2007 annual report

�Increasing Efficiency... Exposing Fraud

3 MessagefromtheAuditor

4 2008StrategicPlan 8 ExecutiveSummary10 InvestigativeDivision

18 ManagementServices& NongovernmentalComplianceDivision

21 PerformanceAuditDivision

25 InformationSystemsAuditDivision

27 FinancialAuditDivision

29 GeneralAdministration

32 AppendixA

39 AppendixB

40 ContactInformation

Contents

AnnualReport2007|Contents


AnnualReport2007|MessagefromtheAuditor

The Office of the State Auditor (OSA) has been labeled “the taxpayers’ watchdog,” andwithgoodreason.NorthCarolina’sConstitutionrequirestheStateAuditortoproactivelyevaluate State agencies in terms of the efficiency and effectiveness of their use of public

resources. North Carolina General Statutes expand on this mandate and commission the StateAuditor to determine whether programs effectively serve the legislative intent, and investigateallegations of “misfeasance, malfeasance or nonfeasance” of those receiving State money. I takethesepowersandresponsibilitiesasaseriouschargeinthefulfillmentofmyroleasStateAuditor.Buildingonlastyear’sefficiencygains,IhaveappointedanexperiencedseniorauditorintoaQualityControlpositiontoensurethatOSAdeliversauditsandreportswithefficiency,expertiseandconsistency.Financialaudits,whichcomprisethebulkoftheworkwedo,provideaccurate“input”measuresbutlackafunctiontomeasure“outputs,”i.e.,aprogram’sperformance.Tofullymeasurethe“efficiency”and“effectiveness”oftheState’suseofpublicresources,personnelhavebeenrepositionedinarisk-basedrealignmenttoareasofgrowingrisksuchastheneedformorescrutinyovertheState’sgrantstonon-profits,andthemeasuringofactual“bangforyourbuck”performanceofambitiousStateprogramsandentitlements. CentraltoOSA’smandateas“thetaxpayers’watchdog,”wearefocusingonourInvestigativeDivisionandtheStateAuditor’sHotlinein2007and2008.WiththenewheadofourInvestigativeDivisionpossessing federal law enforcement experience, we are building an Investigative Task Force (ITF)comprised of auditors and staff from Investigative, Performance, Nongovernmental Compliance,Financial and Information Systems divisions. Armed with the mission to investigate fraud, wasteandabuseofStateresources, theITFwill scrutinize the“moneyflow”throughStateagenciesandprograms and will steer their focus towards areas of “high risk” for such fraud, waste and abuse.Actingas a channel throughwhich local citizens’ tipswillflow to the ITF, theOSAwillpromotetheStateAuditor’sHotlineincarefullytargetedpublicserviceannouncementsontelevision.CurrentplansaretoconcentrateonmediamarketsthatcontainhighconcentrationsofStateemployeeswhowouldlogicallybethemostknowledgeableaboutfraud,wasteorabuseofStateresources. The OSA has a critical mission in the functioning of State government. I recognize that thefoundationupholdingthesepowersistheresponsibilitytoourtaxpayerstofairly,consistentlyandindependentlyevaluateStategovernment’suseofpublicresources.Clearly,theAuditor’spowersarederivedfromStatestatutesandtheConstitution,buttheAuditor’sresponsibilitytothepeoplearisesoutofbeingindependentlyelectedandentrustedtoensuretheirtaxdollarsareproperlyspent.Sincerely,

MessagefromtheAuditor

� Increasing Efficiency... Exposing Fraud

TheOfficeoftheStateAuditoroccupiesauniquepositioninStategovernment.The North Carolina Constitution,

State statutes and the public trust require andexpect the OSA to fairly, consistently andindependentlyactas“thetaxpayers’watchdog.”This strategic plan describes how OSA willperformthiswatchdogfunctionin2008.

Investigative Division

If the OSA is the taxpayers’ watchdog, then

the Investigative Division is the watchdog’s keen

sense of smell. Through citizens’ tips fed to the

OSA through the State Auditor’s Hotline, the

Investigative Division detects and exposes fraud,

wasteandabuseinStategovernment.

In2008,theInvestigativeDivisionwilloperate

undernewleadership.Buildingonthefinework

done in the past, the new Director will use his

professionalexperiencetotakeinvestigationsina

newdirection.Withhisexperienceininvestigating

white collar crime such as political corruption

andfinancialfraudfortheFBI,andexperiencein

identifyingconflictsofinterestandaccountability

issuesfortheStateEthicsCommission,theDivision

willbeabletodiscovernewleadsandopenmore

doorsinsideandoutsideStategovernment.

Investigative Task Force

Building on the team-centered approach in

2006-07, the OSA is launching a new entity

labeledtheInvestigativeTaskForce(ITF).Ledby

thenewheadoftheInvestigativeDivisionandthe

DeputyStateAuditor,theITFisdesignedtosteer

investigationswhenadeeperveinoffraud,waste

orabuseisdetectedwhileusingstandardauditing

techniques. Being comprised of auditors and

staff with investigative, performance, non-profit

compliance, financial and information system

backgrounds, the ITF will be well positioned to

follow “risk-based” leads and then drill down

to the source of fraud, waste or abuse of public

resources.

Hotline

FortheOSAtofullyfunctionas“thetaxpayers’

watchdog,” we need eyes and ears to detect the

occurrence of fraud, waste and abuse of public

resources in our communities. As mandated by

State law to “periodically” publish the hotline,

OSA plans to launch a statewide television ad

blitz. This blitz will consist of 30 second public

serviceannouncementsdesignedtopublicizethe

StateAuditor’sHotline,andwillbegin inthe fall

2007. By advertising the State Auditor’s Hotline,

wemultiplythenumbersofeyesandearsinNorth

Carolina’s communities and equip them with a

tooltoenactpositivechangeinStategovernment.

Management Services and

Nongovernmental Compliance Division

(MS&NGCD)

The process of issuing State grants to non-

profits (grantees)andenforcingcompliancewith

Statelawhasbeenanareaofgrowingconcernto

thepublic,and isanareaof increasing focus for

OSA.Wehave foundthatmostgranteeswant to

comply with their grant requirements but some

2008StrategicPlan

AnnualReport2007|StrategicPlan


lacktheskillsorknowledgetodoso.Toincrease

compliance and streamline the process in 2008,

OSA will focus on implementing the Grants

InformationCenter(GIC)onlinereportingsystem.

SuccessfulimplementationoftheGICsystemwill

greatly increase the accuracy and the timeliness

of the grant’s data to all interested parties, while

significantly decreasing the workload of the

grantees,thefundingagenciesandtheDivision.

Training

Training is an important function of

MS&NGCD and the OSA plans to improve its

efforts in 2008 by offering both live and online

grantstraining.Plansaretoconductaminimum

of6livesessionspermonth,inadditiontosetting

up and offering online courses in an e-Learning

format.Animportantpartoftrainingisproviding

informationtogranteesandfundingagenciesthat

isrelevanttotheirparticularcircumstances.Con-

sequently,theOSAissuesquarterlyBestPractices

newsletters to all grantees and funding agencies,

providesresearchandreportingassistanceviatele-

phoneandemail,andprovidesgranteesandfund-

ingagencieswithonlinegrantreportingdocuments

and formats dictated by the reporting statutes.

Compliance Reporting & Examinations

Eachgranteethatacceptspublicmoneyshould

be eager to show how that money was spent for

thepublicgood.Compliancereportingisameans

foreachgranteetoembracetransparencyandtake

prideinfulfillingeachobligationunderStatelaw

and within their grant’s requirements. Moreover,

thesubsequentprocessingofcompliancereports

isanimportantbenchmarkinhoweffectiveOSA

is at upholding compliance and accountability.

Ourgoalfor2008istocontinueeffortstoreduce

thenumberofnoncompliantgrants.

Occasionally, circumstances produce the need

foramore in-depthaccountingofagranteeand

its stewardship over its State grant. As a result,

theOSAbeganaprocessofgrantexaminationsin

June2006.ForFiscalYear2007,OSAinitiated25

grant examinations (21 completed) that resulted

in OSA recommending repayment of $419,000

ingrantfunds,equaltoanaverageof$20,000per

examination. The number of these examinations

may increase in 2008 to include as many as 40

reportsbytheendofthatfiscalyear.Furthermore,

the OSA plans to conduct separate monitoring

examinationsof fundingagencies.TheDivision’s

goalistocomplete12separateagencymonitoring

examinationsbytheendofthenextfiscalyear.

Information Systems Audit Division

Informationisthecommodityofthetwenty-first

century.TofulfillOSA’sconstitutionalmandatein

theinformationage,theOSAdeploysitsISAudit

Division using a blend of savvy technology and

traditionalauditingskills toconfirmtheefficient

and effective use of public resources in State

government.

Strategic Reviews

OneoftheDivision’smostpromisingnewtools

istheStrategicReview(SAR).In2006-07,theDi-

visionusedSARstoexposealmost27,000invalid

SocialSecurityNumbersin6separateStateenti-

ties.PerpetratorsusedtheseinvalidSSNstoeither

gainStateemploymentorobtainvalidStateidenti-

fication.Usingthissuccessasaspringboard,OSA

planstoconductmoreSARsin2008onavariety

ofissuesnotlimitedtotheuseofinvalidSSNs.

NorthCarolinaOfficeoftheStateAuditor

6 Increasing Effi ciency... Exposing Fraud

IWAYS Pilot

Streamlining the flow of information in the

digitalageisessentialtoperformingaccurateand

timelyreviews. In2007-08,OSAisconductinga

pilotprojectusingtheIWAYSinterfacetodirectly

access agencies’ data through an encrypted

informationtunnelwiththeabilitytoretrievethat

dataondemand.Th issystemoffersaseamlessflow

of informationasopposed to thecurrent system

ofamanual“cutandpaste”operationbyagency

personnel.

Increasing the frequency

of access to information

is an additional benefit of

IWAYS. Currently, extract

files are obtained annually

by OSA’s IS Audit Division

who then hand-off the files

totheFinancialDivisionfor

theiranalysis.WithIWAYS,

the IS Audit Division can

directly access the needed

information in real time

or on a consistent periodic

basis(e.g.,monthly).

Data Mining/Warehousing

Accessing information on site can stall audits

and investigations and disrupt an agency’s

operations. In consultation with a national data

mining expert from Brigham Young University,

theOSAbegandatamininganddatawarehousing

information on its own computer servers to

remove every obstacle in the path of progress.

Going into2008, the ISAuditDivision ispoised

toconductoperationssuchastrendanalysisand

fraud routineson largechunksofdata thathave

been mined and warehoused. Once this project

is complete, the OSA will be able to investigate

suspicioustrendsinanagency’sfinancialreceipts,

expenditures,andpayrollexpenses,andrunfraud

routinesonuniquedataprofiles.

Performance Audit Division

Compared to other OSA divisions, the

Performance Audit Division is uniquely

engineeredtoevaluatewhetherStateprogramsare

reaching their goals. OSA

has been able to shift some

of its productivity gains

made in2006-07 toexpand

the Performance Audit

Division which specifically

concentrates on efficiency

and effectiveness of State

government programs. In

2008, the Division plans to

conduct more performance

audits than in 2007, equip

performance auditors with

additionaltoolsthroughnew

training,andprovidegreater

flexibility to meet emerging

needswhentheyarise.

Questions have arisen regarding the NC

General Assembly’s newly instituted Legislative

ProgramEvaluationDivisionandhowthisentity

compareswithOSA’sPerformanceAuditDivision.

Unliketheprogramevaluationsconductedbythe

legislature, OSA’s Performance Audit Division

is independent from other government entities

and reports directly to the public instead of to

legislative committees. Also, the Performance

AuditDivisionconductsrigorousauditsaccording

AnnualReport2007|StrategicPlan

Th e Performance Audit Division

is uniquely engineered to

evaluate whether State programs

are reaching their goals.


tostrictauditingstandards,whilethelegislature’s

program evaluations will be assessments of the

appropriatenessofanygivenprogram.Becausethe

OSAisconcernedwithmaintainingefficiencyand

effectivenessofexistingprograms,OSAwelcomes

thelegislature’snewprogramasanothersetofeyes

to evaluate goals and performance measures in

Stategovernment.

Greater Flexibility

An excellent example of greater flexibility in

theOSA’sPerformanceAuditDivisionisthe2007

auditofNewVistasMountainLaurel,Inc.Mental

HealthServiceProvider(NVML),andtheseveral

ongoingperformanceauditsintheareaofmental

health. As a direct result of requests by North

Carolina General Assembly members and local

leaders,theOSAwasabletoprioritizeauditsand

divertresourcestomeetemergingneedsbecause

ofgreaterflexibilitybuiltintothesystem.In2008,

OSAwillbuildonthissuccessandbecomeeven

more flexible to tackle new issues and satisfy

requestswhentheyarise.

Conduct More Audits with Impact

A2006OSAperformanceauditfoundthatthe

State’sinternalauditfunctionisinadequatelystaffed

and is inneedofmoredirectguidance fromthe

GeneralAssembly. Internalauditorsarethefirst

lineofdefensethatprovideindependentassurance

on the effectiveness and efficiencyof a program.

Based on the findings and recommendations

fromthisaudit,theGeneralAssemblyenactedthe

NorthCarolinaInternalAuditActwhichrequires

largeagenciestodevoteresourcesandattentionto

internalauditors.In2008,theOSAwillconduct

moreauditsdesignedtomakeasignificantimpact

ontheStateofNorthCarolina.

Financial Audit Division

The Financial Audit Division is charged with

some of OSA’s biggest responsibilities such as

annual financial statement audits and reviews

of the State’s sixteen universities and fifty-eight

community colleges. In addition, this Division

conducts one of the largest financial audits,

the Comprehensive Annual Financial Report

or CAFR, which contains the annual financial

statements for the state of North Carolina as a

whole.BecauseoftheDivision’saccessandbroad

reachacrosstheState,in2008theywillbecomea

critical componentof thenew InvestigativeTask

Force.

FinancialisOSA’scoredivisionandbiggestuser

of available resources. In 2006, OSA contracted

with AuditWatch to refocus Financial’s auditors

and staff to improve the efficiencies in which

they conduct their audits. By committing to

AuditWatch’s efficiency principles, Financial’s

auditorsandstaffhavecutinefficiencies,improved

quality and have expanded productivity. That

meansthatsignificantresourcesarenowavailable

to extend the reach of the OSA. Specifically,

Financialwouldbeabletoaddressthecriticalneed

toconductfiscalcontrolauditsonStateagencies

thathavenotbeenreviewedintherecentpast.


� Increasing Efficiency... Exposing Fraud

Investigative Division

•In2008,theInvestigativeDivisionwilloperateundernewleadershipwithexperienceininvestigatingwhite

collarcrimesuchaspoliticalcorruptionandfinancialfraudfortheFBI,andexperienceinidentifying

conflictsofinterestandaccountabilityissuesfortheStateEthicsCommission.

•Since2005,OSAreducedthenumberofopencasesby76%(120to29).Thisisasubstantialaccomplishment

ofincreasedefficiencygiventhefactthatwereceivedanaverageof135newcasesayearsince2005.

•OSAreducedtheaveragecaseageto118daysfrom315daysin2005.Thisrepresentsareductionof63%.

•OSAislaunchinganewentitytermedtheInvestigativeTaskForce(ITF)designedtosteerinvestigations

whenadeeperveinoffraud,wasteorabuseisdetectedwhileusingstandardauditingtechniques.

•OSAislaunchingastatewidetelevisionadblitzofa30secondpublicserviceannouncementbeginningin

thefall2007topublicizetheStateAuditor’sHotlineasmandatedbyStatelaw.

Management Services and Nongovernmental Compliance Division

•DuringFY2007,OSAtrained4,535personnelfromfundingagenciesorgrantrecipientsin72training

sessions.ThetotalnumberofparticipantstrainedsinceAugust2005is8,500.

•TheDivisionbeganconductingagencyandgranteeexaminationsinJune2006.ForFiscalYear2007,OSA

hasinitiated25grantexaminations(21completed)thatresultedinOSArecommendingrepaymentof

$419,000ingrantfunds,equaltoanaverageof$20,000perinvestigation.

• AsofJune30,2007,OSAhasdroppedthegranteenoncompliancerateto18.5%reflectingtheproper

accountingofanadditional$32million.

•OSA,inconjunctionwiththeOfficeofStatePersonnel,establishedtheEffectiveGrantsAdministration

CertificateProgramresulting in63personnel fromgranteesand fundingagenciesearningcertificates

duringFiscalYear2007

•OSAhasshortenedtheprocessingtimeforgranteereportsfrom5monthsin2005toapproximately3days

ofreceiptin2007.

ExecutiveSummary

AnnualReport2007|ExecutiveSummary


Performance Audit Division

•TheNCGeneralAssemblyenactedtheNorthCarolinaInternalAuditingActbasedona2006Performance

AuditoninternalauditorsinStateagencies.

•AnauditoftheStateChildHealthInsuranceProgram(SCHIP)identified$16,000,000inannualsavings

and $3,500,000 in one-time savings if the State moved the responsibility for SCHIP medical claims

processingfromtheStateHealthPlantotheDivisionofMedicalAssistance.

•TheOSAauditedtheOfficeofIndigentDefenseServicesandfoundthattheirpoliciesandprocedures

didnotadequatelyensurepoordefendantsreceivedcompetentlegalrepresentation,andthatattorneys

representingpoordefendantswerenotsufficientlyindependentofjudicialinfluence.

Information Systems Audit Division

•OneoftheISAuditDivision’smosteffectivetoolsistheStrategicReview(SAR).In2006-07,theDivision

usedSARstoexposealmost27,000invalidSocialSecurityNumbersin6separateStateentities.

•In2007-08,OSAisconductingaPilotprojectusingtheIWAYSinterfacetodirectlyaccessagenciesdata

throughanencryptedinformationtunnelwiththeabilitytoretrievethatdataondemand.

•TheOSAiscompletingadatamining/datawarehousingoperationtoconducttrendanalysisandfraud

routinesonlargechunksofdatasuchasagencyfinancialreceiptsandexpenditures,payrollexpenses,and

uniquedataprofilessuchasSSNsofnewdriver’slicensesfromDMV.

Financial Audit Division

• Bring Financial’s access and broad reach into Universities, Community Colleges and CAFR onto the

InvestigativeTaskForce.

•ContinueefficiencygainstoexpandtheproductivityofallOSAdivisions.


�0 Increasing Efficiency... Exposing Fraud

AnnualReport2007|InvestigativeDivision

OSA’s Investigative Division is one of

its most effective watchdog tools for

investigatingallegationsoffraud,waste

and abuse of State resources. Relying on State

constitutional and statutoryauthority, this armof

theOSAexposesfraudandStategovernmentwaste

by investigating tips received through the State

Auditor’sconfidentialhotline.

The majority of tips that lead to investiga-

tions come from OSA’s 24-hour, toll-free hotline

[1-800-730-TIPS(8477)].ThisHotlineisdesigned

for state employees and the general public to re-

port activities they believe may be illegal or im-

proper.Allegationsoffraud,wasteandabusemay

alsobereportedbytraditionalmailorviaemailat

[email protected].

To protect the integrity of tips, allegations of

improper governmental activities are strictly

confidential. In addition, state law provides

protection from retaliation or discrimination for

whistleblowers who report improper or illegal

activitiestotheStateAuditor.

Statistics

We have made great strides in detecting and

preventingfraud,wasteandabuseofStateresources

in2007.Webuiltonour2006accomplishmentsby

reducingthenumberofopencases,completingcases

withgreater efficiencywhich reduced theaverage

age of cases, while simultaneously investigating

newlyreportedallegations.

Duetoan increase inefficiency, thenumberof

open cases has been steadily declining from 120

in 2005 to 29 in 2007, equaling a 76% decrease.

Comparingfiscal2007withfiscal2006,wereduced

the number of open cases by 36% (29 from 45).

This is a substantial accomplishment of increased

efficiencygiventhefactthatwereceived139new

casesduringthisfiscalyear.Consistentwiththese

numbersisthedecreaseintheaveragecaseage.In

2005, theaveragecaseagewas315days.By2006

FYE,wereducedtheaveragecaseageto226days,

areductionofover28%.Currently,wereducedthe

averagecaseageto118,whichisareductionof63%

since2005.

Goals

The goals for the remainder of 2007 and into

2008aretoeffectivelypromotetheStateAuditor’s

Hotline, launch the Investigative Task Force, and

increasetheefficiencyandeffectivenessofhandling

multipleinvestigationssimultaneously.

Thepromotionof theStateAuditor’sHotline is

mandatedbystatuteandhasproven tobe the tip

source for the majority of investigations leading

to direct savings for the taxpayers. In the spring

of 2007, OSA advertised the Hotline with unpaid

promotions in State employee paycheck slips and

automatic draft forms. This method provides

importantcoverage,butisinherentlylimited.Inthe

fallof2007,OSAwilllaunchastatewidetelevisionad

blitzfeaturinga30secondspotdesignedtoexpose

fraud, waste and abuse in State government. This

oneareaisuniqueinthatmoneyspenttopromote

the Hotline will likely reap a far greater amount

insavingstothetaxpayerswhenfraud,wasteand

abuseofStatemoneyisuncovered.Timingofthis

promotioniskeybecausetheInvestigativeDivision

InvestigativeDivision

��Increasing Effi ciency... Exposing Fraud

musthavetheabilitytohandleasharpincreasein

newcases.WiththeDivision’sincreaseinefficiency

resulting in a lower number of open cases, we

believethatthefallof2007istheoptimaltime.

Building on the team-centered approach in

2006-07,theOSAislaunchinganewentitylabeled

the Investigative Task Force (ITF). Led by the

new head of the Investigations Division and the

DeputyStateAuditor,theITFisdesignedtosteer

investigations when a deeper vein of fraud, waste

or abuse is detected while

using standard auditing

techniques.Beingcomprised

of auditors and staff with

investigative, performance,

non-profit compliance,

financial and information

system backgrounds, the

ITF will be well positioned

to follow “risk-based” leads

and then drill down to the

source of fraud, waste or

abuseofpublicresources.

A portion of 2006-07’s

efficiency gains will be put

togooduse intheInvestigativeDivision.Because

promotionof theHotlinewill result inmore tips,

moreinvestigatorswillbeneededaspartofother

auditingteams.OSAplanstoaddmoresupervisor

andstaffpositionstotheInvestigativeDivisionin

2008.OSAbelievesthiswillbringgreaterflexibility

toinvestigationsandallowtheDivisiontohandle

multipleinvestigationssimultaneously.

Th efollowingaresummariesofthemorenotable

casesinFiscalYear2006-2007.Acompletelistof

reportsisdetailedinAppendixA.

NORTH CAROLINA DEPARTMENT

OF ADMINISTRATION – DIVISION OF

PURCHASE AND CONTRACT

Th eOfficeoftheStateAuditorreceivedanumber

ofallegationsregardingastatetermcontractfortire

retreading. Th e allegations primarily concerned

a contractor who violated provisions of the

contract regarding charges for repairs, tire casing

identification,andpriceadjustments.

Auditors found the

contractor performed an

unusually high percentage

of spot repairs under the

provisionsofthetireretread

contract.Reviewofinvoices

to eight Local Education

Authorities(LEA’s)andone

NorthCarolinaDepartment

of Transportation (DOT)

division revealed the

contractor charged for

the maximum three spot

repairs on 99.1% of the

9,900tiresretreadedduring

asampleperiod.Othertire

retread retailers and industry experts indicated

it isnotroutinetoperformthreespotrepairsper

tire foron-the-road tires. Auditors estimated the

contractormayhaveovercharged the local school

districts and DOT a minimum of $361,000 per

yearbymaximizingspotrepairchargesonalmost

everytire.AuditorsrecommendedtheDepartment

of Administration--Division of Purchase and

Contract(P&C)eliminatetheline-itemchargefor

spotrepairstohalttheincentivetomaximizerepair

charges. In addition, P&C should monitor the

contractor’sperformanceandevaluatetheawarding


Because promotion of the Hotline will result

in more tips . . . OSA plans to add

more supervisors and staff positions to the

Investigative Division in 2008.


offuturecontractsgiventheconcernsraised.

Auditorsalsodiscoveredthecontractorviolated

contractualprovisionsrelatedtopriceadjustments

anditemizedpick-uplists.Thecontractorchanged

thewayitinvoicedchargesforspotrepairswithout

notifying P&C as required by the contract terms.

Further, the contractor failed to provide itemized

listsofeachtirecasingpickedupbythecontractor

resultingintwoLEA’sreceivingthewrongretread

tiresinreturn.OSArecommendedthecontractor

comply with all contract provisions by notifying

P&Cofpricechangesanddevelopinganinventory

pick-upsheetthatidentifieseachtirepickedupfor

retreading.

UNIVERSITY OF NORTH CAROLINA

HOSPITALS / UNIVERSITY OF NORTH

CAROLINA SCHOOL OF PHARMACY

The Office of the State Auditor received an

allegationthroughtheStateAuditor’sHotlinethat

thePharmacyDirectorfortheUniversityofNorth

Carolina Hospitals requested reimbursements

fromUNCHospitalsandtheUniversityofNorth

Carolina at Chapel Hill’s School of Pharmacy

for identical travel expenses. The complainant

also alleged that the Pharmacy Director received

improper reimbursements for cellular telephone

expenses.

Aninvestigationof theseallegations foundthat

thePharmacyDirectorreceivedover$2,300inim-

properreimbursementsfortravelandotherexpens-

es.Inaddition,auditorsfoundthatthePharmacy

Director improperly received over $2,300 for the

reimbursementofcellulartelephonecharges. The

Director reimbursed the University $1,202 upon

theinitialdiscoveryoftheimproperpayments.

IncompliancewithState law, theStateAuditor

notified the North Carolina Attorney General

and appropriate law enforcement agencies of

apparent instances of malfeasance, misfeasance,

or nonfeasance by an officer or State employee.

In addition to other recommendations, Auditors

recommended that the Pharmacy Director

reimburse the UNC School of Pharmacy and

UNC Hospitals for the balance of the improper

payments.

WAKE TECHNICAL COMMUNITY COLLEGE

AttherequestofthePresidentofWakeTechnical

CommunityCollege,auditorsconductedaspecial

review of contract and procurement activities

involving the Information Technology Services

DivisionoftheCollege.Thereviewdeterminedthat

WakeTech’sChiefInformationOfficerfabricateda

vendorquotetofacilitatetheawardofacontractto

alocalbusinessforjustunder$10,000.Inanother

instance, the Chief Information Officer violated

college policy by awarding a $10,400 contract to

the same local business without obtaining formal

proposals. Auditors also concluded that Wake

Tech’sExecutiveVicePresident’sapprovalofthese

transactions and personal friendship with the

ownerofthelocalbusinesscreatedtheappearance

ofaconflictofinterest.

OSA recommended that the College President

take appropriate disciplinary action regarding the

actions of the Chief Information Officer. OSA

alsorecommendedthatWakeTech’sBudgetOffice

provideadditionaltrainingtopurchasingdesignees

to ensure compliance with procurement policies


��Increasing Efficiency... Exposing Fraud

and procedures. A final recommendation called

fortheestablishmentofaconflictofinterestpolicy

that applies specifically to staff involved in the

procurementprocessatWakeTech

NORTH CAROLINA DEPARTMENT

OF ENVIRONMENT AND NATURAL

RESOURCES – DIVISION OF WASTE

MANAGEMENT

The Office of the State Auditor received an

allegation through the State Auditor’s Hotline

concerning a Processed Scrap Tire Material

– Market Development Grant awarded by the

DivisionofWasteManagement.Thepurposeofthe

grantwastoprovidefundingforamoldingsystem

that would produce rubber mats from recycled

tire material. Allegedly, a tire recycling company

thatreceivedthe$320,000grantfailedtofulfillthe

grant requirements including specified levels of

productionandsales.

Auditors concluded the tire recycling company

initially intended to create a sustainable rubber

mat business. However, after receiving the grant

award and in the course of developing the mat-

making process, the company was unable to

realize anticipated production and sales. To

recover a portion of the original investment,

auditors concluded the company set up and ran

themat-makingmachinetoobtaintheinitialgrant

payment and then fabricated documents to fulfill

the grant requirements and obtain subsequent

paymentsfromtheDivisionofWasteManagement.

OSA recommended that the Division of Waste

Management consider legal action to recover the

entiregrantaward.Thefindingswerealsoreferred

totheStateBureauofInvestigation.

NORTH CAROLINA DEPARTMENT OF

CULTURAL RESOURCES / FRIENDS OF THE

MUSEUM, NORTH CAROLINA MARITIME

MUSEUM, INC. / GALLANT’S CHANNEL

PROPERTY TRANSACTION

FollowingconcernsfromsomeCouncilofState

membersandawrittenrequestfromtheSecretary

oftheDepartmentofCulturalResources,theOffice

oftheStateAuditorconductedaspecialreviewofa

transferofpropertyfromanon-profitorganization

totheStateofNorthCarolinaandthefundingof

aboatraceandfestivalknownas“PepsiAmericas’

Sail2006.”Concernsincludedthelackofdisclosure

ofoutstandingdebtsagainsttheproperty,questions

regardingthevalueoftheproperty,thepossibility

thattheStatewaspayingforthelandasecondtime,

and potential misuse of funds regarding the Tall

Shipsevent.Theinvestigationresultedinmultiple

findingsregardinglackofsignedagreements,vio-

lationofNaturalHeritageTrustFundregulations,

improper notification of state officials, and poor

costcontrolfortheTallShipsevent.

Inaddition,theinvestigationpresentedadditional

informationthatclarifiedsomeoutstandingissues.

For example, the review determined the State

provided $3.45 million for the purchase of the

Gallant’sChannelpropertyin1996withatotalState

investmentof$8.9millionoverthenext10years.

Afterconsideringvariousappraisalsperformedby

different entities, the Office of the State Auditor

estimatedtheproperty’svalueexceeds$20million.

The investigation revealed there was no signed

agreementbetweentheStateofNorthCarolinaand

theFriendsoftheMaritimeMuseumregardingthe

ownershipordevelopmentoftheGallant’sChannel

property. Asaresult, theStatehadnocontrolor


�� Increasing Effi ciency... Exposing Fraud

input over the development of the property. Th e

Friendsof theMuseummaintained legal titleand

couldhaverefusedtotransfertheproperty,soldthe

property, or developed the site without recourse

from the State. Auditors recommended the State

develop written agreements for all property

transactionsandtheStatePropertyOfficereviewits

filestodetermineifsimilararrangementsexist.

In addition, auditors

found the State Property

Office failed tocomplete the

property acquisition process

afterCouncilofStateapproval

in1998andtheDepartment

of Cultural Resources did

notnotifytheStateProperty

Officewhenthepropertywas

deeded to the State in 1999.

Further, theCouncilofState

wasnotproperlyinformedof

outstandingliensfiledagainst

the property in October

2006 prior to accepting the

property transfer. Auditors

recommended the State

PropertyOffice review itsfiles and require copies

of deeds before closing any property transaction

file. Further, the Office of the State Auditor

recommended the State Property Office disclose

all pertinent information to the Council of State

includingprovidingdetailsinwritinginadvanceto

Councilmembersforcomplextransactions.

RegardingtheTallShipsevent,theinvestigation

discoveredthePepsiAmericas’Sail2006,LLCdid

nothave signedcontractswithvendors formajor

services.Th elackofsignedcontractscontributed

to the cost escalation for the event. In addition,

insufficient revenue and inadequate cost control

resultedinfinanciallossesfortheTallShipsevent.

Several factors contributed to the event losses of

almost $2 million such as inadequate planning,

unrealisticattendanceestimates,failingtodesignate

oneindividualorcommitteeasultimatelyincharge,

poorweather, lackofshipsavailableforboarding,

and customer complaints

leading to discontinued

ticket sales and refunds.

OSA recommended the

Department of Cultural

Resources establish

procedures for organizing

and managing cultural and

entertainment events that

support North Carolina

arts and history to help

ensure the event’s success

whileminimizingtheriskof

financialloss.

NORTH CAROLINA

STATE UNIVERSITY

– FACILITIES OPERATIONS DEPARTMENT

Investigatorsreceivedanallegationthroughthe

State Auditor’s Hotline that an employee of the

NorthCarolinaStateUniversity(NCSU)Facilities

Operations Department wrote specifications for

buildingmaintenanceprojects,participatedinthe

bid solicitation and selection process, and sold

equipment to a contractor that was awarded the

contract. Th is employee allegedly also oversaw

the performance of a convenience maintenance

contractawardedtothesamecontractor.


Th e investigation resulted

in multiple fi ndings

regarding lack of signed

agreements, violation of

Natural Heritage Trust

Fund regulations, improper

notifi cation of state offi cials,

and poor cost control for the

Tall Ships event.


Investigators found a project manager used his

University position to derive a direct benefit for

his private business. In his capacity as a Facility

Mechanical Engineer, a NCSU project manager

wrotespecificationsforthepurchaseandinstallation

ofachillerwhilealsobeinginvolvedinthepublic

bidreviewandamendmentprocess.Investigators

review of the project manager’s NCSU computer

revealed the project manager was the owner of

a company who supplied the chiller at a $10,000

mark-uptothecompanyawardedthecontractwith

NCSU.Investigatorsdiscoveredothertransactions

between the project manager’s company and the

contractor.Intotal,investigatorsidentifiedanother

$14,000 in payments to the project manager’s

company from the contractor. Investigators

recommended NCSU establish policies related to

constructioncontractsthatrequiremanagementto

review information related to any subcontractors,

suppliers, or other vendors for the primary

contractor. In addition, management should

performperiodiccomparisonsofNCSUemployee

informationandvendorinformationtodetermine

if any employee is receiving payments also as a

vendororcontractor.

Inaddition,investigatorsdiscoveredtheproject

manager failed to properly disclose secondary

employmentinformationtomanagement.Analysis

of the project manager’s computer revealed

numerousfilescontainingpurchaseorders,invoices,

jobquotations, andcorrespondence related tohis

personal company. These documents were dated

subsequent to his employment with NCSU and

indicated ongoing business relationships with

various heating and air conditioning contractors

and vendors in North Carolina and other

states. The project manager admitted he had

not completed required secondary employment

forms or notified management of his secondary

employment activities. Further, the project

manager acknowledged attempts to conceal these

business relationships by portraying his wife as

theownerofhisprivatecompanyandusingafalse

business address in Kansas. OSA recommended

NCSUensureallemployeescompleteasecondary

employment form in accordance with State

Personnel policies and consider requiring all

employeeswhohavepositionsinvolvingmanagerial

decision-makingtocompleteanadditionalconflict

of interest statement annually. The findings were

alsoturnedovertothelocalDistrictAttorney.

NORTH CAROLINA DEPARTMENT OF

TRANSPORTATION

Auditors received allegations through the

State Auditor’s Hotline that the Assistant State

Geotechnical Engineer misused funds paid to

the Department of Transportation (DOT) by the

attendees,exhibitors,andsponsorsofaconference

hostedbyDOT.Auditorsidentifiedeightinstances

totaling over $36,000 in which conference funds

weredisbursedinviolationofdepartmentalpolicy

requiringapprovalsbytheDOTPurchasingOfficer.

Inaddition,DOTspentover$1,200inconference

funds to purchase information technology items

without the approval of DOT’s Purchasing or

Information Technology divisions as required by

policy. OSA recommended management take

appropriateactionfortheGeotechnicalEngineer’s

failure to follow policy and reemphasize the

importance of compliance with purchasing and

informationtechnologyregulations.


�6 Increasing Effi ciency... Exposing Fraud

NORTH CAROLINA SCHOOL OF SCIENCE

AND MATHEMATICS

Investigators received allegations through the

StateAuditor’sHotlineregardingthefinancesfora

studentexchangetriptoGermanyinFebruary2005.

Allegedly,theNorthCarolinaSchoolofScienceand

Mathematics(SchoolofScienceandMath)didnot

fully refund surplus travel fees to the parents of

studentparticipants.

Studentsparticipating

in the exchange trip

paid $1,500 in advance

to cover costs and

trip materials with

the indication that

any unspent money

would be refunded.

Investigators found the

totalcostofthetripwas

approximately $16,500

despite collections of

$30,500,andasaresult,

School of Science and

Math administrators

should have refunded

19students$707.56and

one student $607.56.

However,theSchoolonlyrefunded$565perstudent

andretainedabalanceofover$2,700towardsthe

costoffutureexchangetrips.Th einvestigationalso

revealed the School of Science and Math did not

sufficiently disclose the trip’s finances or how the

surplusfundswouldbeapplied.

OSA recommended the School of Science

and Math notify parents that fees were retained

and provide each parent an opportunity to either

receivearefundorindicatetheirdesiretomakea

donationtotheexchangeprogram.Inaddition,the

administrationshouldclearlydiscloseinfuturefee

schedulesthataportionoffeesmaybeappliedto

programactivitiesinsubsequentyears.

NORTH CAROLINA UTILITIES COMMISSION

PUBLIC STAFF

Th e Office of the

State Auditor received

acomplaintallegingthe

Information Technol-

ogyDirector (Director)

for the North Carolina

Utilities Commission

PublicStaffusedastate

computer and network

resources to teach col-

lege courses during the

normal work day. Th e

Director completed a

secondary employment

form that indicated he

only taught one class

at one local college.

However, auditors de-

termined the Director

taught courses at Peace College, Wake Technical

CommunityCollege,andCapellaUniversityduring

thepasttwoyears.Whilethemajorityoftheclass

schedulestookplaceduringtheeveningsandweek-

ends,someclasseswerescheduledduringtheday.

Auditors concluded the Director violated agency

policybyexcluding two teachingpositionswhich

preventedmanagement fromadequatelyassessing

theeffectofthesecondaryemployment.


School of Science and Math should have

refunded 19 students $707.56 and one student

$607.56. However, the school only refunded $565 per student and retained a balance of over $2700

towards the cost of future exchange trips.

��Increasing Effi ciency... Exposing Fraud

AnalysisofcomputerfilesconfirmedtheDirector

used state computer resources for his secondary

employment. An examination of his state-issued

computer revealed over 8,300 e-mails related to

secondaryemploymentoverasix-yearperiodand

over900additionale-mailsrelatedtostudentsand

staffattheeducationalinstitutionsidentifiedabove.

Th ese e-mails were generally sent during normal

work hours and included the Director’s contact

information at the Utilities

CommissionPublicStaff.

OSA recommended man-

agementtakeappropriatedis-

ciplinaryactionfortheDirec-

tor’s failure to fully disclose

the extent of his secondary

employment and for violat-

ing the “reasonable personal

use”provisionoftheagency’s

internet policy. In addition,

management should ensure

employees fully disclose sec-

ondary employment on an

annual basis and re-empha-

sizetheinternetusagepolicy.

NORTH CAROLINA AGRICULTURAL AND

TECHNICAL STATE UNIVERSITY

Investigators received allegations through

the State Auditor’s Hotline that the Assistant

Vice Chancellor of Police and Public Safety at

North Carolina Agricultural and Technical State

University (University) used a University cellular

phoneforpersonalcalls.Ananalysisofcellphone

records indicated the Assistant Vice Chancellor

accumulatedover2,400minutesofairtimeusefor

callsofapersonalnature. Th ismisuseof thecell

phone violated University policy and resulted in

over $1,100 of wireless charges for personal calls.

OSArecommendedtheAssistantViceChancellor

reimburse the University for these calls and that

management re-emphasize the policy prohibiting

personaluseofstate-issuedcellphones.

NORTH CAROLINA

DEPARTMENT OF

HEALTH AND HUMAN

SERVICES -- DIVISION OF

PUBLIC HEALTH

Anallegationwasreceived

through the State Auditor’s

Hotlineconcerningaconflict

of interest related to second-

ary employment within the

Physical Activity and Nutri-

tion Branch of the Division

of Public Health. Auditors

confirmedthatmanagement

createdabusinesstoprovide

consultingservicestogroups

outsidestategovernmentandNorthCarolinasince

2001. However, management did not complete a

secondary employment form or receive manage-

mentapprovalasrequiredbydepartmentalpolicy.

OSA recommended that management submit a

secondaryemploymentformformanagementap-

provalandthatDepartmentofHealthandHuman

Servicesmanagementreinforcetherequirementto

employeesincludinganannualupdate.


Management should

ensure employees fully

disclose secondary

employment on an

annual basis and

re-emphasize the

internet usage policy.

�� Increasing Efficiency... Exposing Fraud

ManagementServices&NongovernmentalComplianceDivision

The Management Services and

Nongovernmental Compliance Division

(MS&NGCD), has the responsibility of

increasing oversight and accountability of State

and Federal pass-through grants typically given

tononprofitorganizations. TheDivision, formed

in July 2005 in response to changes in grants

reporting statutes, responds to the growing need

forcomplianceoversightandtrainingtoadhereto

changingreportingrequirements.

The impetus for the creation of MS&NGCD

was twofold. First, OSA needed to refocus its

resourcesto increasetrainingand“bestpractices”

for nonprofit organizations receiving State grants.

Second, OSA needed to increase compliance and

accountabilityoffundsonthegranteeandfunding

agencylevels.TheDivisionhassetmeasurablegoals

for2008basedontheaccomplishmentsofthepast

twoyears.

OSA is proud to report that MS&NGCD

continuestomeetallareasofitsoriginalmission.The

followingisasummaryof2007accomplishments,

brokendownbyinternalcategory:

Training

• Grants Training: During fiscal year 2007, the

Divisiontrained4,535participantsin72training

sessions,bringingthetotalnumberofparticipants

trained since August 2005 to approximately

8,500.Thistraininghascontinuedtocontribute

tofewergranteesinnoncompliance.

• Effective Grants Administration Certificate

Program: Working with the Office of State

Personnel,theDivisionestablishedtheEffective

Grants Administration Certificate Program

consisting of 5 core grants training courses

that provide the basics for good oversight and

accountabilityofgrantfunds.Duringfiscalyear

2007, 63 grantee and agency personnel have

earnedthisCertificate.

• Multifaceted Training: Other types of training

includedgrantsadministrationsessionsdirected

at State agency personnel, grants reporting/

accountability sessions directed at grantees,

special sessions conducted at the request of

various groups (e.g., DHHS and state level

associationsofvarioustypes)andpresentations

at17conferencesduringthefiscalyear.

• Web-based Training Resources: The Division

provided templates, reference materials

and training tools to all participants online.

Additionally, considerable work was done on

setting up e-Learning opportunities for grants

training. This work resulted in the first online

e-Learning offering for the 2-hour Grants

AdministrationUpdatepostedonJuly31,2007.

Compliance

• Increased Grantee Compliance: Posting the

monthly noncompliance list on OSA’s web

page has served to inform legislators, State

AnnualReport2007|ManagementServices&NongovernmentalComplianceDivision


funding agencies, and the public of which

grantees have not complied with the statutory

reporting requirements. While the monthly

noncompliance percentage varies, at June 30,

2007 the noncompliance rate had dropped to

18.5% reflecting the proper accounting of an

additional$32million.

• IncreasedReviewofGrantees’AnnualReports:

During fiscal year 2007, OSA reviewed 61%

moregranteeannualreportsduetochangesin

statutoryregulations thataffected2006annual

reportsfiledinfiscalyear2007.Asaresult,the

number of grants covered under OSA’s review

increased to 4,786 from 2,969 in fiscal year

2006.

• Timely Processing of Grantee Reports: The

Division has shortened the time it takes to

processgranteereportsfroma5-monthbacklog

in 2005 to processing within approximately 3

daysofreceiptin2007.

• Online Reporting Program: Working in

conjunction with the Office of Information

TechnologyServices,theDivisionisfinalizinga

newonlinereportingprogramforStateagencies

andgrantees.Thisprogram,whichisscheduled

tobefullyoperationallybyDecember2007,will

eliminate redundancy, increase data capture

efficiency,andimprovereportingtimeliness.

Best Practices and Research Assistance

• Quarterly Best Practices newsletter: This

newsletter updates grantees on state grant

requirements,potentialfinancialaccountability

problems and developing adequate internal

policiesandaccountingcontrols.TheDivision

publishedfourquarterlyissuesduringfiscalyear

2007whicharepostedontheOSAwebpage.

• ResearchandReportingAssistance:TheDivision

continues to provide assistance, via telephone

oremail,onunique,confusingandcomplicated

questionsrelatedtograntsreporting.

• CurrentDocumentsandFormats:TheDivision

provides grantees and funding agencies

information on required grant reporting

documents and formats through developing,

updatingandmaintainingonlineformsdictated

bythereportingstatute.

Agency and Grantee Examinations

• Grant Examinations: The Division began

conducting agency and grantee examinations

in June 2006. For Fiscal Year 2007, OSA has

initiated25grantexaminations(21completed)

thatresultedinOSArecommendingrepayment

of$419,000ingrantfunds,equaltoanaverage

of$20,000perexamination.

• ExaminationTrainingTools:TheDivisionuses

the examination process to educate agency

personnel on monitoring techniques and to

suggest improvement to those techniques. In

addition,theexaminationprovidesanexcellent

opportunitytoprovidebestpracticeinformation

onimprovingaccountabilitytograntees.

Special Projects

• Local Government Grants: The Division has

workedcloselywiththeLocalGovernmentCom-

missionatthestateleveltoidentifyandcapture

dataongrantsflowingtolocalgovernmentunits.

Theresultisasummaryreportandgrantsdata-

basethatispostedontheOSAwebpagegiving

informationabouttheapproximately$12billion

inStateandFederalgrantsatthelocallevel.This

reportwillbeupdatedannually.


20 Increasing Efficiency... Exposing Fraud

• AuditFindingsDatabase:TheDivisionupdates

and maintains an audit findings database to

identify problem trends at State agencies. This

database assists in internal audit planning and

theidentificationofbestpracticestosharewith

Stateagencyandgranteepersonnel.

Going into 2008, the Division will focus on

implementing the Grants Information Center

(GIC) online reporting system. This will entail

conducting training sessions statewide for both

fundingagencyandgranteepersonnel.Successful

implementation of the GIC system will greatly

increase the accuracy and timeliness of grants

data to all interested parties while significantly

decreasing theworkloadof the fundingagencies

and the Division. Furthermore, GIC will afford

thegranteesamuchsimplermethodofcomplying

withstatutoryreportingrequirements.

Compliance reporting and subsequent pro-

cessingisanimportantbenchmarkinhoweffec-

tive MS&NGCD is at compliance and account-

ability. While OSA cannot control the number

of reports it receives, it can control its efficiency

inregardtobringingnoncompliantgranteesinto

compliance.Thenumberofnoncompliantgrant-

eesebbsandflowswithreportingdeadlinesand,

forfiscalyear2007,wassignificantlyimpactedby

the statutory change in reporting requirements.

Thatstatutorychangepresentedunexpectedchal-

lengestoour2007goalofa30%reductioninthe

number of noncompliant grants. The Division’s

goal for2008 is tocontinueefforts toreduce the

numberofnoncompliantgrants.

Coordinatingandcooperatingwiththegrantor

agency is of primary importance to successfully

monitor and review nonprofits and their

grantor agencies. The Division posted 29 grant

examinationsandexceededitsgoalofcompleting

24 examinations during fiscal year 2007. The

goal for 2008 is to increase the number of new

examinations from 29 completed in 2007 to 40

bytheendof thisfiscalyear.Inaneffort tohelp

train agency monitors to be proactive thinkers,

theDivisionplanstoconductseparatemonitoring

examinations of grantor agencies. For fiscal year

2007, these examinations were conducted in

conjunction with the grant examination. The

Division’sgoal is tocomplete12 separateagency

monitoringexaminationsbytheendofnextfiscal

year.

Training is an important function of

MS&NGCD and the Division plans to continue

itseffortsin2008byofferingbothliveandonline

grantstraining.Plansaretoconductaminimum

of6livesessionspermonth,inadditiontooffering

online courses in an e-Learning format. An

importantpartoftrainingisprovidinginformation

to grantees and grantors that is relevant to their

particularcircumstances.Toaidinthiseffort,the

Division will continue to issue its Best Practices

quarterly newsletter and identify other efforts to

benefitbothgrantorsandgrantees.BestPractices

is distributed to all 3,789 grantees identified in

our grants database, as well as agency personnel

involvedwithgrantsadministration.

AnnualReport2007|ManagementServices&NongovernmentalComplianceDivision

2�Increasing Effi ciency... Exposing Fraud

OSA’s Performance Audit Division is

designed to allow for flexible deploy-

ment of resources while upholding

strictauditingstandards.Unlikeprescheduledfi-

nancialaudits,thesubjectsofperformanceaudits

arechosenatthediscretion

of the State Auditor upon

consideration of two fac-

tors: greatest risk potential

and greatest opportunity

for impact. Upon release,

performanceauditsprovide

the public, agency manag-

ers and program managers

with an objective analysis

of whether State agencies

efficiently and effectively

manage their programs

andactivities.Furthermore,

theseauditsareofparticu-

lar value to legislators who

mustconsidertheeffectivenessofStateprograms

infundingdecisionsandtothetaxpayerswhopay

forthoseprograms.

OSA’seffortsinthePerformanceAuditDivision

during2007revolvedaroundretoolingitsworkto

produce reports that are narrower in scope and

target specificprogramsorareaswhere theState

is at greatest risk. Training for the Division’s au-

ditorsandstafffocusedonperformancemeasure-

mentandbusinessprocessimprovement.Weekly

trainingsessionsinstructedauditorshowtoiden-

tify opportunities to make government operate

moreefficiently,howtoevaluate therelationship

between program results and the resources used

toachievethoseresults,andhowtodevelopmea-

surement based audit objectives. Th e continued

reengineeringofthePerformanceAuditDivision

willresultinvalue-addedauditsthatfocusonpro-

activeissuesandstrengthen

the State Auditor’s watch-

dogfunctioninStategov-

ernment.

Th e following are sum-

maries of the Performance

Audit Division’s audit re-

ports:

State Children’s Health

Insurance Program

(SCHIP)

Th e audit objective was

to determine if the State

could realize cost savings

by moving SCHIP claims

processing from the State Health Plan to the

DivisionofMedicalAssistance.

Th e audit found that the State could realize

nearly $16,000,000 in annual savings and have

accessto$3,500,000currentlyheldinreserveatthe

StateHealthPlanbymovingtheresponsibilityfor

SCHIPmedicalclaimsprocessing fromtheState

HealthPlantotheDivisionofMedicalAssistance.

BasedontheSCHIPmedicalpaymentsbudgeted

for the2008fiscalyear,almost10,000additional

children could be enrolled in the program and

receive medical coverage using the recurring

administrativesavingsandadditionalrebates.


PerformanceAuditDivision

� e continued

reengineering of the

Performance Audit

Division will result in

value-added audits that

focus on proactive issue

and strengthen the State

Auditor’s watchdog

function in State

government.

22 Increasing Effi ciency... Exposing Fraud

New Vistas – Mountain Laurel Inc, Mental

Health Service Provider

As a result of a request by several members

of the North Carolina General Assembly and

local leaders, the State Auditor conducted a

performance audit on New Vistas – Mountain

Laurel,Inc.(NVML).Th eaudit’smainobjective

wastodeterminethecausesforthedemiseofthis

localmentalhealthserviceprovider.

Th eauditfoundthatwhilesystemicissueswithin

mentalhealthreformcontrib-

uted to theclosingofNVML,

the organization encountered

significantbusinesschallenges

that severely compromised its

abilitytosucceed. Contribut-

ingfactorsincluded:problems

originating fromNVML’scre-

ation as a spin-off organiza-

tionfromtheBlueRidgeArea

Authority; financial instabil-

ity due to inadequate capital

resources, cash flows, and in-

formation and financial man-

agement systems; and staffing

deficiencies.

Th e audit also identified several key statewide

issueswhichwerepresentedas issues for further

study.Th eyinclude:

• Th eneedtodefinetherolesofkeyplayersinthe

mentalhealthreformefforts,particularlyat the

stateandcountylevels.

• Th e sufficiency of the current private provider

formattoensurethatadequateservicesareavail-

ableandprovidedinallareasasneeded.

• Th eimmediateneedforcrisiscenterstoaddress

currentneedsandthepotential increasedueto

theplannedphase-outofState-basedfacilities.

Indigent Defense Services

Th e audit objectives were to determine if the

Office of Indigent Defense Services’ policies and

procedures provide reasonable assurance that

independent and competent legal services are

provided to indigent defendants, determine if

payments for legal services are made accurately

and efficiently, and make

recommendations regarding

processimprovements.

Th e audit found that attor-

neysrepresentingindigentde-

fendantswerenot sufficiently

independentof judicial influ-

encebecausejudgesperformed

managerialfunctions,suchas

appointing Public Defend-

ers to office, assigning cases

to attorneys, establishing at-

torneyrosters,andapproving

attorneyfeepaymentapplica-

tions. Inaddition, theOffice

of Indigent Defense Services’

policiesandproceduresdidnotadequatelyensure

thatcompetentlegalrepresentationwasprovided

forindigentdefendantsbecausestatewidecriteria

werenotusedtoselectqualifiedattorneys,attor-

neyperformancewasnotsystematicallyevaluated,

and standardprocedureswerenot established to

monitorandresolveclientcomplaints.

Th e audit also found that attorney fee pay-

mentprocedureswere inefficientand inadequate

to prevent duplicate payments, overcharges, or

AnnualReport2007|PerformanceAuditDivision

payments for legal services are made accurately

� is mental health

audit also identi� ed

several key statewide

issues which were

presented as issues for

further study.

2�Increasing Efficiency... Exposing Fraud

unauthorized payments. Procedural weaknesses

includedfailuretoverifycasenumbersonfeeap-

plications,lackofdetailedtimesheetstosupport

charges,attorneyswithmultiplevendornumbers,

andinadequatesegregationofduties.

ThereportalsostatedthattheOfficeofIndigent

Defense Services lacked adequate resources to

properly address many of the issues identified

duringtheaudit.

Office Supplies Term Contract

Administered by the Purchase and

Contract (P&C) Division of the Department

of Administration

The objective of this performance audit was

to determine whether P&C was effectively

monitoringvendorperformanceofthestatewide

term contract for office supplies. We performed

teststodetermineifquotedcatalogprices,aswell

asactualpriceschargedtoStateagencies,agreed

with contract prices. In addition, we tested to

determineifitemsofferedunderthecontractwere

availableforpurchase.

TheauditfoundthatP&Cwasawareofpricing

errorsandproductavailabilityissues,buthadnot

takenstepstoidentifytheunderlyingcausesofthe

problems and subsequently require permanent,

correctiveactionfromthevendor(OfficeDepot).

In addition to identifying $40,887 in vendor

overchargestoStateagencies,theauditconcluded

that the absence of permanent, corrective action

compromised State agencies’ assurance that

contracted items would be readily available for

purchaseatcontractedprices.

Economic Development Studies

The audit objective was to assess the

implementation status of several significant

recommendations addressed in consultants’

studies.TheseconsultantswerehiredbytheState

orrelatedorganizationstoassesstheoperationsof

North Carolina’s economic development system.

The studies presented similar findings, although

theywereperformedatdifferenttimesbydifferent

consultants.

The audit found that the Department of

Commerce does not function as the lead

agency for economic development activities for

the State. Instead, the regional commissions

and partnerships set their marketing agendas

independentlyfromtheDepartment.Also,North

Carolina’seconomicdevelopmentobjectives,roles,

andvisionarenotcleartomanyintheeconomic

developmentcommunity.Astatewidemarketing

plan inclusive of all the economic development

systemhadnotbeendeveloped.

TheauditalsofoundthattheGovernorplaysakey

roleindeterminingtheeconomicplanforNorth

Carolina.ResultsfromsurveysofNorthCarolina’s

economic development participants suggested

thattheGovernor’svisibilityandleadershipcould

beenhancedbymoreinvolvementwiththelocal

economicdevelopmentcommunity.

Finally, the audit found that monitoring of

the regional partnerships by the Department

was limited. Monitoring efforts did not focus

on comparing actual accomplishments to

specific goals and performance measures for the

partnerships.


2� Increasing Effi ciency... Exposing Fraud

Enterprise Project Management Offi ce

(EPMO)

Th e objectives of this assessment were to

determine thedesignand implementationof the

recently created Enterprise Project Management

Office, and determine if the policies, procedures

and methodologies employed significantly

improvedthelikelihoodthatagencyinformation

technology (IT) implementation projects

would be successful. Th is

assessment was performed

under contract with the IT

management firm of Berry,

Dunn,McNeil,&Parker.

Th e team concluded that

theEPMOhasimprovedthe

likelihoodthatstateagency

IT projects are completed

on time, within budget,

and with the required

functionalityascomparedto

thepre-EPMOenvironment

(i.e.,priortoJanuary2005).

Th e team also identified

several findings and

recommendationsinsixkey

topicalareas.Th esefindingsandrecommendations

providebestpracticeinsightandopportunitiesfor

improvedservicesforthestillmaturingoffice.

Internal Auditing In North Carolina

Agencies and Institutions (Update)

Th e prior year performance audit found that

theState’s internalaudit function is inadequately

staffed and is in need of more direct guidance

from the General Assembly. Furthermore, no

universal State criteria or minimum standards

existedregardinginternalauditeffort,authorityor

responsibilities.

Based on the findings

and recommendations

fromthisaudit,theGeneral

Assemblyinitiatedafurther

study of the internal audit

effortswithin theStateand

later enacted the North

Carolina Internal Audit

Act. Legislation now

requires agencies with an

annual operating budget

of$10million inoperating

revenue, agencies with

more than 100 employees,

or agencies that receive

andprocessmore than$10

million in cash in a fiscal

yeartohaveaninternalauditeffort.Th eactalso

sets requirements for the types of audit work to

beperformed,professionalauditingstandards to

be followed, minimum qualifications of internal

audit staff, andadirect reporting relationship to

theagencyhead.

AnnualReport2007|PerformanceAuditDivision

� e NC General

Assembly enacted the

North Carolina Internal

Auditing Act based on a

2006 Performance Audit

on internal auditors in

State agencies.



InformationSystemsAuditDivision

The Information Systems Audit Division’sresponsibilities include analyzing Stateagency computer systems to ensure that

theyareproperlysecured,produceaccuratefinancialreportsandcomplywithStateregulations.StaffinthisdivisionconducttheirownauditsofcomputersystemsacrosstheState.Inaddition,theyprovideISauditassistancetofinancialauditteamstoensurethatagencycomputerizedaccountingsystemscanbereliedupontoproduceaccuratefinancialreports.Without those assurances, financial audit teamswouldbeunable to issueunqualifiedopinionsontheaccuracyofagencyfinancialstatements.

IS Audit Division auditors are in a uniqueposition to think proactively about discoveringsuspicious data trends flowing from an agency’sinformation systems. OSA’s goal for 2006 was tointegrateISauditorsintoFinancialandInvestigativeaudit teamsand to increaseproactiveauditingbyproviding computer forensic assistance and datamininganalysesofagencyfinancialdata.

To accomplish this goal, OSA developed anew tool called Strategic Reviews that are issuedseparatelyfromISaudits.Thesereviewsareusedtouncoverfraud,wasteorabuseoftaxpayerresourcesby following suspicious State agency data trends.While initiated and coordinated by the IS AuditDivision, these reviews involve auditors from alldivisionsoftheOSA.

StrategicReviewsbuildabridgefromanabstractproactive policy to the actual practice of beingproactive.ByconductingStrategicReviewsthroughthe use of data mining analysis, OSA is in theforefrontofauditingtrends.Toimproveinnovationandeffectiveness,OSAhostedanonsitevisitofaleadingexpertindataminingfromBrighamYoungUniversity. Fueled by resources from AuditWatch

efficiencygains,OSAplanstoincreasethenumberofStrategicReviewstobringmoreaccountabilitytoStategovernment.

The OSA’s emphasis for the future is to weavemoreISAuditDivisionauditorsintootherauditingprocesses to instill a team-centered approach.Together, the team can more readily identifysecurityrisksorsuspiciousdatatrends.TheGeneralAssembly has approved OSA’s request to hire 6additionalauditorsover twoyears to facilitate theteam-centeredapproachtoauditing.

ThefollowingisasummaryofISAuditDivision’sreportsandreviewsconductedduring2006-2007:

Strategic Review: North Carolina Division

of Motor Vehicles

The purpose of this Strategic Review was toidentify invalidsocial securitynumbers (SSNs) inthe North Carolina Division of Motor Vehicles’driver’slicensedatabase.Thisreviewfound14,122invalidSSNs.Inaddition,thereviewfound12,796SSNs that belonged to deceased persons on theSocialSecurityAdministration’sDeathFile.

Strategic Review: North Carolina

Department of the Treasurer

OSA received a tip that 10 local governmentretiree beneficiaries had been overpaid. OSAinitiated a strategic review to determine themagnitude of the overpayment. OSA selected asampleofLawEnforcementOfficerRetireeswithintheLocalGovernmentRetirementSystem(LGRS),andastatisticalsampleofretirees fromtheentireLGRS population. Our review noted that the 10retireebeneficiarieswereoverpaidby$1,372,219.32.FromoursamplesofotherretireesintheLGRS,wedidnotfindanyadditionaloverpayments.

26 Increasing Efficiency... Exposing Fraud

Strategic Review: NC Department of Justice

The purpose of this Strategic Review was toidentify invalid social security numbers in thepayrollsystemattheNorthCarolinaDepartmentofJustice and to investigate unusual payments notedontheDepartment’spayroll.Thisreviewfoundthatoneretiredemployeecontinuedtoreceiveaspecialseparation law allowance for 20 months after thisemployee’sdeath.

Strategic Review: NC State University

The purpose of this Strategic Review was toidentify invalid social security numbers (SSNs) inthepayrollsystematNorthCarolinaStateUniversityand to investigate unusual payments noted onthe University payroll. This review found that 8University employees had SSNs that matched theSSNsofdeceasedpersons.Sevenoftheseemployees’numberswerekeypuncherrors.TheotheremployeewasusingaSSNthatbelongedtoadeceasedperson.Inaddition,oneUniversityemployeedidnothaveanI-9formonfile.

Strategic Review: UNC Hospitals

The purpose of this Strategic Review was toidentifyinvalidsocialsecuritynumbers(SSNs)inthepayrollsystematUNCHospitals.Thisreviewfoundthat UNC Hospitals failed to perform a quarterlyverificationofSSNsfortheiremployees.Inaddition,thisreviewfoundemployeeswhowereusingSSNsassignedtootherpeople(deceasedandliving).

Strategic Review: UNC-Chapel Hill

ThepurposeofthisStrategicReviewwastoidentifyinvalidsocialsecuritynumbers(SSNs)inthepayrollsystematUNCChapelHill.ThisreviewfoundoneemployeewhoseSSNmatchedtheSSNofadeceasedpersonontheSocialSecurityAdministration’sDeathFile.

IS Audit: Beaufort Community College – General Controls Review

OSA conducted an Information System audit ofBeaufort Community College (BCC). The primaryobjective of this audit was to evaluate IS general

controlsatBCC.Thescopeincludedgeneralsecurity,access controls, systems software,physical security,and disaster recovery. OSA found weaknesses inaccess controls and recommended improvementsto management in a private letter. The detailedresults of the assessments are kept confidential asto not announce control weaknesses to would-beintruders.

IS Audit: Fayetteville State University – General Controls Review

OSAstaffauditedFayettevilleStateUniversitywiththe primary objective to evaluate general controls.The audit’s scope included general security, accesscontrols, program maintenance, systems software,systemsdevelopment,physicalsecurity,anddisasterrecovery. OSAfoundseveralweaknesses inaccesscontrols.

IS Audit: UNC Pembroke – General Controls Review

OSA conducted a general controls audit atUNC Pembroke (UNCP). The scope of the auditincluded general security, access controls, programmaintenance,systemssoftware,systemsdevelopment,physicalsecurity,anddisasterrecovery.OSAfoundthatUNCPembroke’ssecuritypolicieswereindraftformat,asecuritybaselinehadnotbeendevelopedandUNCPhadnotperformedariskassessment.Inaddition, OSA found several weaknesses in accesscontrols.

Information Security Vulnerability Assess-ments – NC Department of Transportation

The purpose of this assessment was to gaugeNC DOT’s security posture at any given pointin time, identify security risks that might makean entity vulnerable to attack, and determineappropriate procedures to mitigate the identifiedrisks.Thedetailedresultsoftheassessmentsarekeptconfidentialastonotannouncecontrolweaknessesto would-be intruders. General results containingthenumbersofhigh,mediumand lowweaknessesarereleasedtothepublicthroughOSA’swebsiteandelectronicpostingservice.

AnnualReport2007|InformationSystemsAuditDivision



Staff in the Financial Audit Division audit

state agencies, universities, community

colleges,clerksofsuperiorcourt,andSmart

Start nonprofit organizations. The State Auditor

is required to perform these audits as part of

statutoryresponsibilitiesortocomplywithfederal

requirements. Some audits are performed at the

StateAuditor’sdiscretiontoensurethatallagencies

areproperlyreportingtheirfinancialconditions.

TheOfficeoftheStateAuditorspentthegreatest

percentage of hours (49%) to perform annual

financial statement audits/reviews of the State’s

sixteen universities and fifty-eight community

colleges. One of its largest financial audits is the

state’s Comprehensive Annual Financial Report

(CAFR), which accounted for 13% of staff hours.

TheCAFRcontainstheannualfinancialstatements

forthestateofNorthCarolinaasawhole.

Anothermajorfinancialauditproject,accounting

for 29% of staff time, is the state’s Single Audit

Report. The Single Audit Report contains the

resultsoftheauditofthestate’sfinancialstatements

andtheauditofthestate’scompliancewithlawsand

regulations pertaining to federal grant programs.

Theofficeperiodicallyauditsselectedfiscalcontrols

ofclerksofsuperiorcourtandgeneralgovernment

agencies.

Theauditstaffconductsfinancialandcompliance

audits of the organizations participating in the

Smart Start program, including the statewide

coordinating agency (the North Carolina

Partnership forChildren, Inc.)and the individual

localpartnerships.SmartStartisanearlychildhood

developmentprogramdesignedtopreparechildren

to begin school healthy and ready to succeed.

Currently, 79 Smart Start partnerships operate

throughoutthestate.

Financial Audit Results Summary

For the thirteenth consecutive year, the State

AuditorissuedanunqualifiedopinionontheState’s

financialstatements.Thisopinion,forthefiscalyear

ended June30,2006,wascontained in theCAFR

preparedbytheOfficeoftheStateController.

The State of North Carolina also received the

Certificate of Achievement for Excellence in

FinancialReportingfromtheGovernmentFinance

OfficersAssociationforthethirteenthconsecutive

year.Thisawardisgiventogovernmentunitswhose

CAFRachievesthehigheststandardsingovernment

accountingandfinancialreporting.

InconjunctionwiththeauditoftheState’sfinan-

cial statements, the State Auditor issues a report

oninternalcontroloverfinancialreportingandon

complianceandothermattersbasedonanauditof

financialstatementsintheSingleAuditReport.Six

findingsofnon-complianceandweaknessesinin-

ternalcontrolrelatedtothefinancialstatementau-

ditwerereported.Thesefindingsdisclosedinternal

controldeficienciesrelatedtoseparationofduties,

bankreconciliations,year-endfinancialreporting,

Medicaid cost settlements, Medicaid claims pay-

ments,andprocessingofstudentfinancialaidap-

plications.

Withregardtocompliancewithfederalprogram

requirements, the State Auditor issued a qualified

opiniononcertainfederalprogramsduetomate-

rial noncompliance with certain requirements. In

FinancialAuditDivision

2� Increasing Efficiency... Exposing Fraud

total,auditorsidentifiedquestionedcostsresulting

from89identifiedauditfindings.

In addition to reporting on the CAFR and

SingleAuditatthestatewidelevel,OSApublishes

inseparatelyissuedreportstheauditfindingsand

recommendations from CAFR and Single Audit

workforeachindividualgovernmentagency.

Reported findings from university and

community college audits for fiscal year 2006

primarily related to four areas: access rights,

financial statement preparation, management

oversight and internal control weaknesses. These

internal controlweaknesseswere inareas suchas

financial aid awards, cash receipts and deposits,

cashdisbursementsandseparationofduties.

IntheClerkofSuperiorCourtauditsperformed

in fiscal 2007, OSA noted internal control

weaknesses.Theseinternalcontrolweaknesseswere

in areas such as cash receipts and disbursements,

segregationofdutiesandtimelydeposits.Tobetter

direct our limited staff resources, we have set a

target of auditing each Clerk of Superior Court

everythreeyears.

Smart Start findings issued during 2005-2006

focused on internal control weaknesses, contract

management and monitoring, and competitive

bidding. Audit reports issued during the year

endedJune30,2007arelistedinappendixA.This

includedatotalof9auditreportsforthefiscalyear

endedJune30,2005,issuedsubsequenttoJune30,

2006.

ForthefiscalyearendedJune30,2006,theOffice

oftheStateAuditorperformed41auditsofSmart

Startpartnerships.CPAfirmsperformed25ofthese

audits,withOSAstaffperformingtheremaining16

audits.AllbutonereportwereissuedbyJune30,

2007.

OSA’sgoalistocompleteandreleaseall45Smart

Start audits for the 2006-07 fiscal year by April

30, 2008. It is anticipated the more timely release

of theauditreportswillallowtheNorthCarolina

PartnershipforChildrenandthelocalpartnerships

tomorequicklyaddressidentifieddeficienciesand

to make the necessary improvements to ensure

accountabilityofstatefunds.

AnnualReport2007|FinancialAuditDivision

OFFICEOFTHESTATEAUDITORMAINOFFICEANDBRANCHLOCATIONS

Morganton

Asheville

Charlotte

Fayetteville

Wilmington

Greenville

EdentonRaleigh

GreensboroWinston-Salem



Personnel

To be a proactive State agency, OSA must be

a responsible manager of its personnel. After

selecting the best qualified applicants, OSA must

then provide quality training to employees and a

qualitycontrolreviewofemployeesworkproduct.

Recruiting

OSA’sgoalistobuildrelationshipswiththeright

applicants.Thiswillreduceturnoverandeliminate

thewastethatfrequentturnovercreates.

OSAcontinuesitseffortstohiretalented,skilled

staffbyrecruitingonuniversitycampusesacrossthe

state.Wecontinuetoworkwithcampusfacultyto

participateinfaculty/studentmeetings,accounting

classesandotherevents.Significanteffortismade

to identify applicants who want to be challenged

andprovideaservicetothepublic.

In addition, OSA has made great strides in

its internship program. Internships provide

individualsanopportunitytoperformmeaningful,

career-related work with our office prior to

theirfinalyear in school. If that is successful, the

applicantswillbeinvitedtobegintheircareerwith

OSA.ThisprogramhasenabledOSAtohirevery

talented individuals who are looking for a long-

termrelationshipwithouroffice.

Training

OSAcontinuestoworktowardsthegoalofmore

effectiveandefficientaudits.Theseefficiencygains

allowOSAtoutilizeitsresourcestodomorewith

thecurrentauditorsand staffpositions. Training

forOSAauditstaffin2007includedeLearningand

a followup to the 2006 AuditWatch curriculum.

Efficiency levels were analyzed and AuditWatch

providedOSAwithfeedbackinareasthatneeded

improvement. AuditWatch also provided OSA

withtraininginusinganalyticsasanothertoolfor

moreeffectiveaudits.

Skills needed by OSA staff include the ability

toassess theriskof fraud inanauditandhowto

respondtothoserisks.InMay2007,OSAprovided

training to its entire staff on fraud detection and

interviewingskillsdesignedtoaidinthedetection

offraud.

TechnicalskillsarenotallthatisneededforOSA

stafftoaccomplishthegoalsandobjectivesofthe

office. OSAmanagersandsupervisorsneedskills

to manage their teams and maximize their team’s

productivity. Spectrum Development provided

training to OSA mangers and supervisors to aid

them in training, retaining and managing their

auditstaff.

Quality Controls

OSA’sworkproductisgovernedbystrictadher-

encetoprofessionalstandardspromulgatedbygov-

ernment agencies and professional organizations

includingtheGovernmentalAccountingStandards

Board,theFinancialAccountingStandardsBoard,

theFederalOfficeofManagementandBudget,the

Government Accountability Office, the American

InstituteofCertifiedPublicAccountants,andvari-

ous state and federal laws and regulations. These

standards require that auditors remain indepen-

dent,betechnicallyproficientandreceivecontinu-

ingprofessionaleducation,obtainsufficientappro-

GeneralAdministration


AnnualReport2007|GeneralAdministration

priate evidence to support conclusions, and issue

reportsthatclearlycommunicateauditresults.

OSAhasacontrolsystemtoensurethequality

ofauditwork.Thesystemincludesanexperienced

senior auditor in a Quality Control position,

supervisory review of all work product, and

management review of audit reports and critical

supportingworkpaperstoensurethatOSAdelivers

audits and reports with efficiency, expertise and

consistency.OSAmonitors theeffectivenessof its

qualitycontrolsystembyhavingstaffwhodidnot

participateinanauditperiodicallyreviewthework.

Toupholdthestandardsofthesupervisoryreview,

OSA’sgoal is thatallnewlyhiredSupervisor level

employeesandaboveinthefinancialauditdivision

have a valid CPA license, or the merit-based

equivalentinworkexperience.

AnotherlayerofOSAreviewexists.TheAgency

receivesapeerrevieweverythreeyearsunderthe

directionoftheNationalStateAuditorsAssociation.

During the peer review, members of audit staffs

fromotherstatesreviewtheoffice’squalitycontrol

system and workpapers for compliance with

auditing standards. The most recent peer review

wasperformedinJuly2006andresultedinaclean

opiniononthequalitycontrolsystem.

Processing & Publication

With over 190 OSA employees, the publishing

of audits, reports and reviews is a complicated

and time consuming process. Magnified by the

sensitivenatureof theaudit subjectmatter,OSA’s

administrative staff must be detail minded and

highly organized. The goals of accuracy and

timeliness are the staff ’s top priorities. However

without effective publication, the audit, report or

reviewwouldgounnoticed.

Publication of the audits, reports and reviews

is an essential part of OSA’s proactive posture.

A report exposing an instance of fraud, waste or

abuse of taxpayers’ resources, if publicized by the

statewide news media, becomes an effective tool

for thedeterrenceof future fraud,wasteor abuse

of taxpayers’ resources. OSA, through a positive

relationshipwith thenewsmedia,canproactively

deterothersfromcommittingsimilaractsoffraud,

wasteandabuseoftaxpayermoney.

Budgeting & Purchasing

OSAisthetaxpayers’watchdogagainstwasteful

spending of State resources. To be an effective

messenger,OSAmustensurethatitsresourcesare

spentaswiselyaspossible.

OSA’s appropriated budget is approximately

$16.6 million and the agency bills approximately

$3.6 million for federal audit work. In addition

tothecentralofficeinRaleigh,OSAhas9branch

officesthroughouttheStatewhichourbudgetoffice

isresponsibleformanagingfinancially.

Budgetingandpurchasingaregovernedbystrict

rules and regulations. An independent CPA firm

annually conducts a financial audit of the office

androutinelyissuesacleanopinionofitsfinancial

statements.

Management Information Systems (MIS)

The MIS Division of the Office of the State

Auditorischargedwithfourprimaryobjectives:

• Provide Information Technology services

including Operational Support, Application

Development, Infrastructure Management and

InformationSecuritytoAgencyPersonnel

• OversightofSenateBill991compliance



• Enterprise Information Technology strategic

planningfortheAgency

• InformationTechnologytacticalimplementation

inorderto increaseproductivity,efficiencyand

securityofcriticalbusinessfunctions.

Inadditiontoprovidingforthedailyoperational

support for Agency personnel, MIS completed a

numberofmajorprojectstoenhancetheefficiency,

qualityofservice,andsecurityoftheAgency.

MISworkedcloselywiththeOfficeoftheState

Controller toensure theAgencymetall technical

requirements for the Beacon Project (statewide

payroll application slated for implementation

in 2008). MIS also worked with ITS and the

Enterprise Data Warehouse service (as the first

customer of the new Statewide Enterprise level

service) to complete the Management Services

and Nongovernmental Compliance Division’s

GrantsComplianceonlineapplication,whichwill

greatlyenhancetheoperationalcapabilitiesofthat

Division.MIShascompletedaninternalupgrade

of theAgencyIntranet,completingachangeover

fromadynamicsitetoanindustrystandardportal

technology designed to encourage collaboration

among personnel and to enable a more efficient

workflow during audits. In conjunction with the

portalupgrade,MISpilotedane-Learninginitiative

tomaketrainingmoreefficientandcosteffective.

In addition, MIS has upgraded the Agencies

networkinfrastructuretomeetESAPrequirements

and has tested and implemented a new network

Intrusion Prevention System (IPS) to ensure the

security of sensitive Agency information. The

Agency servers have been upgraded to latest

versions and the capacity has doubled. Finally,

a single comprehensive Business Continuity

Plan (BCP) / Continuation of Operations Plan

(COOP)wasdevelopedandtestedtomeettheState

requirements of both documents and to address

Pandemic Influenza planning requirements. Also,

MISisworkingcloselywithITStosecurelymerge

the OSA network infrastructure into the State of

NorthCarolina’sarchitecture.

In2008,theMISDivisionwillcontinuetoprovide

quality operational support to Agency personnel.

Inaddition,theMISDivisionwillaggressivelywork

to provide technologies to Agency personnel that

will improve the efficiency and quality of Agency

critical business functions. The statewide payroll

system, Beacon, will be implemented in March

2008.Inthefirstquarterof2008theManagement

Services and Nongovernmental Compliance

Division application will be made available to all

customersandallAgencypersonnelwillcomplete

comprehensive training on the new internal

portal.Thee-Learningsystemwillbeexpandedby

incorporatinganadvancedLearningManagement

System solution. This will lead to expanded

educationandtrainingopportunitiesincludingthe

abilitytomakevitalinformationavailableviaweb

casting.Inaddition,anAgencywidee-Recruiting

solutionwillbedesignedandimplementedtoassist

intherecruitmentandhiringofqualitycandidates

foropenAgencypositions. Finally, infrastructure

andsecurityneedswillcontinuetobeassessedand

improvedwherefeasible.


AppendixAThefollowingreportsarelistedinreversechronologicalorderbyaudittypeandwereissuedfromJuly1,2006throughthedateofthisannualreport:

AnnualReport2007|AppendixA

Report Number Report Title Release Date

FCA-2007-2109 BrunswickCountyClerkofSuperiorCourt-FiscalControlAudit 9/26/2007FCA-2007-2178 RockinghamCountyClerkofSuperiorCourt-FiscalControlAudit 9/25/2007FCA-2007-2157 MartinCountyClerkofSuperiorCourt-FiscalControlAudit 9/12/2007FCA-2007-2127 DareCountyClerkofSuperiorCourt-FiscalControlAudit 7/10/2007FCA-2007-2137 GrahamCountyClerkofSuperiorCourt-FiscalControlAudit 6/29/2007FCA-2007-2174 PolkCountyClerkofSuperiorCourt-FiscalControlAudit 6/29/2007FCA-2007-6094 TheNorthCarolinaSchoolofScienceandMathematics-FiscalControlAudit 6/29/2007FCA-2007-2196 WilkesCountyClerkofSuperiorCourt-FiscalControlAudit 6/28/2007FCA-2007-2160 MitchellCountyClerkofSuperiorCourt-FiscalControlAudit 6/28/2007FCA-2007-2121 ClayCountyClerkofSuperiorCourt-FiscalControlAudit 6/25/2007FCA-2007-2143 HaywoodCountyClerkofSuperiorCourt-FiscalControlAudit 6/21/2007FCA-2007-2179 RowanCountyClerkofSuperiorCourt-FiscalControlAudit 6/14/2007FCA-2007-2175 RandolphCountyClerkofSuperiorCourt-FiscalControlAudit 6/11/2007FCA-2007-2104 AsheCountyClerkofSuperiorCourt-FiscalControlAudit 6/11/2007FCA-2007-2135 GastonCountyClerkofSuperiorCourt-FiscalControlAudit 5/30/2007FCA-2007-2134 FranklinCountyClerkofSuperiorCourt-FiscalControlAudit 5/23/2007FCA-2007-2172 PersonCountyClerkofSuperiorCourt-FiscalControlAudit 5/17/2007FCA-2007-2163 NashCountyClerkofSuperiorCourt-FiscalControlAudit 4/27/2007FCA-2007-2131 DurhamCountyClerkofSuperiorCourt-FiscalControlAudit 4/27/2007FCA-2006-2158 McDowellCountyClerkofSuperiorCourt-FiscalControlAudit 4/16/2007FCA-2007-2167 OrangeCountyClerkofSuperiorCourt-FiscalControlAudit 4/12/2007FCA-2006-3400 Treasurer,DepartmentoftheState-FiscalControlAudit 1/30/2007FCA-2006-6800 CommunityColleges,Departmentof-FiscalControlAudit 1/26/2007FCA-2006-4160 Controller,OfficeoftheState-FiscalControlAudit 9/14/2006FIN-2006-6086 ElizabethCityStateUniversity-FinancialStatementAudit 9/14/2007FIN-2006-6070 NorthCarolinaAgriculturalandTechnicalStateUniversity-FinancialStatementAudit 8/23/2007FIN-2006-6090 NorthCarolinaCentralUniversity-FinancialStatementAudit 8/17/2007FIN-2006-6807 BrunswickCommunityCollege-FinancialStatementAudit 8/7/2007FIN-2006-6878 SandhillsCommunityCollege-FinancialStatementAudit 8/7/2007FIN-2006-6822 CollegeoftheAlbemarle-FinancialStatementAudit 7/27/2007FIN-2006-6876 SampsonCommunityCollege-FinancialStatementAudit 7/12/2007FIN-2006-6808 CaldwellCommunityCollegeandTechnicalInstitute-FinancialStatementAudit 6/29/2007FIN-2006-6818 CentralPiedmontCommunityCollege-FinancialStatementAudit 6/29/2007FIN-2006-6843 BlueRidgeCommunityCollege-FinancialStatementAudit 6/29/2007FIN-2006-6834 ForsythTechnicalCommunityCollege-FinancialStatementAudit 6/27/2007FIN-2006-4205 NorthCarolinaTurnpikeAuthority-FinancialStatementAudit 6/27/2007


FIN-2006-6844 IsothermalCommunityCollege-FinancialStatementAudit 6/26/2007FIN-2006-6862 PittCommunityCollege-FinancialStatementAudit 6/26/2007FIN-2006-6854 MontgomeryCommunityCollege-FinancialStatementAudit 6/25/2007FIN-2006-8560 WirelessEmergencyTelephoneSystemFund-FinancialStatementAudit 6/25/2007FIN-2006-6880 SoutheasternCommunityCollege-FinancialStatementAudit 6/22/2007FIN-2006-6886 AlamanceCommunityCollege-FinancialStatementAudit 6/22/2007FIN-2006-6806 BladenCommunityCollege-FinancialStatementAudit 6/22/2007FIN-2006-6870 RobesonCommunityCollege-FinancialStatementAudit 6/11/2007FIN-2006-6850 MartinCommunityCollege-FinancialStatementAudit 6/6/2007FIN-2006-6892 WayneCommunityCollege-FinancialStatementAudit 5/31/2007FIN-2006-6824 CravenCommunityCollege-FinancialStatementAudit 5/30/2007FIN-2006-6828 DurhamTechnicalCommunityCollege-FinancialStatementAudit 5/29/2007FIN-2006-8550 NCAgriculturalFinancialAuthority-FinancialStatementAudit 5/29/2007FIN-2006-6888 Tri-CountyCommunityCollege-FinancialStatementAudit 5/23/2007FIN-2007-8303 USSNorthCarolinaBattleshipCommission-FinancialStatementAudit 5/23/2007FIN-2006-6853 MitchellCommunityCollege-FinancialStatementAudit 5/22/2007FIN-2006-6872 RockinghamCommunityCollege-FinancialStatementAudit 5/17/2007FIN-2006-4407 TownofButner-FinancialStatementAudit 5/17/2007FIN-2006-4620 NorthCarolinaStatePortsAuthority-FinancialStatementAudit 5/17/2007FIN-2006-6848 LenoirCommunityCollege 5/8/2007FIN-2006-6856 NashCommunityCollege 4/23/2007FIN-2006-6864 RandolphCommunityCollege 4/23/2007FIN-2006-6826 DavidsonCountyCommunityCollege 4/16/2007FIN-2006-6894 WesternPiedmontCommunityCollege 4/16/2007FIN-2006-8730 StatewideSingleAudit 4/13/2007FIN-2006-8530 NorthCarolinaGlobalTransparkAuthority 4/12/2007FIN-2006-6055 UNC-Asheville 4/12/2007FIN-2006-4900 CrimeControlandPublicSafety,Departmentof 4/5/2007FIN-2006-4600 Commerce,Departmentof 4/5/2007FIN-2006-3510a Treasurer,DepartmentoftheState 4/5/2007FIN-2006-4410 HealthandHumanServices-CAFRandSingleAudit 4/4/2007FIN-2006-6889 Vance-GranvilleCommunityCollege 4/4/2007FIN-2006-8025 NCStateBoardofElections 3/26/2007FIN-2006-8410 Auditor,OfficeoftheState 3/26/2007FIN-2006-6060 UNC-Wilmington 3/22/2007FIN-2006-6020 UNC-ChapelHill 3/19/2007FIN-2006-6092 NCSchooloftheArts 3/17/2007FIN-2006-4350 WildlifeResourcesCommission 3/16/2007FIN-2006-4650 EmploymentSecurityCommission 3/16/2007FIN-2006-6868 Roanoke-ChowanCommunityCollege 3/16/2007FIN-2006-3700 AgricultureandConsumerServices,Departmentof 3/15/2007FIN-2006-6040 UNC-Greensboro 3/15/2007




FIN-2006-6065 EastCarolinaUniversity 3/15/2007FIN-2006-4300 EnvironmentandNaturalResources,Departmentof 3/13/2007FIN-2006-4660 InformationTechnologyServices 3/9/2007FIN-2006-6800 CommunityColleges,Departmentof 3/9/2007FIN-2005-6090 NorthCarolinaCentralUniversity 3/9/2007FIN-2006-4200 Transportation,Departmentof 3/7/2007FIN-2006-6858 CoastalCarolinaCommunityCollege 3/2/2007FIN-2006-6816 CentralCarolinaCommunityCollege 2/26/2007FIN-2006-6050 UNC-Charlotte 2/14/2007FIN-2006-6095 UNCHospitals-NCMemorialHospital 2/2/2007FIN-2006-6082 UNC-Pembroke 1/30/2007FIN-2006-2103 AnsonCountyClerkofSuperiorCourt 1/29/2007FIN-2006-4160 Controller,OfficeoftheState 1/24/2007FIN-2006-6080 AppalachianStateUniversity 1/16/2007FIN-2006-3400 Treasurer,DepartmentoftheState 1/12/2007FIN-2006-6084 Winston-SalemStateUniversity 1/10/2007FIN-2006-6030 NorthCarolinaStateUniversity 1/4/2007FIN-2006-4700 Revenue,Departmentof 12/27/2006FIN-2006-6075 WesternCarolinaUniversity 12/20/2006FIN-2006-4670 NCEducationLottery 12/19/2006FIN-2005-8550 NCAgriculturalFinanceAuthority 12/7/2006FIN-2006-4800 CulturalResources,Departmentof 11/22/2006FIN-2005-6806 BladenCommunityCollege 11/17/2006FIN-2006-2197 WilsonCountyClerkofSuperiorCourt 11/16/2006FIN-2006-2145 HertfordCountyClerkofSuperiorCourt 11/16/2006FIN-2006-3000 Governor,Officeofthe 10/31/2006FIN-2006-8303 USSNCBattleshipCommission 10/30/2006FIN-2006-2139 GreeneCountyClerkofSuperiorCourt 10/23/2006FIN-2006-2188 TyrrellCountyClerkofSuperiorCourt 10/13/2006FIN-2007-2115 CarteretCountyClerkofSuperiorCourt 10/13/2006FIN-2006-2133 ForsythCountyClerkofSuperiorCourt 10/10/2006FIN-2006-2150 JohnstonCountyClerkofSuperiorCourt 10/2/2006FIN-2006-2185 SurryCountyClerkofSuperiorCourt 10/2/2006FIN-2006-2166 OnslowCountyClerkofSuperiorCourt 9/28/2006FIN-2005-6850 MartinCommunityCollege 9/27/2006FIN-2006-2112 CabarrusCountyClerkofSuperiorCourt 9/13/2006FIN-2006-2108 BladenCountyClerkofSuperiorCourt 9/11/2006FIN-2006-2170 PenderCountyClerkofSuperiorCourt 9/11/2006FIN-2006-2173 PittCountyClerkofSuperiorCourt 9/11/2006FIN-2006-2177 RobesonCountyClerkofSuperiorCourt 8/29/2006FIN-2006-2184 StokesCountyClerkofSuperiorCourt 8/29/2006



FIN-2006-2107 BertieCountyClerkofSuperiorCourt 8/29/2006FIN-2006-2113 CaldwellCountyClerkofSuperiorCourt 8/29/2006FIN-2006-2136 GatesCountyClerkofSuperiorCourt 8/17/2006FIN-2006-2152 LeeCountyClerkofSuperiorCourt 8/7/2006FIN-2006-2128 DavidsonCountyClerkofSuperiorCourt 7/24/2006FIN-2006-3510 Treasurer,DepartmentoftheState 7/24/2006FIN-2006-2102 AlleghanyCountyClerkofSuperiorCourt 7/24/2006FIN-2006-2105 AveryCountyClerkofSuperiorCourt 7/20/2006FIN-2006-2194 WataugaCountyClerkofSuperiorCourt 7/20/2006FIN-2006-2180 RutherfordCountyClerkofSuperiorCourt 7/20/2006FIN-2006-4500 Correction,Departmentof 7/20/2006FIN-2006-2168 PamlicoCountyClerkofSuperiorCourt 7/14/2006GRA-2008-0053 ReviewofTheSalvationArmyCharlotteStateGrants 9/17/2007GRA-2008-0039 ReviewofTeachingAcademicsforLifeLearningOutreachMinistriesStateGrant 9/13/2007GRA-2008-0042 ReviewofNorthHillsChildCareCenterStateGrant 9/13/2007GRA-2007-0028 ReviewofCarolynsLittleCastleStateGrant 9/13/2007GRA-2008-0049 ReviewofLifeAfterLifeIncStateGrant 9/11/2007GRA-2008-0048 ReviewofAppletreeDayCareIncStateGrant 8/30/2007GRA-2008-0046 ReviewofInfantsPalaceDayCareIncStateGrant 8/23/2007GRA-2007-0031 ReviewofTheKidsPlaceDayCareStateGrants 8/22/2007GRA-2008-0055 ReviewofTarHeelVolunteerRescueSquadStateGrants 8/17/2007GRA-2007-0014 ReviewofNorthCarolinaFairHousingCenterStateGrant 7/20/2007GRA-2007-0033 ReviewofWayneMemorialHospitalStateGrants 7/19/2007GRA-2007-0032 ReviewofUnitedCommunityMinistriesStateGrants 7/16/2007GRA-2007-0034 ReviewofWayneUpliftResourceAssociationInc 6/22/2007GRA-2007-0035 ReviewofSoutheasternFamilyViolenceCenterStateGrants 6/22/2007GRA-2007-0036 ReviewofNewHanoverCommunityHealthStateGrant 6/22/2007GRA-2007-0029 ReviewofLittleAngelsChildCareCenterStateGrant 6/14/2007GRA-2007-0030 ReviewofSaveTheFamilyChildCareStateGrant 6/14/2007GRA-2007-0025 ReviewofProsperousChildrenChildCare 6/14/2007GRA-2007-0027 ReviewofAnsonCountyDomesticViolenceCoalitionInc 6/7/2007GRA-2007-0015 ReviewofWordofGodFellowship 4/9/2007GRA-2007-0026 ReviewofLittleRedSchoolhouse 3/28/2007GRA-2006-0010 ReviewofWindowsontheWorld 3/13/2007GRA-2007-0021 ReviewofBlueRidgeElectricMembershipCorp 3/6/2007GRA-2007-0023 ReviewofHaywoodElectricMembershipCorp 3/6/2007GRA-2007-0022 ReviewofBrunswickElectricMembershipCorp 3/1/2007GRA-2007-0018 ReviewofParkwoodVolunteerFireDepartment 3/1/2007GRA-2007-0020 ReviewofTidelandElectricMembershipCorp 3/1/2007GRA-2006-0011 ReviewofFirstHealthoftheCarolinas,Inc 2/14/2007GRA-2006-0013 ReviewofShelteredAidtoFamiliesinEmergencies(SAFE) 2/5/2007



GRA-2006-0007 ReviewofSitInMovement,Inc 11/8/2006GRA-2006-0008 ReviewofBertie-Martin-WashingtonCommunityDevelopment 11/8/2006GRA-2006-0009 ReviewofSandhillsMediationCenter 11/8/2006GRA-2006-0005 ReviewofHopePregnancyCareCenter 10/26/2006GRA-2006-0006 ReviewofWesternYouthNetwork 10/26/2006GRA-2006-0002 ReviewofMarineCorpMuseumoftheCarolinas 10/23/2006GRA-2006-0003 ReviewofClubFifteen 10/23/2006GRA-2006-0004 ReviewofCaswellCountyParish 10/23/2006INV-2007-0323 NorthCarolinaDepartmentofTransportation 9/12/2007INV-2007-0322 EastCarolinaUniversity 9/7/2007INV-2007-0321 NorthCarolinaDepartmentofAdministration 9/4/2007INV-2007-0320 NorthCarolinaDepartmentofTransportation 8/28/2007INV-2007-0319 UniversityofNorthCarolinaatGreensboro 7/11/2007INV-2007-0318 UniversityofNorthCaroliinaHospitals/ UniversityofNorthCarolinaSchoolofPharmacy 6/28/2007INV-2007-0317 NorthCarolinaDepartmentofEnvironmentandNaturalResources 5/31/2007INV-2007-0316 NCDepartmentofEnvironmentandNaturalResources/DivisionofWasteManagement 5/10/2007INV-2007-0315 WakeTechnicalCommunityCollege 4/23/2007INV-2007-0314 NorthCarolinaDepartmentofCulturalResources 4/16/2007INV-2007-0313 NorthCarolinaSchoolofScienceandMathematics 3/7/2007INV-2007-0312 ElizabethCity/PasquotankAirportAuthority 1/9/2007INV-2006-0311 NorthCarolinaBoardofCosmeticArtsExaminers 12/18/2006INV-2006-0310 NCDeptofEnvironmentandNaturalResources 11/14/2006INV-2006-0309 NorthCarolinaStateUniversity 9/20/2006INV-2006-0308 NorthCarolinaDepartmentofTransportation 9/13/2006INV-2006-0307 NCDepartmentofAdministrationDivisionofPurchaseandContract 9/5/2006INV-2006-0306 NorthCarolinaStateUniversity 8/28/2006INV-2006-0305 NorthCarolinaPublicStaff 7/19/2006INV-2006-0303 NorthCarolinaAgricultural&TechnicalStateUniversity 7/6/2006INV-2006-0304 NorthCarolinaDepartmentofHealthandHumanServices 7/6/2006ISA-2007-6816 CentralCarolinaCommunityCollege 9/18/2007ISA-2007-6883 StanlyCommunityCollege 9/18/2007ISA-2007-4300 NorthCarolinaDepartmentofEnvironmentandNaturalResources 9/17/2007ISA-2007-6814 CatawbaValleyCommunityCollege 9/14/2007ISA-2007-6864 RandolphCommunityCollege 9/14/2007ISA-2007-6870 RobesonCommunityCollege 9/14/2007ISA-2007-6838 GuilfordTechnicalCommunityCollege 9/7/2007ISA-2007-4410 NorthCarolinaDepartmentofHealthandHumanServices/ CountyAdministrationReimbursementSystem 9/7/2007ISA-2007-4660 InformationTechnologyServices 9/4/2007ISA-2007-6820 ClevelandCommunityCollege 8/22/2007



ISA-2007-6836 GastonCollege 8/22/2007ISA-2007-6861 PiedmontCommunityCollege 7/20/2007ISA-2007-6840 HalifaxCommunityCollege 7/20/2007ISA-2007-6874 Rowan-CabarrusCommunityCollege 7/18/2007ISA-2007-6898 WilsonTechnicalCommunityCollege 7/16/2007ISA-2007-6843 BlueRidgeCommunityCollege 7/13/2007ISA-2007-6830 EdgecombeCommunityCollege 7/3/2007ISA-2007-4500 NorthCarolinaDepartmentofCorrections 7/3/2007ISA-2007-6804 BeaufortCommunityCollege 6/28/2007ISA-2007-6088 FayettevilleStateUniversity 6/1/2007ISA-2007-0740 NorthCarolinaDepartmentofTransportation 5/22/2007ISA-2007-6082 UNC-Pembroke 4/23/2007ISA-2007-4700 Revenue,Departmentof 11/17/2006ISA-2007-4160 Controller,OfficeoftheState 11/9/2006ISA-2007-1000 NorthCarolinaGeneralAssembly 11/2/2006ISA-2007-3300 Auditor,OfficeoftheState 11/1/2006ISA-2006-6086 ElizabethCityStateUniversity 7/21/2006NGV-2006-9110 MecklenburgPartnershipforChildren-FinancialStatementAudit 7/30/2007NGV-2006-9101 NorthCarolinaPartnershipforChildren-FinancialStatementAudit 7/16/2007NGV-2006-9127 BuncombeCountyPartnershipforChildrenInc-FinancialStatementAudit 6/29/2007NGV-2006-9128 NewHanoverCountyPartnershipforChildrenInc-FinancialStatementAudit 6/28/2007NGV-2006-9115 AveryCountyPartnershipforChildrenInc-FinancialStatementAudit 6/26/2007NGV-2006-9156 CaswellCountyPartnershipforChildren-FinancialStatementAudit 6/25/2007NGV-2006-9173 PenderCountyPartnershipforChildren-FinancialStatementAudit 6/25/2007NGV-2006-9133 StokesPartnershipforChildren-FinancialStatementAudit 6/21/2007NGV-2006-9126 AlleghanyPartnershipforChildrenInc-FinancialStatementAudit 6/21/2007NGV-2006-9135 WakeCountySmartStartInc-FinancialStatementAudit 6/14/2007NGV-2006-9121 SmartStartofForsythCounty-FinancialStatementAudit 6/11/2007NGV-2006-9140 BertieCountyPartnershipforChildrenInc-FinancialStatementAudit 6/4/2007NGV-2006-9169 Martin-PittPartnershipforChildrenInc-FinancialStatementAudit 6/4/2007NGV-2006-9137 WilsonCountyPartnershipforChildren-FinancialStatementAudit 5/30/2007NGV-2006-9153 BladenCountyPartnershipforChildrenInc-FinancialStatementAudit 5/23/2007NGV-2006-9105 PartnershipforChildrenofCumberlandCountyInc-FinancialStatementAudit 5/23/2007NGV-2006-9146 LeeCountyPartnership 5/8/2007NGV-2006-9179 ScotlandCountyPartnership 2/22/2007NGV-2006-9134 SurryCountyPartnership 2/21/2007NGV-2006-9118 DuplinCountyPartnership 2/21/2007NGV-2006-9113 StanlyCountyPartnership 2/19/2007NGV-2006-9183 WataugaCountyPartnership 2/19/2007NGV-2006-9172 OnslowCountyPartnership 2/19/2007NGV-2006-9177 RockinghamCountyPartnership 2/14/2007



NGV-2006-9125 WilkesCountyPartnership 2/13/2007NGV-2006-9147 McDowellCountyPartnership 2/12/2007NGV-2006-9178 SampsonCountyPartnership 1/30/2007NGV-2006-9107 Halifax-WarrenPartnership 1/25/2007NGV-2006-9112 RegionAPartnership 1/25/2007NGV-2006-9154 CabarrusCountyPartnership 1/16/2007NGV-2006-9145 IredellCountyPartnership 12/21/2006NGV-2006-9120 DownEastPartnership(Nash,Edgecombe) 12/21/2006NGV-2006-9116 CatawbaCountyPartnershipforChildren 12/19/2006NGV-2006-9106 DavidsonCountyPartnershipforChildrenInc 12/19/2006NGV-2006-9131 RobesonCountyPartnership 12/19/2006NGV-2006-9149 RowanCountyPartnership 12/19/2006NGV-2006-9141 ColumbusCountyPartnership 12/1/2006NGV-2006-9123 AlbemarlePartnership(Camden,Currituck,Pasquotank) 12/1/2006NGV-2006-9114 AsheCountyPartnership 11/30/2006NGV-2006-9142 ChildrenandYouthPartnershipforDareCounty 11/30/2006NGV-2006-9148 MooreCountyPartnersforChildrenandFamilies 11/29/2006NGV-2006-9158 CravenCountyPartnership 11/29/2006NGV-2005-9157 Chowan-Gates-PerquimansPartnership 7/24/2006NGV-2005-9167 Lincoln-GastonCountyPartnership 7/20/2006NGV-2005-9185 YadkinCountyPartnership 7/20/2006NGV-2005-9155 CarteretCountyPartnershipforChildren 7/17/2006NGV-2005-9138 AnsonCountyPartnership 7/6/2006NGV-2005-9101 NorthCarolinaPartnershipForChildren 7/6/2006NGV-2005-9130 RandolphCountyPartnership 7/5/2006NGV-2005-9150 AlamanceCountyPartnership 7/5/2006NGV-2005-9104 ClevelandCountyPartnership 7/3/2006PER-2007-7226 EnterpriseProjectManagementOffice 7/26/2007PER-2007-7227 StateChildrensHealthInsuranceProgramClaimsProcessing 7/24/2007PER-2007-7225 NewVistas-MountainLaurelIncMentalHealthServiceProvider 5/15/2007PER-2007-7219 OfficeSuppliesTermContractAdministeredbythePurchaseandContractDivision 5/9/2007PER-2007-7220 EconomicDevelopmentStudies 5/2/2007PER-2007-7223 OfficeofIndigentDefenseServices 2/28/2007PER-2006-7216 InternalAuditinginNorthCarolinaAgenciesandInstitutions 9/28/2006SAR-2007-3420 NorthCarolinaDepartmentoftheTreasurer 4/24/2007SAR-2007-6020 UNC-ChapelHill 4/24/2007SAR-2007-0673 NorthCarolinaDivisionofMotorVehicles 3/20/2007SAR-2007-6095 UNCHospitals-NCMemorialHospital 1/25/2007SAR-2007-6030 NorthCarolinaStateUniversity 1/3/2007SAR-2007-3600 Justice,Departmentof 1/3/2007SAR-2006-6090 NorthCarolinaCentralUniversity 10/2/2006


AppendixB


TheOSAindependentlyevaluatesthestate’sfiscal

accountability and public program performance

forNorthCarolina’scitizensandothers.Theoffice

strivestoassurethatstategovernmentisexecuting

itsmanagementresponsibilitiesincompliancewith

applicablelaws,rules,regulations,andpolicies.The

officealsoevaluateswhethersufficientmanagement

controlsandpoliciesexisttoenablestateagencies

to most efficiently and effectively use public

resources.

STATUTORY AUTHORITY

North Carolina General Statutes §§147-64.1-

64.14 set forth the duties and responsibilities of

the State Auditor, and requires the State Auditor

beindependentoftheorganizationsbeingaudited.

These statutesmandate that all stateagenciesand

entities partially or entirely supported by public

fundsbesubjecttoauditbythestateauditor.These

audits independently evaluate public program

performancefortheGeneralAssembly,Governor,

executive departments and agencies, governing

bodies, and the general public. Specifically, the

StateAuditor independently examinesandmakes

findingsoffactonwhetherStateagencies:

■establishedadequateoperatingandadministrative

procedures, reporting systems, and elements of

managementcontrol.

■providedfinancialandotherreportsthatdisclose

fairly, consistently, fully, and promptly all

information necessary to demonstrate program

performance.

■collected,deposited,andproperlyaccountedfor

allrevenuesandreceiptsarisingfromactivities.

■ conductedprogramsandexpended funds inan

efficient and economical manner as well as in

compliancewithapplicablelawsandregulations

■determinedthatprogramseffectivelyservedthe

legislativeintent.

OSA is also statutorily mandated to conduct

certain audits, including the largest audit, the

State’s Comprehensive Annual Financial Report

(CAFR).Theseauditsarerequiredtobeconducted

in accordance with appropriate professional

standards.

TheInvestigativestaffisstatutorilymandatedto

investigateallegationsofimproperactivities,which

mayoccurasaresultofmisfeasance,malfeasanceor

nonfeasancebygovernmental employeesor those

receivingstatemoney.Investigatorsarerequiredto

protect complainantswhoprovide information to

OSArelatedtothesecharges.Thissectionoperates

under the supervision of the Chief Deputy State

Auditor.

CONSTITUTIONAL AGENCY

TheStateAuditorisaconstitutionalofficerlisted

intheNorthCarolinaConstitutionunderArticleIII,

§7.TheStateAuditoriselectedstatewideeveryfour

yearsandisamemberoftheCouncilofStatewhich

also includes the Governor, Lieutenant Governor,

SecretaryofState,StateTreasurer,Superintendent

of Public Instruction, Attorney General,

Commissioner of Agriculture, Commissioner of

Labor,andCommissionerofInsurance.

STATUTORY AND CONSTITUTIONAL AUTHORITY


AnnualReport2007|ContactInformation

SENIOR MANAGEMENT TEAM

LESLIE W. MERRITT, JR., CPA, CFPState [email protected](919)807-7500

KRIS BAILEY, J.D.Chief [email protected](919)807-7665

JEFF HENDERSON, CPA, CISA, Deputy State [email protected](919)807-7513

CHARLES K. DUCKETTPersonnel [email protected](919)807-7617

JAMES L. FORTEDirector of Internal Operations and Legislative [email protected](919)807-7642

CINDY [email protected](919)807-7553

TIMOTHY J. HOEGEMEYER, J.D., MPAGeneral [email protected](919)807-7564

CHRISTOPHER F. MEARS, J.D., MPPDirector of Public [email protected](919)807-7566

PAT STUSSIEExecutive Assistant to the [email protected](919)807-7676

LENNY SUPERVILLE, Ph.D.Chief Information [email protected](919)807-7625

AUDIT MANAGEMENT TEAM

JOYCE FLOWERS, CPASpecialty: Single AuditWilmington [email protected](919)807-7550

JANET HAYES, CPM, CICA, MBASpecialty: Services to nongovernmen-tal [email protected](919)807-7558

LINDA HOLLAR, CPASpecialty: Universities, UNC, UNC Hospitals, Asheville [email protected](919)807-7565

FRANK L. PERRYSpecialty: [email protected](919)807-7604

LEE LINKER, CPASpecialty: Quality [email protected](919)807-7583

DAVID NANCE, CPASpecialty: Health [email protected](919)807-7660

CAROL SMITH, CPASpecialty: Community CollegesCharlotte BranchGreensboro BranchMorganton BranchWinston-Salem [email protected](336)585-2513

FAYE STEELE, CPASpecialty: Clerks of CourtNorth Carolina State UniversityFayetteville BranchGreenville BranchEdenton [email protected](919)807-7589

KENNETH BARNETTE, CPASpecialty: Performance [email protected](919)807-7540

CHARLES WILLIFORD, CPA, CITP, CISA, CFE, CPMSpecialty: Information Systems [email protected](919)807-7627

Copies of reports issued by the Office of the StateAuditormayberequestedthroughtheemaillinkonthe web site at www.ncauditor.net or by calling themain phone number. Other inquiries, comments,and suggestions may be made by contacting themainofficeoroneofthestaffmemberslistedbelow.

N.C. OFFICE OF THE STATE AUDITOR2SouthSalisburyStreet20601MailServiceCenterRaleigh,NC27699-0601MainPhoneNumber:(919)807-7500HotlineNumber:(800)730-8477FaxNumber:(919)807-7647

ContactInformation