Fewer auditors - and more fraud

State officials say something has gone missing as budget cutbacks have trimmed the ranks of auditors -- cash.

A recent string of high-profile cases of fraud and theft is a direct result of what a bipartisan group of legislators and the state's legislative auditor say has been a penny-wise but dollar-foolish decision to save money on auditors' jobs.

Since 2000, the Department of Finance, which is responsible for overseeing state spending, has cut its total staff by 30 percent as the Pawlenty and Ventura administrations grappled with budget deficits.

"That seems like a strange priority, and I think we've seen the effects of that priority," said Rep. Ryan Winkler, DFL-Golden Valley. "The bottom is falling out."

The state's auditing controls are now "significantly flawed," the legislative auditor's office told lawmakers last week.

The weaknesses have surfaced in both large state agencies and among the smallest boards and commissions:

• No one questioned it when nine workers at the Minneapolis Veterans Home raked in more than $2 million in overtime a year, claiming they worked 30-70 extra hours a pay period over a three-year period.

• The state's Boxing Commission accepted the "take" -- gate receipts -- and kept it in the office for days before depositing the cash in a bank.

Auditor positions cut in recent years included jobs at the Department of Natural Resources, which recently came under fire for $300,000 in inappropriate expenses incurred at a wildlife officer conference; and at the Veterans Home Board, which was criticized for failing to have proper control over resident trust accounts at the Minneapolis Veterans Home.

In coming weeks, a report is expected to detail how a supervisor at the state Department of Health and Human Services was able to manipulate the computer system to steal nearly $1 million through fraudulently processed Medicaid claims.

Legislative Auditor Jim Nobles, whose office operates independently of the executive branch, said there is no way to determine how much state money has been misused, misplaced or stolen because of a lack of internal controls and proper auditing oversight.

"When push comes to shove and dollars are short, often times it's that person sitting in the cubicle in St. Paul -- an account clerk or an internal auditor -- that gets eliminated," Nobles said.

Stephanie Andrews, deputy commissioner, said the department instead seeks to help agencies tighten their controls by providing training to individual agencies, often via Web-based tutorials and self-study opportunities.

"We do not have staff to do back-end auditing," Andrews told the House State Government Finance Division, which has been holding hearings on the issue. "We are traditionally the enforcer and the bad cop but we also try to do that with a fair amount of oversight and training and winning compliance that helps people do their jobs the best way they can."

In a letter to legislators, Nobles suggested that Finance Commissioner Tom Hanson explain what he has done to fulfill his legal obligation to coordinate internal auditing and to even say whether he personally reads the legislative audit reports of state agencies.

Nobles told legislators at the committee hearing last week that it's more important than ever to emphasize accountability -- from the lowest clerk to the head of the agency.

"We need to find somebody who thinks like us. We need people who are suspicious, who ask questions, with a lack of deference to authority," Nobles said.

"DNR's major problem related to two employees who were told not to undertake certain activities, yet they did so anyway," he said. "Both of those people are no longer employed by the state. At Human Services, an employee was involved in a sophisticated criminal scheme. She was caught and controls have been put in place to prevent a recurrence. With the Veterans Board, there have been problems for decades and although challenges remain, significant progress has been made."

But other recent examples had legislators shaking their heads; and the concerns are bipartisan.

The Department of Health had more than 35 cashiers' offices receiving money spread out in three buildings, with no overall standard for processing and tracking the money. Receipts were kept in places where hundreds of state employees moved freely, including a room where workers make coffee and photocopies.

The tiny board overseeing barbers and cosmetologists had a $10,000 discrepancy between the cash it had on hand and the revenue it should have received from licenses issued. No one has been able to determine where the money went, but it appears an employee may have pocketed the cash. A county attorney is investigating, but controls were so murky the case may be difficult to prosecute, said Cecile Ferkul, deputy legislative auditor.

Several Republicans embraced Nobles' cautions, including Rep. Joyce Peppin, R-Rogers, who acknowledged that there is evidence of "very strong systematic problems."