An auditor suggested that the Floyd County Board of Education change the way the district handles activity funds that are generated at schools.
During a meeting last week, auditor Artie White of White and Associates suggested that the school district have more oversight on activity funds generated at ball games and events hosted at schools.
The school district’s financial manual reports that funds generated from fees (lockers, parking, textbooks, technology and other fees), donations, gate (ticket) receipts, picture profits, disability determination checks, advertising revenue and any other funds that are not generated by students or parents “must be sent to the district” as district activity funds. The district may disperse these funds per board policies and procedures.
Student-generated funds, however, are kept at the school and used for students. The school may dispense these funds per state policies and procedures.
The school district’s current practice is to allow school officials to determine the amount of activity funds that are sent to central office as district activity funds. White, however, educated board members about those funds, saying that the board of education, not the schools, should determine how much of the funding comes to central office.
White praised the school district for improvements it has made in activity fund accounting over the years, reporting only two instances where there were issues in activity funds in the audit this year.
“Those of you all who have been here quite a while, you’ve probably heard me say the school activity accounts in a school district are the highest audit risk a district has,” White said. “And the reason is it’s decentralized. It deals with a lot of cash, you don’t have a lot of controls, and they’re educators, not finance people.”
He told board members that $1.7 million ran through all schools for activities in the fiscal year, and those schools returned $52,000 to district activity funds.
“So, you have $1.7 million running through schools, and quite a bit of it is district activity,” he said. “The point I’m making to you is oversight, you know. It’s kind of like, I use you all as an example. When I grew up, board members hired the people in their precinct to work as janitors and all that. Now, look how much it’s changed. Everything is in evolving change and it’s because of happenings like that to try to make it better. You heard me say when I went over the management letter, the highest risk in a school district is school activity money and I’ll tell you ... any one person that has control of money and the books is a very dangerous combination.”
He provided an example of the issue.
“So, if somebody comes in a pays me $400 cash and hands it to me, I can’t steal from myself, but if that $400 is handed to my employee and they don’t write a receipt, I don’t know that person did anything,” he said. “They stick it in their pocket and I never know. If they have the ability to record that or not record it, they could put in $200 instead of $400. My point to you is, that’s the problem. That’s always going to be a problem simply because you have the fundraisers and stuff.”
Board Member Dr. Chandra Varia said there have been problems in school activity funds during her 19-year tenure as a board member, but talked about how they have improved over the years. After the district implemented uniform procedures for school activity fund documentation and reporting and required school officials to receive training, the number of issues dropped to two schools.
White commended the board for the improvements, saying, at one point, an auditor in his office called it “doggone good.”
In talking about changes in the district’s audit report, White said the way student activity funds are reported in the audit will change next year.
“Your school activity accounts ... next year will actually move from a fiduciary presentation to a special revenue fund. So they’re going to be part of the government,” White said. “The reason is the accounting standards board come out with a new standard that basically said because principals and the district personnel are employed by the school district controls how that money — when it spent, how it’s spent, when it’s budgeted — that is no longer custodial in nature. School activity account, I’ll just quickly say this, school activity fund accounting, fund money, if a student is involved in raising the money, that money is school activity money and it has to follow state policy and procedures, not local board policies and procedures. If any other money, even if it’s at a school — a basketball game, a soccer game, whatever — and no students are involved in collecting ticket money or whatever, that’s district activity money, not school activity money. It’s always been put in the school activity money. But now, as a board, you’ll have the ability to move that money back to the school district. It’s general fund money. You can spend it anyway you want to. You can send it back to the school. You can pay for anything, teachers, whatever. It’s general fund money because it’s a district activity. No student raised the money to play a basketball game ... That’s a district activity. The school did not raise that money.”
Board Member Linda Gearheart asked him to clarify his statement.
“So, you’re saying that, as a district, all that money belongs, I mean, it belongs to the district? It does not stay at the school?” she asked.
White told her the district can request funds to be sent to the district.
“If you request the money, it has to be transferred within 30 days to the district,” he said. “And it can be spent any way the board choses. They can send it back to the high school ... but what happens is, and my whole point to this is, it goes to local board policies and procedures, not schools. You’re dealing with two different types of procedures. It’s easier to spend local board money than it is school activity money.”
White said it’s the “board’s choice” on whether to request the funds be sent to the district instead of left at the schools.
School District Finance Director Tiffany Warrix Campbell said the district lets school officials choose how much funds to send to the district.
“Right now, we allow the schools, as long as it’s not student-generated funds, for them to determine, if it’s gate sales, what percentage they want to send down to us, and then they also send us a budget,” she said. “It stays at the school, it’s just here in our system and they have to do a purchase order, but it gives them more leniency, as far as what they’re able to purchase with those items. But the school, it’s still staying at the school, it’s just here, not as restricted.”
Adkins asked for clarification.
“Let’s say that they choose, though, not to put money into that account. Say it’s a football game. They choose to take that money and put it directly into the football account. So then, it’s not available to the district, am I correct?” he asked.
“No,” White said. “Here’s basically what I’m telling you ... District activity money, which is predominately 80 percent of it, I would say, is yours. You tell them. They don’t tell you.”
Robinson said, “We tell them?”
“Yeah,” White said. “And that’s the reason it’s called district activity ... It’s a district activity, but the school is actually doing the ticket sales, they’re collecting it. The board pays their salaries and all. But most boards do what she’s saying. They basically say, it doesn’t matter; if it’s district money or not, we’re still going to just keep it and we’ll reallocate it. It’s totally up to you. You can spend it on anything you want to. It’s general fund money.”
Varia asked whether the district could use district activity funds generated from an activity from one school and allocate it, instead, to another school.
“If they wanted to,” White said. “All I’m saying is district activities are exactly what I’m talking about. They’re district activities ... School activity money is student-generated money, but if you have students running a concession stand, it’s student activity money.”
Answering more questions, White explained that there will be no changes in the process, just the financial reporting of activity funds next year.
“Basically, what’s going to happen is that instead of schools sending it up through a district activity fund, they’re going to keep it in a fund at a school, instead of sending it and taking that chance us saying well, this isn’t how you’re going to spend that money,” Adkins said.
White said schools prefer keeping the money there because they can spend it without having to wait for a board meeting for approval.
“They don’t want to do that. They need this and they want to get it,” he said. “That’s the reason they like it. It’s the same process, just quicker, because they don’t need to come to a board meeting.”
White said if the board tells school officials to keep district activity funds at the school level, then it “turns into school activity money” and its use is restricted.
“My whole point to this and I’m going to go over with it with all boards, is that they have the ability to do it. Do schools like it? No. Because it’s not convenient. But I’m just saying, I’m just telling you that’s just the way it is, whether they like it or not. It’s still your choice, whether you change it or keep it the same. It doesn’t matter to me,” White said.
According to the audit, the school district ended the fiscal year on June 30 with a general fund balance of $6.6 million, an increase over the prior year.
The auditor issued an unmodified opinion of the school district’s finances and reported there were no significant deficiencies or material weaknesses. White told board members that auditors found no issues with federal programs in the district or other types of major programs.
White noted issues related to student activity funding at the school level, including several instances where checks written at Betsy Layne High School did not have two signatures, as required. At May Valley Elementary, auditors determined that money to buy gifts and dinners for staff was paid out of the school’s general fund.
The auditor suggested that the school implement a staff/faculty account and reported that funds could only be placed into that account if they come from vending machine that are not accessible to students.