A state audit of Colorado State Controller Bob Jaros' office found millions of dollars in errors and numerous "misstatements" in a major annual report it publishes.
On Tuesday, state Auditor Dianne Ray released a scathing 386-page report, saying her agency's audit raises "serious issues in the Office of the State Controller’s preparation of the State’s financial statements."
The findings also were presented Tuesday at a hearing of the Legislative Audit Committee Tuesday.
When the state seeks investors — bond companies, for example, that would buy state-backed bonds to help finance transportation — the major document included with the offer statement is Colorado's "Comprehensive Annual Financial Report," or CAFR for short. The report is produced by Jaros' office.
The report covers the state's financial books and the finances of all state agencies. The audit caught errors in the report before it became final, according to a statement from Ray's office.
Ray told Colorado Politics Tuesday that internal controls in the controller's office "are broken. ... You can't use the state auditor for your internal controls," she said. "That's at the root of everything we found, that their internal controls are off."
If these problems are not corrected, the state's financial statements could be inaccurate, she said.
Deputy State Auditor Kerri Hunter told the Legislative Audit Committee Tuesday that the audit's purpose is to make sure the controller's office has the proper checks and balances to catch errors or problems when they occur.
The audit also aims to determine whether financial statements are fairly stated, whether the numbers in the CAFR are accurate, and whether the state is complying with federal grant requirements, she said.
At the hearing, Jaros did not dispute the audit's findings and agreed with its recommendations for improvement.
"The next time we meet, and the next time there's an audit review, there's won't be a repeat of these findings," he pledged to the audit committee.
Tuesday's hearing was the first of two that will present the audit's more significant findings. Another hearing on Feb. 26 will cover some of the issues raised in audits of the books of several state agencies, including corrections and health care policy and financing.
The audit identified six "material weaknesses," the "big red flag" of audit concerns, according to Ray.
- A "misstatement of cash flow" in the Department of Personnel and Administration (which houses the state controller's office) totaling $663.4 million. According to Ray and Hunter, the state controller's staff discovered the error but couldn't figure out where it came from, so they manually adjusted the reporting to account for it. "They knew there was a discrepancy," Hunter told Colorado Politics.
- The vendor who provides the controller's integrated financial management system, known as CORE, does not employ an external auditor to test for security issues — nor is it required by the state contract, which is under the state controller. This could lead to significant financial errors, even fraud, according to auditors. Ray told Colorado Politics that without the vendor's outside audit, the state has no assurances that the financial system is secure. Jaros told the audit committee that contracts will be modified to ensure those reviews are done.
- A $6.9 million misstatement in the Department of Health Care Policy and Financing, tied to "recording of cash receipt transactions and the reconciliation of payment information," identified as a "significant deficiency."
- Errors totaling $84.9 million in the Department of Public Health and Environment's books, which the audit said was due to a lack of sufficient accounting and financial reporting controls. Ray and Hunter told Colorado Politics that the department had staffing vacancies and existing staff lacked sufficient training to catch these errors. This was also identified as a significant deficiency.
Another "material weakness" raised in the audit: that a staff member in the controller's office refused to take responsibility for the processes tied to the financial statements. The staffer, who wasn't identified by name in the audit, refused to sign a "management representation" letter that showed who is responsible for the financial statement process.
"There are no steps for staff to document why they include or omit information," Ray told Colorado Politics.
The staff member refused, according to the audit, because he or she did not agree with the controller's presentation of higher education institution financials in the financial statement.
There were mistakes, there, too, the audit reported, including an omission of a $244.4 million investment held by the University of Colorado that had been included in the university's financial statements, but that did not make it into the state's financials. That was corrected after the state auditor pointed out the omission.
The controller also left out information on about $546.3 million in assets tied to capital leases, including lease-purchase arrangements that the General Assembly has authorized in recent years, the audit found.
The audit said accounting standards require that statements include the gross value of the assets, as well as how much those assets depreciate. The controller included the value but not the depreciation, even after the omission was pointed out by the auditor. However, Hunter said the omission did not affect the accuracy of the annual financial statement.
The state auditor's office caught the mistakes before the errors impacted the state's annual financial report. Once pointed out, Ray and Hunter said, the state controller's office fixed the errors, and the auditors issued what's known as a "clean opinion," that the state's financial books are accurate.
Nobody's sweeping anything under the rug, Jaros told the audit committee Tuesday. All of adjustments are accounted for, and nothing should impact anyone's views of the state's financial statements, he added.
Audit chair Sen. Nancy Todd of Aurora said the audit raises questions about the controller's staff and evaluation of the office's personnel. Jaros told her that after the audit committee hearing, he would develop a plan with his staff regarding the audit findings and that he would take responsibility for those improvements.
Jaors was appointed state controller in 2013 and previously served as deputy controller starting in 2006. Earlier he was an auditor at the Colorado Department of Labor and Employment.
Colorado Department of Personnel and Administration spokesman Doug Platt told Colorado Politics that the audit is an annual event. With regard to the $663.4 million error, Platt said the controller's staff knew it needed to be corrected, but ran out of time to do so.
He also attributed it to a change in a federal Governmental Accounting Standards Board standard.
The annual audit shows that "the state controller is constantly finding ways to improve processes and transparency," Platt said.