SACS Forum Meeting Minutes, May 2019

Meeting held via webinar at the California Department of Education (CDE), Sacramento

Meeting Agenda

Announcements and Information

• Local Educational Agency (LEA) Approved Indirect Cost Rates Posted

• SACS2019 Budget Software Release

Accounting Update

• Medi-Cal Administrative Activities (MAA) Backcasting

• Classified School Employee Summer Assistance Program (CSESAP)

• Governmental Accounting Standards Board (GASB) 84: Fiduciary Activities

• Every Student Succeeds Act (ESSA) Per Pupil Expenditures (PPE) Requirement

SACS Software

• SACS2019ALL Software Release

Other Updates

• Next Meeting

Meeting Minutes

Announcements and Information

• Local Educational Agency (LEA) Approved Indirect Cost Rates Posted

The 2019–20 approved indirect cost rates have been published and can be found on the CDE’s Indirect Cost Rates (ICR) web page.

• SACS2019 Budget Software Release

The SACS2019 budget financial reporting software has been released and is available for download from the CDE’s Financial Reporting software web page.

Accounting Updates

• Medi-Cal Administrative Activities (MAA) Backcasting

CDE issued the First Apportionment for One-Time Funds for Outstanding Mandate Claims Fiscal Year 2018–19 letter on December 31, 2018, notifying county offices of education that if a school district was required to repay claims disallowed under the School-Based Medi-Cal Administrative Activities (SMAA) program for fiscal years 2009–10 through 2015–16, inclusive, pursuant to Government Code Section 17581.97(c) and Education Code (EC) Section 41207.45(b) the State Controller shall, upon notification from the Department of Finance, withhold the specified amounts owed from the allocations made to those school districts.

On February 4, 2019, CDE notified school districts that funds owed back to the state due to disallowed SMAA claims would be withheld from the apportionment scheduled in June 2019.

LEAs should record the full mandated claims apportionment before the offset using Resource 0000, Unrestricted, and Object Code 8550, Mandated Costs Reimbursements.

The SMAA offset amount should be recorded as an abatement (debit) to revenue Resource 0000, Unrestricted, and Object Code 8290, All Other Federal Revenue.

• Classified School Employee Summer Assistance Program (CSESAP)

CDE has received a few questions regarding the accounting treatment of CSESAP funds, Resource 7415. The CSESAP funds provide a dollar for dollar match for participating LEA’s classified employees' who have elected to have amounts withheld from their monthly paychecks during the 2019–20 school year. The pay withheld and the state match funds will be paid to participating employees in the summer months following the 2019–20 school year.

The CSESAP revenue should be recognized using Resource 7415, and Object 8590, All Other State Revenue. CDE will make the required apportionment for the state match funds in August 2020, which has prompted some LEAs to set up a locally defined accounts payable in 2019–20 to recognize the liability until payment is made.

The primary question has been how to record the expenditures associated with the state match portion. The state match expenditure should be recorded using the appropriate 2000–2999 classified employee object code with the normal goal and function of the employee.

Another question has been whether contributions to the program resource are allowed. Contributions to Resource 7415 using Object 8980, Contributions from Unrestricted Resources, are not allowed because the state match funds are only intended to cover actual salary expenditures. Any contributions to the resource to cover additional expenditures, e.g., statutory benefits associated with the state matched salaries, would not keep the program pure and may give the appearance that the program is paying for other types of expenditures. LEAs may set up their payroll systems to record the state matched salaries and associated statutory benefits to Resource 0000, Unrestricted, and then make an adjusting entry to reclassify only the salaries to Resource 7415, or if the payroll system is set up to record the state matched salaries to Resource 7415, the statutory benefit expenditures will need to be reclassified to Resource 0000, Unrestricted.

CDE also communicated that the 2019–20 May Revise proposed $36 million of one-time Proposition 98 funds to provide an additional year of funding for this program.

Additional information on the CSESAP funds can be found on CDE’s Classified School Employee Summer Assistance web page.

• Governmental Accounting Standards Board (GASB) 84: Fiduciary Activities
  
  
• CDE reminded participants that GASB 84, Fiduciary Activities, will be effective for 2019–20. In previous SACS Forum meetings, CDE addressed some of the fiduciary activities associated with GASB 84. Prior SACS Forum meeting minutes can be found on CDE’s Recap of SACS Forum Meeting web page. The full GASB Statement 84 can be downloaded from the GASB website.
  
  
• CDE has received several questions regarding the implementation of GASB 84. Following are the main areas of interest to LEAs:
  
  
  • Payroll Withholding Funds
    
    LEAs commonly use a clearing account to accumulate resources from employee payroll withholding and accrued employer payroll taxes that will be submitted to the appropriate agencies when due. Pursuant to GASB 84, LEAs should not report the clearing account in a fiduciary fund because the government is holding the amounts for its own benefit, i.e., its own employees. Therefore, the unremitted amount in the clearing account is a liability of the LEA, and not being held in a fiduciary capacity. This situation is addressed in GASB’s Implementation Guide No. 2019-2, Fiduciary Activities , question 4.15.
    
    Note that a county office of education (COE) may continue to use a fiduciary fund, i.e., Fund 76, Warrant/Pass-Through Fund, for the accumulation of payroll withholding on behalf of its school district employees as it is holding those funds in a fiduciary capacity. However, the accumulation of payroll withholding for the COE’s own employees should not be reported in Fund 76, as discussed above.
    
    CDE provided the following example to compare a COE’s accounting for payroll withholding before and after GASB 84:
    
    The COE collected $10 million in payroll withholding on behalf of school districts and $5 million for its own employees, for a total amount collected of $15 million. By fiscal year end, $9 million was distributed to the appropriate agencies on behalf of school districts and $3.5 million was distributed for itself, for a total of $12.5 million distributed.
    
    

    Pre-GASB 84 (Fund 76)	Post-GASB 84 (Fund 76)
    $15 million payroll withholding collected and held for COE and its school districts. Debit Object 9110, $15 million Credit Object 9620, $15 million All payroll withholding, COE and school districts, reported in Fund 76	$10 million payroll withholding collected for its school districts Debit Object 9110, $10 million Credit Object 8800, $10 million Debit Object 7500, $10 million Credit Object 9620, $10 million Only school district payroll withholding reporting in Fund 76. (Note the use of new object codes for reporting amounts received and disbursed.)
    $12.5 million distributed Debit Object 9620, $12.5 million Credit Object 9110, $12.5 million	$9 million distributed Debit Object 9620, $9 million Credit Object 9110, $9 million

    
    

    Pre-GASB 84 (Fund 01)	Post-GASB 84 (Fund 01)
    $5 million COE payroll withholding expenditures Debit Object 3XXX, $5 million Credit Object 9110, $5 million The payroll withholding (benefit) expenditures are reported in Fund 01, but cash is transferred and liability established in Fund 76.	$5 million COE payroll withholding expenditures Debit Object 3XXX, $5 million Credit Object 9500, $5 million $3.5 million was distributed Debit Object 9500, $3.5 million Credit Object 9110, $3.5 million The COE's payroll withholding liability is established in and paid from Fund 01.

    A participant asked why a COE that merely reports and transmits payroll withholding on behalf of its districts is required to report these amounts as additions and deductions in Fund 76 using the newly established object codes 7500 and 8800. CDE indicated that because GASB 84 requires a statement of changes in fiduciary net position be prepared for custodial funds, these accounts are required to provide the appropriate reporting for that financial statement. Pre-GASB 84, this financial statement was not required for agency funds, thus only assets and liabilities were required to be reported. Note that if a school district remits its own payroll withholding, then the school district will not report these amounts in Fund 76 because this is not considered a fiduciary activity, as discussed previously. 
    
    Another participant asked what the implications are if they cannot make changes to the LEA’s payroll system in time for 2019–20. CDE understands that LEAs may not have all system changes in place to facilitate GASB 84 accounting changes by the beginning of the 2019–20 fiscal year. LEA staff may want to consult with their auditors regarding potential adjusting entries necessary to reclassify transactions and balances at fiscal year-end to comply with GASB 84.
    
    As a follow up, CDE would like clarify that the application of GASB 84 requirements surrounding payroll withholding discussed at the meeting would also apply to warrant processing activities. 
    
    
  • Cash Conduit Model
    
    

    When a recipient LEA transfers pass-through grants or other pass-through funds to a subrecipient LEA and the recipient LEA has no administrative or direct financial involvement, the recipient LEA acts only as a cash conduit. This activity meets all three criteria of GASB 84, paragraph 11 (11.a through 11.c.) for determining the “other” type of fiduciary activity that would be reported in a custodial fund, i.e., Fund 76.
    
    An example of such activity is when an authorizing LEA passes through funding sources, e.g., State Lottery, to a charter school that has elected to be locally funded but is otherwise not part of the LEA. Note that this is consistent with existing guidance in the California School Accounting Manual (CSAM), Procedure 750, Pass-Through and Cooperative Projects, regarding cash conduit and other models of funding passed through to other LEAs. Also note that pass-through transactions qualifying as pure cash conduits are rare.
    
    The 2019 version of CSAM can be downloaded from CDE’s Definitions, Instructions, and Procedures web page.

  • Associated Student Body organizations (ASBs)
    
    

    There are two types of ASBs in California - unorganized ASBs and organized ASBs. Refer to EC 48930 through 48938 for more information about ASBs, as well as the Fiscal Crisis Management and Assistance Team’s Associated Student Body manual.
    
    CDE has preliminarily concluded that most ASB activities in California school districts, whether unorganized or organized, are not fiduciary because they do not appear to meet the criteria established by GASB 84, paragraphs 6 through 11; it is assumed that most ASB activities fall under paragraph 11 criteria. Specifically, when assets held by the government benefit individuals, in this case the school district’s students, the government should not have administrative or direct financial involvement with the assets. Based on state statute, CDE believes that school districts have administrative involvement with ASB assets:

    1. Unorganized ASBs – expenditures are subject to the approval of an appointed employee or official designated by the school district governing board (EC Section 48938).
    2. Organized ASBs – expenditures are subject to the pre approval of three people: an employee of the school district designated by the governing board, the ASB advisor (who must be a certificated employee of the district), and a student representative of the ASB organization (EC Section 48933).
       
       

    ASB activities that do not meet GASB 84 criteria are not fiduciary and should not be reported in Fund 95, Student Body Fund, but rather in a governmental fund.
    
    CDE has not yet determined whether to close Fund 95, Student Body Fund. If it is decided to close Fund 95, it will not be effective for 2019–20 to allow for LEAs to transition assets to another fund.
    
    CDE stated that a new special revenue fund would not be established for ASB activities. Subsequent to the meeting, CDE discussed GASB 84 implementation with a few external auditors and is now considering whether a special revenue fund is appropriate for reporting ASB activities. Further information will provided in the near future.
    
    CDE will review the current definition of Fund 19, Foundation Special Revenue Fund, and Fund 57, Foundation Permanent Fund for possible revisions due to GASB 84, although the preliminary conclusion is that no changes are necessary.
    
    Please send your feedback and comments on the proposed special revenue fund for ASB activities to sacsinfo@cde.ca.gov.

A participant asked if scholarships should no longer be reported using Fund 73, Foundation Private-Purpose Trust Fund. CDE indicated that Fund 73 may be used as long as the scholarship funds meet GASB 84 fiduciary criteria and is administered by a formal trust agreement. If the scholarship funds are not administered by a formal trust agreement, then those funds may be reported in Fund 76 again as long as fiduciary criteria are met.

• Every Student Succeeds Act (ESSA) Per Pupil Expenditures (PPE) Requirement

CDE provided a brief recap of the ESSA per pupil expenditure reporting requirement, then briefly discussed the draft non-regulatory guidance issued on March 28, 2019, by the U.S. Department of Education (ED) addressing the ESSA report card requirements, which include per-pupil expenditure reporting. The non-regulatory guidance can be found in the ED’s Opportunities and Responsibilities for State and Local Report Cards Draft for Public Comment document.

CDE discussed a question received regarding allocation methods addressed in draft guidance. Although the draft guidance indicates two potential methods (refer to question H-7), CDE’s August 1, 2018 guidance letter indicates that that per-pupil expenditure calculation will include expenditures identified directly to a school and the school’s share of central expenditures that benefit all schools. In other words, the central expenditures will not be left out of the school-level calculation.

CDE provided the proposed data elements that will be collected for the ESSA per-pupil reporting requirement. Please refer to the Proposed School-Level Per-Pupil Expenditures Reporting Format handout (Attachment A) (DOCX) for details of the information provided. CDE anticipates to collect the per-pupil expenditure information from LEAs at the end of 2019, or the beginning of 2020. At this time, CDE is in the process of developing a collection method.

Background information and previous SACS Forum discussions regarding the ESSA per-pupil requirement can be found in the various 2018 and 2019 SACS Forum minutes that are available on CDE’s Recap of SACS Forum Meetings web page.

SACS Software

• SACS2019ALL Software Release

CDE anticipates releasing the SACS2019ALL Software during the first week of July. Please refer to the SACS2019 Software, Proposed Updates (DOCX) handout from the February 12, 2019 SACS Forum meeting for the proposed changes to the SACS2019ALL software.

Other Updates

• Next Meeting

The next SACS Forum is tentatively scheduled for Monday, October 14, 2019. CDE is again planning on offering the forum via webinar only.