"You would be surprised that in some schools, the restriction appears to be implicitly understood, since they neither have a line for temporarily restricted funds on their balance sheet nor the statement below in their respective financial statement notes".

1. ARE CHARTER SCHOOLS ANDARE CHARTER SCHOOLS ANDARE CHARTER SCHOOLS ANDARE CHARTER SCHOOLS AND TRADITIONALTRADITIONALTRADITIONALTRADITIONAL PUBLICPUBLICPUBLICPUBLIC
SCHOOLS DIFFERENT FROM A FINANCIAL PERSPECTIVE?SCHOOLS DIFFERENT FROM A FINANCIAL PERSPECTIVE?SCHOOLS DIFFERENT FROM A FINANCIAL PERSPECTIVE?SCHOOLS DIFFERENT FROM A FINANCIAL PERSPECTIVE?
School Finance
1
Traditional public schools and charter schools are very similar in many functional respects. As many
people would say, a school is a school is a school; however, there is a significant difference when it
comes to the way the respective type of schools manage their finance. This difference alone could be
substantial, as charter schools are allowed to keep residual and/or unused revenues as retained
earnings in their respective balance sheet, while public schools, like any governmental agencies, are not.
Another important difference is the timing of the reconciliation process, which will be discussed further.
If you had a chance to work in any of the government agencies, perhaps you have been a witness to the
purchasing frenzy that everyone is exposed to as the end of the fiscal year approaches (which usually is
June 30th
for New York City). Traditional schools function in the same manner. Given the fact that they
are not allowed to retain earnings, they are forced to spend as much money as they can before the end
of the fiscal year; otherwise, the funds will go back to the city coffers. The general rule is as follows: use
the funds or lose them. Although charter schools might encounter a similar frenzy towards the end of
the fiscal year, they do have a huge advantage from a financial perspective, where rather than returning
the funds (operating revenues) not utilized during the school year to the city’s wallet, they are
transferred directly to their retained earnings account and balance sheet. By the same token, if
operating expenses exceed revenues in any given year, this is normally treated in accounting as a
deficiency resulting in a reduction rather than an increase in net assets. This fluctuation in net assets is
depicted in the graph below.
The table intents to describe how information flows from the statement of activities, a.k.a. net income,
to the balance sheet.
There is one significant change that takes place once the fiscal year ends (June 30th
); the temporary
restricted funds are managed by the Board of Trustees rather than the charter school officials and/or
administrator(s). The meaning of this is that the principal of the school will have to submit a request
(ideally a written proposal) to the Board of Trustees in order for them to release the funds from the
“temporarily restricted/board designated reserve” line, as it is described on the balance sheet. This is
Balance Sheet
Statement of
Activities
(Income Statement)
2011 2010 2011 2010
Unrestricted 5,829,066 5,792,650 Revenue 10,202,765 9,615,560
Temporarily Resticted 294,311 36,416 Operating Expenses 9,908,454 9,579,144
Net Assets (End of Year) 6,123,377$ 5,829,066$ Net Income 294,311 36,416

2. ARE CHARTER SCHOOLS ANDARE CHARTER SCHOOLS ANDARE CHARTER SCHOOLS ANDARE CHARTER SCHOOLS AND TRADITIONALTRADITIONALTRADITIONALTRADITIONAL PUBLICPUBLICPUBLICPUBLIC
SCHOOLS DIFFERENT FROM A FINANCIAL PERSPECTIVE?SCHOOLS DIFFERENT FROM A FINANCIAL PERSPECTIVE?SCHOOLS DIFFERENT FROM A FINANCIAL PERSPECTIVE?SCHOOLS DIFFERENT FROM A FINANCIAL PERSPECTIVE?
School Finance
2
why governance (the Board of Trustees) plays an integral role in the financial stewardship and
accountability within these entities.
It is not unusual for anyone to come across the note below or some variations of the same in audited
financial statements of the charter schools; you would be surprised that in some schools, the restriction
appears to be implicitly understood, since they neither have a line for temporarily restricted funds on
their balance sheet nor the statement below in their respective financial statement notes. This could be
understood as work-in-progress.
“During the yearDuring the yearDuring the yearDuring the year thatthatthatthat ended June 30, 2009, the Board of Trustees enacted a Board Designated Reserve Policyended June 30, 2009, the Board of Trustees enacted a Board Designated Reserve Policyended June 30, 2009, the Board of Trustees enacted a Board Designated Reserve Policyended June 30, 2009, the Board of Trustees enacted a Board Designated Reserve Policy
in which unrestricted net assets are set aside to be used only with the approval of the Board.in which unrestricted net assets are set aside to be used only with the approval of the Board.in which unrestricted net assets are set aside to be used only with the approval of the Board.in which unrestricted net assets are set aside to be used only with the approval of the Board.”
Some charter schools have gone as far as to accumulate US $20 million or more in net assets, resulting
from not utilizing all the revenues allocated to the school in its years of operation. The bottom line is
that the schools benefit tremendously when these funds remain within their budget to be used for
future projects or long-term goals. The flexibility that comes with having the funds in-house is
extremely valuable, as some schools have used the funds for performance bonuses for the staff, facility
enhancements, and/or after-school programs. It is then not at all a surprise that this
flexibility/availability creates a quagmire for the finance team within charter schools, since these very
same funds have limited usage as an investment vehicle (i.e., mainly money market funds) and have to
be distributed among several financial institutions in order to ensure their insurance by The Federal
Deposit Insurance Corporation (FDIC). As of December 31, 2014, the insured amount per account per
depositor was US $250,000. This is a juncture that brings the Boards of Trustees and the finance teams
closer together in order to ensure transparency, accountability- and, more importantly, to protect and
wisely manage schools’ financial resources.
The chart below depicts two charter schools and the funds that they have retained/amassed so far.
Although we only have data on school #1 from 2008 and onwards, the school has been operating since
2000. I submitted a written request to the SUNY Charter Schools Institute for the additional audited
financial statements. The second school had just been established in 2012. This is why we only have two
data points available to us.

3. ARE CHARTER SCHOOLS ANDARE CHARTER SCHOOLS ANDARE CHARTER SCHOOLS ANDARE CHARTER SCHOOLS AND TRADITIONALTRADITIONALTRADITIONALTRADITIONAL PUBLICPUBLICPUBLICPUBLIC
SCHOOLS DIFFERENT FROM A FINANCIAL PERSPECTIVE?SCHOOLS DIFFERENT FROM A FINANCIAL PERSPECTIVE?SCHOOLS DIFFERENT FROM A FINANCIAL PERSPECTIVE?SCHOOLS DIFFERENT FROM A FINANCIAL PERSPECTIVE?
School Finance
3
It is important to highlight that charter schools are required by the City of New York to submit a bill on a
bi-monthly basis in order to request and secure their operating revenues. However, this is not at all the
case with traditional schools. The latter receive most, if not all, of their funds upfront. Inevitably, it is
just a matter of timing of the reconciliation process. When it comes to traditional schools, the
reconciliation/reallocation of resources is done once a year. During this process, schools throughout the
city secure additional funding if their enrollment rates are higher than expected or are required to
return funds to the city if their enrollment data shows otherwise. Hence, the main difference between
the two types of school systems is that the reconciliation process for charter schools is done on a bi-
monthly basis, while in the case of traditional schools, it is performed once a year (usually around
February).
In sum, regardless of when the reconciliation process is performed by the City of New York, the most
important aspect of the procedure is that the schools are held accountable for the taxpayers’ dollars
allocated to them. Overall, the main accounting difference between charter schools and traditional
schools is significant, because charter schools manage to create a piggy bank for that rainy day while
traditional schools cannot.
See you next time,
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18,954,243 19,440,479 19,845,160.0020,060,700.0020,019,797.00 19,879,542.00
18,004,977.00
734,564.00 681,009.00
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
2008 2009 2010 2011 2012 2013 2014
NET ASSETS
School#1
School#2