Fall/Winter 2009 Charter School Fiscal Management Presented by:

1. Fall/Winter 2009 Charter School Fiscal Management Presented by: Fiscal Crisis and Management Assistance Team (FCMAT) California School Information Services (CSIS) California Department of Education (CDE)

2. Did you Know? Nationwide, California has the largest number of charter schools serving the largest number of students There are currently more than 800 charter schools with over 285,000 students enrolled 85% of charter schools are start-up; 15% are conversion 77% of charter schools are site-based and 23% are nonclassroom based Of the 58 counties in California, 50 have charter schools. Los Angeles County has the largest number of charter schools (193), followed by San Diego County (74) 71% of California charter schools are direct funded; 29% are funded through their authorizing agency

3. So What’s the Problem? Charter schools, though successful in raising student achievement,are closing their doors due to their lack of knowledge about managing the business and fiscal requirements of their schools.  As of 2007-08, 949 charter schools had been created in California since 1992-93; only 692 charters, or 72%, were still active in 2007-08. CDE data shows nearly two-thirds (65%) of all charter schools that closed since 2004 reported positive trends in API growth and failed for reasons unrelated to successful academic performance. Both the authorizers with oversight responsibility and the charter schools they serve need to better understand and meet their respective responsibilities.

4. What Can We Do? Make sure there is an understanding that: Effective financial management of charter school resources is as important to the success of a charter school as the strength of the curriculum or the dedication of its founders. Collaborative efforts between public schools and charter schools are in the best interest of all of our students; it is essential to understand each other’s regulatory and reporting environments. The need for effective site-based financial management at charters has never been greater. Sharing best practices to build capacity for effective financial management is a win-win situation.

5. Laws and Regulations What California Laws and Regulations are Applicable to Charter Schools?

6. Laws and Regulations, cont. • A charter school is a public school that is deregulated from most laws and regulations governing traditional public schools in exchange for a performance-based accountability contract. • Charter schools, like all public schools, shall not charge tuition, shall not discriminate against any pupil on the basis of the characteristics listed in Education Code section 220. • A charter school shall be nonsectarian in its programs, admission policies, employment practices, and all other operations.

7. Laws and Regulations, cont. Except where otherwise specifically required, charter schools in California are generally exempt from state laws governing school districts, whether or not these laws are in the California Education Code.

8. Laws and Regulations, cont. Charter schools must comply with: • State and federal constitutions. • The California Charter Schools Act of 1992 (Education Code Section 47600 et. eq.). • State laws establishing minimum annual instructional minutes • State pupil testing programs (API, PSAA, STAR, CAHSEE) • State criminal background screening for employees

9. Laws and Regulations, cont. Charter schools must comply with: • All federal laws (e.g., Individuals with Disabilities Education Improvement Act, No Child Left Behind Act). • Laws that generally apply to governmental entities, but not specifically to school districts (e.g., open meeting laws). • All laws that are specifically a condition of funding for a specific program in which the charter school chooses to participate. • Laws governing privacy.

10. Laws and Regulations, cont. Charter schools must comply with: • Laws establishing a minimum age for school attendance. • Laws governing nonclassroom-based independent study programs (independent study, home schooling, distance learning, etc.) • Educational Employees Relations Act. • Specific provisions of law related to teacher retirement and employee relations.

11. Memorandum of Understanding (MOU)

12. Memorandum of Understanding • It’s important to develop a comprehensive Memorandum of Understanding (MOU) as a framework for the relationship and to supplement the charter provisions. • The purpose is to clarify financial and operational issues. • MOU is an agreement between the authorizing agency and the charter school. • Allows the chartering agency to identify expectations. • Not required by charter law but highly recommended. • The MOU is a binding legal agreement once approved.

13. Memorandum of Understanding, cont. • The MOU should define specific expectations and responsibilities of the two parties, such as: • student performance • expectations of educational programs • special education • frequency of school site visits • financial reporting requirements • services that are being provided by the sponsoring agency.

14. Memorandum of Understanding, cont. Elements of a comprehensive MOU outline the expectations of oversight roles and responsibilities and a well defined periodic review process through: • An expanded business plan • A facilities plan regarding the use and payment for space that also reflects the terms and conditions for use of district property. 3. An administrative and support services plan

15. Memorandum of Understanding, cont. • It is critical to clearly spell out the relationship between charter schools and their chartering agencies. • The MOU is traditionally enforced as part of the charter, and replaces any inconsistent language in the charter. • The State Board of Education and Department of Education have a form of MOU available.

16. Miscellaneous Things to Remember

17. Ongoing Charter Obligations • Meet all statewide standards and conduct the pupil assessments applicable to pupils in noncharter public schools. • Consult regularly with parents, legal guardians, and teachers regarding the school’s educational programs. • Notify the superintendent of the school district of the pupil’s last known address within 30 days if a pupil is expelled or leaves the charter school without graduating or completing the school year for any reason, and, upon request, provide that school district with a copy of the cumulative record of the pupil, including a transcript of grades or report card, and health information.

18. Ongoing Charter Obligations, cont. • Promptly respond to all reasonable inquiries, including, but not limited to, inquiries regarding its financial records, from its chartering authority, the county office of education that has jurisdiction over the school's chartering authority, or from the Superintendent of Public Instruction and consult with the chartering authority, the county office of education, or the Superintendent of Public Instruction regarding any inquiries.

19. County Office Authority • To monitor or conduct an investigation into the operations of the charter school based on written complaints by parents or other information that justifies such actions. • To review or audit the expenditures and internal controls of a charter school at any time during the fiscal year if there is reason to believe that fraud, misappropriation of funds, or other illegal fiscal practices have occurred.

20. County Office Authority, cont. • May request the County Office Fiscal Crisis and Management Assistance Team (FCMAT) to review the fiscal or administrative condition of a charter school.

21. Pupil Enrollment

22. Attendance Boundaries • Verify residency of students upon enrollment and annually thereafter • State will only fund ADA generated by California residents • Classroom-based charter schools: student may reside anywhere in California regardless of where the charter school is located or sponsored • Nonclassroom-based charter schools: student must reside in the county that sponsored the charter or an immediately adjacent county

23. Admission and Enrollment Policies • Student body of the charter school should be: • Racially and ethnically diverse and/or • Reflective of the general population residing within the school district • Charter schools MAY establish admission requirements • May not discriminate and must be applied consistently to all prospective students

24. Admission and Enrollment Policies, cont. • Charter schools must admit all students who wish to attend unless insufficient capacity to meet demand • Should establish an enrollment policy when demand exceeds the school’s capacity • Must be fair, nondiscriminatory and consistent with the law • Preference extended to currently enrolled pupils and pupils now residing in the district • Chartering authority may also permit other preferences on an individual school basis if consistent with law • Required to use a public random drawing when enrollment exceeds capacity • Have a clear process to minimize the potential for controversy

25. School Calendar and Attendance

26. Minimum Instructional Minutes and Days Charter schools are required to operate a minimum of 175 days of actual instruction between July 1 and June 30 each fiscal year to receive full apportionment. Required minimum annual instructional minutes: • Kindergarten: 36,000 minutes • Grades 1-3: 50,400 minutes • Grades 4-8: 54,000 minutes • Grades 9-12: 64,800 minutes

27. Minimum Instructional Minutes and Days, cont. At various times, verify compliance with instructional minutes requirements. At a minimum: • Prior to the school calendar and bell schedules being approved • Prior to the school year beginning • Verification halfway through the school year • Whenever changes to the school calendar and/or the school day occurs This requirement is part of the annual audit

28. Attendance Accounting Charter School ADA = Number of days of Pupil Attendance (divided by) Number of days taught Must maintain written contemporaneous records that document pupil attendance and make those records available for inspection and audit • Contemporaneous means existing, occurring, or originating during the same time • Evidence is a charter employee certifying the accuracy of the ADA No minimum day requirement for charter schools Cannot claim more than one day of ADA per pupil per day regardless of classroom and nonclassroom program combinations

29. Attendance Accounting, cont. CDE Principal Apportionment Attendance Software must be used to report ADA and other related data to calculate principal apportionment http://www.cde.ca.gov/fg/sf/aa/attendance0809.asp Software and related information updated annually by CDE All attendance data submitted to CDE must be certified by: • A designated charter school official that all of the attendance reported is for pupils whose attendance is eligible for public funding • Authorizer district (if applicable) • County office of education (if applicable) Information must be timely and accurate

30. Attendance Accounting, cont. 2009-10Due Dates for Attendance Reports to CDE: • First Principal (P-1) Apportionment: by January 15 • For full school months between July 1 and December 31 • Second Principal (P-2) Apportionment: by May 1 • For full school months between July 1 and April 15 • Annual Apportionment: by June 30 • For entire school year If the school misses a deadline, there is a serious risk that the school will be excluded from that apportionment’s certification and funding period

31. Attendance Accounting, cont. Charter MOU may require that other attendance documents be submitted, such as: • Hard copies of all back-up documents • Weekly attendance sheets signed and dated by teachers • Hourly attendance sheets signed and dated by teachers for any supplemental hours claimed • Evidence of contact made with parents when students are absent from school Annual independent audit verifies reported ADA to ensure applicable state and federal compliance requirements are met

32. Classroom-Based Instruction To claim classroom-based ADA, the following must occur: • Pupils must engage in required educational activities • Pupils must be under immediate supervision and control of a charter school certificated employee • Pupils are required to be in attendance at the school site at least 80% of the minimum required instructional time • The charter’s school site must be a facility used principally for classroom instruction

33. Independent Study To offer independent study (IS), a detailed description of the program must be included in the charter • Charters must meet the same requirements as traditional schools except the 5-day minimum does not apply • Can’t provide funds or things of value to the IS students or parents not provided to pupils who attend regular classes • Participation must be voluntary Written board policies and regulations must be adopted to qualify for IS funding

34. Independent Study, cont. • Written master agreement must be in place for every participating pupil PRIOR to absence • Signed and dated by the student, parent, supervising teacher and all other persons responsible for providing assistance to the student • IS programs must comply with all state testing and high school graduation laws • Credentialed teacher must be assigned the overall responsibility to coordinate, evaluate and provide general supervision of the pupil’s IS • IS agreements cannotbe valid for more than one semester (or half year if on a year-round calendar)

35. Nonclassroom-Based Instruction • Nonclassroom-based instruction occurs when a student is not scheduled for at least 80% of the instructional time in a classroom. It includes, but is not limited to: • Independent Study • Home Study • Work Study • Distance and computer based education • Charter school teacher to ADA ratio for nonclassroom-based pupils shall not exceed 1:25 or the equivalent ratio of the largest unified school district in the county of sponsorship • Ratio is done at P-2 • No funding for ADA above the ratio

36. Nonclassroom-Based Instruction, cont. • SB 740 authorized SBE to establish rules for nonclassroom-based ADA • Title 5, CCR, sections 11963 to 11963.7 • Charter schools that don’t offer classroom-based instruction for at least 80% of the required instructional time are subject to reductions of up to 30% of state funding for nonclassroom-based ADA • All charter schools that offer nonclassroom-based instruction should file a Funding Determination Form with CDE Charter Schools Division, as reductions may be waived.

37. Student Attendance Review • General Review - Student Attendance: • Are there approved policies addressing student attendance? • What attendance accounting system is used? • Is there an approved school calendar? • Is there an approved class (bell) schedule? • Is there a process to monitor compliance with the minimum instructional minute requirement? • Is there a minimum of 175 instructional days? • Does the school maintain a class list for all students? • Is attendance taken daily by the classroom teacher?

38. Annual Audits

39. Annual Audits Must contract for an audit by April 1st of each year • Contract with an auditor from the Certified Public Accountants Directory published by the State Controller’s Office Must submit an annual independent financial audit by December 15 of each year to: • State Controller’s Office • CDE’s Charter Schools Division • CDE Audit Resolution Office • Authorizing Agency • County office of education where the school is located

40. Annual Audits, cont. The audit shall be conducted in accordance with General Accounting Office (GAO) standards for financial and compliance audits and in accordance with the audit guide adopted by the Education Audit Appeals Panel (EAAP) Delays: There is no provision in the law for an extension on a charter school audit

41. Annual Audits, cont. Audit findings: • To ensure a favorable recommendation for renewal, each audit must be free of material findings and exceptions, or corrective action plans must have been implemented in a timely manner. • The auditor is required to review the correction, or plan of correction, to determine if the exceptions have been resolved in the subsequent year audit.

42. Annual Audits, cont. Auditor Rotation: EC 41020 (f)(2) states that: It is unlawful for a public accounting firm to provide audit services to a local educational agency if the lead audit partner, or coordinating audit partner, having primary responsibility for the audit, or the audit partner responsible for reviewing the audit, has performed audit services for that local agency in each of the six previous fiscal years.

43. Internal Controls

44. Internal Controls • Internal controls are the foundation of sound financial management • Strong internal controls provide reasonable assurance that: • Operations are effective and efficient • Financial information is reliable • The charter is operating in compliance with all applicable laws and regulations

45. Internal Controls, cont. A strong internal control structure includes: • Policies and procedures used by staff • Accounting and information systems • The work environment • The “tone” set by management • The professionalism of employees

46. Internal Controls, cont. • Basic Components include: • Segregation of duties • System of checks and balances • Staff cross training • Use of pre-numbered documents • Asset security • Timely reconciliations • Inventory records • Comprehensive annual budget • Position control • Data management

47. Internal Controls, cont. Segregation of duties is a key factor in a reliable internal control system. • Proper segregation of duties distributes functions so that one person does not handle a transaction from beginning to end Example of a properly segregated function: Employee who initiates or authorizes a transaction versus the employee who executes the transaction

48. Internal Controls, cont. A system of checks and balances includes formal procedures for transactions to: • Initiate • Approve • Execute • Record • Reconcile

49. Internal Controls, cont. To help ensure adequate internal controls, charter schools should do the following: • Ensure that employees are aware of the proper internal accounting control expectations • Provide assurance to management that the internal control system is sound • Ensure ongoing state and federal compliance • Help identify and correct inefficient processes

50. Effective Financial Management