School District Frequently Asked Questions

Has the Office of the Auditor General provided guidance regarding the American Recovery and Reinvestment Act (ARRA), including State Fiscal Stabilization Fund (SFSF) monies?

Click here for guidance on recording ARRA direct or pass-through federal grants other than SFSF (issued 6/23/09).

Click here for guidance on how to account for the ARRA SFSF monies (issued 9/24/09).

Click here for information on ARRA 1512 reporting requirements (issued 10/5/09).

Click here for information on SFSF grant applications for indirect costs (issued 10/8/09).

Click here for information for Grantees and Auditors regarding the SFSF program (issued 12/31/09).

Click here for guidance on how to account for the ARRA SFSF-Spring monies (issued 4/28/10).

Click here for information for Joint Technical Education Districts (JTED) and their member districts regarding the SFSF program (issued 6/24/10).

1. What revenue object code should be used to record Classroom Site Fund (CSF) and Instructional Improvement Fund (IIF) revenues?

2. What function and object codes should be used to record expenditures for staff training?

Instructional staff training should be coded to function 2200—Support Services—Instruction (2213—Instructional Staff Training). Professional development costs for instruction-focused technology personnel should be coded to 2200—Support Services—Instruction (2230—Instruction-Related Technology). Noninstructional personnel training expenditures should be coded to function 2500—Central Services (2570—Personnel Services). Employee training charges paid to outside parties should be coded to object code 6300—Purchased Professional and Technical Services (6360—Employee Training and Professional Development Services).

3. What expenditure object code should be used to record conference registration fees?

Districts should code registration fees to object code 6300—Purchased Professional and Technical Services (6360—Employee Training and Professional Development Services). Districts should not code these fees to object code 6580—Travel. 6580—Travel includes only the costs of transportation, meals, lodging, and other expenses associated with traveling on business for the district. See the USFR 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.

No, software may not be purchased from the M&O Fund. Fund 610—Unrestricted Capital Outlay may be used to purchase both instructional and noninstructional software, including annual license fees or on-line access (software as a service) to instructional and noninstructional software. Also, Fund 625—Soft Capital Allocation may be used to purchase instructional software and annual license fees or on-line access (software as a service) to instructional software. See USFR Memorandum No. 185 for further details.

However, if technical support or a maintenance agreement is included with the district’s purchase of instructional or noninstructional software then reasonable effort should be made to separate these costs. The portion related to technical support should be coded to the M&O Fund and object code 6300—Purchased Professional and Technical Services (6340—Technical Services), and the portion related to the maintenance agreement should be coded to the M&O Fund and object code 6430—Repairs and Maintenance Services (6432—Technology-Related Repairs and Maintenance). The software portion should be recorded as described above.

5. What expenditure object codes should be used to record software purchases?

If a district purchases instructional software [physical or box copy, annual license fee, or on-line access (software as a service)] it should be coded to object code 6643—Instructional Aids.

If a district purchases noninstructional software [physical or box copy, annual license fee, or on-line access (software as a service)] it should be coded to object code 6737—Technology‑Related Hardware and Software.

6. What expenditure object code should be used to record monthly internet access charges?

Monthly internet access charges should be coded to object code 6531—Telephone.

7. How should districts 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 deferred revenues upon receipt, and later recognized as revenue simultaneously with the recognition of the expenditure. Upon the actual reversion of any unexpended portion of these monies, districts should reverse the initial entry for the amount reverted. (Alternatively, districts may choose to record such grants as revenues upon receipt, then at year-end reclassify the unspent portion from revenue to deferred 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.

Object	Description	Debit	Credit
0103	Cash on Deposit with County Treasurer	10,000
0250	Deferred Revenues		10,000
	(federal grant monies received)
6XXX	Expenditure	9,000
0103	Cash on Deposit with County Treasurer		9,000
0250	Deferred Revenues	9,000
4X00	Revenue From Federal Sources		9,000
	(federal grant monies expended)
0250	Deferred Revenues	1,000
0103	Cash on Deposit with County Treasurer		1,000
	(federal grant monies reverted)
0103	Cash on Deposit with County Treasurer	300
0215	Due to Federal Government		200
1500	Investment Income		100
	(interest revenue received)
0215	Due to Federal Government	200
0103	Cash on Deposit with County Treasurer		200
	(excess interest revenue reverted)

Districts must code tuition expenditures to function code 1000—Instruction and to the appropriate bolded object code as outlined in the USFR Chart of Accounts. Some districts have incorrectly coded tuition expenditures to object code 6560—Tuition when more detailed bolded object codes are required. For example, if the tuition was paid to other Arizona school districts then 6561—Tuition to Other Arizona Districts would be used. If the tuition was paid to school districts out of state then 6562—Tuition to Out-of-State Districts would be used.

Since districts are accounting for the original expenditures that resulted in the Medicaid reimbursement in the M&O Fund and the reimbursement in the Medicaid Reimbursement Fund (290), the Medicaid reimbursement monies can be spent for any allowable M&O purpose.

The Indirect Costs Fund accounts for monies transferred from federal projects funds and the Food Service Fund for the payment of administrative costs incurred. Object code 6910—Indirect Costs should be used when transferring these monies. Revenue object code 5200—Fund Transfers-In should be used to record the monies transferred into the Indirect Costs Fund. The amount transferred may not exceed the amount calculated with the indirect cost rate established by ADE for the district. Expenditures from the Indirect Costs Fund should be for maintenance and operation purposes. Please note that object code 6910—Indirect Costs should be included as an interfund transfers-out for reporting purposes on the district’s annual financial report and financial statements. The journal entry below illustrates a transfer from a federal projects fund to the Indirect Costs Fund.

Account Code	Description	Debit	Credit
100-100-6000-6910	Other Financing Uses-Indirect Costs	500
100-000-0000-0103	Cash on Deposit with County Treasurer		500
570-000-0000-0103	Cash on Deposit with County Treasurer	500
570-000-0000-5200	Other Financing Sources-Transfers-In		500

11. 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 (2210—Improvement of Instruction/2212—Instruction and Curriculum Development). If the teaching coach’s responsibilities also includes actual student instruction, then their salary should be split accordingly between function code 2200 (2210/2212) and function code 1000—Instruction.

If a district purchases fuel for district vehicles (other than student transportation vehicles), it should be coded to function code 2600—Operation and Maintenance of Plant [2650—Vehicle Operation and Maintenance (Other than Student Transportation Vehicles)]. For purchases of fuel for student transportation vehicles (buses and vans), it should be coded to function code 2700—Student Transportation (2730—Vehicle Servicing and Maintenance).

13. Should the pupil transportation program code 470—Vocational and Joint Technological Education be used for all student vocational and technological education transportation expenditures?

Yes. Districts should code all student transportation expenditures related to vocational and technological education programs during the school day (i.e., field trips) to program code 470 even if the district is not part of a Joint Technical Education District (JTED). If a district is or later becomes part of a JTED, coding to this program code will help the district to determine its base year expenditures and show compliance with the program’s nonsupplanting requirements. This program code should not include transportation costs related to transporting vocational and technological education students to and from their residence.

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 (2660—Security/2640—Care and Upkeep of Equipment).

The coding for student travel-related expenditures (transportation, lodging and meals, and admission costs) are described below. Object code 6580—Travel should only be used when district employees travel.

Transportation

Function 2700—Student Transportation (2790—Other 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: 6150—Classified Salaries (employees driving district vehicle/bus), 6626—Gasoline (gasoline purchased), 6440—Rentals (6442—Rental of Equipment) (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 (2190—Other Support Services-Students) and object code 6890—Miscellaneous Expenditures should be used for student lodging and meals.

Admission Costs

Function 1000—Instruction and object code 6890—Miscellaneous Expenditures should be used when the activity requires a fee and involves direct interaction between teachers and students, including athletics.

16. What funds should monies received from the Arizona Department of Education (ADE) for English language learners be deposited in?

We have confirmed with the Office of English Language Acquisition Services at ADE the titles they have assigned for Structured English Immersion (SEI) and Compensatory Instruction (CI) monies. Districts should use Fund 071 for SEI Budget and Fund 072 for CI-English Language Development.

No. Districts do not have the authority to borrow, except through bonds or capital lease agreements. Since a district does not have the authority to borrow, it may not establish a line of credit, which is a form of borrowing. However, the county may establish a line of credit for the district, with the county treasurer acting as the agent, subject to the provisions of A.R.S. §11-604.01. This line of credit should only be used to allow expenditures in budget-controlled funds when cash balances are insufficient.

A.R.S. §15-1221(B) allows a school district’s governing board to establish a bank account to make electronic payments to vendors. The district should maintain a current list of employees the governing board authorizes to make payments from the account. The account must be a clearing account maintaining a zero balance and must not accumulate funds except for any account interest balances that must be credited to the M&O Fund at the end of each fiscal year. The district may use this account for retirement contribution payments to Arizona State Retirement.

A.R.S. §15-1221(D) allows a school district’s governing board to establish a bank account to make payroll direct deposit payments to financial institutions designated by school district employees. The account must be a clearing account maintaining a zero balance and not accumulate funds except for any accrued interest balances that must be credited to the M&O Fund at the end of each fiscal year.

4. Can school districts establish an auxiliary operations bank account at each school site?

No, districts are allowed only one bank account for all auxiliary operations activities in the district. A.R.S. §15-1126 states that auxiliary operations fund monies shall be deposited after authorization by the governing board in a bank account designated as the auxiliary operations fund. Individual schools within the district are not allowed to have a separate auxiliary operations bank account. However, statute allows the governing board to establish an auxiliary operations revolving bank account for each school within the school district for necessary current expenditures in connection with school bookstore and athletic activities.

5. Can school districts establish an extracurricular activities fees tax credit bank account?

No. Districts are not authorized to establish a separate bank account for extracurricular activities fees tax credit monies. A.R.S. §15-1126 allows a district’s governing board to establish one bank account designated as the Auxiliary Operations Fund bank account in which to deposit all monies from school bookstores and athletic activities. Districts may deposit extracurricular activities fees tax credit monies in the Auxiliary Operations Fund bank account or directly with the County Treasurer in Fund 525—Auxiliary Operations or Fund 526—Extracurricular Activities Fees Tax Credit. Districts may also deposit extracurricular activities fees tax credit monies in the miscellaneous receipts clearing bank account and then remit the monies monthly to the County Treasurer for deposit in Fund 525 or Fund 526.

1. Where can school districts find guidance on the disposal of capital assets and surplus materials?

No. 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 district must destroy the equipment and retain documentation of the equipment's obsolescence.

1. Where can the current procurement thresholds for school districts be found?

The Arizona State Board of Education recently increased the competitive sealed bid threshold for school district procurement to $50,000, effective for purchases made after April 26, 2010. As a result of this change, we are working on an USFR Memorandum to provide guidance on purchases below the new threshold. Until that memorandum is issued, districts should continue obtaining oral quotations for purchases between $5,000 and $15,000, and written quotations for purchases between $15,000 and the new sealed bid threshold.

2. Where can school districts 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.

3. Are school districts required to follow the purchasing guidelines and the School District Procurement Rules for cumulative purchases?

Yes. Districts must follow the appropriate requirements for cumulative purchases that meet the oral quotation, written quotation, and competitive bidding thresholds. Cumulative purchases consist of total annual purchases of like items, such as office or janitorial supplies. Districts should review cumulative purchases of like items from all vendors for the previous fiscal year, and obtain oral or written quotations or perform formal competitive bidding procedures for the current year, as needed, based on the total dollar amount spent in prior years and any anticipated changes for the current year.

4. What does the USFR require for competitive purchasing below the sealed bid threshold?

Districts 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 USFR pages VI-G-8 and 9 for detailed requirements.

5. Are school districts required to follow School District Procurement Rules for purchases of goods or services from district employees?

Yes. A.R.S. §38-503(C) prohibits public employees from providing their employers with any equipment, material, supplies, or services, unless provided under an award or contract let after public competitive bidding. Accordingly, Arizona Attorney General Opinion I06-002 clarified that districts must follow the School District Procurement Rules, regardless of the expenditure amount, when purchasing goods or services from district employees. This applies to any purchase using district monies, including extracurricular activities fees tax credit contributions and monies held in trust by the district such as student activities monies. Although the School District Procurement Rules exempt expenditures of student activities monies from the Rules, that exemption does not apply to purchases in which a school district employee acts as a vendor. Following the guidelines for competitive purchasing below the dollar limits required for sealed bids prescribed in the USFR is not sufficient to comply with the requirements of A.R.S. §38-503(C).

6. How does a school district compile a prospective bidders’ list and what are the requirements if a district does not have at least five vendors on its prospective bidders’ list?

School District Procurement Rule R7-2-1023 requires a school district to compile and maintain a prospective bidders’ list. Vendors desiring to be included on a district’s prospective bidders’ list must notify the district and the district should mail or otherwise provide the person with the district’s procedures for inclusion on the bidders’ list.

If a school district’s prospective bidders’ list has four or fewer prospective bidders on the list, then Rule R7-2-1022 requires the district to publish a notice of the invitation for bids or request for proposals in the official newspaper of the county within which the district is located, in addition to issuing an invitation for bids or request for proposals to vendors that are on the bidders’ list.

7. Can a school district obtain oral or written price quotations to cover purchases for multiple years?

Yes, districts may solicit multiple year price quotations. However, when determining the type of competitive purchasing required (i.e, oral quotations, written quotations, or competitive sealed bids/proposals), a district must consider the total expenditure that will be made over the multiple years using the quoted prices. For example, if a district wanted to obtain pricing for 3 years on an item, it could do so by written quotations if the total anticipated expenditures over the 3 years were expected to be less than the current competitive sealed bid threshold. If multiple year quotations are used, districts should document the time period that the pricing is valid; that the vendor will honor the pricing for that time period; and that while the district intends to purchase certain quantities, all purchases are subject to funds availability. Districts may contract for up to 5 years if monies are available for the first year at the time of contracting.

8. What must be documented if a school district wants to use the request for proposals (RFP) process for goods or services that are not specifically stated in the procurement rules as required to use the RFP process?

While the procurement rules require the use of RFPs for certain types of purchases, such as audit services, the rules are clear that the standard method for procuring goods and services is using invitation for bids (IFB). If the district wants to use an RFP, the district’s Governing Board must make a written determination that using the RFP process is more practicable or advantageous to the district than using the IFB process, before issuing the RFP. This determination should include the specific reasons that an RFP would be used, such as the need to discuss specifications with vendors or evaluate vendors on qualitative factors and not just on quoted price. The district’s Governing Board may approve individual procurements or classes of items. Specific reasons must be documented for each class identified.

9. Are school districts required to keep envelopes from bidders/offerors as part of the IFB/RFP file documentation?

School District Procurement Rules R7-2-1029(A) and (B) state that “each bid…shall be time and date stamped upon receipt and stored unopened in a secure place until the time and date set for bid opening” and “the name of each bidder, the amount of each bid, and other relevant information…shall be recorded.” Maintaining the time and date stamped envelopes in the bid file is the best documentation to provide to your auditors for compliance with the rules. Alternatively, photocopies of the time and date stamped envelope/box may be kept. The district may also choose to maintain a log of bids/proposals received, with a second person signing off at the bid submission deadline, that all bids received have been logged in and no further bids will be entered below that point in the log.

10. What needs to be included in a written determination for multi-term contracts?

School District Procurement Rule R7-2-1093 allows school districts to enter into contracts for up to 5 years if the terms and conditions of renewal or extension, if any, are included in the solicitation for bids/proposals and monies are available for the first year at the time of contracting.

Before multi-term contracts are used, the district’s Governing Board must determine in writing that: the estimated requirements cover the contract period and are reasonable and continuing; a multi-term contract will serve the best interests of the district by encouraging competition or promoting economies in procurement; and if monies are not appropriated or available in future years, the contract will be canceled.

11. If a school district has a 5-year contract with an architect, can the district issue a purchase order for services in the fifth year of the contract knowing the architect will not be able to complete the architectural work before the end of the contract period?

Yes. However, the district should ensure that a substantial portion of the work will be done in the fifth year of the contract and that the work will not carry over substantially into the next fiscal year. Additionally, the district should not ask or allow the architect to start work on projects scheduled for the fiscal year following the contract period, thereby circumventing the School District Procurement Rules that would require those services to be competitively 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, school districts should not use multiple awards allowing more than one vendor to supply the same goods or service. However, there are instances in which districts 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 district or if the use of different vendors for different geographical regions would be more advantageous. In these instances, the RFP or IFB should clearly state whether multiple awards may be used so that bidders can take into consideration when pricing their bids.

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

If a district has evaluated the availability of the required goods or services and determined that there is only one source for those goods or services, then a sole source procurement contract may be awarded without competition. In accordance with School District Procurement Rule R7-2-1053, the governing board must determine in writing that there is only one source for the required material, service, or construction item prior to making the purchase. However, sole source procurements should be avoided, except when no reasonable alternative exists.

14. Is a district required to perform due diligence related to purchases made through a cooperative?

Yes. School districts are responsible for ensuring that procurements, whether done independently or through a cooperative purchasing agreement, are done in accordance with School District Procurement Rules. The appropriate amount and complexity of due diligence to be performed by a district will vary based on the procuring entity with which the district is participating. A.R.S. §15-213(F) requires school districts 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 USFR Compliance Questionnaire (for school districts) and the Procurement Compliance Questionnaire (for cooperatives). A cooperative or lead 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. Districts should also consider any other information available on the entity’s procurement practices.

Also, it is not necessary for districts 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 district if that sample provides reasonable assurance that the entities’ procurement practices comply with the School District Procurement Rules. To perform due diligence, districts may want to consider using the procurement questions in the compliance questionnaires as a guide in reviewing cooperative purchases.

School districts 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, districts should retain documentation of the due diligence performed and its results.

15. Is a school district required to follow the School District Procurement Rules and the USFR for E-rate expenditures?

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

16. What procedures should a school district use for creating a qualified select bidders list, or using construction-manager-at-risk, design-build, qualified select bidders list, or job-order-contracting construction contracts to build school facilities?

School District Procurement Rule R7-2-1110 includes procedures for creating a qualified select bidders list and R7-2-1116 includes procedures for construction-manager-at-risk, design-build, and job-order contracting methods of construction.

17. What procedures should a school district 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 school districts to follow the State’s procurement statutes (A.R.S. Title 41, Chapter 23, Article 13) and the rules adopted by the Department of Administration (R2-7-1301).

18. Are expenditures from the Auxiliary Operations and Community School Funds exempt from the School District Procurement Rules and USFR guidelines for competitive purchasing below the dollar limits required for sealed bids?

Yes/No. Auxiliary Operations and Community School Fund monies are public monies. The School District Procurement Rules or USFR guidelines apply to every expenditure of public monies by a school district for the procurement of all construction, materials, and services when the total procurement exceeds $5,000, unless an expenditure is specifically exempted by a federal/state law or regulation or is otherwise specifically exempted from the Procurement Rules or USFR guidelines (e.g., payroll or student activities monies).

A district decides to run a dance program through the Community School Program/Fund and wants to hire a dance instructor.

19. Are expenditures from the Gifts and Donations Fund exempt from the School District Procurement Rules and USFR guidelines for competitive purchasing below the dollar limits required for sealed bids?

Sometimes. Gifts and Donations Fund monies are public monies. The School District Procurement Rules or USFR guidelines apply to every expenditure of public monies by a school district for the procurement of all construction, materials, and services when the total procurement exceeds $5,000, unless an expenditure is specifically exempted by a federal/state law or regulation, or is otherwise specifically exempted from the Procurement Rules or USFR guidelines (e.g., payroll or student activities monies).

However, R7-2-1002(A) states that “Nothing in this Article shall prevent any governing board from complying with the terms and conditions of any grant, gift, bequest . . . .” Therefore, competitive bids and quotes are not necessary if, for example, the donor has specified, as a condition of the gift, the specific vendor or contractor to be used. If the terms and conditions are not specific as to a particular vendor or contractor, then the School District Procurement Rules or USFR guidelines should be followed.

20. Are expenditures of extracurricular activities fees tax credit monies exempt from the School District Procurement Rules and USFR guidelines for competitive purchasing below the dollar limits required for sealed bids?

Sometimes. Extracurricular activities fees tax credit monies are public monies and may be designated for a specific extracurricular activity by the taxpayer, or the school site council if contributions are undesignated by the taxpayer. Extracurricular activities are determined by teachers, coaches, principals, and student activities groups or sponsors, subject to approval by the principal, superintendent, or governing board, in accordance with district policy. The School District Procurement Rules and USFR guidelines for competitive purchasing below the dollar limits required for sealed bids do not prevent districts from complying with the designations of extracurricular activities fees tax credit monies. Certain expenditures for extracurricular activities may be for services unique to the chosen activity, such as an entry fee for a field trip to a specific museum.

If extracurricular activities fees tax credit monies are being used for a unique extracurricular activity-related service and are being paid to a specific vendor that supplies that unique service, then competitive bids, proposals, or oral/written price quotations would not be required.

If the monies are used for goods or nonunique services necessary to conduct an extracurricular activity, then competitive bids, proposals, or oral/written price quotations would be required.

E.g. 1 – The marching band at a high school obtains approval from its school or district administrators to participate in a college bowl parade, an educational or instructional band trip, or a competition (unique services).

E.g. 2 – Fourth grade teachers at an elementary school obtain approval to take the students on a field trip to the Phoenix Zoo or the Arizona-Sonora Desert Museum (unique services).

E.g. 3 – The site council at a middle school makes a decision to spend extracurricular activity fees tax credit contributions (that were not designated for a specific purpose) to operate an after-school soccer program.

Note: A school district’s procurement policies regarding the expenditure of these monies may be more restrictive than required by statute or the School District Procurement Rules.

District officers or employees involved in the review and selection of vendors to provide extracurricular activities should comply with any district policies regarding the acceptance of gifts and the requirements of A.R.S. §38-504(C) regarding prohibited acts.

Yes. The USFR requires districts to establish a delayed payroll system as a matter of good business practice, and the Arizona Constitution, Article 9, Section 7, prohibits paying wages (extending credit) to any individual for hours not yet worked. Districts should establish a “lag” that allows adequate time between the end of the pay period and the payment of wages to ensure that employees are paid only the wages they have earned. A.R.S. §23-351 allows school districts to establish a lag time of up to 2 weeks.

2. Can an hourly employee's pay be prorated so that equal payments are made each pay period over the school year?

Yes. Pursuant to Arizona Attorney General Opinion I04-007, all school district employees may request that their compensation be paid over the actual months worked or be prorated in any number of payments as set forth in A.R.S. §23-351(C)(2).

If pay is prorated for hourly employees, districts must have internal controls in place to ensure that hourly employees are paid only for the hours actually worked during the year. Attendance records such as individual time sheets or time cards should be prepared for each hourly employee for each pay period, signed by the employee, and approved by the employee's supervisor. The payroll department should review attendance records for any differences between the hours actually worked and the employee’s expected hours (i.e., the number of hours that was used to calculate the employee's annual compensation amount that is being prorated). If an hourly employee has worked fewer hours than expected, the payroll department should adjust the employee’s leave balances. If sufficient leave time is not available, the payroll department should reduce the employee's annual compensation for the hours not worked. If an hourly employee has worked more hours than expected, the payroll department should increase the employee's annual compensation for the additional hours.

The district should base adjustments to an employee's annual compensation on the employee's official hourly rate of pay used to calculate the original annual compensation amount. The district's policies and procedures should specify how it will apply adjustments (i.e., next regular payment of wages, at year-end, etc.) to an employee's compensation. These policies and procedures for applying adjustments should address both continuing employees and employees that terminate during the year to ensure that hourly employees are not overpaid. (Note: If additional hours worked entitles an employee to overtime compensation under the federal Fair Labor Standards Act, the amount of the adjustment must be calculated so as to comply with the Act’s overtime requirements.) Employees entitled to overtime compensation must be paid for overtime hours worked no later than 16 days after the end of the most recent pay period in accordance with A.R.S. §23-351(C)(3).

Finally, individual employee files should contain documentation noting whether the employee is electing to receive compensation over the actual months worked or prorated. If pay is prorated, indicate the number of payments and whether compensation due at the end of the school attendance year is to be paid in a lump sum or paid within 2 months after the fiscal year-end.

For more detailed information on proper payroll policies and procedures, see USFR §VI-H, Payroll.

3. If a district 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, districts should review IRS Publication 15-B for more information on taxable and non-taxable fringe benefits, and the limitations on those benefits.

1. Where can school districts obtain information regarding the current reimbursement rates for travel expenses (mileage, lodging, and meals)?

No. Employees should report the lesser of the actual cost of meals or the maximum meal reimbursement amount on their travel reimbursement claims. The district must verify that the amount claimed for meal reimbursements does not exceed the maximum meal reimbursement amount, but is not required to obtain receipts to verify that the amount claimed does not exceed the actual cost of meals. However, the governing board may establish a policy to require receipts for meal reimbursements. This policy should be in writing and included in the district’s travel policy.

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.

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

Districts should process all employee travel reimbursements through their payroll department. Districts 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 that are not taxable to the employee (meal reimbursements with an overnight stay or substantial rest period, and mileage and lodging reimbursements), districts 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 school district 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 district account for taxable reimbursements?

For a school district 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 district employee for purposes of the taxable meal reimbursements and would be required to complete the following payroll documents outlined on USFR 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). This does not make the board member an employee of the district or otherwise affect the application of A.R.S. §15-421(D) that prohibits an employee (or spouse of an employee) from being a member of the district board that employs such a person.

1. Must audit contracts and contract amendments be submitted to our Office for approval?

Yes. All proposed audit contracts and contract amendments must be reviewed and approved by our Office prior to the start of audit work.

2. Is a school district required to select an audit firm to perform its annual/biennial audit from a list approved by our Office?

No. To assist districts in finding an audit firm to perform their annual/biennial audit, our Office will provide, upon request, a list of audit firms who currently have approved audit contracts or are interested in contracting for audit services with school districts. We do not recommend, endorse, or vouch for any audit firms on the list, and the list does not qualify as a prospective bidders' list. Districts may use one of these firms or may select a different firm.

When a proposed audit contract is submitted to our Office for approval, we determine whether the audit contract states that the auditor is independent as required by statute. We do not give any assurance that the work performed by the audit firm or the final audit reports will comply with applicable laws and professional standards. However, if we have previously reviewed the work of the audit firm and found that it consistently failed to comply with applicable laws and professional standards, we may disapprove the audit contract. The district must then contract with another audit firm to perform the audit.

3. What is the deadline for school districts to submit their audit reports to our Office?

Districts should submit their audit reports and USFR Compliance Questionnaire to our Office by March 31 after year-end. Districts should also submit their audit reports to the Arizona Department of Education and make any other distributions as required by the Single Audit Act, if applicable. See USFR Memorandum No. 240 for specific requirements.

4. Is a school district that is not subject to the Single Audit Act required to obtain an audit?

Yes. A school district that has an adopted expenditure budget of $2 million or more for the Maintenance and Operation (M&O) Fund is required to contract for an annual financial statement audit. A school district that has an adopted expenditure budget of less than $2 million but more than $700,000 for the M&O Fund, is required to contract for a biennial financial statement audit (e.g., an audit of two fiscal years performed after the 2nd year). Districts must submit the annual or biennial financial statement audit reports and USFR Compliance Questionnaire (biennial audits require the questionnaire to be completed only for the later year) to our Office by March 31 after year-end. See USFR Memorandum Nos. 240 and 243 for specific requirements.

For school districts that have an adopted expenditure budget of less than $700,000 for the M&O Fund, these districts are subject to a procedural review performed at the discretion of our Office.

5. Are school districts or audit firms required to submit a new proposed audit contract to our Office for approval each year that the district exercises an option to renew for an existing contract?

No. If a district chooses to exercise a renewal option in an existing contract, the district should send a letter notifying the audit firm that the district will be renewing the audit contract and a copy of that letter must be submitted to our Office. The renewal letter should include the type of audit to be performed, the year(s) for which the contract is being renewed, and the price as stated in the audit firm’s original proposal. If a District has a multi-year contract, without an option-to-renew provision, that has already been approved by our Office, no additional action is needed.

Districts must use tax credit monies for both the school and purpose intended by the taxpayer. The site council of the school that receives contributions that are not designated for a specific purpose shall determine how the contributions 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 or 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 USFR Memorandum No. 214 for more details. Also see Determination Chart for tax credit eligible expenditures.

1. Can a school district or a school-sponsored student activities club hold a raffle or lottery to raise money?

No. Arizona Attorney General Opinion I84-018 states that only clubs that are not school-controlled (such as off-campus clubs, clubs sponsored by civic groups, or parent-teacher organizations) and fit within the tax exempt categories defined by A.R.S. §43-1201 may hold raffles or lotteries if they also meet the requirements of A.R.S. §13-3302(B).

2. Is a school district required to follow the School District Procurement Rules and the USFR guidelines for competitive purchases below the dollar limits required for sealed bids for purchases of goods and services using student activities monies?

No, except when the vendor is a school district employee (See Procurement #5). School District Procurement Rule R7-2-1002(E) exempts student activities monies, unless district monies are involved. However, to maximize purchasing power, districts should consider having student clubs follow similar procedures. It is recommended that student clubs follow the purchasing guidelines in USFR §VI-G, Expenditures, 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.

1. How does a school district apply for the Accounting Responsibility Program?

In accordance with A.R.S. §15-914.01, school districts may apply to assume accounting responsibility. Districts begin by sending our Office a written request for evaluation prior to January 1 preceding the intended fiscal year of implementation. Our Office will evaluate each district’s most recent audit reports and USFR Compliance Questionnaire and make a recommendation to the Arizona State Board of Education that the district be approved or denied participation in the Accounting Responsibility Program. Districts must also submit an application to the State Board of Education and an accounting responsibility plan to ADE, and notify the County Treasurer and County School Superintendent by March 1 of its intention to assume accounting responsibility in the next fiscal year.

2. How can school districts obtain electronic copies of future USFR Memorandums and newsletters?

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

3. May a school district overexpend a subsection of the Maintenance and Operation (M&O) Fund?

Yes. A.R.S. §15-905(G) allows a district governing board to authorize the expenditure of monies budgeted within a maintenance and operation subsection of the adopted budget but only by action taken at a public meeting of the governing board and only if the expenditures for all subsections do not exceed the total M&O Fund budget. The regular education subsection includes program codes 100, 610, 620, 630, 700, 800, and 900. The other seven subsections include programs 200, 300, 400, 510, 520, 530, and 540.

Yes. Districts may refund the unused portion of prepaid meals by check from the Food Service Fund revolving bank account, or if necessary, from daily cash receipts. For refunds made from daily cash receipts, a Meal Card or Ticket Refund Slip should be completed in duplicate for each refund and signed by the parent or student, preparer, and cafeteria manager. The total amount of refunds should be recorded on the Daily Cash Reconciliation Report and returned meal cards should be voided, attached to the original refund slip, and retained with the Daily Cash Reconciliation Report. See USFR pages X-F-22 and 23 for sample forms.