EB.00
State Treasurer
Operating Budget Data
($ in Thousands)
FY 01 FY 02 FY 03 % Change
Actual Working Allowance Change Prior Year
General Fund $4,262 $4,166 $4,100 ($66) (1.6%)
Special Fund 354 420 362 (59) (14.0%)
Reimbursable Fund 16,446 18,078 19,415 1,336 7.4%
Total Funds $21,062 $22,665 $23,877 $1,212 5.3%
Ä 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.
Ä 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 FY 02 FY 03
Actual Working Allowance Change
Regular Positions 53.00 54.00 54.00 0.00
Contractual FTEs 0.00 0.00 0.00 0.00
Total Personnel 53.00 54.00 54.00 0.00
Vacancy Data: Regular Positions
Budgeted Turnover: FY 03 2.29 4.24%
Positions Vacant as of 12/31/01 6.00 11.11%
Ä No new positions are added in the fiscal 2003 budget.
Ä 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 Phone: (410) 946-5530
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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 Positions
1. Add language restricting funds budgeted for banking fees to that
purpose only.
2. Reduce funds for out-of-state travel to the fiscal 2001 actual level. $ 3,850
3. Adopt committee narrative to have the agency report on the transfer
of interest earned on general funds.
Total Reductions $ 3,850
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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 Special Reimb.
2002 Working Appropriation $4,166 $420 $18,078 $22,665
2003 Governor’s Allowance 4,100 362 19,415 23,877
Amount Change ($66) ($59) $1,336 $1,212
Percent Change (1.6)% (14.0)% 7.4% 5.3%
Where It Goes:
Personnel Expenses
Fiscal 2003 increments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $35
Annualize fiscal 2002 general salary increase . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Net fiscal 2003 cost containment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (117)
Employee and retiree health insurance cost increase . . . . . . . . . . . . . . . . . . . . . . 27
Retirement contribution cost increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Other adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Other Changes
Insurance coverage - mainly commercial policies . . . . . . . . . . . . . . . . . . . . . . . . 1,242
Car replacement (100,000 miles at end of fiscal 2001) . . . . . . . . . . . . . . . . . . . . . 9
Outside computer programming support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (117)
Department of Budget and Management paid telecommunications . . . . . . . . . . . 30
Computer replacements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13)
Total $1,212
Note: Numbers may not sum to total due to rounding.
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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. Ann.
Actual Actual Est. Actual Est. Est. Chg. Chg.
1999 2000 2001 2001 2002 2003 99-01 01-03
Average number of days
to reconcile bank
accounts 30 30 30 180 60 30 144.9% -59.2%
Ratio of State return to
90-day Treasury Bill
Rate 1.13 1.04 1.07 1.13 1.10 1.07 0.0% -2.7%
Number of participants
in the Local Govt.
Investment Pool n/a 253 n/a 266 275 280 n/a n/a
Percent increase over
6/30/00 base in Local
Govt. Investment Pool
Balance n/a n/a n/a 40% 45% 50% n/a n/a
Pending Open Insurance
Claims n/a 1,119 n/a 970 995 1,020 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:
Ä 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.
Ä 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.
Ä 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
Ä 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 Position
Reduction Reduction
2. Reduce funds for out-of-state travel to the fiscal 2001 $ 3,850 GF
actual level.
3. 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 Author Due Date
Report on whether all fiscal State Treasurer October 1, 2002
2002 interest was credited to
the general fund
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 Special Federal Reimb.
Fund Fund Fund Fund Total
Fiscal 2001
Legislative
Appropriation $4,128 $354 $0 $17,493 $21,974
Deficiency
Appropriation 117 0 0 0 117
Budget
Amendments 18 0 0 0 18
Reversions and
Cancellations 0 0 0 (1,047) (1,047)
Actual
Expenditures $4,262 $354 $0 $16,446 $21,062
Fiscal 2002
Legislative
Appropriation $4,492 $424 $0 $18,078 $22,995
Budget
Amendments (326) (4) 0 0 (330)
Working
Appropriation $4,166 $420 $0 $18,078 $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 lease-
purchase 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
FY02
FY01 Working FY03 FY02 - FY03 Percent
Object/Fund Actual Appropriation Allowance Amount Change Change
Positions
01 Regular 53.00 54.00 54.00 0 0%
Total Positions 53.00 54.00 54.00 0 0%
Objects
01 Salaries and Wages $ 3,097,094 $ 3,000,119 $ 3,033,938 $ 33,819 1.1%
02 Technical & Spec Fees 25,102 21,000 21,000 0 0%
03 Communication 78,566 96,276 127,509 31,233 32.4%
04 Travel 22,115 36,800 33,800 (3,000) (8.2%)
07 Motor Vehicles 3,225 23,816 17,891 (5,925) (24.9%)
08 Contractual Services 2,471,592 2,869,263 2,772,948 (96,315) (3.4%)
09 Supplies & Materials 273,870 262,572 249,361 (13,211) (5.0%)
10 Equip - Replacement 200,720 311,000 337,736 26,736 8.6%
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11 Equip - Additional 9,262 6,699 5,671 (1,028) (15.3%)
13 Fixed Charges 14,880,320 16,037,492 17,276,951 1,239,459 7.7%
Total Objects $ 21,061,866 $ 22,665,037 $ 23,876,805 $ 1,211,768 5.3%
EB.00 - State Treasurer
Funds
01 General Fund $ 4,262,304 $ 4,166,459 $ 4,100,494 ($ 65,965) (1.6%)
03 Special Fund 353,518 420,428 361,675 (58,753) (14.0%)
09 Reimbursable Fund 16,446,044 18,078,150 19,414,636 1,336,486 7.4%
Total Funds $ 21,061,866 $ 22,665,037 $ 23,876,805 $ 1,211,768 5.3%
Note: Full-time and contractual positions and salaries are reflected for operating budget programs only.
Appendix 2
Fiscal Summary
State Treasurer
FY02 FY02
FY01 Legislative Working FY01 - FY02 FY03 FY02 - FY03
Unit/Program Actual Appropriation Appropriation % Change Allowance % Change
01 Treasury Management $ 4,680,494 $ 5,122,189 $ 4,792,189 2.4% $ 4,832,590 0.8%
01 Insurance Management 1,248,514 1,584,848 1,584,848 26.9% 1,504,215 (5.1%)
02 Insurance Coverage 14,852,858 16,008,000 16,008,000 7.8% 17,250,000 7.8%
01 Bond Sale Expenses 280,000 280,000 280,000 0% 290,000 3.6%
Total Expenditures $ 21,061,866 $ 22,995,037 $ 22,665,037 7.6% $ 23,876,805 5.3%
General Fund $ 4,262,304 $ 4,492,459 $ 4,166,459 (2.2%) $ 4,100,494 (1.6%)
Special Fund 353,518 424,428 420,428 18.9% 361,675 (14.0%)
Total Appropriations $ 4,615,822 $ 4,916,887 $ 4,586,887 (0.6%) $ 4,462,169 (2.7%)
Reimbursable Fund $ 16,446,044 $ 18,078,150 $ 18,078,150 9.9% $ 19,414,636 7.4%
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Total Funds $ 21,061,866 $ 22,995,037 $ 22,665,037 7.6% $ 23,876,805 5.3%
EB.00 - State Treasurer
Appendix 3