FAQs—Charter Schools

Arizona Revised Statutes (A.R.S.) §§15-914 and 15-183(E)(6) require all charter schools to annually have either a financial and compliance (single) audit or financial statement audit. Charter schools sponsored by the Arizona State Board for Charter Schools must submit their audits to the Arizona State Board for Charter Schools. Other charter schools must submit their audits to the Arizona Auditor General. Additionally, A.R.S. §15-914, as amended by Laws 2021, Ch. 7, §3, requires all charter schools to send a paper or electronic copy of the applicable audit reports and compliance questionnaires to the Arizona Department of Education for posting on ADE’s website.

See USFRCS §VIII for specific audit requirements.

Yes, a charter school that is a part of a larger organization may have a separate audit of the charter school. Statute requires all charter schools to have an annual audit. If a charter school is part of a larger entity, it may be included in the audit of the entire entity, or it may be audited separately. See USFRCS §VIII for specific audit requirements.

Based on the university- and community-college-sponsored school’s audit contract or engagement letter, the charter school’s audit firm should submit the audit reports and Legal Compliance Questionnaire to our Office within 9 months after fiscal year-end or 30 days after the reports are issued, whichever is sooner. See USFRCS §VIII, Audit Requirements, for specific requirements.

Based on A.R.S. §15-914, as amended by Laws 2021, Ch. 7, §3, charter school governing bodies must publicly accept all audits and compliance questionnaires by roll call vote. The charter school’s management should provide members of the governing body access to audit reports and the compliance questionnaire as part of submitting the charter’s audit for governing body acceptance.

Yes. In accordance with Arizona Revised Statutes (A.R.S.) §§15-914(E) and 41-1279.21(A)(4), our Office must review and approve all proposed audit contracts and contract amendments for university- and community-college-sponsored charter schools before the audit work starts. Our Office prefers that proposed audit contracts be submitted by email to asd@azauditor.gov.

No. The Arizona State Board for Charter Schools (ASBCS) provides oversight for ASBCS-sponsored schools. See their website for further guidance.

A university- or community-college-sponsored school can choose to use an engagement letter rather than prepare a contract. Audit contracts or engagement letters must include or address the following: type of audit to be performed, fiscal year(s) being audited, report submission date(s), completion of the appropriate compliance questionnaire, cost(s), appropriate retention of records and access to documents (including availability of those records to the Arizona Auditor General and the Arizona Department of Education), and language that the Arizona Auditor General must approve changes in work prior to the performance of work.

Whether a school contracts for a 1-year audit with the option to renew or a multiyear audit without an option to renew, the cost for each year should be clearly specified in the original contract.

Changes to the scope, character, or complexity of the audit work may be negotiated if it is mutually agreed by the audit firm and school that changes of this nature are desirable and necessary. Such proposed amendments must be authorized in writing by the school and approved by the Arizona Auditor General before any audit work begins.

Our Office prefers that proposed audit contracts or draft engagement letters be submitted by email to asd@azauditor.gov.

If a university- or community-college-sponsored school chooses to exercise a renewal option in an existing contract, the school should notify the audit firm that the school will be renewing the audit contract. The renewal should be made by written notification (letter or email) addressed to the audit firm and include the type of audit to be performed, the year(s) being renewed, and the price(s) as stated in the audit firm’s original proposal. A copy of the renewal notification must be submitted to our Office before any audit work begins. Schools subject to the School District Procurement Rules may contract with an audit firm for up to 5 years, unless the governing board determines in writing that a contract of longer duration would be advantageous to the school. 

If a school has a multiyear contract without an option-to-renew provision that our Office has already approved, no additional action is needed.

Capital Assets

The E-rate equipment disposal policy does not allow equipment purchased with E-rate monies to be sold or resold. Equipment may be transferred to another E-rate-eligible entity if 3 years have passed since the purchase as long as there is no exchange of money or anything of value. If a transfer is not an option and the equipment to be disposed of is determined to be obsolete, the school must destroy the equipment and retain documentation of the equipment's obsolescence.

Chart of Accounts

Amounts received from federal or State sources that will require reversion if not spent should be recorded as cash and unearned revenues upon receipt, and later recognized as revenue simultaneously with the recognition of the expense. Upon the actual reversion of any unexpended portion of these monies, schools should reverse the initial entry for the amount reverted. (Alternatively, schools may choose to record such grants as revenues upon receipt, then at year-end reclassify the unspent portion from revenue to unearned revenue.) When interest in excess of $100 per grant is received, the excess portion should be recorded as a liability. The liability should be reversed when interest in excess of $100 is reverted.

The following journal entries illustrate the above transactions:

Object Description Debit Credit
0102 Cash in Bank 10,000  

0250

Unearned Revenues

  10,000
 

(federal grant monies received)

   
6XXX Expense 9,000  

0102

Cash in Bank

  9,000
0250 Unearned Revenues 9,000  

4X00

Revenue From Federal Sources

  9,000
 

(federal grant monies expended)

   
0250 Unearned Revenues 1,000  

0102

Cash in Bank

  1,000
 

(federal grant monies reverted)

   
0102 Cash in Bank 300  

0215

Due to Federal Government

  200

1500

Earnings on Investments

  100
 

(interest revenue received)

   
0215 Due to Federal Government 200  

0102

Cash in Bank

  200
 

(excess interest revenue reverted)

   

 

Computer software could be recorded as a capital asset or as an expense depending on whether the software meets the capitalization threshold for charter schools. Schools should capitalize computer software that costs $5,000 or more and has a useful life of 1 year or more.

If the school records the software as a capital asset, it should use balance sheet object code 0196—Equipment.

If the school records the software as an expense, the following expense object codes should be used:

  • Instructional software [physical or box copy, annual license fee, fee for updates/upgrades, or online access (software as a service)] payments should be coded to object code 6642—Textbooks if used in a course of study's basic program, or 6643—Instructional Aids if used to supplement the school's adopted program.
  • Noninstructional software [physical or box copy, annual license fee, fee for updates/upgrades, or online access (software as a service)] payments should be coded to object code 6650—Supplies—Technology-Related.
  • If the software purchase includes technical support and a separate cost is identified, it should be coded to object code 6300—Purchased Professional and Technical Services.

The above guidance for charter schools does not apply to school districts. Because charter schools and school districts use different accounting principles (private enterprise vs. governmental), purchases of capital assets are recorded differently. See School District Chart of Accounts FAQ #5 for guidance applicable to school districts.

Monthly internet access charges should be coded to object code 6530―Communications.

Object code 3200—Restricted Revenue from State Sources should be used to record all CSP and IIP monies received from the State. Interest earned on CSP and IIP monies should be coded to object code 1500—Earnings on Investments.

Instructional staff training and professional development costs for instruction-focused technology personnel should be coded to function 2200—Support Services—Instruction. Noninstructional personnel training expenses should be coded to function 2500—Central Services. Employee training charges paid to outside parties should be coded to object code 6300—Purchased Professional and Technical Services.

Schools should code registration fees to object code 6300—Purchased Professional and Technical Services. Schools should not code these fees to object code 6580—Travel, which includes only the costs of transportation, meals, lodging, and other expenses associated with traveling on business for the school. See the USFRCS Chart of Accounts for further details.

If a single amount is paid for a conference that includes registration fees and any lodging or meals, reasonable effort should be made to separate the costs for travel from the conference registration fees. If separation is not practical, the full amount should be coded to the area that represents the largest portion of the expenditure.

"Teaching coaches" assist instructional staff in planning, developing, and evaluating the process of providing learning experiences for students and should be coded to function 2200—Support Services—Instruction. If the teaching coach's responsibilities also includes actual student instruction, then their salary should be split accordingly between function code 2200 and function code 1000—Instruction.

If a school purchases fuel for school vehicles (other than student transportation vehicles), it should be coded to function code 2600—Operation and Maintenance of Plant. For purchases of fuel for student transportation vehicles (buses and vans), it should be coded to function code 2700—Student Transportation.

No. Only costs directly related to instructing students should be coded to function 1000—Instruction, such as coaches and referees. Other costs associated with athletics should be coded to individual function codes appropriate for the job. For example, since the bookstore processes gate receipts, employees taking and selling tickets at athletic events should be coded to function 3400—Bookstore Operations. Security guards at games and athletic equipment managers should be coded to function 2600—Operation and Maintenance of Plant.

The coding for student travel-related expenses (transportation, lodging and meals, and admission costs) are described below. Object code 6580—Travel should only be used when school employees travel. 

Transportation
Function 2700—Student Transportation should be used for student travel, which includes trips to and from school and trips to school activities. The following object codes would be used to record transportation depending on the situation: 6154—Noncertified Salaries (employees driving school vehicle/bus), 6626—Gasoline (gasoline purchased), 6440—Rentals (rent a bus for an employee to drive), or 6519—Student Transportation Purchased from Other Sources (payments to other entities). 

Lodging and Meals
Function 2100—Support Services—Students and object code 6890—Miscellaneous Expenses should be used for student lodging and meals. 

Admission Costs
Function 1000—Instruction and object code 6890—Miscellaneous Expenses should be used when the activity requires a fee and involves direct interaction between teachers and students, including athletics.

We have confirmed with the Office of English Language Acquisition Services at ADE the titles they have assigned for Structured English Immersion (SEI) and Compensatory Instruction (CI) monies. Schools should use Project 1071 for SEI Budget and Project 1072 for CI-English Language Development.

Yes. Click here for a 7 minute web presentation on commonly asked questions related to the executive administration and heads of components function codes. If you would like a copy of the slides used in the web presentation, click here.

Functions 1000—Instruction and 2400—Support Services—School Administration should be used to report the salaries and benefits applicable to the separate responsibilities of instruction and chairing a department. Normally, the allocation of salary and benefit costs between functions is done proportionally based on the time spent performing the various duties. However, when a specific stipend is provided for added responsibilities, simply classifying that stipend in the correct function is a reasonable alternative. If a separate stipend is not provided and the teacher’s instructional responsibilities are not reduced related to the added responsibilities, proration between functions may not be practical. In that case, the full salary and benefit costs for the teacher/department chair should be coded to function code 1000.

Classroom Site Project (CSP)

CSP monies cannot be used to supplant existing school site funding and may be used for only the following purposes1 (A.R.S. §15-977):

  • Class size reduction–Schoolwide Project expenses that are designed to reduce the pupil to teacher ratio, including employees who serve as aides to teachers.*
  • Teacher compensation–Including a base pay and performance pay component.
  • Assessment intervention programs–Before school, after school, summer, and tutoring programs that are specifically designed to ensure that pupils meet the State academic standards prescribed by A.R.S. §15-741.*
  • Teacher development.
  • Dropout prevention programs.*
  • Teacher liability insurance premiums.
  • Student support services–Expenses correctly classified in the function code 2100—Support Services—Students range.

* Eligible expenses must be correctly classified in function code 1000—Instruction, including 1900, but cannot be used for school-sponsored athletics. 

CSP monies may be used for the same purposes as many other charter monies, including those in Schoolwide Project and federal and State grant projects. Therefore, to prevent supplanting when budgeting CSP expenses, charters should analyze prior year spending and continue to support their operations with non-CSP monies at or above the same level as prior years. For example, a charter generally cannot decrease teacher salaries paid from non-CSP monies while increasing the amount paid from CSP monies. However, if a particular non-CSP revenue used in prior years is no longer available to the charter, the charter may be faced with eliminating a position. In this case, using CSP monies to pay the teacher’s salary may qualify as class size reduction.

Charters that add teacher positions due to student population growth, without reducing the student-to-teacher ratio, should use non-CSP monies to support those positions at a similar level rather than using CSP monies for the full teacher salary to avoid supplanting.

Every charter has unique circumstances and should determine and document that CSP monies are not being used to supplant non-CSP monies. Charters should retain detailed payroll records and salary schedules for employees, and expense records for any programs that may be funded with CSP monies in the future to support that CSP expenses have not supplanted non-CSP spending. The following example situations may appear like supplanting:

  • A charter used CSP monies to fund additional teacher positions as class size reduction, but the student to teacher ratio did not decrease from the prior year.
  • A charter increased CSP monies used for a teacher’s salary, but the teacher’s total salary did not increase.
  • A charter used CSP monies for assessment intervention or dropout prevention programs, but non-CSP spending for these programs, in the aggregate or per student, decreased from prior years.
  • A charter experiencing growth in student population and a corresponding increase in non-CSP revenues used CSP monies for teacher salaries and allowable programs, but the charter’s non-CSP spending for teacher salaries and the same programs did not increase.
  • A charter used CSP monies to pay for a portion of a school psychologist’s salary that had been paid with non-CSP monies in the prior year (i.e., the psychologist’s total salary did not increase).
  • A charter used CSP monies to add a guidance counselor position to a school while decreasing Schoolwide Project spending for other guidance service costs.

Extracurricular activities fees tax credit

Guidance on the appropriate use of extracurricular activities fees tax credit monies is available on the Arizona Department of Revenue's website under Public School Tax Credit in 707 Publications: School Tax Credit Information. 

Schools may account for extracurricular activities fees tax credit monies in the Schoolwide Project or establish a separate project titled "Extracurricular Activities Fees Tax Credit" numbered in the 1500-1599 Other Special Projects series as outlined in the USFRCS Chart of Accounts. Schools may deposit extracurricular activities fees tax credit monies in either the General bank account or the Auxiliary Operations bank account. 

Regardless of what project and account a school chooses to account for tax credit monies, the school must maintain detailed accounting records to ensure that tax credit monies are used only for allowable expenditures and in support of both the school and purpose designated by the taxpayer. If schools receive contributions that are not designated for a specific purpose, the school's site council must determine how the contributions should be used at the school site. If a school does not have a site council, the school's principal, director, or chief administrator must determine how the contributions that are not designated for a specific purpose are used at the school site.

No. USFRCS page §VI-C-1 includes the types of authorized bank accounts that schools may establish. Schools may deposit extracurricular activities fees tax credit monies in either the General bank account or the Auxiliary Operations bank account.

Miscellaneous

Yes. Schools may refund the unused portion of prepaid meals by check from the Food Service revolving bank account or, if necessary, from daily cash receipts. For refunds made from daily cash receipts, a Meal Card or Ticket Refund Slip should be completed in duplicate for each refund and signed by the parent or student, preparer, and cafeteria manager. The total amount of refunds should be recorded on the Daily Cash Reconciliation Report, and returned meal cards should be voided, attached to the original refund slip, and retained with the Daily Cash Reconciliation Report. See USFRCS §X-A for sample forms.

Yes, the Arizona Attorney General’s Arizona Agency Handbook (handbook), which is linked below, includes Section 6—Public Records. The Handbook provides guidance on public records law and confidential records, and addresses the difference between commercial and noncommercial public records requests. Charter schools should consult with their legal counsel as needed in addition to reviewing these resources to ensure compliance with public records request requirements.

https://www.azag.gov/agency-handbook

Payroll

College tuition reimbursements should be paid through the payroll system and coded to object code 6240—Tuition Reimbursement. Tuition reimbursement is typically a non-taxable fringe benefit; however, schools should review IRS Publication 15-B for more information on taxable and non-taxable fringe benefits, and the limitations on those benefits

Procurement

Yes, statute requires charter schools to follow the School District Procurement Rules unless specifically exempted by its sponsor in its charter agreement. Charter schools are subject to the procurement threshold set by A.R.S. §41-2535.

Schools should obtain written quotes from at least 3 vendors for purchases costing at least $10,000 and less than $100,000. Refer to USFRCS pages VI-G-6 and 7 for detailed requirements.

The current thresholds for written quotes and competitive sealed bidding are included in USFRCS §VI-G.

The School District Procurement Rules (Rules) are available on the Arizona Secretary of State's website. The Rules are in Title 7 Education, Ch. 2 State Board of Education, Articles 10 and 11 School District Procurement.

School District Procurement Rule R7-2-1018 addresses the use of reverse auctions and R7-2-1021(B) addresses the use of electronic, online bidding.

Yes. The School District Procurement Rules and the requirements in the USFRCS apply to all expenditures of public money, including federal grant monies such as E rate monies, made by nonexempt charter schools. Additionally, when expending federal grant monies, schools must comply with the individual grant agreements. School District Procurement Rules R7-2-1002(A).

School District Procurement Rules R7-2-1031 and R7-2-1050 address the use of multiple awards.

Yes. Whether administering or purchasing from a cooperative purchasing agreement, nonexempt charter schools are responsible for ensuring that procurements are done in accordance with School District Procurement Rules. Charter schools must use their judgment in determining the appropriate amount and complexity of due diligence required for each procuring entity with which they participate. A.R.S. §15-213(F) requires nonexempt charter schools and school purchasing cooperatives, in connection with any audit conducted by a certified public accountant, to have a systematic review of purchasing practices. Our Office has prescribed guidelines for performing these reviews as part of the Procurement Compliance Questionnaire. In addition, our Office has provided testing guidelines relating to procurement to the State Board for Charter Schools for incorporation into the Board's compliance questionnaire. A cooperative or lead school/district (entity) that has had such a review within the past year and made the results of the review available may not warrant the same amount or complexity of due diligence as an entity that has not undergone a review or for which the results are unavailable. For example, if an entity had no findings as a result of its review, schools may need to do little or no additional due diligence beyond obtaining a copy of the compliance questionnaire as documentation for the results of the review. However, an entity that did not have a review or had a review with significant findings would require a greater amount and complexity of due diligence. Schools should also consider any other information available on the entity's procurement practices.

Schools may, but are not required to, perform due diligence for every contract procured through cooperative purchasing. If an entity had no findings as a result of the review discussed above, schools may not need to review a particular contract except to ensure that the specific good or service to be purchased from the vendor is part of that contract. For an entity where more due diligence is required, it may be adequate to perform due diligence on a sample of contracts procured by the entity if that sample provides reasonable assurance that the entity's procurement practices comply with the School District Procurement Rules. To perform due diligence, schools may want to consider using the procurement questions in the compliance questionnaires as a guide in reviewing cooperative purchases.

For audit purposes, schools should retain documentation of the due diligence performed and its results. USFRCS page VI-G-1 and School District Procurement Rules R7-2-1191(D).

Due diligence, at a minimum, should include verification that the cooperative contract was awarded through a competitive process. Schools should review the cooperative’s procurement compliance questionnaire (PQ), if available. If a PQ is not available, a school should review a sample of cooperative contract documents, including:

• Bidder’s list.

• Solicitation, including evaluation factors.

• Multiple offers received.

• Vendor pricing lists.

• Bid evaluations and offer evaluation sheets.

• Basis for cooperative contract award with established evaluation factors.

• Cost analysis to determine price is fair and reasonable.

• Review of cooperative contract terms and conditions.

 

If deficiencies are noted based the review of the PQ or the contact documents, schools should evaluate the frequency and severity of those deficiencies to determine if they can rely on that contract or take additional steps to remedy the deficiency and use the contract.

Student activities

No. The student activities treasurer and assistant treasurer must be school employees. In accordance with the USFRCS page X-C-2.1, a school's governing board must appoint an employee as student activities treasurer. In the case of multiple school sites, the governing board may designate an assistant student activities treasurer for each school. The assistant treasurer must also be a school employee.

No. School District Procurement Rule R7-2-1002(D) exempts purchases made with student activities monies from procurement requirements, unless school monies are involved for nonexempt schools. To maximize purchasing power, it is recommended that student clubs follow the purchasing guidelines in USFRCS §VI-G, Disbursements, for obtaining oral/written quotations for student activities disbursements below the amount required for sealed bids; however, the student clubs are not required to do so.

Travel

No. Charter school governing boards may prescribe amounts for reimbursing mileage, lodging, and meals and incidental (meals) expenses incurred for school purposes different from those ADOA established. However, reimbursement amounts should generally not exceed the maximum amounts ADOA established because the reimbursement rates follow the Internal Revenue Service (IRS) limits outlined on the U.S. General Services Administration (GSA) website at www.gsa.gov/perdiem. One exception is the ADOA mileage reimbursement rate, which is currently less than the IRS standard rate. If the school chooses to reimburse lodging, meals, and mileage expenses in excess of the IRS limits, the school will be required to include amounts in excess of the IRS limits in the employee’s income on Form W-2. Schools may refer to USFRCS §VI-I for a brief discussion of travel reimbursement policies and procedures.

The travel policy and current reimbursement rates for mileage, lodging, and meals are available through the ADOA website as part of the State of Arizona Accounting Manual (SAAM) Travel Policy (Topic 50, Section 95). Lodging rates are exclusive of taxes; therefore, schools may reimburse employees for actual expenses up to the maximum lodging reimbursement rates plus any applicable taxes. Meal reimbursements include the actual amount spent for a meal, not to exceed the maximum meal reimbursement amounts.

To obtain the lodging and meal reimbursement rates for Alaska, Hawaii, and out-of-country locations, contact the General Accounting Office of ADOA at (602) 542-1750, or visit the US General Services Administration at https://www.gsa.gov/travel/plan-book/per-diem-rates/ for the appropriate location. If using this method, print a copy to include with the travel claim as support for the rate used.

Yes. The IRS requires employees to be traveling “away from home” in order to exclude reimbursements from their income. The phrase “away from home” means to require someone to travel overnight or long enough to require substantial “sleep or rest” (further defined by IRS regulations). As a result, all meal reimbursements for travel with no overnight stay must be reported as a taxable employee benefit. For travel with an overnight stay, meal reimbursements for the day of and the day after the actual overnight stay should be excluded from income.

Schools should process all employee travel reimbursements through their payroll department. Schools should use object code 6290─Other Employee Benefits to record taxable meal reimbursements for employee travel without an overnight stay or substantial rest period. For travel expenses that are not taxable to the employee (meal reimbursements with an overnight stay or substantial rest period, and mileage and lodging reimbursements), schools should use object code 6580—Travel.

When an employee receives meal reimbursements for travel without an overnight stay or substantial rest period, the district should withhold social security, Medicare, and federal and State income taxes from the taxable meal reimbursement. State retirement and long-term disability should not be withheld from taxable meal reimbursements.

For a charter school governing board member to be considered in travel status, the member must be 50 miles away from his or her home. If the board member does not stay overnight or have a substantial rest period, meal reimbursements would be taxable, and the board member should receive a W-2 at the end of the calendar year for such reimbursements. Under IRS regulations, the board member would be considered a school employee for purposes of the taxable meal reimbursements and would be required to complete the following payroll documents outlined on USFRCS pages VI-H-2 through 3: employment eligibility verification (Form I-9), and employee federal and State withholding allowance certificates (W-4 and A-4).

Yes. Each school’s governing board may establish travel policies and reimbursement amounts to allow this reimbursement method provided the reimbursement per person does not exceed the allowable amount per person at the single room rate plus tax.

Although the lodging reimbursement rate generally may not exceed the listed maximum, an exception may be made for conference lodging. Conference-designated lodging includes lodging at the hotel at which the conference is being held or other hotels listed in the conference brochure. Accommodations at alternate hotels in the immediate vicinity of the conference may be considered as conference-designated lodging when no vacancies exist at the hotels listed in the conference brochure. However, reimbursement for lodging should not exceed the conference hotel’s least expensive single-room rate plus taxes. A copy of the conference brochure must be submitted with the travel claim to support the excess reimbursement.