BOARD00631

• Board Meeting Date: 11/22/1999
• Description: CF Section - Special Purpose Accounts - Construction Fund Independent Auditors Account - Proposed
• Board Meetings - Doc Type: Memo

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Discussion

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Staff feels an independent audit of the Construction Fund is needed for the following
reasons :

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I. The State Auditor's report addressed only the policies and procedures followed in the
administration of the Construction Fund but did not deal with the financial aspects of the
program. Accurate and timely financial information is critical to funding operations.
Financial information is required annually in the preparation of the Construction Fund
Annual Report, the Long Term Financial Projection, and most importantly, in determining
how much money is available for new loans and grants in both the Construction Fund and the
Severance Tax Trust Fund Perpetual Base Account.

2. With the total Construction Fund equity now exceeding $200,000,000 it is important that a
comprehensive program of financial and performance accountability be established on an
annual basis. Many commercial financial institutions with assets less than the Construction
Fund are required to adhere to multiple and more rigorous auditing procedures.

3. The statewide accounting system (COFRS) is simply not compatible with the financial
accounting and reporting needs of the Construction Fund program. It therefore has been
necessary for the staff to prepare financial information in a format COFRS is not capable of
creating.

4. The Department of Natural Resources Accounting Section has many pnontIes in
accounting for the financial needs of a large government agency. Preparation of the e
financial statements associated with the Construction Fund program is required annually no
later than September 1. This allows the staff to adequately prepare information necessary
for the Board to make loan and grant recommendations to the General Assembly at their
November meeting. An independent auditing firm would have the available personnel
resources and be under contractual obligations to complete the required reports as needed
by the Board and staff.

5. The assistance of an independent outside auditor lends itself to an environment of openness
and constructive criticism resulting in improved CWCB program efficiencies.

6. The generally negative tone of the audit report and the subsequent newspaper articles was
harmful to the credibility of the Construction Fund program. An annual financial report
and performance audit certified by a major accounting firm could do a great deal to
safeguard the credibility of the program and establish a higher level of accountability.

ProDosed Prol!ram

The audit program would consist of a core service for preparation of a Comprehensive
Annual Financial Report (CAFR) prepared under the rules established by the Government
Accounting Standards Board. Other services available would be a performance audit that
would include, but not be limited to, business consultation in marketing, financial reporting, e