Minnesota Office of the Legislative Auditor
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Environment and Natural Resources Trust Fund
Internal Controls and Compliance Audit

 

Financial Audit Division Report 16-03 Released February 11, 2016

Background

The Office of the Legislative Auditor conducted an audit of the Environment and Natural Resources Trust Fund (trust fund) to determine whether entities spent money from the trust fund in accordance with state law. The audit assessed internal controls over the use of trust fund money at the Department of Natural Resources, Metropolitan Council, and University of Minnesota. The audit examined expenditures from the trust fund from July 2012 through February 2015. During that period, the State of Minnesota spent over $77 million of trust fund money, and the three entities we audited received about $70 million of the amount that was spent.

The voters of Minnesota established the Environment and Natural Resources Trust Fund through a constitutional amendment in 1988 for the purpose of protecting, conserving, preserving, and enhancing the state’s air, water, land, fish, wildlife, and other natural resources. The trust fund receives its money from proceeds of the Minnesota State Lottery and investment income earned by the fund. Forty percent of the net proceeds of the state lottery are deposited in the trust fund and 5.5 percent of the market value of the trust fund can be appropriated by the Legislature each year. Since 1991, the Legislature has appropriated approximately $500 million for about 1,000 projects around the state. As of March 2015, the market value of trust fund investments was $894 million.

Conclusion

The Metropolitan Council did not have adequate internal controls over monitoring grant recipients’ use of money from the Environment and Natural Resources Trust Fund appropriations. The projects and grants we tested at the Metropolitan Council generally complied with significant finance-related legal requirements and used money from the Environment and Natural Resources Trust Fund appropriations in compliance with the legal purposes contained in the state constitution, state statutes, and appropriation laws. However, we found some costs that did not comply with specific legal requirements.

The Department of Natural Resources generally had adequate internal controls to ensure it used money from the Environment and Natural Resources Trust Fund appropriations for the intended purposes; however, the department had some weaknesses in internal controls. In addition, projects and grants we tested at the Department of Natural Resources generally complied with significant finance-related legal requirements and used money from the Environment and Natural Resources Trust Fund appropriations in compliance with the legal purposes contained in the state constitution, state statutes, and appropriation laws. However, we found some costs that did not comply with specific legal requirements.

The University of Minnesota had adequate internal controls to ensure that it used money from the Environment and Natural Resources Trust Fund appropriations for the intended purposes. In addition, the projects and grants we tested at the University of Minnesota complied with significant finance-related legal requirements and used money from the Environment and Natural Resources Trust Fund appropriations in compliance with the legal purposes contained in the state constitution, state statutes, and appropriation laws. However, the statutory requirement for how the state pays money from the trust fund to the university conflicts with the statutory requirement for investment of money in the trust fund.

Findings

  • The Metropolitan Council did not have adequate internal controls and did not sufficiently monitor whether grant recipients used Environment and Natural Resources Trust Fund money in compliance with state laws.
  • Land purchased by a Metropolitan Council grant recipient did not comply with legal requirements prohibiting the use of Environment and Natural Resources Trust Fund money for the purchase of residential structures.
  • The Metropolitan Council did not ensure its grant recipients complied with a statute requiring entities to record a notice of funding restrictions when purchasing land with money from the Environment and Natural Resources Trust Fund.
  • The Department of Natural Resources could not show how administrative costs allocated to the Environment and Natural Resources Trust Fund complied with the requirement that all costs must be “directly related to and necessary for” specific projects or activities listed in the appropriation law.
  • The statute governing how the state pays money appropriated from the Environment and Natural Resources Trust Fund to the University of Minnesota is in conflict with the statute governing the investment of trust fund money.
More Information

Office of the Legislative Auditor ♦ Room 140, 658 Cedar St., St. Paul, MN 55155