Reconciling Cash to the County Treasurer – What a School District Needs to Know

by Sara Kirk, CPA, CFE, Consulting Partner

Posted on January 17, 2019

Reconciliations are an essential internal control tool for numerous reasons.  Internal control functions of a reconciliation include the identification of accounting and bank errors and to assist with preventing and detecting fraud by providing an independent review of the transactions processed by a school district during the reconciliation period.  If these reasons alone were not substantial enough for your school district to develop and implement a reconciliation process, then there is the requirement to be compliant with the minimum internal control policies and procedures to be used by Arizona school districts as outlined in the Uniform System of Financial Records (USFR) which require that the District’s records of cash balances be reconciled to the County Treasurer’s records at least monthly.

Arizona school district cash reconciliations can be either a two-party reconciliation or a three-party reconciliation.  Accounting responsibility school districts pursuant to A.R.S. 15-914.01 reconcile their records directly to the records of the County Treasurer, whereas the County School Superintendent’s (CSS) records must be incorporated into the reconciliation process for school districts not designated as an accounting responsibility school district.  The County Treasurer’s function is similar to that of a banking institution, facilitating the wiring in and depositing of monies and the payment of checks processed against the account. It is important to note that regardless of whether the CSS’s office performs the reconciliation to the County Treasurer for your school district, it is still ultimately the responsibility of the school district to ensure reconciliations are completed accurately and timely.

In order to ensure individuals at your school district have the competencies to complete and/or oversee the accurate and timely completion of a cash reconciliation to the County Treasurer, the following are areas that are key to gaining an understanding of the process.

How transactions are initiated and the underlying accounting transactions that result

Expenditure transactions are for the most part initiated in the school district accounting records, with the exception being bond debt service payments and interest charges related to credit line utilization, which are initiated on the County Treasurer’s side.  When an expenditure is processed for payment by your school district, accounting transactions are being recorded in the computerized system when certain things occur.  It is important to understand what is being recorded in the accounting records and what triggers the related system generated entries.  The end result of the processing of a payment to an employee or a vendor should be a debit to the appropriate expenditure code and a credit to cash on deposit with the county treasurer.

Many of a school district’s revenue sources, such as property taxes, state equalization assistance, and federal and state grant monies passed through the Arizona Department of Education (ADE), are wired directly between bank accounts and therefore are recorded first at the County Treasurer, followed by a posting into the school district’s accounting records.  Other revenues, such as gate receipts, donations, and extracurricular activities fees tax credit monies, are received by a school district directly and are ultimately deposited with the County Treasurer.  The timing of when the revenue is recorded into a school district’s accounting records for this may vary.  Once again, it is important to understand how and when these transactions are recorded in the accounting records.  The end result of the processing of the receipt of revenue should be a debit to cash on deposit with the county treasurer and a credit to the appropriate revenue code.

How funds utilized by the school district are grouped by your County Treasurer

A.R.S 15-996 dictates how a County Treasurer must hold school district monies. This varies from county to county, as options are provided.  Ensure your school district has a thorough understanding of how funds you maintain individually in your accounting records are grouped together at the County Treasurer if this situation exists.

What reports are needed to complete the reconciliation

As mentioned above, as many as three parties’ records may be involved in the completion of the reconciliation process.  It is important a school district understand the reports to be obtained or generated and utilized to prepare the monthly cash reconciliation to the County Treasurer.  Reports to be utilized may include but are not limited to the following:

• County Treasurer account activity for the period end being reconciled including ending cash balances
• Listing of outstanding (uncleared) checks as of the period end being reconciled (County Treasurer)
• If the school district’s accounting system is not shared with the CSS’s, reports of the CSS’s revenues, expenditures and ending cash balances for the period end being reconciled
• District ending cash balance reports for the period end being reconciled

How to investigate, identify, and resolve differences

A cash reconciliation serves as a tool for the school district to ensure its accounting records are accurate and complete.  Differences between the school district’s records and that of the County Treasurer’s or CSS’s records may be identified through this process, making the ability to identify these differences and to determine any action to be taken to resolve the differences very important.

Reconciling differences arise when there are differences between the transactions recorded in the school district’s accounting records during the period being reconciled and the records of the comparison entity, the County Treasurer or CSS.  Differences may be the result of:

• Timing – Certain differences identified that are needed to reconcile the entities may simply be the result of timing. For example, if the school district processes a check on June 30 that does not clear the County Treasurer account until July 7, this represents a reconciling item that at this point in time requires no action by either party to resolve.
• Journal entries – Journal entries often are identified as differences on the cash reconciliation. In some situations, the school district has posted an adjusting journal entry impacting cash between funds and has either not (1) proposed a treasurer transfer to move the cash between pooled treasurer funds when multiple treasurer funds are impacted or (2) has not provided the adjusting journal entry to the CSS’s office to post to their records and communicate to the County Treasurer the need to transfer funds between pooled accounts.  In this situation, the school district’s accounting records do not require adjustment, but rather, information needs to be communicated to the other entities for action to resolve the reconciling item.
• Errors – An identified difference may represent an error requiring correction. For example, the County Treasurer may have deposited $90 of interest into one of the school district’s funds, but $80 was posted into the school district’s accounting records.  In this situation, the school district would need to post an adjusting journal entry to increase cash on deposit with the county treasurer and interest revenue by $10 to resolve the discrepancy.
• Unrecorded activity – An identified difference may represent activity recorded by one entity but not the other requiring correction. For example, the County Treasurer may have wired monies out of the Debt Service Fund on January 1 to pay interest on bonded debt, however the school district did not record this transaction in the accounting records. In this situation, the school district would need to post an adjusting journal entry to decrease cash on deposit with the county treasurer and increase interest expenditures to resolve the discrepancy.
• Duplicate transaction posting – An identified difference may be the result of a duplicate transaction. For example, if the school district has inadvertently posted a deposit two times, one of the deposits will need to be corrected in the accounting records to bring the school district’s cash in balance with the County Treasurer’s cash.

The school district should verify that the actions taken to resolve the differences identified on the previous month’s reconciliation had the desired effect and that temporary timing differences no longer exist when performing the reconciliation for the subsequent month.

When cash is not reconciled in a timely manner and differences identified on cash reconciliations are not researched and resolved in a timely manner, a school district is not able to effectively manage its finances or comply with state guidelines.  To ensure this does not become an issue for your school district, continue to enhance your understanding of the process, increase your participation in the process, and keep effective lines of communication open with the County Treasurer and CSS offices as applicable.