Financial statements.

              FINANCIAL STATEMENTS
JUNE 30, 2011
Includes Independent Auditor’s
Report Issued By
Office of the Oklahoma State Auditor and Inspector
Table of Contents
June 30, 2011
Page
INDEPENDENT AUDITOR’S REPORT 1-2
STATEMENTS
Statements of Net Assets 3
Statements of Revenues, Expenses and Changes in Net Assets 4
Statements of Cash Flows 5
Notes to Financial Statements 6
REPORT ON INTERNAL CONTROL OVER FINANICAL REPORTING
AND ON COMPLINACE AND OTHER MATTERS BASED ON
AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN
ACCORDANCEWITH GOVERNMENT AUDITING STANDARDS 12-13
1401 Health Center Parkway, Yukon, Oklahoma 73099
827 NW 63rd, Suite 202, Oklahoma City, Oklahoma 73116
Phone (405) 848-7797 Fax (405) 848-7840 Web address www.hbc-cpas.com
INDEPENDENT AUDITOR’S REPORT
State of Oklahoma
Office of the Oklahoma State Auditor and Inspector
Oklahoma City, Oklahoma
We have audited the accompanying financial statements of Office of the Oklahoma State Auditor and Inspector
(the “Office”), a component unit of the State of Oklahoma, as of and for the year ended June 30, 2011 as listed
in the table of contents, which collectively comprise the financial statements of the reporting entity the Office of
the Oklahoma State Auditor and Inspector. These financial statements are the responsibility of the Office of the
Oklahoma State Auditor and Inspector’s management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of
America and the standards applicable to financial audit contained in Government Auditing Standards, issued by
the Comptroller General of the United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and the significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly in all material respects, the financial
position of Office of the Oklahoma State Auditor and Inspector as of June 30, 2011 and the respective changes in
net assets and cash flows thereof, for the year then ended in conformity with accounting principles generally
accepted in the United States of America.
In accordance with Government Auditing Standards, we have also issued our report dated October 31, 2011 on
our consideration of the Office’s internal control over financial reporting and on our tests of its compliance with
certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that
report is to describe the scope of our testing of internal control over financial reporting and compliance and the
results of that testing, and not to provide an opinion on the internal control over financial reporting or on
compliance. That report is an integral part of an audit performed in accordance with Government Auditing
Standards and is important in assessing the results of our audit.
1
Alan Behrens, CPA
Lonnie Heim, CPA
Marty Chisum, CPA, CFE
_______________
Natalie Heim Barnes, CPA
1401 Health Center Parkway, Yukon, Oklahoma 73099
827 NW 63rd, Suite 202, Oklahoma City, Oklahoma 73116
Phone (405) 848-7797 Fax (405) 848-7840 Web address www.hbc-cpas.com
The Office has not presented management’s discussion and analysis. Accounting principles generally
accepted in the United States of America require that the management’s discussion and analysis be presented
to supplement the basic financial statements. Such information, although not a part of the basic financial
statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential
part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or
historical context.
Oklahoma City, Oklahoma
October 31, 2011
2
OFFICE OF THE OKLAHOMA STATE AUDITOR AND INSPECTOR
STATEMENT OF NET ASSETS
JUNE 30, 2011
ASSETS
Current assets:
Cash $835,091
Cash-restricted 27,507
Due from federal government 55,955
Accounts receivable, net of allowance
of $563,807 680,001
Total current assets 1,598,554
Noncurrent assets:
Notes receivable 42,012
Capital assets, net of accumulated
depreciation of $3,553 9,632
Total noncurrent assets 51,644
Total assets 1,650,198
LIABILITIES
Current liabilities:
Accounts payable 172,158
Accrued wages payable 15,522
Compensated absences-payable within one year 422,973
Total current liabilities 610,653
Noncurrent liabilities:
Compensated absences-payable after one year 58,296
Total noncurrent liabilities 58,296
Total liabilities 668,949
NET ASSETS
Restricted for OSU 27,507
Invested in capital assets 9,632
Unrestricted 944,110
Total net assets $981,249
The notes to the financial statements are an integral part of this statement.
3
OFFICE OF THE OKLAHOMA STATE AUDITOR AND INSPECTOR
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED JUNE 30, 2011
Operating revenues:
Filing fees $ 161,090
Audit fees 4,489,851
Other fees 79,800
Total operating revenues 4,730,741
Operating expenses:
Personal services 8,860,910
Travel 94,248
Administrative 578,713
Equipment 168,174
Depreciation 1,877
Total operating expenses 9,703,922
Operating income (loss) (4,973,181)
Nonoperating revenues (expenses):
Appropriations 5,152,672
ARRA awards 300,000
Pass-through OSU expenses (330,086)
Total nonoperating revenue (expenses) 5,122,586
Change in net assets 149,405
Total net assets - beginning 831,844
Total net assets - ending $ 981,249
The notes to the financial statements are an integral part of this statement.
4
OFFICE OF THE OKLAHOMA STATE AUDITOR AND INSPECTOR
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Receipt of filing fees $161,090
Receipt of audit fees 4,368,181
Receipt of other fees 76,470
Payments for personal services (8,803,411)
Payments for travel (94,460)
Payments for administrative (572,843)
Payments for equipment (124,493)
Net cash provided (used) by operating activities (4,989,466)
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
Receipt of appropriations 5,152,672
Receipt of ARRA award 300,000
Pass-through payments to OSU (330,479)
Net cash provided (used) by noncaptial financing activities 5,122,193
Net increase in cash 132,727
Cash July 1, 2010 729,871
Cash June 30, 2011 (including $27,507 reported in restricted cash) $ 862,598
Reconciliation of operating income to net cash
provided (used) by operating activities:
Operating income (4,973,181)
Adjustments to reconcile operating income to
net cash provided (used) by operating activities:
(Increase) decrease in due from federal government 9,156
(Increase) decrease in accounts receivable (92,145)
(Increase) decrease in notes receivable (42,012)
(Increase) decrease in capital assets (5,722)
Increase (decrease) in accounts payable 56,198
Increase (decrease) in accrued wages payable 15,522
Increase (decrease) in compensated absences payable in one year 42,068
Increase (decrease) in compensated absences payable after one year 650
Total adjustments (16,285)
Net cash provided by operating activities $ (4,989,466)
The notes to the financial statements are an integral part of this statement.
5
OFFICE OF THE OKLAHOMA STATE AUDITOR AND INSPECTOR
FINANCIAL REPORT
AS OF AND FOR THE YEAR ENDED JUNE 30, 2011
6
The basic financial statements of the Oklahoma State Auditor and Inspector (the Office) have been
prepared in conformity with the accounting principles generally accepted in the United States of
America (GAAP) as applied to government units. The Governmental Accounting Standards Board
(GASB) is the accepted standard-setting body for establishing governmental accounting and financial
reporting principles. The more significant of the Office’s accounting policies are described below.
Notes to the Basic Financial Statements
Note 1. Summary of Significant Accounting Policies
A. Reporting Entity
The Constitution of the State of Oklahoma provides under Article VI, Section 19 for a State
Auditor and Inspector. Prior to 1979, the State maintained a separate Office of the State
Auditor and the Office of the State Examiner and Inspector. However, effective January 8,
1979, a constitutional amendment merged the Office of the State Auditor and the Office of
the State Examiner and Inspector, creating the Office of the Oklahoma State Auditor and
Inspector (the Office).
The Office is a part of the primary government (State of Oklahoma), and its financial data
are included in the State’s Comprehensive Annual Financial Report. The accompanying
financial statements are intended to present the financial position and results of operations
of only that portion of the State of Oklahoma that is attributable to the Office.
The Office has the following primary duties as specified in the Constitution and Statutes of
Oklahoma, as well as other duties not listed here:
 Examine the State Treasurer’s and all county treasurers’ books and records;
 Examine the books and records of state agencies, boards, and commissions;
 Maintain copies of audit reports of public trusts;
 Maintain a repository for audits and budgets filed by counties, school districts, and
towns;
 Provide fiscal support for the Pension Commission;
 Provide fiscal support for the Board of Equalization.
The Office is funded by the Legislature of the State of Oklahoma (the Legislature) through
appropriations to perform certain of its constitutional and statutory functions and by various
fees charged, such as those for auditing and filing audit reports.
OFFICE OF THE OKLAHOMA STATE AUDITOR AND INSPECTOR
FINANCIAL REPORT
AS OF AND FOR THE YEAR ENDED JUNE 30, 2011
7
B. Basis of Presentation and Accounting
The Office accounts for its activities within a proprietary fund type. The Office’s activities
meet the definition of an enterprise fund because it is the intent of the Agency to recover,
primarily through user charges, the cost of providing goods or services to the general
public.
The proprietary fund type is accounted for on a flow of economic resources measurement
focus. With this measurement focus, all assets and all liabilities associated with the
operation of this fund are included on the statement of net assets. Proprietary fund
operating statements present increases (e.g., revenues) and decreases (e.g., expenses) in
net total assets. The accrual basis of accounting is utilized by the proprietary fund. Under
this basis of accounting, revenues are recognized when earned and expenses are
recognized when the liability is incurred.
As required by the GASB Statement No. 20, Accounting and Financial Reporting for
Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting,
the Office has elected to apply all applicable GASB pronouncements and does not apply
Financial Accounting Standards Board (FASB) pronouncements and Accounting Principles
Board (APB) opinions issued on or after November 30, 1989.
Proprietary funds distinguish operating revenues and expenses from nonoperating items.
Operating revenues and expenses generally result from providing services in connection
with a proprietary fund’s principal ongoing operations. Revenues and expenses not
meeting this definition are reported as nonoperating revenues and expenses.
C. Assets, Liabilities, and Equity
Cash
All cash balances are held by the Oklahoma Office of the State Treasurer. The Office’s
cash is pooled with the cash of all other state agencies; this pool of cash is deposited in
banks or invested by the State Treasurer in accordance with Oklahoma Statutes. The State
Treasurer requires that financial institutions deposit collateral securities to secure the
deposits of the State in each such institution.
The Office, for the purposes of reporting cash flows, considers cash equivalents to include
all highly liquid investments with an original maturity of three months or less.
Capital Assets
The Department of Central Services, in accordance with Oklahoma Statutes, Title 74 §
110.1, has primary responsibility to maintain control of all property and equipment owned by
the State of Oklahoma with a cost in excess of $500. The Department of Central Services
has delegated to each of the various state agencies the responsibility to maintain the
accounting records for property and equipment purchased and used by each agency.
Capital assets are defined, by the Office, as assets that have a cost in excess of $5,000 at
the date of acquisition.
OFFICE OF THE OKLAHOMA STATE AUDITOR AND INSPECTOR
FINANCIAL REPORT
AS OF AND FOR THE YEAR ENDED JUNE 30, 2011
8
Compensated Absences
Employees earn annual leave at the average rate of 10 hours per month for up to 5 years
service, an average of 12 hours per month for 5 to 10 years, an average of 13.33 hours per
month for 10 to 20 years, and an average of 16.67 hours per month for over 20 years of
service. Employees with up to 5 years service may accumulate to a maximum of 240 hours
and employees with over five years service may accumulate to a maximum of 480 hours.
Accounts Payable
Accounts payable include all unpaid charges for services or goods incurred on or before
June 30. These payables represent amounts incurred in the ordinary course of business
and are primarily owed to vendors.
Wages Payable
Wages Payable consists of all wages earned prior to June 30th that were not paid by June
30th.
Income Taxes
The Office, as an integral part of the State, is exempt from federal and state income taxes.
Cash and Net Assets – Restricted
Each year, the Legislature appropriates funds to the Office to be paid to Oklahoma State
University (OSU) for the County Training Program, administered by the Commission on
County Government Personnel Education and Training, mandated by 19 O.S., §130.1 et
seq. The Office has no administrative duties related to this program. The Legislature
appropriated $330,086 for this program in fiscal year 2011. These funds are legally
restricted; therefore, the balance remaining at June 30, 2011 have been shown as restricted
cash and restricted net assets on the Statement of Net Assets.
Accounts Receivable
Accounts receivable consist of amounts due from state agencies, counties, school districts,
cities, ambulance services, and various quasi-governmental entities in the State for audit
services rendered by the Office. The amount presented is net of the allowance for doubtful
accounts of $563, 807 for fiscal year 2011. The allowance for doubtful accounts consists of
accounts outstanding for more than 120 days.
The policy of the Office is to bill for the audit services rendered while the audit is in
progress. Bills are submitted approximately once per month during the progression of the
audit, with a final billing at completion.
Notes Receivable
Notes receivable consist of collectible accounts receivable that are not expected to be fully
collected within one year.
OFFICE OF THE OKLAHOMA STATE AUDITOR AND INSPECTOR
FINANCIAL REPORT
AS OF AND FOR THE YEAR ENDED JUNE 30, 2011
9
Due from Federal Government
The Office is under contract with the Federal Department of the Interior to perform audits
and related investigations of federal oil and gas leases located in Oklahoma in accordance
with section 205 of the Federal Oil and Gas Royalty Act. The amounts presented are
reimbursements receivable for work performed during May and June of fiscal year 2011.
Personal Services
Personal Services consists of all payroll and related costs (including regular and part-time
salaries, longevity payments, retirement, and group insurance premiums), as well as
payments for professional services (such as auditing fees, data processing services, and
various other general services).
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenditures during the reporting period. Actual results could
differ from those estimates.
Note 2. Capital Assets
The Office reports capital assets at cost, net of accumulated depreciation. Capital assets
are defined as assets with initial costs of $5,000 or more and an expected useful life of five
years or more. Depreciation is computed on the straight-line method over the estimated
useful lives:
Computer equipment 5 years
Furniture and equipment 10 years
A half year’s depreciation is taken in the year an asset is placed in service. When assets
are disposed of, depreciation is removed from the respective accounts and the resulting
gain or loss, if any, is recorded. Capital asset activity for the year ended June 30, 2011 was
as follows:
Accumulated Capital
Equipment Depreciation Assets(net)
Beginning balance $ 5,586 $ (1,676) $ 3,910
Increases 7,599 (1,877) 5,722
Decreases - - -
Ending balance $ 13,185 $ (3,553) $ 9,632
OFFICE OF THE OKLAHOMA STATE AUDITOR AND INSPECTOR
FINANCIAL REPORT
AS OF AND FOR THE YEAR ENDED JUNE 30, 2011
10
Note 3. Operating Leases
The Office leases certain office space and equipment which meet the criteria for operating
leases. Total costs of such leases were approximately $401,337 for fiscal year 2011. The
future minimum lease payments for these leases are as follows:
2012 $ 163,063
2013 19,367
2014 6,347
2015 _
2016 _
Total $ 188,777
Note 4. Risk Management
As part of the State of Oklahoma primary government, the Office’s risk of losses to which
they are exposed is managed through the State’s risk management activities. The Office is
subject to risks of loss from tort claims, property loss, health claims, and workers’
compensation claims. In general, the State is self insured for health care claims, workers’
compensation claims, tort claims, and property losses. These services are provided by the
certain departments of the State’s General Fund and two state component units. The Office
is at no financial risk of loss from these types of risks.
Note 5. Pension Plan Participation
The Office contributes to the Oklahoma Public Employees Retirement System (OPERS)
plan. The OPERS is a statewide cost-sharing multiemployer defined benefit retirement plan.
A separately issued annual report for OPERS may be obtained from the Public Employees
Retirement System, 5801 N. Broadway Extension, Suite 400, Oklahoma City, 73118-7484.
The plan provides retirement, disability, and death benefits to plan members and their
beneficiaries. The pension benefit provisions are established and amended by the State
Legislature. Cost-of-living adjustments are provided to plan members and beneficiaries at
the discretion of the State Legislature.
Plan members and agencies are required to contribute at rates established by State law.
For fiscal year 2011, plan member’s contribution rate was 3.5% for all salary levels. The
agency’s contribution for the entire fiscal year was 15.5%, computed based on all salaries.
For the fiscal year ended June 30, 2011, the Office’s contributions to the plan, which were
equal to the required contributions, were $880,217; contributions for the preceding fiscal
year were $883,716.
OFFICE OF THE OKLAHOMA STATE AUDITOR AND INSPECTOR
FINANCIAL REPORT
AS OF AND FOR THE YEAR ENDED JUNE 30, 2011
11
Note 6. Other Post-Employment Benefits
In addition to the pension benefits described above, the State provides post-retirement
health care benefits to retirees. OPERS pays $105 per month for all retirees who elect
coverage at the time of retirement. There is no OPEB obligation information available
specific to the Office.
Note 7. Long-Term Obligations
Long–term debt is comprised of accrued compensated absences. Vested accrued leave, up
to a total of 480 hours, is payable upon termination, resignation, retirement, or death. In the
Statement of Net Assets, this accrued leave is reported as a liability. The Amount Due
Within One Year varies from year to year based on personnel turnover and the amount
reported is an estimate. For the year ended June 30, 2011, accrued compensated
absences liabilities changed as follows:
Balance Balance Amount Due
July 1,
2010
Additions Deductions June 30,
2011
Within One
Year
$ 460,157 $422,350 $401,238 $481,269 $422,973
Note 8. American Recovery and Reinvestment Act (ARRA) Funding
During fiscal year 2011, the Office was awarded $300,000 in ARRA funding by Governor
Brad Henry from the State Fiscal Stabilization Funds (CFDA #84.397). This funding was
awarded for the purpose of budget stabilization.
Note 9. Management’s Discussion and Analysis
The office is not reporting Management’s Discussion and Analysis as required by GASB 34
as required supplementary information due to the lack of prior period audited financial
information.
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REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND
ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS
PERFORMED IN ACCORDANCEWITH GOVERNMENT AUDITING STANDARDS
State of Oklahoma
Office of the Oklahoma State Auditor and Inspector
Oklahoma City, Oklahoma
We have audited the financial statements of Office of the Oklahoma State Auditor and Inspector (the "Office"),
component unit of the State of Oklahoma, as of and for the year-ended June 30, 2011, and have issued our
report thereon dated October 31, 2011. We conducted our audit in accordance with auditing standards
generally accepted in the United States of America and the standards applicable to financial audit contained in
Government Auditing Standards issued by the Comptroller General of the United States.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered the Office's internal control over financial reporting as a
basis for designing our auditing procedures for the purpose of expressing our opinion on the financial
statements, but not for the purpose of expressing an opinion on the effectiveness of the Office’s internal control
over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Office’s internal
control over financial reporting.
A deficiency in internal control exists when the design or operation of a control does not allow management or
employees, in the normal course of performing their assigned functions, to prevent, or detect and correct
misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in
internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial
statements will not be prevented, or detected and corrected on a timely basis.
Our consideration of internal control over financial reporting was for the limited purpose described in the first
paragraph of this section and was not designed to identify all deficiencies in internal control over financial
reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any
deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined
above.
Compliance And Other Matters
As part of obtaining reasonable assurance about whether the Office's financial statements are free of material
misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and
grant agreements, non-compliance with which could have a direct and material effect on the determination of
financial statement amounts. However, providing an opinion on compliance with those provisions was not an
objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no
instances of non-compliance or other matters that are required to be reported under Government Auditing
Standards.
Alan Behrens, CPA
Lonnie Heim, CPA
Marty Chisum, CPA, CFE
_______________
Natalie Heim Barnes, CPA
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This report is intended solely for the information and use of the State of Oklahoma Office of the Oklahoma State
Auditor and Inspector, management, others within the entity and federal awarding agencies and pass-through
entities and is not intended to be, and should not be, used by anyone other than these specified parties.
Oklahoma City, Oklahoma
October 31, 2011