TSPR Audit Protocols - Asset and Risk Management

An effective asset and risk management program aims to control costs by ensuring that the district is adequately protected against all significant losses with the lowest possible insurance premiums. This involves the identification and measurement of risk and techniques to minimize the impact of risk. The district should seek investments with maximum interest earning potential while safeguarding funds and ensuring liquidity to meet fluctuating cash flow demands. Effective tax management involves quick and efficient tax collections to allow the district to meet its cash flow needs and earn the highest possible interest. Fixed asset management should account for district property efficiently and accurately and safeguard it against theft and obsolescence. The district's insurance programs for employees' health and workers compensation and district's assets should be sound and cost effective to protect the district from financial losses.

I. Cash Management

Developing an effective cash management program can provide a district with additional revenues to fund essential programs and operations. Maximizing the return on invested funds while ensuring the safety and liquidity of investments has become a high priority. Effective cash management programs:

Provide market rates of return through the use of various investment instruments.
Are based on a comprehensive written investment policy approved by the board.
Allow personnel to become skilled in investment procedures and techniques and stay abreast of current money markets.

This module allows review of all facets of the cash management program. Key elements include the investment policy, depository bank relationship, controls over cash disbursements, use of cash flow forecasting, and use of automated tools for sound management.
Data Needs

Policies and procedures
Depository contract
Bank account analysis
Investment portfolio
Cash flow forecasts
Organization charts
Job descriptions

Staff to Interview:
Superintendent
Assistant superintendent with assigned responsibility
Finance director
Director of information services
Administrative staff with assigned responsibility
I.A. Organization and Staffing
Activities to Perform

I.A.1 Examine the organization and staffing charts and job descriptions for the cash management functions and interview staff to determine reporting arrangements, whether the organizational structure depicted on the chart reflects the actual organization of the department, and document if it has been changed recently or repeatedly in the recent past or is anticipated to change in the near future and explain the background for changes. Include any contracted individuals or services or committees that oversee cash management in the organization chart and show the reporting relationship and who is responsible for monitoring the contracts.

I.A.2 Examine the staffing and budget of the cash management function. Determine whether or not the budget and staffing level compare favorably to industry standards.

Questions to Ask
Does the district have a defined and formalized cash management department or function? Do cash management staff have detailed job descriptions that outline responsibilities, set up a system of accountability, and clearly define performance measures? Do key cash management staff possesses necessary background, experience and knowledge for performing cash management activities?
Do appropriate staff have the opportunity to attend cash management related continuing education programs and be involved in professional organizations (e.g., local cash management groups, TASBO, Government Finance Officers Association)?
Does the organization structure allow for proper segregation of duties regarding executing, accounting and reviewing cash, debt and investment transactions? Are cash management personnel bonded or covered by an errors and omissions policy to protect the district against losses? If so, what is the amount of the coverage?
Has the district designated one or more officers or employees as Investment Officers? Does the district require its Investment Officer to disclose a personal business relationship with a business organization offering to sell investments to the organization? Does the district require its Investment Officer to disclose any family relationships to an individual seeking to sell an investment to the entity? (VTCS Government Code §2256.005 (f)).
What training has the designated investment officer, treasurer and/or chief investment officer received in the last year? Does the training meet statutory guidelines of at least 10 hours of instruction relating to investment responsibilities within 12 months after assuming duties and 10 hours of training every two years? (VTCS Government Code § 2256.008)
Has the board authorized the creation of a designated investment committee? How does the committee interact with the investment officer? What is the role of the committee?
I.B. Policies/Procedures
Activities to Perform

I.B.1 Compile all investment policies, procedures and/or strategies and determine whether they are in compliance with VTCS Government Code §2256.005, whether internal operating procedures mirror board policy, and whether internal procedures provide a level of detail to ensure that investment processes would continue in the event of staff turnover of sustained absences.

Questions to Ask
Does the district have board approved written cash management policies, procedures and practices that meet current legal requirements mandated by Chapters 2256 and 2257, Government Code regarding investments, liquidity, safety of principal, diversity, marketability, and internal accounting controls?
Has the board or designated investment committee adopted policies and strategies for the investment of cash? Does the board or designated investment committee review and revise strategies at least annually? How does the committee monitor investment activities to ensure that they comply with adopted policies or procedures?
Does policy or procedures provide for documentation of all relationships with banks, dealers, brokers and others financial institutions? Are copies of all contracts or agreements on file? Are they maintained in a safe, fireproof location in the event of disaster?
Do policies or procedures prevent the payment of significant or normal obligations out of petty cash funds?
Does board policy or internal procedure provide for control on issuance of manual checks?
What internal controls exist in policy or procedure to prevent the occurrence of the following cash management practices:

Excessive drawdown (e.g., transferring unavailable funds to another account well in excess of the amount available)?
Check kiting (e.g., covering shortfalls in one bank account with a check that itself represents uncollected funds)?
Chaining (e.g., using additional depository banks to deposit a check before final concentration occurs)?
Check-crossing (e.g., simultaneously issuing and depositing checks for identical amounts drawn on different banks)?

What internal control procedures exist to ensure adequate adherence to formal investment policies and procedures?
Does the district's governing board review the investment policy and investment strategy at least annually? Does the board adopt a written instrument stating that it has reviewed the policy and strategy? (as required by VTCS Government Code §2256.005 (e)).
Does the district's investment policy recognize the restrictions/qualifications imposed by the Public Funds Investment Act?
Does the district routinely present a written copy of the board approved investment policy to every business organization offering to engage in an investment transaction with the entity, including investment pools, banks, and investment management firms? Has a written instrument from each business organization been received acknowledging that the investment policy has been received and reviewed and that procedures and controls have been implemented to preclude unauthorized transactions? Has a qualified representative of each business organization signed the written instrument? (as defined in VTCS Government Code § 2256.002 (10) and §2256.005(k).
Did the board adopt a written investment strategy for each fund or group of funds under its control? Does the strategy describe the objectives for the fund using the priorities of suitability, preservation and safety of principal, liquidity, marketability, diversification, and yield in that order? (VTCS Government Code § 2256.005 (d))
In addition to the statutory requirements, does the investment strategy define:

Acceptable risk?
Allowable issuers and instruments?
Percentage of portfolio that can be invested in each allowable investment type and issuer?
Diversification of risk?
Measurement of performance?
Authority and limitations for investments?
Selection of maturities?
Safekeeping accounts and/or acceptable collateralization of investments?
Reporting and documentation?
Formal adoption and periodic revision of the policy?

Does the district have board-approved policies for issuing and managing debt that recognizes any federal, state or local limitations imposed on the type and amount of debt issued? The district should have a policy limiting the ratio of debt to taxable property with an appropriate factor for assistance from the instructional facilities allotment.
How does the district calculate and monitor compliance with federal arbitrage regulations? Has the district employed or contracted for the services of financial advisors, bond counsel and the external auditor either in day-to-day investment activities or when evaluating and issuing debt obligations? Has the district applied for and made optimum use of the instructional facilities allotment programs authorized under Chapter 42, Texas Education Code?
Does policy require disbursement of bond proceeds to follow bond indenture guidelines?
Has the district ever engaged in bond refunding activities? Is there any evidence that bond proceeds were used for operating capital, like payroll? Did the refunding result in an improved cash flow and/or reduced overall debt obligations?
I.C. Operations
Activities to Perform

I.C.1 Prepare a list of board-approved investments and determine, to the extent possible, how these strategies positively or negatively impact risk or the yield on investments.

I.C.2 Examine the depository contract and the related request for proposal and prepare a list of all of the major terms and conditions as they pertain to each bank account maintained by the district.

I.C.3 Prepare a chart listing the district’s bank accounts, whether they are interest bearing and the rate of interest paid, the average daily balance in each account for the last year, and the balance in the account at a point in time. In addition, list any accounts held with investment pools or other money market accounts that are also liquid.

I.C.4 Examine cash flow forecasts for the last year and review any documented procedures for creating the cash flow forecasts. Note the frequency of the forecasts, the level of detail captured by the forecasts and compare a sample of the forecasts with actual data to determine the degree of accuracy.

I.C.5 Examine bank reconciliation procedures and a sample of recent bank reconciliations for all district accounts and determine whether reconciliations are done in a timely fashion and whether the accounts are then reconciled to the accounting records of the district.

Questions to Ask
Has the district complied with relevant laws on placing its primary banking relationships out for competitive bid on a scheduled basis? When does the depository contract expire? Are banking relationships managed centrally and reviewed regularly? Is the number of bank accounts used by the district limited to minimize idle balances and facilitate monitoring and control? Are activity funds for individual schools consolidated into one master account or are they maintained individually? Who has access to these accounts? Who reconciles these accounts, and are reconciliations current?
Are all bank accounts reconciled on a monthly basis? Who has central control over the opening and closing of bank accounts? Do written depository contract(s) exist with the district's bank(s) in addition to the required TEA contract? What are the terms and conditions of the existing depository contract? When was it last bid? Are there other depository institutions in the area that offer additional services? Are all fees and other stipulations of the contract in the best interest of the district?
Does the district perform periodic analysis of bank relationships for performance and cost? How does the district evaluate which payment method for bank services is most cost-effective. (i.e., compensating balances, direct fee payments, or a combination)
Because most bank accounts are only insured up to $100,000 by the Federal Deposit Insurance Corporation, how does the district ensure that sufficient collateral is pledged to cover the balances kept in the depository bank or in investment accounts, where applicable? Who is responsible for regular monitoring of the quality of pledged securities? Regular monitoring to ensure that the amount of pledged securities is adequate? Review to assure that pledged an independent, third party safekeeping agent holds securities?
Are cash collection procedures, especially as it deals with tax collections, designed to get the money into the district’s accounts as quickly as possible? What time delays, if any, exist between the collection of funds and the depositing of funds into the accounts? As funds are deposited, what lapse time exists between the time that deposits are made and the time that excess funds are identified and moved to higher yielding investment accounts? Does the district use lockboxes when the benefit of increased availability of funds exceeds additional cost? Does the district use of wire transfers or direct deposits to accelerate the movement of cash into district bank accounts?
Who has access to cash in the central office? At the campuses? How does the district ensure that cash taken in at the campuses is accurately reported and delivered to the central office or the bank? What other control mechanisms are in place to ensure that cash is not mishandled? Do couriers or armored car services pick up and deliver large cash deposits? Does the district have a safe in which to lock all cash and negotiable securities? Does the district have documented cash handling procedures for campus staff? For booster clubs and other groups that use activity funds including principal activity funds? What procedures are used to ensure that all cash receipts are deposited daily, including cafeteria receipts? What processes ensure that the district is meeting all current day bank deposit deadlines?
Who is responsible for performing cashflow forecasting? Does the district do daily, weekly, monthly, quarterly, semi-annual, or annual cash flow forecasting, and is the frequency sufficient to accurately project needs while providing the board and administration good management data such as early warnings if borrowing is required in the future? Does the district attempt to match the amount and maturity of investments to the cashflow needs of the district? Does cash flow forecasting provide a systematic approach for determining and coordinating the cash needs of the district? How is the cash flow forecasting process tied to an overall financing/investment plan? Is the cash flow forecasting system automated?
How does the district evaluate variances between actual cash flow and forecast cash flow and use this information to revise subsequent forecasts? Does the budget, key departments, board and community provide information for preparation of the forecasts as appropriate? What external sources of information are used to develop cash flow forecasts (e.g., interest rate assumptions, economic forecasts and governmental regulations)? Are short-term and long-term forecasts are prepared to cover various time frames?
To improve cash flows, does the process and procedure for the payment of bills ensure that bills are paid on the latest possible date to still qualify for available discounts? Does the district have controls in place to prevent unauthorized, improper or early cash disbursements including:

Assuring accounts payable disbursements are made according to the due date of the obligation?
Use of zero-balance accounts to fund disbursements for accounting reconciliation?
Safeguarding unused check stock with access available only to designated personnel?
Providing control procedures over outgoing wire transfers which include:
Use of passwords?
Limited number of authorized personnel?
Dual check authorization required?
Bank call back procedures?
Dollar amount limitations on transfers?
Confirmation of transfers performed by someone other than the initiator?
Requiring authorization by top administrative personnel for all significant cash transfers?

Does the district use sound investment techniques while adhering to the investment policy and providing adequate controls? Is excess cash always invested? Are competitive quotes obtained for investment purchases? Does the district invest in longer-term securities when the cash flows indicate that money will not be needed for a longer period of time in order to achieve a market rate of return on the dollars?
Do personnel responsible for the investment function fully understand investment instruments? Have they attended training on investments? How do personnel making investment decisions stay in contact with the money market to keep up-to-date on market conditions? Is the investment portfolio distributed among various issuers and vehicles to diversify risks (spreading investments over a large number of securities in order to reduce financial risk or investing in different securities and with different maturities to reduce market and credit risk — not putting all your eggs in one basket.)?
Is monthly reporting of investment activity distributed to appropriate management? Are quarterly reports made to the board in compliance with the Public Funds Investment Act?
Among staff, is there proper segregation of duties regarding placing, holding, accounting, and reviewing of investment transactions?
Are the district's financing arrangements planned based on budgets and forecasts? Does all financing or borrowing comply with statutory and accounting requirements regarding borrowing or financing transactions? All indirect costs such as fees, compensating balance requirements, restrictions, etc., included in the determination of the true cost of debt? Are financing instruments selected based on availability, cost, and legal concerns?
Do cash management hardware and software systems meet needs of the district? Can the district rapidly determine how much cash is on hand (cash position)? Does the system aid the district in preparing cash flow forecasts? Does the system support investment portfolio management activities and allow the district to readily produce the required reports to the board or administration? Does the system aid the district in managing its debt portfolio, particularly when bonds are involved? How is security access to the system ensured?
Is investment performance monitored and reported to the superintendent and board on a regular basis? Are internal reviews to improve cash collections, control disbursements, enhance investment returns and reduce debt costs performed on a regular basis?

II. Risk Management

Risk management has become an essential part of school district operations. Rising costs for health, property, and liability insurance coverage has demanded that administrators begin cost containment programs. Successful risk management programs start with strong support from the governing board, superintendent and senior financial administrators. Commitment from the upper management to the fundamental goals of risk management is essential if risk management practices are to be effective. Most risk exposures of districts Sound risk management involves:

Analyzing alternatives for insurance coverage such as self-insurance and other current industry trends
Analyzing current insurance plans including deductible amounts, co-insurance levels, and types of coverage provided
Assessing hazards and implementing programs to minimize exposure to potential losses
Continuously monitoring if the district is in compliance with various laws and regulations

This module assesses the district's risk management program including methods for reviewing insurance coverage, evaluation of the effectiveness of current programs, loss control programs, claims handling, determining insurable values, and requirements for coverage by outside groups using district facilities.
Staff to Interview

Superintendent
Assistant superintendent with assigned responsibility
Administrative staff with assigned responsibility
District's insurance agent and/or third party administrator
Campus-based personnel

Data Needs
Policies and procedures
Insurance policies
II.A. Risk Management Organization Structure
Activities to Perform

II.A.1 Examine the organization and staffing charts and job descriptions for risk management and interview staff to determine reporting arrangements, whether the organizational structure depicted on the chart reflects the actual organization of the department, and document if it has been changed recently or repeatedly in the recent past or is anticipated to change in the near future and why. In addition, note any contract services performed by professionals or consultants in support of the risk management function and show to whom they report or who monitors their activities.
II.A.2 Examine the staffing and budgets of personnel and personnel related functions such as recruiting, payroll and benefits management functions and determine the ratio of total staff to staffing within the personnel function. Determine whether or not the budget and staffing levels compare favorably to industry standards. Determine whether or not the manager and staff have appropriate and adequate professional development training each year.

Questions to Ask
Are risk management functions aligned with similar functions within the district? Has the district assigned specific staff to manage risk management programs? Who is assigned to manage and control the district's property and liability insurance coverages? Who establishes rules and procedures to ensure the safety and well being of pupils, employees and the public while on or in district property?
Who is assigned to bid insurance coverages? Are any outside insurance consultants or other professionals under contract to the district to provide guidance on insurance purchasing decisions? If the district is self-insurance for some coverages, is an actuary used to determine appropriate contributions and safe fund balances for the district? To whom do these contracted individuals report? Who monitors performance ? Does the district use professional insurance consultants when an identified need exists?
Does the district use the latest available risk management techniques such as inspections, investigation, and training to identify, analyze and minimize risks inherent in the operation of district programs?
Are campus or building administrators (as applicable) responsible for identifying risks inherent to their location and operation and to make every effort to minimize such risks? Who is responsible for educating employees concerning their responsibilities and enlisting their support? Who is responsible for safekeeping of all assets through security of facilities? Who distributes questionnaires and survey forms and coordinates on-site inspections and analysis of physical operations? Who is responsible for maintaining records for inspection and forwarding reports to the assigned risk management administrator?
II.B. Risk Management Policies and Procedures
Activities to Perform

II.B.1 Examine all policies and procedures related to risk management and determine whether internal operating procedures mirror board policy, and whether internal procedures provide a level of detail to ensure that risk management processes would continue in the event of staff turnover of sustained absences.

Questions to Ask
Does the district have board approved risk management policies that have been published and disseminated to all appropriate staff and the community? Do policies provide for a program of protection against and/or insurance for:

Loss or damage or disability as mandated by federal, state or local codes?
Loss or damage to real or personal property?
Liability of the district and/or personal liability of members of the board and employees for damage to persons or property including injury or death?
Losses due to employee dishonesty?
Worker's compensation/employees liability?
Employee health, life and other supplemental benefits such as dental, optical, or disability?

Has the district clearly defined the risk management program, including goals, objectives, procedures and responsibilities?
Have administrative regulations or procedures for the risk management program been developed and approved? Do procedures cover:

loss prevention control?
placement of insurance coverage?
property damage restitution?
catastrophe plan?
requirements for coverage by independent contractors?
use of facilities by outside groups?
driver training insurance coverage?
field trip and/or excursion coverage?
employee/student personal property guidelines?

Does policy or procedures provide safeguards against the duplication of coverages, contracts for unlawful or unauthorized coverages (See Insurance Decisions for Texas Public Schools at http://www.tdi.state.tx.us/consumer/sdguide/splash.html.)
II.C. Insurance Coverages
Activities to Perform

II.C.1 Examine all insurance policies and prepare a complete list of all insurance coverage including worker’s compensation as well as any insurance cooperatives, self-insurance, names of third party administrators, stop loss coverages and the like. For each category of coverage, describe the nature of the coverage, the basic limits of the coverage, and annual premiums.

II.C.2 Prepare a list of all employee benefit coverages such as health, dental, etc., and show the district’s contribution to the premiums versus the employee’s contributions for the variety of coverages for employee, employee and spouse, employee and dependent children, and the like.

Questions to Ask
Has the district identified the most cost effective insurance programs? Does the district regularly attempt to control costs by examining other options such as self-insurance (determined by actuarial study)? Levels of coverage? Realistic deductibles? Annual request for proposals for insurance carriers (as applicable)? Wellness programs?
Has the district conducted an employee satisfaction survey of their benefits?
What type of services is the district receiving from the third party insurance administrator, if a third party administrator is used? How does the district use the information provided by the third party administrator?
Does the district have a districtwide safety program? How is the effort organized? Does the district have safety training for employees? Does the district have a calendar of safety workshops? How does the district measure the success of its safety training?
Is the risk management program reviewed and evaluated annually with emphasis on:

Annual evaluation of types of claims?
Annual evaluation of annual losses versus premium paid (if applicable)?
Annual evaluation of changes in regulations and laws?
Annual evaluation of insurance industry trends?

Does the district keep abreast of federal, state, and local risk management laws and regulations? Do risk management employees attend federal, state and local organizational meetings and seminars? Is there a mechanism in place to share appropriate laws and regulations with all employees?
Has the district identified areas of exposure to loss and obtained comprehensive coverage?
Do property and casualty insurance cover all the district's buildings and contents at replacement value as determined through a property valuation program? How are policies updated for new construction or renovations? At what point does the construction contractor’s insurances end and district policies take over?
Is comprehensive general liability, auto liability and errors and omissions protection provided covering the district, members of the board, district officers and employees while acting in the discharge of their duties within the scope of their employment and/or under the direction of the board?
Does the district provide for workers' compensation insurance to cover all employees and volunteers of the district providing benefits as prescribed by law? Has the district explored the use of a workers’ compensation pool or a self-insurance program as a means for controlling costs?
Does the district carry physical damage coverage on selected vehicles owned or operated by the district?
Does the district carry boiler and machinery insurance covering boilers and such pressure vessels, air conditioning, and refrigeration units to such limits as determined through an equipment inventory? Are the inventories current? Are coverages adjusted each year after the inventory is taken? When was the last time the list of machinery and equipment was updated?
Is student accident insurance made available to all students and required of those students who engage in district-organized athletic events? Does the district pay for this coverage or are parents asked to pay for the coverage if they are able? If parents are asked to pay, how are the needs of economically disadvantaged students handled?

What employee fringe benefits are provided to employees, such as hospital and medical insurance, dental insurance, optical insurance, life insurance, long-term or short-term disability insurance to limits authorized by the board of trustees?
II.D. Risk Management Operations
Activities to Perform

II.D.1 Prepare a list of all of the district’s risk management initiatives including such things as preventive loss programs, safety training, emergency preparedness training and the like. Determine the target audience for each initiative, any documented results or performance measures used to evaluate the effectiveness of the initiative, and the person responsible for implementation.

Questions to Ask
Has the district established a preventive loss control program including :

Installation of sprinkler systems?
Installation of intrusion alarms and/or security systems with direct connection to a monitored location?
Installation of smoke alarms with direct connection to a monitored location?
Purchase of non-toxic smoke producing materials for school furniture, walls, and folding doors?
Construction of buildings with fire walls (determined by local building and fire codes) between rooms and school facilities that are vandal proof?
Installation of security fencing and lighting around buildings and ground?
Employment of security personnel?
Adjusting custodial schedules to provide greater adult coverage on school campuses?
Requesting neighbors to contact police about any suspicious activities?

Find out if certain risk management strategies are not in place because of the relative lack of local building codes in certain rural areas.
Does the district maintain complete inventories of all furniture, equipment, books and materials in the district? Is a duplicate copy of inventories kept in fireproof locations or an off-site storage facility? Are "as-built" building plans and specifications in fireproof vaults or flat files?
Does the fire department have maps of school building indicating the location of fence gates and utility cutoffs to facilitate pre-fire planning? Does the district maintain a minimum quantity of flammable liquids that are properly stored? Does the district make fire inspections of buildings with fire department personnel and maintain written records of action taken on inspection reports?
Are emergency rules and procedures prepared for school personnel? Are emergency plans annually evaluated? Are the names and phone numbers of emergency personnel posted at each building in the district?
How does the district discourage student vandalism and encourage respect for public property?

(CROSSOVER WITH COMMUNITY INVOLVEMENT)
Is safety training provided to employees to reduce worker's compensation claims?
Has the district established procedures for purchasing insurance coverage? Does the district obtain insurance coverage by accepting proposals for the best and most comprehensive coverage to meet its needs? Does the district consider various combinations of insurance coverage, such as, self-insurance, varying levels of deductibles and multi-year coverage?
How does the district normally evaluate insurance coverage, carriers, and self-insurance programs to determine best options for the district?
Does the district have established claims handling procedures?
Has the district established a catastrophic preparedness checklist including:

Notification of proper emergency organization (i.e.) Fire Department, Police Department?
Management, supervisory and maintenance emergency response teams for coordination of responsibilities?
Communication (such as an emergency telephone system) for notification of relatives and/or spouses?
Supply of emergency power (if applicable)?
Evacuation plan?
Information on media releases and who is authorized to speak on behalf of the district?
Notification of the insurance carrier?

Did the district back up the critical data and stored off site?
Has the district established insurance requirements for outside parties utilizing district facilities and for contractors? Is a certificate of insurance, a hold harmless and indemnification agreement, and/or endorsement to other party's liability policy showing the district as an addition to the insurance policy obtained from:

Individuals or organizations using or renting facilities or equipment?
Automobiles or buses hired by the district?
Contractors hired by the district?
Joint ventures with other public entities?

Is insurance coverage required for all contractors with periodic checks to ensure policies are in force? Has the district established a formal agreement for proper coverage for leased sites and facilities that requires tenants to obtain their own insurance and include the district as part of the "named insured"? Requires periodic checks to assure policies are in force?

III. Fixed Asset Management

Capital asset expenditure planning and control are critical to the long-term financial health of any school district. Generally, expenditures for capital assets require significant financial resources; decisions are difficult to reverse, and the investment affects district financial performance over a long period of time.
Staff to Interview

Superintendent
Assistant superintendent with assigned responsibility
Administrative staff with assigned responsibility
Campus-based personnel

Data Needs
Policies and procedures
Summary of fixed asset transactions and balances
Fixed asset inventory printout
III.A. Fixed Assets Inventory
Activities to Perform

III.A.1 Examine the fixed asset capitalization policies and procedures and determine whether policies mirror recommendations made in the Texas Education Agencies Financial Accountability System Resource Guide.

III.A.2 Using the district’s most recent fixed asset ledger, test the inventory by selecting a sample number of assets from the list and attempting to locate them in the district, and by physically identifying a select sample of fixed assets and matching them back to the fixed asset ledger. Note discrepancies and attempt to locate the reason for the differences.

III.A.3 Examine the most recent inventory of the district and determine the results, how overages or shortages were handled, how employees were held accountable for losses, and whether known thefts were reported to the proper authorities.

III.A.4 Examine the external audit reports and management letters for the last few years and note any references to fixed assets as well as any district responses and corrective actions that resulted.

Questions to Ask
Does the district have a recorded fixed assets inventory? What is the district's process for its fixed asset inventory? How does the district value the fixed assets? Are all the fixed asset acquisitions recorded in the inventory?
Do the fixed asset expenditures comply with budgetary, legal, grantor and contractual requirements? Did the district eliminate the assets from the inventory that were disposed of? Did the district record the sale proceeds properly? How does the district account for the assets that were acquired through lease purchase agreements? Did the district present the fixed assets properly in the financial statements?
How does the district take the inventory of its fixed assets? Manual? Automated? How often does the district take the inventory? How does the district ensure the accuracy of its fixed asset inventory? What is the district's capitalization threshold of its fixed assets inventory? What is the district's depreciation methodology for its fixed assets? How is the district preparing for GASB 34 and the reporting of depreciation on assets?

IV. Bond Issuance and Indebtedness

Bonds are contractual representations that a debt is owed by one party, the issuer, to one or more other parties, the investors. Bonds may be secured by lien on personal or real property or may be unsecured. The contract between the issuer and the investors is the bond indenture. The bond indenture specifies the: maturity date, interest payments, denominations of principal, call and or conversion provisions, security, the trustee, repayment plans, such as a bond sinking fund and special provisions.
Data Needs

Policies and procedures
Financial reports
Budget
Organization and staffing chart of the administrative department
Debt payment schedules
Analysis of the bonds payable
Board minutes

Staff to Interview
Assistant superintendent with assigned responsibility
Chief Financial Officer
Investment Officer
IV.A. Bond Indebtedness
Activities to Perform

IV.A.1 Examine the bonded indebtedness of the district and note the amounts of all outstanding bonds, the interest rates and debt service payment schedules on each issue, the amount of any unexpended bond proceeds, any outstanding investment instruments purchased with unexpended bond proceeds, and whether any of the bonds have been refunded. Examine if the district analyzed the economic costs of capital lease for real property in context of potential economic savings for issuance of bonds.

Questions to Ask
Does the district have procedures for refunding bonds? Has the district recently refund bonds? What were the interest savings from the refunding? Did the district improve its cash flow position as a result of the refunding?
Who watches the arbitrage provisions? In house? outside? Does the district comply with arbitrage provisions?
Does the district classify bonds payable properly between current and non-current? Does the district record the bonds in accordance with GAAP and sufficient notes are included in the financial statements?
IV.B. Bond Elections and Issuances
Activities to Perform

IV.B.1 Review recent bond election materials and planning documents, election results, and the like and diagram the process used by the district and any supporting organizations to provide information about and promote the bond to voters.

IV.B.2 Examine policies, procedures and processes used to issue the bonds once voters approved them.

Questions to Ask
Does the district have a board approved policy on issuing bonds? Does the district have procedures in place for issuing bonds? How did the district present its most recent bond proposal? How was it received?
What technical assistance did the district have during the bond issuance process? Who is the district's financial advisor?
Does the district comply with restrictions/requirements in the bond indenture?
Additional Resources
Banks to bonds: a practical path to sound investing. Comptroller of Public Accounts, Austin, Texas, October 2000.
This publication identifies 10 key steps in developing and monitoring a district’s investment programs, with additional resources identified at the end of each step.
College and university business administration. National Association of College and University Business Officers, Washington, D.C., 2000.
Although this publication primarily addresses financial and business officers of higher education institutions, anyone involved in administration will benefit from its expertise. This publication serves as an important tool in understanding best practices and building effective strategies.

I.C.1	Prepare a list of board-approved investments and determine, to the extent possible, how these strategies positively or negatively impact risk or the yield on investments.
I.C.2	Examine the depository contract and the related request for proposal and prepare a list of all of the major terms and conditions as they pertain to each bank account maintained by the district.
I.C.3	Prepare a chart listing the district’s bank accounts, whether they are interest bearing and the rate of interest paid, the average daily balance in each account for the last year, and the balance in the account at a point in time. In addition, list any accounts held with investment pools or other money market accounts that are also liquid.
I.C.4	Examine cash flow forecasts for the last year and review any documented procedures for creating the cash flow forecasts. Note the frequency of the forecasts, the level of detail captured by the forecasts and compare a sample of the forecasts with actual data to determine the degree of accuracy.
I.C.5	Examine bank reconciliation procedures and a sample of recent bank reconciliations for all district accounts and determine whether reconciliations are done in a timely fashion and whether the accounts are then reconciled to the accounting records of the district.

II.C.1	Examine all insurance policies and prepare a complete list of all insurance coverage including worker’s compensation as well as any insurance cooperatives, self-insurance, names of third party administrators, stop loss coverages and the like. For each category of coverage, describe the nature of the coverage, the basic limits of the coverage, and annual premiums.
II.C.2	Prepare a list of all employee benefit coverages such as health, dental, etc., and show the district’s contribution to the premiums versus the employee’s contributions for the variety of coverages for employee, employee and spouse, employee and dependent children, and the like.

III.A.1	Examine the fixed asset capitalization policies and procedures and determine whether policies mirror recommendations made in the Texas Education Agencies Financial Accountability System Resource Guide.
III.A.2	Using the district’s most recent fixed asset ledger, test the inventory by selecting a sample number of assets from the list and attempting to locate them in the district, and by physically identifying a select sample of fixed assets and matching them back to the fixed asset ledger. Note discrepancies and attempt to locate the reason for the differences.
III.A.3	Examine the most recent inventory of the district and determine the results, how overages or shortages were handled, how employees were held accountable for losses, and whether known thefts were reported to the proper authorities.
III.A.4	Examine the external audit reports and management letters for the last few years and note any references to fixed assets as well as any district responses and corrective actions that resulted.

IV.B.1	Review recent bond election materials and planning documents, election results, and the like and diagram the process used by the district and any supporting organizations to provide information about and promote the bond to voters.
IV.B.2	Examine policies, procedures and processes used to issue the bonds once voters approved them.