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

Chapter 2: Financial Reporting Within a System of Education Information — Background

The successful management of any large organization requires effective use of information. Information about education ranges from staff and student information to financial information at the school facility and program levels. A comprehensive education information system can provide benefits such as the following:

  • Using data in decisionmaking. Good information helps drive good decisions. An information system can make good decisionmaking possible for school based administrators as well as for external users of education information.
  • Using data to target specific areas for improvement. Timely and accurate data can help decisionmakers at all levels focus on improvement strategies.
  • Using disaggregated data to examine wide-ranging goals. Disaggregating data for analysis helps identify programmatic and fiscal inequities and determine baselines for improvement.
  • Using data for timely program evaluation. To be effective, program evaluation must be timely as well as complete. When program and other data are compiled and linked in a well-designed information system, the goals of schooling can be met more effectively and efficiently.
  • Using data for budgetary control. Greater budgetary control is possible when all of the costs of school operations are available.
  • Using data to improve administrative efficiency and mandated reporting. Building core databases around data elements of the National Center for Education Statistics (NCES) Common Core of Data (CCD) provides comparability and can improve administrative efficiency and facilitate mandated reporting.

The benefits of a comprehensive information system become especially apparent when examining the relationship between programs and costs. To make appropriate, cost-effective, and timely decisions about students, schools, and programs, accurate and complete information must be widely available to the many users of education data, such as the research community, school administrators, school boards, policymakers, school improvement teams, creditors and potential creditors, and the general public. A comprehensive uniform information system allows a complete, accurate, and timely display of the distribution and use of resources.

The value of a comprehensive information system also becomes evident when examining the distribution of resources (fiscal equity) and the use of those resources (productivity)—two of the major foci of school financial accounting information. Since 1971 (Serrano v. Priest, 487 P.2d 1241 [1971]), legal challenges to state school finance systems have required states to revise funding formulas to better ensure equitable funding among school districts, and those same challenges have forced states to attempt to define what constitutes an adequate education. The assumption that a more equal distribution of resources will lead to increased equity in the uses of finite resources continues to be debated—in the courts, in the media, and among the general public.1

School financial accounting systems are an important source of information on the costs of an equitable and adequate education in each school district. Recently, the emphasis on accountability has turned the spotlight on school achievement, with the focus on how much it costs to achieve a minimally acceptable level of educational performance for all students. The clear trend is to understand fiscal and programmatic data in terms of the particular need of specific groups, such as students with disabilities, students with limited proficiency in English, and students from economically disadvantaged families (Reschovsky and Imazeki 1997, p. 144).

Although conceptually it is convenient to maintain a separate financial system with well-defined elements, most of the operational and policy questions that need to be answered rely heavily on data that cross into areas other than finance. Thus, definitions of school financial data must align with other aspects of the education information system. An aligned and comprehensive education information system should provide the data necessary to answer the following key questions:

  • How much is spent on education?
  • Who pays for education?
  • How are funds allocated?
  • How are educational resources linked to student achievement?

To answer these questions, an education information system requires more than a finance component; it also requires a student records system, a staff records system, a property system, a curriculum or program component, and a community services component. Instructional management systems can be linked to student records systems to provide policymakers with greater analytical capability to make appropriate, cost-effective, and timely decisions.

A data system that can support these complex conditions places a premium on standardization. Standardization is critical if the operations of one school district or state department of education are to be compared over time or with those of another, or if data from the operations of many school districts or state departments of education are to be consolidated for comparison.

Education data collected nationally by the federal government provides a facet of this standardization by ensuring data comparability. For example, NCES collects public education finance data through the National Public Education Financial Survey (NPEFS) and the School District Finance Survey (F 33).2 The NPEFS, which is part of the CCD, began data collection in the 1981–82 school year. The F-33, which is part of the U.S. Census Bureau's Annual Survey of Local Governments, is also included in the CCD. NCES works with the Census Bureau to ensure that all districts are included in each year's collection. The data items in both the NPEFS and the F-33 are based on the account codes presented in this handbook, and each item on the survey forms is defined through reference to the account codes presented in chapter 6.3

Finance data collected annually from state education agencies through the NPEFS are used in the formula for allocating Title I and other federal grants to school districts, as specified under Section 153(a)(1)(I) of the Education Sciences Reform Act of 2002, which authorizes NCES to gather data on the financing of education. In addition to finance data, the NPEFS collects average daily attendance data. Average daily attendance is the denominator in the average state per pupil expenditure figures required by the Title I legislation. Because these data are used in the allocation formula, established deadlines, definitions, and editing procedures are rigidly enforced. Survey deadlines are announced in the Federal Register, and definitions are based on the account codes and finance item definitions presented in this handbook.


1 For an overview of court cases involving issues related to education reforms, see Overview and Inventory of State Education Reforms: 1990 to 2000 (Hurst et al. 2003).
2 NCES is the primary federal entity for collecting, analyzing, and reporting data related to education in the United States and other nations. NCES is a branch of the Institute of Education Sciences in the U.S. Department of Education and is authorized to collect data by Congress through the Education Sciences Reform Act of 2002 (P.L. 107-279), 20 U.S.C. 9543.
3 Additional information on these surveys, including instructions for completing them, can be found on the Internet sites listed in appendix B.