Minnesota High Court Allows Counties to Choose Auditors

ST. PAUL (CN) – The Minnesota Supreme Court upheld a law Wednesday that gives counties the choice to hire private accounting firms for their financial audits instead of using the state auditor’s office.

State Auditor Rebecca Otto sued Minnesota two years ago, claiming the 2015 law violated the separation of powers clause and single subject clause. Becker, Wright and Ramsey Counties were also named as defendants in the suit.

Wednesday’s 24-page opinion affirmed a Minnesota Court of Appeals ruling.

Since 2003, counties have been allowed to hire private certified public accountants, or CPAs, to examine county records and accounts. However, if an audit was performed by a private firm, the state auditor could ask for additional information from the CPA, according to court records.

During Otto’s last cycle of audits before the law was enacted, she reportedly audited 59 counties and directed 28 counties to retain private CPA firms. Otto had the authority to determine whether to ask for more information from the firms or initiate her own audit.

But when the law was put into place in 2015, Otto notified 61 counties that her office would conduct the audits for the next three-year cycle and proposed three-year contracts for the office’s auditing services, according to the ruling.

When the counties refused to sign the contracts and told Otto that they planned to go with a private CPA firm, the state auditor went to court.

Otto, represented by Joseph Dixon III with Fredrickson & Byron, argued that the law violated the separation of powers clause by “usurping the state’s auditor’s exercise of her core function of auditing counties.”

She also claimed that the Legislature violated the single subject clause by including the lawsuit in a “single bill with a multitude of other unrelated provisions on…disparate subjects,” court records show.

In response, Wright and Becker Counties claimed that “no justiciable controversy” arose from their refusal to sign the three-year auditing contract, according to the opinion. Ramsey County asserted that Otto’s claims were not ripe because it had not made a decision about whether to hire a CPA.

The district court denied the counties’ motion to dismiss the suit and granted in part Otto’s summary judgment motion, concluding that auditing counties is “an essential core function” of the state auditor’s office but that the law, section 6.481, did not “transfer the state auditor’s core function of auditing Minnesota counties,” the opinion states.

On Wednesday, the Minnesota Supreme Court agreed with the latter finding and ruled against Otto.

Chief Justice Lorie Gildea wrote that although the court agrees with Otto that section 6.481 gives counties the authority to choose who audits them, the state auditor retains significant responsibilities in connection with the county audits, including ones that hire CPA firms.

“The state auditor has failed to meet her ‘heavy’ burden of showing that section 6.481 unconstitutionally modified or transferred her duties in violation of the separation of powers clause,” the ruling states.

Though the state’s high court ruled in favor of the counties, Gildea reiterated in the opinion that the court would not “permit the legislature to gut an executive office” because to do so would be “to hold that our constitution is devoid of any meaningful limitation on legislative discretion.”

Scott Anderson, who represents Wright and Becker Counties, said in a statement that the counties “are pleased with the ruling and the outcome of the case.”

“Each claim and contention of the state auditor was rejected by the court, including the claim that the law in question gutted her office and left it an empty shell.  That assertion was never anything more than hype and hyperbole,” Anderson said.

Otto, meanwhile, said she is “grateful to the court for considering the important legal questions raised by this case.”

“The Supreme Court has now made clear that the state auditor has authority and responsibility over county finances, including the authority to conduct additional examinations of a county following a private CPA firm audit, and that the counties are responsible for the costs,” she said.

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