by Cindy McMahon, Reynolds District Representative, Buncombe County School Board
The word “audit” sounds ominous, doesn’t it? It calls to mind stern-faced government officials knocking on the front door, briefcases in hand. Many people think that if you’re being audited, it means you’ve done something wrong. But this is often not the case.
An audit is an important tool for businesses, government, nonprofit organizations, and, yes, school systems, to get an outside perspective on how well we’re following the rules of accounting, as well as our overall financial health. In the case of Buncombe County Schools, the 2014-15 audit (presented at our February 4, 2016 School Board meeting) was conducted by Johnson Price Sprinkle CPAs. They had lots of support from our finance staff, led by chief finance officer Deborah Frisby and assistant finance officer Roger Warren.
So how are we doing? In financial language, we always hope for an “unmodified opinion” from the auditors, also known as a “clean audit.” The 2014-15 Comprehensive Annual Financial Report (CAFR) indicates that our auditors did issue this positive opinion. This tells us that the financial reports fairly represent the financial position of all of our activities. Another good sign about our school system’s strong financial management is that we received Certificates of Excellence from the Government Finance Officers Association and the Association of School Business Officials International, based on the CAFR.
However, as Robert Browning wrote, “A man’s reach must exceed his grasp, else what’s a heaven for?” We’re not yet perfect. With over 195,000 transactions annually, it is not surprising that human error occasionally comes into play. For the 2014-15 year, there were six “findings,” indicating areas where the auditors found mistakes that needed to be corrected. These findings have already been fixed.
That answers the question of how well we’re crossing the t’s and dotting the i’s, but what about the overall financial health of Buncombe County Schools? Comparing our annual income and expenses, does it look like we’ll be financially sustainable for the long haul, so we can continue to educate the students of Buncombe County?
The first place to look in answering this question is at our “net position.” According to the CAFR, Buncombe County Schools’ total net position (our “net worth”) decreased by $33,874.167, or 11.39%, in the 2014-15 year. At first glance, this looks like a complete financial crisis. What in the world happened?
The last bullet on this same page of the report explains that the change in position is due to a change in how we are required to report pensions earned by our current employees for when they retire. We are now required to report these expenses as a liability, making it look like we will actually have to pay these amounts when our employees retire. However, it is the state of North Carolina that pays pensions, not local school systems. This reporting change makes our “net position” look far worse than it actually is.
A second indicator of our financial health is the “fund balance.” This is the school system’s rainy day fund, a critical cushion to protect us in case of emergency. In fact, the Buncombe County School Board has a policy that requires us to have at least one month’s expenses as a “stabilization reserve.” As of June 30, 2015, there was $6.5 million in the fund balance above the required stabilization amount. Last year, BCS needed to use $1.5 million of our fund balance. It looks likely we will need to do so again this year. We’ll need to keep a close eye on our income and expenses, as well as advocating for more funding at the state and local levels, in order to keep our financial position strong for the long term.
Though financials can seem a little dry, the truth is that they can make or break our school system. To view the 2014-15 CAFR, visit the Buncombe County Schools website at buncombe.k12.nc.us/Page/137.
And please continue to advocate to your local and state legislators to support our public schools!
Questions for me? Please email Cindy.McMahon@bcsemail.org.