Internal Control Tip: Monitoring Summary of Finances

To say that the State of Texas School Finance system is complex, is an understatement. Now imagine if your district only monitored the Texas Education Agency’s (TEA) Summary of Finances (SOF) a couple of times a year. Your school district could find itself in a situation similar to what happened a few years back, where a school district did not recognize a substantial difference between the State’s projected attendance data and actual attendance.  The lack of monitoring led to a multi-million dollar overpayment that the district spent instead of accounting for it as a liability. Overpayments are not inherently bad, but without proper recognition, they can wreak havoc on your fund balance.

Remember that the SOF consists of two calculations: the Legislative Payment Estimate (LPE) and the District Planning Estimate (DPE). The LPE is the State’s estimated amount that is adopted during the biennial appropriations process. This data is truly based on trends and projections submitted by your school district to the TEA. As the school year progresses and school districts submit current data (e.g. actual attendance) the DPE amount changes. If the DPE figure falls short of the LPE, then a school district has been overpaid and will need to determine the impact on its budget. If the LPE falls short of the DPE, then the State owes the school district additional funding.

There is no shortage of tools available for monitoring State Aid. In addition to the SOF, which is updated throughout the year, the school district should add to its internet browser’s Favorites the TEA Payment Report (all payments to school districts passed through the TEA) and the TEA Payment Ledgers (for the various State Aid Allotments). We recognize that the Foundation portion of State Aid is the most significant, but school districts should keep a close watch on their Available School Fund, Existing Debt and Instructional Facilities Allotments. For those school districts that are property rich and are subject to recapture, the Chapter 41 Payment Ledger is of great significance.

Regardless of your fiscal year end, the “Near Final” SOF is typically issued in mid-September and reflects TEA’s preliminary settle-up amount. This is the most critical version of the SOF for financial reporting purposes and should be carefully analyzed. With that said, the balance shown on the TEA Payment Ledger, immediately before the settle-up entry, indicates whether the school district should record a receivable or unearned revenue (liability). Take overpayments as an example. The TEA will transfer them to next year’s allotment, leaving a balance of zero. If we simply use the balance of zero after the transfer, we are at risk of not recognizing an overpayment. In addition, beware of adjustments made subsequent to the settle-up calculation but prior to the issuance of your audited financial statements, which should reflect all substantial payments or adjustments.

 

Whitley Penn contributes to the TASBO Internal Control Tips at www.tasbo.org/IC-Tips

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