CHARLESTON, W.Va. — For want of reports from state agencies, the audit was lost.
And state accountants were doing everything they could to pinpoint what could go wrong again.
This past Jan. 25, still about two months out from a critical deadline to provide West Virginia higher education financial information for the federal government, state accountants made an assessment of where the annual task could get hung up.
The annual financial audit of an array of state agencies is known as the Comprehensive Annual Financial Report, and it had been running later and later in recent years.
“The biggest obstacle to completing the CAFR is information needed from other agencies,” wrote Susannah Carpenter, the state’s chief financial officer, in the Jan. 25 memo to new Administration Secretary John Myers.
“Specifically, Homeland Security, CPRB (Consolidated Public Retirement Board) and Higher Education Policy Commission are three major concerns due to significant delays in the submittal to our Financial Accounting and Reporting Section,” according to the memo obtained through a Freedom of Information Act request.
Finishing the big financial audit on time was more pressing than usual this year because of a threat from the U.S. Department of Education.
The Department, in response to late information from the state’s higher education system the prior two years, had put West Virginia on warning: Sanctions would be handed down if the higher information audit was filed late again.
The drop dead date, as in all years, would be March 31.
The higher education financial audit — known as the Single Audit — is wrapped up in the broader Comprehensive Annual Financial Report.
In that sense, higher education is at the mercy of other agencies. The higher education information can’t be released to the U.S. Department of Education until the full state audit is complete.
But in this case, state accountants had their internal spotlight on the Higher Education Policy Commission, among a few others, as an agency that could make deadline go off the rails.
Spoiler alert
That’s exactly what wound up happening.
State accountants wound up filing the big audit on May 22 this year.
On July 17, the U.S. Department sent a letters to West Virginia college presidents, saying West Virginia indeed would be punished for being late for the third year in a row.
The letters written by federal compliance officer Sherrie Bell expressed acknowledgement of the reasons spelled out again by West Virginia officials.
MORE: Three years of WV explanations for letting audit deadline slip
“However, the failure to submit an acceptable complete audit and audited financial statements by the due date is a serious violation,” Bell wrote. “This is the third annual submission that is late.”
So, she concluded, the “request for reconsideration of its provisional status and heightened cash monitoring is denied.”
The sanctions affect the payment of Pell grants and federal student loans. Usually the federal government provides that funding up front for colleges to distribute to students.
Under the sanctions, colleges will have to come up with the money first and then receive federal reimbursement within a two-week window when other expenses — notably payroll — must also be paid.
Initially affected might be about $240 million in federal funds flowing through West Virginia colleges, just for the fall semester alone.
If West Virginia continues to miss deadline, the federal government could determine even more rigorous punishment, potentially creating a greater cash flow problem for colleges.
The Justice administration has been trying to get to the bottom of what went wrong. Last week, Justice chief of staff Nick Casey said fewer than 10 percent of state agencies got their audit information in by an annual Oct. 31 deadline.
Soon after the Justice administration took office last January, Casey said, he and Administration Secretary Myers provided a warning that the state couldn’t afford to be late again on its external audit.
“We told the cabinet secretaries the audit’s been late the last several years, and we don’t want it to be late again,” Casey said.
He concluded, “You can see how it worked.”
It’s necessary for individual agencies to meet that deadline so that outside auditors contracted by the state — and then the state Department of Administration — can crunch the numbers, make sure they’re right and format everything for federal inspection.
That didn’t happen on time this year, and it hadn’t happened the prior two years.
The big question is, why?
Herding cats
It isn’t for lack of consistent effort by the accountants in the state Department of Administration.
A MetroNews request for communications from the Department of Administration reminding state agencies of deadlines as they approached resulted in the agency turning over a roughly 20-pound box of papers — mostly emails back and forth with Carpenter, who had the job of issuing reminders, tracking down missing data and, generally, nagging agencies.
Much of the communication was routine questioning of status. But there are markers along the way, showing concerns, hangups and frustrations.
The Jan. 25 memo to Myers, who had just taken over as Administration secretary on Jan. 14, is particularly illuminating.
It threw a spotlight over the Division of Homeland Security, the Consolidated Public Retirement Board and the Higher Education Policy Commission itself as likely problem areas for getting the audit done on time.
For Homeland Security, a complication is that the agency takes in significant federal dollars and is audited separately by Suttle and Stalnaker.
State auditors first had trouble getting required information called the Schedule of expenditure of Federal Awards. That information was finally received Jan. 18, 2016, months after it was actually supposed to be submitted Aug. 15.
At the time of the memo, Suttle and Stalnaker was still trying to schedule a necessary on-site audit of Homeland Security.
“Suttle and Stalnaker scheduled its time to audit Homeland Security on multiple occasions,” according to the memo to Myers. “Homeland Security repeatedly delays the schedule. The latest pushback occurred last Wednesday, and a new date and time has not been scheduled.”
The memo to Myers then states, “We believe it would be helpful for you to contact the MAPS Cabinet Secretary to stress the importance of the timeliness of this audit. We need to have Suttle and Stalnaker onsite as soon as possible to meet required Single Audit deadlines.”
For the Consolidated Public Retirement Board, a big problem was increased reporting requirements imposed by the Governmental Accounting Standards Board, which sets generally-accepted accounting principles for state and local governments.
The new requirements necessitated such highly-technical work that the previous auditor for the Consolidated Public Retirement Board — Gibbons and Kawash — asked for the audit work to be bid out again. “i.e. Gibbons essentially resigned from the audit,” the memo noted.
So there was a new auditor specifically for the Consolidated Public Retirement Board — again Suttle and Stalnaker and requiring a learning curve.
“The biggest learning curve for CPRB is in the preparation of the financial statements. The previous auditor typed the financial statements and wrote the notes for CPRB; the new auditor is not willing to accept these risks. The CPRB must now take on risks new to them,” the memo noted.
Moreover, Consolidated Public Retirement Board was stretched thin by implementing another new system.
It was clear that agency was heading for the cliff on its audit.
“CPRB told us their audit will not be complete until the end of February. We sent Maher Duessel staff to try to improve on this date,” referring to yet another accounting firm.
“It would most certainly be preferable to receive financial statements earlier than the end of February. If it goes beyond that date, it will most likely delay the CAFR.”
The Consolidated Public Retirement Board wound up latest of all agencies involved in the external audit, submitting its materials on April 7.
The Higher Education Policy Commission, which had expressed concerns about the effects of not making deadline, was among the agencies at risk of not making deadline.
The trouble was, the commission had its own cats to herd. The agency has to round up annual information from each of West Virginia’s colleges and universities.
“HEPC struggles to get information from some of the institutions,” the memo noted. “In the latest update, HEPC was experiencing delay due to the following schools: Bluefield State, Concord, West Virginia Northern C&T and Glenville State.”
This portion of the memo specifically mentioned the importance of meeting the March 31 deadline to be certain of avoiding federal penalties. It referenced Ed Magee, the chief financial officer for the Higher Education Policy Board.
“Ed Magee’s latest estimate for completion of the consolidated higher education audit is mid-February. This places extra burden on the completion of the CAFR and Single Audit, as the consolidated higher education audit affects all areas of the CAFR,” according to the memo.
The memo went on to specify that it takes state accounting staff three weeks to integrate consolidated higher education financials into the big audit, with specific details such as a cash footnote signifying a significant remaining challenge.
Ernst & Young, the accountant for the one big state audit, then was going to need time to go over all the higher education information after that.
“We let Ed Magee know that we could not guarantee a March 31 completion of the CAFR and Single Audit if the consolidated audit was not received by mid-February,” according to the memo to Myers.
“We believe any involvement from you and the Governor’s office to emphasize the importance of receiving this information would be helpful.”
No West Virginia universities, colleges or community colleges submitted their full set of financial information by the original Oct. 31, 2016, deadline. Twenty were received on or after the date of the memo to Myers.
Last among institutions related to higher education was the Consolidated Higher Education Fund on March 6.
That completed higher education’s consolidated audit was completed that same day, March 6, with the broader work described above still to be done.
Constant reminders
That memo sent up a flare, particularly for the new administration secretary.
But there was lots of communication along the way, meant to nudge or shove agencies toward deadline.
On Jan. 20, for example, Carpenter sent a memo to Magee, the chief financial officer for higher education.
“Hi Ed, Are there any updates on the consolidated Higher Ed audit? As we discussed last week, a mid-February submittal of the consolidated Higher Ed financial statements could delay the CAFR beyond the March 31st deadline.
“It would be extremely helpful to have the consolidated cash and fixed asset notes by the end of January if at all possible. We appreciate any and all help!”
By Jan. 27, the Department of Administration was getting alarmed about Homeland Security. Carpenter sent an email late that day to Myers, expressing concern.
“Secretary, Ernst & Young came to me today to let me know Suttle & Stalnaker (E&Y’s subcontracted audit help) is unable to audit Homeland Security, as required by the Single Audit. Homeland Security has not responded to requests for information or meetings, and has repeatedly pushed back set meeting times.
“Each delayed meeting results in overage charges by the auditing firms for the trouble. More importantly, we run the risk of a further delayed Single Audit. I believe we may need to get you involved, along with the Cabinet Secretary of MAPS (Military Affairs and Public Safety), to get a response from the folks at Homeland Security.
“A simple call emphasizing the importance of the Single Audit is hopefully all that is needed.”
An email went out that day from Carpenter to Homeland Security Director Jimmy Gianato about items Suttle and Stalnaker would need to prepare for an on-site audit.
At 9:08 p.m. that day, Gianato forwarded the memo to Tommy Dingess, administration director for Homeland Security and looped in the Administration department. “Tommy, I want this completed on Monday. See me first thing in the AM.”
Another Jan. 27 email from Carpenter to Gianato expressed additional concerns.
“The start time of your audit has been pushed back several times. We are concerned we will not meet federal deadlines if your audit is further delayed. If I can assist in scheduling this meeting between your office and the auditors, please let me know.”
Referring to Dingess, Gianato responded at 12:22 a.m. Saturday, Jan. 28: “I have directed him to do nothing else until this is done.”
By Feb. 14, much progress had been made, but there was still lots to be done. Carpenter sent an email to Myers noting high priority outstanding items were still due from consolidated Higher Education, Workforce West Virginia, the State Rail Authority and Consolidated Public Retirement Board.
On Feb. 24, the Justice administration was already making preparations to explain to federal agencies why the financial audit would be late. Myers said he’d gotten advice from assistant chief of staff Jason Pizatella to start providing explanations to federal agencies with oversight of how public dollars are spent in West Virginia.
“Susannah — I talked with Jason and he feels we may want to send letters to federal agencies that will be affected by late issuance again this year. He said we should unless it causes a significant problem,” Myers wrote.
On March 2, Magee, the vice chancellor for finance in the higher education system, asked for a meeting with Myers and higher education chancellor Paul Hill and Sarah Armstrong Tucker, chancellor of community and technical colleges.
The intention was to begin preparing for late submission of the audit.
“The Chancellors would like to set up a meeting to discuss the audit with Secretary Myers,” Magee wrote. “It will be important for them to share that they have met with the Secretary about the audit if they need to appeal an action taken by the Department of Education. What is the Secretary’s availability for such a meeting in the near future?”
As the March 31 deadline came and went, auditors continued to work, pushing to finish as accurately but swiftly as possible.
“Please, let’s do whatever we can to get the Single Audit out this week,” wrote Finance division director Dave Mullins on Monday, May 15.
“We are. That’s our plan,” wrote back Susan Wheeler, a partner at Ernst & Young.
That’s one goal that was achieved.
Internally, there was relief and celebration.
“We done. It has been uploaded to the clearing house,” wrote Jane Shinn, an employee of the state’s Financial Accounting and Reporting Section on Saturday, May 20, with a degree of informality.
In another email to Mullins that day, Shinn wrote “Done and submitted. YEAH!!!!!!”
On Monday, May 22, Carpenter wrote an email to Sherrie Bell, the federal compliance officer with the U.S. Department of Education. “The attached Single Audit for the State of West Virginia was filed on Friday, May 19. Details of the submission are below.”
The completed work and communication was not enough to spare the higher education system from sanctions, though, unless state officials are able to bargain for some relief.
Last year, the audited state agencies to submit their information after an Oct. 31 deadline included:
Board of Risk and Insurance Management, Consolidated Public Retirement Board, Educational Broadcasting, Workforce Investment, Water Pollution Control Revolving Fund, Housing Development Fund, Jobs Investment Trust, Municipal Pension Oversight Board, Parkways Authority, PEIA, OPEB trust fund, WV College Prepaid Tuition and Smart 529 savings program, Racing Commission, Regional Jail, School Building Authority, Solid Waste Management Board, Highways, Tobacco Settlement Finance Authority, Water Development Authority, Infrastructure & Jobs Development Council, state Rail Authority, Public Defender Corporation.
The tardiest was the Consolidated Public Retirement Board on April 7, a full week after the federal deadline for higher education’s materials that were being held up.
Consolidated Public Retirement Board has not hit its deadline for the past five years — a distinction shared by Smart 529 and Highways.
All higher education institutions were past the Oct. 31 deadline: Consolidated Higher Education Fund, Bluefield State College, New River CTC, Concord University, Fairmont State, Pierpont CTC, Glenville State, Higher Education Policy Commission, Marshall University, Mountwest CTC, Shepherd University, Blue Ridge CTC, Southern WV Community College, West Liberty University, Eastern CTC, Northern Community College, School of Osteopathic Medicine, West Virginia State University, West Virginia Council for Community and Technical College Education, West Virginia University and Bridge Valley CTC.
The only schools over a five-year period to meet an Oct. 31 annual deadline to submit their financial information to the state were Shepherd University and Northern Community College, both in 2013.
Looking ahead
Work is already starting on audits for this fiscal year. An October deadline already looms for agencies to submit their financial information. And the higher education system can’t afford to be late for a fourth consecutive year.
Carpenter started early, this past May 31, to send out memos to agencies as a reminder of the deadline.
Her memo, going out to agencies subject to audit, is friendly but clear:
“I hope all is well. We are gearing up for the FY 2017 audit and want to touch base with all separately audited agencies to ensure FY 2017 audit contracts are in place.”
She continues, “As a reminder the due date for draft financial statements is September 15, 2017. Final financial statements are due October 15.
“We are hopeful all final audits are received by the Oct. 15 deadline. If you have any concerns over meeting this deadline, please let me know as soon as possible as we may have resources available to assist you.”
And for some organizations, particularly higher education, alarm bells are already ringing.
A May 31 memo from financial director Mullins suggests already putting the heat on higher education to have financial statements ready:
“Believe you have Higher Ed training soon,” he wrote to Shinn. “Let ’em know we need F/S well before school closes down in December. I know this has never happened for years, but once school closes in I believe early to mid-December, it all stops and then F/S’s are coming in January if we are really lucky. I think the original due date may be mid-October.
“And you’ve seen all the emails from Higher Ed regarding what they can do to avoid late Single Audit submission.”
Shinn responds that she’ll try.
“We tell them every year for the last 20 years and they have never met the due date. The closest they have come is a couple days before Thanksgiving, but usually the end of December.”
Storm clouds above
The task of finding out why West Virginia has fallen behind on its financial audits over the years — and improving the situation — has fallen to Justice administration chief of staff Nick Casey, who is both a lawyer and an accountant.
There was a recent complication.
Last week, inspired by President Donald Trump, Governor Jim Justice announced he would switch his party registration from Democrat to Republican.
This presents a real issue for Casey, who previously was chairman of the state Democratic Party and who ran for Congess as a Democrat in 2014.
Justice has said he chose his staff not for their party affiliation but because of their skills. Casey so far has been silent about whether he intends to stay or go.
Earlier last week, before the governor’s surprise announcement, Casey said he hoped to have preliminary results of his investigation into the missed audit deadlines completed within 10 days, which would have been by the end of the coming week.
He promised agencies would improve this year.
“Is this gonna happen again? No. It’s not gonna happen in 2017. Now they know that anybody’s failure to meet the timeline caused real problems for people within the state of West Virginia,” Casey said at a news conference in the Governor’s Reception Room last Tuesday.
“If this was considered a clerical exercise or considered just something you have to do, that’s gonna change.”
But what if Casey suddenly moves on?
Asked about that possibility on Friday, Governor Justice said the normal work of the administration will continue.
“The train always seems to go on. Do we really believe that by losing a few key members, or really the engineer, me — the train always goes on. And what we’ve got to do is, sometimes it becomes difficult,” Justice said.
“I’m telling you, this train is going to move on and it’s going to go north.”
Initially, the Justice administration sent out a statement saying heads would roll over this year’s missed deadline.
On Friday, Justice reiterated his anger over the whole situation.
“In all honesty, it’s a disgrace. It’s a total disgrace,” Justice said. “We’re going to have a lot of embarrassment. We’re going to have inconvenience. It’s going to cost money.
“For a state that is struggling like we’re struggling, the money is significant. And absolutely it’s inexcusable. It’s inexcusable. That’s all there is to it. People have got to do their job. I’m a person who says whomever’s accountalble if they’ve messed it up, they’ve got to go. That’s all there is to it.”