2010 Annual report

'Russe{{W. J{inton State Jtuditor of(jeorgia

5\ Message from tfie State 5\uditor
It is my fionor to yresent to you andotfier stakefio{ders tfiis Jtnnua{ Reyort for tfie Veyartment of.Audits and.Accounts. Tfiis reyort fiigfifigfits tfie activities andaccomyfisfiments of our office during ca{endar year 2010. Our mission is to yrovide decision-makers witfi credib{e management information to yromote imyrovements in accountabifity andsteward"sfiiy ofstate and{oca{ government. Tfirougfi our audit efforts, we afso fioye to yrovide tfie citizens of the state with assurances that their tax do{{ars are yroyer{y accountedfor, safeguardec(, andexyendedfor yrograms efficient{y andeffective{y. This reyort describes many of the activities of the Veyartment of.Audits and.Accounts andsummarizes the imyact that our oversight activities have on state and{oca{government.
Our audit work impacts the state's overa{{bondrating as we{{as the bond ratings of {oca{schoo{systems, resu{ts in do{{ar savings of both state and federa{fundS, improves the efficiency and effectiveness ofstate yrograms, strengthens the security over the state's e{ectronic information systems, yrovides assurances of the financia{ soundness of {oca{retirement systems, andfacifitates the equitab{e distribution of education funds to schoo{ systems throughout the state.
We are yroudof our accomyfishments andwi{{continue our efforts to serve the citizens of(jeorgia.
.----.L ectju{{y Submittec(,
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Rus State .Auditor

2010 Ammal Report

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About the Department

Our Mission: to provide decisionmakers with credible management information to promote improvements in accountability and stewardship in state and local government.

Introduction
The Department of Audits and Accounts serves the citizens of Georgia 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 maintaining the "Open Georgia" website. This website provides Georgia's citizens Internet access to a substantial amount of information regarding the state's revenues and expenditures, including financial and performance audit reports. This website also provides expenditure information relating to local boards of education.
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 277 professional personnel include:
~ 84CPAs; ~ 8 CIAs (Certified Internal Auditors); ~ 21 CFEs (Certified Fraud Examiners); ~ 11 CISAs (Certified Information System Auditors); and ~ 74 personnel who hold other professional designations such as
Certified Government Auditing Professional (CGAP), Certified Government Financial Manager (CGFM), and Certified General Real Property Appraiser. Many of our personnel hold more than one professional designation.1

Additionally, the Department has 68 professional personnel who have earned advanced degrees.
In recognition of their interest in and commitment to their profession, 14 of our employees serve on boards and committees of state and national professional organizations, including the:
~ Government Accountability Office's Advisory Council on Government Auditing Standards;
~ Executive Committee of the National Legislative Program Evaluation Society;

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

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~ Executive, CGFM, Meetings, and Early Careers Committees of the Association of Government Accountants;
~ Accounting, Reporting, and Auditing Committee, the Financial Management and Intergovernmental Affairs Committee, and the Government Accounting Standards and Management Oversight Committees of the NASACT;
~ Special Review Committee of the Government Finance Officers Association; and
~ The Audit Standards and Reporting, E-Government, Peer Review, Human Resources, Auditor Training, and Performance Audit Committees of NSAA.
National Recognition and Awards
As a result of our staff's dedication and commitment, the Department has an excellent reputation among its peers and has been recognized nationally for the quality of its work. The quality of the Department's work was recognized this year by the National Legislative Program Evaluation Society. Our Performance Audit Operations Division received the Recognition of Impact Award for its audit of the Department ofJuvenile Justice Short Term Program.
During 2010, the American Institute of Certified Public Accountants presented State Auditor Russell W . Hinton with the 2010 Outstanding CPA in State Government Award.
Departmental Activities
In calendar year 2010, the Department issued over 480 audit reports, agreedupon procedures reports, special reports, financial management reports, budgetary compliance reports, special examinations, and follow-up reports, including audits of the state's Comprehensive Annual Financial Report (CAFR) and the Single Audit Report. A total of 154 fiscal notes and retirement certifications were prepared by the Department in response to proposed legislation that would potentially impact agencies' revenues or expenditures and the funding of public retirement systems. The Department also analyzed 1,907 financial audit reports, actuarial reports, and financial statements submitted by county and municipal governments, by local government retirement systems, and by nonprofit organizations that contract with the state. In addition, the Department prepared the StatewideEqualized 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 2010 include:

National Recognition:
Our Performance Audit Operations Division received national recognition for its audit of the Department of Juvenile Justice Short Term Program.

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Activity Data: In calendar year 2010, the Department issued more than 480 audit reports, agreed-upon procedures reports, special reports, financial management reports, special examinations, and follow-up report that focused on state agencies and programs, colleges and universities, technical colleges, local school systems, and nursing homes and other Medicaid providers. The Department also prepared 154 fiscal notes and retirement certifications that addressed the potential financial effect of proposed legislation.

);> 369 Financial Statement Audits, Agreed~Upon Procedures Reports, Special Reports, Financial Management Reports, and Budgetary Compliance Reports ~ These reports provide the results of the Department's financial 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 Single Audit Report.
);> 18 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.
);> 67 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 351 nursing homes' cost reports were also conducted. Furthermore, the division conducted 348 fair rental value calculations. These reviews were used to establish payment rates for nursing home providers for the property component under the new fair rental value methodology implemented on July 1, 2009.
);> 19 Provider Claim Audits ~ These reports are used by DCH to recoup overpayments made to physicians and other Medicaid providers. From the total audits issued, 18 providers were referred to the State Healthcare Fraud Control Unit for investigation and possible criminal prosecution.
);> 2 Internal Audits of DCH ~ These reports present the results of internal reviews requested by DCH to improve their operations.
);> 19 Information Systems Audits ~ These information systems audits evaluate the effectiveness of IT general controls for 104 significant applications at various state agencies and universities. These audits focus on applications that support the initiation, authorization, recording, processing, and reporting of significant classes of transactions and material account balances reported within the state's Comprehensive Annual Financial Report (CAFR). The audits assess the effectiveness of management's primary controls over applications and their supporting infrastructure in order to gain reasonable assurance over data integrity.
);> 2 Fraud Investigations ~ These reports document the results of the Department's forensic audit activities involving cases of suspected fraud.
);> 154 Fiscal Notes and Retirement Certifications ~ As required by state law, the Department prepared 154 fiscal notes and retirement

2010 Ammal Report

certifications for the 2010 Session of the General Assembly that addressed the anticipated effect of proposed legislation that could impact agencies' revenues or expenditures and funding of public retirement systems.
In calendar year 2010, the Department also analyzed 786 financial audit reports and agreed~upon procedures reports submitted by local governments. In addition to reviewing the reports, Department personnel are responsible for ensuring that the local governments have prepared corrective action plans to address the findings and recommendations cited in the reports. The Department also analyzed 457 actuarial reports submitted by local retirement systems and 664 financial audit reports/financial 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 2010, this required Department personnel to review more than 400,000 validated property sales and conduct approximately 7,250 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 maximize the value of the State Auditor's Office by being a model state agency and by providing both necessary and valuable services to stakeholders and the public. We want to provide the citizens of Georgia with assurances that their tax dollars are safeguarded from 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 2010 are highlighted below.
~ Our financial audit work for the state's Single Audit Report resulted in 122 audit findings and $2.5 million in questioned costs. Other financial audit work conducted during the year identified an additional $1.6 million in lapsed agency funds that were returned to the state treasury at year end. Our financial audit of the CAFR resulted in audit adjustments/reclassifications of approximately $4 billion.
~ Our audit work at the state's colleges, universities, and technical colleges identified questioned costs of approximately $41,000. It should also be noted that our audit work served to facilitate the accreditation/reaccreditation of eight colleges/universities, ten technical colleges, and the merger of two technical colleges.
~ Our financial audits of local school systems resulted in 27 findings involving nine major federal programs with questioned costs totaling approximately $700,000.

Review of Property
Sales:
In calendar year 2010, the Department reviewed 400,000 property sales and conducted 7,250 appraisals to ensure property values are being assessed equitably within classes of property, between classes of property, and between counties.

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Positive Impact: The audit reports released in calendar year 2010 identified questioned costs of more than $3.2 million in federal funds; identified $1.6 million in agency funds that were returned (lapsed) to the state treasury; included 260 recommendations for improving state programs' efficiency and effectiveness and their controls over their electronic information systems; recommended recouping $3.7 million paid to Medicaid providers; and identified potential savings of $8.2 million in the Medicaid reimbursement rates paid to nursing homes.

~ Our performance audits released in 2010 included a total of approximately 90 recommendations for improving the efficiency and effectiveness of state programs. Based on historical data, it is anticipated that about 90% of these recommendations will be implemented either fully or partially. The performance audits released during the year included recommendations for: adopting strategies that would increase state revenues through the sale of special license plates; improving the oversight and accountability of schools providing services to severely emotionally disturbed students; lowering the state's sentencing costs and recidivism rates by maximizing the use of Drug Courts; outsourcing services, taking advantage of existing discounts, and using technology to significantly reduce the state's costs related to mail services; and increasing the accuracy and usefulness of the state's Sex Offender Registry.
~ During the 2010 Session of the General Assembly, legislation was enacted to address problems specifically noted in two of our performance audit reports. These reports were the User Fee Report and the Department of Revenue Special Ucense Plates Report.
~ Our provider claims audits resulted in the recommended recoupment of $3.7 million in Medicaid funds.
~ Our nursing home cost report audits identified potential savings of $8.2 million in the Medicaid reimbursement rates paid to nursing homes.
~ Our reviews of fair rental value calculations identified an additional cost savings of $3.4 million in nursing home payments.
~ Our information systems audits resulted in the identification of 170 recommendations for improvements over data integrity controls. These improvements help increase the reliability of automated controls supporting the integrity of critical financial data that is used by key decision makers.
~ Our investigation at the North Georgia Mountains Authority found a lack of controls, insufficient oversight, and abuse of authority, indicating possible fraudulent activities.
~ The Statewide-Equalized Adjusted Property Tax Digest prepared by Department personnel was used by the Department of Education to distribute about $1.7 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.

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Our Organizational Responsibilities and Statutory Authority
The Department of Audits and Accounts is composed of nine divisions and one office.
~ 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.")
~ The Education Audit Division (104 positions) 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 Audit Report. The Division performs a combination of financial statement audits, 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 superintendents of schools and treasurers of local school systems, of municipal systems, of the several units of the University System...")
~ The Performance Audit Operations Division (31 positions) conducts performance audits 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 books, records...and management of any department...")
The Healthcare Audits Division (56 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. Ten Division personnel are assigned to the State Health Care Fraud Control

2010 Annual Report
Organization:
The Department is composed of 9 divisions:
State Government Education Audit Performance Audit
Operations
Healthcare Audits Technology and
Risk Assurance
Nonprofit and
Local Government Audits
Sales Ratio Information
Technology
Administrative
And 1 office -
Quality Assurance

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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.)
);> The Technology and Risk Assurance Division (10 Positions) assesses IT risk and the effectiveness of the information technology control environment for the state. Division personnel evaluate IT general and application controls to support financial auditors in planning and determining the nature, timing and extent of audit procedures to be performed in support of the CAFR, as well as providing timely recommendations to management for needed improvements in IT~ related controls. Division personnel also evaluate IT general and application controls for information systems supporting significant business processes related to performance audit engagements. These evaluations may be used to assess controls in place for the confidentiality, integrity, and availability of data and ensures the accuracy and validity of data supporting core business processes. Other activities include performing risk~based information systems reviews to evaluate IT governance related to IT processes and IT strategic alignment, and performing vulnerability assessments for significant state businesses to determine weaknesses within the IT environment. (Statutory Authority: O.C.G.A. 50-6-4 authorizes the State Auditor to ~conduct... vulnerability assessments or reviews" of electronic financial information systems, computing networks, Internet websites, etc.)
);> 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 they have prepared corrective action plans to address the reports' findings and recommendations. 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 reports/financial statements for review. (Statutory Authority: O.C.G.A. 36~81-7 requires local governments to submit audits/agreed~upon procedures reports; O.C.G.A. 47+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; O.C.G.A. 50~20~3 requires nonprofit organizations doing business with the state to submit annual financial audit reports/financial statements.)

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>- The Sales Ratio Division (20 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...")
>- The Information Technology Division (16 positions) is responsible for
providing a secure infrastructure as well as the hardware and software used by the Department. The Division provides technical assistance to Department personnel, develops web-based applications to streamline processes, and provides public access to the information required by the Transparency in Government Act.
>- The Administrative Division (12 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 general policies and procedures.
>- The Office of Quality Assurance (3 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 applicable government 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 Auditor prepare a fiscal note on any bill that will have a significant 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 Auditor certifies that the bill will have no fiscal impact; O.C.G.A. 47-20-36 specifies that the State Auditor is responsible for having the actuarial investigation conducted, if required).

For additional copies of the 2010 Annual Report, please call404-656-2180.
This report may also be obtained from our Department website at: http:/ jwww.audits.ga.gov