Financial accounting for schools involves reporting and recording the institution's economic activities, including tracking, reporting and auditing all income, expenses and asset changes and managing school revenue streams. It ensures transparency to stakeholders and helps the school maintain compliance.
However, ensuring accurate accounting can be challenging, especially considering the different requirements for public and private schools.
This article will explain how to overcome financial challenges and ensure your school maintains compliance.
Table of Contents
Most schools struggle with tight budgets, complex transactions and changing regulations. This makes financial accounting critical, as every penny needs to be accounted for. That's why we're sharing the five biggest accounting challenges schools face—and how to fix them.
| Challenge | Impact |
|---|---|
| Budget Constraints & Funding Gaps | Delayed program funding and limited educational resources |
| Audit & Compliance Issues | Risk of penalties, fines, or loss of funding |
| Recordkeeping Errors & Inconsistencies | Inaccurate financial reports and reconciliation challenges |
| Lack of Skilled Accounting Staff | Increased reliance on manual processes and higher error rates |
| Inadequate Rainy Day Revenue Planning | Unprepared for emergencies or unexpected expenses |
School budgeting issues are often related to limited financial resources and face constraints in funding various programs and activities. A TCF report reveals that K-12 schools throughout the U.S. are underfunded by nearly $150 billion annually. Not much is being done to address funding limitations, and operational costs keep growing.
Although schools can seek out more funding opportunities, they can also benefit from managing funds effectively. The following strategic budget management techniques can reduce the challenges of financial management in schools, so they maximize their available resources and ensure a high quality of education:
To understand these strategic budgeting techniques, imagine a small private institution facing declining enrollment and rising expenses. To overcome this, the school's finance team analyzes expenses to reduce costs without compromising educational standards. They then adopt a zero-based budgeting approach and implement cost-saving measures like bulk purchasing and energy-efficient practices.
State and federal laws, as well as local regulations and guidelines, require schools to adhere to educational financial reporting and fund accounting. Failure to comply can result in hefty fines and penalties or, at the most extreme, a school closure.
Schools can miss the compliance mark if they are unfamiliar with the generally accepted accounting principles (GAAP) that guide them in their work. GAAP is a set of accounting principles, standards, and procedures that combines authoritative standards set by policy boards with commonly accepted practices.
Statistics show some or all school districts are required to follow GAAP in 34 states. However, these guidelines can benefit administration, regardless of the requirement.
Fortunately, school administrators can access books, tools and resources to help them learn more about GAAP and manage compliance effectively. Additionally, accounting software comes with built-in compliance features, compliance management platforms and online resources provided by regulatory bodies, ensuring everything is done by the book.
Audits are mandatory for schools to ensure compliance. However, many schools don't fully prepare for audits. They may not have the documents required when audits roll around, leading to fines and penalties.
Schools can prepare for audits by:
Recordkeeping errors and inconsistencies are other issues in schools' financial accounting. Common ones include:
School accounting errors are often human mistakes that are difficult to avoid. However, they can be minimized with team oversight. Modern software programs also prevent errors in financial accounting for schools.
A skilled accounting staff can help schools achieve accurate financials. They also tend to be trained in accounting software that ensures accuracy.
However, due to limited funding, schools may not have the budget to hire these professionals or purchase these systems. As a result, they hire staff with minimal experience who are prone to making mistakes. They may also use manual spreadsheets that increase the risk of human error.
Schools can overcome these issues by:
We work with 13,000 schools across the country, and we constantly see that no matter how great the accounting or budgeting is, unforeseen expenses turn up, and with the state of funding today, there isn't an additional well to draw from.
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Accounting problems can vary depending on whether the school is private or public. The following sections will review the unique issues that arise.
Compliance and regulatory risks are common issues that arise in financial accounting for schools. For example, ITT Technical Institute closed due to misleading recruitment practices and failure to comply with federal financial aid regulations.
Noncompliance in the form of delayed reports can also impact funding and credibility. Schools that don't present reports in a timely manner may miss funding deadlines. They can also make themselves look bad in the eyes of stakeholders who want financial insights.
These issues can be avoided by following GAAP standards, which maintain the following.
Financial challenges are all too prevalent in school accounting, but they can be addressed through the following strategies:
Cash and checks are often collected as payment, but they can present issues such as lost money, lack of a paper trail, theft, and more time spent recording. As a result, many schools are transitioning to a cashless system.
Vanco's Revtrak supports the transition, making payment processing easy. It can be used for various educational systems and applications. It streamlines reconciliation, reduces administrative burden and offers airtight security.
Various software tools make financial accounting for schools faster, easier and error-free. Many are intuitive, limiting the need for extensive training. They automate reporting and other processes for a more efficient approach. For optimal results, choose a school-specific tool tailored to public or private school needs.
These tools typically require a monthly payment, and expenses can add up. However, the investment evens out, saving schools money on training and reducing costly, time-consuming efforts. Schools may also fundraise or apply for grants to cover the cost.
Hiring experienced financial experts can get expensive. Schools can save money by hiring less experienced staff and offering training and certification. These employees may work for less money and will be grateful for the upskilling experience.
While initial training is essential, schools should also consider offering ongoing classes and workshops. They ensure staff are updated on the latest financial tools and regulations.
Internal audits prepare schools for the 'real thing' by ensuring accurate information and addressing errors and issues. The process can also assist with budgeting throughout the year.
An internal audit requires:
Internal audits can be conducted on a monthly, quarterly or annual basis or as-needed.
Financial accounting for schools is essential, ensuring compliance and transparency and helping schools reach budgeting goals. However, challenges arise, including budgeting constraints, compliance issues, recordkeeping errors and a lack of trained professionals. As a result, schools may be unable to budget accurately, face regulatory issues and can suffer reputational damage.
Fortunately, schools can overcome these challenges faced by finance professionals through training, regular audits and digital tools. Training ensures staff members are familiar with policies and protocols, while audits ensure records are accurate throughout the school year. Digital tools minimize errors, automate systems, reduce administrative burdens and ensure compliance.
How does your school ensure financial accuracy?
Managing a K-12 finance is tough—especially with rising costs and less funding. That’s why we created this data-backed guide.
You’ll learn:
Financial accounting for schools entails:
Schools face several financial management challenges. Common ones include:
Accounting problems at schools can be related to:
Schools can address these issues through training, updated software and data analysis that provides funding insights.
Fraud and theft are common issues in school finances, but they can be prevented through the following strategies:
GAAP compliance in schools applies as follows:
The following tools help schools overcome financial accounting challenges and avoid school audit failures:
Schools may provide in-person and online training and workshops, so staff members can learn:
Schools can prepare for external audits by: