As part of a school district’s financial management, maintaining a reasonable unassigned fund balance provides a safety buffer for unforeseen expenses or revenue shortfalls. This is vital as it helps ensure adequate cash flow to cover the ongoing cost of operations. Managing these funds entails a strong understanding of their purpose, limits, and use.

To start, an unassigned fund balance is what remains after expenditures are paid. Unlike reserve funds that have specific purposes and requirements as set forth in law, an unassigned fund balance is not committed, assigned, or restricted in any way. This flexibility allows school administrators to use the funds where they are most needed, especially during periods of financial uncertainty.

The Governmental Accounting Standards Board (GASB) has set specific guidelines for maintaining and reporting fund balances into five classifications under GASB #54. It’s crucial for school districts to be aware of these guidelines and implement them effectively as they aim to ensure transparency, accountability, and fiscal responsibility in managing public funds.

One of the most important things to understand about unassigned fund balances is their purpose. They are not meant to be a source of ongoing funding for regular expenses. Instead, they are designed to meet unexpected or emergency costs, such as unforeseen repairs, unexpected increases in student enrollment, or sudden reductions in revenue.

Strategic planning and forecasting are vital tools in managing unassigned fund balances. School districts should have a clear understanding of their financial stability, including potential risks and opportunities, to ensure they maintain an appropriate fund balance level. This includes regular reviews of financial performance and adjusting the fund balance accordingly.

In New York, the maximum amount of unassigned fund balance at the end of the school year cannot be more than 4% of the following year’s budget. However, a 2019 report from the Office of the State Comptroller (OSC) indicated 60% of districts had unassigned fund balances higher than 4%.

While bills have been crafted to increase the 4% limit to 6% and to require greater transparency around unassigned fund balance, they haven’t made it past the initial stages.

For now, it’s important to be aware of the facts that having a healthy unassigned fund balance can be beneficial, but excessively large balances can draw public criticism for over-taxation or poor fiscal management and is against the law (Section 1318 of the Real Property Tax Law). It’s important to strike a balance by maintaining a fund balance size that is sufficient to handle unexpected costs but not excessively large to invite unnecessary scrutiny and undermine public trust.

In the presentation, “School District Fund Practices: The Law and the Reality,” these best practices were shared for school district officials:

• Develop policies and procedures for fund balance and reserve funds.
• Develop multiyear financial and capital plans.
• Adopt budgets that reasonably reflect the district’s operating needs based on historical trends and other analyses.
• If over 4%, develop a plan to reduce the unexpended surplus fund balance.

If you’d like to discuss or analyze your district’s unassigned fund balance, we’d be glad to help. You can always count on RBT CPAs for accounting, audit, tax, and advisory services. Give us a call to see how we can be Remarkably Better Together.

RBT CPAs never offshores work outside of the U.S., so you always know who is handling your financial information.

Putting in the time and effort to prepare for an audit can help your district facilitate a smooth process that saves time and money; leads to a reliable and objective audit report; and helps detect and rectify potential issues before the audit begins.

Here’s a checklist of what to do before an audit to help streamline the actual audit itself, meet key deadlines (and avoid delays), and even possibly lead to better outcomes:

• Familiarize yourself with the audit process and standards such as Generally Accepted Accounting Principles (GAAP) and Governmental Accounting Standards Board (GASB) guidelines.
• Create an audit committee and select its lead. Discuss the audit process, requirements, roles and responsibilities, and a timeline of key dates and activities.
• Meet with the Committee and auditors to review the audit plan.
• Meet with business office staff to discuss the implementation of any new accounting standards.
• Request, collect, and organize documentation and information from appropriate departments and staff, per the audit requirements. This includes income statements, balance sheets, and cash flow statements, bank statements, invoices, receipts, payroll records, purchase orders, contracts, and other financial documents.
• Gather information about new or closed bank accounts; new charters and activities; Board members and Administrators; and any debt and attorney information necessary for confirmations. Remember, you must report any material financial or management changes.
• Prepare copies of current Risk Assessment documents, Claims Auditor reports, Internal Audit reports, OSC audits and corrective action plans, OPEB actuary reports, lease agreements, subscription-based IT arrangements, and tax abatement information.
• Coordinate with firms providing financial services (i.e., maintaining depreciation records or preparing financial statements) to obtain the required documentation.
• Reconcile all accounts by checking that amounts match between accounting records and the actual cash, assets, liabilities, equity, revenue, and expenses.
• If applicable, review records of student activity funds. These funds are often audited separately and require special attention.
• If you received grant funding, ensure all documents relating to the grant are available and organized. This includes grant agreements, receipts of expenditures, and performance reports.
• Maintain up-to-date and complete inventory records of capital assets, including property and equipment.
• Prepare a Management Discussion and Analysis (MD&A) report that includes financial highlights, an overview of the financial statements, and a description of the district’s financial performance.
• Review and document internal processes and controls (they’ll be evaluated in their effectiveness at preventing fraud and errors).
• Conduct a self-audit or internal review to identify and address any potential problems. Perform a fraud risk brainstorm.
• Review federal and state regulations to ensure that all compliance requirements are met. This includes funding guidelines, procurement procedures, and payroll laws.
• Review any prior audit findings and recommendations to ensure corrective action was implemented.
• Make sure the initial resolution for funding of district reserves is passed by June 30 and any follow-up resolutions are completed before the tax levy is set.
• Present results to the Board and ensure the audit is filed by the October 15 deadline.

As you prepare for your audit, please know you can always count on RBT CPAs for accounting, audit, advisory, and tax assistance. Contact us to learn how we can be Remarkably Better Together.

RBT CPAs is proud to say 100% of its work is prepared in America. Our company does not offshore work, so you always know who is handling your confidential financial data.