August 20, 1997 Members of the Legislative Audit Committee: The Railroad Commission of Texas (Commission) has made progress in addressing recommendations contained in An Audit Report on Management Controls at the Texas Railroad Commission (SAO Report No. 96-032, February 1996). During our follow-up review, we identified other actions management should consider to further improve specific processes or to more fully address the recommendations in the above report. Our review of prior-audit findings were only for those issues we felt had the greatest impact on the overall efficiency and effectiveness of the Commission in regulating natural resources, ensuring community safety, and promoting economic development. The most significant, but not all, audit issues have been addressed, as discussed in the attached table. The attached table summarizes the current status of our recommendations for the most significant audit issues. It also includes the Commissioners’ responses to our audit follow-up and additional recommendations. We thank the Commission for its assistance and cooperation. If you have any questions, please call Barnie Gilmore at 479-4785. Sincerely, Lawrence F. Alwin, CPA State Auditor kob/rmn Attachment cc: Mr. Charles R. Matthews, Chairman Mr. Barry Williamson, Commissioner Ms. Carole Keeton Rylander, Commissioner Mr. Mike Regan, CPA, Chief Financial Officer SAO Report No. 97-083

August 20, 1997 Members of the Legislative Audit Committee: The Railroad Commission of Texas (Commission) has made progress in addressing recommendations contained in An Audit Report on Management Controls at the Texas Railroad Commission (SAO Report No. 96-032, February 1996). During our follow-up review, we identified other actions management should consider to further improve specific processes or to more fully address the recommendations in the above report. Our review of prior-audit findings were only for those issues we felt had the greatest impact on the overall efficiency and effectiveness of the Commission in regulating natural resources, ensuring community safety, and promoting economic development. The most significant, but not all, audit issues have been addressed, as discussed in the attached table. The attached table summarizes the current status of our recommendations for the most significant audit issues. It also includes the Commissioners’ responses to our audit follow-up and additional recommendations. We thank the Commission for its assistance and cooperation. If you have any questions, please call Barnie Gilmore at 479-4785. Sincerely, Lawrence F. Alwin, CPA State Auditor kob/rmn Attachment cc: Mr. Charles R. Matthews, Chairman Mr. Barry Williamson, Commissioner Ms. Carole Keeton Rylander, Commissioner Mr. Mike Regan, CPA, Chief Financial Officer SAO Report No. 97-083

August 20, 1997 Members of the Legislative Audit Committee: The Railroad Commission of Texas (Commission) has made progress in addressing recommendations contained in An Audit Report on Management Controls at the Texas Railroad Commission (SAO Report No. 96-032, February 1996). During our follow-up review, we identified other actions management should consider to further improve specific processes or to more fully address the recommendations in the above report. Our review of prior-audit findings were only for those issues we felt had the greatest impact on the overall efficiency and effectiveness of the Commission in regulating natural resources, ensuring community safety, and promoting economic development. The most significant, but not all, audit issues have been addressed, as discussed in the attached table. The attached table summarizes the current status of our recommendations for the most significant audit issues. It also includes the Commissioners’ responses to our audit follow-up and additional recommendations. We thank the Commission for its assistance and cooperation. If you have any questions, please call Barnie Gilmore at 479-4785. Sincerely, Lawrence F. Alwin, CPA State Auditor kob/rmn Attachment cc: Mr. Charles R. Matthews, Chairman Mr. Barry Williamson, Commissioner Ms. Carole Keeton Rylander, Commissioner Mr. Mike Regan, CPA, Chief Financial Officer SAO Report No. 97-083

August 20, 1997 Members of the Legislative Audit Committee: The Railroad Commission of Texas (Commission) has made progress in addressing recommendations contained in An Audit Report on Management Controls at the Texas Railroad Commission (SAO Report No. 96-032, February 1996). During our follow-up review, we identified other actions management should consider to further improve specific processes or to more fully address the recommendations in the above report. Our review of prior-audit findings were only for those issues we felt had the greatest impact on the overall efficiency and effectiveness of the Commission in regulating natural resources, ensuring community safety, and promoting economic development. The most significant, but not all, audit issues have been addressed, as discussed in the attached table. The attached table summarizes the current status of our recommendations for the most significant audit issues. It also includes the Commissioners’ responses to our audit follow-up and additional recommendations. We thank the Commission for its assistance and cooperation. If you have any questions, please call Barnie Gilmore at 479-4785. Sincerely, Lawrence F. Alwin, CPA State Auditor kob/rmn Attachment cc: Mr. Charles R. Matthews, Chairman Mr. Barry Williamson, Commissioner Ms. Carole Keeton Rylander, Commissioner Mr. Mike Regan, CPA, Chief Financial Officer SAO Report No. 97-083

August 20, 1997
Members of the Legislative Audit Committee:
The Railroad Commission of Texas (Commission) has made progress in addressing
recommendations contained in An Audit Report on Management Controls at the Texas Railroad
Commission (SAO Report No. 96-032, February 1996). During our follow-up review, we identified
other actions management should consider to further improve specific processes or to more fully
address the recommendations in the above report.
Our review of prior-audit findings were only for those issues we felt had the greatest impact on the
overall efficiency and effectiveness of the Commission in regulating natural resources, ensuring
community safety, and promoting economic development. The most significant, but not all, audit
issues have been addressed, as discussed in the attached table.
The attached table summarizes the current status of our recommendations for the most significant
audit issues. It also includes the Commissioners’ responses to our audit follow-up and additional
recommendations.
We thank the Commission for its assistance and cooperation. If you have any questions, please call
Barnie Gilmore at 479-4785.
Sincerely,
Lawrence F. Alwin, CPA
State Auditor
kob/rmn
Attachment
cc:
Mr. Charles R. Matthews, Chairman
Mr. Barry Williamson, Commissioner
Ms. Carole Keeton Rylander, Commissioner
Mr. Mike Regan, CPA, Chief Financial Officer
SAO Report No. 97-083

Railroad Commission of Texas
Status of Selected Prior-Audit Recommendations
Management’s
Management’s
Responses
Responses to
Follow-Up Audit
to Follow-Up Audit
Previous
Previous
Results and New
Results and New
Recommendations
Recommendations
Status
Recommendations
Recommendations
Planning and Evaluation
Formal planning and evaluation at all levels of the Railroad Commission of Texas (Commission) would
improve accomplishment of goals.
Complete the strategic
The implementation
In
We looked at four
The Commission
planning process by
of formal operations
Progress
divisions at the Railroad
concurs.
developing formal,
planning in all divisions
Commission which
documented action
and districts of the
represent 80 percent of
plans throughout the
Commission will be
the Commission
agency, One of the
developed in
budget. The largest
Commission divisions
conjunction with the
division, Oil and Gas,
was cited for its
FY 1998-99 Strategic
has documented its
accomplishments in
Operating Budget
planning in a series of
this area.
and the next five-year
quarterly reports, with
Agency Strategic
specific goals and
Plan.
objectives targeted.
The other three
divisions are in the
process of more formal
planning.
The Strategic
The Commission
Operating Budget
concurs.
referred to in the
Commission’s response
will be the subject of
an August 1997
meeting, and planning
for the next five-year
Agency Strategic Plan
will begin in the Fall of
1997.
A FOLLOW-UP TO THE MANAGEMENT CONTROL AUDIT
AUGUST 1997
AT THE RAILROAD COMMISSION
PAGE 1

Railroad Commission of Texas
Status of Selected Prior-Audit Recommendations
Management’s
Management’s
Responses
Responses to
Follow-Up Audit
to Follow-Up Audit
Previous
Previous
Results and New
Results and New
Recommendations
Recommendations
Status
Recommendations
Recommendations
Planning and Evaluation (continued)
Commission-wide
The Commission
initiatives in planning
concurs.
include quarterly
meetings with the
Commissioners, an
Information
Management
Strategies Team to
assist with the planning
and implementation of
the Commission’s
conversion of oil and
gas databases to
newer technology and
applications, and a
new internal budget/
accounting system.
Continue to work with
The Commission
Resolved The Commission has
The Commission
the Legislative Budget
agrees with the State
met with the Legislative
concurs.
Board in determining
Auditor’s
Budget Board to
efficient and effective
recommendation.
update and improve its
performance
performance
measures.
measures.
A FOLLOW-UP TO THE MANAGEMENT CONTROL AUDIT
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AT THE RAILROAD COMMISSION
AUGUST 1997

Railroad Commission of Texas
Status of Selected Prior-Audit Recommendations
Management’s
Management’s
Responses
Responses to
Follow-Up Audit
to Follow-Up Audit
Previous
Previous
Results and New
Results and New
Recommendations
Recommendations
Status
Recommendations
Recommendations
Planning and Evaluation (continued)
Improve program
Information systems
In
The Commission is
The Commission
evaluation by
will be evaluated for
Progress
making a substantial
concurs.
employing basic
alignment with the
effort to coordinate
information
Commission’s goals,
and leverage its
management
objectives, and
federally-funded
principles.
strategies. Most
information initiatives
existing Commission
to benefit other
information systems
systems and its
will be reviewed for
conversion to new
efficiency and
technology.
duplication by the
end of FY 1996-97
The Radian Study,
The Commission
biennium.
published in February
concurs.
1996, is one example of
a Commission-wide
initiative to assess
information needs both
within and outside the
Commission.
At the division level,
The Commission
the Commission is at
concurs.
varying stages of
applying basic
information
management
principles, between
identifying needed
information and
delivering the
information in a
complete, concise,
accurate, and timely
fashion.
A FOLLOW-UP TO THE MANAGEMENT CONTROL AUDIT
AUGUST 1997
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PAGE 3

Railroad Commission of Texas
Status of Selected Prior-Audit Recommendations
Management’s
Management’s
Responses
Responses to
Follow-Up Audit
to Follow-Up Audit
Previous
Previous
Results and New
Results and New
Recommendations
Recommendations
Status
Recommendations
Recommendations
Planning and Evaluation (continued)
Data evaluation in two
The Commission
inspection programs
concurs. There are
were specifically
new improvements to
mentioned in our
the current process
finding: oil and gas
which will be
and liquid-petroleum-
completed by
gas inspections. A
10/01/97 (new Oracle-
system of tracking and
based DO system will
evaluating oil and gas
replace the current
inspection data has
Rbase system).
been implemented,
and a system to ensure
100 percent coverage
of high-risk liquid-
petroleum-gas
installations has been
implemented.
Complete a formal
The Computer
In The
Information
The Commission
project management
Services Division
Progress
Technology Services
concurs.
plan for the computer
intends to complete
Division has been
architecture change.
these formal project
reorganized and there
management plans
has been a high
by the end of FY 1996.
turnover of top-level
personnel, with up to a
50 percent vacancy
rate in key areas.
Staffing issues,
therefore, have taken
precedence over
project planning. The
Division plans to submit
a formal project
management plan to
the Commissioners
(August 1997) and to
the Department of
Information Resources
(September 1997).
A FOLLOW-UP TO THE MANAGEMENT CONTROL AUDIT
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AT THE RAILROAD COMMISSION
AUGUST 1997

Railroad Commission of Texas
Status of Selected Prior-Audit Recommendations
Management’s
Management’s
Responses
Responses to
Follow-Up Audit
to Follow-Up Audit
Previous
Previous
Results and New
Results and New
Recommendations
Recommendations
Status
Recommendations
Recommendations
Planning and Evaluation (continued)
A formal project-
The Commission
management plan is
concurs.
even more critical to
the project now
because the Year 2000
project (with an
absolute deadline of
December 1999)
depends, in part, on
certain tasks being
accomplished as part
of the computer
architecture change.
A FOLLOW-UP TO THE MANAGEMENT CONTROL AUDIT
AUGUST 1997
AT THE RAILROAD COMMISSION
PAGE 5

Railroad Commission of Texas
Status of Selected Prior-Audit Recommendations
Management’s
Management’s
Responses
Responses to
Follow-Up Audit
to Follow-Up Audit
Previous
Previous
Results and New
Results and New
Recommendations
Recommendations
Status
Recommendations
Recommendations
Planning and Evaluation (continued)
Recommendation: We
The Commission
recommend that the
concurs.
Commission closely
monitor the planning
and implementation of
the computer
architecture change
to ensure timely and
successful completion
of this and the Year
2000 project. The
management plan
should have clearly
defined and
measurable
deliverables. Due to
limited funding and a
highly competitive job
market, project
management should
also place particular
emphasis on risk-
management. We
also recommend that
progress be reported
to the Commissioners in
terms of
accomplishments,
issues, and exceptions
to the management
plan.
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AUGUST 1997

Railroad Commission of Texas
Status of Selected Prior-Audit Recommendations
Management’s
Management’s
Responses
Responses to
Follow-Up Audit
to Follow-Up Audit
Previous
Previous
Results and New
Results and New
Recommendations
Recommendations
Status
Recommendations
Recommendations
Planning and Evaluation (continued)
Create an updated,
These plans are
Resolved The long-range project
The Commission
long-range project
scheduled for
plan for GIS has been
concurs.
plan for the GIS
completion by the
updated.
(mapping) project.
end of FY 1996.
Survey user needs and
The users were
Additional progress
keep them informed of
surveyed, and user
toward meeting these
GIS development.
recommendations for
needs has been made.
GIS development were
One of the major
discussed at a meeting
tactical objectives
of field office
being recommended
personnel.
for the Oil and Gas
Division will be to make
GIS information readily
available via
Commission computer
network. This is
anticipated to be
completed during the
second half of FY 98.
The Commission should
The Commissioners
In
A steering committee
The Commission
expand the role of the
should make the
Progress
was approved by the
concurs.
PCC (Personal
decision on which
Commissioners in June
Computer Committee)
committee to use by
1997.
to serve as a formal
the middle of FY 1996,
management
and committee
information steering
activation by the end
committee for all
of FY 1996.
automation issues.
A FOLLOW-UP TO THE MANAGEMENT CONTROL AUDIT
AUGUST 1997
AT THE RAILROAD COMMISSION
PAGE 7

Railroad Commission of Texas
Status of Selected Prior-Audit Recommendations
Management’s
Management’s
Responses
Responses to
Follow-Up Audit
to Follow-Up Audit
Previous
Previous
Results and New
Results and New
Recommendations
Recommendations
Status
Recommendations
Recommendations
Planning and Evaluation (concluded)
Define Commission
Commission staff has
Resolved A new internal
The Commission
budget needs and
met with the
budget/accounting
concurs.
obtain a system to
Comptroller’s Office,
system was
meet internal
bench-marking
implemented in
budgeting and
meetings with other
October 1996. It
reporting needs.
state agencies have
provides for section-
been conducted,
level and field-office-
and alternative
level monitoring of the
solutions are being
budget.
developed with a
recommendation to
be presented to the
Commissioners in
January 1996.
Consider increasing
The Commission is
Not
There has been no
During the
the size of the internal
considering
Resolved formal consideration of
management planning
audit staff
expanding the
increasing the size of
meeting on August 18-
existing internal audit
the internal audit staff.
19, 1997, the
staff by the end of
Commissioners and all
calendar year 1996.
division directors will
consider Internal
Audit’s proposal to
add an internal audit
staff position.
A FOLLOW-UP TO THE MANAGEMENT CONTROL AUDIT
PAGE 8
AT THE RAILROAD COMMISSION
AUGUST 1997

Railroad Commission of Texas
Status of Selected Prior-Audit Recommendations
Management’s
Management’s
Responses
Responses to
Follow-Up Audit
to Follow-Up Audit
Previous
Previous
Results and New
Results and New
Recommendations
Recommendations
Status
Recommendations
Recommendations
Administrative Processes
Controls over administrative processes should be strengthened.
Implement
The Finance and
In
The Finance and
The Commission
recommendations
Accounting Division is
Progress
Administration Division
concurs. In respect to
made in an internal
in the process of
has implemented and
an updated
audit report of August
revising cash receipts
documented new
procedures manual for
1994 concerning
procedure manuals to
controls over receipt of
Cash Receipts, that
controls over receipt of
include the
revenue in the
effort should be
revenue.
recommendations
mailroom, but no other
completed by the end
Approximately $30.5
that were highlighted
controls have been
of November 1997. We
million or 83 percent of
in the Internal
implemented. The
are also going to be
Commission revenue is
Auditor’s Report. All
cash-receipts system is
looking at software
received and
procedures will be
a large, 30-year-old
being used by other
processed through its
reviewed to ensure
system that is still being
agencies later this
mailroom and cashier.
there is a separation
documented in order
year. Should those
of duties, and that
to reassess the entire
systems prove to be
deposits are made in
process.
cost effective for our
a timely manner.
area of application, a
change could be
made prior to fiscal
year 1998. All
recommended
controls over receipt of
revenue should be in
place by February
1998.
Determine the
The Commission
Resolved The Finance and
cost/benefit of
agrees with the
Administration Division
implementing Treasury
recommendation.
looked into the issue,
lock-box procedures
but decided lock-
for collection of
boxes were not
selected program fees
feasible.
Recommendation:
The Commission
We recommend that
concurs, and will revisit
the Commission revisit
the issue in early 1998.
the issue due to lack of
fully documented
controls over cash
receipts.
A FOLLOW-UP TO THE MANAGEMENT CONTROL AUDIT
AUGUST 1997
AT THE RAILROAD COMMISSION
PAGE 9

Railroad Commission of Texas
Status of Selected Prior-Audit Recommendations
Management’s
Management’s
Responses
Responses to
Follow-Up Audit
to Follow-Up Audit
Previous
Previous
Results and New
Results and New
Recommendations
Recommendations
Status
Recommendations
Recommendations
Administrative Processes (continued)
Continue to evaluate
Upon receipt of the
In
The Gas Research
The Commission
management of the oil
Radian feasibility
Progress
Institute (GRI) hired
concurs.
and gas records.
study, and after the
Radian Corporation to
appointment of the
review the various
Continue efforts to
new Records
management issues
become current on
Administrator, the Oil
concerning the oil and
converting its paper
and Gas Division will
gas records. Radian
records to micro-
complete the
outlined the value of
format.
updating of its records
the records to industry
retention plan. This
and the economy and
Ensure that the Radian
plan will lay the
estimated the cost of
study addresses all oil
groundwork for
converting the records
and gas records, as
finalizing the disaster
to electronic format to
outlined in its Scope of
recovery plan and
be $9.9 million.
Work.
provide the added
level of security
Following a one-year
These documents are
Strengthen access
needed to more
moratorium on filming
being processed and
controls to require that
completely safeguard
records due to the
filed on a daily basis.
all records remain on
these documents.
Radian study, which
All records are
the premises.
was published in
available to customers.
February 1996, filming
The backlog is in
Continue to develop a
has resumed.
converting these
records retention plan
Microfilming at the
readily accessible
and a disaster
current rate, however,
documents to micro-
recovery plan.
will not eliminate the
format.
15-year backlog. Ways
in which to finance the
conversion of records
through advanced
technology (scanning)
is under study by the
Commission.
The Radian report
The Commission
addressed all oil and
concurs.
gas records as outlined
in its Scope of Work.
A FOLLOW-UP TO THE MANAGEMENT CONTROL AUDIT
PAGE 10
AT THE RAILROAD COMMISSION
AUGUST 1997

Railroad Commission of Texas
Status of Selected Prior-Audit Recommendations
Management’s
Management’s
Responses
Responses to
Follow-Up Audit
to Follow-Up Audit
Previous
Previous
Results and New
Results and New
Recommendations
Recommendations
Status
Recommendations
Recommendations
Administrative Processes (continued)
The only change in
Resources available
access controls has
(space, staff, and
been to place record
financial) were all
users in an open area.
contributing factors in
changing our level of
control over
documents. The
common open area
concept was
implemented to
improve visibility, make
the most efficient use
of staff and space, and
reduce potential for
theft of documents.
The Commission plans
The agency will
to have a records
recertify the
retention plan by
Commission Records
October 1997, and to
Retention Plan in
finalize a disaster relief
October 1997. The Oil
plan by March 1998.
and Gas Division will
recommend specific
division record series to
be added to the
agency schedule
during the next year.
A FOLLOW-UP TO THE MANAGEMENT CONTROL AUDIT
AUGUST 1997
AT THE RAILROAD COMMISSION
PAGE 11

Railroad Commission of Texas
Status of Selected Prior-Audit Recommendations
Management’s
Management’s
Responses
Responses to
Follow-Up Audit
to Follow-Up Audit
Previous
Previous
Results and New
Results and New
Recommendations
Recommendations
Status
Recommendations
Recommendations
Administrative Processes (continued)
Recommendation:
The Oil and Gas
We recommend that
Division has a few
the Commission
lockers available for
consider requiring users
customers. Space
to store their personal
reductions and need
items in a locker when
to redirect available
accessing Commission
staff to perform other
documents. This is
critical job duties has
standard procedure
reduced our ability to
where valuable and
monitor access to
irreplaceable historical
these lockers. Instead,
documents are
the common area was
involved.
implemented, which
improved visibility and
limited potential for loss
to occur. We will
continue to monitor
and recommend other
methods to safeguard
records.
Establish objective
The well-plugging staff
Resolved The well-plugging staff
The Commission
criteria for evaluating
will develop
has developed criteria
concurs.
well-plugging
“objective criteria” for
for contractor
contractors and
evaluating contractor
performance, and the
establish performance
performance. By
standards and criteria
standards to be used
September 1, 1996,
have been
by field staff for
the performance
incorporated into the
evaluating well
standards and criteria
evaluation and
pluggings.
should be ready for
awarding of contracts
incorporation into the
since December 1996.
process of evaluating
and awarding
plugging contracts.
Include performance
In
New contracts that
The Commission
standards, sanctions,
Progress
include performance
concurs. New contract
and criteria for
standards, sanctions,
forms/approaches
termination in well-
and criteria for
were completed
plugging contracts.
termination will be
August 1, 1997, and are
completed by
being used.1
September 1997.
Our fieldwork ended prior to August 1; therefore, this has not been verified.
1
A FOLLOW-UP TO THE MANAGEMENT CONTROL AUDIT
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AT THE RAILROAD COMMISSION
AUGUST 1997

Railroad Commission of Texas
Status of Selected Prior-Audit Recommendations
Management’s
Management’s
Responses
Responses to
Follow-Up Audit
to Follow-Up Audit
Previous
Previous
Results and New
Results and New
Recommendations
Recommendations
Status
Recommendations
Recommendations
Administrative Processes (concluded)
Use median plugging
The Commission plans
Resolved The Commission has
The Commission
costs instead of
to adopt this
been using median
concurs.
averages to estimate
recommendation and
costs to estimate well-
well-plugging costs.
has already
plugging costs since
requested
September 1996.
modification of the
computer system to
support the change.
A FOLLOW-UP TO THE MANAGEMENT CONTROL AUDIT
AUGUST 1997
AT THE RAILROAD COMMISSION
PAGE 13