Fiscal Oversight: COVID and Beyond: Is your fiscal oversight proactive enough? With Mary Bradley and Cindy Schumacher. Presented at NACSA 2020. Fiscal insolvency is one of the most common reasons charters close, but does it have to be? With COVID, will we see more schools in financial trouble? How will an authorizer know when a school is headed for challenging times? What role should an authorizer play? Dialogue with the presenters about these questions and discuss the importance of building a proactive fiscal oversight system that includes early identification and preparing the environment for the challenges ahead.

1. Mary Bradley and
Cindy Schumacher
NACSA 2020
Fiscal Oversight: COVID
and Beyond
Is your fiscal oversight proactive enough?

2. Fiscal Oversight: COVID and Beyond
Is your fiscal oversight proactive enough?
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Cindy Schumacher
CM Schumacher Consulting
Formerly at Central Michigan
University, The Center for Charter
Schools
Mary Bradley
National Charter Schools Institute
Formerly at Chicago Public Schools, Office
of Innovation and Central Michigan
University, The Center for Charter Schools

3. Fiscal Oversight – COVID and Beyond
Session Goals
• Discuss the authorizer role with fiscal oversight
• Discuss how to create a proactive fiscal oversight
system that:
• Tiers schools based on performance
• Differentiates oversight based on performance
• Identifies when a school may be headed for
financial trouble
• Prepares the environment
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4. Fiscal Oversight – COVID and Beyond
Defining the Challenge
Financial insolvency is one of the most common reasons
charter schools close.
• Nationally 15%* of charter schools are closed
• 41.7% of schools closed are closed due to financial
reasons*
• Will we see more with the lasting effects of COVID?
*Center for Education Reform
*National Alliance of Public Charter Schools
**National Center for Education Reform
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5. Fiscal Oversight – COVID and Beyond
Understanding Oversight Responsibilities
What role should an authorizer play with fiscal oversight?
Does COVID change it?
How will you know when a school is headed for trouble?
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6. Fiscal Oversight – COVID and Beyond
Proactive Oversight System
Why should authorizers build a proactive oversight
system?
• Differentiate oversight
• Resource allocation
• No surprises
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7. Fiscal Oversight – COVID and Beyond
Proactive Oversight System
Step 1: Current assessment
Step 2: Tier schools based upon performance
Step 3: Differentiate oversight based upon tiers
Step 4: Design a warning system to flag schools that are
starting to decline
Step 5: Prepare the environment
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8. Fiscal Oversight – COVID and Beyond
Proactive Oversight – Step 1: Current Assessment
Near-Term Financial Health Measures*
Designed to depict the school's financial position and viability in the
upcoming year. Schools that fail the near-term indicators are at
higher risk for financial distress or closure.
• Current Ratio
• Cash on Hand
• Enrollment Variance
• Debt Default or Forgiveness
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*NACSA

9. Fiscal Oversight – COVID and Beyond
Proactive Oversight – Step 1: Current Assessment
Sustainability Measures
Designed to depict a school's financial position and viability over time.
Schools may fail the sustainability indicators for multiple reasons. They may
be trending toward financial distress or they could have a sound rationale
for not meeting the indicator in a given year.
• Fund Balance*
• Cash Flow*
• Debt Service Coverage Ratio*
• Enrollment Stability
*NACSA
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10. Fiscal Oversight – COVID and Beyond
Proactive Oversight – Step 1: Current Assessment
Identify critical KPI’s and assess school performance
• Use KPI’s that will measure the most critical things
• Lean toward Near-Term Financial Health Indicator’s
• Keep it simple
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11. Fiscal Oversight – COVID and Beyond
Proactive Oversight – Step 1: Current Assessment – KPIs
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Key Performance Indicators Purpose Target
Current Ratio measures whether a school can pay their
short-term obligations with their current
assets.
1.1 for first- and second-year schools;
greater than 1.0 for all others
Change in Total Margin Ratio measures whether a school is living within
its means (i.e. not spending more than
revenue coming in).
most recent year change in fund
balance ratio is positive and
aggregated 3 year change in fund
balance ratio is positive OR aggregated
3-year change in fund balance ratio is
greater than -1.5%, the trend is positive
for the last 2 years and most recent
year change in fund
Days Cash on Hand measures the number of days a school can
operate without an influx of additional cash.
60 days or 30 days + 1 positive year
trend
Enrollment Stability measurers whether the main revenue
source for the school is stable over time.
current year enrollment is > 97% of
enrollment 5 years ago
AND
current year enrollment is > 97% of
previous year enrollment
Current Year Enrollment
Variance
measurers whether a school’s current year
enrollment is stable.
current year enrollment is > 95.0% of
previous year enrollment

12. Fiscal Oversight – COVID and Beyond
Proactive Oversight – Step 2: Tiering – Business Rules
Tier the schools based upon performance on the KPIs
using defined business rules
For example:
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Tier Title Business Rules
Tier 1 Fiscally Stable (FS) Does not meet one KPI or meets all KPIs
Tier 2 Fiscally Identified
for Review (FIR)
Does not meet two or more KPIs
Tier 3 Fiscal Concern (FC) For schools identified as FIR, review
additional information and use professional
judgement to determine if they are or could
be in fiscal trouble
Tier 0 New School See New School Protocol

13. Fiscal Oversight – COVID and Beyond
Proactive Oversight – Step 3: Differentiated Oversight
Differentiate oversight based upon the tier:
Tier 1 (FS) → Standard Oversight
Tier 2 (FIR) → Standard Oversight with Watch List
Tier 3 (FC) → Standard Oversight with Additional Oversight and/or Intervention
• Review submissions in more detail
• Review additional KPIs
• Have conversations to assess school’s understanding of fiscal concerns
• Require additional submissions such as cash flow statements, projection of days cash on hand or a
viability plan
• Provide professional development
• Complete a specialized audit
• Consider progressive intervention that could culminate into corrective action or contract violation
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14. Fiscal Oversight – COVID and Beyond
Proactive Oversight – Step 3: Differentiated Oversight
With performing a current assessment, tiering the
schools based on performance, and differentiating
oversight is our proactive oversight system complete?
Unfortunately, no.
How do we tell when a school is “going off the tracks”?
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15. Fiscal Oversight – COVID and Beyond
Proactive Oversight – Step 4: Warning System
Develop a warning system within your standard oversight to
flag Tier 1 and Tier 2 schools that are starting to decline.
• Require submissions that really matter and truly add value
• Assess performance after each submission to determine if
a school’s tier should be changed to Tier 3 thus calling for
additional oversight
• Complete stress tests when warranted
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16. Fiscal Oversight – COVID and Beyond
Proactive Oversight – Step 4: Warning System
Identify submissions (warning indicators) that truly add value in your
context. For example,
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Warning Indicator Question to be answered? Additional Information
Financial Controls Does the school have issues with internal
controls? Is the school a “going-concern?”
Review the audited financial
statements for material findings and
a “going-concern” note.
Deficit – budget Is the school ending the year in a deficit? Review the original budget to ensure
the school does not end in a deficit
without a valid reason.
Unrestricted State Aid Revenue Stability Is the current year budgeted state aid
revenue stable compared to last years?
Review the original budget to ensure
the state aid revenue is stable
compared to last years.
Projected General Fund Fund Balance
Ratio – Budget
Is the school living within its means? Review the original budget to ensure
the projected General Fund ending
fund balance is greater than or equal
to 5 % of total expenditures.
State Aid Revenue Variance Is budgeted state aid revenue overstated
(based on enrollment) compared to actual
enrollment?
Compare the budgeted enrollment to
the actual enrollment to ensure
budgeted state revenue is not
overstated.

17. Fiscal Oversight – COVID and Beyond
Proactive Oversight – Step 4: Warning System
Example continued…
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State aid and fund balance reasonableness Is the budget amendment reasonable? Review the state aid in amended budgets
to ensure it is reasonable and ensure the
school does not end the current year in a
deficit without a valid reason.
Projected General Fund Fund Balance Ratio –
Amended Budgets
Is the school living within its means? Review amended budgets to ensure the
projected General Fund ending fund
balance is greater than or equal to 5% of
total expenditures.
Fund Balance; Current Ratio; Total Change in
Fund Balance Ratio; Days Cash on Hand;
Enrollment Stability; Current Year Enrollment
Stability – 4th QFS
Is the school meeting key performance indicators? Epicenter Scorecard will calculate, and
schools will be classified based upon the
business rules.
Deficit – 4th QFS Is the school projected to end the year with a
deficit?
Based upon the 4th QFS, determine that
the school will not end the year in a deficit
and that the accumulated fund balance is
equal to or greater than 3% of
expenditures .
ESP and/or lease forgiveness Can the school pay its large contracts? Review board minutes or 4th quarter
financial statements to ensure debt is not
being forgiven.
Cash Flow Borrowings Does the school need to borrow more money? Review short-term cash flow borrowings.
Board Minutes Do the board minutes include any information that
may impact the school's financial designation?
Review board minutes.

18. Fiscal Oversight – COVID and Beyond
Proactive Oversight – Step 4: Warning System
Assess performance after each submission. If the school is not
meeting expectations, determine if additional review is necessary.
Ultimately, decide if the school should be moved to Tier 3.
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19. Fiscal Oversight – COVID and Beyond
Proactive Oversight – Step 4: Warning System
What does the story say….
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20. Fiscal Oversight – COVID and Beyond
Proactive Oversight – Step 4: Warning System
Perform stress tests when appropriate.
Authorizers should consider other factors that can be early
indicators of rough waters ahead
• State and local changes that impact funding
• Census Data
• Leadership Change – Administrator and Financial
• Low Academic Performance
• Competition and Local Context
• Governance Challenges
• Operational Challenges
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21. Fiscal Oversight – COVID and Beyond
Proactive Oversight – Step 5: Preparing the Environment
Prepare the environment by
communicating with
• Schools
• Authorizer leadership
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22. Fiscal Oversight: COVID and Beyond
Is your fiscal oversight proactive enough?
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Cindy Schumacher
CM Schumacher Consulting
schum1cm@gmail.com
Mary Bradley
National Charter Schools Institute
mbradley@nationalcharterschools.org
QUESTIONS?

23. THANKYOU!
NATIONAL CHARTER SCHOOLS INSTITUTE
CM SCHUMACHER CONSULTING