LINCOLN — The State of Nebraska’s end-of-the-year financial report contained more than $21 billion in errors, according to a management letter released Tuesday by the State Auditor’s Office.
As a result, the office took the highly unusual step of putting a disclaimer on the state’s Comprehensive Annual Financial Report for the year that ended June 30. The disclaimer said state auditors were unable to verify the accuracy of the financial report.
Assistant Deputy Auditor Craig Kubicek said the auditors issued the disclaimer because they found problems with the state’s accounting process, not with mismanagement of funds.
“We didn’t see big issues with money missing or fraud,” he said. “But when the state doesn’t get a clean audit opinion, it’s a big deal.”
The annual financial report came out Dec. 17. Tuesday’s management letter focused on the Department of Administrative Services and its accounting division, which is responsible for putting together the annual financial reports.
According to the letter, the accounting division made major errors in financial statement entries, footnote disclosures and other documents supporting the financial report.
The letter listed 52 errors affecting more than $21 billion. The errors included such problems as reversing entries affecting $9 million worth of securities lending and making entry errors and leaving out entries that affected nearly $42 million in the accounts receivable analysis.
But the letter said the total was “particularly concerning” because the auditors only checked a sample of transactions. That means the actual number of errors likely was higher.
“The financial statements were not accurate and were not prepared in accordance with governmental accounting standards,” the letter said.
DAS spokesman Eric Maher emphasized that all of the errors involved problems with reporting, not the spending of tax dollars. He said all the errors were all corrected before the financial report was submitted.
“State accounting’s highest priority in 2020 was supporting Nebraskans throughout the COVID-19 pandemic, which included processing over $900 million in federal relief aid to Nebraskans in need,” he said.
In a formal response to the management letter, DAS officials said 40% of the employees working on the financial report this year were doing so for the first time and had “gained valuable experience.” They also said the department will have training throughout the year, including on topics such as preparing accounts payable and receivable accruals and capital asset information, and will help other state agencies with financial reporting.
The management letter agreed that state accountants corrected all of the significant errors pointed out by auditors. But it noted that auditors had been making similar findings since fiscal year 2007. It also said that getting the mistakes fixed required significant time and work by the auditors.
In one instance, detailed in the letter, it took four revisions to correct some $677 million worth of local government fund reports. While making one of those revisions, to fix a $595,000 error, DAS made another error of $674,660,800 that went undetected by its staff.
In a second case, the accounting employees provided four different versions of the accounts receivable analysis and DAS did not do a complete review of all accounts receivable, causing significant revisions.
The auditor’s office raised particular concerns about financial statements for the unemployment insurance fund and about numerous Department of Health and Human Services accounts receivable and payable. In response, DAS officials said that they and the Department of Labor had unprecedented challenges because of the pandemic, along with implementation of a new unemployment benefits system. The pandemic drove up unemployment claims to 10 times their previous level.