News Column

Idaho state treasurer defends record, calls critical audits 'politically motivated'

July 25, 2014

By Betsy Z. Russell, The Spokesman-Review, Spokane, Wash.

July 25--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 local school bonds and other local-government debt take advantage of the state's favorable interest rates, potentially saving property taxpayers millions.

But he's best known for a series of critical state audit findings over the past five years, the most recent suggesting that Crane made an inappropriate transfer between two funds that cost the state's taxpayers more than $10 million.

Crane 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. "We think there's an excellent explanation for each one. When voters understand what the real explanation is, they will agree with our position."

The audit findings have prompted a longtime Twin Falls CPA, Deborah Silver, to challenge Crane in this year's general election. "I would absolutely follow the auditors' suggestions, no argument, no excuses," said Silver, 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. "This is a job that I can do."

Earlier audit findings faulted Crane for using stretch limousines to transport state officials around New York on their annual trip to sell tax anticipation notes in the financial markets; 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, along with occasional short personal side trips. That last charge was turned over to a prosecutor to investigate as possible theft of state property, but Crane was cleared -- the prosecutor concluded that elected officials like Crane can charge the state for their commutes.

Crane contends his actions in both cases actually saved the state money; he made the gas charges after getting rid of a state-owned vehicle he'd previously used for his commute. But he's changed his practices in both areas. The Idaho delegation to the New York financial markets now travels in SUVs. And Crane now pays for his own gas. "I pay for everything myself," he said. "I pay for state business, too. You rarely will get me to turn anything in to the state."

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's state audits are conducted by a nonpartisan staff overseen by the state Legislature. The Legislature is overwhelmingly Republican, the same party as Crane; among the top leaders in the House is Crane's son, House Assistant Majority Leader Brent Crane, R-Nampa.

Asked why he thinks the auditor's office would be politically motivated against him, Crane laughs. "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 every-three-years audits required for all agencies.

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 about the fund transfer and Crane's detailed 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. That's what they're supposed to do."

The transfer involved two funds: The Local Government Investment Pool, and the state's idle fund. Both are invested by the state treasurer to earn interest between the times that the money is needed for either local governments or the state.

Crane's office had entered into a securities lending agreement with an outside lending agent in 2000 that called for the two funds to be co-mingled and invested into 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 idle 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 wrote in his formal response to the audit that securities lending was "a common business practice in 2000," and the lending agent assured the treasurer's office that "the assets would pay in full." His office "reasonably believed that the assets were not an imprudent risk," Crane wrote, accusing the auditors of looking at the transaction with the benefit of "hindsight."

"Portfolios go up and portfolios go down," Crane told The Spokesman-Review. "Portfolios have gains and portfolios have losses. The secret is that the gains outnumber the losses, which is exactly the case with the state of Idaho and the idle fund. There wasn't a loss. There was a net gain of $122,000. So we vigorously disagree with them and for obvious reasons."

Crane said the securities were sold at a time when other gains offset the loss.

But Burgstahler said, "I think that's a short-sighted way of looking at things. Every transaction on which you lose money, you've lost money on that transaction."

He said, "I don't see anything really nefarious in what the state treasurer did -- I think it probably just wasn't a good idea. He had good intentions. 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, in his audit response, called the charge of override of controls "false," saying, "There was no sale or purchase of the assets" involved. But Burgstahler said, "The audit came back fairly strongly on that, and I would agree. If you transfer assets and have cash transfers the other way, it's effectively a sale or purchase."

In response to the audit, and with Crane's support, lawmakers this year passed a new law setting up an investment advisory board to oversee investments made by the treasurer's office. The bill also removed securities lending agreements as an allowable investment for the state treasurer in the future.

Crane said he welcomes "more eyes" on the investment process; appointments to the new investment board are now in the works at the governor's office.

Silver, 57, holds an accounting degree from Boise State University and is a certified public accountant. Crane, 65, has an associate's degree in religious education from Bible Missionary Institute in Rock Island, Ill.

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."

Crane's New York trip this year secured a record-low interest rate for the state's annual sale of tax anticipation notes, due to the state's strong credit rating. "That's a huge thing," he said.

His women's money-management conferences have been so successful that other state treasurers have emulated them. When state auditors raised questions about his office spending $10,000 a year on the conferences without a specific appropriation, the Legislature's joint budget committee wrote the conferences into the budget for his office.

And Crane succeeded in taking over the state's unclaimed property program from the state Tax Commission, something his predecessor in office had long sought, and has stepped up public outreach efforts to get Idahoans to claim money they're owed that the state's holding for them, including setting up an online portal.

Crane said few people understand the role of the state treasurer, who is responsible for receiving all funds that come into the state's coffers, crediting them to the proper agency, and putting the money in the proper accounts to cover warrants, which are like checks, issued by the state controller to pay the state's bills. "And what's left over we invest," Crane said.

"It's not a high-profile office. ... But we are a very important part of state business, and one that has to be done."

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(c)2014 The Spokesman-Review (Spokane, Wash.)

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Source: Spokesman-Review (Spokane, WA)


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