2008 Annual report

2008 h 1 d Report

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About the Department

management informu: tion to promote
improvements in accountability and stewardship in state
I and local govern

Introduction

The

Department -

of

Audits

and

Accounts

serves

the

citizens

of

Georg- ia

through its auditing and oversight activities of state agencies, colleges,

universities, local school systems, Medicaid providers, county tax assessors,

local retirement systems, county and municipal governments, and nonprofit

organizations. The Department is also responsible for implementing the

Transparency in Government Act (SB 300) passed during the 2008 Session

of the General Assembly. Beginning January 2009, Georgia citizens now

have Internet access to a substantial amount of information regarding the

state's revenues and expenditures, including financial and performance audit

reports.

Our People
The Department's staff of professional and administrative personnel is committed to promoting accountability and stewardship in state and local government. The Department's 334 professional personnel include:
> 81 CPAs; > 7 CIAs (Certified Internal Auditors); > 17CFEs (Certified Fraud Examiners); > 7 CISAs (Certified Information System Auditors); and > 80 personnel who hold other professional designations such as
Certified Government Audting Professional (CGAP), Certified Government Financial Manager (CGFM), and Certified General Real Property Appraiser. Many of our personnel hold more than one professional designation.'

In recognition of their interest in and commitment to their profession, 17of our employees serve on boards and committees of state and national professional organizations,including the:
> Executive Committee of the National. Legislative Program
Evaluation Society;
> Agriculture and Energy Committee of the National Conference of
State Legislatures (NCSL);
> Executive Board of the Georgia Fiscal Management Council; > Executive Committee, Education Committee, and Community
Service Committee of the Association of Government Accountants;

1 The numbers include personnelwho have passed the required examination(s) and are awaiting official certification.

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9 Committee on Risk Suite Implementation of the National State Auditors Association (NSAA);
9 Special Review Committee of the Government Finance Officers Association; and
9 the Audit Standards and Reporting Committee, the E-Government Committee, and the Human Resources Committee of NSAA.

National Recognition and Awards
As a result of our people and their dedication and commitment, the Department has an excellent reputation among its peers and has been recognized nationally for the quality of its work. In September 2008, a peer review team from the National State Auditors Association (NSAA) found that because the Department's system of quality control was suitably designed and complied with, our audt work was in conformance with government auditing standards. This clean biZl of health is the highest mark a state audit organization can receive.
In addition to the review by NSAA, the quality of the Department's work was also recognized through several awards received during the year. Our PerformanceAudit Operations Division was the recipient of three awards:

system of quality control

by the National State

I Auditors Association
I found that our audit
I work was in conform-

I,' '

ance with government

auditing standards.

P The National State Auditors Association selected the 2007 audit oi the State Purchasing Card Program as the recipient of its Excellence in Accountability Award.
9 The National Legislative Program Evaluation Society (NLPES) selected the 2007 audit of the Board of Regents' Non-Resident Tuition Program as the recipient of an Excellence in Research Methods Award.
9 NLPES also selected the audit of the State Purchasing Card Program as a recipient of its Recognition of Impact Award.

In addtion to these three awards, the Division's 2007 special examination of County Public Health Departments was recognized by the Georgia Public Health Association for "outstanding achievement."

Our Education Audit Division was recognized by the Southeastern Association of School Business Officials for the collaborative effort between the Division and the Georgia Department of Education. This effort focused on the development of methods and strategies to assist local school systems in preparing financial statements that complied with generally accepted accounting principles (GAAP), conducting risk assessments, and documenting internal control structures.

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Departmental Activities

In calendar year 2008, the Department issued 508 audit reports, agreed-upon

procedures reports, special reports, financial management letters, special

examinations, and follow-up reports, including a u l t s of the state's

Comprehensive Annual Financial Report (CAFR) and the Single Audit

Report. A total of 179 fiscal notes were prepared by the Department in

response to proposed legislation that would potentially impact agencies'

revenues or expenltures. The Department also analyzed 1,669financial audit

reports, actuarial reports, and financial statements submitted by county and

reports, agreed-upon procedures reports, special reports, financial management letters, special examinations, and follow-up
L4i, reports thatfocused I
@ I on state agencies and

municipal governments, by local government retirement systems, and by nonprofit organizations that contract with the state. In addition, the Department prepared the Statewide-Equalized Adjusted Property Tax Digest. The Digest is used to ensure that local school systems provide funding on an equal basis (as determined by the relative market value of the property in their school district), and to distribute additional funds to those systems with the lowest property tax base. The audit reports and other documents issued in 2008 include:

programs, colleges a universities, technica

> 359 Financial Statement Audits, Agreed-Upon Procedures
- Reports, Special Reports, and Financial Management Letters

These reports provide the results of the Department's financial

homes and other

audit engagements of state agencies, colleges and universities, technical colleges, and local school systems. The audit work

involving state entities enabled the Department to render an

opinion on the state's Comprehensive Annual Financial Report

(CAFR) and the SingleAudit Report.

- > 19 Performance Audits and Follow-up Reviews The

performance audit reports (including special examinations) focus

on the efficiency and effectiveness of state programs in

accomplishing their objectives. Follow-up reviews are conducted

approximately two years following the release of a performance

audit to assess the extent to which the recommendations cited in

the audit have been implemented.
- > 91 Nursing Home Cost Report Audits These reports are used

by the Department of Community Health (DCH) in setting the

reimbursement rates paid those nursing homes that participate in

the state's Medicaid Program. Desk reviews of 326 nursing homes'

cost reports were also conducted.

- > 21 Provider Claim Audits These reports are used by DCH to

recoup overpayments made to physicians and other Melcaid

providers.
- > 8 Internal Audits of DCH These reports present the results of

internal reviews requested by DCH to improve their operations.

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> 7 Information System Audits and Follow-up Reports - These
audits focus on the extent to which agencies have implemented the internal controls necessary to safeguard their electronic information systems. Follow-up reports are conducted to determine what actions were taken in response to previous reports.
- > 3 Fraud Investigations These reports document the results of
the Department's forensic audit activities involving cases of suspected fraud.
- > 179 Fiscal Notes As required by state law, the Department
prepared 179 fiscal notes for the 2008 Session of the General Assembly that addressed the anticipated effect of proposed legislation that could impact agencies' revenues or expenditures.
In calendar year 2008, the Department also analyzed 731financial audit reports and agreed-upon procedures reports submitted by local governments. In addtion to reviewing the reports, Department personnel are responsible for ensuring that the local governments have prepared corrective action plans to address the findmgs and recommendations cited in the reports. The Department also analyzed 455 actuarial reports submitted by local retirement systems and 483 financial audit reportslfinancial statements submitted by nonprofit organizations that contract with state agencies.
The preparation of the Statewide-Equalized Adjusted Property Tax Digest requires Department personnel to determine the ratio of the assessed value of property to its sales price using a representative number of valid sales in every county. In 2008, this required Department personnel to review more than 700,000 validated property sales and conduct almost 4,000 appraisals. The sum for all counties is the Statewide-Equalized Adjusted Property Tax Digest.
Impact on State and Local Government
One of our goals is to have a positive, indelible impact on state and local government. We want to provide the citizens of Georgia with assurances that their tax dollars are safeguardedfrom fraud,waste, and abuse and that state programs are using their tax dollars efficiently and effectively. The results of the audit work that we conducted in calendar year 2008 are highlighted below.
> Our financial audit work for the state's Single Audit Report resulted in
93 audit findings and $4.1 million in questioned costs. Other financial audit work conducted during the year identified an additional $12.7 million in lapsed agency funds that were returned to the state treasury at year end. Our financial audit of the CAFR resulted in audit adjustmentslreclassificationsof approximately $2 billion.

ports submitted by ancial audit reports/

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sitive Impact:
e audit reports released alendar year 2008 ntified questioned cos almost $6 million in ral funds; identified
million in agency that were returned psed) to the state usury; included 188 ommendationsfor
I I improving state programs'
s and their controls r their electronic rmation systems; ommended recouping
dicaid providers; and
vings of $9.1 million in e Medicaid reimburse-
ent rates paid to$ fg+$ggj
ursing homes. i",A,dh,b&<8d"!

> Our financial statement audit of the Georgia Department of
Transportation, conducted at the request of the Governor, identified deficiencies in GDOT's ability to initiate, authorize, record, process, or report financial data reliably, with the result that GDOT's general ledger (unadjusted) was materially misstated. We found that GDOT avoided a statutory deficit at June 30, 2008 by recognizing fiscal year 2009 State Motor Fuel appropriations totaling $456.2 million.
> Our audit work at the state's colleges, universities, and t e c h c a l
colleges identified questioned costs of more than $1.0 million. It should also be noted that our audit work at the technical colleges served to fachtate the accreditation/reaccreditation of 8 colleges and the mergers of 12 colleges.
> Our financial audits of local school systems resulted in 95 findings
involving 13 major federal programs with questioned costs totaling more than $750,000.
> Our performance audts released in 2008 included a total of 125
recommendations for improving the efficiency and effectivenessof state programs. Based on historical data, it is anticipated that about 90/o of these recommendations will be implemented either fully or partially. The performance audits released during the year included recommendations for: improving the state's procedures for acquiring $230 million in highway right-of-way every year; protecting consumers from unscrupulous household goods carriers;improving the condition of local government bridges; taking more aggressive action to investigate insurance fraud; and improving the ability of state and local entities to communicate in the event of a large-scale emergency. It should also be noted that three House Study Committees were established in response to our reports and four bills were enacted in 2008 as a result of performance audits released in 2007.
> Our provider claims audits resulted in the recommended recoupment of
$8.4 million in Medicaid funds.
> Our nursing home cost report audits identified potential savings of $9.1
million in the Medicaid reimbursement rates paid to nursing homes.
> Our information systems audits resulted in 63 recommendations for
improvements. The recommendationsincluded the need for agencies to: improve their controls over system passwords; deploy additional firewalls to provide separation between Internet-facing servers and their internal network; improve their procedures for ensuring that database and third-party application software is assessed for knownlpotential vulnerabilities; review and update their business continuity/dsaster recovery plans; and restrict wireless access. The audit reports noted

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that the agencies concurred with the recommendations and would take (or had already initiated) corrective action.
> Our fraud investigation of the Academic Coach Program found that the
majority of the $1.2 million expended in fiscal years 2006 and 2007 was not expended in accordance with the enabling legislation. Our fraud investigation of the 21" Century Community Learning Centers found that the grant competition for the $10.7 million in funding for fiscal year 2007 was severely flawed as a result of apparent collusion and management override of internal controls. As a result of our fraud investigation within the Public Safety Training Center, an employee was found guilty of stealing $241,000.
9 The Statewide-Equalized Adjusted Property Tax Digest prepared by Department personnel was used by the Department of Education to distribute about $1.5 billion in QBE (Quality Basic Education) funds among the state's school systems. The Digest was also used by the Department of Revenue to determine the taxable value for conservation use programs and for statistical analyses.

State Governmen Education Audit

Our Organiza,tional Responsibilities and Statutory Authority
The Department of Audits and Accounts is composed of nine &visions and one office.
9 The State Government Division (56 positions) serves as the principal auditor of the CAFR and the Single Audit Report. Division personnel perform a combination of financial statement audits, agreed-upon procedures engagements, and management reviews of state agencies, pension funds, and other organizational units. Division personnel also conduct special financial audits and reviews as requested by the Governor, the House of Representatives, or the Senate. The Division's forensic audit unit conducts investigations of suspected fraud cases.
(Statutory Authority: O.C.G.A. 50-6-3 specifies that the Department "shall audit all state institutions.")
9 The Education Audit Division (111positions) conducts annual financial audits of county and municipal school systems. Division personnel also conduct audit work at the state's colleges and universities sufficient to render an opinion on the higher education component of the CAFR and the Single Au&t Report. The Division performs a combination of financial statement a u l t s , agreed-upon procedures engagements, and financial management reviews at the state's colleges, universities and technical colleges. (Statutory Authority: O.C.G.A. 50-6-6 specifies that it is
"the duty of the Department ... to audit ... the books and accounts of the county

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superintendents of schools and treasurers of local school systems, of municipal systems, of the severalunits of the University System...")
9 The Performance Audit Operations Division (31 positions) conducts performance audts and special examinations of state programs. The audits may be internally generated or may be conducted in response to requests received from the Governor or the House and Senate Appropriations Committees. The Division also conducts follow-up reviews to determine what actions have been taken in response to previous reports. (Statutory Authority: O.C.G.A. 50-6-24 authorizes the
State Auditor to review the management of each department; O.C.G.A.50-6-4 authorizes the Governor and the House and Senate Appropriations Committees to "require the State Auditor to make a special examination into and audit of all of the books, records ... and management of any department ...")
9 The Healthcare Audits Division (86 positions) conducts cost report audits of nursing homes for use by the Department of Community Health (DCH) in setting the nursing home reimbursement rates. The Division also conducts audits of provider claims to determine if they were appropriate, and performs internal program audits for DCH. Twelve Division personnel are assigned to the State Health Care Fraud Control Unit, a cooperative effort involving the Department of Audits, the Department of Law, and the Georgia Bureau of Investigation (GBI). The Unit, which is a budget unit of GBI, is responsible for the investigation and prosecution of fraudulent activities by health care providers enrolled in the state's Medicaid Program. (The Division's work
is performed through a contract with DCH; the Fraud Control Unit was established by Executive Order in response to federal requirements.)
P The Information Systems Audit and Assurance Services Division (10 positions) conducts audits of state agencies, colleges and universities, and technical colleges to evaluate the effectiveness of their internal controls over their information systems. Division personnel also conduct vulnerability and risk assessments to identlfy potential threats to the state's information systems and data (including key targets and vulnerable assets) and provide recommendations to management to remediate the risks and vulnerabihties. The Division also assists other Department personnel in assessing information system controls and in conducting their forensic audit work. (Statutory Authority: O.C.G.A. 506-4 authorizes the State Auditor to "conduct ... vulnerabihty assessments or
reviews" of electronic financial information systems, computing networks, Internet websites, etc.)
P The Nonprofit and Local Government Audits Division (8 positions) reviews financial audit reports and agreed-upon procedures reports of county and municipal governments for compliance with generally accepted accounting principles (GAAP) and ensures that they have prepared corrective action plans to address the reports' findings and re-

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commendations. The Division reviews the actuarial investigations/reports submitted by local retirement systems and prepares a biennial report on the financial soundness of the systems. Nonprofit organizations that contract with the state are required to submit financial audit reportslfinancial statements for review. (Statutory Authority: O.C.G.A. 36-81-7 requires local
governments to submit audtstagreed-upon procedures reports; O.C.G.A. 47-1-3 requires local retirement systems to file actuarial reports and O.C.G.A. 47-1-4 requires the State Auditor to prepare a biennial report on the condition of the systems;0.C.G.A50-20-3requires nonprofit organizations doing business with the state to submit annual financial audit reportstfinancial statements.)
P The Sales Ratio Division (22 positions) prepares the Statewide-Equalized Adjusted Property Tax Digest. Division personnel determine the ratio of assessed value of property to the sales price to ensure that the property is being assessed equitably within classes of property, between classes of property, and between counties. (Statutory Authority: O.C.G.A. 48-5-274
requires the State Auditor to prepare "... in each year, an equalized adjusted property tax digest for each county in the state and for the state as a whole...")
P The Information Technology Division (16 positions) is responsible for the Department's computer network as well as the hardware and software used by the Department. The Division provides technical assistance to Department personnel, develops software applications, and provides public access to the information required by the Transparency in Government Act.
9 The Administrative Division (14 positions) prepares the Department's
annual budget and financial statements, makes the Department's purchases, maintains the Department's personnel records, and prepares and updates the Department's generalpolicies and procedures.
9 The Office of Quality Assurance (4 positions) performs independent
reviews of the audit work conducted by the Department's operating divisions to ensure that the work is conducted in compliance with applicablegovernment auditing standards.
The Department also prepares fiscal notes estimating the effect of any proposed legislation that may impact the revenues or expenditures of any state agency. For legislation affecting state retirement systems, the Department is required to have an actuarial investigation conducted, unless the Department certifies that the proposed legislation has no fiscal impact. (Statutory Authority: O.C.G.A. 28-5-42
requires the General Assembly to have the State Audtor prepare a fiscal note on any bill that will have a sigmficant impact on the anticipated revenues or expenditures of any state agency; O.C.G.A. 47-20-34 requires the General Assembly to have an actuarial investigation conducted for any retirement bill that is reported out of committee, unless the State Audtor certifies that the bdl will have no fiscal impact; 0.C.G.A 47-20-36 specifies that the State Audtor is responsible for having the actuarial investigation conducted, if required).

For additional copies of the 2008 Annual Report, please call 404-656-2180.
This report may also be obtained from our Department website at: http://www.audits.state.ga.us