The Annual Statistical Report (ASR) for 2004-2005 provided substantially greater detail than previous ASRs. Therefore, some district coding errors that in previous years were camouflaged within large totals became evident.
One error that could have a significant impact and that needs immediate attention has to do with payroll clearing accounts. Some districts have deposited withheld payroll deductions into activity funds and recorded the transactions as revenue to the activity fund. As the funds were paid to various vendors, the transactions were recorded as activity fund expenditures. This method of recording payroll deducted transactions causes revenue and expenditures to be overstated. These funds are not actually revenue or expenditures of the school district, but are simply passing through the district. The district is temporarily holding funds that belong to others; therefore, the funds are not revenue. Instead the funds are a liability of the district and should be recorded as such. The Financial Accounting Handbook describes “Payroll Deductions & Withholding” in the range of object codes 04712-04718. Additional accounts can be district-defined in the range of 04719-04799.
Some districts utilize a “Clearing Fund” such as fund 0001 and have all payroll related deductions recorded to liability accounts within that fund. Ideally a separate liability account can be set up for each type of deduction. The balance of the Cash in Bank (01010) account within this fund should equal the total of all liability balances within this fund.
The entry recording the payroll deduction for Federal Withholding would be:
.....DR.....0001........01010........$x,xxx.xx
.....CR.....0001........04713.................$x,xxx.xx
Payment of Federal W/H:
.....DR.....0001........04713.........$x,xxx.xx
.....CR.....0001........01010.................$x,xxx.xx
As illustrated in the above example, the liability account and the cash account would equal zero after all withheld amounts are paid to the vendor and the process did not involve recording any district revenue or expenditure.
If a school district has been recording payroll-deducted amounts as revenue and expenditures, it will be necessary to reclassify those transactions before closing the 2005-2006 fiscal year. The Arkansas Public School Computer Network (APSCN) Financial Field Support staff have been asked to work closely with districts in order to correct any erroneously recorded payroll deducted transactions for 2005-2006.