Historically, little attention has been given to accounting for activity
funds in school districts. The nature of activity funds, however,
makes them especially vulnerable to error, misuse, and fraud. In addition,
activity funds often total to large sums of money, especially when
capturing the amounts that flow through an educational organization
in the form of school board funds, student-generated funds, receipts
and disbursements related to athletics, and the myriad co-curricular
and extracurricular events sponsored by school districts today. As
a result, this revision of this handbook recommends policies and procedures1
for improving controls over these funds and promotes
capturing all student activity-related monies in the district's financial
records. Please note, however, that the guidelines in this chapter
are minimum controls on which local school districts may expand. In
addition, these guidelines are not generally viewed as mandated in
any jurisdiction, so each state may have imposed greater or lesser
controls than are suggested here.2
This chapter takes a total systems view that
- defines and distinguishes types of activity funds and proper
- delineates controls for establishing and maintaining activity
- provides initial guidance on accounting for and reporting of
activity funds, including new requirements emanating from GASB
Statement No. 34; and
- recommends policies and procedures based on current best practices
for operating activity funds.
Activity funds are established to direct and account for monies
used to support co-curricular and extra-curricular student activities.
As a general rule, co-curricular activities are any kinds of school-related
activities outside the regular classroom that directly add value
to the formal or stated curriculum. Co-curricular activities involve
a wide range of student clubs and organizations. Extra-curricular
activities encompass a wide variety of other district-directed activities,
typified by organized sports and other non-academic interscholastic
competitions. The accounting structure should take into consideration
that individual states may have their own classifications for co-
and extra-curricular activities. For example, some states might
choose to classify music and drama events, academic competitions
such as debate, and so forth as co-curricular, whereas other states
might classify these activities as extra-curricular. In either case,
a system of classification for purposes of program cost accumulation
and reporting is necessary.
Activity funds are unique to school districts. Two classifications
are commonly recognized: Student activity funds, which belong
to the students and are used to support student organizations and
clubs, and District activity funds, which belong to the school
district and are used to support district programs. The distinction
is based on the purpose of the funds, that is, the programs supported
by the funds. The test rests in the definitions of each:
Although individual state laws may specify the accounting treatment
for activity funds, distinguishing them in accordance with the definitions
above suggests that student activity funds are fiduciary in nature
whereas district activity funds represent district resources. Therefore,
it is recommended that student activity funds be classified as agency
(fiduciary) funds and district activity funds be classified as special
revenue funds. Student activity funds remain under the control
of the school principal and are accounted for at the school site.
District activity funds, in contrast, should be included with all
other district funds and deposited in the district's accounts. Again,
these recommended fund classifications are appropriate within the
definitions provided; individual state laws may dictate the use of
other types of funds.
- Student activity funds support activities that
are based in student organizations. Students not only participate
in the activities of the organization, but also are involved in
managing and directing the organization's activities. An important
distinction is that disbursing monies from the student activity
fund may be subject to approval by the student organization and
its sponsor, rather than by the board of education (see table
13 for examples).
|Table 13. Examples
of Authorized Student Activity Funds
||Foreign Language Club
|Class of 2xxx
||National Honor Society
|Class of 2xxx
|Class of 2xxx
- District activity funds belong to the district,
are used to support its co-curricular and extra-curricular activities,
and are administered by the school district. Approval for disbursing
district activity fund monies, however, rests only with the school
board. In other words, the district determines how district activity
fund monies are spent and the district programs that receive support
(see table 14).
|Table 14. Examples
of Authorized District Activity Funds
||Special Field Trips
Although a sharp distinction exists
between student and district activity funds, accounting for all
activity funds is the responsibility of the school district. All
activity funds must be reported in the school district's financial
statements and are subject to the district's audit(s).
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The dispersed nature of student activity funds and the multiple
site collections for some district activity fund revenues dictate
a need for orderly controls on all activity funds. These controls
include establishing lines of authority and a set of policies to
guide the operation of all activity funds.
Lines of Authority
Proper control begins with the appropriate recognition of lines
of authority over all monies handled by the district. The local
board of education should adopt a set of guidelines and regulations
that includes the following minimum requirements (see figure 1):
- Board of Education. The board of education should
adopt policies to govern the establishment and operation of all
activity funds. The district's auditors should review these policies
for sound accounting and reporting principles.
- Superintendent. The superintendent should be directly
responsible to the board of education for administering all board
- Chief Financial Officer. The chief financial officer
should have overall responsibility for accounting for and reporting
all funds, including district and student activity funds, to the
board. The chief financial officer is also responsible for implementing
and enforcing appropriate internal control procedures.
- Principal. The principal at each school site should
be designated the activity fund supervisor for that school building.
The activity fund supervisor has overall responsibility for the
operation of all activity funds, including collecting and depositing
activity fund monies; approving disbursements of student activity
fund monies; and adequately supervising all bookkeeping responsibilities.
The activity fund supervisor should be a signatory to all disbursements,
including checks drawn on the activity fund.
- SPONSORS. THE SPONSOR OF EACH STUDENT ORGANIZATION
IS RESPONSIBLE FOR SUPERVISING ALL ACTIVITIES OF THE ORGANIZATION,
INCLUDING APPROVING STUDENT ACTIVITY FUND TRANSACTIONS. SPONSORS
SHOULD BE EMPLOYEES OF THE DISTRICT AND UNDER THE DIRECT CONTROL
OF THE ACTIVITY FUND SUPERVISOR.
FIGURE 1. LINES OF AUTHORITY
FOR STUDENT ACTIVITY FUNDS
General Policies for the Establishment
and Operation of Activity Funds
Policies relating to student and district activity funds should
be in writing and distributed to all activity fund supervisors,
sponsors, and accounting personnel. A useful set of general policies
includes at least the following:
- Each activity fund should be established by specific board of
- All activity funds should be subject to sound internal control
- All activity funds should be accounted for on the same fiscal
year basis as all other school district funds.
- All activity funds must be audited and subject to well-defined
procedures for internal and external auditing.
- All employees responsible for handling and recording activity
fund monies should be bonded by the district.
- One or more activity fund supervisors should be formally designated
by the board of education.
- Each activity fund supervisor should maintain a checking account
for the attendance center.
- Depositories for student activity funds should be approved by
the board of education and be further subject to the same security
requirements as all other board funds.
- All activity funds should operate on a cash basis, meaning that
no commitments or indebtedness may be incurred unless the fund
contains sufficient cash.
- A system of purchase orders and vouchers should be applied to
all activity funds that requires written authorization for payment
and should be strictly enforced.
- A system for receipting cash should be adopted that includes
using pre-numbered receipt forms for recording cash and other
negotiable instruments received.
- All receipts should be deposited intact. That is, all receipts
should be deposited in the form in which they are collected and
should not be used for making change or disbursements of any kind.
- All receipts should be deposited daily. Undeposited receipts
should be well secured.
- A system for disbursing funds that includes using pre-numbered
checks and multiple original signatures (no signature stamps)
should be adopted as the sole means for disbursing activity fund
- A perpetual inventory should be maintained on pre-numbered forms,
receipts, and other documents to create an adequate audit trail.
- Bank statements for activity funds should be reconciled as soon
as they are received.
- Using activity fund receipts to cash checks to accommodate individuals,
to make any kind of loan, to pay any form of compensation directly
to employees, or to extend credit should be strictly prohibited.
- Monthly financial reports on all activity funds should be prepared
and submitted to the administration and the board of education.
A full reporting of activity funds should be included in the district's
annual financial statements.
- Student activity fund monies should benefit those students who
have contributed to the accumulation of such monies.
- A board-approved process should be specified for all fundraising
activities, and any fundraising event should require advance approval.
Segregation of Duties Related to Activity
The volume of activity fund transactions and the amounts on deposit
are substantial in most school districts. Because significant amounts
of activity fund cash receipts are collected as currency, not checks,
internal control procedures designed to safeguard monies collected
should be especially emphasized. Although the foregoing general
principles are helpful in addressing concerns about safeguards,
additional attention should be given to segregating the duties related
to activity funds. Specifically, three critical duties should be
segregated for internal control purposes: (1) signing checks, (2)
maintaining fund accounting records, and (3) reconciling bank statements.
The segregation of duties demands that more than one person be
involved in satisfying accounting procedures. As a rule, although
the school principal is appointed as activity fund supervisor, other
people normally carry out the actual work. It is particularly important
to identify, describe, and monitor the duties of the activity fund
bookkeeper in relation to the segregation of duties.
The activity fund bookkeeper is typically assigned the task of
collecting activity fund monies. Associated tasks include preparing
the deposit slip and depositing monies. In addition, maintaining
the activity fund accounting records generally falls to this same
person, as does preparing checks for disbursements. These tasks
demand adequate training and require the bookkeeper to have a thorough
knowledge of fund structure; the differences between district and
student activity funds; and the process of accounting, auditing,
and reporting. As described earlier, the activity fund bookkeeper
should be bonded.
The work of any person handling money should be subject to appropriate
checks and balances. Signature controls are an important aspect
of accounting procedures. Two signatures should be required on all
checks that result in a disbursement from the activity fund. Recommended
signatures are the principal of the attendance center and someone
other than the activity fund bookkeeper.
Reconciling accounting records for the activity fund is an additional
important aspect of a system of checks and balances. A third person
(someone other than the bookkeeper or activity fund supervisor)
should be responsible for reconciling bank statements and verifying
receipts and expenditures. Essential to this process are internal
accounting controls over the activity fund cash collections. Adequate
procedures should be established for completing an audit trail that
creates sufficient documentary (physical) evidence for each step
in the flow of transactions within the activity fund. These procedures
include using pre-numbered forms and receipts, purchase orders and
vouchers, and a perpetual inventory of pre-numbered forms and receipts
and tickets; depositing receipts intact; and making timely deposits.
State-specific statutory controls on disbursing student and district
activity funds should be strictly observed.
Preparation and Review of Monthly Activity
A monthly report of cash receipts and disbursements to the activity
fund should be prepared and reviewed by the activity fund supervisor
and submitted to the school district office. Column headings should
include the following:
- Beginning cash balance, which should agree with the ending cash
balance on the prior month's report
- Cash receipts
- Cash disbursements
- Ending cash balance
- Unpaid purchase orders
- Unencumbered cash
The activity fund bookkeeper also should prepare a monthly financial
report for each student organization, showing the organization's
cash receipts and disbursements. These reports should be reviewed
by the activity fund supervisor and submitted to the student organization's
sponsor. Each sponsor should then compare the report prepared by
the activity fund bookkeeper with the sponsor's records. Any discrepancies
should be resolved immediately. Additionally, the school finance
office should periodically perform internal audits of the reports
and supporting records.
Application of GASB Statement 34 to Activity
GASB Statement 34 made significant changes in financial reporting
for all governments, including school districts. Chapters 4 and
5 discuss fully the new reporting structure established by this
accounting standard and the specific requirements, including the
presentation of governmentwide financial statements, fund financial
statements, and the required supplementary information. The purpose
of the governmentwide statements is to provide a broad overview
of the entity as a whole. Because fiduciary fund resources are not
available for use by the government, fiduciary activities are excluded
from the entity-wide financial statements. In accordance with the
new reporting model, fiduciary activities, including student activity
funds, are reported only in the fund financial statements. The impact
of Statement 34 on district and student activity funds is summarized
- If student activity funds are classified as fiduciary (agency)
funds as recommended, they are not reported in the governmentwide
financial statements. Instead, these balances are reported only
in the fund financial statements.
- District activity funds that are classified as governmental
(special revenue) funds are consolidated with all governmental
activities in the governmentwide financial statements. District
activity funds will also be presented in the governmental fund
- Fiduciary funds are presented in the fund financial statements
by fund type. Student activity funds, as agency funds, report
no operating activity and are, therefore, presented only in the
statement of fiduciary fund net assets.
Revenue From Enterprise and Alternative Sources
Many school districts and individual school sites derive significant
revenue from enterprise activities and alternative sources: vending
machines, school stores, soft drink machines, class ring sales,
and a wide variety of fundraising activities such as magazine sales,
candy sales, and school pictures. In addition, large sums of money
are generated through interscholastic sports in the form of gate
receipts and other contributions. These revenues are typically associated
with activities conducted at the school level that generate revenues
to be used for the benefit of the school. In many instances, particular
student organizations are in charge of one or more such enterprise
activities. In other instances, the district administers the revenues
for its own programs. If a student organization is in charge of
an enterprise activity, the money should be accounted for through
that organization's activity fund. If the district determines the
use of the funds, the money should be accounted for with other district
funds in the district's accounts. However, in all instances, the
funds should be recorded on the district's books.
School districts and student groups are also increasingly benefited
by affiliated organizations that support curricular, co-curricular,
and extra-curricular activities. Affiliated organizations include
groups such as Parent-Teacher Associations (PTAs), Parent-Teacher
Organizations (PTOs), school foundations, athletic booster clubs,
and so on. Contributions by these groups often include supplies,
materials, equipment, and even school facilities, such as weight
Specific board of education policies are needed to address these
issues. In the case of activity funds derived from enterprise activities,
board authorization to operate the activity is needed, and all funds
should be accounted for in the district's books. In the case of
revenue from affiliated organizations, board authorization to receive
such funds is needed. In some cases, owing to the requirements of
GASB Statement 39 determining whether certain organizations are
component units, these affiliated organizations may be reflected
in the financial statements of the school district as discretely
presented component units. (See chapter 5 for a discussion of Statement
39.) Whether or not the organizations are included as component
units, decisions regarding allocation of the donations should be
made on the basis of whether the curricular or co-curricular program
is the primary beneficiary, as well as on the basis of fundamental
fairness in resource allocation.
The following examples are illustrative of issues discussed in
- A high school chess club holds a fundraiser and raises $500,
which is accounted for in an agency fund. The club uses $400 to
buy supplies and club T-shirts. When the $500 in cash is deposited
by the club sponsor or school administration, the district should
debit the asset account, Cash in Bank, and credit a liability
account, Due to Student Organizations, for $500 within the designated
agency fund (for student activity funds). When the club spends
$400 for supplies, an entry should be recorded to credit cash
and debit the liability account. At year's end, the district would
reflect a $100 balance for the club in its agency fund.
- A school district enters into a multiyear agreement with a soft
drink company for vending machine services at all of its schools.
Under the contract terms, the district will receive 10 percent
of sales. In the current fiscal year, the district receives $10,000
for its portion of sales. If this payment represents an advance,
a portion of it should be deferred on a prorated basis. Using
the estimated proceeds from the contract, the district should
budget the revenues within a special revenue fund during its normal
budgeting process. The $10,000 payment should be recorded as Revenue
from Enterprise Activities within the special revenue fund.
There are two classifications of activity funds: district and
student. It is recommended that district activity funds be classified
as special revenue funds and student activity funds as agency (fiduciary)
As governments increasingly respond to the demands for fiscal
and operational accountability, best practice dictates the creation
of strong controls surrounding activity funds, including assurance
that all transactions are recorded and reported in district financial
records. Additionally, at a minimum, proper lines of authority combined
with strong control practices, such as segregation of duties, multiple
checks and balances, requirements for annual audits, and regular
financial reporting, are the elements to protect against error and
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1 For an example
of a well-constructed student activity funds operating manual, go
Sections in this chapter relating to general policies and controls
are indebted to and follow closely from the Kansas State Department
of Education's guidelines found at http://www.ksde.org/leaf/actv_fnd.htm.
see each state's statutory requirements for accounting for activity
fund monies. More generally, useful references related to activity
fund accounting are Everett, Lows, and Johnson (1996) Financial
and Managerial Accounting for School Administrators; Governmental
Accounting Standards Board (2000) Guide to Implementation of
GASB Statement 34 on Basic Financial Statements and Management's
Discussion and Analysis for State and Local Governments; Association
of School Business Officials International (2000) GASB Statement
34: Implementation Recommendations for School Districts; Deloitte
and Touche (2001) Twelve White Papers on Issues in Education Finance.
3 Detailed account
code structure/classification/definition, including new or revised
codes, are found in chapter 4.
4 These are minimum
broad controls. Each state should construct a set of specific guidelines
in accordance with statutory require