The Legislative Joint Auditing Committee told the Treasurer to release water-sewer audit turnback funds even though some cities have not filed their reports yet. Can the Treasurer do that?
Plain-English summary
Act 453 of 2023, codified at A.C.A. § 14-234-120, requires Arkansas municipalities to file water and sewer system reports with the Legislative Auditor within 18 months after the end of the fiscal year. If a city falls behind, the Legislative Joint Auditing Committee may notify the Treasurer of State, and the Treasurer must withhold turnback funds owed to that city, holding them in escrow until the Committee notifies him that all reports have been filed.
In July 2025, the Committee notified Treasurer Thurston that 43 municipalities were noncompliant. The Treasurer dutifully withheld their turnback funds. In September, the Committee voted to direct the Treasurer to release the funds based on engagement letters promising future audits, even for cities that had not actually completed their reports.
Can the Treasurer do that? No, not based on the engagement letters alone. The statute conditions release on a Committee notice that "all reports … have been filed." A promise to audit later is not a filed report.
But there is a workaround the Committee can use. The Committee can vote to expunge its July 2025 noncompliance notice. Expungement nullifies the legal effect of the notice from its inception. With no operative noncompliance notice on the Treasurer's desk, the Treasurer is no longer required to withhold the funds. He can release them.
Procedural rules for expungement. Either the Committee follows its own rules of procedure (if it has expungement rules under A.C.A. § 10-3-408), or it follows the Arkansas House and Senate's two-thirds vote standard. The Arkansas Constitution lets each chamber set its own rules.
Authority limits on the Committee. The opinion emphasizes that the Committee can exercise discretion at the front end (whether to send an initial noncompliance notice) but cannot countermand the statute by directing release of funds without the second statutory notice. If the General Assembly wants to broaden the Committee's release authority, it has to amend the statute.
What this means for you
If you are at the State Treasurer's office
You cannot release the escrowed turnback funds based on engagement letters. The statute conditions release on a Committee notice of compliance with all required reports. If the Committee adopts an expungement of its July 2025 notice, that erases the legal premise for withholding. Document the expungement and treat the funds as releasable from the date of expungement (and arguably retroactive to the original notice date because the expunged notice is treated as never sent).
If you are on the Legislative Joint Auditing Committee
You have two options if you want the funds released:
1. Expunge the July 2025 notice. A two-thirds vote (under House R. 19(h)/Senate R. 11.15) or whatever your own rules require under A.C.A. § 10-3-408. This erases the noncompliance notice and the Treasurer's withholding obligation goes with it. But it also means the original noncompliance notice is treated as if never sent, so you start over.
2. Wait for the cities to actually file. Once the reports come in, send the second statutory notice and let the funds release naturally.
You cannot send a second-stage "release the funds anyway" notice. The statute does not authorize that.
If you are a city clerk or finance director with funds in escrow
Engagement letters do not get you released. Your audit needs to be completed and your report needs to be filed. If you cannot meet the December 31, 2025 deadline you may be relying on, ask your auditor for a realistic timeline. Your alternative is hoping the Committee expunges its noncompliance notice, but that would nullify the entire 2025 process and probably reset the clock.
If you are a mayor
This is a real cash-flow issue if your city is among the 43. Talk to your auditor immediately. Build a realistic timeline. Brief your council on the impact and the two paths to release (file the reports or wait for the Committee to expunge).
If you are a state legislator or staffer
The statute does not give the Committee a clean path to release funds based on engagement letters. If that is the policy you want, the Act needs amending. Options: (a) add a provisional-release category for cities under documented audit engagement; (b) shift discretion to the Treasurer under specified conditions; (c) clarify the Committee's authority to issue conditional second notices.
Common questions
What is "turnback"?
General-revenue funds the State distributes back to municipalities and counties. Under A.C.A. § 14-234-120, the Treasurer holds these funds in escrow when triggered by a Committee noncompliance notice.
Why doesn't the Committee just send a "compliance" notice for the cities that promised to audit?
Because the statute makes the second notice conditional on "all reports … have been filed." The Committee cannot lawfully certify compliance for cities that have not filed.
What does expungement do?
The expunged notice is treated as if it were never sent. The Treasurer's obligation to withhold flows from the original notice; if the original notice is expunged, the obligation evaporates.
Can the Committee expunge the notice for some cities but not others?
The opinion does not address selective expungement. Logically, if the original notice was issued as one item covering 43 cities, expungement would either nullify the whole notice or require the Committee to use a different procedural mechanism for partial action. Consult parliamentarians.
Does an expungement affect future enforcement?
The expungement nullifies the July 2025 notice's legal effect. The Committee remains free to issue a new noncompliance notice in the future for cities still missing reports.
What is the consequence of late filing for cities?
Funds withheld in escrow until they file. Cities lose the use of cash. Once they file and the Committee sends the second notice, the funds release.
Background and statutory framework
Act 453 of 2023, codified at A.C.A. § 14-234-120. Subdivision (c)(1):
- Cities must file water-sewer system reports with the Legislative Auditor within 18 months after fiscal year end.
- If a city fails, the Legislative Joint Auditing Committee "may give notice of that fact to the Treasurer of State."
- Upon receiving the notice, the Treasurer "shall then withhold any turnback funds due the municipality in escrow."
- Funds remain in escrow "until notified by the Legislative Joint Auditing Committee that all reports … have been filed."
Two-step structure. The statute creates a strict two-notice structure: the initial noncompliance notice (discretionary) triggers withholding; the second compliance notice (conditional on reports being filed) triggers release. The Committee cannot send a third type of notice that would direct release on different terms.
A.C.A. § 10-3-408. Authorizes the Legislative Joint Auditing Committee to establish its own rules, "not inconsistent with law."
Ark. House R. 19(h); Ark. Senate R. 11.15. A two-thirds vote of the total membership is required to expunge a vote.
Ark. Const. art. V, § 12. Each house has the power to determine the rules of its proceedings.
Effect of expungement. Treats the expunged action as never having taken place. The Committee's notice would be removed from the record, and the legal consequences of the notice would be reversed.
Citations
Statutes:
- A.C.A. § 10-3-408 (Committee rule-making authority)
- A.C.A. § 14-234-120 (Act 453 of 2023; turnback escrow procedure)
Constitutional/Rules:
- Ark. Const. art. V, § 12
- Ark. House R. 19(h)
- Ark. Senate R. 11.15
Other AG opinions:
- 94-170, 77-125 (legislative committee authority)
Source
Original opinion text
BOB R. BROOKS JR. JUSTICE BUILDING
101 WEST CAPITOL AVENUE
LITTLE ROCK, ARKANSAS 72201
Opinion No. 2025-096
October 6, 2025
The Honorable John Thurston
Treasurer of State
500 Woodlane, Suite 220
Little Rock, Arkansas 72201
Dear Treasurer Thurston:
You have requested an opinion from this Office concerning Act 453 of 2023, codified at A.C.A. § 14-234-120. Subdivision (c)(1) of that statute establishes a process under which certain moneys are withheld from or restored to municipalities that fail to file water or sewer system reports. Under the statute, when a municipality fails to file its report, the Legislative Joint Auditing Committee "may give notice of that fact to the Treasurer of State." Upon receiving that notice, the Treasurer "shall then withhold any turnback funds due the municipality in escrow."
Both those steps have happened here. In July 2025, the Legislative Joint Auditing Committee notified you under the statute that 43 municipalities had failed to submit their required reports. And, upon receiving that notice, you withheld the turnback funds.
Your question relates to how the funds are restored. While the funds are being withheld, they must be placed in "escrow until notified by the Legislative Joint Auditing Committee that all reports covering periods through the most recent fiscal year have been filed, at which time the escrowed turnback funds shall be released to the municipality."
You report that, on September 12, 2025, the Legislative Joint Auditing Committee voted to direct you to release turnback funds currently held in escrow under A.C.A. § 14-234-120(c)(1). While three of the original 43 municipalities have since submitted their reports, the Committee has directed you to release turnback funds "to all remaining municipalities on the list submitted in July if … [they] completed an audit by December 31, 2025 (or submitted an engagement letter stating that an audit would be completed by December 31, 2025)."
You ask whether you should release these funds on the next distribution date of October 10, 2025.
RESPONSE
Under A.C.A. § 14-234-120, the Treasurer may release withheld turnback funds to a municipality only upon receiving notice from the Legislative Joint Auditing Committee that a municipality has submitted all applicable reports concerning municipal water and sewer systems. An engagement letter from a municipality promising to complete an audit and submit reports in the future does not satisfy the statutory condition for the release of funds. But for reasons discussed in the opinion, a successful motion by the Committee to expunge the July 2025 notice would authorize the Treasurer to release the withheld funds from the date of the July 2025 notice to the date of expungement.
DISCUSSION
Act 453 of 2023 requires municipalities to submit certain municipal water and sewer system reports to the Legislative Auditor within eighteen months after the end of the fiscal year the report covers. If the municipality fails to do so, the Legislative Joint Auditing Committee "may give notice of that fact to the Treasurer of State." Upon receiving the notice, the Treasurer "shall then withhold any turnback funds due the municipality in escrow until notified by the Legislative Joint Auditing Committee" that all applicable reports have been filed.
Thus, after the Treasurer receives an initial notice of noncompliance, he lacks the authority to release the turnback funds. That authority is restored only after he receives a second notice from the Committee, stating that the applicable reports have been filed under A.C.A. § 14-234-120. If the Treasurer does not receive this second notice, he does not have the authority to release the funds.
Your question may be prompted by uncertainty regarding the scope of the Committee's authority. A legislative committee must act within the authority it is given by the General Assembly. While A.C.A. § 14-234-120 grants the Legislative Joint Auditing Committee discretion, this discretion lies in whether to send an initial notice. The General Assembly has not authorized the Committee to submit a second notice to the Treasurer directing funds be restored or changing the conditions under which the Treasurer releases withheld funds.
To the extent the General Assembly wishes to change this process, it may amend the conditions under which the Treasurer may release withheld turnback funds under A.C.A. § 14-234-120. It may also amend the applicable statutes to broaden the Committee's discretion at different stages of the process under § 14-234-120.
Rather than countermanding its earlier notice, the Committee may simply vote to expunge its July 2025 notice to the Treasurer, thereby nullifying the legal effect of that notice. If the Committee's rules of parliamentary procedure authorize it to expunge acts it has taken, the Committee may follow its own rules and expunge its July 2025 notice to the Treasurer. And if the Committee does not have its own specific rules on expunging votes, the Committee may expunge its notice by a two-thirds vote of the total membership of the Committee. The expunged notice would be treated as though it were never sent. It is my opinion that a successful motion to expunge would authorize the Treasurer to release the withheld funds from the date of the July 2025 notice to the date of expungement because it is as if the original notice never existed. A vote to expunge would also allow the Treasurer to continue to release the turnback funds until he receives another notice under A.C.A. § 14-234-120(c)(1). The Committee would not be acting contrary to State statute or the Constitution because it has the authority, independent of A.C.A. § 14-234-120, to expunge votes. Once the notice is expunged, the statutory condition triggering the Treasurer's obligation to withhold funds is no longer met. Accordingly, the Treasurer could then release the turnback funds without violating the statute.
Assistant Attorney General William R. Olson prepared this opinion, which I hereby approve.
Sincerely,
TIM GRIFFIN
Attorney General