House committee hears concern about auditing contract

Recent action by the Office of State Auditor is causing confusion among those charged with justifying the accuracy of county ledgers.

That was the crux of discussion Tuesday at an informational hearing of the House State Government Finance Committee.

Rep. Sarah Anderson (R-Plymouth), the committee chair, invited DFL State Auditor Rebecca Otto to explain a letter sent by her office to officials in 59 counties asking them to sign a three-year agreement with the auditor’s office for county auditing services for fiscal years 2015, 2016 and 2017. The letter contains an Aug. 21 deadline.

Neither Otto, nor a representative of her office, chose to appear before the committee.

Anderson said she’s notified county officials they are not required to affirmatively respond to the auditor’s request. But uncertainty still exists.

“If we don’t respond, we don’t know what will happen,” said Chisago County Commissioner George McMahon.

In an Aug. 18 letter to Anderson, Otto wrote, “The Office has continued its prior practice of operating in three-year planning cycles for county audits, which promotes efficiency and consistency and allows for planning for both the Office of the State Auditor and for the counties, which in turn serves the taxpayers’ best interests. The only change this cycle is a three-year contract for the three-year cycle rather than three single-year contracts. This not only allows counties and the OSA to plan for the future, it is consistent with Minnesota law. The three-year contract is important due to the uncertainty created by the Legislature last session regarding county audits.”

As part of this year’s omnibus state government finance law, beginning Aug. 1, 2016, counties will have the option to continue using the auditor’s office for annual audit services or they may contract with a certified CPA firm.

“Neither state statute or the new law set to take effect next August gives the OSA authority to force counties into a binding three-year contract for audit services,” Anderson wrote in her invitation to Otto.

A primary question left unanswered was if the three-year document is a legally binding contract.

Rep. Jim Nash (R-Waconia) noted that many county leaders view it as binding, something he finds “very troublesome” because, for example, the auditor’s office proposal doesn’t include set costs or other particulars that counties would likely include in such a document.

Freeborn County Administrator John Kluever said cost uncertainty does not make the three-year deal good for them.

Most counties are happy with the state auditor’s office, but would like the opportunity to look at private companies, said Rep. Jeff Howe (R-Rockville).

Chisago County Administrator Bruce Messelt supports the law change, even though his county wants to stay with the state auditor’s office. He said the change, in part, puts all counties on the same playing field and would provide the best services at the lowest cost.

By law, 28 counties — including Hennepin and Washington — are not required to have their annual audit performed by the state auditor’s office.

“As it has in past years, the OSA also made preliminary determinations, based on staffing limitations and individualized county considerations, to permit certain counties to use CPA firms to conduct their audit for the three-year cycle,” Otto wrote in her letter.

Supporters said the law change could potentially save money and concerns have been raised over the length of time it takes to receive audit results.

We’re looking for consistency, said Goodhue County Finance Director Carolyn Holmsten.

Those against the change, including Otto, expressed concern late in the 2015 session about private auditors providing less transparent and independent reviews and said it would set a bad precedent moving toward privatization.