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354.56
L72DL
2000




March 2000



Legislative Audit Division

State of Montana



Report to the Legislature

Financial-Compliance Audit

For the Two Fiscal Years Ended June 30, 1999



Department of Livestock



This report contains seven recommendations for improving management
controls and compliance with state laws and regulations. The
recommendations include:

>' Accuracy of brands inspection system.

•' CompUance with state laws relating to establishing fees in rules,

stock inspections, and travel reimbursements.

► Properly recording activity on the state's accounting records.



STATE DOCH'



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99-20



Direct comments/inquiries to:
Legislative Audit Division
Room 135, State Capitol
PO Box 201705
Helena MT 59620-1705



MAY 2 m\]

MONTAN. '

1515 E .
HgLEMA, MOIMIANM odoilO



Help eliminate fraud, waste, and abuse in state government. Call the Fraud Hotline at 1-800-222-4446
statewide or 444-4446 in Helena.




MONTANA STATE LIBRARY

"■■ "HI''



3 0864 0016 1427 3



FINANCIAL-COMPLIANCE AUDITS



Financial-compliance audits are conducted by the Legislative Audit Division to determine if an
agency's financial operations are properly conducted, the financial reports are presented fairly,
and the agency has complied with applicable laws and regulations. In performing the audit
work, the audit staff uses standards set forth by the American Institute of Certified Public
Accountants and the United States General Accounting Office. Financial-compliance audit staff
members hold degrees with an emphasis in accounting. Most staff members hold Certified
Public Accountant (CPA) certificates.

Government Auditing Standards, the Single Audit Act Amendments of 1996 and 0MB Circular
A- 133 require the auditor to issue certain financial, internal control, and compliance reports.
This individual agency audit report is not intended to comply with these reporting requirements
and is therefore not intended for distribution to federal grantor agencies. The Legislative Audit
Division issues a statewide biennial Single Audit Report which complies with the above
reporting requirements. The Single Audit Report for the two fiscal years ended June 30, 1999,
will be issued by March 31, 2000. Copies of the Single Audit Report, when available, can be
obtained by contacting:



Single Audit Coordinator

Office of Budget and Program Planning

State Capitol

Helena MT 59620

Phone (406) 444-3616



Legislative Audit Division
Room 135, State Capitol
PO Box 201705
Helena MT 59620-1705



MEMBERS OF THE LEGISLATIVE AUDIT COMMITTEE


Senator Linda Nelson, Vice Chair


Representative Bruce Simon, Chair


Senator Reiny Jabs


Representative Beverly Bamhart


Senator Ken Miller


Representative Mary Anne Guggenheim


Senator Barry "Spook" Stang


Representative Dick Haines


Senator Mike Taylor


Representative Robert Pavlovich


Senator Jon Tester


Representative Steve Vick



LEGISLATIVE AUDIT DIVISION



Scott A. Seacat, Legislative Auditor

John W. Northey, Legal Counsel

Ton Hunthausen, IT & Operations Manager




Deputy Legislative Auditors:

Jim Pellegnni, Performance Audit

James Gillett, Financial-Compliance Audit



March 2000



The Legislative Audit Committee
of the Montana State Legislature:

This is our fmancial-compliance audit report on the Department of Livestock for fiscal years 1997-98 and
1998-99. The report contains recommendations concerning compliance with state policies and laws
including accurately recording activity on the state's accounting records, travel expenditures, livestock
inspections, and establishing fees in the Administrative Rules of Montana. The department's written
response to the audit recommendations is included in the back of the report.



We thank the Executive Officer and department staff for their cooperation and assistance throughout the
audit.

Respectfully submitted,

Scott A. Seacat
Legislative Auditor




616 Helena Avenue - Steamboat Block, PO Box 201705 Helena MX 59620-1705
Phone (406) 444-3 1 22 FAX (406) 444-9784 E-Mail [email protected],us



Digitized by the Internet Archive

in 2010 with funding from

IVIontana State Library



http://www.archive.org/details/departmentoflive2000mont



Legislative Audit Division



Financial-Compliance Audit

For the Two Fiscal Years Ended June 30, 1999



Department of Livestock



Members of the audit staff involved in this audit were Scott Hoversland,
Emlyn Javomik, and Sonia Powell.



Table of Contents

Appointed and Administrative Officials Page iii

Report Summary Page v

Introduction Page 1

Background Page 1

Prior Audit Recommendations Page 5

Brands Inspection System Page 7

Compliance With Deposit and Inspection

Remittance Laws Page 8

Compliance With Travel Policies Page 10

Establishing Lab Fees by Rule Page 1 1

Proceeds From the Sale of Stray Livestock Page 1 1

Accounting Issues Page 13

Revenue Accruals and Deferrals Page 13

Recording Expenditures in Proper Fund Page 14

Schedule of Expendimres of Federal Awards Page 15

Independent Auditor's Report Page A-3

Schedule of Changes in Fund Balances & Property

Held in Trust for the Fiscal Year Ended June 30, 1999 . . Page A-5

Schedule of Changes in Fund Balances & Property

Held in Trust for the Fiscal Year Ended June 30, 1998 . . Page A-6

Schedule of Total Revenues & Transfers-In for

the Fiscal Year Ended June 30, 1999 Page A-7

Schedule of Total Revenues & Transfers-In for

the Fiscal Year Ended June 30, 1998 Page A-8

Schedule of Total Expendimres & Transfers-Out

for the Fiscal Year Ended June 30, 1999 Page A-9



Introduction



Prior Audit
Recommendations

Findings and
Recommendations



Independent Auditor's
Report & Department
Financial Schedules



Pagei



Table of Contents



Schedule of Total Expenditures & Transfers-Out

for the Fiscal Year Ended June 30, 1998 Page A- 10

Notes to die Financial Schedules Page A- 11

Agency Response Department of Livestock Page B-3



Page ii



Appointed and Administrative Officials



Board of Livestock







Term
Expires
March 1


Bob Lee, Chairman


Judith Gap


2005


Lee Comwell, Vice Chairman


Glasgow


2001


John Paugh


Bozeman


2001


Jeremy Kinross-Wright


Big Timber


2005


Jerry Leep


Manhattan


2005


George Hammond


Hardin


2003


Meg Smith


Divide


2003



Department of Livestock



Marc Bridges, Executive Officer



Arnold Gertonson, DVM, Administrator and State Veterinarian
Animal Health Division

George Harris, Administrator
Centralized Services Division

Larry Stackhouse, DVM, Administrator
Diagnostic Laboratory Division

Rob Tierney, Administrator
Brands Enforcement Division

Meat, Milk and Egg Inspection Division

»• Ken Lee, DVM, Bureau Chief

Milk and Egg Bureau

»• Carol Olmstead, Bureau Chief

Meat Inspection Bureau



Page ill



Page iv



Report Summary



Department of Livestock



This audit report documents the results of our financial-compliance
audit of the Department of Livestock (department) for the two fiscal
years ended June 30, 1999.



This report contains seven recommendations where the department
could improve management controls and enhance compliance with
state policies and laws. The first two recommendations relate to the
Brands Enforcement Division and discuss the accuracy of data on
the brands inspection system, timeliness of deposits, and timeliness
of remittance of inspections. The third and fourth recommendations
relate to compliance with state laws and policies covering travel and
establishing fees in the Administrative Rules of Montana. The next
two recommendations relate to recording financial activity in
accordance with state accounting policy. The final recommendation
discusses the accuracy of federal program information submitted to
the Governor's Office. The department's written response to the
audit recommendation begins on page B-3.

We issued an unqualified opinion on the financial schedules
contained in the report. This means the reader may rely on the
presented fmancial information and the supporting data on the
Statewide Budgeting and Accounting System.

The listing below serves as a means of summarizing the
recommendations contained in the repon, the department's response
thereto, and includes a reference to the supporting comments.



Recommendation #1



We recommend the department ensure:



A. Information is submitted in a timely manner and
accurately input to the brands inspection system.

B. Any differences noted during inspection audits are
investigated and resolved Page 8

Department Response : Concur. See page B-3.



Page V



Report Summary



Recommendation ffl



Recommendation #3



Recommendation #4



Recommendation §5



Recommendation #6



We recommend the department continue to work

with state stock inspectors to ensure compliance

with state deposit laws and certificate of inspection

requirements outlined in state law Page 10

Department Response : Concur. See page B-3.

We recommend the department comply with state policy
concerning reimbursement of travel expenses Page 1 1

Department Response : Concur. See page B-4.

We recommend the department ensure lab

fees are adopted in accordance with the Montana

Administrative Procedure Act Page 1 1

Department Response : Concur. See page B-4.

We recommend the department record financial activity

related to the sale of stray livestock in accordance with

state accounting policy Page 12

Department Response : Concur. See page B-4.

We recommend the department:

A. Accrue or defer revenue in accordance
with state law and accounting policy.

B. Record expenditures in the proper fund in

accordance with state law Page 14

Department Response : Concur. See page B-4.



Pagevi



Report Summary



Recommendation §1 We recommend the department implement procedures

to ensure an accurate and complete Schedule of
Expenditures of Federal Awards is submitted to
the Governor's Office Page 15



Department Response : Concur. See page B-4.



Page vii



Introduction



Introduction



We performed a financial-compliance audit of the Montana Depart-
ment of Livestock (department) for fiscal years 1997-98 and
1998-99. The objectives of the audit were to:

1 . Determine if the department complied with applicable state and
federal laws and regulations.

2. Review the department's control systems and make
recommendations for the improvement of management and
internal controls of die department.

3. Determine if the department's financial schedules present fairly
its changes in fund balances and results of operations for the
two fiscal years ended June 30, 1999.

4. Determine the implementation status of prior audit
recommendations .

This report contains seven recommendations to the department. The
recommendations address areas where the department can improve
its management controls and compliance with laws and regulations.
Other areas of concern not having a significant effect on the
successful operations of the department are not included in this
report, but have been discussed with management.

In accordance with section 5-13-307, MCA, we analyzed and dis-
closed the costs, if significant, of implementing the recommenda-
tions made in this report.



Background



The Department of Livestock was established to provide for the
control and eradication of animal diseases, the prevention of
transmission of animal diseases to humans, and the protection of
livestock from theft and predatory animals. The department is also
responsible for regulating the state milk industry.



The department is administered by a seven-member Board of
Livestock (board). The members of the board are appointed by the
governor and confirmed by the senate to serve six-year terms. The
board appoints an executive director who is responsible for the



Page 1



Introduction



operations of the department and ensuring board policies, directives,
and rules are carried out. The department is organized into five
divisions and employs approximately 137 full-time equivalent
employees.

Centralized Services Division - provides budgetmg, accounting,
payroll, legal, purchasing, and data processing services to the
department. This division also includes the Milk Control Board.
The Milk Control Board, which has been administratively attached
to the department since July 1, 1995, is responsible for the
regulation of milk producer pricing.

Inspection and Control Division - includes the Inspection and
Control Program which is responsible for brand inspections,
recording of livestock brands, dealer licensing, and livestock theft
investigations. This program has employees in 15 market centers
and 18 districts throughout the state. This division also contains the
Predator Control Program. This program is designed to control
certain predators that kill or injure domestic livestock.

Animal Health Division - includes the Disease Control Program.
This program is responsible for the control and eradication of
animal diseases and the prevention of transmission of animal
diseases to humans.

Diagnostic Laboratory Division - provides laboratory support for
the Disease Control Program, Milk and Egg Program, veterinarians,
and livestock producers. The Diagnostic Laboratory operates on the
Bozeman campus of Montana State University.

Meat. Milk, and Egg Inspection Division - includes the Milk and
Egg Program and the Meat and Poultry Inspection Program. The
Milk and Egg Program ensures that eggs and milk products sold or
manufactured in the state are fit for human consumption. The Meat
and Poultry Inspection Program provides for a state-certified supply
of wholesome meat products for retail consumption.



Page 2



Introduction



The Livestock Crimestoppers Commission is administratively
attached to the department. This commission provides a reward
program for information used in the detection of livestock-related
crimes.



Page 3



Page 4



Prior Audit Recommendations



Prior Audit ^^ performed the financial-compliance audit of the department for

Recommendations the two fiscal years ended June 30, 1997. The report contained five

recommendations of which the department implemented one,
partially implemented one, and did not implement three.



The recommendation which was partially implemented deals with
travel expenditures and is discussed again on page 10. We have had
recommendations related to travel expense reimbursements in the
department's five previous audit reports. Although the number and
type of errors we noted in board member travel have decreased
since the last audit, we noted an increasing number of instances of
noncompliance related to employee travel.

The three recommendations which were not implemented relate to
stock inspector deposits and remittances (page 8), establishing fees
through the administrative rulemaking process (page 11), and
accounting for the proceeds from the sale of stray livestock
(page 1 1) and are discussed again on the pages noted.



Page 5



Page 6



Findings and Recommendations



Brands Inspection ^^^ department's responsibilities include verifying ownership of

System livestock prior to transfer across county or state lines and before or

after sale. This is accomplished via an inspection process. State
stock inspectors live throughout the state and perform inspections as
requested. The department also provides, when requested, duplicate
inspections as proof of ownership to people whose original
inspections have been lost or destroyed. Inspection fees range from
$.35 per head for cattle to $10.00 per head for lifetime horse
inspections.

The forms used to document these inspections are contained in
books of 50 blank inspections. Each cattle inspection book also
contains a two-part issuance form. The top portion of the form is to
be completed when the book is issued and sent to the Helena office
for input to the brands inspection system. Once the form has been
input to the brands inspection system, the system tracks several
pieces of information related to the inspection activity. The system
tracks the inspector responsible for the book, the date the book was
issued, and the inspections that are still outstanding and have not
been submitted to the department. The system, when requested, can
produce a listing by inspector showing the inspection forms that
have not yet been received by the department. Annually the listings
are printed and distributed to the appropriate inspector and
explanations for outstanding inspections are requested.

We reviewed certain controls over input to and reporting from the
brands inspections system and noted several items of concern.

► Inspection books currently in use were not shown on the
brands inspection system as being issued because issuance
forms had not been completed and returned to the Helena
office.

► Inspection books actually issued and used by one inspector
were shown on the system as being issued to another inspector.

► Of the outstanding inspection listings returned to Helena,
several outstanding inspections had been resolved; however,
the brands inspection system had not been updated.

Page 7



Findings and Recommendations



► The listing of outstanding inspections is not printed out for all
inspectors. Department personnel noted they do not print out
the listing for inspectors in the Helena office. We noted one of
these inspectors had 172 outstanding cattle inspection forms
dating back to 1987 that had not been resolved. Upon further
inquiry, we determined several of these inspections and the
related money were still in the possession of the inspector.
Cash and checks totaling $1,529 were provided to us. Checks
received were dated as far back as January 16, 1991. Because
of the nature of this matter, it was referred to the Attorney
General's Office and Governor's Office by our office in
•accordance with section 5-13-304(4), MCA.

According to agency personnel, there were several reasons for these
issues, including human error, not receiving the book issuance
forms, and lack of followup on reports. Without a reliable tracking
system for inspection forms and followup on discrepancies, the
department is unable to provide current proof of ownership to the
industry and is unable to determine if it is receiving the revenue
from the inspections.

Recommendation #1

We recommend the department ensure:

A. Information is submitted in a timely manner and
accurately input to the brands inspection system.

B. Any differences noted during inspection audits are
investigated and resolved.



Compliance With
Deposit and Inspection
Remittance Laws



State stock inspectors deposit inspection fees into local banks and
submit the deposit ticket and supporting inspection documentation to
the department for recording on the state's accounting records and
the brands inspection system. State law requires collections be
deposited each day when cash exceeds $100 or total collections
exceed $500. At a minimum, all moneys collected shall be
deposited at least weekly. State law further requires the state stock
inspectors to file the certificate of inspection with the department
within five days after the inspection was completed.



Pages



Findings and Recommendations



In four prior audits dating back to 1991, we noted concerns with the
timeliness of deposits, and in the prior audit, we identified a concern
with inspection remittances by the state stock inspectors. During the
current audit we found deposits and inspections are still not remitted
in a timely manner.

The following two items were noted during the current audit period
and may have been prevented, or detected in a timely maimer, if the
department had implemented prior audit recommendations.

*■ One stock inspector did not remit approximately $1,700 of

fees or the related inspections to the department. This
situation was discovered when a stock owner contacted the
department to obtain a copy of an inspection form.
Department personnel could not locate the inspection form
and investigated further. It was determined approximately
$500 was unaccounted for by the inspector. This matter
was referred by the Department of Livestock to the
Attorney General and our office in accordance with section
5-13-309(3), MCA. Based on our review of the
information provided and additional inquiry, we determined
there was an apparent violation of penal statute and in
accordance with section 5-13-304(4), MCA, we referred
the issue to the Attorney General and the Governor.

*■ As noted in the previous report section, checks and cash

which were collected as much as nine years ago were never
deposited.

When deposits and inspections are not submitted to the department
in a timely fashion, the most current ownership and brand
information is not available to the department and the accounting
records do not accurately reflect the activity of the department.
Department personnel said they have informed inspectors of the
state deposit laws and certificate of inspection requirements and
have requested them to comply.



Page 9



Findings and Recommendations



ftecbmirieTtcliatioii U2

We recommend the department continue to work with state
stock inspectors to ensure compliance with state deposit
laws and certificate of inspection requirements outlined in
state law.



ComDliance With Travel ^ ^^^ review of the department's compliance with state travel

Policies policies, we found the department paid $8,724 in excess of the

amounts allowed by state policy. The following describes the items

we noted:

► 27 different travel expense vouchers were paid without
appropriate authorization. The total payments for
unapproved vouchers totaled $6,786. State policy requires
all travel expense vouchers to be approved by the
employee's immediate supervisor.

► Lodging expenses of $1,233 were improperly reimbursed
to board members and employees. There were 15 different
instances where reimbursed lodging was not paid in
accordance with state policy. These situations occurred
either when the incorrect rate was applied for out-of-state
lodging or when lodging was reimbursed without a valid
receipt.

► State travel policy allows for reimbursement of expenses to
employees who submit reimbursement requests within three
months of the occurrence of the expense. If vouchers are
not submitted within the three months, the employee waives
the right to reimbursement. We noted one instance where
an employee was denied reimbursement for submitting
travel expenses beyond the three-month period. However,
we identified seven travel expense vouchers which were not
submitted within the three-month period and the requests
were processed.

The majority of these errors could have been avoided by a more
thorough review process for travel reimbursement requests and the
travel expense vouchers. Department personnel stated some of the
errors were caused because they were unaware of new travel

Page 10



Findings and Recommendations



expense reimbursement policies and human error. The deparmient
should develop a review process to ensure compliance with state
policy.

Recommendation #3

We recommend the department comply with state policy

concerning reimbursement of travel expenses.



Establishing Lab Fees by
Rule



In our prior audit, we noted the department establishes fees for the
diagnostic lab but does not go through the administrative rulemaking
process (Montana Administrative Procedure Act) in setting or
changing those fees. Section 81-1-102(2), MCA, states, "The
department shall by rule establish all fees that it is authorized to
charge ..." The lab collects approximately $360,000 in fees each
year. During the prior audit, department personnel decided the lab
fees did not have to go through the rulemaking process since the law
relating to lab fees did not specifically mention the rule adoption
process. However, the state law reference above applies to all fees
established by the department. During the current audit, we noted
procedures have not changed and the fees still do not go through the
administrative rulemaking process. Department management noted
they are in the process of establishing lab fees through the
administrative rulemaking process.



Recommendation #4

We recommend the department ensure lab fees are adopted

in accordance with the Montana Administrative Procedure

Act



Proceeds From the Sale
of Stray Livestock



The department takes possession of livestock found miming at large


1 3

Online LibraryMontana. Legislature. Legislative Audit DivisionDepartment of Livestock financial-compliance audit for the two fiscal years ended .. (Volume 2000) → online text (page 1 of 3)