The Texas Education Agency (TEA) adopts an amendment to §109.41, concerning the Financial Accountability System Resource Guide. The amendment is adopted with changes to the proposed text as published in the April 18, 2008, issue of the Texas Register (33 TexReg 3114).

Section 109.41 adopts by reference the Financial Accountability System Resource Guide as the TEA's official rule. The Resource Guide describes rules for financial accounting in modules for financial accountability and reporting, budgeting, purchasing, auditing, site-based decision making, accountability, data collection and reporting, management, and state compensatory education. The Resource Guide also includes a special supplement module for nonprofit charter school chart of accounts. Public school districts use the Resource Guide to meet the accounting, auditing, budgeting, and reporting requirements as set forth in the Texas Education Code and other state statutes relating to public school finance. Under §109.41(b), the commissioner of education shall amend the Resource Guide, adopting it by reference, as needed. The Resource Guide is available at http://www.tea.state.tx.us/school.finance/ on the TEA website.

The adopted amendment to §109.41 references the Resource Guide dated June 2008. The amendment includes updates to the state compensatory education module and the accounting and auditing modules to reflect new accounting and auditing rules and standards. Part of the update includes the addition of new account codes and the deletion of some account codes. The charter school supplement has also been updated to reflect these changes in accounting and auditing rules and standards. In addition, the charter school supplement has been updated to address provisions for recovering over-allocated funds as a result of an audit adjustment.

The rule text of §109.41 was modified since published as proposed to reflect June 2008 as the date of the Resource Guide since changes were made subsequent to the April 2008 proposal.

In response to public comments, the following changes are made to the Resource Guide at adoption.

Module 1 has been updated to align language related to the technology coordinator for instructional networks in Section 1.4.3 - Function Codes; amend language related to the collection of taxes in Section 1.4.3 - Function Codes; and provide clarification on coding for substitutes in Section 1.4.9 - Expenditure/Expense Object Codes.

Appendix 7 has been modified to clarify the procedures for recording accounting entries in Illustration #1 and investment income codes for realized and unrealized market changes in Illustration #1.

The TEA determined that the adopted amendment will have no direct adverse economic impact for small businesses and microbusinesses; therefore, no regulatory flexibility analysis, specified in Texas Government Code, §2006.002, is required.

The public comment period on the proposal began April 18, 2008, and ended May 18, 2008. Following is a summary of public comments and corresponding agency responses regarding proposed amendment to 19 TAC Chapter 109, Budgeting, Accounting, and Auditing, Subchapter C, Adoptions By Reference, §109.41, Financial Accountability System Resource Guide.

Comment. Concerning Module 1, Section 1.4.3 - Function Codes, the executive director of budget and finance at Whitehouse Independent School District (ISD) commented that the "Include" column for Function 13 regarding costs related to the technology coordinator for instructional networks was not in agreement with the "Exclude" column for Function 12, which noted that the technology coordinator for instructional networks should be included in Function 11.

Agency Response. The agency agrees and has moved the technology coordinator from the "Include" column to the "Exclude" column for Function 13 and added the technology coordinator to the "Include" column for Function 11. The change can be found in the Resource Guide adopted by reference in §109.41.

Comment. Concerning Module 1, Section 1.4.3 - Function Codes, the business manager at Hooks ISD commented that the "Exclude" column for Function 41 regarding costs related to the appraisal of property was not in agreement with the "Include" column for Function 99, which includes only the appraisal of property and not the collection of taxes.

Agency Response. The agency agrees and has deleted the language in the "Exclude" column for Function 41 related to the collection of taxes. The change can be found in the Resource Guide adopted by reference in §109.41.

Comment. Concerning Module 1, Section 1.4.9 - Expenditure/Expense Object Codes, a consultant with Statewide Educational Consulting & Counseling Associates, Inc. commented that object code 6112 included a reference to salaries or wages for substitute teachers and other professionals being used primarily with Function 13 and Function 11.

Agency Response. The agency agrees and has clarified the language to indicate that substitutes are coded to the function of the professional being replaced. The change can be found in the Resource Guide adopted by reference in §109.41.

Comment. Concerning Appendix 7 - Example Accounting Entries - Market Changes in Investments, the treasurer at Houston ISD commented that within the first paragraph of Illustration #1, the first sentence states that accounting entries under Governmental Accounting Standards Board (GASB) 31 are ". . .(to be recorded at least quarterly). . . ." The commenter stated that entries under GASB 31 must be recorded at least annually on the financial statements. The commenter also stated that the Public Funds Investment Act requires that changes in Fair Value be reported at least quarterly. The commenter added that the distinction between recorded and reported should be noted, and that school districts can record the entries more frequently than annually if they so desire but are not required to do so.

Agency Response. The agency agrees and has updated the language in Illustration #1 to note that school districts may record accounting entries more frequently than annually. The change can be found in the Resource Guide adopted by reference in §109.41.

Comment. Concerning Appendix 7 - Example Accounting Entries - Market Changes in Investments, the treasurer at Houston ISD commented that the third sentence of the first paragraph in Illustration #1 states that, " . . .separate investment income codes need to be used to record realized and unrealized (market) changes (gain and losses)." The commenter noted that according to the Government Finance Officers Association publication Governmental Accounting, Auditing, and Financial Reporting, ". . . governments are not permitted to distinguish realized gains and losses from unrealized gains and losses on the face of the financial statements." The commenter stated that Generally Accepted Accounting Principles does permit governments to disclose information on realized gains and losses in the footnotes to the financial statements if certain additional interpretive information is included. The commenter concluded that separate investment income codes may be used but are not required.

Agency Response. The agency agrees and has updated the language in Illustration #1 to specify that separate investment income codes may be used to record realized and unrealized market changes in separate accounts. The change can be found in the Resource Guide adopted by reference in §109.41.

The amendment is adopted under the Texas Education Code, §§7.055, 7.102(c)(32), 44.001, 44.007, and 44.008, which authorize the commissioner of education to establish advisory guidelines relating to fiscal management of a school district and the State Board of Education to establish a standard school fiscal accounting system in conformity with generally accepted accounting principles.

The adopted amendment implements the Texas Education Code, §§7.055, 7.102(c)(32), 44.001, 44.007, and 44.008.