Copyright© 2006 by School Services of California, Inc.

                                      Volume 19                   For Publication Date: August 4, 2006             No. 17

School Finance Conference Q&A—Part 2 

Mandates 

Q1.      It seems we received some mixed messages regarding the mandate money. This could obviously have a big impact on our budget. Would there be some percentage of both the past and the current funding that we could safely budget at this juncture? (I understand there is a strong concern about audits.)  

A1.      We recommend you budget for the mandate reimbursement in arrears. Once you receive the funding, the District should consider whether it needs to set aside a portion of the reimbursement in the event an audit is conducted and some claims are disallowed. Keep in mind that, while not all districts are audited, the current audit process has disallowed more than 80% of claims for those that are audited. 

State Teachers’ Retirement System 

Q1.      Can you clarify the State Teachers’ Retirement System (STRS) excess sick leave accrual audit? 

A1.      STRS provides additional service credit to a retiring member for the number of days of sick leave accrual left in that member’s leave balance with the district, reduced by the number of “excess” sick leave days. STRS will provide credit for up to 12 days of sick leave earned per year, but no more. STRS also assumes that the sick leave used first is the basic sick leave and not the “excess.”     

           For example, if your district provides 14 days of sick leave per year to certificated employees, and a retiring STRS member with 15 years of service has 200 days in his/her sick leave accrual balance (because the member used 10 days during those years), the member can earn additional service credit for 170 days of sick leave accrual. This is because STRS will first deduct the 15 years’ worth of “excess” sick leave accrual, which is two days per year (14 days minus the 12 basic sick leave days), for a total deduction of 30 days. The financial obligation of the district would be the present value of the future benefit provided by the additional 30 days of accrual earned by the member. This amount must be paid by the district to STRS. 

Please note that this is a very simplified example, and there will be variances due to historical changes in STRS law and district policy over time and the pattern of sick leave use each year by the member. This is an item that has in the past been included when STRS audits a district. Since there were findings in this area for more than 50% of the school agencies that STRS audited, this item is now included in the Audit Regulations starting with your annual financial audit for the 2006-07 fiscal year. So be sure that you are appropriately reporting basic sick leave days and “excess” sick leave days to STRS when a member retires from your agency.
 

Q1.      What are the areas of Internal Revenue Service (IRS) audit concern for school districts regarding employee reimbursements and independent contractors? Are there case studies that can help us prevent problems? 

A1.      The IRS conducts audits of school agencies to determine if the reimbursement to an employee should have been taxable and included in the W-2 at the end of the calendar year. There are several types of reimbursements. One example may be for graduate classes. The IRS provides a series of publications that address whether taxable income regarding employee reimbursements should be on the W-2 or not. 

            As for the independent contractors, the issue is whether or not the contractor should have been an employee who may be under the supervision of a school agency or taking direction in completing a job or task. Again, there are publications that specifically address the employee versus independent contractor regulations.  

            To help prevent the problem, a review of the applicable regulations and publications from the IRS would be prudent. Often, there is a listing of frequently asked questions by topic area that may be of assistance as well. 

Consumer Price Index 

Q1.      My District is in the middle of negotiations and factfinding may be a possibility. Can you provide the historical CPI numbers you would use in factfinding comparisons since 2000-01 or list a resource where we can get them? 

A1.      Following is the new Historic Consumer Price Index table we have put together to assist our clients: 

             More detailed information can be found on the California Division of Labor Statistics and Research website at http://www.dir.ca.gov/DLSR/statistics_research.html#CPI.