CFO SINK REQUESTS AUDITOR GENERAL REVIEW OF SBA

CFO Sink sent the following letter  to Senate President Ken Pruitt and House Speaker Marco Rubio requesting the Auditor General conduct an independent review into the governance, transparency, audit processes and risk management policies at the SBA. 

January 15, 2008

The Honorable Ken Pruitt, Senate President
Florida Senate
409 The Capitol, 404 South Monroe Street
Tallahassee, FL  32399

The Honorable Marco Rubio, Speaker of the House
Florida House of Representatives
420 The Capitol, 402 South Monroe Street
Tallahassee, FL  32399

<<SENT VIA HAND DELIVERY>>

Dear President Pruitt and Speaker Rubio:

The growing national subprime mortgage crisis, a lack of investor confidence and inadequate transparency led to the recent problems during the last few months with the Local Government Investment Pool (LGIP), a short-term investment fund for local governments managed by the State Board of Administration (SBA).

The SBA’s Board of Trustees, Governor Charlie Crist, Attorney General Bill McCollum and myself, have taken several actions with the goal of preserving investor principal. The majority of the LGIP’s assets remain in Fund A, a high-quality money market type fund that is rated AAA and invested according to money market guidelines.  The LGIP has stabilized and liquidity is improving in Fund A such that investors will be able to gain increased access to their assets.

As Trustees, we understand the importance of investor confidence, and as such, we’ve appointed current Insurance Consumer Advocate and former Florida Comptroller General Bob Milligan to serve as the SBA’s interim executive director.  General Milligan has been meeting with LGIP investors, increasing communication and the transparency of investments and reviewing the management of other similar funds under the SBA.  He is also leading both a national search for a permanent, highly-qualified executive director and a competitive bid process for an independent investment firm to manage both funds in the LGIP. 

Despite these positive steps, however, many questions remain.  To start this process, I asked the SBA’s Audit Committee last month to conduct an independent audit reviewing the circumstances that led to the run on the LGIP.  Due to the onset of tax season, I have been told the Audit Committee is having difficulty securing an independent accounting firm to conduct the financial forensic audit as well as a governance review of the SBA that would be available prior to the upcoming legislative session.  Additionally, it has become clear that the audit process itself may be flawed.  An internal audit warned of many unwise investment practices being conducted by the SBA, such as the ability for staff to make trading decisions as high as $1 billion and the reliance on a small number of investment brokers. 

Had this been a publicly-traded company, a Board member would have served as chair of the Audit Committee, and the committee would have reviewed and approved the audit process.  What good is an audit sounding alarm bells about investment practices when it never reaches the Board members charged with overseeing these investments? 

I know that you are as concerned as the people of Florida and I are about getting a thorough and timely review of the LGIP.  As such, I urge you to direct your Auditor General to conduct an independent review into the governance, transparency, audit processes and risk management policies at the SBA.  Coupled with a thorough forensic accounting audit performed by an independent accounting firm, I am confident that an investigation from your Auditor General will help get to the bottom of what went wrong at the SBA. 

In the coming weeks, I will be advocating legislation to reform and improve the governance over these state investments, and I look forward to working with you and your members.

Sincerely,

Alex Sink
Chief Financial Officer
State of Florida

cc:    The Honorable Charlie Crist, Governor
        The Honorable Bill McCollum, Attorney General
        State Senator Gwen Margolis, Joint Legislative Auditing           Committee, Vice Chair
        State Representative Carl Domino, Joint Legislative Auditing Committee, Chair
        General Bob Milligan, SBA Interim Executive Director
        David W. Martin, Auditor General 
        Ms. Melinda Miguel, Chief Inspector General
        Mr. Douglas Darling, Division of Accounting and Auditing, Director
        Ms. Kimberly Ferrell, Chief Auditor Medicaid Fraud Control Unit