Education Agency
An Audit of the Financial Statements of the Permanent School Fund for the Fiscal Year Ended August 31, 1999
March 2000
Report Number 00-017
Overall Conclusion
The Permanent School Fund's (Fund) fiscal year 1999 financial statements are materially correct in accordance with generally accepted accounting principles. Our audit opinion dated January 14, 2000, will be included in the financial statement section of the Fund's Annual Report for Fiscal Year Ending August 31, 1999. We also reported that the Fund had no instances of noncompliance with certain provisions of laws and regulations and no weaknesses in internal controls that would significantly affect the Fund's financial statements.
Key Facts and Findings
The Fund has fully implemented our prior-year recommendation to collateralize deposits held by the custodian. To implement the recommendation, the Fund's management has established cash management arrangements with its new custodian. The other prior-year recommendation on reconciling the market values of securities at the individual security level is currently being implemented.
During our audit work, an issue for further study came to our attention. In fiscal year 1999, the market value of the Fund's investments increased by $3.3 billion (20.2 percent) from $16.3 billion to $19.6 billion. However, the Fund's interest and dividend income, which it must distribute to the Available School Fund in accordance with the Texas Constitution, decreased by $28.9 million to $662 million. Without a constitutional change allowing the Fund to use a total-return spending rule instead of distributing only its interest and dividend income, it will be difficult for the Fund to maintain the purchasing power of its distributions to the Available School Fund while increasing the market value of its principal.
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