Taylor Releases 2006 State of Ohio Audit

$35 Million in Federal Funds Questioned, Stronger Internal Controls Needed

Thursday, July 26, 2007


State Auditor Mary Taylor released the 2006 State of Ohio audit containing 49 findings relating to six state agencies.  Of these findings, 12 resulted in questioned costs totaling $35,967,646 for two state agencies.  Questioned costs are expenditures of federal funds that lack appropriate or sufficient documentation to support the expenditures, violate a federal law, or have been determined to be an unreasonable expense. 

“During these tight budget times, it’s critical that state agencies utilize public funds, including federal funding, in a wise and cost-effective manner,” Taylor said.  “Questioned costs are serious matters.  The audit shows that more than $35 million in federal funding could not be properly accounted for by state agencies.  Having proper accounting policies and procedures in place is necessary to prove to Ohio’s taxpayers that their money is being spent legally and appropriately.  In addition, when an agency can’t account for how federal dollars are spent, it puts that agency at risk of losing future funding.  It is my hope that the agencies implement the recommendations made in this audit report to strengthen accounting policies and procedures to remedy this problem.” 

A brief overview of the audit findings are found in the table.
State Agency                                                   Findings        Questioned Costs
Ohio Department of Job and Family Services     36                 $15,212,856
Ohio Department of Education                           4                   $20,754,790
Ohio Department of Health                                4 
Ohio Secretary of State                                     3 
Ohio Department of Development                     1 
Ohio Department of Mental Health                    1  
Total:                                                                49                  $35,967,646

The Ohio Department of Education had one questioned cost totaling $20,754,790 relating to the charter school program.  Auditors found that the department was not properly monitoring entities receiving funding.  The department has implemented a corrective action plan. 

The Ohio Department of Job and Family Services had 11 questioned costs totaling $15,212,856.  The most significant – a questioned cost of $13,047,638 – related to the Medicaid Cluster and State Children’s Insurance Program for overpayments made to providers due to errors within its electronic payment system.  This finding is important because the department has the opportunity to recoup overpayments from providers. 

The audit also questioned $477,208 that ODJFS received from the U.S. Department of Labor and $31,319 from the U.S. Department of Agriculture.  Other findings related to weaknesses in internal policies and procedures involving the Client Registry Information System-Enhanced system and other information systems utilized by the department.  ODJFS has taken action to correct these problems. 

As part of the management letter issued with the report, auditors also made recommendations to address serious statewide deficiencies involving internal controls, which are the checks to prevent fraud, theft or the abuse of public funds.  The two key findings involved:

• Oversight over Financial Reporting
The Government Finance Officers Association (GFOA) recommends that a state audit committee or an equivalent oversight board be in place as a recommended practice.  At this time, the State of Ohio does not have a state audit committee or an equivalent oversight board.  Without such a governing body, one or a few people control the financial reporting process without comprehensive management oversight. As a result, fraud and deficiencies in internal controls as reported by internal and external auditors may not be appropriately addressed by management.  The audit recommends that a state audit committee be created.  This finding was also reported in the previous two audits.

• Statewide Internal Audit Function
GFOA also recommends that every government establish a formal internal audit function. At this time, there is not a centralized internal audit function for the State.  Several state agencies have internal auditors on staff;   however, many perform grant management and other functions and do not follow appropriate auditing standards.  Without a centralized internal audit function, fraud and deficiencies in internal controls reported by internal auditors may not be appropriately addressed.

“Both of these recommendations illustrate the control and oversight deficiencies that currently exist within state government that helped lead to the scandal involving Tom Noe and the Bureau of Workers’ Compensation,” Taylor said. “I’ve spent nearly 20 months working on a legislative proposal that addresses the above two findings.  This proposal streamlines the internal audit function of state government and will improve accountability and transparency in the way the state spends and accounts for your tax dollars.  A properly functioning internal audit department will help to prevent another BWC-type scandal from happening again.”

In April, Taylor joined state Senator Bob Spada (R-North Royalton) and state Representative Carol-Ann Schindel (R-Leroy Township) to introduce the legislation. The proposal calls for establishing a centralized office staffed with internal auditors who would be required to report fraud and other findings to an independent state audit committee. 

The Ohio Auditor of State’s Office is one of the largest accounting offices in the nation.  The office strives to ensure that all public funds are spent legally and appropriately and works aggressively to root out fraud, waste and abuse in government spending.  To report fraud or the misspending of public dollars, please contact the fraud hotline at 1-866-FRAUD-OH (1-866-372-8364).

For more information, please contact Susan Raber at 614-644-1111.