State auditors say the Texas Department of Agriculture’s (TDA) fees were set much too high in 2016, resulting in the department collecting 31 percent more than it spent that year.
The recent report noted that TDA’s books showed $27.3 million in revenue in 2016 against just $20.8 in expenditures, an overage of $6.5 million. Auditors say part of the problem is that the TDA didn’t have formal processes for monitoring its expenditures for its cost-recovery programs to determine whether fees are set at an appropriate rate to recover costs.
“It is important that the Department has processes in place for monitoring fee levels for its cost recovery programs so that it can evaluate and update its fee structure when its actual direct and indirect costs change,” auditors wrote.
The report said the TDA’s 2016 fee schedule was based on a cost-recovery rate analysis completed in September 2015 for operating costs, indirect costs and direct labor costs. But auditors said the analysis unnecessarily included a $4.6 million contingency estimate that was not based on actual expenditures or projects costs and shouldn’t have been included.
Auditors also discovered errors in some of TDA’s estimates of operating and indirect costs.
“As a result, the Department may not be able to evaluate its methodology or replicate its cost estimation and fee-setting processes going forward, and auditors were not able to assess the reasonableness of certain operating and indirect cost estimates,” the auditor’s office wrote.
TDA should have processes in place for monitoring fee levels for cost-recovery programs, auditors say, because factors can change. The reported noted a $232,500 contract that was canceled after the fee schedule was implemented, and pointed out the costs the TDA must recover under the General Appropriations Act could change after each session of the Texas Legislature.
The issue was marked as a priority by the office, which means immediate action is required to address the concern, lest it critically affect the TDA’s ability to effectively administer its programs.
The TDA generally agreed with the recommendations, although Commissioner Sid Miller played some defense in his response letter to the auditor’s office, included in the report. He wrote that the TDA could historically shuffle money between divisions to cover programs that might have an operating loss and could carry forward balances not spent.
“TDA no longer has these financial planning tools to use, and must operate in a financial world where the Texas Legislature has removed those budgeting and accounting tools of transfer of funds and carrying forward unexpended balances,” Miller wrote.
He wrote that the TDA is required to submit its budgeting information nearly three years in advance, but the Legislative Budget Board can impose additional expenditures and the department must plan for future cost increases, such as rising fuel prices. Therefore, the cost-recovery rates that went into effect in 2016 erred on the cautious side, with revenues exceeding expenditures as intended in the cost study calculations.
“You certainly would not want to plan for a loss!” Miller wrote.