Case Information
*1 ., .
R-336 Hon. C. i:.'Cavn&ss State Auditor Opinion No. V-191 Re: I;hetber the liquida- Austin, Texas
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.&, prescribing the 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,is a 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,egular Session 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 IF rther 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,Divlsion Sec-
tion contains the followhg language: *2 Hon. C. I!. Cavness - I'agc 2 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 enforcement of House Bill 21t9 Acts of the Regular Session, 46th legislature. *In order to rcizlburse the conera revenue be- cause of any withdrawals from said ap- propriations, it shall be the duty of the Coard of Insurance Commissioners to deposit to the credit of the Gener- al Revenue Fund all of the assets re- covered under the terins of ssid House Bill 249.’
"The Liquidator appointed by the Board of Insurance Commissioners also serves as Le al l%xaminer for the,,Board. He is paid a f sa ary at the rate of .>5,200.00 per 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 liquidation or under con- servatorship, under the provisions of the ap- propriation rider quoted above.
"The Liquidating Division occupies offices in the Tribune Building in the City of Austin.
The Liquidator occu iesan office in the Land Office Building wit R the Board. There are six administrative employees 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,Congress Avenue 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 *3 .
Hon. C. H. Cavness - Page 3
and other expenses of the Liquidatin Divi- sion are paid out of funds realiaed x OZI the assets of insurers in process of liquidation, t for the space occu isd in the Tribune
which space is Fur niched by the Texas.
"The Liquidator is appointed by the Board of Insurahce Commissioners and his salary fixed by said Board. All other as- sistants are appointed by the Liquidator with advice and conse,nt of the Board. Thus it will be seen that no direct appropria- tions are made from State Funds for the op- eration and maintenance of the Liquidating Division."
You have indicated by a conferen,ce in connec- tion with this request that you are concerned about the duties, responsibility and authority of the State Auditor in connection with the activities of the VXquidating Division?
I It will be noted that there is no agency des- ignated by statute as a llLiquidating Divisionz. We do not construe Article 5068~ az creating a "Liquidating Di- vision" as an integral part of the organization of the Insurance Department, nor do we construe this statute as including the activities of the Liquidator and those functioning under 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 supervision by the their duties are for practical purposes those of the classic receiver operatin ae an agent of the court, subject to certain specia !? provisions as set out in the statutes.
.
The Act contemplates that the funds and pro erty in the custody of the Liquidator shall be those of p r! vate concerns, and not state-ovmed property nor state funds.
We assume from your statement that you are con- cerned with the activities of the Liquidator as such, and *4 Hon. C. H. Cavness - Page 4
not with such activities as are contemplated on the part of the Board of Insurance Commissioners in connection with their prescribed duties under the Act, since the activities of the Board of Insurance Commissioners are 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'employees since 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 considered separate, distinct and peculiar for purposes of determining the duties and re- sponsibilities of the State Auditor in connection there- with.
In order to determine the extent of the re- sponsibilities of 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&1313-23 of Vernon's Civil Statutes and Article 422b of Vernon's Penal Code. The caption of the Act describes it as "providing a 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 Legislative Audit 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 Legislative Audit Committee. He is t ii erein described as "an investigator of all custo- dians of public funds, disbursinp apents, and personnel of departments." (Emphasis supplied throughout this 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, *5 Hon. C. H. Cavness - Page 5
, 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 verifications of all assets, liabilities, revenues and expenditures of the~state, its departments, boards, bureaus, institutions commissions or 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! commission or 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 executives and officials, auditors, accountants and other employees.of each and every department, board, bureau, institu- tion, commission or agency of the State at all times in the inspection, examination and audit of any and all books, accounts and records of the several departments.
"The State Auditor shall have access at the books, accounts, re- all times to all of ports, confidential or otherwise, vouchers, or other records of information in any state board, bureau, or institu- office, department, tion of this state.
l C~ It is the object and purpose n of& ice Long other things to install a unified and co-ordinated system of accounting and records in every department, bureau, board, and institution of the State Govern- ment. . . .I1
Hon. C. H. Cavness - Page 6 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 duplication of effort between departments and the quality of
service being rendered by subordi'nate em- ployees in each of the several departments.
"Upon completing the examination of 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 departments so examined and other departments of the State Government; (d) the exoense of operating the department; ‘le1 breaches of trust and duty, if any,-by an officer, department, institution, board, bureau, or other cus- todian or disbursement officer f
:~s; W,ny suggested changes look ng -YF
my and reduction of number of clerical and other emnlovers and the elim- ‘ination of duplication and inefficiency . . . . .
"Reports shall also contain specific recommendations to the Legislature for
the amendment of existing laws or the ~' passage of new laws designed to improve the functioning of various departments, boards, bureaus, institution8 or agencies of the State Government to the end that more efficient service may be rendered
and the coat of gevernreent reduced. "All recommendations submitted by the . State Auditor shall be confined to iho:; *7 Hon. C. H. Cavness - Page 7
attention of the Lenislature ia directed tq all cases of violation of the law end to those instances where there is need for a change of existing laws or the passage of new laws to secure the efficient apen=
of public fund s. . . .
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 appropriation by the Legis- lature; and shall make recommendations to the Legislature as to the manner or form of appropriations, which will avoid any such improper expenditures of 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 administration or of any general incompetency of personnel, inadequacy of fis- cal records, he shall report same innnediately to the Governor, the Legislative Audit Commit- tee, and the De artment head or heads affeeted.
If the State Au itor,shaIl find evidence of x
illegal transactions, he shall forthwith re- port such transactions to the Governor, the Legislative Audit Committee and the Attorney General.
%maediately upon receipt of a report from the States Auditor of incompetency of personnel and inadequacy of fiscal records,.
the Legislative' Audit Conrmittee' shall review the State Auditor"s ,report of #same and hold hearings with the Department head or heads concerning,such incompetency and inadequacy of fiscal records. The Legislative Audit Ccm- mittee, after holding‘&& hearings, shall make a report to the D,epartment head or heads requesting the removal or replacement of the: in.competent personnel or the installation of the necessary fiscal records. The Legislative Audit Committee shall re ort to the La isla- ture any refusal of the epartment off cials 8 f to remedy such incom etency or the-installa- tion of proper fisca records." f
Hon. C. H. Cavnesa - Page 8
The State Auditor Is subject to removal by the Legislative Audit 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 shal I 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 Ef iciency Expert, which was of simi- f*
lar import, but it is obviously intended to continue many of the duties of the State Auditor and Efficiency Expert, subject to certain modifications and clarifica- tion of his duties as set out in the present Act.
From the quoted provisions, we construe this Act to be primarily concerned with the handling of pub- lic funds and state revenues, the proper disbursement of legislative appropriations, and with general efficiency and elimination of duplication of 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 responsibility ends 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 Legislature had 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 inefficient pe,rsonnel or operations would constitute an 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 be1 r eve that the Auditor is requ red P; or warranted to interfere with the administration of
Ron. C. H. Cavness - Page 9 the receiverships in the hands of the Liquidator except to the extent necessary to determine that any public funds involved are appropriately handled.
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 OX Field. In that instance the Gov- 3
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.af State Auditor. There, as in the present situation the a- gency's functions were largely those of the tourt in the determination of 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
functioning under the Liquida- that public funds are be- that expenditures under the A pro- properly made, that no dupl P ca- tion of personnel or inefficiency exists of a nature constituting a 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 administration of 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 receivership funds 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 constitutional grounds in effectthat such re- ceivership proceedings are functions of the judiciary,
Hon. C. H. Cavness - Page 10 interference by other departments not subject to undue 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 3 9) iii 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 determination that public funds are being properly handled, that legislative appro- priations are being properly expended, that no duplication of personnel or inefficiency exists constituting a 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