FINANCIAL MANAGEMENT/Understanding school district finances

Because cities and counties typically bear a large responsibility for financing public schools, it is critical that they understand their schools’ financial situations. Financial statements prepared under generally accepted accounting principles are a key source of information about school district fiscal health. A new publication from the Governmental Accounting Standards Board, “What You Should Know about Your School District’s Financial Statements,” is intended to help the public understand and use those statements.

Under new accounting rules, school districts must prepare two district-wide financial statements that provide comprehensive information about the entire school district. The information in the statement of net assets may be used to:

• identify the assets, liabilities and net assets of the district;

• determine if the district’s fiscal status is improving or declining;

• assess the district’s ability to cover its costs; and

• find what resources a district can use to provide new services or new programs.

• The statement of activities has information that can be used to determine:

• where the district gets its resources and how it uses them;

• what it costs the district to provide education services;

• the extent to which the cost of a district’s activities are covered by user fees, charges and grants;

• out-of-the-ordinary costs and unusual sources of funding; and

• whether sufficient resources were raised during the year to cover costs.

• School districts will continue to prepare fund financial statements to account for their governmental, proprietary and fiduciary funds. Governmental fund information can be critical in determining short-term financing needs and assessing a district’s capacity to meet them, as well as its short-term ability to balance inflows of resources with outflows to pay for services. Proprietary fund information can be used to analyze the activities, such as food service, that a district may operate like a business. Fiduciary fund information can indicate the resources, such as student activity fees, a district manages or holds on behalf of others.

  Additionally, the notes to a school district’s financial statements disclose additional information that is essential to understanding the district’s financial status. They may help local government analysts determine:

• significant accounting methods and assumptions;

• the approximate cost of using capital assets to provide services;

• whether significant finance-related legal or contractual provisions have been violated;

• major financial commitments a district has made; and

• a district’s efforts to manage and limit risk.

• Districts also present two kinds of supplementary information: a management’s discussion and analysis (MD&A), which precedes the financial statements, and a budgetary comparison for the general fund and each major special revenue fund for which a budget is adopted. MD&A is a narrative explanation of the information provided in the financial statements and a summary of a district’s financial performance. The budgetary comparison helps analysts judge a district’s compliance with its budget and assess a district’s fiscal management capacity.

  A district also can include statements that offer more detailed data than is included in the basic financial statements. For example, schedules can be attached for financial, economic and demographic clarification.

  The author is a project manager for Norwalk, Conn.-based GASB and author of “What You Should Know about Your School District’s Finances.” The publication (code GU202) can be ordered from GASB at (800) 748-0659 for $9.95.