79R9319 DWS-F
By: Hughes H.B. No. 3417
A BILL TO BE ENTITLED
AN ACT
relating to financial records and audits of certain charitable
nonprofit corporations; providing a penalty.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Sections A and B, Article 2.23A, Texas
Non-Profit Corporation Act (Article 1396-2.23A, Vernon's Texas
Civil Statutes), are amended to read as follows:
A. A corporation shall maintain current true and accurate
financial records with full and correct entries made with respect
to all financial transactions of the corporation, including all
revenue [income] and expenditures, in accordance with generally
accepted accounting principles [practices].
B. Based on these records, the board of directors shall
annually prepare and [or] approve [a report of] the financial
statements [activity] of the corporation for the preceding year.
The financial statements [report] must conform with [to] generally
accepted accounting principles [standards as promulgated by the
American Institute of Certified Public Accountants] and must
include a statement of financial position and the related
statements of activities by functional classifications, a cash flow
statement [support, revenue, and expenses and changes in fund
balances], and a statement of functional expenses [, and balance
sheets for all funds].
SECTION 2. The Texas Non-Profit Corporation Act (Article
1396-1.01 et seq., Vernon's Texas Civil Statutes) is amended by
adding Article 2.23C to read as follows:
Art. 2.23C. FINANCIAL STATEMENTS AND AUDIT OF CERTAIN
CHARITABLE CORPORATIONS. A. A charitable corporation that receives
or accrues a total gross revenue of $250,000 or more, not including
grants from and proceeds of contracts with a governmental agency or
entity that requires an accounting for money received, shall have
the corporation's financial statements required by Section B,
Article 2.23A of this Act for the preceding fiscal year audited by
an independent certified public accountant in accordance with
generally accepted accounting principles. A charitable
corporation not required by this Section to have the corporation's
financial statements audited may choose to have such an audit
conducted.
B. If a charitable corporation is under the control of
another corporation, the controlling corporation may prepare
consolidated financial statements to satisfy the requirements of
Section B, Article 2.23A of this Act for the controlled
corporation.
C. A charitable corporation required to have an audit of the
corporation's financial statements under Section A of this Article
shall make the financial statements and the audit report available
for inspection by the attorney general and the public at the
corporation's registered office or principal office in this state
as provided by Article 2.23A of this Act and in the manner
prescribed for Internal Revenue Service Form 990 by Section
6104(d), Internal Revenue Code of 1986. The financial statements
and audit report must be completed and made available before or by
the following deadline:
(1) for financial statements, not later than six
months subsequent to the end of the fiscal year for which the
financial statements relate; and
(2) for the audit report, not later than six months
subsequent to the end of the second fiscal year for which the audit
report relates.
D. The board of directors of a charitable corporation
required to have an audit of the corporation's financial statements
under Section A of this Article shall appoint an audit committee. If
a charitable corporation is under the control of another
corporation, an audit committee of the controlling corporation may
serve as the audit committee of the controlled corporation. The
audit committee may include persons who are not members of the board
of directors, but may not include an officer or employee of the
corporation. The audit committee shall:
(1) recommend to the board of directors whether a
particular auditor should be appointed or retained and the amount
of the auditor's compensation;
(2) confer with the auditor to satisfy the board of
directors that the financial affairs of the corporation are in
order;
(3) review and determine whether to accept the audit;
and
(4) approve any services performed by the auditor
other than an audit and assure that those services conform to
standards for auditor independence.
E. A corporation that does not have an audit conducted as
provided by Section A of this Article commits an offense. An offense
under this Section is punishable by a fine of not less than $100 or
more than $1,000. Each day the violation continues constitutes a
separate offense.
SECTION 3. Section 22.352, Business Organizations Code, is
amended to read as follows:
Sec. 22.352. FINANCIAL RECORDS AND ANNUAL REPORTS. (a) A
corporation shall maintain current and accurate financial records
with complete entries as to each financial transaction of the
corporation, including revenue [income] and expenditures, in
accordance with generally accepted accounting principles.
(b) Based on the records maintained under Subsection (a),
the board of directors of the corporation shall annually prepare or
approve [a] financial statements [report] for the corporation for
the preceding year. The financial statements [report] must conform
to generally accepted accounting principles [standards as adopted
by the American Institute of Certified Public Accountants] and must
include:
(1) a statement of financial position [support,
revenue, and expenses];
(2) a statement of activities by functional
classifications [of changes in fund balances];
(3) a cash flow statement; and
(4) a statement of functional expenses[; and
[(4) a balance sheet for each fund].
SECTION 4. Subchapter H, Chapter 22, Business Organizations
Code, is amended by adding Section 22.3551 to read as follows:
Sec. 22.3551. FINANCIAL STATEMENTS AND AUDIT OF CERTAIN
CHARITABLE CORPORATIONS. (a) A charitable corporation that
receives or accrues a total gross revenue of $250,000 or more, not
including grants from and proceeds of contracts with a governmental
agency or entity that requires an accounting for money received,
shall have the corporation's financial statements required by
Section 22.352 for the preceding fiscal year audited by an
independent certified public accountant in accordance with
generally accepted accounting principles. A charitable
corporation not required by this subsection to have the
corporation's financial statements audited may choose to have such
an audit conducted.
(b) If a charitable corporation is under the control of
another corporation, the controlling corporation may prepare
consolidated financial statements to satisfy the requirements of
Section 22.352 for the controlled corporation.
(c) A charitable corporation required to have an audit of
the corporation's financial statements under Subsection (a) shall
make the financial statements and the audit report available for
inspection by the attorney general and the public at the
corporation's registered office or principal office in this state
as provided by Section 22.352 and in the manner prescribed for
Internal Revenue Service Form 990 by Section 6104(d), Internal
Revenue Code of 1986. The financial statements and audit report
must be completed and made available before or by the following
deadline:
(1) for financial statements, not later than six
months subsequent to the end of the fiscal year for which the
financial statements relate; and
(2) for the audit report, not later than six months
subsequent to the end of the second fiscal year for which the audit
report relates.
(d) The board of directors of a charitable corporation
required to have an audit of the corporation's financial statements
under Subsection (a) shall appoint an audit committee. If a
charitable corporation is under the control of another corporation,
an audit committee of the controlling corporation may serve as the
audit committee of the controlled corporation. The audit committee
may include persons who are not members of the board of directors,
but may not include an officer or employee of the corporation. The
audit committee shall:
(1) recommend to the board of directors whether a
particular auditor should be appointed or retained and the amount
of the auditor's compensation;
(2) confer with the auditor to satisfy the board of
directors that the financial affairs of the corporation are in
order;
(3) review and determine whether to accept the audit;
and
(4) approve any services performed by the auditor
other than an audit and assure that those services conform to
standards for auditor independence.
(e) A corporation that does not have an audit conducted as
provided by Subsection (a) commits an offense. An offense under
this subsection is punishable by a fine of not less than $100 nor
more than $1,000. Each day the violation continues constitutes a
separate offense.
SECTION 5. This Act applies to a nonprofit corporation
beginning on the date of the end of the corporation's first fiscal
year ending on or after September 1, 2005.
SECTION 6. (a) Except as provided by Subsection (b) of this
section, this Act takes effect September 1, 2005.
(b) Sections 3 and 4 of this Act take effect January 1, 2006.