1. Charter School Board of Directors Fiduciary Responsibilities Charter Leadership Institute October 2014 Division of School Business Administration

2. Objectives Recommended best practices for charter school board of directors: –Composition –Recruitment –Size –Meeting protocol Roles and responsibilities Board fiduciary responsibilities Indicators of effective board operations

3. Charter School Governance Structure SBE Policy CharterState & Fed Legislation Other Laws Non Profit Board of Directors Policies and Procedures School Administration

4. Interested Parties Financial Audits Media Federal Agencies SBE / DPI Public Financial Records Financing Entities The Public General Assembly

5. Board of Directors Composition Model board includes members with skills, expertise and experience in the following areas: Financial Legal Human resources School operation Academic oversight Fundraising Public relations / marketing Strategic planning Real estate

6. Board of Directors Composition Every Board should have a financially literate member, who has an understanding of: Budgeting Financial processes Financial Statements and Financial Audits

7. Board Roles Roles served by members of the board: 1.Planner 2.Fundraiser 3.Trustee 4.Worker 5.Expert 6.Representative 7.Figurehead

8. Board Size National Association of Charter School Authorizers (NACSA) Contends that a board of five to seven members is too small to be effective at any stage of development. Recommends sizes for the following stages: –During the charter application process, the founding board should be between seven and nine members. –When the school first opens, the board should include nine to eleven members, and –After the first year, the board can grow to eleven to fifteen members.

9. Board Development Potential Obstacles: Limited pool of candidates with diversity, knowledge, skills and willingness to serve Number of charter schools in one area needing board members Tendency to appoint “friends” Turnover Lack of commitment

10. Board Recruitment Utilize the following methods: Contact community gatekeepers Conduct information sessions Hold open houses Conduct workshops

11. Board Meetings Open meeting policy / public record Frequency Attendance Agenda Minutes

12. Board Roles and Responsibilities Board of Directors Governance –Creates and monitors the strategic plan –Allocates human, material, and fiscal resources for systemic and sustainable implementation of educational programs –Develops policies –Hires and evaluates School Director –Reviews and approves operating budget –Reviews and approves financial statements as documented in board agendas and minutes –Holds staff accountable for budget management Administration Operations –Creates procedures to facilitate policies –Hires and evaluates school staff –Develops the school’s annual operating budget and provides to board for review and approval –Ensures charter school utilizes an acceptable and appropriate system for maintaining financial records –Provides timely financial reports to board –Regularly provides the board with reports comparing the budget to actual transactions as a financial management tool and explains discrepancies

13. Board Roles and Responsibilities (concluded) The roles and responsibilities of a charter school board include development of and maintaining the school’s: Mission and purpose Relationship with school administrator Effective organizational structure Financial sustainability Integrity of the academic program Public relations strategy Self-evaluation

14. Principles of Sound Financial Management 1. Establishing internal controls (through policy) 2. Monitoring compliance with fiscal policies 3. Developing financial reporting interpretation skills 4. Developing accurate budgets 5. Recognizing red flags 6. Minimizing risk 7. Hiring its own independent auditor *Develop finance and audit committees to monitor financial activity in greater detail.

15. Fiduciary Responsibilities High Level: Understand financial condition of school. Oversee the operating budget to protect the resources of school. Hold school staff accountable for budget management. Ensure that the necessary financial policies are in place to prevent fraud, waste and misappropriation.

16. Fiduciary Responsibilities (continued) Board fiscal responsibilities include: Development of internal control systems, including fiscal policies and procedures Budget approval Banking decisions Vendor contract approval Hiring and evaluation of school director/administrator/principal Approval of monthly and annual financial reporting Annual audit Selection and contracting with independent auditor Provision of management response and corrective action for any audit findings Annual tax return

17. Fiduciary Responsibilities (continued) Internal Controls: Systems of policies and procedure designed to prevent fraud, waste and misappropriation. Protect the assets of an organization. Create reliable financial reporting. Promote compliance with laws and regulations. Achieve effective and efficient operations.

18. Fiduciary Responsibilities (concluded) Financial Reporting Boards should receive, review and discuss monthly and annual financial reporting packages from school administrator or finance officer that include: Balance Sheet Revenues vs. expenditures statement Budget vs. actual expenses Cash Flow Forecast Attendance Reporting Update

19. Finance Committee Develop a finance committee to monitor financial activity in greater detail and meet at least monthly to provide: Effective financial oversight Realistic budgeting and ongoing budget monitoring Appropriate internal controls and procedures Timely and accurate financial reporting Maintenance of adequate financial resources to ensure stable operations

20. Finance Committee TaskFrequency Bank Accounts – Opening/Signatory/ClosingAs needed Loans - Review and recommend applications and agreements As needed Review financial statements Each meeting Review student enrollment and ADM Each meeting Understand revenue sources Annually Understand state and federal reporting requirements Annually Review and update fiscal policies and procedures Annually Review salary schedule/applicable contracts for highest compensated employees Annually

21. Audit Committee Develop audit committee to provide advice, assistance and recommendations to the Board in the oversight of the annual independent audit. Committee members collectively should: –Possess knowledge necessary to understand technical financial reporting issues. –Have the ability to communicate with auditors, school administration including the finance officer, and the school board. –Be knowledgeable about internal controls and financial statement audits.

22. Audit Committee Task Frequency Coordinate audit firm selection process & develop recommendation for Board consideration Annually Coordinate annual audit with auditor, accountant (if applicable) and school administrators Annually Receive and review the draft audit report and assist the Board in its understanding Annually Recommend to the Board acceptance of the audit Annually Assist the Board in evaluating the school’s response to findings and proposed corrective action Annually Monitor the implementation of recommendations and corrective actions identified in response to annual audit report Ongoing Report to the board the status of corrective action Monthly until resolved

23. Financial Red Flags Task Director or PrincipalAppears offended when questioned about school’s finances and/or cannot give clear explanations to questions about finances Financial ReportsIrregularity in receipt from school administration CashLow or negative balance Accounts receivable Remains constant throughout the year with no decrease Accounts payable Remains constant throughout the year or steadily increases Fund balanceDeclines (unless special project) or negative Operating expensesHigher than budgeted ADM / EnrollmentLower than projected

24. Minimizing Financial Risk Task Controls Credit CardsHave the bank place limits on the amount allowed to be charged in a transaction. Bank AccountsCopy front and back of signature cards and place in official minutes when authorizing establishment of any bank account Cell phonesOffer employee stipends as appropriate instead of providing phones/contract Checks Never sign a check for school expenses without reviewing clear supporting documentation Bank statements Require the bank to send out two copies of the monthly bank statements (one to the school and one to a designated board member at his/her home or place of business)

25. Indicators of an Effective Board 1. Board-member skills, knowledge and commitment; 2. Setting expectations; 3. Ethical conduct; 4. Regulatory and reporting compliance; 5. Leadership oversight and evaluation; 6. Contract management and oversight; 7. Public accountability and transparency; and 8. Securing the future/continuous improvement

26. Questions?

27. Contact Information Leigh Ann Kerr, Assistant Director, School Business Services; LeighAnn.Kerr@dpi.nc.nc.gov ; (919)807-3553 LeighAnn.Kerr@dpi.nc.nc.gov Curtis Terry, Fiscal Analyst; Curtis.Terry@dpi.nc.gov ; (919)807-3720Curtis.Terry@dpi.nc.gov Keisha Davis, Fiscal Monitor; LaKeisha.HallDavis@dpi.nc.gov ; (919)807-3682LaKeisha.HallDavis@dpi.nc.gov Karen Frazier, Fiscal Monitor; Karen.Frazier@dpi.nc.gov ; (919)807-3738Karen.Frazier@dpi.nc.gov Gene Bruton, Accountant; Gene.Bruton@dpi.nc.gov ; (919)807-3726Gene.Bruton@dpi.nc.gov

28. Resources National Resource Center on Charter School Finance and Governance Creating and Sustaining High-Quality Charter School Governing Boards Creating an effective charter school governing board guidebook. http://www.uscharterschools.org/gb/governance/contents.htm http://www.uscharterschools.org/gb/governance/contents.htm National Association of Charter School Authorizers (NACSA) Fr