s 354.88 L72BI 1993 Office of the Legislative Auditor State of Montana Report to the Legislature Financial-Compliance Audit January 1994 For the Two Fiscal Years Ended June 30, 1993 STATE DOCUMENTS COLLECTION FtB .io-* Board of Investments MONTANA STATE LIBRARV 1>^1^MEO.N6TtAhNAAVE.5.9620 HELENA. Department of Commerce This report contains three recommendations to enhance compli- ance with state laws and to improve internal control and account- ing procedures. These recommendations address: Accounting for financial activity in accordance with state law and accounting policy. > Social security contribution account investments. Direct comments/inquiries to: Office of the Legislative Auditor Room 135, State Capitol PO Box 201705 MT 93-3 Helena 59620-1705 MONTANASTATELIBRARY 3 0864 1002 4304 FINANCIAL-COMPLIANCE AUDITS Financial-compliance audits are conducted by the Office of the Legislative Auditor to deter- mine ifan agency's financial operationsare properly conducted, the financial reports are pre- sented fairly, and the agency has complied with applicable laws and regulations which could have a significant financial impact. In performing the audit work, the audit staff uses stand- ards set forth by the American Institute ofCertified Public Accountants and the United States General Accounting Office. Financial-compliance auditstaff members hold degrees with an emphasis in accounting. Most staff members hold Certified Public Accountant (CPA) cer- tificates. The Single Audit Act of 1984 and 0MB Circular A-128 require the auditor to issue certain financial, internal control, and compliance reports regarding the state's federal financial assistance programs, including all findings of noncompliance and questioned costs. This individual agency audit report is not intended to comply with the Single Audit Act of 1984 or OMB Circular A-128 and is therefore not intended for distribution to federal grantor agencies. The Office of the Legislative Auditor issues a statewide biennial Single Audit Report which complies with the reporting requirements listed above. TheSingle Audit Report for the two fiscal years ended June 30, 1991 has been issued. Copies of the Single Audit Report can be obtained by contacting: Office of the Legislative Auditor Room 135 State Capitol PO Box 201705 MT Helena 59620-1705 MEMBERS OF THE LEGISLATIVE AUDIT COMMITTEE Senator Greg Jergeson, Chairman Representative JohnCobb, Vice Chairman Senator Gerry Devlin Representative Ernest Bergsagel Senator Eve Franklin Representative Linda Nelson Senator Tom Keating Representative Robert Pavlovich Office of the Legislative Auditor Financial-Compliance Audit For the Two Fiscal Years Ended June 30, 1993 Board of Investments Department of Commerce Members of the audit staff involved in this audit were: Jody Brandt, Pete Brustkern, John Fine, Cindy S. Jorgenson, and DJ Kimball. Digitized by the Internet Archive in 2010 with funding from IVIontana State Library http://www.archive.org/details/financialcomplia1993mont STATE OF MONTANA STATE CAPITOL HELENA, MONTANA 59620 406/444-3122 DEPUTY LEGISLATIVEAUDITORS: MARYBRYSON Operationsand EDPAudit JAMESGILLETT LEGISLATIVEAUDITOR: SCOTTA.SEACAT Financial-ComplianceAudit LEGALCOUNSEL; JIM PELLEGRINI JOHN W. NORTHEY PerformanceAudit January 1994 The Legislative Audit Committee of the Montana State Legislature: This is our financial-compliance audit report on the Board of Investments (board) of the Department of Commerce for the fiscal year ending June 30, 1993. Included in this report are three recommendations addressing accounting for financial activity in accordance with state law and accounting policy and Social Security Contribution Account investments. The board's written response to the audit recommendations is included at the end of the audit report. We thank the Executive Director and his staff for their assistance and cooperation. Respectfully submitt i. Seacat Legislative Auditor Table of Contents List of Tables iv Appointed and Administrative Officials v Summary of Recommendations vii Introdaction Introduction 1 Background 1 Investment Management Programs 2 Economic Development Programs 3 Mortgage Loan Program 3 Coal Tax Loan Program 3 Economic Development Bond Program 4 Municipal Finance Consolidation Act Program 4 Additional Bond Programs 6 Prior Audit Prior Audit Recommendations 7 Recommendations Findings and Enterprise Fund Accounting Issues 8 Recommendations Arbitrage 8 Miscellaneous Accounting Errors 10 State Compliance 12 Social Security Contribution Account 12 Independent Auditor's Summary of Independent Auditor's Reports A-2 & Reports Agency Financial Statements All Other Funds : Independent Auditor's Report A-5 Statement of Investments Managed as of June 30, 1993 and 1992 A-7 Statement of Investment Income for the Fiscal Years Ended June 30, 1993 and 1992 A-7 Statement of Changes in Investments Managed for the Fiscal Years Ended June 30, 1993 and 1992 A-8 Notes to the Financial Statements A-8 Page i 8 Table of Contents Short-Term Investment Pool : Independent Auditor's Report A-15 Statement of Net Asset Value as of June 30, 1993 and 1992 A-17 Statement of Changes in Net Asset Value for the Fiscal Years Ended June 30, 1993 and 1992 A-17 Statement of Investment Income and Distribution for the Fiscal Years Ended June 30, 1993 and 1992 A-17 Notes to the Financial Statements A-1 Montana Common Stock Pool : Independent Auditor's Report A-25 Statement of Net Asset Value as of June 30, 1993 and 1992 A-27 Statement of Changes in Net Asset Value for the Fiscal Years Ended June 30, 1993 and 1992 A-27 Statement of Investment Income and Distributions for the Fiscal Years Ended June 30, 1993 and 1992 A-27 Notes to Financial Statements A-28 Montana Convertible Securities Pool : Independent Auditor's Report A-37 Statement of Net Asset Value as of June 30, 1993 A-39 Statement of Changes in Net Asset Value for the Fiscal Year Ended June 30, 1993 A-39 Statement of Investment Income and Distribution for the Fiscal Year Ended June 30, 1993 A-39 Page ii Table of Contents Notes to Financial Statements A-40 Enterprise Fund : Independent Auditor's Report A-45 Balance Sheet as of June 30, 1993 A-46 Statement of Revenues, Expenses, and Changes in Retained Earnings for the Fiscal Year Ended June 30, 1993 A-47 Statement of Cash Flows for the Fiscal Year Ended June 30, 1993 Increase (Decrease) in Cash and Cash Equivalents A-48 Notes to Financial Statements A-49 Agency Response Board of Investments B-3 Page iii List of Tables Table 1 Outstanding Arbitrage Liability 9 Page iv