An Audit Report on Accounts Payable and Encumbrances at Selected State Agencies
August 2011
Report Number 11-045
Overall Conclusion
The State Auditor's Office audited accounts payable and encumbrances as of August 31, 2010, and as of February 28, 2011, at three state agencies:
- The Texas Education Agency (TEA).
- The Department of Aging and Disability Services (DADS).
- The Texas Department of Transportation (TxDOT).
Accounts payable at TEA, DADS, and TxDOT were supported by valid obligations for each time period tested.
TEA's encumbrances were supported by valid obligations for each time period tested, but auditors identified issues related to encumbrances at both DADS and TxDOT. Specifically:
- Encumbrances that DADS reported as of August 31, 2010, were supported by valid obligations. However, DADS did not report encumbrances as of February 28, 2011, which is not in compliance with Texas Government Code, Section 403.021(b).
- Encumbrances that TxDOT reported as of August 31, 2010, and as of February 28, 2011, were not fully supported by valid obligations. The TxDOT districts, divisions, regions, and offices that auditors tested did not consistently retain adequate supporting documentation to determine whether the reported encumbrances were correct and supported by valid obligations.
TEA, DADS, and TxDOT used reasonable methodologies for calculating and recording accounts payable and encumbrances. They derived accounts payable and encumbrances from either (1) a combination of actual obligations owed at a given date and estimates or (2) entirely from estimates. Valid obligations to support accounts payable and encumbrances included estimates based on notices of grant awards, actuarial data, data obtained from the Uniform Statewide Accounting System (USAS), invoices, receiving reports, purchase orders, contracts, remaining appropriations, and legal obligations.
Auditors also analyzed fiscal year 2010 expenditures and fiscal year 2011 expenditures through February 28, 2011, to determine the agencies' compliance with other laws and regulations regarding accounts payable and encumbrances and determined the following:
- TEA and DADS complied with state requirements that generally specify that obligations must be paid within two years following the last day of the appropriation year.
- TxDOT complied with state requirements that (1) non-construction obligations must be paid within two years following the last day of the appropriation year and (2) construction obligations must be paid within four years following the expiration of the appropriation year.
- TEA, DADS, and TxDOT complied with state requirements that limit a state agency's or other governmental entity's expenditures in the last quarter of a fiscal year to no more than one-third of the state agency's or other governmental entity's appropriations for that fiscal year.
Auditors also identified other less significant issues that were communicated separately in writing to TEA, DADS, and TxDOT management.