2025 Education Accounting & Auditing Update – What Schools Need to Know

As school districts work to navigate evolving financial standards and compliance requirements, staying on top of changes is more important than ever. At the 2025 Michigan School Business Officials conference, Yeo & Yeo’s professionals presented on essential accounting updates, federal funding trends, and frequently found audit issues in Michigan school districts. Here are the most important points education leaders and business officials should be aware of heading into the end of their fiscal year.

GASB Updates: What’s Changing and When

Several new Governmental Accounting Standards Board (GASB) pronouncements are impacting how school districts prepare and present their financial statements.

• GASB 101, Compensated Absences, effective for June 30, 2025, year ends, changes how compensated absences are calculated and reported. The new standard differs from previous practice in that the focus is not on vested vs. nonvested benefits, but on accruing a benefit when it is earned and then determining if it is more likely to be used or paid out. This standard will not affect the governmental funds significantly, but will affect the district-wide (full accrual) statements.
• GASB 102, Certain Risk Disclosures, effective for June 30, 2025, year ends, requires districts to consider if there could be substantial impact of either a concentration (a lack of diversity relating to significant inflow or outflow of resources) or a constraint (a limitation imposed on a district by an external party or by formal action of an authoritative organization of the district) within 12 months of the date the financial statements are issued.

Chart of Accounts & Budget Updates

The Michigan Department of Education has issued several updates to the Chart of Accounts:

• New object/grant codes for tracking of new revenue sources.
• Updated functions for technology and remote learning expenses.

On the budget side, make sure your district:

• Adopts budgets before the start of the fiscal year.
• Amends budgets promptly when changes arise.
• Avoids overspending in any line item that requires board authorization.
• Adopts and amends as necessary budgets for all required funds, including all special revenue funds (such as food service and student/school activity).

Budget violations continue to be one of the most common audit findings. Transparency of variances, data inputs, and assumptions ensures proper budgeting. Timely updates, ongoing monitoring, and detailed board communications should be made regularly to mitigate budgeting issues.

Single Audit Findings and Federal Compliance

Federal funding, particularly with the recent influx of Education Stabilization Fund (ESF) and COVID-related funding, has brought more districts under the threshold for single audits. Along with it comes increased scrutiny.

Common audit findings include:

• Missing or incomplete documentation for federal expenditures.
• Noncompliance with federal procurement rules.
• Inadequate or missing time and effort documentation for employees paid with federal dollars.
• A lack of timely cash requests.
• Incomplete or outdated capital asset inventories.
• Missing board-approved policies or documentation for significant transactions.

To mitigate risk, review federal program requirements regularly, maintain thorough documentation of all grant-related activities, implement strong internal controls, and train staff responsible for federal programs on updated guidelines.

Year-End Readiness

Districts sometimes fail to accurately record year-end items such as:

• Lease liabilities
• Bond refunding
• Unpaid invoices related to construction in progress
• Accrued UAAL liability
• Deferred inflow of resources

These omissions can misstate your financial position and lead to audit findings. It’s crucial to ensure that those year-end adjustments are made.

A Stronger Financial Foundation

Proactive planning and consistent internal controls help school districts avoid audit findings and build public trust and operational stability. Use these insights to guide your year-end preparations, review internal policies, and ensure your staff is trained on the latest requirements. Consistency and accountability are key to complying with GASB updates, avoiding budget pitfalls, or documenting federal funds correctly.

Regardless of size, every district can take steps today to strengthen financial oversight and avoid surprises during audit season.