Audits and Reporting Requirements

PURPOSE: This rule establishes procedures for the audit and reporting requirements of the Missouri Empowerment Scholarship Accounts Program (the program) and specifies responsibilities of the treasurer, his or her staff, educational assistance organizations, parents, beneficiaries, and any third party designated by the treasurer to carry out services under the program, and is intended to ensure the program conforms with state statutes and promulgated rules. The treasurer has authority to establish standards and reporting requirements for audits performed on certified educational assistance organizations. This rule sets forth requirements to be met directly by the certified educational assistance organizations and the standards for the auditing and financial reporting. (1) Definitions. (A) Existing Missouri Definitions. The following terms, as used in this rule, are defined in section 135.712, RSMo: educational assistance organization, parent, program, scholarship account, taxpayer. The following terms, as used in this rule, are defined in section 166.700, RSMo: curriculum, district, private school, qualified school, qualified student. The following term, as used in this rule, is defined in section 135.715, RSMo: qualifying contribution. (B) Additional Definitions. The following definitions shall also apply to the following terms as they are used in this rule: 1. “Division” means the treasurer’s office division of program administration; and 2. “School year” means the period that commences on the first day of July and ends on the thirtieth day of the following June. (2) Audits. (A) Annual Audited Financial Statements. 1. Annual Audited Financial Statements. The annual financial statements audit required by section 135.714, RSMo, shall be prepared by a certified public accountant and submitted to the treasurer within six (6) months after the close of the educational assistance organization’s fiscal year and shall include the following information: A. The name and address of the educational assistance organization; B. Annual financial accounting to show— (I) One hundred percent (100%) of its revenues from interest or investments is spent on scholarship accounts; (II) At least ninety percent (90%) of its revenues from qualifying contributions is spent on scholarship accounts; and (III) Marketing and administrative expenses do not exceed the thresholds established in section 135.714.1(5)(c), RSMo; and C. An auditor’s report on program compliance, based on a random sampling of accounts, with regard to use of student account funds for eligible program expenses. 2. Requirements for Educational Assistance Organizations. A. The educational assistance organization is responsible for preparing and providing financial information to be included in the annual financial statements audit. The educational assistance organization shall maintain adequate accounting records for that purpose. B. The educational assistance organization shall engage an independent auditor to conduct the audit. The treasurer does not recommend, select, or approve the educational assistance organization’s auditor or the auditor’s fee, except as provided in 15 CSR 50-5.040(2)(A)2.C. The educational assistance organization is responsible for fulfilling all contractual obligations with the auditor, including payment of all earned fees. C. The educational assistance organization shall file a copy of the completed audit report with the treasurer within six (6) months after the close of the educational assistance organization’s fiscal year. If any audit report fails to comply with promulgated rules, the treasurer shall notify the educational assistance organization and specify the defects. If the specified defects remain uncorrected after ninety (90) days from the date of the treasurer’s notice to the organization, or if a copy of the required audit report has not been received by the treasurer within the specified time, the treasurer shall make, or cause to be made, the required audit at the expense of the educational assistance organization. 3. Standards for Auditing and Financial Reporting. A. The independent auditor shall meet all requirements of Chapter 326, RSMo, and the code of professional ethics and rules of conduct promulgated by the Missouri State Board of Accountancy. B. The audit shall conform to generally accepted auditing standards (GAAS) promulgated by the Auditing Standards Board of the American Institute of Certified Public Accountants. C. All audits shall conform to the standards (hereafter referred to as “generally accepted government auditing standards”) established by the Comptroller General of the United States and applicable to financial audits of government entities, programs, activities, and functions. D. The contents of the financial statement audit report shall be presented in conformity with generally accepted accounting principles. If the financial statement audit report is not presented in conformity with generally accepted accounting principles, then the independent auditor shall make appropriate audit report modifications and disclosures. The auditor shall certify the report is free of material misstatements. E. Nothing in the rules promulgated for audits of certified educational assistance organizations shall be construed as restricting, limiting, or relieving the independent auditor of his or her professional judgment or responsibility. (B) Use of Account Funds. 1. Account funds may only be used for the qualified student for whom the account was awarded. 2. Use of account funds shall be limited to qualified expenses as defined in 166.705.1(4), RSMo. 3. The treasurer or a third party with whom the treasurer contracts shall establish and maintain a database of approved vendors and expenses. Similar expenses by similarly situated account holders shall be treated in the same manner. This section does not create authorization for an account holder to expend funds in a manner not permitted by statute. 4. Use of account funds must be substantiated by documentation, in a format acceptable to the treasurer. 5. The treasurer reserves the right to make final determination with regard to eligible use of account funds. (C) Reviews of Accounts. 1. Procedures for conducting exams on use of accounts funds. The treasurer may conduct or contract for review of expenses pursuant to this section to ensure program funds are used only for qualified expenses, and shall request periodic reports on the use of account funds from the educational assistance organization or a designated third party. 2. Procedures for conducting random reviews of accounts. The treasurer may randomly, through an in-person site visit or an electronic request, sample the accounts held by an educational assistance organization. The sampling of accounts may include but is not limited to a review of student records and expenses, tracking mechanisms for reporting student outcomes, and contribution tracking. 3. Procedures for conducting quarterly reviews of accounts. The treasurer shall provide to the educational assistance organization quarterly report forms for the purpose of reporting program performance and financial data. The educational assistance organization is responsible for preparing and submitting the quarterly program reports to the treasurer within thirty (30) days after each quarter’s end. The treasurer shall review quarterly program reports within thirty (30) days of receipt and conduct any follow-up or remediation actions as necessary. 4. Procedures for conducting annual reviews of accounts. The treasurer shall review the Annual Statutory Audit submitted by the educational assistance organization for compliance with program requirements and performance. (D) 2023-2024 Audit Required by Statute. Beginning with the 2023-2024 school year, the treasurer shall conduct or contract for annual audits of Missouri Empowerment Scholarship Accounts to verify compliance with statutory requirements of the program. This audit shall conform to the standards for auditing of governmental organizations, programs, activities, and functions established by the comptroller of the United States. (3) Reporting Requirements. (A) Annual Reports. The following annual reports, unless otherwise specified, shall be due on August 1, for the period of July 1 through June 30 immediately preceding: 1. Results from annual state achievement tests or nationally norm-referenced tests for grades requiring testing under the statewide assessment system set forth in section 160.518, RSMo; 2. Student information that would allow the treasurer to aggregate data by grade level, gender, family income level, and race; 3. Results from the annual parental satisfaction survey, including information about the number of years the parent’s child has participated in the program; 4. Rates of high school graduation; and 5. To the extent the data is provided or otherwise available to the educational assistance organization, rates of college attendance and college graduation for participating students. (B) Monthly. Remittance Report. An educational assistance organization shall submit a remittance report to the treasurer no later than the 15th of each month following a month in which the educational assistance organization received a contribution from a taxpayer. The remittance report shall include 1) a listing of all donors for which the educational assistance organization has submitted the donor’s documentation to claim the credit; and 2) four percent (4%) of the total qualifying contributions received by the educational assistance organization for that calendar month to be deposited in the Missouri Empowerment Scholarship Accounts fund. Money shall be remitted by Automated Clearing House (ACH) transfer or check made payable to the treasurer and delivered to the division when the report is filed. (C) Quarterly. Quarterly Report. An educational assistance organization shall submit a quarterly report, which shall include the number of scholarships awarded, the dollar amount of scholarships awarded, the dollar amount of funds raised for tax credits, and any other information deemed necessary by the treasurer. (D) Statutory Report. On July 1, 2027, the treasurer shall issue a report on the state of the program. The report shall include information regarding the finances of the educational assistance organizations and educational outcomes of qualified students. This report shall be posted on the treasurer’s official website. (E) Other Reporting. The following information shall be submitted by August 1, regardless of an educational assistance organization’s fiscal year, for the preceding calendar year, unless granted an extension by the treasurer: 1. The name and address of the educational assistance organization; 2. The name and address of each qualified student for whom a parent opened a scholarship account with the organization; 3. The total number and total dollar amount of contributions received during the previous calendar year; 4. The total number and total dollar amount of scholarship accounts opened during the previous calendar year; 5. The total dollar amount spent on marketing and administrative expenses during the previous calendar year; 6. The total dollar amount remitted to the division for administrative costs during the previous calendar year; and 7. The total dollar amount of revenue from interest or investments during the previous calendar year. (4) Online Anonymous Fraud Reporting Service. Beginning July 1, 2022, the treasurer shall create an online anonymous fraud reporting service to accept any reports of fraud pertaining to the program. Such anonymous fraud reporting service shall be located on the treasurer’s official website and shall transmit anonymous reports to the treasurer via web interface. (5) Dedicated Anonymous Telephone Hotline. Beginning July 1, 2022, the treasurer shall have a dedicated anonymous telephone hotline for reporting any fraud related to the program. Such hotline shall be toll-free and shall not permit the tracing of the caller. (6) Test Results and Graduation Rates. Beginning July 1, 2025, the treasurer shall annually post on the treasurer’s official website the following information: (A) Student test results and associated learning gains. These findings shall be aggregated by the students’ grade level, gender, family income level, number of years of participation in the scholarship program, and race; and (B) Graduation rates. (7) Severability. If any provision of this rule, or the application of it to any person or circumstance, is determined to be invalid by a court of competent jurisdiction, such invalidity shall not affect other provisions of this rule which can be given effect without the invalid provision or application, and to that end, the provisions of this rule are severable. AUTHORITY: section 135.719, RSMo Supp. 2021.* Emergency rule filed April 11, 2022, effective April 25, 2022, expired July 30, 2022. Original rule filed Jan. 26, 2022, effective July 30, 2022. *Original authority: 135.719, RSMo 2021.