Healthy financial management habits for school districts should include mindfully managing expenditures, and keep the budget aligned with the district’s strategic plan. However, for many districts, managing spending throughout the year is a stressful and arduous task. How can a district successfully manage expenditures? Read on for best practices our districts have implemented to manage their budgets throughout the year successfully.
Monitor Spending Against Historical Pace
Effective budget monitoring extends beyond ensuring an adequate available balance before making a purchase or requisition request. One of the most effective practices for avoiding surprise shortfalls is analyzing the historical percent of budget spent in an account. For many accounts, such as personnel expenditures, the rate of spending throughout the year should be relatively flat. In well-budgeted personnel expenditure accounts, each month should represent approximately 1/12 of the total annual expenditures, since staffing levels are less likely to fluctuate throughout the year, and most district staff are paid over 12 months. But for other accounts related to supplies and materials, utilities, or professional development, spending is often seasonal.
Review your accounts thoroughly to uncover any seasonal or cyclical trends that may be discernable and note their effect on your overall budget. Identify the straightforward trends before finding more challenging ones. Perhaps you’ll notice higher heating bills throughout the winter months and larger electricity bills in air-conditioned schools during the summer. Or, professional development costs that may be higher before the start of the school year, and decrease dramatically as the school year progresses. Monitor these trends carefully.
If you notice that some accounts are spending faster than their historical pace, conduct a thorough audit of the transactions and activity in the account to uncover any potential discrepancies. Consider how the current expenditures compare against the budget’s planned expenses. It’s possible that large, anticipated payments have already been made and there is no cause for concern. But if a large number of unexpected expenses are recorded, or many expenditures came in at higher than expected costs, you will need to make adjustments.
Minimize Potential Account Deficits
By analyzing the pace of spending, districts can proactively identify accounts that are at risk of falling into deficit. To properly address at-risk accounts with higher than usual spending paces, some districts have decided to forgo activities previously budgeted for that have not yet occurred. Conducting mid-year budget reviews is an effective method to minimize overspending and potential deficit accounts. Implementing a mid-year budget review helps budget owners identify at-risk accounts and thoroughly review budget plans alongside detailed expense plans to reconcile with actual purchases.
A less obvious cause for concern is underspending. Conservative budget managers may be fearful of using funds early in the school year to ensure unexpected expenses won’t create deficits later. Unfortunately, this method has potential drawbacks.
Often, many districts are forced to return grant money that is not expended by its expiration date. Poor communication of spending deadlines and slow procurement processes can make it seemingly impossible to spend down strategically well before a grant deadline. Underspent dollars can lead to misaligned budgets. Because most districts rely on the previous year’s budget as a starting point for future budgets, failing to review chronically underspent accounts can impede the budget’s ability to leverage all dollars allotted to maximize student outcomes.
Additionally, forecasting cash position and future budget needs become problematic when most spending is happening late in the school year, well after next year’s budget is established. When a sizeable available balance accumulates near the end of the school year, districts may be inclined to spend down accounts hastily. So while it’s relatively common to hear about teachers who have to spend their own money for necessary classroom supplies, many of our districts have also expressed that there are often supply closets brimming with unused, outdated, and unnecessary materials acquired in an end-of-year purchasing surge.
Conducting routine budget reviews and ensuring adequate capacity for planning and procurement can minimize instances of underspending, which in the long-term can represent lost opportunities, specific benefits, and unredeemed jobs.
Build a Process
Too often, school districts devote too little resources towards managing spending compared to building the budget. The effort and resources spent creating a budget are meaningless if it is not implemented with fidelity. Districts successful at managing expenditures have found that providing district leaders who are best adept to make programmatic decisions for students, the ability to track the pace of spending in their accounts dramatically reduces the risk of over or underspending. Equipping budget owners with the autonomy to identify and adjust expenditure concerns early and often can have a positive effect on the health of the budget overall, and the outcomes for students.
About the Author
Jason Becker is Allovue’s Chief Product Officer. He leads the data analysis, customer integrations, product requirements, and user experience and design. Jason’s team also determines what improvements and additions to existing products can be made, while spearheading the innovation of new products. During his time at the Rhode Island State Department of Education, he developed and supported a new state education funding formula, assisting with the proposed funding formula’s transition plan and providing data analysis on financing education reform.