Home Articles Reader Opinion Editorial Book Reviews Discussion Writers Guide About TCRecord
transparent 13

Administrative and Accounting Control of Income in Local School Systems

by N. L. Engelhardt & Fred Engelhardt - 1926

THE efficient administration of a local school system requires the most careful conservation of all resources of the school district. Careless management in the collection, borrowing, or accounting for income may result in costs which are as unwarranted and unjustifiable as uneconomical expenditures. The income program and the spending program are conditioned one by the other. Bills must be defrayed when payable. This is particularly true in the public school business where, with approximately three-fourths of the expenditures made for personal services, the heaviest obligations fall due on payroll dates.

THE efficient administration of a local school system requires the most careful conservation of all resources of the school district. Careless management in the collection, borrowing, or accounting for income may result in costs which are as unwarranted and unjustifiable as uneconomical expenditures. The income program and the spending program are conditioned one by the other. Bills must be defrayed when payable. This is particularly true in the public school business where, with approximately three-fourths of the expenditures made for personal services, the heaviest obligations fall due on payroll dates.

Theoretically, the most economical use that can be made of moneys received would be to control receipts and expenditures in such a way as to have available the exact amount of cash necessary to meet obligations as they fall due from day to day. In practice, this is not possible because of many uncontrollable factors. Variations from the ideal, when taxes are levied in advance of need, when money is borrowed in anticipation of revenue, or when faulty financial management exists, involve a burden of cost that must ultimately be paid by the tax payer. The resulting cost is expressed in less money available for current school use. The expenditure is represented either as a loss to the taxpayer because he has been deprived of the use of his money or as a charge on his tax bill, i.e., interest payment on borrowed funds, for the use of credit in the form of temporary loans. The more nearly management can approach the ideal, the lower will be this cost.

On first thought it seems that the question of income control is of little concern to the school authorities of "dependent"1 school systems. In the long run, however, inefficient control of income, irrespective of the location of responsibility, will be reflected in the budget allowance made available for public school use. The problem is of more direct and immediate concern to school officials of "independent" school systems.


The degree of fiscal dependence of a local school system affects the attitude of school officials with respect to the responsibilities for the control of public school income. In the extreme cases where the available public school moneys represent a municipal appropriation and are just one of the general municipal accounts, the school authorities act as a department of city government in that they are one of the spending agencies.2 The only accounting obligation they have is to keep within the appropriations. Even this responsibility may be removed where the organization requires that every purchase order be approved by the municipal auditor before it is valid. Full responsibilities for adequate use of funds cannot be placed on the school board, under these circumstances, although in the public mind there is usually a failure to appreciate the circumstances or conditions under which the school officials function. No plan can be satisfactory in the long run which does not give the school board an adequate accounting control of income. On the other extreme are those cases in which the school boards are fiscally independent, to the degree that even the collection of revenues is under their immediate control or direction. Between these extremes are many variations, each case presenting to those responsible for the local administration many unique problems for solution.

Adequate administrative control of finances in any enterprise cannot be possible unless those in charge are directly conscious of the resources made available to operate the undertaking. Irrespective of the offices in which responsibility for funds is centered, the school officials will need for their use the data made available through adequate local accounting controls of income as well as expenditures. Otherwise, it has been found impracticable to operate efficiently in dependent school systems.3

When these two major items are not always under the direct control of the school authorities, the public cannot hold them accountable or responsible for inefficient management of income. Since state aid is particularly a grant to the school district, an organization of the dependent type cannot plan the income budget without full and detailed information concerning amounts of apportionments and dates when funds were received. Unless the public is fully aware of the difficulties which may arise, and experience shows that as a rule they do not discriminate in these matters, the school board and their officials will bear the brunt of public criticism when conditions are not as they should be. Under these circumstances, it becomes the duty of the school officials to keep the community informed of the facts. It must be constantly kept in mind that, irrespective of responsibility, inefficiency in management under these circumstances has a direct bearing on educational service, and the child suffers the loss.


The collection of school taxes frequently creates situations4 over which the local school board may have no power, yet when considered as a part of the efficient management of schools the board is held responsible. Property assessing authority may be in the hands of municipal or county offices; these same offices may be required to certify the tax roll to the school officials, and the laws may limit the mill tax which can be levied. Under these circumstances, property assessments may be very low, or may suddenly be changed, or the tax duplicate may be delayed in transmission, creating conditions in which the school authorities may be temporarily helpless.5

Even the laws involving the levying and collection of school taxes leave the local school board powerless to provide the necessary funds, yet when considered as a part of the efficient  management of schools, they are matters which should frequently arouse collective action on the part of school boards resulting in modification of the tax collection procedure.


States have not as a rule provided adequately for the payments of state aid. School authorities cannot always determine when these funds will be received. In fact, methods of apportionment in many states make it impossible, when budgets are planned, for school districts to anticipate with any degree of certainty the amount due from this source. Even though these amounts are specified in law, the failure of a state to pay promptly when funds are due places no obligation on the state but leaves the local school district with the burden to carry. Politics frequently has played an important role in these delays. An attempt to adjust the problem of the date of payment of state aid is well illustrated by the following extract:

The amount apportioned and allotted to each school district shall be divided into equal semi-annual installments, and the Superintendent of Public Instruction shall draw his warrants semi-annually upon the State Treasurer in favor of each district for the amount to which it is entitled, and payment thereof shall be made to fourth-class districts during the months of February and August of each year, to second and third-class districts during the months of March and September of each year, and first-class districts during the months of April and October of each year.6


State aid and support are allocated frequently on the basis of many factors which are variables and difficult to determine in advance, as, for example, various elements of school population and amounts expended currently by local authorities, as in the case of transportation and tuition payments. It is a vexing problem for state authorities to anticipate the actual amounts of state money to be paid. This has resulted in frequent delays in payments necessitated by waiting for a deficiency appropriation bill to be passed by the subsequent legislature. In the state of Pennsylvania,7 the deficiency appropriation in 1921 necessary to meet state obligations to local schools was $2,730,924, while in the next session of the legislature it was $3,930,481. Local school systems were obliged to meet this shortage in anticipated revenue in some form or other. The burden of cost was on the individual school district. To obviate this situation in the future, the method of apportionment provides that the payments to be made for the ensuing two years shall be determined in advance.

The Superintendent of Public Instruction shall ascertain and determine the amount of funds required to meet each of the four payments to school districts which become due and payable within the two fiscal years beginning June first, one thousand nine hundred and twenty-three, and ending on May thirty-first, one thousand nine hundred and twenty-five, and each biennium thereafter, on the data and material contained in the certificates, which school districts are required by law to file with the said superintendent on November first immediately preceding the beginning of each biennium, and the said superintendent shall also apportion and allot the same to and among the respective districts: Provided, That the amount paid to any school district within any biennium shall in no case exceed an amount computed on the data and information contained in the certificate required to be filed in the November immediately preceding such biennium.8

There are times, however, when the failure of the legislature to make a deficiency appropriation may cause a complete loss to school districts9 of part of this state aid due, or when deficiency appropriations are made, the balance due may not be paid for several years.10

The following report of the state board of education of Minnesota11 shows that the large percentage of state aid to public schools was apportioned on the basis of 93 cents on the dollar.


It is therefore important for school authorities not only to determine what amount of state aid the schools are to receive, but to have adequate records to determine how much the district can anticipate during any one year of the amount due. Otherwise, the result may be unnecessary borrowing.


The administration and accounting of tax income will depend largely on the procedure required by the laws of the state in which the district is located. There are two distinct types of organization for the collection of taxes, with many variations. The state of Pennsylvania12 represents the extreme localization of the tax collecting function, and Minnesota is an illustration of the complete centralization of tax collecting responsibilities. Each of these systems and variations from these will exhibit different administration and accounting problems connected with income control.



The Pennsylvania system is a plan in which the school board has full jurisdiction, requires adequate check of tax duplicate, accounting with tax collector (an officer responsible to the board), reports from tax collector, record of delinquent taxes, records of tax levies,13 and a record of exonerations as well as detailed analysis of monthly tax collection and penalties since the tax collector is paid on a fee basis. This organization is illustrated in Diagram 1.

The other extreme, illustrated by the state of Minnesota, as shown in Diagram 2, is a case where all taxes are levied and collected by the county auditor. Under these circumstances, an account with the auditor's office must be maintained by each school district that it may know what moneys are being received, whether current or delinquent. Otherwise, no accurate knowledge of tax income is established.

The administrative responsibility and cost in the Pennsylvania plan for tax collection fall upon the school authorities. The burden of assessment, however, is not a direct charge against the funds of the local school district. The cost of the tax collecting service is much greater in this state than where taxes are collected centrally. The cost will vary throughout the state, since it is sure to have political implications. The cost of tax collection in certain selected districts14 of this state compared with the most of administrative salaries is shown in Table I. Further illustrations of tax collection costs in this same state15 grouped by counties appear in Table II. Approximately two cents of every dollar collected for the public schools of Pennsylvania go to the local tax collector and are thus lost in the advancement of education.



School District















Sugar Creek


Average Daily Attendance

















Current Expenditure

















Fees Paid Tax Collector

















Salary of Superintendent













A comparison of tax collection costs in Pennsylvania and Minnesota is presented in Table III. In Minnesota,19 the responsibility for collecting all state taxes within the state falls upon the county auditor. State aid is likewise distributed through this office. Uniformity of cost to districts throughout the state can be expected. The actual payment for this service in this case is from county funds and does not appear as a direct charge against the local school districts. These costs are not usually included in fiscal statements of dependent school systems, but they should be considered in comparing educational costs. These facts are set forth to show that not only are the sources of income vital in the administration of a public school system, but the machinery for collecting and accounting plays a large part in the efficiency of management.




Penn. (1919-22)20









Minn. (1921-24)21




Population 1920












Collection Cost












School Taxes












Average Enrollment












Cost per Dollar Collected












Cost per Pupil













Attention has already been drawn to the effect of law upon income control. There are other features of the legal control concerned with the immediate problem of tax payment22 which will require careful study before the difficulties can be satisfactorily met. If cash is to be made available when bills fall due, the tax payment procedure which consistent with efficient management insures the needed cash with the minimum cost to taxpayer is no doubt the best. The following clauses from a law represent an attempt to insure a greater regularity of tax income through an adjustment of penalties:23

1. That a rebate of one per cent shall be allowed on all taxes paid before August 1st.

2. A penalty of five per cent shall be added on all taxes not paid before October 1st.

3. On the first day of January following and on the first day of each succeeding month thereafter during which taxes remain unpaid, an additional penalty of one-half of one per cent shall be added.

An analysis of actual accounting facts may possibly show that not only should the penalties be graduated, but a graduated schedule of discounts for prompt payment might reduce the cost associated with borrowing in anticipation of taxes and with the plan of carrying large balances where income cannot be anticipated with any degree of regularity. The following press editorial is an interesting comment on this problem:

Convenience of the taxpayers is the chief cause of the city in not receiving funds more evenly through the year with which to meet expenses. This situation is the occasion for a proposal to amend the city charter, to allow the issuance of short-term loans or certificates of indebtedness, to meet payrolls and other bills when there is no money immediately available.24


A study of the accounts in most school districts will show that tax receipts and the amount levied will not be equal for any one year.

In Table IV, the relationship between the certified budget estimates presented by the school official of a district for each of the past eleven school years and the actual cash receipts paid by the county treasurer during each of these school years is shown. The summary of the surplus and deficits noticed in each year's payments shows a net deficit for the eleven years of $51,308. This represents approximately 3 per cent of the total budget requests of this period. This 3 per cent represents a serious problem in control of income to the administration of school systems involved.



A diagrammatical presentation of the monthly demand for cash and available cash exemplifies very clearly the problems confronting those responsible for the fiscal affairs of a local school system. Each of the cases presented in Diagrams 3, 4, 5 and 6 is peculiar to a local situation and requires special study for solution.

Just a cursory study of these selected cases seems to indicate that the control of income is a topic which should receive the consideration and thought of every school board and the fiscal officers who are either directly or indirectly responsible for the funds of the district. The many problems of bank balances, cash reserves, temporary loans, tax payments, and purchasing and payment arising out of these illustrations are of a nature that will require local study and analysis.





The difference between the amount a public school system pays for the capital it borrows and the amount it receives for available cash balances is well illustrated in Tables V and VI. In these tables, it appears that while Cleveland25 paid approximately 4.5 per cent for the use of money necessary for building purposes, it received an average of approximately 3.0 per cent for credit balance in the bank.




When monthly cash needs and receipts are not equal, some plan must be provided to secure the necessary money when income falls short of cash requirements. There are two ways in which this can be done, either by anticipating the situation and building up a cash reserve, or by buying credit until taxes are paid. In theory, both procedures are sound in principle and consistent with acceptable business practices when carried on economically26 and in the interest of the schools and the taxpayers.

The questions of credit and temporary borrowing are highly significant in their relationship to income accounting and control. There are times when it is much cheaper for the school board to borrow than to create a large reserve. There are other occasions when, because of negligence of the fiscal officers, the nature of the tax laws, or tax-payment practices, resort to temporary and emergency borrowing is the only way out. The schools must be in operation for continuous educational services, and the children should not be required to suffer because of temporary financial embarrassments.

There are a number of elements relating to credit and temporary borrowing that school officials should consider carefully in determining the local policies to be followed in regard to this important financial problem. Careless practice and borrowing policies founded on unsound principles will invariably lead a school system into serious difficulties. The following summary represents the more important elements:

School authorities should recognize the differences between borrowing (temporary loans) for school purposes and the practices followed in private enterprise.

a. Temporary loans for school purposes are usually easily secured.

b. The same scrutiny into the financial conditions is not essential as in the case of private enterprises.

c. Temporary loans, in public school financing, at critical periods may tempt the politician in that the practice provides a possible means of gaining temporary political advantages in keeping down the tax rates.

d. The general public can readily be deceived in regard to indebtedness.

e. Poor budgeting is frequently detected by the amount of temporary loans outstanding.

f. School boards where accounts are not carefully kept may pass on to their successors an embarrassing deferred debt.

The following principles should guide school boards in forming policies regarding the use of temporary loans as a method of providing current cash needs:

1. Temporary loan needs should be anticipated and planned for as a definite part of the program of budget income.

2. The amount to be borrowed should be based on careful accounting estimates and should not be the result of the guess or judgment of any members of the school board or official staff.

3. Temporary loans should be accounted for in as careful a manner as all other financial matters.

4. Cost of borrowed money should be known, made public, and economically justified.

5. If the public is responsible (due to delayed tax payments) for the borrowing, the cost of this procedure should be given publicity, and constructive, corrective measures suggested and carried out.

6. Every dollar unnecessarily expended for purposes other than direct educational service is a waste and should be avoided.

7. Temporary borrowing may at times be the most economical procedure of financing. It should be necessary to resort to it only when the case can be economically justified or when unavoidable emergencies arise.

8. Temporary loans should not be renewed.

9. Bonds should not be issued to redeem temporary debt, except under extreme conditions.

10. Temporary loans should be paid each year.

11. Temporary loans should be a minimum consistent with good management and maximum economy.

12. Financial statements should show clearly temporary loans and their cost.

13. Adequate monthly and yearly records of income and expenditures should be kept in order that trends and estimates regarding income and cash needs can be more accurately determined.

14. Budgets should provide for a minimum necessary cash balance to be carried over from month to month in order to reduce borrowing to a minimum.

15. Excessive balances are as costly as too frequent borrowing. Only through accurate accounting can the proper balance be determined.

16. The borrowing program should be planned and estimated in advance.


The maintenance of a cash reserve, like borrowing, is a sound procedure when controlled by proper accounting practice and when carried on under good business management. The following principles should be carefully considered in planning the reserve to be maintained from month to month and year to year:

1. The reserve should be a minimum consistent with economy and prompt payment of obligations.

2. Collecting money from taxpayers in advance of need may be as costly a performance as injudicious borrowing.

3. Reserve cash and the temporary loan programs should be coordinated.

4. Interest on cash reserves should be a maximum and at least equivalent to the return on private funds.

5. The school depository should be required adequately to protect and insure all school funds deposited in any bank.


In order properly to control the income of a school system, the following reports and statements should be available for the school board and the school executive.


School District

School Year 19.., 19..

Diagram 7 is suggested as a means of getting a record of monthly income. In this report, the estimates as well as the actual incomes should be recorded. The items to be recorded should depend primarily on the local sources of income.

The items to be listed on Diagram 8 are to be determined by local accounting needs and local classification of accounts. A recapitulated total of local salary needs will be very convenient in planning for the monthly payroll.


School District

School Year 19.., 19..

The data recorded on Diagram 9 should be recapitulated and made available for yearly analysis and in the planning of the budget. A complete analysis of temporary loan needs can be made by keeping the records of these loans in the manner suggested in Diagram 10. The borrowing program may be planned and controlled intelligently by such a procedure.


School District ………….

School Year 19.., and 19..


Where the resources of public school systems are restricted and where school boards have within their jurisdiction certain trust funds, transfers from fund to fund as a means of income control should be avoided. In fact, such transfers in the majority of cases are prohibited by law and thus are illegal. Where the assets of special funds are legally derived from current receipts as in the case of sinking funds and teacher pension funds locally operated, the transfers should be regular and in accordance with a fixed and formulated plan. This should be done even though the law may not specify the procedure.


Abuse of resources or the misuse of public funds is unpardonable in public school affairs. Irregularities apparent or suspected may lead to such a loss in public confidence that the schools may suffer immeasurably. Cash, materials and property in the process of use are subject to hazards and risks which are not always under the control of the administration. Fundamentally, the same principles hold in regard to protection, irrespective of the form in which the resources exist.


All school officials employed who are responsible for or who are associated with the handling of cash should be protected from the possibilities of unfair criticism. Then, again, the funds they handle should be protected against possible misuse or loss. The individual is usually protected in the audit of the accounts, while the funds are insured against loss by bonding the individual. School law may regulate the amount which officials may carry. The following extract of the New York State27 school laws outlines the general legal requirement in that state:

Such treasurer and collector shall each, and within ten days after notice in writing of his appointment, duly served upon him, and before entering upon the duties of his office, execute and deliver to the said board of education a bond with sufficient penalty and sureties as the board may require, conditioned for the faithful discharge of the duties of his office; and in case such bond shall not be given within the time specified, such office shall thereby become vacant, and said bond shall thereupon by appointment fill the vacancy.

The amount of bond to be carried is usually proportionate to the funds handled. School boards should not accept bonds where local individuals act as the bondsmen, but should insist that they be secured through some reputable surety company. The premium payments should be paid out of local school funds.


Banks in which school funds are deposited not only should be bonded, but should be required to insure the deposits against loss. The bonding of the bank does not protect the funds particularly in cases where the institution becomes insolvent,28 and the bondsmen are residents of the community. Some illuminating cases appeared in the bank failures in the Northwest32 during the period 1923-1926. In many of these cases, the bank was bonded and the bonds were valueless, for the local bondsmen used the same Institutions for their own funds. Not only should the depositories be bonded, but the funds on deposit should be insured against loss. There is no uniformity in the laws designating the place where or the conditions under which depositories are to be controlled. Patty29 states that: Approximately one-half of the states still permit local autonomy in this important function. . . . Eleven states have attempted to eliminate the risks involved in the methods of using local depositories by requiring banks that act in that capacity to furnish bond.

Desirable changes in the laws will be brought about only through the initiative of school boards and their executive officers who realize the importance of providing more adequate safeguards in this field.

This is the second of a series of eight articles by Professors N. L. Engelhardt and Fred Engelhardt. The third will appear in an early number of THE RECORD

1For definition, see J. R. McGaughy, The Fiscal Administration of City School Systems. The Macmillan Co., 1924.

2Sarvey Report of the School System of Springfield, Mass., 1923-1924. Division of Field Studies, Institute of Educational Research, Teachers College, Columbia University, New York City. p. 102.

3Ibid., p. 102.

4Mt. Gilead, O. Facing a shortage of funds, the school board has called an election to vote a three-mill levy in November. Only eight months of school was possible last year and funds are still short this year. American School Board Journal, November, 1924, p. 74.

5In 1922, the county commissioner of Schuylkill County, Pa., because of certain litigations regarding assessments of coal lands, refused to issue the tax duplicate to the school board of Pottsville, Pa. September came and no taxes had been collected. Schools were kept open only through the insistence of the State Superintendent of Public Instruction.

6Pennsylvania School Law, 1923, Sec. 1210, Paragraph 23. Harrisburg, Pa.

7The Budget, Common-wealth of Pennsylvania, Biennium 7925-7937, p. 13. State Printer, Harrisburg, Pa.

8Pennsylvania School Law, 1923, Sec. 1921. Harrisburg, Pa.

9The allocation of state funds to public schools in Minnesota for 1921 resulted in a cut of 22 per cent in some districts from state funds due. This was paid in full in 1923.

10The public schools will suffer directly for the curtailed state aid in Missouri due to retrenchments in state government. Last year, schools received $4,000,000 from the state, but it is doubtful whether this amount will reach $3,500,000 this year. American School Board Journal, January, 1925, p. 106.

11Annual Report, 1925. Advanced Sheets. Minnesota State Board of Education, St. Paul, Minn.

12Engelhardt, Fred and Others. Cast of Collecting School Taxes in Minnesota. Research Bulletin, January, 1926. University of Minnesota, Minneapolis, Minn.

13The school board of Lansing, Mich., contemplates legal action to recover money due for uncollected taxes since 1916. The amount involved is approximately $165,000 and the interest amounts to nearly $5,000. American School Board Journal, September, 1925, p. 82.

14Statistical Reports, 1919-1921. State Department of Public Instruction, Harrisburg, Pa.

15Pennsylvania School Journal, June 1926, p. 656. Harrisburg, Pa.

18No superintendent employed.

16To nearest thousand dollars.

17To nearest hundred dollars.

19Engelhardt, Fred and Others. Cost of Collecting Taxes in Minnesota. Research Bulletin, January 1926. University of Minnesota, Minneapolis, Minn.

20Excluding cities of first, second, and third class. Average for 3 years.

21Cost of collecting school taxes exclusive of assessing costs. Average for 4 years.

22The board was absolved from any blame for conditions which caused them to issue a statement that schools would be closed because of a depleted treasury. To continue the schools, the citizens of the town (Miami, Okla.) subscribed the $21,000 necessary to carry the schools through for the full nine months. American School Board Journal, March, 1925, p. 92.

23Digest of Educational Laws. Bulletin, May 25, 1915. State Department of Education, Harrisburg, Pa.

"Report to board of education of Chicago, Ill., shows that there is due the schools on delinquent real estate taxes approximately $26,000,000. Of this amount, about $12,000,000 are due on real estate forfeited to the state for non-payment of taxes." American School Board Journal, October 1925, p. 79.

24Editorial. St. Paul Pioneer Press, July 3, 1926. St. Paul, Minn.

25Clark, Earl. Financing the Public Schools. Cleveland Survey, Cleveland, O. Adapted from tables on pages 84-88.

26The school board of Joliet, Ill., has been obliged to borrow $75,000 on tax anticipation warrants in order to pay salaries and operating expenses until the 1925 taxes are received. American School Board Journal, January 1926, p. 14.

The school board of Indianapolis, Ind., has been given a million-dollar loan at an interest rate of 3.14 per cent. The loan was in anticipation of the annual tax which will be due the board soon. American School Board Journal, April 1925, p. 82.

27 New York School Law, 1923, Part 5, p. 86. Albany, N. Y.

28 Data supplied by the superintendent of schools.

Case 1—Huron, S. D. Bank failure in 1925.

Assessed valuation of property—$10,200,000.

Annual current expenditures (1924-1925)—$157,648.00.

Amount of school funds in bank at time of failure—$16,920.00.

Case 2—Timber Lake, S. D. Bank failure in 1925.

Assessed valuation of property—$3,350,889.

Annual current expenditures (1924-1925).

Amount of school funds in bank at time of failure—$29,534.00.

29 Patty, W. W. "Legal Promises for Custody . . . Public Funds." American School Board Journal, March 1926, p. 47.

Cite This Article as: Teachers College Record Volume 28 Number 3, 1926, p. 261-282
https://www.tcrecord.org ID Number: 5827, Date Accessed: 5/26/2022 11:08:31 AM

Purchase Reprint Rights for this article or review
Member Center
In Print
This Month's Issue