In his bid to grab the DFL party's nomination from incumbent state auditor Rebecca Otto, challenger Matt Entenza has harkened back to the terms of Arne Carlson and Mark Dayton, both of whom later became governor of Minnesota, as his models for what an auditor should be.
This recurrent theme prompted Bluestem Prairie to begin looking back at their tenure as state auditors, and in one case (we haven't gotten to Dayton yet), we suspect that Entenza might consider retooling his messaging, rather than relying on misty water-colored memories of the way we were.
In Thursday's Marshall Independent article by Deb Gau, Entenza says he’ll look out for rural Minnesota as state auditor, we read:
The state auditor's office is perhaps best known for conducting financial audits on Minnesota cities and counties. But, Entenza said, the office could also be more proactive in sharing information. Entenza said he would follow in the tradition of past state auditors like Mark Dayton and Arne Carlson, in making financial information available to the public and using it to help support investment in rural Minnesota communities and schools.
"The auditor's office used to do that, and it needs to do it again," Entenza said. In one example, he said, data from the auditor's office a could shed light on the financial divide between wealthy suburban school districts and districts in greater Minnesota.
Entenza said as state auditor, he would also have a seat on the state pension board, and he would work to help protect Minnesotans' pension plans. Pensions have a sizable impact on the economy of communities like Marshall, he said, and strong public pension plans are possible with good management.
We don't quarrel with the notion that public pension plans need to be guarded and that the state auditor plays a role in watchdogging the plans, but our research suggests that the challenger might want to drop Carlson from his list of auditor role models.
An old story: Arne Carlson, John Chenoweth, MERF
Poking around in Nexis All-News, we were surprised to find much about Carlson's service as auditor, since the electronic news database gets a bit thin the farther back one goes. In "Governor under fire over retirement funds," the Chicago Tribune reported on August 31, 1993:
Pensioners relying on the Minneapolis Employees Retirement Fund lost more than $100 million, partly because Gov. Arne Carlson failed to expose financial mismanagement while serving as state auditor, according to a copyrighted newspaper report. During more than a decade as auditor, Carlson also maintained ties to the retirement fund's executive director, John Chenoweth, while winning recognition for helping the fund in a key legislative battle and accepting campaign contributions from the fund's political arm, the Star Tribune reported Sunday. Chenoweth, a former Democratic Farm Labor Party legislator from St. Paul who was murdered in 1991[a brutal hate crime unrelated to the pension fund woes], and the fund were allowed to virtually rewrite two critical audit reports to their liking, according to the Minneapolis newspaper. In one case, the Star Tribune reported, information that could have exposed financial calamity was deleted. In the other, the paper said, criticism of Chenoweth's management and the fund board's oversight were eliminated, while praise for Chenoweth's management was retained. (Nexis All-News, accessed June 26, 2014)
In the September 8, 1993 USA TODAY's "Across the USA: News From Every State," we read: ". . .Carlson said the article was an outright falsehood." (Nexis All New, accessed June 26, 2014)
Sadly, the Star Tribune articles themselves are not in the Nexis database. But online, some glimpses of the fallout of the paper's investigative reporting remain. In the September 22, 1993 Farmer Independent column, "Costly pension audit suspicions must be investigated," then Senate Majority Leader Roger Moe wrote:
. . .an investigative story published August 29 by the Twin Cities Star Tribune raises serious concerns about Carlson's alleged willingness to look the other way when auditing MERF's finances. . . .
The governor has lashed out against the implications of the newspaper story, claiming that his office complied with generally with generally accepted accounting procedures. He accused the Star Tribune of not understanding the narrow responsibilities of the state auditor. . . .
Moe writes of a pending review of MERF and the Office of the State Auditor (OSA) by the Office of the Legislative Auditor (OLA). On May 9, 1994, the OLA publicly released the Report Summary: Minneapolis Employees Retirement Fund Special Review--Oversight by MERF Board and State Auditor's Office. The legislative auditor wrote of the task of the review:
On August 29, 1993, the Star Tribune published an article entitled "Overlooking the Books." The Legislative Audit Commission responded to public concerns generated by the article and on November 17, 1993, directed the Legislative Auditor to answer six questions regarding the oversight of the Minneapolis Employees Retirement Fund (MERF). One question addressed the MERF board of directors, the other five questions pertained to the State Auditor's Office (OSA). The questions focused on the tenure of former executive director, Mr. John Chenoweth. Also, the commission directed the Legislative Auditor to contract with an independent consultant, to broadly examine oversight of local pension funds.
The summary of the report concluded that while Auditor Carlson had no personal relationship to the late John Chenoweth, problems did occur under Carlson's watch:
We reviewed issues related to the State Auditor's independence, audit planning, procedures for auditing MERF investments, audit reporting, and response to indications of potential illegal or improper activities at MERF.
We found that the auditors followed established office policies when investigating allegations and establishing audit scope for MERF. There was no evidence that former State Auditor Carlson had a personal friendship or social relationship with Mr. Chenoweth or that he influenced the scope of MERF audits.
The OSA made numerous changes to its MERF report drafts. We often did not find adequate documentation for the changes in the working papers. The auditors did, however, provide us with explanations for the changes. We found no evidence that the changes were the result of a cover-up. The changes, particularly in the 1989 Management Study, resulted from an attempt to remove judgmental language from the reports. The MERF report style differed from a more adversarial style that OSA had used for other reports it considered to be high-profile and of broad public interest.
The auditors could have done more to test the market value of MERF investments, particularly in the 1989 financial audit. Mr. Chenoweth had added more speculative investments to the MERF portfolio in 1988 and 1989. The investments began to show signs of problems during the 1989 audit. For the 1990 audit, an extensive footnote to the financial statements cautioned about the precarious nature of several investments. Finally, on the 1991 financial statements, MERF wrote its investments down by $58 million.
What were the "lessons learned" of the OSA?
The State Auditor's Office would have been more effective if its reports had used a consistent tone, spoke to a broader public audience, and been issued on a more timely basis. The auditor's experience also emphasized the need to verify the underlying value of investments, particularly alternative investments such as limited partnership and real estate. Finally, it would have been helpful for the auditors to document reasons for report changes and to resolve any professional differences of opinion.
These conclusions don't buttress candidate Entenza's claims that Auditor Carlson (a Minnesota statesman now 20 years later) entirely established a strong tradition that an auditor ought follow.
Photo: A portrait of Arne Carlson as a young man. Via NNDB (above); the 1993 Moe column (below).
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