Chart of Accounts

1. How should schools record the return of unused grant monies and interest earned in excess of $100?
    
2. How should charter schools record the purchase of computer software?
    
3. What expense object code should be used to record monthly internet access charges?
    
4. What revenue object code should be used to record Classroom Site Project and Instructional Improvement Project revenues?
    
5. What function and object codes should be used to record expenses for staff training?
    
6. What expense object code should be used to record conference registration fees?
    
7. What function code should be used to record the salaries of “teaching coaches”?
    
8. What function code should be used to record fuel purchases?
    
9. Should all athletic activities be coded to function 1000—Instruction?
    
10. What function and object code should be used for student travel?

Procurement

1. Are charter schools required to follow the School District Procurement Rules?
    
2. What does the USFRCS require for competitive purchasing below the sealed bid threshold?
    
3. Where can the current procurement thresholds for charter schools be found?
    
4. Where can charter schools obtain a copy of the School District Procurement Rules?
    
5. Does our Office offer any guidance on the School District Procurement Rules and how they pertain to charter schools?
    
6. What procedures should a charter school use for the procurement of goods and information services using electronic, on-line bidding?
    
7. Is a charter school required to follow the School District Procurement Rules and the USFRCS for E-rate expenditures?
    
8. Can a charter school make multiple awards on a bid?
    
9. Is a charter school required to perform due diligence related to purchases made through a cooperative?

Payroll

If a school has a board-adopted policy or a provision in an employee’s contract for college tuition reimbursements, should the reimbursements be paid through the accounts payable system or payroll system? If paid through the payroll system, are the reimbursements subject to employment taxes?

Travel

1. Do charter schools have to use the Arizona Department of Administration (DOA) reimbursement rates for travel expenses like school districts do?
    
2. Where can charter schools obtain information regarding the current DOA reimbursement rates for travel expenses (mileage, lodging, and meals)?
    
3. If two employees share lodging while traveling, can the lodging cost exceed the single room reimbursement amount prescribed by DOA?
    
4. What expense object code should be used to record taxable meal reimbursements for employee travel without an overnight stay or substantial rest period?
    
5. For taxable meal reimbursements without an overnight stay or substantial rest period, which taxes should be withheld from the reimbursement amount?
    
6. If a charter school governing board member is in travel status and does not stay overnight or have a substantial rest period, are meal reimbursements taxable, and how should the school account for taxable reimbursements?

Audit Requirements

1. How often are charter schools required to have an audit?
    
2. Can a charter school that is a part of a larger organization have a separate audit of the charter school?

Capital Assets

How should a charter school dispose of equipment purchased with E-rate monies?

Extracurricular Activities Fees Tax Credit

How must a school use tax credit monies?

Student Activities

1. Can a student be appointed as Student Activities Treasurer or Assistant Treasurer?
    
2. Is a charter school required to follow the School District Procurement Rules and the USFRCS guidelines for competitive purchases below the dollar limits required for sealed bids for student activities disbursements?

Miscellaneous

How can schools obtain electronic copies of future USFRCS Memorandums?

Chart of Accounts

1.  How should schools record the return of unused grant monies and interest earned in excess of $100?

Amounts received from federal or state sources that will require reversion if not spent should be recorded as cash and unearned revenues upon receipt, and later recognized as revenue simultaneously with the recognition of the expense. Upon the actual reversion of any unexpended portion of these monies, schools should reverse the initial entry for the amount reverted. (Alternatively, schools may choose to record such grants as revenues upon receipt, then at year-end reclassify the unspent portion from revenue to unearned revenue.)  When interest in excess of $100 per grant is received, the excess portion should be recorded as a liability.  The liability should be reversed when interest in excess of $100 is reverted.

The following journal entries illustrate the above transactions:

2. How should charter schools record the purchase of computer software?

Computer software could be recorded as a capital asset or as an expense depending on whether the software meets the capitalization threshold for charter schools. Schools should capitalize computer software that costs $5,000 or more and has a useful life of 1 year or more.

If the school records the software as a capital asset, it should use balance sheet object code 0196—Equipment.

If the school records the software as an expense, the following expense object codes should be used:

• Instructional software, annual license fees, or payments for on-line access to instructional software, should be coded to object code 6642—Textbooks if used in a course of study's basic program, or 6643—Instructional Aids if used to supplement the school's adopted program.

• Noninstructional software, annual license fees, or payments for on-line access to noninstructional software, should be coded to object code 6650—Supplies—Technology-Related.

• If the software purchase includes technical support or a maintenance agreement then reasonable effort should be made to separate these costs. The portion related to technical support should be coded to object code 6300—Purchased Professional and Technical Services, and the portion related to the maintenance agreement should be coded to object code 6430—Repairs and Maintenance Services.   

The above guidance for charter schools does not apply to school districts. Because charter schools and school districts use different accounting principles (private enterprise vs. governmental), purchases of capital assets are recorded differently. See School District Chart of Accounts FAQ #4 for guidance applicable to school districts.

3.  What expense object code should be used to record monthly internet access charges?

Monthly internet access charges should be coded to object code 6530―Communications.

4.  What revenue object code should be used to record Classroom Site Project and Instructional Improvement Project revenues?

Object code 3200—Restricted Revenue from State Sources should be used to record all CSP and IIP monies received from the State. Interest earned on CSP and IIP monies should be coded to object code 1500—Earnings on Investments.

5.  What function and object codes should be used to record expenses for staff training?

Instructional staff training and professional development costs for instruction-focused technology personnel should be coded to function 2200—Support Services—Instruction. Noninstructional personnel training expenses should be charged to function 2500—Central Services. Employee training charges paid to outside parties should be coded to object code 6300—Purchased Professional and Technical Services.

6.  What expense object code should be used to record conference registration fees?

Schools should code registration fees to object code 6300—Purchased Professional and Technical Services. Schools should not code these fees to object code 6580—Travel, which includes only the costs of transportation, meals, lodging, and other expenses associated with traveling on business for the school. See the USFRCS Chart of Accounts for further details.

If a single amount is paid for a conference that includes registration fees and any lodging or meals, reasonable effort should be made to separate the costs for travel from the conference registration fees. If separation is not practical, the full amount should be coded to the area that represents the largest portion of the expenditure.

7.  What function code should be used to record the salaries of “teaching coaches”?

“Teaching coaches” assist instructional staff in planning, developing, and evaluating the process of providing learning experiences for students and should be coded to function 2200—Support Services—Instruction. If the teaching coach’s responsibilities also includes actual student instruction, then their salary should be split accordingly between function code 2200 and function code 1000—Instruction.

8.  What function code should be used to record fuel purchases?

If a school purchases fuel for school vehicles (other than student transportation vehicles), it should be coded to function code 2600—Operation and Maintenance of Plant. For purchases of fuel for student transportation vehicles (buses and vans), it should be coded to function code 2700—Student Transportation.

9.  Should all athletic activities be coded to function 1000—Instruction?

No. Only costs directly related to instructing students should be coded to function 1000—Instruction, such as coaches and referees. Other costs associated with athletics should be coded to individual function codes appropriate for the job. For example, since the bookstore processes gate receipts, employees taking and selling tickets at athletic events should be coded to function 3400—Bookstore Operations. Security guards at games and athletic equipment managers should be coded to function 2600—Operation and Maintenance of Plant.

10. What function and object code should be used for student travel?

Transportation

Function 2700—Student Transportation should be used for student travel, which includes trips to and from school and trips to school activities. The following object codes would be used to record transportation depending on the situation: 6154—Noncertified Salaries (employees driving school vehicle/bus), 6626—Gasoline (gasoline purchased), 6440—Rentals (rent a bus for an employee to drive), or 6519—Student Transportation Purchased from Other Sources (payments to other entities).

Lodging and Meals

Function 2100—Support Services—Students and object code 6890—Miscellaneous Expenses should be used for student lodging and meals.

Admission Costs

Procurement

1.  Are charter schools required to follow the School District Procurement Rules?

Yes, unless specifically exempted by its sponsor in its charter agreement.  Statute requires charter schools to follow the School District Procurement Rules, but establishes a different procurement threshold.  Charter schools are subject to the State’s procurement threshold.

2.  What does the USFRCS require for competitive purchasing below the sealed bid threshold?

Schools should obtain at least three oral price quotations for purchases costing between $5,000 and $15,000 and at least three written price quotations for purchases costing between $15,000 and the sealed bid threshold. Refer to USFRCS pages VI-G-6 and 7 for detailed requirements.

3.  Where can the current procurement thresholds for charter schools be found?

The current thresholds for oral and written price quotations and competitive sealed bidding are included in USFRCS §VI-G.

4.  Where can charter schools obtain a copy of the School District Procurement Rules?

The School District Procurement Rules are available on the Arizona Secretary of State’s Web Site. The Rules are located in Title 7 Education, Chapter 2 State Board of Education, Articles 10 and 11 School District Procurement.

5.  Does our Office offer any guidance on the School District Procurement Rules and how they pertain to charter schools?

Yes.  We have included a Charter School Procurement Flowchart to aid charter schools in complying with the School District Procurement Rules in USFRCS §VI-G.

6.  What procedures should a charter school use for the procurement of goods and information services using electronic, on-line bidding?

The State Board of Education is required to adopt School District Procurement Rules for electronic, on-line bidding.  Until those rules are adopted, statute allows charter schools to follow the State’s Procurement Statutes in A.R.S. Title 41, Chapter 23, Article 13 and the rules adopted by the Department of Administration (DOA) in implementing that article.  However, DOA has not adopted rules for electronic, on-line bidding.

7.  Is a charter school required to follow the School District Procurement Rules and the USFRCS for E-rate expenditures?

Yes. The School District Procurement Rules and the requirements in the USFRCS apply to all expenditures of public money, including federal grant monies (which includes E‑rate monies), made by a charter school. Additionally, when expending federal grant monies, schools must comply with the individual grant agreements.

8.  Can a charter school make multiple awards on a bid? 

A multiple award is defined as an award of an indefinite quantity contract for one or more similar materials or services to more than one bidder or offeror.

In general, charter schools should not use multiple awards allowing more than one vendor to supply the same goods or service. However, there are instances in which schools may make multiple awards.  For example, multiple awards may be made if one vendor is unable to provide the total quantity of goods or services requested by the school or if the use of different vendors for different geographical regions would be more advantageous. In these instance, the RFP or IFB should clearly state whether multiple awards may be used so that bidders can take this into consideration when pricing their bids.

Before a multiple award is made, the school should determine, with the specific reason(s) in writing, that a single award is not advantageous to the school. The school should also limit the contract awards to the least number of suppliers necessary to meet the requirements of the school.

9. Is a charter school required to perform due diligence related to purchases made through a cooperative?

Yes. Nonexempt charter schools are responsible for ensuring that procurements, whether done independently or through a cooperative purchasing agreement, are done in accordance with the School District Procurement Rules. The appropriate amount and complexity of due diligence to be performed by a school will vary based on the procuring entity with which the school is participating. A.R.S. §15-213(F)  requires nonexempt charter schools and school purchasing cooperatives, in connection with any audit conducted by a certified public accountant, to have a systematic review of purchasing practices. Our Office has prescribed guidelines for performing these reviews as part of the Procurement Compliance Questionnaire. In addition, our Office has provided testing guidelines relating to procurement to the State Board for Charter Schools for incorporation into the Board's compliance questionnaire. A cooperative or lead school/district that has had such a review within the past year may not warrant the same amount or complexity of due diligence as an entity that has not undergone a review. Further, an entity that had no findings as a result of its review may need little or no additional due diligence beyond obtaining the results of the review. However, an entity that had significant findings would require a greater amount and complexity of due diligence. Schools should also consider any other information available on the entity’s procurement practices.

Also, it is not necessary for schools to perform due diligence for every contract procured through cooperative purchasing. It may be adequate to perform due diligence on a sample of contracts procured by a particular cooperative or lead school/district if that sample provides reasonable assurance that the entities’ procurement practices comply with the School District Procurement Rules. To perform due diligence, schools may want to consider using the procurement questions in the compliance questionnaires as a guide in reviewing cooperative purchases.

Charter schools must use their judgment in determining the appropriate amount and complexity of due diligence required for each procuring entity with which they participate. For audit purposes, schools should retain documentation of the due diligence performed and its results.

Payroll

If a school has a board-adopted policy or a provision in an employee’s contract for college tuition reimbursements, should the reimbursements be paid through the accounts payable system or payroll system? If paid through the payroll system, are the reimbursements subject to employment taxes?

College tuition reimbursements should be paid through the payroll system and coded to object code 6240—Tuition Reimbursement. Tuition reimbursement is typically a non-taxable fringe benefit; however, schools should review IRS Publication 15-B for more information on taxable and non-taxable fringe benefits, and the limitations on those benefits.

Travel

1.  Do charter schools have to use the Arizona Department of Administration (DOA) reimbursement rates for travel expenses like school districts do?

No.  Charter school governing boards may prescribe amounts for reimbursing mileage, lodging, and meals and incidental (meals) expenses incurred for school purposes different from those established by DOA.  However, reimbursement amounts should not exceed the maximum amounts established by DOA as the reimbursement rates set by DOA generally follow the Internal Revenue Service (IRS) limits outlined in IRS Publication 1542.  One exception is the DOA mileage reimbursement rate, which is currently less than the IRS standard rate.  If the school chooses to reimburse lodging, meals, and mileage expenses in excess of the limits set by the IRS, the school will be required to include amounts in excess of the IRS limits in the employee’s income on Form W-2.  Schools may refer to USFRCS §VI-I and USFRCS Memorandum No. 72 for a brief discussion of travel reimbursement policies and procedures.

2.  Where can charter schools obtain information regarding the current DOA reimbursement rates for travel expenses (mileage, lodging, and meals)?

This information is available on DOA’s Web Site.

3.  If two employees share lodging while traveling, can the lodging cost exceed the single room reimbursement amount prescribed by DOA?

Yes.  DOA allows this reimbursement method provided the reimbursement per person does not exceed the allowable amount per person at the single room rate plus tax.  However, charter schools are not required to use DOA’s allowable reimbursement amounts.  Each school’s governing board should establish travel policies and reimbursement amounts consistent with the guidelines provided in the USFRCS §VI-I.

4.  What expense object code should be used to record taxable meal reimbursements for employee travel without an overnight stay or substantial rest period?

Schools should process all employee travel reimbursements through their payroll department. Schools should use object code 6290-Other Employee Benefits to record taxable meal reimbursements for employee travel without an overnight stay or substantial rest period. For travel expenditures, which are not taxable to the employee (meal reimbursements with an overnight stay or substantial rest period, and mileage and lodging reimbursements), schools should use object code 6580-Travel.

5.  For taxable meal reimbursements without an overnight stay or substantial rest period, which taxes should be withheld from the reimbursement amount?

When an employee receives meal reimbursements for travel without an overnight stay or substantial rest period, the district should withhold social security, Medicare, and federal and state income taxes from the taxable meal reimbursement. State retirement and long-term disability should not be withheld from taxable meal reimbursements.

6.  If a charter school governing board member is in travel status and does not stay overnight or have a substantial rest period, are meal reimbursements taxable, and how should the school account for taxable reimbursements?

For a charter school governing board member to be considered in travel status, the member must be 50 miles away from his or her home. If the board member does not stay overnight or have a substantial rest period, meal reimbursements would be taxable, and the board member should receive a W-2 at the end of the calendar year for such reimbursements. Under IRS regulations, the board member would be considered a school employee for purposes of the taxable meal reimbursements and would be required to complete the following payroll documents outlined on USFRCS pages VI-H-2 through 3: employment eligibility verification (Form I-9), and employee federal and state withholding allowance certificates (W-4 and A-4).

Audit Requirements

1.  How often are charter schools required to have an audit?

Statute requires all charter schools to have either a financial and compliance (single) audit or financial statement audit annually.  See USFRCS §VIII for specific audit requirements. 

2.  Can a charter school that is a part of a larger organization have a separate audit of the charter school?

Yes. A charter school that is a part of a larger organization may have a separate audit of the charter school.  Statute requires all charter schools to have an annual audit.  If a charter school is part of a larger entity, it may be included in the audit of the entire entity, or it may be audited separately.  See USFRCS §VIII for specific audit requirements.

Capital Assets

How should a charter school dispose of equipment purchased with E-rate monies?

The E-rate equipment disposal policy does not allow equipment purchased with E-rate monies to be sold or resold. Equipment may be transferred to another E-rate-eligible entity if 3 years have passed since the purchase as long as there is no exchange of money or anything of value. If a transfer is not an option and the equipment to be disposed of is determined to be obsolete, the school must destroy the equipment and retain documentation of the equipment's obsolescence.

Extracurricular Activities Fees Tax Credit

How must a school use tax credit monies?

Schools must use tax credit monies for both the school and purpose intended by the taxpayer. If schools receive contributions that are not designated for a specific purpose, the site council for the school must determine how the contributions should be used at the school site. If a school does not have a site council, the principal, director or chief administrator of the school must determine how the contributions that are not designated for a specific purpose are used at the school site. To qualify for the tax credit, the purpose must be in support of character education programs (described in A.R.S. §15-719) or extracurricular activities. Extracurricular activities are defined in A.R.S. §15-342(24) as optional, noncredit, educational, or recreational activities which supplement the education program of the school, whether offered before, during, or after regular school hours. Extracurricular activities that are eligible for the tax credit are those school-sponsored activities that require enrolled students to pay a fee in order to participate, including fees for band uniforms, equipment or uniforms for varsity athletic activities, scientific laboratory materials, and in-state and out-of-state trips that are solely for competitive events. However, senior trips or events that are recreational, amusement, or tourist activities are specifically excluded from eligibility for the tax credit. See USFRCS Memorandum No. 59 for more details. Also see Determination Chart for tax credit eligible expenses.

Student Activities

1.  Can a student be appointed as Student Activities Treasurer or Assistant Treasurer?

No. The Student Activities Treasurer and Assistant Treasurer must be school employees.  In accordance with the USFRCS  page X-C-2.1, a school’s governing board must appoint an employee as student activities treasurer.  In the case of multiple school sites, the governing board may designate an assistant student activities treasurer for each school.  The assistant treasurer must also be a school employee.

2. Is a charter school required to follow the School District Procurement Rules and the USFRCS guidelines for competitive purchases below the dollar limits required for sealed bids for student activities disbursements?

No. School District Procurement Rule R7-2-1002(E)  exempts student activities disbursements, unless school monies are involved for nonexempt schools. However, to maximize purchasing power, schools should consider having student clubs follow similar procedures. It is recommended that student clubs follow the purchasing guidelines in USFRCS §VI-G, Disbursements, for obtaining oral/written quotations for student activities disbursements below the amount required for sealed bids; however, the student clubs are not required to do so.

Miscellaneous

How can schools obtain electronic copies of future USFRCS Memorandums?

Schools should send an e-mail message from their official address to asd@azauditor.gov with a subject line of “Official Charter School E-mail Address.” Any changes to the school’s e-mail address should be sent to the same address with a subject line of “Charter School E-mail Address Change.”