PIERRE, S.D. (KELO) — Allegations of financial deceptions in different departments of South Dakota state government are driving a discussion within the state Board of Internal Control about seeking more staff and resources to prevent a similar situation in the future.
Officials on Monday sketched for the board a high-level view of what’s being done since the scandals came to light. The room at the Capitol was uncharacteristically silent in the minutes before the meeting began, and the mood throughout teetered somewhere between caution and embarrassment, amid warnings beforehand from the state attorney general’s office that comments needed to be guarded for fear of influencing any potential jurors who might be listening.
The state Department of Social Services, where a retired employee is accused of stealing more than $1.7 million over the course of 13 years, hired an internal control officer in May as a corrective step.
The state Department of Revenue, where an investigation is underway into fictitious vehicle titles that former employees allegedly created in order to borrow money, began an anonymous reporting system last week as a corrective step and is considering designating an internal-control officer, too.
Officials from both departments spoke about making changes in their financial reporting processes and systems as well. The Legislature established the state board in 2016 at the suggestion of then-Governor Dennis Daugaard and formally adopted an internal control framework in 2018. The Department of Revenue was one of the first to go through it that year. The Department of Social Services completed the framework in 2023.
To date, 19 state departments and constitutional offices have gone through it. Completing the rest of the state government’s departments and offices could take at least another two years. That schedule led Allysen Kerr, who as statewide internal control officer within the state Bureau of Finance and Management has worked with the various state agencies, to suggest that she could use more resources, including an additional one or two staff, to assist in the completing the rollout of the framework and to help drive a continuous updating of internal control processes. “I’m only one person,” she told the board.
Jim Terwilliger, who is the state commissioner of finance and management, chairs the seven-member panel. He described his view of the board’s role as preventive rather than one of detection after a situation and said the two-plus years needed to get through the rest of state government for the first time made it “appropriate” to discuss additional resources.
Board member Brenda Tidball-Zeltinger, who is deputy secretary of social services, said she would “wholeheartedly” support additional resources. Board member Heather Forney, who is system vice president of finance and administration for the state board that oversees South Dakota’s public universities and specialty schools, said she was “one hundred percent” behind providing more resources.
Forney noted that several of the universities as well as the state Board of Regents central office have financial control resources. Not every agency can do that, she said. And she supported providing additional internal-control resources to state agencies.
Aaron Olson represents the state’s Unified Judicial System on the control board and previously worked for the Legislature as a budget analyst. He supported providing additional resources but noted that the legislative timetable could mean that additional staff couldn’t be brought on board until perhaps mid-2025 or later. With 10 agencies still to go, he wondered whether there might be other possibilities to transfer a position to BFM, such as from somewhere else in the executive branch. “And I think they’re probably needed sooner rather than later,” Olson said.
State Auditor Rich Sattgast, whose offices processes state government’s payments, said there are 10 more agencies to onboard for the first time but there’s also the need to continue assisting those that have already gone through the framework, so he supported it, too.
Terwilliger said that Kerr’s position was created in 2016 and there’s been no additional help since then. “It’s been a team of one,” he said. He suggested that the allegations of deceptions highlighted the need for internal controls and presented an opportunity to assure taxpayers that that state funds were being protected.
The meeting included a report from state Auditor General Russ Olson on results of his office’s audit of state government’s finances during fiscal 2023. One of the findings, on page 245 of the printed report, was that the Department of Social Services lacked adequate controls in the office of Child Protection Services where the now-retired employee, Lonna Carroll, had worked.
Olson said the office processed $7.2 million of claims for that year, with one person handling 53 of the 60 claims that were tested for the audit. Regarding the cause for the finding, the audit report stated, “Controls in the FACIS system were not adequate to prevent the person entering a claim for payment in the system to also approve the claim for payment with no further review. For those claims that were subject to secondary review, no documentation of that review and approval was maintained in the system.”
In addition to six of the board members and their attorney, there were about 20 people in the audience area of the room when the meeting started. Among them were four from Social Services, including the department secretary, Matt Althoff, and three from Revenue, including the department secretary, Mike Houdyshell.
Houdyshell sat to the side near the rear and didn’t speak to the board, but Althoff did. He said that some of the Social Services staff members suffered emotional and psychological impacts and showed how serious they were taking the apparent betrayal by a former co-worker. As for the department’s leadership level, Allthoff said the attitude has been, “We’re going to make lemonade out of the lemon this has been.”
Asked by Terwilliger what recommendations he would make for continuously updating internal-control processes, Social Services finance director Jason Simmons said, “In short, I would wrap it up as more resources.”
Speaking for Revenue to the board were the department’s legal counsel, Kirsten Jasper, and the department’s deputy director for administration, Bobbi Adams. Jasper said the department has been taking steps such as meeting with all employees regarding immediate areas of need and getting their input. Jasper said one of the results was the internal anonymous reporting process using the department’s internet system.
According to Jasper, new policies have been put in place and Revenue now holds a weekly “Wind-Down Wednesday” where divisions present reports on their operations to the entire department. She said a meeting was held for Revenue employees statewide in April on ethics, conflicts of interest and internal controls, with some of the divisions possibly doing the training annually and requiring that new hires receive it. “We want to make sure all of those things are on employees’ radars going forward,” Jasper said.
Adams is now handling all of Revenue’s communications and coordinates the department’s strategic planning. Adams said the department recognized years ago that the vehicle-titling system had flaws, tried to update it but realized a new system was needed, so now the new 605Drive system will be implemented in early 2025.
The new titling system will require vehicle dealers to go through an e-portal, according to Adams, with automatic reports generated to prevent or catch potential instances of misconduct, and it will allow department personnel to trace click-by-click what’s been done. She said the department is actively involved in the government-wide conversion to a new BISON financial system that has been in the works and is scheduled for completion in 2026-2027.
Adams said one of the things learned by being one of the first departments to go through the internal control framework was the need for outside voices. She said it’s worthwhile to get insights from the people doing the work, there needs to be an emphasis on preventive as well as detection, and ease of updating should be considered.
Adams said she recently reviewed the internal controls Revenue has in place and only 34% were preventive. She said people had sat in a room and thought about certain potential scenarios. “Oh, that would never happen,” she said, recalling the conversations. But, she added, “Sometimes those things happen.”
