A Report to the Legislative Post Audit Committee By the Legislative Division of Post Audit State of Kansas, March 2002
Overview of School District Budgeting
State law requires school districts to adopt an official budget and file it with the State Department of Education. Each year, the locally elected board of education of each school district must adopt and publish an official budget. Establishing this annual budget can be a months-long process and varies from district to district, but the final budget must be filed with the county clerk and the Department of Education by August 25. This budget cycle is unique in that the fiscal year has already started when the final budget is prepared, and this cycle leaves little time for public review.
Current school district budgets are categorized by fund. Budget documents that local boards of education currently approve can vary in format, amount of information, level of detail, categories, and the like. However, State law requires districts to submit the budgets approved by their local boards to the Department of Education in a uniform classification format that classifies budgeted and actual expenditures for up to 40 statutorily authorized funds, some of which have up to 100 separate line items.
State aid accounts for more than half of school districtsí reported funding sources. Most State aid is distributed in the form of Base State Aid per Pupil, but districts also receive additional State aid for programs such as special education, inservice education programs, and capital improvements. The State also pays employer contributions for school district employees who are members of the Kansas Public Employees Retirement System (KPERS). Local and county funding sources account for about one-third of the districtsí reported funding sources, while federal sources account for 3%. Districts may receive other moneys in the form of grants or gifts that arenít accounted for in one of the statutorily authorized funds, but do appear in each districtís CPA audit.
School districtsí biggest expenditures are for classroom instruction.
In fiscal year 2000, districts spent about 50% of their total budgets on
Instruction. This figure increases to 56% when you look only at operating
expenditures, which exclude bond and interest and capital outlay expenditures.
Other large categories of expenditures include administration, operations
and maintenance, and student and instructional support.
Question 1: What Changes In School District Budget Documents Are Needed To Make Them More Useful To District Officials and the Public?
The problems we identified with districtsí budget processes ranged from fundamental and systemwide flaws to inconsistencies among districts, to a lack of clarity in reporting. During this audit, we reviewed and compared the budgets for 4 sample school districts-Manhattan, Salina, Topeka, and Wichita. As we came to understand the budget process used by Kansas school districts, we learned of problems with the process in general, how numbers were not reported accurately or meaningfully, or how one districtís budget was reported differently from another.
The provisions of two State laws are causing districts to significantly overstate some expenditures in their budgets and exclude others. State law requires school districts to budget to spend all the revenues available in certain funds, which forces them to artificially inflate their projected expenditures for the budget year. Because districts must budget to spend an amount equal to their revenues, no carryover balances can be shown. Budget expenditures are thereby inflated by the anticipated carryover amount, which is often several million dollars.
In addition, interpretation of another State law has resulted in school districts excluding significant amounts of money from the regular budget process-including federal entitlement grants that accounted for at least $115 million in expenditures in fiscal year 2001. Although some information on these entitlement funds is collected separately, the information isnít part of the districtís regular budget information, and isnít reported to the National Center for Education Statistics. Including all grants and other miscellaneous revenues and expenditures in the regular budget process would provide more complete information on what districts are really spending, make in-State comparisons more useful, and would make national comparisons more accurate and meaningful.
Kansas school districts donít report important information in their budget documents, or donít report certain information consistently. The staffing information districts report doesnít tie to staffing expenditures in their budgets because they exclude federal entitlement grants and other miscellaneous income from their reported expenditures, but include the staff hired with those funds in their reported staffing levels. Also, complete enrollment information isnít provided that would allow district costs to be compared on a uniform basis. The Department of Education doesnít currently collect complete FTE enrollment information on all students who may be enrolled in school districtsí programs, including pre-kindergarten, adult education, and post-secondary vocational-technical students. Thus, comparisons currently have to be made using all of a districtís costs, but only part of their enrollment.
Some school districts mis-categorize or mislabel expenditures in either their local budgets or the ones they submit to the State. For 2 districts we reviewed, we noted that their systems are set up to incorrectly categorize some expenditures as "instruction," and not in accordance with the accounting handbook issued by the Department. We also found that the way some expenditure categories were labeled in local budget documents masked the purpose of those expenditures, such as $1.7 million for supplies within a category called "business office" in the Special Education Fund, which was actually for unexpected contingencies.
We identified a host of other problems related to the local budget documents districts use. Some of the more significant problems included a lack of appropriate expenditure comparisons, little or no explanation of significant changes in expenditures, and lack of information about district mill levies.
We developed a new format for school districtsí local budgets that consolidates categories, includes all revenue and expenditure information, and provides more summarized and understandable budgetary information. An example of the full budget format (with numbers filled in for the Topeka school district wherever possible) is presented as a separate document, which should be reviewed in conjunction with this report. Complete budgets in the new format for the Wichita, Manhattan, and Salina school districts also are available from our office on request. Under the new format, information about districtsí budgeted expenditures for 2001-2002 would have made each districtís spending proposals and priorities much clearer.
The new format likely will create some additional work for school districts and the Department of Education. Although we tried to minimize the amount of "new" information school districts would need to compile or track over time, several things are different, including: reporting of revenues and expenditures from federal entitlement grants and other miscellaneous income in the regular budget process, tying staff to budgeted salary amounts, and reporting of staffing levels and other information by school, but not expenditures by school.
This format should be viewed as a first step in improving school districtsí local budget documents, but should not be viewed as a finished product. Kansas school districtsí local budgets and practices have been shaped over time by the myriad of laws and regulations that govern them, by the capabilities of their accounting systems, by the processes each district has established to "crunch" and review the numbers, and by the formats they have to follow in submitting their approved budgets to the State. Many issues that still need to be addressed, including: deciding how the additional information called for in the new budget format would be collected, compiled, and reported uniformly; ensuring that districts agree on how certain expenditures should be recorded, and recommending a workable time frame for implementation of a new format.
During this audit, we also looked at several issues involving the appropriateness of districtsí ending balances or transfers. We noted that the Topeka and Wichita school districts exceeded federal limits on the carryover balances allowed in their Food Service Funds. We also found that 2 of the 4 sample districts had carryover balances in operating funds that were significantly higher than the other districts. Finally, we looked to see if unnecessary transfers made to operating funds contributed to higher balances, but concluded that wasnít such a problem with the 4 sample district during the 2000-2001 budget year.
Question 1 Conclusion. To improve the level of accountability for school districtsí use of public moneys and to make districtsí budgets easier to understand, we think there should be a standardized format for the basic information provided in local school districts budgets, that those budgets should clearly show districtsí spending plans and priorities, and that the information provided should be comparable across districts to help evaluate how efficiently they are operating.
Several major hurdles currently stand in the way. Two State laws contribute to distorted or incomplete reporting of budgetary or expenditure information. Some of the information thatís needed to make useful comparisons among districts is incomplete, and some of the information thatís already being gathered isnít being recorded or reported consistently. Districts also have different accounting systems and capabilities. There are likely to be other problems we couldnít identify in working with just 4 of the Stateís more than 300 school districts. All of this makes it difficult to design a one-size-fits-all budget format.
The problems weíve identified can only be overcome through the collective efforts of the Legislature, the Department of Education, local school district officials, and others. Although the Legislature may want to act quickly to amend existing State laws, it should proceed more cautiously in adopting a standardized budget format for districtsí local budget documents. So many issues still need to be wrestled with that we think others should get involved in reviewing and refining the budget format we developed before anything is formally adopted.
Question 1 Recommendations. We made a number of recommendations to the Legislature, including, amending K.S.A. 79-2927 to remove the requirement that districts have to budget to spend all the revenues available to them in certain operating funds and requiring school districts to include the revenues and expenditures associated with all grants and miscellaneous income in all budget documents they prepare. We also recommended that the appropriate legislative committees create a task force to study school budget formats, or request an interim study on this topic, before any decision is made to adopt a standardized format.
We also made a number of recommendations to the Department of Education, including, ensuring that the K-12 expenditures Kansas reports to the National Center for Education Statistics are more comparable to the information reported by other states, and taking steps to standardize more of the information collected from school districts, such as student population and staffing counts.
Finally, we made specific recommendations to the school districts in our sample to improve specific budgetary practices we reviewed, such as properly categorizing expenditures and reducing large carry-over balances in various operating funds.
In their responses, the districts and Department of Education officials generally agree that more study is needed before a format is finalized or implemented. Topeka officials disagreed with our finding that their carryover fund balances may be too large. And both Topeka and Wichita officials expressed concerns about the ability to budget grant funds.
Question 2: How Can the New Budget Format Be Used To Improve the Efficiency of School District Operations?
The new budget format will be a tool to help district officials and others identify where operating costs may be out-of-line. Differences in costs between districts may be due to one district operating more or less efficiently, but they also may be caused by a variety of factors that have little to do with efficiency, such as whether a district hosts a special education cooperative, and how districts classify and report their expenditure and other information. Although the new budget format canít provide all the answers, the expenditure and comparative information that is provided in the new budget format can be used to identify spending areas that appear out-of-line.
Our comparisons of the 4 sample districts showed that each district is unique in terms of their level of spending and what they spend their money on. The reader is cautioned that some of the comparisons shown in the new format arenít as useful as they would be if every district were reporting complete and consistent information. Nevertheless, some of the main variations we saw among the districts included: Wichita spent the least in terms of dollars per student, and had the most students, which could represent economies of scale; Topeka had the highest level of ending cash balances in their operating funds and as a percent of expenditures-nearly twice the level maintained in Salina; Salina spent the least on operations and maintenance, likely because it has the fewest number of staff on a square foot basis; and Manhattan spent the most per student for supplies, likely due to the fact that Manhattan made a large textbook purchase that year. Additional benchmarks may be available for future comparisons.
Question 2 Conclusion. In the short run, the comparisons provided in the new budget document wonít be as useful as they could be in identifying potential areas that should be investigated or studied. Thatís because some information isnít yet available to help provide uniform costs comparisons among the districts. In addition, it is likely that information isnít currently reported uniformly. As more complete information becomes available to make more precise comparisons, and as information is reported more uniformly, these comparisons can be a starting point for school district officials, school boards, and members of the public to assess the efficiency of their school districts.
This audit was conducted by Chris Clarke, Scott Frank, Katrin Osterhaus,
and LeAnn Schmitt. Leo Hafner was the audit manager. If you need any additional
information about the auditís findings, please contact Ms. Clarke at the
Divisionís offices. Our address is: Legislative Division of Post Audit,
800 SW Jackson Street, Suite 1200, Topeka, Kansas 66612. You also may call
us at (785) 296-3792, or contact us via the Internet at LPA@lpa.state.ks.us.