|Financial Audit Division Report 16-17||Released December 8, 2016|
The Office of MN.IT Services (MN.IT) is an executive branch agency that provides information technology services to other state agencies.1 State law requires state agencies to reimburse MN.IT for the cost of those services. To meet agencies’ unique information technology needs, the office provides some services through staff physically located in executive branch agencies.2 In fiscal year 2016, MN.IT billed state agencies approximately $155.6 million for these agency-based information technology services.
Over the past few years, MN.IT has changed the way it bills state agencies for agency-based services. In phases, MN.IT shifted from billings using predetermined billing rates to billings using the actual payroll costs of staff providing agency-based services. The first agencies MN.IT phased in had simple funding structures, such as primarily operating with money from the state’s General Fund. The agencies MN.IT phased in later had more complex funding structures, such as numerous federal grant programs, and MN.IT needed to tie its billings for agency-based services to specific programs. Starting in fiscal year 2016, MN.IT billed most agencies for the actual payroll costs of its employees providing agency-based services.3
We conducted this audit to see whether MN.IT had adequate internal controls over payroll processes for its employees who provided agency-based information technology services and whether it accurately billed agencies for these services. We examined MN.IT billings for agency-based services for the period from July 2014 through March 2016, to the extent that MN.IT used actual payroll costs to bill the agencies for those services.4
In addition to analyzing payroll expenditures for agency-based services and MN.IT’s processes to prepare and disseminate its bills, we specifically tested internal controls over payroll processes for MN.IT staff providing agency-based services at three executive branch agencies – the departments of Health, Human Services, and Transportation.
The Office of MN.IT Services had adequate internal controls to ensure it accurately billed other state agencies for payroll costs related to agency-based information technology services. The office also paid those employees in accordance with management’s authorizations, bargaining agreements, and other personnel and payroll related legal requirements we tested.
1 While the Office of MN.IT Services primarily serves other state agencies, it also provides some services to Minnesota county and local governments, K-12 schools, higher education, and some Minnesota nonprofits.
2 The office also centrally manages services shared by numerous entities, such as email and voice communication tools, mainframe computing, managed hosting of applications and websites, and data center facilities operations. OLA previously audited MN.IT’s billings for these shared services. See Office of the Legislative Auditor, Financial Audit Division Report 15-01, Office of MN.IT Services - Billings for Shared Information Technology Services, issued January 22, 2015.
3 Exceptions were the departments of Employment and Economic Development, Natural Resources, and Public Safety. These departments continued to pay for agency-based services directly through the state’s payroll system rather than through MN.IT’s billing process. MN.IT phased these agencies into its billing process in fiscal year 2017.
4 The scope of our audit did not include billings for agency-based services using predetermined billing rates.