Minnesota Auditor Sues Outsourcing Counties

(CN) - A new law in Minnesota that allows counties to pay for private auditing services unlawfully usurps the authority of the state auditor's office, the aggrieved official claims in court.

Minnesota State Auditor Rebecca Otto filed suit Thursday against Wright, Becker and Ramsey Counties in the Second Judicial District Court of Ramsey County. Though Otto initially named the state as well, she voluntarily dismissed Minnesota as a defendant by the end of the day.

Otto claims the new legislation is in direct conflict with the Minnesota Supreme Court's 1986 ruling in State ex rel. Mattson v. Kiedrowski that executive officers "possess core functions" that may not be usurped by legislative act, even if they are merely transferred to another officer, the complaint states.

She says the roughly 90-employee Office of the State Auditor's "core function" is to audit counties' annual use of more than six billion federal, state, and local tax dollars, and more than half the agency's budget comes from fees counties pay for audit services.

Yet 30 years after Mattson, "the Legislature once again passed legislation that purports to usurp the core functions of a constitutional officer - the state auditor," the complaint states.

On the final day of the 2015 legislative session, the Minnesota Legislature passed provisions allegedly handing the auditor's core functions to the counties themselves.

This "privatization legislation" lets counties outsource their annual audits to private certified public accountant firms in lieu of the OSA, the complaint states.

The resulting "significant confusion" has led 50 counties to refuse to submit to the plaintiff's audits for the upcoming three-year audit cycle, according to the complaint.

The counties' interpretation of the statute would allegedly "deprive Minnesota taxpayers of the auditing oversight and stewardship that the OSA has provided for more than 150 years."

Plus, it would be "devastating" for the OSA, causing "lay-offs, lost talent and experience, a substantially smaller budget," and the loss of its primary duties, the complaint states.

But a constitutional reading of the statute would not allow for such, the auditor claims.

"The statute provides that 'the state auditor may make additional examinations as the auditor determines to be in the public interest,'" the complaint states. "The statutory language places no limits on the state auditor's authority in this regard."

That is, the statute must be read to let the OSA audit counties in name of public interest, "regardless of whether the county has also engaged a private CPA," the agency says.

Otherwise, the statute allegedly violates Article III, Sec. 1 of the state constitution.

The Legislature also violated the constitutional requirement that legislative acts "embrace only a single subject," since it passed the statute in a single bill with several other unrelated provisions on subjects like continuing education for cosmetologists, according to the complaint.

The auditor seeks a declaration that the statute must be either interpreted to preserve the office's authority to audit counties, or deemed unconstitutional.

The plaintiff is represented by Joseph Dixon with Fredrikson & Byron in Minneapolis.

Defendant Wright's (est. pop. 129,918) county seat lies in Buffalo, Minn., while Becker's (est. pop. 33,259) is in Detroit Lakes and Ramsey's (est. pop. 532,655) in St. Paul.

Becker County Administrator Jack Ingstad said the county "spent approximately $84,000 in 2015 to have the state auditor's office conduct our annual audit."

On the other hand, "the private CPA auditing firm used in 2012 cost Becker County $31,000," Ingstad added. "I have found private auditing firms to be more willing to focus on areas of concern or risks that are identified by top management and elected officials."

Becker County Attorney Gretchen Thilmony declined to comment on the pending litigation.

The other defendants have yet to return requests for comment emailed Monday.

Otto, most recently elected in 2014 by a margin of more than 11 percent, is currently serving her third four-year term as the 18th state auditor, according to the complaint.

Editor's note: After this story was published, Becker County, Minn., provided Courthouse News with a copy of a letter asking Otto to release the county from her 2015 audit, in light of the lawsuit.

"This request is based upon the belief that there is a conflict of interest present, or at the very least the perception of a conflict of interest, by the taxpayers of Becker County," the Feb. 17 letter states.

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