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Illinois School Board Journal - ARCHIVES
September-October, 2006

Bonding a treasurer helps protect funds

For the answer to these questions as well as information provided for "Keeping finances on the up-and-up" in the November-December 2005 issue, The Journal turned to Tim Custis, a certified public accountant with Gorenz & Associates in Peoria and a school board member for Washington CHSD 308.

Question: Why does the school district treasurer need to be bonded?

Answer: The simple answer could be because Section 8-2 of the Illinois School Code says so, but the more appropriate answer would be in order to protect the school district from any improper actions of the person appointed as treasurer.

The person appointed as school district treasurer has a great deal of responsibility and generally has access to all of the funds that the district has available.

The legislature established the requirement for school district treasurers to be bonded many years ago. Originally the requirement was for bond coverage to be at least 50 percent of the amount of all bonds, notes, mortgages, moneys and effects of which the treasurer is to have custody.

In 1999 the legislature reduced this percentage to 25 percent. The rationale for this reduction was that the possibility for the treasurer to divert more than 25 percent of the school district's assets without being detected was remote — only a slightly higher risk than 50 percent being taken. School districts lobbied for this change due to the cost of coverage on the higher amounts and some districts having difficulty obtaining coverage.

Question: So is coverage at 25 percent of all the district's assets adequate?

Answer: Generally speaking, the 25 percent coverage requirement would seem to be appropriate, but keep in mind that the 25 percent should be on the maximum amount that may be held at any point during the year, not just at year end, or the end of a given month.

In addition, a second bond is required by Section 19-6 of the School Code before the treasurer can accept possession of the proceeds of a bond issue and will normally be required before bond counsel will give approval to the issuance of bonds.

This bond also must be equal to 25 percent of the amount of the bond issue and must be approved by the governing school board or board of township trustees. The penalty required of the second bond is usually easy to determine as the amount of a bond issue should be clearly known in advance.

Question: Is the treasurer the only custodian of funds who needs to be bonded?

Answer: Legally, yes. The treasurer is the only individual identified by the School Code as being required to be bonded.

However, as a matter of fiduciary responsibility, it would be wise to have some type of fidelity bond, or employee dishonesty coverage, on any school employee who has unsupervised access to district receipts, or who could write checks on Imprest Fund or Activity Fund checking accounts without authorization.

That's also why it's important to make certain a district has good policies and administrative procedures in place regarding money handling, especially cash. One of the simplest, and most effective, ways to deter the theft of cash is making certain that the person who collects the money is not the same person who deposits the money and records the transaction.

Even smaller districts should be able to identify at least two people to act as a check and balance against the other when handling cash.

Most people are very honest. They act hurt when you point out that having only one person handling receipts and deposits could be a problem. We tell them it's for their own protection.

Gate receipts, concession stand money and pop machine money — all of which is usually generated in the form of cash — as well as registration fees where large amounts of money are handled in a short space of time could pose a temptation for someone with an eye to steal.

At ticketed events, take care to note beginning and ending ticket numbers, have a second person check the numbers against the money and then get the money deposited the same night — or at least by the next morning. All of these are good procedures to help deter theft and minimize errors.

While anyone who has a true intent to steal can probably come up with a way to abscond with district funds, school boards have a number of policy options and safeguards that can be put in place to lessen that likelihood.

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