ADE Director's Communication Memo Form

Memo Number : FIN-06-059

Date Created : 02/24/2006


Co-op Directors

Type of Memo: Informational
Response Required: Optional
Section:   Fiscal and Administrative Services - Dr. Bobbie Davis, Assistant Commissioner
Fiscal Distress Indicators

Regulatory Authority:

Contact Person:
Dr. Bobbie Davis

Phone Number:


The Department continues to receive questions regarding the process for identifying a school district as being in fiscal distress. Therefore, the following brief summary of the process is provided for clarification:

The first screening for fiscal distress examines districts with a declining balance expected to be at zero within three years.

In addition, any one of the following indicators which could jeopardize the fiscal integrity of a school district may also be used to identify a district as being in distress:

A. Material failure to properly maintain facilities.
B. Material violation of local, state or federal fire, health, or safety codes.
C. Material violation of local, state, or federal construction codes.
D. Material state or federal audit exceptions or violations.
E. Material failure to provide timely and accurate legally-required financial reports to the Department, Legislative Audit, the General Assembly, or Internal Revenue Service.
F. Insufficient funds to cover payroll, benefits, and/or legal tax obligations.
G. Material failure to meet legally binding minimum teacher salary schedule obligations.
H. Material failure to comply with purchasing or bid requirements.
I. Material default on a district debt obligation.
J. Material discrepancies between budgeted and actual school district expenditures.
K. Material failure to comply with audit requirements.
L. Material failure to comply with provisions of law that specifically place a district in fiscal distress based on noncompliance.
M. Any other fiscal condition deemed to have a detrimental negative impact on the continuation of educational services.

When a district is flagged as being identified as being in fiscal distress, the district is asked to respond and explain the declining balances. If the district is paying cash for building projects and has a long-term facility plan, then that would need to be explained. In other words, if there is a management controlled process which has resulted in the declining balance, then there may be no legitimate need for the district to be identified as being in fiscal distress. In addition when a district is initially flagged as being in fiscal distress, a questionnaire is sent to the district for them to provide additional and clarifying information. The Department then uses the districtís response to help evaluate the fiscal status of the district.

The process of identifying a district as being in fiscal distress is complex and broad-based. The process is designed to allow districts to explain their procedures and the resulting outcome. After the identification process is completed and it is determined that there are serious financial needs in the district, then the State Board of Education has to vote to classify a district as being in fiscal distrss.

There is a Rule Governing the Arkansas Fiscal Distress and Accountability Program which provides details for the identification and classification process. The rule may be found on the Department of Education website under "Fiscal Assessment and Accountability Program".


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