Annual report

              This publication is issued by the Office of the State Auditor and Inspector as authorized by 74 O.S. § 216.
Pursuant to 74 O.S. § 3105, ten copies have been printed at a cost of $27.58 to Oklahoma taxpayers.
Copies have been deposited with the Publications Clearinghouse of the Oklahoma Department of Libraries.
The 2011 Annual Report is also available on the State Auditor’s website at www.sai.ok.gov. The State Auditor’s Duties
The Oklahoma State Auditor & Inspector shall “examine the state and all county treasurer’s books, accounts, and cash on hand or in bank at least twice each year” and “prescribe a uniform system of bookkeeping for the use of all treasurers.”
[OK Constitution, Article 6 § 19]
The constitution also requires the auditor to annually audit the operations of the state’s Emergency Medical Service Districts.
[OK Constitution, Article 10 § 9C]
State law mandates that the State Auditor establish accounting procedures and forms, and provide assistance to counties and other local governments.
As detailed later in this report, the State Auditor conducts audits of almost all state agencies, boards and commissions, and also performs special investigative audits when requested by certain officials or citizen petition.
The Auditor serves on multiple boards and commissions including the State Board of Equalization, the State Pension Commission, and as one of the Commissioners of the Land Office.
Performance Audits
A Performance Audit is a specific type of audit report that reviews the effectiveness and efficiency of a government entity.
This audit may focus on internal controls to ensure reliable reporting and the existence of proper safeguards to protect public assets.
The audit may review an entity’s programs, procedures, and processes to ensure the most cost-effective delivery of public services.
A Performance Audit may target a particular program created by the legislature to review its implementation to ensure the expenditure of designated funds are in compliance with contract provisions, the intent of the law and other statutory requirements.
Currently, the State Auditor is authorized to conduct Performance Audits only upon written request by the Governor, the chief executive officer of a government entity, or by joint or concurrent resolution of the state legislature.
[74 O.S. § 213.2(B)]
1 Special Investigative Audits
All governmental entities are required to have a financial audit conducted annually. Some (state and county government entities) are conducted by the State Auditor while others are conducted by private sector public accountants and CPAs approved to perform government audits.
All financial audits not conducted by the State Audit must be filed with the state auditor’s office. More than 1000 audits for towns, cities, school districts, public trusts, and authorities are filed each year.
Special audits are unique in that they go beyond a typical financial audit to examine allegations of fraud, abuse, or misuse of public funds.
A special audit is only conducted upon a written request by the Governor, the Attorney General, the Speaker of the House, the Senate President Pro-Tem, a District Attorney, an entity’s governing board, or by citizen petition. The cost of the audit is paid by the entity being audited.
The Audit Process
All audits begin with an entrance conference and the presentation of an engagement letter.
The scope of the audit sets forth the time frame and objectives.
As part of our fieldwork, we examine an entity’s books and records to determine compliance with state laws, the existence of adequate controls, and whether the records meet governmental auditing standards.
After a review for technical accuracy, a report is issued stating the objectives, any findings, recommendations, and, most of the time, a response from the entity being audited.
Auditing the State Auditor
The State Auditor is required to undergo an annual financial audit which is conducted by an independent accounting firm.
The National State Auditor’s Association conducts a Comprehensive Peer Review every three years. The review inspects audit work papers to determine if governmental standards are being followed.
A copy of the most recent Peer Review letter is provided to every audit client and is also posted on the State Auditor’s website.
The annual Single Audit of federal funds expended by state agencies is reviewed and approved by the Office of Inspector General of the U.S. Department of Health & Human Services.
2 3 4 5 State Agency Audit Division
The State Agency Audit Division (SAAD) performs a critical role with regard to accountability of state government and in ensuring state government entities continue to receive optimum federal funding.
The Division conducts annual financial and federal compliance audits as well as attestation engagements and other special projects at state entities.
One of its primary projects is the State’s Single Audit which covers all state agencies, boards and commissions. The single audit is actually a combination of two separate, yet interrelated audits that includes Oklahoma’s Comprehensive Annual Financial Report (CAFR).
The state’s CAFR has been recognized with the “Certificate of Achievement for Excellence” awarded by the Governmental Finance Officers’ Association every year since 1996.
The second portion of the Single Audit covers federal funds expended by state agencies and reviews their compliance with applicable laws and regulations.
As noted earlier, this audit is reviewed by the Office of Inspector General of the U.S. Department of Health and Human Services. The Oklahoma Office of State Finance was notified in August 2011 the audit conducted by SAI met federal audit requirements.
This approval is vital to Oklahoma receiving various federal grants which now account for more than 45% of the state’s annual budget.
SAAD staff participates in the National Peer Review Program conducted by the National Association of State Auditors.
Government Auditing Standards require peer reviews every three years to ensure audit agencies meet audit industry standards.
The State Auditor’s Office successfully passed its most recent peer review in 2011.
In 2010 and 2011, SAAD participated in Phases One and Two of the Federal Office of Management and Budget’s Single Audit Internal Control Pilot Project. The Division will participate in Phase Three this year.
The goal of the federal project is to identify potential material weaknesses and significant deficiencies in internal controls for certain, selected American Recovery and Reinvestment Act programs three months sooner than the nine-month time frame currently required by federal law.
The compressed time frame allows state agency management and federal agencies to address any issues in a timelier manner.
Performance Audit Division
The Performance Audit Division is key to helping state agencies deliver services in a more effective and efficient method.
From providing information to improve operations to aiding those responsible for initiating corrective action, this Division conducts four primary types of audits.
The Internal Control Audit assesses an entity’s system of checks and balances to provide reasonable assurance of achieving effective and efficient operations, reliable reporting, and statutory and regulatory compliance.
The Economy and Efficiency Audit is a review to determine whether an entity is acquiring, protecting, and using its resources in the most productive manner.
The Program Effectiveness Audit is a review of a program’s implementation and processes to measure the extent to which it is achieving its stated goals, objectives, and legislative intent.
The Compliance Audit reviews criteria established by various statutes, regulations, and contract provisions to assure accurate conformity and implementation.
6 County Audit Division
The County Audit Division conducts annual financial audits and federal compliance audits for Oklahoma’s 77 counties. The Division also conducts audits for 53 emergency medical service districts and 27 district attorneys. All audits are conducted in accordance with Government Auditing Standards.
SAI has established four regional offices to minimize travel costs for its 40 plus field auditors. With offices in Weatherford, Ada, Tulsa, and Oklahoma City, county offices staff include an audit manager, audit supervisors, auditors, and an administrative assistant.
This Division conducts cash counts and reconciles the accounts maintained by each county treasurer.
When a transition of an elected official occurs, county auditors conduct a turnover audit to review internal controls and compliance requirements of the office. This audit provides the new official with information regarding available funds, budget matters, inventory on hand, and recommendations to further safeguard public assets.
The State Auditor is responsible for determining county auditing procedures. The County Audit Division recently developed performance audit programs for emergency medical service districts and some counties. The performance audit program includes an evaluation of the entity’s internal controls over reporting and compliance with specific laws.
County Management Services
The County Management Services Unit provides consulting and advisory services to county government officials and staff on matters including financial reporting and compliance with applicable laws and regulations.
This Unit also works closely with the County Training Program at OSU to develop and provide appropriate training courses for county personnel. The Unit presented at 23 training workshops conducted by various county official associations in FY11.
This Unit handles in excess of 100 email and telephone inquiries each week and also works closely with the County Government Legislative Committee to help keep all county officials and SAI auditors informed about relevant statutory changes.
Special Investigative Unit
The Special Investigative Unit conducts investigative audits upon request.
Statutes prohibit the unit from initiating a special audit unless requested by the Governor, the Speaker of House, the President Pro-Tem of the Senate, the Attorney General, a county district attorney, a governing board or by citizen petition.
The unit is noted for its work in identifying fraud and waste of public funds.
During FY11, the Special Investigative Unit identified the theft of hundreds of thousands of dollars from cities, school districts, and various agencies.
7 Minerals Management Unit
The Minerals Management Audit Unit is charged with conducting mineral royalty audits on federal lands in Oklahoma.
Through its cooperative agreement with the U.S. Department of the Interior (DOI), this unit ensures an accurate accounting of all royalty payments due to both Oklahoma and the federal government.
The state receives fifty percent of all federal royalty dollars paid to DOI as well as fifty percent of all royalty dollars collected as a result of an audit.
FY11 collections of underpaid royalties exceeded $400,000.
Through its cooperative agreement, SAI receives complete reimbursement for the audit services it provides.
SAI signed a new, three-year cooperative agreement in 2011 which included an option to renew for an additional three years. The contract ensures this unit will continue to actively seek underpaid royalties through federal FY18.
Horse Racing Audit Unit
Horse Racing Audit Services monitors all wagering activities at the three operating racetracks and off-track wagering facilities licensed by the Oklahoma Racing Commission. A portion of all wagers are paid to the state.
The unit monitors all wagers on live and in-state and out-of-state simulcast races.
All commissions and funds that are paid to the public for winning pari-mutuel wagers are tracked.
The cost of this monitoring is funded through a contract with the Oklahoma Horse Racing commission and from an amount set aside for that purpose from monies wagered.
Gaming Audit Unit
The Gaming Audit Unit monitors all gaming activities at the state’s two operating racetracks conducting gaming as licensed by the Oklahoma Racing Commission.
All gaming revenue is monitored and tracked to ensure an accurate accounting of proceeds designated for state educational funds at the Oklahoma Tax Commission.
The cost of monitoring is funded through a contract with the Oklahoma Horse Racing Commission.
Quality Assurance (QA)
QA coordinates internal quality control to ensure that all audits comply with adopted policies and procedures and that our work meets or surpasses professional standards.
This division is responsible for both the triennial External Peer Review and the Federal Quality Control Review.
The 2011 Peer Review Team spent a week reviewing SAI audit reports and procedural/policy matters before issuing its highest level of assurance, an unqualified opinion.
8 Information Systems Division
The Information Systems Division (ISD) plays an essential, dual role in helping the State Auditor’s Office define and maintain its independence while also conducting IT risk assessment and evaluation of an entity’s IT control environment during financial audits.
Computer Support/Network Administration
With 120 employees across the state, this Unit supplies crucial support for all software applications and computer hardware.
SAI has five network locations connected via a virtual, private network maintained by ISD.
In addition to four regional offices, ISD also provides computer support to four off- site locations at the state Tax Commission, the state Department of Human Services, the state Department of Transportation, and at Remington Park Race Track.
In FY11, this Unit responded to more than 600 help desk calls without a full-time FTE in this position.
The Unit is responsible for software training, inventory, asset retirement, forms conversion, data archiving, IT purchasing and research, remote access, email services, billing system support, website, budget forms, project management, file services, annual risk assessment, business continuity/ disaster recovery, policy/procedure updates,
security awareness training, workstation setup/configuration, license tracking, anti-virus/malware/spyware protection, firewall/ switch support, printers/copiers/scanners, and license tracking.
System Development Services
This unit is responsible for creating and maintaining internal office database systems with an emphasis on program accuracy and functionality.
Information Systems Audit Services
The Information Systems Audit Services Unit conducts IT risk assessments and tests the effectiveness of IT control environments in state entities.
These assessments help ensure inherent safeguards are in place to secure confidential and other critical data. The result is a reduced risk of ineffective IT processes that may adversely impact the state and its political subdivisions while also increasing the reliability of information.
The input provided through various IT audit recommendations, when appropriately implemented, improve the management, integrity, confidentiality, and availability of information, as well as the effectiveness and efficiency of an entity’s IT operations.
SAI completed 15 IT audits in FY11.
9 Continuing Professional Education
Government auditors performing work under Generally Accepted Government Auditing Standards (GAGAS) are required to attend 80 hours of continuing professional education every two calendar years.
The training must directly enhance the auditor’s professional proficiency to perform audits or attestation engagements.
SAI embraces its training obligations and endeavors every year to ensure its audit staff receives the requisite training necessary to effectively, efficiently, and competently carry out the agency’s responsibilities in a professional and independent manner.
Government auditing standards and guidelines vary depending on the type of engagement and government entity. SAI tailors its internal training for relevance between its state agency auditors, county government audits, and those auditors performing non-GAGAS work.
SAI provides a minimum of 40 training hours annually to each of its auditors. Training is provided from general auditing and accounting to customized training targeting each division’s unique standards and guidelines.
To assist government auditors at other public entities and private practitioners who conduct government audits, SAI offers 40 hours of external training annually, at the lowest
possible cost, to satisfy mandatory training requirements.
The State Auditor’s Continuing Professional Education Series courses are broad based to help ensure application of the material to the widest audience possible.
Quality matters, both in the final audit product and in the training provided to achieve an audit product of value and merit.
SAI strives to bring in the industry’s top presenters on a wide range of topics. As a result, we’ve seen an increase from 2010 to 2011 of more than 20 percent in the number of government auditing professionals who now attend our training.
SAI also provides its personnel with training in ethics, professional development, ACL Auditing software, Microsoft Office Suite, information systems, and OPM mandated supervisory training.
SAI personnel achieved 100 percent training compliance in FY11 across all areas identified above.
More than 200 external government auditors from both the public and private sectors attended SAI courses offered through the State Auditor’s Continuing Professional Education Series.
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