A R epoRt to the M ontAnA L egisLAtuRe F -c A inAnciAL oMpLiAnce udit Office of the State Public Defender For the Two Fiscal Years Ended June 30, 2014 n 2014 oveMbeR L A egisLAtive udit d ivision 14-28 Financial-Compliance Audits Legislative Audit Financial-compliance audits are conducted by the Legislative Committee Audit Division to determine whether an agency’s financial Representatives operations are properly conducted, the financial reports are Randy Brodehl, chair presented fairly, and the agency has complied with applicable laws [email protected] and regulations. In performing the audit work, the audit staff uses Virginia Court standards set forth by the American Institute of Certified Public [email protected] Accountants and the United States Government Accountability Mike Cuffe Office. Financial-compliance audit staff members hold degrees [email protected] with an emphasis in accounting. Most staff members hold Mary McNally Certified Public Accountant (CPA) licenses. [email protected] Ryan Osmundson Government Auditing Standards, the Single Audit Act [email protected] Amendments of 1996 and OMB Circular A-133 require the J.P. Pomnichowski auditor to issue certain financial, internal control, and compliance [email protected] reports. This individual agency audit report is not intended to comply with these reporting requirements and is therefore Senators not intended for distribution to federal grantor agencies. The Dee Brown Legislative Audit Division issues a statewide biennial Single Audit [email protected] Report which complies with the above reporting requirements. Taylor Brown The Single Audit Report for the two fiscal years ended June 30, [email protected] 2013, was issued March 28, 2014. The Single Audit Report for the Greg Jergeson, Vice Chair two fiscal years ended June 30, 2015, will be issued by March 31, [email protected] 2016. Copies of the Single Audit Report can be obtained by Sue Malek contacting: [email protected] Fredrick (Eric) Moore Single Audit Coordinator Legislative Audit Division [email protected] Office of Budget and Program Planning Room 160, State Capitol Mitch Tropila Room 277, State Capitol P.O. Box 201705 [email protected] P.O. Box 200802 Helena, MT 59620-1705 Helena, MT 59620-0802 Members serve until a Audit Staff member’s legislative term Jessica Curtis Aaron Funk of office ends or until a Brenda Kedish Paul J. O’Loughlin successor is appointed, Karen E. Simpson whichever occurs first. §5-13-202(2), MCA Fraud Hotline Reports can be found in electronic format at: (Statewide) http://leg.mt.gov/audit 1-800-222-4446 (in Helena) 444-4446 [email protected] LEGISLATIVE AUDIT DIVISION Tori Hunthausen, Legislative Auditor Deputy Legislative Auditors: Deborah F. Butler, Legal Counsel Cindy Jorgenson Angus Maciver November 2014 The Legislative Audit Committee of the Montana State Legislature: This is our financial-compliance audit report on the Office of the State Public Defender (office) for the two fiscal years ended June 30, 2014. The report contains four recommendations to the office regarding complying with state law and state accounting policy governing the management and collection of accounts receivables, establishing internal controls over payments received by mail, and properly accounting for reimbursements received. This report includes the office’s financial schedules. The financial schedule presentation is intended to provide the legislative body with information necessary for decision-making purposes; it is not intended to conform to the financial reporting requirements established in generally accepted accounting principles (GAAP). The financial schedule presentation has not changed, but audit reporting standards have changed. Auditing standards require us to clearly communicate that the financial schedule presentation is not intended to, and does not, conform to GAAP reporting requirements. The Independent Auditor’s Report on page A-1 contains language to this effect in the section titled “Adverse Opinions on U.S. Generally Accepted Accounting Principles.” This section does not imply the amounts presented on the office’s financial schedules are not fairly stated. Page A-1 also communicates the extent to which the user can rely on the information contained in the financial schedules in the section titled “Unmodified Opinions on Regulatory Basis of Accounting.” The office’s written responses to the audit recommendations are included in the audit report beginning at page B-1. We have considered the office response to Recommendation 1. As noted on page 7, “We acknowledge that fees are assessed by the courts, and that the courts can modify the fee assessments.” However, this does not preclude the office from implementing procedures for the financial management of amounts owed to the office once higher priority assessments are satisfied. While the office concurs with Recommendation 2(b), we will not pre-suppose the outcome of a legislative proposal. However, regardless of the outcome, the responsibility to record money due the state in accordance with state law and accounting policy remains. We thank the Chief Public Defender, Chief Appellate Defender, Conflict Coordinator, and office staff for their cooperation and assistance throughout the audit. Respectfully submitted, /s/ Tori Hunthausen Tori Hunthausen, CPA 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 Figures and Tables .....................................................................................................................ii Appointed and Administrative Officials ..................................................................................iii Report Summary ...................................................................................................................S-1 CHAPTER I – INTRODUCTION ��������������������������������������������������������������������������������������������������������������1 Introduction ..............................................................................................................................1 Reporting Related Party Transactions ...............................................................................2 Background ...............................................................................................................................2 Prior Audit Recommendations ..................................................................................................3 CHAPTER II–FINDINGS AND RECOMMENDATIONS ����������������������������������������������������������������������5 Public Defender Fee Assessment Background ...........................................................................5 Financial Management of Public Defender Fee Assessment Accounts Receivable ............6 Accounting for Public Defender Fee Assessments and Collections ...................................8 Controls Over Payments Received by Mail .............................................................................11 Improper Expenditure Abatements .........................................................................................12 INDEPENDENT AUDITOR’S REPORT AND OFFICE FINANCIAL SCHEDULES Independent Auditor’s Report ...............................................................................................A-1 Schedule of Changes in Fund Equity for the Fiscal Year Ended June 30, 2014 ................................................................................A-3 Schedule of Changes in Fund Equity for the Fiscal Year Ended June 30, 2013 ................................................................................A-4 Schedule of Total Revenues & Transfers-In for the Fiscal Year Ended June 30, 2014 ...............................................................................A-5 Schedule of Total Revenues & Transfers-In for the Fiscal Year Ended June 30, 2013 ................................................................................A-6 Schedule of Total Expenditures & Transfers-Out for the Fiscal Year Ended June 30, 2014 ................................................................................A-7 Schedule of Total Expenditures & Transfers-Out for the Fiscal Year Ended June 30, 2013 ................................................................................A-8 Notes to the Financial Schedules ..........................................................................................A-9 OFFICE RESPONSE Office of the State Public Defender .....................................................................................B-1 14-28 ii Montana Legislative Audit Division Figures and Tables Tables Table 1 Summary of Deficiencies in Internal Control ........................................................................1 Table 2 Public Defender Fee Collections and Receivable Balances .....................................................5 Table 3 Improper General Fund Expenditure Abatements by Type..................................................13 Table 4 General Fund Accounting Errors in Fiscal Year 2013 Activity as of June 30, 2014 ...............................................................................................................14 iii Appointed and Administrative Officials Term Expires Public Defender Commission Richard “Fritz” Gillespie, Chair 2016 Kenneth R. Olson, Vice-Chair 2017 Roy Brown 2016 Brian Gallik 2016 Dr. Michael Metzger 2016 Margaret Novak 2016 Charles Petaja 2015 Majel Russell 2015 Ann Sherwood 2017 Bonnie Olson 2016 Terry Jessee 2017 Office of the State Public William F. Hooks, Chief Public Defender Defender Wade Zolynski, Chief Appellate Defender Kristina Neal, Conflict Coordinator Harry Freebourn, Administrative Director For additional information concerning the Office of the State Public Defender, contact: Harry Freebourn Administrative Director Office of the State Public Defender 44 West Park Street Butte, MT 59701 (406) 496-6080 e-mail: [email protected] 14-28 S-1 M L a d ontana egisLative udit ivision F -c a inancial ompliance udit Office of the State Public Defender For the Two Fiscal Years Ended June 30, 2014 november 2014 14-28 report Summary The Office of the State Public Defender provides legal defense services to low income Montanans. In fiscal years 2013 and 2014 combined, the office spent approximately $55.9 million dollars to provide these services. Context The Office of the State Public Defender requirements governing the financial (office) is divided into three programs: management and collection of public the Public Defender Program provides defender fees. We determined the office does non-appellate representation to qualifying not have procedures in place to manage and individuals, including criminal defense, child collect unpaid public defender fees. These abuse or neglect, and involuntary commitment unpaid fees approximated $2.4 million as of services; the Appellate Defender Program June 30, 2014. provides appellate representation to qualifying individuals; and the Conflict Coordinator The third recommendation is related to Office provides appellate and non-appellate establishing internal controls over payments representation to qualifying individuals in received by mail. We determined the office’s circumstances where a conflict of interest procedures were not adequate to ensure all prohibits the other programs from representing payments received by mail are deposited. the defendant. The final recommendation is related to properly accounting for reimbursements The office’s operations are funded primarily received. Based on our review, the office by the state’s General Fund, although the improperly accounted for approximately office also collects public defender fees in the $90,000 of reimbursements received during State Special Revenue Fund. Additionally, fiscal years 2013 and 2014, combined. in fiscal year 2014, the office received a $625,000 allocation from the Governor’s Operations Account established in the 2013 Legislative Session. Of the $55.9 million Recommendation Concurrence spent in fiscal years 2013 and 2014 combined, Concur 3 $54.6 million was charged to the General Fund. Partially Concur 1 Results Do Not Concur 0 The current audit report contains four Source: Agency audit response included in recommendations to the office. The first final report. two recommendations relate to compliance with state law and state accounting policy For a complete copy of the report 14-28 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 http://leg�mt�gov/audit 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�