An Audit Report on Certification of the Permanent School Fund's Bond Guarantee Program for Fiscal Year 2011 Page: 1 of 7
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tate An Audit Report on
editor's Certification of the Permanent School Fund's
ffice Bond Guarantee Program for Fiscal Year 2011
John Keel, CPA
State Auditor
April 24, 2012
Members of the Legislative Audit Committee:
The State Auditor's Office certifies that, for the fiscal year ended August 31, 2011, the amount of school
district bonds guaranteed by the Permanent School Fund's (Fund) Bond Guarantee Program (Program) was
within all three limits applicable to the Program. As of August 31, 2011, the total principal of the 2,536
outstanding bond issues guaranteed by the Program was $52.7 billion (see the attachment to this letter for a
summary of the Program's activity during fiscal year 2011). Also as of that date, the bond guarantee
capacity of the Program under the State Board of Education (Board) limit was $74.4 billion, and the Board
held in reserve $3.7 billion of that capacity. The bond guarantee capacity under the Internal Revenue
Service (IRS) limit was $117.3 billion.
The statutory limit prescribed by Texas Education Code, Sections 45.053(a) and (d), protects the Fund by
minimizing the risk of loss to the Fund. The Board's rules
set another limit by allowing the Board to hold guarantee objective, Scope, and Methodology
capacity in reserve, as permitted by Texas Education Code, The objective of this audit was to determine whether
Section 45.0531(a), which the Board may use to award the total amount of school district bonds guaranteed
by the Permanent School Fund's (Fund) Bond
guarantees to school districts with emergencies that require Guarantee Program is within applicable limits.
renovation or replacement of school facilities. IRS Notice The scope of this audit covered the Fund's valuation,
2010-5 issued on December 16, 2009, establishes a third all bonds guaranteed the Fund during fiscal year
2005 2011, and the controls related to the guarantee and
limit, which is intended to prevent reductions in federal tax recording processes.
receipts due to bond arbitrage (issuing tax-exempt bonds The audit methodology included analyzing investment
data obtained from the Texas Education Agency and
for the purpose of investing the proceeds at higher rates bond data originating at the Municipal Advisory
than the rates paid on tax-exempt bonds). Council, as well as information gathered during
interviews.
The guarantee saves school districts money by enhancing Audit fe work was co nducted thi perform dance
their bond ratings to the highest possible rating. Without audit in accordance with generally accepted
the guarantee of this Program, school districts would need government auditing standards. Those standards
require that we plan and perform the audit to obtain
to (1) purchase private bond insurance or (2) pay higher sufficient, appropriate evidence to provide a
interest rates on the bonds they sell. reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the
evidence obtained provides a reasonable basis for our
The guarantee approval process complies with state laws. findings and conclusions based on our audit
objectives. The following staff of the State Auditor's
The bond guarantee approval process is adequately Office performed the audit:
designed and operates effectively to comply with state laws cP o eCaton, CPA, CISA, CIDA, CFE
and regulations. Before a guarantee application is . Michelle DeFrance, MAcy, CPA
recommended for approval, personnel within the Program * Mike Apperley, CPA (Quality Control Reviewer)
review several sources to determine whether the school * Verma Elliott, MBA, CPA, CIA, CGAP (Audit
district is financially sound. They then verify guarantee Manager)
eligibility and prioritize applications according to rules in
Title 19, Texas Administrative Code, Section 33.65 (19 TAC 33.65).
SAO Report No. 12-029
Robert E. Johnson Building Phone: (512) 936-9500
1501 North Congress Avenue P.O. Box 12067 Fax: (512) 936-9400
Austin, Texas 78701 Austin, Texas 78711-2067 Internet: www.sao.state.tx.us
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Texas. Office of the State Auditor. An Audit Report on Certification of the Permanent School Fund's Bond Guarantee Program for Fiscal Year 2011, report, April 2012; Austin, Texas. (https://texashistory.unt.edu/ark:/67531/metapth517878/m1/1/: accessed June 24, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu; crediting UNT Libraries Government Documents Department.