Leadership Matters September 2014

Fact vs. Fiction: Budget vs. Annual Financial Report

Budget amendments, if necessary, are usually later in the fiscal year. It stands to reason that superintendents would inflate the estimates of revenues and expenditures to avoid budget amendments due to unforeseen changes in revenues or unexpected expenditures during the year. This estimation process means essentially that estimates are included throughout the budget document. The AFR is compiled by Certified Public Accountants hired by the district to complete this report. The AFR is also due to be completed by the end of the first quarter of the fiscal year or by September 30. So both documents are basically due to be completed at the same time. While a hearing is not required for approval, Boards of Education should accept the report. At this point, districts present the information contained in the AFR in several ways.

When I was superintendent, my district staff was always instructed to provide the district’s budget without hesitation for any request by FOIA, media or citizens. However, if the same request for the Annual Financial Report (AFR) was made, they were to immediately inform me. The difference was that the request for the AFR indicated an “informed consumer” of district

Dr. Bill Phillips IASA Field Service Director

financial information and I was dealing with someone who knew the correct document to examine. I will discuss these two documents and their relative approval process and formulation plus their relative important to the understanding of a district’s financial health. Each year in the first quarter of the fiscal year, school districts are required to

The auditing firm that completed the document may present the findings of the AFR or the district superintendent or his/her designee may present the report. The AFR is an accurate compilation of actual revenues and expenditures for the previous year. Therefore, in assessing a district’s financial health, the AFR is by far the document that must be studied and assessed. Included in the document is crucial financial information including: Information regarding the level of revenues compared to the level of expenditures on the Budget

complete two important fiscal documents, the budget and the AFR. The documents are distinctly different in nature and requirements for passage. Most importantly, they are quite different in the financial information available from these documents. The budget is completed by the district superintendent or

Summary (pages 8-9 of the AFR). This will indicate if the district spent more than it received in fund revenues and the level of the difference by individual fund. Also included in the Budget Summary are the last two year’s Budget Balances giving a brief chronological trend in financial stability by fund. Therefore, multiple years of past AFRs can give you a trend analysis of fund balances. In the Financial Information page (page 3) the current Equalized Assessed Valuation (EAV) is listed along with information on the district’s main operating funds, namely their revenues and expenditures. Also listed is information on any Short-Term Borrowing that the district has utilized, such as Tax

his/her designee. It is the estimate of revenues and expenditures by line item for the district. The timetable is that the superintendent completes the tentative budget and has it approved at a meeting, usually in July or August. The budget must be on public display for 30 calendar days in the district office. After the public display period is completed, the Board would hold a hearing and adopt the budget for the upcoming fiscal year. Keep in mind that the only actual numbers on the budget are the budget balances at the beginning of the form that the district had at the end of the previous fiscal year. The remainder of the line items are estimates of revenues and expenditures by line item. Budget amendments are required if you exceed a 10 percent differential in line items during the year.

(Continued on page 27)

26