HEAF-AP: Fund Balance

Purpose

The following policy has been adopted by the Board of Education in order to address the implications of Governmental Accounting Standards Board (“GASB”) Statement No. 54, Fund Balance Reporting and Governmental Fund Definitions. The policy is created in consideration of unanticipated events that could adversely affect the financial condition of the District and jeopardize the continuation of necessary public services. This policy will ensure that the West Fargo Public School District maintains adequate fund balances and reserves in order to:

1. Provide sufficient cash flow for daily financial needs,
2. Secure and maintain investment grade bond ratings,
3. Offset significant economic downturns or revenue shortfalls, and
4. Provide funds for unforeseen expenditures related to emergencies.

This policy and the procedures promulgated under it supersede all previous regulations regarding the District’s fund balance and reserve policies.

Definitions

The following definitions will be used in reporting activity in governmental funds across the District. The District may or may not report all fund types in any given reporting period, based on actual circumstances and activity.

1. The general fund is used to account for all financial resources not accounted for and reported in another fund.
2. Special revenue funds are used to account and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specific purposes other than debt service or capital projects.
3. Debt service funds are used to account for all financial resources restricted, committed or assigned to expenditure for principal and interest.
4. Capital projects funds are used to account for all financial resources restricted, committed or assigned to expenditure for the acquisition or construction of capital assets.
5. Permanent funds are used to account for resources restricted to the extent that only earnings, and not principal, may be used for purposes that support the District’s purposes.

Fund Balance Reporting in Governmental Funds

1. Classification: Fund balance classification shall be recorded in accordance with governmental accounting standards as promulgated by the Governmental Accounting Standards Board.
2. Spending: The order of spending and availability of the fund balance shall be to reduce funds from the listed areas in the following order: restricted, committed, assigned, and unassigned.  Negative amounts shall not be reported for restricted, committed, or assigned funds.
3. Definition Fund Balance: shall mean the gross difference between governmental fund assets and liabilities reflected on the balance sheet.  Governmental fund assets are those of the General Fund, Special Revenue Funds, Debt Service Funds, and Capital Project Funds.
4. General Fund: The fund balance of the general fund, one of the governmental fund types, is of primary significance because the general fund is the primary fund, which finances most functions in the District.  The fund balance of the general fund shall mean the gross difference between general fund assets and liabilities reflected on the balance sheet.

Fund balance will be reported in governmental funds under the following categories using the definitions provided by GASB Statement No. 54:

The five classifications of fund balance of the governmental types are as follows:

1. Non-spendable fund balance shall mean the portion of the gross fund balance that is not expendable (such as inventories) or is legally earmarked for a specific use (such as the self-funded reserves program).
   
   Examples of non-spendable fund balance reserves for which fund balance shall not be available for financing general operating expenditures include:
   • Inventories;
   • Prepaid items;
   • Deferred expenditures;
   • Long-term receivables; and
   • Outstanding encumbrances.
2. Restricted fund balance shall include amounts constrained to a specific purpose by the provider, such as a grantor or by bond indenture.
   
   Examples of restricted fund balances include:
   • Child nutrition programs;
   • Technology programs;
   • Capital construction projects approved by the voters of the district;
   • Debt service funds to repay long-term debt;
   • Proceeds from the Technology, Tuition and Alternative Programs levies;
   • Proceeds from the Special Reserve Fund levy; and
   • Resources from other granting agencies.
3. Committed fund balance shall mean that portion of the fund balance that is constrained to a specific purpose by the Board. Authority to Commit – Commitments will only be used for specific purposes pursuant to a formal action of the Board. A majority vote is required to approve a commitment.  A majority vote is also required to remove a commitment, except in situations where the removal of the commitment is included in the budget that is approved by the School Board.
   
   Examples include:
   • Potential litigation, claims, and judgments;
   • Student activity funds;
   • Funds designated for land purchases or capital improvements; and
   • Proceeds of the Building Fund levy
4. Assigned fund balance shall mean that portion of the fund balance that is spendable or available for appropriation but has been tentatively earmarked for some specific purpose by the Superintendent or designee (such as the Business Manager). In current practice, such plans or intent may change and may never be budgeted, or may result in expenditures in future periods of time.
   
   Examples include:
   • Insurance deductibles;
   • Program start-up costs; and
   • Other legal uses.
5. Unassigned fund balance shall include amounts available for any legal purpose.  This portion of the total fund balance in the general fund is available to finance operating expenditures.

The unassigned fund balance shall be the difference between the total fund balance and the total of the non-spendable fund balance, restricted fund balance, committed fund balance, and assigned fund balance.

Minimum Fund Balance – The District will maintain a minimum unassigned fund balance in its General Fund ranging from 10 percent to 14 percent of the budgeted expenditures and outgoing transfers. This minimum fund balance is to protect against cash flow shortfalls related to timing of projected revenue receipts and to maintain a budget stabilization commitment.

Replenishing deficiencies – when fund balance falls below the minimum 10 percent range, the District will replenish shortages/deficiencies using the budget strategies and timeframes described below.

The following budgetary strategies shall be utilized by the District to replenish funding deficiencies:

• The District will reduce recurring expenditures to eliminate any structural deficit; or
• The District will increase revenues or pursue other funding sources; or
• Some combination of the two options above.

Minimum fund balance deficiencies shall be replenished within the following time periods:

• Deficiency resulting in a minimum fund balance between 8 percent and 10 percent shall be replenished over a period not to exceed one year.
• Deficiency resulting in a minimum fund balance between 6 percent and 8 percent shall be replenished over a period not to exceed three years
• Deficiency resulting in a minimum fund balance of less than 6 percent shall be replenished over a period not to exceed five years

Adopted: 09/24/12
Reviewed: 03/25/10
Revised: 03/27/95