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Ti m e to Sh o w t h e Mo n e y:

Ti m e to Sh o w t h e Mo n e y: Co m p ly i n g w i t h Co lo r a d o s Pu b l i c Sc h o o l Financial Transparency Act by Devan Crean Research Associate, Education Policy Center and Benjamin DeGrow,
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Ti m e to Sh o w t h e Mo n e y: Co m p ly i n g w i t h Co lo r a d o s Pu b l i c Sc h o o l Financial Transparency Act by Devan Crean Research Associate, Education Policy Center and Benjamin DeGrow, Senior Education Policy Analyst IP October Denver West Parkway Suite 400 Golden, Colorado fax Executive Summary Today it is more important than ever for governments to be financially transparent. The funds of public K-12 agencies in particular should be spent wisely to improve student learning. Colorado s 2010 Public School Financial Transparency Act requires local education providers to post specified financial information online. During the summer of 2011 the Independence Institute examined the extent to which local education providers have complied with the financial transparency law by observing the substance and presentation of online financial information for each of 178 school districts, 16 BOCES and the Charter School Institute. Each website was evaluated on the requirements of the law, as well as other criteria. The findings were unsettling, as there were only nine school districts fully in compliance as of the law s July 1, 2011, deadline, and 26 school districts fully in compliance 90 days later. (Extra time was allowed due to an ambiguity in the law that allows for diverse interpretations.) Lack of compliance may be explained in part by the challenge of interpreting the law itself. Although, CDE has attempted to clarify some discrepancies, their conclusions are only advisory and still leave the law open to interpretation. Additionally, an enforcement mechanism and consequences for non-compliance are not clearly expressed in the law. There is an enforcement mechanism within the accreditation process, but it is ultimately weak, dependent on local selfreporting. The Public School Financial Transparency Act is a step in the right direction, but work remains to be done. To improve compliance the Colorado General Assembly should consider the following actions: Clearly define terms within the law, for example, whether or not check register includes wire transfers; and Clearly define the dates when documents are to be posted, particularly for which documents the 60-day grace period does, or does not, apply. While the legislature considers these changes, there are other steps that can be taken to improve compliance among local education providers, including: CDE should ensure that its recommendations and advice to the local education providers directly reflects the requirements set forth in the law; CDE should more closely monitor whether or not local education providers are in compliance with the financial aspects of the accreditation process, and follow through with the consequences set forth in the rules of accreditation; Local education providers should use the resources of CDE to ease the burden of compliance, particularly the template they can easily copy and paste to their websites; Citizens should hold local education providers accountable by demanding greater financial transparency through grassroots efforts within their communities; and Citizens should report any local education providers to CDE that do not show compliance with the requirements of the law. The public deserves access to this important financial information, and all public K-12 agencies have an obligation to provide it. Page 1 Introduction Given ongoing economic uncertainties, taxpayers have reason to be increasingly concerned with how governments, including public K-12 agencies, spend their money. Funds designated for public education should be spent wisely to improve student learning. Therefore, it is imperative that all public K-12 agencies become as open as possible regarding their finances, especially because transparency often leads to more responsible spending. The Internet has created a quick and convenient way for governments to become more financially transparent. In the interest of greater public accountability and financial The Internet has created a quick and convenient way for governments to become more financially transparent. transparency, some city and county governments in Colorado paved the way by being among the first to post expenditures online. Pressure has been exerted for the state government to do the same, and the demand for financial transparency also has grown to include public K-12 agencies, as they administer tax dollars. Introduced in 2009, Senate Bill 57 would have required school districts to post detailed spending reports online. The bill passed the Senate; however, it was ultimately defeated in the Democrat-controlled House Education Committee, despite strong citizen support. The defeat of SB 57 did not quell the public demand for financial transparency of public K-12 agencies, and a weaker bill backed by administrator and school board interest groups, including the Colorado Association of School Boards (CASB) and the Colorado Association of School Executives (CASE), was introduced the following year. Lawmakers listened to this public outcry, and in 2010 the Colorado General Assembly passed House Bill 1036, also known as the Public School Financial Transparency Act. Requirements of the Financial Transparency Act Signed into law by then-governor Bill Ritter, the Public School Financial Transparency Act (Colo. Rev. Stat et seq.) requires local education providers including school districts, the Charter School Institute, charter schools, and Boards of Cooperative Education Services (BOCES) to post financial information online in a free and downloadable format. Financial information required to be posted as of July 1, 2011, includes: FY and FY annual budgets 1 FY financial audit financial statements at a minimum, commencing with FY (quarters 1 through 3) schedules or policies starting with those applicable to FY Accounts payable check registers Credit, debit, and purchase card (aka p-card ) statements Investment performance reports (commencing July 1, 2012) Additional stipulations of the legislation are as follows: The prior two budget years financial information must be provided until the end of the current budget year; Local education agencies must provide a link to the Colorado Department of Education website; and All documents must be posted or updated within 60 days after completion or receipt of the applicable report, statement, or document. Page 2 HB 1036 also specified that it is the responsibility of the Colorado Department of Education (CDE) to provide a template for voluntary use by local education providers needing assistance with the online posting of this information. CDE created a simple template based on recommendations from the Financial Policies and Procedures (FPP) Committee. 2 The template is available through the office of Public School Finance s page on the CDE website. There are templates for specific years, as the information required to be posted expands from 2010 to 2011 and Each local education provider can simply copy and paste its information into the template and post it on their website. Additionally, CDE has provided the list of required documents on the Public School Finance Office s page of the CDE website, along with guidance as to when such documents must be posted, and are working to create training for districts; making it relatively easy for districts to understand what is required of them. Rating School Districts During the summer of 2011 the Independence Institute undertook to examine the extent to which local education providers have complied with the financial transparency law by observing the substance and presentation of financial information on each of their websites. 3 Websites were also rated based on criteria regarding how easy to find and use the posted information was, and whether or not they provided contact information so that citizens may further inquire about the financial transparency information if needed. Meeting these additional criteria meant that the financial transparency information could be found through a logical method from the homepage, for example under the About Us or District Information sections. Adequate contact information included the general address and phone number for the district or BOCES. Local education providers that went above and beyond the Public School Financial Transparency Act s requirements to provide the most accurate, up-to-date, and informative financial transparency documents have been recognized for exceeding standards. Table 1. Breakdown of Colorado Compliance with 2010 Requirements of Public School Financial Transparency Act as of July 1, 2011 Number of Local Education Compliance Rating Providers Compliant 26 Almost Compliant 36 Partially Compliant 57 Non-Compliant 76 After examining all 178 school district websites, all 16 BOCES websites, and the Charter School Institute website, the findings are unsettling. As of July 1, only 26 districts were fully in compliance with the Public School Financial Transparency Act s 2010 requirements, which exclude check registers, purchase card statements and investment reports (see Appendix B). Thirty-five other local education providers rated Almost Compliant, missing only one of the five required items. Partially Compliant providers missed two items, while Non-Compliant providers missed three or more. Table 1 includes the full breakdown of providers based on their level of compliance with the Act s 2010 requirements. Page 3 During the fall of 2011 a second search was made of Colorado s local education provider websites to determine compliance with updated financial documents including the budget and quarterly financial statements through June 30 and the posting of check registers and purchase card statements. A grace period for compliance was given due to the ambiguity in the law (see Interpretation and Enforcement, page 8, for explanation). Only 26 of 195 local education providers were fully compliant, including 20 of the 25 districts that rated perfect on the 2010 requirements. The rest of the local education providers fall into the following categories: Almost Compliant missing just one or two requirements. Partially Compliant missing more than two requirements. Non-Compliant only meeting one or two requirements, or none at all. As indicated in table 2, some significant improvements were made in financial transparency from the initial search, though tremendous room for progress remains. For a complete listing, see Appendix B. Table 2. Breakdown of Colorado Compliance with 2011 Requirements of Public School Financial Transparency Act as of October 1, 2011 Number of Local Compliance Rating Education Providers Compliant 26 Almost Compliant 68 Partially Compliant 62 Non-Compliant 39 The larger the school district, the more likely it is to be in compliance. Twelve of Colorado s 20 largest districts those with 10,000 or more enrolled students make up half of the districts fully compliant with 2011 transparency requirements. The other eight are almost compliant. On the other hand, only two of Colorado s smallest districts, Deer Trail 26J and Silverton 1, meet the mark for online financial transparency. Of the state s 52 districts with 300 or fewer students, 17 fall into the Non-Compliant category, and 20 are slightly ahead as Partially Compliant. Transparency Top Performers Although less than one in seven school districts have met all the requirements set forth in the Public School Financial Transparency Act, several districts have demonstrated that they welcome the idea of financial transparency, particularly with posting expenditure information. For example, Jefferson County R-1, Adams 12 Five Star Schools, Douglas County RE 1, and Cherry Creek 5 all created searchable databases of their expenditures (check registers and purchase card statements) in advance of the July 1, 2011, deadline. Posting the expenditures in the form of check registers is not only the most widely accepted means of financial transparency, but it is also the simplest way for citizens to see exactly where their tax dollars are being spent. Making these expenditures searchable, as these four school districts have done, allow citizens to track more easily how the districts are spending money. Ideally, these searchable databases should meet the following criteria 4 : Easy to find on the local education provider s website; Page 4 ...two significantly smaller districts, Edison 54 JT and Silverton 1, have shown commitment to making financial transparency a priority by posting a searchable Excel spreadsheet form. Detailed transaction information; Free to use; Updated regularly; A mechanism for users to subscribe to receive notification of updated data; and Archived data that is kept in place permanently. The four school districts listed above include most of these elements. For example, on the Douglas County school district s website, users can search for expenditures by date, by vendor, by fund, by location (individual schools, departments, etc.), and by account number. The search results then display the transaction date, the vendor, the amount, the fund used, the location (what school, department, etc.), a short description of the expenditure (ex. Electricity), and the accounting code. This enables the public to know exactly when, where, and how the money was spent, as well as where the money came from: the general fund collected in part from property taxes, or another fund such as the student activity fund collected from fundraising, donations, and fees. While the four districts with searchable expenditure databases are among the largest in the state, two significantly smaller districts, Edison 54 JT and Silverton 1, have shown commitment to making financial transparency a priority by posting detailed expenditures online in a searchable Excel spreadsheet form. Many other districts have complied with the law by posting PDF files, some of them scanned documents that cannot easily be searched. Edison and Page 5 Silverton not only allow citizens to see exactly on what public education functions their tax dollars are being spent but also facilitate useful analysis of expenditures without a large outlay of funds by the district. In order to create comprehensive financial transparency, it is also important to provide access to other required financial information, such as budgets, audits, and quarterly reports. However, these documents are not as familiar to the average citizen. Some school districts therefore have provided additional information on how the budget process works, as well as helpful summaries of what one can expect to see when viewing these documents. Supplying this additional information is not only in keeping with the general idea of financial transparency, but also goes beyond by empowering citizens so that they are not just looking at a bunch of numbers on a spreadsheet. The data they look at will have more meaning, and therefore citizens can understand and analyze the data more effectively. For example, Colorado Springs 11 and Littleton 6 provide explanations of how the budget process works. Other districts, including Jefferson County, St. Vrain Valley RE 1J, and Douglas County, also provide charts and graphs detailing where the money for specific funds come from, and where the money goes. Additionally, Jefferson County provides a few short videos to help citizens understand the process, so that they in turn will have a better understanding of the financial documents they are viewing. Challenges for Smaller Providers The districts that exceed the basic requirements of the Public School Financial Transparency Act are among the largest in the state, and therefore may have the resources to provide such detailed information. The vast number of smaller districts may be out of compliance due to some challenges they face in meeting the requirements set forth in the law. Linda Rau, the business manager for Plateau Valley 50 explained that her district is facing fewer personnel and more requirements. 5 She also noted that they have encountered some technical issues in getting the information posted online. This may also be the case for other small districts that lack needed personnel and technological resources. Nora Flood, the Vice President of School Services for the Colorado League of Charter Schools, expressed similar concerns, particularly for smaller charter schools where business managers often serve part-time and only a small office staff do the day-to-day bookkeeping. 6 Personnel and resource problems are likely why several of the smallest school districts, like Liberty J-4 and Prairie Re-11, have no financial information posted online whatsoever. Despite personnel and resource challenges, all local education providers are bound by the law and must find a way to comply. The examples of other small districts in compliance show it can be done without extraordinary effort. There are larger school districts, however, that despite likely having the personnel and resources needed still have not met all of the requirements of the Public School Financial Transparency Act. For example, two of the four largest districts in the state (Douglas County RE 1 and Cherry Creek 5) were only partially or almost compliant with 2010 requirements a year Page 6 later. While Douglas County has excelled in terms of providing a searchable database of expenditures, the district still fails to meet other requirements. Transparency and Public Confidence When financial transparency is lacking between a school district and the public, it can bring a district s spending decisions into question. For example, the Manitou Springs 14 School District s financial information is incomplete and was only found by happenstance. In fact, the information was found on the Manitou Springs Middle School webpage, not the district s main pages. This occurrence is concerning, particularly for the district s taxpayers and other residents, because the district recently announced an Apple ipad initiative that will provide all 5 th through 8 th grade students with the ipad 2 for the upcoming school year. The district has purchased 600 ipad2s that will also be given to teachers, who will receive $100 in itunes credits to purchase apps that will be preloaded onto the students devices. 7 The inability of Manitou Springs 14 to post complete financial information online demonstrates why financial transparency is so important. Depending on which ipad2 model the district purchases, the cost would be anywhere from $299,400 to $497,400. It is also unclear whether the devices were bought with tax dollars or private grant funds. Without good and complete financial transparency, the actual money spent and where it came from is much more difficult to determine. On the other hand, the availability of financial information can be an invaluable tool for concerned citizens to question a school district s spending decisions. For example, the p-card statements from Aurora Public Schools revealed charges for expensive dinners at places such as the Vail Chophouse in the ski resort town of Vail, Colorado. Parents can take this expenditure information to the districts, which will force them to justify potentially wasteful spending. Additionally, if parents continue to confront the school districts, it will hopefully force them to spend their money more wisely on the students. Interpretation and Enforcement Some examples of deficient compliance among local education providers may be explained by the challenge of interpreting the law itself. For instance, there are somewhat conflicting portions of the law regarding the time that information must be posted. The law stipulates that all documents must be posted within 60 days after completion or receipt. Check registers and p- card statements are required commencing July 1, With the 60-day clause, the July 1, 2011, deadline could be extended to September 1, 2011, as the required date to post the expenditures. Denver Public Schoo
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