State of Montana for the Fiscal Year Ended June 30, 2017

A REPORT TO THE MONTANA LEGISlaTURE FINANCIal AUDIT State of Montana For the Fiscal Year Ended June 30, 2017 FEBRUarY 2018 LEGISlaTIVE AUDIT DIVISION 17-01A Financial Audits Legislative Audit Committee Financial audits are conducted by the Legislative Audit Division to determine if the financial statements included in this report Representatives are presented fairly and the agency has complied with laws and Kim Abbott regulations having a direct and material effect on the financial [email protected] statements. In performing the audit work, the audit staff uses Dan Bartel standards set forth by the American Institute of Certified Public [email protected] Accountants and the United States Government Accountability Randy Brodehl Office. Financial audit staff members hold degrees with an [email protected] emphasis in accounting. Most staff members hold Certified Tom Burnett, Vice Chair Public Accountant (CPA) certificates. [email protected] Virginia Court The Single Audit Act Amendments of 1996 and the Uniform [email protected] Administrative Requirements, Cost Principles, and Audit Denise Hayman Requirements for Federal Awards require the auditor to issue [email protected] certain financial, internal control, and compliance reports in addition to those reports required by Government Auditing Senators Standards. This individual agency audit report is not intended Dee Brown to comply with these reporting requirements and is therefore [email protected] not intended for distribution to federal grantor agencies. The Terry Gauthier Legislative Audit Division issues a statewide biennial Single Audit [email protected] Report which complies with the above reporting requirements. Bob Keenan The Single Audit Report for the two fiscal years ended June 30, [email protected] 2015, was issued March 29, 2016. The Single Audit Report for the Margaret MacDonald two fiscal years ended June 30, 2017, will be issued by March 31, [email protected] 2018. Mary McNally, Chair [email protected] Gene Vuckovich [email protected] Members serve until a Audit Staff member’s legislative term Jeane Carstenson-Garrett Miki Cestnik of office ends or until a Mary Currin Chris G. Darragh successor is appointed, Jen Erdahl Natalie H. Gibson whichever occurs first. Diedra Murray Alexa O’Dell Delsi Osmanson Jill Sharp §5-13-202(2), MCA Karen E. Simpson Kelly Zwang Fraud Hotline Reports can be found in electronic format at: (Statewide) http://leg.mt.gov/audit 1-800-222-4446 (in Helena) 444-4446 [email protected] LEGISLATIVE AUDIT DIVISION Angus Maciver, Legislative Auditor Deputy Legislative Auditors Deborah F. Butler, Legal Counsel Cindy Jorgenson Joe Murray February 2018 The Legislative Audit Committee of the Montana State Legislature: This financial audit report contains our Independent Auditor’s Report on the basic financial statements and the Schedule of Expenditure of Federal Awards of the state of Montana for the fiscal year ended June 30, 2017. The basic financial statements were prepared by the State Financial Services Division of the Department of Administration. The Schedule of Expenditures of Federal Awards was prepared by the Governor’s Office of Budget and Program Planning. We issued an unmodified opinion on each of the eleven opinion units, as described in the Independent Auditor’s Report on page A-5, included in the basic financial statements. This means the reader can rely on the information presented in the report. In addition, we issued an unmodified in-relation-to opinion on the Schedule of Expenditures of Federal Awards included in this report. There are no audit recommendations. The state continues to experience funding issues related to its retirement systems. The Highway Patrol Officers’ and Game Wardens’ and Peace Officers’ retirement systems were not actuarially sound, which is considered material noncompliance with the Montana Constitution as it requires plans to be funded on an actuarially sound basis, and state law, which requires the plans to amortize within 30 years. This noncompliance is included in the Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards, and is further addressed in the Independent Auditor’s Report. The Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards includes a material weakness related to financial Room 160 • State Capitol Building • PO Box 201705 • Helena, MT • 59620-1705 Phone (406) 444-3122 • FAX (406) 444-9784 • E-Mail [email protected] statement preparation at the Board of Investments associated with the Economic Development Bonds major fund, the portion of the Business-Type Activities attributed to this activity, and related note disclosures. The report also includes a significant deficiency related to the Board of Investments’ control deficiency with the portion of the Remaining Fund Information attributed to Investment Trust Fund activity. Department of Administration and Governor’s Office officials reviewed the contents of this report. The Department of Administration’s response is on B-1. The response from the Governor’s Office is on B-2. We thank the Department of Administration’s director, the State Financial Services Division staff, and the Governor’s Office staff for their cooperation and assistance throughout the audit. Respectfully submitted, /s/ Angus Maciver Angus Maciver Legislative Auditor i Table of Contents Elected, Appointed, and Administrative Officials.....................................................................ii Report Summary ...................................................................................................................S-1 CHAPTER I – INTRODUCTION ��1 Objectives and Summary of Results..........................................................................................1 Report Organization ................................................................................................................2 INDEPENDENT AUDITOR’S REPORT, BASIC FINANCIAL STATEMENTS, REQUIRED SUPPLEMENTARY INFORMATION AND SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards .............................................................................................................. A-1 Independent Auditor’s Report ............................................................................................... A-5 Management’s Discussion and Analysis ................................................................................A-9 Statement of Net Position....................................................................................................A-20 Statement of Activities .........................................................................................................A-22 Balance Sheet Governmental Funds ...................................................................................A-24 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position .........................................................................................A-26 Statement of Revenues, Expenditures, and Changes in Fund Balances-Governmental Funds ...............................................................A-28 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities ...............................A-30 Statement of Fund Net Position-Proprietary Funds ............................................................A-32 Statement of Revenues, Expenses, and Changes in Fund Net Position-Proprietary Funds .................................................................................A-34 Statement of Cash Flows-Proprietary Funds .......................................................................A-36 Statement of Fiduciary Net Position-Fiduciary Funds .........................................................A-38 Statement of Changes in Fiduciary Net Position-Fiduciary Funds ......................................A-39 Notes to the Financial Statements .......................................................................................A-40 Budgetary Comparison Schedule-General and Major Special Revenue Funds ................. A-172 Notes to the Required Supplementary Information Budgetary Reporting ..........................................................................................................A-174 Pension Plan Information.................................................................................................. A-175 Other Postemployment Benefits Plan Information (OPEB).............................................. A-190 Schedule of Expenditures of Federal Awards ..................................................................... A-194 Notes to the Schedule of Expenditures of Federal Awards ................................................ A-233 STATE RESPONSES Department of Administration .............................................................................................B-1 Office of Budget and Program Planning ..............................................................................B-2

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