July 27, 2014 in City, Idaho
Recent audit findings drive challenger in Idaho treasurer race
BOISE – In his 16 years as Idaho’s state treasurer, Ron Crane has built up the state’s credit rating, launched a popular college savings program and a free annual control-your-finances conference for women, and helped create a bond bank that lets schools and local governments take advantage of the state’s favorable interest rates.
But he’s best known for a series of critical state audits over the past five years, the most recent suggesting that Crane made an inappropriate transfer between two funds that cost state taxpayers more than $10 million.
Crane (pictured, left) vigorously disputes the audit finding, contending his office did nothing wrong and made reasonable decisions based on what it knew at the time. “As to the charges of the audit, I maintain and will maintain that they were politically motivated,” Crane said in an interview.
The audit findings have prompted a longtime Twin Falls CPA, Deborah Silver, to challenge Crane in this year’s general election.
A Democrat who taught accounting at the College of Southern Idaho for five years and has operated a CPA firm with her husband in Twin Falls for nearly three decades, Silver (pictured, left) said she would follow the auditors’ suggestions. “This is a job that I can do,” she said.
Earlier audit findings faulted Crane for using stretch limousines to transport state officials around New York and charging $8,000 in gas for his personal car on a state credit card to cover his commutes from his Canyon County home to the state Capitol. That last charge was turned over to a prosecutor to investigate as possible theft of state property, but Crane was cleared.
Crane contends his actions in both cases saved the state money, but he has changed his practices in both areas: The Idaho delegation to the New York financial markets now travels in SUVs, and Crane pays for his own gas.
The fund transfer issue has raised more concerns. State auditors said Crane’s moves amounted to a management override of internal controls in the treasurer’s office that cost the state $10.2 million, with another $17.4 million in unrealized losses on securities that haven’t yet been sold.
Idaho state audits are conducted by a nonpartisan staff overseen by the state Legislature, which is overwhelmingly Republican, the same party as Crane.
Asked why he thinks the auditor’s office would be politically motivated against him, Crane laughed. “You tell me,” he said. “There’s very little substantiation to their findings. But they are obviously timed for maximum political gain, and we just definitely feel like they are politically motivated.”
The audit findings about the fund transfer came in a legally required annual report that examines internal controls at all state agencies. The earlier findings came as part of the audits required for all agencies every three years.
April Renfro, a CPA and manager of legislative audits for the state, said she stands by the findings.
The Spokesman-Review asked David Burgstahler, the Julius A. Roller Professor of Accounting at the University of Washington, to review the audit finding and Crane’s response.
“I found the auditor’s conclusions pretty convincing,” Burgstahler said. Rather than a politically motivated attack, Burgstahler said, “It sounds to me like the auditor’s office is doing their job, I think.”
The transfer involved two funds: The Local Government Investment Pool (LGIP) and the state’s idle fund. Both are invested by the state treasurer to earn interest.
Crane’s office had entered into an agreement with an outside lending agent in 2000 that called for the two funds to be commingled and invested in mortgage-backed securities. In 2009, two major rating agencies threatened to downgrade the credit rating for the LGIP because it contained the risky securities; Crane responded by transferring them to the state fund, and transferring $31 million in cash from the state fund to the LGIP.
Though $31 million was the face value of the securities, at the time they were valued at only $19.1 million. The shift moved the risk to the state fund, which ended up losing $10.2 million when it later sold the securities. The local government fund had no losses.
Crane, in his response to the audit, wrote that securities lending was “a common business practice in 2000.” He accused the auditors of looking at the transaction with the benefit of “hindsight.”
Crane said the securities were sold at a time when other gains offset the loss.
“I think that’s a shortsighted way of looking at things,” Burgstahler said. “Every transaction on which you lose money, you’ve lost money on that transaction.”
He added that he didn’t “see anything really nefarious” in the treasurer’s actions.
“He had good intentions,” Burgstahler said. “It appears he was trying to help the local government pool. But I don’t see why you would help the local governments at the expense of the state. That’s the part I don’t get.”
Silver said, “Management override of controls to a CPA is huge – it does mean the boss did it. So the problem is the boss.”
Crane acknowledges that unlike Silver, he’s not a trained accountant. But, he said, “I have extensive experience now investing, and we’ve done a very good job. … We have earned over $1.1 billion in interest earnings for the state of Idaho, so we have a pretty good track record. And I’m proud to defend that record.”