Page 1

Annual Report 2007 | Contents

Contents 3

Message from the Auditor

4 8 10

2008 Strategic Plan Executive Summary

Investigative Division

18 Management Services & Nongovernmental Compliance Division 21 Performance Audit Division 25 Information Systems Audit Division 27 Financial Audit Division 29 General Administration 32 Appendix A 39 Appendix B 40 Contact Information

Increasing Efficiency... Exposing Fraud 


Annual Report 2007 | Message from the Auditor

Message from the Auditor

T

he Office of the State Auditor (OSA) has been labeled “the taxpayers’ watchdog,” and with good reason. North Carolina’s Constitution requires the State Auditor to proactively evaluate State agencies in terms of the efficiency and effectiveness of their use of public

resources. North Carolina General Statutes expand on this mandate and commission the State Auditor to determine whether programs effectively serve the legislative intent, and investigate allegations of “misfeasance, malfeasance or nonfeasance” of those receiving State money. I take these powers and responsibilities as a serious charge in the fulfillment of my role as State Auditor. Building on last year’s efficiency gains, I have appointed an experienced senior auditor into a Quality Control position to ensure that OSA delivers audits and reports with efficiency, expertise and consistency. Financial audits, which comprise the bulk of the work we do, provide accurate “input” measures but lack a function to measure “outputs,” i.e., a program’s performance. To fully measure the “efficiency” and “effectiveness” of the State’s use of public resources, personnel have been repositioned in a risk-based realignment to areas of growing risk such as the need for more scrutiny over the State’s grants to non-profits, and the measuring of actual “bang for your buck” performance of ambitious State programs and entitlements. Central to OSA’s mandate as “the taxpayers’ watchdog,” we are focusing on our Investigative Division and the State Auditor’s Hotline in 2007 and 2008. With the new head of our Investigative Division possessing federal law enforcement experience, we are building an Investigative Task Force (ITF) comprised of auditors and staff from Investigative, Performance, Nongovernmental Compliance, Financial and Information Systems divisions. Armed with the mission to investigate fraud, waste and abuse of State resources, the ITF will scrutinize the “money flow” through State agencies and programs and will steer their focus towards areas of “high risk” for such fraud, waste and abuse. Acting as a channel through which local citizens’ tips will flow to the ITF, the OSA will promote the State Auditor’s Hotline in carefully targeted public service announcements on television. Current plans are to concentrate on media markets that contain high concentrations of State employees who would logically be the most knowledgeable about fraud, waste or abuse of State resources. The OSA has a critical mission in the functioning of State government. I recognize that the foundation upholding these powers is the responsibility to our taxpayers to fairly, consistently and independently evaluate State government’s use of public resources. Clearly, the Auditor’s powers are derived from State statutes and the Constitution, but the Auditor’s responsibility to the people arises out of being independently elected and entrusted to ensure their tax dollars are properly spent. Sincerely,

Increasing Efficiency... Exposing Fraud 


Annual Report 2007 | Strategic Plan

2008 Strategic Plan

T

he Office of the State Auditor occupies

investigations when a deeper vein of fraud, waste

a unique position in State government.

or abuse is detected while using standard auditing

The North Carolina Constitution,

techniques. Being comprised of auditors and

State statutes and the public trust require and

staff with investigative, performance, non-profit

expect the OSA to fairly, consistently and

compliance, financial and information system

independently act as “the taxpayers’ watchdog.”

backgrounds, the ITF will be well positioned to

This strategic plan describes how OSA will

follow “risk-based” leads and then drill down

perform this watchdog function in 2008.

to the source of fraud, waste or abuse of public resources.

Investigative Division If the OSA is the taxpayers’ watchdog, then

Hotline

the Investigative Division is the watchdog’s keen

For the OSA to fully function as “the taxpayers’

sense of smell. Through citizens’ tips fed to the

watchdog,” we need eyes and ears to detect the

OSA through the State Auditor’s Hotline, the

occurrence of fraud, waste and abuse of public

Investigative Division detects and exposes fraud,

resources in our communities. As mandated by

waste and abuse in State government.

State law to “periodically” publish the hotline,

In 2008, the Investigative Division will operate

OSA plans to launch a statewide television ad

under new leadership. Building on the fine work

blitz. This blitz will consist of 30 second public

done in the past, the new Director will use his

service announcements designed to publicize the

professional experience to take investigations in a

State Auditor’s Hotline, and will begin in the fall

new direction. With his experience in investigating

2007. By advertising the State Auditor’s Hotline,

white collar crime such as political corruption

we multiply the numbers of eyes and ears in North

and financial fraud for the FBI, and experience in

Carolina’s communities and equip them with a

identifying conflicts of interest and accountability

tool to enact positive change in State government.

issues for the State Ethics Commission, the Division will be able to discover new leads and open more

Management Services and

doors inside and outside State government.

Nongovernmental Compliance Division

(MS&NGCD)

Investigative Task Force

The process of issuing State grants to non-

Building on the team-centered approach in

profits (grantees) and enforcing compliance with

2006-07, the OSA is launching a new entity

State law has been an area of growing concern to

labeled the Investigative Task Force (ITF). Led by

the public, and is an area of increasing focus for

the new head of the Investigative Division and the

OSA. We have found that most grantees want to

Deputy State Auditor, the ITF is designed to steer

comply with their grant requirements but some



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North Carolina Office of the State Auditor

lack the skills or knowledge to do so. To increase

Our goal for 2008 is to continue efforts to reduce

compliance and streamline the process in 2008,

the number of noncompliant grants.

OSA will focus on implementing the Grants

Occasionally, circumstances produce the need

Information Center (GIC) online reporting system.

for a more in-depth accounting of a grantee and

Successful implementation of the GIC system will

its stewardship over its State grant. As a result,

greatly increase the accuracy and the timeliness

the OSA began a process of grant examinations in

of the grant’s data to all interested parties, while

June 2006. For Fiscal Year 2007, OSA initiated 25

significantly decreasing the workload of the

grant examinations (21 completed) that resulted

grantees, the funding agencies and the Division.

in OSA recommending repayment of $419,000

in grant funds, equal to an average of $20,000 per examination. The number of these examinations

Training Training

is

an

important

function

of

may increase in 2008 to include as many as 40

MS&NGCD and the OSA plans to improve its

reports by the end of that fiscal year. Furthermore,

efforts in 2008 by offering both live and online

the OSA plans to conduct separate monitoring

grants training. Plans are to conduct a minimum

examinations of funding agencies. The Division’s

of 6 live sessions per month, in addition to setting

goal is to complete 12 separate agency monitoring

up and offering online courses in an e-Learning

examinations by the end of the next fiscal year.

format. An important part of training is providing information to grantees and funding agencies that

Information Systems Audit Division

is relevant to their particular circumstances. Con-

Information is the commodity of the twenty-first

sequently, the OSA issues quarterly Best Practices

century. To fulfill OSA’s constitutional mandate in

newsletters to all grantees and funding agencies,

the information age, the OSA deploys its IS Audit

provides research and reporting assistance via tele-

Division using a blend of savvy technology and

phone and email, and provides grantees and fund-

traditional auditing skills to confirm the efficient

ing agencies with online grant reporting documents

and effective use of public resources in State

and formats dictated by the reporting statutes.

government.

Compliance Reporting & Examinations

Strategic Reviews

Each grantee that accepts public money should

One of the Division’s most promising new tools

be eager to show how that money was spent for

is the Strategic Review (SAR). In 2006-07, the Di-

the public good. Compliance reporting is a means

vision used SARs to expose almost 27,000 invalid

for each grantee to embrace transparency and take

Social Security Numbers in 6 separate State enti-

pride in fulfilling each obligation under State law

ties. Perpetrators used these invalid SSNs to either

and within their grant’s requirements. Moreover,

gain State employment or obtain valid State identi-

the subsequent processing of compliance reports

fication. Using this success as a springboard, OSA

is an important benchmark in how effective OSA

plans to conduct more SARs in 2008 on a variety

is at upholding compliance and accountability.

of issues not limited to the use of invalid SSNs.

Increasing Efficiency... Exposing Fraud 


Annual Report 2007 | Strategic Plan

been mined and warehoused. Once this project

IWAYS Pilot Streamlining the fl ow of information in the

is complete, the OSA will be able to investigate

digital age is essential to performing accurate and

suspicious trends in an agency’s fi nancial receipts,

timely reviews. In 2007-08, OSA is conducting a

expenditures, and payroll expenses, and run fraud

pilot project using the IWAYS interface to directly

routines on unique data profi les.

access agencies’ data through an encrypted information tunnel with the ability to retrieve that data on demand. Th is system off ers a seamless fl ow

Performance Audit Division Compared to other OSA divisions, the

of information as opposed to the current system

Performance

of a manual “cut and paste” operation by agency

engineered to evaluate whether State programs are

of access to information is an additional benefi t of IWAYS. Currently, extract fi les are obtained annually by OSA’s IS Audit Division who then hand-off the fi les to the Financial Division for their analysis. With IWAYS, the IS Audit Division can directly access the needed information in real time

Division

is

uniquely

reaching their goals. OSA

personnel. Increasing the frequency

Audit

The Performance

has been able to shift some of its productivity gains

Audit Division

made in 2006-07 to expand

is uniquely

Division which specifi cally

engineered to

the

Performance

Audit

concentrates on effi ciency and eff ectiveness of State

evaluate whether

government programs. In

State programs

conduct more performance

are reaching their

or on a consistent periodic basis (e.g., monthly).

goals.

2008, the Division plans to audits than in 2007, equip performance auditors with additional tools through new training, and provide greater fl exibility to meet emerging

Data Mining/Warehousing

needs when they arise.

Accessing information on site can stall audits

Questions have arisen regarding the NC

and investigations and disrupt an agency’s

General Assembly’s newly instituted Legislative

operations. In consultation with a national data

Program Evaluation Division and how this entity

mining expert from Brigham Young University,

compares with OSA’s Performance Audit Division.

the OSA began data mining and data warehousing

Unlike the program evaluations conducted by the

information on its own computer servers to

legislature, OSA’s Performance Audit Division

remove every obstacle in the path of progress.

is independent from other government entities

Going into 2008, the IS Audit Division is poised

and reports directly to the public instead of to

to conduct operations such as trend analysis and

legislative committees. Also, the Performance

fraud routines on large chunks of data that have

Audit Division conducts rigorous audits according

6

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North Carolina Office of the State Auditor

to strict auditing standards, while the legislature’s

North Carolina Internal Audit Act which requires

program evaluations will be assessments of the

large agencies to devote resources and attention to

appropriateness of any given program. Because the

internal auditors. In 2008, the OSA will conduct

OSA is concerned with maintaining efficiency and

more audits designed to make a significant impact

effectiveness of existing programs, OSA welcomes

on the State of North Carolina.

the legislature’s new program as another set of eyes to evaluate goals and performance measures in State government.

Financial Audit Division The Financial Audit Division is charged with

some of OSA’s biggest responsibilities such as

Greater Flexibility

annual financial statement audits and reviews

An excellent example of greater flexibility in

of the State’s sixteen universities and fifty-eight

the OSA’s Performance Audit Division is the 2007

community colleges. In addition, this Division

audit of New Vistas Mountain Laurel, Inc. Mental

conducts one of the largest financial audits,

Health Service Provider (NVML), and the several

the Comprehensive Annual Financial Report

ongoing performance audits in the area of mental

or CAFR, which contains the annual financial

health. As a direct result of requests by North

statements for the state of North Carolina as a

Carolina General Assembly members and local

whole. Because of the Division’s access and broad

leaders, the OSA was able to prioritize audits and

reach across the State, in 2008 they will become a

divert resources to meet emerging needs because

critical component of the new Investigative Task

of greater flexibility built into the system. In 2008,

Force.

OSA will build on this success and become even

Financial is OSA’s core division and biggest user

more flexible to tackle new issues and satisfy

of available resources. In 2006, OSA contracted

requests when they arise.

with AuditWatch to refocus Financial’s auditors

and staff to improve the efficiencies in which

Conduct More Audits with Impact

they conduct their audits. By committing to

A 2006 OSA performance audit found that the

AuditWatch’s efficiency principles, Financial’s

State’s internal audit function is inadequately staffed

auditors and staff have cut inefficiencies, improved

and is in need of more direct guidance from the

quality and have expanded productivity. That

General Assembly. Internal auditors are the first

means that significant resources are now available

line of defense that provide independent assurance

to extend the reach of the OSA. Specifically,

on the effectiveness and efficiency of a program.

Financial would be able to address the critical need

Based on the findings and recommendations

to conduct fiscal control audits on State agencies

from this audit, the General Assembly enacted the

that have not been reviewed in the recent past.

Increasing Efficiency... Exposing Fraud 


Annual Report 2007 | Executive Summary

Executive Summary Investigative Division • In 2008, the Investigative Division will operate under new leadership with experience in investigating white collar crime such as political corruption and financial fraud for the FBI, and experience in identifying conflicts of interest and accountability issues for the State Ethics Commission. • Since 2005, OSA reduced the number of open cases by 76% (120 to 29). This is a substantial accomplishment of increased efficiency given the fact that we received an average of 135 new cases a year since 2005. • OSA reduced the average case age to 118 days from 315 days in 2005. This represents a reduction of 63%. • OSA is launching a new entity termed the Investigative Task Force (ITF) designed to steer investigations when a deeper vein of fraud, waste or abuse is detected while using standard auditing techniques. • OSA is launching a statewide television ad blitz of a 30 second public service announcement beginning in the fall 2007 to publicize the State Auditor’s Hotline as mandated by State law. Management Services and Nongovernmental Compliance Division • During FY 2007, OSA trained 4,535 personnel from funding agencies or grant recipients in 72 training sessions. The total number of participants trained since August 2005 is 8,500. • The Division began conducting agency and grantee examinations in June 2006. For Fiscal Year 2007, OSA has initiated 25 grant examinations (21 completed) that resulted in OSA recommending repayment of $419,000 in grant funds, equal to an average of $20,000 per investigation. • As of June 30, 2007, OSA has dropped the grantee noncompliance rate to 18.5% reflecting the proper accounting of an additional $32 million. • OSA, in conjunction with the Office of State Personnel, established the Effective Grants Administration Certificate Program resulting in 63 personnel from grantees and funding agencies earning certificates during Fiscal Year 2007 • OSA has shortened the processing time for grantee reports from 5 months in 2005 to approximately 3 days of receipt in 2007.



Increasing Efficiency... Exposing Fraud


North Carolina Office of the State Auditor

Performance Audit Division • The NC General Assembly enacted the North Carolina Internal Auditing Act based on a 2006 Performance Audit on internal auditors in State agencies. • An audit of the State Child Health Insurance Program (SCHIP) identified $16,000,000 in annual savings and $3,500,000 in one-time savings if the State moved the responsibility for SCHIP medical claims processing from the State Health Plan to the Division of Medical Assistance. • The OSA audited the Office of Indigent Defense Services and found that their policies and procedures did not adequately ensure poor defendants received competent legal representation, and that attorneys representing poor defendants were not sufficiently independent of judicial influence. Information Systems Audit Division • One of the IS Audit Division’s most effective tools is the Strategic Review (SAR). In 2006-07, the Division used SARs to expose almost 27,000 invalid Social Security Numbers in 6 separate State entities. • In 2007-08, OSA is conducting a Pilot project using the IWAYS interface to directly access agencies data through an encrypted information tunnel with the ability to retrieve that data on demand. • The OSA is completing a data mining / data warehousing operation to conduct trend analysis and fraud routines on large chunks of data such as agency financial receipts and expenditures, payroll expenses, and unique data profiles such as SSNs of new driver’s licenses from DMV. Financial Audit Division • Bring Financial’s access and broad reach into Universities, Community Colleges and CAFR onto the Investigative Task Force. • Continue efficiency gains to expand the productivity of all OSA divisions.

Increasing Efficiency... Exposing Fraud 


Annual Report 2007 | Investigative Division

Investigative Division

O

SA’s Investigative Division is one of

Comparing fiscal 2007 with fiscal 2006, we reduced

its most effective watchdog tools for

the number of open cases by 36% (29 from 45).

investigating allegations of fraud, waste

This is a substantial accomplishment of increased

and abuse of State resources. Relying on State

efficiency given the fact that we received 139 new

constitutional and statutory authority, this arm of

cases during this fiscal year. Consistent with these

the OSA exposes fraud and State government waste

numbers is the decrease in the average case age. In

by investigating tips received through the State

2005, the average case age was 315 days. By 2006

Auditor’s confidential hotline.

FYE, we reduced the average case age to 226 days,

The majority of tips that lead to investiga-

a reduction of over 28%. Currently, we reduced the

tions come from OSA’s 24-hour, toll-free hotline

average case age to 118, which is a reduction of 63%

[1-800-730-TIPS (8477)]. This Hotline is designed

since 2005.

for state employees and the general public to re-

port activities they believe may be illegal or im-

Goals

proper. Allegations of fraud, waste and abuse may

The goals for the remainder of 2007 and into

also be reported by traditional mail or via email at

2008 are to effectively promote the State Auditor’s

hotline@ncauditor.net.

Hotline, launch the Investigative Task Force, and

To protect the integrity of tips, allegations of improper governmental activities are strictly

increase the efficiency and effectiveness of handling multiple investigations simultaneously.

confidential. In addition, state law provides

The promotion of the State Auditor’s Hotline is

protection from retaliation or discrimination for

mandated by statute and has proven to be the tip

whistleblowers who report improper or illegal

source for the majority of investigations leading

activities to the State Auditor.

to direct savings for the taxpayers. In the spring

of 2007, OSA advertised the Hotline with unpaid

Statistics

promotions in State employee paycheck slips and

We have made great strides in detecting and

automatic draft forms. This method provides

preventing fraud, waste and abuse of State resources

important coverage, but is inherently limited. In the

in 2007. We built on our 2006 accomplishments by

fall of 2007, OSA will launch a statewide television ad

reducing the number of open cases, completing cases

blitz featuring a 30 second spot designed to expose

with greater efficiency which reduced the average

fraud, waste and abuse in State government. This

age of cases, while simultaneously investigating

one area is unique in that money spent to promote

newly reported allegations.

the Hotline will likely reap a far greater amount

Due to an increase in efficiency, the number of

in savings to the taxpayers when fraud, waste and

open cases has been steadily declining from 120

abuse of State money is uncovered. Timing of this

in 2005 to 29 in 2007, equaling a 76% decrease.

promotion is key because the Investigative Division

10

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North Carolina Office of the State Auditor

must have the ability to handle a sharp increase in

NORTH CAROLINA DEPARTMENT

new cases. With the Division’s increase in effi ciency

OF ADMINISTRATION – DIVISION OF

resulting in a lower number of open cases, we

PURCHASE AND CONTRACT

believe that the fall of 2007 is the optimal time.

Th e Offi ce of the State Auditor received a number

Building on the team-centered approach in

of allegations regarding a state term contract for tire

2006-07, the OSA is launching a new entity labeled

retreading. Th e allegations primarily concerned

the Investigative Task Force (ITF). Led by the

a contractor who violated provisions of the

new head of the Investigations Division and the

contract regarding charges for repairs, tire casing

Deputy State Auditor, the ITF is designed to steer

identifi cation, and price adjustments.

investigations when a deeper vein of fraud, waste

Auditors

or abuse is detected while using standard auditing techniques. Being comprised of auditors and staff with investigative, performance, non-profi t

system backgrounds, the ITF will be well positioned to follow “risk-based” leads and then drill down to the source of fraud, waste or

the

contractor performed an

Because promotion of the Hotline will result in more tips . . .

compliance,

fi nancial and information

found

OSA plans to add more supervisors and staff positions to the Investigative Division

abuse of public resources. A portion of 2006-07’s

in 2008.

effi ciency gains will be put

unusually high percentage of spot repairs under the provisions of the tire retread contract. Review of invoices to eight Local Education Authorities (LEA’s) and one North Carolina Department of Transportation (DOT) division contractor

revealed charged

the for

the maximum three spot repairs on 99.1% of the 9,900 tires retreaded during a sample period. Other tire

to good use in the Investigative Division. Because

retread retailers and industry experts indicated

promotion of the Hotline will result in more tips,

it is not routine to perform three spot repairs per

more investigators will be needed as part of other

tire for on-the-road tires. Auditors estimated the

auditing teams. OSA plans to add more supervisor

contractor may have overcharged the local school

and staff positions to the Investigative Division in

districts and DOT a minimum of $361,000 per

2008. OSA believes this will bring greater fl exibility

year by maximizing spot repair charges on almost

to investigations and allow the Division to handle

every tire. Auditors recommended the Department

multiple investigations simultaneously.

of Administration--Division of Purchase and

Th e following are summaries of the more notable

Contract (P&C) eliminate the line-item charge for

cases in Fiscal Year 2006-2007. A complete list of

spot repairs to halt the incentive to maximize repair

reports is detailed in Appendix A.

charges. In addition, P&C should monitor the contractor’s performance and evaluate the awarding

Increasing Efficiency... Exposing Fraud 


Annual Report 2007 | Investigative Division

of future contracts given the concerns raised.

the initial discovery of the improper payments.

Auditors also discovered the contractor violated

In compliance with State law, the State Auditor

contractual provisions related to price adjustments

notified the North Carolina Attorney General

and itemized pick-up lists. The contractor changed

and appropriate law enforcement agencies of

the way it invoiced charges for spot repairs without

apparent instances of malfeasance, misfeasance,

notifying P&C as required by the contract terms.

or nonfeasance by an officer or State employee.

Further, the contractor failed to provide itemized

In addition to other recommendations, Auditors

lists of each tire casing picked up by the contractor

recommended

resulting in two LEA’s receiving the wrong retread

reimburse the UNC School of Pharmacy and

tires in return. OSA recommended the contractor

UNC Hospitals for the balance of the improper

comply with all contract provisions by notifying

payments.

that

the

Pharmacy

Director

P&C of price changes and developing an inventory pick-up sheet that identifies each tire picked up for retreading.

WAKE TECHNICAL COMMUNITY COLLEGE At the request of the President of Wake Technical Community College, auditors conducted a special

UNIVERSITY OF NORTH CAROLINA

review of contract and procurement activities

HOSPITALS / UNIVERSITY OF NORTH

involving the Information Technology Services

CAROLINA SCHOOL OF PHARMACY

Division of the College. The review determined that

The Office of the State Auditor received an

Wake Tech’s Chief Information Officer fabricated a

allegation through the State Auditor’s Hotline that

vendor quote to facilitate the award of a contract to

the Pharmacy Director for the University of North

a local business for just under $10,000. In another

Carolina Hospitals requested reimbursements

instance, the Chief Information Officer violated

from UNC Hospitals and the University of North

college policy by awarding a $10,400 contract to

Carolina at Chapel Hill’s School of Pharmacy

the same local business without obtaining formal

for identical travel expenses. The complainant

proposals. Auditors also concluded that Wake

also alleged that the Pharmacy Director received

Tech’s Executive Vice President’s approval of these

improper reimbursements for cellular telephone

transactions and personal friendship with the

expenses.

owner of the local business created the appearance

An investigation of these allegations found that

of a conflict of interest.

the Pharmacy Director received over $2,300 in im-

OSA recommended that the College President

proper reimbursements for travel and other expens-

take appropriate disciplinary action regarding the

es. In addition, auditors found that the Pharmacy

actions of the Chief Information Officer. OSA

Director improperly received over $2,300 for the

also recommended that Wake Tech’s Budget Office

reimbursement of cellular telephone charges. The

provide additional training to purchasing designees

Director reimbursed the University $1,202 upon

to ensure compliance with procurement policies

12

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North Carolina Office of the State Auditor

and procedures. A final recommendation called

NORTH CAROLINA DEPARTMENT OF

for the establishment of a conflict of interest policy

CULTURAL RESOURCES / FRIENDS OF THE

that applies specifically to staff involved in the

MUSEUM, NORTH CAROLINA MARITIME

procurement process at Wake Tech

MUSEUM, INC. / GALLANT’S CHANNEL PROPERTY TRANSACTION

NORTH CAROLINA DEPARTMENT

Following concerns from some Council of State

OF ENVIRONMENT AND NATURAL

members and a written request from the Secretary

RESOURCES – DIVISION OF WASTE

of the Department of Cultural Resources, the Office

MANAGEMENT

of the State Auditor conducted a special review of a

The Office of the State Auditor received an

transfer of property from a non-profit organization

allegation through the State Auditor’s Hotline

to the State of North Carolina and the funding of

concerning a Processed Scrap Tire Material

a boat race and festival known as “Pepsi Americas’

– Market Development Grant awarded by the

Sail 2006.” Concerns included the lack of disclosure

Division of Waste Management. The purpose of the

of outstanding debts against the property, questions

grant was to provide funding for a molding system

regarding the value of the property, the possibility

that would produce rubber mats from recycled

that the State was paying for the land a second time,

tire material. Allegedly, a tire recycling company

and potential misuse of funds regarding the Tall

that received the $320,000 grant failed to fulfill the

Ships event. The investigation resulted in multiple

grant requirements including specified levels of

findings regarding lack of signed agreements, vio-

production and sales.

lation of Natural Heritage Trust Fund regulations,

Auditors concluded the tire recycling company initially intended to create a sustainable rubber

improper notification of state officials, and poor cost control for the Tall Ships event.

mat business. However, after receiving the grant

In addition, the investigation presented additional

award and in the course of developing the mat-

information that clarified some outstanding issues.

making process, the company was unable to

For example, the review determined the State

realize anticipated production and sales. To

provided $3.45 million for the purchase of the

recover a portion of the original investment,

Gallant’s Channel property in 1996 with a total State

auditors concluded the company set up and ran

investment of $8.9 million over the next 10 years.

the mat-making machine to obtain the initial grant

After considering various appraisals performed by

payment and then fabricated documents to fulfill

different entities, the Office of the State Auditor

the grant requirements and obtain subsequent

estimated the property’s value exceeds $20 million.

payments from the Division of Waste Management.

The investigation revealed there was no signed

OSA recommended that the Division of Waste

agreement between the State of North Carolina and

Management consider legal action to recover the

the Friends of the Maritime Museum regarding the

entire grant award. The findings were also referred

ownership or development of the Gallant’s Channel

to the State Bureau of Investigation.

property. As a result, the State had no control or

Increasing Efficiency... Exposing Fraud 13


Annual Report 2007 | Investigative Division

input over the development of the property. Th e

to the cost escalation for the event. In addition,

Friends of the Museum maintained legal title and

insuffi cient revenue and inadequate cost control

could have refused to transfer the property, sold the

resulted in fi nancial losses for the Tall Ships event.

property, or developed the site without recourse

Several factors contributed to the event losses of

from the State. Auditors recommended the State

almost $2 million such as inadequate planning,

develop written agreements for all property

unrealistic attendance estimates, failing to designate

transactions and the State Property Offi ce review its

one individual or committee as ultimately in charge,

fi les to determine if similar arrangements exist.

poor weather, lack of ships available for boarding,

In

addition,

auditors

found the State Property Offi ce failed to complete the property acquisition process aft er Council of State approval in 1998 and the Department of Cultural Resources did

and customer complaints

The investigation resulted in multiple findings regarding lack of signed

leading

to

discontinued

ticket sales and refunds. OSA

recommended

Department

of

Resources

the

Cultural establish

agreements, violation of

procedures for organizing

Offi ce when the property was

Natural Heritage Trust

entertainment events that

deeded to the State in 1999.

Fund regulations, improper

support

notification of state officials,

ensure the event’s success

not notify the State Property

Further, the Council of State was not properly informed of outstanding liens fi led against the property in October 2006 prior to accepting the

and poor cost control for the Tall Ships event.

and managing cultural and North

Carolina

arts and history to help while minimizing the risk of fi nancial loss.

property transfer. Auditors

NORTH CAROLINA

recommended

STATE UNIVERSITY

the

State

Property Offi ce review its fi les and require copies

– FACILITIES OPERATIONS DEPARTMENT

of deeds before closing any property transaction

Investigators received an allegation through the

fi le. Further, the Offi ce of the State Auditor

State Auditor’s Hotline that an employee of the

recommended the State Property Offi ce disclose

North Carolina State University (NCSU) Facilities

all pertinent information to the Council of State

Operations Department wrote specifi cations for

including providing details in writing in advance to

building maintenance projects, participated in the

Council members for complex transactions.

bid solicitation and selection process, and sold

Regarding the Tall Ships event, the investigation

equipment to a contractor that was awarded the

discovered the Pepsi Americas’ Sail 2006, LLC did

contract. Th is employee allegedly also oversaw

not have signed contracts with vendors for major

the performance of a convenience maintenance

services. Th e lack of signed contracts contributed

contract awarded to the same contractor.



Increasing Efficiency... Exposing Fraud


North Carolina Office of the State Auditor

Investigators found a project manager used his

states. The project manager admitted he had

University position to derive a direct benefit for

not completed required secondary employment

his private business. In his capacity as a Facility

forms or notified management of his secondary

Mechanical Engineer, a NCSU project manager

employment

wrote specifications for the purchase and installation

manager acknowledged attempts to conceal these

of a chiller while also being involved in the public

business relationships by portraying his wife as

bid review and amendment process. Investigators

the owner of his private company and using a false

review of the project manager’s NCSU computer

business address in Kansas. OSA recommended

revealed the project manager was the owner of

NCSU ensure all employees complete a secondary

a company who supplied the chiller at a $10,000

employment form in accordance with State

mark-up to the company awarded the contract with

Personnel policies and consider requiring all

NCSU. Investigators discovered other transactions

employees who have positions involving managerial

between the project manager’s company and the

decision-making to complete an additional conflict

contractor. In total, investigators identified another

of interest statement annually. The findings were

$14,000 in payments to the project manager’s

also turned over to the local District Attorney.

activities.

Further,

the

project

company from the contractor. Investigators recommended NCSU establish policies related to

NORTH CAROLINA DEPARTMENT OF

construction contracts that require management to

TRANSPORTATION

review information related to any subcontractors,

Auditors received allegations through the

suppliers, or other vendors for the primary

State Auditor’s Hotline that the Assistant State

contractor. In addition, management should

Geotechnical Engineer misused funds paid to

perform periodic comparisons of NCSU employee

the Department of Transportation (DOT) by the

information and vendor information to determine

attendees, exhibitors, and sponsors of a conference

if any employee is receiving payments also as a

hosted by DOT. Auditors identified eight instances

vendor or contractor.

totaling over $36,000 in which conference funds

In addition, investigators discovered the project

were disbursed in violation of departmental policy

manager failed to properly disclose secondary

requiring approvals by the DOT Purchasing Officer.

employment information to management. Analysis

In addition, DOT spent over $1,200 in conference

of the project manager’s computer revealed

funds to purchase information technology items

numerous files containing purchase orders, invoices,

without the approval of DOT’s Purchasing or

job quotations, and correspondence related to his

Information Technology divisions as required by

personal company. These documents were dated

policy. OSA recommended management take

subsequent to his employment with NCSU and

appropriate action for the Geotechnical Engineer’s

indicated ongoing business relationships with

failure to follow policy and reemphasize the

various heating and air conditioning contractors

importance of compliance with purchasing and

and vendors in North Carolina and other

information technology regulations.

Increasing Efficiency... Exposing Fraud 15


Annual Report 2007 | Investigative Division

NORTH CAROLINA SCHOOL OF SCIENCE

receive a refund or indicate their desire to make a

AND MATHEMATICS

donation to the exchange program. In addition, the

Investigators received allegations through the

administration should clearly disclose in future fee

State Auditor’s Hotline regarding the fi nances for a

schedules that a portion of fees may be applied to

student exchange trip to Germany in February 2005.

program activities in subsequent years.

Allegedly, the North Carolina School of Science and Mathematics (School of Science and Math) did not

NORTH CAROLINA UTILITIES COMMISSION

fully refund surplus travel fees to the parents of

PUBLIC STAFF Th e Offi ce of the

student participants. Students participating

School of Science and

in the exchange trip paid $1,500 in advance

Math should have

to cover costs and trip

materials

with

the

indication

that

any unspent money

total cost of the trip was approximately $16,500 despite collections of

Math

administrators

Information Technology Director (Director) for the North Carolina

$707.56 and one student

Public Staff used a state

Utilities

Commission

$607.56. However, the

computer and network

school only refunded $565

lege courses during the

per student and retained a balance of over $2700

$30,500, and as a result, School of Science and

a complaint alleging the

refunded 19 students

would be refunded. Investigators found the

State Auditor received

resources to teach colnormal work day. Th e Director completed a secondary employment

towards the cost of future

form that indicated he

exchange trips.

at one local college.

should have refunded 19 students $707.56 and one student $607.56.

only taught one class However, auditors determined the Director

However, the School only refunded $565 per student

taught courses at Peace College, Wake Technical

and retained a balance of over $2,700 towards the

Community College, and Capella University during

cost of future exchange trips. Th e investigation also

the past two years. While the majority of the class

revealed the School of Science and Math did not

schedules took place during the evenings and week-

suffi ciently disclose the trip’s fi nances or how the

ends, some classes were scheduled during the day.

surplus funds would be applied.

Auditors concluded the Director violated agency

OSA recommended the School of Science

policy by excluding two teaching positions which

and Math notify parents that fees were retained

prevented management from adequately assessing

and provide each parent an opportunity to either

the eff ect of the secondary employment.

6

Increasing Efficiency... Exposing Fraud


North Carolina Office of the State Auditor

Analysis of computer fi les confi rmed the Director

accumulated over 2,400 minutes of airtime use for

used state computer resources for his secondary

calls of a personal nature. Th is misuse of the cell

employment. An examination of his state-issued

phone violated University policy and resulted in

computer revealed over 8,300 e-mails related to

over $1,100 of wireless charges for personal calls.

secondary employment over a six-year period and

OSA recommended the Assistant Vice Chancellor

over 900 additional e-mails related to students and

reimburse the University for these calls and that

staff at the educational institutions identifi ed above.

management re-emphasize the policy prohibiting

Th ese e-mails were generally sent during normal

personal use of state-issued cell phones.

work hours and included the Director’s contact information at the Utilities

NORTH CAROLINA

Commission Public Staff .

DEPARTMENT OF

OSA recommended man-

Management should

agement take appropriate disciplinary action for the Director’s failure to fully disclose

ensure employees fully

the extent of his secondary employment and for violating the “reasonable personal use” provision of the agency’s

annual basis and re-empha-

PUBLIC HEALTH An allegation was received

disclose secondary

through the State Auditor’s

employment on an

of interest related to second-

Hotline concerning a confl ict ary employment within the

re-emphasize the

tion Branch of the Division

internet usage policy.

confi rmed that management

management should ensure ondary employment on an

SERVICES -- DIVISION OF

annual basis and

internet policy. In addition, employees fully disclose sec-

HEALTH AND HUMAN

size the internet usage policy.

Physical Activity and Nutriof Public Health. Auditors created a business to provide consulting services to groups

outside state government and North Carolina since NORTH CAROLINA AGRICULTURAL AND

2001. However, management did not complete a

TECHNICAL STATE UNIVERSITY

secondary employment form or receive manage-

Investigators received allegations through

ment approval as required by departmental policy.

the State Auditor’s Hotline that the Assistant

OSA recommended that management submit a

Vice Chancellor of Police and Public Safety at

secondary employment form for management ap-

North Carolina Agricultural and Technical State

proval and that Department of Health and Human

University (University) used a University cellular

Services management reinforce the requirement to

phone for personal calls. An analysis of cell phone

employees including an annual update.

records indicated the Assistant Vice Chancellor

Increasing Efficiency... Exposing Fraud 


Annual Report 2007 | Management Services & Nongovernmental Compliance Division

Management Services & Nongovernmental Compliance Division

T

he

Management

Services

and

• Effective Grants Administration Certificate

Nongovernmental Compliance Division

Program: Working with the Office of State

(MS&NGCD), has the responsibility of

Personnel, the Division established the Effective

increasing oversight and accountability of State

Grants Administration Certificate Program

and Federal pass-through grants typically given

consisting of 5 core grants training courses

to nonprofit organizations. The Division, formed

that provide the basics for good oversight and

in July 2005 in response to changes in grants

accountability of grant funds. During fiscal year

reporting statutes, responds to the growing need

2007, 63 grantee and agency personnel have

for compliance oversight and training to adhere to

earned this Certificate.

changing reporting requirements. The impetus for the creation of MS&NGCD was twofold. First, OSA needed to refocus its resources to increase training and “best practices” for nonprofit organizations receiving State grants. Second, OSA needed to increase compliance and accountability of funds on the grantee and funding agency levels. The Division has set measurable goals for 2008 based on the accomplishments of the past two years. OSA is proud to report that MS&NGCD continues to meet all areas of its original mission. The following is a summary of 2007 accomplishments, broken down by internal category: Training • Grants Training: During fiscal year 2007, the

• Multifaceted Training: Other types of training included grants administration sessions directed at State agency personnel, grants reporting/ accountability sessions directed at grantees, special sessions conducted at the request of various groups (e.g., DHHS and state level associations of various types) and presentations at 17 conferences during the fiscal year. • Web-based Training Resources: The Division provided

templates,

reference

materials

and training tools to all participants online. Additionally, considerable work was done on setting up e-Learning opportunities for grants training. This work resulted in the first online e-Learning offering for the 2-hour Grants Administration Update posted on July 31, 2007.

Division trained 4,535 participants in 72 training

18

sessions, bringing the total number of participants

Compliance

trained since August 2005 to approximately

• Increased Grantee Compliance: Posting the

8,500. This training has continued to contribute

monthly noncompliance list on OSA’s web

to fewer grantees in noncompliance.

page has served to inform legislators, State

Increasing Efficiency... Exposing Fraud


North Carolina Office of the State Auditor

funding agencies, and the public of which

• Research and Reporting Assistance: The Division

grantees have not complied with the statutory

continues to provide assistance, via telephone

reporting requirements. While the monthly

or email, on unique, confusing and complicated

noncompliance percentage varies, at June 30,

questions related to grants reporting.

2007 the noncompliance rate had dropped to 18.5% reflecting the proper accounting of an additional $32 million.

• Current Documents and Formats: The Division provides

grantees

and

funding

agencies

information on required grant reporting

• Increased Review of Grantees’ Annual Reports:

documents and formats through developing,

During fiscal year 2007, OSA reviewed 61%

updating and maintaining online forms dictated

more grantee annual reports due to changes in

by the reporting statute.

statutory regulations that affected 2006 annual reports filed in fiscal year 2007. As a result, the number of grants covered under OSA’s review increased to 4,786 from 2,969 in fiscal year 2006.

Agency and Grantee Examinations • Grant Examinations: The Division began conducting agency and grantee examinations in June 2006. For Fiscal Year 2007, OSA has

• Timely Processing of Grantee Reports: The

initiated 25 grant examinations (21 completed)

Division has shortened the time it takes to

that resulted in OSA recommending repayment

process grantee reports from a 5-month backlog

of $419,000 in grant funds, equal to an average

in 2005 to processing within approximately 3

of $20,000 per examination.

days of receipt in 2007. • Online

Reporting

Program:

• Examination Training Tools: The Division uses Working

in

the examination process to educate agency

conjunction with the Office of Information

personnel on monitoring techniques and to

Technology Services, the Division is finalizing a

suggest improvement to those techniques. In

new online reporting program for State agencies

addition, the examination provides an excellent

and grantees. This program, which is scheduled

opportunity to provide best practice information

to be fully operationally by December 2007, will

on improving accountability to grantees.

eliminate redundancy, increase data capture efficiency, and improve reporting timeliness. Best Practices and Research Assistance • Quarterly Best Practices newsletter: This newsletter updates grantees on state grant requirements, potential financial accountability problems and developing adequate internal policies and accounting controls. The Division published four quarterly issues during fiscal year 2007 which are posted on the OSA web page.

Special Projects • Local Government Grants: The Division has worked closely with the Local Government Commission at the state level to identify and capture data on grants flowing to local government units. The result is a summary report and grants database that is posted on the OSA web page giving information about the approximately $12 billion in State and Federal grants at the local level. This report will be updated annually.

Increasing Efficiency... Exposing Fraud 19


Annual Report 2007 | Management Services & Nongovernmental Compliance Division

• Audit Findings Database: The Division updates

Coordinating and cooperating with the grantor

and maintains an audit findings database to

agency is of primary importance to successfully

identify problem trends at State agencies. This

monitor and review nonprofits and their

database assists in internal audit planning and

grantor agencies. The Division posted 29 grant

the identification of best practices to share with

examinations and exceeded its goal of completing

State agency and grantee personnel.

24 examinations during fiscal year 2007. The goal for 2008 is to increase the number of new

Going into 2008, the Division will focus on

examinations from 29 completed in 2007 to 40

implementing the Grants Information Center

by the end of this fiscal year. In an effort to help

(GIC) online reporting system. This will entail

train agency monitors to be proactive thinkers,

conducting training sessions statewide for both

the Division plans to conduct separate monitoring

funding agency and grantee personnel. Successful

examinations of grantor agencies. For fiscal year

implementation of the GIC system will greatly

2007, these examinations were conducted in

increase the accuracy and timeliness of grants

conjunction with the grant examination. The

data to all interested parties while significantly

Division’s goal is to complete 12 separate agency

decreasing the workload of the funding agencies

monitoring examinations by the end of next fiscal

and the Division. Furthermore, GIC will afford

year.

the grantees a much simpler method of complying with statutory reporting requirements.

Training is an important function of MS&NGCD and the Division plans to continue

Compliance reporting and subsequent pro-

its efforts in 2008 by offering both live and online

cessing is an important benchmark in how effec-

grants training. Plans are to conduct a minimum

tive MS&NGCD is at compliance and account-

of 6 live sessions per month, in addition to offering

ability. While OSA cannot control the number

online courses in an e-Learning format. An

of reports it receives, it can control its efficiency

important part of training is providing information

in regard to bringing noncompliant grantees into

to grantees and grantors that is relevant to their

compliance. The number of noncompliant grant-

particular circumstances. To aid in this effort, the

ees ebbs and flows with reporting deadlines and,

Division will continue to issue its Best Practices

for fiscal year 2007, was significantly impacted by

quarterly newsletter and identify other efforts to

the statutory change in reporting requirements.

benefit both grantors and grantees. Best Practices

That statutory change presented unexpected chal-

is distributed to all 3,789 grantees identified in

lenges to our 2007 goal of a 30% reduction in the

our grants database, as well as agency personnel

number of noncompliant grants. The Division’s

involved with grants administration.

goal for 2008 is to continue efforts to reduce the number of noncompliant grants.

20

Increasing Efficiency... Exposing Fraud


North Carolina Office of the State Auditor

Performance Audit Division

O

SA’s Performance Audit Division is

between program results and the resources used

designed to allow for fl exible deploy-

to achieve those results, and how to develop mea-

ment of resources while upholding

surement based audit objectives. Th e continued

strict auditing standards. Unlike prescheduled fi -

reengineering of the Performance Audit Division

nancial audits, the subjects of performance audits

will result in value-added audits that focus on pro-

are chosen at the discretion of the State Auditor upon consideration of two factors: greatest risk potential and greatest opportunity for impact. Upon release, performance audits provide the public, agency manag-

active issues and strengthen

The continued reengineering of the Performance Audit Division will result in value-added audits that

ers and program managers

focus on proactive issue

with an objective analysis

and strengthen the State

of whether State agencies effi ciently and eff ectively manage their programs and activities. Furthermore, these audits are of particu-

Auditor’s watchdog function in State government.

lar value to legislators who

the State Auditor’s watchdog function in State government. Th e following are summaries of the Performance Audit Division’s audit reports: State Children’s Health Insurance Program (SCHIP) Th e audit objective was to determine if the State could realize cost savings by moving SCHIP claims

must consider the eff ectiveness of State programs

processing from the State Health Plan to the

in funding decisions and to the taxpayers who pay

Division of Medical Assistance.

for those programs.

Th e audit found that the State could realize

OSA’s eff orts in the Performance Audit Division

nearly $16,000,000 in annual savings and have

during 2007 revolved around retooling its work to

access to $3,500,000 currently held in reserve at the

produce reports that are narrower in scope and

State Health Plan by moving the responsibility for

target specifi c programs or areas where the State

SCHIP medical claims processing from the State

is at greatest risk. Training for the Division’s au-

Health Plan to the Division of Medical Assistance.

ditors and staff focused on performance measure-

Based on the SCHIP medical payments budgeted

ment and business process improvement. Weekly

for the 2008 fi scal year, almost 10,000 additional

training sessions instructed auditors how to iden-

children could be enrolled in the program and

tify opportunities to make government operate

receive medical coverage using the recurring

more effi ciently, how to evaluate the relationship

administrative savings and additional rebates.

Increasing Efficiency... Exposing Fraud 2


Annual Report 2007 | Performance Audit Division

New Vistas – Mountain Laurel Inc, Mental

current needs and the potential increase due to

Health Service Provider

the planned phase-out of State-based facilities.

As a result of a request by several members of the North Carolina General Assembly and local leaders, the State Auditor conducted a performance audit on New Vistas – Mountain Laurel, Inc. (NVML). Th e audit’s main objective was to determine the causes for the demise of this local mental health service provider. Th e audit found that while systemic issues within mental health reform contributed to the closing of NVML, the organization encountered signifi cant business challenges that severely compromised its

Indigent Defense Services Th e audit objectives were to determine if the Offi ce of Indigent Defense Services’ policies and procedures provide reasonable assurance that independent and competent legal services are provided to indigent defendants, determine if payments for legal services are made accurately and effi ciently, and make

This mental health audit also identified

ability to succeed. Contributing factors included: problems originating from NVML’s creation as a spin-off organization from the Blue Ridge Area Authority; fi nancial instability due to inadequate capital

several key statewide

process improvements. Th e audit found that attorneys representing indigent defendants were not suffi ciently independent of judicial infl uence because judges performed

issues which were

managerial functions, such as

presented as issues for

ers to offi ce, assigning cases

resources, cash fl ows, and information and fi nancial management systems; and staffi ng

further study.

defi ciencies. Th e audit also identifi ed several key statewide issues which were presented as issues for further study. Th ey include: • Th e need to defi ne the roles of key players in the mental health reform eff orts, particularly at the state and county levels. • Th e suffi ciency of the current private provider format to ensure that adequate services are available and provided in all areas as needed. • Th e immediate need for crisis centers to address

22

recommendations regarding

Increasing Efficiency... Exposing Fraud

appointing Public Defendto attorneys, establishing attorney rosters, and approving attorney fee payment applications. In addition, the Offi ce of Indigent Defense Services’

policies and procedures did not adequately ensure that competent legal representation was provided for indigent defendants because statewide criteria were not used to select qualifi ed attorneys, attorney performance was not systematically evaluated, and standard procedures were not established to monitor and resolve client complaints. Th e audit also found that attorney fee payment procedures were ineffi cient and inadequate to prevent duplicate payments, overcharges, or


North Carolina Office of the State Auditor

unauthorized payments. Procedural weaknesses

Economic Development Studies

included failure to verify case numbers on fee ap-

The audit objective was to assess the

plications, lack of detailed time sheets to support

implementation status of several significant

charges, attorneys with multiple vendor numbers,

recommendations

and inadequate segregation of duties.

studies. These consultants were hired by the State

addressed

in

consultants’

The report also stated that the Office of Indigent

or related organizations to assess the operations of

Defense Services lacked adequate resources to

North Carolina’s economic development system.

properly address many of the issues identified

The studies presented similar findings, although

during the audit.

they were performed at different times by different consultants.

Office Supplies Term Contract

The audit found that the Department of

Administered by the Purchase and

Commerce does not function as the lead

Contract (P&C) Division of the Department

agency for economic development activities for

of Administration

the State. Instead, the regional commissions

The objective of this performance audit was

and partnerships set their marketing agendas

to determine whether P&C was effectively

independently from the Department. Also, North

monitoring vendor performance of the statewide

Carolina’s economic development objectives, roles,

term contract for office supplies. We performed

and vision are not clear to many in the economic

tests to determine if quoted catalog prices, as well

development community. A statewide marketing

as actual prices charged to State agencies, agreed

plan inclusive of all the economic development

with contract prices. In addition, we tested to

system had not been developed.

determine if items offered under the contract were available for purchase.

The audit also found that the Governor plays a key role in determining the economic plan for North

The audit found that P&C was aware of pricing

Carolina. Results from surveys of North Carolina’s

errors and product availability issues, but had not

economic development participants suggested

taken steps to identify the underlying causes of the

that the Governor’s visibility and leadership could

problems and subsequently require permanent,

be enhanced by more involvement with the local

corrective action from the vendor (Office Depot).

economic development community.

In addition to identifying $40,887 in vendor

Finally, the audit found that monitoring of

overcharges to State agencies, the audit concluded

the regional partnerships by the Department

that the absence of permanent, corrective action

was limited. Monitoring efforts did not focus

compromised State agencies’ assurance that

on

contracted items would be readily available for

specific goals and performance measures for the

purchase at contracted prices.

partnerships.

comparing

actual

accomplishments

to

Increasing Efficiency... Exposing Fraud 23


Annual Report 2007 | Performance Audit Division

Enterprise Project Management Office

Internal Auditing In North Carolina

(EPMO)

Agencies and Institutions (Update)

Th e objectives of this assessment were to

Th e prior year performance audit found that

determine the design and implementation of the

the State’s internal audit function is inadequately

recently created Enterprise Project Management

staff ed and is in need of more direct guidance

Offi ce, and determine if the policies, procedures

from the General Assembly. Furthermore, no

and

signifi cantly

universal State criteria or minimum standards

improved the likelihood that agency information

existed regarding internal audit eff ort, authority or

technology

responsibilities.

methodologies (IT)

employed

implementation

projects

would be successful. Th is assessment was performed under contract with the IT management fi rm of Berry, Dunn, McNeil, & Parker. Th e team concluded that the EPMO has improved the likelihood that state agency IT projects are completed on time, within budget, and with the required functionality as compared to the pre-EPMO environment (i.e., prior to January 2005). Th e team also identifi ed several

fi ndings

Based on the fi ndings

The NC General

and

recommendations

from this audit, the General

Assembly enacted the

Assembly initiated a further

North Carolina Internal

eff orts within the State and

Auditing Act based on a

Carolina Internal Audit

2006 Performance Audit on internal auditors in State agencies.

study of the internal audit later enacted the North Act. Legislation now requires agencies with an annual operating budget of $10 million in operating revenue,

agencies

with

more than 100 employees, or agencies that receive

and

and process more than $10

recommendations in six key

million in cash in a fi scal

topical areas. Th ese fi ndings and recommendations

year to have an internal audit eff ort. Th e act also

provide best practice insight and opportunities for

sets requirements for the types of audit work to

improved services for the still maturing offi ce.

be performed, professional auditing standards to be followed, minimum qualifi cations of internal audit staff , and a direct reporting relationship to the agency head.

2

Increasing Efficiency... Exposing Fraud


North Carolina Office of the State Auditor

Information Systems Audit Division

T

he Information Systems Audit Division’s responsibilities include analyzing State agency computer systems to ensure that they are properly secured, produce accurate financial reports and comply with State regulations. Staff in this division conduct their own audits of computer systems across the State. In addition, they provide IS audit assistance to financial audit teams to ensure that agency computerized accounting systems can be relied upon to produce accurate financial reports. Without those assurances, financial audit teams would be unable to issue unqualified opinions on the accuracy of agency financial statements. IS Audit Division auditors are in a unique position to think proactively about discovering suspicious data trends flowing from an agency’s information systems. OSA’s goal for 2006 was to integrate IS auditors into Financial and Investigative audit teams and to increase proactive auditing by providing computer forensic assistance and data mining analyses of agency financial data. To accomplish this goal, OSA developed a new tool called Strategic Reviews that are issued separately from IS audits. These reviews are used to uncover fraud, waste or abuse of taxpayer resources by following suspicious State agency data trends. While initiated and coordinated by the IS Audit Division, these reviews involve auditors from all divisions of the OSA. Strategic Reviews build a bridge from an abstract proactive policy to the actual practice of being proactive. By conducting Strategic Reviews through the use of data mining analysis, OSA is in the forefront of auditing trends. To improve innovation and effectiveness, OSA hosted an on site visit of a leading expert in data mining from Brigham Young University. Fueled by resources from AuditWatch

efficiency gains, OSA plans to increase the number of Strategic Reviews to bring more accountability to State government. The OSA’s emphasis for the future is to weave more IS Audit Division auditors into other auditing processes to instill a team-centered approach. Together, the team can more readily identify security risks or suspicious data trends. The General Assembly has approved OSA’s request to hire 6 additional auditors over two years to facilitate the team-centered approach to auditing. The following is a summary of IS Audit Division’s reports and reviews conducted during 2006-2007: Strategic Review: North Carolina Division of Motor Vehicles The purpose of this Strategic Review was to identify invalid social security numbers (SSNs) in the North Carolina Division of Motor Vehicles’ driver’s license database. This review found 14,122 invalid SSNs. In addition, the review found 12,796 SSNs that belonged to deceased persons on the Social Security Administration’s Death File. Strategic Review: North Carolina Department of the Treasurer OSA received a tip that 10 local government retiree beneficiaries had been overpaid. OSA initiated a strategic review to determine the magnitude of the overpayment. OSA selected a sample of Law Enforcement Officer Retirees within the Local Government Retirement System (LGRS), and a statistical sample of retirees from the entire LGRS population. Our review noted that the 10 retiree beneficiaries were overpaid by $1,372,219.32. From our samples of other retirees in the LGRS, we did not find any additional overpayments.

Increasing Efficiency... Exposing Fraud 25


Annual Report 2007 | Information Systems Audit Division

Strategic Review: NC Department of Justice The purpose of this Strategic Review was to identify invalid social security numbers in the payroll system at the North Carolina Department of Justice and to investigate unusual payments noted on the Department’s payroll. This review found that one retired employee continued to receive a special separation law allowance for 20 months after this employee’s death. Strategic Review: NC State University The purpose of this Strategic Review was to identify invalid social security numbers (SSNs) in the payroll system at North Carolina State University and to investigate unusual payments noted on the University payroll. This review found that 8 University employees had SSNs that matched the SSNs of deceased persons. Seven of these employees’ numbers were keypunch errors. The other employee was using a SSN that belonged to a deceased person. In addition, one University employee did not have an I-9 form on file. Strategic Review: UNC Hospitals The purpose of this Strategic Review was to identify invalid social security numbers (SSNs) in the payroll system at UNC Hospitals. This review found that UNC Hospitals failed to perform a quarterly verification of SSNs for their employees. In addition, this review found employees who were using SSNs assigned to other people (deceased and living). Strategic Review: UNC-Chapel Hill The purpose of this Strategic Review was to identify invalid social security numbers (SSNs) in the payroll system at UNC Chapel Hill. This review found one employee whose SSN matched the SSN of a deceased person on the Social Security Administration’s Death File. IS Audit: Beaufort Community College – General Controls Review OSA conducted an Information System audit of Beaufort Community College (BCC). The primary objective of this audit was to evaluate IS general 26

Increasing Efficiency... Exposing Fraud

controls at BCC. The scope included general security, access controls, systems software, physical security, and disaster recovery. OSA found weaknesses in access controls and recommended improvements to management in a private letter. The detailed results of the assessments are kept confidential as to not announce control weaknesses to would-be intruders. IS Audit: Fayetteville State University – General Controls Review OSA staff audited Fayetteville State University with the primary objective to evaluate general controls. The audit’s scope included general security, access controls, program maintenance, systems software, systems development, physical security, and disaster recovery. OSA found several weaknesses in access controls. IS Audit: UNC Pembroke – General Controls Review OSA conducted a general controls audit at UNC Pembroke (UNCP). The scope of the audit included general security, access controls, program maintenance, systems software, systems development, physical security, and disaster recovery. OSA found that UNC Pembroke’s security policies were in draft format, a security baseline had not been developed and UNCP had not performed a risk assessment. In addition, OSA found several weaknesses in access controls. Information Security Vulnerability Assessments – NC Department of Transportation The purpose of this assessment was to gauge NC DOT’s security posture at any given point in time, identify security risks that might make an entity vulnerable to attack, and determine appropriate procedures to mitigate the identified risks. The detailed results of the assessments are kept confidential as to not announce control weaknesses to would-be intruders. General results containing the numbers of high, medium and low weaknesses are released to the public through OSA’s website and electronic posting service.


North Carolina Office of the State Auditor

Financial Audit Division

S

taff in the Financial Audit Division audit

to begin school healthy and ready to succeed.

state agencies, universities, community

Currently, 79 Smart Start partnerships operate

colleges, clerks of superior court, and Smart

throughout the state.

Start nonprofit organizations. The State Auditor is required to perform these audits as part of

Financial Audit Results Summary

statutory responsibilities or to comply with federal

For the thirteenth consecutive year, the State

requirements. Some audits are performed at the

Auditor issued an unqualified opinion on the State’s

State Auditor’s discretion to ensure that all agencies

financial statements. This opinion, for the fiscal year

are properly reporting their financial conditions.

ended June 30, 2006, was contained in the CAFR

The Office of the State Auditor spent the greatest

prepared by the Office of the State Controller.

percentage of hours (49%) to perform annual

The State of North Carolina also received the

financial statement audits/reviews of the State’s

Certificate of Achievement for Excellence in

sixteen universities and fifty-eight community

Financial Reporting from the Government Finance

colleges. One of its largest financial audits is the

Officers Association for the thirteenth consecutive

state’s Comprehensive Annual Financial Report

year. This award is given to government units whose

(CAFR), which accounted for 13% of staff hours.

CAFR achieves the highest standards in government

The CAFR contains the annual financial statements

accounting and financial reporting.

for the state of North Carolina as a whole.

In conjunction with the audit of the State’s finan-

Another major financial audit project, accounting

cial statements, the State Auditor issues a report

for 29% of staff time, is the state’s Single Audit

on internal control over financial reporting and on

Report. The Single Audit Report contains the

compliance and other matters based on an audit of

results of the audit of the state’s financial statements

financial statements in the Single Audit Report. Six

and the audit of the state’s compliance with laws and

findings of non-compliance and weaknesses in in-

regulations pertaining to federal grant programs.

ternal control related to the financial statement au-

The office periodically audits selected fiscal controls

dit were reported. These findings disclosed internal

of clerks of superior court and general government

control deficiencies related to separation of duties,

agencies.

bank reconciliations, year-end financial reporting,

The audit staff conducts financial and compliance

Medicaid cost settlements, Medicaid claims pay-

audits of the organizations participating in the

ments, and processing of student financial aid ap-

Smart Start program, including the statewide

plications.

coordinating

agency

(the

North

Carolina

With regard to compliance with federal program

Partnership for Children, Inc.) and the individual

requirements, the State Auditor issued a qualified

local partnerships. Smart Start is an early childhood

opinion on certain federal programs due to mate-

development program designed to prepare children

rial noncompliance with certain requirements. In

Increasing Efficiency... Exposing Fraud 27


Annual Report 2007 | Financial Audit Division

total, auditors identified questioned costs resulting from 89 identified audit findings.

Smart Start findings issued during 2005-2006 focused on internal control weaknesses, contract

In addition to reporting on the CAFR and

management and monitoring, and competitive

Single Audit at the statewide level, OSA publishes

bidding. Audit reports issued during the year

in separately issued reports the audit findings and

ended June 30, 2007 are listed in appendix A. This

recommendations from CAFR and Single Audit

included a total of 9 audit reports for the fiscal year

work for each individual government agency.

ended June 30, 2005, issued subsequent to June 30,

Reported

findings

from

university

and

2006.

community college audits for fiscal year 2006

For the fiscal year ended June 30, 2006, the Office

primarily related to four areas: access rights,

of the State Auditor performed 41 audits of Smart

financial statement preparation, management

Start partnerships. CPA firms performed 25 of these

oversight and internal control weaknesses. These

audits, with OSA staff performing the remaining 16

internal control weaknesses were in areas such as

audits. All but one report were issued by June 30,

financial aid awards, cash receipts and deposits,

2007.

cash disbursements and separation of duties.

OSA’s goal is to complete and release all 45 Smart

In the Clerk of Superior Court audits performed

Start audits for the 2006-07 fiscal year by April

in fiscal 2007, OSA noted internal control

30, 2008. It is anticipated the more timely release

weaknesses. These internal control weaknesses were

of the audit reports will allow the North Carolina

in areas such as cash receipts and disbursements,

Partnership for Children and the local partnerships

segregation of duties and timely deposits. To better

to more quickly address identified deficiencies and

direct our limited staff resources, we have set a

to make the necessary improvements to ensure

target of auditing each Clerk of Superior Court

accountability of state funds.

every three years.

Office of the state auditor main office and branch locations Winston-Salem

Greensboro Raleigh

Morganton

Edenton

Asheville Greenville

Charlotte Fayetteville Wilmington

28

Increasing Efficiency... Exposing Fraud


North Carolina Office of the State Auditor

General Administration Personnel

a followup to the 2006 AuditWatch curriculum.

To be a proactive State agency, OSA must be

Efficiency levels were analyzed and AuditWatch

a responsible manager of its personnel. After

provided OSA with feedback in areas that needed

selecting the best qualified applicants, OSA must

improvement. AuditWatch also provided OSA

then provide quality training to employees and a

with training in using analytics as another tool for

quality control review of employees work product.

more effective audits. Skills needed by OSA staff include the ability

Recruiting

to assess the risk of fraud in an audit and how to

OSA’s goal is to build relationships with the right

respond to those risks. In May 2007, OSA provided

applicants. This will reduce turnover and eliminate

training to its entire staff on fraud detection and

the waste that frequent turnover creates.

interviewing skills designed to aid in the detection

OSA continues its efforts to hire talented, skilled

of fraud.

staff by recruiting on university campuses across the

Technical skills are not all that is needed for OSA

state. We continue to work with campus faculty to

staff to accomplish the goals and objectives of the

participate in faculty/student meetings, accounting

office. OSA managers and supervisors need skills

classes and other events. Significant effort is made

to manage their teams and maximize their team’s

to identify applicants who want to be challenged

productivity. Spectrum Development provided

and provide a service to the public.

training to OSA mangers and supervisors to aid

In addition, OSA has made great strides in its internship program. Internships provide

them in training, retaining and managing their audit staff.

individuals an opportunity to perform meaningful, career-related work with our office prior to

Quality Controls

their final year in school. If that is successful, the

OSA’s work product is governed by strict adher-

applicants will be invited to begin their career with

ence to professional standards promulgated by gov-

OSA. This program has enabled OSA to hire very

ernment agencies and professional organizations

talented individuals who are looking for a long-

including the Governmental Accounting Standards

term relationship with our office.

Board, the Financial Accounting Standards Board, the Federal Office of Management and Budget, the

Training

Government Accountability Office, the American

OSA continues to work towards the goal of more

Institute of Certified Public Accountants, and vari-

effective and efficient audits. These efficiency gains

ous state and federal laws and regulations. These

allow OSA to utilize its resources to do more with

standards require that auditors remain indepen-

the current auditors and staff positions. Training

dent, be technically proficient and receive continu-

for OSA audit staff in 2007 included eLearning and

ing professional education, obtain sufficient appro-

Increasing Efficiency... Exposing Fraud 29


Annual Report 2007 | General Administration

priate evidence to support conclusions, and issue reports that clearly communicate audit results.

Publication of the audits, reports and reviews is an essential part of OSA’s proactive posture.

OSA has a control system to ensure the quality

A report exposing an instance of fraud, waste or

of audit work. The system includes an experienced

abuse of taxpayers’ resources, if publicized by the

senior auditor in a Quality Control position,

statewide news media, becomes an effective tool

supervisory review of all work product, and

for the deterrence of future fraud, waste or abuse

management review of audit reports and critical

of taxpayers’ resources. OSA, through a positive

supporting workpapers to ensure that OSA delivers

relationship with the news media, can proactively

audits and reports with efficiency, expertise and

deter others from committing similar acts of fraud,

consistency. OSA monitors the effectiveness of its

waste and abuse of taxpayer money.

quality control system by having staff who did not participate in an audit periodically review the work.

Budgeting & Purchasing

To uphold the standards of the supervisory review,

OSA is the taxpayers’ watchdog against wasteful

OSA’s goal is that all newly hired Supervisor level

spending of State resources. To be an effective

employees and above in the financial audit division

messenger, OSA must ensure that its resources are

have a valid CPA license, or the merit-based

spent as wisely as possible.

equivalent in work experience.

OSA’s appropriated budget is approximately

Another layer of OSA review exists. The Agency

$16.6 million and the agency bills approximately

receives a peer review every three years under the

$3.6 million for federal audit work. In addition

direction of the National State Auditors Association.

to the central office in Raleigh, OSA has 9 branch

During the peer review, members of audit staffs

offices throughout the State which our budget office

from other states review the office’s quality control

is responsible for managing financially.

system and workpapers for compliance with

Budgeting and purchasing are governed by strict

auditing standards. The most recent peer review

rules and regulations. An independent CPA firm

was performed in July 2006 and resulted in a clean

annually conducts a financial audit of the office

opinion on the quality control system.

and routinely issues a clean opinion of its financial statements.

Processing & Publication With over 190 OSA employees, the publishing of audits, reports and reviews is a complicated

Management Information Systems (MIS) The MIS Division of the Office of the State

and time consuming process. Magnified by the

Auditor is charged with four primary objectives:

sensitive nature of the audit subject matter, OSA’s

• Provide

Information

Technology

services

administrative staff must be detail minded and

including Operational Support, Application

highly organized. The goals of accuracy and

Development, Infrastructure Management and

timeliness are the staff ’s top priorities. However

Information Security to Agency Personnel

without effective publication, the audit, report or review would go unnoticed.

30

Increasing Efficiency... Exposing Fraud

• Oversight of Senate Bill 991 compliance


North Carolina Office of the State Auditor

• Enterprise Information Technology strategic planning for the Agency • Information Technology tactical implementation in order to increase productivity, efficiency and security of critical business functions. In addition to providing for the daily operational support for Agency personnel, MIS completed a number of major projects to enhance the efficiency, quality of service, and security of the Agency. MIS worked closely with the Office of the State Controller to ensure the Agency met all technical requirements for the Beacon Project (statewide payroll application slated for implementation in 2008). MIS also worked with ITS and the Enterprise Data Warehouse service (as the first customer of the new Statewide Enterprise level service) to complete the Management Services and Nongovernmental Compliance Division’s Grants Compliance online application, which will greatly enhance the operational capabilities of that Division. MIS has completed an internal upgrade of the Agency Intranet, completing a change over from a dynamic site to an industry standard portal technology designed to encourage collaboration among personnel and to enable a more efficient workflow during audits. In conjunction with the portal upgrade, MIS piloted an e-Learning initiative to make training more efficient and cost effective. In addition, MIS has upgraded the Agencies network infrastructure to meet ESAP requirements and has tested and implemented a new network Intrusion Prevention System (IPS) to ensure the security of sensitive Agency information. The

Agency servers have been upgraded to latest versions and the capacity has doubled. Finally, a single comprehensive Business Continuity Plan (BCP) / Continuation of Operations Plan (COOP) was developed and tested to meet the State requirements of both documents and to address Pandemic Influenza planning requirements. Also, MIS is working closely with ITS to securely merge the OSA network infrastructure into the State of North Carolina’s architecture. In 2008, the MIS Division will continue to provide quality operational support to Agency personnel. In addition, the MIS Division will aggressively work to provide technologies to Agency personnel that will improve the efficiency and quality of Agency critical business functions. The statewide payroll system, Beacon, will be implemented in March 2008. In the first quarter of 2008 the Management Services

and

Nongovernmental

Compliance

Division application will be made available to all customers and all Agency personnel will complete comprehensive training on the new internal portal. The e-Learning system will be expanded by incorporating an advanced Learning Management System solution. This will lead to expanded education and training opportunities including the ability to make vital information available via web casting. In addition, an Agency wide e-Recruiting solution will be designed and implemented to assist in the recruitment and hiring of quality candidates for open Agency positions. Finally, infrastructure and security needs will continue to be assessed and improved where feasible.

Increasing Efficiency... Exposing Fraud 31


Annual Report 2007 | Appendix A

Appendix A

The following reports are listed in reverse chronological order by audit type and were issued from July 1, 2006 through the date of this annual report: Report Number Report Title

Release Date

FCA-2007-2109

Brunswick County Clerk of Superior Court - Fiscal Control Audit

9/26/2007

FCA-2007-2178

Rockingham County Clerk of Superior Court - Fiscal Control Audit

9/25/2007

FCA-2007-2157

Martin County Clerk of Superior Court - Fiscal Control Audit

9/12/2007

FCA-2007-2127

Dare County Clerk of Superior Court - Fiscal Control Audit

7/10/2007

FCA-2007-2137

Graham County Clerk of Superior Court - Fiscal Control Audit

6/29/2007

FCA-2007-2174

Polk County Clerk of Superior Court - Fiscal Control Audit

6/29/2007

FCA-2007-6094

The North Carolina School of Science and Mathematics - Fiscal Control Audit

6/29/2007

FCA-2007-2196

Wilkes County Clerk of Superior Court - Fiscal Control Audit

6/28/2007

FCA-2007-2160

Mitchell County Clerk of Superior Court - Fiscal Control Audit

6/28/2007

FCA-2007-2121

Clay County Clerk of Superior Court - Fiscal Control Audit

6/25/2007

FCA-2007-2143

Haywood County Clerk of Superior Court - Fiscal Control Audit

6/21/2007

FCA-2007-2179

Rowan County Clerk of Superior Court - Fiscal Control Audit

6/14/2007

FCA-2007-2175

Randolph County Clerk of Superior Court - Fiscal Control Audit

6/11/2007

FCA-2007-2104

Ashe County Clerk of Superior Court - Fiscal Control Audit

6/11/2007

FCA-2007-2135

Gaston County Clerk of Superior Court - Fiscal Control Audit

5/30/2007

FCA-2007-2134

Franklin County Clerk of Superior Court - Fiscal Control Audit

5/23/2007

FCA-2007-2172

Person County Clerk of Superior Court - Fiscal Control Audit

5/17/2007

FCA-2007-2163

Nash County Clerk of Superior Court - Fiscal Control Audit

4/27/2007

FCA-2007-2131

Durham County Clerk of Superior Court - Fiscal Control Audit

4/27/2007

FCA-2006-2158

McDowell County Clerk of Superior Court - Fiscal Control Audit

4/16/2007

FCA-2007-2167

Orange County Clerk of Superior Court - Fiscal Control Audit

4/12/2007

FCA-2006-3400

Treasurer, Department of the State - Fiscal Control Audit

1/30/2007

FCA-2006-6800

Community Colleges, Department of - Fiscal Control Audit

1/26/2007

FCA-2006-4160

Controller, Office of the State - Fiscal Control Audit

9/14/2006

FIN-2006-6086

Elizabeth City State University - Financial Statement Audit

9/14/2007

FIN-2006-6070

North Carolina Agricultural and Technical State University - Financial Statement Audit 8/23/2007

FIN-2006-6090

North Carolina Central University - Financial Statement Audit

FIN-2006-6807

Brunswick Community College - Financial Statement Audit

FIN-2006-6878

Sandhills Community College - Financial Statement Audit

FIN-2006-6822

College of the Albemarle - Financial Statement Audit

7/27/2007

FIN-2006-6876

Sampson Community College - Financial Statement Audit

7/12/2007

FIN-2006-6808

Caldwell Community College and Technical Institute - Financial Statement Audit

6/29/2007

FIN-2006-6818

Central Piedmont Community College - Financial Statement Audit

6/29/2007

FIN-2006-6843

Blue Ridge Community College - Financial Statement Audit

6/29/2007

FIN-2006-6834

Forsyth Technical Community College - Financial Statement Audit

6/27/2007

FIN-2006-4205

North Carolina Turnpike Authority - Financial Statement Audit

6/27/2007

32

Increasing Efficiency... Exposing Fraud

8/17/2007 8/7/2007 8/7/2007


North Carolina Office of the State Auditor

FIN-2006-6844

Isothermal Community College - Financial Statement Audit

6/26/2007

FIN-2006-6862

Pitt Community College - Financial Statement Audit

6/26/2007

FIN-2006-6854

Montgomery Community College - Financial Statement Audit

6/25/2007

FIN-2006-8560

Wireless Emergency Telephone System Fund - Financial Statement Audit

6/25/2007

FIN-2006-6880

Southeastern Community College - Financial Statement Audit

6/22/2007

FIN-2006-6886

Alamance Community College - Financial Statement Audit

6/22/2007

FIN-2006-6806

Bladen Community College - Financial Statement Audit

6/22/2007

FIN-2006-6870

Robeson Community College - Financial Statement Audit

6/11/2007

FIN-2006-6850

Martin Community College - Financial Statement Audit

6/6/2007

FIN-2006-6892

Wayne Community College - Financial Statement Audit

5/31/2007

FIN-2006-6824

Craven Community College - Financial Statement Audit

5/30/2007

FIN-2006-6828

Durham Technical Community College - Financial Statement Audit

5/29/2007

FIN-2006-8550

NC Agricultural Financial Authority - Financial Statement Audit

5/29/2007

FIN-2006-6888

Tri-County Community College - Financial Statement Audit

5/23/2007

FIN-2007-8303

USS North Carolina Battleship Commission - Financial Statement Audit

5/23/2007

FIN-2006-6853

Mitchell Community College - Financial Statement Audit

5/22/2007

FIN-2006-6872

Rockingham Community College - Financial Statement Audit

5/17/2007

FIN-2006-4407

Town of Butner - Financial Statement Audit

5/17/2007

FIN-2006-4620

North Carolina State Ports Authority - Financial Statement Audit

5/17/2007

FIN-2006-6848

Lenoir Community College

FIN-2006-6856 FIN-2006-6864

5/8/2007

Nash Community College

4/23/2007

Randolph Community College

4/23/2007

FIN-2006-6826

Davidson County Community College

4/16/2007

FIN-2006-6894

Western Piedmont Community College

4/16/2007

FIN-2006-8730

Statewide Single Audit

4/13/2007

FIN-2006-8530

North Carolina Global Transpark Authority

4/12/2007

FIN-2006-6055

UNC - Asheville

4/12/2007

FIN-2006-4900

Crime Control and Public Safety, Department of

4/5/2007

FIN-2006-4600

Commerce, Department of

4/5/2007

FIN-2006-3510a

Treasurer, Department of the State

4/5/2007

FIN-2006-4410

Health and Human Services - CAFR and Single Audit

FIN-2006-6889

Vance-Granville Community College

4/4/2007

FIN-2006-8025

NC State Board of Elections

3/26/2007

FIN-2006-8410

Auditor, Office of the State

3/26/2007

FIN-2006-6060

UNC - Wilmington

3/22/2007

FIN-2006-6020

UNC - Chapel Hill

3/19/2007

FIN-2006-6092

NC School of the Arts

3/17/2007

FIN-2006-4350

Wildlife Resources Commission

3/16/2007

FIN-2006-4650

Employment Security Commission

3/16/2007

FIN-2006-6868

Roanoke-Chowan Community College

3/16/2007

FIN-2006-3700

Agriculture and Consumer Services, Department of

3/15/2007

FIN-2006-6040

UNC - Greensboro

3/15/2007

4/4/2007

Increasing Efficiency... Exposing Fraud 33


Annual Report 2007 | Appendix A

FIN-2006-6065

East Carolina University

FIN-2006-4300

Environment and Natural Resources, Department of

FIN-2006-4660

Information Technology Services

3/9/2007

FIN-2006-6800

Community Colleges, Department of

3/9/2007

FIN-2005-6090

North Carolina Central University

3/9/2007

FIN-2006-4200

Transportation, Department of

3/7/2007

FIN-2006-6858

Coastal Carolina Community College

3/2/2007

FIN-2006-6816

Central Carolina Community College

2/26/2007

FIN-2006-6050

UNC - Charlotte

2/14/2007

FIN-2006-6095

UNC Hospitals - NC Memorial Hospital

FIN-2006-6082

UNC - Pembroke

1/30/2007

FIN-2006-2103

Anson County Clerk of Superior Court

1/29/2007

FIN-2006-4160

Controller, Office of the State

1/24/2007

FIN-2006-6080

Appalachian State University

1/16/2007

FIN-2006-3400

Treasurer, Department of the State

1/12/2007

FIN-2006-6084

Winston-Salem State University

1/10/2007

FIN-2006-6030

North Carolina State University

1/4/2007

FIN-2006-4700

Revenue, Department of

12/27/2006

FIN-2006-6075

Western Carolina University

12/20/2006

FIN-2006-4670

NC Education Lottery

12/19/2006

FIN-2005-8550

NC Agricultural Finance Authority

12/7/2006

FIN-2006-4800

Cultural Resources, Department of

11/22/2006

FIN-2005-6806

Bladen Community College

11/17/2006

FIN-2006-2197

Wilson County Clerk of Superior Court

11/16/2006

FIN-2006-2145

Hertford County Clerk of Superior Court

11/16/2006

FIN-2006-3000

Governor, Office of the

10/31/2006

FIN-2006-8303

USS NC Battleship Commission

10/30/2006

FIN-2006-2139

Greene County Clerk of Superior Court

10/23/2006

FIN-2006-2188

Tyrrell County Clerk of Superior Court

10/13/2006

FIN-2007-2115

Carteret County Clerk of Superior Court

10/13/2006

FIN-2006-2133

Forsyth County Clerk of Superior Court

10/10/2006

FIN-2006-2150

Johnston County Clerk of Superior Court

10/2/2006

FIN-2006-2185

Surry County Clerk of Superior Court

10/2/2006

FIN-2006-2166

Onslow County Clerk of Superior Court

9/28/2006

FIN-2005-6850

Martin Community College

9/27/2006

FIN-2006-2112

Cabarrus County Clerk of Superior Court

9/13/2006

FIN-2006-2108

Bladen County Clerk of Superior Court

9/11/2006

FIN-2006-2170

Pender County Clerk of Superior Court

9/11/2006

FIN-2006-2173

Pitt County Clerk of Superior Court

9/11/2006

FIN-2006-2177

Robeson County Clerk of Superior Court

8/29/2006

FIN-2006-2184

Stokes County Clerk of Superior Court

8/29/2006

34

Increasing Efficiency... Exposing Fraud

3/15/2007 3/13/2007

2/2/2007


North Carolina Office of the State Auditor

FIN-2006-2107

Bertie County Clerk of Superior Court

8/29/2006

FIN-2006-2113

Caldwell County Clerk of Superior Court

8/29/2006

FIN-2006-2136

Gates County Clerk of Superior Court

8/17/2006

FIN-2006-2152

Lee County Clerk of Superior Court

FIN-2006-2128

Davidson County Clerk of Superior Court

7/24/2006

FIN-2006-3510

Treasurer, Department of the State

7/24/2006

FIN-2006-2102

Alleghany County Clerk of Superior Court

7/24/2006

FIN-2006-2105

Avery County Clerk of Superior Court

7/20/2006

FIN-2006-2194

Watauga County Clerk of Superior Court

7/20/2006

FIN-2006-2180

Rutherford County Clerk of Superior Court

7/20/2006

FIN-2006-4500

Correction, Department of

7/20/2006

FIN-2006-2168

Pamlico County Clerk of Superior Court

7/14/2006

GRA-2008-0053

Review of The Salvation Army Charlotte State Grants

9/17/2007

GRA-2008-0039

Review of Teaching Academics for Life Learning Outreach Ministries State Grant

9/13/2007

GRA-2008-0042

Review of North Hills Child Care Center State Grant

9/13/2007

GRA-2007-0028

Review of Carolyns Little Castle State Grant

9/13/2007

GRA-2008-0049

Review of Life After Life Inc State Grant

9/11/2007

GRA-2008-0048

Review of Appletree Day Care Inc State Grant

8/30/2007

GRA-2008-0046

Review of Infants Palace Day Care Inc State Grant

8/23/2007

GRA-2007-0031

Review of The Kids Place Day Care State Grants

8/22/2007

GRA-2008-0055

Review of Tar Heel Volunteer Rescue Squad State Grants

8/17/2007

GRA-2007-0014

Review of North Carolina Fair Housing Center State Grant

7/20/2007

GRA-2007-0033

Review of Wayne Memorial Hospital State Grants

7/19/2007

GRA-2007-0032

Review of United Community Ministries State Grants

7/16/2007

GRA-2007-0034

Review of Wayne Uplift Resource Association Inc

6/22/2007

GRA-2007-0035

Review of Southeastern Family Violence Center State Grants

6/22/2007

GRA-2007-0036

Review of New Hanover Community Health State Grant

6/22/2007

GRA-2007-0029

Review of Little Angels Child Care Center State Grant

6/14/2007

GRA-2007-0030

Review of Save The Family Child Care State Grant

6/14/2007

GRA-2007-0025

Review of Prosperous Children Child Care

6/14/2007

GRA-2007-0027

Review of Anson County Domestic Violence Coalition Inc

GRA-2007-0015

Review of Word of God Fellowship

4/9/2007

GRA-2007-0026

Review of Little Red Schoolhouse

3/28/2007

GRA-2006-0010

Review of Windows on the World

3/13/2007

GRA-2007-0021

Review of Blue Ridge Electric Membership Corp

3/6/2007

GRA-2007-0023

Review of Haywood Electric Membership Corp

3/6/2007

GRA-2007-0022

Review of Brunswick Electric Membership Corp

3/1/2007

GRA-2007-0018

Review of Parkwood Volunteer Fire Department

3/1/2007

GRA-2007-0020

Review of Tideland Electric Membership Corp

GRA-2006-0011

Review of FirstHealth of the Carolinas, Inc

GRA-2006-0013

Review of Sheltered Aid to Families in Emergencies (SAFE)

8/7/2006

6/7/2007

3/1/2007 2/14/2007 2/5/2007

Increasing Efficiency... Exposing Fraud 35


Annual Report 2007 | Appendix A

GRA-2006-0007

Review of Sit In Movement, Inc

GRA-2006-0008

Review of Bertie-Martin-Washington Community Development

GRA-2006-0009

Review of Sandhills Mediation Center

11/8/2006

GRA-2006-0005

Review of Hope Pregnancy Care Center

10/26/2006

GRA-2006-0006

Review of Western Youth Network

10/26/2006

GRA-2006-0002

Review of Marine Corp Museum of the Carolinas

10/23/2006

GRA-2006-0003

Review of Club Fifteen

10/23/2006

GRA-2006-0004

Review of Caswell County Parish

10/23/2006

INV-2007-0323

North Carolina Department of Transportation

INV-2007-0322

East Carolina University

INV-2007-0321

North Carolina Department of Administration

9/4/2007

INV-2007-0320

North Carolina Department of Transportation

8/28/2007

INV-2007-0319

University of North Carolina at Greensboro

7/11/2007

INV-2007-0318

University of North Caroliina Hospitals/

University of North Carolina School of Pharmacy

6/28/2007

INV-2007-0317

North Carolina Department of Environment and Natural Resources

5/31/2007

11/8/2006 11/8/2006

9/12/2007 9/7/2007

INV-2007-0316

NC Department of Environment and Natural Resources/Division of Waste Management 5/10/2007

INV-2007-0315

Wake Technical Community College

INV-2007-0314

North Carolina Department of Cultural Resources

4/16/2007

INV-2007-0313

North Carolina School of Science and Mathematics

3/7/2007

INV-2007-0312

Elizabeth City/Pasquotank Airport Authority

INV-2006-0311

North Carolina Board of Cosmetic Arts Examiners

12/18/2006

INV-2006-0310

NC Dept of Environment and Natural Resources

11/14/2006

INV-2006-0309

North Carolina State University

INV-2006-0308

North Carolina Department of Transportation

INV-2006-0307

NC Department of Administration Division of Purchase and Contract

INV-2006-0306

North Carolina State University

8/28/2006

INV-2006-0305

North Carolina Public Staff

7/19/2006

INV-2006-0303

North Carolina Agricultural & Technical State University

INV-2006-0304

North Carolina Department of Health and Human Services

ISA-2007-6816

Central Carolina Community College

ISA-2007-6883

Stanly Community College

ISA-2007-4300

North Carolina Department of Environment and Natural Resources

9/17/2007

ISA-2007-6814

Catawba Valley Community College

9/14/2007

ISA-2007-6864

Randolph Community College

9/14/2007

ISA-2007-6870

Robeson Community College

9/14/2007

ISA-2007-6838

Guilford Technical Community College

9/7/2007

ISA-2007-4410

North Carolina Department of Health and Human Services/

4/23/2007

1/9/2007

9/20/2006 9/13/2006 9/5/2006

7/6/2006 7/6/2006 9/18/2007 9/18/2007

County Administration Reimbursement System

9/7/2007

ISA-2007-4660

Information Technology Services

9/4/2007

ISA-2007-6820

Cleveland Community College

8/22/2007

36

Increasing Efficiency... Exposing Fraud


North Carolina Office of the State Auditor

ISA-2007-6836

Gaston College

8/22/2007

ISA-2007-6861

Piedmont Community College

7/20/2007

ISA-2007-6840

Halifax Community College

7/20/2007

ISA-2007-6874

Rowan-Cabarrus Community College

7/18/2007

ISA-2007-6898

Wilson Technical Community College

7/16/2007

ISA-2007-6843

Blue Ridge Community College

7/13/2007

ISA-2007-6830

Edgecombe Community College

7/3/2007

ISA-2007-4500

North Carolina Department of Corrections

ISA-2007-6804

Beaufort Community College

ISA-2007-6088

Fayetteville State University

ISA-2007-0740

North Carolina Department of Transportation

ISA-2007-6082

UNC - Pembroke

4/23/2007

ISA-2007-4700

Revenue, Department of

11/17/2006

ISA-2007-4160

Controller, Office of the State

11/9/2006

ISA-2007-1000

North Carolina General Assembly

11/2/2006

ISA-2007-3300

Auditor, Office of the State

11/1/2006

ISA-2006-6086

Elizabeth City State University

NGV-2006-9110

Mecklenburg Partnership for Children - Financial Statement Audit

7/30/2007

NGV-2006-9101

North Carolina Partnership for Children - Financial Statement Audit

7/16/2007

NGV-2006-9127

Buncombe County Partnership for Children Inc - Financial Statement Audit 6/29/2007

7/3/2007 6/28/2007 6/1/2007 5/22/2007

7/21/2006

NGV-2006-9128

New Hanover County Partnership for Children Inc - Financial Statement Audit

6/28/2007

NGV-2006-9115

Avery County Partnership for Children Inc - Financial Statement Audit

6/26/2007

NGV-2006-9156

Caswell County Partnership for Children - Financial Statement Audit

6/25/2007

NGV-2006-9173

Pender County Partnership for Children - Financial Statement Audit

6/25/2007

NGV-2006-9133

Stokes Partnership for Children - Financial Statement Audit

6/21/2007

NGV-2006-9126

Alleghany Partnership for Children Inc - Financial Statement Audit

6/21/2007

NGV-2006-9135

Wake County Smart Start Inc - Financial Statement Audit

6/14/2007

NGV-2006-9121

Smart Start of Forsyth County - Financial Statement Audit

6/11/2007

NGV-2006-9140

Bertie County Partnership for Children Inc - Financial Statement Audit

NGV-2006-9169

Martin-Pitt Partnership for Children Inc - Financial Statement Audit

6/4/2007

NGV-2006-9137

Wilson County Partnership for Children - Financial Statement Audit

5/30/2007

NGV-2006-9153

Bladen County Partnership for Children Inc - Financial Statement Audit

5/23/2007

NGV-2006-9105

Partnership for Children of Cumberland County Inc - Financial Statement Audit

5/23/2007

NGV-2006-9146

Lee County Partnership

5/8/2007

NGV-2006-9179

Scotland County Partnership

2/22/2007

NGV-2006-9134

Surry County Partnership

2/21/2007

NGV-2006-9118

Duplin County Partnership

2/21/2007

NGV-2006-9113

Stanly County Partnership

2/19/2007

NGV-2006-9183

Watauga County Partnership

2/19/2007

NGV-2006-9172

Onslow County Partnership

2/19/2007

NGV-2006-9177

Rockingham County Partnership

2/14/2007

6/4/2007

Increasing Efficiency... Exposing Fraud 37


Annual Report 2007 | Appendix A

NGV-2006-9125

Wilkes County Partnership

2/13/2007

NGV-2006-9147

McDowell County Partnership

2/12/2007

NGV-2006-9178

Sampson County Partnership

1/30/2007

NGV-2006-9107

Halifax-Warren Partnership

1/25/2007

NGV-2006-9112

Region A Partnership

1/25/2007

NGV-2006-9154

Cabarrus County Partnership

1/16/2007

NGV-2006-9145

Iredell County Partnership

12/21/2006

NGV-2006-9120

Down East Partnership (Nash, Edgecombe)

12/21/2006

NGV-2006-9116

Catawba County Partnership for Children

12/19/2006

NGV-2006-9106

Davidson County Partnership for Children Inc

12/19/2006

NGV-2006-9131

Robeson County Partnership

12/19/2006

NGV-2006-9149

Rowan County Partnership

12/19/2006

NGV-2006-9141

Columbus County Partnership

12/1/2006

NGV-2006-9123

Albemarle Partnership (Camden, Currituck, Pasquotank)

NGV-2006-9114

Ashe County Partnership

NGV-2006-9142

Children and Youth Partnership for Dare County

NGV-2006-9148

Moore County Partners for Children and Families

11/29/2006

NGV-2006-9158

Craven County Partnership

11/29/2006

NGV-2005-9157

Chowan-Gates-Perquimans Partnership

7/24/2006

NGV-2005-9167

Lincoln-Gaston County Partnership

7/20/2006

NGV-2005-9185

Yadkin County Partnership

7/20/2006

NGV-2005-9155

Carteret County Partnership for Children

7/17/2006

NGV-2005-9138

Anson County Partnership

7/6/2006

NGV-2005-9101

North Carolina Partnership For Children

7/6/2006

NGV-2005-9130

Randolph County Partnership

7/5/2006

NGV-2005-9150

Alamance County Partnership

7/5/2006

NGV-2005-9104

Cleveland County Partnership

7/3/2006

PER-2007-7226

Enterprise Project Management Office

7/26/2007

PER-2007-7227

State Childrens Health Insurance Program Claims Processing

7/24/2007

PER-2007-7225

New Vistas - Mountain Laurel Inc Mental Health Service Provider

5/15/2007

PER-2007-7219

Office Supplies Term Contract Administered by the Purchase and Contract Division

PER-2007-7220

Economic Development Studies

5/2/2007

PER-2007-7223

Office of Indigent Defense Services

2/28/2007

PER-2006-7216

Internal Auditing in North Carolina Agencies and Institutions

9/28/2006

SAR-2007-3420

North Carolina Department of the Treasurer

4/24/2007

SAR-2007-6020

UNC - Chapel Hill

4/24/2007

SAR-2007-0673

North Carolina Division of Motor Vehicles

3/20/2007

SAR-2007-6095

UNC Hospitals - NC Memorial Hospital

1/25/2007

SAR-2007-6030

North Carolina State University

1/3/2007

SAR-2007-3600

Justice, Department of

1/3/2007

SAR-2006-6090

North Carolina Central University

10/2/2006

38

Increasing Efficiency... Exposing Fraud

12/1/2006 11/30/2006 11/30/2006

5/9/2007


North Carolina Office of the State Auditor

Appendix B

Statutory and Constitutional Authority

The OSA independently evaluates the state’s fiscal

■ conducted programs and expended funds in an

accountability and public program performance

efficient and economical manner as well as in

for North Carolina’s citizens and others. The office

compliance with applicable laws and regulations

strives to assure that state government is executing

■ determined that programs effectively served the

its management responsibilities in compliance with

legislative intent.

applicable laws, rules, regulations, and policies. The office also evaluates whether sufficient management controls and policies exist to enable state agencies to most efficiently and effectively use public resources. STATUTORY AUTHORITY North Carolina General Statutes §§147-64.164.14 set forth the duties and responsibilities of the State Auditor, and requires the State Auditor be independent of the organizations being audited. These statutes mandate that all state agencies and entities partially or entirely supported by public funds be subject to audit by the state auditor. These audits independently evaluate public program performance for the General Assembly, Governor, executive departments and agencies, governing bodies, and the general public. Specifically, the State Auditor independently examines and makes findings of fact on whether State agencies: ■ established adequate operating and administrative procedures, reporting systems, and elements of management control. ■ provided financial and other reports that disclose

OSA is also statutorily mandated to conduct certain audits, including the largest audit, the State’s Comprehensive Annual Financial Report (CAFR). These audits are required to be conducted in accordance with appropriate professional standards. The Investigative staff is statutorily mandated to investigate allegations of improper activities, which may occur as a result of misfeasance, malfeasance or nonfeasance by governmental employees or those receiving state money. Investigators are required to protect complainants who provide information to OSA related to these charges. This section operates under the supervision of the Chief Deputy State Auditor. CONSTITUTIONAL AGENCY The State Auditor is a constitutional officer listed in the North Carolina Constitution under Article III, § 7. The State Auditor is elected statewide every four years and is a member of the Council of State which also includes the Governor, Lieutenant Governor, Secretary of State, State Treasurer, Superintendent of

Public

Instruction,

Attorney

General,

fairly, consistently, fully, and promptly all

Commissioner of Agriculture, Commissioner of

information necessary to demonstrate program

Labor, and Commissioner of Insurance.

performance. ■ collected, deposited, and properly accounted for all revenues and receipts arising from activities.

Increasing Efficiency... Exposing Fraud 39


Annual Report 2007 | Contact Information

Contact Information Copies of reports issued by the Office of the State Auditor may be requested through the email link on the web site at www.ncauditor.net or by calling the main phone number. Other inquiries, comments, and suggestions may be made by contacting the main office or one of the staff members listed below.

SENIOR MANAGEMENT TEAM Leslie W. Merritt, Jr., CPA, CFP State Auditor Leslie_Merritt@ncauditor.net (919) 807-7500 Kris Bailey, J.D. Chief Deputy Kris_Bailey@ncauditor.net (919) 807-7665 Jeff Henderson, CPA, CISA, Deputy State Auditor Jeff_Henderson@ncauditor.net (919) 807-7513 Charles K. Duckett Personnel Officer Charles_Duckett@ncauditor.net (919) 807-7617 James L. Forte Director of Internal Operations and Legislative Affairs James_Forte@ncauditor.net (919) 807-7642 Cindy Gilliam Controller Cindy_Gilliam@ncauditor.net (919) 807-7553 Timothy J. Hoegemeyer, J.D., MPA General Counsel Tim_Hoegemeyer@ncauditor.net (919) 807-7564

40

N.C. Office of the State Auditor 2 South Salisbury Street 20601 Mail Service Center Raleigh, NC 27699-0601 Main Phone Number: (919) 807-7500 Hotline Number: (800) 730-8477 Fax Number: (919) 807-7647

Christopher F. Mears, J.D., MPP Director of Public Affairs Chris_Mears@ncauditor.net (919) 807-7566 Pat Stussie Executive Assistant to the Auditor Pat_Stussie@ncauditor.net (919) 807-7676 Lenny Superville, Ph.D. Chief Information Officer Lenny_Superville@ncauditor.net (919) 807-7625 AUDIT MANAGEMENT TEAM Joyce Flowers, CPA Specialty: Single Audit Wilmington Branch Joyce_Flowers@ncauditor.net (919) 807-7550 Janet Hayes, CPM, CICA, MBA Specialty: Services to nongovernmental groups Janet_Hayes@ncauditor.net (919) 807-7558 Linda Hollar, CPA Specialty: Universities, UNC, UNC Hospitals, Asheville Branch Linda_Hollar@ncauditor.net (919) 807-7565 Frank L. Perry Specialty: Investigations Frank_Perry@ncauditor.net (919) 807-7604

Increasing Efficiency... Exposing Fraud

Lee Linker, CPA Specialty: Quality Control Lee_Linker@ncauditor.net (919) 807-7583 David Nance, CPA Specialty: Health Issues David_Nance@ncauditor.net (919) 807-7660 Carol Smith, CPA Specialty: Community Colleges Charlotte Branch Greensboro Branch Morganton Branch Winston-Salem Branch Carol_Smith@ncauditor.net (336) 585-2513 Faye Steele, CPA Specialty: Clerks of Court North Carolina State University Fayetteville Branch Greenville Branch Edenton Branch Faye_Steele@ncauditor.net (919) 807-7589 Kenneth Barnette, CPA Specialty: Performance Audits Kenneth_Barnette@ncauditor.net (919) 807-7540 Charles Williford, CPA, CITP, CISA, CFE, CPM Specialty: Information Systems Audits Charles_Williford@ncauditor.net (919) 807-7627

2007 annual report  

2007 annual report

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