THE MISSISSIPPI LEGISLATURE

The Joint Committee on

Performance Evaluation and Expenditure Review

Report # 495

A Review of the Operations of the Department of Audit and the Department’s Role in Fiscal Oversight and Accountability

Executive Summary

Introduction

MISSISSIPPI CONSTITUTION Article 5, Section 134, creates the elected position of Auditor of Public Accounts. (This position is now commonly referred to as the “State Auditor.”) MISS. CODE ANN. § 7-7-201 (1972) establishes the Department of Audit under the supervision and direction of the State Auditor. By state statute, the Department of Audit and its divisions accomplish all legal responsibilities assigned to the State Auditor. Therefore, for purposes of this report, PEER uses the term “Department of Audit” rather than “Office of the State Auditor” when referring to the entity responsible for performing the fiscal oversight and accountability functions of the State Auditor.

The purpose of this review was to determine whether the current operations of the Department of Audit address the state’s overall fiscal oversight and accountability needs.

Conclusions

The Department of Audit consists of the State Auditor’s executive support staff and eight divisions:

PEER analyzed the mission and statutory responsibilities of each division, the fiscal oversight and accountability risks addressed by each division, and how each division’s operations address the risks assigned.

Financial and Compliance Audit Division

The cornerstone of the state’s fiscal oversight and accountability system is the state’s financial statements—the Comprehensive Annual Financial Report (CAFR) —and an independent audit of the statements. PEER concludes that the department focuses necessary resources to ensure that the CAFR audit is conducted in accordance with generally accepted government auditing standards and completed in a timely manner. Also, PEER notes that the department appropriately focuses necessary resources to ensure that county and education audits are performed according to standards and in a timely manner.

Although the department is appropriately conducting its CAFR, county, and education audits, some significant factors affect the department’s operations and potentially impact the state’s fiscal oversight and accountability system. For example, due to the auditing requirements associated with and resources necessary to conduct the annual CAFR audit, the department does not perform individual audits of agencies not material to the CAFR, some of which are required to be audited annually by state law. The department performs limited internal control and compliance reviews on these agencies as time permits. In addition, low staffing levels and high turnover rates in the department’s Financial and Compliance Audit Division have resulted in a decreased experience level of audit staff and reduced institutional knowledge used in forming auditor judgment. Due to staffing shortages, the department has relied to a significant degree on contract certified public accountants to accomplish its audit work. An increase in the statutory limit of the amount of fees that the department could charge for audits would generate additional special fund revenue that could be used to retain existing experienced staff and hire additional auditors, thereby decreasing the department’s reliance on contract auditors.

Property Audit Division

With regard to its responsibilities to make inventories of all fixed assets, PEER concludes that the department accomplishes its statutory responsibilities for state agencies and universities. However, the department is conducting unnecessary fixed asset audits for counties and public school districts, audits which are duplicative of inventory assessments made by auditors during financial audits. The department accomplishes its responsibilities related to verifying that state and local government entities comply with statutory motor vehicle identification requirements. The duplicative local government fixed asset audits and the vehicle identification responsibilities have significantly reduced the department’s resources with which to perform state agency and university fixed asset audits and vehicle identification responsibilities in a timely manner. These tasks also use state resources to accomplish local government responsibilities.

Average Daily Attendance Audit Division

Prior to the 2006-07 school year, the Department of Audit fulfilled its statutory responsibilities for verifying that the public school districts submitted accurate student attendance data to the Mississippi Department of Education. However, with the launch of the Mississippi Student Information System on August 1, 2006, the department has not adequately planned its compliance audits of student attendance data, which could increase the risk of districts receiving the incorrect amount of funding.

Performance Audit Division

The department’s Performance Audit Division produces statutorily mandated reports that the State Auditor assigns to it for completion. Further, the division performs assistance work at the request of legislators and provides internal assistance to other operating divisions of the department.

Investigative Division

With regard to its investigative function, the department has established an organizational concept, staffing, and case management system to investigate and resolve alleged violations of state fiscal oversight and accountability laws and to recover lost public funds or property. For fiscal years 2002 through 2006, the department made 265 repayment demands for $7,672,951 and collected $5,134,136.

Technical Assistance Division

As required by state law, the department has established generally accepted accounting principles for public offices of the state and its subdivisions and provides assistance and training to personnel of state and local government regarding such. However, the department does not ensure that municipalities have annual audits conducted and submitted to the department for review and filing. In addition, the department does not collect fees for providing training courses.

Support Divisions: Administrative Services and Information Technologies

Duties of the department’s support divisions primarily involve general office administration functions typical of most state agencies. The Department of Audit’s Administrative Services Division performs office management functions, authorizes cafeteria fringe benefits plans, and coordinates work of auditors contracted to audit the department. The Information Technology Division functions as a technical resource for the department.

The Department’s Receipt of Statutorily Required Reports

PEER notes that the Department of Audit is burdened by statutory requirements that certain reports or documents be filed with the department by local governmental entities. (Recommendation 15 lists these statutorily required reports.) While maintaining these reports may not consume a great deal of staff time, it appears to be unnecessary and does take some time and space that could be allocated to other tasks. Additionally, state law also mandates a few reports that contribute little to the efficient and effective governance and control of state resources. Such reports also consume some of the department’s resources that could be deployed on other activities.

Recommendations

  1. The Department of Audit should become a third party in all contracts between education entities and outside CPA firms in order to allow the department to monitor the timeliness of work by outside CPA firms.
  2. The Legislature should grant the Department of Audit the authority in law to establish late penalties in contracts between state and local entities and outside CPA firms, to be imposed if audit reports are not completed by specified due dates. The Department of Audit should also have the authority to waive late penalties if, in the opinion of the department, circumstances beyond the control of the outside CPA firm prevented the audit report from being completed by the specified due dates.
  3. The Department of Audit should be granted in law the authority to prohibit for a reasonable period of time outside CPA firms from soliciting contracts for the performance of audits of state and local entities if an outside CPA firm has demonstrated a pattern of chronic tardiness in delivering audit reports by specified due dates.
  4. The Department of Audit should work with the State Personnel Board to develop a unique job classification and salary schedule that is equitable to similar positions in private industry for audit staff in the Financial and Compliance Audit Division.
  5. The Legislature should amend MISS. CODE ANN. §7-7-213 (1972) to allow the Department of Audit to charge state and local entities an audit rate equal to actual costs, as is done in conjunction with the federal Single Audit.
  6. In the future, when the Legislature finds it necessary to bring forward CODE sections requiring individual agency audits, the Legislature should strike audit requirements for individual agencies or entities. Further, the Legislature should not require audits of specific agencies and entities in the future.
  7. The Department of Audit should perform Limited Internal Control and Compliance reviews on agencies not material to CAFR on a three-year cycle.
  8. The Department of Audit should not conduct routine fixed asset audits of the counties and public school districts except when the local governing boards request an audit due to inventory control problems. This would allow the department’s Property Audit Division to focus on fulfilling its statutory responsibility for the property accounts of state agencies and universities, thereby increasing the number of annual property audits conducted of these entities and reducing the amount of time between audits.
  9. The Legislature should amend MISS. CODE ANN. Section 25-1-87 (1972):

    -- to require the Department of Audit to check for compliance with vehicle marking requirements for state agencies and universities as part of fixed asset audits for these entities;

    -- to require the Department of Audit to revise its fixed asset auditing manuals for cities, counties, and public school districts to require these local entities to file a “sworn and attested to” statement of compliance with the vehicle marking requirements for government-owned vehicles with the State Tax Commission. This statement should include an inventory of the county vehicles with the same information as the state-owned vehicle master inventory system of the Department of Audit;

    -- to require the annual financial audits of local government entities to address the entities’ compliance with vehicle marking requirements, including documentation of approval for unmarked vehicles.

    If an entity is not in compliance with the vehicle marking laws, the financial auditor should notify the State Tax Commission of this noncompliance so that the commission can act to stop the distribution of certain tax collections, as authorized by MISS. CODE ANN. Section 25-1-87 (1972); and,

    -- to require that documentation of gubernatorial approval for unmarked state agency and university vehicles be sent to the new Fleet Management Division of the Department of Finance and Administration rather than the Department of Audit.

  10. In auditing the Mississippi Student Information System (MSIS), the Department of Audit’s Average Daily Attendance Audit Division should:

    -- prepare and use a standardized audit plan for annual audits of the public school districts and individual schools. This would help to ensure that the ADA auditors accomplish these critical audits with standard objectives, criteria, documentation, methodology, and practices in order to verify the validity and reliability of the reported information;

    -- include reviewing and sampling, if necessary, of the school districts’ annual mandatory fixed asset audit report and supporting documentation; and,

    -- not conduct annual inventory audits of the fixed asset accounts of school districts, including vehicles.

  11. The Legislature should amend MISS. CODE ANN. Section 25-1-77 and Section 31-7-13 (1972) to delete the requirement that the State Auditor conduct audits of vehicle purchases and produce reports on agency emergency purchases.
  12. The Department of Audit should maintain a record of all referral requests for audits or investigations, the approval or disapproval action of the State Auditor or his Deputy State Auditor, and the documentation notifying the referrer of the decision.
  13. The Department of Audit should use the authority provided in MISS. CODE ANN. Section 7-7-218 (1972) and contract with certified public accountants to audit municipalities that fail to have annual audits performed and submitted to the department as required by state law. As provided for in this CODE section, any municipality for which the department must arrange an annual audit should bear the costs of such audit.
  14. As provided for in MISS. CODE ANN. Section 19-3-77 (1972), the Department of Audit should establish and charge reasonable fees for providing training programs for personnel of state and local governmental entities. At a minimum, the department should recoup all or a portion of the costs associated with providing professional certification courses mandated by state law for certain county employees.
  15. The Legislature should amend the following sections of state law to delete the requirements that entities automatically provide copies of certain reports, agreements, or resolutions to the Department of Audit.

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