circling the drain ritabunton 05-22-2019 24_2019... · enrolment, ada, and or revenues ... failure...

Presenter: Rita Bunton

Financial Advisory Council Meeting: 05‐24‐2019

Taking Control of Your School District’s Fiscal Health

Circling the Drain

Why are we discussing the topic circling the drain?

• School districts are required to manage their finances in a fiscally sound manner (remain solvent); however, sometimes school district’s become insolvent, bankrupt.

• There are 1022 school districts in Texas (This number does not include open‐enrollment charter schools.)

• Of the 1022 school districts 72 school districts have been identified as being in financial distress which is causing the school districts to either be near insolvency or insolvent. 2

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Texas public school districts, charter schools, and education service centers may reproduce and use copies of the materials and related materials for the districts’ and schools’ educational use without obtaining permission from TEA. Residents of the state of Texas may reproduce and use copies of the material and related material for individual personal use only without obtaining written permission of TEA.

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For information contact: Office of Intellectual Property, Texas Education Agency, 1701 N. Congress Ave., Austin, TX 78701‐1494; phone 512‐463‐9270 or 512‐463‐9713; email: [email protected].

Copyright

3

Data used in this presentation is actual school district data; however, each school district’s name and county district number (CDN) has been detached from the data.

The terms “school district” and “district” are used interchangeably throughout this presentation to refer to a school district.

The term Public Education Information Management System (PEIMS) is used throughout this presentation to refer to PEIMS Edit+ and Texas Student Data System PEIMS (TSDS PEIMS).

The applicable data for each rating year will be extracted from the data feed, PEIMS, and other required collection systems to produce your school district’s final School FIRST rating.

TAC and TEC are abbreviations for the Texas Administrative Code and Texas Education Code, respectively.

Notes on this Presentation

4

Overview of Circling the Drain Financially Solvency versus Insolvency Signs your district may be circling the

drain Budgeting

In-depth review of school district financial data

Best Practices to Evaluate Your School District’s Solvency

Summary Useful Links Contact Information

5

Overview of Circling the Drain Financially

6

Keys to change

Leadership and Communication

Problem(s)/Issue(s)

‐Wiktionary.org“

1.(idiomatic) To be in rapid decline or a state of downfall, especially as leading to inevitable utter failure or destruction. 2. to meander, undirected towards inevitable destruction.

“What are some aspects of circling the drain and opportunities for change?

What is circling the drain financially?

7

Solvency versus Insolvency

Solvency versus Insolvency Solvency Some Habits of Fiscally

Responsible School Districts Insolvency Insolvency, what does it

really mean for a district?

8

• To be insolvent is much more serious than the temporary inability to pay debts because even if you have access to temporary funds it can’t solve the underlying problem of excess debts.

• The condition of one who is unable to pay his or her debts as they fall due. Condition of having more debts than assets.

INSOLVENCY

• The state of having enough funds, liquid and non‐liquid assets to pay all of one’s debts.

• The ability of an entity to run its operations in the long‐term with enough funds and liquid assets to pay all of its debts in the short‐term and long‐term.

SOLVENCY

Solvency versus Insolvency

9

04

Responsibility

03

District Operations

02

Longevity01

Leadership

Total Assets ÷Total Liabilities

Solvency–a school district’s ability to sustain its activity into the long‐term. Ability to pay long‐term debt in the long run.

Don’t confuse solvency with liquidity, they are not interchangeable. Liquidityis the ability to meet current liabilities with current assets. Liquidity is good, solvency is better.

What does it mean to be solvent?Solvency

10

Proper Budgeting and Financial Projections

Outsourcing Non‐Instructional Services

Fiscally Responsible Debt Policy

Structuring Capital Costs Effectively

Be Innovative

Minimizing Administrative Costs

With the new competitive environment of public education, school districts must create habits for fiscal longevity, solvency.

Some Habits of Fiscally Responsible School Districts

11

Change Management

04

Improper Budgeting

03

Debts > Assets

02

Ineffective Leadership

01

Insolvency–the condition of a school district not being able to pay its debts as the come due. A district’s inability to sustain its activity into the long‐term.

What does it mean for a school district to be insolvent?

Insolvency

12

“The purpose is clear. It is safety with solvency. The country deserves

both.”(Dwight D. Eisenhower,

1890‐1969 – 34th President of the United States)

It may mean financial exigency for some districts.Financial exigency means that the financial position of a school district as a whole is such that its financial resources are insufficient to support the school district’s instructional programs or the school district is unable to finance the full compensation of staff for the current or next fiscal year.

Statute and Rule• TEC, §44.011, Financial Exigency• 19 TAC §109.2001, Financial Exigency

Financial Exigency

If your school district is circling the drain or insolvent it may lose its accreditation status.Your school district’s accreditation status is based on the following criteria:

• academic accountability; • financial accountability; and • other compliance criteria, such as PEIMS

dataStatutes and Rule

• TEC, §39.051, Accreditation Status• TEC, §39.052, Determination of

Accreditation Status or Performance Rating• 19 TAC §97.1055, Accreditation Status

Fiscal Reality

Insolvency, what does it really mean for a district?

13

Signs of Financial Distress Possible Causes of Financial

Distress Possible Solutions Fiscal Health Check‐up Time

Signs Your School District May be Circling the Drain

14

• Budget trends are not in line with decreasing enrolment, ADA, and or revenues

• Deficit spending is not monitored and has led to a negative unassigned fund balance

Budgeting and

Deficit Spending• The unassigned fund balance continues to decline each fiscal year and or is negative

• School district’s unrestricted net position is negative

Fund Balance

• The district is unable to pay debts as they come due.

• Debts continue to exceed assets each fiscal year

Debt Management

• Declining revenues

• Increased spending despite declining revenues

Revenues and Expenditures

• Decreasing enrollment and or average daily attendance (ADA)

• Student to staff ratios do not align with decreasing student enrolment

Enrollment and Staffing Trends

Signs of Financial Distress

15

Possible Causes of Financial Distress

16

Student enrolment growth is flat or declining

Property value growth is flat or declining

Districts experiencing fast growth that have taken on a lot of debt

Small districts with declining ADA and fund balances

Declining local labor markets and industries

Districts experiencing cyclicchanges in the rate of property value growth

Possible Causes of Financial Distress, continued

Leadership is not accountable, proactive, hands‐on and/or knowledgeable of the fiscal health of the district

Sound financial decisions are not made

Failure to properly communicate and evaluate programmatic needs

Failure to seek out inefficiencies and opportunities for cost containment

Failure to tie expenditure growth to revenue growth

Failure to avoid deficit spending17

Possible Causes of Financial Distress, continued

18

Failure to minimize debt and associated costs

Failure to tie business decisions to the districts strategic plan

Failure to assess every contract

Failure to hire knowledgeable staff

Not focusing on financial oversight

Failure to stay current with legislative and financial issues impacting the district

Failure to plan for the worst case scenario

• Make tough decisions to free the district from circling the drain

• Look for ways to increase revenues and reduce expenditures

Monetize

• Authorize change management

• Create financial ratios to monitor your district’s fiscal health

Authorize Change

• Create and maintain a balanced budget

• Create a fiscally responsible budget that is sustainable

Budget

Possible Solutions

19

• Goals of a fiscal health check‐up are to ensure your district can meet its fiscal obligations (remain solvent) so that it can continue educatingstudents

• In reality your school district should be conducting a fiscal health check‐up weekly and for some school districts it should be daily.

• Is your school district routinely performing a fiscal health‐check‐up?

Fiscal Health Check‐up Time

20

Budget Components and Objectives

Budget Requirements Budget Cycle Strategic Budget Process Budget Issues and Possible

Solutions

Budgeting

21

22

Transparency – shining through; providing clarity, timely, meaningful and reliable information (my own definition)

• Five characteristics: communication, honesty, regular feedback, respect and admitting wrong/mistakes

• Discloses actual school spending, how much and how its spent

• Discloses the school district’s fiscal management practices

• Gives insight and helps to instill trust among stakeholders

Budget Components and Objectives ‐ Transparency

23

Budget Components

and Objectives ‐Process

• Budgets must be prepared and approved at least at the fund and functional levels to comply with state statutes and rules.

• The official adopted school district budget and amended budget (final), must be filed with the TEA through PEIMS by the required deadlines.

Budget Components and Objectives –Governance

24

• TEC, §44.002, Preparation of Budget• TEC, §44.003, Records and Reports • TEC, §44.004, Notice of Budget and Tax Rate Meeting, Budget Adoption

• TEC, §44.005, Filing of Adopted Budget• TEC, §44.0051, Posting of Adopted Budget• TEC, §44.006, Effect of Adopted Budget, Amendments• TEC, §44.007, Accounting System; Report• Local Government Code §140.0045, Itemization of Certain Public Notice Expenditures Required in Certain Political Subdivisions

• Local Government Code §140.005, Annual Financial Statement of School, Road, or Other District,

• Local Government Code §140.006, Publication of Annual Financial Statement by School, Road, or Other District

Budget Components and

Objectives –Incentives

25

1

Your district is in

compliance with required local, state, and federal requirements

2

Transparency; Stakeholders are kept

informed of the district’s fiscal status

3

Stakeholder trust and buy‐in is created

Budget Components and

Objectives –Mindset

• Although it is a requirement, it should be a core value

• A key to success• Starts with each individual employee

26‐Lou Holtz

Amendment(s) of Budget(s)

Debt Service Fund (Fund 599)

General Fund (Fund 199)

Food Service Fund (Fund 240)

Budget Requirements

27

Reporting Forecasting

Budgeting

‘What if’ AnalyzePlanning

Budget Cycle

28

Ensure restricted funds requirements are adhered to by integrating restricted funds allocation processes and timelines, when possible, into the strategic budget planning process and revising as grant revenue become known

Integrate all funds in the budget process to create resource‐related decisions

Inclusion of All Funds

Evaluate structures such as class size, teacher pay, central operations, etc.

Determine how or if proposed budget changes align with your district’s strategic plan to meet student goals

Focus budget decisions on strategic goals; identify and focus on essentials

Focus

Be clear about the district’s priorities and available resources

Assemble your budget team and outline strategic strategies

Develop a calendar that includes milestones from budgeting, strategic planning, and financial and academic accountability requirements

Strategic Planning & Budget Alignment

Strategic Budget Process

29

Ensure budgets are detailed

Ensure school budgets are adopted early enough for leadership to make strategic resource decisions and amendments

Support of District Strategic Planning

Consider the full picture in ROI analysis: reflect on new and ongoing investments; balancing budget reductions and investments

Include multi‐year considerations: value investments for the future appropriately

Consider cost per unit and quality of service

Return on Investment (ROI)

Build feedback opportunities that encourage stakeholders to consider trade‐offs, opportunity savings and other revenue constraints

Solicit feedback from all stakeholders before the proposed budget is presented for formal adoption (TEC, §§44.002–44.004)

Stakeholder Integration

Strategic Budget Process, continued

30

• Alternative approaches to reducing budget gaps help to support solvency.

• Honesty about financial struggles supports transparency

• Knowledge of shrinking revenues and budget gaps allows your district to create strategies and contingency plans to meet financial challenges

Impact

• Get explicit about what is on each employee’s plate to discover accidental overlap and inefficiencies

1. Identify opportunities to consolidate positions and free up resources

2. Optimize district spending

Activity

• Work on long‐term solutions

• Determine root cause(s) of budget short‐falls; insolvency

1. Bridge budget gaps

2. Make strategic reductions

3. Pursue cost neutral improvements

Solution

• Adhere to legal mandates

• Face issues presented to your district without making excuses

1. Increased legal mandates

2. Unsustainable cost structures

3. Flat or Declining revenue streams

Issues

Budget Issues and Possible Solutions

31

In‐depth Review of School District Financial Data

32

Financial Data Review

• Data used in this section of the presentation is actual school district data; however, each school district’s name and CDN has been detached from the data.

• The financial ratios are used to assess the financial health of the district.

• As a good practice your district should use financial ratios to assess the financial health of the district on a regular‐scheduled basis. 33

DistrictADA

2014‐2015ADA

2015‐2016ADA

2016‐2017

Students in

Membership 2013‐2014

Students in


Students in


Students in


School District A 334.964 315.853 350.482 361 363 387 384School District B 2,226.322 2,208.210 2,172.658 2355 2333 2,364 2,311School District D 5,096.597 5,037.059 5,570.616 5199 5430 5,666 5,974School District F 5,327.929 5,404.300 5,057.771 5747 5746 5,640 5,524School District G 1,875.918 1,968.919 1,732.660 2134 2031 1,974 1,857School District L 1,277.508 1,362.250 1,368.814 1392 1373 1,425 1,461School District M 273.787 205.084 319.986 122 246 426 334School District N 1,828.359 1,825.000 1,909.011 1901 1982 2,008 2,055School District P 854.375 870.000 803.177 932 933 897 875School District R 912.568 889.474 904.009 999 1002 1,014 1,006School District S 31,957.609 33,353.990 32,886.028 33685 33552 34,099 34,570School District V 385.625 390.000 378.911 439 409 424 426

Financial Review of School Districts that may be Circling the Drain –Change in Students in Membership Ratio

34

District

Change in Students in Membership Ratio

2014‐2015


2015‐2016


2016‐2017School District A 0.55% 6.61% ‐0.78%School District B ‐0.93% 1.33% ‐2.24%School District D 4.44% 4.35% 5.44%School District F ‐0.02% ‐1.84% ‐2.06%School District G ‐4.83% ‐2.81% ‐5.93%School District L ‐1.36% 3.79% 2.53%School District M 101.64% 73.17% ‐21.60%School District N 4.26% 1.31% 2.34%School District P 0.11% ‐3.86% ‐2.45%School District R 0.30% 1.20% ‐0.79%School District S ‐0.39% 1.63% 1.38%School District V ‐6.83% 3.67% 0.47%

Financial Review of School Districts that may be Circling the Drain –Change in Students in Membership Ratio, continued

35

District

Total Staff FTE

2013‐2014

Total Staff FTE

2014‐2015

Total Staff FTE

2015‐2016

Total Staff FTE

2016‐2017

3‐Year Student to Staff FTE Ratio

3‐Year Student to Staff FTE

Ratio < 15%

School District A 75.326 73.236 73.43 73.502 5.40% YesSchool District B 365.228 375.635 374.69 372.808 ‐0.19% YesSchool District D 698.464 733.067 762.43 827.072 ‐2.49% YesSchool District F 840.633 870.804 861.21 882.783 ‐5.17% YesSchool District G 358.541 342.794 351.43 361.898 ‐13.39% YesSchool District L 206.511 240.147 223.73 256.042 ‐0.20% YesSchool District M 35.846 50.440 85.03 87.285 ‐21.54% NoSchool District N 299.771 294.597 308.11 335.692 ‐9.01% YesSchool District P 169.169 166.093 169.08 165.017 ‐5.61% YesSchool District R 164.331 161.281 158.60 159.190 1.72% YesSchool District S 3,621.484 3,803.765 3,894.88 4,048.682 ‐3.20% YesSchool District V 79.074 82.140 77.96 77.125 10.93% Yes

Financial Review of School Districts that may be Circling the Drain –Student to Staff Ratio

36

District

Unrestricted Net Position 2015‐2016

Net Pension Liabilities 2015‐2016

Unrestricted Net Position 2016‐2017

Net Pension Liabilities 2016‐2017

Change in Unrestricted Net Position

Ratio 2016‐2017

Change in Unrestricted Net

Position >= 0

2016‐2017School District A $940,138 $910,476 ($2,644,412) $1,336,884 ‐170.65% NoSchool District B ($3,765,106) $7,010,631 ($4,861,650) $6,767,209 ‐41.29% NoSchool District D $4,258,135 $11,429,108 ($2,373,195) $12,688,305 ‐34.25% NoSchool District F ($4,413,330) $15,418,241 ($10,795,639) $15,906,638 ‐53.56% NoSchool District G $1,187,526 $4,958,641 $262,220 $5,057,453 ‐13.45% NoSchool District L $761,329 $3,344,373 ($2,440,650) $3,511,031 ‐73.93% NoSchool District M $409,228 $1,012,351 ($393,414) $1,199,895 ‐43.27% NoSchool District N ($2,666,771) $5,402,090 ($3,253,915) $5,753,030 ‐8.64% NoSchool District P $4,358,233 $2,485,366 $2,379,725 $2,604,073 ‐27.18% NoSchool District R ($1,267,858) $2,222,159 ($38,277) $2,249,076 131.67% YesSchool District S ($15,632,710) $67,579,409 ($28,946,704) $71,445,260 ‐18.19% NoSchool District V $125,597 $960,353 ($117,614) $992,247 ‐19.46% No

Financial Review of School Districts that may be Circling the Drain –Change in Unrestricted Net Position Ratio

37

DistrictTotal Assets 2015‐2016

Total Assets 2016‐2017

Total Liabilities 2015‐2016

Total Liabilities 2016‐2017

School District A $5,634,690 $11,103,091 $1,045,195 $6,265,454School District B $44,461,649 $42,884,609 $41,227,308 $40,404,412School District D $188,509,676 $191,746,799 $173,240,098 $172,416,172 School District F $105,760,443 $102,039,310 $88,469,929 $89,736,685 School District G $44,409,563 $42,607,200 $35,685,423 $34,486,637 School District L $32,817,149 $30,602,938 $30,867,315 $32,116,105 School District M $4,029,366 $1,909,033 $3,849,576 $2,520,916 School District N $40,517,852 $39,112,235 $37,448,059 $35,990,307 School District P $25,995,221 $23,218,239 $15,172,334 $14,032,985 School District R $35,596,573 $39,283,281 $32,264,014 $35,701,772 School District S $884,762,230 $842,710,533 $977,669,742 $927,419,014 School District V $18,016,221 $18,157,445 $14,109,132 $14,314,018

Financial Review of School Districts that may be Circling the Drain –Total Liabilities to Total Assets Solvency Ratio Data Table

38

District

((Total Liabilities ‐NPL)/Total Assets) Debts to Total Assets Ratio2015‐2016

Total Liabilities to Total Assets Solvency Ratio

<=0.42015‐2016

((Total Liabilities ‐NPL)/Total Assets)Debts to Total Assets Ratio 2016‐2017

Total Liabilities to Total Assets

Solvency Ratio <= 0.4

2016‐2017School District A 0.0239 Yes 0.4439 NoSchool District B 0.7696 No 0.7844 NoSchool District D 0.8584 No 0.8330 NoSchool District F 0.6907 No 0.7235 NoSchool District G 0.6919 No 0.6907 NoSchool District L 0.8387 No 0.9347 NoSchool District M 0.7041 No 0.6920 NoSchool District N 0.7909 No 0.7731 NoSchool District P 0.4881 No 0.4922 NoSchool District R 0.8440 No 0.8516 NoSchool District S 1.0286 No 1.0157 NoSchool District V 0.7298 No 0.7337 No

Financial Review of School Districts that may be Circling the Drain –Total Liabilities to Total Assets Solvency Ratio

39

District

(Unassigned + Assigned General Fund

Balances/Total Revenues General

Fund) Solvency Ratio2015‐2016

Unassigned + Assigned Fund

BalancesSolvency Ratio

<= 25%2015‐2016

(Unassigned + Assigned General

Fund Balances/Total Revenues General

Fund)Solvency Ratio 2016‐2017

Unassigned + Assigned Fund

Balances Solvency Ratio

<= 25%2016‐2017

School District A 31.05% No 38.64% NoSchool District B 4.94% Yes 3.19% YesSchool District D 11.95% Yes 6.19% YesSchool District F 8.30% Yes 1.62% YesSchool District G 11.59% Yes 14.22% YesSchool District L 18.11% Yes 7.31% YesSchool District M 13.89% Yes 3.67% YesSchool District N 8.83% Yes 8.51% YesSchool District P 40.48% No 23.13% YesSchool District R 18.01% Yes 16.13% YesSchool District S 0.81% Yes 0.46% YesSchool District V 13.94% Yes 10.40% Yes

Financial Review of School Districts that may be Circling the Drain –Unassigned Plus Assigned Fund Balances Solvency Ratio

40

District

Current Assets

2014‐2015

Current Assets

2015‐2016

Current Assets

2016‐2017

Current Liabilities 2014‐2015



School District A $1,348,894 $1,572,451 $6,611,646 $185,238 $134,719 $473,837School District B $8,353,328 $7,934,742 $3,130,752 $2,217,106 $2,196,943 $2,828,929School District D $73,493,048 $24,320,833 $19,673,966 $17,381,117 $13,304,867 $14,432,700School District F $20,798,271 $12,282,055 $11,591,440 $10,025,495 $6,726,827 $10,527,002School District G $11,691,217 $9,872,021 $8,173,644 $5,218,013 $4,341,165 $4,274,085School District L $4,545,404 $4,430,206 $2,803,820 $1,176,043 $1,589,966 $3,006,966School District M $2,035,823 $3,536,060 $1,434,957 $1,565,473 $2,765,559 $1,313,224School District N $3,808,157 $2,923,302 $2,738,284 $2,901,252 $2,386,831 $2,357,955School District P $8,515,555 $7,566,609 $5,179,563 $1,025,316 $1,581,911 $1,076,956School District R $26,913,508 $25,017,844 $8,153,069 $1,015,504 $968,724 $5,042,280School District S $234,614,223 $149,791,734 $76,517,325 $62,614,204 $75,521,708 $59,664,272School District V $12,430,018 $8,629,911 $2,777,325 $791,493 $1,471,308 $2,108,129

Financial Review of School Districts that may be Circling the Drain –Current Liabilities to Current Assets Ratio Data Table

41

District

Current Assets to Current

Liabilities Ratio 2015‐2016

Current Ratio >= 2

2015‐2016

Current Assets to Current Liabilities

Ratio 2016‐2017

Current Ratio >= 2

2016‐2017School District A 11.67 Yes 13.95 YesSchool District B 3.61 Yes 1.11 NoSchool District D 1.83 No 1.36 NoSchool District F 1.83 No 1.10 NoSchool District G 2.27 Yes 1.91 NoSchool District L 2.79 Yes 0.93 NoSchool District M 1.28 No 1.09 NoSchool District N 1.22 No 1.16 NoSchool District P 4.78 Yes 4.81 YesSchool District R 25.83 Yes 1.62 NoSchool District S 1.98 No 1.28 NoSchool District V 5.87 Yes 1.32 No

Financial Review of School Districts that may be Circling the Drain –Current Liabilities to Current Assets Ratio

42

District

Object Code 1110 Cash and

Cash Equivalents 2014‐2015





Object Code 1120

Current Investments 2014‐2015

Object Code 1120

Current Investments 2015‐2016

School District A $198,505 $1,170,447 $1,586,809 $995,611 School District B $1,227,129 $918,025 $1,055,199 School District D $1,745,798 $9,035 $0 $1,570,197 $5,088,772 School District F $4,620,819 $2,508,048 $2,999,839 $5,612,135 $2,114,887 School District G $5,544,552 $3,594,090 $3,084,594 $2,465,840 $2,472,360 School District L $2,714,749 $2,933,283 $1,210,558 School District M $1,834,447 $1,301,627 $1,111,660 School District N $331,756 $140,425 $424,839 $1,273,175 $395,838 School District P $100,469 $1,073,924 $552,103 $3,957,434 $3,021,643 School District R $883,070 $1,147,712 $1,043,062 $600,000 $600,000 School District S $28,707,234 $21,995,561 $13,083,706 School District V $669,354 $82,720 $0

Financial Review of School Districts that may be Circling the Drain –Days of Cash on Hand Data Table

43

District

Object Code 1120 Current

Investments 2016‐2017

Object Code 1240 Receivables Due

from Other Governments 2014‐2015





School District A $15,094 $267,045 $484,327 School District B $0 $40,610 $484,274 $30,816 School District D $1,308,261 $2,884,432 $3,411,265 $9,228,983 School District F $2,730,457 $1,465,386 $2,005,284 $1,058,135 School District G $2,488,240 $275,025 $372,658 $462,314 School District L $7,068 $421,563 School District M $180,871 $2,196,157 $274,851 School District N $189,768 $593,677 $1,480,553 $1,392,869 School District P $1,723,065 $494,546 $239,003 $189,922 School District R $600,000 $288,904 $487,225 $524,203 School District S $2,247,546 $11,662,522 $7,329,861 School District V $123,524 $655,206 $987,852

Financial Review of School Districts that may be Circling the Drain –Days of Cash on Hand Data Table, continued

44

District

Cash and Cash Equivalents to

Current Liabilities Ratio 2015‐2016


Current Liabilities >= 2

2015‐2016


Current Liabilities Ratio

2016‐2017


Current Liabilities >= 2

2016‐2017 School District A 8.69 Yes 3.35 YesSchool District B 0.42 No 0.37 NoSchool District D 0.38 No 0.09 NoSchool District F 0.69 No 0.54 NoSchool District G 1.40 No 1.30 NoSchool District L 1.84 No 0.40 NoSchool District M 0.47 No 0.85 NoSchool District N 0.22 No 0.26 NoSchool District P 2.59 Yes 2.11 YesSchool District R 1.80 No 0.33 NoSchool District S 0.29 No 0.22 NoSchool District V 0.06 No 0.00 No

Financial Review of School Districts that may be Circling the Drain –Cash and Cash Equivalents to Current Liabilities Ratios

45

District

Days of Cash on Hand

2014‐2015

Days of Cash on Hand >= 60

2014‐2015

Days of Cash

on Hand 2015‐2016


2015‐2016

Days of Cash on Hand 2016‐2017


2016‐2017 School District A 102.37 Yes 103.34 Yes 126.98 YesSchool District B 20.28 No 14.81 No 16.90 NoSchool District D 26.38 No 33.33 No 8.50 NoSchool District F 71.38 Yes 31.34 No 37.58 NoSchool District G 159.90 Yes 107.33 Yes 103.31 YesSchool District L 81.41 Yes 77.58 Yes 32.19 NoSchool District M 148.14 Yes 85.43 Yes 75.80 YesSchool District N 30.20 No 9.31 No 10.89 NoSchool District P 148.50 Yes 126.66 Yes 76.71 YesSchool District R 57.01 No 65.75 Yes 62.33 YesSchool District S 40.96 No 30.16 No 17.02 NoSchool District V 57.89 No 7.30 No 0.00 No

Financial Review of School Districts that may be Circling the Drain –Days of Cash on Hand Ratio

46

District

Days of Net Cash

2016‐2017

Days of Net Cash >=90

2016‐2017

Change in Cash and Cash

Equivalents Ratio

2015‐2016


Equivalents >= 0

2015‐2016


Equivalents Ratio

2016‐2017


Equivalents >= 0

2016‐2017 School District A 165.73 Yes 489.63% Yes 35.57% YesSchool District B 17.39 No ‐25.19% No 14.94% YesSchool District D 68.45 No ‐99.48% No ‐100.00% NoSchool District F 44.52 No ‐45.72% No 19.61% YesSchool District G 111.88 Yes ‐35.18% No ‐14.18% NoSchool District L 43.40 No 8.05% Yes ‐58.73% NoSchool District M 94.54 Yes ‐29.05% No ‐14.59% NoSchool District N 35.55 No ‐57.67% No 202.54% YesSchool District P 83.11 No 968.91% Yes ‐48.59% NoSchool District R 82.22 No 29.97% Yes ‐9.12% NoSchool District S 26.56 No ‐23.38% No ‐40.52% NoSchool District V 89.78 No ‐87.64% No ‐100.00% No

Financial Review of School Districts that may be Circling the Drain –Days of Net Cash and Change in Cash and Cash Equivalents Ratios

47

District

Change in Cash and

Cash Equivalents and Current Investments Ratio

2016‐2017

Change in Cash and Cash Equivalents and

Current Investments <= 10% Decline 2016‐2017

Quick Ratio FY 2017

School District A 35.57% Yes 4.371 School District B 14.94% Yes 0.384 School District D ‐74.34% No 0.730 School District F 23.95% Yes 0.645 School District G ‐8.14% Yes 1.412 School District L ‐58.73% No 0.543 School District M ‐14.59% No 1.056 School District N 14.61% Yes 0.851 School District P ‐44.45% No 2.289 School District R ‐5.99% Yes 0.430 School District S ‐40.52% No 0.342 School District V ‐100.00% No 0.469

Financial Review of School Districts that may be Circling the Drain –Change in Cash and Cash Equivalents and Current Investments and Quick Ratios

48

District

Object Code 3600

Unassigned Fund Balance 2014‐2015

Object Code 3600


Object Code 3600


Object Code 3590

Assigned Fund Balance 2015‐2016

Object Code 3590

Assigned Fund Balance 2016‐2017

School District A $1,105,813 $1,371,240 $2,008,735 School District B $1,208,768 $1,120,832 $717,096 $0 School District D $5,391,608 $5,833,942 $1,902,712 $1,081,653 School District F $3,854,384 $4,426,998 $826,866 School District G $3,053,757 $2,319,142 $2,796,699 School District L $2,091,551 $2,128,015 $890,505 School District M $522,051 $820,679 $175,172 School District N $2,084,493 $1,774,266 $1,661,630 $75,000 $75,000 School District P $2,007,847 $3,733,424 $2,111,238 School District R $1,346,171 $1,800,791 $1,538,565 School District S $9,661,367 $380,305 $1,265,837 $1,698,788 School District V $699,017 $562,862 $401,354

Financial Review of School Districts that may be Circling the Drain –Unassigned and Assigned Fund Balances Data Table

49

District

Unassigned Fund BalanceDays Cash on Hand Ratio

2016‐2017

Unassigned Fund BalanceDays Cash on Hand

>= 60 2016‐2017

School District A 160.74 YesSchool District B 11.48 NoSchool District D 12.36 NoSchool District F 5.42 NoSchool District G 51.85 NoSchool District L 23.68 NoSchool District M 11.94 NoSchool District N 29.43 NoSchool District P 71.18 YesSchool District R 58.37 NoSchool District S 1.65 NoSchool District V 36.48 No

Financial Review of School Districts that may be Circling the Drain –Unassigned Fund Balance Days Cash on Hand Ratio

50

District

3‐Year Average Unassigned Fund Balance

Ratio 2016‐2017

3‐Year Average Unassigned Fund Balance Ratio

>= 0.1667 (which is 10 weeks, or 2

months) 2016‐2017

1‐Year Unassigned Fund Balance

Ratio 2016‐2017

1‐Year Unassigned Fund Balance

Ratio >= 0.1667

(which is 10 weeks, or 2 months) 2016‐2017

School District A 0.3439 Yes 0.4404 YesSchool District B 0.0452 No 0.0315 NoSchool District D 0.0853 No 0.0339 NoSchool District F 0.0569 No 0.0149 NoSchool District G 0.1405 No 0.1420 NoSchool District L 0.1303 No 0.0649 NoSchool District M 0.0986 No 0.0327 NoSchool District N 0.0908 No 0.0806 NoSchool District P 0.2376 Yes 0.1950 YesSchool District R 0.1624 No 0.1599 NoSchool District S 0.0146 No 0.0045 NoSchool District V 0.1339 No 0.0999 No

Financial Review of School Districts that may be Circling the Drain –Unassigned Fund Balance 3 and 1 Year Average Ratios

51

District

Object Code 5020 Total

Revenues 2014‐2015






Expenditures 2014‐2015





School District A $4,211,151 $4,416,074 $5,198,905 $4,257,549 $4,134,090 $4,561,411 School District B $21,798,014 $22,694,557 $22,480,269 $22,087,844 $22,620,778 $22,792,225 School District D $47,376,373 $48,826,108 $48,194,327 $45,884,641 $55,822,623 $56,191,474 School District F $52,313,141 $53,364,950 $51,091,541 $52,325,600 $53,841,030 $55,656,905 School District G $19,812,192 $20,010,433 $19,665,840 $18,285,451 $20,630,996 $19,688,714 School District L $11,365,602 $11,748,697 $12,176,115 $12,172,046 $13,800,681 $13,725,239 School District M $4,120,806 $5,908,873 $4,771,849 $4,520,016 $5,561,231 $5,353,008 School District N $20,036,936 $20,931,301 $20,401,863 $19,398,196 $21,030,795 $20,608,664 School District P $9,416,161 $9,222,263 $9,128,938 $9,974,003 $11,802,244 $10,826,274 School District R $9,953,891 $9,998,011 $9,540,553 $9,494,696 $9,702,855 $9,621,699 School District S $246,004,003 $257,514,502 $274,597,236 $255,806,984 $266,234,243 $280,520,873 School District V $4,072,773 $4,037,951 $3,859,945 $4,220,282 $4,136,904 $4,016,047

Financial Review of School Districts that may be Circling the Drain –Revenues versus Expenditures Data Table

52

District

Revenues > Expenditures Ratio

2015‐2016

Revenues > Expenditures

>= 0% 2015‐2016


Ratio 2016‐2017


>= 0 % 2016‐2017

School District A 6.8209% Yes 13.9758% YesSchool District B 0.3262% Yes ‐1.3687% NoSchool District D ‐12.5335% No ‐14.2320% NoSchool District F ‐0.8842% No ‐8.2027% NoSchool District G ‐3.0079% No ‐0.1162% NoSchool District L ‐14.8687% No ‐11.2867% NoSchool District M 6.2512% Yes ‐10.8567% NoSchool District N ‐0.4731% No ‐1.0035% NoSchool District P ‐21.8601% No ‐15.6779% NoSchool District R 3.0420% Yes ‐0.8434% NoSchool District S ‐3.2752% No ‐2.1117% NoSchool District V ‐2.3920% No ‐3.8870% No

Financial Review of School Districts that may be Circling the Drain –Revenues versus Expenditures Ratio

53

District

Object Code 3000 Fund 199

Fund Balance ‐Ending

2014‐2015



2015‐2016



2016‐2017School District A $1,125,662 $1,391,089 $2,028,584 School District B $1,450,465 $1,523,479 $1,177,185 School District D $7,854,544 $10,556,634 $5,351,165 School District F $10,045,962 $5,738,827 $1,871,276 School District G $4,524,655 $3,904,092 $3,933,370 School District L $2,098,191 $2,128,015 $898,667 School District M $522,051 $820,679 $175,172 School District N $2,250,426 $1,973,491 $1,766,690 School District P $4,792,847 $3,926,073 $2,159,472 School District R $1,446,171 $1,900,791 $1,647,405 School District S $66,617,092 $57,897,351 $47,890,833 School District V $699,017 $565,112 $403,354

Financial Review of School Districts that may be Circling the Drain –Fund 199 Ending Fund Balance Data Table

54

District

Change in Fund 199

Object Code 3000 Fund Balance ‐ Ending

Ratio 2015‐2016

Change in Fund 199


<= 20% Decline 2015‐2016

Change in Fund 199


Ratio 2016‐2017

Change in Fund 199

Object Code 3000 Fund Balance ‐

Ending <= 20% Decline 2016‐2017

School District A 23.58% Yes 45.83% YesSchool District B 5.03% Yes ‐22.73% NoSchool District D 34.40% Yes ‐49.31% NoSchool District F ‐42.87% No ‐67.39% NoSchool District G ‐13.72% Yes 0.75% YesSchool District L 1.42% Yes ‐57.77% NoSchool District M 57.20% Yes ‐78.66% NoSchool District N ‐12.31% Yes ‐10.48% YesSchool District P ‐18.08% Yes ‐45.00% NoSchool District R 31.44% Yes ‐13.33% YesSchool District S ‐13.09% Yes ‐17.28% YesSchool District V ‐19.16% Yes ‐28.62% No

Financial Review of School Districts that may be Circling the Drain – Fund 199 Ending Fund Balance Ratio

55

Ratios Calculation NotesChange in Students in Membership

(Students in Membership for Year Under Review ‐ Students in Membership for Prior Year Under Review) / Students in Membership for Prior Year Under Review

Review the students in membership numbers for large decreases in students in membership.

3‐Year Student to Staff FTE Ratio

Student to Staff Ratio for Year Under Review / Student to Staff Ratio 3 Years Prior to Year Under Review

Students in Membership / Total Staff FTE = Student to Staff Ratio calculation

Change in Unrestricted Net Position Ratio

((Net Position for Year Under Review + Net Pension Liabilities (NPL) for Year Under Review) / (Net Position for Prior Year Under Review + NPL forPrior Year Under Review))

Any ratio over 0% is good. Any negative ratio should be reviewed. A decreasing ratio over time indicates that the school district's financial position is weakening as a result of its resource flows.

Ratios Used in this Presentation

56

Ratios Calculation NotesDebts to Total Assets Ratio (Total Liabilities to Total Assets Ratio) (Solvency Ratio)

(Total Liabilities – NPL) /Total Assets < = .40 or 40%

The total liabilities to total assets ratio is an indicator of the district's financial leverage. It tells you the percentage of the district's total assets that were financed by creditors at fiscal year‐end. For example, if the district's total liabilities to total assets ratio is 0.4 or 40% this indicates 40% of the district's assets are financed by creditors and the district is providing 60% of the assets' cost.

Unassigned +Assigned Fund Balances to Total Revenues Ratio (Solvency Ratio)

(Unassigned Fund Balance + Assigned Fund Balance) / Total General Fund Revenues

Measures the relationship of the ending unassigned and assigned fund balances to revenues as a percentage for the fiscal year. This ratio is a snapshot point‐in‐time measure of the percentage of revenues remaining after all revenues have been collected and all obligations for the fiscal year have been paid.

Ratios Used in this Presentation

57

Ratios Calculation DescriptionCurrent Assets to Current Liabilities Ratio

Current Assets / Current Liabilities > = 2

If the district’s current assets to current liabilities ratio is 2 this indicates the district has $2 in current assets for every $1 in current liabilities, a 2:1 ratio.

Cash and Cash Equivalents to Current Liabilities Ratio

((Cash and Cash Equivalents Current + Current Investments) / (Current Liabilities)) > = 2

Measures the relationship of cash to current liabilities. Look for a positive ratio of greater than or equal to 2. If the trend is a negative ratio for two or more years the school district may be experiencing a cash flow issue.

Ratios Used in this Presentation, continued

58

Ratios Calculation DescriptionDays of Cash on Hand Ratio (Cash and Cash Equivalents +

Current Investments) / (Total Expenditures) x 365 > = 60

90 to 120 days is the goal, but 60 days will allow the school district to meet obligations in most situations

Days of Net Cash Ratio ((Cash and cash equivalents + Current Investments +Receivables Due from Other Governments) / (Total Expenditures)) X 365 > = 90

90 days is the goal

Change in Cash and Cash Equivalents Ratio

(Cash and Cash Equivalents for Year Under Review ‐ Cash and Cash Equivalents from 1 Year Prior) / Cash and Cash Equivalents from One Year Prior > = 0

Look for a positive ratio. If the trend is a negative ratio for two or more years the school district may be experiencing a cash flow issue.


59

Ratios Calculation Description

Change in Cash and Cash Equivalents and Current Investments Ratio

(Cash and Cash Equivalents + Current Investments for Year Under Review ‐ Cash and Cash Equivalents from Prior Year) / (Cash and Cash Equivalents + Current Investments from Prior Year) < = ‐10% (less than or equal to a 10% decrease)

Look for a positive ratio. The goal is for the change (decrease) to be less than 10%. If the trend is a negative ratio for two or more years the school district may be experiencing a cash flow issue.


60

Ratios Calculation DescriptionQuick Ratio ((Cash and Cash Equivalents +

Current Investments + Current Receivables) / Current Liabilities) > = 1.0

This ratio uses only the most liquid assets (cash and cash equivalents and short‐term investments (current investments) to evaluate the district’s ability to meet it current obligations.

The ideal ratio is > = 1.0, which represents that the school districts most liquid of assets are equal to at least one times the current liabilities that the school district has that are considered current liabilities. The school district is able to pay its liabilities with liquid assets as they come due.


61

Ratios Calculation DescriptionUnassigned Fund Balance Days of Cash on Hand Ratio

(Unassigned Fund Balance / Total Expenditures) x 365 > = 60

The school district's readily available resources to continue to operate or remain solvent should at least be 60 or more days. Less than 60 days is a warning sign.

3‐Year Average Unassigned Fund Balance Ratio

(((Unassigned Fund Balance for Year Under Review / Total Expenditures for Year Under Review) + (Unassigned Fund Balance for Year 2 Under Review / Total Expenditure for Year 2 Under Review) + (Unassigned Fund Balance for Year 1 Under Review/ Total Expenditures for Year 1 Under Review)) / 3) > = 0.1667

If the ratio for all three years is less than 0.1667 (2/12, which is ten weeks, or 2 months) the school district may be in financial distress. If the school district has a ratio of 0.0833 (1/12, which is 4 weeks, or 1 month, of operating reserves), the school district is deemed to be in financial distress.


62

Ratios Calculation Description1‐Year Unassigned Fund Balance Ratio

Unassigned Fund Balance /Total Expenditures > = 0.1667

0.1667 is the benchmark. 0.1667 is 2/12, which is two months. Review the percentage decrease over time. The goal is that the unassigned fund balance stay positive, remain the same or increase.

Revenues > Expenditures Ratio (Operating Deficit Ratio)

((Total Revenues ‐ Total Expenditures) / Total Expenditures) > = 0

Review the percentage decrease (over time) versus the previous year(s). If the school districts expenditures exceed its revenues then the school district has an operating deficit. The deficit may be planned, however, if this is a continuing pattern this may be cause for concern.


63

Ratios Calculation DescriptionChange in Fund 199Object Code 3000 Fund Balance – Ending Ratio

((Current Year Ending Fund Balance ‐ Prior Year Ending Fund Balance) / Prior Year Ending Fund Balance) > = ‐0.20

If the ratio is zero then the school district's fund balance has not changed from the prior year. If the school districts ratio is greater than zero then the school district's fund balance has positively increased. If the school district's fund balance has not changed more than 20% (‐0.20) for the time period reviewed then the school district is deemed to have a stable general fund fund balance. It is important for each school district to maintain a healthy fund balance for any emergencies or contingencies that may arise.


64

Roles and Responsibilities of the Board of Trustees and Superintendent

Change Management Change Management Strategy Phases of Change Management Why Change Management Internal Controls Financial Internal Control Objectives Elements of Internal Controls Evaluation of Current Processes Key Benefits of a Successful Internal

Control System

Best Practices to Evaluate Your District’s Solvency

65

Advises the Board – Manages the districtSuggests and Implements

Serves as resource

Prepares, administers, monitors, detailsRecommends, oversees staffs’ efforts

SuperintendentRoles and Responsibilities

1. General

2. Policy

3. Board Meetings

4. Budget/Finance/Audits

5. Instruction/Curriculum

Governs the District

Adopts

In charge of

Adopts and monitors

Establishes criteria, approves, and monitors

Board of Trustees

Roles and Responsibilities of the Board of Trustees and Superintendent

66

Interviews, recommends, hires, evaluates, promotes, trainsCreates a positive image for district, directs communicationsMonitors process within guidelines Recommends, implements, directsImplements policy, writes procedures, make recommendations

SuperintendentRoles and Responsibilities

6. Personnel

7. Community Relations

8. Labor Relations

9. Student Services

10.Facilities/Food Service /Transportation

Establishes criteria, approves, or rejects

Creates a positive image for district

Provides guidelines, ratifies contracts

Adopts policies for care and control

Develops policy on use of

Board of Trustees

Roles and Responsibilities of the Board of Trustees and the Superintendent,continued

67

Enterprise Change Management

Individual and Organizational Change

Change Management“

Organizations do not change, people do.

“

Three Levels of Change ManagementChange Management

68

Change

Management

Strategy

69

• Celebrating success is a necessary component of change management to cement and reinforce change

• Remember, success can lead to long‐term wins

Celebrate Success

• Conduct an after project review

• Evaluate successes and failures

• Implement corrective actions

Reinforcing Change

• Develop your district’s change management plans

• Take action and implement plans

Managing Change

• Define your district’s change management strategy

• Prepare your change management team

Preparing for Change

Phases of Change Management

70

• Change is happening in your school district every day.

• Every day, new initiatives and projects are launched to

o improve performance ando ensure compliance with local, state and federal mandates.

• To ensure your district maintains its accreditation status it is imperative that leadership steer the change management process in your district.

• Ensuring the right change management processes are implemented is the key to success.

Why Change Management

71

• Internal controls are meant to help control various aspects of an organization’s activity and provide reasonable assurance that this activity is in accordance with its control objectives.

• An internal control is also a process designed to provide reasonable assurance regarding the achievement of objectives in:

o Effectiveness and efficiency of operationsoReliability and accuracy of financial reportingoCompliance with applicable laws and regulations

• All district employees impact internal controls.• Effective internal controls:

o allow the district to stay on course to meet its objectives, goals, and accomplish its mission; and

ominimize surprises, such as insolvency.

INTERNAL CONTROLS

72

Operational Objectives

• Effective and efficiency of operations

Operational Objectives, continued

• Obtaining and retaining qualified employees; and

• Ensuring each employee’s knowledge and experience is adequate to enable sound and prudent financial decisions

Financial Reporting Objectives

• Completeness and accuracy of accounting records

• Accounting procedures are compliant with applicable laws

Financial Internal Control Objectives

73

Compliance Objectives

• Adherence to applicable laws, regulations, and statutes

• Timely preparation and submittal of reliable data and reports

Efficiency Objectives

• Current and future solvency needs are constantly evaluated

• Identification, analysis, assessment and management of financial risks on a day‐to‐day basis

Transparency Objectives

• Accurate and timely presentation of the district’s financial status communicated to all stakeholders

Internal Control Objectives, continued

74

Elements of Internal Controls

75

Internal controls document transactions by creating an audit trail; therefore, your district’s internal controls should be able to detect financial issues before the issues become a financial crisis.• A strong and successful system of internal

controls should:o have data entry checks a designated person should be reviewing and reconciling bank statements on a predetermined schedule, which should be at least monthly; and

a designated person should be reviewing the financial position of the district on a predetermined schedule);

o should spotlight financial problems;

Elements of Internal Controls, continued

o require authorized signatures (The authorized signatory is actually reviewing and approving the financial transactions before they occur.);

o ensure the accuracy and completeness of financial reporting;

o ensure compliance with required laws and regulations; and

o have an internal financial review process that is designed to be ongoing, robust, interactive and promotes accountability.

• Successful internal controls are dependent upon the actions and the people that carry out those actions.

76

77

Evaluation of Current Processes

•1• Know your district’s internal control processes

• Gain an understanding of your district’s current budget and financial management processes and financial data submittal processes and their current effectiveness

•2• Who is responsible for approving, entering, and recording financial transactions? (Segregation of duties)

• What financial activities are performed? What reports and financial systems are used?

• Where do we need to strengthen our controls?

• When are the financial activities performed?

• Why is the reliability of financial reporting important?

•3• Review and create a control environment in which district staff are ofully competent,omindful, oKnowledgeable,ocommitted to doing what is right and doing it the right way

oexhibit a high degree of integrity

78

Evaluation of Current Processes, continued

•4• Evaluate the current goals and objectives concerning your district’s budget and finances and required financial data reportingoOperations objectivesoStudent educational objectives

oFinancial solvency objectivesoFinancial reporting objectives

oCompliance objectives

•5• Know the end at the beginning

• Know how a change in accounting information system(s) impacts control

• Know how changes in regulations and laws affect the control environment

• Know that your district is 100% financially solvent

Evaluation of

Current

Processes,

continued

• During the evaluation of your district’s current fiscal management processes the following questions should be asked:

• Is our district’s fiscal management policy proactive?

• How could we fail?• What must go right for us to succeed (remain solvent and maintain our accreditation status)?

• Where are we vulnerable?• How do we know whether we are achieving our financial objectives?

• Does our district have a method to constantly test the financial solvency status of our district?

• What is our greatest legal exposure? • Which financial reporting requirements impact our district’s accreditation status?

• When is the last time our district completed a thorough financial checkup?

79

• District assets are safeguarded• Risk of becoming insolvent reduced• Risk of fraud, waste, and abuse reduced

Risks to the District are Decreased

• Goals, objectives, and benchmarks are met• Sound business decisions are made and communicated to stakeholders• Positive public image is maintained and stakeholder trust in the district increases

Higher Standards Achieved

• Reliability and integrity of financial information is improved (Data quality)• Noncompliance issues are reduced or eliminated • Your district maintains its accreditation status

Compliance with Laws and Regulations

• Processes and procedures operate as intended• Maximization of resources and reduction of waste

Improved Communication and Procedures

Key Benefits of a Successful Internal Control System

80

Summary

81

If you are working for a school district that is circling the drain and heading for exigency or even closure, consider reviewing lessons from other school districts and or organizations that have circled the drain and or closed. • Review the organizations leadership and successful methods used to increase the fiscal health and viability of the organization.

• Also, review what did not work.

Summary

82

“Leadership is the capacity to translate vision into reality.”

Warren G. Bennis

Boards of Trustees (school boards) need to provide financial oversight—in good times and bad; • keep school boards in organizational vision;

• hiding financial challenges from stakeholders blocks out opportunities; and

• candid conversation comes first.When experiencing financial crisis, boards of trustees, school district leadership, and staff members must be willing to openly discuss and consider all possibilities for survival, without walling off options solely for tradition’s sake.

Strong Leadership

Summary, continued

83

• Someone must lead.• The leader must have a plan and a committed team.

• Leadership must engage with the plan.• Focus on today and tomorrow, not yesterday.• You cannot save your way to organizational fiscal health.

• Tough decisions must be made quickly, with respect and thoughtfulness.

• Marketing should be about relationships and communication.

• Organization restructuring must be an option.

Keys to Successful Turnarounds

Summary, continued

84

Annual Financial and Compliance Report Submission

Electronic Submission for Districts

School FIRST Ratings on the TEA Website

Texas Administrative Code for FIRST Rules (19 TAC §109.1001)

Financial Accountability System Resource Guide (FASRG)

To the Administrator Addressed Letters

Useful Links

85

Useful Links• Annual financial and Compliance Report

oAnnual Financial and Compliance Report SubmissionAnnual Financial and Compliance Report

o Electronic Submissions for School DistrictsElectronic Submissions

• School FIRSToRatings on TEA’s WebsiteFinancial Integrity Rating System of Texas

o Texas Administrative Code (TAC) for FIRST Rules 19 TAC §109.1001

• Financial Accountability System Resource Guide (FASRG)FASRG

• TEA CorrespondenceTo the Administrator Addressed Correspondence

86

Contact Information

87

David Marx Director, Financial Compliance Division(512) 463‐2945 or [email protected]

Financial Accountability Section [email protected]

Yolanda Walker Manager, Financial Accountability Section(512) 463‐0947 or [email protected]

Robin Aldridge (512) 463‐3940 or [email protected]

Rita Bunton (512) 936‐3712 or [email protected]

Contact Information

88

[email protected]

89

Financial Integrity Rating System of Texas (FIRST)

What’s New 2020-2021

Ratings(Based on FY 2020 data)

Indicators for 2020–2021 ratings are NOT the same as the 2016–2017 ratingsIndicators for 2020–2021 ratings are NOT the same as the 2016–2017 ratings

Point scales and ratings are different Point scales and ratings are different

There are 20 Adopted indicatorsThere are 20 Adopted indicators

An introduction of a new type of indicator, designated as a “Ceiling Indicator”, is included with the Adopted indicators.


School FIRST Ratings2020–2021 Rating Year (Based on FY 2020 data)

• Must pass critical indicators to receive a passing rating (Superior, Above Standard, or Meets Standard rating).

• F = Substandard Achievement‣ If the school district fails a critical indicator, its total points are less than a Meets Standard

rating, or the school district’s AFR and/or data feed was not submitted on time or not complete, the district will receive an F = Substandard Achievement rating.

Rating 2019-2020 Ratings 2020-2021 RatingsA = Superior Achievement 90–100 points 90–100 points

B = Above Standard Achievement 80–89 points 80–89 points

C = Meets Standard Achievement 60–79 points 70–79 points

F = Substandard Achievement 0–59 points 0–69 points

93

Ceiling IndicatorsA Ceiling Indicator

adds additional criteria to designated indicators. If the additional ceiling criteria is not met by the school district, a predetermined maximum number of points

and highest applicable School FIRST rating that may be earned are assigned to the school district.

Ceiling Indicator Activation of Ceiling Indicator Maximum Points Rating

Indicator 4 – Timely Payments and Warrant Hold(s) Issued

A warrant hold was issued in connection with untimely payments to governmental entities

95 A = Superior Achievement

Indicator 5 – Unrestricted Net Position Balance

Passes indicator 5 solely on 7% or more increase in students in membership over 5-year period

79 C = Meets Standard Achievement

Indicator 6 – 3-Year Change in Assigned and Unassigned Fund Balances

3-year change in assigned and unassigned fund balances < 25%, or assigned and unassigned fund balance > 75 days of operational expenditures

89 B = Above Standard Achievement

Indicator 16 – Comparison of PEIMS to AFR data

PEIMS to AFR data exceeds 3% threshold 89 B = Above Standard Achievement

Indicator 17 – Material Weaknesses in Internal Controls over Financial Reporting and Compliance

AFR discloses one or more material weaknesses in internal controls over financial reporting and compliance


Indicator 20 – Property Values and Funding Lag Discussion with Board of Trustees

Property values and funding lag discussion did not occur


94

Ceiling Indicators, Continued• Examples of the points and rating that a school district may earn when the criteria of a ceiling

indicator is not met.Indicator Number Example Maximum

Points Rating

Indicator 4 Your school district fails ceiling indicator 4 and your school district's total points before failing indicator 4 is 90 points, the maximum points and rating that your school district may receive is 90 points, A = Superior Achievement.

90 A = Superior Achievement

(The maximum points that may be earned if the ceiling portion of indicator 4 is activated is 95 points. However, since the overall points/score is 90, the lower score supersedes the ceiling maximum.)

Indicator 5 Your school district fails Part 1 of indicator 5, but passes critical indicator 5 based on Part 2, the school district's 7% or more increase in growth in students in membership over 5 years, and your school district's total points before passing indicator 5 solely on Part 2 of the indicator is 100 points, the maximum points and rating that your district may receive is 79 points, C = Meets Standard Achievement.


Indicator 6 Your school district fails ceiling indicator 6 and your school district's total points before failing ceiling indicator 6 is 86 points, the maximum points and rating that your school district may receive is 86 points, B = Above Standard Achievement, not 89 points, B = Above Standard Achievement.


95

Ceiling Indicators, Continued

Indicator Number Example Maximum

Points Rating

Indicator 16 Your school district’s PEIMS to AFR data comparison exceeds the 3% threshold and your school district’s total points before failing indicator 16 is 90 points, the maximum points and rating that your school district may receive is 89 points, B = Above Standard Achievement.


Indicator 17 Your school district fails ceiling indicator 17 and your school district's total points before failing ceiling indicator 17 is 98 points, the maximum points and rating that your school district may receive is 79 points, C = Meets Standard Achievement.


Indicator 20 The property values and funding lag discussion did not occur with the board of trustees of your school district and your school district’s total points before failing indicator 20 is 100 points, the maximum points and rating that your school district may receive is 89 points, B = Above Standard Achievement.


Indicators 4 and 16

Your district fails critical indicator 4 and ceiling indicator 16 and your district's total points before failing indicators 4 and 16 is 67 points, the maximum points and rating that your district may receive is 67 points, F = Substandard Achievement, not 89 points, B = Above Standard Achievement.

67 F = Substandard Achievement

96

Ceiling Indicators, Continued

• If the school district's overall points earned is less than the maximum points allowed by the applicable ceiling indicator, the school district will receive a rating based on the lesser of, which is the lowest number of points earned.

• If the school district receives an F = Substandard Achievementrating based on the school district failing a critical indicator or the school district's total number of points is equal to or less than 69 points, the F = Substandard Achievement rating will supersede any rating that the school district may earn for a ceiling indicator.

97

Determination of Points – 2020-2021 School FIRST Rating Year Indicator Points CeilingIndicator MaximumPoints HighestPossibleRating

1‐3 Pass/Fail(Critical)

4 Pass/Fail(Critical) Ceiling 95 A=SuperiorAchievement

5 Pass/Fail(Critical) Ceiling 79 C=MeetsStandardAchievement

6 Pass/Fail CeilingIndicator 89 B=AboveStandardAchievement

7 10

8 10

9 10

10 10

11 10

12 10

13 10

14 10

15 5


17 Pass/Fail CeilingIndicator 79 C=MeetsStandardAchievement

18 10

19 5


Total 100

Critical Indicators

Indicator 1: Timely Submission of the AFR and Data Feed

Indicator 2: Unmodified Opinion in the AFR

Indicator 3: Monetary Default on Debt

Indicator 4: Timely Payments to Government Entities and Warrant Holds

Indicator 5: Unrestricted Net Position Balance

CI

CI

Failure to meet the requirements of a critical indicator will cause a school district to fail School FIRST for the applicable rating year.

99

Adopted School FIRST Indicators

Adopted School FIRST Indicators Indicator Calculations Analysis of Proposed Indicators

Critical Indicators

Indicator 1: Timely Submission of the AFR and Data Feed



Indicator 4: Timely Payments to Government Entities and Warrant Holds

Indicator 5: Unrestricted Net Position Balance

CI

CI

Failure to meet the requirements of a critical indicator will cause a school district to fail School FIRST for the applicable rating year.

Indicator 1: Timely Submission of the AFR and Data Feed• Was the complete annual financial and compliance report

(AFR) and data submitted to TEA within 30 days of the November 27 or January 28 deadline depending on the school district’s fiscal year end date of June 30 or August 31, respectively?

• Critical Indicator: Yes or No response• Aligns with TEC, § 44.008(d)• Data Source: AFR and data feed

• TEC, §44.008(d)o (d) A copy of the annual audit report, approved by the board

of trustees, shall be filed by the district with the agency not later than the 150th day after the end of the fiscal year for which the audit was made. If the board of trustees declines or refuses to approve its auditor's report, it shall nevertheless file with the agency a copy of the audit report with its statement detailing reasons for failure to approve the report.

101


• Did the school district’s AFR contain an unmodified opinion on the financial statements as a whole? The American Institute of Certified Public Accountants (AICPA) defines unmodified opinion. The external independent auditor determines if there was an unmodified opinion.

• Critical Indicator: Yes or No response• Data Source: AFR and data feed Schedule L-1

• Changes: • Is no longer a two-part indicator. • Former Part B, material weakness in internal controls

over financial reporting for local, state, or federal funds, is now indicator 17.


• Was the school district in compliance with the payment terms of all debt agreements at fiscal year end? (If the school district was in default in a prior fiscal year, an exemption applies in following years if the school district is current on its forbearance or payment plan with the lender and the payments are made on schedule for the fiscal year being rated. Also exempted are technical defaults that are not related to monetary defaults. A technical default is a failure to uphold the terms of a debt covenant, contract, or master promissory note even though payments to the lender, trust, or sinking fund are current. A debt agreement is a legal agreement between a debtor (person, company, etc. that owes money) and their creditors, which includes a plan for paying back the debt.)

• Critical Indicator: Yes or No response

• Data Source: AFR and data feed Schedule L-1

104

Indicator 4: Timely Payments to Governmental Entities and Warrant Holds

• Did the school district make timely payments to the Teacher Retirement System (TRS), Texas Workforce Commission (TWC), Internal Revenue Service (IRS), and other government agencies? If the school district received a warrant hold and the warrant hold was not cleared within 30 days from the date the warrant hold was issued, the school district is considered to not have made timely payments and will fail this indicator. If the school district was issued a warrant hold, the maximum points and highest rating that the school district may receive is 95 points, A = Superior Achievement (even if the issue surrounding the initial warrant hold was resolved and cleared within 30 days).

• Critical Indicator: Yes or No response• Ceiling Indicator: Yes• Data Source: data feed Schedule L-1 and Information from

governmental entities

Indicator 5: Total Unrestricted Net Position Balance

• Was the total unrestricted net position balance (Net of the accretion of interest for capital appreciation bonds) in the governmental activities column in the Statement of Net Position greater than zero? (If the school district's change of students in membership over 5 years was 7 percent or more, then the school district passes this indicator.

If the school district passes indicator 5 based on the school district's 7 percent or more increase in students in membership, the maximum points and highest rating that the school district may receive is 79 points, C = Meets Standard Achievement.

• Critical Indicator: Yes or No response• Ceiling Indicator: Yes• Data Source: data feed Schedules A-1 and L-1 and PEIMS 10

5

106

Solvency Indicators

Indicator 6: 3-Year Change in Fund Balances

Indicator 7: Number of Days of Cash on Hand

Indicator 8: Current Assets to Current Liabilities Ratio

Indicator 9: General Fund Revenues Equal or Exceed Expenditures

Indicator 10: Budgeted to Actual Revenues 3-Year Comparison

Indicator 11: Long-Term Liabilities to Total Assets Ratio

Indicator 12: Debt Per $100 of Assessed Property Value

Indicator 13: Administrative Cost Ratio

Indicator 14: Student to Staff Ratio over 3-Year Period

Solvency

CI

Indicator 6: 3-Year Change in Fund Balances• Was the average change in general fund (assigned and unassigned) fund balances over

3 years less than a 25 percent decrease or did the current year’s under review assigned and unassigned fund balances exceed 75 days of operational expenditures? (If the school district fails indicator 6, the maximum points and highest rating that the school district may receive is 89 points, B = Above Standard Achievement.)

• Ceiling Indicator: Yes• Data Source:

o data feed C-1 worksheet (AFR – Balance Sheet); and o data feed C-2 worksheet (AFR – Statement of Revenues, Expenditures and Changes in Fund

Balances)

• The following ceiling criteria must be met: o assigned + unassigned fund balances change over three years must be

< 25 percent or

o current year under review assigned and unassigned fund balances must be > 75 days of operational expenditures for the current year under review

108

Indicator 6: 3-Year Change in Fund Balances, Continued

Part I:Assigned +

Unassigned Fund Balances Two Years Prior to

Current Year Under Review

Assigned + Unassigned Fund Balances Three Years Prior to Current Year Under Review

Assigned + Unassigned Fund

Balances One Year Prior to Current

Year Under Review


Balances Two Years Prior to


Assigned + Unassigned Fund Balances Current

Year Under Review

Assigned + Unassigned

Fund Balances One Year Prior to Current Year Under Review

3 < 25%

or


Assigned + Unassigned Fund Balances Two Years Prior to Current Year Under Review

Assigned + Unassigned Fund Balances One Year Prior to Current Year Under Review

Part II:Assigned and

Unassigned Fund Balances for Current Year Under Review

(Must be greater than 75 days of

Operational Expenditures for

Current Year Under Review)

>Total

Expenditures for Current Year Under

Review

Capital Outlay

(Function 81) 365 75Days of

Operational Expenditures for


Indicator 6: 3-Year Change in Fund Balances, Continued

Indicator 6

Ceiling Indicator

Points 10 0 Ceiling Indicator Activated Ceiling Indicator Activated

If the school district fails indicator 6, the maximum points and highest rating that the school district may receive is 89 points, B = Above Standard Achievement.

< 25% decrease or >75 days of operational

expenditures

> 25% decrease or < 75 days of operational

expenditures

No

If the school district receives a score greater than zero (0) on indicator 6, the ceiling portion of the indicator is not activated.

Yes

If the school district receives zero (0) points for indicator 6, the ceiling portion of the indicator is activated.

Scale:

• Was the number of days of cash on hand and current investments in the general fund for the school district sufficient to cover operating expenses (excluding facilities acquisition and construction)?

• Data Source: data feed C-1 and C-2 worksheets

• Range of 0 to 10 points on a sliding scale

• Calculation:

110

Points 10 8 6 4 2 0Days ≥90 <90 ≥75 <75 ≥60 <60 ≥45 <45 ≥30 <30



• Was the measure of current assets to current liabilities ratio for the school district sufficient to cover short-term debt?

• Data Source: data feed A-1 worksheet

• Calculation: Current AssetsCurrent Liabilities


111

Points 10 8 6 4 2 0Ratio ≥3.00 <3.00 ≥2.50 <2.50 ≥2.00 <2.00 ≥1.50 <1.50 ≥1.00 <1.00


• Did the school district’s general fund revenues equal or exceed expenditures (excluding facilities acquisition and construction)?

If not, was the school district’s number of days of cash on hand greater than or equal to 60 days?

• Data Source: data feed C-1 and C-2 worksheets

• Calculation:

• Worth 0 or 10 points o 10 points if revenues ≥ expenditures (excluding facilities

acquisition and construction) or ≥60 days of cash on hand112

Indicator 10: Budgeted to Actual Revenues – 3-Year Comparison

• Did the school district average less than a 10 percent variance (90%-110%) when comparing budgeted revenues, the October snapshots, to actual revenues for the last 3 fiscal years?

• Data Source: PEIMS, Revenue Object Codes 57XX through 58XX, Fall (budgeted revenues) and Midyear (actual revenues) submissions

• Calculation: VS

• Worth 0 or 10 points

Actual Revenues Two Years Prior to Current Year

Under Review

-

Budgeted Revenues Two Years Prior to Current Year

Under Review+

Actual Revenues One Year Prior to Current Year

Under Review

-

Budgeted Revenues One Year Prior to Current Year

Under Review+

Actual Revenues


-Budgeted Revenues

Current Year Under Review / 3

Budgeted Revenues Two Years Prior to Current Year Under

Review

Budgeted Revenues One Year Prior to Current Year Under Review

Budgeted Revenues Current Year Under Review

Indicator 11: Long-term Liabilities to Total Assets Ratio• Was the ratio of long-term liabilities to total assets for the school district sufficient to

support long-term solvency? If the school district's change of students in membership over 5 years was 7 percent or more, then the school district passes this indicator.

• Data Source: data feed A-1 worksheet and PEIMS fall collection Student Data Review reports

• Calculation: Long-term Liabilities orTotal Assets


114

Students in Membership year under review – Students in Membership 5 years from year under review = 7% or moreStudents in Membership year under review – Students in Membership 5 years from year under review = 7% or more

Points 10 8 6 4 2 0

Ratio ≤ 0.60 > 0.60 ≤ 0.70 > 0.70 ≤ 0.80 > 0.80 ≤ 0.90 > 0.90 ≤ 1.00 > 1.00

115

Indicator 12: Debt Per $100 of Assessed Property Value

• Was the debt per $100 of assessed property value ratio sufficient to support future debt repayments?

• Data Source: • data feed A-1 worksheet (AFR Statement of Net

Position); • data feed J-1 worksheet (AFR – Exhibit J, Schedule of

Delinquent Taxes Receivable), current year net assessed value; and

• PEIMS Midyear Collection Report PDM2-100-004, Fund 599, Debt Service Fund, total revenues


Points 10 8 6 4 2 0 Ratio ≤ 4 > 4 ≤ 7 > 7 ≤ 10 > 10 ≤ 11.5 > 11.5 ≤ 13.5 > 13.5

Indicator 12: Debt Per $100 of Assessed Property Value, Continued

• Calculation:

116

Fund 599, Object Code 5700, Local

andIntermediate

Resources

Fund 599 Total

Revenues

Long-term Liabilities 100

Total Assessed Property

Values

Indicator 13: Administrative Cost Ratio• Was the school district’s administrative cost ratio equal to or less than the

threshold ratio?

• If a school district’s administrative cost ratio is high that may reflect:o financial inefficiencyo “top-heavy” organization

• Data Source: PEIMS and the data feed C-2 worksheet

• Calculation: Sum of amounts for function codes 21 and 41 Sum of amounts for function codes 11, 12, 13, and 31

• Includes object codes 61XX-64XX in fund code 199, except 6144

• Range of 0 to 10 points on a sliding scale 117

Indicator 13: Administrative Cost Ratio, Continued

Points 10 8 6 4 2 0ADA

10,000 and Above

≤0.0855 >0.0855≤0.1105

>0.1105≤0.1355

>0.1355≤0.1605

>0.1605≤0.1855

>0.1855

ADA5,000-9,999

≤0.1000 >0.1000≤0.1250

>0.1250≤0.1500

>0.1500≤0.1750

>0.1750≤0.2000

>0.2000

ADA1,000-4,999

≤0.1151 >0.1151≤0.1401

>0.1401≤0.1651

>0.1651≤0.1901

>0.1901≤0.2151

>0.2151

ADA500-999

≤0.1311 >0.1311≤0.1561

>0.1561≤0.1811

>0.1811≤0.2061

>0.2061≤0.2311

>0.2311

ADA Less than

500

≤0.2404 >0.2404≤0.2654

>0.2654≤0.2904

>0.2904≤0.3154

>0.3154≤0.3404

>0.3404

Sparse ≤0.3364 >0.3364≤0.3614

>0.3614≤0.3864

>0.3864≤0.4114

>0.4114≤0.4364

>0.4364

Indicator 14: Student to Staff Ratio• Did the school district not have a 15 percent decline in the

students to staff ratio over 3 years (total enrollment to total staff)? If the student enrollment did not decrease, the school district will automatically pass this indicator.

• Data Source: PEIMS fall collection Student Data Review reports and PEIMS fall collection Staff FTE by Role reports

• Calculation:

or


120

Financial Competence Indicators

Indicator 15: Enrollment Variance Ratio

Indicator 16: PEIMS to AFR (Data Feed) Comparison

Indicator 17: Material Weaknesses in Internal Controls Over

Financial Reporting and Compliance

Indicator 18: Material Noncompliance

Indicator 19: Required Financial Publications

Indicator 20: Board Discussion of Property Values and Funding

Lag

CI

CI

CI

Indicator 15: Enrollment Variance Ratio• Was the school district's actual average daily attendance (ADA) within the allotted range of

the district’s biennial pupil projections submitted to TEA? If the district did not submit pupil projections to the TEA, the district must still certify its pupil projections that were created by the TEA.

• Data Source: o Summary of Finances; and o State Funding Division data reports

• Worth 0 or 5 points on a sliding scale based on ADA

• Calculation:Average Daily Attendance - Projected Average Daily Attendance = Enrollment Variance Ratio

Projected Average Daily Attendance

Indicator 16: PEIMS to AFR (data feed) Comparison• Did the comparison of Public Education Information Management System (PEIMS)

data to like information in the school district’s AFR result in a total variance of less than 3 percent of all expenditures by function? If the school district fails indicator 16, the maximum points and highest rating that the school district may receive is 89 points, B = Above Standard Achievement.

• Ceiling Indicator: Yes

• Data Source: PEIMS and data feed C-2 worksheet

• Calculation: Sum of the absolute values of all differences in expenditures between the data feed (Statement of Revenues, Expenditures, and Changes in Fund Balance [C-2 worksheet]) and PEIMS, by function in Fund Code 199.

• This indicator is no longer a point driven indicator. It is a ceiling indicator only.

Indicator 17: Material Weaknesses in Internal Controls over Financial Reporting and Compliance

• Did the external independent auditor report that the AFR was free of any instance(s) of material weaknesses in internal controls over financial reporting and compliance for local, state, or federal funds? (The AICPA defines material weakness.) If the school district fails indicator 17, the maximum points and highest ratingthat the school district may receive is 79 points, C = Meets Standard Achievement.


• Data Source: data feed Schedule L-1 and AFR

• This indicator is a ceiling indicator only. It is not point driven. 123

Indicator 18: Material Noncompliance• Did the external independent auditor

indicate the AFR was free of any instance(s) of material noncompliance for grants, contracts, and laws related to local, state, or federal funds? (The AICPA defines material noncompliance.)

• Covers local, state, and federal funds

• Data Source: data feed Schedule L-1 and the AFR


Indicator 19: Required Financial Publications

• Did the school district publish the required financial information on its website in accordance with Government Code, Local Government Code, Texas Education Code, Texas Administrative Code and other statutes, laws and rules that were in effect at the school district’s fiscal year end?

• Data Source: Schedule L-1 in the data feed


• Some, but not all, of the posting requirements are disclosed on the next slide. 12

5

Indicator 19: Required Financial Publications, Continued

• The table below contains some, but not all, of the required financial postings that the school district must publish on the school district’s website.

Texas Government

Code

Texas Local

Government Code

TexasTax Code

TexasElection Code

Texas Property Code

Texas Education Code (TEC)

Texas Administrative

Code (TAC)Tex. Gov’t Code

§551.056(a)(b)(3)(c)(3)

Tex. Local Code §140.005

§26.05(b)(2) §85.007(d)(1) §21.0112(b)(2) TEC, §11.1512(d) 19 TAC §97.1055(f)(1)(2)(3)

(A)

Tex.Gov’tCode§551.128(b-1)(1)(2)

Texas Local Code §140.006(c)

§26.06(c) §254.04011(a)(1)(2)(b)(c)(e)

TEC, §39.083 19 TAC §97.1061()(3)(ii)

Tex.Gov’tCode§1201.0245(b)(4)(A-

G)

Texas Local Code §140.008(c)(d)

§26.065(b) TEC, §39.362 19 TAC §109.1001(o)(3)(B)(i

)

Tex.Gov’tCode§2265.001(b)

Texas Local Code §176.009(a)

TEC, §44.0041(a)(1)

Tex.Gov’tCode§2267.066(2)(A)

TEC, §44.0051(a)(b)

Tex.Gov’tCodeChapter 552

Indicator 20: Board Discussion of Property Values and Funding Lag

• Did the school board members discuss the district's property values and the funding lag at a board meeting within 120 days of the district adopting its budget?



• Data Source: data Feed Schedule L-1

o The agency uses prior year property values in calculating each school district’s local share of Foundation School Program (FSP) funding. Using school districts prior year property values does not fully reflect the property values decline that may be experienced by some school districts. When the agency calculates FSP payments during the fiscal year the agency is required to assume the same estimated property value increase in property values for all school districts. School districts with declining property values may experience significant underpayments creating what is called a funding lag. This funding lag may negatively impact cash flow and overall funding levels for some school districts.

127

128

Useful Links

Annual Financial and Compliance Report Submission

Electronic Submission for Districts

School FIRST Ratings on the TEA Website

Texas Administrative Code for FIRST Rules (19 TAC §109.1001)

Financial Accountability System Resource Guide (FASRG)

To the Administrator Addressed Letters

Useful Links• Annual Financial and Compliance Report

o Annual Financial and Compliance Report Submissionhttps://tea.texas.gov/Finance_and_Grants/Financial_Compliance/Annual_Financi

al_and_Compliance_Report/o Electronic Submissions for School Districtshttps://tea.texas.gov/Finance_and_Grants/Financial_Compliance/Electronic_Sub

missions/

• School FIRSTo Ratings on TEA Websitehttps://tea.texas.gov/Finance_and_Grants/Financial_Accountability/Financial_Int

egrity_Rating_System_of_Texas_(FIRST)/Financial_Integrity_Rating_System_of_Texas/

o Texas Administrative Code (TAC) for FIRST Rules, 19 TAC §109.1001 http://ritter.tea.state.tx.us/rules/tac/chapter109/ch109aa.html#division1

130

Useful Links• Financial Accountability System Resource Guide (FASRG)

o https://tea.texas.gov/Finance_and_Grants/Financial_Accountability/Financial__Accountability_System_Resource_Guide/

• TEA Correspondenceo To the Administrator Addressed Letterhttps://tea.texas.gov/taa_letters.aspx

o TEA News Releases https://tea.texas.gov/About_TEA/News_and_Multimedia/Press_Releases/T

EA_News_Releases/

131

Contact Information David Marx Director, Financial Compliance Division

(512) 463-2945 or [email protected]

Financial Accountability Section [email protected]

Yolanda Walker Manager, Financial Accountability Section(512) 463-0947 or [email protected]

Robin Aldridge (512) 463-3940 or [email protected]

Rita Bunton (512) 936-3712 or [email protected]

Chanda Williams (512) 475-2012 or [email protected]

Questions

INDICATOR 20: BOARD DISCUSSION OF PROPERTY VALUES

• TEA examples:Historical CY Budget

FY18 FY19 FY20Property values used for local collections (LCPV) 47,547,519,229 49,715,686,106 52,600,000,000

Rate 1.04 1.04 1.04

Local Collections 447,552,428 496,195,540 512,323,908 Property Values used for state calculations (SCPV) 43,401,546,250 47,413,420,284 51,200,000,000

WADA 137,043 138,573 143,753 Wealth per WADA

316,700 342,155 356,166

State Aid FSP 374,535,443 329,730,598 318,509,108 RecaptureSettle up Addition (Deducted)

(7,443,602)Notes:

FY2018 FY2019

Total M&O Collections $ 1,175,794,620 $ 1,250,389,748

Local Share of Tier 1 $ (986,193,307) $ (1,103,028,081)

Local Share of Tier 2, Level 1 $ (65,384,616) $ (69,490,769)

Local Share of Tier 2, Level 2 $ (20,710,059) $ (22,060,562)

M&O Lag Revenue (if applicable) $ 103,506,638 $ 55,810,336

Chapter 41 Recapture $ (1,000,000) $ (2,000,000)

Financial Integrity Rating System of Texas (FIRST)

What’s New 2020-2021

Ratings(Based on FY 2020 data)

Indicators for 2020–2021 ratings are NOT the same as the 2016–2017 ratingsIndicators for 2020–2021 ratings are NOT the same as the 2016–2017 ratings

Point scales and ratings are different Point scales and ratings are different

There are 20 Adopted indicatorsThere are 20 Adopted indicators



2020–2021 Ratings Year (Based on FY 2020 Data)

* Must pass critical indicators (indicators 1-5) to receive a passing rating (Superior, Above Standard, or Meets Standard rating)

F = Substandard Achievement

‣ Fail a critical indicator (indicators 1 through 5) or points less than Meets Standard Achievement rating

‣ Substandard data quality because the AFR and/or the Data Feed was not submitted on time and/or not complete for FIRST analysis

Rating 2019-2020 Ratings 2020-2021 Ratings

A = Superior Achievement 90 – 100 points 90 – 100 points

B = Above Standard Achievement 80 – 89 points 80 – 89 points

C = Meets Standard Achievement 60 – 79 points 70 – 79 points

F = Substandard Achievement 0 – 59 points 0 – 69 points

CRITICAL INDICATORS

Indicator 1: Timely Filing of the AFR and Data Feed Indicator 2: Unmodified Opinion in the AFR Indicator 3: Monetary Default on Debt Indicator 4: Timely Payments to Government Entities and Warrant Hold(s) Indicator 5: Unrestricted Net Position Balance

*FAILURE TO MEET THE REQUIREMENTS OF A CRITICAL INDICATOR WILL CAUSE A SCHOOL DISTRICT TO FAIL FIRST FOR THE APPLICABLE RATING YEAR

Was the complete annual financial and compliance report (AFR) and data submitted to TEA within 30 days of the November 27 or January 28 deadline depending on the school district’s fiscal year end date of June 30 or August 31, respectively?Critical Indicator –Yes or No response

Aligns with Texas Education Code, § 44.008(d)

Data Source: AFR and Data Feed

TEC, §44.008(d)

o (d) A copy of the annual audit report, approved by the board of trustees, shall be filed by the district with the agency not later than the 150th day after the end of the fiscal year for which the audit was made. If the board of trustees declines or refuses to approve its auditor's report, it shall nevertheless file with the agency a copy of the audit report with its statement detailing reasons for failure to approve the report.

INDICATOR 1: TIMELY SUBMISSION OF THE ANNUAL FINANCIAL AND COMPLIACNE REPORT (AFR)

Did the school district’s AFR contain an unmodified opinion on the financial statements as a whole? The American Institute of Certified Public Accountants (AICPA) defines unmodified opinion. The external independent auditor determines if there was an unmodified opinion.Critical Indicator –Yes or No response

Data Source: AFR, and Data Feed, Schedule L- 1

Adopted changes:

No longer a two-part indicator

Part B, material weakness in internal controls over financial reporting for local, state, or federal funds, is now Adopted indicator 17.

INDICATOR 2: AUDITOR OPINION

Was the school district in compliance with the payment terms of all debt agreements at fiscal year end? (If the school district was in default in a prior fiscal year, an exemption applies in following years if the school district is current on its forbearance or payment plan with the lender and the payments are made on schedule for the fiscal year being rated. Also exempted are technical defaults that are not related to monetary defaults. A technical default is a failure to uphold the terms of a debt covenant, contract, or master promissory note even though payments to the lender, trust, or sinking fund are current. A debt agreement is a legal agreement between a debtor (person, company, etc. that owes money) and their creditors, which includes a plan for paying back the debt.)

Critical Indicator –Yes or No response

Data Source: AFR, and Data Feed, Schedule L-1

INDICATOR 3: MONETARY DEFAULT ON DEBT

Did the school district make timely payments to the Teachers Retirement System (TRS), Texas Workforce Commission (TWC), Internal Revenue Service (IRS), and other government agencies? If the school district received a warrant hold and the warrant hold was not cleared within 30 days from the date the warrant hold was issued, the school district is considered to not have made timely payments and will fail this indicator.

If the school district was issued a warrant hold, the maximum points and highest rating that the school district may receive is 95 points, A = Superior Achievement (even if the issue surrounding the initial warrant hold was resolved and cleared within 30 days). Critical Indicator –Yes or No response

Ceiling Indicator - Yes

Data Source: Data Feed, Schedule L-1, and Information from governmental entities

CI

INDICATOR 4: TIMELY PAYMENTS TO GOVERNMENTAL ENTITIES AND WARRANT HOLDS

Was the total unrestricted net position balance (Net of the accretion of interest for capital appreciation bonds) in the governmental activities column in the Statement of Net Position greater than zero? (If the school district's change of students in membership over 5 years was 7 percent or more, then the school district passes this indicator.

If the school district passes indicator 5 based on the school district's 7 percent or more increase in students in membership, the maximum points and highest rating that the school district may receive is 79 points, C = Meets Standard Achievement.)

Critical Indicator –Yes or No response

Ceiling Indicator - Yes

Data Source: Data Feed, Schedule A-1, and Data Feed, Schedule L-1

CI

INDICATOR 5: TOTAL UNRESTRICTED NET POSITION BALANCE

Indicator 6: 3 Year Change in Fund Balances - NEW




Indicator 10: Budgeted to Actual Revenues 3 Year Comparison - NEW

Indicator 11: Long-Term Liabilities to Total Assets Ratio

Indicator 12: Debt Per $100 of Assessed Property Value - NEW

Indicator 13: Administrative Cost Ratio

Indicator 14: Student to Staff Ratio over 3 Year Period

CI

SOLVENCY INDICATORS

Was the average change in (assigned and unassigned) fund balances over 3 years less than a 25 percent decrease or did the current year’s assigned and unassigned fund balances exceed 75 days of operational expenditures?

(If the school district fails indicator 6, the maximum points and highest rating that the school district may receive is 89 points, B = Above Standard Achievement.)

Ceiling Indicator – Yes

Data Source:

o Data Feed – C-1 worksheet (AFR – Balance Sheet); and

o Data Feed – C-2 worksheet (AFR – Statement of Revenues, Expenditures And Changes in Fund Balance)

The following ceiling criteria must be met

o Assigned + unassigned fund balances change over three years must be

< 25 percent

or

o Current year under review assigned and unassigned fund balances must be > 75 days of operational expenditures

CIINDICATOR 6: 3 YEAR CHANGE IN FUND BALANCES

Calculation:Part I:






Balances One Year Prior to Current

Year Under Review




Assigned + Unassigned Fund Balances Current

Year Under Review

Assigned + Unassigned

Fund Balances One Year Prior to Current Year Under Review

3 < 25%

or


Assigned + Unassigned Fund Balances Two Years Prior to Current Year Under Review

Assigned + Unassigned Fund Balances One Year Prior to Current Year Under Review

CI

Part II:

Total Expenditures for


Capital Outlay (Function 81)

for Current Year Under Review

365 75

> 75 Days of Operational

Expenditures of the Current Year

Under Review Assigned and Unassigned

Fund Balances

INDICATOR 6: 3 YEAR CHANGE IN FUND BALANCES - CONTINUED

Was the number of days of cash on hand and current investments in the general fund for the school district sufficient to cover operating expenses? (excluding facilities acquisition and construction)

Data Source: Data Feed, C-1 and C-2 worksheets

Range of 0 to 10 points on a sliding scale

Calculation:Cash & Equivalents + Current Investments

X 365Total Expenses – Facilities Acq. and Const.

Points 10 8 6 4 2 0Days ≥90 <90 ≥75 <75 ≥60 <60 ≥45 <45 ≥30 <30

INDICATOR 7: NUMBER OF DAYS OF CASH ON HAND

Was the measure of current assets to current liabilities ratio for the school district sufficient to cover short-term debt?

Data Source: Data Feed, A-1 worksheet

Calculation: Current Assets

Current Liabilities


Points 10 8 6 4 2 0Ratio ≥3.00 <3.00 ≥2.50 <2.50 ≥2.00 <2.00

≥1.50<1.50 ≥1.00

<1.00

INDICATOR 8: CURRENT ASSETS TO CURRENT LIABILITIES

Did the school district’s general fund revenues equal or exceed expenditures (excluding facilities acquisition and construction)?

If not, was the school district’s number of days of cash on hand greater than or equal to 60 days?

Data Source: Data Feed, C-1 and C-2 worksheetsCalculation:

Worth 0 or 10 points

o 10 points if revenues ≥ expenditures (excl. facilities acquisition and construction) or ≥60 days of cash on hand

INDICATOR 9: GENERAL FUND REVENUES EQUAL OR EXCEED EXPENDITURES

Did the school district average less than a 10 percent variance (90%-110%) when comparing budgeted revenues to actual revenues for the last 3 fiscal years?

Data Source: PEIMS, General Fund (199) Revenue Object Codes 57XX through 58XX, Fall Snapshot (Budgeted Revenues) and Mid-year (Actual Revenues) collections submissionsWorth 0 or 10 points

Calculation: BUDGET VS ACTUAL

Actual Revenues Two Years Prior to Current Year

Under Review

-

Budgeted Revenues Two Years Prior to Current Year

Under Review+

Actual Revenues One Year Prior to Current Year

Under Review

-

Budgeted Revenues One Year Prior to Current Year

Under Review+

Actual Revenues


-Budgeted Revenues

Current Year Under Review / 3

Budgeted Revenues Two Years Prior to Current Year Under Review

Budgeted Revenues One Year Prior to Current Year Under Review

Budgeted Revenues Current Year Under Review

INDICATOR 10: BUDGETED TO ACTUAL REVENUES – 3 YEAR COMPARISON

INDICATOR 10: BUDGETED TO ACTUAL REVENUES 3 YEAR COMPARISON - CONTINUED

FY 2018 FY 2019 FY 2020

Actual Budget Actual Budget Actual Budget

199‐57XX 4,000,000 3,390,000 4,100,000 4,150,000 4,250,000 4,200,000

1%199‐58XX 5,970,000 5,990,000 5,800,000 6,000,000 5,650,000 5,750,000 =

6% ‐2% ‐1%

Was the ratio of long-term liabilities to total assets for the school district sufficient to support long-term solvency?

If the school district's change of students in membership over 5 years was 7 percent or more, then the school district passes this indicator.Data Source: Data Feed, A-1 worksheet, and PEIMS Fall Collection Student Data Review reports

Calculation: Long-term Liabilities

Total Assetsor


Students in Membership (Year under review) – Students in Membership 5 years from year under review = 7% or more

Indicator 11 Points 10 8 6 4 2 0

Ratio ≤ 0.60 > 0.60 ≤ 0.70 > 0.70 ≤ 0.80 > 0.80 ≤ 0.90 > 0.90 ≤ 1.00 > 1.00

INDICATOR 11: LONG-TERM LIABILITIES TO TOTAL ASSETS RATIO

Was the debt per $100 of assessed property value ratio sufficient to support future debt payments?

Data Source:

Data Feed – A-1 worksheet (AFR Statement of Net Position);

Data Feed – J-1 worksheet (AFR – Exhibit J, Schedule of Delinquent Taxes Receivable), Current Year Net Assessed Value; and

PEIMS Mid-Year Collection Report PDM2-100-004, Fund 599, Debt Service Fund, Total Revenues, Object Code 5020

Range of 0 to 10 points on a sliding scaleIndicator

12 Points 10 8 6 4 2 0 Ratio ≤ 4 > 4 ≤ 7 > 7 ≤ 10 > 10 ≤ 11.5 > 11.5 ≤ 13.5 > 13.5

INDICATOR 12 : DEBT PER $100 OF ASSESSED PROPERTY VALUE

Calculation:

Fund 599 Total

RevenuesLong-term Liabilities 100

Total Assessed Property Values

Fund 599, Object Code 5700, Local and Intermediate Resources

INDICATOR 12: DEBT PER $100 OF ASSESSED PROPERTY VALUE - CONTINUED

Was the school district’s administrative cost ratio equal to or less than the threshold ratio?If a school district’s administrative cost ratio is high that may reflect:

Financial inefficiency

“Top-heavy” organization

Data Source: PEIMS and the Data Feed

Calculation: Sum of amounts for function codes 21 and 41

Sum of amounts for function codes 11, 12, 13, and 31

Includes object codes 61XX-64XX in fund code 199, except 6144


INDICATOR 13 : ADMINISTRATIVE COST RATIO

Points 10 8 6 4 2 0ADA

10,000 and Above

≤0.0855 >0.0855≤0.1105

>0.1105≤0.1355

>0.1355≤0.1605

>0.1605≤0.1855

>0.1855

ADA5,000-9,999

≤0.1000 >0.1000≤0.1250

>0.1250≤0.1500

>0.1500≤0.1750

>0.1750≤0.2000

>0.2000

ADA1,000-4,999

≤0.1151 >0.1151≤0.1401

>0.1401≤0.1651

>0.1651≤0.1901

>0.1901≤0.2151

>0.2151

ADA500-999

≤0.1311 >0.1311≤0.1561

>0.1561≤0.1811

>0.1811≤0.2061

>0.2061≤0.2311

>0.2311

ADA Less than500-999

≤0.2404 >0.2404≤0.2654

>0.2654≤0.2904

>0.2904≤0.3154

>0.3154≤0.3404

>0.3404

Sparse ≤0.3364 >0.3364≤0.3614

>0.3614≤0.3864

>0.3864≤0.4114

>0.4114≤0.4364

>0.4364

INDICATOR 13: ADMINISTRATIVE COST RATIO - CONTINUED

Did the school district not have a 15 percent decline in the students to staff ratio over 3 years (total enrollment to total staff)?

If the student enrollment did not decrease, the school district will automatically pass this indicator.

Data Source: PEIMS Fall Collection, Student Data Review reports, and PEIMS Fall Collection, Staff FTE by Role reports

Calculation:

or

POINTS: 0 or 10 points

INDICATOR 14: STUDENT TO STAFF RATIO

Indicator 15: Enrollment Variance Ratio - NEW

Indicator 16: PEIMS to AFR (Data Feed) Data Quality

Indicator 17: Material Weakness in Internal Controls Over Financial Reporting - NEW

Indicator 18: Material Noncompliance Disclosed on AFR

Indicator 19: Transparency – Required Financial Postings - NEW

Indicator 20: Property Values and Funding Lag Discussion with the Board of Trustees - NEW CI

CI

CI

FINANCIAL COMPETENCY INDICATORS

Was the school district's actual average daily attendance (ADA) within the allotted range of the district's biennial pupil projection submitted to TEA?

If the school district did not certify the school district’s biennial pupil projections, even if the school district failed to submit its biennial pupil projections to the TEA, the school district will automatically fail this indicator.

Data Source: o Summary of Finances; and

o State Funding division data reports

Worth 0 or 5 points

Calculation:

Average Daily Attendance - Projected Average Daily Attendance = Enrollment Variance RatioProjected Average Daily Attendance

ADA Size ≥ 10,000 ≥ 5,000 to < 10,000

≥ 1,000 to < 5,000

≥ 500 to < 1,000

< 500 Sparse

Range 7% 10% 20% 25% 30% 35%

INDICATOR 15: ENROLLMENT VARIANCE

INDICATOR 15: ENROLLMENT VARIANCE – CONTINUED

96% of the districts submitted pupil projections on time!! Up from 70% last biennium

Did the comparison of Public Education Information Management System (PEIMS) data to like information in the school district’s AFR result in a total variance of less than 3 percent of all expenditures by function?



Data Source: PEIMS, and Data Feed, C-2 worksheet

Calculation: Sum of the absolute values of all differences in expenditures between the Data Feed (Statement of Revenues,

Expenditures, and Changes in Fund Balance (C-2 worksheet)) and PEIMS, by function in Fund Code 199.

*This indicator is no longer a point driven indicator, it is a ceiling indicator only.

CIINDICATOR 16: PEIMS TO AFR COMPARISON

Did the external independent auditor report that the AFR was free of any instance(s) of material weaknesses in internal controls over financial reporting and compliance for local, state, or federal funds? (The AICPA defines material weakness.)

If the school district fails indicator 17, the maximum points and highest rating that the school district may receive is 79 points, C = Meets Standard Achievement.


Data Source: Data Feed, Schedule L-1 and AFR

*This indicator is a ceiling indicator only.

CI

INDICATOR 17: MATERIAL WEAKNESSES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING AND COMPLIANCE

Did the external independent auditor indicate the AFR was free of any instance(s) of material noncompliance for grants, contracts, and laws related to local, state, or federal funds? (The AICPA defines material noncompliance.)

Covers local, state, and federal funds

Data Source: Data Feed, Schedule L-1

Worth 0 or 10 points

INDICATOR 18: MATERIAL NONCOMPLIANCE

Did the school district post the required financial information on its website in accordance with Government Code, Local Government Code, Texas Education Code, Texas Administrative Code and other statutes, laws and rules?

For example: adopted budget, budget for two prior years, the superintendent’s contract, annual financial reports, and other required postings?

Data Source: Schedule L-1 in the data feed.

Worth 0 or 5 points

*Some, but not all, of the posting requirements are disclosed on the next slide.

INDICATOR 19: REQUIRED FINANCIAL PUBLICATIONS

+ TEC. 44.0041. PUBLICATION OF SUMMARY OF PROPOSED BUDGET. (a) Concurrently with the publication of notice of the budget under Section 44.004, a school district shall post a summary of the proposed budget: (1) on the school

district's Internet website; or (2) if the district has no Internet website, in the district's central administrative office.(b) The budget summary must include:

(1) information relating to per student and aggregate spending on: (A) instruction; (B) instructional support; (C) central administration; (D) district operations; (E) debt service; and (F) any other category designated by the commissioner; and

(2) a comparison to the previous year's actual spending.

+ TEC 44.0051. POSTING OF ADOPTED BUDGET. (a) On final approval of the budget by the board of trustees, the school district shall post on the district's Internet website a copy of the budget adopted by the board of trustees. The district's

Internet website must prominently display the electronic link to the adopted budget.(b) The district shall maintain the adopted budget on the district's Internet website until the third anniversary of the date the budget was adopted.

Reminder Local Government Code 140.0045 (Senate Bill 622) budgeting for items published in the newspaper

INDICATOR 19: REQUIRED FINANCIAL PUBLICATIONS -CONTINUED

The table below contains some, but not all, of the required financial postings that the school district must publish on the school district’s website and or in the local newspaper.

Government Code

Local Government

Code Tax Code Election Code Property CodeTexas Education

Code (TEC)

Texas Administrative

Code (TAC)

§551.056(a)(b)(3)(c)(3) §140.005 §26.05(b)(2) §85.007(d)(1) §21.0112(b)(2) TEC §11.1512(d)19 TAC

§97.1055(f)(1)(2)(3)(A)

§551.128(b-1)(1-2) §140.006(c) §26.06(c)§254.04011(a)(1)(2)(

b)(c)(e) TEC §39.36219 TAC

§97.1061()(3)(ii)

§1201.0245(b)(4)(A-G) §140.008(c)(d) §26.065(b) TEC §44.0041(a)(1)19TAC

§109.1001(o)(3)(B)(i)

§2265.001(b) §176.009(a) TEC §44.0051(a)(b)

§2267.066(2)(A)

Chapter 552

INDICATOR 19: REQUIRED FINANCIAL PUBLICATIONS - CONTINUED

Did the school board members discuss the district's property values and the funding lag at a board meeting that takes place within 120 days of the district adopting its budget?

If the school district fails indicator 20 the maximum points and highest rating that the school district may receive is 89 points, B = Above Standard Achievement.


Data Source: Data Feed, Schedule L-1

CI

INDICATOR 20: BOARD DISCUSSION OF PROPERTY VALUES

circling the drain ritabunton 05-22-2019 24_2019... · enrolment, ada, and or revenues ... failure...

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