A Review of Financial Management at the Texas Commission on Private Security
January 2003
Report Number 03-015
Overall Conclusion
There was gross fiscal mismanagement from fiscal year 1998 through August 19,
2002, at the Texas Commission on Private Security (Agency). This led to the
Agency's reported budget shortfall of $923,471 for fiscal year 2002 and an anticipated
budget shortfall of $434,591 for fiscal year 2003. During our testing of detailed
expenditures, we did not identify any additional obligations that should have
been included in the Agency's shortfall amounts. The $923,471 budget shortfall
is a direct violation of Article IX, Section 6.04, of the General Appropriations
Act (77th Legislature), which prohibits an agency from incurring obligations
in excess of the amounts appropriated to it.
The opportunity to commit fraud and the ability to conceal it existed within
the Agency's financial operations during our review period. The State Auditor's
Office Special Investigations Unit is reviewing Agency records for evidence
of fraud.
The specific causes the Agency cited for its reported budget shortfalls were
not the primary underlying causes for these shortfalls:
- The Agency did pay some prior year expenses with current year appropriations,
as it asserted. However, this does not explain why the budget shortfalls occurred
but, instead, that they were a consequence of the Agency's poor management
decision-making and mismanagement of its financial operations.
- Some operating expenses increased, as the Agency asserted. However, these increases contributed to the Agency's budget shortfalls only because management failed to establish detailed internal budgets to monitor expenditures and ensure that the Agency had sufficient funds to pay its expenses.
- As the Agency asserted, it did incur additional expenses for services outside of those normally expected. However, management failed to adjust other spending and manage these expenditures within the Agency's appropriated resources.
The primary underlying causes for the Agency's budget shortfalls were:
- Decisions Agency management made to spend funds without conducting adequate
budget analysis. We found that many of the expenditures that led to the budget
shortfalls were not unanticipated but, instead, were the direct result of
decisions Agency management made. For example, the Agency spent almost $500,000
for its automated licensing system between fiscal years 1998 and 2002. The
Agency was appropriated only $90,000 for this purpose.
- Lack of financial oversight. We could not find any evidence that, until
just recently, Agency executive management or Commissioners asked for or were
provided with information that would enable them to understand the financial
position of the Agency.
The majority of the expenditure amounts the Agency reported in its September
2002 letters to the Legislature were accurate. However, its descriptions of
these expenditures were not always accurate, and we found that some of the reported
expenditures were questionable. In addition, the Agency continues to have outstanding
debts from prior years. In November 2002, the Department of Public Safety (DPS)
reported that the Agency still owed DPS $663,343 for criminal history and Federal
Bureau of Investigation (FBI) fingerprint checks. The Agency used fees it received
for these purposes for other operating expenses rather than for paying its obligation
to DPS.
The Agency has prepared a remediation plan to correct its financial problems.
However, this plan lacks certain analyses and actions necessary to balance the
Agency's budget and prevent future financial problems. The plan lists strategies
for reducing certain expenditures and generating additional revenue, but it
does not quantify the impact of these strategies or calculate whether these
actions will balance the fiscal year 2003 budget or reduce the prior year deficits.
The plan does not include a balanced 2003 proposed budget or demonstrate how
the Agency will pay its debt to DPS.
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