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SACS Forum Meeting Minutes, November 2015

Standardized Account Code Structure (SACS) meeting minutes for November 2, 2015.

Meeting Agenda

Announcements and Information
  • 2014–15 unaudited actuals data submissions – California Department of Education (CDE) preliminary observations

  • Fund 51 Feedback

Accounting Issues
  • Recap of California State Teachers’ Retirement System (CalSTRS) On-Behalf

  • E-Rate Accounting Guidance

  • New Adult Education Block Grant, Resource 6391

  • SACS Software Rewrite – Update

  • California School Accounting Manual (CSAM) 2016

  • Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions – Governmental Accounting Standards Board (GASB) Statement 75 (GASB 75)

  • Accounting for Technology Purchases

  • Charter School Alternative Form

  • Indirect Costs – Common Errors

Other Issues
  • Next meeting

  • Other Items

Meeting Minutes

Announcements and Information
  • 2014–15 unaudited actuals data submissions – CDE preliminary observations

    2014–15 unaudited actuals data submissions were due by October 15th. There are a few late submissions. Very preliminary observations indicate that submissions overall look good, but some will require follow up. Local educational agency (LEA) staff should anticipate that CDE fiscal consultants will begin contacting them soon. Reminder that prompt responses to CDE questions helps CDE publish the statewide financial data more quickly.

    Also, a reminder that Warning technical review exceptions require an explanation, and explanations should be meaningful. This assists CDE during the review process.

  • Fund 51 Feedback

    CDE requested feedback from participants regarding general obligation bond proceeds reported in Fund 51, Bond Interest and Redemption Fund. Once bonds have been paid and there is no longer debt service costs, Fund 51 can be closed. What do LEAs do with additional tax levies received after the fund has been closed? Responses indicated that funds are deposited in the general fund as local revenue, or Fund 51 is left open for a while.

Accounting Issues
  • Recap of CalSTRS On-Behalf

    CDE provided a recap of the guidance in its July 2, 2015 letter, New Financial Reporting Requirements for Pensions, regarding LEA recognition of the state’s on-behalf contribution to the CalSTRS.

    As background, CDE issued a Management Advisory in 1996 when GASB Statement 24, Accounting and Financial Reporting for Certain Grants and Other Financial Assistance (GASB 24) took effect. The advisory informed LEAs that it was not necessary to recognize on-behalf revenues and expenditures in their financial statements because CDE was able to identify these contributions and disclose the statewide amount without LEAs having to do so. However, the implementation of GASB 68, Accounting and Financial Reporting for Pensions, necessitated changes to the government-wide conversion entries in the SACS financial reporting software, which in turn rely on LEAs having recognized the state’s on-behalf contributions in their funds. Therefore, GASB 68 is requiring LEAs to comply with generally accepted accounting principles (GAAP), i.e., GASB 24, and CDE’s July 2, 2015 letter supersedes the 1996 advisory guidance related to accounting for on-behalf payments. 

    Summary of key points:

    • GASB 68 is effective 2014–15.
    • LEAs are now required to book revenues and expenditures associated with the state’s on-behalf contribution to CalSTRS.
    • Resource 7690 has been established for this purpose.
    • CDE developed an Excel worksheet to help LEAs calculate and create the necessary journal entries.
    • CDE expects to see the on-behalf payments reported in the 2015–16 first interim reports, since guidance was not issued in time for budget development.
    • Not all applicable code combinations are available in the SACS2015ALL software, e.g., Object 8590 is not open to Fund 63. Workaround is to record that fund’s portion in the general fund.

    There were several participant questions and comments:

    • What if the COE did not notify its districts of this guidance?

      Although the CDE expects to see the on-behalf payments included at first interim, if the guidance was not communicated in time then including them at second interim is sufficient.

    • 2015–16 adopted budget expenditures increased because on-behalf is now included. This causes an increase in the recommended reserves as well as the routine restricted maintenance account (RRMA). It was proposed that the on-behalf expenditures be excluded from the calculation of these amounts because it’s just an “on paper” transaction?

      CDE does not have authority to exclude these expenditures from the recommended reserve and RRMA calculations.

    • There could be issues for Special Education maintenance of effort (MOE), if the amount is not reported consistently.

      CDE responded that reality has not changed, but the accounting has. There should not be penalties for a change in accounting practice.  In addition, the Special Education MOE reports within the SACS software allow users to enter manual adjustments (if necessary) in order to make the prior year’s expenditures comparable to the following year’s expenditures.

    • Can the on-behalf contribution amounts be included in the budget, but not recorded until unaudited actuals?  

      It is appropriate to record the actual on-behalf journal entries at year-end.

    The CDE also noted that the estimated 2015-16 on-behalf contribution rate is 7.1008%. A final rate should be available in February.

  • E-Rate Accounting Guidance

    CDE now advises LEAs to report the cost of telecommunications goods or services at gross, and to report the E-Rate subsidy as local revenue (not federal revenue) using Resource 0000, Unrestricted

    CDE’s previous guidance was to report the cost of telecommunications goods or services net of the E-Rate subsidy, unless the subsidy was received as a rebate or refund in a subsequent year and had not been accrued, in which case the subsidy was to be reported as revenue.

    As background, when CDE initially issued guidance in the early 2000s, neither the GASB nor the Government Finance Officers Association (GFOA) had taken a stance on whether E-Rate should be reported as a discount or as a grant or subsidy. A case could be made for either treatment under generally accepted accounting principles, so when the National Center for Education Statistics, to whom CDE reports LEA educational financial data, did take a stance and asked that E-Rate be reported as a discount, that was the guidance provided to LEAs.

    Since that time, GASB and GFOA have taken the stance that E-Rate should be reported as a subsidy.

    E-Rate reporting has not previously been addressed in CSAM. It will now be addressed in the 2016 edition, in Procedure 560, Abatement of Expenditures, under "Receipts Not Allowable as Abatement of Expenditures." Following is the draft language for the upcoming edition of CSAM:

    "…E-Rate reimbursements, rebates, or discounts and similar subsidies and credits. If the E-Rate discount or subsidy is received as a discount on a bill, the full amount of the bill before discount should be debited to the expenditure account and the E-Rate discount or subsidy should be credited to Other Local Revenue."

    There was a question about E-Rate covered expenditures that are applicable to restricted programs, especially federal programs, and whether the associated E-Rate subsidy revenue is still reported in Resource 0000. CDE noted that federal cost principles allow only the cost net of related discount to be charged to federal programs. LEAs have a few reporting options:

    • Charge the program only the discounted cost, then report the remaining subsidy amount, plus associated local revenue in Resource 0000.

      Example: A federal program incurs a $100 expenditure to which a $90 E-Rate subsidy applies, making the net cost $10.  A $10 expenditure is charged to the federal program resource code, and a $90 expenditure plus $90 local revenue is reported in Resource 0000.

    • Charge the whole (gross) cost to the program, then credit back to the program once the E-Rate subsidy is received.

      There was another question regarding how to report a capital asset when an E-Rate subsidy applies. Under the previous guidance, the asset was capitalized at the net value if that amount meets the LEA’s capitalization threshold, e.g., in the federal program example above, $10. Under the new guidance, the asset is capitalized at the gross value, before the discount is applied, again if that amount meets the capitalization threshold. Using the example above, the capitalized amount is $100.

  • New Adult Education Block Grant, Resource 6391

    The 2015–16 Budget Act allocated $500 million which is split between adult education MOE and consortium funding. New Resource 6391, Adult Education Block Grant Program, has been established to account for this program. SACS Validation tables were updated in mid-September. This new resource code may only be used in combination with Fund 11, Adult Education Fund. The LEA’s approved indirect cost rate (ICR) may be used to charge indirect costs to this program. CDE recommends consortia fiscal agents refer to CSAM Procedure 750, Pass-Through Grants and Cooperative Projects, to determine the appropriate accounting method when passing funds to member LEAs.

    Historically, under the revenue limit funding model, adult education apportionments were required to be reported in Fund 11. Categorical flexibility made that funding unrestricted beginning 2009–10. GASB 54 special revenue funds (such as Fund 11) require that revenue sources be restricted or committed  to the purposes of the fund, so many LEAs committed unrestricted revenues to the purposes of adult education in Fund 11 so that the fund complied with GAAP. The new Adult Education Block Grant provided for restricted funding again.

    Now that there is again a restricted revenue source for adult education, it may no longer be necessary for LEAs to formally commit unrestricted revenues to the purposes of adult education in order to justify the use of a special revenue fund in accordance with GAAP. LEAs that continue to formally commit unrestricted revenues to the purposes of adult education should use Object 8091, LCFF Revenue Transfers, to transfer the committed LCFF revenue from their general fund to Fund 11.

  • SACS Software Rewrite – Update

    CDE began its process to replace the SACS financial reporting software in 2006. In June of 2014, a vendor was selected to develop the replacement system. The procurement process continued after vendor selection, and CDE worked with the Legislature and various control agencies to get a contract in place. Unfortunately, CDE was not able to secure funding for the out years, so the project is not approved. CDE is regrouping and determining other options.

  • California School Accounting Manual (CSAM) 2016

    The last edition of CSAM was published in 2013. The next edition is expected to be published no later than March 2016. The State Board of Education must formally adopt CSAM.

    The changes in the new edition are largely old news and non-controversial. Following is a summary of the updates to be included in the 2016 edition:

    • LCFF clean-up
      • Removed temporary language associated with categorical flexibility.
      • Removed examples of obsolete categoricals, e.g., Deferred Maintenance.
      • Removed reference to transfer for meals for needy pupils.
      • Removed School Based Coordinated Program.

    • New Uniform Guidance A-87 is replaced by 2 CFR, Part 200.
      • Single audit threshold changed from $500,000 to $750,000.
      • There will not be any changes to the time accounting guidance in Procedure 905, Documenting Salaries and Wages. The existing CSAM guidance meets the requirements.

    • New accounting standards.
    • Updates to statutory references.
    • E-rate accounting treatment.
    • Expanded the definition of Object 4100 to include electronic textbooks.

  • Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (OPEB) – GASB 75

    GASB 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, was issued in June 2015 and will be effective 2017–18. It establishes new accounting and financial reporting requirements for OPEB and supersedes GASB 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. It provides standards for recognizing OPEB liabilities, deferred inflows, deferred outflows and expenditures/expenses. It is similar in scope to GASB 68 because it requires governments to report its liability for OPEB on the face of the financial statements.

    It is still too early to determine the impact of GASB 75 on the SACS financial reporting software and LEA financial statements. GASB has not yet issued an implementation guide, which will assist CDE with developing guidance for LEAs.

  • Accounting for Technology Purchases

    As we get more “tech-savvy” and as our technological world continues to evolve, CDE may need to reevaluate how some purchases of electronic technology are coded. CDE may need to revisit its definitions and guidance for such items as “software licenses,” “software services,” and “software subscriptions,” and possibly “textbooks” and “supplies.”

    The CDE is requesting initial feedback from LEAs. CDE will use this initial feedback in an upcoming conversation with the National Center for Education Statistics (NCES), to whom CDE reports LEA expenditures. One of the original reasons that SACS was developed was to align LEA coding to NCES’s definitions, and CDE continues to align the SACS definitions to NCES’s definitions to the extent possible.

    For reference, following is a summary of the technology coding guidance provided in the 2013 edition of CSAM:

    Expenditure SACS Object Code
    Downloaded or “off-the-shelf” software

    Object 4XXX (if not capitalized)

    • 4100, Approved Textbooks and Core Curricula Materials – basic adopted curriculum
    • 4200, Books and Other Reference Materials – reference materials
    • 4300, Materials and Supplies – other materials

    Object 6400, Equipment (if capitalized)

    Internet-based publications and materials Object 5800, Professional/Consulting Services and Operating Expenditures
    Periodic costs of licensing, support, or maintenance agreements for non-equipment items such as software Object 5800, Professional/Consulting Services and Operating Expenditures
    Initial licensing and other costs incurred as part of a major system acquisition (capitalized) Object 6400, Equipment
    Intangible assets such as computer software (that meets the capitalization threshold) Object 6400, Equipment

    CDE clarified that Object 4100 should be used for Internet or computer-based state adopted core curriculum. Object 5800 was advised for Internet or computer-based textbooks some years ago, as it seemed right at that time. Overall participants agreed that this is the correct coding.

    There was discussion regarding how software, licenses, and subscriptions are acquired, and also how to determine when there is a subscription service versus license agreement. Some questioned why the distinction between a subscription and license needs to made to determine the correct coding.

    It was noted that it is often difficult to determine how to record technology-based expenditures. For example, textbooks are easy to code, but connectivity services are more difficult because no one owns it and hard to tell where it resides.

    Initial software installation and implementation costs should be included in the total cost of the asset, not coded separately to Object 5800.

    CDE will continue to have these discussions with LEA representatives, and appreciates any feedback provided.  

  • Charter School Alternative Form

    CDE provided feedback on common problems noted when reviewing the 2014–15 charter school Alternative Form data submissions. Several Internal Form Checks (IFCs) have been added to assist users when completing the Alternative Form; however, charter schools can and do submit their forms without first correcting the “flagged” items, requiring follow-up by CDE.

    Following are the most common problems noted.

    • The current year Beginning Fund Balance (BFB) does not match the prior year Ending Fund Balance (EFB) reported to the CDE. The Beginning Fund Balance/Net Position (Line F1a-Object 9791) must match the Ending Fund Balance/Net Position (Line K) reported as of June 30 on the prior year charter school Alternative Form. Please note:

      • The prior year data reported is “Unaudited Actual Data”. If there were any changes to data after the Alternative Form was submitted in the prior year, you must enter the amount reported to CDE on line F1a (Beginning Fund Balance/Net Position) and enter the total of any Audit Adjustments (Object 9793) or Restatements (Object 9795) on line F1b.

      • Both the Unrestricted and Restricted amounts must match—not just the total. Following is a sample excerpt of what the CDE does not want reported.

      PY Ending Balances and CY Beginning Balances
      Unrestricted/Restricted 2013–14 Ending Balances 2014–15 Beginning Balances Differences
      Unrestricted
      $305,839.21
      $308,502.13
      $(2,662.92)
      Restricted
      $2,662.92
      $0.00
      $2,662.92
      Total
      $308,502.13
      $308,502.13
      $0.00

    • New Charter Schools.  A new charter school must report zero for their Beginning Fund Balance on line F1a since no prior year data was reported to the CDE. Funding received by the charter school but not previously reported since the charter school was not yet operational/serving students should be reported on line F1b - Adjustments/Restatements.

    • Altered Charter School Alternative Form. Please use the Charter School Alternative Form as downloaded from the CDE Web site. Several submissions have been received where the form has been altered in some way. This presents a problem because altering the form:

      • Potentially interferes with the IFCs;

      • Can interfere with the formulas that calculate totals, and/or;

      • Can cause errors when CDE downloads specific cells of data which are then compiled for statewide reporting and posting on the CDE and Ed Data Web sites.

    If you have any questions regarding the Charter School Alternative Form, please refer to the charter school Alternative Form User Guide posted on the CDE’s Charter School Alternative Form Web page, or you can contact the Financial Accountability and Information Services Unit at 916-322-1770 or via e-mail at sacsinfo@cde.ca.gov.

  • Indirect Costs – Common Errors

    Part of CDE’s annual unaudited actuals review is the ICR calculation. If an LEA’s rate is outside the normal range, or if there is a significant change in the rate over the prior year, CDE will contact LEA staff to confirm that the general administrative costs are being coded correctly. This is important because CDE is delegated authority by the U.S. Department of Education to approve LEA ICRs.

    Common general administrative cost coding errors include:

    • Postemployment benefits coded entirely to Function 7200, General Administration. See CSAM Procedure 785.
    • Retirement incentives coded entirely to Function 7200. They should be coded to the goal and/or function of the employee receiving the incentive. See CSAM Procedure 655.
    • Telecommunications charged systems are generally capital assets.
    • Audit costs coded to Function 7200. They should be coded to Function 7190 or 7191.

Other Issues

  • Next meeting

    Subsequent to the meeting, the next SACS Forum meeting was scheduled and will be held Monday, March 14th at the East End Complex auditorium in Sacramento.

  • Other Items

    There was a question regarding Proposition 39, the Clean Energy Jobs Act (Prop 39), from the audience. The California Energy Commission encourages LEAs to incur expenditures in advance of funding being appropriated. Some LEAs have in fact spent all of their Prop 39 allocation. In this case, it is appropriate to have a negative balance in Resource 6230, California Clean Energy Jobs Act, until future revenues are received to make the resource whole. In one instance, an auditor recommended booking an accounts receivable; however, because funding is not yet appropriated for future years, booking an accounts receivable for future Prop 39 funding does not meet GAAP revenue recognition principles for modified accrual based accounting used for governmental funds. If there is a cash flow problem, then an LEA may book expenditures in Resource 0000, or a different fund, if allowable for that fund, and later transfer Prop 39 revenues to reimburse those expenditures once revenues are received. Contributions to Resource 6230 are not appropriate, because contributions are not expected to be paid back.

Questions:   Financial Accountability & Information Services | sacsinfo@cde.ca.gov | 916-322-1770
Last Reviewed: Monday, August 5, 2019