Auditor General presents FY2025 single audit, flags material weaknesses and multiple compliance problems

Auditor General Russell Olson presented the FY2025 Single Audit to the Government Operations and Audit Committee on the state's fiscal year closing results and federal award compliance.

The audit team gave unmodified opinions on the state financial statements but reported one material weakness and several significant deficiencies across state programs, Russell Olson said. "We basically find the issues. We report the issues to them," Olson said, adding the office will follow up next year on corrective actions.

At a high level, audit managers told the committee the single audit reviewed both the annual comprehensive financial report and the schedule of expenditures of federal awards. State auditors tested 14 major federal programs (down from 16 the prior year) and achieved 43.3 percent coverage of federal spending in their testing, the presenters said.

Lisa Scofield, audit manager for the single audit, described the material weakness tied to the Revolving Economic Development Initiative (Ready Fund). "Cash transfers from another fund within state government were erroneously reported as operating income," Scofield said, explaining Generally Accepted Accounting Principles require those amounts be shown as transfers. The Board of Economic Development agreed that the statements should be adjusted, she said, though the agency had initially disagreed on whether the matter rose to a material weakness.

Auditors also identified problems tied to the Department of Revenue's transition to a new title and registration system on Feb. 17, 2025. Mike Colvin, state government audit manager, said conversion errors and data-entry issues caused incorrect trade-in values for some transactions, which led to taxpayer overpayments in the sample the auditors tested. "When we did our sample, we tested 112 transactions, and we found 3 issues where the trade-in values weren't in there correctly, which ended up the taxpayers overpaid by $1,400," Colvin said.

Colvin said the Department of Revenue conducted its own follow-up and identified additional errors it planned to refund. The department created a new compliance-auditor classification to review title processing and has begun issuing refunds or processing them, he said.

The Department of Human Services (DHS) had a material weakness related to cost allocation for the adult services and aging cluster, Scofield said. DHS continued charging payroll costs under an outdated allocation plan for fiscal years 2023'25 because of staff turnover and control gaps; the department submitted a letter to its cognizant federal agency and was instructed to continue charging under the prior approved plan while obtaining approval of an updated plan.

Other findings included: repeated FFATA (FAFATA) reporting lapses where agencies failed to report obligations to subrecipients on the federal reporting site; case-file documentation and reporting gaps in the vocational rehabilitation grant that produced discrepancies between client case files and reported data; delayed or missing required health-and-safety surveys for Medicaid providers tied to staffing and COVID backlog at the Department of Health; and a lack of documented biennial ADP system security reviews for a Medicaid-related system at DSS.

Auditors questioned $238,475.38 in costs related to ARPA childcare awards where sampled payments to subrecipients included items the auditors considered potentially unallowable (for example, architectural and engineering services on construction projects and prepayments). The auditors said a federal awarding agency will decide whether questioned costs must be repaid.

Russell Olson emphasized follow-up: "Next year, we will be following up on these findings and say, what happened? Did you correct it?" the auditor general said. Committee members pressed for details on refunds and corrective action timelines; Colvin and Scofield pointed to corrective action plans in the audit report and said many agencies concurred with findings and were taking steps to implement controls.

The committee moved to acknowledge receipt of the single audit report; the motion passed by voice vote.

Next steps: the auditor general's office will track agency corrective action plans and report back on progress as part of its ongoing audit cycle.