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Report on GASB 34 Implementation

For

Illinois School Districts

Gorenz and Associates, LTD. Certified Public Accountants

3010 North Sterling Peoria, Illinois 61604

Phone: (309) 685-7621

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Report on GASB 34 Implementation For Illinois School Districts

Table of Contents Questions Page Who is the GASB? 1 What is GASB 34? 2 How/Why was GASB 34 developed? 4 What is the impact on Illinois School Districts? 6 Is partial implementation possible? 8 Can implementation be avoided? 8 What is the State of Illinois Comptroller’s Office doing with respect To implementation of GASB 34? 9 What changes will ISBE have to make for full implementation Of GASB 34? 10 What changes will ISBE have to make relative to school district Monitoring, if full implementation of GASB 34 is required? 15 What are other states doing with respect to imple mentation of GASB 34? 17 Summary and Recommendations 18 Next Steps 19 Bibliography 21 About the Author 22 Appendices Letter from First Midstate Investment Bankers A The Annual Financial Report – An Overview B Flowchart of Areas where changes would be needed at ISBE C Statutory References D Listing of Other States E GASB 34 Implementation Guide for South Carolina School Districts F Statement from the Missouri Department of Elementary and Secondary Education G

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November 20, 2001

Illinois State Board Of Education 100 North First Street Springfield, IL 62777-0001 It is our understanding that you desire us to outline the required changes for implementation of GASB Statement No. 34 “Basic Financial Statements and Management’s Discussion and Analysis for State and Local Governments” and any required changes if GASB 34 were not implemented. First it is crucial that readers of this report understand who the GASB is and the reasoning behind the Government Accounting Standards Board’s research and decision to enact a new reporting model. Who is the GASB? The GASB was formed in 1984 to develop and improve financial reporting rules for state and local governments in the United States. It operates under the auspices of the not- for-profit Financial Accounting Foundation, which oversees, funds, and appoints the members of the GASB, as well as the Financial Accounting Standards Board (the FASB). The GASB is not part of any government entity, federal or otherwise. Its rules are required in most states for financial reporting at the local and state level. GASB rules also are required to be followed when a state or local government's audit report says that it follows generally accepted accounting principles, or GAAP. Bond covenants associated with government debt often require them to follow GAAP. The GASB works closely with an Advisory Council, whose members are drawn from major organizations of financial statement readers, auditors, and government officials. Highly placed state and local government officials around the country are represented by the National Governors Association, the US Conference of Mayors and the National Conference of State Legislators. The financial community is represented by members from the Bond Market Association, the National Federation of Municipal Analysts, and the Association of Financial Guaranty Insurors, among others. Citizen watchdog groups and accounting associations, academics and public power associations are also represented on the Council. This structure gives the GASB a broad base to draw advice on the important issues it considers.

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In developing the new financial statements, the GASB not only worked with its Advisory Council, but with people in all areas of state and local government finance, accounting and auditing, as well as with countless numbers of citizens' groups and others who need the information that government financial reports provide. Many focus groups were held around the country, and the GASB also gave the public several opportunities for written and oral comment on how the new rules should be crafted. The new rules were influenced by that input. What is GASB 34? Governmental Accounting Standards Board Statement No. 34 establishes a new reporting model for governmental units. The primary elements of the new model include:

- Management’s discussion and analysis (MD&A) as required supplementary information (RSI)

- Basic financial statements (Government-wide financial statements [totally new], fund financial statements [new emphasis], and notes to the financial statements

- Required supplementary information other than MD&A

1. MANAGEMENT'S DISCUSSION & ANALYSIS The Management's Discussion and Analysis (MD&A) section is a new component of governmental financial statements that is intended to introduce users to the information contained in the basic financial statements and provide an analytical overview of the government's financial activities. This section is targeted primarily at citizens and other lay users of the financial statements. As such, it will include a discussion of current year financial results at the government-wide level and compare these to the previous fiscal year's results. The MD&A section will also be used to discuss significant changes in net assets or large budgetary variances, significant changes in capital assets or long-term debt, or other matters that impacted the government during the reporting period (e.g., corporate relocations, lawsuits, tax rate changes, etc.). The information presented in the MD&A must be based on currently known facts as of the date of the auditor's opinion. 2. BASIC FINANCIAL STATEMENTS The Basic Financial Statements provide two distinct levels of reporting on a government's financial activities: government-wide and fund level. Traditionally, governments have only presented fund level information in their financial statements. The government-wide financial statements consist of a Statement of Net Assets and a Statement of Activities. The Statement of Net Assets will report all of the assets, liabilities, and net assets of the District. It will distinguish between the primary government and any discretely presented component units as well as between the primary government's governmental and business-type activities while exclud ing information on fiduciary funds and component units that are fiduciary in nature. The Statement of Net Assets will specifically: include information on the long-term assets and liabilities of the government, resembling the balance sheet of a business; be presented on the accrual basis of accounting; account for all capital assets as part of the government's general and

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business type activities and include depreciation expense of these capital assets; and report information on infrastructure assets. The Statement of Activities, much like an operating statement, will: present consolidated information on a government's revenues and expenses on an accrual basis; display the expenses and related revenues of the government by major activity; classify revenues into several categories on the statement including charges for services, operating grants and capital contributions; and show net cost of each activity before tax revenues and other non-program revenues are applied to support the remaining expenses. GASB 34 retains the traditional fund level financial statements. Although the fund financial statements closely follow current governmental financial statements, two significant changes in fund definitions have been introduced. First, GASB 34 defines a new fund type, the permanent fund, in the governmental fund category. Permanent funds are to be used to account for funds in which the earnings of the fund are used to support government programs (the principal must be legally restricted). Second, expendable and nonexpendable trust fund types have been eliminated. Governments will typically reclassify these funds either as permanent funds, special revenue funds or private purpose trust funds. GASB 34 also introduces the major fund concept in the presentation of the fund financial statements. Unlike the current governmental reporting model, the major fund concept allows governments to discretely report only its major governmental and enterprise funds in the fund financial statements. Major funds are defined as those that have revenues, expenditures, assets, or liabilities that account for at least 10 percent of corresponding totals for all governmental or enterprise funds and at least 5 percent of the aggregate amount for all governmental and enterprise funds. Other funds deemed integral to understanding a district's financial position can be added at the discretion of management. The financial reporting requirements for the fund level statements are to be determined by the fund type. The fund level financial statements include the following: Governmental Funds, Proprietary Funds, and Fiduciary Funds. Finally, the basic financial statements will still include explanatory footnotes. Required disclosures under the old model are still required under the new model. GASB Statement 38 (Certain Financial Statement Disclosures) has been issued to clarify which previous statements are no longer applicable. The only disclosures that have actually been eliminated are the requirement to disclose encumbrances and the requirement to detail the budgetary calendar and the legal level of control. Other areas of required disclosure, such as debt and lease obligations, short-term debt, receivable and payables have all been clarified by Statement 38, but not substantively changed. 3. REQUIRED SUPPLEMENTARY INFORMATION Although the MD&A section is considered part of Required Supplementary Information (RSI), it precedes the basic financial statements. Other RSI, as required by GASB 34, will be presented following the footnotes to the basic financial statements. The RSI section will include information on budgetary comparisons for the general fund and major special revenue funds. RSI is the section in which users of the modified approach for reporting

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infrastructure assets will provide supportive data such as the results from their regular asset conditional assessments, estimated maintenance and preservation costs, the condition level intended to be maintained and budgetary trend information. It should be noted that the required financial statements could potentially present three basis of accounting. The Government-wide financial statements are required to be presented on a full accrual basis. The major fund financial statements are to be presented on a modified accrual basis. Individual funds that legally adopt a budget are required to report on their budgetary basis, generally a cash basis for most Illinois school districts. How/Why was GASB 34 developed? The GASB spent a considerable amount of time and deliberation with substantial controversy before the Board unanimously approved Statement No. 34 in June of 1999. One compromise that was adopted in the final implementation was a gradual implementation requirement allowing smaller entities more time to prepare for implementation. Statement 34 requires entities with gross revenues of $100 million or more (in FY99) to implement in fiscal years beginning after June 30, 2001. Entities with revenues over $10 million will implement in fiscal years beginning after June 30, 2002 and all other entities will implement in fiscal years beginning after June 30, 2003. The GASB’s intention in creating a new reporting model was to establish a format that would be more consistent and comparable from government to government. It also desired to make governmental financial statements more similar to business financial statements. The GASB contacted numerous “financial statement users” for input on the new model. These users primarily represented the financial community, bond issuers and rating agencies. These users appreciated the GASB intent of comparability and full accrual and encouraged that format. We agree that this format is very appropriate for large governments (such as the State of Illinois), however we disagree with its application to small units of local government. There have been many comments that implementation of GASB 34 is essential to maintaining good bond ratings. While this may be true for large entities, it is not true for small governments. In discussions with investment bankers in central Illinois, it has become apparent that they are more concerned with an entities ability to levy taxes for the repayment of government debt than they are in the format of the financial statements. We have obtained a letter from First Midstate, Inc. - Investment Bankers showing their comments on GASB 34 (Appendix A). Another idea that came out of the GASB research was a “need” for more prospective information on the entities, as opposed to the purely historical information that they had been receiving. Out of this idea has come the Statement’s requirement for government entities to provide “Management discussion and analysis” that will give a narrative description of what the numbers in the financial statements mean and give more detail as to why specific changes occurred and potentially what the governing bodies intentions are for the use of their resources into the future. The assumption is that this will improve government’s fiscal and operational accountability.

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The following illustration shows the key changes to the reporting model for Fiscal and Operational Accountability.

Changes to Enhance Financial Accountability

Changes to Enhance Operational Accountability

Previous Model New Model Previous Model New Model

Information in basic financial statements aggregated by fund type.

Information in basic financial statements presented separately for “major” govern-mental and enterprise funds.

All reporting based on individual funds and fund types.

Introduction of District-wide financial statements.

Budgetary compar-isons associated with the basic financial statements aggre-gated by fund type.

Budgetary compar-isons associated with the basic financial statements presented for the general fund and each “major” special revenue fund with a legally adopted budget

Information on governmental activities limited to near-term inflows and outflows of spendable resources.

District-wide financial statements provide additional long-term focus for governmental activities.

Budgetary compar-isons report only final amended budget amounts.

Budgetary compar-isons report both original and amended budgets.

Cost data available for business-type activities

Cost data provided for both govern-mental and business-type activities.

No narrative required.

Narrative overview and analysis required in the form of Management’s Discussion and Analysis

The Schedule was obtained from the GASB Statement No. 34 Implementation Recommendations for School Districts published by the Association of School Business Officials International and is reprinted here with permission.

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What is the impact on Illinois School Districts? The answer to this question depends directly on the actions of the State Board of Education. The response could be that major changes would have to be made in order to get ALL Illinois Local Education Agencies (LEAs) in compliance, or some changes based on a partial implementation, or very little change if the ISBE would allow LEAs to report only on a regulatory basis. Let’s start with a presumed requirement that ALL LEAs would be forced to fully implement GASB 34. This report has been limited to major implementation issues and general comments. For detailed implementation guidelines please utilize the “Guide to Implementation of GASB Statement 34 on Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments” (copies furnished with this report, under separate cover). Full implementation is going to be costly. Many school districts, particularly small cash basis districts, will be forced to change their accounting systems. Specifically, they will likely need to purchase new accounting software that will allow them to track encumbrances and payables. In addition to new software, they will need to create new procedures in order to be able to capture the required data for modified and full accrual financial statements. A vast majority of our clients do not have accounting staff capable of handling the requirements to produce accrual or modified accrual financial statements. In fact, they sometimes have difficulty even balancing their bank accounts. Districts that are currently on the modified accrual basis of accounting will have less drastic changes with implementation of GASB 34. Since they are already gathering data to report on the modified accrual basis, establishing procedures to capture the full accrual information should not be as difficult. There are currently 79 of the 896 Illinois school districts utilizing the modified accrual basis. Of those 79, 47 received the Certificate of Excellence in Financial Reporting from the Association of School Business Officials International. Those 47 districts are already familiar with MD&A, because their Comprehensive Annual Financial Reports (CAFR) have been required to provide a “transmittal letter” that was required to include many of the components that are now required to be part of MD&A. Generally speaking, the schools utilizing the modified accrual basis are larger districts with numerous accounting staff to enable them to gather the required data. The reality of financial statement production for smaller governments is that auditors actually audit a general ledger/trial balance and then prepare financial statements from that audited data. The auditors are actually the ones putting the information into the form of financial statements under the existing model and undoubtedly would be expected to continue this practice under the new model. There are, however, additional difficulties for auditors to do this under the new reporting model. Specifically, the requirement for Management’s Discussion and Analysis is intended to be written by an administrator who is familiar with the day-to-day operations of the district and knows the board’s intentions for use of accumulated funds, or plans to overcome current deficit spending. It would be very difficult for an auditor to appropriately write such detail based on interviews of

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district staff. The additional problem caused by the new model is that MD&A is required supplemental information. This means that the auditor’s opinion must give, at least, an “in relation to” opinion on this information. So, if the auditors are forced to write the MD&A for a school district they would effectively be auditing themselves. This is a breach of independence and a serious problem for auditors to overcome. Another area of great discussion and concern has been accounting for fixed assets, which applies to both current cash and modified accrual districts. Many school districts do not have adequate fixed asset records. The use of full accrual is going to change the characterization of fixed assets from historical cost to a depreciated cost amount. School districts will need to report annually for each category of fixed assets; beginning and end-of-year balances, acquisitions, sales or other dispositions, and current depreciation. In the first year, balances will have to be adjusted for depreciation that has not been recognized in prior years. To prepare for recognition of depreciation, the following tasks will need to be performed:

- Determine the level to which current capital asset records meet information needed to comply with GASB 34.

- Determine if there is a need to re-define capital assets (e.g. consider a capitalization threshold), for purposes of compliance.

- Determine the inventory of capital assets in service as of the implementation date of GASB 34.

- Review recent capital maintenance projects to ascertain those that should be capitalized.

- Examine the historical or estimated historical cost for all capital assets. Valuations need to be objectively determined. Many districts will have asset values dating back to the inception of the General Fixed Asset Account Group. Districts that choose to re-create records for GASB34 compliance should consider the following information sources to assist with valuing fixed asset inventories:

o Original purchase records o Bond documents o Professional appraisal or other services o Determine the year of purchase and the estimated useful life for

existing capital assets. o Establish procedures to perpetuate the capital assets and depreciation

system. o Determine the amount of accumulated depreciation at the

implementation date and the amount of depreciation expense for the current period

o Determine salvage values, if any. We would also project a substantial increase in audit fees and filing delays. In discussions with other audit firms, the estimates of how much of a fee increase varied greatly. Estimates that we have heard in discussions vary from 50 to 100% increases for existing modified accrual basis districts to implement GASB 34. The reason for the large variance is due to the amount of work that is actually done by the auditee as opposed to the auditors. Filing delays will be inevitable due to districts not having appropriate

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systems in place to capture accounts payable. Auditors will likely need to review two months (or more) of the new year’s activity to be sure that all needed accruals have been made. With this delay in fieldwork time, writ e-up and completion of audits will be very difficult by the October 15th deadline. Is partial implementation possible? Yes, it would be possible for a cash basis school district to adopt the new reporting model (required) without implementing modified accrual or full accrual accounting. Financial statements presented on an Other Comprehensive Basis of Accounting are required to follow the generally accepted model as much as possible. Districts who are currently on the cash basis would not have to change accounting software packages and drafting of the financials would only be changed by the way that the data is aggregated and presented. Can implementation be avoided? Possibly. Currently the Illinois State Board of Education has provided school districts and joint agreements with a regulatory financial report that must be filed with the appropriate Regional Office of Education by October 15th each year. The Annual Financial Report (Form 50-35)(AFR) is a prescribed financial statement format and must include an audit opinion letter and notes that include all required disclosures. An overview of what is presented in the AFR is included in Appendix B. This AFR constitutes a regulatory basis of accounting. Many school districts currently only have an AFR prepared. If a governmental entity only prepares statements on a regulatory basis of accounting, then the requirements of the reporting model (GASB34) do not apply. We must emphasize that this only applies if these financial statements are only used by the audited entity and the ISBE. If the school district is distributing these financial statements to others for other purposes and the auditor is aware of this condition, then the auditor is required by professional standards to issue an adverse opinion on the financial statements, because they are not in compliance with generally accepted accounting principles.

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What is the State of Illinois Comptroller’s Office doing with respect to implementation of GASB 34? The State of Illinois is required to implement the provisions of GASB 34 for its financial statements for the period ending June 30, 2002. The Illinois Office of the Comptroller (IOC) is leading the State's implementation efforts by sponsoring the "GASB 34 Financial Reporting Project." The Project's goal is to produce GASB 34 compliant State of Illinois financial statements for the period ending June 30, 2002 and to continue to earn the GFOA Certificate of Achievement for Excellence in Financial Reporting. The Project has been divided into two phases: Phase 1 - Readiness Assessment and Phase 2 - Implementation. Phase 1, which was completed in August 2000, included an assessment of the State's readiness to implement GASB 34 and the development of a GASB 34 implementation work plan called the Master Plan. The Master Plan addresses the policies and procedures that will need to be reviewed and revised, the system's capabilities that will need to be assessed and modified and training courses and communications tools that will need to be developed. Phase 2, which began in early 2001, is the actual implementation of the Master Plan. The IOC is currently working closely with several consulting firms to implement the Master Plan. Major implementation activities include: educating IOC staff, State agency personnel and other constituents on the new reporting requirements; developing/ revising accounting and reporting policies; revising the State of Illinois GAAP reporting packages; providing training on the new reporting requirements and the new reporting packages; and establishing regular agency communication and an assessment tool to ensure State Agency preparedness for the new reporting requirements. The Comptroller’s Office is also responsible for collecting data from local governments (other than school districts) based on those entities’ annual audits. Currently the Comptroller’s office has an Annual Financial Report form that emulates the current government-reporting model, by fund type. The report does not include notes and is an abbreviated version of the current reporting model. The Comptroller’s Office does NOT have regulatory authority (as the ISBE does) to prescribe a regulatory reporting format and thus a regulatory basis of accounting. The Comptroller’s Office is currently investigating whether to seek legislative approval to get such authority, so that they may allow small units of government an option from the stringent standards of GASB 34. Another possible alternative being considered by the Comptroller’s Office is to request the legislature to raise the required audit threshold to $1 million of appropriations. This would eliminate nearly 40% of the audits that the Comptroller is now receiving. The Comptroller’s Office held an open forum on August 24, 2001 to discuss if any changes need to be made to the state statutes in regards to audit standards. Local government officials and auditors of small governments were invited to give input on options to assist smaller governments with implementation, or with avoiding the costs of implementation all together. The minutes of that meeting show a great deal of concern over the ability of small local governments (primarily voiced by townships and their auditors) to be able to comply. Also, the issue of auditors having to spend significant

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amounts of time putting information in the form of financial statements in compliance with the model rather than actually auditing that information was raised. The issue of the auditors issuing opinions on what was actually their own work was also listed as a major concern. What changes will ISBE have to make for full implementation of GASB34? The Comptroller has identified the following areas that state agencies are going to have to utilize in order to implement GASB 34. Implementation Categories KPMG and PTW assisted the Comptroller in identifying the projects and steps necessary to improve the State’s readiness to prepare financial statements in accordance with the requirements of GASB Statement 34. The 54 projects identified have been grouped into the following categories:

Training Capital Assets Fund Analysis Liability Analysis Other Account & Transactions Analysis Revenue Analysis Expense Analysis Budget Financial Reporting Management’s Discussion and Analysis Policies and Procedures

A discussion of each of the implementation categories follows. Training The content and scope of changes in GASB Statement 34 will require the creation of new information and will restructure much of the information that the State has historically presented in its Comprehensive Annual Financial Report (CAFR). The objective of GASB Statement 34 is to provide the readers and users of governmental financial statements with a CAFR that is more comprehensive, easier to understand and use. By providing meaningful information about transactions, events and conditions, the new CAFR will also provide readers and users with useful insight into the State’s financial condition. To fully understand the purpose and impact of the changes in the CAFR, various users, including elected officia ls, key agency personnel and other special interest groups will require training and education on the meaning and use of the new financial statements. An “Awareness Campaign” or similar effort will need to be conducted in order to promote awareness of GASB 34 issues to all State agencies as well as generate momentum and encourage individual State agencies to take action as early as possible to determine the modifications they will have to make. It will also require a significant training effort by the Comptroller to State agency personnel who are responsible for submitting the year-end GAAP Reporting Packages, which are necessary to prepare the

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financial statements. This training will be necessary to ensure reliable and timely responses to the GAAP Reporting Packages during the implementation efforts. Capital Assets When most government officials think about the changes required under GASB Statement 34, the changes in the accounting for and recording of capital assets, infrastructure assets and depreciation expense immediately come to mind. GASB Statement 34 will require the State to completely account for all capital assets as part of the government’s general and business type activities. This new requirement differs from current accounting standards that require the isolation of capital assets into an account group in the combined balance sheet, i.e., General Fixed Asset Account Group (GFAAG) that currently does not include infrastructure assets or require the recording of depreciation expense. Capital assets include land, land improvements, easements, buildings, building improvements, vehicles, machinery, equipment, works of art and historical treasures, and all other tangible or intangible assets that are used in the State’s operations and that have initial useful lives extending beyond a single fiscal year. Recording depreciation expense on capital assets is also a new requirement. This requirement increases the importance of having a complete inventory listing of all capital assets. Without a complete record, the State will not be able to produce proper depreciation expense amounts, which in turn will result in improper fund and net asset balances. To comply with these new requirements, State agencies will likely need to perform a complete inventory count of all capital assets currently owned by the State, which have not previously been required to be recorded in the financial statements. Upon completion, the cost of these assets, adjusted for accumulated depreciation not previously recorded, will need to be determined and recorded in each agency’s accounting records and included in the year-end GAAP Reporting Packages and quarterly reports submitted to the Comptroller. Depreciation expense must then be calculated and recorded along with the results of the inventory count. Going forward, it will be critical that agencies maintain and update capital asset listings in a timely manner in order to properly calculate and record capital assets and related depreciation at year-end. GASB Statement 34 also adds requirements for reporting infrastructure assets, e.g., roads, bridges, and other public works acquired since 1980. For the State, counting, valuing and recording its investment in infrastructure assets will be a major undertaking. The Illinois Department of Transportation (IDOT) maintains the most significant amounts of these infrastructure assets. It appears that some historical information may be available at IDOT for recording infrastructure; however, the data will require further analysis to determine its adequacy for implementation of GASB Statement 34 and if it is auditable. GASB Statement 34 does allow the State a four-year window to report the infrastructure assets acquired between 1980 and 2001. The State will also have a choice under the new requirements to depreciate its infrastructure assets or follow the modified approach method. Under the modified approach, no depreciation is required if it can be demonstrated that infrastructure assets

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are maintained at or above a condition level that is established. This will require the State to evaluate the costs and benefits of using one method over another. Factors to be considered in this evaluation include: the ability to maintain at or above a condition level, additional information and resources required to accumulate and report under each method, and the impact on the financial statements. Fund Analysis GASB Statement 34 will require the State to prepare both the new government-wide financial statements and the more traditional fund financial statements. The fund financial statements prepared under the new provisions of GASB Statement 34 will more closely resemble the State’s current financial statements; however, several significant changes will need to be made in order to comply with the new requirements. GASB Statement 34 more clearly defines the types of transactions and activities to be accounted for in each fund type (e.g., governmental, proprietary, and fiduciary funds) and adds new funds (e.g., permanent funds) and fund classifications (e.g., major funds). In order to comply with the new requirements, the Comptroller may need to review current transactions and activities to determine the proper accounting and presentation in the fund financial statements. Policies, including those in the State Accounting Management System (SAMS) Manual, may be required to be created or modified for the creation of new funds, and the financial reporting system will require modifications in order to accommodate any new funds and fund types. Additionally, procedures will be required to prepare the summary reconciliation between the fund financial statements and the government-wide financial statements. Liability Analysis Like the State’s capital assets, the State’s governmental funds’ long-term debts and liabilities are currently accounted for in a general account group isolated from other government funds. GASB Statement 34 will require the State to record all debt and long-term liabilities within the related activity on the government-wide financial statements (e.g., governmental and business type activities). Additionally, the new requirements will require the State to record all liabilities at the time they are incurred (full accrual accounting) rather than when the transaction has an effect on current spendable resources (modified accrual accounting). The potential impact of recording debt and long-term liabilities in the appropriate activities using the full accrual method of accounting will be the reduction of the State’s reported net assets and an increase in the total amount of liabilities recorded in the State’s basic financial statements. The State’s financial reporting system and related procedures may need to be modified to properly record debt and long-term liabilities in the appropriate activities of the State. Additionally, the Comptroller’s systems and procedures will need to be modified to convert from the modified accrual method of accounting to full accrual method of accounting. Other Account & Transaction Analysis Due to the addition of the government-wide financial statements and management’s discussion and analysis to the traditional financial statements, the Comptroller will be required to evaluate the State’s review of specific accounting transactions to determine if

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the procedures and systems properly account for and report all transactions. Specifically, the State will have to ensure the financial reporting system and/or GAAP packages have the ability to identify and eliminate certain interfund transactions and balances, display net assets in the proper classifications, and identify all special, extraordinary, significant and unusual transactions. This is an important project, as GASB Statement 34 requires the use of two distinct measurement focuses for the same transactions. Revenue Analysis Within the government-wide financial statements, the State will have to distinguish between program and general revenues. Program revenues are derived from sources outside the State’s taxpayers and citizenry, such as charges for services, operating grants and capital grants. GASB Statement 34 defines all taxes as general revenues, including sales tax, property tax, and other special purpose levies. Interest, contributions, and grants are typically going to be considered general revenue unless they can be directly related to a State program. After program revenues have been determined and classified, they will then need to be segregated by function. Therefore, the State will need to perform an analysis to determine which revenue streams are considered program revenue and develop procedures and modify systems in order to capture the required revenue information at the functional reporting level. Expense Analysis Detail expense reporting by function and by activity is required under GASB 34. Also, expenses will be accounted for based on the full accrual method of accounting in the government-wide financial statements. To accommodate these changes, the Comptroller will have to determine the desired level for reporting functional expenses in the government-wide financial statements. The level of detail reporting may require the Comptroller to develop procedures and make system modifications to capture expense information at the functional level. The Comptroller will also need to prepare a listing of expenses that will need to be converted to full accrual accounting. The Comptroller will have to develop new policies and procedures, as well as revise the GAAP Reporting Packages to capture new information not required under the previous model. The Comptroller will also have to work with the State agencies that will have primary responsibility for the accumulation of data required by GASB Statement 34. Budget The State will be required to include certain budgetary comparison schedules as required supplementary information in the CAFR prepared under GASB Statement 34. These budgetary schedules will include a comparison of the originally adopted budget and final revised budget, along with a comparison of actual results to budgeted forecasts. Financial Reporting Financial reporting is the process of preparing the basic financial statements in accordance with generally accepted accounting principles. Under current accounting standards the State’s basic financial statements must, at a minimum, contain the fund financial statements, related notes to those financial statements, and other required

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supplementary information. GASB Statement 34 has expanded and enhanced the components of the State’s basic financial statements. Under GASB Statement 34, the State’s basic financial statements and required supplementary information will need to include the following: Management’s Discussion and Analysis (MD&A) - The MD&A will introduce the basic financial statements and provide a detailed analytical overview of the State’s financial activities. (See further discussion under Management’s Discussion and Analysis.) Government -wide Financial Statements - The government-wide financial statements will consist of a statement of net assets and a statement of activities. These statements should report all of the assets, liabilities, revenues, expenses, and gains and losses of the State, should distinguish between the governmental and business-type activities and will require the elimination of certain intragovernmental transactions. These financial statements will more closely resemble the financial statements of a commercial entity. Fund Financial Statements - The fund financial statements will more closely resemble the current financial statements prepared by the Comptroller. However, there will be some significant changes to the content of these statements such as the elimination of both the general fixed asset and general long-term debt account groups and the additional classification of “major funds”. Notes to the Financial Statements - The notes to the financial statements will provide information that is essential to a user’s understanding of the basic financial statements. Required Supplementary Information (RSI) - GASB Statement 34 requires budgetary comparison schedules (original, final and actual) for its General Fund and Major Special Revenue funds to be presented as RSI along with other types of data as required by existing standards. In order to prepare the required components of the basic financial statements for the fiscal year beginning July 1, 2001, the State must have policies, procedures and processes in place and functioning effectively to properly accumulate and report the necessary financial data and report that data in the basic financial statements. This will require modifications to the Comptroller’s financial reporting system and may require extensive changes in the GAAP Reporting packages. Management’s Discussion and Analysis Historically, the letter of transmittal preceded the financial statements of state and local governments. Typically this letter provided the users of the financial statements with a limited analysis of the government’s current year financial activities and certain non-financial initiatives. Under GASB Statement 34, in addition to the letter of transmittal, the new Management’s Discussion and Analysis (MD&A) will also precede the financial statements of the State. MD&A is intended to provide the users of the financial statements with an objective, easily readable, and detailed analysis of the State’s financial activities based on known facts, decisions and conditions. The Comptroller will be

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required to have procedures in place and operating effectively to capture the information necessary to complete the required sections of the MD&A. Also, the Comptroller should be prepared to provide an accurate, detailed, and timely analysis of the State’s financial results and activities. What changes will ISBE have to make relative to school district monitoring, if full implementation of GASB34 is required? With the assistance of ISBE staff, we have developed a flow chart showing the areas at the State Board that we believe will be impacted by a change in the reporting model for Illinois School District Annual Reporting. This listing is believed to be comprehensive, but it is possible that there may be other areas that may be affected. The flowchart can be found in Appendix C. Detailed Statutory References can be found in Appendix D. Detailed explanations of the components of the flowchart are as follows:

1. Sections 2-3.27 and 2-3.28 of the School Code charges the State Board of Education with the duty to formulate and approve forms, procedures and regulations for school district accounting; to prescribe rules and regulations defining what shall constitute a budget and accounting system, and to publish (and keep current) pamphlets or manuals related to budgetary and accounting procedures. The rules are codified as Part 110 of Title 23 in the Illinois Administrative Code, and are titled “Program Accounting Manual”. They define the scope and level of detail of accounts required to be maintained by school districts and reflect a number of statutory and traditional reporting requirements. In addition, the State Board has periodically published a manual heretofore titled the “Illinois Program Accounting Manual’ (hereafter IPAM), the most recent full edition of which was published in 1996. While IPAM substantially duplicates the content of Part 110 (i.e. the accounting rules), it also contains a number of appendices that address additional accounting and reporting issues. In order to keep up with annual legislative changes (both state and federal) annual supplements have been published since 1996. Generally, these supplements address coding of newly authorized sources of state and federal funds.

2. Section 17-1 of the School Code requires that school districts and joint

agreements adopt an annual budget –‘entered upon a School District Budget Form prepared and provided by the State Board of Education’. The design and production of these forms is based upon parameters and information contained in Part 110, IPAM, and the supplements to IPAM.

3. Section 3-15.1 of the School Code requires “an annual statement exhibiting

the financial condition of the school for the preceding year” – the so-called ‘Annual Financial Report’ (hereafter AFR); while Section 3-7 requires an audit of the districts accounts and financial statements and the production of

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an audit report. The AFR has been designed to address both of these requirements with one report. In addition, it is designed to capture data necessary to meet a number of other statutory and administrative requirements. These other requirements and applications are summarized below.

4. Other requirements addressed through the current organization of the AFR are grouped for convenience into major application areas: a.) Financial Applications, b.) Accountability Applications, c.) Reporting Applications, and d.) Informational Applications.

a. Financial Applications include the collection of data:

i. necessary to calculate the Operating Expense per Pupil (O.E.P.P.) as required by Sections 2-3.11 and 10-17 a of the School Code;

ii. necessary to calculate the Per Capita Tuition Charge (P.C.T.C.) as required by Section 18-3 of the School Code;

iii. necessary to calculate the Indirect Cost Rates (I.R.C.) used in administration of federal program funds and pursuant to provisions of OMB Circular A-87 and contract with the U.S. Office of Education;

iv. necessary to meet federal financial reporting requirements associated with the Common Core of Data collection, and used in the apportionment of federal funds such as Title I, Title VI, IDEA, etc.

b. Accountability Applications include the collection of data: i. related to meeting the audit requirements of Section 3-7 of the

School Code; ii. required to meet the requirements of the federal Single Audit

Act and conforming with OMB Circular A-133, iii. required to effect administration of the requirements of the

‘Administrative Caps provisions of the School Code (i.e. Section 17-1.5),

iv. required to determine the financial status of school districts with in the FAAS system pursuant to Section 1A-8 of the School Code.

c. Reporting Applications include the collection of data: i. required to be published in the annual Statement of Affairs by

districts pursuant to Section 10-17 of the School Code, ii. required to be included in the School Report Cards pursuant to

the provisions of Section 10-17a of the School Code, and iii. required to be included in the Annual Statistical Report as

specified in Section 2-3.11 of the School Code. d. Informational Applications, while not required by statute, are never the

less considered important in informing the public, and include: i. State, Local and Federal Financing for Illinois Public Schools

ii. the ILEARN web site

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iii. the ILSI web site. While we believe that all of these areas would require changes if GASB 34 is implemented, we believe that there are two areas that are particularly problematic. First, the effects on the Indirect Cost Rate and Common Core of Data collection will require negotiations with the U.S. Department of Education as to how they will be calculated under the new reporting structure. The second area is the loss of trend data and meaningful statistical data relative to the operating expenditures per pupil and per capita tuition charges. Another application area that will need to be addressed, whether GASB 34 is implemented or not, is the “Guide to Auditing and Reporting for Illinois Public Education Agencies”. This guide (which is annually updated) will need a major overhaul if GASB 34 is implemented. The ISBE will have to address the issues of major funds and programs. ISBE will need to provide guidance as to what programs (and/or funds) need to be audited as major, for consistency purposes between school districts. If GASB 34 is not implemented, and ISBE retains the current regulatory basis model, then the audit guide would need to be updated to include sample financial statements under the regulatory model. The opinion letter examples will need to be updated either way. What are other states doing with respect to implementation of GASB 34? Due to the $100 million revenue threshold, all state governments should be implementing GASB34 for their own financial statements for the fiscal year beginning after June 15, 2001. While all state governments should be implementing this fiscal year, many are addressing the issues of how to deal with smaller governments inside their states differently. Certainly, Illinois is in a very different position than most states, because we have more local governments than any other state. The Comptroller’s Office receives audit reports from over 6,000 municipal and special units of government, and not all local governments are required to file. The ISBE receives nearly 1,100 audits from local education agencies. The GASB claims that there are approximately 85,000 state and local governments nation wide. So Illinois has nearly 10% of all the government units in the entire country. The emphasis in Illinois has always been on local control and the citizens of Illinois have supported that idea. Appendix E has a listing of states, their Board of Education (or equivalent) website addresses and where they stand on GASB 34 implementation. The State of South Carolina is mandating implementation of GASB 34 for their local education agencies. It should be noted that their schools are currently using generally accepted accounting principles. It should also be noted that they only have 103 local education agencies in their state, compared to Illinois that has 1,088 (896 schools and 192 joint agreements). The State of South Carolina has developed a comprehensive implementation guide for their school districts and we have included a copy in Appendix F. The only state that specifically notes on their website that they are not requiring implementation is the State of Missouri. We have included the statement from the

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Missouri Department of Elementary and Secondary Education in Appendix G. The State of Missouri has taken a stand against implementation because the majority of their school districts are cash basis and they believe that the cost of implementation outweighs the benefits. They also are not ready to change their indirect cost formulas and have a standardized information collection form for school financial information. We are not certain if their annual financial report constitutes a regulatory basis of accounting as Illinois’ does. Summary and Recommendations The new reporting model established by GASB 34 is very complex and not simply explained. The use of the new reporting model by large governments does have the potential to increase understanding of changes in financial position and enhance the reporting of major activities of governments. The financial statements of large governments are often used by financial institutions and bond rating agencies, who have educated financial analysts to review the information. The problem that has been identified by numerous CPAs and local governments is that the model is unduly complex for small units of local government. The primary financial statement users for small school districts are Boards of Education that have a hard time understanding the statements that they are getting now. The additional complexity of GASB 34 will make small government’s financial statements even more difficult to explain and understand. The idea of Management Discussion and Analysis (MD&A) is reasonably conceived and appears to be a good idea in theory. The problem is that most school administrators aren’t going to feel capable of meeting the requirements to author this MD&A and auditors are going to be forced to write it in order to get reports completed. In practice then the auditors will be auditing their own work. We do not believe this is an appropriate action by auditors, even though we understand the limitation of schools with minimal administrative staff. GASB 34 was written to establish a reporting model for “General Purpose Financial Statements”. The Annual Financial Report established by the Illinois State Board of Education is a “Special Use Financial Statement” designed to gather information that is specifically comparable for Illinois school districts. It was not GASB’s intention to override any State’s authority to require “Special Use Financial Statements” to garner specific information from local governments. In the spirit of local control, it would be our recommendation that the Illinois State Board of Education leave the decision of implementing GASB 34 up to local Boards of Education. It is difficult for us to justify the costs of GASB 34 implementation for a cash basis government, because the costs of implementation should not outweigh the benefits to be derived. Quite honestly, it is hard to see any significant benefits to be garnered by a small school district that is operating on a limited budget in the first place. Implementation of a mandate to comply with GASB 34 would be, in fact, an unfunded mandate, even if it does not fall under the Illinois Mandates Act.

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It is our belief that the current reporting vehicle, the Annual Financial Report (Form 50-35), is an appropriate regulatory basis. The existing format provides the ISBE with the information that it needs to aggregate school district data and create meaningful statistical analysis. If schools are forced to implement GASB 34 and the current AFR is eliminated or significantly modified to accommodate the new format, then historical statistical information will become meaningless. In the late 1980s the state board incorporated combined and combining statements into the AFR in order to be in alignment with the existing model. After a few years, it was discovered that the information added in those statements was not being used by ISBE and the decision was made to eliminate those pages from the AFR. We believe that a similar situation would happen under the new reporting model, because entity-wide reporting does not give enough detail to be truly comparative from one district to another. In reality, the use of individual funds and the detailed Program Accounting Manual make a great deal of sense for the gathering of data to be aggregated and compared. We should point out that not requiring school districts to implement GASB 34 should have no effect on the State of Illinois’ ability to issue financial statements in compliance with GASB 34. All of the necessary information needed for the State of Illinois’ audit is already included in the records of the ISBE. Next Steps Regardless of the decision that is made with respect to GASB 34, it is very important that immediate action is taken to notify school districts of the ISBE’s stance on this critical financial reporting issue. School districts look to the ISBE for guidance on reporting matters, and generally try to adhere to the requirements laid out for them. Many administrators that we have spoken with have expressed a concern about the lack of direction that they have received on this issue to date. Many were totally unaware that this “problem” even existed. Some wondered why the ISBE hadn’t made them aware of it. Assuming that the ISBE will maintain the Annual Financial Report as a regulatory basis, there may be some areas that could be improved working off of the GASB 34 model. This would also be helpful for the districts that do implement. Specifically, this would probably be a good time to encourage school districts that have not maintained a record of general fixed assets to create one. The Guide to Implementation of GASB 34 has some very good suggestions of ways to generate reasonable amounts even when no historical information is available. This would increase the accuracy of the depreciation calculations used for the per capita tuition charge computation. Another area that may be worth considering would be the possible consolidation of funds, in order to emulate the limited number of funds presented in GASB 34 statements. We believe that current funds could be appropriately combined as follows:

General Operating Fund (current Education, Operations & Maintenance, and Transportation) Capital Projects Fund (current Site & Construction, Rent, and Fire Prevention & Safety)

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Retirement Fund (current Illinois Municipal Retirement & Social Security) Working Cash Fund (unchanged)

These consolidations would not necessarily have to mean that a school district would have to change their accounting systems. If this consolidation plan would be adopted we would recommend changing the Program Accounting Manual to allow for sub-funds. These sub-funds could be utilized for the current funds, or could also be utilized to track other programs in the future. Another recommendation for the AFR would be to establish a universal set of note disclosures; not the disclosures themselves, but the format and establishment of given numbers for particular disclosures and a statement for disclosures that are not applicable. This would make the use of note information easier for the ISBE. For example, if Note 4 in every school district AFR was a disclosure on expenditures compared to budget, then that information could be easily catalogued by ISBE for comparative purposes. While the disclosure for expenditures in excess of budget is a required disclosure, it is only required when the circumstance exists and may not be present in a report that has no expenditures in excess of budget. Our recommendation would be to require a note disclosure, even if the disclosure was that the circumstance did not exist. This report is intended for the information of the Illinois State Board of Education and is not intended to be and should not be used by anyone other than the Illinois State Board of Education. Respectfully Submitted, Tim C. Custis Certified Public Accountant Gorenz & Associates, Ltd. Certified Public Accountants

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Bibliography

Statement No. 34 of the Governmental Accounting Standards Board, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments – Issued June 1999 Guide to Implementation of GASB Statement 34 on Basic Financial Statements - and Management’s Discussion and Analysis – for State and Local Governments – Released April 2000 Governmental Accounting Standards Board’s website at www.gasb.org Illinois Office of the Comptroller’s website at www.ioc.state.il.us GASB Statement No. 34 Implementation Recommendations for School Districts - published by the Association of School Business Officials International Accounting, Auditing and Budgeting Committee – Subcommittee on GASB Statement No. 34 Implementation 2000 Various state websites as detailed in Appendix E.

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About the Author

Tim C. Custis, C.P.A.

Mr. Custis is a Partner in the firm of Gorenz and Associates, Ltd. in Peoria. Gorenz and Associates performs over 70 governmental audits every year. Mr. Custis is the primary review partner for all of these engagements. If that weren’t enough reports to look at, he serves on the Illinois CPA Society’s Governmental Report Review Task Force and reviews numerous other reports from various practitioners who have performed governmental audits throughout the State of Illinois. Mr. Custis is a Certified Public Accountant, licensed to practice in the State of Illinois and he received his Bachelor of Arts in Accountancy (with highest honor) from the University of Illinois at Springfield. Mr. Custis has been an instructor for the Governmental Report Review Sessions in Springfield for both Cash Basis Reporting and School Districts, as well as a moderator for the Advanced Governmental Report Review Sessions in Chicago. His expertise is emphasized in the School District arena where his firm performs over 40 of their governmental audits each year. Mr. Custis has been speaker at the annual IASBO School District Auditor’s Update and is currently serving as Chairman of the Illinois CPA Society’s Governmental Report Review Task Force. Please feel free to contact Mr. Custis with any questions you may have regarding this report. Send correspondence to: Tim C. Custis, C.P.A. Gorenz & Associates, Ltd. 3010 N. Sterling Ave. Peoria, IL 61604 Phone: 309-685-7621 Fax: 309-685-4758 E-mail: tcustis@gorenzcpa.com

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The Annual Financial Report An Overview The AFR consists of 8 major parts. These include:

• Audit Opinion • Notes to the AFR • Auditor’s Questionnaire • Financial Data Questionnaire • Basic Financial Statements • Individual Fund Statements • Supplementary Schedules • Statistical Section

Each of these is described briefly below.

Audit Opinion (AFR Attachment)

The opinion is a report issued by the auditor that identifies the nature (scope) of his/her work and degree of responsibility assumed. The auditor's objective when doing the audit is usually to express three types of opinions.

Financial: Concerns whether the AFR fairly presents the school district's financial position and results of operations according to one of two possible "bases of accounting"; and whether the accounting principles used have been applied consistently with the prior year.

Internal Control: Concerns the school district's internal control system. The report will identify any reportable conditions and/or material weaknesses that came to the auditor’s attention during the audit of the financial statements.

Compliance: Concerns noncompliance with laws and regulations that significantly affect the AFR.

Notes to the AFR (AFR attachment)

The auditor's notes summarize/exp lain accounting policies and other disclosures determined by the CPA as appropriate under the circumstances. The notes provide information for fair presentation and understanding of the school district's financial position and results of operations.

Auditor's Questionnaire (AFR - Page 1, Part 1)

Because complete review of all state compliance requirements (laws) established by the Illinois Compiled Statues is not possible, a list of major issues is provided on this questionnaire. The auditor reviews/tests the school district's state compliance and answers each question, as appropriate.

Financial Data Questionnaire (AFR - Page 1, Part 2)

The Financial Data Questionnaire is a survey completed by the school administrator that helps the State board of Education identify school districts in financial difficulty. The State Board of Education may take further action, when any condition identified on the questionnaire occurs.

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Basic Financial Statements (AFR - Pages 3 - 8)

The Basic Financial Statements provide an overview of: the school district's financial position for all funds and account groups and, the operating results of all funds .The information summarizes the detailed individual fund statements (AFR Pages 9 through 56).

Balance Sheet (AFR - Pages 3 through 6)

The Balance Sheet is an itemized statement that lists the school district's total assets and liabilities to identify its fund balance at a given point in time. On the AFR, this point in time is June 30th.

Statement of Change in Financial Position (AFR - Pages 7 & 8)

The Statement of Change in Financial Position is a statement reflecting the school district's total revenues; expenditures; other financing sources / uses; and changes in fund balance (equity).

This is a summary of all revenues, expenditures, other financing sources / uses; and shows whether the school district has financial improvement or decline as a result of operations.

Individual Fund Statements

Revenue and Expense by Fund (AFR Pages 9 through 40)

These pages show revenues and expenditures by fund and compare them with the respective accounts of the adopted School District Budget

Supplementary Schedules

Attachments (AFR - Pages 41 - 46)

The schedules present, in greater detail, the data reported elsewhere in the AFR. The information demonstrates: compliance with finance related legal /contractual agreements such as federal compliance or, gathers information contained throughout the AFR in greater detail.

Statistical Section (AFR - Pages 47 - 49)

The statistical section differs from the rest of the AFR in that the information may cover more than two fiscal years or present non-accounting information. The section provides either: an understanding of historical events relating to capital expenditures or estimated statistics relating to expenditures per pupil

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Program Accounting Manual (IAC Part 110) 2-3.27; 2-3.28; 3-7

Federal Legislation & Approps.

Update IPAM

Listing of Updated Codes

Certificate of Tax Levy 17-11

S.D./J.A. Budget 17-1

Annual Financial Report 3-15.1

Financing Application

AccountabilityApplications

Reporting Application

Informational Applications

State Audits

3-7

Statement of Affairs

10-17

S.L. & F. Financing

P.C.T.C. 18-3

Single Audit Act

OMB A-133

S.D. Report Cards 10-17a

ILEARN

I.D.C. OMB A-87

Admin. Caps

Annual Statistical Report 2-3.11

ILCI

C.C.D. Title I, Title VI,

IDEA, etc.

F.A.A.S.

1A-8

State Legislation & Approps.

O.E.P.P. 2-3.11 10-17a

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STATUTORY REFERENCES

(105 ILCS 5/1A-8)

Sec. 1A-8. Powers of the Board in Assisting Districts Deemed in Financial Difficulties. To promote the financial integrity of school districts, the State Board of Education shall be provided the necessary powers to promote sound financial management and continue operation of the public schools. The State Board of Education, after proper investigation of a district's financial condition, may certify that a district, including any district subject to Article 34A, is in financial difficulty when any of the following conditions occur: (1) The district has issued school orders for wages as permitted in Sections 8-16, 32-7.2 and 34-76 of this Code, or the district has issued funding bonds to retire teacher orders in 3 of the 5 last years; (2) The district has issued tax anticipation warrants or tax anticipation notes in anticipation of a second year's taxes when warrants or notes in anticipation of current year taxes are still outstanding, as authorized by Sections 17-16, 34-23, 34-59 and 34-63 of this Code; (3) The district has for 2 consecutive years shown an excess of expenditures and other financing uses over revenues and other financing sources and beginning fund balances on its annual financial report for the aggregate totals of the Educational, Operations and Maintenance, Transportation, and Working Cash Funds; (4) The district had an enrollment of no fewer than 4,000 pupils during the 1997-1998 school year, has been previously certified to be in financial difficulty and requests to be recertified as a result of continuing financial problems. No recertification may be made under this item (4) after December 31, 1999. No school district shall be certified to be in financial difficulty by reason of any of the above circumstances arising as a result of the failure of the county to make any distribution of property tax money due the district at the time such distribution is due; or if the district clearly demonstrates to the satisfaction of the State Board of Education at the time of its determination that such condition no longer exists. If the State Board of Education certifies that a district in a city with 500,000 inhabitants or more is in financial difficulty, the State Board shall so notify the Governor and the Mayor of the city in which the district is located. The State Board of Education may require school districts in financial difficulty, except those districts subject to Article 34A, to develop, adopt and submit a financial plan within 45 days after certification of financial difficulty. The financial plan shall be developed according to guidelines presented to the district by the State Board of Education within 14 days of certification. Such guidelines shall address the specific nature of each district's financial difficulties. Any proposed budget of the district shall be consistent with the financial plan approved by the State Board. A district certified to be in financial difficulty, other than a district subject to Article 34A, shall report to the State Board of Education at such times and in such manner as the State Board may direct, concerning the district's compliance with each financial plan. The State Board may review the district's operations, obtain budgetary data and financial statements, require the district to produce reports, and have access to any other information in the possession of the district that it deems relevant. The State Board may issue recommendations or directives within its powers to the district to assure compliance with the financial plan. The district shall produce such budgetary data, financial statements, reports and other information and comply with such directives. If the State Board of Education determines that a district has failed to comply with its financial plan, the State Board of Education may rescind approval of the plan and appoint a Financial Oversight Panel for the district as provided in Section 1B-4. This action shall be taken only after the district has been given notice and an opportunity to appear before the State Board of Education to discuss its failure to comply with its financial plan. No bonds, notes, teachers orders, tax anticipation warrants or other evidences of indebtedness shall be issued or sold by a school district or be legally binding upon or enforceable against a local board of education of a district certified to be in financial difficulty unless and until the financial plan required under this Section has been approved by the State Board of Education. Any financial watch list distributed by the State Board of Education pursuant to this Section shall designate those school districts on the watch list that would not otherwise be on the watch list were it not for the inability or refusal of the State of Illinois to make timely disbursements of any payments due school districts or to fully reimburse school districts for mandated categorical programs pursuant to reimbursement formulas provided in this School Code. (Source: P.A. 89-235, eff. 8-4-95; 90-802, eff. 12-15-98.)

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§ 105 ILCS 5/2-3.11. Report to Governor and General Assembly Sec. 2-3.11. Report to Governor and General Assembly. To report to the Governor and General Assembly annually on or before January 14 the condition of the schools of the State for the preceding year, ending on June 30. Such annual report shall contain …; assessed valuation; tax levies and tax rates for various purposes; amount of teachers' orders, anticipation warrants, and bonds outstanding; … The report shall give for all school districts receipts from all sources and expenditures for all purposes for each fund; the total operating expense and the per capita cost; federal and state aids and reimbursements; …; together with such other information and suggestions as the State Board of Education may deem important in relation to the schools and school laws and the means of promoting education throughout the state. § 105 ILCS 5/2-3.27. Budgets and accounting practices - Forms and procedures Statute text Sec. 2-3.27. Budgets and accounting practices - Forms and procedures. To formulate and approve forms, procedure and regulations for school district accounts and budgets required by this Act reflecting the gross amount of income and expenses, receipts and disbursements and extending a net surplus or deficit on operating items, to advise and assist the officers of any district in respect to budgets and accounting practices and in the formulation and use of such books, records and accounts or other forms as may be required to comply with the provisions of this Act; to publish and keep current pamphlets or manuals in looseleaf form relating to budgetary and accounting procedure or similar topics; to make all rules and regulations as may be necessary to carry into effect the provisions of this Act relating to budgetary procedure and accounting, such rules and regulations to include but not to be limited to the establishment of a decimal classification of accounts; to confer with various district, county and State officials or take such other action as may be reasonably required to carry out the provisions of this Act relating to budgets and accounting. § 105 ILCS 5/2-3.28. Rules and regulations of budget and accounting systems Sec. 2-3.28. Rules and regulations of budget and accounting systems. To prescribe rules and regulations defining what shall constitute a budget and accounting system required under this Act. The rules and regulations shall prescribe the minimum extent of verification, the type of audit, the extent of the audit report and shall require compliance with statutory requirements and standards and such requirements as the State Board of Education deems necessary for an adequate budget and accounting system. § 105 ILCS 5/3-7. Failure to prepare and forward information Sec. 3-7. Failure to prepare and forward information. If the trustees of schools of any township in Class II county school units, or any school district which forms a part of a Class II county school unit but which is not subject to the jurisdiction of the trustees of schools of any township in which such district is located, or any school district in any Class I county school units fail to prepare and forward or cause to be prepared and forwarded to the regional superintendent of schools, reports required by this Act, the regional superintendent of schools shall furnish such information or he shall employ a person or persons to furnish such information, as far as practicable. Such person shall have access to the books, records and papers of the school district to enable him or them to prepare such reports, and the school district shall permit such person or persons to examine such books, records and papers at such time and such place as such person or persons may desire for the purpose aforesaid. For such services the regional superintendent of schools shall bill the district an amount to cover the cost of preparation of such reports if he employs a person to prepare such reports. Each school district shall, as of June 30 of each year, cause an audit of its accounts to be made by a person lawfully qualified to practice public accounting as regulated by the Illinois Public Accounting Act [225 ILCS 450/0.01 et seq.]. Such audit shall include financial statements of the district applicable to the type of records required by other sections of this Act and in addition shall set forth the scope of audit and shall include the professional opinion signed by the auditor, or if such an opinion is denied by the auditor, shall

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set forth the reasons for such denial. Each school district shall on or before October 15 of each year, submit an original and one copy of such audit to the regional superintendent of schools in the educational service region having jurisdiction in which case the regional superintendent of schools shall be relieved of responsibility in regard to the accounts of the school district. If any school district fails to supply the regional superintendent of schools with a copy of such audit report on or before October 15, or within such time extended by the regional superintendent of schools from that date, not to exceed 60 days, then it shall be the responsibility of the regional superintendent of schools having jurisdiction to cause such audit to be made by employing an accountant licensed to practice in the State of Illinois to conduct such audit and shall bill the district for such services, or shall with the personnel of his office make such audit to his satisfaction and bill the district for such service. In the latter case, if the audit is made by personnel employed in the office of the regional superintendent of schools having jurisdiction, then the regional superintendent of schools shall not be relieved of the responsibility as to the accountability of the school district. The copy of the audit shall be forwarded by the regional superintendent to the State Board of Education on or before November 15 of each year and shall be filed by the State Board of Education. Each school district that is the administrative district for several school districts operating under a joint agreement as authorized by this Act shall, as of June 30 each year, cause an audit of the accounts of the joint agreement to be made by a person lawfully qualified to practice public accounting as regulated by the Illinois Public Accounting Act [225 ILCS 450/0.01 et seq.]. Such audit shall include financial statements of the operation of the joint agreement applicable to the type of records required by this Act and, in addition, shall set forth the scope of the audit and shall include the professional opinion signed by the auditor, or if such an opinion is denied, the auditor shall set forth the reason for such denial. Each administrative district of a joint agreement shall on or before October 15 each year, submit an original and one copy of such audit to the regional superintendent of schools in the educational service region having jurisdiction in which case the regional superintendent of schools shall be relieved of responsibility in regard to the accounts of the joint agreement. The copy of the audit shall be forwarded by the regional superintendent to the State Board of Education on or before November 15 of each year and shall be filed by the State Board of Education. The cost of such an audit shall be apportioned among and paid by the several districts who are parties to the joint agreement, in the same manner as other costs and expenses accruing to the districts jointly. The State Board of Education shall determine the adequacy of the audits. All audits shall be kept on file in the office of the State Board of Education. § 105 ILCS 5/3-15.1. Reports Sec. 3-15.1. Reports. To require the appointed school treasurer in Class II counties, in each school district which forms a part of a Class II county school unit but which is not subject to the jurisdiction of the trustees of schools of any township in which such district is located, and in each school district of the Class I counties to prepare and forward to his office on or before October 15, annually, and at such other times as may be required by him or by the State Board of Education a statement exhibiting the financial condition of the school for the preceding year commencing on July 1 and ending June 30. In Class I county school units, and in each school district which forms a part of a Class II county school unit but which is not subject to the jurisdiction of the trustees of schools of any township in which such school district is located, the statement shall in the case of districts on the accrual basis show the assets, liabilities and fund balance of the funds as of the end of the fiscal year. The statement shall show the operation of the funds for the fiscal year with a reconciliation and analysis of changes in the funds at the end of the period. For districts on a cash basis the statement shall show the receipts and disbursements by funds including the source of receipts and purpose for which the disbursements were made together with the balance at the end of the fiscal year. Each school district that is the administrator of a joint agreement shall cause an Annual Financial Statement to be submitted on forms prescribed by the State Board of Education exhibiting the financial condition of the program established pursuant to the joint agreement, for the fiscal year ending on the immediately preceding June 30. The regional superintendent shall send all required reports to the State Board of Education on or before November 15, annually. For all districts the statements shall show bonded debt, tax warrants, taxes received and receivable by funds and such other information as may be required by the State Board of Education. Any district from which such report is not so received when required shall have its portion of the distributive fund withheld for the next ensuing year until such report is filed.

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If a district is divided by a county line or lines the foregoing required statement shall be forwarded to the regional superintendent of schools having supervision and control of the district. § 105 ILCS 5/10-17. Statement of affairs Sec. 10-17. Statement of affairs. In Class I or Class II county school units the school board may use either a cash basis or accrual system of accounting; however, any board so electing to use the accrual system may not change to a cash basis without the permission of the State Board of Education. School Boards using either a cash basis or accrual system of accounting shall maintain records showing the assets, liabilities and fund balances in such minimum forms as may be prescribed by the State Board of Education. Such boards shall publish a statement of the affairs of the district prior to December 1 annually in a newspaper of general circulation published in the respective school districts and if no newspaper is published in the district then in a newspaper published in the county in which the school district is located and if no newspaper is published in the county then in a newspaper published in the educational service region in which the regional superintendent has supervision and control of such school district in such form as may be prescribed by the State Board of Education. Not later than December 15 annually the clerk shall file with the regional superintendent a certified statement that the publication has been made together with a copy of the newspaper containing it. After December 15 annually the regional superintendent of schools shall withhold from each treasurer any public moneys due to be distributed to the treasurer until the duties required under this section have been complied with. When any school district is the administrative district for several school districts operating under a joint agreement as authorized by this Act, no receipts or disbursements accruing, received or paid out by that school district as such an administrative district shall be included in the statement of affairs of the district required by this Section. However, that district shall have prepared and published, in the same manner and subject to the same requirements as are provided in this Section for the statement of affairs of that district, a statement showing the cash receipts and disbursements by funds (or the revenue, expenses and financial position, if the accrual system of accounting is used) of the district as such admin istrative district, in the form prescribed by the State Board of Education. The costs of publishing this separate statement prepared by such an administrative district shall be apportioned among and paid by the participating districts in the same manner as other costs and expenses accruing to those districts jointly. School districts on a cash basis shall have prepared and publish a statement showing the cash receipts and disbursements by funds in the form prescribed by the State Board of Education. School districts using the accrual system of accounting shall have prepared and publish a statement of revenue and expenses and a statement of financial position in the form prescribed by the State Board of Education. In Class II county school units such statement shall be prepared and published by the township treasurer of the unit within which such districts are located, except with respect to the school board of any school district that no longer is subject to the jurisdiction and authority of a township treasurer or trustees of schools of a township because the district has withdrawn from the jurisdiction and authority of the township treasurer and trustees of schools of the township or because those offices have been abolished as provided in subsection (b) or (c) of Section 5-1 [105 ILCS 5/5-1], and as to each such school district the statement required by this Section shall be prepared and published by the school board of such district in the same manner as required for school boards of school districts situated in Class I county school units. In Class I and Class II counties the statement of school districts on either a cash or accrual basis shall show such other information as may be required by the State Board of Education, including: 1. Annual fiscal year gross payment for certificated personnel to be shown by name, listing each employee in one of the following categories: (a) Under $15,000 (b) $15,000 to $24,999 (c) $25,000 to $39,999 (d) $40,000 and over 2. Annual fiscal year payment for non-certificated personnel to be shown by name, listing each employee in one of the following categories: (a) Under $15,000 (b) $15,000 to $24,999 (c) $25,000 to $39,999

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(d) $40,000 and over 3. In addition to wages and salaries all other moneys in the aggregate paid to recipients of $1,000 or more, giving the name of the person, firm or corporation and the total amount received by each. 4. Approximate size of school district in square miles. 5. Number of school attendance centers. 6. Numbers of employees as follows: (a) Full-time certificated employees; (b) Part-time certificated employees; (c) Full-time non-certificated employees; (d) Part-time non-certificated employees. 7. Numbers of pupils as follows: (a) Enrolled by grades; (b) Total enrolled; (c) Average daily attendance. 8. Assessed valuation as follows: (a) Total of the district; (b) Per pupil in average daily attendance. 9. Tax rate for each district fund. 10. District financial obligation at the close of the fiscal year as follows: (a) Teachers' orders outstanding; (b) Anticipation warrants outstanding for each fund. 11. Total bonded debt at the close of the fiscal year. 12. Percent of bonding power obligated currently. 13. Value of capital assets of the district including: (a) Land; (b) Buildings; (c) Equipment. 14. Total amount of investments each fund. 15. Change in net cash position from the previous report period for each district fund. In addition to the above report, a report of expenditures in the aggregate paid on behalf of recipients of $500 or more, giving the name of the person, firm or corporation and the total amount received by each shall be available in the school district office for public inspection. This listing shall include all wages, salaries and expenditures over $500 expended from any revolving fund maintained by the district. Any resident of the school district may receive a copy of this report, upon request, by paying a reasonable charge to defray the costs of preparing such copy. This Section does not apply to cities having a population exceeding 500,000.

105 ILCS 5/10-17a)

Sec. 10-17a. Better schools accountability. (1) Policy and Purpose. It shall be the policy of the State of Illinois that each school district in this State, including special charter districts and districts subject to the provisions of Article 34, shall submit to parents, taxpayers of such district, the Governor, the General Assembly, and the State Board of Education a school report card assessing the performance of its schools and students. The report card shall be an index of school performance measured against statewide and local standards and will provide information to make prior year comparisons and to set future year targets through the school improvement plan. (2) Reporting Requirements. Each school district shall prepare a report card in accordance with the guidelines set forth in this Section which describes the performance of its students by school attendance centers and by district and the district's use of financial resources. Such report card shall be presented at a regular school board meeting subject to applicable notice requirements, and such report cards shall be made available to a newspaper of general circulation serving the district and shall be sent home to parents. In addition, each school district shall submit the completed report card to the office of the district's Regional Superintendent which shall make copies available to any individuals requesting them. The report card shall be completed and disseminated prior to October 31 in each school year. The report card shall contain, but not be limited to, actual local school attendance center, school district and statewide data indicating the present performance of the school, the State norms and the areas

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for planned improvement for the school and school district. (3) (a) The report card shall include the following applicable indicators of attendance center, district, and statewide student performance: percent of students who exceed, meet, or do not meet standards established by the State Board of Education pursuant to Section 2-3.25a; composite and subtest means on nationally normed achievement tests for college bound students; student attendance rates; chronic truancy rate; dropout rate; graduation rate; and student mobility, turnover shown as a percent of transfers out and a percent of transfers in. (b) The report card shall include the following descriptions for the school, district, and State: average class size; amount of time per day devoted to mathematics, science, English and social science at primary, middle and junior high school grade levels; number of students taking the Prairie State Achievement Examination under subsection (c) of Section 2-3.64, the number of those students who received a score of excellent, and the average score by school of students taking the examination; pupil-teacher ratio; pupil-administrator ratio; operating expenditure per pupil; district expenditure by fund; average administrator salary; and average teacher salary. (c) The report card shall include applicable indicators of parental involvement in each attendance center. The parental involvement component of the report card shall include the percentage of students whose parents or guardians have had one or more personal contacts with the students' teachers during the school year concerning the students' education, and such other information, commentary, and suggestions as the school district desires. For the purposes of this paragraph, "personal contact" includes, but is not limited to, parent-teacher conferences, parental visits to school, school visits to home, telephone conversations, and written correspondence. The parental involvement component shall not single out or identify individual students, parents, or guardians by name. (d) The report card form shall be prepared by the State Board of Education and provided to school districts. (Source: P.A. 89-610, eff. 8-6-96.)

§ 105 ILCS 5/17-1. Annual Budget Sec. 17-1. Annual Budget. The board of education of each school district under 500,000 inhabitants shall, within or before the first quarter of each fiscal year, adopt an annual budget which it deems necessary to defray all necessary expenses and liabilities of the district, and in such annual budget shall specify the objects and purposes of each item and amount needed for each object or purpose. The budget shall be entered upon a School District Budget form prepared and provided by the State Board of Education and therein shall contain a statement of the cash on hand at the beginning of the fiscal year, an estimate of the cash expected to be received during such fiscal year from all sources, an estimate of the expenditures contemplated for such fiscal year, and a statement of the estimated cash expected to be on hand at the end of such year. The estimate of taxes to be received may be based upon the amount of actual cash receipts that may reasonably be expected by the district during such fiscal year, estimated from the experience of the district in prior years and with due regard for other circumstances that may substantially affect such receipts. Nothing in this section shall be construed as requiring any district to change or preventing any district from changing from a cash basis of financing to a surplus or deficit basis of financing; or as requiring any district to change or preventing any district from changing its system of accounting. The board of education of each district shall fix a fiscal year therefor. If the beginning of the fiscal year of a district is subsequent to the time that the tax levy due to be made in such fiscal year shall be made, then such annual budget shall be adopted prior to the time such tax levy shall be made. The failure by a board of education of any district to adopt an annual budget, or to comply in any respect with the provisions of this Section, shall not affect the validity of any tax levy of the district otherwise in conformity with the law. With respect to taxes levied either before, on, or after the effective date of this amendatory Act of the 91st General Assembly [P.A. 91-75], (i) a tax levy is made for the fiscal year in which the levy is due to be made regardless of which fiscal year the proceeds of the levy are expended or are intended to be expended, and (ii) except as otherwise provided by law, a board of education's adoption of an annual budget in conformity with this Section is not a prerequisite to the adoption of a valid tax levy and is not a limit on the amount of the levy. Such budget shall be prepared in tentative form by some person or persons designated by the board, and in such tentative form shall be made conveniently available to public inspection for at least 30 days prior to final action thereon. At least 1 public hearing shall be held as to such budget prior to final action thereon. Notice of availability for public inspection and of such public hearing shall be given by publication in a newspaper published in such district, at least 30 days prior to the time of such hearing. If there is no

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newspaper published in such district, notice of such public hearing shall be given by posting notices thereof in 5 of the most public places in such district. It shall be the duty of the secretary of such board to make such tentative budget available to public inspection, and to arrange for such public hearing. The board may from time to time make transfers between the various items in any fund not exceeding in the aggregate 10% of the total of such fund as set forth in the budget. The board may from time to time amend such budget by the same procedure as is herein provided for its original adoption. Beginning July 1, 1976, the board of education, or regional superintendent, or governing board responsible for the administration of a joint agreement shall, by September 1 of each fiscal year thereafter, adopt an annual budget for the joint agreement in the same manner and subject to the same requirements as are provided in this section. The State Board of Education shall exercise powers and duties relating to budgets as provided in Section 2-3.27 of this Act [105 ILCS 5/2-3.27]. By fiscal year 1982 all school districts shall use the Program Budget Accounting System. In the case of a school district receiving emergency State financial assistance under Article 1B the school board shall also be subject to the requirements established under Article 1B with respect to the annual budget.

(105 ILCS 5/17-1.5)

Sec. 17-1.5. Limitation of administrative costs. (a) It is the purpose of this Section to establish limitations on the growth of administrative expenditures in order to maximize the proportion of school district resources available for the instructional program, building maintenance, and safety services for the students of each district. (b) Definitions. For the purposes of this Section: "Administrative expenditures" mean the annual expenditures of school districts properly attributable to expenditure functions defined by the rules of the State Board of Education as: 2320 (Executive Administration Services); 2330 (Special Area Administration Services); 2490 (Other Support Services - School Administration); 2510 (Direction of Business Support Services); 2570 (Internal Services); and 2610 (Direction of Central Support Services); provided, however, that "administrative expenditures" shall not include early retirement or other pension system obligations required by State law. "School district" means all school districts having a population of less than 500,000. (c) For the 1998-99 school year and each school year thereafter, each school district shall undertake budgetary and expenditure control actions so that the increase in administrative expenditures for that school year over the prior school year does not exceed 5%. School districts with administrative expenditures per pupil in the 25th percentile and below for all districts of the same type, as defined by the State Board of Education, may waive the limitation imposed under this Section for any year following a public hearing and with the affirmative vote of at least two-thirds of the members of the school board of the district. Any district waiving the limitation shall notify the State Board within 45 days of such action. (d) School districts shall file with the State Board of Education by November 15, 1998 and by each November 15th thereafter a one-page report that lists (i) the actual administrative expenditures for the prior year from the district's audited Annual Financial Report, and (ii) the projected administrative expenditures for the current year from the budget adopted by the school board pursuant to Section 17-1 of this Code. If a school district that is ineligible to waive the limitation imposed by subsection (c) of this Section by board action exceeds the limitation solely because of circumstances beyond the control of the district and the district has exhausted all available and reasonable remedies to comply with the limitation, the district may request a waiver pursuant to Section 2-3.25g. The waiver application shall specify the amount, nature, and reason for the relief requested, as well as all remedies the district has exhausted to comply with the limitation. Any emergency relief so requested shall apply only to the specific school year for which the request is made. The State Board of Education shall analyze all such waivers submitted and shall recommend that the General Assembly disapprove any such waiver requested that is not due solely to circumstances beyond the control of the district and for which the district has not exhausted all available and reasonable remedies to comply with the limitation. The State Superintendent shall have no authority to impose any sanctions pursuant to this Section for any expenditures for which a waiver has been requested until such waiver has been reviewed by the General Assembly. If the report and information required under this subsection (d) are not provided by the school district in a timely manner, or are subsequently determined by the State Superintendent of Education to be incomplete or inaccurate, the State Superintendent shall notify the dis trict in writing of reporting deficiencies. The school district shall, within 60 days of the notice, address

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the reporting deficiencies identified. (e) If the State Superintendent determines that a school district has failed to comply with the administrative expenditure limitation imposed in subsection (c) of this Section, the State Superintendent shall notify the district of the violation and direct the district to undertake corrective action to bring the district's budget into compliance with the administrative expenditure limitation. The district shall, within 60 days of the notice, provide adequate assurance to the State Superintendent that appropriate corrective actions have been or will be taken. If the district fails to provide adequate assurance or fails to undertake the necessary corrective actions, the State Superintendent may impose progressive sanctions against the district that may culminate in withholding all subsequent payments of general State aid due the district under Section 18-8.05 of this Code until the assurance is provided or the corrective actions taken. (f) The State Superintendent shall publish a list each year of the school districts that violate the limitation imposed by subsection (c) of this Section and a list of the districts that waive the limitation by board action as provided in subsection (c) of this Section. (Source: P.A. 90-548, eff. 1-1-98; 90-653, eff. 7-29-98.)

§ 105 ILCS 5/17-11. Certificate of tax levy Sec. 17-11. Certificate of tax levy. The school board of each district shall ascertain, as near as practicable, annually, how much money must be raised by special tax for transportation purposes if any and for educational and for operations and maintenance purposes for the next ensuing year. In school districts with a population of less than 500,000, these amounts shall be certified and returned to each county clerk on or before the last Tuesday in December, annually. The certificate shall be signed by the president and clerk or secretary, and may be in the following form: CERTIFICATE OF TAX LEVY We hereby certify that we require the sum of .......... dollars, to be levied as a special tax for transportation purposes and the sum of .......... dollars to be levied as a special tax for educational purposes, and the sum .......... dollars to be levied as a special tax for operations and maintenance purposes, and the sum of .......... to be levied as a special tax for a working cash fund, on the equalized assessed value of the taxable property of our district, for the year (insert year). Signed on (insert date). A .................... B ...................., President C .................... D ...................., Clerk (Secretary) Dist. No. ......, .................... County A failure by the school board to file the certificate with the county clerk in the time required shall not vitiate the assessment.

(105 ILCS 5/18-3)

Sec. 18-3. Tuition of children from orphanages and children's homes. When the children from any home for orphans, dependent, abandoned or maladjusted children maintained by any organization or association admitting to such home children from the State in general or when children residing in a school district wherein the State of Illinois maintains and operates any welfare or penal institution on property owned by the State of Illinois, which contains houses, housing units or housing accommodations within a school district, attend grades kindergarten through 12 of the public schools maintained by that school district, the State Superintendent of Education shall direct the State Comptroller to pay a specified amount sufficient to pay the annual tuition cost of such children who attended such public schools during the school year ending on June 30, and the Comptroller shall pay the amount after receipt of a voucher submitted by the State Superintendent of Education. The amount of the tuition for such children attending the public schools of the

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district shall be determined by the State Superintendent of Education by multiplying the number of such children in average daily attendance in such schools by 1.2 times the total annual per capita cost of administering the schools of the district. Such total annual per capita cost shall be determined by totaling all expenses of the school district in the educational, operations and maintenance, bond and interest, transportation, Illinois municipal retirement, and rent funds for the school year preceding the filing of such tuition claims less expenditures not applicable to the regular K-12 program, less offsetting revenues from State sources except those from the common school fund, less offsetting revenues from federal sources except those from federal impaction aid, less student and community service revenues, plus a depreciation allowance; and dividing such total by the average daily attendance for the year. Annually on or before June 30 the superintendent of the district upon forms prepared by the State Superintendent of Education shall certify to the regional superintendent the following: 1. The name of the home and of the organization or association maintaining it; or the legal description of the real estate upon which the house, housing units, or housing accommodations are located and that no taxes or service charges or other payments authorized by law to be made in lieu of taxes were collected therefrom or on account thereof during either of the calendar years included in the school year for which claim is being made; 2. The number of children from the home or living in such houses, housing units or housing accommodations and attending the schools of the district; 3. The total number of children attending the schools of the district; 4. The per capita tuition charge of the district; and 5. The computed amount of the tuition payment claimed as due. Whenever the persons in charge of such home for orphans, dependent, abandoned or maladjusted children have received from the parent or guardian of any such child or by virtue of an order of court a specific allowance for educating such child, such persons shall pay to the school board in the district where the child attends school such amount of the allowance as is necessary to pay the tuition required by such district for the education of the child. If the allowance is insufficient to pay the tuition in full the State Superintendent of Education shall direct the Comptroller to pay to the district the difference between the total tuition charged and the amount of the allowance. Whenever the facilities of a school district in which such house, housing units or housing accommodations are located, are limited, pupils may be assigned by that district to the schools of any adjacent district to the limit of the facilities of the adjacent district to properly educate such pupils as shall be determined by the school board of the adjacent district, and the State Superintendent of Education shall direct the Comptroller to pay a specified amount sufficient to pay the annual tuition of the children so assigned to and attending public schools in the adjacent districts and the Comptroller shall draw his warrant upon the State Treasurer for the payment of such amount for the benefit of the adjacent school districts in the same manner as for districts in which the houses, housing units or housing accommodations are located. The school district shall certify to the State Superintendent of Education the report of claims due for such tuition payments on or before July 31. Failure on the part of the school board to certify its claim on July 31 shall constitute a forfeiture by the district of its right to the payment of any such tuition claim for the school year just ended. The State Superintendent of Education shall direct the Comptroller to pay to the district, on or before August 15, the amount due the district for the school year in accordance with the calculation of the claim as set forth in this Section. Claims for tuition for children from any home for orphans or dependent, abandoned, or maladjusted children beginning with the 1993-1994 school year shall be paid on a current year basis. On September 30, December 31, and March 31, the State Board of Education shall voucher payments for districts with those students based on an estimated cost calculated from the prior year's claim. Final claims for those students for the regular school term must be received at the State Board of Education by July 31 following the end of the school year. Final claims for those students shall be vouchered by August 15. During fiscal year 1994 both the 1992-1993 school year and the 1993-1994 school year shall be paid in order to change the cycle of payment from a reimbursement basis to a current year funding basis of payment. However, notwithstanding any other provisions of this Section or the School Code, beginning with fiscal year 1994 and each fiscal year thereafter, if the amount appropriated for any fiscal year is less than the amount required for purposes of this Section, the amount required to eliminate any insufficient reimbursement for each district claim under this Section shall be reimbursed on August 30 of the next fiscal year. Payments required to eliminate any insufficiency for prior fiscal year claims shall be made before any claims are paid for the current fiscal year. If a school district makes a claim for reimbursement under Section 18-4 or 14-7.03 it shall not include in any claim filed under this Section children residing on the property of State institutions included in its claim under Section 18-4 or 14-7.03. Any child who is not a resident of Illinois who is placed in a child welfare institution, private facility, State operated program, orphanage or children's home shall have the payment for his educational tuition and any related services assured by the placing agent. In order to provide services appropriate to allow a student under the legal guardianship or custodianship of the State to participate in local school

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district educational programs, costs may be incurred in appropriate cases by the district that are in excess of 1.2 times the district per capita tuition charge allowed under the provisions of this Section. In the event such excess costs are incurred, they must be documented in accordance with cost rules established under the authority of this Section and may then be claimed for reimbursement under this Section. Planned services for students eligible for this funding must be a collaborative effort between the appropriate State agency or the student's group home or institution and the local school district. (Source: P.A. 90-463, eff. 8-17-97; 90-644, eff. 7-24-98; 91-764, eff.6-9-00.)

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STATE WEB PAGE COMMENTS

Alabama http://www.alsde.edu No mention of GASB 34 on web pages

Alaska http://www.eed.state.ak.us No mention of GASB 34 on web pages. However by implication will implement.

Arizona http://www.ade.state.az.us No mention of GASB 34 on web pages Arkansas http://arkedu.state.ar.us No mention of GASB 34 on web pages

California http://www.cde.ca.gov/fiscal/gasb34/ Is implementing. Has an abundance of materials via their web page.

Colorado http://www.cde.state.co.us

Will implement. Info. In finance policy manuals and chart of accounts. Appears State Compt. Is in charge of implementation and guidance.

Connecticut http://www.state.ct.us/sde No mention of GASB 34 on web pages Delaware http://www.doe.state.de.us No mention of GASB 34 on web pages District of Columbia http://www.k12.dc.us No mention of GASB 34 on web pages

Florida http://www.firn.edu/doe/ No mention of GASB 34 on web pages Georgia http://www.doe.k12.ga.us No mention of GASB 34 on web pages Hawaii http://www.k12.hi.us No mention of GASB 34 on web pages Idaho http://www.sde.state.id.us/dept No mention of GASB 34 on web pages Illinois http://www.isbe.state.il.us XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX Indiana http://www.doe.state.in.us No mention of GASB 34 on web pages

Iowa http://www.state.ia.us/educate No mention of GASB 34 on web pages Kansas http://www.ksbe.state.ks.us No mention of GASB 34 on web pages

Kentucky http://www.kde.state.ky.us/odss/finance/School_Finance_Q&A.asp Is implementing. Information is provided in Periodically issued Q & A format.

Louisiana http://www.doe.state.la.us No mention of GASB 34 on web pages

Maine http://www.state.me.us/education/edletrs/2002/ilet/ilet27 Is Implementing. Issued news release and referred to GASB web site.

Maryland http://www.msde.state.md.us No mention of GASB 34 on web pages Massachusetts http://www.doe.mass.edu No mention of GASB 34 on web pages

Michigan http://www.mde.state.mi.us

Is Implementing. Has special web page under Audit Services Statement 34 help. Good site if you can get to the Statement 34 page.

Minnesota http://www.educ.state.mn.us Is Implementing. Searching for GASB Statement 34 yields a document describing implementation in Minn.

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Mississippi http://www.mde.k12.ms.us No mention of GASB 34 on web pages

Missouri http://www.dese.state.mo.us Is not requiring implementation for state purposes. See statement.

Montana http://www.metnet.state.mt.us Is implementing. Legislature has mandated compliance with GAAP

Nebraska http://www.nde.state.ne.us No mention of GASB 34 on web pages Nevada http://www.nsn.k12.nv.us/nvdoe No mention of GASB 34 on web pages

New Hampshire http://www.state.nh.us/doe No mention of GASB 34 on web pages

New Jersey http://www.state.nj.us/njded/finance/gasb34.htm Is Implementing. Good Overview of requirements New Mexico http://sde.state.nm.us No mention of GASB 34 on web pages

New York http://www.nysed.gov No mention of GASB 34 on web pages North Carolina http://www.dpi.state.nc.us No mention of GASB 34 on web pages

North Dakota http://www.dpi.state.nd.us Standards imply compliance. Chart of Accounts appears to allow other than conformance GAAP

Ohio http://www.ode.state.oh.us No mention of GASB 34 on web pages Oklahoma http://sde.state.ok.us No mention of GASB 34 on web pages

Oregon http://www.ode.state.or.us No mention of GASB 34 on web pages

Pennsylvania http://www.pde.psu.edu Is Implementing. Lots of information, through Comptroller's Office.

Rhode Island http://www.ridoe.net No mention of GASB 34 on web pages South Carolina http://www.state.sc.us/sde Is Implementing. See Implementation Guide. South Dakota http://www.state.sd.us/deca No mention of GASB 34 on web pages

Tennessee http://www.state.tn.us/education Is Implementing. Good position papers addressing the issues.

Texas http://www.tea.state.tx.us/school.finance/audit/resguide7/gasb34/ Is Implementing. Good detailed resource guide.

Utah http://www.usoe.k12.ut.us Is Implementing. Appears to be through State Department of Finance rather than Department of Education.

Vermont http://www.state.vt.us/educ No mention of GASB 34 on web pages Virginia http://www.pen.k12.va.us No mention of GASB 34 on web pages

Washington http://www.k12.wa.us No mention of GASB 34 on web pages West Virginia http://wvde.state.wv.us No mention of GASB 34 on web pages

Wisconsin http://www.dpi.state.wi.us//dpi/dfm/sfms/audit_1.html Is Implementing. Still have separate financial reporting for state admin purposes.

Wyoming http://www.k12.wy.us/wdehome.html No mention of GASB 34 on web pages. However by implication will implement due to GAAP requirement.

SUPPLEMENT TO FY 2001–02 SDE SINGLE AUDIT GUIDE

GASB 34 Implementation Guide for South Carolina School Districts

Inez M. Tenenbaum State Superintendent of

Education Columbia, South Carolina

February 2001

South Carolina Department of Education

GASB 34 Implementation Guide

for South Carolina School Districts FY 2001–02

Elmer C. Whitten Jr., Deputy Superintendent Division of Finance and Operations

Henry R. Sweatman Jr., Director Pamela P. McMillan, Audit Supervisor

Office of District Auditing and Field Services

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SUPPLEMENT TO SDE SINGLE AUDIT GUIDE FY 2001–02

GOVERNMENTAL ACCOUNTING STANDARDS BOARD

STATEMENT NO. 34

for State and Local Governments

This supplement to the 2001–02 SDE Single Audit Guide was published

to provide guidance and technical assistance to school districts and their independent auditors in implementing the new financial reporting model required under the Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Government (GASB 34). The supplement, which represents the collaborative efforts and consensus of many individuals involved in the annual audit process for local education agencies (LEAs), incorporates the contributions and recommendations of the following stakeholders: • the eight school districts that are required to comply with GASB 34 for the first phase of

implementation (FY 2001–02); • the Statewide Accounting System Committee representative; • State Department of Education (SDE) Single Audit Committee members; • the South Carolina School Business Officials representative; • the SDE Deputy Superintendent for Finance and Operations; and • the SDE School District Auditing and Field Services staff and consultant for GASB 34

LEA implementation. GASB 34 prescribes new reporting requirements for basic financial statements. These basic financial statements will replace the general purpose financial statements previously required by GASB. While the new requirements in this supplement will replace the general purpose financial statements presented in the main document of the Single Audit Guide, the supplementary information of the main document will be reported as in the past. LEAs that are not required to comply with GASB 34, or that do not choose early implementation, should follow the guidance presented in the main document of the Single Audit Guide to prepare their financial statements. School districts with $100 million or more total annual revenues for FY 1998–99 are required to implement the new GASB 34 reporting model for the fiscal year ending June 30, 2002. Phase 1 school districts would be prudent to reconcile their beginning year (July 1, 2001) fund balances to the new statements prior to preparing their GASB 34 statements for June 30, 2002.

Basic Financial Statements and Management’s Discussion and Analysis

INTRODUCTION

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The majority of South Carolina school districts will be required to implement GASB 34 for the fiscal year ending June 30, 2003. In this Phase 2 implementation, school districts with total annual revenues of at least $10 million but less than $100 million for FY 1998–99 must comply with the reporting requirements of GASB 34. The remaining school districts must comply with GASB 34 reporting requirements for the fiscal year ending June 30, 2004, in the Phase 3 implementation. Phase 3 will include school districts with less than $10 million total annual revenues for FY 1998–99. The chart below depicts the LEAs that are required to be in compliance with the statement for each phase of implementation. Effective dates for GASB 34 implementation and an explanation of total revenues used to determine the implementation phases are specified in paragraph 143 of GASB 34. Early implementation is permissible and encouraged.

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LEAs Required to Implement GASB 34

PHASE 1 FY 2001–02 (8)

Aiken Beaufort

Berkley Charleston

Greenville Horry

Richland 1 Richland 2

PHASE 2 FY 2002–03 (63)

Abbeville Anderson 1 Anderson 2 Anderson 3 Anderson 4 Anderson 5 Allendale Bamberg 1 Barnwell 45 Calhoun Cherokee Chester Chesterfield Clarendon 2 Colleton Darlington

Dillon 2 Dorchester 2 Dorchester 4 Edgefield Fairfield Florence 1 Florence 3 Georgetown Greenwood 50 Hampton 1 Hampton 2 Jasper Kershaw Lancaster Laurens 55 Laurens 56

Lee Lexington 1 Lexington 2 Lexington 3 Lexington 4 Lexington 5 Marion 1 Marion 2 Marlboro Newberry Oconee Orangeburg 3 Orangeburg 4 Orangeburg 5 Pickens Saluda

Spartanburg 1 Spartanburg 2 Spartanburg 3 Spartanburg 4 Spartanburg 5 Spartanburg 6 Spartanburg 7 Sumter 2 Sumter 17 Union Williamsburg York 1 York 2 York 3 York 4

PHASE 3 FY 2003–04 (31)

Anderson County Board Anderson Alternative School Anderson Career Center Bamberg 2 Barnwell 19 Barnwell 29 Barnwell Vocational Center

Beaufort-Jasper Career Center Clarendon 1 Clarendon 3 F. E. Dubose Vocational Center Dillon County Board Dillon 1 Dillon 3 Dillon ATC

Dorchester Career School Florence 2 Florence 4 Florence 5 Greenwood 51 Greenwood 52 Greenwood Vocational Facility McCormick Marion County Board

Marion 3 Marion 4 Cope AVC Daniel Morgan AVC R. D. Anderson AVC H. B. Swofford Career Center Sumter Career Center

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GASB 34 establishes new financial reporting requirements for state and local governments throughout the United States. Implementation of the new reporting model will create new information and will restructure much of the information that LEAs have presented in the past. Specific guidance for reporting in compliance with the provisions stated in GASB 34 may be found in the document itself, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, issued June 1999, and in the Guide to Implementation of GASB Statement 34 on Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, issued by the Governmental Accounting Standards Board, May 2000 (GASB 34 Implementation Guide). The requirements of GASB 34 are effective in three phases. Implementation is based on a school district’s total annual revenues (excluding the pupil activity fund, transfers, and other financing sources) for the fiscal year ending June 30, 1999. The Governmental Accounting Standards Board encourages early implementation of Statement 34. If a primary government chooses early implementation, the component units of the governmental entity also should implement the standard early to provide all financial information required for the governmentwide financial statements. The three implementation phases for school districts are as follows. Phase 1: School districts with $100 million or more total annual revenues for FY 1998–99

must implement GASB 34 for the fiscal year ending June 30, 2002. Phase 2: School districts with at least $10 million but less than $100 million total annual

revenues for FY 1998–99 must implement GASB 34 for the fiscal year ending June 30, 2003.

Phase 3: School districts with less than $10 million total annual revenues for FY 1998–99

must implement GASB 34 for the fiscal year ending June 30, 2004. In the past, annual audit reports provided information about funds. Most funds are established by governing bodies to show restrictions on the planned use of resources or to measure, in the short term, revenues and expenditures arising from certain activities. Annual audits should allow users to assess a government’s accountability by assisting them in determining compliance with finance-related laws, rules, and regulations. For this and other reasons, GASB 34 requires LEAs to continue to present financial statements that provide information about funds. The focus of these fund statements has been changed, however, to require each LEA to report information about its most important or “major” funds, including the LEA’s general fund. Previously, fund information was reported in the aggregate by fund type. This type of reporting often made it difficult for users to assess accountability. Fund statements will continue to measure and report the operating results of many funds. These statements show performance, in the short term, of individual funds, using the same measures that many LEAs use when financing their current operations. Fund statements for

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the primary government’s governmental, proprietary, and fiduciary funds will continue to be based on accrual accounting so that all costs of providing services are measured. Demonstrating budgetary compliance is an important component of governments’ accountability. In accordance with GASB 34, governments, including school districts, will be required to continue to provide budgetary comparison information in their annual reports but with an important change. The statement requires that the government’s original budget be added to the comparison in a budgetary comparison schedule. The schedule is required supplementary information as described in paragraphs 129 through 131 of GASB 34. New information required by GASB 34 includes a report to be prepared by financial managers of LEAs about the transactions, events, and conditions that are reflected in the LEAs’ financial reports and of the fiscal policies that govern their operations. School district financial managers will be asked to share their insights in the required “Management’s Discussion and Analysis” (MD&A) to provide readers with an objective and easily readable analysis of the government entity’s financial performance for the year. The MD&A is required supplementary information (RSI) and should precede the basic financial statements. The analysis should provide a basis for assessing whether the government’s financial position has improved or deteriorated as a result of the year’s operations. For school districts that prepare a comprehensive annual financial report (CAFR), the letter of transmittal remains a part of the introductory section. The MD&A does not replace the transmittal letter, and school districts are encouraged not to duplicate information contained in the MD&A. See paragraphs 8 through 11 of GASB 34 for required information to be included in the MD&A. In addition to the MD&A, the annual audit report will include two new governmentwide financial statements: net assets and activities. These new statements will be prepared using the economic resources measurement focus and accrual basis of accounting for all the government’s activities. The governmentwide financial statements should present information about the reporting government as a whole, except for fiduciary activities. These statements should report all of the assets, liabilities, revenues, expenses, and gains and loses of the government entity. The statements should include separate columns for the governmental and business-type activities of the primary government as well as for its component units (e.g., charter schools, independent alternative schools, vocational centers). Notes to the financial statements should provide information essential to a user’s understanding of the basic financial statements. The governmentwide financial statements will help users

• assess the finances of the LEA in its entirety, including the year’s operating results; • determine whether the LEA’s overall financial position improved or deteriorated; • evaluate whether the LEA’s current-year revenues were sufficient to pay for current-year

services; • see the cost of providing services to its citizenry; • see how the LEA finances its programs (through user fees and other program revenues

versus general tax revenues);

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• understand the extent to which the LEA has invested in capital assets, including roads, bridges, and other infrastructure assets; and

• make better comparisons among LEAs. In conclusion, the new annual reports will give government entities a more comprehensive way to demonstrate their stewardship in the long term, in addition to the way they currently demonstrate their stewardship in the short term and through the budgetary process. The GASB statement establishes that the basic financial statements and the RSI for general-purpose governments (see paragraphs 6 and 7 of GASB 34) should consist of

• “Management’s Discussion and Analysis” (MD&A); • basic financial statements, including governmentwide financial statements, fund financial

statements, notes to the financial statements; and • required supplementary information including budgetary comparison schedules. These minimum requirements for basic financial statements and required supplementary information should be presented in the LEA’s annual audit report in the following order:

1. MD&A, 2. governmentwide financial statements, 3. fund financial statements, 4. notes to the financial statements, and 5. required supplementary information other than the MD&A. The basic financial statements required for governmentwide and fund financial statements are summarized here: Governmentwide Financial Statements

A. Statement of Net Assets (exhibit 1 of this document) B. Statement of Activities (exhibit 2 of this document) Fund Financial Statements

A. Governmental Funds (emphasizing major funds) (exhibits 3 and 4 of this document) • General Fund • Special Revenue Fund (includes food service fund if designated as special revenue

type) • EIA Fund • Debt Service Fund • Permanent Fund

B. Summary Reconciliation to Governmentwide Financial Statements (exhibit 5 of this document)

C. Proprietary Funds (exhibits 6–9 of this document) • Enterprise Fund (includes food service fund if designated as proprietary type) • Internal Service Funds

D. Reconciliation of Net Assets to Governmentwide Statement of Activities (if applicable)

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E. Fiduciary Funds and Similar Component Units (exhibit 9 of this document) • Pension (and Other Employee Benefit) Trust Fund • Investment Trust Funds • Private Purpose Trust Funds • Agency Trust Funds (pupil activity)

Examples of the above statements and reconciliations are also presented in Exhibits 20 through 31 of the GASB 34 Implementation Guide.

GOVERNMENTWIDE FINANCIAL STATEMENTS

Statement of Net Assets The statement of net assets should report all financial and capital resources. LEAs are encouraged to present the statement in a format that displays assets less liabilities equals net assets. The statement should report the difference between assets and liabilities as net assets, not as fund balances or equity (see exhibit 1 in this supplement). Governments are encouraged to report assets and liabilities in order of their relative liquidity. Liabilities with average maturities greater than one year should be reported in two categories: the amount due within one year and the amount due in more than one year. Separate columns are required to distinguish between the governmental and business-type activities of the primary government and between the primary government and its discretely resented component units. A total column for the reporting entity and a column of comparative data from the prior year may be presented but are not required. The difference between a government’s assets and liabilities is its net assets. Net assets should be displayed in the following three categories:

a. invested in capital assets, net of related debt; b. restricted (distinguish among major categories of restrictions); and c. unrestricted. See GASB 34 paragraphs 30 through 37 for specific requirements for the presentation of the statement of net assets.

Statement of Activities The governmentwide statement of activities should be presented in a format that reports expenses for each of the government’s functions reduced by program revenues in order to show the net (expense) revenue of government functions. This reporting format identifies the extent to which each function of the LEA is self- financing (through fees and intergovernmental aid), and the net either is a cost to the taxpayer or is self- financing. The

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amount that is needed to support activities of the entity is not currently available with the present reporting method. General revenues—such as taxes, special and extraordinary items, contributions to term and permanent endowments, and transfers—should be reported separately, after the total net expenses of the LEA’s functions, to determine the change in net assets for the period. See GASB 34 paragraphs 38 through 62 for specific requirements for the presentation of the statement of activities.

Expenses School districts should report all expenses by function except for extraordinary items. As a minimum, governments should report direct expenses for each function. Direct expenses are those that are specifically associated with a service, program, or department and are clearly identifiable to a particular function. The following list identifies the minimum level of functions to be reported in the statement of activities for governmental and business-type activities of school districts. The function code numbers provided below are consistent with the expenditure functions listed in the 2000–01 updates of the Financial Accounting Handbook published by the SDE. Governmental Activities • Instruction (Expenditure Functions 111–190) • Support Services (Expenditure Functions 211–252, 257–271 and, if applicable, Function

256) • Community Services (Expenditure Functions 320–390) • Intergovernmental (Expenditure Functions 411–416) • Interest/Other Charges (Expenditure Accounts 500350 and 500620) Business-Type Activities • Food Service (Expenditure Function 256) If the Food Service Fund is operated as a governmental-type fund, do not report Function 256 with business-type activities. The function should be included with support services under the governmental activities. Depreciation expenses for capital assets that can be identified specifically with a function should be included in the direct expenses for the function. Depreciation expenses for shared capital assets should be prorated to the direct expenses of the appropriate functions. Depreciation expenses for capital assets such as a school district administration building that essentially serves all functions are not required to be included in the direct expenses of the various functions. The depreciation expense for capital assets that serve all functions may be included in the statement of activities as a separate line or may be allocated to other functions. If a school district uses a separate line to report unallocated depreciation expense, it should clearly indicate that this line excludes direct depreciation expenses of the various programs.

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Depreciation expense for general infrastructure assets should not be allocated to functions. Either it should be reported as a direct expense of the function normally associated with capital outlays for and maintenance of infrastructure assets, or it should be reported as a separate line item. Please refer to GASB 34 paragraphs 41 through 45 for specific requirements on reporting depreciation expenses in the statement of activities, and see paragraph 117 for required disclosures on depreciation expense. For purposes of capitalization, the current federal rate is $5,000. The SDE recommends that the LEAs consider the established federal rate, or any other rate appropriate for their entity, as the threshold for capital assets. The LEAs can always maintain a separate property control listing of assets that are below the established capitalization rate for insurance and other purposes if the school district considers it necessary to do so. Since GASB 34 requires capital asset depreciation to be allocated among the functions, unless an asset serves essentially all functions, the SDE recommends that a reasonable allocation method be used. School districts may use either full-time equivalents (FTEs) of staff or total expenses/expenditures as a basis for allocating depreciation among functions for the statement of activities. Either of these methods will be acceptable as long as a material amount of depreciation for an individual asset does not clearly belong to one function. In such a case, that individual asset would need to be segregated from the allocation calculations. Once an allocation method has been determined, it should be applied consistently. In order to depreciate assets, school districts must establish an estimated useful life for each asset. The following table provides school districts with a suggestion for a range of useful lives for each asset category.

ASSET CATEGORY USEFUL LIFE RANGE

Land (not depreciated) not applicable Land improvementsa 20–50 years Buildings and improvements 10–50 years Furniture and equipment 3–10 years Vehiclesb 3–10 years

Textbooksc 3–5 years Construction in progress (not depreciated) not applicable a

Land improvements include permanent improvements that add value to land, such as a retaining wall or fence. b

The “vehicles” category includes aircraft, watercraft, and other motorized forms of transportation. c

Textbooks and library books meet the definition of a fixed asset in that they have an estimated useful life of more than one year and are of sufficient value to meet capitalization thresholds (on initial purchases of a large number of books). This applies only to textbooks and library books that are purchased by a school district and are not a part of any initial building construction. Since textbooks purchased by the State and sent to the school districts continue to be owned by the State, school districts do not need to capitalize these textbooks.

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Please note that only ranges can be recommended because assets within each category can vary greatly as to type of asset and estimated useful life. For example, buildings can include a newly constructed school that is estimated to be used for fifty years or a storage shed that is estimated to be used for only ten years. They are both included in the “buildings and improvements” category, but they are very different buildings with significantly different useful lives. South Carolina school districts will not typically acquire or construct “infrastructure” assets such as sidewalks, water and sewer lines, roads, bridges, and streetlights. If a district does acquire or construct such an asset, either the value is likely to be immaterial, or the district does not maintain ownership of it. Since all costs of constructing a building (including the parking lot, driveways, sidewalks, lighting systems, etc.) are included in the cost of the building; very few school districts in South Carolina own infrastructure assets. If a school district does maintain ownership of infrastructure assets, however, prospective reporting of general infrastructure assets in the statement of net assets is required beginning with the effective dates established in the statement. See GASB 34 paragraphs 148 through 166 for infrastructure reporting requirements and determining historical costs of infrastructure assets. According to GASB 34 paragraph 149, school districts should report estimated historical costs for major general infrastructure assets that were acquired or significantly reconstructed or that received significant improvements in fiscal years ending after June 30, 1980. An example and an exercise for determining historical costs for infrastructure items are given in Appendix 4 of the GASB 34 Implementation Guide (Exercise 8).

Revenues

School districts and other governmental programs are financed essentially from four revenue sources. GASB 34 identifies these sources and the associated classification types as follows: A. Revenues from those who purchase, use, or directly benefit from the goods or service of

the program. Type A is always a program revenue . B. Revenues from parties outside the reporting government’s citizenry (includes other

governments and nongovernmental entities or individuals). Type B is a program revenue if restricted to a specific program or programs. If the revenues are unrestricted, type B is a general revenue.

C. Revenue from the reporting government’s taxpayers. Type C is always a general

revenue, even if restricted to a specific program. D. Revenues from the governmental institution itself. Type D is usually a general

revenue .

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Program revenues are derived directly from the program itself or from parties outside the reporting government’s citizenry. They reduce the net cost of the function to be financed from the government’s general revenues. The statement of activities should separately report the following three categories of program revenues: charges for services, program-specific operating grants and contributions, and program-specific capital grants and contributions. Earnings on endowments or permanent fund investments should be reported as program revenues if restricted to a program or programs specifically identified in the endowment or permanent fund agreement or contract. Earnings from endowments or permanent funds that finance “general fund programs” or “general operating expenses” should not be reported as program revenue.

All revenues are general revenues unless they are required to be reported as program revenues. Paragraph 52 of GASB 34 states that “All taxes, even those levied for a specific purpose, are general revenues and should be reported by type of tax—for example, sales tax, property tax, franchise tax, income tax.” All other nontax revenues (including interest, grants, and contributions) that do not meet the criteria to be reported as program revenues also should be reported as general revenues. General revenues should be reported on the statement of activities after presentation of the total net expense of the government’s functions (see GASB 34 paragraphs 47 through 53 for specific reporting requirements for revenues). Extraordinary items are transactions or other events that are both unusual in nature and infrequent in occurrence (for example, damages sustained from a hurricane or a chemical spill). Special items are significant transactions or other events within the control of management that are either unusual in nature or infrequent in occurrence (for example, sales of certain general governmental capital assets or a significant forgiveness of debt). Extraordinary items and special items should be reported separately at the bottom of the statement of activities (see exhibit 2 of this document and GASB 34 paragraphs 55 and 56). The following table has been prepared to assist school districts in determining the types of revenues to be reported in the statement of activities. Revenues are listed according to the account code classifications of the 2000–01 updates to the Financial Accounting Handbook published by the SDE. Note that some revenues could be classified as either program or general; the final determination will be dependent on the source and purpose of the revenue as discussed in paragraphs 47 through 52 of GASB 34.

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REVENUE TYPES Revenue General Program Program Revenue Category

1100s X 1200s X 1300s X charges for services 1400s X charges for services 1500s X 1600s X charges for services 1910 X 1920a X X operating grants and contributions 1950 X 1992 X operating grants and contributions 1993 X 1994 X 1999 X X operating grants and contributions 2100 X X operating grants and contributions 2200 X X operating grants and contributions 3170,

3172, 3174 X capital grants and contributions

Other 3100s X operating grants and contributions 3200s X 3300s X operating grants and contributions 3500s X 3800s X 3991 X operating grants and contributions 3992 X 3999 X X operating grants and contributions 4100s X 4200s X operating grants and contributions 4300s X operating grants and contributions 4400s X operating grants and contributions 4500s X operating grants and contributions 4800s X operating grants and contributions 4920 X operating grants and contributions 4922 X operating grants and contributions 4930 X operating grants and contributions 4940 X 4991 X operating grants and contributions 4992 X 4993 X X operating grants and contributions 4995 X operating grants and contributions 4996 X operating grants and contributions 4997 X operating grants and contributions

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REVENUE TYPES Revenue General Program Program Revenue Category

4998 X operating grants and contributions 4999 X X operating grants and contributions 5280 X 5300 X 5910 X operating grants and contributions 5999 X X operating grants and contributions

a Usually will be general revenue unless the donation is restricted in use and amount to a specific program.

Eliminations and Reclassifications

To eliminate the “grossing up” of assets and liabilities in the governmentwide financial statements, interfund receivable and payable balances are eliminated in the governmental activities and business-type activities columns of the statement of net assets, except for the net residua l amounts due between governmental and business-type activities. Balances reported in funds as due to or from fiduciary funds are presented as external balances due to the fact that fiduciary funds are not reported as part of the governmentwide financial statements. All internal balances are eliminated from the total primary government column in the statement of net assets (see GASB 34 paragraphs 57 through 62 and Exhibits 21 through 26 of GASB 34 Implementation Guide). Eliminations should be made in the statement of activities to remove the “doubling-up” effect of internal service fund activity. The effect of similar internal events (such as allocations of accounting staff salaries) that are, in effect, allocations of overhead expenses from one function to another or within the same function also should be eliminated. The allocated expenses should be reported only by the function to which they were allocated. Resource flows (except those that affect the balance sheet only, such as loans and repayments) between a school district and its discretely presented component units should be reported as if they were external transactions—that is, as revenues and expenses. However, amounts payable and receivable between the school district and its discretely presented component units or between those components should be reported on a separate line. Internal service fund asset and liability balances that are not eliminated in the statement of net assets should normally be reported in the governmental activities column. Although internal service funds are reported as proprietary funds, the activities accounted for in them (financing of goods and services for other funds of the LEA) are usually more governmental in nature than business-type. If enterprise funds are the predominant or only participants in an internal service fund, however, the school district should report the internal service fund’s residual assets and liabilities within the business-type activities column in the statement of net assets.

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An example of the statements of activities for a school district is presented in exhibit 2 of this supplement.

Accounting for the activities of an LEA is captured

primarily by various funds. GASB 34 requires financial statements at the fund level for governmental entities. Please note that there are no new accounting principles at the fund level generated by GASB 34. However, the fund-based financial statements will be integrated with the new governmentwide financial statements through a reconciliation of the two sets of statements. Governmental fund reporting focuses on the sources, uses, and balances of current financial resources and often has a budgetary orientation. The government fund category includes the general fund, special revenue funds, capital projects funds, debt service funds, and permanent funds. Permanent funds should be used to report resources that are legally restricted to the extent that only earnings, and not principal, may be used for purposes that support the reporting government’s programs. Permanent funds do not include private-purpose trust funds that should be used to report situations in which the LEA is required to use the principal or earnings for the benefit of individuals, private organizations, or other governments. Governmental fund financial statements should be prepared using the current financial resources measurement focus and the modified accrual basis of accounting. Proprietary fund financial statements (enterprise and internal service funds) and the fiduciary financial statements should be prepared using the economic resources measurement focus and the accrual basis of accounting.

GASB 34 criteria for determining a major fund are as follows:

• The reporting entity’s main operating fund (the general fund) is always a major fund. • Other individual governmental and enterprise funds are reported as major funds if

A. Total assets, liabilities, revenues or expenditures/expenses of the individual governmental or enterprise funds are at least 10 percent of the corresponding total (assets, liabilities, revenues, or expenditures/expenses) for all funds of that category or type (total governmental or total enterprise).

AND

B. Total assets, liabilities, revenues, or expenditures/expenses of the individual

governmental fund or enterprise fund are at least 5 percent of the corresponding total for all governmental and enterprise funds combined.

FUND FINANCIAL STATEMENTS

Major Fund Determination

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• In addition to those funds that meet the major fund criteria, management may decide to

report any other governmental or enterprise fund as a major fund if it is particularly important to financial statement users.

• The SDE has designated the Special Revenue Fund (special projects fund) and the

Education Improvement Act (EIA) fund as major funds. • GASB 34 excludes internal service funds and fiduciary funds from the reporting

requirements of major funds. • Major funds are to be reported in separate columns in the governmental and proprietary

fund statements. All nonmajor funds should be aggregated and reported in a single column to the right of major funds in the governmental and proprietary fund statements.

See Exercise 5 of Appendix 4 in the GASB Implementation Guide for method of determining major funds. Balance Sheet GASB 34 specifies that the governmental funds balance sheet should report current financial resources information for each major fund, for nonmajor funds in the aggregate, and in total (in a separate total column). Therefore, general capital assets will not be reported in the fund statements. Capital assets acquired by expenditures of governmental funds will be reported in the governmentwide statements. This reporting method also will be used to report general long-term debt and other long-term liabilities. These assets and liabilities mus t be considered in preparing the reconciliation to the governmentwide statements. The fund balance will be reported in two sections. GASB 34 requires the separate display of reserved and unreserved balances in the fund balances section of the balance sheet. The reserved section will report amounts reserved for inventories, noncurrent receivables, encumbrances, debt service, and other reserved items. Unreserved fund balances of nonmajor funds will be displayed by fund type on the face of the balance sheet. Designation of fund balances may be presented within the unreserved section (see exhibit 3 of this document). Statement of Revenues, Expenditures, and Changes in Fund Balance The statement of revenues, expenditures, and changes in fund balance will report information about inflows, outflows, and balances of current financial resources for each major fund, for nonmajor funds in the aggregate, and in total (in a separate total column). See an example of the statement in exhibit 4 of this document. The statement will present the following information in this order: 1. revenues;

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2. expenditures; 3. excess (deficiency) of revenues over expenditures; 4. other financing sources and uses, including transfers; 5. special and extraordinary items; 6. net change in fund balances; 7. fund balances, beginning of period; and 8. fund balances, end of period. The major change from the current fund statement presentation is the inclusion of special and extraordinary items. Special items are defined as significant transactions (must be material to the financial statements) or events within the control of management that are either unusual in nature or infrequent in occurrence (e.g., sale of capital assets and significant debt forgiveness). Extraordinary items are both unusual in nature and infrequent in occurrence (e.g., costs of an environmental disaster or losses from a natural disaster). Special items are distinguished from extraordinary items since management can control the events underlying special items and only one of the criteria required for an extraordinary item is necessary. If both occur in the same reporting period, special items should be reported separately from extraordinary items (see GASB 34 paragraphs 55 and 56). Reconciliation of Governmental Funds with Governmental Activities

Under GASB 34 the integrated approach to financial statements is based on the link between the fund statements and the governmentwide statements. This link requires a reconciliation to convert the current financial resources measurement focus and modified accrual basis of the governmental funds with the basis of accounting used in the governmental activities column in the governmentwide statements (e.g., general capital assets and long-term liabilities are not reported in the fund statements but must be presented on a governmentwide basis). Therefore, expenditures for capital assets and debt retirement have to be eliminated when moving from the fund level to the governmentwide level. Also, sales of capital assets and the proceeds from long-term debt must be adjusted to reflect balance sheet portions of these transactions. Adjustments for deferred revenue or internal service fund net assets are other reconciling items that may need to be adjusted. Items requiring reconciliation are presented in GASB 34 paragraphs 77 and 85.

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Reconciliations that are required to provide the link between fund statements and governmentwide statements include the following: a. governmental funds with governmental activities

• total government fund balances to net assets of governmental activities in the statement of net assets

• total change in governmental fund balances to change in net assets of governmental activities in the statement of activities

b. proprietary funds with business type activities

• total proprietary fund balance to net assets of business type activities in the statement of net assets

• total change in proprietary fund balance to change in net assets of business type activities in the statement of activities

The presentation for these reconciliations is optional. They may be reported at the bottom of the fund financial statements or included in an accompanying schedule (see sample reconciliation statements in exhibits 3 and 5 of this document). If additional information is required for clarification, a more detailed explanation may be presented in the notes to the financial statements (see Exercise 6 in Appendix 4 of the GASB 34 Implementation Guide).

NOTES TO THE FINANCIAL STATEMENTS

Additional note disclosures will be necessary as a result of GASB 34. See paragraphs 113 through 123 of the GASB 34 for specific disclosure requirements.

REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN MD&A GASB 34 requires governments to present as RSI MD&A (paragraphs 8–11), budgetary comparison schedules for governmental funds (paragraphs 129–131), and information reported about infrastructure assets using the modified approach (paragraphs 23–26 and 132–133). See exhibit 10 in this document for an example of a school district budgetary comparison schedule.

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The sample statements presented on the following pages represent examples of formats that are in compliance with GASB 34 reporting requirements. Statements and schedules prepared for school districts should reflect the specific financial characteristics of the individual districts.

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EXAMPLES OF

GOVERNMENTWIDE

FINANCIAL STATEMENTS

EXHIBIT 1

21

ABC School District

Statement of Net Assets June 30, 2002

Governmental Business-type Component

Activities Activities Total Units

ASSETS

Cash and cash equivalents $ $ $ $

Property taxes receivable (net)

Due from other governmental units

Other receivables

Internal balances

Inventories and prepaid expenses

Capital assets:

Land

Buildings

Equipment

Less accumulated depreciation

Total capital assets, net of depreciation

Total Assets

LIABILITIES

Accounts payable and other current liabilities

Deferred revenue

Long-term liabilities:

Due within one year:

Bonds, capital leases, and contracts

Accrued interest

Special termination benefits and

compensated absences

Claims and judgments

Due in more than one year:

Bonds, capital leases, and contracts

Accrued interest

Special termination benefits and

compensated absences

Claims and judgments

Total Liabilities

NET ASSETS

Invested in capital assets, net of related debt

Restricted for:

Capital projects

Debt service

Other purposes (specify)

Unrestricted (deficit)

Total Net Assets $ $ $ $

Primary Government

for the Year Ended June 30, 2002

Charges for Operating CapitalServices Grants and Grants and Governmental Business-type Component

Expenses and Sales Contributions Contributions Activities Activities Total UnitsPrimary government: Governmental activities: Instruction $ $ $ $ $ $ Support services (includes food service if a special revenue fund) Community services Intergovernmental Interest and other charges Depreciation—unallocated* Total governmental activities Business-type activities: $ Food service (if an enterprise fund) Total business-type activitiesTotal primary government $ $ $ $

Component units: Charter school $ $ $ $ $ Alternative school Other (specify)Total component units

General revenues: Property taxes levied for: General purposes Debt serviceState aid—formula grants Unrestricted investment earningsSpecial item (specify)Extraordinary item (specify) Total general revenues, special items, and extraordinary items Change in net assetsNet assets, beginning of yearNet assets, end of year $ $ $ $

*This amount excludes the depreciation that is included in the direct expenses of the various programs.

Functions/Programs

Program RevenuesPrimary Government

Net (Expense) Revenue and Changes in Net Assets

ABC School District Statement of Activities

EX

HIB

IT 2

22

23

EXAMPLES OF FUND FINANCIAL STATEMENTS

EXHIBIT 3

24

Governmental Funds June 30, 2002

Other TotalSpecial Governmental Governmental

General Revenue EIA Funds FundsASSETSCash and cash equivalents $ $ $ $ $Property taxes receivable, netAccrued interestDue from other fundsOther receivablesInventories—supplies and materialsOther current assets (specify)Total assets $ $ $ $ $

LIABILITIES AND FUND BALANCESLiabilities: Accounts payable and accrued $ $ $ $ $ liabilities Due to other funds Due to other governmental units Due to student groups Deferred revenue Total liabilities

Fund balances: Reserved for: Encumbrances Unreserved: Designated Undesignated Undesignated, reported in special revenue funds Total fund balancesTotal liabilities and fund balances $ $ $ $ $

Total fund balances xx,xxx,xxx ** This amount should agree with total fund balances of

total governmental funds on line above.Amounts reported for governmental activities in the statement of net assets are different because of the following: Capital assets used in governmental activities are not financial x,xxx resources and therefore are not reported in governmental funds. The cost of assets is $x,xxx and the accumulated depreciation is $x,xxx. Property taxes receivable are not available to pay for current- x,xxx period expenditures and therefore are deferred in the funds. Internal service funds are used by the district to charge the x,xxx costs of certain activities to individual funds. The assets and liabilities of certain internal service funds are included with governmental activities in the statement of net assets. Some liabilities, including bonds payable, are not due and (x,xxx) payable in the current period and therefore are not reported in the funds.

Net assets of governmental activities $xxx,xxx **

** This amount should agree to the total amount presented in column 1 of exhibit 1.

ABC School District Balance Sheet

The reconciliation could be presented on an accompanying page, as a continuation of the financial statement, rather than on the face of the statement.

EXHIBIT 4

25

Special Other TotalGeneral Revenue EIA Governmental Governmental

Fund Fund Fund Funds FundsREVENUESLocal property taxes $ $ $ $ $Other local Total localStateFederalIntergovernmental Total Revenues

EXPENDITURESCurrent: Instruction Support services Community services IntergovernmentalDebt service Principal InterestCapital outlay Total expenditures Excess (deficiency) of revenues over expenditures

OTHER FINANCING SOURCES (USES)Sale of fixed assetsCapital leasesProceeds from long-term notes

SPECIAL ITEMSpecify Net change in fund balancesFund balances—July 1, 2001Fund balances—June 30, 2002 $ $ $ $ $

Changes in Fund Balances

ABC School DistrictStatement of Revenues, Expenditures, and

Governmental Fundsfor the Year Ended June 30, 2002

EXHIBIT 5

26

Total net change in fund balance—governmental funds (from exhibit 4) $xx,xxx,xxx

Amounts reported for governmental activities in the statement of activities are different because of the following:

Capital outlays are reported in governmental funds as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which depreciation expense ($x,xxx,xxx) exceeds capital outlays ($x,xxx,xxx) in the period. (x,xxx,xxx)

Some of the capital assets acquired this year were financed with capital leases. The amount financed by the leases is reported in the governmental funds as a source of financing. On the other hand, the capital leases are not revenues in the statement of activities but rather constitute long-term liabilities in the statement of net assets. (xxx,xxx)

Repayment of bond principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. xx,xxx,xxx

Because some property taxes will not be collected for several months after the district's fiscal year ends, they are not considered “available” revenues and are deferred in the governmental funds. Deferred tax revenues increased by this amount this year. xxx,xxx

In the statement of activities, only the gain on the sale of the unimproved land is reported, whereas in the governmental funds, the entire proceeds from the sale increase financial resources. Thus, the change in net assets differs from the change in fund balances by the cost of the land sold. (xxx,xxx)

In the statement of activities, certain operating expenses—compensated absences (sick pay and vacations) and special termination benefits (early retirement)—are measured by the amounts earnedduring the year. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially, the amounts actually paid ). This year, vacation and sick leave earned ($xxx,xxx) exceeded the amounts used ($xxx,xxx) by $xx,xxx. Special termination benefits paid ($xx,xxx,xxx) exceeded the amounts earned ($x,xxx,xxx) by $x,xxx,xxx. x,xxx,xxx

Interest on long-term debt in the statement of activities differs from the amount reported in the governmental funds because interest is recognized as an expenditure in the funds when it is due, and thus requires the use of current financial resources. In the statement of activities, however, interest expense is recognized as the interest accrues, regardless of when it is due. The additional interest reported in the statement of activities is the net result of two factors. First, accrued interest on bonds, leases, and contracts payable decreased by $xx,xxx, and second, $x,xxx,xxx of additional accumulated interest was accreted on the district's capital “appreciation” bonds. (x,xxx,xxx)

An internal service fund is used by the district's management to charge the costs of workers' compensation and unemployment claims to the individual funds. The net revenue of the internal service fund is reported with governmental activities. x,xxx,xxx

Change in net assets of governmental activities (from exhibit 2) $xx,xxx,xxx

for the Year Ended June 30, 2002

ABC School DistrictReconciliation of Statement of Revenues, Expenditures,and Changes in Fund Balances of Governmental Funds

to the Statement of Activities

EXHIBIT 6

27

InternalEnterprise Fund— Service Funds

Food Services (if applicable)ASSETSCurrent assets: Cash and cash equivalents $ $ Due from other governmental units Due from other funds Other receivables Inventories—supplies and materials Total current assetsNoncurrent assets: Equipment Less accumulated depreciation Total noncurrent assets Total assets

LIABILITIESCurrent liabilities: Accounts payable and accrued liabilities Claims payable Due to other funds Deferred revenue Total current liabilitiesLong-term liabilities: Claims payable Total liabilities

NET ASSETSInvested in capital assetsUnrestrictedTotal net assets $ $

Note: A reconciliation may be required depending on balance in business activities column in exhibit 2 of this document.

ABC School DistrictStatement of Net Assets

Proprietary FundsJune 30, 2002

EXHIBIT 7

28

InternalEnterprise Fund— Service Funds

Food Services (if applicable)OPERATING REVENUESProceeds from sale of meals $ $Charges to other funds Total operating revenues

OPERATING EXPENSESFood costsSalaries and wagesUtilitiesSupplies and materialsDepreciationOther operating costs Total operating expenses Operating income (loss) (xx,xxx,xxx)

NONOPERATING REVENUES (EXPENSES)Interest incomeUSDA reimbursementsCommodities received from USDAOther federal and state aid Total nonoperating revenue (expenses) Change in net assetsTotal net assets—July 1, 2001Total net assets—June 30, 2002 $ $

Note: A reconciliation may be required depending on balance in business activities column in exhibit 2 of this document.

for the Year Ended June 30, 2002

ABC School DistrictStatement of Revenues, Expenses, and

Changes in Fund Net AssetsProprietary Funds

EXHIBIT 8

29

InternalEnterprise Fund— Service Funds

Food Services (if applicable)CASH FLOWS FROM OPERATING ACTIVITIESReceived from patrons $ $Received from assessments made to other fundsPayments to employees for servicesPayments for workers' compensation and unemployment claimsPayments to suppliers for goods and services Net cash received from (used by) operating activities

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIESNonoperating grants received Net cash received from (used for) noncapital financing activities

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIESAcquisition of capital assets Net cash received from (used for) capital and related financing activitiesCASH FLOWS FROM INVESTING ACTIVITIESInterest on investments Net cash received from (used by) investing activities Net increase (decrease) in cash and cash equivalentsCash and cash equivalents—July 1, 2001Cash and cash equivalents—June 30, 2002 $ $

Reconciliation of operating income (loss) to net cash received from (used by) operating activities: Operating income (loss) (from exhibit 7) $ $ Adjustments to reconcile operating income (loss) to net cash received from (used by) operating activities: Depreciation Commodities used Changes in assets and liabilities: Receivables Inventories Accrued liabilities Deferred revenueNet cash received from (used by) operating activities $ $

Noncash noncapital financing activities:During the year the district received $x,xxx,xxx of food commodities from the U.S. Department of Agriculture.

for the Year Ended June 30, 2002

ABC School DistrictStatement of Cash Flows

Proprietary Funds

EXHIBIT 9

30

Private-PurposeTrusts Agency Funds

ASSETSCash and cash equivalents $ $Due to other governmental unitsAccrued interestDue from other funds Total assets $

LIABILITIESAccounts payable $Due to student groupsDue to grantor agencies Total liabilities $

NET ASSETSReserved for scholarshipsUnreservedTotal net assets $

Private-PurposeTrusts

ADDITIONSGifts and contributions $

DEDUCTIONSScholarships awarded Change in net assetsNet assets—July 1, 2001Net assets—June 30, 2002 $

Statement of Changes in Fiduciary Net Assetsfor the Year Ended June 30, 2002

* * *

ABC School DistrictStatement of Fiduciary Net Assets

June 30, 2002

ABC School District

EXHIBIT 10

31

Variance withFinal Budget—

Actual PositiveOriginal Final (Budgetary Basis) (Negative)

REVENUESLocal $ $ $ $StateFederalIntergovernmental Total revenues

EXPENDITURESCurrent: Instruction Support services Community services IntergovernmentalDebt serviceCapital outlay Total expenditures Excess (deficiency) of revenues over expenditures

SPECIAL ITEMSpecify Net change in fund balancesFund balance—July 1, 2001Fund balance—June 30, 2002 $ $ $ $

Budgeted Amounts

Required Supplementary InformationABC School District

Budgetary Comparison ScheduleGeneral Fund

for the Year Ended June 30, 2002

The variance column is optional.

EXHIBIT 10

32

Statement from Missouri

Department of Elementary and

Secondary Education

Missouri GASB Statement 34 Some districts have expressed concerns about changes the state may require in the district’s accounting procedures due to the implementation of GASB Statement 34. At this time, the department does not foresee any plans to require districts to change from the cash basis of accounting to the accrual basis of accounting. However, this statement could impact the auditor’s reports as one of its provisions requires auditors to report on the financial statements using the accrual basis of accounting. (It is possible that this, and other provisions of the statement, could have some impact on the cost of district audits.) Statement 34 is being phased in over a three-year period based on a political subdivision’s revenues. The first effective date is for fiscal years beginning after June 15, 2001, and includes school districts with revenues in excess of $100 million dollars (excluding extraordinary items) for the fiscal year ending June 30, 1999. For cash basis districts, the Annual Secretary of the Board Report will continue to be prepared on the cash basis even though the audit report will (at some point) be prepared on the accrual basis.