Maryland Attorney General Opinion 96 OAG 084

84 [96 Op. Att’y

EDUCATION

COMMUNITY COLLEGES – WHETHER STATUTE AUTHORIZES

COUNTY AUDITOR TO CONDUCT A PERFORMANCE AUDIT

OF A COMMUNITY COLLEGE

October 11, 2011

Victoria K. Fretwell, Chair

Anne Arundel Community College Board of Trustees

On behalf of the Board of Trustees of Anne Arundel

Community College, you asked whether Annotated Code of

Maryland, Education Article (“ED”), §16-315(i) empowers the Anne

Arundel County Council to compel the Anne Arundel Community

College (“the College”) to undergo an audit by the County Auditor

of its administrative and management practices. The College asserts

that such an audit would be a “performance audit” and that the

County Auditor “does not have authority under State law to conduct

a performance audit of the manner in which the college is managed.”

For the reasons discussed below, it is our opinion that ED §16-

315(i) does not authorize the County Auditor to audit the

administrative and management practices of the College. The statute

permits the County Auditor to conduct an audit of the financial

accounts of the College.

I

Background

A. Audit Requirements for Community Colleges

Under Maryland law, each community college is to “have an

annual audit of its books of accounts, accounting procedures and

principles, and other fiscal and operational methods and

procedures.” ED §16-315(b). The audit is to be conducted in

accordance with guidelines established by the Maryland Higher

Education Commission (“MHEC”). ED §16-315(a); COMAR

Gen. 84] 85

13B.07.03. The audit report and related management letter1 must be

submitted to MHEC for review and assessment and to the

Legislative Auditor. ED §16-315(b); COMAR 13B.07.03.02A.2

MHEC is to evaluate each audit report it receives and may take

various actions depending on a college’s response to

recommendations in an audit report. ED §16-315(c).

The statute does not ordinarily require use of a particular

auditor. The Legislative Auditor may conduct the annual audit for

a community college, on giving the college notice of its intent to do

so. ED §16-315(d). “[A]n official auditor of any county or

Baltimore City” also may conduct the annual audit of a community

college, if MHEC approves the use of that auditor and the

Legislative Auditor concurs. ED §16-315(f). The cost of the annual

audit is the responsibility of the college. ED §16-315(g).

At the direction of the Legislature’s Joint Audit Committee, the

Legislative Auditor may undertake special audits of any community

college at State expense. ED §16-315(e). Each year, the Legislative

Auditor is required to submit a report “on the results of the annual

and special community college audits.” ED §16-315(h).

Finally, the statute states:

Nothing contained in this section may be

construed to prohibit a periodic or special

audit by an official auditor of any county

providing funds for a community college.

ED §16-315(i). The statute does not define “periodic or special

audit.”

1

In a management letter, sometimes referred to as an internal

controls report, an auditor evaluates the entity’s internal financial

controls. Gauthier, Governmental Accounting, Auditing and Financial

Reporting (Using the GASB 34 Model) (2005) at p. 698; American

Institute of Certified Public Accountants, Statements on Auditing

Standards, SAS 115 (AU 325) – Communicating Internal Control Related

Matters Identified in an Audit.

2

The guidelines also require that the community college submit to

an “enrollment audit,” which relates to a calculation of “full-time

equivalent students.” COMAR 13B.07.03.02. The full-time equivalent

student calculation is used in the formula for distributing State aid to

community colleges. See ED §16-305.

86 [96 Op. Att’y

B. County Council Audit Resolution

On July 18, 2011, the Anne Arundel County Council adopted

Resolution No. 39-11 (“Resolution”). Citing ED §16-315(i)

concerning “periodic or special” audits, the Resolution requests the

County Auditor to undertake an audit of the College to review

numerous areas of College administration and management. In

particular, the Resolution asks the County Auditor to analyze the

“effectiveness” of the College’s utilization of its facilities, to

compare its administrative costs with those of other colleges, to

make various other comparisons with other colleges (e.g., sabbatical

policies, sabbatical pay, pay and benefits of the College president),

and to obtain various items of information and documentation from

the College.

You ask whether the County Auditor has authority to conduct

such an audit under the statutory provision that allows a county

auditor to conduct a “periodic or special” audit of a community

college.

II

Analysis

A. Types of Audits

An audit of a government entity is generally characterized as

either a “financial audit” or a “performance audit.” See 75 Opinions

of the Attorney General 172 (1990) (“1990 Opinion”); see also 92

Opinions of the Attorney General 137, 141-42 (2007); United States

Government Accountability Office, Government Auditing Standards

– 2011 Internet Version (August 2011) (“GAO Standards”), Chapter

2. A “financial audit” is a review of an entity’s financial statements,

or segments of them, for two purposes: to determine whether the

statements fairly present the audited entity’s financial position in

accordance with generally accepted accounting principles; and to

determine whether the entity has complied with legal requirements

governing those transactions and events that may have a material

effect on the financial statements. 1990 Opinion at 174; GAO

Standards at §§2.07, 2.08. By contrast, a “performance audit” is an

assessment of an entity’s or program’s practices to determine

whether the entity or program is operating economically and

efficiently, whether it is achieving its objectives, and whether

Gen. 84] 87

corrective actions for improving its performance are appropriate.3

1990 Opinion at 174; GAO Standards at §§2.10, 2.11.

Although the Resolution itself does not characterize the

assignment that it gives the County Auditor, you believe it calls for

a performance audit and that the cited statute does not authorize a

performance audit by a county auditor.

B. Audits by County Auditor under ED §16-315

To answer your question, we must assess the role of the County

Auditor under ED §16-315 – a question of statutory construction in

which we attempt to discern the intent of the Legislature. As the

Court of Appeals has frequently stated, that process looks first to the

language of the statute, considers it within the overall statutory

scheme, and may also examine the statute’s history to resolve

ambiguities. See Breslin v. Powell, 2011 Md. LEXIS 518 at 34-35

(August 16, 2011).

1. Statutory Language

There are two references in ED §16-315 to “an official auditor”

of a county that provides funds to a community college – a term that

encompasses the County Auditor. The first states that such an

auditor may conduct the required annual audit of the college – an

audit that clearly is a financial audit. ED §16-315(f). The second

reference in the statute states that “[n]othing in this section may be

construed to prohibit a periodic or special audit by an official auditor

of any county providing funds for a community college.” ED §16-

315(i). This provision appears simply to make clear that the

authority to do the annual audit does not preclude a county auditor

from conducting audits on other occasions or in other cycles. Thus,

on its face, the reference to a “periodic or special” audit by a county

auditor in ED §16-315(i) is addressed to the timing or scope of an

audit, not its nature.4

3

This definition was articulated in the 1990 Opinion and was later

adopted by the General Assembly in a statute governing performance

audits of local boards of education. Chapter 88, Laws of Maryland 1996,

now codified at ED §5-110(a).

4

This reading is consistent with the use of those terms by

accountants. According to a dictionary of accounting terms, a “periodic

(continued...)

88 [96 Op. Att’y

The Annotated Code of Maryland contains only two other

references to a “periodic” or “special” audit of a government entity

that does not involve the Legislative Auditor. In both instances, the

statute authorizes, or preserves a right to conduct, a financial audit.

See Annotated Code of Maryland, Correctional Services Article,

§11-903(a)(4) (providing that statute requiring accounting of local

inmate welfare funds does not preclude a “periodic or special audit”

of such a fund); Criminal Procedure Article, §15-414(e)(3)

(authorizing County Executive or County Council of Howard

County to order a “special audit” of the Howard County State’s

Attorney in accordance with a provision of the County charter

providing for financial audits); see also Andresen v. Bar Assn. of

Montgomery County, 269 Md. 313, 316, 305 A.2d 845 (1973)

(referring to a court-ordered audit of an attorney’s accounts related

to the closing of real estate transactions as a “special audit”).

2. Absence of Language concerning Performance Audits

Nothing in ED §16-315 specifically authorizes a county auditor

to conduct a performance audit of a community college. When the

General Assembly authorizes an auditor to conduct a performance

audit, it makes that intention quite clear. For example, it has charged

the Legislative Auditor generally with performing “performance

audits” of State entities, when directed by the Joint Audit

Committee, by the Executive Director of the Department of

Legislative Services, or otherwise by law. Annotated Code of

Maryland, State Government Article (“SG”), §§2-1207(5) and 2-

1220(a)(3).5 The scope of such an audit includes evaluating the

efficiency, effectiveness, and economy with which resources are

used, determining whether desired program results are achieved, and

determining the reliability of identified performance measures. SG

§2-1221(b).

4

(...continued)

audit” is an audit “covering an intermediate accounting period such as a

month” or an audit “conducted at state intervals of time.” W.W. Cooper

& Y. Ijiri, Kohler’s Dictionary for Accountants (6th ed. 1983) at 378. The

term “special audit” is used to refer to an audit “having a limited, specific

scope.” Id.

5

In the 2011 Session, the General Assembly added SG §2-1220(f),

authorizing Legislative Auditor to conduct “performance audits” of the

Board of Liquor License Commissioners for Baltimore City. Chapter

263, Laws of Maryland 2011.

Gen. 84] 89

In other statutes, the General Assembly has authorized

performance audits in particular contexts or for particular purposes.

For example, in ED §5-110(f), the General Assembly recognized

that a local school board and a county governing body might agree

to a performance audit of a local school system. In the absence of

such an agreement, the Legislature authorized the State Department

of Education, at the request of a county government, to contract for

a performance audit of the county school system. ED §5-110(b).

However, the county governing body cannot require the local board

to submit to a performance audit by the county auditor without the

local board’s assent. 91 Opinions of the Attorney General 145

(2006).

Other provisions of law provide for performance audits in

specific contexts. See CS §8-114 (authorizing Commission on

Correctional Standards to conduct performance audits of correctional

facilities); Annotated Code of Maryland, Insurance Article, §29-101

(adopting an interstate compact that includes provision for a

“performance audit” of a commission established by the compact).

These statutes demonstrate that, when the General Assembly

intends that a government unit or an official have authority to

conduct a performance audit, that authority is made express. It has

not been made express in ED §16-315(i), and, in our view, the right

to perform a “periodic or special audit” preserved in that statute

should not be construed to mean a performance audit.

C. History of Audit Provisions Relating to Community Colleges

The legislative history of ED §16-315 confirms our construction

of the statutory language. From the inception of the statute, the

Legislature apparently intended the references to audits of a

community college by a county auditor to denote financial audits.

In 1961, the local boards of education were given authority to

establish and maintain community colleges. Chapter 134, Laws of

Maryland 1961. The board of trustees, the superintendent, and the

president of a community college were “charged with the

preparation of the annual budget, …and the receipt and expenditure

of budgeted funds under an adequate accounting system, subject to

review by the auditor of the county or of Baltimore City ….”

Annotated Code of Maryland, Article 77, §302(a) (1961 Supp.).

In 1968, the Legislature established the State Board for

Community Colleges (“State Board”) and gave it authority to

90 [96 Op. Att’y

“exercise full State-wide responsibility for the several community

colleges.” Chapter 454, Laws of Maryland, 1968, codified at

Annotated Code of Maryland, Article 77, §§304A (1965 Repl. Vol.

& 1968 Supp.). County auditors retained their authority to review

the accounting system of a community college. Article 77, §302(a).

When the Education Article was enacted in 1978, the provision

concerning audits of community colleges was recodified as ED §16-

409(a). Chapter 22, Laws of Maryland 1978. The revisors added

language to make explicit that an audit was required annually, as the

State Board had required by rule. Id., Revisor’s Note.6 That same

year, the audit statute was amended substantively to add many of the

provisions that still appear in it today, including a direction to the

State Board to create guidelines for audits and the authorization for

the Legislative Auditor to perform the annual audit. Chapter 642,

Laws of Maryland 1978. While that bill was before the Legislature,

it was amended to include the savings clause allowing for “periodic

or special” audits by county auditors that now appears in ED §16-

315(i). Given that the 1978 recodification of the provision was the

first time that the provision referred to an “annual” audit, it appears

likely that this provision was added simply to clarify that the

“annual” audit did not preclude the conduct of audits at other times

or on other cycles.

It is notable that, in connection with the 1978 legislation, the

State Board submitted to the Legislature a description of the audit

process for community colleges. Letter and Report of Brent M.

Johnson, Executive Director, State Board for Community Colleges,

to Delegate Benjamin L. Cardin (February 27, 1978). That

submission provides elaborate detail as to the conduct of financial

audits and enrollment audits in the context of a community college.

There is no mention of performance audits in the legislative file.

Subsequently, the Legislature has modified the statute in only

minor respects. In 1985, ED §16-409(b) and (c) were amended to

require the State Board to review and assess the annual audit report

and management letter. A process was established for the State

Board and the community colleges to deal with material weaknesses

and related recommendations. Chapter 123, Laws of Maryland

1985. In 1991, the State Board was discontinued and its powers and

6

Prior to creation of Education Article, Article 77, §302(a) had been

renumbered as Article 77A, §5 by Chapter 405, §4, Laws of Maryland

1969.

Gen. 84] 91

duties were vested in MHEC. Chapter 464, Laws of Maryland 1991.

In 1996, the Legislature authorized a renumbering of the provision,

resulting in its current codification as ED §16-315. Chapter 10, §16,

Laws of Maryland 1996.

Since 1978, no substantive changes related to audits by a county

auditor have been made in the statute. Thus, there appears no basis

for reading an authorization for a county auditor to conduct a

performance audit into the statute that was not present when the

subsection was originally enacted in 1978.7

D. Summary

The statutory provision cited in the Resolution – ED §16-315(i)

– preserves a right for a county auditor to undertake a financial audit

of a community college. However, the Resolution itself requests the

County Auditor to review the “effectiveness” of various practices of

the College and to make various comparisons with other colleges.

This assignment largely falls within the scope of a performance audit

of the College rather than a financial audit that the savings clause of

the statute allows.8 Thus, the County Auditor lacks authority to

compel the College to undergo such an audit.

7

The 1990 Opinion reached a similar conclusion regarding a statute

that allowed for a county auditor to audit a local board of education.

Attorney General Curran reviewed the legislative history of the relevant

statute and ascertained that the references to an “audit” in that subsection

were linked to provisions concerning audits of the local board’s “financial

transactions and accounts.” 1990 Opinion at 174-78. Accordingly, the

county governing body lacked authority under the statute, as it then

existed, to conduct a performance audit. Id. 1990 Opinion at 172. While

ED §16-315(i) traces its origin to a separate statute, it is not surprising

that the Legislature adopted a similar policy concerning county audits as

to these two State educational entities that are partially funded by

counties.

8

Portions of the Resolution ask the County Auditor to obtain public

records or information from the College. Like any other person, the

County Auditor may make a request to the College for access to records

under the Public Information Act (“PIA”). SG §§10-611 et seq. The PIA

contemplates that one government entity may ask another government

entity for access to records. SG §10-611(b) (“‘Applicant’ means a person

or governmental unit that asks to inspect a public record”). The PIA

provides a broad right of access to public records, but also incorporates

various exceptions that may apply to some of the records or information

sought. See 92 Opinions of the Attorney General 137, 145-47 (2007).

92 [96 Op. Att’y

III

Conclusion

In our opinion, ED §16-315(i) does not authorize the County

Auditor to undertake a performance audit of Anne Arundel

Community College. The County Auditor may conduct a financial

audit of the College.

Douglas F. Gansler

Attorney General

Patricia A. Logan

Assistant Attorney General

Robert N. McDonald

Chief Counsel

Opinions and Advice