A R epoRt to the M ontAnA L egisLAtuRe F -c A inAnciAL oMpLiAnce udit Department of Agriculture For the Two Fiscal Years Ended June 30, 2019 M 2020 Ay L A egisLAtive udit d ivision 19-21 Financial-Compliance Audits Legislative Audit Financial-compliance audits are conducted by the Legislative Committee Audit Division to determine if an agency’s financial operations Representatives are properly conducted, the financial reports are presented Kim Abbott fairly, and the agency has complied with applicable laws and [email protected] regulations. In performing the audit work, the audit staff uses Dan Bartel standards set forth by the American Institute of Certified Public [email protected] Accountants and the United States Government Accountability Tom Burnett Office. Financial-compliance audit staff members hold degrees [email protected] with an emphasis in accounting and many staff members hold Denise Hayman, Vice Chair Certified Public Accountant (CPA) certificates. [email protected] Emma Kerr-Carpenter The Single Audit Act Amendments of 1996 and the Uniform [email protected] Administrative Requirements, Cost Principles, and Audit Matt Regier Requirements for Federal Awards require the auditor to issue [email protected] certain financial, internal control, and compliance reports in Senators addition to those reports required by Government Auditing Dee Brown, Chair Standards. This individual agency audit report is not intended [email protected] to comply with these reporting requirements and is therefore Jason Ellsworth not intended for distribution to federal grantor agencies. The [email protected] Legislative Audit Division issues a statewide biennial Single Audit John Esp Report which complies with the above reporting requirements. [email protected] The Single Audit Report for the two fiscal years ended June 30, Pat Flowers 2019, was issued March 30, 2020. The Single Audit Report for the [email protected] two fiscal years ended June 30, 2021, will be issued by March 31, Tom Jacobson 2022. [email protected] Mary McNally [email protected] Members serve until a member’s legislative term of office ends or until a successor is appointed, Audit Staff whichever occurs first. Jennifer Erdahl Nolan Preeshl Glenda G. Waldburger Mary V. Yurewitch §5-13-202(2), MCA Fraud Hotline Reports can be found in electronic format at: (Statewide) https://leg.mt.gov/lad/audit-reports 1-800-222-4446 (in Helena) 444-4446 [email protected]. www.montanafraud.gov LEGISLATIVE AUDIT DIVISION Angus Maciver, Legislative Auditor Deputy Legislative Auditors: Deborah F. Butler, Legal Counsel Cindy Jorgenson Joe Murray May 2020 The Legislative Audit Committee of the Montana State Legislature: This is our financial-compliance report on the Department of Agriculture for the two fiscal years ended June 30, 2019. Our audit work included analyzing the financial schedules and note disclosures and analyzing the underlying financial activity such as, Charges for Services, Licenses and Permits, Taxes, Federal Revenue, and Grants. The report contains no recommendations and we issued unmodified opinions on the financial schedules for fiscal years 2018 and 2019. An unmodified opinion on the financial schedules means that the information presented within them can be relied upon for decision-making purposes. We thank the Director and his staff for their cooperation and assistance throughout the audit. Respectfully submitted, /s/ Angus Maciver Angus Maciver Legislative Auditor Room 160 • State Capitol Building • PO Box 201705 • Helena, MT • 59620-1705 Phone (406) 444-3122 • FAX (406) 444-9784 • E-Mail [email protected] i Table of Contents Appointed and Administrative Officials ...................................................................................ii Report Summary ...................................................................................................................S-1 CHAPTER I – INTRODUCTION ��������������������������������������������������������������������������������������������������������������1 Introduction ..............................................................................................................................1 Scope .........................................................................................................................................1 Background ...............................................................................................................................1 INDEPENDENT AUDITOR’S REPORT AND DEPARTMENT FINANCIAL SCHEDULES Independent Auditor’s Report ...............................................................................................A-1 Schedule of Changes in Fund Equity for the Fiscal Year Ended June 30, 2019 ................................................................................A-4 Schedule of Changes in Fund Equity for the Fiscal Year Ended June 30, 2018 ................................................................................A-5 Schedule of Total Revenues & Transfers-In for the Fiscal Year Ended June 30, 2019 ................................................................................A-6 Schedule of Total Revenues & Transfers-In for the Fiscal Year Ended June 30, 2018 ................................................................................A-7 Schedule of Total Expenditures & Transfers-Out for the Fiscal Year Ended June 30, 2019 ................................................................................A-8 Schedule of Total Expenditures & Transfers-Out for the Fiscal Year Ended June 30, 2018 ................................................................................A-9 Notes to the Financial Schedules ........................................................................................A-11 REPORT ON INTERNAL CONTROL AND COMPLIANCE Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Schedules Performed in Accordance With Government Auditing Standards .............................................................................................................B-1 DEPARTMENT RESPONSE Department of Agriculture....................................................................................................C-1 19-21 ii Montana Legislative Audit Division Appointed and Administrative Officials Department of Benjamin Thomas, Director Agriculture Kim Mangold, Deputy Director, Administrator, Agricultural Development Division (through February of 2020) Christy Clark, Deputy Director, Administrator, Agricultural Development Division (March 2020 – Present), Administrator, Agricultural Sciences Division (June 2019 – March 2020) Dr. Mark Nechodon, Administrator, Agricultural Sciences Division (through May 2019) Cindy Trimp, Administrator, Central Services Division Councils, Committees, Board of Hail Insurance and Board Montana Agricultural Development Council Montana Alfalfa Seed Committee Montana Hemp Advisory Committee Montana Noxious Weed Management Advisory Council Montana Weed Seed Free Forage Advisory Council Montana Organic Commodity Advisory Council Montana Potato Advisory Committee Montana Pulse Crops Advisory Committee Montana Wheat and Barley Committee For additional information concerning the Department of Agriculture, contact: Benjamin Thomas, Director 302 North Roberts P.O. Box 200201 Helena, MT 59620-0201 (406) 444-3144 e-mail: [email protected] M L a d ontana egisLative udit ivision S-1 F -c a inancial ompliance udit Department of Agriculture For the Two Fiscal Years Ended June 30, 2019 may 2020 19-21 RepoRt SummaRy During the Audit Period, the Department of Agriculture (department) started the Montana State Hemp program for the growing, processing, and licensing of Industrial Hemp. The department is still entered into a quota-share reinsurance agreement for Hail Insurance expenses reducing the exposure of large hail losses to the department. The department’s total revenue totaled $21 million and $20 million for fiscal years 2019 and 2018, respectively. The department expended approximately $23 million and $21 million for fiscal years 2019 and 2018, respectively. Context The department is organized under three and protection through the administration divisions: Agricultural Development Division, of the Montana laws and rules in the areas of Agricultural Sciences Division, and Central pesticides, groundwater monitoring, noxious Services Division. weed control, feeds, fertilizers, seed, and other services including organic certification, The Agricultural Development Division pest management consulting, laboratory administers programs that promote, enhance, analysis, pest surveys, export certification, and expand, and diversify Montana’s agricultural quarantines. economy, through services which include agricultural commodity research and market The Central Services Division includes the development programs, hail insurance, and director’s office and supports the programs various agricultural loans. within the department by performing accounting, fiscal management, budgeting, In the Hail Insurance program, the fiscal year human resources, and legal support services. 2019 Schedule of Revenues & Transfers-In reflects a classification error between current Results revenue and prior year revenue in the Enterprise The report contains no recommendations Fund. Because Total Revenues & Transfers-In and we issued unmodified opinions on the of $1,075,699 in the Enterprise Fund is correct, financial schedules of the department for each we made no audit recommendation and our of the two fiscal years ended June 30, 2019. opinion is not modified. An unmodified opinion means the reader may rely on the fairness of the information The Agricultural Sciences Division provides presented in all material respects. agricultural, public, and environmental services For a complete copy of the report (19-21) or for further information, contact the Legislative Audit Division at 406-444-3122; e-mail to lad@mt�gov; or check the web site at https://leg�mt�gov/lad/audit-reports Report Fraud, Waste, and Abuse to the Legislative Auditor’s FRAUD HOTLINE Call toll-free 1-800-222-4446, or e-mail LADHotline@mt�gov� 1 Chapter I – Introduction Introduction We performed a financial-compliance audit of the Department of Agriculture (department) for the two fiscal years ended June 30, 2019. The objectives of the audit were to: Š Obtain an understanding of the department’s internal controls to the extent necessary to support our audit of the financial schedules and, if necessary, make recommendations for improvement in management and the internal controls of the department. Š Determine whether the department’s financial schedules present fairly the results of its operations and changes in fund equity for each of the two fiscal years ended June 30, 2019. Š Determine whether the department complied with selected state laws and regulations. Scope Our audit work included analyzing the financial schedules and notes disclosures to obtain sufficient and appropriate audit evidence to render an opinion on the department’s financial schedules. We reviewed the underlying activity which includes but was not limited to Charges for Services, Licenses and Permits, Taxes, Federal Revenue, Grants, and Hail Insurance. Additional information related to Hail Insurance program follows. The Montana State Hail Insurance program was created to provide basic hail insurance coverage on crops grown in Montana and the program’s activity is recorded in the department’s Enterprise Fund. In the Hail Insurance program, the Schedule of Revenues & Transfers-In reflects a classification error between current revenue and prior year revenue in the Enterprise Fund. Because Total Revenues & Transfers-In of $1,075,699 in the Enterprise Fund is correct, we made no audit recommendation and our opinion is not modified. Background Article XII, Section 1 of the Constitution of the State of Montana mandates the legislature provide for a Department of Agriculture and enact laws and provide appropriations to protect, enhance, and develop all agriculture. The department’s statutory functions and responsibilities include: Š Encourage and promote the interests of Montana agriculture. Š Collect and publish agricultural statistics. Š Assist, encourage, and promote the organization of farmers’ institutes, agricultural societies, fairs, and other exhibitions of agriculture. 19-21 2 Montana Legislative Audit Division Š Adopt standards for grade and other classifications of farm products. Š Assist in the development of economical and efficient marketing distribution systems. Š Gather and distribute marketing information concerning supply, demand, price, and movement of farm products. Š Regulate and protect Montana agricultural activities through the administration of statutes related to agriculture. Agricultural Development Division (38.52 FTE): assists Montana’s agricultural industry by providing services including market and agribusiness development, Growth Through Agriculture grants and loans, wheat and barley research and marketing, beginning farmer/rancher loans, hail insurance, grain grading and inspection, agriculture education and outreach, agriculture literacy, and administration of agricultural commodity research and market development programs. The division provides support to the Montana Alfalfa Seed Committee, the Wheat and Barley Committee, the Agricultural Development Council, the Board of Hail Insurance, and advisory committees for potatoes and pulse crops. Agricultural Sciences Division (61.42 FTE): administers agricultural programs relating to the production, manufacturing, certification, and marketing of commodities exported from or distributed in the state. The division administers the Montana Pesticides Act, Crop Insect Detection Act, Vertebrate Pest Management Act, Agricultural Chemical Groundwater Protection Act, Noxious Weed Management Trust Fund Act, Commercial Feed and Fertilizer laws, Organic Certification program, Industrial Hemp program, and the department’s Chemical Analytical Laboratory. Division personnel provide technical and consultant services to consumers and agricultural producers. Central Management Division (15.10 FTE): includes the director’s office and provides support to all of the programs in the department by performing accounting, fiscal management, payroll, purchasing, property control, data processing, and legal support functions. The report contains no recommendations and we issued unmodified opinions on the financial schedules for fiscal years 2018 and 2019.