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Financial Accounting for Local and State School Systems: 2009 Edition
NCES 2009-325
June 2009

Chapter 8: Activity Fund Guidelines — Controls for Establishing and Maintaining Activity Funds9

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 their operation.

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 exhibit 12):

  • 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 policies.
  • District Treasurer or Chief Financial Officer. The district treasurer or chief financial officer should have overall responsibility for accounting for and reporting all funds, including district and student activity funds, to the board. This person is also responsible for implementing and enforcing appropriate internal control procedures.
  • Principal. The principal at each school site should be designated as the activity fund supervisor for that site. 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.

General Policies for the Establishment and Operation of Activity Funds

General 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 should include at least the following requirements:

  • Each activity fund should be established by specific board of education approval.
  • All activity funds should be subject to sound internal control procedures.
  • 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.
  • The activity fund bookkeeper or other 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 those for 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. This system should require written authorization for payment and should be strictly enforced.
  • A system that uses prenumbered receipt forms should be adopted 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 that uses prenumbered checks and multiple original signatures (no signature stamps) should be adopted as the sole means for disbursing activity fund monies.
  • A perpetual inventory should be maintained on prenumbered 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 Funds

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 monetary safety, 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 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, the same person generally maintains the activity fund accounting records and prepares 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. It is recommended that the principal of the attendance center and someone other than the activity fund bookkeeper provide these signatures.

Reconciling accounting records is an additional important aspect of a system of checks and balances for the activity fund. 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 prenumbered forms and receipts, purchase orders and vouchers, and a perpetual inventory of prenumbered 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.

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9 These are broad, minimum controls. Each district should construct a set of specific guidelines in accordance with statutory requirements because it is impossible to prepare a general set of guidelines that meets every state's unique requirements.

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