Office of the Legislative Auditor - Financial Audit Division

Report Summary
General Obligation Bond Expenditures
Internal Controls and Compliance Audit

 

Financial Audit Division Report 14-06

Released March 6, 2014

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Conclusion

The entities we audited generally had adequate internal controls to ensure that they used general obligation bond proceeds in compliance with applicable finance-related legal requirements. However, we found several weaknesses in internal controls.

The capital projects and grants we tested generally complied with applicable finance-related legal requirements. However, we found some costs that did not comply with specific legal requirements.

The Department of Management and Budget did not fully implement two recommendations from our 2012 follow-up review of the 2008 audit report.¹ Findings 3 and 4 include recommendations that had not been fully implemented.

Key Findings

• Entities used bond proceeds to pay for some ineligible costs.
• The Department of Management and Budget did not provide adequate guidance to help entities determine whether bond proceeds could be used for computer and software costs.
• The Department of Management and Budget allowed some entities to use bond proceeds appropriated for capital projects without determining the sufficiency of money from other sources needed for the projects.
• The Department of Management and Budget did not verify that state agencies and grantees filed real estate declarations with the county on property purchased or bettered with bond proceeds.
• Several entities had internal control weaknesses resulting in noncompliance with accounting and procurement policies and procedures.

Audit Objectives and Scope

We focused our audit on expenditures (through February 28, 2013) related to projects authorized by the 2008 and 2010 bonding bills. The bonding bills appropriated about $1.6 billion of general obligation bond proceeds, and we audited 28 projects at 12 entities, totaling about $558 million of expenditures.² Our objectives were to ensure the entities spending bond proceeds had adequate internal controls and complied with the various finance-related legal requirements, including the state constitution, statutes and laws, the Department of Management and Budget’s general obligation bond expenditures policies, and other state policies.

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¹ Office of the Legislative Auditor’s Financial Audit Division Report 08-34, General Obligation Bond Expenditures, Internal Control and Compliance Audit, issued December 5, 2008, and Report 12-14, General Obligation Bond Expenditures, Follow-up Review of 2008 Audit Recommendations, issued July 26, 2012.
² In addition to our review in this audit, we conducted a special review that included about $8.8 million of bond proceeds the Department of Employment and Economic Development granted to the Minnesota Orchestral Association for the renovation of Orchestra Hall. We concluded that the payment process for the costs related to the Orchestra Hall renovation project included adequate internal controls to ensure that money appropriated from the bond proceeds fund was used in accordance with applicable finance-related legal requirements. We did not identify any payments for costs that did not comply with applicable legal requirements. See Office of the Legislative Auditor’s Financial Audit Division Report 13-10, State Money Provided to the Minnesota Orchestral Association, Special Review, issued June 13, 2013.