The legal requirements and Process performance of lisd Internal Audit in LISD The legal requirements and Process performance of lisd

Legal Requirements The Board shall select the internal auditor if a district employs an internal auditor. The internal auditor shall report directly to the board. Education Code 11.170

Legal Requirements Public information is available, at a minimum, to the public during a district’s normal business hours. Gov’t Code 552.021 An audit working paper of an audit performed by the district auditor, including any audit relating to the criminal history background check of a public school employee, is excepted from public disclosure. If information in an audit working paper is also maintained in another record, that other record is not excepted. Gov’t Code 552.116

State Requirements The financial statement audit is performed to determine (a) whether the financial statements present fairly the financial position, results of operations, and cash flows or changes in financial positions of the school district in accordance with generally accepted accounting principles, and (b) whether the school district has complied with laws and regulations for those transactions and events that may have a material effect on the financial statements. A single audit must be performed in all instances when a school district expends $500,000 or more from federal awards. Texas Education Agency’s Financial Accountability School Resource Guide

The Three Lines of Defense

Internal Audit vs. External Audit Copyright © 2017 by The Institute of Internal Auditors, Inc. All rights reserved.

Comparison of Auditors External Auditor Internal Auditor Employed by the Board of Trustees Requirement by the State Scope of work set by Federal and State government Audit is focused on finances Tasked with providing reasonable assurance about whether the financial statements are fairly presented Employed by the Board of Trustees Not a requirement of the State Scope of work is approved by the Board of Trustees Audit is focused on the adding value and improving district operations Tasked with looking for inefficient practices, fraud, and corruption

Key Areas of Internal Review Club/organization minutes Compliance with all guidelines Cash management / safes Conflicts of interest District guidelines Fundraisers Network access Procurement Use of taxpayer funds Internal controls Procedures Contracts Credit card usage Dual controls Efficiency Employment / hiring practices Reimbursements STAAR / EOC testing Timesheet review / approval Trends

Key Areas of External Review Board minutes Budget and cash management Compliance with all laws Grant management Maintenance of effort Procurement Use of taxpayer funds Financial statement accuracy Internal controls Payroll accuracy / coding Questionnaires Board Management Related party transactions State aid reconciliation Recording of settle-up Spending requirements Third party confirmations Litigation Tax collections

Differences in Types of External Audits Annual Financial Report (AFR) Comprehensive AFR (CAFR) Minimum requirement for school districts Basic financial statements Required supplementary information Highest level of transparency in financial reporting Includes everything in an AFR along with the following: Combining & individual statements Schedules & statistical tables

Key Points of LISD Audit General Fund $ 16,223,659 surplus $137,207,633 in fund balance Debt Service Fund $ 9,611,287 surplus $ 35,269,223 in fund balance Unmodified opinion Highest level of assurance Clean audit report No financial statement findings Compliance with all laws/rules

What is the Purpose of Fund Balance? Covering cash flow deficits in the fall until property taxes are collected in January Legislative cuts and unfunded mandates Lower interest rates on district bonds Ongoing support for educational programs Unforeseen expenditures and disasters

Fund Balance Guidelines The State provides guidance to schools that each district should have two months of cash disbursements to cover any cash flow deficits – no focus is given to the debt service fund. The foresight of the LISD Board includes the following expectations of administration for fund balance: Maintain two months of operating funds in reserve Goal shall be to have three months of operating funds in reserve Maintain at least 20 percent of the next year’s interest & sinking requirements Goal shall be to have 30 percent of next year’s interest & sinking requirements

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