Maryland Attorney General Opinion 96 OAG 084

84 [96 Op. Att’y

EDUCATION

COMMUNITY COLLEGES – WHETHER STATUTE AUTHORIZES
COUNTY AUDITOR TO CONDUCT A PERFORMANCE AUDIT
OF A COMMUNITY COLLEGE

October 11, 2011

Victoria K. Fretwell, Chair
Anne Arundel Community College Board of Trustees

On behalf of the Board of Trustees of Anne Arundel
Community College, you asked whether Annotated Code of
Maryland, Education Article (“ED”), §16-315(i) empowers the Anne
Arundel County Council to compel the Anne Arundel Community
College (“the College”) to undergo an audit by the County Auditor
of its administrative and management practices. The College asserts
that such an audit would be a “performance audit” and that the
County Auditor “does not have authority under State law to conduct
a performance audit of the manner in which the college is managed.”

For the reasons discussed below, it is our opinion that ED §16-
315(i) does not authorize the County Auditor to audit the
administrative and management practices of the College. The statute
permits the County Auditor to conduct an audit of the financial
accounts of the College.

I

Background

A. Audit Requirements for Community Colleges

Under Maryland law, each community college is to “have an
annual audit of its books of accounts, accounting procedures and
principles, and other fiscal and operational methods and
procedures.” ED §16-315(b). The audit is to be conducted in
accordance with guidelines established by the Maryland Higher
Education Commission (“MHEC”). ED §16-315(a); COMAR
Gen. 84] 85

13B.07.03. The audit report and related management letter1 must be
submitted to MHEC for review and assessment and to the
Legislative Auditor. ED §16-315(b); COMAR 13B.07.03.02A.2
MHEC is to evaluate each audit report it receives and may take
various actions depending on a college’s response to
recommendations in an audit report. ED §16-315(c).

The statute does not ordinarily require use of a particular
auditor. The Legislative Auditor may conduct the annual audit for
a community college, on giving the college notice of its intent to do
so. ED §16-315(d). “[A]n official auditor of any county or
Baltimore City” also may conduct the annual audit of a community
college, if MHEC approves the use of that auditor and the
Legislative Auditor concurs. ED §16-315(f). The cost of the annual
audit is the responsibility of the college. ED §16-315(g).

At the direction of the Legislature’s Joint Audit Committee, the
Legislative Auditor may undertake special audits of any community
college at State expense. ED §16-315(e). Each year, the Legislative
Auditor is required to submit a report “on the results of the annual
and special community college audits.” ED §16-315(h).

Finally, the statute states:

Nothing contained in this section may be
construed to prohibit a periodic or special
audit by an official auditor of any county
providing funds for a community college.

ED §16-315(i). The statute does not define “periodic or special
audit.”

1
In a management letter, sometimes referred to as an internal
controls report, an auditor evaluates the entity’s internal financial
controls. Gauthier, Governmental Accounting, Auditing and Financial
Reporting (Using the GASB 34 Model) (2005) at p. 698; American
Institute of Certified Public Accountants, Statements on Auditing
Standards, SAS 115 (AU 325) – Communicating Internal Control Related
Matters Identified in an Audit.
2
The guidelines also require that the community college submit to
an “enrollment audit,” which relates to a calculation of “full-time
equivalent students.” COMAR 13B.07.03.02. The full-time equivalent
student calculation is used in the formula for distributing State aid to
community colleges. See ED §16-305.
86 [96 Op. Att’y

B. County Council Audit Resolution

On July 18, 2011, the Anne Arundel County Council adopted
Resolution No. 39-11 (“Resolution”). Citing ED §16-315(i)
concerning “periodic or special” audits, the Resolution requests the
County Auditor to undertake an audit of the College to review
numerous areas of College administration and management. In
particular, the Resolution asks the County Auditor to analyze the
“effectiveness” of the College’s utilization of its facilities, to
compare its administrative costs with those of other colleges, to
make various other comparisons with other colleges (e.g., sabbatical
policies, sabbatical pay, pay and benefits of the College president),
and to obtain various items of information and documentation from
the College.
You ask whether the County Auditor has authority to conduct
such an audit under the statutory provision that allows a county
auditor to conduct a “periodic or special” audit of a community
college.

II

Analysis

A. Types of Audits

An audit of a government entity is generally characterized as
either a “financial audit” or a “performance audit.” See 75 Opinions
of the Attorney General 172 (1990) (“1990 Opinion”); see also 92
Opinions of the Attorney General 137, 141-42 (2007); United States
Government Accountability Office, Government Auditing Standards
– 2011 Internet Version (August 2011) (“GAO Standards”), Chapter
2. A “financial audit” is 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. 1990 Opinion at 174; GAO
Standards at §§2.07, 2.08. By contrast, a “performance audit” is 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
Gen. 84] 87

corrective actions for improving its performance are appropriate.3
1990 Opinion at 174; GAO Standards at §§2.10, 2.11.

Although the Resolution itself does not characterize the
assignment that it gives the County Auditor, you believe it calls for
a performance audit and that the cited statute does not authorize a
performance audit by a county auditor.

B. Audits by County Auditor under ED §16-315

To answer your question, we must assess the role of the County
Auditor under ED §16-315 – a question of statutory construction in
which we attempt to discern the intent of the Legislature. As the
Court of Appeals has frequently stated, that process looks first to the
language of the statute, considers it within the overall statutory
scheme, and may also examine the statute’s history to resolve
ambiguities. See Breslin v. Powell, 2011 Md. LEXIS 518 at 34-35
(August 16, 2011).

1. Statutory Language

There are two references in ED §16-315 to “an official auditor”
of a county that provides funds to a community college – a term that
encompasses the County Auditor. The first states that such an
auditor may conduct the required annual audit of the college – an
audit that clearly is a financial audit. ED §16-315(f). The second
reference in the statute states that “[n]othing in this section may be
construed to prohibit a periodic or special audit by an official auditor
of any county providing funds for a community college.” ED §16-
315(i). This provision appears simply to make clear that the
authority to do the annual audit does not preclude a county auditor
from conducting audits on other occasions or in other cycles. Thus,
on its face, the reference to a “periodic or special” audit by a county
auditor in ED §16-315(i) is addressed to the timing or scope of an
audit, not its nature.4

3
This definition was articulated in the 1990 Opinion and was later
adopted by the General Assembly in a statute governing performance
audits of local boards of education. Chapter 88, Laws of Maryland 1996,
now codified at ED §5-110(a).
4
This reading is consistent with the use of those terms by
accountants. According to a dictionary of accounting terms, a “periodic
(continued...)
88 [96 Op. Att’y

The Annotated Code of Maryland contains only two other
references to a “periodic” or “special” audit of a government entity
that does not involve the Legislative Auditor. In both instances, the
statute authorizes, or preserves a right to conduct, a financial audit.
See Annotated Code of Maryland, Correctional Services Article,
§11-903(a)(4) (providing that statute requiring accounting of local
inmate welfare funds does not preclude a “periodic or special audit”
of such a fund); Criminal Procedure Article, §15-414(e)(3)
(authorizing County Executive or County Council of Howard
County to order a “special audit” of the Howard County State’s
Attorney in accordance with a provision of the County charter
providing for financial audits); see also Andresen v. Bar Assn. of
Montgomery County, 269 Md. 313, 316, 305 A.2d 845 (1973)
(referring to a court-ordered audit of an attorney’s accounts related
to the closing of real estate transactions as a “special audit”).

2. Absence of Language concerning Performance Audits

Nothing in ED §16-315 specifically authorizes a county auditor
to conduct a performance audit of a community college. When the
General Assembly authorizes an auditor to conduct a performance
audit, it makes that intention quite clear. For example, it has charged
the Legislative Auditor generally with performing “performance
audits” of State entities, when directed by the Joint Audit
Committee, by the Executive Director of the Department of
Legislative Services, or otherwise by law. Annotated Code of
Maryland, State Government Article (“SG”), §§2-1207(5) and 2-
1220(a)(3).5 The scope of such an audit includes evaluating the
efficiency, effectiveness, and economy with which resources are
used, determining whether desired program results are achieved, and
determining the reliability of identified performance measures. SG
§2-1221(b).

4
(...continued)
audit” is an audit “covering an intermediate accounting period such as a
month” or an audit “conducted at state intervals of time.” W.W. Cooper
& Y. Ijiri, Kohler’s Dictionary for Accountants (6th ed. 1983) at 378. The
term “special audit” is used to refer to an audit “having a limited, specific
scope.” Id.
5
In the 2011 Session, the General Assembly added SG §2-1220(f),
authorizing Legislative Auditor to conduct “performance audits” of the
Board of Liquor License Commissioners for Baltimore City. Chapter
263, Laws of Maryland 2011.
Gen. 84] 89

In other statutes, the General Assembly has authorized
performance audits in particular contexts or for particular purposes.
For example, in ED §5-110(f), the General Assembly recognized
that a local school board and a county governing body might agree
to a performance audit of a local school system. In the absence of
such an agreement, the Legislature authorized the State Department
of Education, at the request of a county government, to contract for
a performance audit of the county school system. ED §5-110(b).
However, the county governing body cannot require the local board
to submit to a performance audit by the county auditor without the
local board’s assent. 91 Opinions of the Attorney General 145
(2006).

Other provisions of law provide for performance audits in
specific contexts. See CS §8-114 (authorizing Commission on
Correctional Standards to conduct performance audits of correctional
facilities); Annotated Code of Maryland, Insurance Article, §29-101
(adopting an interstate compact that includes provision for a
“performance audit” of a commission established by the compact).

These statutes demonstrate that, when the General Assembly
intends that a government unit or an official have authority to
conduct a performance audit, that authority is made express. It has
not been made express in ED §16-315(i), and, in our view, the right
to perform a “periodic or special audit” preserved in that statute
should not be construed to mean a performance audit.

C. History of Audit Provisions Relating to Community Colleges

The legislative history of ED §16-315 confirms our construction
of the statutory language. From the inception of the statute, the
Legislature apparently intended the references to audits of a
community college by a county auditor to denote financial audits.
In 1961, the local boards of education were given authority to
establish and maintain community colleges. Chapter 134, Laws of
Maryland 1961. The board of trustees, the superintendent, and the
president of a community college were “charged with the
preparation of the annual budget, …and the receipt and expenditure
of budgeted funds under an adequate accounting system, subject to
review by the auditor of the county or of Baltimore City ….”
Annotated Code of Maryland, Article 77, §302(a) (1961 Supp.).

In 1968, the Legislature established the State Board for
Community Colleges (“State Board”) and gave it authority to
90 [96 Op. Att’y

“exercise full State-wide responsibility for the several community
colleges.” Chapter 454, Laws of Maryland, 1968, codified at
Annotated Code of Maryland, Article 77, §§304A (1965 Repl. Vol.
& 1968 Supp.). County auditors retained their authority to review
the accounting system of a community college. Article 77, §302(a).

When the Education Article was enacted in 1978, the provision
concerning audits of community colleges was recodified as ED §16-
409(a). Chapter 22, Laws of Maryland 1978. The revisors added
language to make explicit that an audit was required annually, as the
State Board had required by rule. Id., Revisor’s Note.6 That same
year, the audit statute was amended substantively to add many of the
provisions that still appear in it today, including a direction to the
State Board to create guidelines for audits and the authorization for
the Legislative Auditor to perform the annual audit. Chapter 642,
Laws of Maryland 1978. While that bill was before the Legislature,
it was amended to include the savings clause allowing for “periodic
or special” audits by county auditors that now appears in ED §16-
315(i). Given that the 1978 recodification of the provision was the
first time that the provision referred to an “annual” audit, it appears
likely that this provision was added simply to clarify that the
“annual” audit did not preclude the conduct of audits at other times
or on other cycles.

It is notable that, in connection with the 1978 legislation, the
State Board submitted to the Legislature a description of the audit
process for community colleges. Letter and Report of Brent M.
Johnson, Executive Director, State Board for Community Colleges,
to Delegate Benjamin L. Cardin (February 27, 1978). That
submission provides elaborate detail as to the conduct of financial
audits and enrollment audits in the context of a community college.
There is no mention of performance audits in the legislative file.

Subsequently, the Legislature has modified the statute in only
minor respects. In 1985, ED §16-409(b) and (c) were amended to
require the State Board to review and assess the annual audit report
and management letter. A process was established for the State
Board and the community colleges to deal with material weaknesses
and related recommendations. Chapter 123, Laws of Maryland
1985. In 1991, the State Board was discontinued and its powers and

6
Prior to creation of Education Article, Article 77, §302(a) had been
renumbered as Article 77A, §5 by Chapter 405, §4, Laws of Maryland
1969.
Gen. 84] 91

duties were vested in MHEC. Chapter 464, Laws of Maryland 1991.
In 1996, the Legislature authorized a renumbering of the provision,
resulting in its current codification as ED §16-315. Chapter 10, §16,
Laws of Maryland 1996.

Since 1978, no substantive changes related to audits by a county
auditor have been made in the statute. Thus, there appears no basis
for reading an authorization for a county auditor to conduct a
performance audit into the statute that was not present when the
subsection was originally enacted in 1978.7

D. Summary

The statutory provision cited in the Resolution – ED §16-315(i)
– preserves a right for a county auditor to undertake a financial audit
of a community college. However, the Resolution itself requests the
County Auditor to review the “effectiveness” of various practices of
the College and to make various comparisons with other colleges.
This assignment largely falls within the scope of a performance audit
of the College rather than a financial audit that the savings clause of
the statute allows.8 Thus, the County Auditor lacks authority to
compel the College to undergo such an audit.

7
The 1990 Opinion reached a similar conclusion regarding a statute
that allowed for a county auditor to audit a local board of education.
Attorney General Curran reviewed the legislative history of the relevant
statute and ascertained that the references to an “audit” in that subsection
were linked to provisions concerning audits of the local board’s “financial
transactions and accounts.” 1990 Opinion at 174-78. Accordingly, the
county governing body lacked authority under the statute, as it then
existed, to conduct a performance audit. Id. 1990 Opinion at 172. While
ED §16-315(i) traces its origin to a separate statute, it is not surprising
that the Legislature adopted a similar policy concerning county audits as
to these two State educational entities that are partially funded by
counties.
8
Portions of the Resolution ask the County Auditor to obtain public
records or information from the College. Like any other person, the
County Auditor may make a request to the College for access to records
under the Public Information Act (“PIA”). SG §§10-611 et seq. The PIA
contemplates that one government entity may ask another government
entity for access to records. SG §10-611(b) (“‘Applicant’ means a person
or governmental unit that asks to inspect a public record”). The PIA
provides a broad right of access to public records, but also incorporates
various exceptions that may apply to some of the records or information
sought. See 92 Opinions of the Attorney General 137, 145-47 (2007).
92 [96 Op. Att’y

III

Conclusion

In our opinion, ED §16-315(i) does not authorize the County
Auditor to undertake a performance audit of Anne Arundel
Community College. The County Auditor may conduct a financial
audit of the College.

Douglas F. Gansler
Attorney General

Patricia A. Logan
Assistant Attorney General

Robert N. McDonald
Chief Counsel
Opinions and Advice