THE MONTGOMERY COUNTY PUBLIC SCHOOLS

Rockville, Maryland

Manual of Policies
and Procedures for

Administering
Independent
Activity Funds

October 2001

Dr. Jerry D. Weast

Superintendent of Schools

Prepared by the Office of Shared Accountability

 TABLE OF CONTENTS

Page

ABBREVIATIONS iii

POLICIES

A. Purpose 1

B. Principles Governing Independent Activity Funds 1

1. Purpose of Independent Activity Funds 1

2. General Principles 1

C. Disbursements of Independent Activity Funds 2

1. Authorization of Disbursements 2
2. Disbursements that Require Prior Written Authorization
from the Chief Operating Officer (COO) 2
3. Disbursements that Require Prior Written Authorization
from the Office of School Performance (OSP) 3
4. Disbursements of Student Funds That Are Prohibited 3

D. Management of Independent Activity Funds 4

1. Principal's Accountability 4
2. Contracts 4
3. Purchase/Credit Cards 5
4. Expenditures by Pupils or School Employees 5

E. Internal Control Over Funds 5

1. Principles of Internal Control 5

2. Bank Accounts and Investments 5
3. Receipt and Deposit of Funds 6
4. Protection of Funds in the Schools 7
5. Signatures on Checks and Withdrawal of Funds 8
6. Processing Purchases for Payment 8
7. Petty Cash Fund 9
8. Bank Reconciliations 9
9. Shortages and Discrepancies 9

i
F. Accounting 9

1. Financial Records and Reports 9

2. The General Ledger Report 11
3. Establishing and Closing Accounts 11
4. Negative Balance Accounts and Inactive Accounts 12
5. Transfer Between Fund Accounts 12
6. Supporting IAF Records 12
7. Sponsor Records 12
8. Annual Financial Statements 13
9. Removal of Records from School Premises 14
10. Audits 14

G. Business-type Activities 14

1. School Stores 15
2. Vending Machines 15
3. Fund Raisers 15
4. Admission Receipts 15
5. Student Parking Permits 15
6. Yearbook Sales 16
7. Picture Sales 16
8. Career and Technology Education (formerly Vocational
Education Business Activities) 16
9. Maryland Retail Sales Tax 18

H. Miscellaneous 18

1. Designations, Delegations, and Authorizations 18

2. Payment of Bills 18
3. Payments for Personal Services 18
4. Gifts to the School and Student Body 19
5. Equipment 20
6. Disposal of IAF Records 20

I. Closing Schools 21

1. Instructions for Closing Schools 21

2. Residual Independent Activity Funds of Closed Schools 23

Appendix: Chart of Accounts 25

ii
 ABBREVIATIONS

CIF Centralized Investment Fund

COO Chief Operating Officer

DSA Department of Shared Accountability

OSP Office of School Performance

FICA Federal Insurance Contributions Act (Social Security)

IAFs Independent Activity Funds

MCPS Montgomery County Public Schools

PTA Parent-Teacher Association

This Manual of Procedures for Administering Independent Activity Funds provides detailed
instructions for implementing the Montgomery County Public Schools Administrative
Regulations DIA-RA and DIA-RB.

iii
 POLICIES

A. Purpose

This manual sets forth the approved procedures for administering the Independent
Activity Funds (IAFs) of the Montgomery County Public Schools (MCPS).

B. Principles Governing Independent Activity Funds

1. Purpose of Independent Activity Funds

The raising and disbursing of IAFs have two basic purposes:

a. To promote the general welfare, education, and morale of the students.

b. To finance the recognized extracurricular activities of the student body.

2. General Principles

a. Unless other ownership is specifically designated, the IAFs of the school

belong to the student body that is composed of those students currently in
school. The principal is the fiduciary agent for the IAFs. In this role, the
principal is the decision maker charged with determining the manner in
which student body funds are expended and is responsible for ensuring
that these funds are administered in accordance with MCPS regulation.

b. IAFs may be raised by any activity approved by the principal that is not
prohibited by law, MCPS regulation or policy, or provisions of this manual.

c. Staff social funds must be derived entirely from staff contributions and
activities and must not be augmented by student-owned funds.
Staff-owned funds may be included in the IAFs, provided separate fund
accounts are maintained.

d. Funds derived from the student body as a whole should be used to benefit
the student body as a whole.

e. School organizations shall not use such devices as gambling, including

raffles, lotteries, pinball machines, pools, bingo, or other games of
chance, as a means of raising funds.

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 f. The prices of student activity tickets or books, school newspapers,
yearbooks, and the admission charge to school activities should be set
whenever possible at levels that encourage broad participation by
students.

g. School facilities and equipment shall not be used for fund-raising

purposes that benefit only a special or selected school group, unless the
principal approves the activity and the privilege is available to all school
groups.

h. The management of IAFs must be in accordance with sound business

practices, including sound accounting procedures and internal controls.

i. Principals should participate in the preparation, modification, and

interpretation of policies and procedures for administering IAFs.

C. Disbursements of Independent Activity Funds

1. Authorization of Disbursements

Except as provided under Sections 2, 3, and 4 below, the principal may

authorize any disbursement from available IAFs that is consistent with the
principles governing IAFs, as stated in section B above.

2. Disbursements that Require Prior Written Authorization from the Chief

Operating Officer (COO)

a. Building or other structures, including alterations and attachments

thereto.

b. Purchases made from any MCPS employee, or from any partnership or

corporation in which an employee has a substantial interest.

c. Aggregate expenditures in excess of $1,200 per year at an elementary

school, or $3,000 per year at a secondary school, for refreshments and
food in connection with meetings. Refreshments (coffee, tea, doughnuts,
cookies, etc.) may be purchased with IAFs and served at staff meetings.
Meals may be purchased with lAFs only if they are essential to the
success of a meeting where the primary purpose is discussing
educational or administrative matters or conducting school business. In
order to clearly identify these expenditures, they should be maintained in
a separate fund account and not commingled in the general account or
other accounts.

d. Any disbursement of more than $6,500, or any contract with an anticipated

aggregate expenditure of more than $6,500, excepting disbursements and

2
 contracts for pictures, yearbooks, field trips, and proms, and any
disbursement required as part of the MCPS educational program.

e. Any contract with a period of performance extending beyond 36 months.

3. Disbursements that Require Prior Written Authorization from the Office of

School Performance (OSP)

a. Clothing or assistance in excess of $800 per year for needy students.

4. Disbursements of Student Funds That Are Prohibited

a. Disbursements that are primarily for the benefit of school staff members
or other MCPS employees, such as gifts, meals, retirement functions, or
other staff social activities. Disbursements may be made for these
purposes only if funds are derived solely from staff donations or other staff
activities or from funds donated for that specific purpose by a PTA,
booster club, or student organization.

b. MCPS Administrative Regulation COF-RA prohibits possession or use of

intoxicants on MCPS property. MCPS property is defined to include the
location of any MCPS-sponsored event. Funds should not be disbursed
through IAF accounts to pay, in whole or in part, for any function where
intoxicants are present.

c. Meals that are not essential to the success of a meeting whose primary
purpose is discussing educational or administrative matters or conducting
school business (see 2.d. above).

d. Merchandising accommodations, extension of credit or loans to MCPS

employees or to any person other than a student. Small emergency
loans for field trips, lunches, and similar items may be made to students at
the discretion of the principal.

e. Contributions to charitable organizations, unless funds have been

contributed by students for a specific charity.

f. Any disbursement that is prohibited by federal, state, or county law, or by

MCPS policy or regulation.

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D. Management of Independent Activity Funds

1. Principal's Accountability

The principal is responsible for all monies received or disbursed within the
school. To provide accountability for the IAFs, the principal shall make
available to the general public the annual financial statements of the school.
Copies of MCPS Form 281-24, School Financial Report Independent Activity
Funds, and the activity account ledger report shall be furnished to the
Department of Shared Accountability (DSA) by the due date (the third week
of July) established by the chief operating officer each year (see section F8).
In accordance with MCPS Policy KBA-RA Public Information, copies also
shall be placed in the school's media center where they will be available to
any interested person or organization, and both students and parents will be
advised of their availability.

2. Contracts

a. Only the principal, or a person designated in writing by the principal, may

obligate the school by contract for the purchase of equipment, supplies, or
services. All contracts must be signed by the principal or designee and by
an authorized representative of the contractor. Contracts that obligate the
school for disbursements more than 36 months in the future must be
approved by the chief operating officer.

b. Principals are encouraged, but not required, to seek the assistance of the
MCPS Procurement Office before making a commitment for a major
purchase.

c. All contracts for $1,500 or more must contain the following clause with
regard to contract price:

"The vendor guarantees that, within the previous 90 days, he has not
offered the same product or service at a lower price or better terms to any
school system in the Washington metropolitan area (District of Columbia,
Montgomery County, Prince George's County, Fairfax County, Alexandria,
Arlington, and Falls Church). The vendor agrees to adjust the contract
price and terms to any lower price or better terms offered within such area
during the following 90 days."

d. All commissions, rebates, and free items provided by the contractor,

including free transportation provided to a chaperone on field trips, shall
be stated specifically in the written contract. No MCPS employee shall
receive any item or service free or at a reduced price in connection with a
contract without the knowledge and approval of the principal. See MCPS

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 Administrative Regulation GCA-RA, Conflict of Interest, and IPD-RA,
Travel Study Programs, Class and Student Organization Trips.

3. Purchase/Credit Cards

With the approval of the principal, the school may establish credit with
specific vendors as needed to facilitate IAF operations. However, no general-
purpose credit card or debit card should be obtained in the name of the
school, except a card officially established by the MCPS Purchasing Card
Program.

4. Expenditures by Pupils or School Employees

Neither a school nor school IAF shall be held responsible for an expenditure
made by a pupil, teacher, or any other school employee who has not received
prior written authorization from the principal. MCPS Form 280-54, Request for
a Purchase, has been designed for this purpose.

E. Internal Control Over Funds

1. Principle of Internal Control

The most important principle of internal control is the separation of duties so

that no one person controls all aspects of a transaction. The involvement of
two or more persons in each transaction discourages dishonesty and
encourages accuracy, because each person acts as a check on the work of
others. This principle is particularly important in the handling of cash. The
requirements, in later sections of this manual, for two signatures on checks,
for issuance of prenumbered receipts whenever cash is received, for
independent reconciliation of the bank account, and for control over certain
business-type activity receipts are based on this principle of internal control.

2. Bank Accounts and Investments

a. IAFs shall be held only in a federally insured financial institution or in the

MCPS Centralized Investment Fund (CIF).

b. The principal is responsible for ensuring that funds in excess of current

needs are invested in a manner that will earn a reasonable rate of return
commensurate with safety.

c. All bank accounts and investments must be in the name of the school,
not in the name of a school employee or any other individual.

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 d. There should be only one school checking account. The school shall not
maintain a checking account in any financial institution that does not
return canceled checks or copies of the checks with the monthly bank
statements.

3. Receipt and Deposit of Funds

a. Each school shall use numbered receipt forms. At a minimum, an original

and one copy of each receipt shall be provided. More copies may be
required in secondary schools. Receipts shall be issued in strict numerical
order. If the receipts are computer generated, access to the controls must
be limited. To improve internal control, the stock of unused receipt books
should be in the custody of someone other than the financial agent.

b. Cash and checks collected by sponsors and others for IAF activities
should be turned in promptly to the financial agent. At the time the money
is turned in, it should be counted by the financial agent in the presence of
the person turning in the funds. A prenumbered receipt shall then be
completed by the financial agent, and the original shall be given to the
person who turned in the funds. This establishes the receipt of the funds
for insurance purposes and provides a written record of the source of the
funds for accounting purposes.

c. Once a receipt has been written, it shall not be erased or altered. Should
an error be discovered, the receipt shall be marked "Void" and all copies
shall be left in the receipt book, and another receipt shall be written.

d. All checks received should be made payable to the school and should be
endorsed immediately with a restrictive endorsement containing the words
"For Deposit Only" and the name of the school.

e. To provide proper accounting control, all cash received in the school shall
be receipted and deposited only in the school's checking account.
Deposits in a savings or investment account, or in the Centralized
Investment Fund, shall be made by check drawn on the school's checking
account. Withdrawals from such accounts shall be deposited in the
school's checking account before being used to make disbursements.

f. Cash receipts shall be deposited promptly. Large amounts shall be

deposited on the day they are received (see 4b below), and all receipts
shall be deposited on the last working day of each month and before each
weekend or holiday.

g. Cash receipts must be deposited intact. Disbursements must never be

made from cash receipts. All disbursements shall be made by check or
from a petty cash fund.

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 h. Personal checks must not be cashed for MCPS employees or other
persons from cash receipts, change funds, petty cash funds, or any other
school funds.

i. Only the financial agent or other adult staff member shall transport school
funds. Students must not perform this function. Furthermore, students
shall not transport funds to the finance office.

j. Receipts from sales of tickets to school events shall be controlled in

accordance with the requirements of MCPS Administrative Regulation
DMB-RA, Control of Admission Receipts (see paragraph G.4.).

4. Protection of Funds in the Schools

a. MCPS employees and students should be instructed never to attempt to

thwart a robbery in the school or at any other location.

b. Funds (including checks) stored overnight at the school must be kept in a

locked cabinet or combination safe. A key-operated cabinet may be used
for overnight storage of funds up to a maximum of $50. A combination
safe may be used for overnight storage of funds up to a maximum of
$250. Any funds in excess of these amounts must be deposited in a bank
at the end of the school day. However, larger amounts received after
hours (such as receipts from a night athletic event) may be stored for a
maximum of 24 hours if such storage is deemed safer than transporting
the funds to the night depository of a bank.

c. The combination to the safe shall be given only to those persons with a
continuous need for free access to the safe. The number of such persons
should be kept to a minimum.

d. The safe combination should be changed whenever a person who has the
combination leaves the school or is transferred to a position where there
is no longer a need for access.

e. The safe combination shall not be left at any location on the school
premises. Doing so risks the danger of the discovery of the combination
by unauthorized persons. Lightweight safes should be set in concrete or in
a wall to prevent removal and increase protection of funds.

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5. Signatures on Checks and Withdrawal of Funds

a. The principal shall designate, in writing, those school employees who are
authorized to sign checks. Their signatures shall be entered on a
signature card and filed with the financial institution with a copy on file at
the school.

b. To provide for the orderly conduct of school business, the principal and
two additional employees, one of whom should be the person who serves
as acting principal in the principal’s absence, should be authorized to sign
checks and withdrawals.

c. All checks and withdrawals must bear two signatures, one of which must
be that of the principal or the acting principal.

d. The last spaces to be completed on a check should be the signature

spaces. Neither the principal nor any other school employee should sign
a check until both the payee and amount spaces have been filled in.

e. Once a check has been written, it must not be altered or erased. If an

error is discovered, the word “Void” shall be written in ink across the face
of the check, the signature section should be torn off, the remainder of the
check should be left in the checkbook or stapled to the stub, and a new
check should be written.

6. Processing Purchases for Payment

a. A MCPS Form 280-54, Request for a Purchase, should be initiated and

signed by the requester for each intended purchase of goods or services,
other than petty cash items. This should be done before an item is
purchased.

b. The form should be turned in to the office so that the financial agent can
certify the availability of funds and then it should be signed by the principal
for authorization to proceed with the purchase.

c. Upon satisfactory receipt of the goods or services certified by the recipient

on the vendor's invoice, the financial agent shall match the form to the
original invoice and process the form for payment. The form should be
filed with the attached invoice that should be marked or stamped "Paid."

d. Canceled checks, vendor statements without invoices or delivery tickets,

or Request for a Purchase form alone are not considered adequate
documentation to support payments.

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 7. Petty Cash Fund

A petty cash fund may be established with the approval of the principal and
used to make payments that are so small as not to warrant the process of
writing a check.

8. Bank Reconciliations

a. Monthly bank statements shall be delivered directly to the principal,

unopened. The principal should review the statement, the canceled
checks, and other documents and thereafter arrange for a reconciliation of
the statement by someone other than the school financial agent.

b. The checking account must be reconciled to the ledger and the

checkbook each month, as of the last day of the month. If the bank
statement shows a cutoff date other than the last day of the month, the
school should ask the bank to change the cutoff date. If the bank will not
do so, the school will prepare the reconciliation to the end of the month by
using the balance as of the last day of the month shown on the bank
statement.

c. The Federal Tax Identification Number on the checking account should be

#52-6000989.

9. Shortages and Discrepancies

Any significant shortage or other discrepancy in IAF assets, cash receipts, or

accounts shall be reported promptly by the principal to DSA for investigation.
The principal also should advise his/her direct supervisor of the investigation.
DSA shall provide the principal with a written report on the results of the
investigation, which shall be made a permanent part of the IAF records.
Depending on the nature and seriousness of the discrepancy, DSA also may
furnish copies of the report to the chief operating officer, the deputy
superintendent of schools, and the associate superintendent for human
resources.

F. Accounting

1. Financial Records and Reports

a. The financial records must be kept up-to-date at all times. Delay in

recording transactions significantly increases the likelihood of error and
loss of information.

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b. The financial records shall consist of a series of reports and the files of
supporting documents. The reports shall be prepared each month after all
entries are recorded. At elementary schools using the visiting bookkeeper
system, the monthly reports actually may be prepared periodically
depending on the timing of the visits. In addition to printed hard copies, a
backup diskette of all fiscal year records should be kept at the school. It is
recommended to store an additional backup disk off site in case a fire or
other calamity occurs. The reports, prepared as of the last day of each
month, are

1) General Ledger (cumulative summary of all accounts from July 1

to the end of the current month) (Cash Ledger and Fund Ledger
under the Quicken System),

2) Sequential List of Receipts (current month),

3) Sequential List of Checks (current month),

4) Sequential List of Transfers (accounts 1-989, current month),

5) Sequential List of Movements of Cash (accounts 990-999, current

month),

6) Account Reconciliation (accounts 1-999, current month) (Account

Reconciliation – All under the Quicken System), and

7) Bank Reconciliation (manual or computerized report).

On June 30, these same reports must be run for the full fiscal year, July 1
to June 30. This run provides a hard copy record of all transactions for
the fiscal year and is to be kept in a permanent file.

The financial agent shall furnish the General Ledger Report to the
principal no later than the 20th day following the close of each month.
The principal should review this report, sign to indicate this review, and
return it to the secretary/financial agent to be filed with other monthly
items.

c. The financial records are maintained by a computerized double-entry

bookkeeping system. The information and training necessary to operate
the system is provided by DSA to financial agents by way of periodic
instructional courses and is contained in a separate manual.

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2. The General Ledger Report

Two types of accounts are maintained in the ledger: cash (asset) accounts
and fund accounts. A standard Chart of Accounts is in the appendix.

3. Establishing and Closing Accounts

a. Staff Accounts

1) At the discretion of the principal, staff funds may be maintained

outside of the IAF records, provided a separate bank account is
maintained, the funds are administered by someone other than the
IAF financial agent, and the IAF bank account is not used to
receive or disburse staff funds.

2) If staff funds are included in the IAF accounts, they must be

maintained in a separate fund account or accounts. Profits from a
vending machine may be used to finance staff activities only if the
vending machine is located in the faculty lounge or other area that
is not accessible to students. Staff accounts must maintain a
positive balance. Student-owned funds must never be used to
offset deficits in staff accounts.

b. Trust Accounts

Trust accounts are used to account for foundation funds donated by

persons or groups for specific educational purposes. Examples of
foundation funds are memorial funds and scholarship funds. Foundation
funds must be approved by the deputy superintendent of schools before
they can be accepted. All disbursements of foundation funds shall be
approved by the executor of the foundation. Foundation funds shall be
held in savings accounts or investments, and the foundation's share of the
income therefrom shall be credited entirely to the trust accounts.

c. Class and Club Activities Accounts

Any balance remaining in the account of a graduating class or an inactive

club, after the class has graduated and the class or club has had an
opportunity to determine the disposition of the balance, shall not be
considered as belonging to the graduated class or club and shall be
closed out to the general fund at the beginning of the next year. Off-
campus clubs shall not be permitted to carry accounts on the IAF
accounting records.

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4. Negative Balance Accounts and Inactive Accounts

a. The principal shall be aware of any large negative balances in IAF

accounts that continue to the end of the school year. The principal shall
investigate and take timely corrective action to eliminate the cause of such
negative balances.

b. Inactive accounts with positive balances should be closed out at fiscal

year-end and transferred to the benefiting accounts or the general
account, as appropriate.

5. Transfers Between Fund Accounts

The financial agent shall execute a transfer of funds between fund accounts
only after receiving a properly executed transfer request, MCPS Form 281-
46, signed by the principal. Transfer requests shall be numbered and
entered individually in the ledger. Transfers may be entered at any time
during a fiscal year but all accounts should be reviewed at the end of each
fiscal year (June 30) and transfers made to close accounts not needed for the
next fiscal year.

6. Supporting IAF Records

Documents supporting the IAF reports are part of the financial records and
should be maintained in the school office and filed in a logical manner
(numerical, alphabetical, or chronological) in order to be readily available for
audit or other purposes. Supporting documents include bank statements,
canceled checks, deposit slips, receipts, contracts, purchase requests,
invoices, sales tax returns, etc.

7. Sponsor Records

a. Activity sponsors should receive, from the financial agent, a monthly

activity account reconciliation report showing all transactions recorded in
the account. Sponsors have an option to maintain the records required in
subparagraph b. below or, at a minimum, reconcile their retained copies
of receipt, disbursement, and transfer documents to an activity account
reconciliation report monthly. After review by the sponsor, the report
should be returned to the financial agent and signed as to its accuracy or
discrepancies cited. All discrepancies should be resolved promptly with
the financial agent. This information should be held for a minimum of five
years by the sponsor or the school.

b. Activity sponsors should keep a detailed record of receipts and

disbursements for each activity showing the number of units involved, the
unit cost, the total cost, the unit selling price, the total selling price,

12
 together with the opening balance and the balance to date in their
account. This detailed information is to be compared monthly with the
corresponding activity account reconciliation report and discrepancies
resolved with the financial agent.

c. The financial agent shall maintain a control (for example, a check-off list)
to identify and follow-up on those activity account reconciliation reports
not returned by sponsors.

d. In regard to field trips, sponsors should keep cost and fee information for
each trip and turn in the data to the financial agent when a trip is
completed. MCPS Form 280-41, Field Trip Accounting, can be used by
sponsors to record the funds collected. The data can be used to review
the submission and recording of receipts and to estimate the pricing of
future trips. The financial agent should retain this data until the next
internal audit. For staff out-of-town travel and local travel requiring
lodging for one or more nights, approval requirements of MCPS
Administrative Regulation DIE-RB, Out of State Travel on Official
Business, apply.

8. Annual Financial Statements

At the end of each fiscal year, the financial agent shall prepare and furnish to
DSA the annual IAF financial statements. The statements consist of the
following:

a. MCPS Form 281-24, School Financial Report Independent Activity

Funds, as of June 30.

b. General Ledger Report for the period July 1 through June 30 (Cash
Ledger and Funds Ledger under the Quicken System).

c. Copy of the checking account bank statement as of June 30, including

the bank reconciliation.

d. Copy of the latest savings account statement for each account owned
between July 1 and June 30.

e. MCPS Form 281-23, Schedule of Accounts Receivable, as of June 30.

f. MCPS Form 281-22, Physical Inventory of Salable School Merchandise,

as of June 30.

g. MCPS Form 281-23, Schedule of Accounts Payable, as of June 30.

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 h. MCPS Form 281-25, Statement of Profit or Loss on Sale of
Merchandise.

i. A diskette with the IAF data files.

Instructions and due dates (the third week in July) for the annual financial
report will be provided by the chief operating officer prior to June 30 each
year. In accordance with MCPS policy on public information (Resolution
24-68), all financial statements are available to the public on request.

9. Removal of Records from School Premises

a. IAF financial records must not be removed from the school premises.
This applies both to formal records such as the monthly reports and to
supporting documents such as bank statements, canceled checks, paid
invoices, check stubs, and receipt books.

b. In the event that unusual circumstances require an exception to this

rule, the principal must authorize in writing such removal in advance,
specifying the dates to which the authorization applies. In any event, all
records must be returned to the school at the start of the next working
day so that they are available during all working hours. There should
never be a circumstance when any of a school's financial records are
unavailable during normal working hours.

10. Audits

a. The IAF financial records and operations of the school are subject to
periodic audit by DSA (MCPS Regulation DIA-RA, Accounting for
Independent Activity Funds). Audit reports are submitted to the principal
and the Office of School Performance. Upon entering a new assignment,
a principal should study the financial statements and the audit reports to
become aware of the financial condition of the school. Normally an audit
will be conducted within one year of a new principal’s assignment.

b. DSA is not required to give advance notice to school officials of the

commencement of an audit.

G. Business-type Activities

The business-type activities listed below provide the major sources of revenue to
support IAF activities. Because these activities involve the handling of cash, it is
imperative that adequate internal controls are in place. Accordingly, the principal
and all personnel involved in such activities should be aware of the existing
regulations and guidance established and the procedures that need to be

14
followed. At high schools, it is advisable that the principal assign the business
manager to monitor compliance with these requirements. All fund raising
activities shall be in accordance with Policy CND, School-related Fund Raising.

1. School Stores

Detailed instructions and guidance for operating school stores are contained
in the MCPS publication, Handbook for the Operation of School Stores.

2. Vending Machines

Schools shall operate under full-service contracts, which usually provide for
periodic commissions based on sales. MCPS has developed standard
contracts for beverage vending. Copies can be obtained from the DSA Audit
Unit. The periodic commission payments received should be reviewed to
ensure that they agree with the vendor’s statements and comply with the
terms of the contract. Vending machine accounts should be established in
the #700 series of accounts and a current contract should be on file with the
financial agent.

3. Fund Raisers

Guidance for sponsoring IAF fund raisers is contained in the MCPS

publication, Guidelines for Sponsoring an IAF Fund Raiser.

4. Admission Receipts

Admission receipts for athletic and nonathletic events should be controlled in

accordance with MCPS Administrative Regulation DMB-RA, Control of
Admission Receipts. Such receipts are highly susceptible to improper
diversions and should be controlled carefully. The regulation provides for
internal controls through (1) the use of serially numbered tickets, (2)
separation of duties, (3) the preparation and signing of the required form, and
(4) a reconciliation to ensure that the value of unsold tickets plus funds
deposited equals the value of tickets issued. The procedures detailing how
these controls are carried out are in the regulation.

5. Student Parking Permits

At high schools where parking fees are collected, the receipts should be
recorded in the subaccount #6091 of the Athletics Account #100. A record
should be kept of all numbered permits received by the school and unused
permits should be retained. Each semester, a reconciliation should be made
of the funds received and deposited to the number of permits sold. Further
information is contained in MCPS Administrative Regulation ECG-RA,
Student Driving and Parking Facilities.

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6. Yearbook Sales

A separate account in the #900 series should be established for the

yearbook. Upon receipt of the yearbooks, the sponsor should ensure that the
inventory is adequately secured, distribution is monitored, and a physical
inventory is taken at fiscal year-end. Care should be taken to identify and
separate advertisement revenues from sales receipts. A separate account
titled Yearbook Advertising could be used for this purpose. In any event, the
sponsor must maintain a record of the number of books sold at specific
prices, along with a record of advertising revenue and a detailed list of any
yearbook giveaways. At fiscal year-end, MCPS Form 281-25, Statement of
Profit or Loss on Sale of Merchandise, should be prepared by the sponsor for
review by the business manager and the principal.

7. Picture Sales

Commission statements received from vendors should contain sales

information so that the basis for commissions received can be easily
determined.

8. Career and Technology Education (formerly Vocational Education Business

Activities)

a. Vocational education business activities shall be conducted in

accordance with MCPS Regulation IGK-RB, Career and Technology
Education Projects from Outside MCPS.

b. Credit shall not be extended to any MCPS employee or other person

(see C3.c above). When work is requested by customers, they should be
advised, and the order forms should so state, that no work will be
released until payment has been made in full.

c. Payments for vocational education projects should be made to the school

financial agent. If the amount of cash received is small, however, and its
handling is part of the instructional program (cosmetology shops, for
example), the principal may approve the receipt of cash in a particular
shop. Whatever funds are collected by the enterprise should be turned in
daily to the financial agent together with copies of the related work orders
or other receipts.

d. Shop work shall be performed pursuant to a written work order. Each

shop shall have a set of prenumbered work orders, with the names of
both the school and the shop printed thereon. Work orders shall be used
in numerical sequence within each shop. Voided work orders shall be
sent to the office for retention by the financial agent.

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e. When payment in full is received for work done under a work order, each
copy shall be stamped "Paid," dated, and marked with an indication of
whether payment was by cash or check. One copy is given to the
customer, one copy is retained by the vocational education shop, and
one copy is retained by the financial agent.

f. At the end of each month, the financial agent shall reconcile work orders
and other receipt documentation used with cash receipts. The vocational
education teacher shall provide the financial agent with a list of work
orders in process and other unused receipts as of the end of the month
so that all issued work orders and receipts can be accounted for.

g. The vocational education teacher shall maintain a detailed record of

receipts and disbursements of the enterprise he/she manages and shall
reconcile it monthly to the activity account reconciliation report received
from the financial agent.

h. Delegations by the principal of authority to purchase shop equipment,

tools, materials, and supplies shall be in writing and shall be monitored
carefully by the principal and the business manager. All purchases
should be in compliance with MCPS procurement practices.

i. Students shall not pick up or receive merchandise purchased for the

vocational education shop. The vocational education teacher is
responsible for receiving all merchandise and for inspecting it to ensure
that it is the kind and quantity ordered and is in good condition. If the
results of the inspection are satisfactory, the teacher shall sign and date
the invoice or receiving ticket to indicate acceptance of the merchandise.

j. Inventories of materials, parts, and supplies shall be kept at the minimum

necessary for efficient shop operation. So far as practical, purchases
should be limited to items expected to be used within the school year. A
physical inventory, priced at cost, including the purchase date, shall be
taken as of June 30 each year and at such other times as directed by
the principal or the Office of School Performance. All purchases of
materials and parts (except for items of nominal value) shall be
accounted for either as inventory or on itemized work orders.

k. Donated vehicles and equipment shall be accepted and recorded in

accordance with the provision of H.4 and H.5 below.

l. Any use of the shop facilities outside of normal school hours must be
authorized in advance, in writing, by the principal, specifying the date and
hours of the approved usage and naming the teacher or other MCPS
employee to whom the authorization is granted in accordance with the

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 requirements of MCPS Regulation KGA-RA, Community Use of Public
Schools. Under no circumstances shall equipment or tools be removed
from the premises without the written approval of the principal.

9. Maryland Retail Sales Tax

Retail sales tax must be collected by the school and remitted to the State of
Maryland on the sales price of all taxable merchandise. Taxable merchandise
includes sales from vending machines, school stores, vocational education
shops, pictures, etc. Schools that expect to make taxable sales should apply
to the Maryland Sales Tax Division for a sales tax license. The license must
be displayed in the school office. A school may call the DSA internal audit
staff for general information concerning the Maryland retail sales tax.

H. Miscellaneous

1. Designations, Delegations, and Authorizations

All written designations, delegations, and authorizations by the principal, chief

operating officer, deputy superintendent, and community superintendents
shall be filed in the school financial office, where they will be available for
examination at any time by the DSA internal auditors.

2. Payment of Bills

Each school shall maintain a good credit rating by paying all valid obligations
promptly, by the due date established by the vendor. All bills must be paid by
check. Cash must never be sent through the U.S. mail or the MCPS pony
mail.

3. Payments for Personal Services

Schools that make payments to MCPS employees, students, and other

persons for personal services must comply with the requirements of MCPS
Administrative Regulation DIA-RB, Payments for Personal Services from
School Independent Activity Funds. The following is a summary of the
requirements:

a. MCPS employees--Payments that do not exceed the basic per diem

allowance for jurors in the State of Maryland may be considered to be
reimbursement of expenses. When the amount paid for any one day
exceeds the per diem allowance, the entire amount must be treated as
earnings subject to the social security (FICA) tax. The employee's tax
must be deducted from the amount otherwise due, and only the net
amount is paid to the employee. Schools that have made payments to

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 MCPS employees for personal services (other than expense money)
shall submit MCPS Form 280-46, Report of Payments to MCPS
Employees for Personal Services, to the Division of Payroll, together
with a check for the employer's and employee's FICA taxes in
accordance with the instructions on the back of the form and MCPS
Administrative Regulation DIA-RB. Secondary schools that have made
no payments for personal services shall submit a negative report on
Form 280-46. Elementary schools do not need to submit a report unless
payments have been made and a tax is due.

b. Students--As in the case of employees, payments to students that do

not exceed the basic per diem allowance for jurors may be considered to
be reimbursement for expenses. Payments that exceed the per diem
allowance are personal earnings of the student; however, all students
are exempt from FICA taxes and most are exempt from state and
federal income taxes. The school should obtain a signed Form W-4E
from each student to whom payments for personal services (other than
expense money) are made. MCPS Form 280-47, Report of Payments to
MCPS Students for Personal Services, should be prepared in
accordance with the instructions on the back of the form and MCPS
Administrative Regulation DIA-RB.

c. Independent Contractors--Persons receiving payments for personal

services who are neither MCPS employees nor students shall be
assumed to be independent contractors. No deduction for taxes is
necessary, but reporting is required. MCPS Form 280-47A, Report of
Payments to Independent Contractors, should be prepared in
accordance with the instructions on the back of the form and MCPS
Administrative Regulation DIA-RB.

4. Gifts to the School and Student Body

Gifts of material and/or equipment, whether donated by a club, a class, or a

group or person outside the school, may be accepted only in accordance with
the provisions of MCPS Regulation DJA-RB, Purchases of Materials and
Equipment Using Nonappropriated Funds and Acceptance of Donated Items.
All such gifts must be approved by the principal before being accepted.

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5. Equipment

Any equipment that a school acquires by gift or IAF purchase shall become
the property of MCPS. Procedures for controlling such property are contained
in MCPS Administrative Regulation EDC-RA, Control of Furniture and
Equipment Inventory.

6. Disposal of IAF Records

a. The following IAF records shall be retained permanently:

1) Fiscal year (July 1 through June 30) printouts of each report, as

listed in section F.1.b.

2) End-of-year financial statements.

3) Audit reports and correspondence.

4) Records of investigations.

b. The following IAF records shall be retained for a period of five years
after the close of the year to which they apply, and then destroyed:

1) Maryland retail sales tax returns, together with supporting

documents.

2) Authorizations and delegations by the principal, deputy

superintendent, and community superintendents.

3) Bank statements, reconciliations, canceled checks, and deposit

slips.

4) Savings account passbooks and other evidence of investments to

be retained for five years after the close of the year in which the
investment is liquidated.

5) MCPS Form 280-54, Request for a Purchase, with supporting

documents.

6) Expense vouchers with supporting documents.

7) Invoices from vendors with supporting documents.

8) Invoices to debtors with supporting documents.

9) Petty cash vouchers with supporting documents.

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 10) Receipts with supporting documents.

11) MCPS Form 280-45, Record of Funds Transmitted to MCPS, with

supporting documents.

12) MCPS Form 280-50, Tickets and Cash Report of Admissions

Manager.

13) MCPS Form 280-51, Tickets and Cash Report of Ticket Seller.

14) MCPS Form 281-46, Independent Activity Funds – Transfer.

15) Contracts.

I. Closing Schools

1. Instructions for Closing Schools

a. During the year preceding the closing, inventories of salable merchandise

should be reduced to a minimum by limiting purchases, as far as
practicable, to quantities that can be sold before the closing date. The
principal is responsible for the disposition of unsold merchandise. If
possible, it should be returned to vendors for credit or refund. If credit or
refund cannot be obtained, the merchandise may be transferred to the
receiving school(s). A record must be kept, for audit purposes, of the
quantities and cost of all items transferred to receiving schools or
otherwise disposed of other than by sale to students.

b. Sometime prior to the closing date (recommend at least 120 days in

advance), the vending machine company or companies should be notified
in writing to remove their machines and stop making deliveries.

c. Every effort must be made to collect all accounts receivable before the
closing date. Schools with postage meters or permits should settle their
accounts with the post office before closing.

d. Every effort must be made to resolve all accounts payable before the
closing of the school. Vendors should be notified to submit their bills by a
specified date. School personnel also must be notified to submit any
claims they have for reimbursement of expenses promptly so that they
may be paid before the closing date.

e. During the last four months (120 days) before closing, it is suggested that
all checks written on the IAF bank account be accompanied by a

21
 statement requesting that the check be cashed promptly. If any checks
have been outstanding more than 60 days, the payees should be
contacted and asked to cash them.

f. The closing school must not transfer any cash or investments to the
receiving school or schools. The transfer will be made by DSA, in
conjunction with the Office of the Deputy Superintendent of Schools
and/or the Office of the Chief Operating Officer, after the closing audit of
the IAF accounts has been completed. At that time, the remaining funds
(including the value of inventory of salable merchandise already
transferred) will be allocated to the receiving schools in accordance with
the policies detailed in section I. 2. below.

g. During the year of closing, the school should not invest in any certificate of
deposit or other long-term investment with a maturity date later than the
closing date. Excess funds available for investment may be invested in
the MCPS Centralized Investment Fund or in a passbook savings
account.

h. Before the closing date, new signature cards must be filed with the
financial institutions to authorize signatures on checks and withdrawals by
employees of DSA and the Office of the Deputy Superintendent of
Schools after the school is closed. This is necessary in order to facilitate
payment of any late bills and the transfer of funds to the receiving schools
after the accounts have been audited. Specific names and procedures for
the new signature cards will be provided by the internal auditors prior to
the closing date.

i. The financial institutions must be notified to address future bank

statements and correspondence to DSA, after the closing date.

j. The school must prepare the regular annual financial statements at

closing to reflect the June 30 closing. The financial statements must be
submitted to DSA, together with the record of disposition of unsold
merchandise referred to in section I. a. above.

k. The financial records for the current fiscal year should be boxed,
appropriately labeled, and addressed to DSA. Financial records for earlier
years should be sent to Central Records for storage. Guidance as to
which records may be destroyed after five years and which must be
retained permanently is provided in section H. 6. above. Permanent
records should be boxed separately, and other records should be boxed,
labeled, and arranged chronologically to facilitate their removal and
destruction when the retention period is completed. Use only standard
storage boxes and labels, which may be obtained from Central Records.

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 l. If, during the calendar year of closing, any payments have been made for
personal services which come under the provisions of MCPS
Administrative Regulation DIA-RB, sections III B or IV B2, the school must
prepare MCPS Forms 280-46 and/or 280-47 and forward them to the
Division of Payroll, together with a check for the FICA tax in the amount
indicated on Form 280-46. Note that Form 280-46 is an annual form that
is revised each time the FICA tax rates change. The form for the current
calendar year must be used. Form 280-47A also should be submitted
where applicable. (See section H. 3.)

m. The school should provide DSA with the summer addresses and phone
numbers and the new assignments (if still with MCPS) of the principal and
the person who maintained the IAF financial records during the year of
closure.

n. Notify the Maryland Comptrollers Office that sales taxes will no longer be
collected.

2. Residual Independent Activity Funds of Closed Schools

The following procedures will be followed in the allocation of the residual IAFs
of closed schools:

a. IAFs will be transferred between schools only when a school is closed.

The gain or loss of grade, or the gain or loss of students due to boundary
changes, will not result in the transfer of IAFs between schools, unless a
school closing also is involved.

b. The Office of School Performance shall provide instructions for the

disposition of any trust funds in a manner that will preserve the integrity
of each fund and continue the purpose for which it was established.

c. The policy for allocating the funds (other than trust funds) of closed
schools is based on duplicating, as far as possible, the situation that
should have prevailed if the school had not closed. The funds will be
allocated to the receiving schools in proportion to the number of students
to be newly assigned to each, in the school year following closing these
students would have attended the closed school had it remained open.
Because graduating seniors do not retain ownership of any part of the
IAFs, they will not be considered in the allocation formula. Since
incoming freshmen become part owners of the IAFs, they will be
considered in determining the entitlement of the receiving schools, even
though they never attended the closed school. The projected enrollment
figures to be considered by the Board of Education in its decision to close
the school will be used to compute the allocation formula.

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d. When the closing of a school is phased over a period of two or more
years, any changes in grades or boundaries which occurred prior to its
final year of operation will be ignored for purposes of the computation
under I. 2. c. above. The grades and boundaries of the school at the date
of final closing will govern, and the students in those grades from within
those boundaries during the following school year will determine the
allocation of funds to receiving schools. As noted under I. 2. c., however,
this will not be based on actual enrollment but rather on the projections
considered by the Board of Education in its decision to close the school.

e. Only those schools that receive students from within the boundaries of a
closed school shall be entitled to any portion of the closed school's funds.
The fact that, at the time of closing, some of the receiving school's
students are reassigned to a third school, does not entitle the third school
to any portion of the funds of the closed school.

f. The retention of students in an elementary school who would otherwise

have graduated to a closed middle school does not entitle the elementary
school to any portion of the funds of the closed school.

g. Should unusual circumstances be encountered in the closing of a school

that do not appear to be covered by the above policies, the problem will
be referred to the deputy superintendent of schools and/or the chief
operating officer for decision.

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 APPENDIX
CHART OF ACCOUNTS

In order to provide uniform reporting, the following account numbers should be used. Additional numbered accounts may
be added as needed, especially at Middle and High Schools.

FUND ACCOUNTS

1-99 GENERAL SCHOOL ACTIVITES 500-599 FIELD TRIPS

010 General 500 Field Trips - General
015 Principal's Discretionary 570 Grade Combinations FT
020 Staff Appreciation 580 All School FT
025 PTA
030 Cellular Phone 600-699 EXCHANGE ACTIVITIES*
036 Postage 600 Exchange
040 Library - Community Service Activities
045 Lost-Damaged Texts -- Red Cross
050 Checking Interest -- Disaster Relief
055 CIF Interest
060 Reimbursement 700-749 BUSINESS ACTIVITIES
070 Sert 700 School Store
075 ICB 710 Pictures
080 MSPAP Award 720 Vending Machine-Staff
- Media Center - Vending Machine-Students
- Middle States - Auto Shop
- Cosmetology
100-199 ATHLETICS
100 Athletic Department 800-899 FUND RAISERS
- Pom Poms 800 Fund Raiser
- Cheerleaders
- Boys/Girls Phys. Ed. 900-919 PUBLICATIONS
900 Yearbook
200-299 CLASS ACTIVITIES - Yearbook Ads
- Class of ____ - Newspaper
- Creative Foods - Literary Magazine
260 Choral Music
265 Instrumental Music 930-959 MEMORIAL/SCHOLARSHIP
- Art 930 Memorial
- English Workbooks
- Math Workbooks 980-989 STAFF OWNED
- Calculators 980 Social Committee
- Staff Meetings
300-399 GRANTS AND DONATIONS -- Refreshments
300 Grants -- Retirements

400-499 CLUB ACTIVITIES CASH (ASSET) ACCOUNTS

400 Student Council/Gov't. 990 PETTY CASH
410 Patrols 991 CASH ON HAND
- Math Club 992 CHECK ACCOUNT
- Photograhpy Club 993 CENTRALIZED INVESTMENT FUND

* Exchange Accounts should have End of Year balances equaling zero or a reimbursement is anticipated and is carried as
an account receivable.