EB.00
State Treasurer
Operating Budget Data
($ in Thousands) FY 01 Actual General Fund Special Fund Reimbursable Fund Total Funds $4,262 354 16,446 $21,062 FY 02 Working $4,166 420 18,078 $22,665 FY 03 Allowance $4,100 362 19,415 $23,877 % Change Prior Year (1.6%) (14.0%) 7.4% 5.3%
Change ($66) (59) 1,336 $1,212
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Cost containment actions related to the hiring freeze and the 1.5% budget reductions total $777,000 over the fiscal 2002 and 2003 budgets. In addition, $11 million from the balance of the State Insurance Trust Fund is transferred to the general fund contingent on enactment legislation. While general and special funds decrease in fiscal 2003, reimbursable funds increase by $1.3 million. The reimbursable fund increase is due almost entirely to increases in the cost of commercially purchased insurance.
Personnel Data
FY 01 Actual Regular Positions Contractual FTEs Total Personnel Vacancy Data: Regular Positions Budgeted Turnover: FY 03 Positions Vacant as of 12/31/01 2.29 6.00 4.24% 11.11% 53.00 0.00 53.00 FY 02 Working 54.00 0.00 54.00 FY 03 Allowance 54.00 0.00 54.00 Change 0.00 0.00 0.00
Ä No new positions are added in the fiscal 2003 budget.
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There were six vacant positions as of December 31, 2001. Of these, no position had been vacant longer than six months.
Note: Numbers may not sum to total due to rounding. For further information contact: Steven D. McCulloch 1
Phone: (410) 946-5530
EB.00 - State Treasurer
Analysis in Brief
Issues
Audit Report Identifies Four Major Issues: The most recent audit for the State Treasurer’s Office was released in June 2001. There were ten findings relating to six areas of operations. Four findings stand out: depository and disbursement accounts were not being reconciled in a timely manner; the office was not ensuring that interest earned on general funds in State agency accounts was being credited to the general fund; the office had not established an adequate process to ensure compliance with the Federal Cash Management Improvement Act; and the office used an interagency agreement to obtain information technology services from a private vendor, which resulted in the office bypassing State Procurement Regulations. The State Treasurer should brief the committees on the actions being taken in response to the audit findings. The adoption of committee narrative is recommended to have the Treasurer report on whether all fiscal 2002 interest payments were credited to the general fund as required.
Automated Account Reconciliation System Abandoned Four Years After Development Began: In 1997 the State Treasurer’s Office entered into two technology contracts for the development of an automated account reconciliation system. The initial value of the contracts was $481,000, but the total cost (excluding State Treasurer’s Office IT personnel costs) grew to $1.6 million before the project was cancelled in October 2001 and the system abandoned. The State Treasurer should brief the committees on why the cost of this project increased by over 300% before the decision was made to abandon it; any procedural changes that have been made to ensure that IT projects are better managed in the future; and what actions are being taken to recover these funds given that the product was unusable.
Recommended Actions
Funds 1. 2. 3. Add language restricting funds budgeted for banking fees to that purpose only. Reduce funds for out-of-state travel to the fiscal 2001 actual level. Adopt committee narrative to have the agency report on the transfer of interest earned on general funds. Total Reductions $ 3,850 $ 3,850 Positions
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EB.00
State Treasurer
Operating Budget Analysis
Program Description
The State Treasurer is responsible for the management and protection of State funds and property. To carry out these responsibilities, the State Treasurer selects and manages the depository facilities for State funds, issues or authorizes agents to issue payments of State funds, invests excess funds, safeguards all State securities and investments, and provides insurance protection against damage to State property and liability of State employees. The State Treasurer also administers the sale of Maryland general obligation bonds and serves as a member of the Board of Public Works. The State Treasurer’s Office consists of four programs: treasury management, insurance management, insurance coverage, and bond sale expenses.
Fiscal 2002 Actions
Cost Containment Cost containment actions in fiscal 2002 related to the hiring freeze and the 1.5% reductions totaled $330,000. Of this amount, $326,000 was general funds and $4,000 was special funds. These reductions carry forward into the fiscal 2003 allowance, but the full year estimated savings from the hiring freeze is $117,000 greater in fiscal 2003 than in the current year. Over the two year period, $777,000 in reductions result from these cost containment actions. The Treasurer’s Office indicates that the funds will most likely come from holding positions vacant. The office was given an exemption from the hiring freeze for five positions important to the operations of the office but will only recruit for the positions once it is clear savings from general operations will be sufficient to pay the salaries.
Fund Transfer The budget as introduced anticipates the transfer of $11 million from the State Insurance Trust Fund to the general fund contingent upon enactment of legislation. This transfer will reduce the projected 2003 ending balance in the fund from $21.3 million to $10.3 million. The most recent actuarial study of the fund recommended a balance of $21 million. This transfer, if carried out, will result in State agencies being assessed greater amounts in future budgets for insurance coverage in order to build the trust fund's balance back to the level recommended by the actuary. The State Treasurer should brief the committees on the potential risks to the fund’s ability to pay tort claims should the planned transfer be made and on the number of years that will be required to increase the fund back to the actuarially recommended balance.
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EB.00 - State Treasurer
Governor’s Proposed Budget
As shown in Exhibit 1, the fiscal 2003 allowance for the State Treasurer’s Office increases by over $1.2 million over the fiscal 2002 working appropriation. The increase is entirely in reimbursable funds with most of the increase due to an increase in the cost of commercial insurance. Commercial insurance premiums are increasing for two reasons. The first is as a result of the events of September 11, 2001, it is costing more to insure property. The second reason is that the State Treasurer’s Office is now procuring insurance based on detailed property and equipment inventories received from State agencies. These detailed inventories have generally been valued higher than the estimated values used in the past. General funds decrease by $65,965 (-1.6%), and special funds decrease by $58,753 (-14%). Most areas of the budget, other than insurance coverage, show declines or only slight increases.
Exhibit 1
General 2002 Working Appropriation 2003 Governor’s Allowance Amount Change Percent Change Where It Goes: Personnel Expenses $4,166 4,100 ($66) (1.6)%
Special $420 362 ($59) (14.0)%
Reimb. $18,078 19,415 $1,336 7.4% $22,665 23,877 $1,212 5.3%
Fiscal 2003 increments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annualize fiscal 2002 general salary increase . . . . . . . . . . . . . . . . . . . . . . . . . . . Net fiscal 2003 cost containment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employee and retiree health insurance cost increase . . . . . . . . . . . . . . . . . . . . . . Retirement contribution cost increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Changes Insurance coverage - mainly commercial policies . . . . . . . . . . . . . . . . . . . . . . . . Car replacement (100,000 miles at end of fiscal 2001) . . . . . . . . . . . . . . . . . . . . . Outside computer programming support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Department of Budget and Management paid telecommunications . . . . . . . . . . . Computer replacements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total
Note: Numbers may not sum to total due to rounding.
$35 57 (117) 27 21 11 1,242 9 (117) 30 27 (13)
$1,212
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EB.00 - State Treasurer
Performance Analysis: Managing for Results
Selected performance measures for the State Treasurer’s Office are shown in Exhibit 2. Committee narrative in the fiscal 2002 Joint Chairmen’s Report (JCR) requested the Treasurer’s Office to reformulate its Managing for Results objectives to be specific measurable targets toward accomplishing its goals. The office’s fiscal 2003 submission complies with the JCR request. Because some of the measures are new, past data is not available. The measurements point out difficulties the State Treasurer’s Office has had in reconciling the State’s bank accounts. This topic is discussed in Issues 1 and 2. After meeting the goal of having fewer than 1,000 pending open insurance claims in fiscal 2001, the State Treasurer’s Office is projecting that it will not attain that goal in fiscal 2003. This is due in part to the expectation that the hiring freeze will prevent the office from operating with a full complement of claims adjusters.
Exhibit 2
Program Measurement Data
State Treasurer’s Office
Fiscal 1999 through 2003
Ann. Chg. 99-01 Ann. Chg. 01-03
Actual 1999 Average number of days to reconcile bank accounts Ratio of State return to 90-day Treasury Bill Rate Number of participants in the Local Govt. Investment Pool Percent increase over 6/30/00 base in Local Govt. Investment Pool Balance Pending Open Insurance Claims
Actual 2000
Est. 2001
Actual 2001
Est. 2002
Est. 2003
30
30
30
180
60
30
144.9%
-59.2%
1.13
1.04
1.07
1.13
1.10
1.07
0.0%
-2.7%
n/a
253
n/a
266
275
280
n/a
n/a
n/a n/a
n/a 1,119
n/a n/a
40% 970
45% 995
50% 1,020
n/a n/a
n/a n/a
Source: State Treasurer’s Office
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EB.00 - State Treasurer
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EB.00 - State Treasurer
Issues
1. Audit Report Identifies Four Major Issues
The Office of Legislative Audits (OLA) released in June 2001 the audit report for the State Treasurer’s Office for the period beginning December 1, 1997, and ending September 30, 2000. The report listed ten findings relating to six areas of operations. Of these, four stand out:
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The State’s main disbursement and depository accounts were not always reconciled in a timely manner. As of February 14, 2001, the office had not completed the reconciliation for months after July 2000. During fiscal 2000 these accounts were used to process receipts and disbursements totaling approximately $73 billion. In an attempt to improve its reconciliation procedures, the office used its delegated procurement authority (which allows the office to approve and award banking services contracts without control agency involvement) to enter into information technology contracts for the development of an automated bank reconciliation system (see issue No. 2.) The audit recommends that the office use its current procedures to reconcile the accounts within 30 days. The office did not ensure that all interest earned on general funds in State agency bank accounts was transferred to the general fund. Beginning in fiscal 2000, contracts between the office and the banks used by State agencies to deposit funds require each bank to invest funds for the State agency accounts with balances exceeding $30,000 and remit the interest earnings to the general fund. According to the office’s records, 33 banks did not transfer interest earnings on such accounts for July 2000, the only month for which the office attempted to monitor this process. As of October 27, 2000, the office had not followed up on these results to determine the amount of interest due to the general fund or to determine if interest earnings had instead been credited to the respective agencies. Similar conditions were noted in the three proceeding audit reports. The audit recommends that the office ensure that all interest earned on State general funds on deposit in agency bank accounts is transferred to the general fund. The office had not established an adequate process to ensure compliance with the Federal Cash Management Improvement Act. Federal regulations require State agencies to officially recertify the accuracy of check clearance patterns at least every five years and to ensure that clearance patterns are auditable. The office had not verified that the clearance patterns for which it was responsible were accurate since 1994. In addition, the office did not ensure that clearance patterns required to be recertified by other State agencies were accurate. Clearance patterns are used to determine the timing of transfers of funds to the State for federal assistance programs. A clearance pattern that is too short causes federal funds to be drawn before State funds are expended creating a situation where the State could owe interest to the federal government. Conversely, a clearance pattern that is too long could result in the loss of interest income to the State because of delays in requesting federal funds (the September 1999 audit report on the Department of Health and Mental Hygiene indicated that inaccurate check clearance patterns for the Medicaid program resulted in lost interest income of approximately $775,000.) The audit recommends that the office recertify clearance patterns, ensure that the calculations supporting the recertification are auditable, and that the office ensure clearance patterns developed by other State agencies are accurate and auditable.
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EB.00 - State Treasurer
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The office used an interagency agreement to obtain information technology services from a private vendor, which resulted in the office bypassing State Procurement Regulations. The office entered into an interagency agreement with a State university for information technology modernization support services. The agreement, with subsequent amendments, totaled approximately $800,000. While the office procured these services via interagency agreement, a private vendor through a partnership with the university provided all the services. The university did not provide staffing or other support services under the contract. Since interagency agreements are specifically exempted from the State Procurement Regulations, the office did not solicit competitive bids for these services or obtain approval from the Board of Public Works. In addition, the agreement was not published in the Maryland Register or reported to the budget committees as required by State budget law. The audit recommends that the office refrain from using interagency agreements to procure services from private ventors and comply with State Procurement Regulations.
The State Treasurer should brief the committees on the actions being taken in response to the audit findings. The adoption of committee narrative is recommended to have the Treasurer report on whether all fiscal 2002 interest payments were credited to the general fund as required.
2. Automated Account Reconciliation System Abandoned Four Years After Development Began
In an attempt to improve its account reconciliation procedures, the State Treasurer’s Office used its delegated procurement authority (which allows it to approve and award banking services contracts without control agency involvement) to enter into two information technology contracts for the development of an automated bank reconciliation system in April 1997. The two contracts, with amendments, were valued at over $481,000 and provided for software, programming, training, and related professional consulting services. The system never performed as expected and after investing nearly $1.6 million (not including the cost of IT personnel in the State Treasurer’s Office) in the project, the State Treasurer’s Office cancelled the project and has now gone back to its manual reconciliation process. Going back to the manual reconciliation process only will allow the office to meet its goal of reconciling accounts within 30 days of receiving bank statements. For the past two years the office has been unable to meet this goal as it attempted to run both the manual reconciliation and the automated reconciliation system simultaneously. The total loss on the project is nearly $1.5 million after the value of equipment that can be used for other purposes is deducted. The State Treasurer should brief the committees on why the cost of this project increased by over 300% before the decision was made to abandon it; any procedural changes that have been made to ensure that IT projects are better managed in the future; and what actions are being taken to recover these funds given that the product was unusable.
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EB.00 - State Treasurer
Recommended Actions
1. Add the following language to the general fund appropriation: , provided that funds budgeted for items related to the banking services contracts may be expended for that purpose only and may not be transferred by budget amendment or otherwise. Funds remaining at the close of the fiscal year shall revert to the general fund Explanation: Banking fees are generally based on a per transaction cost. The budget is prepared by estimating both the per item cost and the number of items - the actual amount needed is not known. This language prohibits funds budgeted for banking fees from being used for any other purpose. Amount Reduction 2. 3. Reduce funds for out-of-state travel to the fiscal 2001 actual level. Adopt the following narrative: Transfer of Interest Earned on General Funds: The last three fiscal compliance audits of the State Treasurer found that the office did not ensure that all interest earned on general funds in State agency bank accounts was transferred to the general fund. The budget committees are concerned that the agency has not taken appropriate corrective action despite agreement in each audit that the issue would be rectified. The agency shall prepare and submit a report to the budget committees by October 1, 2002, which indicates whether all interest in fiscal 2002 was properly credited to the general fund on a timely basis. Information Request Report on whether all fiscal 2002 interest was credited to the general fund Author State Treasurer Due Date October 1, 2002 $ 3,850 GF Position Reduction
Total General Fund Reductions
$ 3,850
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EB.00 - State Treasurer
Appendix 1
Current and Prior Year Budgets
Current and Prior Year Budgets
State Treasurer
($ in Thousands)
General Fund Fiscal 2001 Legislative Appropriation Deficiency Appropriation Budget Amendments Reversions and Cancellations Actual Expenditures Fiscal 2002 Legislative Appropriation Budget Amendments Working Appropriation Special Fund Federal Fund Reimb. Fund
Total
$4,128 117 18 0 $4,262
$354 0 0 0 $354
$0 0 0 0 $0
$17,493 0 0 (1,047) $16,446
$21,974 117 18 (1,047) $21,062
$4,492 (326) $4,166
$424 (4) $420
$0 0 $0
$18,078 0 $18,078
$22,995 (330) $22,665
Note: Numbers may not sum to total due to rounding.
The fiscal 2001 budget was increased by a $117,000 deficiency appropriation to allow the leasepurchase of a high speed check printer and by a budget amendment for the general salary increase. These increases were offset by cancellation of just over $1 million in reimbursable funds resulting from the purchase of less commercial insurance than estimated. The fiscal 2002 budget decrease reflects round one of cost containment.
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Object/Fund Difference Report State Treasurer
Object/Fund
FY01 Actual
FY02 Working Appropriation FY03 Allowance FY02 - FY03 Amount Change Percent Change
Positions 53.00 53.00 54.00 54.00 0 54.00 54.00 0 0% 0%
01 Regular
Total Positions
Objects
EB.00 - State Treasurer
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$ 21,061,866 $ 22,665,037 $ 4,262,304 353,518 16,446,044 $ 21,061,866 $ 4,166,459 420,428 18,078,150 $ 22,665,037
01 02 03 04 07 08 09 10 11 13 $ 23,876,805
Salaries and Wages Technical & Spec Fees Communication Travel Motor Vehicles Contractual Services Supplies & Materials Equip - Replacement Equip - Additional Fixed Charges
$ 3,097,094 25,102 78,566 22,115 3,225 2,471,592 273,870 200,720 9,262 14,880,320
$ 3,000,119 21,000 96,276 36,800 23,816 2,869,263 262,572 311,000 6,699 16,037,492
$ 3,033,938 21,000 127,509 33,800 17,891 2,772,948 249,361 337,736 5,671 17,276,951
$ 33,819 0 31,233 (3,000) (5,925) (96,315) (13,211) 26,736 (1,028) 1,239,459 $ 1,211,768
1.1% 0% 32.4% (8.2%) (24.9%) (3.4%) (5.0%) 8.6% (15.3%) 7.7% 5.3%
Total Objects
Funds $ 4,100,494 361,675 19,414,636 $ 23,876,805 ($ 65,965) (58,753) 1,336,486 $ 1,211,768 (1.6%) (14.0%) 7.4% 5.3%
01 03 09
General Fund Special Fund Reimbursable Fund
Total Funds
Note: Full-time and contractual positions and salaries are reflected for operating budget programs only.
Appendix 2
Fiscal Summary State Treasurer
Unit/Program $ 4,680,494 1,248,514 14,852,858 280,000 $ 21,061,866 $ 4,262,304 353,518 $ 4,615,822 $ 16,446,044 $ 21,061,866 $ 22,995,037 $ 18,078,150 $ 18,078,150 $ 22,665,037 $ 4,916,887 $ 4,586,887 $ 4,492,459 424,428 $ 4,166,459 420,428 (2.2%) 18.9% (0.6%) 9.9% 7.6% $ 22,995,037 $ 22,665,037 7.6% $ 5,122,189 1,584,848 16,008,000 280,000 $ 4,792,189 1,584,848 16,008,000 280,000 2.4% 26.9% 7.8% 0% $ 4,832,590 1,504,215 17,250,000 290,000 $ 23,876,805 $ 4,100,494 361,675 $ 4,462,169 $ 19,414,636 $ 23,876,805
FY01 Actual
FY02 Legislative Appropriation FY01 - FY02 % Change FY03 Allowance
FY02 Working Appropriation
FY02 - FY03 % Change 0.8% (5.1%) 7.8% 3.6% 5.3% (1.6%) (14.0%) (2.7%) 7.4% 5.3%
01 Treasury Management 01 Insurance Management 02 Insurance Coverage 01 Bond Sale Expenses
Total Expenditures
General Fund Special Fund
Total Appropriations
Reimbursable Fund
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Total Funds
Appendix 3