., .
R-336
Hon. C. i:.'Cavn&ss Opinion No. V-191
State Auditor
Austin, Texas Re: I;hetberthe liquida-
tor and those func-
tioning under him un-
der Art, .506gc,V.C.S.,
constitute a state a-
gency within the mean-
ing of Arts. 44&3a-8
through J+l+13a-23,
V.C.
S. and Art. 422b, V.,
P.&, prescribingthe
duties and authority
of the State Auditor.
Dear Sir:
You request advfcs as to whether the Siqui-
dating Divisionn of the Board of Insurance Commission-
ers as presently constftutsd,isa state agency w&r
the general terms of the tiatutes. After quoting from
the provisions of House Bill No. 249 Chapter 3 Acta
46th Legislature R,egularSession 1439 page 389 which, .:
is published as k-tiole 5066~ of #ernonls Civil SCatutes,
providing for a statutoryli " d&or for insurance com-
anies in receivership,you IFrther point out as fol-
Em:
"The Departmental
for the currentbiennium
Insurance Commissioners
ing item:
‘33. For enforaamn~tofCaolsbrvat.sr
.
The special ridrr in the Life,DivlsionSec-
tion contains the followhg language:
Hon. C. I!.Cavness - I'agc2 v-191
r
. . . There is hereby appropriated
out of the General Revenue Fund for
each year of the biennium beginning
September 1, 1945, the sum of 26,003.00
or so much thereof as may be necessary
for the use of the Doard of Insurance
Colimissioners in the enforcementof
House Bill 21t9 Acts of the Regular
Session, 46th legislature. *Inorder
to rcizlbursethe conera revenue be-
cause of any withdrawals from said ap-
propriations,it shall be the duty of
the Coard of InsuranceCommissioners
to deposit to the credit of the Gener-
al Revenue Fund all of the assets re-
covered under the terinsof ssid House
Bill 249.’
"The Liquidator appointed by the Board
of Insurance Commissionersalso serves as
Le al l%xaminerfor the,,Board.He is paid a
safary at the rate of .>5,200.00per annum,
paid monthly as follows:
'Conservator?- out of General Revenue
Fund ,;)144.45
'Legal -ikaminer*- out of Examination
Fund 238.86
Total monthly salary -
That portion of the salary paid as 'Conserva-
tor', out of the General Revenue is subsequent-
ly refunded to the General Revenue Fund out of
assets of insurers in liquidationor under con-
servatorship,under the provisions of the ap-
propriation rider quoted above.
"The LiquidatingDivision occupies offices
in the Tribune Building in the City of Austin.
The Liquidator occu iesan office in the Land
Office Building witR the Board. There are six
administrativeemployees in the offices in the
Tribune Building and one attorney who acts as
legal counsel for the Liquidator. Warehouse
space is rented at 3164 South,CongressAvenue
in Austin at a monthly rental rate of $25.00.
There is one employee in charge of the ware-
house. The warehouse rental and all salaries
.
Hon. C. H. Cavness - Page 3 v-191
and other expenses of the Liquidatin Divi-
sion are paid out of funds realiaed x OZIthe
assets of insurers in process of liquidation,
t for the space occu isd in the Tribune
which space is Furniched by the
Texas.
"The Liquidator is appointed by the
Board of Insurahce Commissionersand his
salary fixed by said Board. All other as-
sistants are appointedby the Liquidator
with advice and conse,ntof the Board. Thus
it will be seen that no direct appropria-
tions are made from State Funds for the op-
eration and maintenanceof the Liquidating
Division."
You have indicatedby a conferen,cein connec-
tion with this request that you are concerned about the
duties, responsibilityand authority of the State Auditor
in connectionwith the activities of the VXquidating
Division?
I It will be noted that there is no agency des-
ignated by statute as a llLiquidatingDivisionz. We do
not construe Article 5068~ az creating a "LiquidatingDi-
vision" as an integral part of the organizationof the
InsuranceDepartment, nor do we construe this statute
as includingthe activitiesof the Liquidator and those
functioningunder him~as a part of the duties of the
Board of Insurance Commissioners. The Liquidator func-
tions under the control of the Court, his activities
being subject in several respects to supervisionby the
their duties are for practical purposes those of the
classic receiver operatin ae an agent of the court,
subject to certain specia!?provisionsas set out in the
statutes.
.
The Act contemplatesthat the funds and pro erty
in the custody of the Liquidator shall be those of pr!vate
concerns, and not state-ovmedproperty nor state funds.
We assume from your statementthat you are con-
cerned with the activities of the Liquidator as such, and
Hon. C. H. Cavness - Page 4 v-191
not with such activities as are contemplatedon the part
of the Board of Insurance Commissionersin connection
with their prescribed duties under the Act, since the
activities of the Board of Insurance Commissionersare
of course subject to the full force of the Act prescrib-
ing the duties of the State Auditor.
We believe that the Liquidator and those op-
erating under him are state agents and'employeessince
their official character is defined by statute and
their functions and authority are set into operation by
state agencies, namely: the Board of Insurance Commis-
sioners and the Court. However, the activities and
functions should be consideredseparate, distinct and
peculiar for purposes of determiningthe duties and re-
sponsibilitiesof the State Auditor in connectionthere-
with.
In order to determine the extent of the re-
sponsibilitiesof the State Auditor, we have examined
the provisions of Senate Bill 27 Chapter 293, Acts 48th
Legislature,Regular Session, 1939, page 429, published
as Articles l+l+ljb-1
through i&1313-23of Vernon's Civil
Statutes and Article 422b of Vernon's Penal Code. The
caption of the Act describes it as "providinga more ef-
ficient fiscal system for the State of Texas including
(but not excluding other things) a uniform system of
accounting." The State Auditor is in effect an arm or
agency of the Legislature. Under Section 2 of the Act
is created a LegislativeAudit Committee composed en-
tirely of members of the Legislature and by Section 3
of the Act, it is provided that the 4tate Auditor shall
be a pointed by such LegislativeAudit Committee. He
is tii
erein described as "an investigatorof all custo-
dians of public funds, disbursinpapents, and personnel
of departments." (Emphasissupplied throughoutthis
opinion.)
Section 7 provides in part:
"The State Auditor is hereby granted
the authority and it shall be his duty:
"1. To oerform an audit of all ac-
counts, books-and other financial records
of the State Government of any officer of
the state, department,board, bureau, in-
stitution, commission,or agency thereof,
Hon. C. H. Cavness - Page 5 v-191
,
and to prepare a written report or reports
of such audit or audits to the Legislative
Audit Committee and such other person or
persons hereafter designated in this bill.
“2. To . . . examine and audit ail
fiscal books, records and accounts of all
custodians of nublic funds, and of all dis-
bursing officers of this state, making in-
dependent verificationsof all assets,
liabilities,revenues and expendituresof
the~state, its departments,boards, bureaus,
institutions commissionsor agencies there-
of now in ex&tence or hereafter created.
"3. To require such changes in the ac-
counting system or systems and record or ret-'
ords of any office, department,board, bureau,
institution! commissionor state agency, that
in his opinion will augment or provide a
uniform, adequate, and efficient system of
records and accounting.
"4. . . . .
"5 . To require the aid and assistance
of all executivesand officials, auditors,
accountantsand other employees.ofeach and
every department,board, bureau, institu-
tion, commissionor agency of the State at
all times in the inspection,examinationand
audit of any and all books, accounts and
records of the several departments.
"The State Auditor shall have access at
all times to all of the books, accounts, re-
ports, confidentialor otherwise,vouchers,
or other records of informationin any state
office, department,board, bureau, or institu-
tion of this state. l C~
n It is the object and purpose
of& ice Long other things to install a
unified and co-ordinatedsystem of accounting
and records in every department,bureau,
board, and institutionof the State Govern-
ment. . . .I1
Hon. C. H. Cavness - Page 6 v-191
Section 8 provides in part:
"In addition to the other duties pro-
vided for the State Auditor, he shall thor-
oughly examine all departments of the State
Governmentwith special regard to their
activities and the duplicationof effort
between departmentsand the quality of
service being rendered by subordi'nateem-
ployees in each of the several departments.
"Upon completingthe examinationof
any department,he shall furnish the heads
thereof with a report of, among other
things, (a) the efficiency of the subordi-
nate employees; (b) the status and condi-
tion of all public funds in charge of.such
department; (~1 the amount of duplication
between work done by the departmentsso
examined and other departments of the State
Government; (d) the exoense of operating
the department;‘le1breaches of trust and
duty, if any,-by an officer, department,
institution,board, bureau, or other cus-
todian or disbursementofficer f
:~s; W,ny suggested changes
-YF
look ng
my and reduction of number of
clerical and other emnlovers and the elim-
‘inationof duplicationand inefficiency
. . . . .
"Reports shall also contain specific
recommendationsto the Legislature for
the amendment of existing laws or the ~'
passage of new laws designed to improve
the functioningof various departments,
boards, bureaus, institution8or agencies
of the State Government to the end that
more efficient service may be rendered
and the coat of gevernreentreduced.
. "All recommendationssubmitted by the
State Auditor shall be confined to iho:;
Hon. C. H. Cavness - Page 7 v-191
attention of the Lenislature ia directed tq
all cases of violation of the law end to
those instanceswhere there is need for a
change of existing laws or the passage of
new laws to secure the efficient apen=
of public funds. . . .
All reports by the State Auditor shall
call attention to any funds, which, In his
opinion have not been expended in accord-
ance with law or appropriationby the Legis-
lature; and shall make recommendationsto
the Legislature as to the manner or form of
appropriations,which will avoid any such
improper expendituresof money in the iWure
. . . ."
In Section 10, it is provided:
"If the State Auditor finds in the course
of his audit evidence of improper practices
of financial administrationor of any general
incompetency of personnel,inadequacy of fis-
cal records, he shall report same innnediately
to the Governor, the LegislativeAudit Commit-
tee, and the De artment head or heads affeeted.
If the State Auxitor,shaIl find evidence of
illegal transactions,he shall forthwith re-
port such transactionsto the Governor, the
LegislativeAudit Committee and the Attorney
General.
%maediately upon receipt of a report
from the StatesAuditor of incompetencyof
personnel and inadequacy of fiscal records,.
the Legislative'Audit Conrmittee'
shall review
the State Auditor"s,reportof #sameand hold
hearings with the Department head or heads
concerning,suchincompetencyand inadequacy
of fiscal records. The LegislativeAudit Ccm-
mittee, after holding‘&& hearings, shall
make a report to the D,epartmenthead or heads
requesting the removal or replacement of the:
in.competentpersonnel or the installationof
the necessary fiscal records. The Legislative
Audit Committee shall re ort to the La isla-
ture any refusal of the 8epartment offfcials
to remedy such incom etency or the-installa-
tion of proper fiscaf records."
Hon. C. H. Cavnesa - Page 8 v-191
The State Auditor Is subject to removal by
the LegislativeAudit Cormalttee.By Section 14, it is
made a misdemeanor to refuse the State Auditor access
to the records of any unit of the State.
Section 18 provides:
"Wherever the word 'department',
'board' 'bureau',,'institution','aom-
mission: or other word or words of
similar import appear in an prior sec-
tion of this Act, such shalI mean each
and every department,board, bureau, in-
~stitution,commission or agency of the
State Government."
The Act re eals the former Acts creating the
State Auditor and Eff*
iciency Expert, which was of simi-
lar import, but it is obviously intended to continue
many of the duties of the State Auditor and Efficiency
Expert, subject to certain modificationsand clarifica-
tion of his duties as set out in the present Act.
From the quoted provisions,we construethis
Act to be primarily concernedwith the handling of pub-
lic funds and state revenues, the proper disbursementof
legislative appropriations,and with general efficiency
and eliminationof duplicationof employees in order to
affect economy in the operation of the State Government.
While the language of the Act is very broad and the au-
thority and duties of the Auditor are extensive,we be-
lieve that the Auditor's responsibilityends at the
point where the functions of any agency cease to affect
such public funds and revenues. In speaking of the ef-
ficiency of personnel and of the operations of any
State agency, we believe that the Legislaturehad in
mind efficiency in so far as unnecessary or illegal ex-
penditures of public funds are being made. With many
State agencies, this would carry the Auditor into an
examination of every activity and svery phase of the
functions of such agency, since inefficientpe,rsonnel or
operationswould constitutean unnecessary drain upon
public revenues.
However, in the case of the operations of the
statutory Liquidator, blic funds are only remote1 in-
volved. We do not be1reve that the Auditor is requP;red
or warranted to interfere with the administrationof
Ron. C. H. Cavness - Page 9 v-191
the receivershipsin the hands of the Liquidator except
to the extent necessary to determine that any public
funds involved are appropriatelyhandled.
This Department held on somewhat different
grounds in Opinion Ro. 0-3536, rendered under a former
Attorney General, that the State Auditor had no respon-
sibility or duty to make an audit of the Tyler Field Of-
fice of the Governin Committee of Salt Water Control
of the East Texas OX3 Field. In that instance the Gov-
erning Committee for Salt Water Control was a non-
statutory committee made up of a number of State offi-
cials under the terms of an agreement entered into in a
lawsuit whereby the State was attempting to prevent
pollutionof the Neches River by oil operations. No
state revenues or public funds were involved. The ques-
tion arose under House Bill170 of the First Called,Ses-
sion of the 31st Legislature,Acts 1929 Chapter 91,
which was the Act creating the former otfice of State
Auditor and Efficiency Expert; As before mentioned
its terms were of like import in so far as material
here, to the present Act creating the office.afState
Auditor. There, as in the present situation the a-
gency's functionswere largely those of the tourt in
the determinationof the litigants1 rights, and the a-
gency handled only private funds.
In conclusion,we deem it ap ro riate for the
State Auditor to extend his inquiry in!o ?he affairs of
functioningunder the Liquida-
that public funds are be-
that expendituresunder the A pro-
properly made, that no duplPca-
tion of personnel or inefficiencyexists of a nature
constitutinga drain upon public funds, and that State-
owned property is being used for proper purposes. We
also believe that the authority to require changes in
the accounting system or systems and records of an a-
gency applies to the system of handling public funds
and systems, the administrationof which is a burden on
state revenues, and that the authority does not apply
to the system set up by the Liquidator for handling the
receivershipfunds and property in the hands of the Liq-
uidator.
We also call your attention to OpinioxrNo.
O-3695, rendered under a former Attorney Genaral hold-
ing on constitutionalgrounds in effectthat such re-
ceivership proceedingsare functions of the judiciary,
Hon. C. H. Cavness - Page 10 v-191
not subject to undue interferenceby other departments
of government.
SWRY
The Liquidator,and those function-
ing under him under Article 5068c, V. C. S.
(House Bill 249, Cha ter 3, Acts 46th Legis-
lature, 1939, page 3iii
9) are agencies of the
State within the meaning of Articles 4413a-8
S. and Article 422b,
thapter 293 Acts
Statutes, 1443#
the duties and responsi-
Auditor. However, the
State Auditor's duties, applicable to the
Liquidatorts functions extend only to a
determinationthat public funds are being
properly handled, that legislativeappro-
priations are being properly expended, that
no duplication of personnel or inefficiency
exists constitutinga drain on public funds,
and that State-owned property is being used
for proper purposes.
Yours very truly,
ATTORNEY GENERAL OF TEXAS
BY
Ned McDaniel,
Assistant.
NM/rt/erc
APPROVED MAY 10, 1947