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Providence Financial












MONTHLY NEWSLETTER:  SEPTEMBER 2008 ISSUE

LOOKING FOR CONFLICTS OF INTEREST
BY BRENT VAN ALFEN
PROVIDENCE FINANCIAL CO., LLC



I see all the gory details of a lot of charter schools. This provides the opportunity to identify some best practices. I’m amazed every day as I see charter operators achieving incredible results with very limited resources. Unfortunately, I also see plenty of management practices that make me cringe in horror. I’ll briefly touch on one area where I’ve noticed a wide disparity among schools – that is in their financial management.

“Management” is derived from the verb “manage” (sorry, give me a few more lines…I’ll try to make my point and pick up the pace here soon). There are those schools that actively manage their finances capably, seeming to stretch their limited resources to provide their students a quality education and still have a surplus left at the end of the year for the inevitable contingencies that often arise. This is an essential ingredient to a successful charter school. Regrettably, there are also many schools that don’t manage their finances at all. Some schools literally have no financial management. Following are some general observations of these types of schools:

  • They do not know how they are performing financially against the annual budget
  • They rely on their auditors for routine accounting
  • Financial results and budgets are not regularly disseminated to the school management and the board
  • Management is often surprised by the end-of-the-year financial results
  • There are often large discrepancies between the budget and actual financial results
  • Little accountability for financial results in the organization
  • Finances are an afterthought and not given adequate priority
I am a CPA and come from a background working in the finance departments of large companies. These companies literally spend hundreds of millions of dollars every year on their accounting departments and systems, just to understand how the businesses are operating financially. While charter schools obviously don’t have a profit motive like most businesses, charter schools are still businesses. They can easily fail if their finances are poorly managed.

Some consequences I have seen from a lack of financial management include: frequent net losses, no cash cushion for unexpected expenses, loan defaults, an inability to qualify for financing to achieve facility ownership, higher interest costs, and I have even seen schools file for bankruptcy and become tied up in lawsuits. While some unavoidable circumstances can arise, these results are largely avoidable with prudent financial management.

A qualified, effective business manager is generally someone with some accounting training and experience.

While this may sound like a plug for my accountant brothers and sisters (you can imagine what a fun-loving group we are when we get together), a common thread I see in schools with good financial management and absent in those with poor financial management is a qualified business manager.

A qualified, effective business manager is generally someone with some accounting training and experience. I see two models, both of which seem to work well for schools – the employee business manager, who devotes all of his or her time to a school, and the outsourced business manager, who may provide management services to more than one school on a contract basis. Following are some minimal responsibilities that I think a good business manager should shoulder:

  • Prepare a thoughtful annual financial budget and update as necessary
  • Help develop financial goals such as a minimum cash balance and annual surplus
  • Accurately maintain the school’s financial books and records
  • Prepare monthly financial statements and provide them to the school management and board
  • Regularly present financial results to the board and answer questions
  • Prepare regular actual vs. budgeted financial reports and provide them to the school management and board
  • Spearhead negotiations of leases, loans, purchase contracts and other financial contracts and help school management and the board understand implications and alternatives
  • Implement and monitor monetary controls to prevent fraud and misappropriation of assets
  • Serve as an unyielding “gatekeeper” or “Dr. No” over unbudgeted expenditures
  • Identify areas for saving money (chief penny pincher)
While hiring a qualified business manager may seem to be more expensive than having the receptionist or administrator keep the books, I am confident that this resource will pay for itself in many ways. ?

For information contact Rick Van Alfen, Providence Financial Co., Inc.
Phone: 801-556-2290
Email: rick @ providencefinancialco . com