One of the top watchdogs within state government says years of chipping away at auditing authority compounded with staff shortages have made the state financially vulnerable to bad actors.
South Dakota State Auditor Rich Sattgast’s comments come in the wake of several high-profile investigations involving former state employees allegedly using their positions to carry out financial crimes.
One case involved a former Department of Social Services Employee allegedly embezzling $1.8 million from the state over 13 years. The other involved a Division of Motor Vehicles staffer creating fake titles to secure loans. Lawmakers, public officials and others have questioned who is responsible for letting these incidents slip through the cracks.
Sattgast has long been a central cog in the state government’s finances. He served as state auditor from 2003 through 2011, was state treasurer from 2011 through 2019, and was again elected auditor in 2022. He dove into intricacies and challenges of the state’s finances in an interview with SDPB’s In the Moment with Lori Walsh.
Sattgast was unable to comment on any specific investigation. But he said when it comes to identifying where the buck stops, there’s not a simple answer.
“There’s not just one entity that oversees the expenditures of state government,” Sattgast said. “We have it all divided up for the checks-and-balance purposes of it.”
Sattgast said his own office has a limited scope in what it can review. Its primary functions are overseeing state payroll, working with the state treasurer and Bureau of Finance Management to reconcile state payments, and auditing state expenditures.
But there’s little the state auditor can do to look into the inner workings of other state departments. That power falls to a different auditing entity – the auditor general – which is appointed by the Legislature. That office can subpoena documents and has authority to audit any state agency, county government or city government.
Sattgast said the auditor’s office went through a major shift in the 1970s. The state was in the midst of a decades-long influx of federal dollars which slowly overwhelmed the auditor’s office. The auditor at the time, Alice Kundert, handed the keys to the state’s accounting system to the governor’s office and the Bureau of Finance Management, or BFM.
“This really limited the auditor’s ability to see what is going on,” Sattgast said.
In the years since, Sattgast said there has been a push-and-pull with the Legislature over auditing authority.
One recent win came in 2023, when Gov. Kristi Noem’s budget included $70 million to upgrade the state’s nearly 40-year-old accounting system. That new system is being installed across state government, though the process won’t be complete for several years. Sattgast said the new system will improve his office’s ability to do its job.
But deficiencies remain, Sattgast said, particularly in the state auditor’s ability to review other state departments and agencies. The state Board of Internal Controls, which Sattgast is a member of, helps departments set up internal financial controls. But once the control system is set up, there’s little the board can do to make sure protocols are being followed.
Sattgast said each agency does a self-assessment, but he’d like to see both his office and the treasurer’s office more directly involved.
“In my respect, the state auditor needs to be looking at ‘what internal controls do you have for authorizing payment,’” Sattgast said. “The state treasurer would probably be looking at ‘what internal controls do you have to make sure checks are getting sent to the treasurer’s office.’”
While Sattgast was unable to speak to individual criminal investigations, issues with departments improperly following protocols have recently surfaced. The Department of Legislative Audit’s fiscal year 2023 report found “material weakness” in the Department of Social Service’s controls over certain payments. Specifically, the audit found several instances of the same person being able to request and approve certain funds. While the audit did not tie the issue to a crime, it directly described the allegations against former DSS employee Lonna Carroll, who is accused of embezzling $1.8 million while she worked for the department. What’s more, the issue wasn’t discovered by the Department of Legislative Audit’s own audits. It was uncovered by DSS staff during a system update earlier this year.
Sattgast also said staffing issues within state government can make the state more vulnerable. He noted many departments are still feeling the squeeze from cuts made during budget crunches in 2010 and 2020.
“There’s people pulling double duty,” Sattgast said. “So you may have internal controls in place, you may not have the people to fill those positions, so you have people doing multiple positions they shouldn’t be doing.”
Sattgast said it can be challenging finding people to fill these positions in Pierre. He said his office has hired three people from out-of-state to fill openings.
“I think a number of our areas that are in checks-and-balances are having a very difficult time,” Sattgast said. “Especially in the oversight portion of it, it’s difficult to get those people in Pierre.”
