Columbus - Chairman Gardner, ranking member Garland, and members of the House Finance and Appropriations Higher Education Subcommittee, I am pleased to come before you to review the proposed budget for the Auditor of State’s Office for FY 12 and FY 13.

The appropriations recommended by the Governor in this budget require governments across the state to live leaner. With a reduction in general fund operating expenses of 6.3%, the Auditor of State’s office is no exception.

We recognize that all Ohio government offices must tighten our belt and perform our responsibilities with the utmost efficiency without sacrificing professionalism and commitment. We can all sit around and complain about Ohio’s budget deficit, or we can roll up our sleeves and do the job Ohioans expect. Given our choices, the Auditor’s office decided to roll up its sleeves and take a proactive role in skinnying down state government.

For our office, skinnying down government begins with a performance audit of the job we do. Last month, we issued an RFP for an independent auditor to examine our operations. With this audit, the Auditor’s Office is taking a hard look in the mirror with hopes of streamlining processes and procedures, cutting costs and enhancing efficiencies. We hope to have preliminary recommendations by the beginning of the biennium.

Besides requesting a performance audit, since I took office in January, we have continually looked at ways to slim down the office and trim the fat. We’ve instituted a hiring and attrition committee to examine our personnel needs. In that respect, to keep payroll in check, we have also implemented a hiring freeze for any position that requires general fund support unless approval is given by the hiring and attrition committee.

We are re-evaluating our office and building space allocation throughout the state to make sure we are not under utilizing or wasting space. Along with reviewing office space, we are also re-examining our leases to make sure we are getting the best possible deal. Administrative support and operations are also being reviewed so any duplication or extra is eliminated.

It’s the pennies that add up so we’re also reviewing all of our expenditures to see where costs may be cut. For instance, attending the state fair costs us over $15,000 per year. The majority of these expenses are personnel costs to staff the booth. We think these resources are better directed towards our core mission so we are not planning to attend this year.

All of this is being done with a recognition that the Auditor of State’s office must continue to provide quality audits without sacrificing customer service.

RESPONSIBILITIES & PRIORITIES

Independent Guardian of Public Funds. The Auditor of State’s office is responsible for ensuring that taxpayers’ money is spent legally and appropriately by Ohio’s governments and the individuals entrusted with that money. This includes auditing public and community schools, universities, local governments, special districts, state agencies, as well as boards and commissions.

To generate the results that Ohio’s taxpayers expect, my office conducts over 4,000 audits per year with a staff of 809 dedicated public servants. Of those 809, 704 work in the audit division.

The office performs several different types of audits. To ensure public funds are being properly managed, accounted for and reported to the public in accordance with accounting principles and law, the Financial Audit Section is responsible for conducting financial audits of all public entities and others that receive public money. These audits must be performed on an annual or bi-annual basis dependent on the funding of the public office.

In the last biennium, the Auditor of State’s Office issued over 6,150 financial audits (year to date). Out of those audits, the office made $8,122,191 in findings for recovery identifying public dollars that were stolen or misspent. I want to continue the tremendous job the Lt. Governor did while in this office. Since taking over in January of this year, our office has completed 781 audits identifying over $115,000 in findings for recovery.

Fraud Detection. Another priority for the Auditor of State’s office is rooting out fraud and corruption. Each year, we receive hundreds of tips regarding suspected fraud in government. These tips come from many different sources including Ohio citizens and public employees. The Auditor’s Special Audit Task Force evaluates these tips and the best course of action on a case-by-case basis.

We also use special audits and a special investigations unit to accomplish this important mission. A special audit is a limited scope examination of financial records and other information designed to investigate fraud, theft, and the general misappropriation of public funds. In the past two years (year to date), the office has performed 63 special audits  with $10,203,271 in findings for recovery.

Watchdog Over Medicaid Funds. As Medicaid continues to grow and grow, the State must be more active in managing the program. The Auditor of State’s Medicaid Contract Audit Section plays an important role in this effort by working with numerous state agencies to safeguard the program’s integrity by ensuring providers are appropriately billing the State for Medicaid services. We also review whether providers are being appropriately paid by the Department of Jobs and Family Services. This last biennium, the Auditor’s Office performed 14 Medicaid audits with $5,936,800 in findings for recovery including interest.

Promote Skinny and Effective Governments. As this committee knows from its work on House Bill 2 and Senate Bill 4, we also conduct performance audits. Thank you for all of your work on this important legislation. With the passage of Senate Bill 4, performance audits will continue to perform an important role in combating inefficiencies in government from the statehouse to the schoolhouse.

Creating the Leverage for Efficiency, Accountability, and Performance Fund (LEAP Fund) is critical to this mission. As you may recall from deliberations on Senate Bill 4, the LEAP Fund is a $1.5 million revolving fund which would fund this year’s performance audit costs from next year’s savings. Making this fund available to state agencies and local governments removes funding as the most serious barrier to using performance audits and provides additional incentives to actually implement findings and recommendations.

Since the beginning of 2007, the Auditor of State’s office has conducted 106 audits recommending almost $174.5 million in annual cost savings measures. That’s a potential return on investment of $23 for every dollar spent to conduct an audit. It is my hope we may continue discussions about additional investments in this fund.

LOCAL GOVERNMENT SERVICES

Another priority of the Auditor’s Office is to provide financial and consulting services to local governments. This includes the preparation and examination of financial forecasts, GAAP conversion assistance, annual financial report preparation, assistance to entities in fiscal watch or emergency, as well as reconstruction and reconciliation of financial records. Currently this group is working with five schools districts, and three cities and villages in fiscal watch. The group is also working with another nine schools districts and twenty-four cities, villages, counties, and townships in fiscal emergency.

The Auditor of State’s Office provides several other important services for our constituents. The Uniform Accounting Network (UAN) is a computerized, integrated financial management and information system designed for local governments. This software, along with computer equipment and technical support provided by UAN, makes it easy for public officials to apply required accounting standards to their financial record keeping. Currently more than 1,700 townships, villages, libraries, and special districts throughout Ohio are using UAN in their daily operations.

The Auditor’s Office also sponsors training and conferences throughout the year to increase local knowledge of what governments can do to become more efficient, and learn the best practices of record keeping.

FUNDING

Funding for the Auditor of State’s Office comes from two main revenue sources: the General Revenue Fund, which makes up approximately 40% of the office’s budget, and Public Audit Expense Funds, which supply the remaining 60%. These funds are comprised of fees we are paid for our audit services. They are also used for the day-to-day administrative support that is necessary to run our operations and provide our services.

The proposed budget before you also includes several new provisions that directly affect the Auditor’s Office and its funding. Current law requires that both the Auditor and the Director of the Office of Budget and Management determine what administrative costs may be paid out of the Uniform Accounting Network Fund. The proposed budget gives the Auditor autonomy and necessary flexibility when making these decisions.

The budget also earmarks $1 million in FY 12 and $1.3 million in FY 13 for School Management Assistance. These crucial dollars will help cover the costs of services rendered by the Auditor of State’s office to school districts in fiscal caution, watch, and emergency. The funds can also be used by the Auditor’s Office in consultation with the Department of Education to conduct performance audits of all school districts, with the priority given to providing audits to schools in fiscal distress. Often by the time an entity reaches fiscal emergency it is too late to adequately and timely repair the fiscal concerns so this is particularly important in today’s economy.

Finally, the budget includes changes to make my office less reliant on the general revenue fund by implementing a new, transparent process for determining audit fees for local governments. This process will help ensure consistency in costs being charged and provide a better level of predictability for budgeting purposes. We are also working on initiatives to give local governments additional tools to fight against red tape and address fiscal woes when they need to do so.

CONCLUSION

As you can see we are not simply sitting idle during these lean times and carrying on with the status quo. The Auditor’s Office wants to be at the forefront of a leaner and more effective state government. By constantly re-evaluating ourselves, we plan to lead by example. We want to help all levels of government find savings and efficiencies.

Chairman Gardner, members of the Committee, it has been my pleasure to review for you the priorities and operations of my office. I look forward to working with the Committee in the coming weeks to adopt a budget for this office and the entire state that works hard at skinnying down government. I am happy to an answer any questions the Committee may have.