Starting this month, Auditor of State (AOS) Keith Faber’s office will be issuing financial health indicator (FHI) reports for school districts. This AOS program to identify and monitor signs of financial stress in public agencies began nine years ago with cities and counties and is now expanding to include school districts.
AOS has explained that FHIs provide early warning signs of financial distress, allowing public agencies to address issues before they develop into major problems. Each district’s FHI report will use the traffic light system to highlight where they fall in 16 different categories that measure financial health. In the system, green indicates positive, yellow indicates cautionary and red indicates critical to help districts highlight areas that may require attention. To compile the report, AOS will use data derived from audited financial information submitted by the district, including fund balances, tax collections and debt payment.
FHIs will be generated twice for each reporting year. A preliminary FHI report, based on the year’s unaudited financial statements and audited data from previous years, will be generated when the district submits its annual filing of financial statements with AOS. A final FHI report for each reporting year will be generated when the audit has been completed for the year.
The 16 categories that will be assessed for the FHI report are:
- • Unrestricted net assets/position of government type activities (GTA)
- • General fund (GF) unassigned fund balance
- • Change in unrestricted net assets/position for GTA
- • Change in GF unassigned fund balances
- • Total GF balance/GF revenues
- • Change in GF property tax revenue
- • Change in GF income tax revenue (for districts with an income tax)
- • Percentage of GF revenues that exceed GF expenditures
- • General revenues/net expenses of GTA
- • Condition of capital assets
- • Debt service expenditures/total revenues
- • Unrestricted net assets/position of GTA
- • Unassigned fund balance of GF/Average daily expenditures of GF
- • Cash and investments of GF/average daily expenditures of GF
- • Total liabilities-to-assets/position
- • Budgetary non-compliance and/or unreconciled/unauditable financial records
AOS has issued a report describing these indicators and providing examples of how the indicators may demonstrate positive, cautionary or critical data for districts. AOS has explained that entities with at least six critical indicators, or a combination of eight critical and cautionary indicators, historically have ended up in a state of high fiscal stress. For districts using a cash or modified cash basis of accounting, fewer indicators are the threshold for high fiscal stress – either four critical indicators or a combination of six critical or cautionary indicators.
More information about FHIs is available in the AOS FHI User Guide for Schools and on the AOS Financial Health Indicators webpage. Districts can access on-demand training about FHIs here.
OSBA’s legal division will monitor the release of FHI reports and provide more information as it becomes available.