September 2014 Committee on School Finance Permanent School Fund Item 5
Discussion 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
September 18, 2014
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 the proposed amendment to 19 TAC Chapter 109, Budgeting, Accounting, and Auditing, Subchapter B, Texas Education Agency Audit Functions, §109.23, School District Independent Audit and Agreed-Upon Procedures. At the request of a State Board of Education (SBOE) member, the proposed amendment would address provisions relating to a school district or other educational entity hiring an independent auditor, including the length of time the same auditor may be retained. The proposed amendment would also add and clarify other administrative provisions and make technical edits.
STATUTORY AUTHORITY: Texas Education Code (TEC), §§7.102(c)(32), 44.001, 44.007, and 44.008.
BOARD RESPONSE: This item is presented for review and comment.
PREVIOUS BOARD ACTION: The SBOE adopted 19 TAC §109.23 effective September 1, 1996. The rule was last amended effective October 13, 2002. The rule was included in a four-year rule review that was adopted with no changes by the SBOE at its July 2014 meeting.
FUTURE ACTION EXPECTED: At the direction of the committee, 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, would be presented for first reading and filing authorization at the November 2014 SBOE meeting.
BACKGROUND INFORMATION AND SIGNIFICANT ISSUES: During its July 2014 meeting, the SBOE adopted the four-year review of its rules in 19 TAC Chapter 109, Budgeting, Accounting, and Auditing. During the discussion of that review, an SBOE member asked whether there was a provision requiring school districts to periodically change independent auditors. A Texas Education Agency (TEA) staff member responded that there was no such provision, and the SBOE member requested the staff member to bring a proposed rule to that effect to the September 2014 meeting for discussion. Concurrently, staff members in the TEA offices of Legal Services and School Finance identified a need for a rule to help the TEA ensure that school districts and other educational entities hire independent auditors who are properly qualified to perform their duties. The proposed amendment to 19 TAC §109.23, shown as Attachment II, would address both of these provisions as follows.
The proposed amendment would clarify the requirements for a school district to hire an independent auditor to conduct an audit and give an opinion on the annual financial and compliance report of a school district, governmental charter school, open-enrollment charter school, nonprofit service provider, county education district, or regional education service center. The proposed amendment would also move the auditors' requirements, which are currently dispersed in various sections of the Financial Accountability System Resource Guide (FASRG), into a single location so the requirements are easy to find. The existing provisions in the rule would also be edited for plain language.
New subsection (d) would state that a school district or other entity must send out a request for qualifications (RFQ) every five years for a new independent auditor, who may or may not be a different partner in the same firm, or as required by the TEA division responsible for financial compliance if at any time the division finds a deficiency in a work paper review of the district's or entity's audit firm. The new provisions would also clarify requirements that a school district must include in its RFQ.
FISCAL IMPACT: There may be additional costs for districts or other educational entities that have not changed auditors for five or more years to go through the RFQ process. There may be additional costs for membership dues and training fees for auditing firms that are not currently members of the Governmental Audit Quality Center. The TEA staff will assess fiscal implications if the committee directs the TEA staff to bring forward the proposed amendment for first reading and filing authorization.
PUBLIC AND STUDENT BENEFIT: The proposed amendment would strengthen the TEA's ability to ensure that school districts account for and use their state funding in accordance with generally accepted accounting principles (GAAP) and that their auditors adhere to generally accepted auditing standards (GAAS) and generally accepted government auditing standards (GAGAS), thereby making the best use of funding to benefit students in Texas.
PROCEDURAL AND REPORTING IMPLICATIONS: The TEA staff will assess procedural and reporting implications if the committee directs the TEA staff to bring forward a proposed amendment for first reading and filing authorization.
LOCALLY MAINTAINED PAPERWORK REQUIREMENTS: The proposed amendment would require audit firms to maintain documentation of continuing professional education.
PUBLIC COMMENTS: The official public comment period would begin when the proposal, approved for first reading and filing authorization by the SBOE, is published as proposed in the Texas Register.
ALTERNATIVES: None.
OTHER COMMENTS AND RELATED ISSUES: None.
Staff Members Responsible:
Lisa Dawn-Fisher, Associate Commissioner
School Finance / Chief School Finance Officer
David Marx, Director
Financial Compliance
Attachments:
I. Statutory Citations (PDF, 23KB)
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 (PDF, 43KB)