An Audit Report on the Department of Licensing and Regulation
August 2006
Report Number 06-053
Overall Conclusion
For the three types of licenses auditors tested--air conditioning and refrigeration contractors, electricians, and legal contract sales representatives--the Department of Licensing and Regulation (Department) has established licensing procedures that, in most cases, result in qualified licensees. The Department followed procedures when it issued approximately 91 percent of the licenses we tested. For the remaining 9 percent, the Department did not follow certain licensing procedures. This indicates that the Department should make improvements to ensure that it consistently follows its licensing procedures.
The Department can improve its licensing procedures by validating the Social Security numbers that applicants provide to establish their identities. Between September 1, 2004, and February 28, 2006, the Department issued 4,729 licenses to individuals who provided invalid Social Security numbers for the three types of licenses audited. Validating the accuracy of Social Security numbers also is important because the Department is required to provide Social Security numbers to the Office of the Attorney General and the Texas Guaranteed Student Loan Corporation to assist those organizations in collecting child support and student loans.
The Department also should strengthen controls to ensure the integrity of the data in its licensing system and follow a change management process and system development life cycle when making modifications to that system. In addition, the Department should document its information technology policies and procedures, provide employees with security awareness training, and update and test its disaster recovery plan. The Department has been given responsibility for a number of licenses in the past few years, including electricians, legal service contract sales representatives, barbers, and cosmetologists. During our audit, we noted that the Department's licensing system was able to handle the increase in licenses without any storage or capacity difficulties.
The Department collects and spends funds as the Legislature intends; however, it should make certain improvements to ensure that it deposits revenue within three business days of receipt as required by Texas Government Code, Section 404.094. For 30 percent of deposits tested, the Department deposited revenue into the State Treasury within 4 to 10 days of receipt. Not depositing funds in a timely manner increases the risk of theft and decreases the amount of interest that can be earned on those funds. In addition, the Department should strengthen its process for moving funds out of its suspense fund and tracking how much it transfers into its operating fund.
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