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A Report on the Delegation of Authority to State Entities to Contract for External Audit Services

December 2014

Report Number 15-012

Overall Conclusion

To provide you with more information regarding the amount of audit work being performed related to state government, the State Auditor's Office has compiled the following data on delegations of authority to contract for audit services. State agencies and higher education institutions must request approval from the State Auditor's Office to contract for audit-related services. The State Auditor's Office is responsible for reviewing and approving state agencies' and higher education institutions' delegation of authority requests in accordance with Texas Government Code, Section 321.020. From September 1, 2012, through August 31, 2014, the State Auditor's Office received and approved 182 delegation of authority requests from 68 entities.

Some delegations of authority include a request for more than one project, the majority of which were for audit services. The 182 delegation of authority requests included 214 projects with an estimated total cost exceeding $62 million, as reported by the entities in their delegation of authority requests.

The delegation of authority requests are classified in the following three categories:

- Financial audits: Those audits provide an independent assessment of whether an auditee's financial information is presented fairly in accordance with recognized criteria. Financial audits include: (1) financial statement opinion audits for which the primary purpose is to provide an opinion on whether the auditeeā€™s financial statements are presented fairly in all material aspects in conformity with generally accepted accounting principles and (2) financial-related audits that can entail various scopes of work.

- Internal audit services: This includes entities that do not have an internal audit department but are required to have an internal audit function under Texas Government Code, Section 2102.004. In these instances, an entity requests the authority to outsource the internal audit function. This also includes requests from entities that have an internal audit department but may not have the required resources or required expertise to perform a particular audit.

- Other services: This includes performance and compliance audits. It also includes other engagements, such as attestations (mostly client and auditor agreed-upon procedures), consulting services, and entities' internal audit department requests for staff augmentation.

Of the 214 projects included in the 182 delegation of authority requests reviewed, 105 (49.1 percent) were for financial audits, 55 (25.7 percent) were for internal audit services, and 54 (25.2 percent) were for other services.

In addition, 11 entities accounted for 106 (49.5 percent) of the 214 requested projects.

Texas Government Code, Section 2102.0091, and the State Auditor's Office's delegation of authority approval process require entities to submit the final audit report to the State Auditor's Office. Of the 214 requested projects, the State Auditor's Office had received 153 reports (71.5 percent) as of October 30, 2014. Entities also reported that 56 (26.2 percent) projects were ongoing or had not yet started. Requests for 5 (2.3 percent) delegations of authority were for projects that will not result in a report, such as staff augmentation or consulting services.

The table in the attachment summarizes the delegation of authority requests the State Auditor's Office received from September 1, 2012, through August 31, 2014.

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