FCMAT has developed the Fiscal Health Risk Analysis (FHRA) as a tool to help evaluate an LEA's fiscal health and risk of insolvency in the current and two subsequent fiscal years.
Each section and specific question on the FHRA is included based on FCMAT's work since its inception; they are the common indicators of risk or potential insolvency for LEAs that have neared insolvency and needed assistance from outside agencies. Each section of this analysis is critical to an organization, and lack of attention to these critical areas will eventually lead to an LEA's failure.
The greater the number of "no" answers to the questions in the analysis, the higher the score, which points to a greater potential risk of insolvency or fiscal issues for the LEA. Not all sections in the analysis and not all questions within each section carry equal weight; some areas carry higher risk and thus count more heavily toward or against an LEA's fiscal stability percentage. A score of 40% or more is considered high risk; a score of 25%-39% is considered moderate risk; and a score of 24% or lower is considered low risk. The Budget and Fiscal Status and material weakness questions identify conditions that create significant risk of fiscal insolvency. The existence of an identified budget or fiscal status or a material weakness supersedes all other scoring and will elevate the district's risk level. Identifying issues early is the key to maintaining fiscal health. Diligent planning will enable an LEA to better understand its financial objectives and strategies to sustain a high level of fiscal efficiency and overall solvency. An LEA should consider completing the FHRA annually to assess its own fiscal health risk and progress over time.
FCMAT has compiled the list of indicators of risk or potential insolvency based on more than 25 years of experience with local educational agencies (LEAs). Each item listed indicates a lack of function, commitment, or attention to one or more critical elements of an organization’s operations, which may eventually contribute to an LEA’s insolvency. The existence of any one of the indicators increases risk of potential insolvency and the need for assistance from outside agencies. Lack of attention to these indicators will eventually lead to financial insolvency and loss of local control. Identifying issues early is the key to maintaining fiscal health. Diligent multiyear planning will enable an LEA to better understand its financial objectives and strategies to sustain a high level of fiscal efficiency and overall solvency.
An LEA should consider discussing the indicators regularly and complete a Fiscal Health Risk Analysis (FHRA) annually to assess its own fiscal health risk and progress over time.