All public schools are required to have an annual audit conducted by a certified public accountant and to file an annual audit report with the Texas Education Agency (TEA). Although most audits do not result in the disclosure of audit findings, some schools face the prospect of having to address findings of noncompliance and weaknesses in internal control. In some instances, these issues are labeled as material or significant and include questioned costs. While most school boards will not question the independent auditor and approve the annual audit report, a more prudent course of action is for the board and school administrators to question the substance and veracity of the independent auditor's finding(s) to ensure that the resulting TEA action is well founded. However, in the event that the board approves the annual audit report, this does not mean that the school does not have any other course of action but to accept the TEA's action. In truth, the board should disapprove the annual audit report if it disagress with the independent auditor's finding and include a written statement with the certificate of board citing its disagreement with the finding as the reason for its disapproval of the annual audit report.
Pursuant to §___.405, Management decision, of Office of Management and Budget Circular No. A-133, Audits of States, Local Governments, and Non-Profit Organizations, the TEA is required to render a management decision concerning findings pertaining to federal awards. In its management decision, the TEA is required to:
Pursuant to §___.405, Management decision, of Office of Management and Budget Circular No. A-133, Audits of States, Local Governments, and Non-Profit Organizations, the TEA is required to render a management decision concerning findings pertaining to federal awards. In its management decision, the TEA is required to:
- Clearly state whether or not the audit finding is sustained,
- The reasons for the decision,
- The expected action to repay disallowed costs, make financial adjustments, or take other action, and
- A description of any appeal process available to the school.
Additionally, if the school has not completed corrective action, the TEA should provide a timetable for follow-up.
Prior to issuing its management decision, the TEA may request additional information or documentation from the school, including a request for auditor assurance related to the documentation, as a way of mitigating disallowed costs. This latter authority is important for public schools to know in the event that they disagree with an independent auditor's finding and wish to have their disagreement heard and considered by the TEA prior to its rendering a management decision.
In the event that the TEA does not request additional information, the school should be aware that the TEA may require a refund of the amount questioned by the independent auditor pursuant to Section 74.62(a)(2) or 80.43(a)(2) of Title 34 of the Code of Federal Regulations (34 CFR 74.62(a)(2)/80.43(a)(2)). However, pursuant to 34 CFR 74.62(b) or 80.43(b) and 76.783(a)(1), the school may have an opportunity for a hearing or an appeal of an enforcement action ordering the repayment of misspent or misapplied Federal funds in accordance with a final TEA audit resolution determination.
As always, every school should make a good faith effort to address auditor requests for information in a timely manner. This includes maintaining an honest and open dialogue with the independent auditor so that concerns and potential issues can be appropriately addressed and misunderstandings may be avoided. However, in the event that the school and its independent auditor simply cannot agree on the basis or substance of a finding, the school should be aware that it has a legal avenue that it may pursue to address its concerns.
Schulman, Lopez & Hoffer, LLP
By Ramon Medina
