Changing Your Fiscal Year - What Could Possibly Go Wrong?

Fiscal

If you’re a school district that is considering changing its fiscal year, there are critical items that need to be considered.

More and more school districts are electing to change their fiscal year-end from August 31st to June 30th. From an audit perspective, it’s enticing to think that the financial statement audit will be completed by Thanksgiving and the “audit cloud” will be nowhere to be found during the holiday break. If you’re a school district that is considering changing its fiscal year or has already notifiedthe Texas Education Agency (TEA) of your intent to change, there are critical items that need to be considered.

  • Your school district will prepare a 12-month budget, but actual amounts will only reflect ten months of activity. Management should monitor expenditures on a monthly basis and have a month-to-date budget to determine if the school district’s spending is on target each month. Otherwise, overspending during the ten-month period could be masked against the 12-month period’s budget.
  • Accrued wages will increase significantly. Teachers earn their pay over a ten-month period, but are paid over a 12-month period. As such, as of June 30th, all teachers will have earned all of their pay, but the school district will pay their remaining two months in July and August. This represents the District’s accrued wages. When analyzing your ten-month financials compared to the prior year (12-month period) this account should reflect a large increase.
  • The school district should also recognize a large cash receivable from the State for the amounts of Per Capita and Foundation School Program earned but not yet received as June 30th. Additionally, if your school district has customarily recognized a portion of next year’s Foundation allotment for the days teachers worked in August as an August 31st, that receivable will not only need to be reversed in the year of the fiscal year change, but the additional accrual is not applicable for a June 30th year-end.
  • The State Aid settle-up occurs in mid-September, so it’s important that school districts review the TEA Payment Ledgers for its settle-up figures. Even though this process occurs almost three months after year-end, it is still important to monitor and record material changes, especially overpayments.
  • Be mindful of both the Every Student Succeeds Act (ESSA) and Special Education Maintenance of Effort requirements. Auditors will still need to verify compliance over a 12-month period. As such, it’s important that expenditures in July and August of the next fiscal year are accurate and available for audit purposes. In the end, TEA will evaluate compliance with the Maintenance of Effort requirements through the regular Public Education Information Management System (PEIMS) submission using 12 months’ worth of data.
  • A school district’s Delinquent Taxes Receivable Schedule (Exhibit J-1) will need to reflect both 10-months and 12-months of tax collections. School districts have the option of adding an additional line to reflect the July and August tax collections on the 10-month schedule or they can submit two Exhibit J-1s: one reflecting 10-months and another one reflecting 12-months of activity.
  • Fund balance will increase significantly during the 10-month period. This is primarily the result of recognizing 12 months’ worth of revenue and only ten months of expenditures. This size of increase should not be considered the norm and should be communicated as such to the Board and other non-financial members of management.
  • In legislative years, you may not have full information about coming changes to state aid calculations in time to work them into your revenue calculations prior to budget adoption. Given annual property tax rate compression passed in HB 3, you also may also not have complete information about what your district’s M&O tax rate will be before the start of the fiscal year.

Management should ensure that they take into consideration these items, and that the Board receives frequent reminders as monthly financial data is brought to them for review in the first year of change. Review TEA’s Resources

as you work through the change in fiscal year.

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