We conducted a special review of payroll expenditures for the accountant of the Minnesota State Arts Board. The review was conducted at the request of board management in response to their concerns that the board's accountant had paid himself for hours not worked and had processed an unauthorized lump-sum salary payment in the state's payroll system. In addition, due to the accountant's role in entering grant and vendor payments, board management had concerns about the potential for other inappropriate payments.
Our objective in conducting this special review was to answer the following questions:
The Minnesota State Arts Board accountant, who was responsible for entering the board's payroll transactions in the state's payroll system, fraudulently compensated himself $3,258. The accountant entered 73 hours more than he actually worked and processed a lump-sum payment to himself that was not authorized by board management. Approximately $1,042 of the erroneous compensation was charged to a federal program. The board had not implemented effective controls to identify inappropriate entry of hours worked or other unauthorized transactions. Had independent board staff verified input of payroll data each pay period, these discrepancies could have been detected earlier.
Based on our limited analysis and management's review of board financial activities, grantee and vendor payments appeared reasonable. However, we found that the board's accountant did not implement some key financial audit recommendations cited in previous audit reports. Specifically, $14,260 was not returned to the state's General Fund and $12,796 was not transferred into a special revenue fund account. In addition, the accountant did not draw federal cash monthly, as recommended in the prior audit. As of July 2003, the board had not drawn any federal cash for fiscal year 2003, and the federal program had a negative cash balance of $544,000.