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Private audit eyed for state books

Officials replaced after 2nd major accounting error

– An external audit of the problems that caused Indiana to lose track of more than a half-billion dollars will have to wait a while.

State Budget Committee members agreed Friday that an outside audit of the state’s budgeting and tax collection systems is needed. But they won’t have an audit request ready until their next meeting.

Gov. Mitch Daniels, meanwhile, replaced two people who ended their work with the state last week after the tax error was discovered.

He named Mike Alley revenue commissioner and Mike Ashley chief financial officer for the Department of Revenue.

Alley was chairman and CEO of the Evansville-based Integra Bank for two years before it was seized by the Federal Deposit Insurance Corp last July. The bank was struggling under the weight of souring loans for commercial real estate and land development. He had been brought in to straighten out the troubled bank. Before that, he was president at Fifth Third Bank of central Indiana in Indianapolis from 1989 through 2002.

Ashley was the deputy director and chief financial officer for Indiana Department of Child Services. Before that, he had been an executive at Eli Lilly.

They are being brought in to try to fix problems at the troubled Revenue Department. The state lost track of $320 million over four years. An investigation into that mistake uncovered a second massive error that cost Indiana counties $206 million.

An external audit of problems inside Indiana’s tax collection agency will have to wait for a while, although state lawmakers generally agreed Friday the state needs more stringent financial safeguards to keep from losing track of hundreds of millions of dollars again.

Members of the State Budget Committee agreed Friday to draw up a request for an external audit and said they will consider it at their next meeting, which could come as soon as May.

Three top aides left the Department of Revenue last week after it was discovered that $206 million was kept from Indiana’s counties because of a programming error.

That error was found only after the department’s lone internal auditor discovered in December that $320 million in corporate tax money had been gathering, untouched, in a state holding account for more than four years.

Outgoing Commissioner John Eckart spoke briefly at Friday’s meeting of the State Budget Committee, letting lawmakers know he was working closely with a state auditor and budget director Adam Horst to discover the cause of the problems.

Afterward, he said he resigned on his own, even though Daniels asked him to stay on.

“I feel like the department needs to have someone come in who can clearly talk without having a cloud of people who view them being there when the issue occurred,” Eckart said. “I think it’s a clean fresh start.”

The state won’t be able to get to that fresh start just yet. A detailed review of the state’s tax system is ongoing, and early results show an “indication” of other errors, Horst said. He wants to see the final results of his agency’s investigation to put any other problems in context, he said.

Meanwhile, an independent audit for the latest foul-up could take months to conclude.

“I did not come here today to hire an outside auditor, I came here today to hear the need for an outside auditor,” said Budget Chairman Jeff Espich, R-Uniondale.

When the $320 million in untouched corporate tax money was first discovered, Democrats on the budget panel requested an independent audit of the state’s tax collections, but they were rebuffed by Republicans who called the external probe premature.

The broader investigation of that mistake turned up the second one, in which a similar programming error deprived the state’s counties of $206 million.

The real dollar value of that mistake is more like $335 million, though, according to Indiana counties lobbyist David Bottorff.

While the state only shorted the counties by $206 million, it caused most of them to draw budgets using inaccurate numbers, thus cutting much more money (and jobs) out of their budgets than necessary, said Bottorff, executive director of the Association of Indiana Counties.

State Board of Accounts examiner Bruce Hartman conducted a review of the $320 million error for the budget panel but said his resources and expertise are limited.

He said his office does one financial review of state government each year and investigates only complaints and allegations of fraud and abuse, neither of which would have resulted in his team finding the $526 million.

“I think there are some deficiencies within the overall system,” Hartman said.