Discussion of Proposed Amendment to 19 TAC Chapter 109, Budgeting, Accounting, and Auditing, Subchapter C, Adoptions By Reference, §109.41, Financial Accountability System Resource Guide

November 15, 2018

COMMITTEE ON SCHOOL FINANCE/PERMANENT SCHOOL FUND: DISCUSSION
STATE BOARD OF EDUCATION: NO ACTION

SUMMARY: This item provides the opportunity for the committee to discuss a proposed amendment to 19 TAC Chapter 109, Budgeting, Accounting, and Auditing, Subchapter C, Adoptions By Reference, §109.41, Financial Accountability System Resource Guide. The proposed amendment would reference the updated Financial Accountability System Resource Guide (FASRG) and remove language relating to the commissioner's role in amending the FASRG.

STATUTORY AUTHORITY: Texas Education Code (TEC), §§7.055(b)(32), 7.102(c)(32), 44.001(a) and (b), 44.007(a)-(d), and 44.008(b).

TEC, §7.055(b)(32), requires the commissioner to perform duties in connection with the public school accountability system as prescribed by TEC, Chapters 39 and 39A.

TEC, §7.102(c)(32), requires the State Board of Education (SBOE) to adopt rules concerning school district budgets and audits of school district fiscal accounts as required under TEC, Chapter 44, Subchapter A.

TEC, §44.001(a), requires the commissioner to establish advisory guidelines relating to the fiscal management of a school district. TEC, §44.001(b), requires the commissioner to report annually to the SBOE the status of school district fiscal management as reflected by the advisory guidelines and by statutory requirements.

TEC, §44.007(a), requires the board of trustees of each school district to adopt and install a standard school fiscal accounting system that conforms with generally accepted accounting principles. TEC, §44.007(b), requires the accounting system to meet at least the minimum requirements prescribed by the commissioner, subject to review and comment by the state auditor. TEC, §44.007(c), requires a record to be kept of all revenues realized and of all expenditures made during the fiscal year for which a budget is adopted. A report of the revenues and expenditures for the preceding fiscal year is required to be filed with the agency on or before the date set by the SBOE. TEC, §44.007(d), requires each district, as part of the report required by TEC, §44.007, to include management, cost accounting, and financial information in a format prescribed by the SBOE in a manner sufficient to enable the board to monitor the funding process and determine educational system costs by district, campus, and program.

TEC, §44.008(b), requires the independent audit to meet at least the minimum requirements and be in the format prescribed by the SBOE, subject to review and comment by the state auditor. The audit must include an audit of the accuracy of the fiscal information provided by the district through the Public Education Information Management System (PEIMS).

BOARD RESPONSE: This item is presented for review and comment.

PREVIOUS BOARD ACTION: The current FASRG, dated January 2010, was adopted by reference in §109.41 effective April 26, 2010. An amendment to Module 4 to incorporate updated auditing requirements was adopted by reference effective April 2012.

FUTURE ACTION EXPECTED: The remaining modules in the FASRG will undergo a comprehensive review and be presented for discussion at the January-February 2019 meeting. The proposed amendment to §109.41 will be presented for first reading and filing authorization at the April 2019 SBOE meeting after all updated modules of the FASRG have been discussed.

BACKGROUND INFORMATION AND SIGNIFICANT ISSUES: The FASRG describes the rules of financial accounting for school districts, charter schools, and education service centers and is adopted by reference under §109.41. The proposed amendment to §109.41 would remove subsection (b), relating to the commissioner's role in amending the FASRG, to eliminate unnecessary administrative procedures. In addition, revisions to the FASRG would align the content with current governmental accounting and auditing standards, remove obsolete requirements, and remove descriptions and discussions of best practices and other non-mandatory elements.

Requirements for financial accounting and reporting are derived from generally accepted accounting principles (GAAP). School districts and charter schools are required to adhere to GAAP. Legal and contractual considerations typical of the government environment are reflected in the fund structure basis of accounting.

An important function of governmental accounting systems is to enable administrators to assure and report on compliance with finance-related legal provisions. This assurance and reporting means that the accounting system and its terminology, fund structure, and procedures must be adapted to satisfy finance-related legal requirements. However, the basic financial statements of school districts and charter schools should be prepared in conformity with GAAP.

School district and charter school accounting systems shall use the accounting code structure presented in the Account Code section of the FASRG (Module 1). Funds shall be classified and identified on required financial statements by the same code number and terminology provided in the Account Code section of the FASRG (Module 1).

The following changes would be made to Modules 1, 2, 4, 5, 6, 7, and 8 of the FASRG.

Module 1, Financial Accounting and Reporting (FAR) and FAR Appendices

Current Module 1 would be repealed and replaced with a new Module 1 that would align with current governmental accounting standards. Proposed new Module 1 would include the following significant changes. School districts and charter schools would be required to maintain proper budgeting and financial accounting and reporting systems. In addition, school districts would be required to establish principles and policies to ensure uniformity in accounting in conformity with GAAP established by the Governmental Accounting Standards Board (GASB) and the Financial Accounting Standards Board (FASB).

Module 4, Auditing

Current Module 4 would be repealed and replaced with a new Module 4 that would align with current governmental auditing standards. Proposed new Module 4 would include the following significant changes. The revised module would establish auditing requirements for Texas public school districts and charter schools and would include current requirements from TEC, §44.008, as well as 2 Code of Federal Regulations Part 200, Subpart F, Audit Requirements, that implement the federal Single Audit Act. The proposed new module would also include current auditing guidance that complements the American Institute of Certified Public Accountants' (AICPA) Audit and Accounting Guide, State and Local Governments and supplements the Government Auditing Standards of the United States Government Accountability Office (GAO). These requirements would facilitate preparation of financial statements that conform to GAAP established by the GASB.

Module 2, Budgeting; Module 5, Site Based Decision-Making; Module 6, Accountability; Module 7, Data Collection and Reporting; and Module 8, Management

These modules currently include guidance that is obsolete or related to financial best practices that school districts and charter schools receive from their regional education service centers (ESCs). Content from Module 2 that aligns with current governmental accounting standards would be moved to proposed new Module 1 and the remainder of the module would be repealed. Additionally, Modules 5, 6, 7, and 8 would be repealed in their entirety, and school districts and charter schools will continue to receive guidance and examples related to best practices from ESCs.

FISCAL IMPACT: The Texas Education Agency (TEA) does not anticipate any additional costs to persons or entities required to comply with the proposed amendment; however, fiscal implications will be assessed prior to first reading and filing authorization.

GOVERNMENT GROWTH IMPACT: Government growth impact will be assessed prior to first reading and filing authorization.

PUBLIC AND STUDENT BENEFIT: The proposed amendment would ensure that the provisions of the FASRG align with current governmental accounting and auditing standards for school districts and charter schools.

PROCEDURAL AND REPORTING IMPLICATIONS: Procedural and reporting implications will be assessed prior to first reading and filing authorization.

LOCALLY MAINTAINED PAPERWORK REQUIREMENTS: Paperwork requirements will be assessed prior to first reading and filing authorization.

PUBLIC COMMENTS: The public comment period will begin when the proposal, approved for first reading and filing authorization by the SBOE, is published in the Texas Register.

ALTERNATIVES: None.

OTHER COMMENTS AND RELATED ISSUES: None.

Staff Members Responsible:  

Leo Lopez, Associate Commissioner
School Finance

David Marx, Senior Director
Financial Compliance

Attachment I:  Statutory Citations
Attachment II:  Text of Proposed Amendment to 19 TAC Chapter 109, Budgeting, Accounting, and
Auditing, Subchapter C, Adoptions By Reference, §109.41, Financial Accountability System Resource Guide
Attachment III: Proposed New FASRG Module 1, Financial Accounting and Reporting (FAR) and FAR Appendices
Attachment IV: Proposed New FASRG Module 4, Auditing
Attachment V: Proposed Repeal of FASRG Module 1, Financial Accounting and Reporting (FAR) and
FAR Appendices
Attachment VI: Proposed Repeal of FASRG Module 2, Budgeting
Attachment VII: Proposed Repeal of FASRG Module 4, Auditing
Attachment VIII: Proposed Repeal of FASRG Module 5, Site Based Decision-Making
Attachment IX: Proposed Repeal of FASRG Module 6, Accountability
Attachment X: Proposed Repeal of FASRG Module 7, Data Collection and Reporting
Attachment XI: Proposed Repeal of FASRG Module 8, Management

Due to the size of Attachments III-XI, the FASRG modules are available electronically on the TEA website at
https://tea.texas.gov/Finance_and_Grants/Financial_Accountability/Financial__Accountability_System_Resource_Guide/.