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Appendix 2

Sample TPR recommendation



(The following recommendation is adapted from TPR's performance review of the Texas Education Agency [TEA], published in May 1993.)

TEA should make all payments to school districts and regional education service centers through direct deposit.

Background

TEA makes all payments of state funds to school districts and regional education service centers (RESCs) through direct deposit. TEA creates a tape record of these payments and processes it with other direct-deposit tapes through the Comptroller's Claims Division. However, payments from federal funds are handled through payment vouchers and paid with state warrants.

Direct-deposit payments are wired to banks within two days after their receipt by the Comptroller's office; warrant issuance can take as long as three to five days after receipt by Claims. TEA mailed about 60,000 warrants to school districts and RESCs in fiscal 1992. This cost TEA about $12,000 in postage and one FTE to mail warrants and process warrant cancellations.

Payments of federal funds to school districts and RESCs total almost $1 billion per fiscal year. Currently, TEA earns interest of about $2 million per fiscal year on these federal funds while they are kept in the State Treasury.

However, as of September 1, 1993, several of TEA's major federal programs, such as the National School Lunch programs ($368 million per year), Handicapped State Grants and Job Opportunities and Basic Skills Training will be subject to the federal Cash Management Improvement Act of 1990 (CMIA). More programs will be subject as of September 1994. Under this act, states will be held liable for the interest earned on federal funds from the time they are deposited until the state warrants disbursing the funds are redeemed. In short, Texas will no longer be able to earn interest on federal funds subject to CMIA.

The Comptroller's office has implemented policies to increase the use of electronic funds transfer (EFT), or "direct deposit," in making state payments. Most state employees now are paid via direct deposit; state employee travel reimbursements now are also being made via EFT. State employees and vendors can continue to receive paper warrants if they can prove to the Comptroller's office that they cannot establish a qualifying account for electronic funds transfer. However, the benefits to vendors, employees and state agencies include convenience, security (no paper warrants subject to loss or theft), and savings (reduced postage costs and time savings).

Recommendation

TEA should implement an agency policy requiring that all federal payments to school districts and RESCs be made through direct deposit.

As per the Comptroller's claims processing rules, individual school districts and RESCs could be released from this requirement if they cannot establish an account that qualifies for electronic funds transfer. However, no school district or RESC has yet requested any "waiver" for the state EFT payments.

School districts and RESCs would receive their payments in two days versus three to five days. Moreover, direct deposits would eliminate the risk of payments being lost in the mail.

Fiscal impact

TPR estimates that direct deposit of all federal payments to school districts and RESCs would save the state about $12,000 in annual postage expenses. As a system is already in place for transmitting the state payments, using the same method to process federal payments should entail little or no additional costs.

Any loss of state interest on federal funds due to direct deposit will be negated by the fact that CMIA now requires this interest to be returned to the federal government. 

Although TEA staff still would have to handle warrants for other vendors, staff time could be reallocated by reducing the number of warrants to be mailed by TEA and by reducing the number of warrant cancellations for school district and RESC payments processed by TEA.


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