THE ATTORB~EY GENEWAL OF TEXAS

Mr.Vernon M.Arrell Opinion No. JM-1183 Commissioner Texas Rehabilitation Commission Re: Applicability of the 4900North Lamar Blvd. Austin, Texas 78751-2316 provisions of the Texas Internal Auditing Act, article 6252-5d, V.T.C.S., to the Texas Rehabilitation Commission (RQ-1869)

DearMr. Arrell:

you ask several questions about the application of the Texas Internal Auditing Act [hereinafter the act]. V.T.C.S. art. 6252-5d. The legislature passed the act inMay 1989, and itbecame effective September 1, 1989. H.B. 2728, Acts 1989, 71st Deg., ch. 787, at 3568.

You first ask whether anagency may have an internal audit program different fromtheprogram described in the act as long asthe agency's program reflects the intent of the act. Section 2of the actprovides inpart:

Thepurpose of thisAct isto establish guidelines foraprogram of internal auditing to assist agency administrators by furnishing independent analyses
. . .ofperformance in carrying out assigned responsibilities.

You suggest that theuse oftheword "guidelines" insection 2 indicates the legislature did not intend tomake the provisions ofthe actmandatory.

We disagree. Read asawhole, the act unambiguously indicates that the legislature intended an agency covered by the act to establish andmaintain aprogram that conforms to the requirements ofthe act. Incontrast to section 2, which merely states the general purpose of the act, the sections ofthe act that describe in detail the internal auditing program and its functions contain mandatory language. For instance, section 4states that each agency "shall establish a full-time program of internal auditing

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which shall include" an annual audit plan and audits of various systems and controls. Section 5 provides that an internal auditor shall be appointed, while section 6 lists the required duties of that auditor. Sections 8and 9 also contain mandatory language. Section 8 states that the program "shall conform" tovarious professional standards, and section 9 requires the state auditor to provide technical assistance and training opportunities to agency internal auditors.

Given the legislature's dominant use of mandatory language inthe implementing sections of the act and the detailed requirements inthe act fortheprogram and needed personnel, webelieve that acourt would conclude that an agency covered by the actmust establish and maintain a program that complies with the terms of the act as well
as its intent. Construing the act asmandatory is also consistent with a dictionary definition of "guideline" as an indication of future conduct. See Webster's Third New International Dictionary of the EngliSh Language (Unabridged) 1009 (1969); seealso Board of Educ. v. School Comm. ofAmesbury 452N.E.2d 302, 306 (Mass.App. Ct. 1983) ("guideline" implies some instruction for future conduct): Gov't Code S312.002(a) (wordsshall generally be given their ordinary meaning). The narrow anddetailed "guidelines" described above are mandatory and are drafted to
ensure agency action that complies with the act. Finally, construing the act asmandatory on orafter its effective date isconsistent with the 1988 legislative interim report that recommended passage of legislation requiring certain agencies to establish internal auditing programs with appropriate personnel and independence. See Governor's Task Force, Findings and Recommendations of the Accounting, Auditing and Financial Reporting Task Force 5, 10-11 (December 1988); see also Office of the State Auditor, Statewide Report on Internal Auditing: AReport to the Legislative Audit Committee 3-4 (May 1988) (major state agencies should establish internal audit programs).

You next askwhether anagencymust appoint a certified public accountant (CPA)or certified internal auditory (CIA)
as the internal auditor iftheposition isoccupied by an individual who isneither aCPAnor aCIA. Section 5of the actprovides as follows:

The governing board ofan agency or its designee, or the administrator ofan agency without a governing board, shall appoint
an internal auditor, who shall be either a

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certified public accountant or a certified internal auditor andwho shall have at least three years of auditing experience. The agency shall employ such additional professional and support staff as the agency administrator determines are necessary to implement an effective program of internal auditing.

youhave notmentioned andwe areunaware ofany other state statute describing the qualifications of anagency internal auditor, and thuswe interpret your question as meaning whether your agencymust appoint aCPA or CIA toperform the duties imposed onan internal auditor by the act.

Neither the terms of the act nor the legislative history of the act indicatewhether individuals employed as internal auditors for state agencies who are not CPAs or CIAs should continue in employment as state internal auditors after the effective date ofthe act. The effective date clause states only that the act takes effect on September 1, 1989. We interpret the absence of legislative guidance on this issue asan indication that state agencies
may continue such individuals in their employ on the internal audit staff unless otherwise prohibited. Nevertheless, section 5of the act does require acovered state agency to appoint aCPA or CIA asthe internal auditor, and other sections ofthe act require that certified auditor to carry out the responsibilities ofthe act. In particular, the certified auditor must develop the agency's annual audit plan and conduct agency audits inaccordance with the annual plan. V.T.C.S. art. 6252-5d, 96(2)-(3). Additional professional and support staffmaybe employed asdeemed necessary by the agency administrator to implement the required internal audit program. &L §5. Thus, while an agencymay continue in itsemploy as an internal auditor an individual who isneither aCPA nor aCIA asof September 1, 1989, neither the agency, itsdesignee, nor the agency administrator of an agency without a governing board may appoint that individual as the internal auditor to carry out the requirements of the act.

Your third question concerns section 6(l) of the act. Section 6(l) of the act requires the internal auditor to report directly to the agency's governing board or to the commission. You askwhether section 6(l) isconsistent with other laws and regulations governing the operation of state agencies. You do not provide us with any instances of inconsistency: norwerewe able to findany inthe statutes

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applicable to internal audits of the Texas Rehabilitation Commission. See. e.G 321.0131-321.0136; Hum: Gov't Code 55 321.005, 321.013, Res. Code 59 111.001-111.058; V.T.C.S. art. 4348e. Section 111.018 of the Human Resources Code requires the commissioner ofthe Texas Rehabilitation Commission tomake regulations governing personnel standards and to develop a career ladder program. Section 111.020 requires the commissioner to appoint thepersonnel needed to carry out agency functions. Neither of those sections, however, conflicts on the surface with section 6(l) of the act. Those sections merely enable the commissioner to supervise and promote the personnel required todo agency work, while the act authorizes an internal auditor to conduct independent reviews ofthework performed by such personnel to ensure that thework isperformed economically and efficiently.1

Your last question concerns section 6(6) of the act. Section 6(6) provides that the internal auditor shall be free of any operational or management responsibility that would impair the independent review of the agency's operations. you askwhether management orthe internal auditor alone orboth together are to decide when compliance with
aparticular responsibility would impair the auditor's independence. In the case of the Texas Rehabilitation Commission, we construe your reference tomanagement tomean the agency's commissioner as well as deputy or assistant commissioners orother executive administrators. Acts 1989, 71st Leg., ch. 1263, art. 11-68, at 5503 (provisions of the General Appropriations Act concerning the commission's key administrators).

Section 7ofthe act states that the internal auditor "mayconsult with the agency's governing board or commission, the governor's office, the state auditor, and other legislative agencies or committees concerning matters affecting duties and responsibilities under this Act." Section 6(6) of the act describes asone of the internal

1. Youdonotpose nor dowe address a situation in which a particular personnel standard conflicts with the duties imposed by the act onthe internal auditor. Furthermore, ifa situation of conflict does arise that concerns anoperational or management responsibility described in section 6(6) ofthe act, the internal auditor may choose to consult with the entities listed in section 7of the act.

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i

auditor's duties the obligation to be free of certain

responsibilities thatwould impair the independent review of agency operations.
Significantly absent fromthe list insection 7 is the agency administrator who isdefined in the act as the executive head of the agency. V.T.C.S. art. 6252-5d, § S(2). We conclude from this absence first, that the agency#s commissioner anddeputies orassistants may not decide when the internal auditor's compliance with an operational oramanagement responsibility would impair the independent review ofagency operations and second, that the internal auditor may not consult with those individuals in making that determination.2 The independent auditor may, if he chooses, consult with the entities listed in section 7of the act inmaking thedetermination, but the auditor is not required by that section todo so.3 This construction of the act effectuates the primary purpose of the act: the provision of unbiased reports to the agency's governing board or commission about all agency work, including the work performed by the agency's executive personnel. See V.T.C.S. art. 6252-5d, §§ 2 (purpose isto furnish independent analyses), 4(2) (requirement foraudits of administrative systems and controls), e(6) (requirement for independent reviews of U agency operations): see also Statewide Report on Internal Auditing: AReport to the Legislative Audit Committee 11-12 (internal audit groups should be located outside of the management functions subject to audit so that organizational status enhances independence).

2. The governing board of the Texas Rehabilitation Commission is composed of sixmembers appointed by the governor. Hum. Res. Code 91111.013. Our conclusion therefore is limited to multi-member boards and commissions composed ofappointed members, and we do not address the situation of an agency overseen by a single appointed or elected official or **by** aboard or commission of elected officials.

3. Section 8 of the act suggests that the internal auditor in making this determination may use various professional standards and codes, including the Certified Internal Auditor Code of Professional Ethics and the Standards for the Professional Practice of Internal Auditing.

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SUMMARY

The provisions of the Texas Internal Auditing Act are mandatory. The internal auditor appointed by an agency to carry out the actmust be acertified public accountant
or certified internal auditor. That auditor shall report directly to the agency's governing board or commission. That auditor isalso not required to consult with the executive head of the agency to determine when compliance with aparticular responsibility would impair the independent review of agency operations. Instead, the auditor may make the decision alone or consult with the agency's governing board or commission or certain other entities outside the agency.

-i IM MATTOX Attorney General of Texas

MARY KELLER First Assistant Attorney General

LouMCCREARY Executive Assistant Attorney General

JUDGE ZOLLIE STEAELEY Special Assistant Attorney General

RENEA HICKS Special Assistant Attorney General

RICK GILPIN Chairman, Opinion Committee

Prepared by Celeste A. Baker Assistant Attorney General

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