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 through ShareFile. If you have any questions or need to register for a ShareFile account, please contact us at 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, audit start and end dates, report submission date(s), completion of the appropriate compliance questionnaire, audit cost(s) (identified separately from other nonaudit costs, if applicable), appropriate retention of records and access to documents (including availability of those records to the Arizona Auditor General, the Arizona Department of Education, the United States Government Accountability Office, and other appropriate governmental agencies), 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 requires that proposed audit contracts or draft engagement letters be submitted through ShareFile. If you have any questions or need to register for a ShareFile account, please contact us at 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
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.
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)
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.
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).
Project balance reserve reporting
A charter school’s project balance consists of unused revenues from previous or current fiscal year(s) that can be used in future years. A charter school’s reserve is the specific amount of its project balance that it is maintaining for either specific purposes or as a contingency for risks such as revenue shortfalls, emergencies, and/or other unforeseen circumstances.
While it is not required, it is a recommended best practice that all charter schools have a governing board-approved project balance reserve policy to provide transparency and accountability to decision-makers, stakeholders, and the public. However, even an informal process is a beneficial tool for a charter to use in budgeting and financial decision-making processes.
Each charter will need to analyze its own circumstances and risks to determine the appropriate amount of project balance reserve to maintain. It is recommended that charter schools describe the specific risks and circumstances considered in their project balance reserve processes or policies.
The National Council of Nonprofits is one of the nation’s largest sector-wide networks of nonprofit organizations and has been established for more than 30 years. The Council published Operating Reserves for Nonprofits, guidance that includes basic considerations charters may consider when establishing reserve policies. The guidance also includes links to more detailed tool kits and examples that charters may consider reviewing when establishing their own policies or processes.
Additionally, the Government Finance Officers Association (GFOA), an association of over 20,000 public finance officials whose mission is to advance excellence in public finance, published Fund Balance Guidelines for the General Fund. While the GFOA’s guidance and resources will include some topics that don’t apply to charters such as fund balance categories, they include concepts that charters can consider when establishing project balance reserve policies. Additionally, the GFOA has published the following resources charters may consider reviewing when establishing their own policies or processes:
- General Fund Reserve Calculation Worksheet—This is a detailed worksheet that walks through many different circumstances to consider when developing a reserve policy, such as extreme events, revenue stability, expenditure volatility, growth, and capital projects.
- Example government financial reserve policies —These are reserve policies submitted to GFOA by various local governments around the country. GFOA has not reviewed the policies for consistency with their best practice guidance.
- Should we rethink reserves?—A paper that describes new opportunities for local governments to get the best value from their reserve strategies.
A project balance reserve policy or process is meant to guide a charter school in its financial decision making. Charter schools should evaluate their project balances annually. If their established targeted reserve levels are not met (exceeded or falls short), charter schools should evaluate what that means for their circumstances and whether their process/policy needs changes, and develop planned actions, accordingly.
The AFR project balance reserve tab, section A, presents details to clarify how a charter school plans to use project balances remaining at the end of a fiscal year. Section B provides information on the process or policy a charter uses to establish targeted (goal) project balance reserves. A charter school may choose not to include certain projects in those policies for targeted project balances. For example, a charter school may choose to not include a bond proceeds or debt service project in its project balance reserve policy since those funds have dedicated revenue sources and uses.
Yes, charter schools will be required to complete section B of the project balance reserve tab in the FY 2024 AFR to describe any project balance reserve processes or policies it currently has.
Yes, while our Special report on school districts’ and charter schools’ COVID-19 relief spending highlighted a need for the project balance reserve reporting, it provides charter school decision-makers, stakeholders, and the public, more complete financial information that will still be needed when COVID-19 relief monies are no longer available.
We are collecting information and feedback on what changes will be necessary to allow charter schools operated under a CMO to report their project balance reserve information.
We have made a recording of 1 of the virtual meetings available here. A PDF version of the PowerPoint slides presented in the virtual meetings is available here. The draft project balance reserve tab in FY 2025 budget is available here.
Yes, please send any feedback or suggested changes to asd@azauditor.gov. Information related to the FY 2025 budget forms must be submitted no later than Monday, April 8, 2024. Information related to the FY 2024 AFR must be submitted no later than Tuesday, April 30, 2024.
The final project balance tab is included in the FY 2025 budget forms. This final project balance reserves tab will be included in the FY 2024 AFR when available.
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.