An audit released June 5 by Minnesota’s Office of the Legislative Auditor found that the Board of Water and Soil Resources lacked cost-accounting rigor with its payroll and administrative expenses.
The auditor’s office also noted that it had insufficient documentation from BWSR to complete its audit, which examined files from July 2014 through February 2017. The audit was conducted to determine if BWSR had adequate internal controls and complied with major finance-related legal requirements.
The audit scope included grants, easements, and payroll and other administrative expenditures.
Most grant and easement transactions complied with legal requirements, noted Financial Audit Division staff conducting the audit with full cooperation of BWSR.
The audit reported four findings, along with specific recommendations:
• Fiscal oversight. BWSR did not establish appropriate fiscal oversight controls for its administrative expenditures. This was a prior audit finding. Audits also were done in 2007, 2010 and 2015.
Though the board is a relatively small agency, auditors noted that BWSR manages substantial fiscal resources and has complex accounting requirements. In fiscal 2017, BWSR had nearly $105 million in revenue and appropriations, and $96 million in expenditures.
“The results of this and former audits indicate that the board may need additional staffing and training to adequately safeguard funds and operate its programs in compliance with state laws and policies,” the audit stated. Auditors recommended that BWSR seek external help to rectify its long-standing fiscal oversight weaknesses.
They also noted that BWSR had recently hired a new chief financial officer, which should help with fiscal management practices.
• Controls for compliance. BWSR did not have appropriate controls to ensure compliance with funding-use legal restrictions. This was a prior audit finding.
For example, costs charged to the Clean Water and Outdoor Heritage Legacy appropriations must be directly related and necessary to accomplish the purposes defined in law. However, the audit identified instances where BWSR did not use funds appropriately, primarily due to errors.
“In many other instances, we could not determine whether the board used funds appropriately because there were no records to substantiate financial decisions,” the audit report noted. Payroll and administrative expenditures account for approximately 17% of BWSR’s annual financial activity, yet BWSR could not demonstrate that it had a purposeful methodology to allocate these costs to the programs that it operates.
Auditors recommended that BWSR implement controls to ensure compliance with funding source legal provisions and to correct the errors identified by this audit.
• State’s accounting policies. BWSR did not follow state accounting policies for its administrative expenditures. This was a prior audit finding.
The Minnesota Management and Budget publishes accounting policies and standards, which executive branch entities must follow. These policies promulgate best practices to safeguard assets and ensure compliance with finance-related laws. BWSR did not follow them, according to auditors. They recommended compliance with them, as well as managing security clearances to statewide systems in accordance to state policies. Auditors also said BWSR should correct numerous coding errors and collect inappropriate reimbursements paid to employees through processing errors.
• Conflicts of interest. BWSR did not properly resolve conflicts of interest. All BWSR board and grant review team members must complete a conflict of interest form to disclose any actual, perceived or potential impairments. Auditors identified eight people who disclosed conflicts of interest, five of which participated in evaluation or approval of grants. Auditors said they found no evidence that management discussed or resolved any of the potential impairments.
Auditors recommended that BWSR should actively manage potential conflicts of interest, as required by state law and policy.
BWSR overhaul efforts
In a May 30 letter to the legislative auditor, BWSR Executive Director John Jaschke thanked auditors for their review and noted that BWSR has been overhauling its internal fiscal management system for the past year, due to state audits.
“BWSR takes seriously our financial management responsibilities,” Jaschke stated. “With approximately 83% of our budget transferred to local governments for on-the-ground conservation and clean water projects, our top priority has been to ensure compliance, accountability and outcomes.” He also thanked auditors for acknowledging proper BWSR oversight of grants and easements.
Jaschke said in October, BWSR contracted with the Minnesota Department of Natural Resources to evaluate and provide recommendations for fiscal process improvements. The agency also continues to consult with other state agencies, including Minnesota Management and Budget.
He added that a new CFO, Jeremy Olson, was hired in November, and that various roles and responsibilities have been evaluated and adjusted.
BWSR staff also implemented process improvements and new controls and procedures. Examples include adjusting a pilot staff activity reporting policy in August; adopting a new conflict of interest form for non-board members in March; and adopting an updated and improved travel and special expense policy in May.
Jaschke said that BWSR has nearly completed the process to identify errors identified by the audit to ensure compliance with funding source legal provisions.
“Over the past 12 months, the agency has been engaging in a significant overhaul of our fiscal management system,” Jaschke said. “For example, on Aug. 14, 2017, BWSR adopted a new time monitoring and activity reporting procedure to ensure fund integrity by assigning and then checking staff time allotted to specific funding sources. BWSR is also evaluating and updating allocation methodologies to ensure charges are consistent and accurate across all eligible funding sources.”
BWSR will provide additional training to fiscal staff on policies and procedures, and protocols will be established to ensure complete and proper recordkeeping.
Regarding coding errors and overpayment of employee reimbursement, Jaschke agreed with the audit’s finding. Most errors were caused by inconsistent use of accounting codes. Additional staff training will take place as well as completion of a master account code reference tool by December.
Payroll processing errors and employee reimbursement overpayment were immediately resolved following the initial audit period, he said, and training continues for staff in those areas.
Jaschke took issue with auditors’ findings regarding conflict of interest. He explained that board members follow a consistent and transparent conflict of interest procedure.
“During each public board meeting where a decision will be made, the BWSR board chair reads aloud the conflict of interest statement and directs board members to disclose and document potential, perceived, or actual conflicts,” Jaschke said in his letter. “Our process then calls for those forms to be collected and presented to the board chair and the executive director. Then for each corresponding vote, abstentions are announced.”
You can read the audit report online.