Financial Accounting and Reporting

Financial Accounting and Reporting System Your school district must implement and use a standardized financial accounting and reporting system, as described in this module. The system must present fairly and with full disclosure the district’s funds, financial activities, and results of financial operations in a manner that conforms to generally accepted accounting principles and allows the district to determine and show compliance with financial-related legal and contractual provisions.1 The school district’s accounting system must be organized and operated on a fund basis. The separate funds are established by the school district for the specific activities and objectives in accordance with statutes, laws, and regulations, or for specific purposes. A fund is defined in the Governmental Accounting Standards Board (GASB) Codification Section 1300 as: “A fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. Expendable assets are assigned to various governmental funds according to the purpose for which they may or must be used; current liabilities are assigned to the fund from which they are to be paid; and the difference between governmental fund assets and deferred outflows of resources, and liabilities and deferred inflows of resources is referred to as “Fund Balance.”2 A self-balancing set of accounts means that debits and credits are used when recording transactions and events in the accounting system for each of the funds. Your district’s records must be organized on a multiple fund basis with each of the funds complete and containing independent accounting entries. The absolute minimum number of funds appropriate for your district’s operations must be established based on purposes and legal requirements of the activities of your district. Your district’s financial accounting and reporting system must use the accounting codes and accounting code structure specified in 1.4.2.1 Account Code Structure Minimum Requirements and Appendix A: Accounting Code Structure and Codes. 1 GASB Statement No. 34: Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, Section 1100, paragraph 101 2 GASB Statement No. 34: Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments 1.1.2 Statutory and Regulatory Requirements and Generally Accepted Accounting Principles Your district’s financial accounting and reporting system must comply with: • all applicable statutory and regulatory requirements and • generally accepted accounting principles (GAAP). 1.1.2.1 Statutory and Regulatory Requirements The TEC and other state statutes and regulations contain the legal requirements for public school finance, accounting, budgeting, and reporting. The following are some of the broader statutory and regulatory requirements related to financial accounting and reporting. State Statutory Requirements The TEC, Chapter 44, Subchapter A, establishes state statutory requirements related to school district fiscal management and financial accounting and reporting in general. These requirements include, but are not limited to, the following: • §44.0011 establishes the fiscal year for school districts. • §44.002 requires a district to prepare a budget for each fiscal year. • §44.003 requires a district to keep budgetary and related records and to file required financial records. • §44.004 establishes budget adoption requirements. • §44.005 requires that a district’s budget be filed with the Texas Education Agency (TEA). • §44.006 prohibits a district from spending public funds before a budget is adopted and allows for amending the budget. • §44.007 requires a district to adopt a standardized accounting system, record financial information, and report that information to the TEA. • §44.008 requires a district to have an audit of its fiscal accounts performed annually and to file a copy of its annual audit report with the TEA. State Regulatory Requirements In 19 Texas Administrative Code (TAC) Chapter 109, Subchapters A–CC, corresponding state regulatory requirements are set out, including, but not limited to the following: • §109.1 requires school districts to use a standardized system of budgeting, accounting, and financial reporting. • §109.23 requires a district’s annual audit to comply with FASRG requirements and establishes the audit report due date. • §109.41 adopts the FASRG as part of the TAC and establishes its rules as the official state financial accounting rules for school districts. Federal Regulatory Requirements Title 2 Code of Federal Regulations (CFR) Part 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Rewards • Subpart A—Acronyms and Definitions3 • Subpart B—General Provisions4 • Subpart C—Pre-Federal Award Requirements and Contents of Federal Awards5 • Subpart D—Post Federal Award Requirements6 • Subpart E—Cost Principles7 • Subpart F—Audit Requirements8 • Appendix I to Part 200—Full Text of Notice of Funding Opportunity9 • Appendix II to Part 200—Contract Provisions for Non-Federal Entity Contracts Under Federal Awards10 • Appendix V to Part 200—State and Local Government-wide Central Cost Allocation Plans11 • Appendix VII to Part 200— States and Local Government and Indian Tribe Indirect Cost Proposals12 • Appendix XI to Part 200—Compliance Supplement is a set of federal regulatory requirements related to audits of school districts. (This regulation was formerly known as OMB Circular A-133 Compliance Supplement.) For more information on federal regulatory requirements, see Appendix D: Other Federal and State Requirements, in the Financial Accounting and Reporting Appendices. 1.1.2.2 GAAP GAAP that school districts must adhere to are established primarily by the GASB, which is the standardsetting authority for GAAP for state and local governments. 3 2 CFR §200, Subpart A—Acronyms and Definitions 4 2 CFR §200, Subpart B—General Provisions 5 2 CFR §200, Subpart C—Pre-Federal Award Requirements and Contents of Federal Awards 6 2 CFR §200, Subpart D—Post Federal Award Requirements 7 2 CFR §200, Subpart E—Cost Principles 8 2 CFR §200, Subpart F—Audit Requirements 9 Appendix I to Part 200 – Full Text of Notice of Funding Opportunity 10 Appendix II to Part 200 – Contract Provisions for Non-Federal Entity Contracts Under Federal Awards 11 Appendix V to Part 200 – State/Local Governmentwide Central Service Cost Allocation Plans 12 Appendix VII to Part 200 – States and Local Government and Indian Tribe Indirect Cost Proposals GASB establishes GAAP through its statements of governmental accounting standards and codification of those standards, as well as through interpretations and technical bulletins. You can find the hierarchy of GAAP, GASB statements, interpretations, and bulletins on the GASB website. 1.1.2.3 Records Retention Both federal and state governments have requirements for retaining financial records. This accounting guide does not address retention requirements for student records and attendance. Federal Requirements For federal awards, the Office of Management and Budget (OMB) guidance requires that financial documents be retained for at least three years after the submission date of the final expenditure report. Title 2 §200.335 also states that “electronic, open, machine readable information is preferable to paper, as long as there are appropriate and reasonable internal controls in place to safeguard against any inappropriate alteration of records.” State Requirements The Texas State Library and Archives Commission require a four-year (fiscal year end + three years) retention period for financial records of school districts. Additional details on the retention period for financial records of school districts are located on the Texas State Library and Archives Commission website. Note: If your district uses password protection on electronic documents such as spreadsheets and databases, the TEA requires your district to provide passwords or unlocked copies of those documents when submitted to the TEA or its auditors. 1.1.3 Budget Requirements Your district must prepare an annual budget by June 19, if the district’s fiscal year starts July 1, or August 20, if the district’s fiscal year starts September 1. The budget must be adopted no later than June 30 in districts with a fiscal year beginning on July 1, and no later than August 31 in districts with a fiscal year beginning on September 1. The budget for a fiscal year must be adopted by the local school board before expenditures are made and, if applicable, before the tax rate for the year is set.16 In general, your district must include at least the following funds in its budget: • general fund—must be included each year • food service fund—must be budgeted for and submitted to the PEIMS regardless of which type of fund is used to account for school nutrition programs • debt service fund—must be budgeted expenditures recorded with function code 71, Debt Service. Your district’s budget must be itemized in detail according to the classification and purpose of expenditure using the accounting code structure specified in 1.4.2.1 Account Code Structure Minimum Requirements and Appendix A: Accounting Code Structure and Codes. In addition, your district’s adopted budget must be on a 12-month basis. Your district’s budget must be adopted before expenditures can be made, and this adoption must be prior to setting of the tax rate for the budget year. You must file the adopted budget, as necessarily amended, with the TEA through PEIMS.