April 2014 Committee on School Finance Permanent School Fund Item 1

Review of 19 TAC Chapter 109, Budgeting, Accounting, and Auditing

April 10, 2014

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

SUMMARY:
Texas Government Code, §2001.039, establishes a four-year rule review cycle for all state agency rules, including State Board of Education (SBOE) rules. This item presents the review of SBOE rules in 19 TAC Chapter 109, Budgeting, Accounting, and Auditing, Subchapters A-D. The rules being reviewed provide requirements for school districts relating to budgeting, accounting, financial reporting, and auditing; Texas Education Agency (TEA) financial review functions; adoption by reference of the Financial Accountability System Resource Guide (FASRG); the bank bid and proposal forms and the depository contract and surety bond forms.

STATUTORY AUTHORITY: The statutory authority for the rule review is Texas Government Code, §2001.039. The statutory authority for 19 TAC Chapter 109 is the Texas Education Code (TEC), §§7.102(c)(32), 44.001, 44.002, 44.007, and 44.008, for Subchapter A; TEC, §§7.102(c)(32), 42.152(q), 44.001, 44.008, and 44.010, for Subchapter B; TEC, §§7.055(b), 7.102(c)(32), 44.001, 44.007, and 44.008, for Subchapter C; and TEC, §§7.102(c)(34), 45.206, and 45.208, for Subchapter D.

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

PREVIOUS BOARD ACTION: The SBOE last adopted the review of 19 TAC Chapter 109, Subchapters A-D, in May 2010, finding that the reasons for initially adopting the rules continued to exist. A subsequent amendment has been made to Subchapter C to update the FASRG, effective August 9, 2012. At its January 2014 meeting, the SBOE approved for first reading and filing authorization proposed amendments to Subchapter D.

FUTURE ACTION EXPECTED: The review of 19 TAC Chapter 109, Subchapters A-D, will be presented to the SBOE for adoption at the July 2014 board meeting.

BACKGROUND INFORMATION AND SIGNIFICANT ISSUES: The SBOE rules in 19 TAC Chapter 109 are organized as follows: Subchapter A, Budgeting, Accounting, Financial Reporting, and Auditing for School Districts; Subchapter B, Texas Education Agency Audit Functions; Subchapter C, Adoptions by Reference; and Subchapter D, Uniform Bank Bid or Request for Proposal and Depository Contract. Following is a summary of each subchapter.

Subchapter A. Budgeting, Accounting, Financial Reporting, and Auditing for School Districts

The rule in this subchapter provides for a uniform system of accounting in public schools. Under current rules, school districts must use a uniform accounting system and maintain certain information for reporting to the TEA.

Subchapter B. Texas Education Agency Audit Functions

The rules in this subchapter provide for an annual audit plan, the completion and review of independent audits, and reporting and auditing for state compensatory education funds. School districts are held accountable for the use of compensatory education allotments through desk reviews and detailed investigations as needed to ensure compliance with the limitations in statute and rule.

Subchapter C. Adoptions by Reference

The rule in this subchapter adopts by reference the FASRG. The FASRG describes rules for financial accounting in modules for financial accounting and reporting, budgeting, purchasing, auditing, site-based decision making, accountability, data collection and reporting, management, and state compensatory education. The FASRG also includes special supplements for nonprofit charter schools. Public school districts use the FASRG to meet the accounting, auditing, budgeting, and reporting requirements set forth in the TEC and other state statutes relating to public school finance. The FASRG is available on the TEA website at http://www.tea.state.tx.us/index4.aspx?id=1222.

Subchapter D. Uniform Bank Bid or Request for Proposal and Depository Contract

The rules in this subchapter provide uniform depository bank bid, proposal, contract, and surety bond forms. A school district is required to use a uniform bank bid or proposal form to obtain bids or proposals from depository banks located in the district at least 30 days before the termination of the current depository contract. However, a school district may add to the uniform bank bid or proposal form to specify additional depository requirements. Depository contracts have traditionally been executed for a two-year period, expiring on August 31 in odd-numbered years. Depository bank contracts are legal instruments that help ensure the security of all school district funds on deposit. Additionally, depository contracts contain terms and conditions describing depository bank services and fees.

As a separate item in this agenda, proposed amendments to Subchapter D are presented for second reading and final adoption.

ANTICIPATED REVISIONS TO RULES: At a future meeting, staff plans to present changes to 19 TAC Chapter 109, Subchapters A-C, to clarify language and terminology and update TEC references as necessary.

RULE REVIEW: The TEA plans to file the notice of proposed review of 19 TAC Chapter 109, Subchapters A-D, with the Texas Register following the April 2014 SBOE meeting. The TEA will accept comments as to whether reasons for adopting 19 TAC Chapter 109, Subchapters A-D, continue to exist. The official comment period will begin with publication of the notice of proposed review in the Texas Register.

The filing of the notice of proposed review soliciting comments as to whether the reasons for adoption continue to exist would not preclude any amendments that may be proposed at different dates through a separate rulemaking process.

FISCAL IMPACT: None.

PUBLIC AND STUDENT BENEFIT: Use of a uniform accounting system allows for consistent reporting of financial data and conditions across all school districts. In addition, the public and student benefit is improving financial accountability for education programs in the Texas school system, keeping financial management practices current with changes in state law and federal rules and regulations, and protecting public funds deposited in the event of any bank closures. Additionally, the bidding process and the standard forms help ensure fair and open competition for depository bank contracts. Standard forms also provide an advantage to districts in evaluating the best bid in regard to depository bank services and related fees.

PROCEDURAL AND REPORTING IMPLICATIONS: None.

LOCALLY MAINTAINED PAPERWORK REQUIREMENTS: None.

PUBLIC COMMENTS: None.

ALTERNATIVES: None.

OTHER COMMENTS AND RELATED ISSUES: A separate item in this agenda presents proposed amendments to 19 TAC Chapter 109, Subchapter D, for second reading and final adoption. Therefore, because of the pending amendments and the volume of the documents, the forms will not be included as part of Attachment II for this rule review item.

Staff Members Responsible:
Lisa Dawn-Fisher, Associate Commissioner
School Finance / Chief School Finance Officer

David Marx, Director
Financial Compliance

Attachments:
I. Statutory Citations (PDF, 36KB)
II. Text of 19 TAC Chapter 109, Budgeting, Accounting, and Auditing, Subchapter A, Budgeting, Accounting, Financial Reporting, and Auditing for School Districts; Subchapter B, Texas Education Agency Audit Functions; Subchapter C, Adoptions by Reference; and Subchapter D, Uniform Bank Bid or Request for Proposal and Depository Contract (excluding forms) (PDF, 26KB)