In my article, “Bad Boys, Bad Boys, Whatcha Gonna Do When They Come for You?” : Bonding Requirements for Certain Employees, I present some ideas about ensuring that schools and school employees use proper precautions when handing funds. Every so often a school district becomes the victim of an employee embezzling funds. When that happens, one question that the school needs to be ready to answer is whether the employee was bonded.
For those schools that choose to have revolving funds for small expenditures from their Maintenance and Operations funds, or who maintain Student Auxiliary funds, Food Service funds, and/or any other designated “Auxiliary Operation funds, Arizona law requires that the individuals signing checks for these funds on behalf of the District be bonded. Not surprisingly, this bonding requirement can also be found in the Arizona School Boards’ Association’s standard policies DH and DIB and in the Uniform System of Financial Records (USFR).
The amount of the bond for each of these types of funds differs. The revolving fund requires a bond for the custodian of the fund be in an amount equal to twice the amount of the fund. The student treasurer, assistant student treasurers, and a person or persons authorized by the Governing Board as a co-signer with the students are required to have bonds in an amount determined by the Governing Board. The meal program revolving fund requires the two co-signers appointed by the Governing Board be bonded in an amount equal to twice the amount of the fund. Checks against the auxiliary operations revolving funds shall, again, be signed by two co-signers appointed by the Governing Board who shall be bonded in an amount to be determined by the Governing Board. In each of these cases, however, the actual cost of the bond premiums is charged against the revolving fund, not against the employee or student who is required to be bonded. This means that when the District covers the cost of the insurance premium for its employees and students, it is not a gift of public funds.
Since Districts administrators are more attuned to educating students than to the financial aspects of District policies and procedures, the need to secure a bond for various employees of the school may not cross their radars until the aforementioned embezzler strikes. The “closing the barn door after the horse has gone…but before we get another horse that might run away” question then becomes, “so what IS a bond and how do we go about getting them?”
The type of bond to which the statutes and the USFR refers is commonly called a “fidelity bond.” It is a kind of insurance that exists for the sole purpose of protecting the business, trust, union, or government entity from the potential dishonesty of its employees. Fidelity bonds can be arranged through insurance brokers, so you can call around and find out the cost of the bonds. Once you have secured bonding for the employees who are required to be bonded, you can also check with the Arizona Risk Retention Trust regarding the cost of their “commercial criminal coverage” which is described as “Coverage for employee dishonesty, forgery, and alteration of documents. This coverage also includes theft; disappearance or destruction of property; property and safe burglary; theft of district money and securities; and computer fraud.” While the Trust’s “commercial criminal coverage” is not a bond and while getting that coverage will not comply with the present legal requirement to have bonded employees, it will provide you with more extensive coverage for those employees who are not required to be bonded but who still handle money for the District. The important thing, however, is to get your employees bonded to protect the District…and to comply with your policies and the law.
When you are considering which employees should be covered, the statutes are clear regarding the individuals appointed by the Governing Board as signatories on the revolving accounts. The USFR speaks about bonding “Employees authorized to sign checks, and those handling significant amounts of cash…” Indeed, if an employee is in a position where the employee is expected to log in cash and checks and/or to deposit cash and checks to the bank, the District may consider having that employee covered with a fidelity bond or with the commercial criminal policy coverage provided by the Trust, even if the employee is not required to be bonded under the statutes. IF the employee embezzles the money, the District can recover its losses from the insurance company and the insurance company can proceed against the dishonest employee.
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice regarding Bonding Requirements for Certain Employees, or other Education Law matters, please feel free to contact Candyce B. Pardee at 800.863.6718, log on to udallshumway.com, or contact an attorney in your area. Udall Shumway PLC is located in Mesa, Arizona with a branch office in Yuma, Arizona, and is a full service law firm. We assist Individuals, families, businesses, schools and municipalities in Mesa and the Phoenix/East Valley.
 A.R.S. §15-1101, Revolving funds. “If the activities of a school district require immediate cash outlays for items including postage, freight, express, fuel taxes, parcel post, travel or other minor disbursements but not including salaries or wages, which are proper as ultimate claims for payment from school district school funds, the governing board, or the superintendent or chief administrative officer with the approval of the governing board, may apply to the county school superintendent to establish and maintain a revolving fund.”
 A.R.S. §15-1122, Student activities treasurer. “The governing board of any school district having student activities monies shall establish a student activities fund and appoint a student activities treasurer. The student activities treasurer shall deposit the student activities monies in a bank account designated the student activities account or in an account with the county treasurer pursuant to section 15-996 that is designated as other monies.”
 A.R.S. §15-1154, Operation of school meal programs. “Any monies received in the operation of a school district school meal program shall be deposited with the county treasurer who shall credit the deposits to the school meal program fund of the respective school district.”
 A.R.S. §15-1126. Accounting, deposit. “Auxiliary operations fund monies shall be deposited after authorization by the governing board in a bank account designated as the auxiliary operations fund or in an account with the county treasurer pursuant to section 15-996 that is designated as other monies.”
 USFR, Appendix F, X-F-4; also see: Appendix G, X-G-3; Appendix H, X-H-3.