SACS Minutes, February 2014, Attachment A

Coding and reporting issues observed in 2012–13 unaudited actuals data submissions

• Issue: Use of unrestricted or restricted resource codes in funds other than the general fund     
  
  Correct Procedure: A restricted resource code should be used for all restricted funding, regardless of the fund in which it is reported. Examples include proceeds of bonds and other debt instruments to be used for specific capital outlay projects and property taxes collected that may only be used to pay debt service.
  
  In addition, funding that does not meet the definition of restricted should be reported in an unrestricted resource code. An example is unrestricted funds set aside in Fund 17 or Fund 20.         
  
  Reference: California Department of Education (CDE) letter dated January 7, 2011, “New Requirements for Reporting Fund Balance in Governmental Funds,” pages 11 and 12.
  
  
• Issue: Use of correct function for technology expenditures.  
  
  Correct Procedure: Centralized data processing (i.e., technology) expenditures should be recorded to Function 7700 and not to Other General Administration Function 7200.
  
  Technology expenditures attributable to instruction and instruction support should be charged to Function 1000, Instruction, and/or Function 2420, Instructional Library, Media and Technology, as appropriate.
  
  Technology expenditures that become an integral part of the building, such as wiring a building to upgrade Internet and other technology services, are appropriately charged to Function 8100 or 8500, depending on whether the improvement is capitalizable.       
  
  References: California School Accounting Manual (CSAM) Procedure 325, Function (Activity) Classification, pages 29 and 30
  
  CSAM Procedure 630, Technology – Coding Examples
  
  CSAM Procedure 770, Distinguishing Between Supplies and Equipment
  
  
• Issue: Technology expenditures – intangible assets   
  
  Correct Procedure: Software, such as enterprise reporting systems, whether purchased or licensed, may meet the criteria to be considered an intangible asset and reported in Object 6400 or 6500, rather than Object 5800. 
  
  Reference: GASB Statement 51, Accounting and Financial Reporting for Intangible Assets
  
  
• Issue: Subagreements for Services, Object 5100
  
  Correct Procedure: Object 5100 should be used to record payments to a third party service provider that conducts all or part of an instructional or support activity for which the local educational agency (LEA) is responsible. The first $25,000 may be recorded using Object 5800.
  
  Federal cost principles require that subagreements be excluded from the indirect cost rate calculation and from eligible program costs on which indirect costs are charged.
  
  References: CDE letter dated December 15, 2006, “Indirect Cost and Accounting Changes Effective Beginning 2007–08.”
  
  CSAM Procedure 330, Object Classification
  
  CSAM Procedure 915, Indirect Cost Rate         
               
• Issue: Other postemployment benefits (OPEB) expenditures not distributed per the guidance in the CSAM
  
  Correct Procedure: OPEB expenditures recorded in Object 3701 and Object 3702, OPEB Allocated, should be allocated among all activities – any combination of fund, goal and/or function, but not necessarily resource - as appropriate in proportion to total salaries or full-time-equivalents (FTEs) in all activities. This allocation should be done even when benefits are paid on a “pay as you go” basis; that is, the amount paid represents current year benefits for already retired employees. Amounts paid should not be charged only to the account lines of the retired employees’ former salaries.
  
  In addition, a portion of the “pay as you go” amount may be attributable to normal costs and/or unamortized liability for OPEB-eligible current employees. Generally, these amounts generally are direct-charged to the programs in which active employees’ salaries are charged. Consult the CSAM for specific guidance.
  
  Reference: CSAM Procedure 785, Postemployment Benefits Other Than Pensions (OPEB)

• Issue: Debt refunding      
  
  Correct Procedure: Debt refunding transactions should be recorded in the debt service fund or other appropriate fund.
  
  The correct transaction amounts may need to be obtained from a source other than the County Treasurer, for example the Official Statement or other closing documents.
  
  
• Issue: Form PCRAF - Unrealistic or incorrect allocation factors for undistributed support costs
  
  Correct Procedure: Example: FTE entered for only one instructional program, resulting in allocation of all undistributed costs to that program; or an implausibly low number of FTE per program, e.g. one FTE for regular education; or dollar amounts entered instead of factors. To assure that costs are allocated on a consistent and standard basis, allocation factors should reflect real counts of the teacher FTEs, classroom units (square footage utilized), or pupils transported in all instructional programs operated by the LEA.        
  
  Reference: CSAM Procedure 910, Program Cost Accounting
  
  
• Issue: Form PCRAF – Allocation factors entered for programs for which there are no direct costs
  
  Correct Procedure: Undistributed support costs should normally only be allocated to programs in which direct charged costs are incurred.
  
  Form PCR and Form PCRAF should not be used to allocate costs incurred on behalf of other entities, such as charter schools, in lieu of recording them correctly to Goal 7110 in the general ledger.
  
  Reference: CSAM Procedure 910, Program Cost Accounting
  
  
• Issue: Indirect cost calculation (Form ICR) – in some cases indirect cost pool expenditures are being recorded incorrectly, resulting in an inappropriate indirect cost rate.
  
  
  • Administrative costs charged entirely to a general administration function when other functions benefit from those expenditures.
  • Audit costs not charged to the appropriate function.
  • Abnormal or mass separation costs not excluded from the indirect cost pool.
  • OPEB costs charged entirely or disproportionately to a general administration function.
  • Insurance, legal and communications costs charged entirely to a general administrative function.
  • Communications costs charged almost entirely to Function 8100.
  • Incorrect use of Function 7700, Centralized Data Processing, for costs other than those of a general administrative nature         

Correct Procedure:

• Especially for small school districts and charter schools, administrative costs should be allocated between general administration, board and superintendent (functions 71XX), school administration (Function 2700), and/or other instructional support functions (functions 2XXX), as necessary. For salaries, standard distributions may be used in lieu of time documentation.
• Audit costs should be charged to either Function 7190 or 7191, depending on whether LEA is subject to federal Single Audit provisions.
• Abnormal or mass separation costs charged to a general administration function should be excluded by entering the appropriate amount in Part II, Line of the Indirect Cost Rate Worksheet, Form ICR.
• OPEB costs are allocated among all activities in proportion to total salaries or FTEs in all activities.
• Bus and food service vehicle insurance should be charged to functions 3600 and 3700, respectively. Pupil insurance should be charged to Function 1000.
• Legal costs should be recorded primarily to Function 7100, unless the costs are associated specifically with the business office, purchasing or personnel matters. Settlements should be charged to Function 7100.
• Communications costs such as telephone, cell phone, 2-way radio, and internet service should be charged to the functions in which those services are used. 
• Technology costs incurred on behalf of instructional programs should be reported in Function 1000, Instruction or Function 2420, Instructional Library, Media and Technology. Costs should be allocated between agency-wide and instructional functions as necessary. If all data processing costs are initially accumulated in Function 7700, instructional costs should be reclassified to the appropriate function(s) using Object 5710.

References: CDE letter dated December 15, 2006, “Indirect Cost and Accounting Changes Effective Beginning 2007–08.”

CSAM Procedure 325, Function Classification

CSAM Procedure 785, Postemployment Benefits Other Than Pensions (OPEB)

CSAM Procedure 905, Documenting Salaries and Wages

CSAM Procedure 910, Program Cost Accounting

CSAM Procedure 915, Indirect Cost Rate

• Issue: Charter school coding and reporting
  
  
  • Salaries reported without corresponding benefits.
  • Salaries and corresponding benefits not recorded to the same resource, goal, and/or function.
  • Management company fees lump-sum charged to one function, such as 7200.
  • Depreciation expense lump-sum charged to Function 7200 (Fund 62 only)
  • Indirect cost pool expenditures coded incorrectly; misconception that indirect cost rate does not apply.

Correct Procedure:

• Employee benefits should be recorded separately from the associated salary and in one or more appropriate benefit object codes.
• Salary and benefits for the same employee should normally be recorded to the same resource, goal, and function.
• Fees paid for activities other than school or general administration should be charged to the appropriate function(s), such as instructional administration (Function 2100) or pupil services (functions 3000 – 3999).
  Fees paid for fiscal and business services are partially attributable to school administration and should be allocated appropriately. In lieu of a documented distribution, these costs may be charged 70% to school administration and 30% to general administration.
• Depreciation expense should be charged to the functions that benefit from the asset for which depreciation is charged. For example, depreciation on a school building that consists of regular education classrooms should be charged to Goal 1110, Function 1000.
• See above for common indirect cost pool coding errors. Indirect cost rates are calculated for charter schools that report separately using SACS, even if an indirect cost rate is not used.

References:

CSAM Procedure 325, Function Classification

CSAM Procedure 330, Object Classification

CSAM Procedure 910, Program Cost Accounting

CSAM Procedure 915, Indirect Cost Rate