Does a Mississippi regional railroad authority have to get a full CPA audit each year, or is a CPA 'review' enough?

Plain-English summary

The Rail Authority of East Mississippi, a local government entity created under § 19-29-9, asked the AG whether it could substitute a CPA "review" for a full CPA audit, whether there was a financial threshold triggering an audit requirement, and whether it could send the review (instead of an audit) to its participating partners. The first question got a clean answer. The other two were declined as factual or contract questions.

The clean answer: Mississippi law does not require a regional railroad authority to obtain a CPA audit at all. The only annual reporting duty in the statutory chapter is in § 19-29-45, which requires the authority to file with the clerk of the board of supervisors of each member county and with the Governor's office of planning and coordination "a report of its activities for the preceding year." That is a general activity report. The statute does not specify that the report must be a financial audit, and it does not require that the report be prepared by a CPA.

Separately, the railroad authority is subject to examination by the State Auditor under § 19-29-18(4). The State Auditor's general authority comes from § 7-7-211(e), which lets the Auditor postaudit (and when necessary preaudit) the financial affairs of county-level offices, departments, and "any other local offices or agencies which share revenues derived from taxes or fees imposed by the State Legislature or receive grants from revenues collected by governmental divisions of the state." A regional railroad authority that gets county tax-supported funding falls in that bucket. The cost of a State Auditor audit is partly state-funded and partly billed to the audited entity at a statutory rate of $35.00 per man-hour (the rate identified in the opinion's quoted version of § 7-7-211(e); the current rate may differ).

The AG declined to opine on the "no statute requires CPA audit, so what can we send to partners" question (Q2 in the original) because it is a contract / business judgment question, not a question of state law. The third question, on whether sending a review to partners "in a similar fashion" to past audits is lawful, was treated as moot once the AG confirmed the underlying audit/review distinction.

Currency note

This opinion was issued in 2020. 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.

Currency note

This opinion was issued in 2020. 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.

Common questions

Q: What is a regional railroad authority in Mississippi?
A: A multi-county special-purpose local government entity created under § 19-29-9 to operate or support rail service. Authorities are formed when two or more counties contract together to provide rail-related services that exceed any one county's resources. They have statutory taxing-related powers (member counties may pledge support) and limited bonding authority.

Q: What is the difference between a CPA audit and a CPA review?
A: Two different AICPA-defined engagements. An audit gives "reasonable assurance" that financial statements are free from material misstatement; the auditor performs substantive testing of transactions, balances, and internal controls. A review gives "limited assurance"; the CPA performs analytical procedures and inquiry but does not test transactions or controls. An audit is several times more expensive than a review and produces a stronger opinion. The AG opinion does not address which is appropriate for the authority's business needs; it just confirms state law does not mandate either.

Q: When does the State Auditor get involved?
A: Under § 7-7-211(e), the State Auditor can postaudit (and when necessary preaudit) financial affairs of county-level offices, school districts, and local agencies that receive state-derived funds. The Auditor's office decides which entities to examine and when. A regional railroad authority's exposure depends on its funding mix. The opinion quotes the statute's payment structure: state appropriation covers part, but $35.00 per man-hour (at the time of the opinion) is billed back to the audited entity.

Q: What does the annual § 19-29-45 activity report have to include?
A: A "report of its activities for the preceding year," filed with the clerk of the board of supervisors of each member county and with the Governor's office of planning and coordination. The statute does not prescribe format or required contents. The AG opinion notes that the report does not have to include a financial audit and does not have to be prepared by a CPA.

Q: Could the authority's participating partners require a CPA audit by contract?
A: That is the kind of contract question the AG declined to address. A counterparty (member county, lender, grantor) can require whatever level of financial assurance it wants by contract. Whether the authority's existing arrangements with partners require audit-level work is a contract-interpretation question for the parties' attorneys.

Q: How does the $35-per-man-hour rate in the State Auditor billing actually work?
A: The opinion quotes the version of § 7-7-211(e) in effect at the time. The State Auditor's appropriated budget covers basic operations; specific entity audits are billed back at the per-hour rate plus the actual cost of independent specialists the Auditor hires. This rate is set by statute and has been updated periodically.

Q: Are there penalties for not filing the annual activity report?
A: The opinion does not discuss penalties. Section 19-29-45's obligation is mandatory ("the regional railroad authority shall file"). Non-filing would likely subject the authority to mandamus by interested parties (member counties, the Governor's office). The State Auditor's examination power under § 19-29-18(4) is independent of whether the activity report is filed.

Background and statutory framework

Mississippi's regional railroad authority statute (Title 19, Chapter 29) was crafted to let counties pool resources to support rail service in the late 20th century when many short lines were abandoned. The statute gives the authority operational and contracting powers, lets member counties contribute, and creates a special-purpose entity that is not a county department but is subject to county oversight.

The reporting and accountability structure is intentionally lighter than the regimen for general-purpose local governments:

• Operational reporting: § 19-29-45 requires an annual activity report.
• State Auditor access: § 19-29-18(4) makes the authority subject to State Auditor examination.
• State Auditor general powers: § 7-7-211(e) is the umbrella statute under which the State Auditor reaches local agencies that receive state-derived funds.

What is notably absent is any mandate for an annual independent CPA audit. Compare that to municipalities (Miss. Code § 21-35-31), public school districts (§ 37-9-18), and counties (§ 7-7-211(e) plus county-specific statutes), where annual independent audits are required. Special-purpose authorities like regional railroad authorities often fall outside that regime.

The AG's standard line about contract interpretation and factual determinations (§ 7-5-25) keeps it out of two of the three questions. The office routinely declines to interpret specific contracts, opine on questions that require factual determinations, or validate or invalidate past actions.

Citations and references

Statutes: Miss. Code Ann. § 19-29-9 (creation of regional railroad authorities); § 19-29-18(4) (authority subject to State Auditor examination); § 19-29-45 (annual activity report); § 7-7-211(e) (State Auditor postaudit authority); § 7-5-25 (AG opinion scope).

Prior AG opinions referenced: None specifically.

Source

• Landing page: https://attorneygenerallynnfitch.com/divisions/opinions-and-policy/recent-opinions/
• Original PDF: https://attorneygenerallynnfitch.com/wp-content/uploads/2020/07/L.Gandy_January-3-2020-Financial-Audit-of-a-Regional-Railroad-Authority.pdf

Original opinion text

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

STATE OF MISSISSIPPI

JIM HOOD
ATTORNEY GENERAL

OPINIONS DIVISION

January 3, 2020

Larry Gandy, Executive Director
Rail Authority of East Mississippi
610 Azalea Drive
Waynesboro, Mississippi 39367

Re: Financial Audit of a Regional Railroad Authority

OFFICIAL OPINION

Attorney General Jim Hood is in receipt of your opinion request and has assigned it to me for research and response. In your letter, you explain that the Rail Authority of East Mississippi is a local government entity that was created pursuant to Section 19-29-9 of the Mississippi Code Annotated.

Questions Presented

1. Whether or not a local governmental agency, such as ours, can lawfully rely on a Certified Public Accountant "review" of its books as opposed to a full-scale audit. To our understanding, audits and reviews are two different services that a Certified Public Accountant can provide involving financial statements. A review of an organization's financial statements provide a report issued by the Certified Public Accountant that expresses the financial statements are free from material misstatements.

2. Is there any financial threshold or criteria in Mississippi law for an agency such as ours that must be met for an audit?

3. If a review is sufficient, would it be lawful to send this report to participating partners in the process in a similar fashion as has been done with our audits in the past?

In response to your first question, the only requirement regarding an annual report is found in Section 19-29-45 of the Mississippi Code Annotated. This section provides that at least once a year the regional railroad authority shall file with the clerk of the board of supervisors of each county, and the Governor's office of planning and coordination, a report of its activities for the preceding year. This requirement does not specify that the report include a financial audit, nor is there any mention that the report be performed by a certified public accountant. However, although there is no requirement that the District prepare an annual financial audit by a certified public accountant, Section 19-29-18(4) provides that each railroad authority shall be subject to examination by the State Auditor. Thus, the District is subject to being audited by the State Auditor's office under Section 7-7-211(e), which authorizes the State Auditor:

To postaudit and, when deemed necessary, preaudit and investigate separately the financial affairs of (i) the offices, boards and commissions of county governments and any departments and institutions thereof and therein; (ii) public school districts, departments of education and junior college districts; and (iii) any other local offices or agencies which share revenues derived from taxes or fees imposed by the State Legislature or receive grants from revenues collected by governmental divisions of the state; the cost of such audits, investigations or other services to be paid as follows: Such part shall be paid by the state from appropriations made by the Legislature for the operation of the State Department of Audit and the operation of the sum of Thirty-five Dollars ($35.00) per man-hour for the services of each staff person engaged in performing the audit or other service plus the actual cost of any independent specialist firm contracted by the State Auditor to assist in the performance of the audit, which sum shall be paid by the county, district, department, institution or other agency audited out of its general fund or any other available funds from which such payment is not prohibited by law. Costs paid for independent specialists or firms contracted by the State Auditor shall be paid by the audited entity through the State Auditor to the specialist or firm conducting the postaudit.

An internal audit by an independent auditor/Certified Public Accountant (CPA) could be of assistance when being audited by the State. You may wish to contact the State Auditor regarding financial criteria that may be required if an audit is done by the State Auditor.

Your second question asks whether it is lawful for the Rail Authority to send a financial review, rather than a financial audit to participating partners. We are unable to find any statute that requires the Rail Authority to provide either a financial audit or a review to participating partners. Thus, we are unable to opine upon this issue.

Based upon our response to your first question, your third question is moot.

If this office may be of any further assistance to you, please let us know.

Sincerely,

JIM HOOD, ATTORNEY GENERAL

Avery Mounger Lee
Special Assistant Attorney General