E20B
State Treasurer
Operating Budget Data
($ in Thousands)
FY 04 FY 05 FY 06 FY 05-06 % Change
Actual Working Allowance Change Prior Year
General Fund $3,635 $3,677 $4,345 $669 18.2%
Special Fund 513 621 785 164 26.4%
Reimbursable Fund 25,200 29,428 33,714 4,285 14.6%
Total Funds $29,349 $33,726 $38,844 $5,118 15.2%
Contingent & Back of Bill
Reductions -28 -28
Adjusted Total $29,349 $33,726 $38,816 $5,090 15.1%
! The fiscal 2006 allowance includes $1.8 million to fund two general fund deficiency
appropriations. Although the allowance indicates that the use of general funds increases by
$669,000 over the fiscal 2005 working appropriation, if additional general funds provided in the
deficiency appropriations are included in the fiscal 2005 working appropriation, the fiscal 2006
general fund allowance actually decreases by $1.1 million.
! The allowance provides $33.7 million in reimbursable fund expenditure authority which is $4.3
million more than what is provided in the fiscal 2005 working appropriation. The increased use
of reimbursable funds accounts for 83.7% of the total increase in the State Treasurer’s Office
budget. Increased premium costs for commercial insurance policies and greater use of the State
Insurance Trust Fund to cover operating costs account for the change.
! Proposed special fund expenditures increase by $164,000 in the budget. Increased special fund
revenues resulting from the office’s investment activities and an increase in the amount of special
funds expected to be needed to cover bond sale expenses accounts for the change.
Note: Numbers may not sum to total due to rounding.
For further information contact: Matthew D. Klein Phone: (410) 946-5530
Analysis of the FY 2006 Maryland Executive Budget, 2005
1
E20B – State Treasurer
Personnel Data
FY 04 FY 05 FY 06 FY 05-06
Actual Working Allowance Change
Regular Positions 54.00 55.00 55.00 0.00
Contractual FTEs 0.00 0.00 0.00 0.00
Total Personnel 54.00 55.00 55.00 0.00
Vacancy Data: Regular Positions
Turnover, Excluding New Positions 2.20 4.00%
Positions Vacant as of 12/31/04 7.00 12.3%
! The turnover rate applied to the State Treasurer’s Office budget increased from 2.2% in fiscal
2005 to 4.0% for the fiscal 2006 allowance thus reducing the amount of funds available to support
the office’s personnel related costs. Because the number of positions vacant as of December 31,
2004, exceeds the turnover rate applied for fiscal 2006, the office is likely to be able to meet its
budgeted turnover rate. The State Treasurer’s Office has indicated, however, that it has already
filled two of its vacant positions, leaving five vacancies as of the date of this analysis.
! While the fiscal 2006 allowance provides no new positions, the Treasurer’s Office has received a
total of three new positions through the actions of the Board of Public Works in the past year.
This has been offset by the abolition of two positions, thus the number of total positions funded
increased by only one from fiscal 2004 through the fiscal 2006 proposed budget.
Analysis of the FY 2006 Maryland Executive Budget, 2005
2
E20B – State Treasurer
Analysis in Brief
Major Trends
Reconciliation of the State’s Main Bank Accounts: The average number of days it took to reconcile
accounts exceeded 60 days in fiscal 2003 and 30 days in fiscal 2004. Problems encountered with the
current reconciliation process have stalled the implementation of a new automated reconciliation
system that is expected to improve upon this measure.
Investment Portfolio Continues to Outperform the 90-Day U.S. Treasury T-bill: The Treasurer’s
Office investment portfolio continues to outperform the average 90-day U.S. Treasury T-bill rate.
State Insurance Claims Processing: The number of new claims filed has increased substantially and
is expected to remain at current levels for the foreseeable future. The fiscal 2006 allowance includes
funds to purchase and install a new risk management information system intended to improve claims
processing and management.
Issues
Account Reconciliation Is Likely to Produce an Unreconciled Difference in the State’s Main Bank
Account: On February 3, 2005, the Department of Legislative Services Office of Legislative Audits
released a special report covering a statewide review of budget closeout transactions for fiscal 2004
that revealed a difference in the State’s main bank account. The Department of Legislative
Services (DLS) recommends that the Treasurer brief the committees concerning what impact
this is likely to have on the State’s fiscal situation.
State Insurance Trust Fund Unfunded Liability: The State provides insurance protection through
the purchase of specific excess commercial insurance policies and through self-insurance from the
State Insurance Trust Fund (SITF). Increased costs associated with excess policy coverage and
increased claim losses have outpaced agency premiums. As a result, the SITF balance is significantly
short of the recommended actuary’s recommended balance resulting in an unfunded liability for the
State. To begin to correct this situation, the fiscal 2005 budget increased agency premiums charged
to State agencies by almost $10 million. While the fiscal 2006 allowance maintains the increased
level of premiums charged to State agencies and deposited into the fund, the projected fiscal 2006
closing balance is still almost $24 million below the actuary’s recommended balance The
Treasurer should comment on the short- and long-term plans for improving the SITF
structural balance.
Analysis of the FY 2006 Maryland Executive Budget, 2005
3
E20B – State Treasurer
Recommended Actions
Funds
1. Reduce funds for training and staff development. $ 5,000
Total Reductions $ 5,000
Updates
Positions Added through the Board of Public Works: This update summarizes the job description of
three new positions added in the past 12 months through the actions of the Board of Public Works.
Analysis of the FY 2006 Maryland Executive Budget, 2005
4
E20B
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 (BPW).
The State Treasurer’s Office consists of four programs: treasury management; insurance
management; insurance coverage; and bond sale expenses.
The goals of the Treasurer’s Office are to:
• accurately reconcile all Treasury State bank accounts;
• maximize investment earnings for the State’s surplus funds in accordance with State law; and
• process all agency and third party claims submitted to the Insurance Division.
Performance Analysis: Managing for Results
The Treasurer’s Office is tasked with providing cash management including the reconciliation of
the State’s main accounts (depository and disbursement) and working funds.
• Objective: Reconcile the State’s main depository, main disbursement, and income tax refund
accounts within 30 days of receipt of the bank statement.
As shown in Exhibit 1, the number of account transactions processed has increased steadily and
while the Treasurer’s Office did not meet its 30-day reconciliation objective in fiscal 2003 or 2004,
improvement was made. As was outlined in the Treasurer’s Office fiscal 2005 budget analysis, the
poor bank reconciliation performance can be traced to the office’s failed attempt to implement an
automated bank reconciliation system in the late 1990s. As a result of this failure, the office
continued to utilize a manual monthly reconciliation process. Despite the setback, in 2002 the
Treasurer identified the implementation of a new automated system as a top priority. After an
extended procurement process, a contract was awarded to TrinTech, Inc. to deliver an automated
reconciliation package as one component of system reform. When it became apparent that the
existing reconciliation procedures were inadequate and did not provide accurate and reliable daily
Analysis of the FY 2006 Maryland Executive Budget, 2005
5
E20B – State Treasurer
cash reconciliation, the implementation of a new automated system was put on hold. As will be
discussed in the Issue section of this analysis, the office’s ongoing account reconciliation project is
likely to result in a significant unreconciled difference between the records of the custodian bank and
the State’s reported fiscal 2004 close-out cash balance. The Treasurer’s Office reports that the
implementation of the automated reconciliation system is expected to resume early in calendar 2005
after all remaining reconciliation issues have been resolved. At that time, a more current detailed
needs analysis, based on the restructured reconciliation process, has to be completed to ensure the
purchased system can support all the function necessary for accurate and controlled daily cash
reconciliation.
Exhibit 1
Average Number of Days to Reconcile Accounts
Fiscal 2003 – 2006
Measures FY 2003 Actual FY 2004 Actual FY 2005 Est. FY 2006 Est.
Total transactions 9,670,000 11,455,000 11,900,000 12,750,000
Average days to reconcile accounts >60 >30 <30 <7
Source: State Treasurer’s Office
• Objective: Earn a rate of return on the investment portfolio that exceeds the average 90-day U.S.
Treasury Bill rate by 25 basis points on an annual basis.
The Treasurer’s Office is also responsible for maximizing investment earnings for the State’s
surplus funds. Exhibit 2, which shows the rate of return on the investment portfolio as compared to
the average 90-day U.S. Treasury rate, indicates that the Treasurer’s investment portfolio out
performed the average T-bill rate by 80 basis points in fiscal 2002, 62 basis points in fiscal 2003, and
31 points in fiscal 2004. While the Treasurer’s investment portfolio has out perform the T-bill rate,
the difference has declined over the past three fiscal years. The low interest rate environment has
made it difficult to achieve better results. In fact, the 25 basis point difference articulated in the
Treasurer’s Office Managing for Results submission has been adjusted down from last year’s
submission which indicated an objective to exceed the average T-bill rate by 50 basis points. Had it
not been for a change in the performance measure, the Treasurer’s Office would not have exceeded
their objective in either fiscal 2003 or 2004. In its December 2004 report to the Legislative Policy
Committee, the Treasurer conveyed that interest rates increased during calendar 2004. In fact, the
Federal Reserve Board recently raised the prime lending rate for the sixth time since the beginning of
calendar 2004.
Analysis of the FY 2006 Maryland Executive Budget, 2005
6
E20B – State Treasurer
Exhibit 2
Comparison of Investment Portfolio and
90-day U.S. Treasury Bill Rate
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Fiscal 2002 Fiscal 2003 Fiscal 2004
Fiscal 2005 Est. Fiscal 2006 Est.
Actual Actual Actual
Avg. Rate on Investment Return 2.98% 1.94% 1.28% 2.33% 4.25%
Avg. 90-Day Treasury Bill Rate 2.18% 1.32% 0.97% 2.06% 3.96%
• Objective: Promptly and accurately investigate, analyze, and adjust all claims presented under
the State Insurance Trust Fund and the Maryland Tort Claim Act. Claims should be adjudicated
on a 1:1 ratio.
The Treasurer’s Office is also responsible for the efficient and cost-effective administration of the
State Insurance Program that includes self-insurance and procurement of commercial insurance. As
shown in Exhibit 3, the reported performance measure shows a dramatic increase in the number of
new claims filed.
Analysis of the FY 2006 Maryland Executive Budget, 2005
7
E20B – State Treasurer
Exhibit 3
Insurance Division Third Party Claims Processing
Fiscal 2002 – 2006
Measures FY 2002 Actual FY 2003 Actual FY 2004 Actual FY 2005 Est. FY 2006 Est.
New claims processed 2,994 3,877 4,249 4,325 4,400
Claims closed 2,924 3,439 4,302 4,325 4,400
Pending open cases 1,040 1,478 1,425 1,425 1,425
Source: State Treasurer’s Office
While the number of claims closed also increased significantly in fiscal 2003, this measure did
not keep pace with the number of new claims filed. Consequently, the number of pending cases open
at the close of fiscal 2003 increased markedly over fiscal 2001 and 2002 levels. In fiscal 2004, the
office was able to slightly reverse this trend.
The Treasurer’s fiscal 2006 allowance includes $150,000 to purchase and install a new risk
management information system that is intended to allow for faster claim inquiries and increased
operational efficiencies. The Treasurer’s fiscal 2005 budget includes $50,000 to procure a consultant
to assist the office with a needs analysis and the preparation of a Request For Proposal for the design
and development of the new system. Once installed, the new system should provide the Treasurer’s
insurance management staff with information that can be used to reduce losses. The Department of
Legislative Services recommends that the Treasurer further elaborate on how the new risk
management system might assist the office’s efforts at addressing the current State Insurance
Trust Fund (SITF) unfunded liability.
Fiscal 2005 Actions
Deficiency Appropriations for Banking Contract Fees and Account Reconciliation
Project
The State Treasurer’s Office fiscal 2006 allowance includes a total of $1,767,975 in general funds
for two deficiency appropriations. The amounts and the justification for both deficiency
appropriations are as follows:
• $793,039 – Banking Contract Fees: The State Treasurer procures and monitors all contacts for
banking services. These include the main depository account, vendor and payroll disbursement
accounts, fiscal agent, custody/safekeeping, and agency working fund accounts. Several of the
State’s general banking contracts that were set to expire early in fiscal 2005 were re-bid. The
Analysis of the FY 2006 Maryland Executive Budget, 2005
8
E20B – State Treasurer
Treasurer’s Office issued a Request for Proposal to 30 banks and received proposals from 10.
Every bank that submitted a proposal for services was awarded a contract. Exhibit 4 provides the
fiscal 2004 actual and fiscal 2005 and 2006 estimated banking fees. This shows that the amount
appropriated in fiscal 2005 for the banking contracts was significantly less than what is estimated
to be needed in fiscal 2005 under the new contracts and thus requires a deficiency appropriation.
Exhibit 4
Banking Contract Fees
Fiscal 2004 Actual to Fiscal 2006 Estimate
Bank Contracts Fiscal 2004 Actual Fiscal 2005 Est. Fiscal 2006 Est.
Depository – Bank of America $1,146,614 $1,750,000 $1,800,000
Disbursement – M&T Bank 253,879 282,000 282,000
Custody/Settlement/Safekeeping – M&T Bank 136,900 154,000 155,000
Employee Payroll Account – M&T Bank 99,722 98,200 98,200
Fiscal Agent – M&T Bank 23,885 25,000 25,000
Investment – Bloomberg/Sungard 46,050 78,000 80,000
Total Fees $1,707,050 $2,387,200 $2,440,200
Appropriation $1,661,056 $1,594,161 $2,440,200
Difference $45,994 $793,039 $0
Note: Agency Working Fund Account contracts were awarded to the following banks: Bank of America, M&T Bank,
Sun Trust Bank, Wachovia Bank, CitiBank, Peninsula Bank, Provident Bank, 1st Mariner Bank, Peoples Bank of Kent
County, and Country Banking & Trust.
Source: Office of the State Treasurer
• $974,936 – Account Reconciliation: This deficiency appropriation is necessary to supplement
the fiscal 2005 appropriation to provide funds for the additional costs required to complete the
bank reconciliation project. These funds will pay the salaries of contractual workers involved in
the project. DLS recommends that the Treasurer update the committees on the status of the
reconciliation process. Furthermore, the Treasurer should discuss the high cost of the
reconciliation project, the procedures used for procuring the services of the contractual
accountants (why were sole source and not competitively bid contracts awarded), and
whether or not the additional costs will spill over into fiscal 2006 and thus require a
deficiency in the next budget.
Analysis of the FY 2006 Maryland Executive Budget, 2005
9
E20B – State Treasurer
Governor=s Proposed Budget
As shown in Exhibit 5, the fiscal 2006 allowance for the Treasurer’s Office is $38.8 million in
total funds which represents a $5.1 million increase over the fiscal 2005 working appropriation.
The general fund allowance is $4.3 million which is $0.7 million, or 17.7% more than what is
appropriated for fiscal 2005. However, the fiscal 2005 working appropriation does not reflect the
funds budgeted for deficiencies – $793,039 for the banking fees and $974,936 for the account
reconciliation project – which when added to the fiscal 2005 working appropriation results in a $1.1
million reduction in general funds for the fiscal 2006 allowance. General funds are primarily applied
to personnel costs for the treasury management division and the cost of the State’s general banking
contracts.
The allowance for special funds is $0.8 million which is almost $0.2 million more than what is
appropriated for fiscal 2005. An increase in the amount of special funds budgeted for bond sale
expenses, including legal and administrative expenses from $250,000 in fiscal 2005 to $300,000 for
fiscal 2006, accounts for a portion of the total increase in special funds. The remainder of the
increase is attributable to the budgeting of investment revenues derived from the Treasurer’s Office
Federal Cash Management Improvement Act activities. Previously these funds were retained in a
nonbudgeted account and were not reflected as expenditures in the State budget. However, in
response to one of the findings contained in the most recent legislative audit of the Treasurer’s Office,
these funds are now budgeted as special funds to reflect their expenditure in the budget.
Reimbursable funds increase by $4.3 million, or 14.5% over fiscal 2005. Factors contributing to
this increase include (1) $3.7 million for the increased cost of commercial insurance premiums; and
(2) $0.4 million reflecting increased use of the Insurance Trust Fund to cover operating expenses such
as the purchase and installation of the new risk management system and employee salary and fringe
benefit costs.
Impact of Contingent Actions
The fiscal 2006 allowance reflects the elimination of $27,805 (subtitle 0172) – the appropriation
for matching employee deferred compensation contingent upon enactment of a provision in the
budget reconciliation legislation.
Analysis of the FY 2006 Maryland Executive Budget, 2005
10
E20B – State Treasurer
Exhibit 5
Governor's Proposed Budget
State Treasurer
($ in Thousands)
Reimbursa
General Special ble
How Much It Grows: Fund Fund Fund Total
2005 Working Appropriation $3,677 $621 $29,428 $33,726
2006 Governor's Allowance 4,345 785 33,714 38,844
Contingent & Back of Bill
Reductions -18 0 -10 -28
Adjusted Allowance 4,328 785 33,703 38,816
Amount Change $651 $164 $4,275 $5,090
Percent Change 17.7% 26.4% 14.5% 15.1%
Where It Goes:
Personnel Expenses
Additional cost of three positions added by the Board of Public Works ...................... $152
Increments and other compensation.............................................................................. 76
Reduction due to increased turnover rate from 3.38% to 4.0% for fiscal 2006 ............ -30
Employee and retiree health insurance ......................................................................... 58
Retirement contribution cost increase........................................................................... 39
Other fringe benefit adjustments................................................................................... 12
Other Changes
Training & staff development – cost containment all but eliminated in fiscal 2005 ...... 10
Implementation of banking service automated system to be covered by vendor
contract ........................................................................................................................... -10
Reduced funding for communications ............................................................................ -17
Elimination of one-time consultant study covering banking services, account
reconciliation system, capital lease program and debt.................................................... -20
Procurement of a new automated insurance management system .................................. 150
Increased bond sale expenses.......................................................................................... 50
Increased banking service contract fees.......................................................................... 846
Final lease payment for laser check printer made in fiscal 2005 .................................... -110
New computer for risk management position added by BPW........................................ 2
Insurance coverage – mainly commercial policies ......................................................... 3,883
Other adjustments ........................................................................................................... -1
Total $5,090
Note: Numbers may not sum to total due to rounding.
Analysis of the FY 2006 Maryland Executive Budget, 2005
11
E20B – State Treasurer
Issues
1. Account Reconciliation Is Likely to Produce an Unreconciled Difference in the
State’s Main Bank Account
On February 3, 2005, the Department of Legislative Services Office of Legislative Audits
released a special report covering a statewide review of budget closeout transactions for fiscal 2004.
In this report, the auditors disclosed a $3.0 million unreconciled difference in the State’s main bank
account – the cash balance on the records of the custodian bank exceed the State’s cash balance.
Essentially, this means that individuals within State agencies responsible for recording transactions in
the RStars accounting system recorded cash receipts that do not have corresponding deposit
transactions in the State’s main bank account. Discussions with the State Treasurer’s Office indicate
that the difference may be much more than was reported by the auditors. However, since the
Treasurer’s Office has not completed its reconciliation, the exact or full difference is undetermined.
What Ramifications Might This Have on the State’s Budget Situation?
Once the difference between what is on the books and what is in the bank is fully resolved, and all
signs indicate that the number on the books exceed the number in the bank, the State will need to
reconcile this difference in such a way that reflects that there is less cash available to support State
expenditures than what is supported in the fiscal 2006 budget submission. Discussion with the
General Accounting Office indicate that the most likely scenario is for a deficiency appropriation or
supplemental budget item to be brought forward that would create the authority to make an entry to
decrease cash and offset the decrease against the appropriation. Essentially, an appropriation would
be provided and corresponding paper transaction expenditure against this appropriation would be
booked to reduce the cash balance in the State’s main bank account.
DLS recommends that the Treasurer brief the committees concerning when the
reconciliation process is expected to be completed and generally what figure is likely to result
from this process. Furthermore, the Treasurer should discuss whether the reconciliation has
revealed if there are any specific agencies responsible for the improper transactions that
contributed to this situation and whether or not there are any indications that there may be
malfeasance involved. Finally, the Treasurer should comment on the level of confidence that
the reconciliation will produce a reliable figure, and comment on the actions taken by the
Treasurer’s Office to improve the reconciliation process so as to mitigate the reoccurrence of
this issue.
2. State Insurance Trust Fund Unfunded Liability
The State provides insurance protection through the purchase of specific excess commercial
insurance policies and through self-insurance from the State Insurance Trust Fund (SITF). The SITF
self-insurance program is designed to cover State agencies and employees for claims related to
property, motor vehicle, torts, and officer and employee liability. Although the Treasurer’s Office’s
Analysis of the FY 2006 Maryland Executive Budget, 2005
12
E20B – State Treasurer
Insurance Division procures commercial insurance policies for certain risks, most of the coverage is
provided through the SITF. Premiums, charged to State agency budgets on an annual basis, provides
the source of revenues to the SITF.
As shown in Exhibit 6, the SITF fund balance declines rapidly from fiscal 2002 through the
estimate for fiscal 2005. If not for the significant increase in premiums, which began in fiscal 2005
and continues in the Governor’s proposed fiscal 2006 budget, the SITF would have been in danger of
closing fiscal 2005 with a negative balance due to increasing excess policy coverage costs and
incurred losses. While the additional premiums are likely to keep the SITF in a positive fund balance
situation, the current and projected fiscal 2006 ending balance are woefully short of the actuary’s
recommended balance. Based on the actuary’s recommended balance of $30.4 million for fiscal
2006, the SITF has an unfunded liability of almost $24 million. This is despite the two-year increase
in premiums. Appendix 5 provides a fiscal summary of the individual insurance programs funded
through the SITF for fiscal 2001 through the fiscal 2006 estimate.
Exhibit 6
Actual and Estimated SITF Fund Accounting
($ in Thousands)
FY 2002 FY 2003 FY 2004 FY 2005 FY 2006
Actual Actual Actual Estimate Estimate
Beginning Balance $28,997 $19,885 $11,358 $5,249 $5,833
Transfers and Recoveries 552 434 632 600 600
Agency Premiums 8,013 8,679 10,844 20,000 21,000
Excess Policy Coverage (1,140) (5,050) (4,787) (6,000) (6,008)
Losses (9,953) (11,086) (11,315) (12,300) (12,900)
Operating Costs (1,585) (1,504) (1,484) (1,716) (2,122)
Transfer to General Fund (5,000) 0 0 0 0
Ending Cash Balance $19,884 $11,358 $5,249 $5,833 $6,402
Recommended Actuary Balance 27,505 23,827 30,393 30,393 30,393
Actuarial Shortfall ($7,621) ($12,469) ($25,144) ($24,560) ($23,990)
Source: State Treasurer’s Office
Analysis of the FY 2006 Maryland Executive Budget, 2005
13
E20B – State Treasurer
Factors contributing to the declining fund balance:
• Costs to procure excess commercial insurance blanket coverage increased dramatically in
the wake of the September 11, 2001, terrorist attacks – As shown in Exhibit 6, the State paid
just over $1.1 million for excess commercial insurance in fiscal 2002 compared to slightly more
than $6.0 million for the same coverage in fiscal 2005. These costs are not expected to revert
back to fiscal 2002 levels.
• Officers and employee liability losses increase well in excess of agency premiums – Officer
and employee liability losses totaled just under $500,000 in fiscal 2000 and 2001, well under the
amount of agency premiums collected which averaged approximately $1.3 million. However,
losses incurred in fiscal 2003 and 2004 exceeded agency premiums drawing the balance in the
account down.
• Tort claims and losses exceeded premiums – In fiscal 2001 through 2003, tort claim losses
exceeded agency premiums. Adding to the cost was an increase in the tort claims cap from
$100,000 to $200,000 beginning October 1, 1999. Premiums have been increased in order to
keep pace with annual anticipated losses.
• Transfer of $5 million for SITF in fiscal 2002 – The Budget Reconciliation and Financing Act
of 2002 transferred $5 million from the available fund balance to the general fund. This was
reduced from the proposed $11 million transfer.
• Use of SITF to fund operations: In each fiscal year represented in Appendix 5 the amount of
SITF funds used by the Treasurer’s Office to fund the operations of the Insurance Management
Division have increased.
DLS recommends that the Treasurer provide the committees with an outline of the
measures undertaken to improve the State’s insurance claims process, including the
contributions of new staff and the impact of the proposed new risk management system. The
Treasurer should also comment on what measure the office has taken to reduce claims and
losses, and comment on what should be done to improve the balance of funds in the SITF.
Finally, the Treasurer should provide some insight as to whether or not the unfunded liability
in the SITF has been raised as a concern by the bond rating agencies.
Analysis of the FY 2006 Maryland Executive Budget, 2005
14
E20B – State Treasurer
Recommended Actions
Amount
Reduction
1. Reduce funds for training and staff development. $ 5,000 GF
This reduction would still provide $5,000 to support
training and staff development activities which is
double the fiscal 2004 actual expenditure.
Total General Fund Reductions $ 5,000
Analysis of the FY 2006 Maryland Executive Budget, 2005
15
E20B – State Treasurer
Updates
1. Positions Added through the Board of Public Works
In the past 12 months the Treasurer’s Office has received three additional positions through the
authority granted to the Board of Public Works (BPW) to add positions to the State budget during the
fiscal year – two positions were added in accordance with Section 19 of the fiscal 2004 operating
budget (Chapter 202, Acts of 2003), and one position was added in accordance with Section 18 of the
fiscal 2005 operating budget (Chapter 429, Acts of 2004). The need for each position is discussed in
more detail below.
• Federal Cash Management Improvement Act Coordinator: This position is responsible for
monitoring and auditing information provided by State agencies requesting federal fund
reimbursements.
• Risk Management and Loss Control Analyst: This position assists the office’s Manager of
Underwriting and Risk Management in developing and maintaining a loss prevention risk
management program. The Treasurer’s Office has developed such a program designed to
mitigate the State’s insurance claims exposure and minimize State insurance expenditures.
• Assistant Attorney General: This position serves as the supervising attorney for all tort claims
litigation and appeals. Overall responsibilities include advising the State Treasurer on matters
involving the defense of claims brought under the Maryland Tort Claims Act as well as litigation
matters brought before the BPW and supervising the handling of tort claims litigation in the
Office of the Attorney General.
Analysis of the FY 2006 Maryland Executive Budget, 2005
16
E20B – 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 2004
Legislative
Appropriation $3,708 $619 $0 $28,115 $32,442
Deficiency
Appropriation 0 0 0 0 0
Budget
Amendments 0 0 0 0 0
Cost Containment -73 0 0 0 -73
Reversions and
Cancellations 0 -105 0 -2,915 -3,020
Actual
Expenditures $3,635 $514 $0 $25,200 $29,349
Fiscal 2005
Legislative
Appropriation $3,652 $621 $0 $29,438 $33,711
Budget
Amendments 25 0 0 -10 15
Working
Appropriation $3,677 $621 $0 $29,428 $33,726
Note: Numbers may not sum to total due to rounding.
Analysis of the FY 2006 Maryland Executive Budget, 2005
17
E20B – State Treasurer
Appendix 2
Audit Findings
Audit Period for Last Audit: October 1, 2000 – October 31, 2002
Issue Date: December 2003
Number of Findings: 16
Number of Repeat Findings: 5
% of Repeat Findings: 31.2%
Rating: (if applicable)
Finding 1: The office did not adequately reconcile the cash balance in the State’s main bank
accounts with the corresponding balance recorded on the State’s accounting records.
Due to a number of significant problems we identified with regard to the office’s
purported reconciliations, the State’s cash balance could not be adequately determined.
Finding 2: An automated bank account reconciliation system, which cost $1.6 million, was not
successfully implemented due, in part, to inadequate contract specifications developed
by the office.
Finding 3: The office did not require the bank to provide State agencies with adequate deposit
documentation to help ensure that all collections were properly deposited.
Finding 4: The office did not ensure that the lockbox contractor transferred the available balance
to the State daily, as required.
Finding 5: The office did not ensure that all interest earned on funds in State agency bank
accounts was transferred to the State’s General Fund, as required.
Finding 6: The office did not ensure that electronic fund deposits were recorded properly in FMIS
in a timely manner.
Finding 7: Certain individuals had the ability to unilaterally modify disbursement and
investment account fund transfer agreements.
Finding 8: The office did not adequately ensure that all State agency bank accounts were properly
authorized.
Finding 9: The office did not ensure that check clearance patterns were reviewed and
certified in accordance with Federal regulations.
Finding 10: The office did not adequately monitor State agency’s reporting of CMIA activity.
Finding 11: Lack of supervisory review and approval of capital lease amortization schedules
contributed to collection and payment errors.
Analysis of the FY 2006 Maryland Executive Budget, 2005
18
E20B – State Treasurer
Finding 12: Certain fees for support services to State agencies were assessed by the office without
being authorized.
Finding 13: Security procedures for minicomputer production data and program files and the
program change process were inadequate.
Finding 14: The information systems disaster recovery plan was incomplete and not current.
Finding 15: Procedures and controls were not adequate over unpresented checks.
Finding 16: Unredeemed minibond funds were not properly transferred to the Unpresented Bond
and Coupon Fund, or the Comptroller’s Abandoned Property Fund, as required.
*Bold denotes item repeated in full or part from preceding audit report.
Analysis of the FY 2006 Maryland Executive Budget, 2005
19
Object/Fund Difference Report
State Treasurer
FY05
FY04 Working FY06 FY05 - FY06 Percent
Object/Fund Actual Appropriation Allowance Amount Change Change
Positions
01 Regular 54.00 55.00 55.00 0 0%
Analysis of the FY 2006 Maryland Executive Budget, 2005
Total Positions 54.00 55.00 55.00 0 0%
Objects
E20B – State Treasurer
01 Salaries and Wages $ 3,421,776 $ 3,579,894 $ 3,927,852 $ 347,958 9.7%
02 Technical & Spec Fees 52,322 21,000 11,000 -10,000 -47.6%
03 Communication 42,519 117,158 101,490 -15,668 -13.4%
04 Travel 25,544 31,200 32,800 1,600 5.1%
07 Motor Vehicles 3,011 10,180 6,201 -3,979 -39.1%
08 Contractual Services 2,435,648 2,561,116 3,590,937 1,029,821 40.2%
09 Supplies & Materials 159,130 238,983 232,289 -6,694 -2.8%
20
10 Equip - Replacement 113,169 109,797 0 -109,797 -100.0%
11 Equip - Additional 1,625 0 1,800 1,800 N/A
13 Fixed Charges 23,093,920 27,056,557 30,939,154 3,882,597 14.3%
Total Objects $ 29,348,664 $ 33,725,885 $ 38,843,523 $ 5,117,638 15.2%
Funds
01 General Fund $ 3,634,730 $ 3,676,851 $ 4,345,439 $ 668,588 18.2%
03 Special Fund 513,485 620,640 784,524 163,884 26.4%
09 Reimbursable Fund 25,200,449 29,428,394 33,713,560 4,285,166 14.6%
Total Funds $ 29,348,664 $ 33,725,885 $ 38,843,523 $ 5,117,638 15.2%
Appendix 3
Note: The fiscal 2005 appropriation does not include deficiencies, and the fiscal 2006 allowance does not reflect contingent reductions.
Fiscal Summary
State Treasurer
FY04 FY05 FY06 FY05 - FY06
Program/Unit Actual Wrk Approp Allowance Change % Change
01 Treasury Management $ 4,615,075 $ 4,711,532 $ 5,491,644 $ 780,112 16.6%
01 Insurance Management 1,483,935 1,716,053 2,122,219 406,166 23.7%
02 Insurance Coverage 23,064,949 27,026,300 30,907,660 3,881,360 14.4%
Analysis of the FY 2006 Maryland Executive Budget, 2005
01 Bond Sale Expenses 184,705 272,000 322,000 50,000 18.4%
Total Expenditures $ 29,348,664 $ 33,725,885 $ 38,843,523 $ 5,117,638 15.2%
General Fund $ 3,634,730 $ 3,676,851 $ 4,345,439 $ 668,588 18.2%
E20B – State Treasurer
Special Fund 513,485 620,640 784,524 163,884 26.4%
Total Appropriations $ 4,148,215 $ 4,297,491 $ 5,129,963 $ 832,472 19.4%
Reimbursable Fund $ 25,200,449 $ 29,428,394 $ 33,713,560 $ 4,285,166 14.6%
21
Total Funds $ 29,348,664 $ 33,725,885 $ 38,843,523 $ 5,117,638 15.2%
Note: The fiscal 2005 appropriation does not include deficiencies, and the fiscal 2006 allowance does not reflect contingent reductions.
Appendix 4
Fiscal 2001 to 2006 SITF Fund Accounting
FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006
Actual Actual Actual Actuals Estimated Estimated
Combined Beginning Balance 26,819,696 28,997,624 19,884,565 11,358,447 5,248,591 5,832,538
Blanket Real & Personal Property
Beginning Balance 5,789,436 7,065,007 4,727,980 (733,672) (5,972,242) (5,872,242)
Transfers & Recoveries 107,546 97,695 61,660 37,450 100,000 100,000
Agency Premiums 3,990,819 3,540,242 3,221,043 3,474,268 10,000,000 10,000,000
Excess Policy Coverages (914,218) (1,139,483) (5,049,427) (4,786,872) (6,000,000) (6,008,120)
Analysis of the FY 2006 Maryland Executive Budget, 2005
Real Property Losses (1,908,577) (4,835,482) (3,694,928) (3,963,415) (4,000,000) (4,200,000)
Insurance Administration
GAAP Adjustment
Ending Balance 7,065,006 4,727,980 (733,672) (5,972,242) (5,872,242) (5,980,362)
Officers and Employees Liability
Beginning Balance 3,276,468 4,105,695 4,047,733 1,920,366 1,624,939 2,124,939
Transfers & Recoveries
Agency Premiums 1,300,000 999,972 1,457,909 1,391,088 3,000,000 3,000,000
Liability Losses (470,774) (1,057,934) (3,585,276) (1,686,515) (2,500,000) (2,500,000)
Ending Balance 4,105,694 4,047,733 1,920,366 1,624,939 2,124,939 2,624,939
Tort Claims Act
E20B – State Treasurer
22
Beginning Balance 7,070,791 4,913,350 7,076,086 6,281,063 6,296,992 5,996,992
Transfers & Recoveries (127) 14,233 100 94 0 0
Agency Premiums 2,000,001 1,470,038 2,000,003 3,984,223 4,000,000 4,500,000
Tort Losses (4,157,315) (3,321,535) (2,795,126) (3,968,388) (4,300,000) (4,500,000
Transfer from Auto 4,000,000
Ending Balance 4,913,350 7,076,086 6,281,063 6,296,992 5,996,992 5,996,992
Motor Vehicle Comprehensive and Liability
Beginning Balance 10,683,000 12,913,574 4,032,765 3,890,688 3,298,901 3,582,848
Transfers and Recoveries 812,054 439,624 372,942 594,678 500,000 500,000
Agency Premiums 4,411,848 2,002,464 2,000,005 1,994,236 3,000,000 3,500,000
Motor Vehicle Losses (1,732,739) (738,049) (1,010,809) (1,696,766) (1,500,000) (1,700,000)
Insurance Administration (1,260,589) (1,584,848) (1,504,215) (1,483,935) (1,716,053) (2,122,936)
Transfer to Tort (4,000,000)
Transfer to GF – Budget Rec. Act (5,000,000)
Ending Balance 12,913,574 4,032,765 3,890,688 3,298,901 3,582,848 3,759,912
Combined Cash Fund Balance 28,997,624 19,884,565 11,358,447 5,248,591 5,832,538 6,401,482
Appendix 5
Recommended Actuary Balance 19,442,000 27,505,000 23,827,000 30,393,000 30,393,000 30,393,000
Difference 9,555,624 (7,620,435) (12,468,553) (25,144,409) (24,560,462) (23,991,518)
Fiscal 2006 Cost Containment Actions
As Submitted by the Agency
Estimated Fiscal 2006 Savings
Compared to Fiscal 2005
Sub-
Program Program Total General Impact of
Cost Saving Action/Efficiency Measure Code Code Funds Funds Action
Analysis of the FY 2006 Maryland Executive Budget, 2005
Deletion of Staff Training E20 B0101 $10,000 $10,000 Cost will be covered by vendor
Cut Computer Maintenance E20 B0101 33,000 33,000 No impact to operations
Delete Consultant Studies E20 B0101 20,000 20,000 No impact to operations
E20B – State Treasurer
Last of 5-year lease for laser ck printer E20 B0101 110,000 30,000 No impact to operations
Reduce number of printed Annual Reports E20 B0101 9,000 9,000 No impact – available via web or CD
23
Appendix 6