Your District Has Received ESSER Funds. Now What?

What can the budget team do to help make the best use of their ESSER funds? Here are some tips.

This Internal Control Tip is authored by Jennifer Ripka, Weaver and Travis Casner, CFE, Weaver

It sounds like a dream come true. Enormous sums of federal money dispersed to local education agencies and school districts to help students get back on track after the pandemic. Three Elementary and Secondary School Emergency Relief (ESSER) programs have created enormous opportunities to address a wide range of needs. Of the total $191 billion dispersed nationally, Texas has been allocated $19.2 billion: $1.3 billion in ESSER I funding, $5.5 billion in ESSER II, and $12.4 billion in American Rescue Plan (ARP) funds (also referred to as ESSER III).

From summer school and after-school programs to wraparound social services to improvements for aging facilities, Texas school districts are working hard to make the best use of these new funds.

But it has not been easy. District administrators and school personnel have struggled to keep up with ESSER funding guidance. School business officials have expressed concern about the impact of this new funding on areas like current daily operations, budgets and audits. Districts also feel pressured by the requirement that all funds be dispersed and spent by September 2024.

What can the budget team do to help make the best use of their ESSER funds? Here are some tips.

Understand the source of the funding and its intended uses. Some districts have run into trouble when they applied ESSER funds to costs that are not considered allowable uses. For example, a Texas school district had to return nearly $800,000 in ESSER II funding that had been improperly allocated to cover special education staffing.

Establish clear procedures. Make sure you have processes in place to ensure that funds are spend appropriately. Don’t forget about the importance of internal reviews and the need for coordination between grant management and other management teams.

Document changes in key controls. Any gaps in financial controls are likely to be exposed through the ESSER funding and review process. Make sure your district has reviewed and updated their controls to account for this new influx of funding.

Keep detailed documentation to provide a roadmap of purchases. The volume of funds, spending deadlines and additional requirements for how the funds can be used, documentation and reporting will present challenges for districts that do not plan ahead and carefully document their spending.

Track ESSER I, II, and III funds separately. Although they are often considered as a group, each of these programs is a separate funding sources and should be treated accordingly.

Communicate and be transparent. School boards and the public expect transparency in the use of these funds and grant conditions require regular reporting to the public. Provide clear, specific information and be prepared to answer detailed questions about how ESSER funds were used to respond to issues that arose as a direct result of the pandemic.

Don't be tempted to use ESSER funding on areas that will create budget hardships once the funding is gone. With personnel costs making up the major portion of their budgets, many school districts are using ESSER funds for staffing and other ongoing expenses. With such a tight window for expending the funds, it is especially important to consider and plan for how to maintain sufficient staffing after the funding ends.

Be on the lookout for fraud and misuse of funds. Signs of possible fraud, waste and abuse include financial conflicts of interest or vendors affiliated with district officials; suspicious or unverifiable vendors; large purchases of supplies and equipment beyond the district’s needs, missing school property or records; defective or low-quality products and services; irregularities in contract awards or procedures; and nonexistent students.

Be sure your district has a mechanism, such as an anonymous tip line, for people to report activities that may be fraudulent. Find ways to reassure people so they feel safe and comfortable coming forward if they suspect fraud. Employees are less likely to speak up if they fear retaliation.

Periodically apply forensic techniques and data analytics to identify anomalies or red flags as a spot-check and safeguard. You don’t have to undertake a full forensic audit; individual tasks such as comparing actual spending activity to estimated or budgeted amounts, then investigating variances, are very useful. Consider asking your financial auditor to include data analytics as part of their audit procedures.

For educators and students struggling to recover from the pandemic, ESSER funding can offer a lifeline. Using the funds appropriately will help keep dreams of school improvement from turning into nightmares.

About the authors:

Jennifer Ripka has more than 15 years of public accounting experience focused on government entities, including independent school districts, municipalities and special purpose districts. She has served several complex government entities with greater than $1 billion in revenues/assets. She regularly consults with her clients on the implementation of new accounting standards.

Travis Casner, CFE, has more than a decade of experience assisting school districts and other public agencies with forensic accounting, investigative and fraud-related matters. Travis has managed numerous financial forensics investigations involving allegations of fraud, misuse of funds, conflicts of interest, employee misconduct and theft, misappropriation of assets, and other types of white-collar crime.

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