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Office of the State Auditor

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Office of the State Auditor

    Office of the State Auditor

    FY 2001-2002 Accountability Report

    Section I Executive Summary

    The mission of the Office of the State Auditor is to bolster public confidence in state government finance by serving as a deterrent to fiscal mismanagement, fraud, and

    misuse of assets by state agencies and providers of Mediciad services. We primarily

    value professionalism in our staff and completion of our audit work in accordance with

    established professional standards.

    The strategic goal that is crucial to accomplishing the mission of the Office of the State Auditor is to provide adequate audit coverage of state agencies and Medicaid

    providers. Adequate audit coverage ensures that these organizations and their employees

    recognize that mismanagement, fraud, and misuse of assets will be discovered.

    Developments in information technology offer a clear opportunity to improve the efficiency of our audit programs and to provide our elected officials and the general

    public better access to our audit reports. The primary barrier to achieving our mission

    and strategic goals is limited funding of our programs. Current funding does not allow

    the Office of the State Auditor to complete all of the audits of state agencies mandated by

    statute and could lead to marginal audit coverage of Medicaid providers.

    The major achievement of the past year is the continuation of a high level of audit coverage to State government agencies and Medicaid providers during a period of severe

    budget reductions. Additionally, the Office of the State Auditor succeeded in improving

    the timeliness of audit completion and the issuance of audit reports.

    Section II Business Overview

    The Office of the State Auditor is located at 1401 Main Street, Suite 1200, Columbia, South Carolina. Administrative, managerial and some audit functions are

    carried out at this location; a large portion of the audit work is conducted on-site at state

    agencies and Medicaid provider facilities.

    The FY 2001-02 Appropriations Act included sixty-nine full time equivalent positions for the Office of the State Auditor. Because of budget reductions, staff size was

    sixty-three on July 1, 2001 and fifty-five on June 30, 2002. See the “Base Budget

    Expenditures and Appropriations” table and the organizational chart.

    The Office of the State Auditor conducts audits of state government and providers of Medicaid services. The State Audits Section performs financial audits of state

    agencies, the annual financial audit of the State's General Purpose Financial Statements,

    and the annual Single Audit of the State's Schedule of Federal Financial Assistance.

    These audits cover all State agencies with a total of nearly $5.5 billion in appropriated

    funds. The size of the agencies ranges from very small to an agency with appropriations

    of $1.9 billion. Also, technical assistance is provided to other governmental entities by

    either assisting with or conducting reviews of financial records and record keeping

    systems.

    All financial and compliance audit reports and management letters are provided to the Governor's Office, Comptroller General, State Treasurer, Senate Finance Committee,

    House Ways and Means Committee, the Board's Budget Division, Legislative Audit

    Council, and State Library. They are also published on our internet website. These

    reports are particularly important because they point out material weaknesses in an

    agency's accounting system or procedures. They also highlight instances in which

    regulations or laws were violated.

    The Medicaid Audits Section of the State Auditor's Office performs audits and reviews of cost reports filed by institutional providers of Medicaid services. These cost

    reports are used by the Department of Health and Human Services to establish amounts to

    be paid to these providers for services provided to qualified Medicaid recipients. Each

    year, approximately 60 Medicaid contractors are audited with program funding of over

    $230 million. In FY 2001-02 eighty-seven Medicaid audit reports were issued

    representing 57 providers. The audit reports identified adjustments to payments made to

    providers resulting in the Department of Health and Human Services certifying

    receivables of more than $3.6 million.

    The Office of the State Auditor also oversees all state contracts for auditing services. In FY 2001-02 the Office of the State Auditor was responsible for $5.4 million

    in audit contracts.

    Office of the State Auditor

    Base Budget Expenditures and Appropriations

     00-01 Actual Expenditures 01-02 Actual Expenditures 02-03 Appropriations Act

Major Budget Categories Total Funds General Funds Total Funds General Funds Total Funds General Funds

     Personal Service 2,698,710 2,698,710 2,511,551 2,511,551 2,495,825 2,495,825

     Other Operating 1,218,840 1,218,840 487,351 487,351 575,237 575,237

     Special Items 886 886 0 0 0 0

    Permanent Improvements 0 0 0 0 0 0

     Case Services 0 0 0 0 0 0

     Distributions

     to Subdivisions 0 0 0 0 0 0

     Fringe Benefits 675,938 675,938 677,047 677,047 623,005 623,005

     Non-recurring 0 0 0 0 0 0

     Total 4,594,374 4,594,374 3,675,949 3,675,949 3,694,067 3,694,067

OTHER EXPENDITURES

Sources of Funds 00-01 Actual 01-02 Actual

     Expenditures Expenditures

Supplemental Bills 0 0

Capital Reserve Funds 0 0

Bonds 0 0

     OFFICE OF THE STATE AUDITOR BUDGET & CONTROL BOARD

     STATE AUDITOR

     EXECUTIVE ASSISTANT

     TRAINING & QUALITY CONTROL

     DIRECTOR OF DIRECTOR OF DIRECTOR OF ADMINISTRATION STATE AUDITS MEDICAID AUDITS

     ADMINISTRATIVE WORD PROCESS AUDIT AUDIT

     COORDINATIOR SUPERVISOR MANAGERS MANAGERS

    ACCOUNTING WORD PROCESS AUDIT AUDIT TECHNICIANS SPECIALISTS SUPERVISORS SUPERVISORS

     SENIOR SENIOR

     AUDITORS AUDITORS

     AUDITORS AUDITORS

    Section III Elements of Malcolm Baldrige

    Leadership

    The State Auditor, in conjunction with the program managers, defines and

    communicates the values of the organization to the staff. One of the most important values of the organization is the deep-seated emphasis on professionalism. An example is the support and encouragement extended to staff members to achieve certification as a CPA. The Office of the State Auditor supports staff members in this effort by providing qualifying experience and in-house training to help with the continuing education requirements of the CPA. When funds are available, tuition assistance is also offered to encourage auditors to acquire the necessary academic requirements to qualify to take the CPA exam. One factor considered when evaluating a candidate for employment is his/her interest in pursuing certification as a CPA. To drive the point home, promotion policies require staff members to achieve certification as a CPA in order to progress to senior auditor or above.

    A key element in accomplishing the agency’s mission is to provide sufficient

    audit coverage of state agencies and Medicaid providers such that these organizations and their employees recognize that mismanagement, fraud, and misuse of assets will be detected. To monitor progress on this goal, the Office maintains management information of the status of audits planned for the fiscal year at all times. This system communicates to the staff the importance of completing the audits on time.

     The auditor in charge of each audit completes an interim evaluation of each member of the audit team at the conclusion of the audit. These interim evaluations are later used in completing the annual Employee Performance Management System evaluation. This system provides immediate feedback to the staff auditors about their performance and opportunities for improvement.

     When a staff auditor leaves the Office of the State Auditor, the Director of Administration conducts an exit interview with the individual on his/her last day. The purpose is to get valid, honest information about staff perceptions, morale, and suggestions for improving the employment experience at the Office of the State Auditor. The information is shared with and analyzed by the State Auditor and the program directors. The information is also shared in general terms with the audit managers. This process has proven to be a very effective way to identify improvements to the office environment.

    The State Auditor meets with the program directors and managers monthly to

    discuss organizational priorities, problems and progress. This senior management team works collectively with the State Auditor to define the organizational values and priorities. This team is, then, primarily responsible for communicating the direction and priorities of the agency to the staff.

    The Office of the State Auditor is instrumental in supporting and strengthening the financial community within state government. The standards of financial

    responsibility in state government are, to a large degree, defined by the audits conducted

    by the Office of the State Auditor. The emphasis on professional standards, certification

    as a CPA, and the Governmental Finance Officers Association Certificate of Excellence

    in Financial Reporting are examples of the leadership of the Office of the State Auditor in

    state government.

    Strategic Planning

     Statutes and regulations define the responsibilities of the Office of the State

    Auditor and drive the strategic planning process. It is a process of developing and

    allocating resources to accomplish each of these responsibilities. Because of deadlines

    during the year for much of our audit work, the planning requires careful coordination

    and timing of the allocation of resources. The State Auditor in conjunction with the

    program directors does the strategic planning on a continual basis. The strategies are

    communicated to the audit managers in the monthly management meeting and to the

    entire staff through the agency intranet.

     The strategic planning process in this Office consists of some well-defined steps,

    each one analyzed on short and long term bases:

    1) Identify the audit work that must be done to satisfy our statutory and

    regulatory mandates.

    2) Analyze the audit time required (based on historical data).

    3) Analyze the time frames (deadlines) for each of the audit programs.

    4) Identify the resources available and timing of availability.

    5) Determine the priority of the audits and the ramifications of not completing all

    the requirements.

    6) Identify strategies for development of the resources needed to meet all

    requirements within the time frames.

    One component of strategic planning is workforce planning. Our efforts in this area have resulted in:

    1) A more diverse workforce as indicated by our meeting our Affirmative Action

    Program goals.

    2) Development of online recruiting capability, resulting in more qualified

    applicants.

    3) Adoption of a variable work schedule policy that shows indications of helping

    with retention of current employees.

    4) Tuition Assistance Program (when funding allows) that has contributed to

    several staff members pursuing certification as a CPA.

    Customer Focus

    The General Assembly, the public through its elected officials, and state agency directors are the customers of the Office of the State Auditor. The customers have clearly

    communicated their focus by passing the statutes defining our programs and audit

    responsibilities. The statutes and regulations require an annual audit of state government

    entities and medicaid providers. Being responsive to our customers means conducting

    audits in a timely manner and according to professional standards.

    The State Auditor has been effective in working with the General Assembly. His many years of experience in state government and the public accounting field provides

    the background and perspective to effectively communicate with members of the General

    Assembly and agency management regarding the functions of the Office of the State

    Auditor.

    To more effectively and efficiently communicate the results of our audits to our customers, the Office of the State Auditor now publishes audit reports on our internet

    website. Auditees are notified of the report by email or letter. Hard copies of reports are

    provided upon request or when required by law or regulation. This year we eliminated

    printing and postage for over one thousand reports. This approach not only saves the cost

    of printing and postage, it also makes the reports more readily available to the public and

    other public officials. Audit results are communicated to our customers more effectively

    and at a lower cost to the State.

Information and Analysis

    Since the statutes and regulations define the programs of the Office of the State Auditor, the performance measures are logically defined as efficiency and effectiveness.

    We measure efficiency by determining how well our staff completes each audit within

    the assigned budget of audit hours and within the required time frames. We measure

    effectiveness by our degree of compliance with professional auditing standards. All audit

    work is subject to an internal compliance (quality control review). Additionally, we

    undergo an external review every three years. An independent auditor, usually a private

    CPA firm under contract, conducts the peer review. The standards and time frames are

    established by the federal government and by professional entities such as the

    Government Finance Officers Association and the American Institute of Certified Public

    Accountants.

Human Resource Focus

    A crucial element in the development and motivation of our employees is the interim evaluation that each auditor receives at the conclusion of an audit. The auditor in

    charge of each audit completes the interim evaluation of each member of the audit team.

    This system provides immediate feedback to the staff auditors about their performance

    and opportunities for improvement. The interim evaluations are also used in completing

the annual Employee Performance Management System evaluation and in identifying

    staff training needs.

    One of the important ways that the Office of the State Auditor encourages employees to develop their full potential is the emphasis on achieving certification as a

    CPA. The State Auditor’s Office supports and encourages staff members in this effort by

    providing qualifying experience and the in-house training required to meet the continuing

    education requirements of maintaining a CPA certificate. When funds are available,

    tuition assistance is also offered to encourage auditors to acquire the necessary academic

    requirements to apply for the CPA. One factor considered when evaluating a candidate

    for employment is his/her interest in pursuing certification as a CPA. In addition,

    promotion policies require staff members to achieve certification as a CPA in order to

    progress to senior auditor or above.

Process Management

    The production process used by the Office of the State Auditor is one of service delivery. It consists of conducting audits and reporting the results of the audit to our

    customers. The process of conducting an audit and reporting the results are well defined

    by professional standards. Our efforts in this area are largely directed at developing the

    competencies and expertise of our staff to conduct audits and report results in accordance

    with professional standards. Our continuous professional training, in-house training,

    tuition assistance, emphasis on certification, performance review system, and audit

    quality control processes are all components of our focus on ensuring that our audit

    processes conform to established professional standards.

    Developments in information technology have allowed us to improve the efficiency of our audit processes and to make our audit reports more accessible to our

    customers. The Office of the State Auditor now publishes audit reports on its internet

    website. This eliminated the printing and postage cost of our reports. Audit results are

    communicated to our customers more effectively and at a lower cost to the State.

    Business Results

    The mission of the Office of the State Auditor is to bolster public confidence in state government finance by serving as a deterrent to fiscal mismanagement, fraud, and

    misuse of assets by state agencies and providers of Medicaid services. During a period of

    severe budget reductions, the Office of the State Auditor has been able to continue with a

    high level of audit coverage to State government agencies and Medicaid providers while

    improving the timeliness of audit completion and the issuance of audit reports. The State

    Auditor continues to focus on providing the audit services required by state government

    and to manage resources in such a way to accomplish that goal.

    For the Office of the State Auditor, customer expectations (and satisfaction) are defined primarily by statute and Federal regulation. Our customers are the citizens of

    South Carolina, the elected officials representing them, and state agency management.

    Although the statutes require that we audit each state agency annually, an Appropriations Act proviso allows us to omit some audits as long as each agency is

    audited no less than every three years. Even with the budget limitations during FY 2001-

    02, the Office of the State Auditor completed audit engagements for seventy-six (76) of

    the eighty-six (86) state departments, agencies and institutions. The audit engagements

    were completed 771 hours (1.3%) under budget.

    Each year the Office of the State Auditor and a nationally recognized accounting firm jointly audit the State of South Carolina's General Purpose Financial Statements,

    which are prepared by the Comptroller General. The credibility of the State’s General

    Purpose Financial Statements is very important in the financial community and can affect

    the State’s bond rating. This year the audit was completed on time and under budget.

    The Single Audit Act Amendments of 1996 requires an audit the State of South Carolina's Schedule of Expenditures of Federal Awards. The Single Audit Report was

    completed on time and 33 hours over the budget of 10,000 hours. The U.S. Department

    of Health and Human Services accepted the audit without revision.

    Federal regulations require audit coverage of institutional providers for the State's Medicaid program. In FY 2001-02 the Office of State Auditor issued eighty-seven (87)

    audit reports representing fifty-seven (57) Medicaid providers. The audit reports

    identified adjustments to payments made to providers resulting in the Department of

    Health and Human Services certifying receivables of more than $3.6 million. The audits

    were completed under budget in 23,306 audit hours.

    The Office of the State Auditor provides expert technical assistance to other State government entities in the areas of finance and accounting. This year the Director of

    State Audits assisted the Comptroller General in preparing a request for proposal for the

    new "Enterprise System." He also served on the committee to hear proposals from the

    software vendors and advised on inclusion of appropriate accounting controls. The State

    Auditor served as chairman of the Commercial Mobile Radio Service Emergency

    Telephone Services Advisory Committee dealing with cost recovery for 911 service

    providers. The Director of State Audits assisted the Comptroller General's Office with

    statewide implementation of GASB 34, including the RFP to hire a major CPA firm to

    assist with implementation and training.

    A very important factor in serving our customers is their expectation that our audits meet established professional standards. All of our audit work complies with

    applicable standards of the American Institute of Certified Public Accountants. The

    Government Finance Officers' Association awarded South Carolina the Certificate of

    Achievement for Excellence in Financial Reporting for the State's Comprehensive

    Annual Financial Report, which includes the State's General Purpose Financial

    Statements. Also indicative of this high level of professionalism is the fact that over forty

    percent of our audit staff are certified public accountants.

    Every three years the State Auditor’s Office is required by Government Auditing

    Standards to undergo a peer review by an independent external auditor. The last peer review was in October 2000 and resulted in an unqualified opinion with no letter of comment.

    Private sector CPA firms are important suppliers of audit services to State

    government. Institutions of higher learning and a number of other state government entities pay these firms to conduct the annual audit of their agencies. Statutes require that the State Auditor approve all such audit contracts. The Office of the State Auditor issues the RFP’s, conducts the bid conferences and awards the contracts. This procedure insures competitive charges, responsive contractors, and professional standards of audit work. In FY 2001-02 the Office of the State Auditor was responsible for overseeing $5.4 million in audit contracts.

    Because of budget reductions, financial considerations drove most management

    decisions during FY 2001-02. The Office of the State Auditor spent 20% less than in the previous fiscal year. Most contracts with private CPA firms were canceled and most positions were not filled when vacated through normal turnover. Staff size shrunk to 80% of normal. The smaller staff and elimination of contracts with CPA firms severely reduced the available resources. Increased efficiencies derived from investments in information technology in recent years helped mitigate the reduction of audit services. The challenge in coming years will be to sustain this trend with reduced financial resources being allocated to information technology. In other words, as our computers become obsolete or worn out, we may not have funds for replacement or for further development of IT strategies.

     Staff development is a very important consideration for an organization such as the Office of the State Auditor. The level of professionalism sought for our staff requires considerable continuing education efforts within the agency and an expectation of our junior staff to continue with the education and development required to be certified as CPAs. Our hiring and promotion policies have reinforced these organizational values. Financial considerations have, however, dictated that we suspend our tuition assistance program.

     Employee moral has been affected by the lack of funds for raises and programs such as tuition reimbursement. Even so, the staff has remained focused as evidenced by their continued high level of performance, their continued pursuit of certification as CPAs, and involvement in staff programs such as the Employee Committee and Meals-on-Wheels. Maintaining a motivated staff will continue to be a challenge made more difficult by budget limitations.

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