TITLE 31. NATURAL RESOURCES AND CONSERVATION

PART 17. TEXAS STATE SOIL AND WATER CONSERVATION BOARD

CHAPTER 525. AUDIT REQUIREMENTS FOR SOIL AND WATER CONSERVATION DISTRICTS

SUBCHAPTER A. AUDITS OF DISTRICTS

31 TAC §525.5, §525.8

The Texas State Soil and Water Conservation Board (Board) adopts with changes, an amendment to 31 Texas Administrative Code, Chapter 525, Audit Requirements for Soil and Water Conservation Districts, Subchapter A, Audit of Districts, §525.5 and §525.8, published for comment in the December 14, 2018, issue of the Texas Register (43 TexReg 8047).

REASONED JUSTIFICATION:

Many Soil and Water Conservation Districts (SWCD) have small operating budgets. The Board currently requires SWCDs to obtain audits performed in accordance with generally accepted auditing standards adopted by the American Institute of Certified Public Accountants. This requirement is often financially burdensome to SWCDs, sometimes accounting for a double-digit percentage of its entire operating budget.

The adopted rule provides financial relief to many SWCDs by increasing the threshold amount of gross state revenues a SWCD is required to make before being required to conduct an audit, thus increasing the audit exemption for SWCDs with small operating budgets. Under the current §525.5, a SWCD is granted an audit exemption if its gross state revenues are less than the threshold of $40,000. The amendment raises the gross state revenue threshold amount to $75,000. An audit exemption based on the amount of gross state revenues in any year of the biennial period is increased from $100,000 to $250,000.

The adopted rule also adds a new section to §525.8 that affects a SWCD's "hold status." SWCDs' funds are placed on a "hold status" if they fail to comply with filing deadlines for annual financial statements, audits, and compilations and review. A SWCD's "hold status" will be removed upon compliance with the filing requirements or if it creates an undue hardship due to an extenuating circumstance (such as a natural disaster). This change clarifies the Board's current practice and responds to a recommendation made during an agency audit.

The amendments are adopted with a change to the proposed text published in the December 14, 2018, Texas Register (43 TexReg 8047). The change is the following: §525.8 (c)(3) is renumbered as §525.8(d). This change clarifies that the hold status will be removed when an SWCD complies with the filing deadlines in §525.8 (a)-(c), or if an undue hardship affects a SWCD.

SUMMARY OF RESPONSES AND AGENCY COMMENTS:

The public comment period began on December 14, 2018, and ended January 13, 2019. The Board received no comments in response to its request for comment published in the December 14, 2018, issue of the Texas Register (43 TexReg 8047).

STATUTORY AUTHORITY:

The Board hereby certifies that the amendments to §525.5 and §525.8 are adopted under the authority of Texas Agriculture Code §201.022, which authorizes the Board to assist SWCDs in carrying out programs and powers, and §201.020, which provides the Board authority to adopt rules.

§525.5.Audit Exemption.

(a) A district may elect to file an annual financial statement as of August 31 of each year in lieu of the district's compliance with §525.3 of this subchapter (relating to Duty to Audit) provided:

(1) the district had no long term (more than one year) liabilities outstanding during the biennial period other than rent/lease contracts;

(2) the district did not have gross state revenues in excess of $75,000.00 in any year of the biennial period;

(3) the district's State Fund cash, receivables, and short term investments balances were not in excess of $50,000 in any year of the biennial period;

(4) the district is not otherwise required to have its accounts and records audited in compliance with a funding agreement with any federal, county, or other agency; and

(5) the district is not otherwise required at the discretion of the State Board to have its accounts and records audited under Agriculture Code of Texas, §201.080, Records, Reports, Accounts, and Audits.

(b) A district may elect to file a compilation and review with required procedures as of August 31 of each year in lieu of the district's compliance with §525.3 of this subchapter provided:

(1) the district has no more than one long term (more than one year) liabilities outstanding during the biennial period other than rent/lease contracts and that the one liability consists of real property utilized by the district as its primary office location;

(2) the district did not have gross state revenues in excess of $250,000.00 in any year of the biennial period;

(3) the district's State Fund cash, receivables, and short term investments balances were not in excess of $50,000 in any year of the biennial period;

(4) the district is not otherwise required to have its accounts and records audited in compliance with a funding agreement with any federal, county, or other agency;

(5) the district is not otherwise required at the discretion of the State Board to have its accounts and records audited under Agriculture Code of Texas, §201.080, Records, Reports, Accounts, and Audits; and

(6) the person who performs a compilation and review shall be a certified public accountant or public accountant holding a permit from the Texas State Board of Public Accountancy.

(c) The annual financial statement, compilation and review, or audit must be reviewed and approved by the district directors and so recorded in the minutes of the board meeting at which such action was taken.

(d) The annual financial statement, compilation and review, or audit must be accompanied by an original affidavit signed by the district's current chairman, vice chairman, and secretary attesting to the accuracy and authenticity of the financial report.

(e) Districts governed by this section are subject to periodic audits by the State Board.

§525.8.Compliance Contingencies.

(a) An annual financial statement must be filed no later than 60 days after August 31 of each fiscal year.

(1) A District's funds will be considered out of compliance and placed on "hold" status if an annual financial statement is not received by the State Board by October 30 of each fiscal year.

(2) A District's funds will be placed on "hold" status if an annual financial statement has been received by the due date but the District has not corrected errors by December 31 of each fiscal year.

(b) An audit must be filed no later than 120 days after August 31 of each even numbered year.

(1) A District's funds will be considered out of compliance and placed on "hold" status if an audit is not received by the State Board by January 1 of each odd numbered year.

(2) A District's funds will be placed on "hold" status if an audit has been received by the due date but the District has not corrected errors by February 28 of odd numbered years.

(c) A compilation and review must be filed no later than 120 days after August 31 of each year.

(1) A District's funds will be considered out of compliance and placed on "hold" status if a compilation and review is not received by the State Board by January 1.

(2) A District's funds will be placed on "hold" status if the compilation and review has been received by the due date but the District has not corrected errors by February 28 of each fiscal year.

(d) A district's hold status will be removed upon becoming compliant, or the Executive Director, or designee, temporarily exempts the hold requirements on a district if it creates an undue hardship due to extenuating circumstances; such as, but not limited to natural disasters.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 18, 2019.

TRD-201900155

Mel Davis

Policy Advisor/Special Projects Coordinator

Texas State Soil and Water Conservation Board

Effective date: February 7, 2019

Proposal publication date: December 14, 2018

For further information, please call: (254) 773-2250 x252