TO THE ADMINISTRATOR ADDRESSED:
SUBJECT: Option to Change the Start Date of the Fiscal Year
House Bill (HB) 98 of the 76th Legislature (1999) enacted an option that allows districts to change the start date for the fiscal year for financial management activities. According to HB 98, school districts may choose a fiscal year that begins on either July 1st or September 1st of each year. A school fiscal year that begins on July 1st will end on June 30th of the next calendar year. In lieu of making a change in this area, districts may continue the current fiscal year reporting period that begins on September 1st and ends on August 31st of the next calendar year.
It is important to note that the effective date of the bill is September 1, 2001. Accordingly, budgetary planning activities for school year 2001-2002 (fiscal year 2002) are impacted by HB 98 for those school districts that decide to implement a fiscal year beginning on July 1st of 2002. Districts may delay implementation of a fiscal year start date of July 1st to any future fiscal year.
In school year 2001-2002, the first year that implementation is permitted, the financial accounting period will span ten months in those districts that opted to change, beginning September 1, 2001 and ending June 30, 2002. However, certain aspects of financial management and reporting will require adjustments in the first year of implementation. These adjustments are required since the state and federal fiscal years did not change, and the administration of state and federal regulatory activities, as well as state funding calculations under the Foundation School Program, require financial data on a 12-month reporting basis. This means that all financial data reported for the first year of implementation, except for the annual financial report, must be based on a twelve-month reporting period, as follows:
- Budget financial data reported through the Public Education
Information Management System (PEIMS) for the year of
implementation must be on a twelve-month basis for the period
beginning September 1st and ending August 31st (two months
beyond the July 1st start date of the following fiscal year);
- Actual financial data reported through the PEIMS collection
system must be on a twelve-month basis for the period beginning
September 1st and ending August 31 (two months beyond the July
1st start date of the following fiscal year), including the
actual financial accounting record type 032, and the shared
services arrangement actual record type 033. The independent
auditor will be required to apply procedures to the district's
processes involving the aggregation and reporting of actual
financial data on a twelve-month basis, in accordance with
Section 44.008(b), Texas Education Code. As a result of this
special reporting requirement, the twelve-month data
representing actual financial data will match the reporting
period for twelve-month data reported for budget financial data;
- Financial data reported to the public for tax rate decision-making processes must be on a twelve-month basis for the period beginning September 1st and ending August 31st to support the calculation of a tax rate for the fiscal year that the start date has been changed to July 1st. This requirement is necessary to determine a tax rate sufficient to maintain the same level of maintenance and operations revenue and pay debt service for the fiscal year that the start date has been changed to July 1st and ending June 30th. For example, it is anticipated that the setting of a debt service tax rate for the ten-month period ending June 30th may require levy of an additional amount sufficient to pay the July and/or August payment(s) in the next fiscal year;
It is also to be noted that compliance with the legal requirements
in Subchapter A, Chapter 44, Texas Education Code, is further
complicated by the lack of a certified taxable value when the
combined budget and tax rate notice is published in the newspaper
prior to adopting a budget no later than June 30th for districts
that change their fiscal year start date to July 1st. This will
require publication of a second notice in the newspaper prior to
setting a tax rate after the certified taxable value is provided to
the district;
- Financial data prepared for the board of trustees for legal
budget adoption purposes will be on a ten-month basis for the
fiscal year beginning September 1st and ending June 30th, and
must be supplemented with additional financial data prepared on
a twelve-month basis for information purposes and to support
data reported to the public for tax rate decision-making
processes; and
- Financial data reported in the annual financial report will be prepared on a ten-month basis in all financial statements and exhibits for the fiscal period beginning September 1st and ending June 30th, and will include an additional schedule containing supplemental financial data reporting tax collections for the twelve-month period beginning September 1st and ending August 31st.
For all subsequent fiscal year periods following the first year of implementation of a July 1st fiscal year start date, all financial data will be reported on a twelve-month basis spanning July 1st through June 30th. Please note that additional considerations may affect a school district's decision to implement a change in its fiscal year start date, including the installation of new financial accounting software and/or significant problems in internal financial management activities such as general ledger reconciliation problems. Some school district officials have indicated that the elimination of accrued payroll liabilities will be the primary benefit of a change in the fiscal year start date; however, it is important to understand that this change will not eliminate all accrued payroll liabilities (the exact impact on accrued payroll liabilities can be clarified by visiting with the district's independent auditor). Prior to making this change, it is also recommended that the district's administration advise the board of trustees and have the board ratify administration's proposed decision to change the start date of the fiscal year. District administration should also inform the board of trustees about the impact this change will have on various administrative processes, such as the budget development calendar. It will also be important to monitor any activity during the upcoming legislative session that may impact certain aspects of this financial management issue. Lastly, it is recommended that the district consult with its independent auditor before making a change in the fiscal year start date. If you have any questions, please contact the Division of School Financial Audits at (512) 463-9095.
Sincerely,
Tom Canby
Managing Director for School Financial Audits
For further information on this topic, contact the Division of School Financial Audits at (512) 463-9095.