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, 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. 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 7 subsections include programs 200, 400, 510, 530, 540, and 550.
3. Can the unused portion of prepaid meals be refunded?
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-21 and 22 for sample forms.
4. If a school district experiences a cash deficit in a given fund, how should the district account for the deficit in its accounting records and report it in its financial statements?
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.
5. When a school district sells or leases school property, where do the proceeds go?
Proceeds from the sale or lease of school property must be deposited into the School Plant Fund (500), in accordance with A.R.S. §15-1102.
6. How can monies deposited in the School Plant Fund be used?
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:
Table 1: For districts with bond debt at or below the indicated percentage of current year assessed valuation
Type of school district, bond debt % at or below | Proceeds from | Allowable use and paragraph reference in ARS §15-1102 |
Elementary, 7%, or Union high, 7%, or Unified, 14% |
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Table 2: For districts with bond debt in excess of the indicated percentage of the district’s current year’s assessed valuation
Type of school district, bond debt % in excess of | Proceeds from | Allowable use and paragraph reference in ARS §15-1102 |
Elementary, 7%, or Union high, 7%, or Unified, 14% |
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7. Are there resources available to help school districts with public records requests?
Yes, the Arizona Attorney General’s Arizona Agency Handbook (Handbook), which is linked below, includes Section 6—Public Records. The Handbook provides guidance on public records law, confidential records, and addresses the difference between commercial and noncommercial public records requests. School districts should consult with their legal counsel as needed in addition to reviewing these resources to ensure compliance with public records request requirements.
8. What actions should school districts take to verify that revenue is properly allocated between the Maintenance and Operation (M&O) and Unrestricted Capital Outlay (UCO) Funds?
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:
M&O Fund | UCO Fund | |
Ending fund balance from AFR | $5,645,000 | $(14,000) |
Allowed budget balance carryforward/ unexpended budget balance from BUDG-75 report | $2,750,000 | $2,550,000 |
Difference | $2,895,000 | $(2,564,000) |
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:
Account code | Debit | Credit |
610-000-0000-0103 | $2,564,000 | |
001-000-0000-0103 | $2,564,000 | |
610-000-0000-0300* | $2,564,000 | |
001-000-0000-0300* | $2,564,000 |
*Or other detailed fund balance code if used.
9. How should a school district properly account for tax anticipation notes (TANs)?
School district TANs, authorized in Arizona Revised Statutes §35-465.01, are short-term notes school districts issue to provide cash before they receive expected property tax revenues. School districts generally repay TANs with tax revenues once property taxes are collected. Districts should record cash from the TAN proceeds and a related liability in the Maintenance and Operation (M&O) and/or Unrestricted Capital Outlay (UCO) Funds depending on where they will use the TAN proceeds.
The examples below illustrate the journal entries districts should record when they issue and repay TANs:
To record the issuance of $1,000,000 in TANs:
M&O and/or UCO Fund | Debit | Credit |
Cash (Object 0103) | $1,000,000 | |
Tax Anticipation Notes Payable (Object 0205) | $1,000,000 |
To record the repayment of $1,000,000 in TANs and related interest costs:
M&O and/or UCO Fund | Debit | Credit |
Tax Anticipation Notes Payable (Object 0205) | $1,000,000 | |
Interest on Short Term Debt (Function 2510, Object 6850) | $50,000 | |
Cash (Object 0103) | $1,050,000 |
Interest revenue received on TAN proceeds before they are used should be recorded in the M&O and/or UCO Funds like any other interest received on cash balances.
If a district accounts for TANs in a fund other than M&O or UCO, the district should make a journal entry to move the interest revenue and expenditures to the M&O and/or UCO Funds, depending on which fund used the TAN proceeds. This entry should be made at least at fiscal year-end before the accounting records are closed and amounts are reported on the annual financial report.
As each county may handle TAN transactions differently, districts should work with their County School Superintendent’s Office to ensure all necessary adjustments are made in the district’s accounting records to correctly report TANs.
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