Summary of Report 03-024

March 2003

Report Number 03-024

In our audit report dated January 31, 2003, we concluded that the financial statements of the Permanent School Fund (Fund) for the fiscal year ended August 31, 2002, were materially correct and presented in accordance with accounting principles generally accepted in the United States of America. We did not identify any instances of noncompliance with certain provisions of laws and regulations that would have a material effect on the Fund's financial statements or any material weaknesses in internal control over financial reporting.

• We continue to observe potential negative effects because of the State Board of Education's (Board) inability to distribute any capital gains on the Fund's investments to the Available School Fund (ASF). This restriction on the Fund's spending policy impedes the Board's ability to do the following:
  
  
  • Maintain a long-term asset allocation strategy intended to maximize the long-term growth of the Fund and its annual distributions
    
  • Periodically restore the asset allocation to within limits mandated by the Board's investment policy (a process known as rebalancing)
    
  • Consistently meet levels of projected distributions to the ASF
    
    
• Fund management at the Texas Education Agency (TEA) has fully implemented two of the three prior year recommendations and is in the process of implementing the third.
  
  
• The State Auditor's Office (SAO) will continue to work with the Board and with Fund staff at TEA to ensure the Board has an opportunity to consider the SAO's comments regarding its ethics policy, which would help the Board clarify and further strengthen the policy. If implemented, these suggestions would bring the Board's ethics policy in compliance with the Education Code by making the policy apply to investment brokers and by requiring the disclosure of certain expenditures made by brokers on behalf of Board members or TEA employees. Brokers do not work under contract and are currently excluded from the ethics policy's provisions.

Contact the SAO about this report.

Download the PDF version of this report. (.pdf)

HTML Equivalent (utilizing Adobe's PDF Conversion by Simple Form).