Fiscal Note & Local Impact Statement
127 th General Assembly of Ohio
Revised
BILL: |
DATE: |
||||
STATUS: |
SPONSOR: |
||||
LOCAL IMPACT
STATEMENT REQUIRED: |
|
||||
STATE FUND |
FY 2008 |
FY 2009 |
FUTURE YEARS |
Office of Budget and
Management – Unspecified Fund |
|||
Revenues |
- 0 - |
- 0 - |
|
Expenditures |
Potential increase or
decrease in annual operating and personnel costs, depending on implementation |
Potential increase or
decrease in annual operating and personnel costs, depending on implementation |
Potential increase or
decrease in annual operating and personnel costs, depending on implementation |
Legislative Service
Commission – General Revenue Fund |
|||
Revenues |
- 0 - |
- 0 - |
- 0 - |
Expenditures |
Potential one-time minimal
increase for study, likely absorbed within appropriations |
- 0 - |
- 0 - |
Other State Agencies |
|||
Revenues |
- 0 - |
- 0 - |
- 0 - |
Expenditures |
Possible decrease due to
transfer of internal auditor positions; potentially offset slightly by OBM
chargebacks for internal auditing services |
- 0 - |
- 0 - |
Note: The state
fiscal year is July 1 through June 30.
For example, FY 2007 is July 1, 2006 – June 30, 2007.
·
The
net impact of consolidating the internal audit function within the Office of
Budget and Management (OBM) depends on the way the program is implemented. There will be start-up costs and some
potential ongoing expenses, although the Legislative Service Commission (LSC)
is not able to quantify these amounts at the moment.
·
The
bill does not specify how the Office of Internal Auditing will be funded, but
LSC assumes OBM will use one of the non-GRF funds that receives charges and
fees from other state agencies for accounting and budgeting services, called
chargebacks.
·
OBM
estimates that around 100 employees will be classified as internal
auditors. At this time, it is unclear
where the employees will be located, but LSC assumes payroll for the internal
audit staff employed statewide will remain the same, whether they remain in
situ or are transferred to OBM. If
it becomes necessary to move the internal auditors to a centralized location,
there will be a one-time start-up cost for office space and equipment. Additionally, moving the internal auditors
to one location could create the need for clerical and supervisory staff.
·
The
bill requires LSC to prepare a report on existing internal audit structures in
each of the state agencies, and the total amounts budgeted for internal
auditing purposes. As LSC prepares such
reports as a part of its regular duties, the report would most likely be absorbed
within operating appropriations.
·
No
direct fiscal effect on political subdivisions.
|
The bill creates the Office
of Internal Auditing (OIA) within the Office of Budget and Management (OBM),
creates the position of Chief Internal Auditor, and establishes the State Audit
Committee, and prescribes their duties and functions. The bill requires the Office of Internal Auditing to conduct
internal audits of state agencies to improve their operations in the areas of
risk management, internal controls, and governance.
Office of Internal Auditing
The bill requires the
Director of the Office of Budget and Management, with approval of the Governor
and the Senate, to appoint a Chief Internal Auditor to administer the Office of
Internal Auditing. As the state of Ohio
currently has no existing centralized internal controls program, there will
potentially be start-up costs to develop the guidelines and rules of OIA. At this time, LSC is uncertain what these
costs may be. Based on information provided
by Illinois, a state that has implemented a comparable program, internal
auditing costs there decreased following consolidation. The fiscal impact on the state of Ohio would
depend on several factors not addressed in the present version of the bill.
OBM has issued a Request For
Information (RFI) for a consulting firm to evaluate the cost of the entire
program. When a consultant is selected
and their recommendations are made, LSC will incorporate these in the fiscal
note.
State Audit Committee
The
State Audit Committee would consist of the Director of OBM as chairperson, two
public members appointed by the House Speaker, and two public members appointed
by the Senate President. The State
Audit Committee is required to ensure that the internal audits conducted by OIA
conform to international standards, review the process OBM uses to prepare its
annual budgetary financial report, and review unaudited financial statements
submitted by the Auditor of State. Additionally,
the Chief Internal Auditor is required to submit a report for Committee
approval on the internal audits of state agencies before the beginning of each
fiscal year. The Committee members are
to be reimbursed for actual and necessary expenses incurred in the discharge of
their duties. Presumably, these
expenses would be paid from the same fund that will be used to cover operating
expenses of the new division, most likely a non-GRF source.
Legislative Service Commission report
One
of the difficulties in determining the number of state employees involved with
the internal audit function and associated payroll costs is that merely
identifying job titles including the term "internal auditor" does not
capture all state employees involved in such tasks. As seen in Table 1 (attached), there are currently seven such
state job classification titles, but there are doubtless more state jobs that
entail internal auditing tasks.
The bill requires LSC, not
later than six months after its effective date, to prepare a report on the
existing internal audit structures of each state agency that identifies all
state employees who are classified as internal auditors or perform the duties
of an internal auditor. Upon its
completion, LSC must submit the report to the Governor, the House Speaker, the
Senate President, and the House and Senate minority leaders. All state employees who are determined by
LSC to fit the classification of internal auditor, or whose job duties are
effectively similar, must be transferred to OIA. LSC's cost to prepare such a report would most likely be absorbed
within available appropriations.
Start-up and ongoing costs
In its discussions with LSC, OBM estimated that it would need about 100 internal auditors to carry out the functions described in the bill. At this time, it is unclear where the employees will be located, or what number of employees would be either transferred or hired. If it becomes necessary to move the internal auditors to a centralized location, there will be a one-time start-up cost for office space and equipment. Additionally, moving the internal auditors to one location could create the need for clerical and supervisory staff, adding new payroll costs. Without knowing how the internal audit program would be implemented, payroll costs are difficult to estimate. If positions were merely transferred, payroll costs are unlikely to increase greatly. If there is a need to hire new staff or reclassify existing staff into higher paying job classifications, then there may be some new payroll costs.
By consolidating internal
audit staff within OBM, there may be some payroll savings for affected
agencies. However, if OBM chooses to
pay for internal audit services by assessing chargebacks to those same
agencies, then there will be some offset in these payroll savings. This would not be the case if OIA were
funded through the GRF.
Other related fiscal effects
The bill does not specify
what the source of funding for OIA or the State Audit Committee will be. Currently, OBM provides budgeting and
accounting services to state agencies via GSF Fund 105, Accounting and
Budgeting. The revenue for this fund is
a fee charged on state agencies' payroll, referred to as chargebacks.
The bill also requires
periodic audits of all state agencies and directs the agencies to provide OIA
with records and documents necessary for the performance of an internal
audit. Many state agencies have
existing internal auditors on staff, so this should not create new work for
state agencies, but there is the potential for a slight increase in the scope
of the audits, thereby requiring additional work on the part of agencies.
Table 1.
Internal Auditor Position Titles And Descriptions, State
Classification System |
|
Position
Class Title |
Job
Description |
Internal
Auditor 1 66411 |
The full
performance level class works under direction and requires considerable
knowledge of accounting and auditing in order to learn to conduct and/or
conduct routine audits of simply structured and/or complex programs;
including financial, operational and compliance audits, and prepare report of
findings and recommendations. |
Internal
Auditor 2 66412 |
The
advanced level class works under direction and requires thorough knowledge of
accounting and auditing in order to learn to conduct and/or conduct
non-routine audits of simply structured programs; including financial,
operational and compliance audits, prepare report of findings and
recommendations and learn to conduct non-routine audits of complex programs. |
Internal
Auditor 3 66413 |
The
advanced level class works under direction and requires thorough knowledge of
accounting and auditing in order to prepare audit programs/guidelines and/or
coordinate work of internal audit personnel, conduct non-routine audits of complex
programs and/or act as lead worker, conduct financial, operational and
compliance audits of entities regardless of program complexity and resolve
and/or assist lower-level internal auditors in resolving most complex audit
problems. |
Internal
Audit Supervisor 1 66415 |
The first supervisory level class works under general
direction and requires thorough knowledge of accounting and auditing in order
to supervise internal auditors assigned to one unit or act as chief internal
auditor for large board (i.e., library board), small agency or
non-decentralized commission (i.e., level to be used where chief fiscal
officer is classified as Fiscal Officer 2) and supervise lower-level internal
auditors. |
Internal
Audit Supervisor 2 66416 |
The second supervisory level class works under general
direction and requires extensive knowledge of accounting in order to
supervise lower-level internal audit supervisors for assigned section or in
district office or act as chief internal auditor for elected/appointed
official or agency that is not multi-funded and/or multi-faceted nor
considered largest, decentralized agency/commission (i.e., level to be used
where chief fiscal officer is classified as Fiscal Officer 3 or Business
Administrator 4) and supervise lower-level internal audit supervisors and/or
internal auditors. |
Internal
Accounting/Audit Program Manager 66417 |
The first managerial level class works under
administrative direction and requires extensive knowledge of accounting,
auditing and state government accounting methods and procedures in order to
plan, implement and direct internal audit program for largest, decentralized
state agency/commission (i.e., includes district, institutional, regional
and/or community services operations under same appointing authority) and
supervise lower-level internal audit supervisors and/or internal auditors
(i.e., level to be used where chief fiscal officer is classified as Fiscal
Officer 4 or Business Administrator 5), or plan, implement and direct all
activities of internal audit program of large, decentralized agency (i.e., as
defined previously) and includes external audits of operations which have
been privatized (e.g., state liquor stores), but still fall under regulatory
control of given state agency and supervise assigned staff, or in Office of
Budget and Management, direct operations of state's Central Accounting System
or maintain and ensure all fiscal year appropriations for all state agencies
are accurate and current and ensure all general accepted accounting
procedures are followed by all state agencies and in addition to either
option, supervise assigned staff. |
State
Internal Accounting & 66418 |
The second managerial level class works under
administrative direction and requires extensive knowledge of accounting,
auditing and state government accounting methods, procedures and fiscal
controls in order to plan, implement and direct statewide Central Accounting
System, establish controls and review process to ensure compliance with
statutes and supervise lower-level internal accounting/audit program managers
and support staff. |
Source: Department
of Administrative Services, Human Resources Division. Pay Range Booklet, 1/29/2006 |
LSC fiscal staff: Deborah
Hoffman, Budget Analyst
sb0146in.doc/lb