How much is too much General Fund Unassigned Fund Balance?

By: Brian R. DuMond, CPA (Aug, 2012)

As summer starts to wind down, it has become audit season.  Soon, the external auditors will be presenting to the Audit Committee and Board of Education the district’s financial statements.  Typically, as part of their presentation, the auditor will note to the audit committee or board that the General Fund’s Unassigned Fund Balance is at x% of next year’s budget.  

As an internal auditor or external auditor for approximately 15 school districts, one of the questions Dermody, Burke & Brown CPAs is often asked is what is the right amount of General Fund Unassigned Fund Balance, or how much is too much?  As nearly any auditor would do, I typically try and weasel my way out of it by stating that NYS allows for up to 4% of the following year’s budget.  However, does that really answer the question?

The real answer is, it depends.  I know.  That is another way an auditor tries to weasel out of answering a question, but in this case, I believe the answer to be true.

There are certain considerations that a board member should keep in mind when evaluating your district’s General Fund Unassigned Fund Balance.  Depending on the answers, it could mean that your district should have a higher General Fund Unassigned Fund Balance at the 4% level or perhaps a lower one. 

  1. What other fund balance reserves does the district have?  If the district has fully funded all of its available fund balance reserves to the fullest extent, then perhaps a lower General Fund Unassigned Fund Balance would be appropriate.  If, however, the district has not fully utilized its fund balance reserves, it would suggest a higher unassigned fund balance would be needed.
  2. How much does the district’s budget allow for unanticipated contingencies?  Many districts expenditure budgets have been cut down to the bare bones and are about as lean as they can be.  Because of this, their budgets contain less of an allowance for unexpected expenditures that arise each year or the unexpected cut backs in aid which are unfortunately becoming more common.  If this looks like your district, perhaps a higher unassigned fund balance should be considered.
  3. What does the district’s 3 year or 5 year plan look like?  Most school districts should have projections of what their financial position is in the next few years.  If the district’s future financial position looks bleak as many of them do right now, a higher unassigned fund balance should be considered.

Every district’s situation is different and there is no “one size fits all.”  However, based upon what we have seen at the districts we work with, it would seem prudent in most cases for a district to be near or at the 4% NYS allows for General fund Unassigned Fund Balance.

If as a board member, you would like to discuss this issue further, the professionals at Dermody, Burke & Brown, CPA, LLC would be happy to talk to you.