Statewide financial audit: unmodified opinions but material weaknesses in controls at agencies

The Legislative Audit Division presented the fiscal 2025 statewide financial audit to the Legislative Audit Committee and issued unmodified opinions for 11 opinion units, meaning auditors judged the financial statements to be presented fairly in all material respects. At the same time, the audit identified control problems at multiple agencies that the division classified as two material weaknesses and five significant deficiencies.

Key matters discussed at the hearing:

- Highway infrastructure estimates (Montana Department of Transportation). Auditors questioned MDT’s significant assumptions about useful life and capacity treatment (28‑year life, a 1:1 write‑off rule even when capacity is expanded) and found impairment testing documentation incomplete. Auditors estimated a potential understatement in infrastructure historical cost and accumulated depreciation; their sensitivity work suggested a net understatement of net position in the $85M–$158M range if the assumptions were adjusted. MDT agreed to strengthen documentation and controls and to re‑evaluate assumptions about capacity and replacement treatment.

- Lottery accounting corrections. Audit staff reported systematic reporting errors discovered in Montana Lottery activity; an internal DOA review identified issues with two games and required adjustments to the enterprise fund and related general fund beginning balances (the net effect to the general fund beginning balance was an adjustment of approximately $6.998M). Auditors said the final basic financial statements are materially correct after the adjustments but recommended stronger year‑end SABERS controls; Lottery concurred and cited staff turnover and process fixes.

- Property tax year‑end accrual (Department of Revenue). The department historically used a five‑year July collection average to estimate year‑end property tax accruals. Auditors found that does not reliably reflect taxes levied but not yet remitted by counties and estimated an understatement of property tax receivables and revenue of about $32.6M for FY25. The department partially concurred and provided a plan to refine percentages and add year‑end checklist tasks.

- Lease present‑value calculations (Department of Natural Resources & Conservation). Since GASB 87 lease accounting, DNRC revalued many leases but auditors found incorrect discount‑rate use in several commercial lease present‑value calculations; nine leases were miscalculated (net overstatement ~$4.9M). DNRC acknowledged the errors (a spreadsheet sorting glitch), has added review steps, and plans to move calculations to the Sabers lease module.

- Board of Investments entries and participant‑level posting errors. Auditors identified several large participant‑level posting mistakes in Sabers (some caused by transfers and timing errors) that were corrected in final statements but indicate a material weakness in BOI’s participant‑level control and review processes. BOI partially concurred and described procedural fixes.

Auditors also briefed the committee on risks that could affect future timeliness of the statewide audit: newly effective GASB standards (e.g., GASB 103), single‑audit workload for ARPA funds, and expanded auditing standards that require deeper testing of accounting estimates. The legislative auditors said the Division received draft financial statements ahead of the statutory deadline and pulled the opinion date earlier than last year (opinion date March 5), but cautioned that future work (single audit and standards changes) may again push timing.

Committee action and next steps: The committee accepted the statewide audit. Staff will follow up on agency remediation plans, DNRC lease corrections, and MDT’s re‑evaluation of infrastructure assumptions. The committee requested auditors and agencies provide measurable follow‑up timelines for key recommendations.

Representative excerpts:

“Note 5 on page A81 presents the historical cost and accumulated depreciation of the state’s highway infrastructure… we estimate the historical cost was likely understated by as much as $432 million and the associated depreciation understated by as much as $274 million,” the auditor said (summary).

The Department of Transportation said it will enhance internal controls and work to refine capacity definitions and write‑off procedures.

The committee directed staff to track remediation and report back to the committee on milestones to close these findings.