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
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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
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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.
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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.
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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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