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Legislative Audit Commission


October 15, 2001
Minnesota II Room – Four Points Sheraton, St. Paul

Members present:

Representative Steve Dehler Senator Sheila Kiscaden
Representative Ruth Johnson Senator Thomas Neuville
Representative Peggy Leppik Senator Ann H. Rest
Representative Dan McElroy Senator Claire Robling
Representative Michelle Rifenberg Senator Jim Vickerman
Representative Wes Skoglund Senator Deanna Wiener

Other legislators present:

Representative Phil Krinkie

Members excused:

Representative Dan Larson Senator Bill Belanger
Representative Mary Jo McGuire Senator Dave Johnson

The meeting was called to order by Senator Rest at 9:00 a.m. Everyone present introduced themselves.

Senator Rest recognized James Nobles, Legislative Auditor. Mr. Nobles reviewed the agenda and indicated the principle reason for the meeting was to review the work of the Office of the Legislative Auditor (OLA), identify its strengths and weaknesses, and to review role of the Legislative Audit Commission (LAC) and how they interact with each other and other governmental agencies.

Mr. Nobles introduced Claudia Gudvangen, Deputy Legislative Auditor for the Financial Audit Division, and Chris Buse, Information Systems Audits Manager. Ms. Gudvangen reviewed the mission of the division and audit schedule. She indicated that because of limited resources, some agencies were being audited less frequently than in the past.

Mr. Buse presented information on how the state is moving in the direction of providing more services on-line, and the risks associated with that. He reviewed weaknesses found in the Department of Public Safety's on-line vehicle registration services, and answered questions from members. He reviewed what can be done to make the system more secure. He noted that many web sites have been "hacked" and in many cases, the people or organizations breaching the system's security leave a message that they have done so. He indicated he was more concerned about the ones who breach system security but don't leave any notice of having done so. Mr. Buse indicated that while security expertise in Minnesota state government is "lean" compared to some states, the Department of Administration has purchased a program that scans for system vulnerabilities and is providing this service to other state agencies on a fee basis.

Senator Rest asked Brenda Treml of the State Auditor's Office if their office was looking at system security at any of the offices it audits. Ms. Treml indicated she would find out.

Senator Rest recognized Roger Brooks, Deputy Legislative Auditor for the Program Evaluation Division. He reviewed the work of the division, how topics are selected, and impact of those reports. He noted that while some reports have an immediate effect on a program or agency, some might not have an impact until five or six years later. Mr. Brooks and Mr. Nobles reviewed the different types of program evaluation reports, noting that some are descriptive, rather than an evaluation of a program, citing the study of affordable housing as an example. Mr. Nobles indicated that an example of a good evaluation, was the one of park management – it was an in-depth examination of the program, and while it received little attention because it found that there were very few problems, it was still worth doing because it does make managers more aware and accountable.

Representative Leppik asked if House or Senate Research would be better suited to conduct studies that result in reports that are descriptive. Senator Rest recognized Tom Todd, Director of House Research. Mr. Todd reviewed how the mission of his office is different from that of OLA. He indicated most staff time is spent on bill drafting and staffing House committees, with very little time available to focus on one issue. When his office does produce a report, it presents information but does not make any policy recommendations. His office does not have any investigators, no financial auditors, and does not have subpoena power, which the OLA does have. He noted that his office could have provided the descriptive information contained in the affordable housing report, but would not have contained any recommendations.

Peters Wattson of Senate Research and Counsel noted that his office has many of the same limitations as House Research and that they produce very few reports.

Mr. Brooks indicated there are problems with the topic selection process. It usually occurs in the middle of legislative session and members are very busy. He also noted that the first year of the biennium is the most difficult since members aren't appointed to the LAC until late in the session. He stated that often topics are selected based on who shows up for the meeting. Mr. Nobles expressed concern over some of the topics assigned in the past, noting that the OLA is judged by the perceived value of the topic.

Senator Rest expressed concern over bills introduced that "require" the LAC to direct the OLA to conduct a study, rather than "request" a study. She indicated the LAC is charged in statute with determining which studies OLA should conduct. She asked Representative Krinkie to address why some riders had been attached to various appropriations bills directing OLA to perform certain work.

Representative Krinkie indicated he appreciated the work of OLA and that the LAC should guard its authority to select topics, but noted there was room for improvement in the topic selection process. He felt LAC members are not involved enough, encouraging they meet on a regular basis, similar to a standing committee. He indicated that all legislators should be able to push for a study and that all legislators have a fiduciary responsibility to the citizens. Regarding the survey of all legislators on possible evaluation topics, he felt there had been too much lobbying by members in the past. He suggested some topics could be addressed by the various departments. He also suggested the LAC look at the possibility of a number of shorter topics to see if this would yield useful results.

One of the riders requests the LAC direct the OLA to estimate resources necessary to conduct a study, every time a suggestion for a study was made. Senator Wiener suggested that this would necessitate an evaluation of additional resources needed in the OLA to perform this activity. Representative Krinkie suggested the LAC look at the possibility of year round access to the LAC for approval or denial of a request for a study, or a determination it could be handled better elsewhere.

Senator Wiener noted that every suggested topic is reviewed by the Topic Selection Subcommittee. She suggested there be communication with authors about why their topics were not chosen.

Representative McElroy addressed the rider which would allow the LAC to direct the OLA to review data if it is public data held by a state agency when a person entitled to access that data is denied such access. Mr. Nobles indicated that OLA deals with data all of the time, but collecting data when it is not part of an audit or evaluation would be a new responsibility. He noted that the office would gather that data only at the request of the LAC, not if the request came directly from a citizen. Senator Kiscaden expressed concern that this would change the scope and mission of the LAC. Senator Rest indicated the LAC would act on this only when there was a refusal on the part of a state agency to provide the data.

Senator Wiener suggested a subcommittee of the LAC work with Representative Krinkie, Representative Rhodes, Senator Cohen and Senator Vickerman on the issue of riders. Senator Rest indicated she would establish a data practices subcommittee, chaired by Senator Kiscaden to address these issues. Senator Kiscaden suggested that House Research and Senate Research and Counsel should also be involved as it is a much broader issue.

Mr. Brooks suggested that in order to determine if they are selecting good topics, the Topic Selection Subcommittee meet after all reports have been released to do a post mortem on the topics and evaluate them in terms of their value.

The meeting recessed for lunch at 12:15 p.m.

The meeting reconvened at 12:45 p.m.

Mr. Brooks reviewed the current report release policy, established by the LAC on November 30, 1989. Prior to that time, it was the policy to give an embargoed copy of the report to the press before release. After one newspaper released the report early, the current policy was put in place where copies were given to the media one hour prior to release. Senator Rest emphasized that no one should comment to any media prior to the actual release of a report, but noted that some legislators find it hard to say no. Mr. Brooks noted that OLA wants the story to be accurate but are unable to comment. Representative Rifenberg suggested that no members, including LAC members, get advance copies. Senator Rest noted that if it is a hot topic, committee chairs want to be informed when contacted. She suggested that advance copies be given out by request only. Senator Wiener suggested going back to giving advance embargoed copies to the media, but if there is a leak, to discontinue the practice. Mr. Nobles suggested the Chair send a letter to all members of the Legislature, reminding them to maintain a report's confidentiality until it is released. Representative Dehler suggested giving advance embargoed copies to the media, but if any break the embargo, that particular one no longer receive an advance copy. Senator Vickerman indicated that it is every reporter's job to try to get the story before anyone else, so he doubted they would comply.

Ms. Gudvangen introduced members of a panel of executive branch officials, indicating they would be discussing how the work of OLA impacts on their organization. Members of the panel were Ann Berry, Deputy Commissioner for the Department of Finance, Laura King, Vice Chancellor for MnSCU, Doreen Frost, Executive Director of the Board of Architecture, Engineering, Land Surveying, Landscape Architecture, and Interior Design, and David Fisher, Commissioner of the Department of Administration.

Commissioner Fisher indicated OLA brings an outside view to his agency's operations. He encourages OLA to look at the department's business practices, assess risks, etc. He would like to see more OLA do more investigative work.

Ms. Frost indicated that she appreciated the fact that during a time of crisis, OLA staff were willing to make a presentation concerning its audit findings to the Board of Directors. She also found the audit to be very helpful with the budget setting process.

Ms. King reviewed the history of MnSCU's relationship with OLA and appreciated the fact that by contracting with OLA for audit coverage, it allowed MnSCU to concentrate on post-merger issues. She noted that they are moving toward having financial statement audits be conducted by a private CPA firm. She noted that the firm would not be looking at information technology systems security, but that she was confident they were secure. Senator Kiscaden asked why there was an increase in audit costs since contracting with a CPA firm. Ms. King responded this was due to a move toward institution-based audits of the financial statements, which she felt would be an improvement.

Ms. Berry indicated the Department of Finance has multiple relationships with OLA: agency operations; statewide administrative systems; Comprehensive Annual Financial Report Opinion; and a somewhat lesser relationship with the Program Evaluation Division. She indicated her department sees OLA as a resource and relies heavily on them for advice. She suggested one improvement would be more information in audit findings to help determine the level of risk.

Commissioner Fisher indicated his department is looking at software that looks for security holes, more firewalls, providing guidance to agencies on closing those holes, key access issues, 2 factor authentication, anti-virus detection, and infrastructure security.

Senator Kiscaden asked if OLA audits had the right focus, or where they too narrow or picky. Mr. Nobles indicated that the level of materiality reviewed varies by the size of the department – in large agencies, not all programs or transactions are reviewed, whereas in smaller agencies, audits can be much more detailed.

Representative Leppik asked when policy issues are reviewed. Mr. Nobles indicated the Program Evaluation Division looks at questions set by the LAC, and that the Financial Audit Division has a different set of standards it follows when conducting audits. He noted that there is often the mistaken impression that when a financial audit is done, the entire agency's operations are reviewed, which is not true. Each audit has a very different set of objectives. Ms. Gudvangen suggested that if there were some financial concerns not addressed in an audit, perhaps it should be reviewed for a potential investigation or special review or as a possible program evaluation topic.

Representative McElroy asked what the threshold was for recovery. Ms. King indicated that if it is a federal program, they must seek recovery, no matter what the amount.

Representative Dehler asked if OLA ever conducted surprise audits or audits on request. Ms. Gudvangen responded that the office has an audit schedule, and Mr. Nobles indicated the office investigates allegations of misuse of state funds or property. He noted the office receives approximately 100 such allegations a year and that the OLA does have discretion to determine whether or not a full investigation is warranted.

In response to a question from Senator Kiscaden on whether or not the Legislature is using audit findings effectively, Ms. Berry indicated the Department of Finance requires agencies to report actions taken and closely looks at repeat findings. Representative Johnson stated that she found the agency response letters in the reports to be very interested and noted that they close the accountability loop.

Representative McElroy asked if the Department of Finance had staff to help small agencies deal with compliance issues. Ms. Berry noted that only twelve large agencies had internal auditors and that her agency does provide assistance to many others.

In summary, Senator Rest appointed Senator Kiscaden to chair a subcommittee to work with Representative Krinkie and address the issue of riders and their impact on OLA. Others appointed to the subcommittee include Representative Dehler, Senator Neuville, and Senator Weiner. Other interested members are to contact Senator Kiscaden.

Senator Rest noted Mr. Nobles' current term as Legislative Auditor expires November 17, 2001, and indicated Mr. Nobles' had asked for consideration for reappointment. Mr. Nobles indicated that if re-appointed, he would ask the LAC to consider re-appointment of Ms. Gudvangen and Mr. Brooks as Deputies.

Mr. Nobles, Ms. Gudvangen, and Mr. Brooks thanked members for the opportunity to discuss their work in more depth with members.

The meeting adjourned at 3:00 p.m.

Senator Ann H. Rest, Chair

Jean Barnhill, Recording Secretary



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