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Internal Controls: Financial Management in an Era of Education Reform AEFFA 2012 Sheara Krvaric, Esq. Federal Education Group, PLLC www.fededgroup.com @fededgroup Relationship between Ed Reform and Financial Management? The fiscal side of ed reform is often overlooked, but getting increasing attention: CAP/AEI Joint Recommendations on Needed Changes to Title I http://www.americanprogress.org/issues/education/report/2012/0 3/06/11315/reauthorization-of-the-elementary-and-secondaryeducation-act-offers-a-new-chance-to-improve-education/ “Admittedly, our joint recommendations and the papers undergirding them focus on requirements that are often regarded as obscure, technical, or otherwise unglamorous. And while it is certainly true that No Child Left Behind’s accountability system gets the lion’s share of the attention, we would argue that these seemingly mundane provisions may well prove more significant when it comes to what goes on in America’s schools and school systems day-to-day.” © 2012 • All Rights Reserved 2 Ed Reform and Financial Management (cont.) Many of today’s education reforms are based on financial and spending data – for example: ESEA Flexibility and school turnaround “Return on Investment” Civil rights enforcement Equity Yet, there is a disconnect between the data policymakers assume they can get and what state/local financial systems actually capture © 2012 • All Rights Reserved 3 Role of Internal Controls Internal controls are designed to help agencies meet specific objectives, but what happens when there are competing objectives? © 2012 • All Rights Reserved 4 Potential Disconnect #1: School-Level Data ED began collecting school-level financial data with SY 2008-2009 ED is continuing to collect that data under the Civil Rights Data Collection (CRDC): Personnel salaries at the school level – total Personnel salaries at school level – instructional staff only Non-personnel expenditures at school level © 2012 • All Rights Reserved 5 Key Challenges Schools must report actual salary costs by school (cannot be based on averages) Schools are also asked to report non-personnel expenditures Includes: • Professional development • Instructional materials/supplies • Computers/software/technology • Contracted services • Library books/media center materials • Other non-personnel expenditures Fine print says “if this information is available at the school level” – but that limitation is not always understood by users of the data © 2012 • All Rights Reserved 6 Internal Control Issues Capacity of HR systems Can systems effectively tie specific staff members to specific schools? What about staff members hired at the central level, but assigned to a school? How quickly are changes input (e.g. transfers, departures, etc.)? How often is data reviewed/verified? Is data consistent across various platforms/reports? • HR vs. payroll • CRDC vs. NCES forms vs. comparability reports vs. FMS © 2012 • All Rights Reserved 7 Internal Control Issues (cont.) Capacity of inventory systems Do systems track goods to the school level? Capacity of FMS Can non-personnel costs (e.g. contract costs) be traced to a specific school? Distinguishing between “central-level” and “school-level” costs What about central level initiatives on behalf of specific schools? What about staff hired at the central level but assigned to schools? What about “salary differentials” that might be captured at the district level, but relate to school-based staff? © 2012 • All Rights Reserved 8 Emerging Issue: Comparability A lot of attention to the “comparability loophole” that permits comparability calculations to be based on averaged salaries Moves to require comparability based on actual school-level expenditures (personnel and nonpersonnel) © 2012 • All Rights Reserved 9 Comparability (cont.) For example, Harkin-Enzi bill would require: By 2015-2016 LEA must show that the combined state/local expenditures in Title I schools are comparable to non-Title I schools Must be based on actual personnel and non-personnel expenditures in each school LEA must report the following information to the SEA for each of its schools: • • • • Per-pupil expenditures Personnel expenditures Non-personnel expenditures Total expenditures SEA must report expenditure data publicly © 2012 • All Rights Reserved 10 Potential Disconnect #2: Linking Costs to Program Initiatives In May, ED proposed to collect information about how districts use Title I funds to support specific interventions under ESEA Flexibility This potentially would have required linking specific costs to specific interventions for specific schools In August, ED revised its proposal, and now will collect ranking and serving data instead © 2012 • All Rights Reserved 11 Key Takeaway? Despite the change, ED is moving closer and closer to expecting data on how federal funds are used to support specific program activities in individual schools: “We are interested in how LEAs in ESEA flexibility states are using their Title I, Part A funds, particularly with respect to supporting their priority and focus schools.” -- ED response to Public Comments on ESEA Flexibility Collection through EdFacts © 2012 • All Rights Reserved 12 Internal Control Issues Interoffice coordination What program objectives need to be tracked? Are objectives aligned (e.g. SIG vs. RTT vs. Title I, etc.)? Capacity of financial management systems Can systems handle additional levels of coding? Do all districts in the state follow the same chart of accounts/coding conventions? Does the SEA have authority over the chart of accounts, or is it controlled by other state agencies? Can the FMS separately track school-level costs? © 2012 • All Rights Reserved 13 Emerging Issue: Return on Investment Goal is to determine whether education spending is effective by linking dollars to results This would involve connecting individual costs to a program objective, and then tying those costs to specific students and student outcomes For example: What is the cost of implementing a new reading intervention (cost of the intervention plus associated costs such as new materials, professional development, etc.)? Which students participate in the intervention? What are those students’ outcomes? © 2012 • All Rights Reserved 14 Other Issues to Think About Impact of program specific fiscal rules MOE Comparability Excess cost District-level vs. school-level spending Double duty for operational systems: HR FMS Procurement Inventory © 2012 • All Rights Reserved 15 Internal Control Strategies Information and communication Internal: Getting on the same page External: Critically important to explain facts on the ground • Opportunities to comment – for example OMB grant reform proposals, ED ESEA Flex data collection • Our take on OMB proposals: http://www.fededgroup.com/uploads/Joint_FedEdGroup_STGMassI nsight_comments_OMB_Federal_Grant_Reform_4_24_2012.pdf © 2012 • All Rights Reserved 16 Internal Control Strategies (cont.) Define and align objectives Performance Financial management • Federal rules • State/local rules • GAAP requirements Compliance © 2012 • All Rights Reserved 17 Internal Control Strategies (cont.) Strength in numbers - states/districts can be resources for each other: RI UCOA initiative: http://www.ride.ri.gov/Finance/funding/uniform%20chart% 20of%20Accounts/ LA school-by-school financial data: http://www.louisianaschools.net/310/ © 2012 • All Rights Reserved 18 Disclaimer This presentation is intended solely to provide general information and does not constitute legal advice. Attendance at the presentation or later review of these printed materials does not create an attorney-client relationship with Federal Education Group, PLLC. You should not take any action based upon any information in this presentation without first consulting legal counsel familiar with your particular circumstances. © 2012 • All Rights Reserved 19