- A. Cash and Investment Management
- B. Risk Management
- C. Fixed Assets
- D. Bond Issuance and Indebtedness
The Texas Education Agency (TEA) defines "fixed assets" as purchased or donated items that are tangible in nature, have a useful life longer than one year, have a unit value of $5,000 or more, and may be reasonably identified and controlled through a physical inventory system. TEA's Financial Accountability System Resource Guide requires that assets costing $5,000 or more be recorded in a fixed-asset group of accounts. Under TEA guidelines, items costing less than $5,000 are recorded as an operating expense of the appropriate fund.
EPISD's fixed assets include its land, buildings, furniture, equipment and vehicles (Exhibit 6-25).
EPISD Fixed Assets
As Of August 31, 1997
Description Balance 8/31/97 Percentage Land and improvements $21,741,173 5% Buildings and improvements 333,475,304 73 Furniture and equipment *Lease-Purchase Assets 618,697 Furniture 987,907 Technology equipment 1,197,478 Vehicles 10,828,055 Other Assets 41,686,681 Total Furniture and Equipment 55,318,818 12 Construction in progress 45,280,770 10 Total $455,816,065 100%
* Lease-purchase assets include AS/400 computer system and five police vehicles.
As shown in Exhibit 6-25, 12 percent of the district's total fixed assets are furniture and equipment. EPISD's fixed-asset policy follows TEA guidelines requiring that assets costing $5,000 or more be recorded in a fixed-asset group of accounts. These guidelines also allow school districts to establish lower thresholds for control and accountability purposes for equipment costing less than $5,000. For example, computer and audiovisual equipment costing less than $5,000 does not have to be accounted for in the fixed-asset group of accounts. However, some districts maintain lists of such assets for control and accountability purposes.
During 1996, KPMG Peat Marwick LLP conducted a Manpower Efficiency Study that recommended that EPISD place accountants in each of its four regions to be responsible for establishing and maintaining fixed-asset records, accounting systems, and procedures. The study describes the purpose of these positions as follows:
The mission of this position is to establish and maintain accounting records and sound business practices at the region level. The major job responsibilities include: tracking fixed assets through accurate and timely fixed-asset accounting systems and procedures; maintaining subsidiary accounts on various programs and funding sources; and providing general accounting transactions....
The district has not filled these positions and does not have an employee who is primarily responsible for tracking fixed assets. An accounting manager in the Finance Unit and Budget Unit managers are jointly responsible for fixed assets, but their individual activities are not coordinated. The accounting manager performs limited fixed-asset accounting tasks, but because of other responsibilities, cannot effectively perform all the tasks necessary to properly monitor, track, and control fixed assets. For example, the accounting manager has called for physical inventories and reconciliations of physical assets to fixed-asset records, but these tasks have not been performed due to limited staff.
Each unit in the district is responsible for keeping detailed lists of its furniture and equipment. No one, however, performs formal reconciliations between these lists and the district's Fixed Asset System (FAS). Many of the assets on these lists are not recorded on FAS because they are worth less than $5,000, the threshold for entry on FAS. Again, under TEA guidelines, assets costing less than $5,000 can be recorded as an operating expense of the appropriate fund. However, many school districts establish and maintain accountability and control of certain assets costing less than $5,000 because of their nature and their potential to become damaged, lost, or stolen. Such items include audiovisual, computer, and telecommunications equipment.
The district's FAS manual establishes responsibilities for fixed-asset accounting and contains procedures governing the recognition, movement, and control of fixed assets within the district. However, without a staff position dedicated to implementing and overseeing the fixed-asset accountability process, the district cannot be sure that furniture, equipment, and other assets are properly tracked, controlled, and safeguarded. Inadequate control over physical assets could create an environment in which fixed-asset records are unreliable and physical assets are not properly accounted for.
The district's past experience emphasizes the importance of maintaining accurate, current fixed-asset records. Prior to fiscal 1995, no formal reconciliation was made between detailed fixed-asset listings and the fixed-asset group of accounts. At the end of fiscal 1995, the district conducted a fixed-assets inventory and identified all assets with a value greater than $5,000. These assets were posted to FAS; then the balance was compared to the balance in the fixed-asset group of accounts. Upon comparison, the district discovered that the fixed-asset group of accounts balance was greater than FAS by $69.4 million in the furniture, fixtures, & equipment category. To reconcile these figures, the district wrote off $10 million of the difference and added the remaining $59.4 million to a FAS category called "Furniture, Fixtures, & Equipment prior to 1993-94." Each year, the district writes off $10 million of the $59.4 million difference and has reduced the balance by $30 million since fiscal 1995. As a result, the "Other Assets" category in Exhibit 6-25 includes about $29.4 million of furniture, fixtures, & equipment that remains to be written off during fiscal 1999 through 2001.
If the district had not conducted the inventory and reconciled its records in 1995, the fixed-asset balance would still be overstated by at least $69.4 million. If the district does not establish physical controls and accountability over its fixed assets, a similar situation is likely to occur in the future.
Ysleta ISD, a smaller neighboring district, has a property control officer who tracks and controls fixed assets. The duties and responsibilities of a property control officer include the following:
- Develop and maintain a procedures manual that clearly defines the duties and responsibilities of each organization involved with fixed-asset control and accountability.
- Assist district staff members in the identification and control of the fixed assets assigned to their organization.
- Work closely with Purchasing, Finance, Warehouse, and other district units in identifying and tagging all fixed assets. Supervise, train, evaluate, and schedule other employees involved in the property control function.
- Assist the district in ensuring compliance with all provisions of the TEA Financial Accountability System Resource Guide pertaining to fixed-asset control and accountability.
- Assist external auditors in their annual audit of fixed assets.
- Maintain physical control of permanent fixed-asset records.
- Inspect and identify obsolete or damaged equipment prior to its removal from district premises.
- Plan for and conduct fixed-asset physical inventory on a periodic basis.
- Assist in developing automated systems of tracking fixed assets such as bar-coding technology.
Hire a property control officer to establish and maintain a districtwide fixed-asset control and accountability system.
EPISD should hire a property control officer to be responsible for the district's fixed assets. The officer should report to the executive director of Finance and should work with the accounting manager, budget unit managers, and appropriate school personnel to develop, improve, and maintain the district's fixed-asset control and accountability system.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The executive director of Human Resources in conjunction with regional executive directors and the executive director of Finance develop a job description for a property control officer. May 1999 2. The superintendent approves the job description and recommends to the board that a position be created for a property control officer. May 1999 3. The Personnel Administration director posts the opening for the property control officer outlining the required qualifications and responsibilities. May 1999 4. Regional executive directors and the executive director of Finance interview prospective candidates for the property control officer. June and July 1999 5. The executive director of Human Resources and the Personnel Administration director fill the property control officer position. August 1999 6. The property control officer assumes responsibilities. September 1999
Based upon information obtained from a neighboring school district, a property control officer's salary ranges from $25,000 to $35,000, based on experience and qualifications. Using a midpoint salary of $30,000 plus 16 percent benefits, the position would cost the district $34,800 per year.
Recommendation 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 Hire a property control officer to establish and maintain a districtwide fixed-asset control and accountability system. ($34,800) ($34,800) ($34,800) ($34,800) ($34,800)
Internal Audit has had no involvement in the verification of fixed assets in the furniture and equipment category. Furthermore, the issue was not even mentioned in the external auditor's "Letter Relating to Internal Control and Operating Procedures" for fiscal 1995 through 1997. Yet a review of controls designed to safeguard assets is an important internal audit function. The Internal Audit director told the review team that a full-fledged internal audit of the fixed-assets system has never been performed.
Require the Internal Audit Unit to review fixed-asset procedures, controls, and inventory records.
The Finance Unit's fixed-asset accounting manager should ask the Internal Audit Unit to incorporate reviews of fixed-asset accountability in its annual audit plan.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The executive director of Finance requests that the Internal Audit director include reviews of fixed-asset accountability in the annual audit plan. April 1999 2. The Internal Audit director includes a review of fixed-asset accountability in the audit plan. July 1999 3. Internal Audit verifies compliance with FAS policy and procedures. September 1999 and annually thereafter
This recommendation could be implemented with existing resources.