The three-month transition period for agencies to migrate to the new merchant card services contract with SunTrust Merchant Services ended October 31, which was the expiration date of the old contract. The transition allowed participants to begin taking advantage of the enhanced pricing structure. The primary "per transaction" fee under the old contract was $.108, while the new per transaction fee is now $.04, representing a 63% decrease.  This is a significant savings to the State, as during FY 2005-2006 there were 3.6 million merchant card transactions, totaling $435 million.

With many of the participants waiting until the last minute to complete the transition process, the staffs of the Statewide E-Commerce Program and the Support Services Center had to devote extra effort during the latter part of October to ensure that agencies did not experience any uninterrupted operations.  The last-minute activity was due primarily to the agencies vigorously working toward the deadline to become compliant with the PCI Data Security Standard for protecting cardholder information. 

A goal had been established for all agencies to be compliant by the time they transitioned to the new contract. A total of 82 participants were transitioned to the new contract, with the participants being comprised of 20 state agencies, 15 universities, 23 community colleges, and 24 local units of government. 

Although all merchant accounts are required to be PCI compliant, any merchant account that "transmits, stores, accesses, or processes" cardholder information via a publicly available Internet address has to adhere to additional mandates. These merchant accounts must also complete an annual self-assessment questionnaire and have their networks scanned for potential vulnerabilities that may result in a breach of sensitive cardholder information.  Merchants have been working to achieve that compliance level since July 2005. As of October 31, about 82% of these accounts were deemed to be compliant with the PCI data security requirements.  The remaining 18% are continuing with their compliance efforts.

The Office of the State Controller has formed a statewide task force to help develop a more structured internal control framework for North Carolina 's accounting processes.

The Statewide Internal Control Task Force consists of representatives from a number of state agencies and groups, including those with central management authority and oversight. Its mission is to help OSC fulfill its statutory obligations to develop and implement a strong internal control program and improve overall fiscal management.

Creation of the task force and increased scrutiny of internal control compliance by OSC grew out of recent corporate and accounting scandals in the private sector. Congress responded to these scandals with sweeping reform legislation, referred to as the Sarbanes-Oxley Act of 2002. Section 404 of this Act requires management to assess and make representations about the effectiveness of their organization's internal control structure.

Although the Sarbanes-Oxley legislation applies to private sector, similar efforts are now occurring in the public sector. As a result of the passage of the Sarbanes-Oxley Act of 2002, the requirements of the Office of Management and Budget's (OMB) Circular A-123, which defines management's responsibility for internal control in federal agencies, were re-examined resulting in stricter standards.

In North Carolina, the Office of the State Controller is statutorily responsible for establishing internal control standards that define the minimum level of quality acceptable for internal control systems. In response to the recent efforts related to internal controls occurring in the private sector and at the federal level, OSC proposed in 2004 a new statewide initiative to proactively monitor compliance with prescribed internal control policies.

This effort, endorsed by the Governor and the General Assembly, includes agency reviews that assist management with assessing their risk tolerance through the identification of existing or potential internal control weaknesses within their operations. The reviews are also intended to provide an educational opportunity for raising awareness across state government of the vital importance of appropriate internal controls and to educate entity personnel on internal control best practices.

The task force, which began meeting in October, includes chairman Ben McLawhorn, OSC's risk mitigation services manager; as well as Mark Newsome and Eve-Simone Pastor, OSC's risk mitigation analysts; and Assistant State Controller Wesley Ray; Chief Financial Officer Rex A. Whaley of the Administrative Office of the Courts; State Purchasing Officer Mike Mangum of the Department of Administration; Internal Audit Director Vickie Haddock of the Department of Correction; Internal Audit Director Eddie Berryman of the Department of Health and Human Service; Internal Audit Director Joseph M. Hensgen of the Department of Revenue; Pam Wortham , the Deputy Treasurer for Financial Operations in the State Treasurer's Office; Director of External Audit Bruce Dillard of the Department of Transportation; Systems Accountant Kimberly L. Van Metre of the North Carolina Community College System; Management Engineer Kay Radford of the Office of State Budget and Management; Chief IT Procurement Officer Patricia Bowers of the Office of Information Technology Services; HR Managing Partner for Operations Carl Goodwin of the Office of State Personnel; Financial Controls Manager Stan Koziol of the University of North Carolina at Chapel Hill; Wesley Taylor, Financial Services Manager for the General Assembly; and Associate Vice President for Finance George Burnette of the University of North Carolina General Administration. Audit Manager Lee Linker of the Office of the State Auditor will serve as an advisory member.

Total spending on information technology by North Carolina state government increased by $46 million in the fiscal year ending June 30, 2006, when compared to the previous year, according to the latest Information Technology Expenditures Report produced by the Office of the State Controller.

Total IT expenditures, excluding the Office of Information Technology Services, were $940,796,365 in the 2005-06 fiscal year, according to the report. That is an increase of $46 million, or 5.1 percent, over the previous year. For the Office of Information Technology Services, total expenditures were $130,637,426, a decrease of $4.2 million, or 3.15 percent over the previous year.

Total IT expenditures include not only hardware and software, but also budgeted salaries and expenditures for IT-related employees. Those salary and benefit costs continue to be the largest piece of IT costs, accounting for 35 percent of total expenditures.

The latest report uses management tools that capture more detailed project and system financial costs. The comprehensive data, used for the first time in the new report, accounts for more than two-thirds of all reported IT expenditures. That's more than twice the specific project and system data included in the 2004-05 report, due mainly to the new management tools.

The full report is available on the OSC web site at: http://www.ncosc.net/financial/ITReport_06302006.pdf .

State Controller Robert Powell, in blue shirt, kicked off the annual State Employees Combined Campaign drive for OSC in October with a potluck dinner for the staff.

The dinner started a weeklong campaign blitz at OSC, including daily contests and prizes for those pledging to charity for the coming year.

The combined campaign allows employees to donate to their favorite charities through payroll deduction.

Powell is state chairman for the SECC drive this year.

 

 

 

The Office of the State Controller will host its annual Fiscal Officer Update Seminar on December 14 for chief financial officers and their representatives. The seminar will update fiscal officers of state agencies and institutions on current central management issues.

The daylong seminar at the McKimmon Center , which carries eight hours of CPE credit, will include sessions on the North Carolina Education Lottery, the State's retiree health care obligations and optional breakout sessions on cash management, and professional ethics and conduct. The ethics session meets the ethics CPE requirement for the State CPA Board, and the cash management update will include a working session on the development of agency/university cash management plans and a discussion of statewide cash management policies. Please indicate on your online registration if you would like to attend either breakout session.

Other subjects include updates on the General Fund, the State's bond rating, the Office of State Budget and Management, economic and budget issues, the Legislature, BEACON, e-commerce and payment card industry security.

Speakers include State Controller Robert Powell; Chief Deputy Gwen Canady; OSC staff; Deputy State Treasurer Vance Holloman; State Budget Director David McCoy; David Crotts and Lynn Muchmore of the Legislature's Fiscal Research Division; Lottery Director Tom Shaheen; Richard Ward of Aon Consulting; Tim Kennedy, CPA; and a representative of the Board of Ethics.

The registration fee for the conference is $50, which includes all course materials and lunch. Due to classroom size, the seminar will be limited to 295 participants.

Attendees must register online at the OSC web site: http://www.ncosc.net . A conference brochure will be available for download at the same site. The registration deadline is Monday, December 4. Payment can be made by check or electronic transfer.

A rewrite of the Executive Budget Act approved by the General Assembly this year will result in some significant changes in how the Office of the State Controller does business, according to an analysis by OSC's Statewide Accounting Division. The changes are scheduled to take effect in 2007.

Major changes, or potential changes, as outlined by SAD include:

• The State Controller will determine unreserved fund balance effective June 30 as defined by one section of the law. The terms used to define unreserved fund balance must be delineated. Also, a process must be developed to determine this balance and, as required by this section, to cause the beginning unreserved fund balance to equal the ending unreserved fund balance from the prior fiscal year. Unreserved fund balance is important as it is a term used to describe when a budget balances (§ 143C-4-1); how much to reserve to the Savings Reserve Account (§ 143C-4-2) and the Repairs and Renovations Reserve Account (§ 143C-4-3); and to describe methods to avoid a deficit (§ 143C-6-2).

• OSC must update the fund study completed for implementation of GASB 34 and work with the Office of State Budget and Management and state agencies to revise fund type designations accordingly. New law defines fund types based on GAAP and requires the Controller to account for state resources through the use of those fund types. New law also gives the Controller the responsibility of determining the appropriate fund type designation of state resources when there is a conflict between legal and accounting designation. Furthermore, new law (Article 3) provides that the accounting classifications adopted by the State Controller shall be used in the development of the Governor's recommended budget. Furthermore, new law should cause the alignment of fund types included in the State Budget Manual with those in the NCAS Chart of Accounts.

• Significant change may be necessary if (1) current numbering convention continues (the first digit of the center number ordinarily corresponds to the first digit of the budget code fund type) and (2) significant changes to fund type designations are made. New law provides that purpose or programs outlined in a recommended or enacted budget will be in accordance with the Budget Code Structure of NCAS Uniform Chart of Accounts as prescribed by Office of the State Controller.

• State Controller will continue to transfer funds to the Savings Reserve Account (Rainy Day Fund); however, some change is necessary. The calculation of the transfer by the State Controller will be based on different criteria and a different target amount. The circumstances under which the Reserve is available also is different. New law provides that the annual transfer is based on unreserved fund balance as determined on a cash basis, and the reserve target is equal to or greater than 8% of the prior year's General Fund operating budget. Current law provides that the annual transfer is based on unreserved credit balance and that the reserve shall not exceed a 5% cap of the amount appropriated the preceding year for the General Fund operating budget, including local government tax-sharing funds, that were directly appropriated. Regarding availability, current law states that the Director may not use Reserve funds unless the use has been approved by an act of the General Assembly; whereas, new law provides Reserve funds are available only upon an act of appropriation by the General Assembly.

 

For a printer-friendly PDF version of the OSCAR, click here.