The Indiana Taxpayer Protection Act

Prepared By Indiana State Senate candidate Terry White

Calling for an Annual Outside
Independent Audit of Indiana Finances to Assure Accountability and
Transparency of Indiana State Finances

Around 6 months ago, you will recall that the State discovered $320 million dollars had been overlooked, the result of a software program omission that left some corporate tax payments in an agency fund rather than in the State General Fund. Then in April, they realized that $206 million dollars in income taxes that were collected for local government had not been distributed. Vanderburgh County was denied $6.6 million of revenue which it had coming to it, and Warrick County was deprived of $1.3 million as a result of these major blunders. Then, in addition, an error by the Office of the Auditor in April revealed a discovery of $536,000 in excise tax distribution and another $1 million dollars discovered in late fees paid by state agencies. In total, over $527 million have been mismanaged on a state-wide level. To make matters worse, these were not just one time oversights but an ongoing gross neglectfulness that lasted over a period of 4 years before they were discovered!

The Director of the Office of Management and Budget, Adam Horst, admits that clearly there are controls at the Department of Revenue which are an issue. Governor Daniels says that more mistakes associated with the Indiana Department of Revenue may yet surface but may be in smaller amounts. The errors cost the Revenue Department’s Commissioner and two other top-staffers their jobs. Finally, the Daniels administration and the State Budget Committee agreed in April on an independent audit to determine how the errors were made and to root out others – something the Democrats in the State Senate called for after the $320 million error, but Republicans then denied.

The denial of the repayment to the counties came after many local government officials had to implement layoffs, pay freezes, budget reductions, and other cost-cutting means to make up for the lower revenues. David Bottorff, Executive Director of the Association of Indiana Counties, said that these monies deprived to the counties caused additional hardship and additional anxiety in county offices.

While no government is perfect, the loss of over $527 million in state government, especially when every penny counts in this atmosphere, is inexcusable. This is not like someone just found the money in the cracks of the Governor’s couch. This is a major amount of tax revenue that directly or indirectly resulted in a reduction of over $300 million in public education in last year’s budget and budget reductions in our local government. The scope of this loss leads one only to logically conclude that the current system of checks and balances is not working. These are deep flaws in our State Government’s fiscal transparency and accountability to our taxpayers. No organization worth its salt, especially a public organization such as the state government that controls approximately $13.5 billion per year in revenue, should ever exclusively self-internally audit.

As a result of this unwarranted debacle, the Governor has now agreed through the state budget committee to hire the highly regarded CPA firm of Deloitte and Touche to conduct an outside independent audit aimed at identifying whether Indiana has made accounting or programming errors on top of those that led to the $527 million being mishandled.

Numerous states throughout the nation conduct independent external audits on an annual basis simply to lend credibility and honesty to state government finances. The Government Finance Officers Association (GFOA) has long been on record encouraging state and local governments to obtain an annual independent audit of their financial statements performed in accordance with the appropriate professional auditing standards. Governments desiring to issue debt often include these audited financial statements in their offering statements. Likewise, the Government Finance Officers Association encourages every state to make its comprehensive annual financial report, including the audited financial statements, transparently available on its website.

Properly performed independent outside audits play a vital role in the public sector by helping to preserve the integrity of the public finance functions and by maintaining citizen’s confidence in their elected leaders. All publicly held companies are required by the SEC to have external audits to keep their investors confident in the honesty of the system. For public companies listed on stock exchanges in the United States, the Sarbanes-Oxley Act (SOX) has imposed stringent requirements on external auditors in their evaluation of internal controls and financial reporting.

While the State Board of Accounts in Indiana performs an annual audit of the State of Indiana comprehensive annual financial report, which is prepared by the Office of the Indiana State Auditor, the problem here is systemic. Both of these entities are connected directly to the Governor without any real independence. Accordingly, it only makes common sense that an outside independent financial and compliance audit of the state and its various agencies should be performed annually to determine that: financial resources are properly accounted for; compliance with applicable laws, rules, regulations and policies are met; proper and effective internal controls are in place over entity operations; and assets are properly accounted for. This outside and independent annual audit of state government financial statements must not only look independent, but it must be in fact independent. I believe that ethical governing rests upon the cornerstones of openness, honesty, accountability, and transparency.

Because of these problems, especially when it took more than four years to find them in our current self-internal auditing setup, citizens are wondering whether or not the fox is watching the hen house. Therefore, if I am privileged to be elected to the State Senate this November, I will introduce legislation which I am calling “The Indiana Taxpayer Protection Act” to provide for a fully independent audit of state government on an annual basis with an independent CPA firm, overseen by a bipartisan audit committee comprised of a preponderance of members outside of our State’s government management and legislative sphere. This bipartisan committee (which is similar to the one recommended by Deloitte and Touche for the State of Arkansas) would provide for a government accountability commission to be comprised of five non-government citizens having no contracts with the state but possessing business and financial experience, plus one person from the executive branch and one from the legislative branch.

Restoring faith in the integrity of state government by providing annual independent audits is just one way that I will fight to protect the rights of working families in Southwest Indiana.