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An Audit Report on The Audit of the Permanent School Fund’s Fiscal Year 2017 Financial Statements

December 2017

Summary Analysis

In our audit report dated December 20, 2017, we concluded that the Permanent School Fund’s (the Fund) basic financial statements for fiscal year 2017 were materially correct and presented in accordance with accounting principles generally accepted in the United States of America. The Fund published our audit report as part of its basic financial statements, which it intends to post on its Web site at www.tea.texas.gov.

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We also issued a report on internal control over financial reporting and on compliance and other matters as required by auditing standards (that report, including responses from management, is presented in the attachment to this letter). In that report, auditors identified a deficiency in the General Land Office’s disclosure of the existence of certain related investment entities.

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The General Land Office (Office) did not disclose in the Permanent School Fund’s (Fund) financial statements the existence of certain related investment entities as required by accounting and reporting standards. Those related investment entities were limited liability companies created by, for, and on behalf of the Office to provide legal protection for certain investments.

The Office also did not have policies and procedures designed to govern why the investment entities would be established and how they would be used, managed, and dissolved when no longer needed.

As of November 2017, auditors had identified 20 related investment entities that should be disclosed as related entities on the Fund’s financial statements. The balances of the Fund investments held by related investment entities totaled $470.5 million at August 31, 2017.

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