LAB’s Financial Statements Audit Uncovers Problems in UW System

The Legislative Audit Bureau has completed its financial audit of the State of Wisconsin as of, and for, the fiscal year (FY) ended June 30, 2012. The LAB provided a “clean” or unqualified opinion on the FY 2011-12 financial statements; however the report identified concerns with the University of Wisconsin System’s statements.

[The] financial statements [audited by the LAB] are prepared by the Department of Administration (DOA) in accordance with generally accepted accounting principles (GAAP) and included in the State’s FY 2011-12 Comprehensive Annual Financial Report (CAFR), which DOA has published on its website. Information in the CAFR helps to describe the State’s fiscal condition, including the balance of the State’s General Fund and the amount of the State’s long-term debt.

As reported on a GAAP basis, and as shown on page 44 of the CAFR, the General Fund deficit decreased from $2.9 billion as of June 30, 2011, to $2.2 billion as of June 30, 2012. In its Management Discussion and Analysis on page 29, DOA attributes this change primarily to an increase of $129.2 million in General Fund revenues, a decrease of $498.7 million in expenditures, and a decrease of $133.3 million in other financing sources and uses, such as transfers to other funds. In FY 2011-12, the State also paid two previously reported liabilities, including $233.7 million to settle transfers previously made from the Injured Patients and Families Compensation Fund, and $59.9 million to the State of Minnesota for individual income tax reciprocity.

The CAFR also reports information on the State’s long-term debt. As shown on page 110, the State’s long-term debt issued for general government operations was $11.0 billion as of June 30, 2012, which is an increase of $453.3 million since June 30, 2011.

According to the report, the University of Wisconsin System made $15.4 million in overpayments for health insurance premiums – including $8 million for 924 employees who had been terminated – and miscalculated retirement contributions that resulted in overpayments of another $17.5 million to the state retirement system. The findings prompted Sen. Rob Cowles (R-Allouez), co-chairman of the Joint Legislative Audit Committee, to call for a more comprehensive review of the state university system’s new Human Resource System.

The LAB also identified a material weakness related to reporting errors made by the Office of the Commissioner of Insurance in the preparation of the financial statements for the Injured Patients and Families Compensation Fund (Finding WI-12-1); several reporting errors made by UW System in the preparation of its financial statements (Finding WI-12-5); and concerns with programmer access, which could result in unauthorized changes being made to information technology systems at the Department of Health Services (Finding WI-12-6) and the Department of Transportation (Finding WI-12-7). Discussion of each concern, and the response from management of the responsible agency, is included in the report.