Part 3 of a series, by Steve Anderson.
The Oklahoma State Dept. of Health Scandal:
Some background for clarification and some thoughts on Doerflinger and Jones committee testimony...
A couple posters have questioned why I feel I am qualified to post on this issue. Here is my relevant background.
In short you and OMES are the ones who are doing the daily “driving” of the state and OSDH’s financial reporting. IF and only IF there is incompetent leadership and improper processes that lack the necessary checks and balances in the budget AND financial sections of OMES could an agency have the issues outlined in the Chief Financial Officer of OSDH’s memo that was recently released. These issues were so blatant and obvious that OMES had to be ‘passed out at the wheel’ for several years.
The state auditor serves the position of traffic cop that is supposed to catch ‘bad driving’ by the agencies so the State Auditor is not without blame even though it was his employees that did the audit---as in everything management is responsible for the processes and procedures that should catch incompetency and the Audit Standards require sign off of management that the procedures were done that should have caught this. The job of any auditor is to detect financial issues with recordkeeping and internal controls so that they can assess that the financials of that entity fairly represent the financial standing of the entity. An audit is not designed to detect fraud BUT it should have caught books that were not “closed”, unreconciled accounts, improper transfers out of restricted federal and state funds and debt illegally created by OSDH’s financial shenanigans with ease. These are REQUIRED audit examination issues and not subject to the auditor’s judgment to forgo.
The State Auditor then stated that he was not concerned that this would affect the state’s CAFR because it is immaterial in dollar amount. Anyone who has been an auditor or prepared financial records for audits would know this statement was so disingenuous as to border on intentionally misleading the committee. Fraud is ALWAYS a material weakness IF senior management participates and it results in misstatement of financial position.
Is he arguing that OSDH---- one of the state’s largest agencies--- having a financial statement that is clearly false is not material? I would suggest that readers ask a CPA who does audits or go read for yourself in the Audit Standards at the AICPA website and I believe you will come to my conclusion. The inability to detect this at the last stage in the oversight process brings the whole of the CAFR into question. Think of it this way: You have to ask yourself is there more of this in other agencies that the ‘audits’ missed? Now tell me again it does not affect the CAFR’s reliability as the state’s financial record! The inability to ‘trust’ the financial records is the very definition of a ‘material’ issue.
I will have more on why this may only be the tip of the iceberg as more information becomes available. I hate to put coal in Oklahoma taxpayer’s stockings but there is likely more bad news to come.