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District 15 is publishing misleading financial information

UPDATE 3/31/2014: The misleading reporting issue that is the subject of this post was largely corrected by District 15 starting with financial reports issued in March 2014. For financial reports issued from October 2013 through February 2014 you would need to carefully consider the impact of the double-counting issue noted here for District 15 revenue and expenditures.


District 15 started publishing misleading financial information this month.

The problem is caused by including transfers between funds in total Expenditures and Revenues, which results in both Expenditures and Revenues being overstated.

The impact of the problem can be seen in two main areas. First, it distorts both revenue and expenditures, which makes year-to-year comparisons invalid. Following are the expenditures as reported by District 15 in the 5-year forecast presented this month along with the corrected amounts. This mistake is most obvious in 2013/14 where Expenditures are overstated by $8.9 million.

2011/12 Actuals 2012/13 Actuals 2013/14 Forecast 2014/15 Forecast 2015/16 Forecast 2016/17 Forecast 2017/18 Forecast
Incorrect District 15 Totals $140.6 $145.3 $158.1 $151.2 $154.1 $156.3 $160.5
% Change vs. Prior Year +3.3% +8.8% -4.3% +1.9% +1.4% +2.7%
Corrected Totals $140.3 $143.2 $149.2 $148.8 $151.6 $153.8 $158.0
% Change vs. Prior Year +2.1% +4.2% -0.2% +1.9% +1.5% +2.7%

Second, the incorrect calculation of total expenditures affects the Fund Balance % of Expenditures calculation. This ratio is used by the Board to evaluate whether there is a sufficient fund balance to weather any financial surprises. The numbers presented by District 15 are shown below along with the correct numbers.

2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
Incorrect District 15 Calculation 39.5% 39.3% 33.9% 34.8% 34.2% 34.5% 33.9%
Corrected Calculation 39.5% 39.9% 36.0% 35.3% 34.7% 35.0% 34.4%

I am publishing this information because of the importance of adhering to accounting principles for financial reporting, particularly from the perspective of accurately communicating information that is used for decision making by the Board. The Board uses this information for decisions on property tax levies, budgets, capital project funding, etc.

It is also important that financial reporting standards be followed from the perspective of District 15′s credibility in explaining financial decisions.


I reported this mistake to Superintendent Scott Thompson as shown in the email below before the last Board meeting. His initial response was that he wanted this to be as clear as possible. But then a few hours before the Board meeting he informed me that he decided to go forward with the incorrect method of calculating Fund Balance % of Expenditures. This new Administration practice distorts key financial information including revenues, expenditures and fund balances as a percentage of expenditures.


From: Scott Herr
Sent: Monday, October 07, 2013 9:59 AM
To: Scott Thompson
Cc: Michael Adamczyk

Subject: Mistake in Fund Balance % of Expenditures Calculation


I wanted to alert you to a mistake in the “Fund Bal % of Expenditures” calculation due to double-counting as expenditures both transfers out of funds and also the actual expenditures in the transfer-to fund.

The consolidated revenues and expenditures page is also misleading in that Total Expenditures show both actual expenditures and also the double-counted transfers out. This is also true for revenues.

This problem has occurred in the past so I wanted to elaborate on this a bit. The standard practice is not to count interfund transfers as either revenue or expenditures. You can see this standard practice in the Annual Financial Reports that the District files with ISBE. The AFR financial statements are broken into three parts: “Receipts/Revenues,” “Disbursements/Expenditures,” and “Other Sources/Uses of Funds”. Transfers into and out of funds are categorized into “Other Sources/Uses of Funds” and not as revenue nor expenditures.

As a simple example, let’s say someone transfers $20,000 from a savings account to a checking account and then writes a check for $20,000 to buy a new car. It wouldn’t be correct to say that you’ve spent $40,000 (the $20,000 transfer out plus the $20,000 check). The transfer is simply moving money from one fund to another and isn’t an expenditure.

I’ve copied Mike on this because I understand that you are at jury duty and wanted him to be aware in case he wants to correct this before the packet is posted on the website.

Best Regards,

Scott Herr

5 comments to District 15 is publishing misleading financial information

  • Scott Herr

    NOTE: The purchase of 3,000 iPads over the summer is reflected in the incomplete 2012/13 audit presented on October 9, 2013, as a $1,557,000 expenditure in 2012/13 funded by a lease (classified as a long-term liability). There is a difference of $1,557,000 between the audited expenditures shown in the General Fund ($136,740,528 less $20,579,999 in “on-behalf” payments to TRS = $116,160,529) and the corresponding expenditures shown in the forecast ($113,472,444 in Educational fund plus $1,131,085 in the Tort Liability fund = $114,603,529). It isn’t clear from the information presented with the forecast how this purchase is being treated in the forecast. No adjustments are included above for this discrepancy.

  • Scott Herr

    Someone asked how there could be an $8.9 million overstatement in expenditures. This is due to $5.93 million in spending for capital projects being counted as $14.83 million in the Total Expenditures of $158.1 million as reported by District 15 for 2013/14.

    The first part of the $5.93 million is $3.25 million that is triple-counted as $9.75 million (1st when it is transferred from the Ed Fund to the Operations & Maintenance Fund, then 2nd when it is transferred from the Operations & Maintenance Fund to the Capital Projects Fund, then 3rd when it is actually spent out of Capital Projects). The second part of the $5.93 million is $2.40 million that is double-counted as $4.80 million (1st when it is transferred from the Operations & Maintenance fund to Capital Projects, then 2nd when it is actually spent out of Capital Projects). The third part of the $5.93 million is $0.28 million that is counted once when it is spent out of the Capital Projects Fund.

    So the $8.9 million overstatement of expenditures is due to actual spending of $5.93 million ($3.25 + $2.40 + $0.28 million) being reported by District 15 as $14.83 million ($3.25 + $3.25 + $3.25 + $2.40 + $2.40 + $0.28 million).

  • Scott Herr

    This post was mentioned in a Chicago Tribune article District 15 school board member questions financial document. Following is some additional information in response to the article.

    Board President Peggy Babcock characterizes my concerns about accurately reporting financial information as “micromanaging.” I believe the Board and the public should be very concerned about District 15′s $8.9 million overstatement of expenditures as explained above.

    According to the article, she also said she thinks we could sit down and discuss it. In the past, this kind of issue would have been addressed at the Superintendent’s Finance Committee, which Superintendent Scott Thompson disbanded last spring. I expressed my concerns to the Superintendent as well as the entire Board in advance of the October 9th Board meeting and explained my concerns at the meeting. Neither the Board President nor Superintendent have taken any visible steps to address these concerns.

    Hillarie Siena is quoted in the article but doesn’t directly address what accounting standards say about reporting interfund transfers, which is the core issue. While the budget and forecast reports she prepares for Glenbrook District 225 don’t separately identify interfund transfers as Other Sources and Uses, it is generally clear in District 225′s reports that they include transfers in defining revenue and expenditures. Among other differences, District 15 includes interfund transfers in revenue and expenditures in some financial reports but not in others, and it isn’t clear from some reports including the latest forecast whether they are included.

  • Len Green

    Scott is raising a few issues here that are to do with accuracy and consistency in financial reporting on a key financial metric. Read my comment to the end to learn why this is important.

    There is a difference between REVENUE and FUND TRANSFER receipts in identifying the source of INCOMING FUNDS. Similarly, there is a difference between EXPENDITURES and FUND TRANSFER disbursements in identifying how funds were spent. His analogy of moving $20k from savings to checking to pay for a $20k item is as clear as it can be. You don’t have to be a CPA to understand that. It’s just common sense.

    His point is that:
    1. the method of calculating the fund balance ratio was changed by the D15 finance chief.
    2. the new method was not discussed, nor reasons provided, with the Board before the change
    3. the new method is INCONSISTENT with prior periods, thus distorting comparisons. This distortion can be influenced simply by the amount of the inter-fund transfers (none of which constitute expenditures).

    When companies do this, they restate their numbers to provide proper comparisons between years. That enables the Board and the public to interpret the information correctly.

    While some reports required downstate may require D15 to include inter-fund transfers in totals, that does not mean that those totals have to be used in calculating the fund balance ratio.

    The Fund Balance Ratio is an important measure of financial health. The lower the ratio, the less financially stable the district may be. So, if you can manipulate the ratio to look low, it helps your case to raise property taxes. The higher the ratio, it’s harder to justify a tax hike. With the annual tax levy adjustment coming up for a vote at D15 shortly, go figure why the new method shows a lower rate.

    You can hardly call Scott’s questioning of the Administration “micro-managing”- it’s just good governance.

  • Scott Herr

    See the one-page District 15 financial history and forecast summary as of October 2013 for an example of how revenue and expenditures can be reported consistent with financial reporting standards. This illustrates the points I made above that proper classification of interfund transfers allows for valid year-to-year comparison (the “% Change” rows) and correct calculation of Fund Balance % of Expenditures.

    At a more technical level, according to GASB 34: “Interfund activity includes interfund loans, interfund services provided and used, and interfund transfers. This activity should be reported separately in the fund financial statements and generally should be eliminated in the aggregated government-wide financial statements.” (Source:

    Although District 15 has often followed this principle it has been inconsistent in doing so. For a more detailed history, see District 15 Interfund Transfers Reporting Examples.

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