Court Opinion

ID: 4130286
Source: CourtListenerOpinion
Date Created: 2017-02-18 01:02:31.744786+00
Date Added: 2024-06-11T14:34:00.329874
License: Public Domain

THE   ATTORB~EY         GENEWAL
                       OF  TEXAS

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

Dear Mr. 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 in May    1989,
and it became effective September 1, 1989. H.B. 2728, Acts
1989, 71st Deg., ch. 787, at 3568.

     You first ask whether an agency may have an internal
audit program different from the program described in the
act as long as the agency's program reflects the intent of
the act. Section 2 of the act provides in part:

           The purpose of this Act is to establish
        guidelines for a program of internal auditing
        to assist agency administrators by furnishing
        independent analyses . . . of performance  in
        carrying out assigned responsibilities.

You suggest that the use of the word "guidelines" in section
2 indicates the legislature did not intend to make the pro-
visions of the act mandatory.

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

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Mr. Vernon M. Arrell - Page 2     (JM-1183)

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 8 and 9 also
contain mandatory  language.   Section  8 states that the
program "shall conform" to various 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 in the implementing sections of the act and the
detailed requirements in the act for the program and needed
personnel, we believe   that a court would conclude that an
agency covered by the act must establish and maintain         a
program that complies with the terms of the act as well
as its intent.    Construing the act as mandatory      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    (Un-
abridged) 1009 (1969); see also Board of Educ. v. School
Comm. of Amesbury   452 N.E.2d 302, 306 (Mass. App. Ct. 1983)
("guideline" implies some instruction for future conduct):
Gov't Code S 312.002(a)     (words shall generally    be given
their ordinary meaning).     The narrow and detailed    "guide-
lines" described   above are mandatory    and are drafted    to
ensure agency action that complies with the act.       Finally,
construing the act as mandatory on or after its effective
date is consistent 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:       A Report   to the
Legislative Audit Committee     3-4 (May 1988)   (major state
agencies should establish internal audit programs).

     You next ask whether an agency must appoint a certified
public accountant (CPA) or certified internal auditory (CIA)
as the internal auditor  if the position  is occupied by an
individual who is neither a CPA nor a CIA. Section 5 of the
act provides as follows:

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

                                P. 6235
Mr. Vernon M. Arrell - Page 3     (JM-1183)

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

you have not mentioned and we are unaware of any other state
statute describing the qualifications of an agency   internal
auditor, and thus we interpret your question      as meaning
whether your agency must appoint a CPA or CIA to perform the
duties imposed on an internal auditor by the act.

     Neither the terms of the act nor the legislative
history of the act indicate whether 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 of the 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 as an indication that state agencies
may continue   such individuals    in their employ on the
internal audit staff unless otherwise prohibited.  Neverthe-
less, section 5 of the act does require a covered       state
agency to appoint a CPA or CIA as the internal auditor,   and
other sections of the act require that certified auditor to
carry out the responsibilities  of the act. In particular,
the certified auditor must develop the agency's annual audit
plan and conduct agency audits in accordance with the annual
plan. V.T.C.S. art. 6252-5d, 9 6(2)-(3). Additional profes-
sional and support staff may be employed as deemed necessary
by the agency administrator     to implement the required
internal audit program. &L § 5. Thus, while an agency may
continue in its employ as an internal auditor an individual
who is neither  a CPA nor a CIA as of September 1, 1989,
neither the agency,  its designee, nor the agency adminis-
trator 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 ask whether section 6(l) is consistent with
other laws and regulations governing the operation of state
agencies.   You do not provide us with any instances       of
inconsistency: nor were we able to find any in the statutes

                                P. 6236
Mr. Vernon M. Arrell - Page 4    (JM-1183)

applicable to internal audits of the Texas Rehabilitation
Commission.    See. e.G    Gov't Code 55 321.005,     321.013,
321.0131-321.0136;   Hum:   Res.    Code   59 111.001-111.058;
V.T.C.S. art. 4348e. Section 111.018 of the Human Resources
Code requires the commissioner    of the Texas Rehabilitation
Commission to make regulations governing personnel standards
and to develop a career ladder program.       Section   111.020
requires the commissioner to appoint the personnel 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 to do agency
work, while the act authorizes       an internal auditor to
conduct independent reviews   of the work performed by such
personnel to ensure that the work is performed    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  opera-
tions. you ask whether management or the internal auditor
alone or both together are to decide when compliance     with
a particular   responsibility  would  impair  the   auditor's
independence.   In the case of the Texas Rehabilitation
Commission, we construe your reference to management to mean
the agency's   commissioner as well as deputy or assistant
commissioners or other 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 7 of the act states that the internal auditor
"may consult with the agency's governing    board or commis-
sion, 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 as one of the internal

     1. You do not pose nor do we address a situation       in
which a particular personnel    standard conflicts   with the
duties imposed by the act on the internal auditor.    Further-
more, if a   situation of conflict  does arise that   concerns
an operational or management    responsibility  described   in
section 6(6) of the act,  the internal auditor may  choose  to
consult with the entities listed in section 7 of the act.

                                P. 6237
    Mr. Vernon M. Arrell - Page 5       (JM-1183)
i

    auditor's duties the obligation    to be free of certain
    responsibilities that would impair the independent review of
    agency operations.

            Significantly absent from the list in section           7 is
    the agency administrator who is defined 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       and deputies    or assistants    may not
    decide when the internal auditor's             compliance    with an
    operational or a management responsibility would impair the
    independent review of agency 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 7 of
    the act in making the determination, but the auditor is not
    required by that section to do 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 is to furnish           indepen-
    dent analyses),      4(2) (requirement for audits of adminis-
    trative     systems   and    controls),   e(6)    (requirement    for
    independent reviews of U           agency operations):       see also
    Statewide Report      on Internal Auditing:        A Report 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 six members       appointed by the
    governor.  Hum. Res. Code 9 1111.013. Our conclusion there-
    fore is limited to multi-member      boards   and commissions
    composed of appointed   members, and we do not address    the
    situation of an agency overseen by a single appointed       or
    elected official  or by   a board 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.

                                      p. 6238
Mr. Vernon M. Arrell - Page 6      (JM-1183)

                       SUMMARY
           The provisions   of the Texas     Internal
        Auditing Act are mandatory.     The internal
        auditor appointed by an agency to carry out
        the act must be a certified public accountant
        or certified internal auditor. That auditor
        shall report    directly  to   the   agency's
        governing board or commission.  That auditor
        is also not required to consult with the
        executive head of the agency to determine
        when compliance with a particular   responsi-
        bility 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 I M    MATTOX
                                   Attorney General of Texas

MARY KELLER
First Assistant Attorney General

Lou MCCREARY
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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