The State Board of Education (SBOE) adopts an amendment to §109.41, concerning budgeting, accounting, and auditing. The amendment is adopted without changes to the proposed text as published in the May 3, 2019 issue of the Texas Register (44 TexReg 2215) and will not be republished. The adopted amendment references the updated Financial Accountability System Resource Guide (FASRG) and removes language relating to the commissioner's role in amending the FASRG. Although changes were not made to the text of §109.41, the FASRG adopted by reference in the rule includes a change to the Purchasing module at adoption.

REASONED 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. The adopted amendment to §109.41 removes subsection (b), relating to the commissioner's role in amending the FASRG, to eliminate unnecessary administrative procedures. In addition, revisions to the FASRG 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 have been made to Modules 1-11 of the FASRG. The full text of the updated FASRG modules is available electronically on the Texas Education Agency (TEA) website at https://tea.texas.gov/Finance_and_Grants/Financial_Accountability/Financial__Accountability_System_Resource_Guide/

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

Current Module 1 has been replaced with a new Module 1 that aligns with current governmental accounting standards. New Module 1 includes the following significant changes. School districts and charter schools are required to maintain proper budgeting and financial accounting and reporting systems. In addition, school districts are required to establish principles and policies to ensure uniformity in accounting in conformity with GAAP established by the Governmental Accounting Standards Board (GASB) and the Financial Accounting Standards Board (FASB).

Module 3, Purchasing

The former Module 3 has been replaced and renumbered to new Module 5 that aligns with current purchasing laws and standards. New Module 5 includes the following significant changes. School districts and charter schools are required to establish procurement policies and procedures that align with their unique operating environment and ensure compliance with relevant statutes and policies.

Module 4, Auditing

The former Module 4 has been replaced with new Module 4 that aligns with current governmental auditing standards. New Module 4 includes the following significant changes. The revised module establishes auditing requirements for Texas public school districts and charter schools and includes current requirements from Texas Education Code (TEC), §44.008, as well as 2 Code of Federal Regulations Part 200, Subpart F, Audit Requirements, that implement the federal Single Audit Act. The new module also includes current auditing 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 facilitate preparation of financial statements that conform to GAAP established by the GASB.

Module 9, Compensatory Education, Guidelines, Financial Treatment, and an Auditing and Reporting System

The former Module 9 has been replaced with new Module 6 that aligns with current governmental accounting standards. New Module 6 includes the following significant changes. School districts and charter schools are required to maintain proper budgeting and financial accounting and reporting systems. The module provides current 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.

Module 10, Special Supplement - Charter Schools

The former Module 10 has been replaced and renumbered to new Module 2 that aligns with current financial and accounting reporting standards. New Module 2 includes the following significant changes. The revised module establishes financial and accounting requirements for Texas public school charter schools to ensure uniformity in accounting in conformity with GAAP. The new module also includes current 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 facilitate preparation of financial statements that conform to GAAP established by the FASB.

Module 11, Special Supplement - Non-profit Charter Schools Chart of Accounts

The former Module 11 has been replaced and renumbered to new Module 3 that aligns with current governmental accounting standards. New Module 3 includes the following significant changes. Charter schools are required to maintain proper budgeting and financial accounting and reporting systems that are in conformity with Texas Education Data Standards (TEDS) in the Texas Student Data Systems (TSDS) Public Education Information Management System (PEIMS). In addition, charter schools are required to establish principles and policies to ensure uniformity in accounting in conformity with GAAP established by the FASB. The new module also includes 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 facilitate preparation of financial statements that conform to GAAP established by the FASB.

Module 2, Budgeting; Module 5, Site Based Decision-Making; Module 6, Accountability; Module 7, Data Collection and Reporting; and Module 8, Management

These modules included guidance that is obsolete or related to financial best practices that school districts and charter schools receive from their regional education service centers (ESCs). Content from the former Module 2 that aligned with current governmental accounting standards was moved to new Module 1 and the remainder of the module was repealed. Additionally, the former Modules 5, 6, 7, and 8 were removed in their entirety, and school districts and charter schools will continue to receive guidance and examples related to best practices from ESCs.

In response to public comment, changes were made at adoption to the Purchasing module to remove language referring users of the module to the Texas Association of School Boards (TASB) legal and local policy and update guidance on emergency purchases and certain actions that should be taken by the district's board of trustees.

The SBOE approved the amendment for first reading and filing authorization at its April 5, 2019 meeting and for second reading and final adoption at its June 14, 2019 meeting.

In accordance with TEC, §7.102(f), the SBOE approved the amendment for adoption by a vote of two-thirds of its members to specify an effective date earlier than the beginning of the 2020-2021 school year. The earlier effective date will ensure the provisions of the FASRG align with current governmental accounting and auditing standards for school districts and charter schools as soon as possible. The effective date is 20 days after filing as proposed with the Texas Register.

SUMMARY OF COMMENTS AND RESPONSES. The public comment period on the proposal began May 3, 2019, and ended June 7, 2019. The SBOE also provided an opportunity for registered oral and written comments at its June 2019 meeting in accordance with the SBOE board operating policies and procedures. Following is a summary of the public comments received on the proposal and the corresponding responses.

Comment: Concerning proposed Module 5, Purchasing, TASB requested that references to TASB's local and legal policy guidance be removed since their guidance changes more frequently than updates to FASRG are adopted and may cause FASRG references to TASB policy to become out of date over time.

Response: The SBOE agrees and has modified Module 5 at adoption to remove references to TASB local and legal policy guidance.

Comment: Concerning proposed Module 5, TASB commented that section 3.32 and 3.7 are not correct. Specifically, TASB stated that section 3.32 includes statements regarding emergency purchases that are incorrect, and section 3.7 incorrectly states that certain actions that should be taken by the district's board of trustees may be delegated to the superintendent.

Response: The SBOE agrees and has modified Module 5 at adoption to include updated guidance.

STATUTORY AUTHORITY. The amendment is adopted under Texas Education Code (TEC), §7.055(b)(32), which requires the commissioner to perform duties in connection with the public school accountability system as prescribed by TEC, Chapters 39 and 39A; TEC, §7.102(c)(32), which 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, §44.001(a), which requires the commissioner to establish advisory guidelines relating to the fiscal management of a school district; TEC, §44.001(b), which requires the commissioner to report annually to the SBOE the status of school district fiscal management as reflected by the advisory guidelines and by statutory requirements; TEC, §44.007(a), which 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), which 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), which 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), which 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; and TEC, §44.008(b), which 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 Public Education Information Management System.

CROSS REFERENCE TO STATUTE. The amendment implements Texas Education Code, §§7.055(b)(32), 7.102(c)(32), 44.001(a) and (b), 44.007(a)-(d), and 44.008(b).