A Report on the Audit of the Permanent School Fund's Fiscal Year 2010 Financial Statements
February 2011
Report Number 11-021
Overall Conclusion
In our Independent Auditor's Report dated December 20, 2010, included in the Permanent School Fund's (Fund) fiscal year 2010 financial statements, we concluded that the Fund's basic financial statements for fiscal year 2010 were materially correct and presented in accordance with accounting principles generally accepted in the United States of America.
We also issued a Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards, as required by auditing standards, dated December 20, 2010. Our audit procedures were not intended to provide an opinion on the effectiveness of internal control over financial reporting or an opinion on compliance with laws and regulations, and we did not express such opinions in that report. We did not identify any deficiencies in internal control over financial reporting that we considered to be material weaknesses.
However, we identified the following instance of noncompliance that is required to be reported under Government Auditing Standards. Based on the use of a calculation methodology that incorrectly calculated the dollar amount of prior year total investment return to assess compliance with one of the two annual distribution limits prescribed by the Texas Constitution, the Texas Education Agency's Permanent School Fund Investment Office's management recommended and the State Board of Education approved $60.7 million in total distributions from the Fund to the Available School Fund during fiscal year 2010. If management's methodology had correctly calculated the dollar amount of those prior year total returns, management should have concluded that the distribution limit provision in the Texas Constitution prohibited making any distribution to the Available School Fund during fiscal year 2010. This issue is more fully discussed in the attachment to this report.
Although the fiscal year 2010 distribution should not have been made, improved investment returns earned in fiscal year 2010 would have allowed the State Board of Education to distribute the $60.7 million during fiscal year 2011 in addition to the $1.093 billion distribution it approved for fiscal year 2011. As a result, the same total amount (approximately $1.154 billion) will be distributed during the 2010-2011 biennium.