1. BASIC FISCAL REQUIREMENTS DAVID MARX TEA, CHARTER SCHOOL ADMINISTRATION ©2013 1

2. DIVISION CONTACT INFORMATION Financial Compliance schoolaudits@tea.state.tx.us (512) 463-9095 TEA, CHARTER SCHOOL ADMINISTRATION ©2013 2

3. 3 PRESENTATION AGENDA Financial Accounting System State Laws with Fiscal Implications Annual Financial Reporting Depository Contracts Records TEA, CHARTER SCHOOL ADMINISTRATION ©2013

4. 4 FINANCIAL ACCOUNTING SYSTEM Comprised of: Board policies include: Signature authority over bank accounts Authority to execute contracts Expenditure authority Budget preparation and amendment Financial reporting by charter administrators Authority to create and hire positions Use of Credit/Debit Cards TEA, CHARTER SCHOOL ADMINISTRATION ©2013

5. 5 FINANCIAL ACCOUNTING SYSTEM Locally developed and approved administrative procedures: Accounting for property and supplies purchased Financial reporting and cash management for federal grants Authorized uses for federal funds Maintenance and retention of records Travel reimbursement requirements applicable to local, state and federal funds TEA, CHARTER SCHOOL ADMINISTRATION ©2013

6. 6 FINANCIAL ACCOUNTING SYSTEM Locally developed and approved administrative procedures: Time and Effort reporting requirements Procurement of goods and services using both state and federal grants Support of salaries, wages and related costs charged to federal grants Use of credit and debit cards TEA, CHARTER SCHOOL ADMINISTRATION ©2013

7. 7 Administrative, including accounting procedures to comply with board policiesandlocalstate and federal legal requirements - Processes and standardized forms to be used to comply with board policies and local, state and federal legal requirements Accounting software retain financial data in required form - Capture and retain financial data in required form financial reports - Generate financial reports - Accommodate Appropriations and Encumbrances FINANCIAL ACCOUNTING SYSTEM TEA, CHARTER SCHOOL ADMINISTRATION ©2013

8. 8  Records  Internal accounting forms  Purchase orders  Payment authorization forms  Payroll authorization forms  Travel reimbursement forms  Employee reimbursement forms  Journal vouchers  Cost allocation plans and working papers  Budget working papers FINANCIAL ACCOUNTING SYSTEM TEA, CHARTER SCHOOL ADMINISTRATION ©2013

9. 9  Records, (cont.) Original third-party itemized invoices/receipts Contracts, including amendments Bank statements, including cancelled checks Grant applications, amendments Real and personal property inventory schedules  Personnel Qualified Qualified, trained staff Time and Effort Time and Effort Records FINANCIAL ACCOUNTING SYSTEM TEA, CHARTER SCHOOL ADMINISTRATION ©2013

10. 10 STATE LAWS WITH FISCAL IMPLICATIONS Texas Education Code Chapter 12, Subchapter D §12.1051 – Open Meetings  Government Code, Chapter 551  Charter holder and charter school boards must accurate and complete  Maintain accurate and complete minutes of meetings, including original copies of schedules, exhibits and other documents provided to board members  Why important?  Official records  Official records of fiscal and fiscally related board decisions TEA, CHARTER SCHOOL ADMINISTRATION ©2013

11. 11 Texas Education Code Chapter 12, Subchapter D §12.1052 – Records  Charter holder and charter school must maintain records  Financial  Governance  Payroll  Student  Why important?  Records support charter holder’s representations STATE LAWS WITH FISCAL IMPLICATIONS TEA, CHARTER SCHOOL ADMINISTRATION ©2013

12. 12 Texas Education Code Chapter 12 §12.107 – Status and Use of Funds  Funds paid to charter holder are  Public funds  Public funds for all purposes under state law for the benefit of the charter school’s students  Held in trust by the charter holder for the benefit of the charter school’s students used only for a purpose for which a school may use local funds  To be used only for a purpose for which a school may use local funds under Section 45.105(c) STATE LAWS WITH FISCAL IMPLICATIONS TEA, CHARTER SCHOOL ADMINISTRATION ©2013

13. 13 Texas Education Code Chapter 45 §45.105(c) – Authorized Expenditures  Public funds may be used for the following purposes.  To pay teachers' and superintendents' salaries and interest on money borrowed on short time to pay those salaries that become due before the state funds for the current year become available  To purchase appliances and supplies  To pay insurance premiums Continued on next slide STATE LAWS WITH FISCAL IMPLICATIONS TEA, CHARTER SCHOOL ADMINISTRATION ©2013

14. 14  To pay janitors and other employees  To purchase school sites  To buy, build, repair, and rent school buildings, including acquiring school buildings and sites by leasing through annual payments with an ultimate option to purchase  For other purposes necessary in the conduct of the charter school as determined by the governing body of the charter school Continued: STATE LAWS WITH FISCAL IMPLICATIONS TEA, CHARTER SCHOOL ADMINISTRATION ©2013

15. STATE LAWS WITH FISCAL IMPLICATIONS TEA, CHARTER SCHOOL ADMINISTRATION ©2013 15  Expenditures must have a clear, documented and obvious benefit for charter school students.

16. 16 STATE LAWS WITH SIGNIFICANT FISCAL IMPLICATIONS Texas Education Code Chapter 12 §12.128 – Public Property  Property purchased with public funds is  Considered to be public property for all purposes under state law  Held in trust by the charter holder for the benefit of the students of the open-enrollment charter school  Why important?  If you use public funds to purchase property, including paying a loan, the building is public property TEA, CHARTER SCHOOL ADMINISTRATION ©2013

17. 17 Title 19 of the Texas Administrative Code §105.11 – Maximum Allowable Indirect Cost  Applies to Foundation School Program Special Allotments  Compensatory education  Gifted and talented education  Bilingual education and special language programs  Career and technology education  Special education LIMITATION ON INDIRECT COSTS FOR STATE FUNDS TEA, CHARTER SCHOOL ADMINISTRATION ©2013

18. 18 LIMITATION ON INDIRECT COSTS FOR STATE SPECIAL ALLOTMENTS 52%direct costs  Must expend at least 52% on direct costs for: Compensatory education; Bilingual and Special Language education; Special education 55directcosts  Must expend at least 55% on direct costs for: Gifted and Talented education  Must expend at least 58% on direct costs for: Career and technology education TEA, CHARTER SCHOOL ADMINISTRATION ©2013

19. LIMITATION ON INDIRECT COSTS FOR STATE FUNDS  Indirect costs are defined as costs classified under the following function codes 34 - Student Transportation 41 - General Administration 81 - Fund Raising 19 TEA, CHARTER SCHOOL ADMINISTRATION ©2013

20. ANNUAL FINANCIAL REPORTING every  Have an independent audit every year 150 days  Submit the completed Annual Financial Report (AFR) 150 days after the fiscal year end  Fiscal year end  June 30 - AFR due November 27  August 31 - AFR due January 28 20 TEA, CHARTER SCHOOL ADMINISTRATION ©2013

21. ANNUAL FINANCIAL REPORTING The audit report should include:  Certificate of the board signed by the board president and secretary  Independent Auditors Report  Financial Statements:  Statement of Financial Position  Statement Of Net Asset Activities  Statement of Cash Flows 21 Continued on next slide TEA, CHARTER SCHOOL ADMINISTRATION ©2013

22. ANNUAL FINANCIAL REPORTING Continued…….  Notes to the Financial Statements  TEA required schedules:  Schedule of Expenses  Schedule of Capital Assets  Budgetary Comparison  Report on internal controls over financial reporting and compliance 22 Continued on next slide TEA, CHARTER SCHOOL ADMINISTRATION ©2013

23. ANNUAL FINANCIAL REPORTING Continued…….  Report on compliance with federal programs and OMB Circular A-133  Schedule of Expenditure of Federal Awards  Schedule of Findings and Questioned Costs  Status of Prior Findings 23 TEA, CHARTER SCHOOL ADMINISTRATION ©2013

24. DEPOSITORY CONTRACT Contract between the charter holder and the bank in which the state funds are deposited. annually  Must be renewed and filed with TEA by November 1 annually 24 TEA, CHARTER SCHOOL ADMINISTRATION ©2013

25. FINANCIAL COMPLIANCE CALENDAR 25 TEA, CHARTER SCHOOL ADMINISTRATION ©2013

26. 26 RECORDS  Loss of records  Number one reason for audit adjustments  Access must be maintained  Records must be maintained at a physical location that is readily accessible to TEA personnel and the public  Office of nonprofit corporation  Charter central administrative office  Charter campus must be maintained  Records must be maintained within the State of Texas TEA, CHARTER SCHOOL ADMINISTRATION ©2013

27. 27 RECORDS EXAMPLES OF RECORD RETENTION REQUIREMENTS: Academic achievement record Permanen  Retention: Permanent Enrollment or Registration Forms Date of withdrawal + 7 years  Retention: Date of withdrawal + 7 years Parental Permission Records Until cessation of activity for which consent granted + 2 years  Retention: Until cessation of activity for which consent granted + 2 years Free or Reduced-Price Meal Applications and Rosters 5 years  Retention: 5 years after fiscal year end Student attendance reports and source documentation 5 years  Retention: 5 years TEA, CHARTER SCHOOL ADMINISTRATION ©2013

28. 28 Open Meeting, including Closed Session, Agendas and Notices 2 years  Retention: 2 years Minutes Permanent  Retention: Permanent Contracts, Leases, and Agreements 4 years  Retention: 4 years after the expiration or termination of the instrument according to its terms Correspondence and Internal Memoranda  Policy and program development 5 years  Retention: 5 years Administrative 2 years  Retention: 2 years RECORDS TEA, CHARTER SCHOOL ADMINISTRATION ©2013

29. 29 IMPORTANT LINKS The Division of Financial Compliance web page: http://www.tea.state.tx.us/index4.aspx?id=3819&menu_id =645 TEA, CHARTER SCHOOL ADMINISTRATION ©2013

30. QUESTIONS ??? Who to contact: Email Division of Financial Compliance at: schoolaudits@tea.state.tx.us 30 TEA, CHARTER SCHOOL ADMINISTRATION ©2013