The purpose of this Director’s Memorandum is to assist local education agencies to more effectively manage their special education expenditures and funds. Changes have been made in the financial accounting module of the Arkansas Public School Computer Network (APSCN) software to allow districts and co-ops to classify FY 2003 state and local special education expenditures according to fund source and program code. The use of this new framework is optional for FY 2003 expenditures, but will be required when recording FY 2004 special education expenditures. The user will be prompted to enter the state/local special education source of fund(s) if the district has one; otherwise only special education expenditures by function range 1200-1299 and assigned fund source range 240-280 for state/local will be pulled. Effective July 1, 2003, for fiscal year 03-04; districts will be required to use the program code 200 in the budget strip for all special education state/local expenditures. Some districts may already have a user designated source of fund in the range 001-199, and may continue to use that; however, add the program code “200” to all the budget units effective July 1, 2003. All federal expenditures will be pulled by source of fund 6700-6750. Use the program code 200 in the federal special education budget strips as well, for consistency; and to conveniently print reports from the Pentamation software for all special education expenditures with the following query language: ???????????200* in the “Budget Unit” field. (The question marks are required in the search query.)Standard state and local expenditure classifications will provide the Arkansas Department of Education (ADE) with more accurate financial data upon which to evaluate each school district’s and co-op’s compliance with federal regulations relating to state and local spending. In addition, recording financial data according to standard classifications will allow the ADE to access these data electronically, thus eliminating the need for districts and co-ops to manually submit both mid-year and annual financial reports.Medicaid revenue received by special education programs must be identified as federal source revenue and be receipted to fund source 6750. Medicaid revenue should not be recorded as a reduction of expenditure. Consistent treatment of special education Medicaid revenue by districts and co-ops will allow the ADE to more accurately determine the state match owed to the state Medicaid program.For state-wide consistency, when coding the portion of Medicaid reimbursement that is payable to ADE, code it to 2000290000020000 63900.