Money Well Spent

The work of Office of the Legislative Auditor commands the attention and respect of lawmakers across the political spectrum.  But that high regard has not translated into a level of financial support reflecting the size, scope, and complexity of state government today.

According to news reports, the Office of the Legislative Auditor (OLA) -- the state’s version of the federal Government Accountability Office – has been besieged this year with requests for audits and investigations beyond its capacity.  Having experienced a $70-plus billion injection of federal support over the last few years to deal with the pandemic and its economic impacts, we might expect some heightened interest in how well Minnesota is spending this money and what it has accomplished.

But even if the federal government hadn’t participated in our recent fiscal affairs in such a unique and potent way, there is no lack of policy and program topics worthy of OLA study.  The growth of government spending to advance the health, social, and economic welfare of Minnesotans requires a concomitant effort to “promote accountability, strengthen legislative oversight, support good management, and enhance program effectiveness.”  That is the OLA’s stated mission.   Their audits, reviews, and evaluations are recognized for their high quality, reliability, and non-partisanship by lawmakers of all stripes.   However, the respect the Office receives has not translated into a level of investment that the size and complexity state government today demands.  

OLA “101”

Created in 1973, the work of the Office is organized into three divisions:

  • Financial audits ensure programs are safeguarding public resources from fraud and complying with laws that govern their financial and program operations.  OLA audits organizations and programs in the state’s executive and judicial branches, metropolitan agencies, several “semi-state” organizations, state-funded higher education institutions, and state-funded programs operated by private organizations.  
  • Program evaluations are detailed analyses of spending program goals and objectives, performance and results, and operating efficiencies that are typically done over a 6-9 month period.
  • Special reviews are narrower investigations that typically address specific concerns or allegations about spending programs.

The Office itself has authority to select special reviews and financial audits, but the Legislative Audit Commission, comprised of 6 members from the House and 6 from the Senate (equally divided between the majority and minority parties) must approve the program evaluation agenda.  In addition, lawmakers will occasionally pass laws requiring the OLA to conduct a specific audit or investigation. 

Financial audits understandably consume most (about 60%) of the Office’s resources given the importance of ensuring proper internal controls and legal compliance exists in state financial affairs.  Special reviews are frequently public attention-getters ascertaining the facts behind a specific complaint or concern about government actions or operations.   But program evaluations - which tackle issues like the performance, management, efficiency and cost effectiveness of government programs -- fill a crucial role in providing information and analysis on how “well” the state spends its resources.   It should not be surprising this is where the greatest competition for OLA’s limited resources appears to exist.  This year alone, 67 potential program evaluation topics were submitted by lawmakers, organizations, and citizens which the Audit Commission needed to winnow down to just 5 for inclusion in this year’s workplan.   The Audit Commission’s Program Evaluation Subcommittee employs a multistep process which includes topic background reviews by OLA staff, a survey of legislators, and meetings of the Subcommittee to identify the “final five” for full Audit Commission ratification.  The staff background reviews employ six criteria to rank topics by how promising they are in delivering value to policy makers and findings that are useful and actionable:

  • State Resources -- What state government resources are involved? (e.g., how much state money goes to this program?)
  • State Control -- How much control does the state have over this program or activity? (e.g., do state, federal, or local laws regulate this program?)
  • Impact -- Are significant social and/or economic impacts involved? (e.g., how many people are affected by this program?) 
  • Timeliness -- Is this an appropriate time for an evaluation? (e.g., is this program changing or have new procedures recently been implemented?)
  • Feasibility -- Are data and resources available for an evaluation?
  • Balance -- Would the topic contribute to a balanced work agenda? (e.g., has the office recently conducted an evaluation of this program?)

 Although members of the Program Evaluation Subcommittee and Legislative Audit Commission show considerable deference to these staff assessments, the five most promising topics identified by OLA staff are not guaranteed to be the five constituting the final workplan.

Numbers Tell the Story

Because the demand for OLA involvement far exceeds its capacity, lawmakers have had to urge colleagues not to overload the Office by writing investigations into statute.  It might be argued limited resources is a positive by requiring attention and resources to be focused on the most important and valuable investigations with the biggest program and policy payoffs.  On the other hand, the capacity and productivity of the Office must also be evaluated in light of growth in the size and scope of government over time.   When viewed through this lens, there’s a strong argument to be made that additional investment in the Office should be a top priority.

A striking statistic: since 2003, total state spending per year from all government operating funds has increased 147%, or over $33 billion. Over that period, OLA’s staffing has declined from 80 to 56 full time equivalent employees.   That translates into one person providing auditing and program evaluation oversight for every $1 billion the state spends annually, compared to $282 million in 2003.  Over the last ten years, as new state programs have been created, others expanded, and total state government employment has increased by over 4,600 full time equivalent employees in the process, OLA staffing has been essentially flatline.1

Digging a little deeper into the OLA’s legislative history and historical budget data offers more color and context on the fiscal constraints affecting the Office’s capacity.   For example, in the OLA FY22 base budget appropriation of $7.69 million about 25% is allocated to program evaluation.  In other words, for an annual all-funds budget totaling about $53.9 billion, the OLA has about $2 million to fulfill the statutory purpose of program evaluation: “to determine the degree to which the activities and programs entered into or funded by the state are accomplishing their goals and objectives, including a critical analysis of goals and objectives, measurement of program results and effectiveness, alternative means of achieving the same results, and efficiency in the allocation of resources.” 2 

Over the past ten years, OLA funding has followed a pattern of flat to very modest base appropriation increases, enhanced by some sizeable appropriations for legislatively mandated activities.   Over the 5 years between FY 14-19, OLA’s base budget allocation increased by $281,000, an annual growth rate of 0.89%.  Budget conditions have improved a bit recently with larger base appropriation increases combined with the supplemental statutory appropriations to perform these legislature-mandated financial audits.   However, these supplemental appropriations functionally require the Office to staff using one time money.  While the Office was permitted to carryover any excess from these special appropriations into the current biennium, such resources can only be used for one-time expenses.

To add a bit of budget insult, this year the responsibility for the federally-required state “single audit” was transferred from the OLA to Minnesota Management and Budget (a move which made both practical and administrative sense.)   However, instead of the Office being able to repurpose the resulting freed-up resources to better deliver on its existing auditing and program evaluation responsibilities, the Governor’s FY 22-23 budget recommendations stripped $1.2 million from the OLA base budget.3  In the end, the Legislature looked after the Office by working to restore half of that appropriation while also permitting additional carryover from statutory appropriations to essentially make the office whole.   But going forward the Office still faces the prospect of delivering on its “regular” auditing and program evaluation responsibilities without this one-time project money made available to it in recent years.

What explains the rather parsimonious budget treatment of the Office over its long history?   Much of the answer undoubtedly lies in the reality that spending programs out of sight to the public, that have no groups repeatedly advocating their interests, and do not benefit constituents are always at a major disadvantage come appropriations time (and are also easier to cut in times of budget stress as occurred in 2003).   But another reality is that OLA investigation findings – even though they are strictly non-partisan – are often leveraged for political purposes.   Fundamentally, OLA investigations critique programs under the watch of the executive branch at that time, so whatever party holds the governor’s office can have political exposure to whatever concerns and criticisms may arise from those investigations.  

Getting the Biggest Evaluation Bang for the Dollar

Careful scoping of projects and finding project synergies/areas of overlap between the work of OLA divisions are two ways the Office works to provide greater value-added for its investment of time and resources.  Another strategy is to aim for economies of scope by combining similar or related topics into one investigation.  It’s a logical strategy, but there are potential drawbacks in trying to accommodate a bigger agenda in this manner.

For example, based on this year’s OLA staff assessments, three of the top seven most promising program evaluation topics dealt with grants management and oversight.   Number one on the OLA's "most promising" list was Minnesota Department of Education grants oversight which would include the now notorious Child and Adult Care Food Program (CACFP).   After considerable discussion, the Program Evaluation Subcommittee chose to combine these three grant related investigations together into a more generic “grants to non-profit organizations” evaluation which will place a primary emphasis on how well state agencies are complying with the state’s Office of Grants Management policies.  MDE grant management activity is expected to be folded into a larger set of agency case studies.

The potential problem is that there is tremendous variety in "grants.”  CACFP, for example, is a federal-state program that is enormously regulated and is very different from state financed grant programs that benefit homeless shelters or family planning education.  The relevant issues for a grants program like CACFP are:

  • Did MDE adhere to federal guidelines and requirements?
  • Did they have the requisite policies, processes, and procedures in place to meet these obligations?
  • Were those policies, processes, and procedures followed?
  • Did the extent to which any policies, processes, and procedures were not followed result in disparate treatment among grantees?
  • Did they provide necessary and timely assistance for grantees?

All these issues are independent from any ongoing criminal investigation that the OLA would obviously not want to interfere with.   The concern is that a wide-ranging “grants to non-profits” program evaluation focused on compliance with state policies will not provide answers to these critical questions -- assuming the CACFP grant program is even included as part of the MDE evaluation. 

Enabling citizens to evaluate whether their tax dollars are being used efficiently and productively is a cornerstone of good government and the critical means of building and restoring citizen faith in their government.  For a state that prides itself on a good government ethic, and which has invested heavily in the high cost/high service government model, the OLA’s share of the state budget leaves a lot to be desired.   As the size, scope, cost, and complexity of government programs only escalates, our need to determine whether and how these programs are achieving their goals is greater than ever.

Endnotes

1 Full Time Equivalent Reports, Second Quarter FY 2022 vs. Second Quarter 2012, MMB

2 Minnesota Statutes, Sec 3.971, subd. 7

3 MMB Program Expenditure Overview, Legislative Audit Commission, Revised Biennial Budget, March 2021