Every Massachusetts school district is required to, within nine months of the close of its fiscal year, arrange for and undergo an independent audit of its financial records, to include using the Department of Elementary and Secondary Education Compliance Supplement (Compliance Supplement), and submit the report of this audit to the Massachusetts Department of Elementary and Secondary Education (DESE or Department). This requirement shall be satisfied if the school district's records are audited using the Department's Compliance Supplement as part of a general audit of all municipal financial records. The audit must be conducted by an independent public accounting firm based on the compliance requirements, audit objectives, and suggested audit procedures contained in this Compliance Supplement. The auditor shall comply with professional standards included in "Standards for Audit of Governmental Organizations, Programs, Activities and Functions" adopted by the Comptroller General of the United States in the conduct of the audit.
Each city, town, and regional school district is required to submit an End-of-Year Financial Report (EOYR) to DESE on or before September 30 of each year. The EOYR must be consistent with Department regulations and guidelines. The EOYR consists of several schedules as follows:
Schedule 1 is the primary schedule reporting the results of operations for the fiscal year. Schedule 1 includes all revenues (Part I) and expenditures (Part II) received or made by the district directly or indirectly (Part IIA), as well as those expenditures made by the city or town (Part IIB) or third parties, grants and special funds (Part IIC) in support of these educational programs for a specific fiscal year. Schedule 1 contains information by fund, source, program, function, and object. The Department utilizes this schedule for net school spending compliance, federal reporting, state aid, local contribution calculations, and other needs. As such, it is critical that the amounts reported on Schedule 1 are accurate and verifiable.
While Schedule 1 financial information is generally derived from the municipal or district accounting system, other data in the EOYR are generally prepared in part from sources other than the accounting system. Districts utilize various allocations, distributions, or assignments of costs to complete the EOYR schedules or to report non-financial data. It is critical that these allocations, distributions, or assignment of costs are consistent with documented and reasonable methodologies and that non-financial data are supported by appropriate records or documented methodologies.
The purpose of this Compliance Supplement is to provide guidance in the conduct of an independent audit of a district's system for managing and reporting financial and non-financial information the district is required to report to DESE on the EOYR. The objectives of the Compliance Supplement are to determine whether:
This document describes the compliance requirements, audit objectives, and suggested audit procedures for Massachusetts school districts. These requirements, objectives, and procedures are intended to be consistent with the objectives and requirements of Part 3, Compliance Requirement L, Reporting Requirements of the March 2000 OMB A-133 Compliance Supplement. This document is written with the understanding that the internal control systems for Schedule 1 and other EOYR financial and other reported data are subject to the same tests as other municipal data.
Determine whether required reports for Massachusetts school districts include all activity of the reporting period, are supported by applicable accounting records, and are fairly presented in accordance with State requirements.
Districts must use the standard financial reporting schedules contained in the (EOYR). These schedules include financial and non-financial data. The financial information must be traceable to the accounting ledgers of the district or of the municipality or to a documented methodology. If a "crosswalk" exists between the municipal and district ledgers, this crosswalk should be documented. The non-financial information must be traceable to records or to a documented methodology that demonstrates the information was compiled from existing records. Each district must report income on the modified accrual basis and expenditures on the modified accrual plus encumbrance basis.
Schedule 1 — Revenue & Expenditure Summary
C, D, and E. Revenues from Federal Grants, State Grants and Revolving and Special Funds
Trace the revenue from state aid, federal grants, state grants, and revolving and special funds to the detail in district's accounting ledgers. Also, trace the revenues reported on district's accounting ledgers to revenues reported on Schedule 1. These amounts should agree with the possible exception of revenue from state aid, federal grants and state grants, which are entered by the state based on allotments. Determine if the district verified the grant amounts received with the detail posted on the DESE website and pre-populated by DESE.
Note: Amounts deposited in legally authorized revolving accounts (e.g. School Choice) cannot be transferred to the General Fund.
By School Committee and B. By City or Town
For Schedule 3 expenditures:
Verify that the district's accounting system includes school location codes and trace the amounts reported by school location on the linked file to the accounting ledgers. These amounts should agree.
If staff is assigned to more than one school, determine if the district maintains a payroll system or spreadsheet to document the assignment of staff salaries by school location.
If allocations are used to assign staff salaries to schools, programs, functions, or objects, was the allocation supported by a documented methodology?
If allocations are used for non-salary expenditures, determine if the district maintains a documented methodology for consistency in application. Allocations are acceptable on Schedule 3 for non-salary expenditures although direct assignment or charging is preferable.
Ensure amounts reported as districtwide expenditures cannot be assigned to a specific school.
In the event that a municipal district does not have complete ridership data for Regular Day expenditures, please just note the inconsistency. That inconsistency should not be considered a finding.
If a cost allocation plan was used to determine reimbursable expenditures, review the propriety of the plan and test the expenditures reported.
Last Updated: February 9, 2021
Massachusetts Department of Elementary and Secondary Education
75 Pleasant Street, Malden, MA 02148-4906
Voice: (781) 338-3000
TTY: (800) 439-2370
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