A Report on the Permanent School Fund
February 2004
Report Number 04-022
Overall Conclusion
In our audit report dated February 6, 2004, we concluded that the financial statements of the Permanent School Fund (Fund) for the fiscal year ended August 31, 2003, 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.
In November 2003, we reviewed changes that the Board proposed for the Fund's ethics rules. We concluded that the changes excluded certain requirements of Senate Bill 1059 (78th Legislature, Regular Session). Senate Bill 1059 was not in effect during fiscal year 2003, so these exclusions did not affect the Fund's compliance with state law for the period covered by this audit. However, it is possible that the exclusions could cause the Fund to be noncompliant with Senate Bill 1059 for fiscal year 2004.
While they do not directly relate to our audit of the Fund's financial statements, there are two areas of the Fund's financial operations that may be of interest to the Legislature:
(1) With the passing of Proposition 9 in September 2003, the Fund now bases its distributions to the Available School Fund on the total return of all investment assets.
(2) Changes to the Fund's portfolio management will reduce external management fees from more than $14 million in fiscal year 2003 to a maximum of $3.5 million in fiscal year 2004. Over the past two years, the Board reduced the number of the Fund's external money managers from 26 to 2, and the Texas Education Agency recently shifted a large amount of the investment management duties in house to the Investment Office.
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