August-September 2023 Committee on School Finance/Permanent School Fund Item 3

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

August 31, 2023

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

SUMMARY: This item provides an opportunity for the committee to discuss a proposed amendment to 19 Texas Administrative Code (TAC) Chapter 109, Budgeting, Accounting, and Auditing, Subchapter C, Adoptions By Reference, §109.41, Financial Accountability System Resource Guide. The proposed amendment would adopt by reference the updated Financial Accountability System Resource Guide (FASRG).

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

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, §44.007(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 Texas Student Data System Public Education Information Management System (TSDS PEIMS).

FUTURE ACTION EXPECTED: The proposed amendment to §109.41 will be presented for first reading and filing authorization at the November 2023 SBOE meeting.

BACKGROUND INFORMATION AND JUSTIFICATION: 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. 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 FASRG Modules 1-6.

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

Module 1 aligns with current governmental accounting standards. Proposed Module 1 would include the following changes. Updates would be made to accounting codes and accounting guidance, and previous guidance would be clarified. 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).

Module 2, Special Supplement - Charter Schools

Module 2 aligns with current financial accounting reporting standards. Proposed Module 2 would include the following significant changes. Updates would be made to accounting codes and accounting guidance, and previous guidance would be clarified. The proposed module would establish financial and accounting requirements for Texas public charter schools to ensure uniformity in accounting in conformity with GAAP. The proposed module would also include current 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 Financial Accounting Standards Board (FASB).

Module 3, Special Supplement - Non-profit Charter Schools Chart of Accounts

Module 3 aligns with current financial accounting standards. Proposed Module 3 would include the following changes. Updates would be made to accounting codes and accounting guidance, and previous guidance would be clarified. Charter schools would be required to maintain proper budgeting and financial accounting and reporting systems that are in conformity with Texas Education Data Standards (TEDS) in the TSDS PEIMS. In addition, charter schools would be required to establish principles and policies to ensure uniformity in accounting in conformity with GAAP established by the FASB. The proposed module would also include current auditing guidance that complements the AICPA Audit and Accounting Guide, State and Local Governments and supplements the Government Auditing Standards of the United States GAO. These requirements would facilitate preparation of financial statements that conform to GAAP established by the FASB.

Module 4, Auditing

Module 4 aligns with current auditing standards. Proposed Module 4 would include the following changes. Updates would be made to accounting codes and accounting guidance, and previous guidance would be clarified. The proposed module would establish auditing requirements for Texas public school districts and charter schools and include current requirements from TEC, §44.008, as well as Code of Federal Regulations, Title 2, Part 200, Subpart F, Audit Requirements, that implement the federal Single Audit Act. The proposed module would also include current auditing guidance that complements the AICPA Audit and Accounting Guide, State and Local Governments and supplements the Government Auditing Standards of the United States GAO. These requirements would facilitate preparation of financial statements that conform to GAAP established by the GASB.

Module 5, Purchasing

Module 5 aligns with current purchasing laws and standards. Proposed Module 5 would include the following changes. Updates would be made to purchasing guidance that has changed from previous legislation. Purchasing rules that needed additional explanation would be clarified. School districts and charter schools would be required to establish procurement policies and procedures that align with their unique operating environment and ensure compliance with relevant statutes and policies.

Module 6, Compensatory Education, Guidelines, Financial Treatment, and an Auditing and Reporting System

Proposed Module 6 would include the following changes. Updates would be made to clarify language that needed additional explanation, and other changes would be made due to changes in law. School districts and charter schools would be required to maintain proper budgeting and financial accounting and reporting systems. The module would provide information to assist local school officials' understanding of the numerous options for use of the state compensatory education allotment and provide current guidance for compliance.

Staff Members Responsible:
Mike Meyer, Deputy Commissioner, Office of Finance
David Marx, Senior Director, Financial Compliance

Attachment:
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