FINANCIAL POLICIES
AND
PROCEDURES HANDBOOK
2012EDITION
Effective Starting July 1, 2011
Budgeting, Accounting, Reporting,
Auditing and Investment
For Colorado Public School Districts, the Charter School Institute (CSI), Charter Schools, Charter School Collaboratives, and Colorado Boards of Cooperative Educational Services (BOCES)
“The Financial Policies and Procedures Handbook adopted by the State Board of Education shall be used by every school district in this state in the development of the budget for the district, in the keeping of financial records of the district, and in the periodic presentation of financial information to the Board of Education of the district.” C.R.S. 22-44-204(3)
Robert Hammond, Commissioner of Education
Public School Finance Unit
Leanne Emm, Assistant Commissioner
Mary Lynn Christel, Principal Consultant
Wendi Chapin, Principal Consultant
Theresa Christensen, Senior Consultant
Adam Williams, Senior Consultant
Kirk Weber, Supervisor
Colorado Department of Education
201 East Colfax, Room 206
Denver, Colorado 80203
COLORADO STATE BOARD OF EDUCATION
Bob Schaffer
Chairman
Fort Collins
Fourth Congressional District
Marcia Neal
Vice Chairman
Grand Junction
Third Congressional District
Elaine Gantz Berman
Denver
First Congressional District
Angelika Schroeder
Boulder
Second Congressional District
Paul Lundeen
Colorado Springs
Fifth Congressional District
Debora Scheffel
Parker
Sixth Congressional District
Jane Goff
Arvada
Seventh Congressional District
2011-12
FINANCIAL POLICIES AND PROCEDURES (FPP)
ADVISORY COMMITTEE
FY 2011-2012 MEMBERSHIP
MEMBERDISTRICT/ORGANIZATIONTERM ENDS
Ms. Kathleen AskelsonJefferson County R-1Permanent Member
Mr. Joe DavisDenver 1Permanent Member
Mr. Phil OnofrioEagle County Re-50Member – August 2012
Ms. Karin SlaterMontrose County Re-1JMember – August 2012
Mr. Mike ThomasFowler R-4JMember – August 2012
Ms. Marita VogrinAcademy 20Member – August 2012
Ms. Cassie WalgrenPueblo 60Member – August 2012
Ms. Kim KrauseAkron R-1Member – August 2013
Ms. Amy LyonsBayfield 10 JT-RMember – August 2013
Mr. Dale MellorSteamboat Springs Re-2Member – August 2013
Ms. Denise PearsonKiowa C-2Member – August 2013
Ms. Linda RauPlateau Valley 50Member – August 2013
Ms. Karen AndrewsDolores Re-4AMember – August 2014
Mr. Brad ArnoldCherry Creek 5Member – August 2014
Ms. Carole HermanLiberty J-4Member – August 2014
Ms. Diane RaineMesa County Valley 51Member – August 2014
Mr. Bill SutterBoulder Valley Re-2JMember – August 2014
Ms. Velva AddingtonSwink 33Member – August 2015
Ms. Melissa BrunnerMontezuma-Cortez Re-1JMember – August 2015
Ms. Brenda JohnsonWeld Re-8Member – August 2015
Mr. Terry KimberDelta County 50(J)Member – August 2015
Mr. Dave MontoyaPoudre R-1Member – August 2015
Ms. Paula SublettSan Juan BOCESBOCES - August 2012
Mr. Terry BuswellCentennial BOCESBOCES - August 2014
Ms. Michelle MurphyCASBEx-Officio Member
Ms. Crystal DorseyState Auditor's OfficeEx-Officio Member
Ms. Wendy SwanhorstColo. Society of CPAsEx-Officio Member
Mr. Scott SzaboColo. Society of CPAsEx-Officio Member
Ms. Eileen JohnstonJames IrwinEx-OfficioMember–August2013
Ms. Rhonda BohlanderCrowley County Re-1JAlternate– August 2012
Ms. Donna HolstlawLittleton 6Alternate– August 2012
Ms. Shae MartinezMapleton Public SchoolsAlternate– August 2012
Ms. Jane ScheinSt. Vrain Valley Re-1JAlternate– August 2012
Mr. Anthony WhiteleySt. Vrain Valley Re-1JAlternate– August 2012
PREFACE TO THE HANDBOOK
The 2012edition of the Financial Policies and Procedures Handbook was updated and revised to incorporate changes in required financial policies resulting from: (1) New Colorado statutory mandates enacted since the previous update; (2) recent requirements of the Governmental Accounting Standards Board (GASB).
The Handbook is a publication of the Colorado State Board of Education. Members of this Committee, which is advisory to the State Board of Education, are representatives of school districts and organizations such as the State Auditor’s Office and the Colorado Association of School Boards. Committee members serve without remuneration and meet a minimum of four times a year, or more often if required, to consider issues and policy regarding school district financial budgeting, accounting and reporting.
INTRODUCTION
I.Purpose of the Handbook
The 2012 edition of the Financial Policies and Procedures Handbook (Handbook) is a publication of the State Board of Education. The Handbook is designed to achieve three purposes:
(1)To summarize state and federal general requirements regarding the management and reporting of financial data.
(2)To ensure that educational financial data are reported in a comprehensive and consistent manner.
(3)To provide information and guidance to school districts, the Charter School Institute (CSI), charter schools, charter school collaboratives, and Boards of Cooperative Educational Services (BOCES) regarding the budgeting, accounting, reporting, auditing, investment and cash management of educational finances.
This Handbook has been developed to conform to generally accepted accounting principles (GAAP) for governments and compliance with legal provisions.
Most of the narratives in this document will refer to school districts. However, all references for “school districts” shall also include the Charter School Institute (CSI), charter schools,Charter School Collaboratives, and Boards of Cooperative Educational Services (BOCES), unless the narrative states otherwise.
II.Required Use of the Handbook
Colorado statutes require that the Financial Policies and Procedures Handbook be used by every school district in the development of the budget, in the keeping of financial records and in the periodic presentation of financial information to the board of education of the district. C.R.S. 22-44-204(3). State law also requires school district auditors to ensure, in their annual financial audit, that school districts are complying with the requirement to use the Handbook. C.R.S. 29-1-603(1).
In compliance with state law, the Handbook is consistent with the federal Financial Accounting Handbook II, Revised(which is now the Financial Accounting for State and Local School Systems Handbook).C.R.S. 22-53-108(2) (a). Federal law requires all states to provide data, consistent with federal definitions, on the financing of elementary and secondary education as a condition of receiving federal funding under the Elementary and Secondary Education Act. 20 USC 122 1e-1g. Because financial data is used to allocate Title I funds to states, it is subject to independent audit at both the district and state levels by the Inspector General of the U.S. Department of Education.
III.Federal and State Categorical Program Reporting
The Handbook contains only general state and federal financial reporting requirements. In addition to these, state and federal categorical programs, which target funding for specific purposes or groups of students, have very specific financial requirements. Appendix A of the Handbook contains a link toFiscal Guidance for Federal Programs, a publication of the Colorado Department of Education (CDE) that summarizes specific requirements of some of the major federal programs. Additional information may be obtained from state and federal laws and regulations and the state plans for the various programs. The units of CDE that administer the programs will provide additional information regarding the requirements of specific programs.
IV.Handbook Requirements and Advice
It is the intent of this Handbook to summarize the major state and federal requirements regarding financial budgeting, accounting and reporting. However, school district personnel and other users are encouraged to consult state and federal statutes for more information about any of the requirements and to seek legal counsel as necessary for assistance in interpreting and complying with the law.
The revenue and expenditure requirements included in the FPP Chart of Accounts red binder represent a state and federal minimum program budgeting and accounting system. School districts have the flexibility to designate costs in greater detail for various programs depending on district needs.
V.Other Critical Sources of Information Regarding Financial Management
In addition to this Handbook, school districts should consider the following to be critical sources of information regarding state and federal requirements governing financial management and accounting.
1.Colorado Revised Statutes (C.R.S.)
2.Colorado Code of Regulations (C.C.R.)
3.Federal laws as contained in the United States Code (U.S.C.)
4.Federal regulations and other guidance as published in the Federal Register.
5.Financial Accounting for Local and State School Systems,2009
6.Governmental Accounting and Financial Reporting Standards, published by the Governmental Accounting Standards Board. Codification is updated annually as of June 30th.
TABLE OF CONTENTS
Procedures(Section A)
Revisions of Financial Policies and Procedures HandbookA-1
Budget(Section B)
Purpose of a BudgetB-1
Primary Budget ObjectivesB-1
Budget ProcessB-2
Budget CalendarB-2
Budgetary AccountingB-6
Budget ProjectionsB-7
Beginning Fund BalanceB-7
RevenuesB-8
Revenue AllocationB-10
ExpendituresB-10
TransfersB-10
Reserves for TABOR EmergencyB-11
District Emergency ReserveB-11
Reserve for TABOR Multi-year ObligationsB-13
Required Budgeted ItemsB-13
At Risk FundingB-13
Legal Requirements and Recommended PracticesB-13
Working with the County TreasurerB-14
County Public School FundB-14
FeesB-15
Statement of AccountB-15
Specific Ownership TaxB-15
Tax Levies and RevenueB-16
Certification of Assessed ValuationB-16
Pupil EnrollmentB-16
Certification to County CommissionersB-16
Estimate of State FundingB-17
Notice of Reduced Mill Levy Attributable to State FundsB-17
Determination of State FundsB-17
State Contingency ReserveB-17
ElectionsB-17
Local RevenueB-18
Citizens PetitionB-18
Other Mill Levy ElectionsB-18
Contesting the Result of an ElectionB-18
Budget Publication and AdoptionB-19
Notice of Budget PublicationB-20
Proposed Budget/Notice to PublicB-20
Budget Consideration by PublicB-20
Budget AdoptionB-20
Appropriation ResolutionB-20
Failure to Adopt a BudgetB-21
Reserve for ContingenciesB-21
Non-Appropriated Operating ReservesB-21
Other ReservesB-22
SAMPLE APPROPRIATION RESOLUTIONB-23
Supplemental BudgetsB-24
SAMPLE SUPPLEMENTAL BUDGET - REVENUESB-25
SAMPLE SUPPLEMENTAL BUDGET - EXPENDITURESB-26
Budget ControlB-27
Monitoring and AnalysisB-27
Revenue TrackingB-27
Methods of AnalysisB-28
Transfersto Capital ReserveCapital Projects and Risk ManagementB-29
EstimatesB-29
Borrowing From FundsB-29
Board of Education ReviewB-29
Fiscal EmergencyB-30
Maintenance of RecordsB-30
Accounting and Reporting(Section C)
PART 1: ACCOUNTING PRINCIPLESC-1
Introduction to Accounting PrinciplesC-1
Generally Accepted Accounting Principles (GAAP)C-1
Basis of AccountingC-1
Compliance with Legal and GAAPC-3
Legal Compliance Reporting EssentialC-3
GAAP Reporting EssentialC-4
Standard Chart of Accounts (COA)C-4
Fund StructureC-4
Fund CategoriesC-5
Governmental FundsC-5
Proprietary FundsC-5
Fiduciary FundsC-6
Fund TypesC-6
The General FundC-6
The Special Revenue FundC-6
The Debt Service FundC-6
The Capital Projects FundC-6
Permanent FundsC-7
The Enterprise FundC-7
The Internal Service FundC-7
Trust and Agency FundsC-8
Fund UsesC-8
General OperationsC-8
Capital Reserve/Capital ProjectsC-10
Capital Reserve FundC-10
Capital Reserve Capital Projects FundC-10
Building FundC-11
Special Building and Technology FundC-12
Governmental Designated - Purpose GrantsC-12
Pupil ActivitiesC-13
Risk Related ActivitiesC-14
TransportationC-14
Full-Day Kindergarten Mill Levy OverrideC-15
Debt ServiceC-15
Non-Voter Approved Debt ServiceC-16
Nutrition ServicesC-16
Internal ServicesC-16 Trust and Agency (Fiduciary Funds) C-17
Other FundsC-18
Capital Assets and Long-Term LiabilitiesC-18
Budgetary AccountingC-19
Classification and TerminologyC-20
Interim and Annual Financial ReportingC-21
Quarterly Financial ReportsC-21
Comprehensive Annual Financial ReportC-21
Basic Financial StatementsC-21
Single AuditC-22
Financial TransparencyC-22
Nutrition Services Equipment, Inventory and Current Operating ResourcesC-23
GeneralC-23
Equipment that is Part of a BuildingC-23
DepreciationC-22
Disposal, Replacement, Trade-in, Repairs of Nonexpendable EquipmentC-23
Current Operating ResourcesC-24
InventoriesC-24
Food and SuppliesC-24
CommoditiesC-24
EquipmentC-24
Salary and Benefit AccrualsC-24
PART 2: ACCOUNTING PROCEDURESC-26
Internal Control StructureC-26
Control EnvironmentC-26
Risk AssessmentC-27
Control ActivitiesC-27
Information & CommunicationC-28
MonitoringC-28
Common Types of Control ProceduresC-29
Access ControlsC-29
Reconciliation & Comparison of Assets with RecordsC-30
Analytical ReviewsC-30
Authorization and ApprovalC-30
Reviews of OutputC-30
Transactional ReviewsC-31
General Computer ControlsC-31
PayrollC-32
Board of Education Payroll ResponsibilitiesC-32
“Employee” Definition and RequirementsC-32
“Contractor” Definition and RequirementsC-34
Payroll RecordC-34
Public Employees’ Retirement Association (PERA)C-36
Withholding TaxesC-37
Sales TaxC-37
General InformationC-37
DefinitionsC-37
Local and Special District Sales TaxC-37
Sales Tax LicenseC-38
Filing of ReturnsC-38
ExemptionsC-38
Further InformationC-39
General RequirementsC-39
Surety BondC-39
Facsimile SignatureC-39
Public RecordsC-39
PART 3: REPORTING REQUIREMENTSC-40
Introduction to Reporting RequirementsC-40
Schedule of Revenues and ExpendituresC-40
Compliance with the Financial Policies and Procedures HandbookC-41
Colorado Department of Education Reporting RequirementsC-41
Audit(Section D)
Introduction to Annual Independent AuditsD-1
Audit RequirementsD-2
Selection of Certified Public AccountantD-3
SAMPLE REQUEST FOR PROPOSALD-4
Audit ProcessD-6
Pre-Audit and End of Year ActivitiesD-6
Automated Data Exchange Transmission (ADE)D-7
Submission of Audit ReportsD-7
Comprehensive Annual Financial Reports (CAFRs) and Audit AwardsD-8
Investment and Cash Management(Section E)
Introduction to Investment/Cash ManagementE-1
GoalsE-1
Legal InvestmentsE-1
Eligible Public DepositoriesE-1
Eligible Securities Broker/Dealers and BanksE-1
Eligible Investment InstrumentsE-2
Safety of FundsE-5
Liquidity of FundsE-7
YieldE-7
Other ItemsE-8
Safekeeping of SecuritiesE-8
Competitive ParticipationE-8
DocumentationE-8
ReportingE-9
Additional Disclosures for Financial Statement PurposesE-9
Investment Characteristics of Specific School District FundsE-10
General Fund Investment CharacteristicsE-11
Bond Redemption Fund Investment CharacteristicsE-11
Building Fund (Capital Projects Fund) CharacteristicsE-11
Capital ReserveCapital Projects
/Insurance Reserve Fund CharacteristicsE-11
Food Service and Pupil Activity Funds CharacteristicsE-11
Federal DepositsE-12
Development of Board Policy and Procedures for Investment/Cash ManagementE-12
Borrowing and Creation of DebtE-12
Short Term LoansE-12
Creating DebtE-13
Voter Approval of DebtE-13
Bonded IndebtednessE-13
Refunding BondsE-15
Advance RefundingsE-16
Tax Anticipation NotesE-17
Installment PurchaseE-17
Loans to Alleviate Cash Flow ProblemsE-18
ReferencesE-19
Glossary(Section F)
GlossaryF-1
Appendices(Section G)
Appendix A: Fiscal Guidance for Federal ProgramsG-1
Appendix B:Financial Accounting for Local and State School SystemsG-2
Appendix C:Sample Investment PolicyG-3
Appendix D:Guidelines for GASB 34G-4
Contacts(Section H)
Listing of ContactsH-1
PROCEDURES
I.Revisions of Financial Policies and Procedures Handbook
This procedure describes the method for revising the Financial Policies and Procedures Handbook and for posting changes to individual copies. Changes will be processed as follows:
A.The originator should submit a draft of the proposed change to the chair of the Financial Policies and Procedures (FPP) committee at the Colorado Department of Education (CDE). The request should contain a statement listing the affected sections and describing the concerns and rationale for the recommended revisions in addition to a copy of the sections as revised and/or added.
B.Any proposed change will be referred to CDE staff for an analysis of the potential impact before it is acted on.
C.The impact analysis reviews the following information:
1.Compliance with existing statutes, regulations, or policies.
2.Consistency with Generally Accepted Accounting Principles (GAAP), Federal Accounting for State and Local School Systems Handbook and federal reporting requirements.
3.Compatibility with existing systems, methods and procedures.
4.Impact on school districts and CDE.
D.After this analysis, the proposed change will be submitted to the FPP Committee for consideration and recommendation. Based on the recommendation, it will be either returned to the originator with an explanation of denial or, if approved, returned to the Public School Finance Unit.
E.The Chair of the FPP Advisory Committee will coordinate with appropriate persons in the CDE the review of the recommended change. The process includes a review by the Commissioner of Education, who forwards it to the State Board of Education for their approval.
F.Should either the CDE or the FPP Committee not recommend the change, the originator may appeal the decision to the Colorado Board of Education.
G.Approved changes will be included in the Handbook posted on the Department website under School Finance, Financial Policies and Procedures.
H.Changes considered at one FPP meeting will ordinarily not be acted on until at least the following meeting.
The FPP Committee periodically issues information, called FPP Alerts, to school districts concerning important or urgent critical issues.
July, 2011 1
Financial Policies and Procedures Handbook
BUDGET
I.Purpose of a Budget
The purpose of a budget is to provide a plan of financial operation embodying an estimate of proposed expenditures for a given period and purpose and the proposed means of financing that plan. To achieve this basic purpose, a comprehensive budget system must be integrated with the financial accounting system.
Detailed budget planning allows a district to reflect educational values and needs. The structure and format provided by a well designed budget promotes rational decision-making regarding the importance of various school district services. In this way, administrators and boards of education are assisted in educational planning as well as in the prioritization and planning of all district operations through the allocation of resources.
II.Primary Budget Objectives
A.Provide a framework to assist in the formulation of an integrated plan of operations and in the understanding of how each program's activities contribute to the goals and educational needs.
The school district must submit the major objectives of the educational program with its proposed budget.
1.Each school accountability committee shall recommend to the principal of its school priorities for spending school moneys. The principal shall consider the school accountability committee’s recommendations regarding spending state, federal, local, or private grants and any other discretionary moneys and take them into account in formulating budget requests for presentation to the local school board, if the school is a district public school, other than a charter school, or in creating the school budget if the school is a district or institute charter school. The school accountability committee for a district public school shall send a copy of its recommended spending priorities to the school district accountability committee and to the local school board. C.R.S. 22-11-402
2.The school district accountability committee shall include the adopted plan (school performance plan, school improvement plan, school priority improvement plan, or school turnaround plan as is required) in the compilation prepared pursuant to section 22-11-302 (1), and the local school board shall consider such adopted plan in developing the budget required by section 22-44-108. C.R.S 22-11-403, 404, 405, & 406.
Additionally, the specific adopted accreditation “plan” (i.e.: school performance plan, school improvement plan, school priority improvement plan, or school turnaround plan) shall identify the local, state, and federal resources that the school district or institute will use to impact the identified needs and issues affecting performance indicators. C.R.S. 22-11-303 (3), 304 (3), 305 (3), & 306 (3).