How to Obtain TWC Approval for a Texas Career School: A Financial and Audit Guide

Starting a vocational or career school in Texas involves more than developing programs, hiring instructors and securing a facility. Before beginning operations, a school generally must obtain a Certificate of Approval from the Texas Workforce Commission (TWC), unless it qualifies for an exemption. The required TWC career school audit is often one of the most technical parts of the approval process.

For many applicants, demonstrating financial stability is one of the most technical parts of the approval process. A school organized as an LLC, corporation, partnership or other formal entity will generally need to submit either:

• A balance sheet prepared in accordance with U.S. generally accepted accounting principles (GAAP) and audited under generally accepted auditing standards (GAAS); or

• A complete set of GAAP financial statements audited under GAAS.

An individual operating as a sole proprietor without a formal business organization generally follows a different route. Under TWC Form CSC-016, that applicant typically submits a reviewed personal balance sheet with required debt disclosures. Because the school’s ownership structure determines the required financial submission, applicants should identify the correct reporting entity and consult with a CPA early in the process.

This guide explains how the audit requirement fits into the TWC application, the financial conditions a new school must demonstrate and how school owners can prepare their records to avoid preventable delays.

The TWC approval process generally involves confirming the licensing requirement, preparing the school’s financial records, completing the required CPA audit, submitting a complete application and responding to TWC’s review and site-visit requirements.

Does Your School Need TWC Approval?

TWC regulates private postsecondary career schools and colleges under Texas Education Code Chapter 132 and Texas Administrative Code, Title 40, Part 20, Chapter 807.

A business that provides vocational instruction in Texas—or provides distance education to Texas residents—generally needs a Certificate of Approval unless a specific exemption or exclusion applies.

Operating without the required approval can result in penalties, required student refunds or an order to stop providing instruction. Therefore, the first step is determining whether the proposed school and its programs fall within TWC’s jurisdiction.

Schools offering degree programs or instruction for certain regulated occupations may also need authorization from another agency. Depending on the program, applicants may need to coordinate with the Texas Higher Education Coordinating Board or an applicable occupational licensing agency.

TWC provides information about licensing and exemptions on its Certificates of Approval and Exemptions page.

Is the School Considered a Small Career School?

TWC distinguishes between a small career school or college and a school that is “other than a small school.”

Under TWC’s current guidance, a school is considered other than a small school if either of the following applies:

• The school expects to receive more than $100,000 in annual gross income from student tuition and fees; or

• The school will receive prepaid tuition, fees or other charges from federal or state funds, including Title IV funding.

This classification affects licensing fees and may affect other compliance considerations. School owners should make the determination using reasonable enrollment, tuition and funding projections—not merely the school’s current cash balance or initial enrollment.

Which Entity’s Financial Statements Must Be Audited?

The school’s legal ownership structure determines whose financial information must be submitted. For example, if a corporation owns the school, the required financial statements may be those of the entire corporation rather than financial information prepared only for a new school division or location. TWC Form CSC-016 states that corporate financial statements must be consolidated for the entire corporation, including all divisions.

The reporting entity can become complicated when:

• The school operates as part of an existing business;

• An owner operates multiple locations;

• Assets or liabilities are held by related entities;

• The school leases its facility from an owner or affiliate;

• Equipment is personally owned by a founder; or

• Startup expenses were paid from personal or affiliated-company accounts.

These issues should be resolved before the audit begins. Otherwise, the CPA may receive accounting records for one entity while TWC expects financial statements for another.

TWC’s Financial-Stability Requirements

The CPA’s audit opinion and TWC’s financial-stability determination serve different purposes. The CPA expresses an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with GAAP. TWC then evaluates whether the financial position shown in those statements satisfies its regulatory criteria.

Under the current CSC-016 financial-stability form, the balance sheet generally must demonstrate the following:

TWC requirement	What it means
Positive equity or net worth	Total assets must exceed total liabilities.
Current ratio of at least 1:1	Current assets must equal or exceed current liabilities.
Equity exceeds goodwill	If goodwill is reported, net worth must be greater than the goodwill balance.
No past-due liabilities	The school’s obligations should be paid according to their terms.

A clean audit opinion does not automatically mean that a school satisfies these tests. Financial statements can be fairly presented under GAAP while still reporting negative equity, insufficient current assets or past-due obligations.

Similarly, depositing money shortly before the audit date does not automatically resolve every problem. The source, ownership and terms of the funds must be documented and properly recorded as either equity, debt or another appropriate classification.

Current-ratio example

Assume a new school reports:

• Current assets of $80,000

• Current liabilities of $65,000

The current ratio would be:

$80,000 ÷ $65,000 = 1.23

Because the result exceeds 1.0, the school appears to meet the current-ratio requirement. However, it must still satisfy the positive-equity, goodwill and past-due-liability requirements.

The CPA must also obtain audit evidence supporting the balances and their classification. A ratio calculated from incomplete or unsupported accounting records is not sufficient.

Coordinate the Audit Date With the Application

Timing is important. TWC Form CSC-016 generally requires the audited balance sheet or financial statements to be submitted within four months of the financial-statement date.

If more than four months have elapsed, the applicant may also need to submit financial information for a more recent period that has been compiled, reviewed or audited by a CPA firm, as described in the form.

For example, a school that obtains an audited December 31 balance sheet but does not submit its application until June may need additional financial information because the audited statements are more than four months old.

Applicants should coordinate:

• The intended balance-sheet date;

• Completion of the accounting records;

• Audit fieldwork;

• The anticipated audit report date; and

• Submission of the complete TWC application.

Obtaining an audit too early can create an avoidable second reporting requirement. Starting too late can hold up the entire licensing package. TWC states that it aims to issue a Certificate of Approval within approximately 90 days after receiving a complete application. The actual timeline depends on the completeness of the submission, how quickly the applicant responds to questions and revisions, and the outcome of the site visit.

What Does a TWC Career School Audit Cover?

A balance sheet audit is narrower than an audit of a complete set of financial statements, but it is still an audit performed under professional standards. It is not a bookkeeping engagement, compilation, financial statement review or simple verification of the school’s cash balance.

Depending on the school’s accounts and assessed risks, the CPA’s procedures may include:

• Confirming bank and debt balances with financial institutions;

• Inspecting bank statements, loan agreements, leases and contracts;

• Testing cash receipts and disbursements;

• Examining transactions before and after the balance-sheet date;

• Testing invoices supporting equipment and leasehold improvements;

• Searching for unrecorded liabilities;

• Reviewing capital contributions and owner loans;

• Evaluating related-party transactions;

• Testing current-versus-long-term classifications;

• Evaluating subsequent events and going-concern considerations; and

• Reviewing financial-statement presentation and disclosures for conformity with GAAP.

Management—not the auditor—is responsible for the financial statements, underlying accounting records and internal controls.

The CPA also must remain independent. If the records require substantial reconstruction, the school may need a separate bookkeeping, accounting or audit-readiness phase before the independent audit can be completed.

How to Prepare for the Audit

New schools may have fewer transactions than established businesses, but startup transactions often require significant judgment and documentation.

Before audit fieldwork begins, management should assemble the following.

Entity and ownership records

• Certificate of formation and assumed-name filings;

• Company agreement, bylaws or partnership agreement;

• Ownership or capitalization schedule;

• Board, member or partner approvals;

• Support for capital contributions and owner loans; and

• A list of related parties and affiliated entities.

Accounting records

• Finalized trial balance and general ledger;

• Bank reconciliations for every account;

• Bank and credit-card statements;

• Accounts payable and accrued-liability schedules;

• Debt schedules reconciled to lender records;

• Fixed-asset and leasehold-improvement schedules; and

• Support for opening balances.

Contracts and other supporting documents

• Facility and equipment leases;

• Loan and line-of-credit agreements;

• Vendor contracts and unpaid invoices;

• Employment and contractor agreements;

• Insurance policies;

• Legal correspondence; and

• Commitments entered into before instruction begins.

The school should also prepare the operating projections required by CSC-016. These include expected school-related expenses for the first three months of operation, by month, and projected gross tuition and fee collections for the first two years. The projections should be reasonable and consistent with the proposed programs, tuition, anticipated enrollment, staffing, facility and equipment needs.

Common Problems That Delay TWC Audits

Personal and business transactions are commingled

Using personal accounts for company transactions creates questions about ownership and completeness. The school should establish its own bank account and document whether owner transfers represent contributions or loans.

Funding is not properly documented

Significant contributions and loans should be traceable to bank records, ownership records and executed agreements. A journal entry alone does not establish the source or terms of the funding.

Startup costs are improperly recorded as assets

Many organization and startup costs are expensed under GAAP. Improperly capitalizing those costs can overstate assets and equity—the same balances TWC evaluates.

Liabilities are missing or misclassified

Unpaid invoices, accrued payroll, taxes, current debt maturities and other obligations can affect both equity and the current ratio. Management should perform a search for unrecorded liabilities before submitting the final trial balance.

The portion of debt due within the following year also generally must be classified as a current liability. Reporting current maturities as long-term debt can improperly improve the current ratio.

Equipment lacks sufficient documentation

The school should retain purchase invoices, proof of payment, titles when applicable and documentation for contributed property. Equipment personally owned by a founder should not automatically be reported as an asset of the school.

The audit date was selected too early

Delays in completing the rest of the application may cause the financial statements to become too old under the four-month submission rule.

Management expects the auditor to “make the ratios work”

An auditor cannot change completed transactions merely to obtain a desired regulatory outcome. A CPA can identify readiness issues and explain the accounting implications of prospective actions, but management must make the business decisions and the accounting must comply with GAAP.

The Audit Is Only One Part of the Application

The financial submission is one component of the new-school application. Depending on the school and its programs, the application package may also include:

• Form CSC-001, Application for Certificate of Approval;

• Form CSC-186 and the applicable fees;

• Ownership and officer information;

• Director, instructor and representative applications;

• Program or course applications;

• The school catalog;

• The student enrollment agreement;

• Facility and equipment inspection information; and

• Cancellation, refund and other required policies.

TWC cautions applicants not to print multiple copies of the catalog or enrollment agreement until the drafts have been approved by the assigned program specialist.

Applicants can use TWC’s new-school application checklist to organize the complete submission.

Plan for Ongoing Financial Compliance

Receiving a Certificate of Approval does not end the school’s financial-reporting responsibilities. Under TWC’s current ongoing requirements, licensed schools generally must submit annual financial statements no later than 180 days after fiscal year-end.

The first audited annual reporting period depends on when the initial Certificate of Approval begins relative to the school’s fiscal year-end.

Schools also need systems that properly track student charges, tuition payments, attendance, cancellations, withdrawals, refunds and unearned tuition. TWC’s annual guidance states that unearned tuition must be reported as a current liability and that the calculation basis should be disclosed in the financial-statement notes. Establishing these accounting processes at the beginning can make future financial reporting significantly more efficient.

Frequently Asked Questions

Does every Texas career school need an audited balance sheet?

No. The required financial submission depends on the ownership structure and circumstances. An unorganized sole proprietor generally submits a reviewed personal balance sheet with specified disclosures. Other ownership structures generally submit an audited GAAP balance sheet or audited GAAP financial statements.

Is a compilation or review sufficient for an LLC’s initial application?

Generally, no. Under the current CSC-016 form, formal business entities generally need an audit. A compilation or review provides a lower level of service and should not be assumed to satisfy the initial requirement.

Can a bookkeeper prepare the TWC audit?

A bookkeeper can organize and maintain the accounting records, but the independent audit report must be issued by a properly licensed CPA firm.

Can a CPA guarantee that TWC will approve the school?

No. The CPA reports on the financial statements. TWC determines whether the financial submission and the complete application satisfy its licensing requirements.

How long does a TWC balance sheet audit take?

The timing depends on the condition of the records and availability of supporting documentation. Reconciled accounts and properly documented funding can improve efficiency. Commingled activity, missing support and unresolved accounting issues can extend the engagement.

How JConner Can Help

JConner provides independent audit and audit-readiness services to organizations navigating specialized financial-reporting requirements. For prospective Texas career schools, our services can include:

• Evaluating whether the accounting records are ready for audit;

• Identifying GAAP and documentation issues before fieldwork;

• Coordinating the audit date with the anticipated TWC submission;

• Performing the required independent balance sheet or financial statement audit; and

• Helping management understand ongoing financial-reporting responsibilities.

If you are preparing a TWC Certificate of Approval application, contact JConner early in the process. An initial planning discussion can help identify the appropriate engagement, reporting entity, target balance-sheet date and records needed to begin.

Schedule a TWC Audit Consultation

---

Last reviewed: July 18, 2026. This guide is provided for general informational purposes and reflects TWC information available as of that date. TWC forms, fees and rules may change. Applicants should confirm current requirements with TWC before filing. This information is not legal advice and does not guarantee approval of an application.