State of Texas Financial Portion of the Statewide Single Audit Report for the Year Ended August 31, 2012
Report Number 13-555
In our audit opinion dated February 21, 2013, we concluded that the basic financial statements for the State of Texas presented fairly, in all material respects, the financial position and activities of the State for the fiscal year ended August 31, 2012. The Office of the Comptroller of Public Accounts published our audit opinion as part of the Comprehensive Annual Financial Report for fiscal year 2012, which it has posted on its Web site at http://www.window.state.tx.us/finances/pubs/cafr/.
The financial statements provide a comprehensive view of the State's financial activities during the fiscal year and an overall picture of the financial position of the State at the end of the fiscal year. The State successfully contends with significant complexities in preparing its basic financial statements. Compiling financial information and ensuring its accuracy for more than 200 state agencies and higher education institutions is a major undertaking.
The financial statements convey the use of approximately $120.5 billion during the fiscal year, a decrease of $4.1 billion or 3.3 percent since the prior fiscal year. The State's assets on August 31, 2012, totaled $231.4 billion, an increase of $19.5 billion or 9.2 percent since the prior fiscal year. The State's cash and cash equivalents increased by $10.1 billion since the prior fiscal year. The State sold approximately $9.8 billion in State of Texas Tax and Revenue Anticipation Notes on August 21, 2012; that amount was approximately the same amount the State sold in the prior fiscal year.
Auditing financial statements is not limited to reviewing the numbers in those statements. Conducting this audit also requires the State Auditor's Office to obtain a sufficient understanding of the agencies and higher education institutions and their operating environments—including obtaining an understanding of the internal controls over systems and processes that the agencies and higher education institutions use to record their financial activities—to assess the risk of material misstatement of the financial statements. Through that effort, auditors identified specific weaknesses in information technology access controls that the Texas Education Agency should correct to improve the reliability of its financial information. Those weaknesses are discussed in Chapter 2-A of this report.
The State Auditor's Office also audited the State's Schedule of Expenditures of Federal Awards (SEFA) in relation to the Comprehensive Annual Financial Report for fiscal year 2012. The Office of the Comptroller of Public Accounts prepares the SEFA by using SEFA data from all state agencies and higher education institutions that made federal expenditures during the fiscal year. The State Auditor's Office and KPMG LLP (KPMG) audited the processes for preparing SEFA information at 17 agencies and 13 higher education institutions. That audit work included following up on SEFA findings identified in audits of prior fiscal years at 3 agencies and 9 higher education institutions. Auditors identified errors related to the SEFA information at 3 agencies and 7 higher education institutions. Those errors are discussed in Chapter 2-B of this report.
To avoid duplication of effort, the State Auditor's Office relies on KPMG's testing of the internal controls over certain systems and processes. While testing the State's compliance with federal requirements, KPMG identified a material weakness in the managed care program at the Health and Human Services Commission that was caused by inadequate segregation of duties and the use of a manual calculation process for payments to managed care organizations. The managed care program is material to the State's financial statements, and total payments to managed care providers for fiscal year 2012 totaled approximately $9 billion. The material weakness KPMG identified is related to both financial processes and federal compliance. As of April 2012, the managed care program includes approximately 85 percent of the individuals covered by Medicaid in Texas. For more information see finding 13-14 in State of Texas Federal Portion of the Statewide Single Audit Report for the Fiscal Year Ended August 31, 2012, by KPMG.
The State Auditor's Office conducts this audit so that the State can comply with federal legislation (the Single Audit Act Amendments of 1996); state statute (Texas Government Code, Section 403.013(c)); and grant requirements to obtain an opinion regarding the fair presentation of its basic financial statements and a report on internal controls related to those statements. The results of this audit are used primarily by companies that review the State's fiscal integrity to rate state-issued bonds, the Legislature, and by federal agencies that award grants.
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