JUNE 14, 2001 01-31
Financial Audit Division
The Office of the Legislative Auditor (OLA) is a professional, nonpartisan office in the legislative branch of Minnesota State government. Its principal responsibility is to audit and evaluate the agencies and programs of state government (the State Auditor audits local governments). OLA's Financial Audit Division annually audits the state's financial statements and, on a rotating schedule, audits agencies in the executive and judicial branches of state government, three metropolitan agencies, and several "semi-state" organizations. The division also investigates allegations that state resources have been used inappropriately. The division has a staff of approximately fifty auditors, most of whom are CPAs. The division conducts audits in accordance with standards established by the American Institute of Certified Public Accountants and the Comptroller General of the United States.
Consistent with OLA's mission, the Financial Audit Division works to:
· Promote Accountability, · Strengthen Legislative Oversight, and
· Support Good Financial Management.
Through its Program Evaluation Division, OLA conducts several evaluations each year and one best practices review.
OLA is under the direction of the Legislative Auditor, who is appointed for a six-year term by the Legislative Audit Commission (LAC). The LAC is a bipartisan commission of Representatives and Senators. It annually selects topics for the Program Evaluation Division, but is generally not involved in scheduling financial audits.
All findings, conclusions, and recommendations in reports issued by the Office of the Legislative Auditor are solely the responsibility of the office and may not reflect the views of the LAC, its individual members, or other members of the Minnesota Legislature.
This document can be made available in alternative formats, such as large print, Braille, or audio tape, by calling 651-296-1727 (voice), or the Minnesota Relay Service at 651-297-5353 or 1-800-627-3529. All OLA reports are available at our Web Site: http:// www. auditor. leg. state. mn. us
If you have comments about our work, or you want to suggest an audit, investigation, evaluation, or best practices review, please contact us at 651-296-4708 or by e-mail at auditor@ state. mn. us
OFFICE OF THE LEGISLATIVE AUDITOR State of Minnesota ° James Nobles, Legislative Auditor
Senator Ann H. Rest, Chair
Legislative Audit Commission
Members of the Legislative Audit Commission
Dr. Thomas Hagerty, D. V. M., Executive Director Board of Animal Health
Members of the Board of Animal Health
We have audited the Board of Animal Health for the period July 1, 1997, through June 30, 2000. Our audit scope included the following areas: payroll, professional and technical services, state travel, and other administrative expenditures. The audit objectives and conclusions are highlighted in the individual chapters of this report.
We conducted our audit in accordance with Government Auditing Standards, as issued by the Comptroller General of the United States. Those standards require that we obtain an understanding of management controls relevant to the audit. The standards also require that we design the audit to provide reasonable assurance that the Board of Animal Health complied with provisions of laws, regulations, contracts, and grants that are significant to the audit. Management of the Board of Animal Health is responsible for establishing and maintaining the internal control structure and ensuring compliance with applicable laws, regulations, contracts, and grants.
This report is intended for the information of the Legislative Audit Commission and the management of the Board of Animal Health. We do not intend this restriction to limit the distribution of this report, which was released as a public document on June 14, 2001.
/s/ James R. Nobles /s/ Claudia J. Gudvangen
James R. Nobles Claudia J. Gudvangen, CPA Legislative Auditor Deputy Legislative Auditor
End of Fieldwork: April 25, 2001
Report Signed On: June 8, 2001
Room 140, 658 Cedar Street, St. Paul, Minnesota 55155-1603 ° Tel: 651/ 296-4708 ° Fax: 651/ 296-4712 E-mail: auditor@ state. mn. us ° TDD Relay: 651/ 297-5353 ° Website: www. auditor. leg. state. mn. us
Board of Animal Health
Table of Contents
Chapter 1. Introduction
Chapter 2. Administrative Expenditures
Status of Prior Audit Issues
Board of Animal Health's Response
The following members of the Office of the Legislative Auditor prepared this report:
Claudia Gudvangen, CPA Deputy Legislative Auditor
Renee Redmer, LPA Audit Manager
Patrick Phillips, CPA Auditor-in-Charge
Alan Sasse Auditor
We discussed the findings and recommendations with the following staff of the Board of Animal Health at an exit conference held on May 25, 2001:
Dr. Thomas Hagerty, D. V. M. Executive Director
Dr. Bill Hartmann, D. V. M. Assistant Director
Barbara Troyer Division Director
Lori Rodriguez Accounting Officer
Constance Sinclair Accounting Clerk
Key Findings and Recommendations:
· The Board of Animal Health needs to strengthen controls over professional and technical services contracts. The board incurred obligations before three contracts with the University of Minnesota were signed. The board did not execute three contracts for veterinary services exceeding $5,000. Finally, in four cases the board incurred an obligation in excess of the original contract. (Finding 1, page 7)
· The board did not sufficiently monitor the payments for the permanently assigned vehicles from Travel Management. The board should compare the actual miles driven as submitted by its employees to the billed mileage on the invoice from Travel Management. (Finding 2, page 8)
The Board of Animal Health is the State of Minnesota's official animal disease control and eradication agency. The board's mission is to protect, maintain, and improve the health of Minnesota's domestic animals. The board performs regulatory activities to prevent the spread of infectious and contagious diseases. It also enforces health requirements for the importation of livestock and poultry and for the inspection and regulation of livestock and livestock-related facilities and activities. Dr. Thomas Hagerty serves as the executive director.
Chapter 1. Introduction
The Board of Animal Health is the State of Minnesota's official animal disease control and eradication agency. The board's mission is to protect, maintain, and improve the health of Minnesota's domestic animals. In carrying out its mission, the board protects the public health and provides a wholesome food supply. The agency fulfills its mission through a combination of regulatory activities designed to prevent the spread of infectious and contagious diseases harmful to livestock and poultry production in the state. The board enforces health requirements for the importation of livestock and poultry. It also enforces health requirements for the inspection and regulation of livestock and livestock-related facilities and activities. Dr. Thomas Hagerty serves as the executive director.
The board has the following four divisions:
· Swine and Equine Diseases
· Cattle Diseases/ Ruminant Diseases
· Poultry Diseases/ Companion Animals
· Business Management
The Business Management Division had four employees. This division was responsible for the budgeting, accounting, payroll, and personnel operations of the board.
The board received state appropriations totaling $2,378,000, $3,798,000, and $3,055,000 for fiscal years 1998, 1999, and 2000, respectively. These appropriations included $30,000 and $160,000 for the control of paratuberculosis (Johne's disease) in fiscal years 1998 and 1999 and $1,255,000 and $245,000 for fiscal years 1999 and 2000 for pseudorabies. It also generated about $2,700 each year in nondedicated revenue through the collection of license fees, brand registration fees, and penalties. Finally, the board received a grant for pseudorabies from the U. S. Department of Agriculture, Animal and Plant Health Inspection Service. This grant averaged approximately $455,000 for each of federal fiscal years 1998, 1999, and 2000.
Table 1-1 summarizes the board's sources and uses of funds during fiscal years 1998, 1999, and 2000.
Table 1-1 Sources and Uses of Funds by Fiscal Year
Sources: 1998 1999 2000
Appropriations $2,378,000 $3,798,000 $3,055,000
Less: Cancellations (991) (6,180) (21,231)
Net Appropriations $2,377,009 $3,791,820 $3,033,769
Balance Forwarded In 52,006 158,354 675,345
Transfers In 0 0 280,176 (1)
Receipts – Federal Grants 442,663 423,554 500,262
Total Sources $2,871,678 $4,373,728 $4,489,552
Payroll and Per Diem $1,761,294 $1,865,220 $1,959,664
Professional and Technical 437,142 1,170,104 1,619,342
Travel 103,299 145,472 144,487
Equipment 12,529 48,523 109,381
Communications 49,846 43,910 61,151
Other Operating Costs 346,479 422,350 181,982
Balance Forwarded Out 158,354 675,345 413,545
Transfer Out 2,735 2,804 0
Total Uses $2,871,678 $4,373,728 $4,489,552
Note 1: Transfer in from Department of Administration (Small Agency Infrastructure) Information System Upgrades. Source: Minnesota Laws and Minnesota Accounting and Procurement System.
Chapter 2. Administrative Expenditures
The board's internal controls provided reasonable assurance that payroll and other administrative expenditures were accurately reported in the accounting records and in compliance with applicable bargaining unit agreements, other applicable legal provisions, and management's authorization. However, we found that the board did not adequately execute professional and technical contracts in a timely manner and overspent in some cases. In addition, the board did not sufficiently review invoices from Travel Management prior to payment.
Payroll is the largest expenditure category for the Board of Animal Health, comprising 53 percent of the board's administrative costs. Total payroll expenditures were $1.76 million, $1.86 million, and $1.96 million for fiscal years 1998, 1999, and 2000, respectively. The board processed payroll using the State Employee Management System (SEMA4) on a biweekly basis.
Table 2-1 shows the employment plans applicable to the board and the employees governed by these agreements.
Table 2-1 Employment Plans Applicable to the Board of Animal Health
Bargaining Units Types of Employees Governed American Federation of State, County, and Municipal Employees (AFSCME) Clerical, medical lab technicians
Middle Management Association (MMA) Assistant directors, lab manager Minnesota Association of Professional Employees (MAPE) Agricultural specialists, information technologist, accounting officer.
Plans for Unrepresented Employees Types of Employees Governed Managerial Plan Executive director
Commissioner's Plan District veterinarians, confidential secretary, business manager, poultry lab manager
The district veterinarians and agricultural specialists worked out of their homes located throughout the state. The poultry lab manager is stationed in Willmar, Minnesota where the University of Minnesota Poultry Laboratory is located. The brucellosis lab manager and the medical lab technicians worked at the University of Minnesota Campus in St. Paul. All other employees worked in the board's office in St. Paul.
Professional and Technical Services
The Board of Animal Health incurred approximately $1.6 million in professional/ technical service expenditures in fiscal year 2000 compared to $1.2 million in fiscal year 1999 and $. 4 million in fiscal year 1998. One of the reasons for the increase in expenditures is the increased effort by the board to eradicate pseudorabies, a disease that affects swine herds. The program to eradicate pseudorabies began in 1975, but two major outbreaks occurred in January 1999 and again in February 2000. The board contracted with private veterinarians to perform additional testing. Figure 2-1 compares the amount spent for pseudorabies, Johne's, and poultry testing:
The board pays the veterinarians $27 for each visit to the swine producer's site and $4 for each blood sample taken. The veterinarians also receive vaccine reimbursements at 25 cents per dose. At the beginning of each fiscal year, the board estimates the amount that will be spent for each veterinarian. If the amount is projected to exceed $5,000, the board will initiate a contract with that veterinarian. All other veterinarians projected to receive less than $5,000 are included in the annual plan. The board obtains approvals for the annual plan and contracts from the Department of Administration.
Figure 2-1 Amount Spent for Pseudorabies, Johne's, and Poultry Testing $0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000
1998 1999 2000 Fiscal Year
Johne's Poultry Pseudorabies
Source: Minnesota Accounting and Procurement System.
The board contracts with the University of Minnesota for the use of two laboratories. The Willmar Poultry Laboratory, which is the official laboratory used by the board for testing poultry, and the diagnostic laboratory located in St. Paul, which is used for testing the blood samples taken by the veterinarians for pseudorabies, Johne's, and other infectious and communicable diseases in animals.
The Board of Animal Health paid travel expenditures to board employees and members and the Department of Administration's Travel Management Division. Payments to the Travel Management Division for the use of motor pool vehicles comprised 63 percent of the total travel expenditures paid by the board.
The board reimbursed employees and board members for travel expenses in accordance with the applicable employment plans shown in Table 2-1. Most of the employee travel expenditures were reimbursements to the district veterinarians and agricultural specialists who worked out of their homes and traveled around the state. These employees are assigned vehicles for work purposes. The board paid the rental costs of these vehicles. The board also reimbursed meals, lodging, and mileage expenses for board members who attended board meetings.
The board expended $170,433 for equipment purchases during the three years ended June 30, 2000. The majority of these expenditures were for the purchase of computer hardware and software, along with a variety of peripheral computer equipment. Each district veterinarian and agricultural specialist is issued a computer to access the network and facilitate efficiency.
The board expended $154,907 for communication costs during the three years ended June 30, 2000. These expenditures were for phone systems and shipping supplies necessary for the diagnosis of diseases and laboratory work.
Audit Objectives and Methodology
Our audit of payroll and other administrative expenditures focused on the following objectives: · Did the board's internal controls provide reasonable assurance that payroll and other administrative expenditures were accurately reported in the accounting records and in compliance with applicable bargaining unit agreements, other applicable legal provisions, and management's authorization?
· For the items tested, did the board comply with significant finance-related legal provisions concerning payroll and other administrative expenditures?
To answer these questions, we obtained an understanding of the internal control structure over payroll and other administrative expenditures. We analyzed employee compensation and tested hours worked and payrate increases to ensure compliance with the terms of the applicable bargaining unit agreements. We performed detailed transaction testing and determined whether payments were properly documented, authorized by management, and in compliance with applicable state policies and procedures.
The Board of Animal Health's internal controls provided reasonable assurance that payroll and other administrative expenditures were accurately recorded in the accounting records and in compliance with applicable bargaining unit agreements, other applicable legal provisions, and management's authorization. However, as discussed in Finding 1, the board did not comply with state policies and procedures with regard to professional and technical service contracts. In addition, as noted in Finding 2, the board did not properly review invoices from Travel Management.
1. The board needs to strengthen controls over professional and technical services contracts.
The board incurred obligations before contracts with the University of Minnesota and the Swine Veterinary Center were properly signed. The 1998-1999 and the 2000-2001 contracts with the University of Minnesota Poultry Laboratory for the testing of poultry were signed 14 and 40 days past the contract start date, respectively. In addition, the last signature obtained on the 2000-2001 contract with Swine Veterinary Center for pseudorabies eradication was 38 days past the start date.
Three veterinary practices received payments exceeding $5,000, though a contract was not duly executed. The board obtains contracts with private veterinarians for services rendered when the amount exceeds $5,000. Veterinary services that total less than $5,000 are covered under the annual plan.
The board overspent the University of Minnesota Poultry Laboratory contract and the University of Minnesota Johne's contract for 1998-99 by $4,955 and $471, respectively. In addition, the board overspent the Redwood Veterinary contract for 1999 by $3,618. Finally, the board incurred obligations of approximately $17,000 more than the original contract with the University of Minnesota for Johne's testing. The board amended this contract to cover the additional charges after the work had been completed.
· The board should improve controls over professional/ technical services expenditures by starting the contract process earlier, reviewing contract language for clarity, and monitoring vendor payments on a routine basis.
2. The board did not sufficiently monitor the invoices paid to Travel Management for vehicles assigned to their employees.
The board provides permanently assigned vehicles to the seven district veterinarians, as well as the three agricultural specialists located throughout the state. Invoices received from the Department of Administration's Travel Management Division for the rental of vehicles permanently assigned to board employees are calculated on two components. The first component is a daily rate charge based upon the type of vehicle. The second component of billing is the miles driven. Total costs for the three years ended June 30, 2001, were $393,258. The board did not ensure that the invoice paid agreed to mileage logs submitted, causing variances.
· The Board of Animal Health should compare Travel Management invoices to actual miles recorded on its logs and resolve any variances.
STATE OF MINNESOTA BOARD OF ANIMAL HEALTH
119 AGRICULTURE BLDG.
90 W. PLATO BLVD.
ST. PAUL, MN 55107
(651) 296-2942 VOICE
(651) 296-7417 FAX
DATE: June 4, 2001
TO: James R. Nobles
FROM: Thomas J. Hagerty, DVM Executive Director
SUBJECT: Board of Animal Health Audit
Jim, this memo is our formal response to your findings and recommendations during the audit conducted for the period July 1, 1977, through June 30, 2000. This audit covered the Board's processes and related control activities for payroll, professional and technical services, state travel, and other administrative expenditures.
Professional and Technical Services Contracts
The Board incurred obligations before contracts with the University of Minnesota and the Swine Veterinary Center were properly signed. In the future, the Board will make a good faith effort to have the proper contracts signed with the University of Minnesota. The person responsible for this effort will be Barbara Troyer.
Three veterinary practices received payments exceeding $5,000 though a contract was not duly executed. In the future, the Board will closely monitor payments to veterinary clinics, project expenditures and process the necessary contracts that will exceed $5,000. The person responsible for this effort will be Barbara Troyer.
The Board overspent the University of Minnesota Poultry Laboratory contract and the University of Minnesota Johnes's contact for 1998-99. In the future, the Board will closely monitor these contracts and process the necessary amendments. The person responsible for this effort will be Barbara Troyer.
James R. Nobles
Travel Management Invoices
The Board did not ensure that the invoice paid agreed to mileage logs submitted, causing an over payment to the Travel Management Division. The process for reconciling invoices with daily travel logs has been changed. In the future, the Board will reconcile invoices to ensure the accuracy of the invoices.
Jim, the audit conducted by the legislative auditors was a good learning opportunity for the Business Division staff and myself. Many questions that the Business Division staff had were answered by Patrick Phillips and Alan Sasse. Overall, it was an excellent opportunity to gain additional knowledge of state business operations. If there exists other areas of concern that should be address, please call Barbara at 296-2942, ext. 14.