Nebraska auditor says state agency was seeking to replace him and hire a ‘hand-picked’ CPA firm

Foley called it a ‘direct assault’ on his constitutional authority to audit state agency spending

By: - February 21, 2024 5:45 am
Nebraska Lt. Gov. Mike Foley

Mike Foley has served as state auditor twice, from 2007-2015 and again beginning in 2023, after serving as lieutenant governor under then-Gov. Pete Ricketts. He is pictured presiding over the Nebraska Legislature in 2022. (Rebecca S. Gratz for the Nebraska Examiner)

LINCOLN — In what was called “an extraordinarily bold move,” a state agency last year attempted to bypass the scrutiny of the Nebraska state auditor by hiring its own “hand-picked” private accounting firm.

State Auditor Mike Foley revealed the effort, which has since been dropped, by the Nebraska Department of Health and Human Services, during a public hearing Tuesday on a bill seeking to clarify that the auditor is the “exclusive authority” to undertake reviews of state spending.

‘Direct assault’ on auditor’s authority

DHHS and the auditor have clashed in the past over Foley’s often blunt and sometimes critical audits of the agency. But the effort to hire a certified public accounting firm to bypass his office was a new twist on the relationship.

Dannette Smith
Dannette Smith, who resigned as CEO of the Nebraska Department of Health and Human Services in July. (Courtesy of the DHHS)

Foley, testifying before the Legislature’s Appropriations Committee on Tuesday, called last year’s effort to replace his office’s services by then-DHHS CEO Dannette Smith “an extraordinarily bold move” and “a direct assault upon the inherent constitutional authority” of his office.

Smith resigned in July to take a job with what was described as a “national firm.” Two weeks ago, she was named commissioner of the Behavioral Health Administration for the State of Colorado.

A spokesman for Nebraska DHHS said the agency sought a Request for Information (RFI) a year ago from private firms as part of its “due diligence to determine if other options may save taxpayer resources.”

Spokesman Jeff Powell said it costs the agency $830,000 for the State Auditor’s Office to conduct the federally required “Statewide Single Audit,” which reviews spending of federal dollars by state departments.

Would have ‘devastated’ office

Foley, however, said the cost of the annual audit — the largest conducted by his office — is fully reimbursed by the federal government.

The proper response to a negative audit is to take the appropriate corrective action ... not to look for another auditor whose lack of independence, and perhaps even expertise, will allow everything to be swept quietly under the rug.

– State Auditor Mike Foley

He told the Nebraska Examiner that if his office had lost the $1 million reimbursement it gets for the Statewide Single Audit, it would have “devastated” his office’s funding and capability.

Foley said that when he first learned that Smith had sought and received interest to her RFI from three private CPA firms, he lodged strong objections with the Governor’s Office.

Such an effort, he told state lawmakers, would shatter the idea of an “independent” audit because a private firm — unlike the Auditor’s Office — would be “reliant” on the agency that hired the firm for its pay and approval of its review.

“This is never a concern with an independent state auditor, which I believe is why the attempt was made in the first place,” Foley said.

Powell, the DHHS spokesman, pointed out that private audit firms are “still required by law to maintain the same auditing standards.”

He added, “DHHS looks forward to working with the State Auditor’s Office.”

Foley said that he realizes agencies may not like what he finds in an audit. But, he added, the “proper response to a negative audit is to take the appropriate corrective action … not to look for another auditor whose lack of independence, and perhaps even expertise, will allow everything to be swept quietly under the rug.”

Effort came ‘to a screeching halt’

“Fortunately, after making it clear that I would not sit by silently while this important audit work was being hijacked, and the fiscal welfare of the State of Nebraska jeopardized as a result, the peculiar and unprecedented attempt to seize control of the federal funds audit process … came to screeching halt,” the auditor said.

Neither Powell, nor the Governor’s Office responded to a question about why the effort to hire a private CPA firm was dropped.

Foley testified Tuesday in favor of Legislative Bill 1352, introduced by State Sen. Wendy DeBoer of Omaha. She portrayed the bill as a way to ensure that if the statewide audit of federal funds, expected next month, raises significant questions, the auditor can continue to explore those deficiencies.

The bill also includes a section stating that “it is the intent of the Legislature that the Auditor of Public Accounts continue to exercise the exclusive authority to perform the Statewide Single Audit….”

Foley, during his testimony, told the Appropriations Committee that he has a good relationship with the new director of DHHS, Steve Corsi, and that Corsi would “never be part of such a stunt.”

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Paul Hammel
Paul Hammel

Senior Reporter Paul Hammel has covered the Nebraska state government and the state for decades. Previously with the Omaha World-Herald, Lincoln Journal Star and Omaha Sun, he is a member of the Omaha Press Club's Hall of Fame. He grows hops, brews homemade beer, plays bass guitar and basically loves traveling and writing about the state. A native of Ralston, Nebraska, he is vice president of the John G. Neihardt Foundation.

Nebraska Examiner is part of States Newsroom, the nation’s largest state-focused nonprofit news organization.

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