Auditor Fitzpatrick releases annual report examining state's financial reporting process

Missouri State Auditor Scott Fitzpatrick today released the annual report produced by his office on the state's financial reporting processes. The report examines Missouri's internal controls over annual statewide financial statements, and certain compliance issues, and makes recommendations to ensure accurate financial reporting, which better protects and accounts for taxpayer resources.

In March, the State Auditor's Office issued an audit of the state's Annual Comprehensive Financial Report (ACFR) for fiscal year 2023. The state's financial statements in the ACFR covered approximately $63 billion in assets and $38 billion in expenses. In connection with that audit, auditors tested internal controls, as well as compliance with laws and regulations. Those results are included in the report issued today.

"The errors discovered by our audit of the Annual Comprehensive Financial Report highlight the importance of the work we do to make sure adequate controls and procedures are in place throughout state government. Considering we have a state budget just over $50 billion and the multiple errors we identified were in excess of $718 billion, it's clear this additional level of review is vital to ensure we have accurate financial reporting," said Fitzpatrick.

Auditors found the Office of Administration (OA) - Division of Accounting (DOA), which has ultimate responsibility for the ACFR,  needs to improve controls and procedures over preparation of the report. If various errors had not been corrected, the Notes to the Financial Statements (Notes) and the Required Supplementary Information (RSI) would have been materially misstated in the ACFR for the year ended June 30, 2023. The audit found overstatements in one Note totaling more than $718 billion and an understatement of an amount in the RSI by more than $2.9 billion.

As has been similarly noted in two previous reports, the audit identified the Department of Revenue (DOR) does not have adequate controls and procedures over financial reporting of certain governmental and custodial fund activities. As a result, numerous balances submitted to the DOA for inclusion in the ACFR for the year ended June 30, 2023, were materially misstated. The audit noted overstatements in accounts payable balances of $1.1 billion, overstatements of net accounts receivable balances of $265 million, $191.7 million, $73.3 million, and $313.8 million, and understatements of custodial fund assets of $240.3 million and activities of $2.1 billion. The DOR submitted revised reports to the DOA to correct these misstatements prior to completing the ACFR.

As noted in a prior audit, the Office of Secretary of State did not have adequate controls and procedures over financial reporting of accounts receivable. As a result, civil penalty accounts receivable data submitted to the DOA for inclusion in the ACFR for the year ended June 30, 2023, was misstated. If the resulting misstatements had not been identified during the audit, Government Wide - Governmental Activities and Public Education Fund net accounts receivable and related liability balances would have been overstated by approximately $11.2 million in the ACFR.

Another audit finding identifies lacking controls and procedures over financial reporting of federal grant accounts receivable in the Department of Social Services (DSS). Accounts receivable data submitted to the DOA for inclusion in the ACFR was misstated. If the misstatements had not been identified during the audit, Government Wide - Governmental Activities and General Fund net accounts receivable would have been overstated by approximately $7.2 million, deferred inflows of resources would have been overstated by approximately $59.4 million, and revenues would have been understated by approximately $52.2 million in the ACFR.

Additionally, as similarly noted in a previous audit, Office of Administration (OA) management has not fully corrected a weakness in the Statewide Advantage for Missouri (SAM II) Financial system security settings that allows users to create a transaction and then apply approval to the same transaction without review or additional approval from another party.

The complete report detailing the findings in the Annual Comprehensive Financial Report is available here.