Rumors that the Wyoming treasurer’s office lost track of more than $100 million circulated around the Capitol Building early this legislative session.
The gist was that State Treasurer Curt Meier and his staff could not precisely account for a nine-figure discrepancy between what the bank and investors said Wyoming had tucked away.
There was truth in allegations of a $106-million accounting error, which were often conveyed alongside frustrations about missing treasurer’s office documents that, for three months and running, have held up the state’s annual comprehensive financial report.
“One of our issues was reconciliation between our [investment] manager statements and custodial bank statements,” Deputy Treasurer Dawn Williams said. “That was the number [$106 million] that we were off.”
But Williams and other employees who work under Meier also told WyoFile they felt the claims surrounding the figure were misconstrued and outdated.
“The bottom line is that the cash all balances,” Williams said. “It’s just how these managers and the custodial bank were reporting the income” that produced the discrepancy.
Katie Smith, who administers the treasurer’s financial accounting division, agreed there was a “misconception” about the nature of the $106 million.
“We knew who it belonged to,” she said. “We knew by manager, by year, by everything, where it was. It was just figuring out the adjustments needed to unwind years of entries that had been made.”
“I’ve been able to provide the [State Auditor’s Office] with adjustments for all of the money down to $2-3 million,” Smith said.
With that, the nine-figure discrepancy between what the custodial bank and investment managers recorded in Wyoming assets has shrunk to seven figures and is now considered “passable.”
Even with that enormous adjustment, some lawmakers remain critical of Meier’s bookkeeping and say they are tired of delays and excuses.
The root cause of the various books being imbalanced, according to an independent consultant, was “a breakdown” in financial accounting processes and systems at the treasurer’s office starting in mid-2019. That’s according to a review of agency performance completed by Minneapolis-based accountancy firm Clifton Larson Allen LLP.
“The problems stem from a combination of components: the actions of people, the breakdown in processes and the limitations of systems in place,” consultants wrote in a 2021 report.
Underlying the issues, the external review found, was an accounting division “largely made up” of staff lacking experience adequate to handle changes in Wyoming’s increasingly complex portfolio. As recently as 2015, internal managers only handled a $472 million portfolio — then just 2.4% of the treasurer’s investment holdings, with the balance handled by external managers. By fiscal year 2020 internally managed assets had grown to $6.1 billion, 28% of the state’s assets, which now easily eclipse $20 billion.
Year-end gaps between the balance sheet for the custodial bank that holds the state’s money and those from Wyoming’s 70 investment managers has grown apace with the ballooning portfolio, Smith said. It was roughly $7 million in 2018, she said, but then grew to $15 million in 2019. The discrepancy grew seven-fold to $106 million in the following fiscal year, and it was just over the last several weeks that Smith’s office was able to chip the sum down to a figure she described as “passable.”
The unaccounted for $3 million pencils out to about a hundredth of a percent of the $25 billion the treasurer’s office had on account in fiscal year 2021. The starting discrepancy, $106 million, amounts to a shade over 0.4%, which would be like trying to figure out where $400 went for somebody who has $100,000 in the bank.
More than half of the disparity between Wyoming’s custodial bank and its investors’ balances resulted from “in-kind” transfers from one brokerage account to another, which caused confusion in the books. This explained $64 million of the total, Smith said.
Wyoming’s investors, Williams said, started using in-kind transfers as a cost-saving measure: by avoiding brokerage fees, it could save the state about $1 million a year. But the ramifications to the accounting process began to outweigh the benefits, she said, and now the treasurer’s office is moving away from the tactic and will consider those fees as a cost of doing business.
Nearly a quarter of the discrepancy, $24 million, was from a misreported sum by an investment manager that Smith declined to name.
Getting to the bottom of those types of errors took a ton of work: “It takes calls and investigative work and time to unwind,” she said. “JP Morgan is pointing the finger at the manager, the manager is pointing the finger at JP Morgan and we’re in the middle.”
Treasurer’s office staff hopes to avoid these types of blunders in the future by automating much of its accounting. A new accounting system is scheduled to come online this year, and will take the place of an “archaic” Excel-spreadsheet-based system, Smith said.
Treasurer Meier is also banking on the software upgrade helping his staff.
“They’ll pull as many weeds as they can,” he said, “and every weed is an Excel spreadsheet.”
After public scrutiny this legislative session, Meier and his staffers say they’re on the right track.
“I feel like we are moving in the right direction and in a strong position to eliminate issues going forward,” Smith said.
Sen. Mike Gierau (D-Jackson) spotlighted some of the Meier’s office troubles by introducing Senate File 111 – Wyoming financial transparency act, which reinforced financial reporting deadlines and requirements targeted at the treasurer’s office. The bill died, but its legislative effect lives on. The reporting requirements found in SF 111 were repeated in the footnotes of the Wyoming Legislature’s general budget bill.
Also through lawmakers’ recently completed budgeting process, the treasurer’s office got a host of new accountants. At the onset of the session, the Legislature was set to appropriate funds for five new accountants to support the financial accounting division’s existing 13 full-time employees. After WyoFile’s first story about the treasurer’s office delays, amendments added three more full-time positions.
In addition, the two-year budget sets aside $651,000 for a new executive who would bring external oversight to Meier’s office. The position, either a chief executive officer or a chief operations officer, would be hired by, and answer to, the State Loan and Investments Board. It’s not being welcomed by the treasurer’s office:
“I’m going to ask the governor to veto that part of the budget,” Meier told WyoFile.
Sen. Drew Perkins (R-Casper), who chairs the Select Capital Financing and Investments Committee, said outside expertise is badly needed at the office overseen by Meier, whose background is in agriculture.
“If you don’t have somebody who understands what’s going on in the [accounting] system in the back office, how do you design a system?” he asked. “The problem is they haven’t had a person in the back who really understands what the system should look like, and that’s why we’ve been insistent on having a high-level person in there.”
Gierau said he’s withholding judgment until he sees the completed annual comprehensive financial report, which is an audited tell-all accounting of Wyoming’s financial assets.
“We needed it months ago,” Gierau said. “We’re not going to have it next month and we’re not going to have it the month after that, and we need it.
“I don’t know that anything is wrong,” he added. “But the problem is, neither does the treasurer, and he’s the one who’s constitutionally responsible for it.”
Treasurer’s office staff say they’ve conveyed everything they need to Wyoming State Auditor Kristi Racines’ staff, who prepare the financial report, which commonly goes by the acronym ACFR.
That report is still at least a couple of months away, but Williams, the deputy treasurer, said it’s not because of her office. MHP, the company that works with the state to audit the report, made commitments to other clients, she said, and can’t work on verifying Wyoming’s report during March and April. Essentially the state missed its window, which is usually open earlier in the winter.
Racines told WyoFile on Wednesday that delays are not still emanating from the treasurer’s office.
“My understanding is that they did get us what we needed as of last week,” she said. “But I’m not 100% sure it’s everything we need for everything.”
Other legislators who keep tabs on Wyoming finances through their committee roles are not yet convinced that tardiness and sloppy accounting at the treasurer’s office is over.
“Everything they’ve told us has always been inaccurate,” said Rep. Bob Nicholas (R-Cheyenne), vice chair of the financing and investments committee. “Every three months we sit down with the treasurer and ask, ‘OK, where are you at?’ They’ll give us an answer, and never once have they complied with what they were pushing.”
Nicholas said he’s heard the same narratives coming out of the treasurer’s office for years. Outdated software, he said, was cited as a cause of discrepancies between the custodial bank and investors managers’ books as long ago as late 2019. In a Capital Financing and Investments committee meeting that December, Chief Investment Officer Patrick Fleming used the same justification for blowing a ACFR deadline.
“The real reason behind this is we have been running the accounting off an Excel spreadsheet,” Fleming told lawmakers. “Going forward, once this is set up, this error should never happen again.