Where to begin? Extra-classroom activity funds (ECAF) are funds from an organization that are separate from a district but that also relies on the district to operate. In the past five years, school districts have felt the heat of audits of extra-classroom activities more and more, especially when extra-classroom activities (ECAs) were determined to be fiduciary activities of each district for purposes of accounting and reporting.
All districts look forward to receiving an unmodified opinion (or what is more known as a clean opinion) from their independent, external auditors. However, many district have been receiving a modified opinion from their independent, external auditors on their extra-classroom activity funds financial statement audit report. A modified opinion suggests that there was something that inhibited a district from receiving a clean audit opinion. This area is not only being scrutinized by a district’s external auditors; the State Comptroller’s Office has joined the party.
We understand the frustration you are feeling. ECAF is supposed to be outside of the control of the district and is the funds are a fraction of the incoming and outgoing funds being monitored by a district. And, that is why we are here. We are here to help you be more prepared an ensure the ECAF funds are being better controlled!
So, let’s begin.
Extra-classroom activities and funds – What are they?
Per Regulations of the Commissioner of Education, they are funds raised other than by taxation or through charges of a board of education, for, by or in the name of a school, student body or any subdivision thereof. The purpose of ECAs is for students to gain experience in good business procedures and cash handling, such as safeguarding the collection, deposit, and disbursement of money. Remember, for many students, this may be the only business training they receive in school!
Does the school district have an obligation?
Yes, your district sets the standards. Districts are responsible for:
- Determining acceptable purposes for extra-classroom activities and which grades can form which groups
- Establishing procedures for organizing extra-classroom activities
- Establishing resale inventory safeguard and accounting methods
- Determining how faculty advisors and student officers are chosen
- Publishing, annually, a list of approved extra-classroom activities
- Establishing other rules/procedures relating to the safeguarding, accounting, and auditing of extra-classroom activity funds.
In addition, the Regulations of the Commissioner of Education (Section 172) state that the Board of each school district having a population of less than one million shall make rules and regulations for:
1.) the conduct, operation, and maintenance of extraclassroom activities and
2.) for the safeguarding, accounting, and auditing of all moneys received and derived therefrom.
Often this is done through a general policy and then more description is offered either in the regulations to the respective district policy or in a standardized ECAF procedures manual.
Who can form a club?
These activities can only be formed for educational purposes. All extra-classroom activities must be approved by your district’s board of education and must have a charter to explain its purpose and goals. The charter should indicate whether the club will be collecting funds. It may be a good idea for boards of education to revisit and even revise the policy to restrict the amount of funds that can be handled by clubs as well as the number of clubs that are allowed to handle/raise funds.
Who are the key players in ECAs and what are their responsibilities?
Chief Faculty Counselor:
- Appointed by the board of education.
- Generally, the building principal.
- Responsible for:
- coordinating the financial planning of all projects of the various clubs in his or her building, approving or disapproving fundraisers, appointing and consulting with the faculty advisors for each club, and submitting to the Board for approval all new clubs initiated by the students.
- investigating all problems and disputes concerning the clubs under his or her jurisdiction and affect action that will enable these problems and disputes to be resolved.
Central Treasurer:
- Appointed by the board of education.
- Has custody of all funds, accounts for club activity, individually and combined, using a register of all the receipts and disbursements.
- It is considered good business practice for the board of education to require the central treasurers to be bonded for no less than the amount of the average cash balance of the fund.
- Has no part in the approval of payments but shall disburse funds only on the presentation of a properly signed payment order in duplicate so long as there are sufficient funds available in the account.
- Signs a receipt for all funds placed in his/her custody, and he/she shall deposit these funds promptly in a bank designated by the board of education.
Faculty Advisor:
- Appointed by the chief faculty counselor.
- Responsible for:
- guiding and advising the student officers in planning ECA and financial budgets.
- assisting and reviewing work performed by the student treasurer (i.e., the faculty advisor reviews and signs payment orders, deposit forms, profit and loss statements, etc.).
- ensuring the clubs maintain a ledger and adequate documentation of club activity.
- Each club is assigned a faculty advisor(s).
Student Treasurer:
- Elected by the student club members.
- The student treasurer is responsible for cash receipts and disbursements of the club.
- Each club should keep an individual ledger that is maintained by the student treasurer.
- The student treasurer is responsible for the custody of the cash received prior to depositing with the central treasurer, and for initiating payments using payment orders.
Faculty Auditor:
- The faculty auditor is responsible for reviewing documentation to ensure all financial transactions are supported with adequate evidence and periodically comparing the ledgers of the central treasurer and the club.
- A person distinct and separate from the duties of other rolls involved (i.e., with no part in the approval of payments, planning of income, or record-keeping) should be appointed as faculty auditor.
What if there is a club without a student treasurer?
The student treasurer is to be part of every ECA and is elected by student members of that ECA. It is important to evaluate whether an activity is an ECA or if it is in fact a co-curricular activity (i.e., activities that are not student-run). In addition, if your district is operating ECAs in grades below 6th grade, the district should review district policy and procedure to determine compliance as well as review those clubs currently handling funds to determine whether students are in a position to be able to take care of all of the responsibilities that such a club has, in accordance with Commissioner’s Regulations and Board policy, and in the spirit and intent of what an extra-classroom activity is.
What are some key things we look for?
Some of our key recommendations have included:
- Training. Training can be done internally, via a consultant, or even through the district’s internal auditors. Training should be done at least annually and is better served at the beginning of the new school year once faculty advisors have been appointed. We have even had some districts invite their student treasurers, too!
- Appointing a faculty auditor. Although not mandatory, the position is often recommended. Having a faculty auditor implements a reconciliation process that often gets lost between central treasurers and clubs. A faculty auditor can bear the responsibility of reviewing documentation to ensure all financial transactions are supported with adequate evidence, periodically comparing the ledgers of the central treasurer to the club records, and periodically reviewing monthly bank reconciliations.
- Pre-numbered deposit/receipt forms are required. If a mistake is made, the receipt should be voided and retained, and NOT destroyed or discarded.
- Ensure all deposit and disbursement forms are completed appropriately and contain all the appropriate signatures. A form with missing approvals or information should not be accepted. Central treasurers, make sure those deposit forms have adequate backup; clubs should be able to support where the funds derived from.
- Document fundraising activities at the club level. When a dance or other activity involving admissions is held, a Statement of Profit and Loss must be prepared. Also, implement a procedure whereby clubs must formally advise building principals of when they will be holding a fundraising activity on school premises.
- Ensure vendors are including sales tax in their invoices to clubs. Remember, ECAs are NOT sales tax exempt.
- Last but not least, don’t forget to share issues noted during audits of ECAF timely with central treasurers and faculty advisors to ensure the accuracy of the issue and to ensure steps will be taken to address any resulting recommendations.
Extra-classroom activities can be a very rewarding experience for students and staff when proper policies and procedures are implemented. Now that we are back in action this year after the pandemic, let’s get this area right. Work WITH your internal auditors to ensure that internal controls are being properly addressed.
Written by Nicholle Mezier, CPA, MBA. If you would like to learn more about this topic, please contact:
Shari Diamond, CIA
Partner
Shari has been with Cerini & Associates, LLP since 2008 where she works primarily with the firm’s school district clients providing internal audit and claims audit services. She has over twenty years’ experience performing internal audits, risk assessments, and compliance reviews, as well as recommending processes to strengthen the internal controls environment while increasing efficiencies. Her prior experience at PWC and Northrop Grumman included performing Information Technology audits.