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FINANCE ESSENTIALS for ORGANIZATIONAL LEADERSHIP
Women in Leadership
MASSP / MASA
November 12, 2019
Donald Sovey, CPA, CFO
School and Municipal Advisory Services, PC
(517) 231-0563
© School and Municipal Advisory Services, PC - Unauthorized duplication is a violation of applicable laws.
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Resume
Donald Sovey, CPA, CFO
Michigan Certified Public Accountant
Michigan School Business Official
Chief Financial Officer Certification MSBO
MSBO Distinguished Service Award 2009
MSBO President’s Award 2009
Member MASA, MSBO, MASB, MICPA, Rotary
Professional Guitarist / Kayaker
GFOA Technical Assistance Provider for Smarter School Spending / Budget Award Adjudicator
MASA Conference Presenter on School Finance
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Future Presentation Dates
January 22 – MASA Mid-Winter Pre-Conference; Timing’s Everything! Making Informed Decisions About Hiring and Financial Stability
With Carol Baaki Diglio, E.Ds., CHRS, Consulting by Diglio
Beginning in 2020: Inservice in YOUR District: Financial and HR Offerings for School Central Office Administrators
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What Do These Have in Common?
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Chevron
Boeing
SpaceX
Girls in Engineering
The Beach Boys
Definitions
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Asset
Liability
Revenue
Expenditure
Fund Balance
AGENDA
Legislation
Revenue
Reporting
Expenditure Budgets
Reading and Understanding Audit Reports
Working with Your Board on Financial and Strategic Issues
Organizational Sustainability
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Legislation Affecting Schools
Growing Legal and Regulatory Demands
FINANCE
• ORS
• HSA’s
• Early audit due date
• Federal and state grant reporting
• Sections 457 and 403b
• State aid borrowing
• FID
• REP
• CEPI
• Early warning
• Collective bargaining
• SKE necessary to prepare financials
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Growing Legal and Regulatory Demands
HUMAN RESOURCES
• ORS
• HSA’s
• Sections 457 and 403b
• REP
• Collective bargaining
• PA 300
• COBRA
• ACA
• Section 125 plans
• FMLA
• PA 106 of 2007
• PA 152 of 2011
• PWFBA MCL 403.47
• Educator evaluations
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Dr. Frank GilesDurham County Schools, NC
I tell superintendents two things:
First, they are hired for curriculum reasons and fired for financial reasons.
Second, I tell them what they NEED to hear, not what they WANT to hear.
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Ten Things That Require Zero Talent
Being on time Passion
Work ethic Doing extra
Effort Being prepared
Energy Being coachable
Body Language ATTITUDE
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Source: MASA Fall 2018 Conference; Superintendent Roger Bearup;
Grandville Public Schools; From district classroom
Tips for how to support
your new employees
Train your new hire and walk them through their job
Make coaching and mentoring a priority
Encourage participation in development programs
Support your employees’ overall well-being
Include your new employee in meetings
Lastly, the most important tip for client onboarding is to be available
Source: Edythe Hatter-Williams Guest Columnist; Lansing State Journal; September 23, 2018
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Know Your Worth
“You must find the courage to leave the table if respect is no longer being served.”
Tene Edwards
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Why Small Companies Fail
Starting for the Wrong Reason
Insufficient Capital
Improper Planning
Poor Management and Leadership
Expanding Too Quickly
Why Small Companies Fail
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Failure to Advertise and Market
Lack of Differentiation
Unwillingness to Delegate
Unprofitable Business Model
Underestimating the Competition
Source: Paul Chaney; Startup 15; August 2, 2019
Revenue
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Governor’s 21st Century CommissionFebruary 2017
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School Finance Research Collaborative
January 2018
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The base per-pupil cost to educate a regular education K-12 student in Michigan is $9,590, not including transportation, food service or capital costs, and only included pension costs at 4.6% of wages
In addition to the base per-pupil cost, a percentage of the base should be provided for special education, English Language Learners and students living in poverty, and an additional 10% of base cost for CTE enrolled students
School Finance Research Collaborative Recommen-dations
Enrollment size adjustment in addition to the base to address the absence of economies of scale. Applicability to charter schools is possible. Examples:❑An additional $1,892 per student
in a district with enrollment of 670 students
❑An additional $717 per student in a district with enrollment of 1,700 students
❑An additional $364 per student in a district with $5,020 students
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School Finance Research Collaborative Recommen-dations
Charter schools should have the same base per-pupil funding for a regular education student and the same adjustments to the base amount that traditional districts receive.
It costs $14,155 to educate a preschool student age 3 or 4.
Transportation costs should be funded at $731 per rider until further study is carried out.
Sources: 2018 MASA Fall Conference
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Four Things Learned from 12 Reports on Fixing MI Schools
1. Different spending for different kids
2. More money for teacher training
3. More (and better) early childhood education
4. Better college/career prep
21Source: Bridge Magazine; March 21, 2018; Ron French
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STATE AID SIMPLE MATH
1. Computation of FOUNDATION GRANT Per Pupil:
FOUNDATION GRANT (FY 2019) $7,871
STUDENTS 979.15
TOTAL FOUNDATION GRANT REVENUE $7,706,890
2. STATE AID REVENUE:
FOUNDATION GRANT $7,706,890
LOCAL MILLAGE @18 MILLS ON NON-HOMESTEADS ($1,375,128)
STATE AID FROM FOUNDATION GRANT $6,331,762
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Slide provided as a public service by Frederick
R. Ignatovich, Professor Emeritus Michigan
State University; 9/13/2017
Reporting
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Early Warning
Law
• Signed by governor July 1, 2015
• Provides option for ISD oversight of local district or PSA finances
• Budgetary assumptions must be reported by July 7 for any district without a positive fund balance of at least 5% for the two most recent school fiscal years
• Allows for withholding of certain payments
• Emergency manager appointment option by Treasury instead of State Superintendent
Early Warning Legislation MCL 380.1219Assessing Financial Health
1. Financial Practices (Uniform Budgeting and Actg Act, Bud Variance, Amendments)
2. Comparative staffing, wages, and benefit costs with other districts
3. School building student capacity utilization
4. Comparative non-instructional costs
5. Enrollment projection methods
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Early Warning Legislation MCL 380.1219Assessing Financial Health
6. Deferred maintenance and capital investment needs
7. Substitute costs, workers comp, unemployment, insurance
8. Pupil transportation costs / routing
9. Bargaining agreement costs current and future
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Monthly Board Report
Expenditure Budgets
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Budget Process OptionsUsed in Michigan
1. Rollover Budget
2. Modified Zero-Based Budgeting
3. Full Zero-Based Budgeting
4. GFOA Smarter School Spending
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Rollover Budgeting DISADVANTAGES
Minimal department or building input
Largely based on business office
perceptions
Buildings and departments not held accountable
Continues prior spending patterns that do not reflect
true needs
Can result in massive budget
variances at yearend
Budget not tied to strategic planning or
academic needs
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Zero Based Budgeting Definition –WSJ - CFO Journal December 21, 2018
The belt-tightening approach requires managers to start from a budget of zero, justify every expense, assess the benefits of spending patterns and rethink how to deploy resources to more swiftly achieve organizational priorities.
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Rollover Budgeting Definition –WSJ - CFO Journal December 21, 2018
The practice stands in contrast to traditional budgeting techniques that rely on historical spending patterns to determine future allocations, a tactic that can mask the true needs and spending of business segments, if not managed properly.
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ZBB Engages Entire Organization
Superintendent and Board of Education Support Required!
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Budget Development Process
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Levels ofCollaboration
Teachers and Building Support
Principals and Supervisors
Superintendent and Central Office
Board of Education and Community
Michigan Departments of Education / Treasury
Emergency Manager
Recommended Budget System
• Proactive, transparent, and collaborative budgeting
• User friendly data
• Cost centers
• Focus on monthly financial statements
• Budget development timeline
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Recommended Budget System
• Involve stakeholders
• Budget amounts must be annually justified
• Assess costs while weighing benefits
• Various levels of service are presented so final decisions can be made in reaching balanced budget 42
• Budget Development Goals:• Mission and Vision
• Goals
• Decision Making Parameters:• Personnel
• Professional Development
• Supplies
• Capital Outlay
• Financial Integrity
BUDGET DEVELOPMENT
GOALS AND DECISION-MAKING
PARAMETERS
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REQUIRED READING
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Why Do We Fight over Budgets?
• Focus on improving the process of budgeting in order to avoid or overcome push-back and technical barriers that typically stymie attempts to boldly shift resources.
• Historically, many school districts have equated improvement efforts with new funding.
• The term budget cutting implies doing less for students. The goal is to find ways to provide the same or more for students but at less expense.
Eight Lessons 1. Make change feel normal
2. Build a vision before building a budget
3. Engage and enlist principals
4. Take steps to minimize the pain
5. Win over supporters through joint fact finding
6. Make bold and comprehensive plans
7. Craft messages that resonate with stakeholders
8. Get the message out to all supporters and potential supporters
BUILD A VISION BEFORE BUILDING A BUDGET
To be sure, public engagement and strategic planning are important, but in a world of declining resources, the process must lead to prioritization, not proliferation, of needed changes driven by concise, unambiguous theory of action.
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CRAFT MESSAGES THAT RESONATE WITH STAKEHOLDERS - APPLICATION
Smarter School Spending
Best Practices in School District Budgeting
Why Forecast?
Long-term financial planning combines forecasting with strategizing. It is a highly collaborative process that considers future scenarios and helps governments navigate challenges. Long-term financial planning works best as a part of an overall strategic plan.
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Budget Forecasting
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In the words of a superintendent
Forecasting established a true sense of pattern of finance
Opened up avenues of dialogue with administration and the union
Gave confidence to our Board of Education
Created a tool that is more reliable when building budgets and making assumptions
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Reading and Understanding Audit Reports
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ABC HYPOTHETICAL SCHOOL DISTRICT
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What Should I Look For in My District Audit Report?
Material Weakness:A deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility of material misstatement in the entity’s financial statements that will not be prevented, or detected or corrected, on a timely basis.
Repeat uncorrected audit findings
Management letter, if any, recommendations
Single Audit Report findings
Working with your Board on Financial and Strategic Issues
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The Governance Clock
Source: MASB 58
Goals Are Set To:Achieve the district’s mission
and vision
Serve as the foundation for decisions of the board
Clarify and communicate district objectives
Establish board and staff performance expectations
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Types of Goals
District
◼ Strategic and give direction for the district
Board Goals
◼ Specific to board governance
Superintendent
◼ Performance expectations aligned to district goals
Site-Based Goals
◼ Align to district goals; address teaching and learning
School Improvement Plans
◼ Tactical; support district and site-based goals
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The process of determining what an organization wants to be at some point in
the future and how it will get there.
Board of Education Fiduciary Role
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Finding sources of funding other that general fund
“We are not doing our jobs if we are not seeking
facilities funding every 10 years”
Focus general fund on academics not facilities
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BOARD OF EDUCATION GOVERNANCE STANDARDS
Developed by school board members for school board members
https://miboardstandards.lpages.co/info/
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BOARD OF EDUCATION GOVERNANCE STANDARDS
Accountability
Commitment to Learning
Inclusivity
Stewardship
https://miboardstandards.lpages.co/info/65
INDIVIDUALBOARD MEMBER GOVERNANCE STANDARDS
Advocacy
Civility
Courage
Empathy
Inquiry
Integrity
Regard for Authority of the Board
Selflessness
https://miboardstandards.lpages.co/info/66
Organizational Sustainability
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New Cost Challenges Since Proposal A Passed
Technology spending demands
Health insurance rate increases and employee cost sharing
Pension rate increases and employee cost sharing
Primary Research Documents
• The New Financial Sustainability Framework: A How-To-Guide for Changing Governance to Sustain Your Community Without Breaking Your Piggy Bank (June 2017) – GFOA;http://www.gfoa.org/financial-sustainability-executive-summary
• Building Financially Resilient Government Through Long-Term Financial Planning – GFOA; http://www.gfoa.org/building-financially-resilient-government-through-long-term-financial-planning-0
GFOA Financial Sustainability Resource Center
(http://www.gfoa.org/financial-sustainability)
New Financial Sustainability Framework – Financial Headwinds
Pensions and health care
Infrastructure maintenance and renewal
Aging populationThe impact of technology
State and federal financial uncertainty
Framework based on reciprocity and cooperation, rather than competition
This framework brings a number of advantages to solving the financial challenges that bedevil local governments, because it:
• Makes financial sustainability everyone’s business
• Based on new, more accurate models of human behavior
• Evidence-based and practical
• Addresses complexity and transforms decisions.
Five Supports on Path to Financial Sustainability – Elinor Ostrom; GFOA
Long Term Vision
Trust and Open Communication
Collective Decision-Making
Set Rules
Treat People Fairly
http://www.gfoa.org/financial-sustainability
Long Term Sustainability
• Diversity: Avoid a single point of failure or reliance on a single solution.
• Redundancy: Have more than one path of escape.
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Long Term Sustainability
• Decentralization: Centralized systems look strong, but when they fail, the failure is catastrophic.
• Transparency: Don’t hide your systems. Transparency makes it easier to figure out where a problem may lie. Share your plans and preparations, and listen when people point out flaws.
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Long Term Sustainability
• Collaboration: Work together to become stronger.
• Fail Gracefully: Failure happens. Make sure a failure state won’t make things worse.
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Long Term Sustainability
• Flexibility: Be ready to change when plans aren’t working. Don’t count on stability.
• Foresight: You can’t predict the future, but you can hear its footsteps approaching. Think and prepare.
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Source: Building a Financially Resilient Government through Long-Term Financial Planning; The Government Finance Officers Association; Shayne Kavanaugh; Jamais Cascio, a fellow at the Institute for Ethics and Emerging Technologies
Sustainability
Essential Tenets for Sustainability
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1. Develop a Proactive Financial Leadership Team
2. Properly Staff and Train Business Services Employees
3. Define our Challenges
4. Establish Fiscal Sustainability Goals
5. Adopt Successful Governance Models
6. Install Best Business Practices for Finance and Operations
Preparing for School Leadership
Michigan School Business Officials - Leadership Institute
Michigan Leadership Institute – SUPES Academy
Michigan Association of School Administrators –Horizon Leadership Academy
Sources of Reference and Research
• MSBO website: http://www.msbo.org/
• MDE State Aid and School Finance: http://www.michigan.gov/mde/0,1607,7-140-6530_6605---,00.html
• CEPI Enrollment: https://cepi.state.mi.us/msds/AuditForm.aspx
• MDE / Administrators / Money Matters http://www.michigan.gov/mde/0,4615,7-140-5235_6093---,00.html
• Eidex: http://www.eidexinsights.com/
• Munetrix: www.munetrix.com
• Government Finance Officers Association: www.gfoa.org
• Hiring Solutions, LLC; www.hiringsolutionsllc.com
• Excel Consultant Group – Consulting on Food Service, Custodial, Facilities, Transportation – Email: [email protected]; (517) 627.5728
• Citizen Research Council - https://crcmich.org/
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Sources of Reference and Research
• School and Municipal Advisory Services, PC; Donald Sovey, CPA, CFO –[email protected];(517) 231-0563; Bond/millage communications; Budget process training; Business office staffing review and mentoring; CFO search service; Distressed/deficit district technical assistance; Fact finding research and testimony; Financial mentoring for newer; superintendents and school boards; Interim business official service; Long-range financial projection training
• A Better Way to Budget – Building Support for Bold, Student-Centered Change in Public Schools; Nathan Levenson; Harvard Education Press; Copyright 2015; Available on Amazon.com
• Government Finance Officers Association, Best Practices in School Budgeting; Copyright 2017; Available on GFOA.org
• Informed Decision-Making through Forecasting: A Practitioner's Guide to Governmental Revenue Analysis; Shayne Kavanagh and Daniel W. Williams; Government Finance Officers Association; Copyright 2016
• What Does the Most Good….and for Whom?: A Guide to Academic Return on Investment Analysis; The District Management Council, Copyright 2014
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