/or individuals are not residents of the local community and do not represent its wishes or mores. It is, nevertheless, a fact that no action of a school district can be taken without careful consideration of legal ramifications. Public support of public schools is likewise a somewhat inaccurate concept. Various funding scenarios, often the result of court challenges and political compromises, are in place throughout the United States. The per cent of support provided by federal, state, local, and other sources varies widely from state to state and district to district, and occasionally from school to school within a district. Further, the regulations pertaining to use of these funds often severely restrict the local decision-making process within the local campus. Districts often find themselves lacking the necessary resources to implement mandated changes, thus being forced to reallocate already scarce funds from programs whose needs already outstrip the available funds. Most school leaders agree that the amount of funds is not adequate to meet the demands, and that the restrictions placed upon them inhibit effective use of the funds available. Thus, while public support and local control remain commonly held beliefs, neither is in place in modern U.S. public schools. Creation of Activity Funds The lack of local control and support for public schools led inevitably to the creation and growth of activity funds. The scarcity of resources caused the local district to be unable to fund all requested items, and the restrictions placed on expenditures often forced school officials to deny otherwise worthy requests. The most likely scenario was as follows: a school or a group such as a class or club had a legitimate need for which they did not have adequate financial resources. The need was likely unanticipated and therefore unbudgeted. The group approached the school s leadership seeking additional funds, and was turned down, usually because the school and/or the district did not have adequate funds or was unwilling to reallocate existing funds. At this point, the group was forced to seek other funding options: parent group support, student fees, fund-raisers, or private donations. As soon as one of these options was selected, an activity fund was born. Clearly, activity funds were a classic case of the adage: Necessity is the mother of invention. The need for additional financial resources to support a worthy cause led to the birth of this new, locally controlled funding source. July TASSP New Principal Academy

4 General Principles Governing Activity Funds The creation of activity accounts, or funds, leads to a series of other, more practical questions: 1. Are activity funds necessary? 2. Can t all activity fund transactions be handled through existing accounts or funds? 3. What is the desirable level of involvement for the district? 4. Is there more than one kind of activity fund? 5. What lines of authority should exist for activity fund management? 6. What safeguards and/or liabilities are present (for the district and/or individuals)? 7. Are there other considerations? 8. What is important in the management of activity funds? The answers to these questions are often specific to the type of activity; however, certain general principles can be applied: 1. Activity funds are necessary, primarily because of the nature of the group generating the funds. For example, funds raised by a student-governed club belong to the students in that club; thus, the district s responsibility is fiduciary, or custodial. Similarly, it is often desirable to segregate funds generated by a campus as a whole (e.g., vending revenues) to ensure that the funds are spent for the benefit of that school. 2. Some districts choose to maintain a minimum number of activity accounts, and channel all other revenue-generating activities through the General Fund. At a minimum, student-governed revenue-generating activities must be accounted for in a separate fund. 3. The level of involvement of the district, whether it is the Board of Trustees, the central administration, or the campus administration, is a matter of philosophy. This philosophy is set by the Board of Trustees, and must be outlined in policy. 4. There are two kinds of activity funds: Student Activity Funds are related to a specific club or class, and all decision-making for these funds rest with the group. Campus Activity Funds are generated by the campus as a whole, and must be spent in such a manner to benefit the campus. Other differences between these types of funds will be addressed in detail later in this document. 5. Just as there are two types of activity funds, two types of authority exist for activity fund management: The district exercises fiduciary responsibility over student activity funds; that is, they serve in a custodial, or caretaker role for the student group s money. All decisions regarding revenue generation and expenditure authorization rest with the students. The district exercises authority only insofar as it safeguards the assets of the group. In contrast, the district exercises managerial authority over campus activity funds, usually through the campus principal. In this role, the principal budgets both the revenue and expenditures for the activities, and authorizes all expenditures consistent with the district s policy. The district s financial management personnel certify budget availability and accuracy of budget coding, as with all budgeted funds. July TASSP New Principal Academy

5 6. Safeguards and liabilities pertaining to activity funds are largely outlined above, and are a function of the district s philosophy. By clearly addressing activity fund management in its policy, the district provides important safeguards for itself, as well as defining and limiting its liability. Operating guidelines, such as a district manual, which should outline individual roles and responsibilities, must follow this important first step. These guidelines establish safeguards and define liabilities for district personnel in the same way that the district s policy defines and limits the role of the district as a whole. 7. There are other considerations, such as training, internal controls, centralized vs. decentralized accounting, financial reporting requirements, internal management reports, and audit reports (both internal and external). There are doubtless additional considerations, but these are most likely specific to a district or activity, and require a specific, rather than a generic answer. 8. Planning, consistency, and follow-through are of paramount importance in the management of activity funds. Horror stories of mismanagement, misuse of funds, theft, fraud, embezzlement, etc., are all too common. The causes of these regrettable (and preventable) incidents are few in numbers, and can be traced invariably to a lack of planning, consistency, and/or follow-through. Lack of planning means, pure and simple, the failure to anticipate likely occurrences. Inconsistency in dealing with activity funds inevitably results in confusion and provides opportunities for mismanagement. Finally, failure to follow through with the implementation of clearlydefined policies and well-written operating guidelines gives rise to theft, fraud, embezzlement, and misuse of funds. No policies or guidelines are effective if not implemented and monitored for compliance. The following sections deal specifically with the items addressed above. It is my hope that this material will provide the user with the resources and guidance necessary to manage the activity funds in his or her district effectively and efficiently. July TASSP New Principal Academy

6 FASRG Fund Code Definitions GOVERNMENTAL FUND TYPES Governmental fund types for Texas school districts consist of four governmental fund groups (General, Special Revenue, Capital Projects and Debt Service) that account for the acquisition, use and balances of expendable financial resources and related liabilities as required by law or rule. 100 GENERAL FUND The general fund is a governmental fund with budgetary control, which is used to show transactions resulting from operations of ongoing organizations and activities from a variety of revenue sources for which fund balance is controlled by and retained for the use of the local education agency. The general fund utilizes the modified accrual basis of accounting. To maintain separate revenue and expenditure accounts to assure the integrity of specific revenue purposes when required by law or rule, the general fund is to employ the classifications defined below. 198 GENERAL FUND - CAMPUS ACTIVITY SUBFUND This fund may be used, as a local option, to account for campus-based activities when the fund balance either is retained as a part of the general fund, or may be recalled into the general fund at the district s discretion. July TASSP New Principal Academy

7 200/300/400 SPECIAL REVENUE FUNDS Special revenue funds are governmental funds used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specified purposes. This excludes expendable trusts and major capital projects. These funds utilize the modified accrual basis of accounting Special Revenue (Local Programs) This group of funds is used to account for special revenue funds from local sources. 461 Campus Activity Funds This fund classification is to be used to account for transactions related to a principal s activity fund if the monies generated are not subjected to recall by the school district s Board of Trustees in the general fund. Gross revenues from sales are recorded in revenue object code The cost of goods sold is recorded in Function 36, using the appropriate object code FIDUCIARY FUND TYPES - TRUST AND AGENCY FUNDS AGENCY FUNDS This group of funds is used to account for assets held by a school district in a trustee capacity, or as an agent for individuals, private organizations, other governmental units and/or other funds. These funds are accounted for on the modified accrual basis of accounting. A school holds these funds in a custodial capacity, and they consist of clearing accounts and funds that are the property of students or others. Agency funds do not involve measurement of results of operations, and they have no fund equity, because assets are equal to liabilities. 865 Student Activity Funds This fund classification is used as an agency account for student club or class funds. July TASSP New Principal Academy

8 Activity Fund Sample Policies Independent School District Activity Fund Policy (Centralized) ACCOUNTING: CFD ACTIVITY FUNDS MANAGEMENT (LOCAL) ===================================================================== Student activity funds shall consist of funds consisting of resources received and held by the district as trustee to be expended or invested in accordance with conditions of the trust. Specifically, they are funds accumulated from schoolapproved fund-raising activities and the receipt of student dues or fees, commissions, interest and donations. These funds are to be expended in accordance with the wishes of the student group generating the funds. All student activity funds must flow through the student activity account. The District shall maintain a central student activities account to manage student activity funds. All monies collected shall be receipted by the building principal or designee and brought to the Business Office. The Business Office will verify the amount and deposit the funds into the activity bank account as soon as practical after receiving the monies from the school. Campus activity funds shall consist of funds generated by the student body or campus as a whole, but which are not attributable to the fund-raising activities of a particular student group. These funds shall be receipted and deposited in the same manner as other district funds. They shall be used to promote the general welfare of the school and the educational development and morale of the student body as a whole, and shall be dedicated to this use. These funds shall be identified as a separate special revenue fund within the district s general ledger. Excess or unused campus activity funds are not subject to recall into the General Fund. The principal of each school shall be responsible for the proper administration of the campus activity accounts on his/her campus, and shall insure that the funds are managed in accordance with state and local law, District procedures, and the state accounting manual. These funds shall be included in the annual audit of the District s fiscal accounts. (See CFC) July TASSP New Principal Academy

9 Independent School District Activity Fund Policy (Decentralized) ACCOUNTING: CFD ACTIVITY FUNDS MANAGEMENT (LOCAL) ===================================================================== Student activity funds shall consist of funds consisting of resources received and held by the district as trustee to be expended or invested in accordance with conditions of the trust. Specifically, they are funds accumulated from schoolapproved fund-raising activities and the receipt of student dues or fees, commissions, interest and donations. These funds are to be expended in accordance with the wishes of the student group generating the funds. All student activity funds must flow through the student activity account. Each school in the District shall maintain a student activities account to manage student activity funds. These accounts shall be in the District s depository bank. All monies collected shall be receipted by the building principal or designee and deposited into the school s activity bank account as soon as practical after receiving the monies. Campus activity funds shall consist of funds generated by the student body or campus as a whole, but which are not attributable to the fund-raising activities of a particular student group. These funds shall be receipted and deposited in the same manner as other district funds. They shall be used to promote the general welfare of the school and the educational development and morale of the student body as a whole, and shall be dedicated to this use. These funds shall be identified as a separate special revenue fund within the district s general ledger. Excess or unused campus activity funds are not subject to recall into the General Fund. July TASSP New Principal Academy

10 Student Group Management Definition of a Student Group A student group is defined as a formal, organized, responsible group made up of and governed by students. The group has officers, bylaws and/or a constitution, and is responsible for its actions. It will have a sponsor who is a school staff member and may or may not be affiliated with a state or national organization. It is not a non-structured group of students, an instructional class or group, nor a teacher-run group of students who do not have control or authority over the group. An example of a student group would be a student council and an example of a group that is not a student group would be an athletic team. Management of Student Groups Management of student groups by the district and local campus has three important elements: recognition, organization, and a plan of activities. Recognition of student groups should be by the school and the district. Some districts formally approve student groups at the Board level. Others allow this to be an administrative matter. Regardless of the method, the purpose of recognition is to insure that there are no unauthorized groups, to standardize the organizations within the district, and to insure that the groups are properly classified as student run groups or as other groups. As noted earlier, student groups by definition are organized. Organized student groups must have a set of bylaws and/or a constitution. Campus management should require these documents to be on file in the administration office. A current list of officers should also be on file, as well as the sponsor s name. This will allow the principal to monitor the activities of all groups and communicate with these groups more easily. The existence of a student group implies that the group has a purpose, which will usually be stated by the group s bylaws/constitution. Beyond this, the group should have a plan that outlines its activities for the year. Service projects, major fund-raisers, and other activities should be spelled out in the plan. This will insure that the group is fulfilling its stated purpose as well as allowing the administration to eliminate conflicts and duplication of efforts by different groups. Management of Fund-Raisers - Student Groups One of the most critical elements in the management of student groups is the governance and control of fund-raisers. No single area of student group management is more visible, since fund-raising activities involve the school community. The district and the school should clearly define procedures governing fund-raisers, including decision-making roles, scheduling, sponsors responsibilities, types of fund-raisers, conduct of the activity, documentation, recordkeeping, and follow-up. July TASSP New Principal Academy

11 Approval of fund-raisers. Approval of fund-raisers should be at the student, sponsor, school (Principal) and/or the district level. Some districts insist that all fund-raisers be scheduled and approved in advance, others limit the number of fund-raisers annually, and still others have little or no restrictions on these activities. While this is a local district matter, failure to have an approval process is an invitation to conflicts and difficulties. A simple form outlining the fund-raiser and allowing for the necessary approvals can go a long way toward providing order and organization to this vital area. Scheduling/Timeframe and Conflicts. The school and/or the district should take steps to schedule and manage fund-raisers in such a way to avoid conflicts. Fund-raisers should have a definite beginning and end, and should not be scheduled in conflict with other fundraisers. An annual calendar of fund-raisers is advised, and in a large school, it is a necessity. Additionally, the number of fund-raisers conducted by a specific group should be limited. All student groups on a campus can operate fund-raisers successfully if proper controls and limitations are in place Sponsor Orientation and Training. Sponsors of student groups are often the forgotten persons on a campus. They are often new teachers with little or no experience in managing a student group s activities. District and/or campus leadership must provide adequate training for these persons. Job descriptions for sponsors, procedures for the conduct of activities, evaluation procedures, and administrative communication and guidance are imperative if problems are to be avoided. Many schools have periodic meetings of all sponsors to enhance coordination among groups. Types of Fund-Raisers. Many types of fund-raisers are available to student groups. These include sales of products, labor only projects, contract labor projects, school-wide activities, and other types of projects. Districts and/or schools should clearly define the types of fund-raisers allowed. This is often a matter of Board policy, especially as it pertains to student participation in fund-raisers. Conducting the Activities. The conduct of a fund-raiser should focus on a the answers to a few simple questions: Who is conducting the fund-raiser? When and where is the fund-raiser taking place? What documentation and recordkeeping is being kept? How is the fund-raiser s effectiveness being evaluated? Funds Management and Accountability Fund-raisers are a reality, if not a necessity in the modern school. Recognizing this fact, it is incumbent upon the district and the campus to manage activity funds wisely. The level of control must be more detailed and specific than with other sources of funds, primarily because of both the significant number of persons and the amount of cash involved. To accomplish this, three primary areas must be addressed: proper classification of the funds, proper procedures for processing transactions involving the funds, and proper management of peripheral issues such as outside donations and sales tax. July TASSP New Principal Academy

12 Proper Classification-Campus Activity vs. Student Activity Funds Funds generated by student groups can be classified in one of two ways: as Campus Activity Funds or Student Activity Funds. Both of these funds are defined and classified in the Financial Accountability Standards Resource Guide (FASRG). From a practical point of view the key to classifying the funds lies in the source of funds and the decision-making authority regarding the funds. From an accounting perspective, Campus Activity Funds are a Special Revenue Fund and Student Activity Funds are a Fiduciary Fund. By definition, this means that Campus Activity Funds must be budgeted; that is, both revenue and expenditure appropriations must be detailed. As an expendable trust fund, Student Activity Funds are not required to be budgeted; they will have only assets and liabilities as opposed to revenue and expenditure. Daily Operation of Activity Funds Theoretical considerations aside, districts and campuses must have practical, specific guidelines for day-to-day operations of activity funds. Topics which should be addressed include purchasing, accounting for cash, check requests, capital outlay and fixed asset purchasing, accounting for donations, and sales tax issues. These issues are addressed in the attached activity fund manuals. Methods of addressing these issues will vary according to the size and complexity of the district; however, a good rule of thumb is to have one set of guidelines regardless of the fund source. Thus, A Purchase Order is a Purchase Order; the only difference between a General Fund P.O. and an Activity Fund P.O. is the budget code on the bottom. As stressed earlier, internal controls and accountability for receipt of funds are the same regardless of fund source. Donations, whether made to a student group or the district as a whole, should be handled in the same manner.. Summary and Conclusion Activity funds were born of necessity as schools sought to deliver goods and services to students in light of scarce resources. The nature and type of these funds led to increased exposure for the district and its employees. It is imperative that districts safeguard the assets of activity funds and limit the exposure of their employees who deal with activity funds by setting a prudent philosophy that insures compliance and accountability. The cold hard fact is that few school employees will be terminated or prosecuted under the law for low test scores, but they will almost certainly be terminated, prosecuted or both for mismanagement and/or misappropriation of funds generated by students. It is a risk public schools cannot afford to take. July TASSP New Principal Academy

13 Fund Classification of Activity Funds Activity funds can be accounted for in one of three ways: in the General Fund, as a Special Revenue Fund, or as an Expendable Trust Fund. A school district should consider the following questions in determining the fund in which the activity funds should be accounted: Does local board policy allow for recall of excess or unused fund balances into the general fund? If so, these funds should be accounted for in Fund General Fund, and budgeted accordingly. Do persons other than the students involved in the activity fund (teachers, sponsors, administrators, etc.) have access to the monies to use in a manner that does not directly benefit the students involved in the activity fund? If so, these funds should be accounted for in Fund Campus Activity Fund. Do the financial decisions rest solely with the students involved in the activity? If so, these funds should be accounted for in Fund Student Activity Fund. There are two common methods of administering activity fund accounting: Centralized activity fund accounting, in which funds are controlled, disbursed, and accounted for through the school district s Business Office. Decentralized activity fund accounting, in which funds are controlled and accounted for at the various school sites. Advantages of centralized activity fund accounting are: Better internal controls, since all receipts and disbursements flow through one accounting system. Easier access to data for performing internal and external audits. Heightened control of cash management operations. Greater consistency in applying district policies and procedures. Some disadvantages are: Loss of control at the local school site. Delay in processing orders and payment generating documents. Loss of flexibility in day-to-day operations. July TASSP New Principal Academy

14 Regardless of whether a district uses a centralized or a decentralized method of accounting for activity funds, it should have formally adopted policies and procedures for activity fund accounting. A district may choose to have both centralized and decentralized activity fund accounting present in their districts. They may centralize elementary schools and allow secondary schools to operate in a decentralized manner. Some districts have elements of both centralized and decentralized accounting in operation. They may require a central office administrator s signature on activity fund checks or other documents that are prepared at the campus level. Local district philosophy, size and complexity of the district, number and training level of central office and campus staff, and annual expenditures in activity funds, are all factors that influence the decision to centralize or decentralize activity funds. Regardless of whether a district chooses to centralize or decentralize activity fund accounting, adequate internal controls and clear-cut lines of authority and responsibility can make the system operate efficiently and effectively. Responsibility for Activity Funds The responsibility for activity funds involves principals, support staff such as school secretaries and clerks, student group sponsors, central office administrators and support staff performing the internal audit function, and external auditors. The responsibilities are that of: The school principal, or designate, who is responsible for the proper collection, disbursement and control of all activity funds at the school. This responsibility includes providing for the safekeeping of funds at the school. Ideally, monies on hand at the end of the school day should be deposited in a night depository at the district s depository bank. If this is not feasible, the monies should be stored in a locked, secured area. The principal is NOT responsible, however, for funds collected, disbursed and controlled by parents, patrons or alumni organizations, i.e., Parent Teacher Organizations, Booster Clubs, etc. These funds should not be accounted for in the district s activity funds. The school secretary/clerk, who is responsible for maintaining an adequate supply of various activity fund forms, issuing cash receipt books as needed to persons involved in the management of activity funds, and maintaining official activity fund records. Additionally, this person is commonly responsible for depositing activity funds in the bank, and for accounting and financial reporting of activity funds (if the district uses a decentralized activity fund method). The individual activity fund sponsors, who are responsible for managing their respective activity fund accounts. This responsibility should include developing fundraising plans, monitoring the financial position of their account, reviewing their financial statements, safekeeping activity fund monies until they are deposited by the district, involving students in the operation of the activity they sponsor, and other fiduciary responsibilities. July TASSP New Principal Academy

15 The internal auditor, who is sometimes responsible for the annual audit of each activity fund and other periodic audits of such funds as deemed necessary by the district. If the district does not have the position of internal auditor, the central office administrator or support person(s) charged with this responsibility should perform periodic audits of activity funds. Additionally, the district s central administration must establish and maintain sufficient internal controls to insure that the assets of the activity funds are safeguarded. The external auditor, who is responsible for the overall audit of the district. An examination of the district s activity funds must be included in the audit. July TASSP New Principal Academy

16 Accounting Procedures for Activity Funds Activity Fund Receipts Cash receipts records are the means of accurately recording cash received and provide support to substantiate bank deposits. School districts should use prenumbered cash receipt books or other forms to record all cash and/or checks received. In order to maintain effective cash control, at least two persons should be involved in the functions of collecting and receipting cash. The person who collects the cash should not be the one responsible for completing cash receipts. Procedures that should be followed for activity fund receipting are: An official receipt should be prepared immediately for any cash and/or checks received. Receipts should be issued in numerical sequence and should be prepared in ink. Postdated checks should not be accepted. An actual cash count by the person signing the receipt should be made in the presence of the person turning in the money. The total of cash and checks received should be shown separately on the receipt. The maker of a check must be indicated on the receipt if the maker is not the person turning in the money. The account name should be placed on the check. A copy of the receipt should be given to the person paying the money. Originals of receipts must be retained in the activity fund cash receipt book. Under no circumstances should a receipt amount or the signature be altered. If this occurs, the receipt should be voided and a new receipt issued. The originals of voided receipts must remain in the activity fund receipt book. The principal or designee should approve the voiding of a receipt by signing the original. Receipts are not to be presigned or predated. A Support Schedule for Collections, showing details about each payer and a description of the receipt should be completed for all cash receipts. Deposit slips should include receipt numbers to allow for a proper audit trail for disposition of all prenumbered receipts. July TASSP New Principal Academy

17 Activity Fund Disbursements To limit irregularities, all expenditures should be paid by prenumbered check from the activity fund checking account. Checks made out to Cash or to the paying school must never be issued. It is strongly recommended that two signatures be required on all checks. In keeping with the definition of student activity funds, income received from a specific student group must be expended in accordance with the wishes of that group. In the case of student activity fund checks, the signature of one of the student group s officers should be required on any payment-generating document. In the case of campus activity funds, the funds should be expended in such a way to benefit the campus as a whole. The principal should approve no expenditure of funds unless sufficient funds are available in the appropriate activity account. If the district allows transfers or loans between activity funds or accounts, proper documentation requesting and approving the transfer or loan should exist. Loans should be repaid by the end of the fiscal year in which the loan is granted. Properly executed disbursement vouchers constitute the authority to issue a check drawn on the activity fund checking account and the support to substantiate all withdrawals from the account. Permanent original documentation must support the payment and should be attached to the original disbursement voucher. After payment of a voucher, the original documentation should be stamped as paid to ensure that duplicate payments are not made. Emergency Activity Fund Checks The issuance of emergency activity fund checks requires special care. The district should outline in its activity fund guide the nature and acceptability of incorporating emergency checks into the activity fund process. It is strongly recommended that limits be placed on the issuance of emergency checks. Deposit Slips As cash is collected and counted, the appropriate personnel should complete deposit slips. When properly validated by the bank, these deposit slips serve as evidence of monies deposited on specific dates. These slips are supporting documents for accurate cash recordkeeping. As such, they should be retained as a financial record of the district. July TASSP New Principal Academy

18 Bank Statements The bank statement is the official bank record of all transactions affecting the cash balance on deposit during the preceding month. All bank accounts should be reconciled on a monthly basis by a person who is independent of safeguarding the activity fund assets (cash or investments). In the case of decentralized activity accounting, the monthly bank statements should be sent directly to the school principal in original sealed envelopes, who should review the statements for unusual items. When properly reconciled, the bank statement serves as official support for the cash balance indicated in the activity fund records. A bank statement should be received and reconciled for all accounts. The principal should document approval of the bank reconciliation(s) by signing the bank reconciliation form. Bank Accounts Business conducted with the bank must conform to all board policies, rules, and regulations. Each school should have only one bank checking account, and excess funds should be placed in district-approved investment alternatives. A district s combined total of cash and investments at any one financial institution may not exceed $100,000 without adequate securities pledged to the school district for proper collateralization. All activity fund bank accounts must be monitored by the district s administration. Schools may not borrow funds or enter into deferred payment contracts without the prior approval of the district s administration, in accordance with local board policy. Check Cashing Policies The cashing of personal and/or payroll checks weakens the school district s system of internal controls, and should not be allowed. Advance Payments Advance payments may sometimes be requested for expenses anticipated by clubs or other student groups engaged in out-of-town travel. The district s travel guidelines should govern travel by student groups in accordance with district policy and regulations. A travel advance should be noted on the payment, and the group sponsor should return any unused funds to the school or district, along with supporting documentation, as soon as the travel is completed. A receipt for unused advance funds should be issued to the activity fund sponsor when such funds are returned, and the funds should be redeposited to the originating activity fund account. July TASSP New Principal Academy

19 Supplemental Payments to Employees from Activity Funds A campus may find a need to compensate district employees for services performed beyond their regular duties; e.g., maintenance employees who set up a school facility during off duty hours, school personnel judging contests outside of the normal school day, etc. These auxiliary services are usually discharged in addition to their normal specified duties and are performed outside of regular work hours. These payments should never be made directly to the employee, but through the district payroll office. Proper authorization for such payments should be approved prior to any supplemental duties being performed. The district should develop forms to document the request and approval of supplemental payments to employees. Payments to Non-Employees for Contracted Services Payments to non-district personnel for contracted services should be authorized via an approved contract. This contract should be completed prior to the services being performed. The contractor s Social Security number, along with all other information needed for preparation of I.R.S. Form 1099, should be obtained. Contractors should always be paid via an approved check; personal funds or cash should never be used and then be reimbursed by the activity fund. At the end of each calendar year, a list of all contractors who have provided services during the calendar year should be prepared. The list should include the name, address, Social Security number and amount paid. If the district uses a centralized activity fund accounting system, I.R.S. Forms 1099 should be prepared and sent whenever applicable by the district s Business Office. If a decentralized system is used, each school should prepare a list and send to the Business Office, which will send out the 1099 s whenever applicable. Petty Cash If district policy and regulations allow for it, a petty cash fund may be established at the discretion of the principal for the purchase of low-cost, miscellaneous items. Disbursements from petty cash funds may not exceed the district s limit for petty cash purchases, and employee and other checks may not be cashed from these funds. All activity fund petty cash procedures must adhere to the district s cash accounting policies. Original invoices or other suitable documentation must be obtained for all petty cash expenditures and processed in the same manner as other payment generating documents. Transfers of Funds between Activity Fund Accounts Some activity fund accounts are revenue producing by their very nature; e.g., vending machines, interest accumulation accounts. Districts routinely transfer these proceeds to other activity funds or accounts. All transfers of monies between accounts must be properly documented and approved by both the sponsors involved and the principal. July TASSP New Principal Academy

20 Purchase or Donation of Fixed Assets from Activity Funds Activity funds may be used to purchase fixed assets that meet the district s fixed asset capitalization policy, and such fixed assets may subsequently be donated to the district. These donated fixed assets should be catalogued in the district s fixed asset records. Audit of Activity Funds As with all funds, activity funds must be included in the district s annual financial audit. Additionally, the district may require an audit when a change in principals or financial clerks occurs. The district s internal auditor (if the district has one) commonly performs interim audits of activity funds. If the district has no such position, the administrator charged with the internal audit function should perform such audits, or the district may contract with its external auditor for these services. Retention of Records Activity fund records should be kept by the district for the same length of time as other accounting records, which generally are kept for three years after the conclusion of the fiscal year in which the transaction occurred. Competitive Procurement Requirements Activity fund purchases must comply with the district s purchasing procedures and relevant statutes. Purchases that exceed $25,000 must comply with the Texas Education Code, Section Comprehensive information relating to school district purchasing is provided in the Purchasing module of the Financial Accounting Standards. Vending Machines One common method of raising activity fund revenues is through vending machines on the school campuses. Vending machines have been a common area for problems in the past due to a lack of control over inventory and cash receipts. Vending machines can be either school-serviced (self-service) or vendor-serviced (full-service). The advantages of a vendor-serviced arrangement is that an outside company is responsible for the stocking of the machines, collection of monies, etc., which relieves school personnel from overseeing inventories of drinks and cash collection procedures. Additionally, since full-service vending companies pay by check, internal controls are heightened. July TASSP New Principal Academy

21 Taxable Status of Purchases All items purchased by a public school for the school s own use qualify for an exemption from sales tax if the items purchased relate to the educational process. The school, school district or an authorized agent should provide the seller a tax exemption certificate. To be valid, the certificate must state that the merchandise being purchased is for the organization s own use in providing education, is being made in the name of the organization, and that payment shall be made from the organization s own funds. The school district should not reimburse employees for sales tax they paid on purchases made on behalf of the school district. Purchases for their own use by individuals, even though connected with a school or school organization, are not exempt from sales tax. As an example, cheerleaders purchasing their own uniforms, teachers purchasing computer equipment, band members purchasing their own instruments, and athletic teams purchasing their own letter jackets are not tax-exempt. Exempt Items Public schools and school-related organizations are not required to collect sales tax on the following: Fees and admission tickets, if the event is entirely for educational purposes Student club memberships Sales of food and soft drinks that are Sold or served during the regular school day Sold or served by a parent-teacher organization during a fund-raising sale, the proceeds of which do not benefit an individual Sold by a person under 18 years of age who is a member of an organization devoted to the exclusive purpose of education, and groups associated with public or private elementary or secondary schools as a part of a fund-raising drive sponsored by the organization for its exclusive use. July TASSP New Principal Academy

22 School-Sponsored Trips Meals purchased by the school for athletic teams, bands, etc. on authorized school trips are exempt from the sales tax if the school contracts for the meals. The school must pay for the meals and provide the eating establishment with an exemption certificate. Individual members of teams or other organizations may not claim exemption from the sales tax on the meals they purchase while on a school-authorized trip. An exemption may also be claimed by the school from the hotel occupancy tax if the school contracts and pays for the accommodations. This exemption is only for the state hotel occupancy taxes; it does not exempt the school district from local hotel occupancy taxes. Teachers, coaches, and other staff members may not claim exemption from sales tax on individual purchases while on school business even though they are reimbursed by the school for expenses. For example, a teacher who is attending a conference out of town would not be able to claim a sales tax exemption on the purchase of an individual meal at a restaurant. Taxable Sales Public schools and school-related organizations must collect sales tax on all sales, which are not specifically exempted. For example, sales taxes must be collected on the following: School purchased supplies sold directly to students including athletic equipment and physical education uniforms Fees for materials when the end product becomes a possession of the student Student publications such as yearbooks and football programs School rings Books sold to students at book fairs This list is not comprehensive; other taxable sales may be made by a school district. July TASSP New Principal Academy

23 One-Day Tax-Free Sales Each school (district-wide), each organization within that school, and each outside organization affiliated with that school are allowed to have two one-day tax-free sales or auctions during a calendar year. One-day tax-free sales mean that collection and remittance of state sales taxes is not required on qualified sales on that day. While the sale of yearbooks can be selected as one of the two one-day tax-free fund-raisers, a book fair is usually not a qualified sales event because the school is not the seller, and the school is therefore acting as an agent for the vendor. The sale of items received from a vendor, in which the school and the vendor have an agreement that the vendor will take back any unsold items, would also generally not qualify as a one-day tax-free sale. Toll-Free Numbers The state comptroller s office maintains a toll-free information number for quick response to any state sales tax question at Fund-Raising Activities Fund-raising activities are not confined to regular school hours but are considered an extension of the school program. When fund-raising activities are in the name of the school, all funds raised become school funds, belonging to the school-sponsored group responsible for raising the money. It is advisable for school principals to submit an annual plan for fund-raising to the district s administration. The plan would list the organizations, which will engage in fundraising activities with the intended use of the funds specified. At the end of the school year, schools would report the outcome of each fund-raising activity and how the funds were used. Insurance The district should include coverage for theft and fraudulent or dishonest acts of employees in its insurance coverage package. July TASSP New Principal Academy

24 Monthly To-Do List Presented below is a general list of common procedures that should be performed at least daily or monthly, where applicable, as they relate to activity funds: Enter deposits, payments, transfers and adjustments Enter investment purchases and/or withdrawals Enter debit/credit memos received from the bank statement Enter interest earned and bank charges from the bank statement Complete a sales tax report Reconcile the bank statement Print month-end reports Send activity fund documentation to the business office if required July TASSP New Principal Academy

25 Budgeting for Activity Funds As noted earlier, Campus Activity Funds require an official budget, and Student Activity Funds are not required to be budgeted. Regardless of the official requirements, budget preparations must be made for both classifications. Initial Preparations The first step in preparing budgets for activity funds should begin in the spring semester, concurrent with the preparation of the school s General Fund budget. This is advisable because many student activity accounts (Band, Student Council, Cheerleaders, etc.) as well as areas supported by the Campus Activity Fund work in conjunction with each other. For example, the General Fund may support the cheerleaders to a certain degree, the Campus Activity Fund may provide additional funds, and the Student Activity Fund may provide the remaining support. For these reasons, an integrated approach to budget development is a necessity. General Fund Support The level of General Fund support is necessary to determine the appropriate levels of support from the other areas. The principal must allocate funds to the various groups as a part of the General Fund development process. These allocations often take the form of basic support, such as transportation to and from games, basic supplies, and uniforms. Clearly, the purpose of the General Fund is instructional activities, and the funds allocated to Co-curricular and Extra-curricular activities (function 36) must be at a realistic level. Providing a high level of support for these activities at the expense of instructional programs is an unwise use of resources. At the same time, forcing student groups to provide virtually all of their support through fund-raisers and/or parental support is neither reasonable or feasible. The principal must find a balance between all types of support. Gathering Information Once the level of support from the General Fund has been determined, Campus and Student Activity budgets may be developed. Budget-building for these funds is different than for the General Fund, since revenue sources must be considered. Using historical data, the principal must identify the major revenue sources and the amount each will generate in the coming year. Additionally, the amount of funds remaining at fiscal year-end (Fund Balance) must be determined. After these amounts are known, budgets can be developed, whether using formal budget codes (Campus Activity) or more informal methods (Student Activity). In either case, the district s policies and procedures must govern the detail required. Campus Activity Fund Considerations Campus Activity funds, in accordance with FASRG, may use either fund number 198 or 461, depending on district policy. In both cases, function 36 must be used. After these two required elements, the level of budget detail desired should govern the budget process. For example, if the principal wishes to keep the budget structure simple, all that may be necessary is the use of a single object code for each category (6299 for Contracted Services, 6399 for Supplies, and 6499 for Other Operating Expenses). If more detail is desired, various sub-objects may be used to identify subdivisions within the school. An example of a full budget code for a Campus Activity fund for supplies for the school newspaper might be: , where sub-object 11 designates the newspaper and all other elements are at their simplest required level. July TASSP New Principal Academy