While charter schools prepare for the 2021 school year, let’s keep their requirements at the forefront to ensure compliance.
Charters schools in the state of Texas are considered public schools funded with state and federal funds. While charter schools are exempt from some state requirements, they are still subject to many of the requirements in the Texas Education Code (TEC), Texas Administrative Code (TAC) and other Texas Education Agency (TEA) regulations. Additionally, if charter schools receive federal financial assistance, they, like other entities that receive federal financial assistance, must comply with the Uniform Guidance (2 CFR 200).
From an accounting standards standpoint, not-for-profit open-enrollment charter schools must adhere to the pronouncements issued by Financial Accounting Standards Board (FASB).
While charter schools prepare for the 2021 school year, let’s keep these requirements at the forefront to ensure compliance.
New Lease Accounting Standard
The new lease accounting standard, Accounting Standards Update (ASU) 2016-02, Topic 842, requires lessees with leases greater than 12 months to reflect the present value of lease payments on the balance sheet as an asset (right-of-use asset) with a corresponding liability (lease liability). However, on June 3, 2020, the FASB issued ASU2020-05 which delayed the effective date of its lease accounting standard in response to the adverse effect of Coronavirus Disease 2019 (COVID-19) pandemic. ASU 2016-02 is effective for fiscal years beginning after December 15, 2019 or fiscal year 2021, including interim periods within those fiscal years, for public not-for-profit organizations such as charter schools with public debt that have not yet issued financial statements (or made available for issuance) reflecting the adoption of leases. All others must comply in fiscal year 2022. Early application is permitted which means that the organization may choose to implement ASU 2016-02 before the deferred effective dates.
School FIRST Indicators for Open-Enrollment Charter Schools
The School Financial Integrity Rating System of Texas (FIRST) is the financial accountability rating system which measures the quality of the charter schools’ financial management practices. The TEA determines a charter school’s rating using the financial indicators specified in 19 Texas Administrative Code (TAC) §109.1001(f). Financial accountability indicators for rating year 2020-2021 will be based on fiscal year 2020 financial data.
The charter school must pass critical indicators (indicators 1-5) to receive a passing rating (Superior, Above Standard, or Meets Standard rating). Substandard achievement is the outcome for any failed critical indicator or points less than Meets Standard Achievement rating.
Here are the new FIRST indicators:
- Solvency indicator No. 6 - Was the average change in total net assets over 3 years less than a 25 percent decrease or did the current year total net asset balance exceed 75 days of operational expenditures [(total expenditures less depreciation) /365]*75 days? (If the charter school fails indicator 6, the maximum points and highest rating that the charter school may receive is 89 points, B = Above Standard Achievement.)
- Solvency indicator No. 10 - Did the charter school average less than a 10 percent variance (90%-110%) when comparing budgeted revenues to actual revenues for the last 3 fiscal years?
- Solvency indicator No. 13 - Did the charter school have a debt-to-capitalization percentage that was reasonable for the charter school to continue operating?
- Financial Competence indicator No. 16 - Was the charter school's actual average daily attendance (ADA) within 10 percent of the charter school's annual estimated ADA?
- Financial Competence indicator No. 18 - 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 charter school fails indicator 18, the maximum points and highest rating that the charter school may receive is 79 points, C = Meets Standard Achievement.)
- Financial Competence Indicator No. 20 - Did the charter school 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 that were in effect at the charter school's fiscal year end?
- · Financial Competence Indicator No. 21 - Did the charter school serve students that reside within its approved geographic boundaries? (If the charter school fails indicator 21, the maximum points and highest rating that the charter school may receive is 89 points, B = Above Standard Achievement.)
Due to the uncertainty created by COVID-19 virus, Average Daily Attendance (ADA) has become unpredictable. The TEA will exclude certain indicators from the 2020-2021 FIRST ratings such as:
- Solvency indicator No. 10 - Did the charter school average less than a 10 percent variance (90%-110%) when comparing budgeted revenues to actual revenues for the last 3 fiscal years?
- Financial Competence indicator No. 16 - Was the charter school's actual average daily attendance (ADA) within 10 percent of the charter school's annual estimated ADA?
The annual financial report and/or the Data Feed should be submitted on time for FIRST analysis.
Legislation
With the growing adverse impact of COVID-19 on public education, laws were passed and billions of dollars of funding were appropriated to support school operations.
The following laws have impacted charter schools:
- Families First Coronavirus Response Act (FFCRA) - Charter schools with fewer than 500 employees are required to comply with new family and sick leave provisions in the FFCRA.
- Coronavirus Aid, Relief, Economic Security Act (CARES) – Charter schools can also receive funding from Elementary and Secondary School Emergency Relief Fund (ESSER) and may be able to access funds that CARES provides such as Paycheck Protection Program (PPP), Coronavirus Relief Fund (CRF), FEMA Public Assistance, Child Care and Development Block Grant, and Head Start just to name a few.
Charter schools should track the expenditures related to COVID-19using a locally defined code. As federal award recipients, they have to maintain appropriate records and documentation. Please note that according to OMB Memo M-20-26 payroll costs paid with PPP loans or any other Federal CARES Act programs must not be also charged to current federal awards as it would result in the federal government paying for the same expenditures twice. In other words, avoid “double dipping.”
