Page 27 - ABHR MUD BOOK 2022

• All powers and duties granted to MUDs are subject to the continuing supervision by
the TCEQ. Such supervision includes:
o Inquiring into the competence, fitness and reputations of the officers of a MUD;
o Instituting investigations and hearings; and
o Issuing special rules necessary to supervise any specific MUD.

Bookkeeping and Auditing
• State law imposes strict requirements on MUD bookkeeping, auditing, and financial
reporting.
• MUDs must keep a full and itemized account of district funds, available for audit. The
TCEQ shall have access to all district financial records as the TCEQ considers
necessary.
• All MUD financial records must be prepared on a timely basis in accordance with
generally accepted accounting principles (GAAP).
• In addition to GAAP requirements for the audit, the TCEQ requires that all audit
reports include additional information relating to the operation and administration of
the MUD and prescribes the form for such information. Thus, a MUD audit report is
far more extensive and informative than most governmental entities.
• MUDs must engage a C.P.A. to annually audit the MUD’s accounts and fiscal records.
2
• MUDs must submit a copy of the approved audit report to the TCEQ within 135 days
after the close of the MUD’s fiscal year.

Regulation under state and federal law
• MUD are subject to a myriad of state and federal regulations, including:
o Texas Open Meetings Act,
o Texas Public Information Act,
o Texas Election Code,
o U.S. Voting Rights Act,
o Texas Public Funds Investment Act,
o Approval of all bonds by the Office of the Texas Attorney General,
o Various federal securities laws and rules, including continuing disclosure
filings of audits and other financial data,
o IRS and U.S. Treasury Department regulations relating to tax exempt bonds,
and
o Texas laws regulating conflicts of interests and ethics.

Local Regulation
• A proposed MUD may only be created within the boundaries or the extraterritorial
jurisdiction (“ETJ”) of a city with the consent of the city. In consenting to the creation
of a MUD, a city often imposes certain requirements, known as “consent conditions.”

2 Texas law provides an exemption if a MUD is financially dormant or its finances are below certain de minimis amounts
(i.e., no bonds outstanding and gross receipts less than $250,000).

Association of Water Board Directors – Texas