Relating to the review and audit of certain state agency operations, the official text

H.B. No. 12

AN ACT

relating to the review and audit of certain state agency

operations.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 325.002, Government Code, is amended by

adding Subdivision (4) to read as follows:

(4) "Regulatory agency" means a department,

commission, board, or other agency that:

(A) is created by the constitution or by statute;

(B) is in the executive branch of state

government;

(C) has statewide authority; and

(D) has authority to deny, grant, renew, revoke,

or suspend a license, certification, or other authorization to

engage in an activity.

SECTION 2. Section 325.008, Government Code, is amended by

adding Subsections (d), (e), and (f) to read as follows:

(d) The commission shall provide information on how the

public may participate in the commission's review of a state agency

and provide input on a state agency's performance. The commission

shall, to the extent practicable, solicit input from parties

interested in a state agency's operations.

(e) Each state agency being reviewed by the commission under

this chapter shall at the beginning of the review:

(1) post a notice on the state agency's Internet

website informing the public:

(A) that the state agency is being reviewed by

the commission; and

(B) how the public may participate in the

commission's review of the state agency and provide input on the

state agency's performance; and

(2) to the extent practicable, if the state agency

being reviewed is a regulatory agency:

(A) notify each person licensed, certified, or

otherwise authorized by the regulatory agency to engage in an

activity regulated by the agency of a public hearing under Section

325.009 at which the agency will be reviewed; and

(B) solicit input from persons provided notice

under Paragraph (A) regarding the regulatory agency's performance.

(f) Subsection (e)(2) does not apply to a river authority

subject to review under this chapter.

SECTION 3. Section 325.010(b), Government Code, is amended

to read as follows:

(b) In the report the commission shall include:

(1) its findings regarding the criteria prescribed by

Section 325.011, except Section 325.011(14);

(2) its recommendations based on the matters

prescribed by Section 325.012, except recommendations relating to

criteria prescribed by Section 325.011(14); [and]

(3) if the agency being reviewed is a regulatory

agency, an analysis of the regulatory agency's performance during

the preceding 10 years or since the last review of the agency under

this chapter, whichever is longer, based on the agency's

performance measures and related targets, including those listed in

the General Appropriations Act;

(4) an evaluation of the agency's performance measures

and related targets, including whether the targets are:

(A) aligned with the mission, goals, and

objectives of the agency; and

(B) appropriate for assessing the agency's

achievement of the goals listed; and

(5) other information the commission considers

necessary for a complete review of the agency.

SECTION 4. Section 325.012(a), Government Code, is amended

to read as follows:

(a) In its report on a state agency, the commission shall:

(1) make recommendations on the abolition,

continuation, or reorganization of each affected state agency and

its advisory committees and on the need for the performance of the

functions of the agency and its advisory committees;

(2) make recommendations on the consolidation,

transfer, or reorganization of programs within state agencies not

under review when the programs duplicate functions performed in

agencies under review;

(3) make recommendations to improve the operations of

the agency, its policy body, and its advisory committees, including

management recommendations that do not require a change in the

agency's enabling statute; [and]

(4) make recommendations on the continuation or

abolition of each reporting requirement imposed on the agency by

law; and

(5) after consulting the Legislative Budget Board,

make recommendations to improve the agency's key performance

measures through the addition, amendment, or removal of the

performance measures and related targets, including those listed in

the General Appropriations Act.

SECTION 5. Chapter 325, Government Code, is amended by

adding Section 325.016 to read as follows:

Sec. 325.016. LIMITED REVIEW OF CERTAIN REGULATORY

AGENCIES. (a) In the commission's recommendations to the

legislature under Section 325.012, the commission may recommend

that a limited review of a regulatory agency be conducted prior to

the regulatory agency's next sunset review.

(b) If the commission's recommendations to the legislature

under Section 325.012 include any identified deficiencies or

recommendations for improvement in the regulatory agency's

rulemaking process, the commission shall recommend that a limited

review of a regulatory agency be conducted prior to the next sunset

review.

(c) For the commission's recommendation for a limited

review to take effect, the legislature must include the

recommendation in its legislation for the regulatory agency under

Section 325.012(c). Such review shall be limited to:

(1) an assessment of the regulatory agency's

rulemaking process and the extent to which the regulatory agency

has encouraged participation by the public in making its rules and

decisions and the extent to which the public participation has

resulted in rules that benefit the public;

(2) the extent to which the regulatory agency adopts

and enforces rules relating to potential conflicts of interest of

its employees;

(3) an assessment of the regulatory agency's efforts

to identify rules that are unnecessary, ineffective, or

inefficient;

(4) any commission recommendations under Section

325.012(a)(3) that the legislature adopted in the legislation for

the regulatory agency under Section 325.012(c); and

(5) any additional rulemaking-related recommendations

adopted by the legislature and included in the legislation for the

regulatory agency under Section 325.012(c).

(d) The regulatory agency shall report to the commission its

progress on addressing the items described in Subsection (c) not

later than September 1 of the odd-numbered year specified by the

legislature in its legislation for the regulatory agency under

Section 325.012(c).

(e) Not later than January 1 of the odd-numbered year after

the date the regulatory agency report is due under Subsection (d),

the commission shall prepare a written report on the commission's

review under this section.

(f) The report prepared by the commission under this section

is a public record.

SECTION 6. Subtitle C, Title 3, Government Code, is amended

by adding Chapter 327 to read as follows:

CHAPTER 327. EFFICIENCY AUDITS OF STATE AGENCIES

Sec. 327.001. DEFINITIONS. In this chapter:

(1) "Audit plan" has the meaning assigned by Section

321.001.

(2) "Commission" means the Sunset Advisory

Commission.

(3) "Efficiency audit" means an evaluation of the

economy, efficiency, and effectiveness of state agency operations,

including:

(A) determining whether the state agency is

managing or using its resources, including state money, personnel,

property, equipment, and space, in an economical and efficient

manner;

(B) identifying causes of inefficiencies or

uneconomical practices, including inadequacies in management

information systems, internal and administrative procedures,

organizational structure, use of resources, allocation of

personnel, purchasing, agency policies, and equipment;

(C) determining whether financial, program, and

statistical reports of the state agency contain useful data and are

fairly presented;

(D) determining whether the objectives and

intended benefits of the agency's program are being achieved

efficiently and effectively, according to:

(i) established or designated:

(a) program objectives;

(b) responsibilities or duties;

(c) program performance criteria; or

(d) program evaluation standards; or

(ii) statutes and rules; and

(E) determining whether the agency's program

duplicates, overlaps, or conflicts with another state program.

(4) "External auditor" means a private entity selected

by the state auditor to conduct an efficiency audit of a state

agency.

(5) "Legislative audit committee" means the committee

described by Section 321.002.

(6) "State agency" means an entity expressly made

subject to Chapter 325 (Texas Sunset Act) other than an entity

listed in Section 325.025(b).

Sec. 327.002. REQUIRED EFFICIENCY AUDIT. (a) Each state

agency shall undergo an efficiency audit in accordance with this

chapter.

(b) The state auditor, subject to the legislative audit

committee's approval, shall adopt a schedule for conducting the

efficiency audits required by this chapter and include the annual

portion of the schedule in the audit plan under Section 321.013.

The schedule must provide for each state agency to be audited during

the two-year period beginning on September 1 four years before the

date the state agency is scheduled to be abolished under Chapter 325

(Texas Sunset Act).

(c) A state agency required by law to perform an internal

efficiency audit is not required to perform the audit in any year

the state agency is audited under this chapter.

(d) A state agency shall pay the costs incurred by the state

auditor relating to an efficiency audit required by this chapter.

The state auditor shall determine the costs of the audit and the

state agency shall pay the amount of those costs promptly on receipt

of a statement from the state auditor regarding those costs.

(e) The state auditor, subject to the legislative audit

committee's approval, may determine, in the interests of

efficiency, whether the audit should be performed by the state

auditor or an external auditor.

Sec. 327.003. SELECTION AND SUPERVISION OF AUDITOR. (a)

Not later than March 1 of the year in which an efficiency audit of a

state agency is scheduled under this chapter, the state auditor may

contract with an external auditor to conduct the audit.

(b) The state auditor, in cooperation with the Legislative

Budget Board, shall oversee the external auditor and ensure that

the efficiency audit is conducted in accordance with the

requirements of this chapter and the scope of the audit established

under this chapter.

(c) The external auditor is not subject to direction from

the state agency being audited.

Sec. 327.004. SCOPE OF AUDIT. (a) The state auditor, in

cooperation with the Legislative Budget Board, shall establish the

scope of each efficiency audit conducted under this chapter.

(b) At a minimum, an efficiency audit must:

(1) examine state resources, including financial

resources, staff, personal property, real property, and

technology, to determine whether those resources:

(A) are used effectively and efficiently to

achieve the desired outcome for a state agency's program

beneficiaries; and

(B) are used for purposes other than the intended

goals of the audited programs;

(2) identify and make recommendations for cost savings

and reallocation of resources to improve the effectiveness of

audited programs; and

(3) identify opportunities for improving services

through consolidation of functions, outsourcing, and elimination

of duplicative efforts.

Sec. 327.005. REPORT TO LEGISLATURE. (a) Not later than

November 1 of the year an efficiency audit is conducted under this

chapter, the state auditor, in cooperation with the Legislative

Budget Board and in consultation with any external auditor

contracted to perform the audit, shall:

(1) prepare a report of the audit with the

recommendations; and

(2) submit the report, recommendations, and complete

audit to the commission, the governor, the lieutenant governor, the

speaker of the house of representatives, the legislative audit

committee, the chairs of the standing committees of each house of

the legislature with primary jurisdiction over the audited state

agency, and the audited state agency.

(b) The state auditor and the audited state agency shall

publish the report, recommendations, and complete efficiency audit

on the entity's Internet website.

Sec. 327.006. REQUIRED IMPLEMENTATION PLAN. Not later than

the 90th day after the date of receiving the complete audit and

recommendations, the administrative head of the audited state

agency shall deliver a plan for implementing the recommendations to

the commission, the governor, the lieutenant governor, the speaker

of the house of representatives, the legislative audit committee,

and the chairs of the standing committees of each house of the

legislature with primary jurisdiction over the audited state

agency. The implementation plan must include a reasoned

justification for any recommendation the audited state agency

declines to implement.

SECTION 7. Not later than January 1, 2026, the state auditor

shall adopt the schedule required by Section 327.002, Government

Code, as added by this Act, for conducting efficiency audits of each

state agency subject to that section.

SECTION 8. This Act takes effect September 1, 2025.

______________________________
______________________________

President of the Senate
Speaker of the House

I certify that H.B. No. 12 was passed by the House on April 9,

2025, by the following vote: Yeas 147, Nays 0, 1 present, not

voting; and that the House concurred in Senate amendments to H.B.

No. 12 on May 23, 2025, by the following vote: Yeas 137, Nays 0, 2

present, not voting.

______________________________

Chief Clerk of the House

I certify that H.B. No. 12 was passed by the Senate, with

amendments, on May 19, 2025, by the following vote: Yeas 31, Nays

0.

______________________________

Secretary of the Senate

APPROVED: __________________

Date

__________________

Governor