Public Funds Investment Act and Higher Education Institution Investment Reporting Requirements in Accordance with Article III, Section 6, Rider 5

The PFIA's definition of "state agency" includes:

• All offices, departments, commissions, boards, or other agencies that are part of any branch of state government.
• Institutions of higher education (which include state universities and community colleges).
• Nonprofit corporations acting on behalf of any of these entities.

Certain entities or investments are exempted from the requirements in Texas Government Code, Section 2256.004, Subchapter A of the PFIA. This includes the requirement for obtaining compliance audits.

The SAO requires that every state agency subject to the compliance audit provisions of the PFIA provide to the SAO by January 1 of each even-numbered year the following information about its most recent compliance audit:

• A detailed description of all instances of noncompliance that were identified as a result of the compliance audit procedures performed, regardless of the assessed materiality of any such noncompliance, and, if available, all responses to any audit findings that agency management provided to its auditor.
• NOTE: It is not acceptable to limit this communication to only those instances of noncompliance (1) for which noncompliance could have a direct and material effect on the determination of financial statement amounts or (2) that auditors are required to report under Government Auditing Standards for financial statement audits.
• Submit to SUBMITREPORTS@sao.texas.gov a copy of the report issued by the independent auditor or the entity’s internal auditor that results from the auditor’s performance of the required compliance audit defined in the PFIA.
• NOTE: The PFIA does not specify the applicable professional standards under which private auditors or an entity’s internal auditors must perform the required compliance audit. Therefore, each entity and its compliance auditor should agree on suitable standards under which the audit will be performed. The auditor’s report should clearly state the standards (for example, attestation standards issued by the AICPA or internal auditing standards issued by the Institute of Internal Auditors) under which the audit has been performed.

Applicable Higher Education Institutions must complete the following by December 31:

• Submit to the SAO at SUBMITREPORTS@sao.texas.gov:
• Annual Tracking Report for Investment Reporting by Higher Education Institutions
• The tracking report also requests information from all higher education institutions that are subject to Subchapter A of the PFIA demonstrating that the institution’s governing board has performed an annual review of its investment policy required by Texas Government Code, Section 2256.005(e).
• Annual Investment Report (including Deposits) in the format prescribed by the SAO
Annual Investment Report (Including Deposits) - for higher education institutions
Annual Investment Report (Including Deposits) - for higher education institutions
Explanation of terms used on the Annual Investment Report (Including Deposits) - for higher education institutions
• To the greatest extent practical, the overall market value of investments and deposits reported in the Annual Investment Report (Including Deposits) should agree with the amounts reported in the institution's final financial statements for the fiscal year.
• Post the following to the public facing website:
• Annual investment reporting requirements prescribed by the SAO.
• Quarterly investment reports prescribed by Rider 5.
• Current investment policy.
• Institutions should be aware that the PFIA, (Texas Government Code, Section 2256.005(e)) requires the institution’s governing body to review its investment policy and investment strategies at least annually. The SAO’s Annual Tracking Report form requires that each institution list the date of the last policy update or provide the Web site location that documents when the last policy update occurred.
• Responses to the following three investment questions (institutions may present this information on the same Web page as the Annual Investment Report form or on a separate Web page).

1. Does the institution employ outside investment advisors or managers and, if so, who are they (provide individual or firm name and address)? Do the outside investment advisors or managers have the authority to make investment decisions without obtaining prior approval?

   NOTE: Institutions should include all consultants and “separately managed account” portfolio managers (in which the underlying investments are wholly owned by the institution) in this disclosure.

   Institutions that, in addition, choose to disclose information about their participation in various forms of “commingled funds” should distinguish that information from the required listing of “separately managed” investment accounts. In general, commingled funds represent pooled investments in which multiple investors contribute money to the fund and own a share of the pool but do not own the individual investments. This structure could include the various pooled investment funds managed by Commonfund, as well as “alternative investments” such as hedge funds and limited partnerships that invest in private equity, real estate, or other assets.

2. Does the institution use soft dollar, directed brokerage or directed commission, commission recapture, or similar arrangements (these arrangements typically involve using brokerage commissions as a means of paying for other related investment services through credits of a portion of brokerage commissions paid rather than through direct payments, or using selected brokers who will rebate a portion of commissions they receive on trades for the investor)? If the answer to this question is yes, the institution must summarize briefly the guidelines that govern the use of such arrangements.
3. Is the institution associated with an independent endowment or foundation? If the answer to this question is yes, the institution must provide contact information (name and address) for the individual(s) who manage the independent endowment or foundation. The institution must also provide, if available, the market value of the endowment's or foundation's investments.