Can a county government audit its school board's management practices, or only its finances?

Plain-English summary

The Carroll County Commissioners wanted to hire outside auditors to look at the county Board of Education, and their request for proposals reached well past the board's books. It called for review of purchasing practices, surplus property policy, hiring practices, promotion criteria, and other administrative practices. The board did not dispute that the county could audit it, but argued the county's audit power was limited to "financial transactions and accounts." The commissioners asked the Attorney General to settle the scope of their audit authority under ED §5-108(d).

The Attorney General concluded that the county's audit was limited to the board's financial transactions and accounts. It could not extend to a "management" or "performance" audit of how the board ran its programs. The reasoning turned on the difference between two kinds of audits. A financial audit checks whether financial statements are fairly presented and whether the entity complied with the legal requirements governing its transactions. A performance audit is broader and more intrusive: it evaluates whether a program is run economically and efficiently and whether it is meeting its objectives. ED §5-108(d) authorized only the former.

Two threads drove that reading. First, the legislative history. Before the 1978 recodification, the statute (former Article 77, §118) let the county conduct "such an audit," and the word "such" tied the county's audit to the financial audit described in the preceding subsections. The 1978 recodification dropped "such," but the revisor's notes said "[t]he only changes are in style," and a style change is presumed not to alter the law's substance. Second, the broader allocation of power. Counties have only the powers granted them by law, school boards hold broad authority over educational matters, and the State has largely preempted school budgeting. Reading the audit power narrowly kept ED §5-108(d) in harmony with those rules. The opinion also pointed out that when the General Assembly did want to authorize a real performance audit, as for the State's Division of Audits, it said so in unmistakable terms; it used no such language here.

Currency note

This opinion was issued in 1990. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The Education Article and the other statutes the opinion relied on have been amended and renumbered over the decades since 1990, so the specific section numbers here may no longer be current. The opinion was also the Attorney General's assessment, not a court ruling, and it addressed one county's specific request for proposals. Read the analysis and the citations as the law as it stood in 1990, and check the current Education Article and related statutes before relying on any of it.

Common questions

Could a county audit its school board's management, not just its finances?
No, under this 1990 opinion. The Attorney General read ED §5-108(d) to authorize only an audit of the board's financial transactions and accounts, not a broader management or performance audit of the board's operations.

What is the difference between a financial audit and a performance audit?
A financial audit reviews financial statements to confirm they fairly present the entity's finances and that it followed the legal rules governing its transactions. A performance audit is broader: it assesses whether a program is run economically and efficiently and whether it is achieving its goals. The opinion described the performance audit as significantly more invasive.

Why did the word "such" matter so much?
The pre-1978 statute let the county conduct "such an audit," which grammatically referred back to the financial audit described just before it. The 1978 recodification dropped "such," but the revisor said the change was one of style only, and Maryland treats style-only recodifications as not changing the underlying law. So the audit stayed limited to financial matters.

Could the county ever get authority for a management audit of the board?
Yes, but only from the legislature. The opinion said an audit of the kind the county wanted could be conducted only if the General Assembly amended the statute to authorize it.

Background and statutory framework

ED §5-108 required each county board of education to arrange an annual audit of its financial transactions and accounts by an approved certified public accountant, and subsection (d) added that "[i]n addition to the audit required by this section, the county commissioners or county council may conduct an audit using auditors employed by the county." The dispute was over the scope of that additional county audit. Carroll County read subsection (d) as open-ended enough to reach management practices; the board read it as limited to a second financial audit.

The opinion first distinguished the two audit types, drawing on the federal Government Auditing Standards: a financial audit expresses an opinion on financial presentation and legal compliance, while a performance audit assesses economy, efficiency, and whether program objectives are met. It then turned to legislative history. The predecessor statute, former Article 77, §118, authorized the county to conduct "such an audit," and under settled construction the word "such" refers to the nearest preceding antecedent, here the financial audit the board itself had to perform. When the provision was recodified as ED §5-108(d) in 1978, "such" dropped out, but the revisor's notes stated the only changes were stylistic, and Maryland treats recodification as presumptively for clarity rather than substantive change unless the intent to change appears unmistakably. The opinion also traced the provision back to a 1966 School Law Revision Commission, which recommended more thorough financial audits while preserving the traditional separation of education from other local government functions; the General Assembly adopted the commission's proposal but replaced a potentially broad "[a]dditional audits" clause with the limiting "such an audit" language.

The opinion reinforced its reading with the general allocation of powers. A county may exercise only powers granted by law; boards of education are not subject to county budget, fiscal, and purchasing laws; and the State has preempted educational budgeting so that boards answer to State law, not county procedures. Boards hold broad authority to appoint personnel, set educational policy, establish schools and attendance areas, set curriculum, and manage school property. Because Carroll County's request for proposals reached into purchasing and hiring, areas committed to the board, it went past what a county could review. Finally, the opinion contrasted ED §5-108(d) with §2-1215 of the State Government Article, where the General Assembly expressly authorized the State's Division of Audits to conduct both fiscal-compliance and performance audits, showing it knew how to authorize a performance audit when it wanted one. The bottom line: the county's audit authority under ED §5-108(d) was limited to the board's financial transactions and accounts, and expanding it would take an amendment by the General Assembly.

Citations and references

Statutes and constitutional provisions:

• §5-108(d) of the Education Article, the county audit authority at issue, and ED §5-108(a), the board's own annual financial audit duty
• Former Article 77, §118 (and its predecessor, former Article 77, §69), the pre-1978 audit provisions, and Chapter 405, Laws of Maryland 1969, and Chapter 22, Laws of Maryland 1978, the enacting and recodifying laws
• §2-1215 and SG §2-1216(b) of the State Government Article, the express performance-audit authority for the State's Division of Audits, contrasted with the county provision
• Article VII, §1 of the Maryland Constitution, on the limited powers of counties, and numerous Education Article provisions on the board's authority (ED §4-101, §4-103, §4-107, §4-108, §4-110, §4-114) and on school budgeting (ED §§5-101, 5-102, 5-103, 5-104, 6-301, 6-302)

Cases:

• Board of Supervisors v. Weiss, 217 Md. 133, 138, 141 A.2d 734 (1958), and In re Wallace's Estate, 98 Cal. App. 2d 285, 219 P.2d 910 (1950), on how "such" refers to its nearest antecedent
• Board of Educ. of Garrett County v. Lendo, 295 Md. 55, 62, 453 A.2d 1185 (1982); State v. Loscomb, 291 Md. 424, 430, 435 A.2d 764 (1981); Bureau of Mines v. George's Creek Coal & Land Co., 272 Md. 143, 155, 321 A.2d 748 (1974); and In re Special Investigation No. 236, 295 Md. 573, 458 A.2d 75 (1983), on style-only recodifications
• Office and Professional Employees Intern'l v. MTA, 295 Md. 88, 101, 453 A.2d 1191 (1982), on the weight of revisor's notes
• Harbor Island Marina, Inc. v. Board of County Comm'rs of Calvert County, 286 Md. 303, 309, 407 A.2d 738 (1979), on the limited powers of counties
• Board of Educ. of Montgomery County v. Montgomery County, 237 Md. 191, 197, 205 A.2d 202 (1964), and Montgomery County v. Yost, 223 Md. 150, 162 A.2d 462 (1960), on the primacy of State education law over conflicting county budget requirements
• In re Brown's Estate, 408 Pa. 214, 183 A.2d 307, 316 (1962), noting "audit" has no fixed meaning

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1990/Volume75_1990.pdf (this opinion appears at printed pages 172-180 of the bound annual volume; Maryland's site does not publish a standalone PDF of this opinion)

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

EDUCATION

Local Government — School Boards — Audits — County May Audit School Board's Financial Transactions and Accounts, But Not Its Management Practices

February 23, 1990

Mr. John L. Armacost
Ms. Julia W. Gouge
Mr. J. Jeffrey Griffith
County Commissioners of
Carroll County

 You have requested our opinion regarding the scope of the authority of the County Commissioners of Carroll County to audit the records of the Board of Education of Carroll County. Specifically, you ask whether §5-108(d) of the Education Article ("ED" Article) limits the county's audit to a review of the board's financial transactions and accounts, or whether it permits an audit that would assess the board's management practices.

For the reasons given below, we conclude that ED §5-108 limits the county to an audit of the board's financial transactions and accounts.

I

Background

A. The County's Proposal

 As we understand the circumstances, the County Commissioners have issued a Request for Proposals ("RFP") to perform an audit of the Board of Education. The RFP states that the audit "will include evaluation of the past three years individual financial audits as well as various management and administrative practices." The RFP names, among the items to be reviewed, the board's purchasing practices, surplus/excess property policy, hiring practices, professional development policies, and other administrative practices as deemed appropriate.

The county takes the position that it is authorized to conduct such an audit by ED §5-108(d), which provides:

            In addition to the audit required by this section, the county commissioners or county council may conduct an audit using auditors employed by the county.

 The board, while acknowledging the county's right to conduct an audit, contends that the county's authority is limited to an audit of "financial transactions and accounts," which the board itself must undertake annually. ED §5-108(a).1 The county's proposed management audit, the board contends, would infringe upon the board's statutory authority to control educational matters in the county.

B. Types of Audits

 To fully understand the parties' positions, one must consider the differences between a financial audit and a management audit, commonly referred to as a "performance audit."

 A "financial audit" generally refers to a review of an entity's financial statements, or segments of them, for two purposes: to determine whether the statements fairly present the audited entity's financial position in accordance with generally accepted accounting principles; and to determine whether the entity has complied with legal requirements governing those transactions and events that may have a material effect on the financial statements. See United States General Accounting Office, Government Auditing Standards, ch. 2 (1988 revision). The resulting auditor's report expresses an opinion on the entity's financial presentation but not on its underlying managerial success.

 A "performance audit," on the other hand, generally refers to an assessment of an entity's or program's practices to determine whether the entity or program is operating economically and efficiently, whether it is achieving its objectives, and whether corrective actions for improving its performance are appropriate. Id. Thus, a performance audit is significantly more invasive than a financial audit.

II

History of Audit Provisions

 The term "audit" is not defined in the Education Article. Nor does it have an unvarying meaning generally. See In re Brown's Estate, 408 Pa. 214, 183 A.2d 307, 316 (1962). The legislative history of ED §5-108(d) leads us to conclude, however, that the General Assembly intended to authorize an audit of financial transactions and accounts only.

 Prior to the 1978 revision of the Education Article, ED §5-108 appeared as former Article 77, §118 of the Maryland Code. Subsections (a) and (b) of Article 77, §118 were substantially similar to subsections (a) through (c) of the current ED §5-108. They required that a county board of education provide for an annual audit of "its financial transactions and [its] accounts" by a certified public accountant, following the standards and regulations adopted by the State Board of Education, and that the results be made public and be submitted in a report to the State Superintendent and the county fiscal authority. Subsection (c) of §118 stated:

          In addition to the audit authorized in this section, the county commissioners or county council are authorized to conduct such an audit using auditors employed by the county.

(Emphasis added.)

 By its use of the modifier "such," the General Assembly evidently intended to limit the county commissioners or council to the type of audit required in the preceding provisions of §118 — that is, to an audit of a board of education's "financial transactions and accounts." "Generally the word 'such' refers only to something which has been said before .... 'It naturally, by grammatical usage, refers to the last precedent antecedent.'" Board of Supervisors v. Weiss, 217 Md. 133, 138, 141 A.2d 734 (1958) (quoting In re Wallace's Estate, 98 Cal. App. 2d 285, 219 P.2d 910 (1950)). See also Black's Law Dictionary 1284 (5th ed. 1979). In this case, the antecedent is the audit of "financial transactions and accounts" referred to in the preceding paragraphs of §118.

 The term "such" disappeared in the recodification of this provision to what is now ED §5-108(d). The revisor's notes to the recodification of ED §5-108 state that "[t]he only changes are in style." Chapter 22, Laws of Maryland 1978. A revisor's changes in style are not intended to produce substantive changes in the law or its purpose. See, e.g., Board of Educ. of Garrett County v. Lendo, 295 Md. 55, 62, 453 A.2d 1185 (1982); State v. Loscomb, 291 Md. 424, 430, 435 A.2d 764 (1981); Bureau of Mines v. George's Creek Coal & Land Co., 272 Md. 143, 155, 321 A.2d 748 (1974).2 While the revisor's notes are not law, they are entitled to considerable weight in ascertaining legislative intent in Maryland. Office and Professional Employees Intern'l v. MTA, 295 Md. 88, 101, 453 A.2d 1191 (1982).

Therefore, we conclude that the General Assembly intended no substantive change when it adopted ED §5-108(d) without the word "such." The county audit authorized by subsection (d) is limited in scope to the audit of financial transactions and accounts required by the preceding subsections of ED §5-108, just as the audit authorized by former Article 77, §118(c) was limited.

Moreover, the legislative history of former Article 77, §118 suggests that the General Assembly has consistently decided against authorizing broad audits by county officials of boards of education. This provision, §118, was enacted in 1969 as one of several changes to implement the recommendations of a School Law Revision Commission appointed in 1966. Chapter 405, Laws of Maryland 1969.3

 The commission expressly recognized the traditional separation of education from other functions of local government in Maryland and made several recommendations to improve the working relationships between local boards of education and local government agencies. Among them, the commission recommended "[t]hat a more comprehensive annual audit be made of the financial transactions and accounts of the local boards of education by certified public accountants approved by the State Superintendent of Schools," and that "the State Board of Education should prescribe standards for such audits." Report of the School Law Revision Commission at 25-26 (Dec. 1, 1967) ("Report"). It was the commission's intent to prevent the need for State and federal auditors to make audits at the local level regarding expenditure of State and federal funds. Report at 38. Judging from these comments, the commission intended to improve the quality of local level audits, not to change the traditional relationship between county boards and county fiscal authorities.

 In addition to language requiring the local board to provide an annual audit of its financial transactions and accounts, the commission's proposed statute included the following language: "Additional audits may be made at the request of the local fiscal authorities upon approval by the State Auditor." Report at 67. The General Assembly adopted the commission's proposed statute essentially unchanged, with the exception of the final phrase regarding audits by local fiscal authorities. Instead of the potentially broad scope of "[a]dditional audits," the General Assembly chose instead to use the limiting phrase "such an audit," discussed above. It thereby limited the counties to the same type of financial audits as the boards themselves were to conduct.4

 Finally, the General Assembly's choice of language — whether in former Article 77, §118 or in current ED §5-108(d) — stands in marked contrast to that used in another context, where the General Assembly has unmistakably authorized a broad performance audit. The Division of Audits, within the State Department of Fiscal Services, is directed to conduct an audit of each unit of State government at least once every two years. §2-1215 of the State Government Article ("SG" Article). The General Assembly has defined the scope of the audit to include both fiscal and compliance parts and performance parts, thus recognizing a distinction between the two. As to the performance part, the Division of Audits is authorized to conduct "(1) a review of the efficiency and economy with which resources are used; and (2) a review to determine whether desired program results are achieved effectively." SG §2-1216(b).5

As we have explained, the term "audit" in ED §5-108(d) is limited to an audit of "financial transactions and accounts." The General Assembly did not intend to empower the counties to conduct a performance audit of boards of education, as it surely intended by the much more expansive language used in describing the Legislative Auditor's power to conduct a performance audit of units of State government. See 63 Opinions of the Attorney General 453 (1978).

 Our reading of ED §5-108(d) does not make a practical nullity out of this grant of authority to the counties. A financial audit necessarily is selective: An auditor examines a sample of pertinent transactions, not all of them. Therefore, a second financial audit, which would be undertaken at the commissioners' discretion and would examine a different sample or be conducted in greater depth, can be an important safeguard; it is not an exercise in useless duplication.

III

Allocation of Powers Between County and Board

 Other provisions of law governing the allocation of power and duties between county boards of education and county governments also support our conclusion that the county's audit authority is limited to a review of the board's financial records and accounts. ED §5-108(d) should be construed in harmony with these provisions.6

A county, through its commissioners, may exercise only those powers that have been expressly or impliedly granted by law. Article VII, §1 of the Maryland Constitution; Harbor Island Marina, Inc. v. Board of County Comm'rs of Calvert County, 286 Md. 303, 309, 407 A.2d 738 (1979).

 The county's authority to audit the board derives solely from ED §5-108(d). Boards of education are not subject to the budget and fiscal policies and purchasing laws of the counties in which they are located. Cf. Article 24, §8-101. Moreover, the State has preempted the area of educational budgeting, so that local school boards are not subject to county budgetary requirements, substantive or procedural, that are not authorized by State law. 68 Opinions of the Attorney General 236 (1983). See Board of Educ. of Montgomery County v. Montgomery County, 237 Md. 191, 197, 205 A.2d 202 (1964); Montgomery County v. Yost, 223 Md. 150, 162 A.2d 462 (1960) (inconsistencies between county budgetary requirements and public general law must be resolved in favor of the latter).

 A county's authority to control expenditures of the local board of education is limited by statute. Each local board is charged with the duty of preparing an annual school budget, subject to the rules and regulations of the State Board of Education, which it submits to the county officials. ED §§5-101 and 5-102. A county is mandated to contribute a minimum amount to the current expenses of the school board by levying a sufficient annual tax. ED §§5-103, 5-104, and 5-202(b)(3). A county is also required to levy sufficient funds to meet the minimum salaries required by ED §§6-301 and 6-302 for teachers and other professional and clerical personnel. See Board of Educ. v. Montgomery County, 237 Md. at 200. A county may provide funds in excess of the minimum amount required by law. ED §5-103(c). A county may also reduce the amounts requested by the board of education that are in excess of the minimum amount required by ED §5-202, but in so doing must identify in writing the categories of the budget that have been reduced and the reasons for the reduction. ED §5-103(d). See generally 64 Opinions of the Attorney General 51, 52-53 (1979).

 County boards of education, on the other hand, are granted broad authority to control all educational matters that affect the counties. ED §4-101. A board's powers and duties include, among other things, the power to: appoint and set the salaries of all principals, teachers, and other certificated and non-certificated school personnel, ED §4-103; determine the educational policies of the county school system and adopt rules and regulations for the conduct and management of the county public schools, ED §4-107; establish public schools and determine their geographical attendance area, ED §4-108; establish curriculum guides and courses of study for the schools under its jurisdiction, ED §4-110; and acquire and dispose of real property and rent, repair, improve, and build school buildings, ED §4-114. A county may not impose any requirement on a board that would interfere or conflict with the board's express statutory powers. See 68 Opinions of the Attorney General at 240 (county may not constrain a board's discretion to spend funds in accordance with State law).

 The Request for Proposal in question here appears to cover areas in which action would exceed the county's powers or conflict with the board's express powers. For example, the RFP indicates that the auditors are expected to review the "purchasing practices by the Board of Education, [and the] feasibility/desirability of combining purchasing departments between Board of Education and the County," even though the board is not subject to the county's purchasing policies or laws. The RFP also requires review of the board's hiring practices, including internal promotional policies, general hiring criteria, and experience requirements for administrative positions, even though the board possesses the power to appoint all school personnel and set their salaries. See ED §§4-103, 6-301, and 6-302.

IV

Conclusion

In summary, it is our opinion that the County Commissioners' authority to audit the Board of Education of Carroll County under ED §5-108(d) is limited to an audit of the board's financial transactions and accounts. An audit of the kind sought by the county may be conducted only if the General Assembly amends the statute to authorize it.

                                           J. Joseph Curran, Jr.
                                           Attorney General

                                           Caroline E. Emerson
                                           Assistant Attorney General

                                           Jack Schwartz
                                             Chief Counsel,
                                             Opinions & Advice

1
ED §5-108 provides in full as follows:

             (a) Each county board shall provide for an annual audit of its financial transactions and accounts.
             (b) (1) The [...] accountant or a partnership of certified public accountants who are:
                    (i) Enrolled for practice by the State Board of Public Accountancy; and
                    (ii) Approved by the State Superintendent.
                 (2) The audit shall be made in accordance with the standards and regulations adopted by the State Board.
              (c) (1) The [...] record.
                  (2) The results shall be reported within 3 months after the close of the fiscal year for the county board to the State Superintendent and the county fiscal authority on the form and in the manner required by the State Board.
              (d) In addition to the audit required by this section, the county commissioners or county council may conduct an audit using auditors employed by the county.

2
"Recodification of statutes is presumed to be for the purpose of clarity rather than change of meaning. Thus, even a change in the phraseology of a statute by codification will not ordinarily modify the law unless the change is so material that the intention of the General Assembly to modify the law appears unmistakably from the language of the Code." In re Special Investigation No. 236, 295 Md. 573, 458 A.2d 75 (1983).

3
Prior to 1969, each board of education was required to conduct an audit of "its business and financial transactions and of the accounts of its treasury"; in certain specifically enumerated counties, the county commissioners were authorized to "audit the books and accounts" of the boards and school superintendents. Former Article 77, §69.

4
The resulting provision extended the authority to audit the books and accounts of boards of education to all counties, rather than just certain enumerated counties. The General Assembly also rejected the commission's proposal to subject the counties to a requirement to obtain approval from the State Auditor before auditing boards of education.

5
By contrast, the annual audits that counties and other political subdivisions are required to submit to the Legislative Auditor are of their "books, accounts, records and reports" for the purpose of examining the "accuracy and legality" of their methods and of suggesting "methods of bookkeeping, changes in the uniform system of financial reporting and changes in the reports ...." Article 19, §40.

6
We note that the County Commissioners of Carroll County are "nonvoting ex officio members" of the Carroll County Board. ED §3-301(a)(2). This opinion does not address what entitlement the commissioners may have, in their capacity as board members, to examine records of the board.