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Upholding good management in state government begins and ends with the legislative auditor

The Office of the Legislative Auditor is known and respected for the quality of its audit and evaluation services. Unfortunately, years of underfunding means our legislative auditor lacks the resources to effectively keep an eye on state spending.

Legislative Auditor Judy Randall shown with state Sen. Scott Dibble.
Legislative Auditor Judy Randall shown with state Sen. Scott Dibble.
MinnPost photo by Peter Callaghan

When we think of government watchdogs, ombudspersons and attorneys general are often the first that come to Americans’ minds. Frequently, public-sector auditors aren’t given much thought despite their critical job protecting taxpayer money from waste, fraud, and abuse. I find that disconnect rather troubling. Public-sector auditors like Minnesota’s state auditor and legislative auditor may just be the most important positions in our system in government. What these watchdogs do however has changed substantially over the course of Minnesota history.

For the first 115 years of statehood, and going even further back to Minnesota’s territorial days, the Office of the State Auditor functioned as the general accountant or “controller” for the whole of state government. This preaudit role entailed maintaining the statewide accounting system, approving claims against the state, issuing warrants on the state treasury for payment of claims approved, administering payroll, and monitoring county finances, among connected responsibilities. Aside from the elected state auditor, other officials and agencies were also involved in state financial operations. The Department of Administration prepared and managed the state budget while the Department of Taxation collected at first property and later state income taxes. Separately, the now abolished state treasurer’s office managed the state’s cash flows and debt while a gubernatorial appointee known as the public examiner postaudited state agencies and local governments alike.

In 1973 however, a private-sector task force convened by the late Wendell Anderson, Minnesota’s 33rd governor, advised that the state of Minnesota adopt administrative processes consistent with best practices found in other states and the private sector. Among dozens of recommendations for improved public service administration and delivery, the Loaned Executive Action Program (LEAP), as this task force was called, specifically recommended that the statewide accounting and budget management functions be consolidated into a single state agency under the auspices of the governor. LEAP argued this change was necessary in order to provide more cohesive management and control over state spending. In turn, LEAP concluded that a gubernatorial appointee auditing state agencies was an inappropriate arrangement that did not provide for a truly independent, arm’s length audit of the executive branch. Rather, given the legislature appropriates state funds and sets program goals, LEAP contended that state lawmakers should ultimately review program expenditures and results. 

After careful consideration, the 68th Minnesota Legislature concurred in LEAP’s recommendations and initiated the single largest reorganization of state government in Minnesota’s history. Laws of Minnesota 1973, chapter 492 transferred the state auditor’s fiscal control responsibilities and the Budget Bureau at the Department of Administration to a new Department of Finance, the precursor to today’s Department of Management and Budget, and renamed the Taxation Department to the Department of Revenue. The same act also created the Office of the Legislative Auditor (OLA) – a nonpartisan legislative service agency led by an appointed legislative auditor and overseen by the bipartisan, bicameral Legislative Audit Commission. Under this arrangement, the legislative auditor is entrusted with aiding the state legislature in its oversight of the executive and judicial branches by examining state agency financial management and program performance.

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At the same time, state lawmakers deemed it necessary for the continued protection of the public trust that an independent public official oversee local government finances, especially since most government taxation and spending in Minnesota occurs at the local level and not in the State Capitol. The Department of the Public Examiner was therefore abolished and the state auditor took on the responsibility of supervising and auditing local government finances throughout Minnesota, becoming for all intents and purposes our “auditor of public accounts”. ​This ancient term of art, originating in Medieval England, means that our state auditor has broad authority – cutting across jurisdictions – to superintend, examine, and pass upon local government finances in accordance with law. I’ll save the all-encompassing subject that is the challenges and opportunities facing the Office of the State Auditor for a future essay.

As for the Office of the Legislative Auditor (OLA), this year marks the 50th anniversary of its creation. Looking back, the staff at OLA do some truly amazing work. In 2022 alone, OLA’s Financial Audit Division audited the financial statements of the State of Minnesota, the Minnesota State Retirement System, the Public Employees Retirement Association, and the Teachers Retirement Association. The division also examined the condition of state agencies’ internal controls, legal compliance, and information technology systems. Meanwhile, OLA’s Program Evaluation Division assessed Minnesota’s achievement gap and child protection removals and reunifications by county social service agencies, while the Special Reviews Division reviewed Southwest Light Rail Transit project budget and timeline issues.

OLA is known and respected for the quality of its audit and evaluation services. Unfortunately, years of underfunding means our legislative auditor lacks the resources to effectively keep an eye on state spending.

“Since 2003, total state spending per year from all government operating funds has increased 147%, or more than $33 billion,” wrote Mark Haveman last May. Over that same period, OLA’s staffing has declined from 80 to 56 full-time equivalent (FTE) employees.” And while the state’s workforce has increased by over 4,600 FTEs over the last decade, OLA personnel levels have remained flat.

Taking all of this into account, the 93rd Minnesota Legislature should seriously consider creating an enterprise fund to account for OLA’s financial auditing activities. An enterprise fund like that used in Ohio would allow the legislative auditor to bill state agencies for post-audit services as dedicated program revenue, meaning the Financial Audit Division could operate without the need for general fund appropriations. This reform would also afford OLA the opportunity to perform rotating audits of internal controls, legal compliance, and IT systems at each state agency on a more frequent basis – say once every four or five years.

Noah McVay
Noah McVay
Moreover, state lawmakers may wish to consider a trust fund financed by a small percentage of either income or state sales tax revenue. Said trust fund would permit OLA to increase staffing at the Program Evaluation Division – a hot commodity in recent years – without taking away much needed funding from the Financial Audit Division. Washington has done this very thing for nearly two decades, so why not Minnesota?

These simple reforms will give the highly respected staff at OLA – the external auditors of Minnesota state government– the resources they need to help lawmakers improve state programs, reduce costs, and promote government accountability. Good government, in other words.

Noah McVay is a resident of Saint Paul and a Master of Public Policy and Administration student at Colorado State University. His research interests broadly encompass public budgeting and finance, program evaluation, compliance in the public sector, and machinery of government. He is particularly passionate about state and local government auditing practices.