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This research is intended for the newly elected school board and superintendent in the Ocean County School District. The figures used for the example will be from Brick Township Public Schools in Ocean County New Jersey.
The Government Accounting Standards board (GASB) was created in 1984 to establish generally accepted accounting principles (GAAP) for state and local government entities. The GASB is one of two boards that establish GAAP. GASB has jurisdiction over financial reporting by governmental entities, while the other board the Financial Accounting Standards Board (FASB) establishes rules for private sector accounting, (Bianco, nd). House Bill 16 from 1989 requires school districts to maintain accounting systems based on generally accepted accounting principles (GAAP) and the superintendent of Public Instruction adopt rules necessary to implement this requirement (Accounting Policies & Procedures, 2004). Under this legislation the Superintendent of Public instruction supervises budgeting, accounting and reporting, training, forms and assistance. Consistency, relevance, reliability and comparability are four basic principles of generally accepted accounting principles that must be upheld by all GAAP rules (Bradford, 2007). Consistency means that all information should be gathered and presented the same across all periods. Relevance means the information presented in financial statements (and other public statements) should be appropriate and assist a person evaluating the statements to make educated guesses regarding the future financial state of a company. Reliability means simply that the information presented in financial statements is reliable and verifiable by an independent party. Comparability is one of the most important GAAP categories and one of the main reasons having something similar to GAAP is necessary. By ensuring comparability, a company's financial statements and other documentation can be compared to similar businesses within its industry (Bradford, 2007). The school board has the job of implementing state legislative policy concerning public schools and locally administering the states system of public education (Beckham &Wills, nd). According to Beckham & Wills (nd), it is the local board that is charged with the responsibility to establish and maintain a basic organizational structure for the local school system, develop curriculum, meet federal and state mandates for public schools, appoint a superintendent and key members of the central office staff, adopt an annual budget, and create a climate that promotes educational excellence. It is the job of the school board to approve where the superintendent and staff will spend the districts money. The school board will choose its goals and priorities, then the superintendent and staff will make a budget, the school board approves the budget and monitors the spending. A budget can be described as a financial plan that involves at least four elements: 1) planning, 2) receiving funds, 3) spending funds, 4) evaluating results- all performed within the limits of a predetermined time (Brimley & Garfield, 2008, p.294). According to Brimley, et al. (2008), the school district budget serves a number of important functions such as: 1) projecting the proposed school program and educational plan of the district for the next fiscal period. 2) It shows the sources of funds, anticipated expenditures, and allocation of authority for administering budgetary items. 3) It serves to inform the public about the educational program of the school. 4) It provides a guide for evaluating a year's program and a means of comparing school services with those that have been offered in other years. 5) It provides the motivation for careful planning, for establishing systems of control, and for wise and effective expenditure of funds. 6) It points out the relationship of the state, federal, and local units of government in supporting education. There is certain terminology associated with preparing a budget that the School Board, Superintendent, Principal and other staff members should be familiar with, these would include:
Bond- Money borrowed to pay for school district expenditures. Typically used for capital expenditures, construction or renovation of a building.
Budget calendar- the schedule of key dates that the Board of Education and administers follow in the preparation, adoption and administration of the budget.
Capital outlay- usually for an expenditure greater than $20,000 for asses intended for continued use over long periods of time, such as new buildings, renovations and additions.
Consumer Price Index (CPI) - another name would be cost of living index, this measures the change in cost of basic goods and services in comparison with a fixed price. It doesn't take into account many of the items that cause a school districts budget to rise, such as increasing health insurance, liability insurance and retirement contributions.
Employee Benefits- include the district cost for health insurance premiums, dental insurance, life and disability insurance, Medicare, retirement, social security and tuition reimbursement paid by the district on behalf of the employees. The benefits are not paid directly to the employees but are a part of the cost of operating the school district.
Equalization rate- represents the average level of assessment in each community. An example would be an equalization rate of 80 means that on average the property in a community is being assessed at 80 percent of its market value.
Fiscal Year- the accounting period, on which a budget is based, some states are July 1 through June 30.
Fund Balance- when a school district has money left at the end of its fiscal year.
Revenue- sources of income financing the operation of the school district. Sources include property taxes, state aid, interest income and sales tax.
Tax Base- assessed value of local real estate that a school district may tax for yearly operational monies.
Tax levy- total sum to be raised by the school district after subtracting out all other revenues including state aid. The tax is used to determine the tax rate for property owners.
Tax rate- the amount of tax paid for each $1,000of assessed value of property.
Supplies- consumable materials used in the operation of the school district including textbooks, pencils, papers, office supplies, custodial supplies, and computer software.
Support services- the personnel, activities and programs that enhance instruction. These include attendance, guidance and health programs, library personnel and services, special education services, professional development programs, transportation, administration, buildings and grounds and security.
Three part budget- school districts must by law divide their budgets into three components- administrative, capital and program.
Administrative Budget Component- office and administrative costs, salaries and benefits, data processing , public information, legal fees, property insurance and school board expenses.
Capital Budget Component- covers all school bus purchase, debt service on buildings and leasing expenditures, court ordered costs and all facility costs including salaries of the custodian's staff, service contracts, maintenance supplies and utilities.
Program Budget Component- This portion includes salaries and benefits of teachers and supervisors who spend most of their time teaching, instructional costs , equipment and textbooks, co-curricular activities, staff development and operating costs.
Education agencies, like businesses and other enterprises, have experimented with various forms of budget organization: line-item and function/object budgeting are basic to all systems; and planning-programming-budgeting systems, zero-based budgeting, and site-based budgeting are attempts to link the budget to goals and objectives while devolving the budgeting process to the school level (Stateuniversity.com, nd). In developing the budget Brick Township uses Zero- Base Budgeting (ZBB). Brick involves everyone from the teachers to the administrators to the community in planning the budget after the budget is approved by the school board it is the job of the superintendent to see that the budget is carried out in accordance with the programs that were laid out. The superintendent is considered the executive officer who should be in charge of overseeing the entire operations of the school. Some schools have a business officer who strictly handles business functions and reports to the superintendent; however some school districts keep them separate with both reporting to the school board and the community. The ideal situation would be for both to work together. Once the fiscal year starts, usually in most districts July 1, the superintendent's job is to start the budget for the following year usually it is based on the previous year's budget. At the school level the principal is considered the chief financial officer. It is his job to oversee millions of dollars and make sure the funds are going to the appropriate places in accordance with federal and state law. In basic terms the principal must administer the budget by dividing the revenues from the expenditures (Brimley & Garfield p. 304, 2008). The state reduced Brick Township's school district by $2.8 million dollars because of how much surplus they had left over from the previous year. The total budget for the 2009-2010 year is $136,050,676. The proposed budget for 2010-2011 is $135,050,466 a decrease of $1,000,210 (brickschools.org, 2010). Just as our nation uses a system of checks and balances so does our educational accounting system. The line system used in Brick Township School District is a detailed accounting of what the items cost and where they will be spent. This system will be later used in the audit for the state. Once the money from taxing agency is deposited into the local districts bank, the local district has the legal responsibility of ensuring the money goes to where it is intended. Any request of money must be filed by use of a requisition, purchase order, invoice, or voucher. Receipts, contracts, invoices, checks and warrants, deposit slips, requisitions, purchase orders, payroll records, and similar documents provide the information necessary for entries in the records maintained in the accounting system. (Brimley & Garfield, p.331, 2008). Audits for the district happen in two ways, internally and externally. Ocean County requires a business administrator in each district who handles the internal audits continually throughout the year. State may only require an audit ever 3 years.