April 2020 Committee on School Finance/Permanent School Fund Item 2

Proposed Amendment to 19 TAC Chapter 109, Budgeting, Accounting, and Auditing, Subchapter B, Texas Education Agency Audit Functions, §109.23, School District Independent Audits and Agreed-Upon Procedures
(First Reading and Filing Authorization)

April 17, 2020

COMMITTEE ON SCHOOL FINANCE/PERMANENT SCHOOL FUND: ACTION
STATE BOARD OF EDUCATION: ACTION

SUMMARY: This item presents for first reading and filing authorization proposed amendment to 19 Texas Administrative Code (TAC) Chapter 109, Budgeting, Accounting, and Auditing, Subchapter B, Texas Education Agency Audit Functions, §109.23, School District Independent Audits and Agreed-Upon Procedures. The proposed amendment would reflect changes made by House Bill (HB) 1520, 86th Texas Legislature, 2019, that eliminated the requirement for out-of-state certified public accountancy (CPA) firms to be licensed in Texas.

STATUTORY AUTHORITY: Texas Education Code (TEC), §§7.102(c)(32), 44.001, 44.007, 44.008, and 44.010.

TEC, §7.102(c)(32), authorizes the State Board of Education (SBOE) to adopt rules concerning school district fiscal account audits and budgets.

TEC, §44.001, requires each school district to begin its fiscal year on July 1 or September 1 of each year, as determined by the board of trustees of the district.

TEC, §44.007, requires each school district to annually submit to Texas Education Agency (TEA) a report of its revenues and expenditures for the preceding fiscal year and authorizes the SBOE to prescribe the management, cost accounting, and financial information format to enable the board to monitor the funding process and determine educational system costs. 

TEC, §44.008, authorizes the SBOE to establish the format and minimum requirements of the independent audit of school district fiscal accounts.

TEC, §44.010, requires the school district budgets, fiscal reports, and audit reports filed with TEA to be reviewed and analyzed by TEA to determine whether all legal requirements have been met and to collect fiscal data needed in preparing school fiscal reports for the governor and the legislature.

The full text of statutory citations can be found in the statutory authority section of this agenda.

EFFECTIVE DATE: The proposed effective date of the proposed amendment is August 31, 2020. Under TEC, §7.102(f), the SBOE must approve the rule action at second reading and final adoption by a vote of two-thirds of its members to specify an effective date earlier than the beginning of the 2021-2022 school year. The earlier effective date will align the rule with statutory changes in a timely manner.

PREVIOUS BOARD ACTION: The SBOE adopted §109.23 effective September 1, 1996. The SBOE adopted amendments to 19 TAC §109.23 effective October 13, 2002, and March 10, 2015. A discussion item regarding §109.23 was presented to the committee at its January 2020 meeting.

BACKGROUND INFORMATION AND JUSTIFICATION: HB 1520, 86th Texas Legislature, 2019, updated Texas Occupations Code, §901.461, to eliminate the requirement for out-of-state CPA firms to be licensed in Texas. The amended statute took effect September 1, 2019. The text of Texas Occupations Code, §901.461, is provided for reference as Attachment I. 

The proposed amendment to §109.23 would reflect the changes to Texas Occupations Code, §901.461. Subsection (d)(1)(A) would be modified to allow an independent auditor hired by a school district to be associated with a CPA firm that has a current valid license issued by a state licensing agency from another state.

FISCAL IMPACT: TEA has determined that there are no additional costs to state or local government required to comply with the proposal.

LOCAL EMPLOYMENT IMPACT: The proposal has no effect on local economy; therefore, no local employment impact statement is required under Texas Government Code, §2001.022.

SMALL BUSINESS, MICROBUSINESS, AND RURAL COMMUNITY IMPACT: The proposal has no direct adverse economic impact for small businesses, microbusinesses, or rural communities; therefore, no regulatory flexibility analysis specified in Texas Government Code, §2006.002, is required.

COST INCREASE TO REGULATED PERSONS: The proposal does not impose a cost on regulated persons, another state agency, a special district, or a local government and, therefore, is not subject to Texas Government Code, §2001.0045.

TAKINGS IMPACT ASSESSMENT: The proposal does not impose a burden on private real property and, therefore, does not constitute a taking under Texas Government Code, §2007.043.

GOVERNMENT GROWTH IMPACT: TEA staff prepared a Government Growth Impact Statement assessment for this proposed rulemaking. The proposed rulemaking would limit the effect of the rule by eliminating the requirement that out-of-state CPA firms must be licensed in Texas.

The proposed rulemaking would not create or eliminate a government program; would not require the creation of new employee positions or elimination of existing employee positions; would not require an increase or decrease in future legislative appropriations to the agency; would not require an increase or decrease in fees paid to the agency; would not create a new regulation; ; would not expand or repeal an existing regulation; would not increase or decrease the number of individuals subject to its applicability; and would not positively or adversely affect the state's economy.

PUBLIC BENEFIT AND COST TO PERSONS: The proposal would allow an independent auditor hired by a school district to be associated with a CPA firm that has a current valid license issued by a state licensing agency from another state. There is no anticipated economic cost to persons who are required to comply with the proposal.

DATA AND REPORTING IMPACT: The proposal would have no new data and reporting impact. 

PRINCIPAL AND CLASSROOM TEACHER PAPERWORK REQUIREMENTS: TEA has determined that the proposal would not require a written report or other paperwork to be completed by a principal or classroom teacher. 

PUBLIC COMMENTS: The public comment period on the proposal begins May 22, 2020, and ends June 26, 2020. The SBOE will take registered oral and written comments on the proposal at the appropriate committee meeting in June-July 2020 in accordance with the SBOE board operating policies and procedures. A request for a public hearing on the proposal submitted under the Administrative Procedure Act must be received by the commissioner of education not more than 14 calendar days after notice of the proposal has been published in the Texas Register on May 22, 2020.

MOTION TO BE CONSIDERED: The State Board of Education:

Approve for first reading and filing authorization the proposed amendment to 19 TAC Chapter 109, Budgeting, Accounting, and Auditing, Subchapter B, Texas Education Agency Audit Functions, §109.23, School District Independent Audits and Agreed-Upon Procedures.

Staff Members Responsible:
David Marx, Director, Financial Compliance

Attachment I:    

Texas Occupations Code, §901.461

Attachment II:    

Text of Proposed Amendment to 19 TAC Chapter 109, Budgeting, Accounting, and Auditing, Subchapter B, Texas Education Agency Audit Functions, §109.23, School District Independent Audits and Agreed-Upon Procedures