Chapter 2: Financial Reporting Within a System of Education Information — Users of School Finance Information

To be of value, information must meet the needs of those who use it. Users of school finance information may be divided into four major groups: those to whom the school districts and state departments of education are primarily accountable (the general public); those who directly represent the general public (legislative and oversight bodies); those who perform academic research using education information (education researchers); and those who lend or participate in the lending process (investors and creditors) (GASB Statement 1, Paragraphs 35 through 37). Each of these groups has different needs, but each is concerned with the design and implementation of an education system that is programmatically and fiscally effective and efficient.

The General Public

One objective of the general public is to purchase the maximum amount of service with a minimum amount of taxes. By holding government fiscally accountable, school financial reporting should help the general public determine whether this objective is being met.

However, defining and measuring quality services through school productivity and student achievement are exceedingly difficult. Mathematics and reading scores have long borne the burden of determining "productivity," but the reauthorization of the Elementary and Secondary Education Act of 2002 reflected a much broader range of concerns, including school readiness, graduation rates, and increased participation in higher education by minorities, as well as social concerns, such as the cessation of drug use and violence. Although these aims cannot be perfectly quantified, a comprehensive education information system can help respond to the general public's need to know.

Legislative and Oversight Bodies

At the local level, school administrators rely on financial information to evaluate past performance, aid in day-to-day decisionmaking, and keep the general public informed. Program coordinators, in particular, but also classroom teachers and noninstructional employees, use financial information to plan budgets and to request additional funding or redirect existing funds. Financial information embedded in a comprehensive education information system also allows administrators to assess the areas of greatest need and plan how best to allocate resources.

In addition, the local school board is responsible for establishing policies and for overseeing and appraising administrators as they carry out these policies. Thus, the board needs timely information about situations that may need corrective action as well as information with which to judge administrators' efficiency and effectiveness. Some of this information can be provided by general-purpose financial reports, but comparable information about other school districts is needed as a basis for more informed comparison.

Other units of government also rely on information for policy direction. On average, the U.S. Congress and state legislatures provide about half of the resources for the operation of school districts. Thus, governance units need information on school districts' operations to decide how to commit resources as well as comparable information about groups of school districts in order to formulate funding policies. To this end, legislators are interested in data that can show

• the ways in which local, state, and federal programs interact within specific operational areas;
• profiles of school finance structures as they relate to tax resources; and
• the impact (and cost) of programs resulting from specific legislative initiatives.

Thus, the defining characteristics of an accounting and data reporting system of interest to state and federal legislators are comparability of data, the ability to classify data in a variety of ways, and timeliness in reporting.

Education Researchers

Education researchers (whether in government, universities, or schools) are at the high-demand end of the information-use spectrum. Their collective need for data is great and, accordingly, the benefits of providing the data must be weighed against their cost. This is a difficult choice to make because the benefits of research are unknown until the research has been done. Fortunately, a comprehensive, well-designed information system—one with data that are valid, reliable, and timely and that provides access to data in a format that researchers can use—can serve both specialized constituencies and the broader public.

Investors and Creditors

Finally, in governmental accounting, investors and creditors are considered to include bondholders and prospective bondholders, commercial banks, vendors, and others who have extended credit, or who are considering extending credit, to the school district. Typically, these data users are interested in the financial position of the school organization, its operating performance, and its likely sources and uses of funds as indications of the probability that the bonds or loans will be repaid in full and on time.

Investors and creditors need information about an institution's available and possible future financial resources, actual and contingent liabilities, and the overall debt position to evaluate its ability to continue to provide resources for long-term debt service. They review operating results and cash flow data (both currently and over time) to look for trends that may indicate strengths and weaknesses in the ability of an institution to repay debt. Trend analysis helps investors and creditors project future revenues and predict possible allocation of those revenues.

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