Good Governance and Fund Balances
Lon Garrison, Executive Director, AASB
This past week, an issue arose that demonstrates the need for good governance and its connection to the fund balances of each school district. The governor recently shared a table, compiled by the school finance staff at DEED, that showed the fund balances of districts as reported on their June 30, 2022, annual audits and DEED’s estimates of unspent COVID relief funds. It seemed rather shocking.
This information caused quite a stir among legislators as the sum total for all these funds suggested school districts had hundreds of millions of dollars that were unspent. Unfortunately, the information in the table was grossly outdated and came with no narrative explaining the limitations of the information DEED collects as a statutory requirement. It does not convey the complexities of managing and reporting school finances. It was simply used for political purposes, to sow seeds of doubt that schools are struggling mightily to make ends meet. So what does this have to do with you as school board members? EVERYTHING!
Your fund balances are inextricably linked to good governance practices and your crucial role in budget oversight. A DEED official was asked many times during a recent hearing about “current” fund balance information for districts, and they continually said, “We don’t have access to that information” WRONG! Every person has access to that information, or they should. As locally elected school board members, you must ensure that information is as current as possible and is available as a public document from your regular board meetings. It is that simple. DEED has that access as well. As a matter of practice, they do not ask for that information. They are not required to.
So what is the connection between good governance and fund balance? Let’s take a quick look at what we mean by “good governance” Good school district governance consists of a set of practices and principles that aim to promote the community’s well-being and ensure the effective delivery of education services at the local level. Some key elements of good local governance include:
- Transparency: open public meetings, meeting agendas, meeting minutes, timely and accurate financial reports, easily accessible board policies
- Participation: Stakeholders have the opportunity to participate in decision-making processes and have their voices heard.
- Responsiveness: School governance should be responsive to the needs and concerns of its stakeholders. It should be able to identify and address problems promptly and effectively.
- Equity: School governance must be equitable and ensure all citizens have equal access to education services and resources, regardless of socioeconomic status, gender, ethnicity, or other factors.
- Rule of law: School boards must uphold the rule of law through board policy and ensure that their actions comply with legal and regulatory frameworks.
One of the essential duties each school board is responsible for is the approval and oversight of the school district budget. School boards, not the superintendents, are the accountable entity delegated that authority. As a result, the board needs a sufficient working knowledge of the elements of the budget and how the administration manages them. AASB, every year, provides board members with several opportunities to learn more about what a school district budget consists of, how to read regular budget/financial reports, and your role in this process.
Financial reporting can sometimes be complicated due to the many laws and regulations governing its structure and technique. Fund balance is one of the most misunderstood aspects of the district budget. Before I provide some detail about fund balances, I want you to envision the fund balance as a parking lot. During the year, you may have new funds that enter the lot and are “assigned” a particular parking spot, or they may be able to park in an “unassigned” spot. As time proceeds, those funds may leave the parking lot for the purpose they were “assigned” or for any purpose they could apply to. You need to know that the fund balance is constantly in flux.
School district fund balance accounting and reporting refer to the process of managing and reporting on the financial resources of your district. The main objective of this process is to provide stakeholders with accurate and transparent information about the organization’s financial position. These reports may be published on your website or in public documents, such as annual audits or your regular board meeting budget documents. The reporting of public fund balance accounting should be transparent, accurate, and understandable to a wide range of stakeholders. This is important for maintaining public trust in the organization and ensuring it is accountable to the public and other governmental bodies like the Alaska legislature. The principles of good governance, adhered to by your school board, provide the means for assuring all stakeholders that your role in the oversight of the school district budget is conducted appropriately.
Please take some time to educate yourself and become familiar with your budget and how your fund balance works for your district. You are the best source of information to explain the truth about your financial situation and the financial needs of your district. AASB and our partners at the Alaska Association of School Business Officials (ALASBO) and the Alaska Superintendents Association (ASA) are ready to help. Just ask.