TSPR Glen Rose Independent School District - Chapter 4
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Glen Rose Independent School District
February 2002
Chapter 4
FINANCIAL MANAGEMENT

This chapter discusses financial management within the Glen Rose Independent School District (GRISD) in the following sections:

A. Fund Balance
B. Districtwide Planning and Budgeting
C. Accounting and Payroll Operations
D. Cash Management
E. Risk Management
F. Fixed Asset Management
G. Purchasing Operations

A. FUND BALANCE

The GRISD General Fund is the primary fund that supports the district's operations. It receives revenue from local property taxes, and the fund balance, the difference between the assets and liabilities in the fund, is one of the primary measures of solvency for a school district and a reflection of the district's financial condition.

FINDING

Financial information is not provided on a regular basis to the board to identify the effect of deficit spending. The district does not have a policy to set a minimum fund balance amount.

At the time this review began in October 2001, GRISD faced a growing financial challenge. For the last five years, the board and administration have purposely adopted deficit-operating budgets, which means the district adopted an operating budget that exceeded the revenues available to fund it. These budgets were funded out of the district's general fund balance to allow the balance of $13.1 million to be used, rather than raising taxes to help fund the budget. Exhibit 4-4 provides a summary of the changes in fund balance from 1997-98 through the budget projections for 2001-02. Although the district's adopted budgets in each of these years were greater than the amount actually spent, the fund balance still decreased.

During this five-year period, the district's fund balance dropped from $11.8 million to an anticipated balance at the end of 2001-02 of $4.2 million. During this same period, the district has not analyzed spending patterns in any meaningful way, developed a long-range plan to balance the budget or reduced spending significantly. Its tax rate remains one of the lowest in Texas.

Exhibit 4-4
Change in General Fund Balance
1997-98 through 2000-01 Actual and 2001-02 Adopted Budget
  1997-98 1998-99 1999-2000 2000-01 2001-02
Beginning Fund Balance $13,290,797 $11,776,484 $10,941,788 $8,807,374 $7,135,406
Budgeted Fund Balance Reduction ($3,607,415) ($4,355,356) ($2,764,047) ($3,766,005) ($2,948,527)
Actual Unspent Funds $2,093,102 $3,520,660 $950,173 $2,094,037 $0
Actual Fund Balance Reduction ($1,514,313) ($834,696) ($1,813,874) ($1,671,968) $0
Ending Fund Balance $11,776,484 $10,941,788 $8,807,374* $7,135,406 $4,186,879
Source: GRISD audited financial statements 1997-98 through 2000-01 and 2001-02 GRISD adopted budget. *Includes $320,540 adjustment to fund balance for unrelated purpose.

Exhibit 4-5 shows the trends in enrollment, revenue and expenditures for the last five years in the General Fund. GRISD's enrollment has increasedmore than 10 percent, while its expenditures have increased more than 40 percent. In the same period, revenues have increased nearly 23 percent. The result has been continued reductions of the General Fund balance.

Exhibit 4-5
GRISD Enrollment, Actual Revenues and Expenditures in the General Fund
1997-98 through 2001-02
  1997-98 1998-99 1999-2000 2000-01 2001-02 Percent Change
1997-98 to 2001-02
Enrollment 1,507 1,555 1,596 1,614 1,666 10.6%
General Fund Revenues $11,992,932 $11,719,841 $12,214,139 $12,276,277 $14,745,076 22.9%
General Fund Expenditures $12,612,359 $12,554,081 $13,814,638 $14,491,429 $17,693,603 40.3%
Effect on Fund Balance ($619,427) ($834,240) ($1,600,499) ($2,215,152) ($2,948,527) 376.0%
Source: GRISD audited financial statements 1997-98 through 2000-01 and 2001-02 GRISD adopted budget.
Note: Food services, federal programs, capital projects and other special purpose fund amounts are not included.

District staff and board members said in interviews that GRISD made a conscious decision to use a portion of the general fund balance to fund normal district operating expenses. This decision has resulted in a budget that exceeds current revenues and has reduced the district's ability to respond to emergencies or changes in funding. With such an approach, the district's General Fund balance could be entirely depleted by 2003-04. For example, if district revenues decreased due to changes in funding formulas by the Legislature or a major change in Texas Utilities operations, such as reduced operations, and sufficient money was not available in the fund balance to make up for the lost revenue, district operations could be placed in jeopardy.

Board members must have a thorough understanding of the district's financial condition and the impact of their deficit spending decisions on the district's financial health. For example, in 2000, the site-based decision-making committees (SBDM) at both the elementary and intermediate schools recommended eliminating the budget item that provided school supplies to each student. The board's decision not to adopt this recommendation, even though it would have resulted in a savings of approximately $20,500, to the district, ultimately had a negative effect on the fund balance. Without specific financial information on each board spending action, the fund balance impact will not be clearly stated for the board and taxpayer community.

Recommendation 27:

Develop a policy that establishes the optimum balance for the General Fund and require the administration to report regularly to the board regarding changes to the fund balance.

The policy should include a strategy as to how to reach and maintain the desired balance for the fund. The board should conduct frequent reviews of district spending and make changes to spending when needed.

Focusing attention on the fund balance will keep the effects of financial decision-making in front of the board. The monthly report to the board by district administrators should include the status of the fund balance. Any significant events that have an effect on the fund balance should be explained.

IMPLEMENTATION STRATEGIES AND TIMELINE
1. The superintendent, working with the director of Finance, develops a policy establishing an optimum fund balance. May 2002
2. The board reviews and adopts the policy. June 2002
3. The director of Finance develops monthly reports for the board. July 2002
4. The board reviews the effects of decisions on the fund balance as part of its monthly financial reports. Ongoing

FISCAL IMPACT

This recommendation can be implemented with existing resources.


Carole Keeton Strayhorn
Texas Comptroller of Public Accounts
Window on State Government
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