Using Benchmarking as a Budgeting Tool

By Trevor Skelton, Associate Client Manager

June 2019

California charters are full swing into the budgeting season for the upcoming school year, and for brand-new schools to thriving networks, budgeting is never a simple process. We at EdTec often find that benchmarking against historical data as well as data from similar charters is an invaluable tool in assessing whether a budget is built on realistic assumptions. This information should not be used to define an entire budget, but rather as one of many tools used to inform budget formation and key financial decisions. This data also helps school leaders to understand the charter financial landscape, discover inefficiencies in their budgeting practices, and evaluate where and why their budgets may be similar to or different from that of the average charter.

Revenue

From a historical viewpoint, the last five years have seen strong increases in K-12 education funding with the full implementation of the Local Control Funding Formula (LCFF), which was enacted in FY14 to replace the previous California education funding system. Between the five-year period from FY14 to FY18, the average charter’s total revenues grew from $9,513 per ADA to $13,078, or nearly 9% per year.

In FY14, average LCFF revenues for charters were $6,887 per unit of Average Daily Attendance (ADA) – in FY18, they were $9,633c a 40% increase as closing the gap toward target funding progressed ahead of schedule. However, not all schools have benefited equally from LCFF. Funding is distributed to schools based on the number of students who qualify for Free and Reduced Priced Meals, are foster youth or homeless, or qualify as English Language Learners. This unduplicated pupil percentage (UPP) of students is a major funding indicator now that LCFF has been fully implemented, with the intent to direct additional resources to students and schools that need them the most. Funding disparities between schools with low and high populations of unduplicated students have grown significantly, as shown in the graph below. Beyond LCFF, federal revenues, most commonly Every Student Succeeds Act (ESSA) Title funding, also have a direct relationship with unduplicated students. Thus, accurate budgeting, tracking, and reporting of ADA and student demographics via CALPADS are more important than ever in maximizing revenue.

In FY18 the average charter school reported a 64% UPP, so while many have enjoyed increased resources, others have been forced to innovate to acquire resources to make ends meet. For charters, we see that disparities in government funding are often supplemented with local funding where available. In particular and perhaps unsurprisingly, charters located in counties with higher median household incomes, especially the Bay Area and Coastal regions, have the greatest access to these additional resources. Charters with a UPP of below 25% reported an average of just below $1,000 per ADA in local revenue, compared to less than $500 for the average charter.

K-12 education funding is at a point of uncertainty. LCFF has reached target, and FCMAT projects meager 2-3% COLA adjustments in future years – well below the revenue increases of the past half-decade of steady economic growth. An economic recession would certainly impact not just state funding, but local resources as well. Charters will need to be able to adapt and weather a possible storm if they are to survive an uncertain future.

Expenses

In examining statewide charter expenditure data, we see that expenses have grown in a similar fashion to revenue over the past five years. The average charter was spending $8,411 per ADA in FY14 – by FY18, this had grown to $12,011, a 43% increase. Over this time period, California has grown from near the bottom of per pupil spending in all the U.S. to about average[1]. While certainly movement in the right direction, pupil performance indicators, a higher-than-average cost of living, and the uncertain future of LCFF funding all indicate that this is hardly the moment for celebration.

An average charter will spend 60% of its budget on salaries and benefits, so it is essential to understand each piece of the compensation puzzle and to budget appropriately for future considerations. Overall, salaries per ADA have risen 9% a year, a rate of growth charters may no longer be able to afford in the new post-LCFF-target world.

Employee benefits have become a major budget challenge for charters. From FY14 to FY18, the average charter’s spend on benefits grew from 25% of salaries to 29% of salaries. This means the growth in benefits spending has matched and then surpassed the growth in salaries by nearly 20%. As shown in the figure below, this growth was led by STRS, as the mandatory employer contribution rate doubled over this time from its long-standing 8.25% to 16.28% of salaries for certificated staff. This may very well explain why the rate of new charters that chose not to enroll in CalSTRS rose from its steady 10% to 20% in FY15 and 33% in FY16[2]. PERS has also seen rates that have more than doubled in the past decade, while health and welfare benefits continue to soar across the board.

Special education is notoriously difficult to budget for and is extremely underfunded. Based on our experience and data, we estimate the average charter spent at least $1,300 per ADA on special education in FY18. Charters that are a part of a Special Education Local Planning Area (SELPA) may receive SpEd revenues to cover around half of that, but for charters serving their students as a school of the district, it’s not uncommon for district SpEd encroachment fees to exceed $1,300 per ADA.

Finally, we see facilities costs rising across the state for charters with and without SB740 revenues. Facilities costs for charters are rising at a pace of 8-10% per year, translating to over $600 per ADA net of facilities revenues.

For these areas with inherent risk and uncertainty, conservative budgeting with contingencies is imperative in managing school budgets.

Fiscal Health

These data all come together to form a charter’s overall fiscal standing. Overall, California charters have averaged somewhere between $400-$500 in operating income per ADA in any given year for the past five fiscal years, which has allowed them to steadily grow their fund balances. In FY18, new schools saved between 10-20% of expenses, while older schools were able to accumulate greater reserves for future investments and to manage cash fluctuations. Charters had a median of 80 days cash on hand – a comfortable amount for the average-sized charter – and at least 25% had 30 days cash on hand.

While operating income, fund balance, and cash balance are the main indicators of a charter’s financial stability, variance to budget will also be important to monitor. Continuously tracking budget vs. actuals year-to-date for trends and discrepancies can help to identify clear areas of weakness in a school’s financial or budgeting practices. And of course, managing against any debt covenants or authorizer requirements is imperative to staying in good financial standing.

Averages don’t tell the whole story. Every school has variances from the norm, but it’s essential to be able to explain why and understand what the possible financial implications may be. From individual school practices to the California Department of Education’s new LCAP Budget Summary for Parents, we see a trend toward increasing transparency when it comes to California’s education funding and spending. Adopting a practice of regular communication of school budget information and comparative data like this with parents, community members, school staff, lenders, and others can foster engagement and understanding with stakeholders, empowering those most invested in educating California.

 

[1] http://www.teaching-certification.com/teaching/education-spending-by-state.html

[2] https://calpensions.com/2017/09/11/fewer-charter-schools-choosing-calstrs-pensions/

Data Sources: Unaudited Actuals Financial Data (CDE); Public Schools Data Files (CDE); CALPADS UPC Source File (CDE); SB740 grantee lists (CSFA); County Data (U.S. Census Bureau); EdTec Client Data (Note: only includes financial data for charters whose data is available (n = 588 – 927), and thus is not representative of all charters. Sample sizes and composition vary over time.)

Finalizing Your Charter School Budget

By Dena Koren, Senior Director of Client Management 

Updated May 2019 (originally published in June 2017)

The end of the school year is upon us, and many charter schools are scrambling to put the finishing touches on their budgets for the 2019-2020 school year. This can be overwhelming given all the moving parts —finalizing staff compensation, collecting final proposals for next year’s contracts, deciding which software and curriculum to use, tracking down budget plans from all the department leads, and preparing to present to your Board of Directors… all while trying to finish out the school year!

Here’s my advice: Don’t sweat it! There is no way you are going to have all these items finalized by the time you need to send your budget to the board for approval. Plus, there are many aspects of the budget that are completely out of your control. Instead of worrying, try this approach:

  1. Pick two or three areas of the charter school budget you’re going to focus on in the 11th hour. These should be areas of the charter school budget that are either your most significant sources of revenue or expense or have caused problems in the past. And don’t pick “staff”! (See my next suggestion below for wrapping up your compensation budget.) Once you have picked your areas of focus, set aside a designated time (~30 minutes for each area) to dig in and try to firm up the assumptions — then put a bow on it! Once the new school year starts and you have access to new and/or updated information, you can work with your Finance Director or adviser to adjust the annual forecast.
  2. For staffing, again — do your bestFinalize the charter school budget with the information you know now and include reasonable and conservative assumptions for the things you don’t know.At some point, you must stop trying to get everything locked up and just go with what you have. But being conservative will help you to avoid the frustration of going over budget down the road.
  3. Make a list of the areas where you feel assumptions aren’t solidand over the summer, push to solidify them. Also, be upfront with your board about the areas of uncertainty (note: no need to share every uncertainty, just the ones you feel are the biggest opportunities/risks.) I find that outlining the missing information at a high level strengthens the board’s comfort with the financial plan. Board members will appreciate the transparency and feel reassured knowing you are aware of the uncertainties and on top of all the moving parts.
  4. For most charter schools, budgeting is an art, not a science. There are countless details, many of them unknown or unknowable, so we just do our best with what we have and keep pushing for improved clarity as the year goes on!

EdTec supports startup charter schools with building strong, compliant charter application budgets, and we work with operating schools to put together annual budgets as part of our back office services. To learn more about EdTec and discuss how we can support your school, please email us at askus@edtec.com.

Prepare for Your Audit! Steps 5 & 6: Review and Submit Your Audit 

By EdTec Staff

November 14, 2018

You’ve made your way through the first four steps of the audit cycle – now all that’s left to do is review the audit report and submit!  For California charters, these last two steps occur in November and December.   

Contents of an Audit Report

An audit report contains 14 sections. See the chart below for a summary of the information included in each section, as well as why each section is important.

While all sections of the report contain useful information, the most revealing is the Audit Year Findings section, where the auditor addresses issues identified throughout the auditing process that represent a deficiency in the charter school’s internal controls. There are two types of findings – a material weakness, which is the most severe finding; and a significant deficiency, which represents a less severe finding but still warrants flagging and correction. The auditor’s findings outline what the charter school did or did not do that was incorrect or improper, as well as the generally accepted expectation for what the school should have done. The findings also provide detail around the impact of the deficiencies on the school’s financial statements, as well as recommendations for what school leadership should do to resolve these issues.  

Common audit findings for charter schools include inadequate resourcing or tagging of restricted fund activity; missing documentation such as credit card receipts; lack of adherence to purchase or approval policies and thresholds; untimely deposition of funds; improper capitalization of assets; and compliance issues.  

Reviewing the Audit & Preparing a Response

It is important for school leadership to review the audit report for accuracy of information, as well as to make sure they understand all findings. For example, were the findings a result of a lack of adequate policies in place, or rather a staff violation of existing policies? Then, staff must prepare a response acknowledging or contesting the findings. The response should provide additional context and/or an outline of corrective action to be taken, where appropriate. Perhaps the school plans to draft revised purchasing policies or increase education and training to make sure all staff understand the current policies.  

This response is typically prepared by the school’s business office staff, who may find it helpful to reach out to their back-office services provider for assistance with explaining previous actions, as well as with implementing new policies and processes designed to help prevent future findings.  Some responses may also require consultation with legal counsel. Once complete, the response should be reviewed by the charter school board before submission to the auditor.

The Final Step 

Once the board has reviewed the response and has signed off on the rest of the audit report, the auditor will submit a final report to the designated authority. Audit reports for California charters must be submitted to the California Department of Education by December 15.  

 

 

Part 2 Rethinking Compensation: A Tactical Guide

By Allison Wyatt, Founding Partner, Edgility Consulting

September 10, 2018

In our last blog post, we noted that compensation ought to address the needs of teachers and staff, as well as to the organization’s own objectives. We recommend that you start with establishing a sense of just how competitive you want your compensation to be, and in what specific roles and markets.

Ask your team and board:

  • What is our total value proposition?
  • How competitive do we want/need to be?
  • Where are we in our growth cycle?
  • What is it that we want to reward in this organization?
  • Who are our staff?
  • How do we balance paying competitive market rates with maintaining internal equity?

Doing the Research: How to Study Market Rates

To create a market-based compensation structure, you’ll need to understand where you stand relative to the market, which depending on your organization may include the local school district, similar organizations, as well as other nonprofits, public agencies, and even companies who might be competing with your organization for talent in key roles. Wherever possible, stick to comparisons with your own organization’s industry, mission, geography, and budget/staff size.

To find comparable compensation data, consider searching:

  • Job postings
  • Industry-specific surveys
  • Publicly available data, such as district pay scales, nonprofits’ IRS form 990s (which report pay for the mostly highly compensated employees in each organization) through Guidestar or the Foundation Center, and databases like Transparent California, which logs compensation information for public employees in California

Try to use at least three sources to ensure that the data is sound. At Edgility, we are wary of sites like Glassdoor and Payscale, who sometimes report salaries for jobs based on a very small sample size. We prefer specialized databases like CompAnalyst, which is updated monthly to keep up with fluctuations in the market and covers more than 4,000 benchmark jobs gathered from comprehensive employer surveys.

Creating a Compensation Structure

With data about your organization’s compensation philosophy and comparable market salaries in hand, you can then consider building a pay structure, including:

  • Pay grades or levels, in which similar jobs are grouped together. For example, an entry-level data associate, a reception clerk, and a paraprofessional might all be included in the same grade, with the averages of their market salaries used as the midpoint for that grade, or you might group all principals or program managers in the same grade.
  • Pay ranges or salary spans within those grades or for each role — according to ZipRecruiter, the range typically extends 30% range of the midpoint or average market salary for a junior or support role, 40% for mid-level management, and 50% for executives. New hires tend to earn around the middle of that range, and experienced top performers earn 80-100%.

For particularly large or complex organizations, pay schedules may be created, which vary by business line (in the case of a school organization, this may vary between school sites and the central office) or by location based on the cost of living and competitor salaries in that market.

For example, the National Center for Montessori in the Public Sector suggests this starting point salary schedule for teachers in public Montessori charter schools, along with benefits, 2% yearly step increases, periodic retention bonuses, and stipends for taking on additional responsibilities.

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Finally, map current jobs and salaries against the new structure to determine whether your new compensation structure matches existing pay, including whether there is equity across levels, roles, and other characteristics. You’ll get an immediate sense of whether there is equity across the organization, and whether there are adjustments that need to be made.

What Matters Most: What Happens When You Address Compensation

Organizations that take a strategic, research-based approach to compensation find that new employee salaries are easier to set, and that existing employees feel more properly valued and compensated.

“Compensation analysis helped us determine highly beneficial changes that are attracting and retaining top talent,” agrees Margaret Winnen, Director of HR & Talent Development for College Track.

At Compass Charter Schools, Superintendent & CEO J.J. Lewis says his team recently shared a new compensation structure and benefits package with staff, who were pleased that salaries will now account for past teaching experience. Teachers and non-instructional staff will also receive bonuses tied to criteria like workload, enrollment, and student performance.

Over time, happy and appropriately compensated employees translate into less turnover, more stability, and greater productivity — an effort we think is well worth the cost.

About the Author

Allison Wyatt is a founding partner at Edgility Consulting, which finds the leaders that education organizations need to make a difference. Prior to launching Edgility, Allison built and scaled a human capital consulting practice at a national retained executive search firm. In addition, she has served as the vice president of human capital for Education Pioneers.

Part 1 Rethinking Compensation: A Matter of Value

By Allison Wyatt, Founding Partner, Edgility Consulting

August 31, 2018

Staffing is a critical ingredient for any education organization — and finding the right people has never been tougher. For decades, the supply of new teachers has been slowing down, particularly in critical subject areas such as math, science, and English language learning, as well as in high-need low-income schools. Enrollment has dropped in both traditional teacher preparation programs as well as alternative certification routes like Teach for America.

Meanwhile, the rising Millennial generation tends to avoid teaching, wary of what they perceive as a difficult profession with few upsides. “Our generation is impatient and eager to take on greater responsibility and assume leadership roles. Most school districts just aren’t structured to do that,” laments former teacher Jonathan Cetel.

Indeed, across the teaching profession, satisfaction has been decreasing — particularly among teachers of color and those most needed in high-need subjects and schools. “The teaching workforce continues to be a leaky bucket, losing hundreds of thousands of teachers each year—the majority of them before retirement age,” note analysts at the Learning Policy Institute.

While teachers leave for a whole host of reasons, including poor school cultures and lackluster working conditions, compensation is a very real part of the problem — but also a promising part of the solution.

Balancing the Pay Scale

Many education organizations, particularly startup schools trying to make the most of every grant and per-pupil dollar, worry primarily about paying too much for the talent they recruit. In a previous post on this blog, EdTec found that charter schools spend 59% of their budget on salaries and benefits, with brand new schools spending a bit less (53%) and established schools spending more (64%). Many schools choose to hire brand-new teachers and Teach for America corps members in order to stretch their funding, while others pinch pennies on principal and central office salaries so as not to raise board member eyebrows or public scrutiny.

But the cost of paying too little can also add up fast. For every employee who leaves, a district or school spends thousands more on recruiting and training their replacement — as much as $20,000 per employee, finds the Learning Policy Institute. That adds up to a teacher turnover tab of somewhere between $2.2 billion and $7.3 billion nationally each year — not to mention the time and energy required by existing staff to do the recruiting and training, let alone the effect of these frequent changes to colleagues’ working dynamics and to schools’ relationships with students and their families.

Of course, compensation is not a silver bullet for all staffing needs, nor should it stand alone. Compensation should be tied to overall organizational objectives, and to the needs of teachers. Teachers believe in fairness, equity and transparency, and are interested in being compensated for years of experience and degrees (even though research shows that neither of these measures are tied to student learning). Generally, research has found that teachers are not interested in pay-for-performance but somewhat more interested in incentive pay for teaching in hard-to-staff subjects and schools, as well as differentiated pay based on responsibilities and on value-add or growth in student learning.

For example, my organization Edgility Consulting worked with Compass Charter Schools, an online school with 100 staff members serving 17 counties throughout California. Compass recognized that they were competing with more online and brick-and-mortar schools throughout the state for talent, but had no formal compensation structure in place. “2017-18 was a year of both change and growth for Compass. As part of this change and growth, we sought to better understand our competitiveness in the marketplace and if we were being fair and equitable with our total compensation with our staff, as compared to our peer charter schools,” says J.J. Lewis, Superintendent & CEO of Compass.

By conducting focus groups, we learned that teachers and other staff were generally satisfied with their current salaries (although some felt their prior teaching experience was undervalued), but wanted greater equity across the team and more transparency into their earning potential. We helped Compass create a compensation structure with clear guidelines, that recognizes prior teaching experience, and with bonuses tied to student load, student success, and program quality.

Considering Central Office Compensation

Of course, compensation considerations must also extend beyond teachers to include principals, administrators, and other staff, who may be even more likely than teachers to be considering non-education jobs as alternatives to their school-based roles.

For example, we conducted a study of central office compensation for ACE Charter Schools, a nonprofit charter school operator in San Jose, California that now runs four schools serving about 2000 students but is considering national expansion. ACE had recently completed a salary study for teaching staff and wanted to ensure its central office staff were being paid market competitive rates. Upon comparison with districts and charters of similar scale in the San Francisco Bay Area, we found that ACE was generally paying competitively, and provided them with market data to communicate that to staff. In addition, we offered ideas on other types of rewards and recognition to help these employees feel valued.

We also studied the central office compensation of Mastery Charter Schools, a charter school turnaround operator with 24 schools in two states that serve 14,000 students. Mastery was hoping to be more transparent, consistent, and competitive as it grew. Using external market research, we developed market-based salary ranges, mapped internal positions to the structure, and identified staff who fell outside the structure as well as scenarios for reconciling that discrepancy.

Likewise, education nonprofit College Track is a national college completion program that empowers more than 3,000 students annually to earn a college degree and achieve upward social mobility, with more than 100 staff in California, Colorado, Louisiana, and the D.C. Metro Area. They “re-benchmark” their compensation every few years against a set of larger and more complex organizations in order to stay competitive.

We now understand how our compensation and benefits compare to similar organizations in our industry and geographic markets and we were able to get clear on role descriptions and the markets in which they compete, as well as assess our benefits package overall,” says Margaret Winnen, Director of HR & Talent Development for College Track. For example, the compensation analysis highlighted distinctions between different program roles that in turn yielded better comparable salaries to use as benchmarks, and indicated that a more competitive family leave plan would be more valued by their employees.

The Comp Curve: Watch the Road Ahead

Typically, teachers’ dissatisfaction with their salary — as with their working conditions and opportunities for growth — tends to grow as they gain experience. As such, you should be sure to take into account increases over time, and consider developing not only fair compensation frameworks but rather full career pathways that address professional growth and fulfillment as well as pay.

For example, we studied the compensation at Benjamin Banneker Charter School, a single site charter school in Cambridge, Massachusetts with high satisfaction and low turnover. This is despite the fact that Banneker pays their teachers below the market median. The school invests that saved money in robust professional development and significant flexible funds for student projects and field trips. Teachers feel supported, but are also groomed for and promoted into leadership roles. We worked with the organization to establish clear guidelines for salaries and raises based on experience, but teachers were adamant — they would not trade higher salaries for those other more important benefits.

For more guidance on how to go about studying your organization’s compensation against the market and setting up a clear, equitable, and transparent framework — as well as more details on the results these organizations have achieved by clarifying their own compensation strategies — check back next week for our follow-up blog post.

About the Author

Allison Wyatt is a founding partner at Edgility Consulting, which finds the leaders that education organizations need to make a difference. Prior to launching Edgility, Allison built and scaled a human capital consulting practice at a national retained executive search firm. In addition, she has served as the vice president of human capital for Education Pioneers.

Prepare for Your Audit! Step 4: The Main Audit.

By EdTec Staff

August 8, 2018

You’ve selected an auditor, communicated with them frequently, and completed the pre-audit steps. Now it’s time for The Main Audit. This phase involves all information as of the fiscal year close and occurs between August and November. During this stage the audit firm will perform fieldwork at your school and request sample financial transactions from the school administration.

What Happens?

During the pre-audit or interim audit, most audit firms do as much as possible for items not dependent on the fiscal year being closed. Now is the time to tackle the information as of fiscal year close.

Pay close attention to:

  • Financial activity immediately following the close of fiscal year
  • Information and how it has or has not changed from the unaudited actuals
  • Subsequent events, all important financial or relevant school events that occur after year end

School administrators should be prepared for the auditors to test financial information by selecting a sample of transactions and requesting back-up (invoices, receipts), as well as perform procedures on financial statement balances. The auditors will ask for specific documentation to provide evidence that the school is following all necessary policies. Take the time and effort to organize all your financial information and back-up ahead of time so that everything is readily available upon request.

You should expect your auditor to do fieldwork during late Summer or Fall either at your school or at the office of your back office provider (such as EdTec), if you are using one. The in-person work usually takes around 2-4 days. Nowadays, with a lot of information being stored on internet accessible platforms the need for fieldwork is beginning to diminish. Confirm the plan with your auditor and establish when and how the fieldwork will take place.

How Do You Facilitate?

During the pre-audit, you should have created a plan that outlines how you will provide information to the audit firm. Stick to that plan. If possible, try to create an electronic share space to place your school’s financial information and make it available to the audit firm. This ensures an organized and expedient way to share information.

If your audit team is coming to your school location, a dedicated physical space for the auditors is crucial. Take the time to set aside a room or space and confirm that it will be available when the auditors visit.

The audit firm will generate requests for more information as they are conducting testing. It’s important to be responsive to prevent holding up the process or requiring them to stay on site longer than necessary.

Example for CA Charters: Auditing the LCAP

The auditors will begin by selecting an action or service from the LCAP that your school (LEA) has identified as having expenditures.

You will then be responsible for guiding the auditor as to how they can find those certain expenditures in the general ledger.

Having all your documentation and back-up clearly organized and accessible will ensure the main audit runs as smoothly as possible.

Auditor’s Next Steps

Even when fieldwork is over, there’s still a lot of work for the auditors to complete. They need to follow up with outstanding items or tests being conducted after the main fieldwork and organize audit work and documentation. They also need to prepare a list of audit adjustments, if any are required, double-check all work, and conduct peer and partner review of work papers. Lastly, the auditors will provide a draft of the financial statements for your review.

When discussing timeline with the contracted audit firm, it’s important to make sure this time-frame is discussed and included in planning.

Conclusion

If you have done a good job communicating with your auditor during the pre-audit and have your files ready to share for testing, the main audit should take place without any unexpected setbacks. Be prepared to discuss any changes from the unaudited actuals and explain financial activity following the fiscal year close. Remember to have a space dedicated for your auditors and work hard to response to their requests quickly. The faster the main audit can be completed, the easier for all parties involved and the less likelihood of having issues.

Stay tuned for our next and final article on the audit cycle, the Audit Report Review and Submission!

Prepare for Your Audit! Step 3: The Pre-Audit

By the EdTec Client Management Team 

March 22, 2018

In our last blog post, we covered the first two phases of the audit cycle: Auditor Solicitation and Auditor Engagement. In this post, we’ll take a deeper dive into the third phase, the Pre-Audit. This phase occurs between April and June, and involves the auditor’s first visit to the school and frequent communication between the auditor and school leaders.

Once your charter school board has selected an auditor, the first step will be working with the auditor to establish a timeline for the final report. Keep in mind that you’ll want to leave enough time to conduct a thorough review of the audit report, so the earlier you can begin the pre-audit, the better.

During the pre-audit phase, it’s important to ask questions as they come up. Remember, your auditor is a resource, not an adversary, and they want a clean audit just as much as you do. The pre-audit phase is designed to prepare the school for the main audit, so now is the time to clear up any confusion about the process, test internal controls and compliance, and remediate any issues before the end of the fiscal year.

As you prepare for the auditor’s first visit, there are a few things you’ll want to get in order so the visit runs smoothly. It is helpful to have reviewed the segregation of financial duties, prepare an explanation for significant or complex transactions, and gather key documents. These documents include internal controls policies and procedures, paperwork related to pending legal matters, as well as copies of significant transaction such as leases and loans, new contracts with service providers, and new grant agreements. Your auditor may also ask for financial documents such as trail balances and check registers.

In addition to making sure your financial house is in order, the auditor will need proof that the school has been keeping up with state reporting compliance. Well in advance of the first visit, start compiling copies of all state compliance records and supporting documentation, as this process can be quite time consuming. This documentation includes:

  • Student records, bell schedules, calendar, instructional minutes
  • CALPADS Fall I reports (1.17, 1.18 and 8.1)
  • English Learner, Free/Reduced Lunch Program records
    • CELDT or ELPAC scores for EL/RFEP students
    • NSLP or alt. income form for all students reported as FRL
    • Direct Certification reports (3 reports pulled throughout the year)
  • Teacher credentials
  • ASES attendance reports and supporting documentation
  • Attendance records
    • Copy of P2 and all supporting documentation
    • Detail and Summary for testing month
    • Teacher signed verification for testing month

Whenever possible, provide your auditor with electronic documentation to keep everything organized, and try to fulfill their requests in a timely manner to avoid delays; remember, delays now mean you will have to rush during the main audit phase later. If you have any concerns about being able to produce certain documents, share them with your auditor as soon as possible so you can work together toward a solution. Lastly, remember to share major new developments with your auditor as they occur; your auditor will need to know about plans to open a new school or take out new loans, or expectations of new funding sources, as this will impact your school’s financial situation.

Once it’s time for the actual visit, make sure you set aside ample time to meet with the auditors to provide an overview of the school’s operations and review their questions about the school’s policies and procedures. This will set the stage for a smooth and efficient visit.

The pre-audit phase is designed to prepare your school for a successful main audit. Treat your auditor like a true partner; don’t hold back any information, be clear and timely in your communication, be open to suggestions regarding how to improve processes, and ask questions as they come up! And stay tuned for our next blog post about the next phase of the audit cycle, the Main Audit!

Prepare for Your Audit! Steps 1 & 2: Choose an Audit Firm and Engage

By the EdTec Client Management Team 

December 12, 2017

An audit is an official, independent review of your charter school’s financial statements by an approved CPA. An annual audit is required of charters in most states.  

There is much preparation required before the annual audit.  The timeline below breaks up the charter school audit cycle into multiple phases and includes suggested dates. In today’s blog post, we’re going to focus on the first and second phases: Auditor Solicitation, which all schools should ideally start preparing for in September, and Auditor Engagement, which should be completed by April 1. If you’re not there yet, there’s still time – but you should start now!  

Charter schools must select an auditing firm at a publicly noticed board meeting, and contract with the selected audit firm by April 1 of the current fiscal year (e.g. you need to select an audit firm for the fiscal year ending June 30, 2018 by April 1, 2018).  Before this can be done, a charter school’s board must issue a request for proposal (RFP) from auditing firms. You can find sample RFPs for audit services online, or ask your local charter schools association or peers at other charter schools. A school’s letter to auditors should include the school’s legal name, address, and contact person; years of operation of the school; history of prior audits; status of 501c (3) application; fiscal year to be reviewed; enrollment and ADA data for fiscal year to be reviewed; if the school is site-based or independent study; if federal expenditures will exceed $750K; if the school also requests tax filing services.  Remember that you should only reach out to auditors listed on your authorizer’s approved vendor list. You might want to ask peers at other charter schools for auditor recommendations, as this can be helpful advice.   

Once you have proposals in hand, it’s time to bring them to the board for review and voting action. There are a few key qualities that are important for board members to look for in an audit firm.  Preferably, the auditing firm will have experience working with charter schools and understand how they operate; if your school is in its first year of operations, you’ll want to work with a firm that has experience working with first-year charters. An ideal firm will also be responsive to questions and proposal requests, as this is an indication that there will be good communication during the auditing process when pressing questions arise and the school requests feedback and support. It’s also important to select a firm that seems to have a reasonable, fair mentality.  

Many districts and county offices of education require some sort of notification of the selected audit firm, along with cost information and certification that the firm is authorized to conduct school audits, and some may require notification prior to April 1, so be sure to check with your authorizer. And be on the lookout for our upcoming blog post about the third phase of the audit cycle, the Pre-Audit! 

Tax Season Is Coming…Get the 411 on 1099s!

By Jacqui Runholt, AP & Business Process Specialist

November 29, 2017

You may not be a tax expert, but if you work with vendors that provide services to your charter school, you’ll need to know the basics about 1099s. A 1099 Form is used to report income from self-employment earnings, as well as interest, dividends, and other earnings, and you’ll need to submit these forms to eligible vendors and to the IRS. We’ve put together a few tips to keep in mind leading up to tax season:

  • Any vendor that is paid to provide services to your school could be eligible to pay taxes on 1099 income. As a best practice, get in the habit of requesting W-9’s from all your vendors when you start working with them, so you have the information you need to issue 1099s when the time comes.
  • Start reviewing your vendor list now so you’re not scrambling to meet the January 31 deadline!
  • If your charter school leases its facilities, the rent expenses may be reported on a 1099 Form.
  • If you’re not sure if you need to submit a 1099 for a certain vendor, just go ahead and submit it. The IRS will know whether a vendor is eligible. It’s better to be safe than sorry.

The due date for submitting 1099s to vendors and to the IRS is January 31st, but don’t wait until then. If you’re done at the beginning of January, submit! Corrections can be made through the end of March.

School Leader Summer Reading: Cleaning Up Your School’s Payment Processes

by Dena Koren, Senior Client Manager

July 3, 2017

The (slightly) less hectic summer months are a good time to review the school’s financial policies and procedures to make sure everything is in place. With that in mind, here are a few thoughts about one very important topic in this area: payment methods!

For many of our clients across the country, we see the same problems around navigating how to pay for supplies and services: school leaders want to be nimble and responsive to their team, but they also worry about managing the budget and following policies and procedures for the audit. Not an easy task!

As a school, you have several different payment methods at your disposal:

  • requesting a vendor invoice – perhaps matched with an internal purchase order (PO) – and paying that vendor by check
  • reimbursing employees or volunteers
  • maintaining petty cash at your school or central office
  • using a debit card associated with your bank account, or
  • paying by credit card

While there are reasons and occasions to use each of these, I strongly recommend using the invoice (and PO, if you have a PO process) and paying by check as often as possible!

The benefits of an invoice and check are:

  • Visibility into what you’re buying
  • Documentation and authorization that clearly follow your financial policies
  • Savings driven by consolidating orders and purchasing through contracted vendors
  • Cash management because you can readily control when checks are written

Because a well-run invoice and check process is centralized through your business staff, the ostensible drawback is that you are strictly controlling and slowing down the purchasing of materials and services. This may feel limiting to people! One way you can address this is to keep a regular weekly schedule of ordering and negotiate fast shipment times with your vendors. Another method can be purchasing portals like Staples.com or ClassWallet.com or purchasing systems like Procurify, which can allow individuals to order through a single source and follow the approval process.

For other payment methods, limit usage to the needs that they address best. Here are a few examples:

  • Employee reimbursements: mileage and meals when traveling, fingerprinting fees, limited emergency supply purchases
  • Petty cash: making change in the front office for school purposes (e.g., break a $20 or give change for the purchase of a school t-shirt), pay an emergency plumber who only accepts cash
  • Debit card: if you have a school credit card, almost nothing. The reason is that debit cards take money directly out of your account, potentially bypassing internal authorization and increasing the risk of missing documentation. If you don’t have a school credit card, then see the “credit card” section below for some reasons you might need your debit card.
  • Credit card: ah, a necessary evil! Let’s talk about this in greater length . . .

With so many digital purchases done online via credit card now, it is nearly impossible to avoid getting a school credit card. But be sure to create a robust credit card policy to go along with it! Think about both the card uses and the mechanics for your policy:

  1. Who will have a school credit card? Keep this limited, perhaps only the office manager, executive director, and/or principals. Note that it’s likely that either the cardholder or someone else at the school will need to personally guarantee the card. It’s difficult for charters to get small business cards that do not require a guarantee.
  2. What can be purchased on the credit card? Keep this limited as well, for example: travel expenses, team appreciation dinners, conference fees, specialty supplies (can be a slippery slope, so be careful!).
  3. What cannot be purchased on the credit card? Make this list robust to show you’re serious, for example: curriculum, books, school supplies, computer equipment or technology, field trip entry fees, yearbook vendor fees, refills on postage meter.
  4. How will credit card owners document purchases? Several best practices are: require all receipts to be submitted within one week of the close of the CC statement; outline consequences if documentation isn’t provided (e.g., CC usage suspended until receipts submitted); ensure that purchases of a certain level are pre-authorized; and ensure CC statements are reviewed by a supervisor (note: make sure your most senior school leader has a member of the board reviewing and signing off on his or her CC statements monthly).

One final take-away for your financial operations – It’s ok to make purchasing and payment a little inconvenient! The slight inconvenience will help ensure that you are conscious of your spending, you are staying in line with your budget, and you have everything you need when it comes time for your annual audit.