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Financial Accountability System Resource Guide, Update 16Module 1: Financial Accounting and ReportingTexas Education Agency2019

Texas Education AgencyFinancial Accountability System Resource Guide, Update 16Module 1: Financial Accounting and ReportingTable of ContentsTABLE OF CONTENTS.2NOTES ON USING THIS MODULE.91.1 FINANCIAL ACCOUNTING REQUIREMENTS .111.1.1 Financial Accounting and Reporting System. 111.1.2 Statutory and Regulatory Requirements and Generally Accepted Accounting Principles . 121.1.2.1 Statutory and Regulatory Requirements .121.1.2.2 GAAP .131.1.2.3 Records Retention .141.1.3 Budget Requirements . 141.1.4 Audit Requirements . 151.1.5 District Fiscal Year . 151.1.5.1 Changing to a June 30 Fiscal Year .161.1.5.2 Changing Back to an August 31 Fiscal Year End.171.1.6 District Depository Contract. 181.1.7 Investment of Public Funds . 181.1.8 Requirements Related to Ethical Considerations. 191.1.8.1 Nepotism.191.1.8.2 Conflict of Interest .221.1.8.3 Other Conflict of Interest Disclosure Requirements.251.2 FINANCIAL ACCOUNTING ELEMENTS.26Texas Education Agency2019 Financial Accountability System Resource Guide2

1.2.1 Current Assets. 261.2.1.1 Cash and Investments.271.2.2 Accounts Receivable . 281.2.2.1 Property Taxes .281.2.2.2 Other Receivables .291.2.3 Inventory . 301.2.3.1 Monitoring and Valuing Inventory.301.2.4 Capital Assets. 311.2.4.1 Control of Capital Assets.331.2.4.2 Inventories of Capital Assets.331.2.4.3 Capitalization of Capital Assets .341.2.4.4 Impairment of Capital Assets.341.2.5 Liabilities. 371.2.5.1 Current Liabilities .381.2.5.2 Long-term Liabilities .381.2.5.3 Payroll Liabilities .391.2.5.4 Arbitrage Rebate Liabilities.451.2.5.5 Contractor Withholding .461.2.6 Debt . 471.2.6.1 Types of Debt Instruments.471.2.6.2 Debt Refunding .481.2.6.3 Other Debt Disclosure Requirements .491.2.7 Risk Financing and Related Insurance Issues . 511.2.8 Deferred Outflows of Resources and Deferred Inflows of Resources and Outflows and Inflows of Resources. 511.2.8.1 Deferred Outflows of Resources.521.2.8.2 Deferred Inflows of Resources.52Texas Education Agency2019 Financial Accountability System Resource Guide3

1.2.8.3 Presentation of Deferred Outflows of Resources and Deferred Inflows of Resources on the FinancialStatements.531.2.8.4 Outflows of Resources and Inflows of Resources .551.2.9 Fund Equity . 561.2.9.1 Fund Balance.561.2.9.2 Net Position .571.2.10 Fund Types and Financial Statement Presentations . 581.2.10.1 Basis of Accounting .591.2.10.2 Measurement Focus .601.2.10.3 Government-wide Financial Statements .621.2.10.4 Governmental Funds .631.2.10.5 Governmental Fund Financial Statements.641.2.10.6 Proprietary Funds .671.2.10.7 Proprietary Fund Financial Statements .681.2.10.8 Fiduciary Funds .681.2.10.9 Fiduciary Fund Financial Statements .691.2.11 Encumbrance Accounting. 701.2.11.1 Reporting Requirements for Encumbrances.701.2.12 Interfund Transfers . 711.2.12.1 Reciprocal Interfund Activity .711.2.12.2 Nonreciprocal Interfund Activity .721.2.13 Revenues . 721.2.13.1 Reporting of Revenues.731.2.13.2 Revenue Categories .741.2.13.3 Gifts and Bequests .751.2.14 Expenditures and Expenses . 761.2.14.1 Expenditures .761.2.14.2 Types of Expenditures and Accounting Treatment.77Texas Education Agency2019 Financial Accountability System Resource Guide4

1.2.14.3 Expenses .781.2.14.4 Types of Expenses and Accounting Treatment .791.2.14.5 Cocurricular/Extracurricular Expenditure Reimbursement Issues.791.2.14.6 Real Property Expenditure Issues .801.2.15 Other Financing Sources (Uses) . 811.2.16 Special and Extraordinary Items. 821.2.17 Subsequent Events. 831.2.17.1 Recognized Event.831.2.17.2 Nonrecognized Event.841.3 SPECIAL ACCOUNTING TREATMENTS.851.3.1 Shared Services Arrangements. 851.3.1.1 Fiscal Agent .851.3.1.2 The Written Agreement.861.3.1.3 Requirements Related to Special Education SSAs .891.3.1.4 Other Types of Sharing Arrangements.891.3.1.5 Determination of Accounting and Reporting Treatment for SSAs.911.3.2 Food Service Operations . 911.3.2.1 Food Service Operation Funds.911.3.2.2 Accounting Issues.931.3.2.3 Revenue Recognition .961.3.2.4 Fund Balance.981.3.3 On-Behalf Teacher Retirement System Payments . 991.3.3.1 Overview of Teacher Retirement Contributions and Payments .991.3.3.2 On-Behalf Payment Calculation and Accounting Methodology .1001.3.4 Pension Expense, Net Pension Liability, Other Postemployment Benefits, and Related Items . 1021.3.4.1 Financial Statement Presentation and Data Control Codes (DCC) for the TEA.1041.3.4.2 Definitions of Terms Related to Pension Accounting for GASB 68 and 75 .105Texas Education Agency2019 Financial Accountability System Resource Guide5

1.3.4.3 Example of TRS Pension Allocation.1071.3.4.4 Example of Pension Expense, Contributions, and Journal Entries.1081.3.4.5 Proportionate Share of Collective Net Pension Liability or Assets .1161.4 COST ACCOUNTING .1191.4.1 Accounting Considerations. 1201.4.2 Minimum Requirements for State Reporting . 1201.4.2.1 Account Code Structure Minimum Requirements.1211.4.3 Direct and Indirect Costs . 1251.4.3.1 Direct Costs .1261.4.3.2 Indirect Costs .1261.4.4 Salary and Fringe Benefits Allocations . 1271.4.4.1 Allocation of Salaries.1271.4.4.2 Fringe Benefits .1331.4.5 Cost Allocation Methods . 1381.4.6 Administrative Costs . 1431.5 REQUIRED REPORTS AND DATA SUBMISSION.1441.5.1 Annual Financial and Compliance Report. 1441.5.1.1 Deadlines for Submitting the AFR.1441.5.1.2 Instructions for Submitting the AFR.1441.5.1.3 Required Components of the AFR .1451.5.1.4 Data Feed Codes .1481.5.1.5 Publication in a Newspaper .1491.5.1.6 Notification for Late Audit .1491.5.1.7 Noncompliance .1491.5.2 Other Reports to the TEA, State Agencies, and Local Entities . 1491.5.2.1 State Compensatory Education Audit.149Texas Education Agency2019 Financial Accountability System Resource Guide6

1.5.2.2 State Reporting for Bonds.1501.5.2.3 Other State-Required Report—Municipal Advisory Council.1511.5.2.4 PEIMS Reporting .1511.5.2.5 District Reporting Schedule .1521.5.3 Reports to Federal Agencies. 1531.5.3.1 Single Audit Filing.1531.5.3.2 Federal Reporting for Bonds .1531.6 REQUIREMENTS RELATED TO FEDERAL GRANTS AND FINANCIAL ASSISTANCE.1531.7 TAX CONCERNS AND OBLIGATIONS.1541.7.1 List of Publications . 1541.7.2 Arbitrage Rebate on Tax-Exempt Bonds. 1551.7.3 Salaries and Wages Reporting: Form W-2 . 1551.7.4 Other Federal Tax Issues . 1561.7.4.1 Employee Versus Independent Contractor—Form W-2 Versus Form 1099-MISC .1571.7.4.2 Form 1099 Reporting .1571.7.4.3 Reporting for Retirement and Fringe Benefit Plans.1581.7.4.4 Reporting for Payroll Taxes Withheld .1581.7.4.5 Penalties.1581.7.4.6 Social Security Taxes .1581.7.4.7 Employee or Board Member Travel and Business Expenses .1591.7.4.8 Section 403(b) Annuities.1591.7.4.9 Section 457 Plans .1591.7.5 Exempt Organizations . 1601.7.5.1 Purchases by Exempt Organizations .1601.7.5.2 Sales by Exempt Organizations .1601.7.6 Treatment of Rehired Annuitants . 161Texas Education Agency2019 Financial Accountability System Resource Guide7

1.8 E-RATE—REQUIREMENTS FOR THE SCHOOLS AND LIBRARIES UNIVERSAL SERVICE FUND (USF)PROGRAM .161ACRONYMS.163BIBLIOGRAPHY.165INDEX .166Texas Education Agency2019 Financial Accountability System Resource Guide8

Module 1 Financial Accounting and ReportingNotes on Using This ModuleThe purpose of this module is to specify the financial accounting and reporting requirements that thefollowing local education agencies (LEAs) must meet: school districtregional education service centercounty education districtopen-enrollment charter school operated by a governmental entityopen-enrollment charter school operated by an institution of higher education, as definedby the Texas Education Code (TEC), §61.003The term “school district” or “district” is used throughout the module to refer to any of these LEAs.The term Public Education Information Management System (PEIMS) is used throughout the module torefer to PEIMS EDIT and the Texas Student Data System PEIMS (TSDS PEIMS).For financial accounting information, specific to charter schools operated by a nonprofit organization orby a private or state institution of higher education, see Module 2: Charter Schools.The Financial Accountability System Resource Guide (FASRG) is codified in Title 19 of the TexasAdministrative Code (TAC) Chapter 109, Subchapter C (19 TAC §109.41)Texas Education Agency2019 Financial Accountability System Resource Guide9

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Module 1 Financial Accounting and Reporting1.1 Financial Accounting RequirementsThis section describes some of the broader requirements your district must meet in its financialaccounting.1.1.1 Financial Accounting and Reporting SystemYour 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 acceptedaccounting principles and allows the district to determine and show compliance with financial-relatedlegal and contractual provisions. 1The school district’s accounting system must be organized and operated on a fund basis. The separatefunds are established by the school district for the specific activities and objectives in accordance withstatutes, laws, and regulations, or for specific purposes. A fund is defined in the GovernmentalAccounting Standards Board (GASB) Codification Section 1300 as:“A fiscal and accounting entity with a self-balancing set of accounts recording cash and otherfinancial resources, together with all related liabilities and residual equities or balances, andchanges therein, which are segregated for the purpose of carrying on specific activities orattaining certain objectives in accordance with special regulations, restrictions, or limitations.Expendable assets are assigned to various governmental funds according to the purpose forwhich they may or must be used; current liabilities are assigned to the fund from which they areto be paid; and the difference between governmental fund assets and deferred outflows ofresources, and liabilities and deferred inflows of resources is referred to as “Fund Balance.” 2A self-balancing set of accounts means that debits and credits are used when recording transactions andevents in the accounting system for each of the funds. Your district’s records must be organized on amultiple fund basis with each of the funds complete and containing independent accounting entries. Theabsolute minimum number of funds appropriate for your district’s operations must be established basedon purposes and legal requirements of the activities of your district.Your district’s financial accounting and reporting system must use the accounting codes and accountingcode structure specified in 1.4.2.1 Account Code Structure Minimum Requirements and Appendix A:Accounting Code Structure and Codes.GASB Statement No. 34: Basic Financial Statements—and Management’s Discussion and Analysis—for State and LocalGovernments, Section 1100, paragraph 1012 GASB Statement No. 34: Basic Financial Statements—and Management’s Discussion and Analysis—for State and LocalGovernments1Texas Education Agency2019 Financial Accountability System Resource Guide11