Miscellaneous

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 7 subsections include programs 200, 400, 510, 530, 540, and 550.

An account description such as “overdraft of cash on deposit” is acceptable for a school district’s internal accounting records to show a negative cash balance on deposit with the county treasurer; however, it is not appropriate for external financial reporting. This presentation is not appropriate for external financial reporting because it does not reflect the nature of the liability, such as interfund borrowing, credit line payable, or an amount due to the county treasurer for investing in the school district’s debt (overdraft). Also, if interfund borrowings are not presented, it may result in cash being overstated in other funds. 

In accordance with A.R.S. §15-996, county treasurers must hold school district monies in 1 of 2 ways. First, treasurers may keep a separate account for each school district fund. Second, treasurers may maintain only 2 accounts for each school district plus additional accounts for each of the bond building, debt service, and new school facilities funds. If only 2 accounts are maintained, the first account must consist of the budget-controlled funds (maintenance and operation, unrestricted capital outlay, adjacent ways, and classroom site funds), and the second account must consist of federal and State grant monies and all other monies. 

In accordance with A.R.S. §15-304, school district governing boards may authorize expenditures from budget-controlled funds up to the amount of the adopted budgets regardless of the amount of cash available in the fund. Also, when sufficient cash is not available in federal and State grant funds, if county treasurers maintain 2 accounts as provided in A.R.S. §15-996 and expenditures have been included in the budget section of federal or State grant applications, the school district governing boards may authorize expenditures from federal and State grants as authorized in the budgets. As a result, cash deficits may occur in these funds. 

When cash deficits occur, Arizona Revised Statutes provides the following options. 

In some cases, a school district may have interfund borrowings that reduce or eliminate a fund’s cash deficit with the county treasurer. In accordance with A.R.S. §15-996, interfund borrowings may occur between (1) budget-controlled funds or (2) if 2 accounts are maintained as described above, federal and State grant funds may borrow from other funds in the second account or, if the amount in the second account is negative, from the maintenance and operation fund. Interfund borrowing should be reported as interfund payables and receivables in the financial statements. 

Another option for budget-controlled funds, in accordance with A.R.S. §11-604.01, is for the county treasurer to establish a revolving line of credit on behalf of the school district with the county treasurer’s servicing bank. The credit line could then be used to finance the school district’s short-term borrowing needs in budget-controlled funds when cash balances are insufficient. With this option, a school district would report a line of credit on its financial statements. 

If a revolving line of credit has not been obtained for a school district or if the revolving line of credit has been spent and if there are insufficient monies in the district's accounts, the county treasurer may register warrants, substitute checks, or electronic funds transfers of budget-controlled funds in accordance with A.R.S. §11-635. The registered items should be reported as a payable on the financial statements. Alternatively, county treasurers may invest in a school district’s registered warrants, substitute checks, or electronic funds transfers (evidences of indebtedness) in accordance with A.R.S. §35-323. If the county treasurer chooses to invest in the registered items by paying the amount and collecting amounts due from the school district, the school district should report the balance as due to the county treasurer. 

Cash deficits should not occur in funds other than the budget-controlled and federal and State grant funds since the governing board should not authorize expenditures from other funds unless sufficient cash is available in the individual fund. If sufficient cash is not available, the expenditure should be reclassified to another appropriate fund that has cash or budget balance available, as applicable. 

If a school district has individual funds with short-term cash shortfalls that are not appropriately addressed by the options above but has other funds with cash available to make up for that shortfall, the school district should report interfund payables and receivables on the financial statements between the fund with the cash deficit and the fund(s) from which it presumably borrowed. Because many funds have restrictions placed upon them, such borrowing may violate statutory restrictions and result in compliance audit findings.

School districts should communicate with either or both their county school superintendent’s and county treasurer’s offices regarding how cash deficits have been handled to ensure proper financial statement presentation. Also, the notes to the financial statements should contain all required disclosures for interfund receivable and payable balances, payables, or short-term debt.

A.R.S. §15-1102 describes the limitations on the use of School Plant monies. The following addresses the limitations on those monies based on statute. However, as indicated in the statute, the restrictions described in tables 1 and 2 below do not apply to the proceeds from:

• Leases of school property to other schools.
• Leases of school property for less than 1 year (leases with automatic renewals that result in total lease terms in excess of 1 year are considered leases of 1 year or more).
• Sales of school property of less than $100,000 per transaction.

Table 1: For districts with bond debt at or below the indicated percentage of current year assessed valuation

Table 2: For districts with bond debt in excess of the indicated percentage of the district’s current year’s assessed valuation 

During the year, districts should review revenue allocations and cash balances for levy funds to ensure resources from property taxes and State aid are directed to the appropriate funds based on budget capacity. If a district revises its budget after adoption, the district should review its revenue allocation percentages with the county school superintendent's office to ensure any property taxes and State aid received throughout the rest of the year will be allocated in accordance with the revised budget capacities. The district may need to record an adjusting journal entry to ensure revenues were appropriately recorded in each fund.

After fiscal year-end, each district should check its final budget capacities reported on its Actual Expenditures Analysis report (BUDG-75), available on the Arizona Department of Education’s website, and the fund balances reported on its annual financial report (AFR) in the M&O and UCO Funds to identify any misallocation of revenue from a prior year.

If revenue was overallocated to the M&O Fund for 1 or more years without correction, the UCO Fund could have unexpended budget capacity without available monies, while the M&O Fund could have more money than budget capacity as shown in the example below:

In this example, although the district has more money, in total than budget capacity in the 2 funds, most of the difference between budget capacity and ending fund balance in the M&O Fund is related to revenue that should have been allocated to the UCO Fund in prior years. 

To correct this prior year revenue misallocation, the district should make the following adjusting journal entry to adjust cash and beginning fund balances in the current year, and a corresponding county treasurer’s transfer to adjust the cash balances only if the M&O and UCO Funds are not held in the same county treasurer’s account: 

*Or other detailed fund balance code if used.