Iowa Public Television

 

State Auditor David Vaudt

posted on July 21, 2006

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Borg: A DOLLAR'S WORTH FOR A DOLLAR SPENT. THAT'S ONE ASPECT OF SCRUTINIZING THE SPENDING OF PUBLIC MONEY. A CONVERSATION WITH THE MAN CHARGED WITH PROTECTING THE PUBLIC'S FINANCIAL INTERESTS, STATE AUDITOR DAVID VAUDT, ON THIS EDITION OF 'IOWA PRESS.'

FUNDING FOR THIS PROGRAM WAS PROVIDED BY 'FRIENDS,' THE IOWA PUBLIC TELEVISION FOUNDATION; BY THE IOWA BANKERS ASSOCIATION... FOR PERSONAL, BUSINESS, AND COMMERCIAL NEEDS, IOWA BANKS HELP IOWANS REACH THEIR FINANCIAL GOALS; BY THE ASSOCIATED GENERAL CONTRACTORS OF IOWA, THE PUBLIC'S PARTNER IN BUILDING IOWA'S HIGHWAY, BRIDGE, AND MUNICIPAL UTILITY INFRASTRUCTURE; AND BY CAPITOL RESOURCES, INC., LOCATED IN BROOKLYN, IOWA; AND BY NICOLE SCHLINGER AND ERIC LANGE INDIVIDUALLY, FUND-RAISING AND COMMUNICATION SERVICES FOR MAJOR CAMPAIGNS SINCE 1996.

ON STATEWIDE IOWA PUBLIC TELEVISION, THIS IS THE FRIDAY, JULY 21 EDITION OF 'IOWA PRESS.' HERE IS DEAN BORG.

Borg: STATE AUDITOR DAVID VAUDT IS GETTING A LOT OF ATTENTION RECENTLY AND IN TURN DIRECTING CONSIDERABLE ATTENTION ON OTHER OFFICES. CONSIDER CIETC. MOST OF US HADN'T HEARD THAT ACRONYM 'CIETC' BEFORE STATE AUDITOR VAUDT AND HIS STAFF RAISED QUESTIONS ABOUT SOME SALARIES AT THE CENTRAL IOWA EMPLOYMENT AND TRAINING CONSORTIUM. BUT NOW BOTH STATE AND FEDERAL INVESTIGATIONS ARE UNDERWAY: AT THE IOWA STATEHOUSE, IN THE LEGISLATURE'S GOVERNMENT OVERSIGHT COMMITTEE HEARINGS; IN WASHINGTON, AT THE U.S. DEPARTMENT OF LABOR; AND IN THE U.S. ATTORNEY'S OFFICE IN DES MOINES. THAT'S THE NATURE OF DAVID VAUDT'S RESPONSIBILITIES. HE'S IN HIS FIRST FOUR-YEAR TERM AS STATE AUDITOR, AND THAT INVOLVES TAKING A MONDAY MORNING QUARTERBACK SECOND LOOK AT SPENDING LEDGERS OF CITIES AND TOWNS, SCHOOL DISTRICTS, COUNTIES, AND STATE AGENCIES. MR. VAUDT, IS IT CORRECT FOR ME TO SAY THAT IF STATE MONEY, OR PUBLIC MONEY BETTER STATED, IS INVOLVED, YOU'RE INTERESTED IN HOW IT'S SPENT?

Vaudt: DEFINITELY. WE'RE THE TAXPAYERS' WATCHDOG.

Borg: WELCOME BACK TO 'IOWA PRESS.'

Vaudt: GLAD TO BE HERE.

Borg: AND ACROSS THE 'IOWA PRESS' TABLE: 'DES MOINES REGISTER' POLITICAL COLUMNIST DAVID YEPSEN AND 'ASSOCIATED PRESS' SENIOR POLITICAL WRITER MIKE GLOVER.

Glover: AUDITOR VAUDT, AS DEAN MENTIONED, YOU CAME TO ATTENTION MAINLY FOR YOUR AUDIT OF THE CENTRAL IOWA EMPLOYMENT TRAINING CONSORTIUM. THAT INVESTIGATION CONTINUES. GIVE US A STATUS REPORT ON WHERE THAT INVESTIGATION IS.

Vaudt: IT HAS GONE THROUGH OUR REPORT AND THEN WENT DIRECTLY INTO A FEDERAL INVESTIGATION, AND THE FEDERAL GOVERNMENT IS LEADING THAT. THE U.S. ATTORNEY AND THE FBI ARE IN CHARGE OF THAT INVESTIGATION, AND MY OFFICE CONTINUES TO WORK WITH THEM AND ASSIST THEM IN THE INVESTIGATION.

Glover: IS IT CRIMINAL? IS IT --

Vaudt: IT'S GOING TO BE A COMBINATION. THEY'RE TAKING A LOOK AT ALL AVENUES, AND THE FEDERAL GOVERNMENT WILL MAKE THOSE DECISIONS.

Glover: AND THE BOARD OF THAT JOB TRAINING AGENCY HAS JUST VOTED TO DISSOLVE THE AGENCY. WHAT'S YOUR REACTION TO THAT, AND IS THERE A DANGER THAT THE SERVICES PROVIDED BY THIS AGENCY WILL BE LOST IN THIS SALARY SCAM?

Vaudt: I THINK THE DECISION TO DISSOLVE THE ORGANIZATION PROBABLY MAKES A LOT OF SENSE. THE PUBLIC TRUST IS LOST IN CIETC. THIS IS NOT THE FIRST TIME THAT CIETC HAS ENCOUNTERED PROBLEMS, SO I THINK IT'S A GOOD IDEA. AND I THINK AS LONG AS THEY PROCEED FORWARD -- AND DMACC HAS STEPPED IN TO HELP WITH SOME OF THAT TRANSITION -- IT MIGHT BE THE SOURCE THAT WILL ACTUALLY PROVIDE THOSE SERVICES IN THE FUTURE.

Yepsen: MR. VAUDT, ANY IDEA HOW MUCH LONGER THIS INVESTIGATION IS GOING TO TAKE BY THE FEDS AND OTHER INVESTIGATIVE AGENCIES?

Vaudt: I REALLY DON'T HAVE AN IDEA, BUT I WOULD GUESS THAT IT'S GOING TO TAKE SEVERAL MONTHS YET.

Yepsen: SEVERAL MONTHS MORE?

Vaudt: YES.

Yepsen: I'M CURIOUS WHY IT TOOK SO LONG FOR THE STATE TO UNCOVER THIS CIETC SCANDAL, THE CENTRAL IOWA EMPLOYMENT TRAINING CONSORTIUM, ITS ACRONYM. IT SEEMS AS WE LOOK BACK NOW, THIS WAS GOING ON FOR A LONG TIME BEFORE YOU EVER GOT AROUND TO BLOWING THE WHISTLE. WHAT TOOK SO LONG?

Vaudt: I THINK PART OF IT IS IF YOU TAKE A LOOK AT WHAT REALLY HAPPENED, FIRST OF ALL, THERE WAS A FAILURE WITH CIETC MANAGEMENT BECAUSE THEY DIDN'T OPERATE THAT ORGANIZATION WITH INTEGRITY. AND SECOND, THERE WAS A FAILURE BY THE BOARD OF CIETC TO EXERCISE PROPER OVERSIGHT OVER CIETC, BECAUSE THEY WERE RESPONSIBLE FOR THE SALARIES AND COMPENSATION PAID TO THOSE EXECUTIVES. AND THEN THIRD, THERE WAS A FAILURE AT IWD MANAGEMENT, IOWA WORKFORCE DEVELOPMENT MANAGEMENT, AND THAT WAS SAD BECAUSE IN THIS CASE IWD EMPLOYEES ACTUALLY DISCOVERED AND FOUND THE ISSUES DURING ONE OF THEIR MONITORING VISITS, BUT THE DEPUTY DIRECTOR AT IOWA WORKFORCE DEVELOPMENT DECIDED TO PUSH IT ASIDE, TOLD THEM TO MOVE ON, AND TRIED TO COVER IT UP AND SWEEP IT UNDER THE CARPET.

Yepsen: HOW DO WE KNOW THAT IT ISN'T -- SOMETHING LIKE THIS ISN'T GOING ON ELSEWHERE IN STATE OR LOCAL GOVERNMENTS? I MEAN THE FACT -- THE SITUATION YOU JUST DESCRIBED EXPLAINS HOW, THE ANSWER TO MY QUESTION, WHY DID IT TAKE SO LONG. BUT HOW DO WE KNOW IT'S NOT GOING ON SOMEPLACE ELSE?

Vaudt: IT'S IMPOSSIBLE TO STOP IT IN EVERY PLACE, AND YOU DON'T KNOW FOR SURE. BUT THE NUMBER ONE THING YOU WANT TO DO IS DESIGN A SYSTEM THAT WILL HELP PROTECT THOSE ASSETS. AND THEN SECOND, THE KEY IS TO HAVE THE RIGHT PEOPLE IN PLACE BECAUSE ANY SYSTEM CAN ONLY BE AS GOOD AS THE PEOPLE THAT ARE PERFORMING THOSE CONTROLS.

Yepsen: AND HAS THAT BEEN DONE?

Vaudt: YES, DEFINITELY. AND I THINK IN MOST CASES YOU WILL FIND THAT COMBINED WITH THE OVERSIGHT -- PROPER OVERSIGHT WILL DEFINITELY HELP PREVENT FUTURE ISSUES.

Borg: I WANT TO GO BACK TO -- YOU SAID THE PROPER STRUCTURE. ARE YOU ASSURED THAT IF THIS IS TRANSFERRED TO, AS YOU SAID DMACC IN THE FUTURE, THAT THAT PROPER STRUCTURE IS BETTER THAN THE ONE AT CIETC? WAS THERE AN INHERENT FLAW IN THAT STRUCTURE?

Vaudt: I THINK THE INHERENT FLAW IN THE STRUCTURE AT CIETC WAS THE POOR OVERSIGHT BY THE BOARD. WE'VE SEEN OTHER AGENCIES AND OTHER GROUPS SUCH AS DMACC PROVIDE THOSE SERVICES ACROSS THE STATE. THERE'S ACTUALLY 16 DIFFERENT REGIONS, AND COMMUNITY COLLEGES AROUND THE STATE PROVIDE A LOT OF THOSE SERVICES. AND I THINK THAT'S PROBABLY THE MOST EFFECTIVE WAY TO DO IT BECAUSE THE OVERHEAD IS NOT THERE. THE COMMUNITY COLLEGE HAS A LOT OF RESOURCES TO ADD TO THOSE PROGRAMS.

Glover: IT STRIKES ME THAT THIS WHOLE CIETC THING, IF YOU GET TO THE ROOT OF WHAT CAUSED IT, IT WAS A BUNCH OF CRONIES SCRATCHING EACH OTHER'S BACKS ON THE BOARD, AT THE AGENCY, AT WORKFORCE DEVELOPMENT, A BUNCH OF POLITICAL, PERSONAL, SOCIAL CRONIES WHO JUST WERE LOOKING OUT FOR EACH OTHER. HOW DO YOU PREVENT THAT FROM HAPPENING IN THE FUTURE? HOW DO YOU PREVENT A BUNCH OF CRONIES FROM GETTING TOGETHER AND JUST TAKING CARE OF EACH OTHER?

Vaudt: OBVIOUSLY ONE OF THE THINGS YOU CAN DO IS HAVE SOME PROVISIONS FOR CONFLICT OF INTEREST AND RELATIONSHIPS. BUT NO MATTER WHAT SYSTEM YOU DESIGN -- AND I'VE TOLD THE GOVERNMENT OVERSIGHT COMMITTEE, YOU CAN BUILD A BILLION DOLLAR INTERNAL CONTROL SYSTEM, BUT IT'S ONLY GOING TO BE AS EFFECTIVE AS THE PEOPLE YOU PUT IN PLACE. SO THE KEY IS TO HAVE MANAGEMENT WITH INTEGRITY AND, NUMBER TWO, HAVE THAT OVERSIGHT AND MAKE SURE THAT'S TAKING PLACE.

Glover: SO I GUESS THE ANSWER TO THE QUESTION IS ANY TIME A BUNCH OF CRONIES WANT TO GET TOGETHER AND DO THAT, THEY CAN. AND THE QUESTION IS HOW LONG ARE THEY GOING TO GET AWAY WITH IT.

Vaudt: WELL, I THINK IF YOU PUT IN SOME RESTRICTIONS ON HAVING RELATIONSHIPS OR RELATIVES THAT ACTUALLY WORK IN THE ORGANIZATION, PUTTING RESTRICTIONS ON THOSE TYPES OF THINGS AND THE PROPER APPROVALS WILL HELP PREVENT IT IN THE FUTURE.

Borg: LET'S GO BACK TO THAT RELATIVES. A FEW YEARS AGO I THINK A STATE LAW WAS CHANGED THAT STATE -- THAT HAD PROHIBITED RELATIVES FROM BEING EMPLOYED WHEN PEOPLE WERE ON THE BOARD. AM I CORRECT IN THAT?

Vaudt: I THINK THAT'S CORRECT.

Borg: THAT'S BEEN REPEALED. DO YOU THINK IT WAS A GOOD IDEA?

Vaudt: I THINK WHENEVER YOU'RE LOOKING AT THINGS, YOU WANT TO PUT THE BEST PEOPLE IN PLACE. AND SO THERE'S NOT NECESSARILY SOMETHING INHERENTLY WRONG WITH SOMEBODY'S RELATIVE WORKING IN AN ORGANIZATION AS LONG AS THEY'RE THE BEST QUALIFIED INDIVIDUAL. BUT A LOT OF TIMES THAT DOESN'T HAPPEN, AND THAT'S WHY SOMETIMES CONTROLS ARE PUT IN PLACE THAT WILL PREVENT THAT FROM HAPPENING. BUT I THINK EVEN IF YOU ALLOW IT, THE KEY IS TO HAVE OVERSIGHT AND MAKING SURE THAT PEOPLE HAVE SOME TYPE OF REVIEW OF THOSE APPROVALS AND PERMISSION TO GRANT THOSE.

Yepsen: ALL RIGHT. THIS LEADS US TO THE OBVIOUS QUESTION ABOUT YOUR OFFICE. YOU HAVE AN EMPLOYEE, DEB DESERT IS HER NAME, WHO'S MARRIED TO ONE OF THE PEOPLE AND PRINCIPALS INVOLVED IN THIS CIETC EPISODE. LAST WEEK MEMBERS OF THE OVERSIGHT COMMITTEE SAID YOU OUGHT TO FIRE HER, THAT IN FACT THERE WAS A CONFLICT THERE. WHAT YOU ARE GOING TO -- HOW DO YOU RESPOND TO THAT, AND WHAT ARE YOU GOING TO DO ABOUT IT?

Vaudt: AS I'VE TOLD THE GOVERNMENT OVERSIGHT COMMITTEE, FROM THE VERY BEGINNING I'VE REACHED OUT TO THE EXPERTS IN THIS AREA. I'VE CONSULTED WITH THE ATTORNEY GENERAL'S OFFICE. AND I'VE WORKED WITH THE TWO GOVERNMENT ORGANIZATIONS WITHIN THE STATE THAT HAVE THE EXPERTISE IN THIS AREA, AND THAT WOULD BE THE ETHICS AND CAMPAIGN DISCLOSURE BOARD AND THEN ALSO THE IOWA ACCOUNTANTS EXAMINING BOARD WHICH ACTUALLY LICENSES, REGULATES, AND DISCIPLINES CPAs. AND WHEN I WENT TO THEM, BOTH ORGANIZATIONS CAME BACK TO ME AND INDICATED IN THEIR FIRST PRELIMINARY LOOK THAT THEY SAW NO VIOLATIONS AND CONFLICT OF INTEREST AND SO FORTH. AND I THINK IT'S IMPORTANT TO REMEMBER CIETC WAS NOT AN AUDIT CLIENT TO THE STATE -- WAS NOT AN AUDIT CLIENT OF MY OFFICE, SO IT DIDN'T HAVE AN AUDIT RELATIONSHIP. I'M CONTINUING TO WORK WITH THEM. THE ETHICS BOARD DIRECTOR HAS ALSO FOLLOWED UP AFTER DEB DESERT'S TESTIMONY BEFORE GOVERNMENT OVERSIGHT AND ISSUED A SECOND LETTER SAYING THAT HE FOUND NO CONFLICTS WITH THE CODE OF IOWA WITH RESTRICTIONS. AND I'M WORKING WITH THE BOARD OF ACCOUNTANCY. AND THE BOARD OF ACCOUNTANCY HAS EVEN REACHED OUT TO THE AMERICAN INSTITUTE OF CPAs, WHICH IS THE ORGANIZATION THAT WRITES THE PROFESSIONAL CODE OF CONDUCT FOR CPAs. AND AT THEIR INITIAL LOOK, THEY DIDN'T SEE ANY ISSUES BUT THEY ARE REEXAMINING IT BASED UPON DEB'S TESTIMONY. AS SOON AS I HEAR BACK FROM THEM, I'LL BE ASSESSING ALL THOSE FACTS, THEIR GUIDANCE, AND CONTINUE TO FOLLOW THEIR GUIDANCE AND MAKE DECISIONS.

Yepsen: HOW SOON BEFORE THEY'RE GOING TO GIVE YOU SOME --

Vaudt: I'M ANTICIPATING I WILL HAVE AN ANSWER BACK WITHIN THE NEXT WEEK ALREADY.

Yepsen: SO RIGHT NOW THERE'S NO REASON IN YOUR MIND TO BELIEVE THAT ANY LAW WAS VIOLATED OR ANY CODE OF ETHICS WAS VIOLATED IN TERMS OF EITHER THE STATE CODE OF ETHICS OR THE ETHICS OF YOUR PROFESSION?

Vaudt: CORRECT, BASED UPON THE ADVICE AND GUIDANCE THAT I'VE GOTTEN FROM THE EXPERTS.

Glover: YOUR PREDECESSOR, DICK JOHNSON, WAS IN OFFICE FOR A LOT OF YEARS, AND HE BUILT A REPUTATION WITHIN THAT OFFICE AS BEING KIND OF ABOVE PARTISAN POLITICS. HE WAS FOND OF CRITICIZING A REPUBLIC GOVERNOR, FOND OF CRITICIZING A DEMOCRATIC LEGISLATURE. YOU LOOKED INTO CIETC, WHICH IS A LARGELY DEMOCRATIC SCANDAL. YOU NOW HAVE SAID YOU WANT TO TAKE A LOOK AT AND AUDIT THE IOWA VALUES FUND, THE TOP PRIORITY OF A DEMOCRATIC GOVERNOR. ARE YOU BECOMING A REPUBLICAN KIND OF ATTACK DOG?

Vaudt: I THINK WHAT I'VE REALLY BECOME IS TO SAY LET'S LOOK AT THE REAL ISSUES WITHIN STATE GOVERNMENT, WHERE ARE WE SPENDING OUR MONEY AND WHERE ARE THE PROBLEMS. IF YOU LOOK AT THE CIETC ISSUE, IT WAS ACTUALLY BROUGHT TO ME BY A WHISTLE BLOWER FROM THE DEPARTMENT, IOWA WORKFORCE DEVELOPMENT. AND OBVIOUSLY WHEN ISSUES COME TO MY ATTENTION, WE'LL MAKE SURE WE ADDRESS THOSE. WHEN IT COMES TO THE GROW IOWA VALUES FUND, WE'RE GOING TO SPENDING HUNDREDS OF MILLIONS OF DOLLARS ON THAT PROGRAM OVER THE NEXT FEW YEARS. AND WE IN MY OFFICE HAVE STEPPED BACK AND SAID THIS IS PROBABLY A GOOD TIME TO GIVE A PROGRESS REPORT BACK TO THE TAXPAYERS TO SAY IS THAT PROGRAM WORKING.

Glover: AND YOUR -- YOUR PROFILE IS PRETTY HIGH. YOU'VE BEEN IN THE MIDDLE OF A COUPLE OF VERY HIGH PROFILE THINGS AS A STATEWIDE ELECTED OFFICIAL. THE NATURAL QUESTION IS DO YOU HAVE AMBITIONS.

Vaudt: YOU KNOW, I'M REALLY FOCUSED ON THE 2006 ELECTION AS STATE AUDITOR. THAT'S WHAT MY REAL GOAL IS.

Glover: YOU DON'T HAVE AN OPPONENT, AUDITOR VAUDT.

Vaudt: AT THIS STAGE WE DON'T, AND THAT'S PRETTY GOOD.

Glover: BUT THAT DOESN'T ANSWER THE QUESTION. DO YOU HAVE AMBITIONS?

Vaudt: I'VE HAD INDIVIDUALS APPROACH ME TO CONSIDER RUNNING FOR ADDITIONAL OFFICES, AND SOMEDAY I MIGHT DO THAT. IT'S FLATTERING TO FEEL THAT PEOPLE HAVE CONFIDENCE IN ME TO DO OTHER THINGS.

Glover: GOVERNOR? CONGRESS?

Vaudt: PROBABLY ANYTHING IS OPEN?

Yepsen: MR. VAUDT, ARE REPUBLICANS MILKING THIS CIETC SCANDAL? I MEAN WE'VE HAD THESE OVERSIGHT HEARINGS THAT GO ON AND ON AND ON. AS AN OBSERVER WATCHING THIS FROM THE OUTSIDE, I'M STARTING TO WONDER IF THE REPUBLICANS AREN'T TRYING TO MILK THIS A LITTLE BIT. NOW, DO YOU THINK THAT'S GOING ON?

Vaudt: YOU KNOW, I THINK REGRETFULLY THERE'S PROBABLY SOME POLITICS, AS ALWAYS, THAT HAVE ENTERED IN FROM BOTH SIDES. IF YOU TAKE A LOOK AT THE DEMOCRAT SIDE ALSO, OBVIOUSLY THE BIG ISSUE THEY'VE TRIED TO RAISE IS DEB DESERT AND THE STATE AUDITOR'S OFFICE. SO REGRETFULLY BOTH I THINK PROBABLY PLAY A LITTLE BIT OF POLITICS, BUT WE ALWAYS SEE THAT. BUT I THINK THE REAL FOCUS, AND AS I TESTIFIED BEFORE THEM, IS TO LET'S GET BACK TO THE BASIC ISSUES, WHAT ARE WE TRYING TO ACCOMPLISH.

Yepsen: WELL, WHAT IS THE OVERSIGHT COMMITTEE TRYING TO ACCOMPLISH AT THIS POINT OTHER THAN TO STIR UP PUBLICITY ABOUT THIS SUBJECT? I MEAN ISN'T IT TIME FOR THE LEGISLATURE TO CONCLUDE ITS WORK HERE?

Vaudt: IN FACT, THE GOVERNMENT OVERSIGHT COMMITTEE ASKED ME WHEN I TESTIFIED THIS PAST WEEK WHETHER I THOUGHT THEY SHOULD BE CONTINUING, AND I SAID YOU'RE GOING TO HAVE TO MAKE THAT DECISION. BUT I FIND THAT WITH THE FEDERAL GOVERNMENT AND THE INVESTIGATION THAT'S GOING ON THERE AND THE AUDIT OF THE FINANCIAL STATEMENTS FOR CIETC THAT MY OFFICE WILL BE CONDUCTING THAT PROBABLY EVERYTHING THAT YOU'RE GOING TO BE CONCERNED ABOUT IS GOING TO BE COVERED IN THOSE INVESTIGATIONS. SO I THINK IT'S PROBABLY BEST TO STEP BACK AT SOME POINT AND WAIT FOR THE RESULTS OF THOSE.

Glover: AND WE'RE AT THAT POINT NOW.

Vaudt: I THINK SO.

Glover: TURNING TO ANOTHER ISSUE, ONE OF THE THINGS YOU DO IS YOU KEEP AN EYE ON THE STATE'S BUDGET. AND YOU HAVE JUST RELEASED A REPORT LOOKING AT THE STATE BUDGET THAT WAS JUST APPROVED BY THE LEGISLATURE AND SIGNED INTO LAW BY GOVERNOR VILSACK. GIVE US THE HIGHLIGHTS OF WHAT YOU FOUND IN THAT AUDIT.

Vaudt: WHAT YOU'D FIND IS THE SPENDING CONTINUES TO RISE. WE'RE PROPOSING TO SPEND 5.1 PERCENT MORE THAN WE SPENT IN FISCAL YEAR '06; HOWEVER, REVENUES ARE ONLY GROWING BY ABOUT 2.5 PERCENT. AND MANY TIMES PEOPLE SAY HOW CAN YOU DO THAT. AND WHAT I TELL PEOPLE IS I TAKE A LOOK AT WHAT I CALL THE SPENDING GAP, AND THAT'S HOW MUCH MORE DO YOU WANT TO SPEND THAN YOU'RE ACTUALLY TAKING IN. AND WE DO THAT BY SHIFTING A LOT OF OUR COSTS OUTSIDE THE GENERAL FUND. AND I EXPLAINED IT TO THE PUBLIC; IT'S LIKE A FAMILY WHO DOESN'T HAVE ENOUGH MONEY IN THEIR CHECKING ACCOUNT, SO THEY REACH OVER TO THEIR MASTERCARD OR THEIR CREDIT CARD ACCOUNT AND START PUTTING IT ON OVER THERE. AND THAT'S WHAT IOWA HAS BEEN DOING AND CONTINUES TO DO. SO MY REAL CONCERNS ARE WE'VE GOT TO BRING OURSELVES BACK INTO BALANCE. WE'VE GOT TO BRING EXPENDITURES IN LINE WITH REVENUES.

Glover: AND HOW BIG IS THE GAP?

Vaudt: THE GAP RIGHT NOW IS ABOUT $300 MILLION. I FOUND IT QUITE INTERESTING AS I LOOKED AT THE NUMBERS AND I LOOKED AT THE HOUSE REPUBLICAN PROPOSAL AND THE GOVERNOR'S PROPOSAL, AND THE SPENDING GAP THAT I CALCULATED IN BOTH OF THOSE PROPOSALS WAS ABOUT $220 MILLION. AND IRONICALLY, ONCE WE COMPROMISED, WE WERE ABLE TO GET A BUDGET THAT HAD A $300-MILLION GAP. PRETTY INTERESTING THAT WE COMPROMISED TO EVEN A WORSE POSITION. THEY NEED A PROPOSAL.

Yepsen: MR. VAUDT, BEFORE WE GET TOO DEEP INTO THE STATE BUDGET, I WANT TO GO BACK TO CIETC ONE LAST TIME. JIM NUSSLE, THE REPUBLICAN CANDIDATE FOR GOVERNOR, HAS SUGGESTED THAT WE NEED TO HAVE AND CREATE AN INSPECTOR GENERAL IN THIS STATE TO SORT OF WATCH OVER ALL OF THIS STUFF AND IN ALL LEVELS OF GOVERNMENT. IS THAT A GOOD IDEA?

Vaudt: I'M NOT IN FAVOR OF THAT PROPOSAL. IF YOU LOOK BACK AT CIETC, THE SYSTEM WORKED. THE WHISTLE BLOWER GOT TO THE RIGHT PLACE. THE ISSUE WAS ADDRESSED. I DON'T THINK WE NEED ANOTHER LAYER. WHENEVER YOU HAVE AN INSPECTOR GENERAL, THEY'RE GOING TO HAVE TO REPORT TO SOMEBODY, AND SO YOU'RE STILL GOING TO HAVE TIES TO ONE PARTY OR THE OTHER. SO I THINK THE SYSTEM WORKS. AND ONE OF THE THINGS THAT WE'VE DONE WITHIN STATE GOVERNMENT, BOTH THE CITIZENS' AIDE OFFICE AND THE ETHICS AND CAMPAIGN DISCLOSURE BOARDS, IS WE'RE GETTING TOGETHER ON A MONTHLY BASIS TO LOOK AT ISSUES THAT ARE BEING RAISED TO ALL THREE OF US.

Yepsen: SO YOU DO DISAGREE WITH YOUR PARTY'S NOMINEE FOR GOVERNOR.

Vaudt: I DEFINITELY DO.

Yepsen: ONE OTHER THING THAT HAPPENED LAST WEEK WAS IN DES MOINES THERE WAS A PROPOSAL IN DALLAS COUNTY AND WARREN COUNTY TO RAISE A PENNY OF SALES TAX. THEY WERE GOING TO TRY TO GET THIS ON THE NOVEMBER BALLOT, AND THEY DECIDED NOT TO BECAUSE THE ATMOSPHERE WAS POISONED, AS ONE OF THEM SAID, AND THEY DECIDED TO WAIT A YEAR BEFORE THEY GO ASK VOTERS FOR THIS. BECAUSE OF CIETC IT WAS POISONED. DO YOU FIND THAT'S TRUE AROUND THE STATE THAT THE CIETC EPISODE HAS TURNED PEOPLE AGAINST LOCAL GOVERNMENTS, MADE PEOPLE SUSPICIOUS OF LOCAL GOVERNMENTS? WHAT'S THE FALLOUT AROUND THE STATE?

Vaudt: YEAH, I THINK DEFINITELY, IT HAS RECEIVED A GREAT DEAL OF PUBLICITY, AND ANYPLACE YOU GO IN THE STATE, YOU HEAR PEOPLE THAT TALK ABOUT CIETC. AND THE SAD PART IS IT'S AN EXAMPLE OF SOMEBODY ABUSING FEDERAL AND STATE DOLLARS, BUT IT DOES TAINT PEOPLE'S IMPRESSION OF WHAT TAKES PLACE ELSEWHERE IF IT'S OCCURRING THERE. BUT THERE ARE SOME GOOD THINGS THAT CAME OUT OF CIETC. IN FACT, I'VE HAD A LOT OF BOARDS AND EVEN EXECUTIVE DIRECTORS OF NOT-FOR-PROFITS THAT HAVE TOLD ME THE REPORT REALLY MADE A DIFFERENCE IN HOW THEIR BOARD PARTICIPATES. THEY'RE MUCH MORE INTERESTED IN THE FINANCIAL ACTIVITIES OF EACH AND EVERY ORGANIZATION, AND EVERYBODY IS TAKING THEIR FIDUCIARY RESPONSIBILITIES A LOT, LOT CLOSER.

Glover: FLIPPING BACK TO THE STATE'S BUDGET, YOU SAY YOU FOUND THIS PRETTY BIG SPENDING GAP SOMEHOW BETWEEN THIS POSITION AND DEMOCRATS IN THIS POSITION AND REPUBLICANS WHO COMPROMISE A WAY TO AN EVEN BIGGER PROBLEM. WHAT'S THE SOLUTION? IT SOUNDS TO ME LIKE INCOME AND EXPENSES AREN'T MATCHING UP AND THERE'S ONLY ONE OR TWO SOLUTIONS TO THAT.

Vaudt: YOU'RE EXACTLY RIGHT. AND AS I'VE TOLD OUR ELECTED OFFICIALS, YOU CONTROL BOTH SIDES OF THE EQUATION. IT'S THE REVENUE SIDE AND THE EXPENDITURE SIDE. AND WHAT I'M ASKING THEM TO DO IS BRING THEM THIS BALANCE. BUT I ALSO CAUTIONED THEM THAT YOU CAN'T SIMPLY TAKE THE REVENUE SIDE AND ASSUME YOU CAN KEEP PUSHING IT UP BECAUSE WE DO HAVE COMPETITION FROM OTHER STATES AND WE'VE GOT TO MAKE SURE THAT THE ECONOMY WILL GROW UNDER THE TAXATION THAT WE DO.

Glover: WELL, WHAT HAPPENS? THE STATE'S HAD A PRETTY HEALTHY ECONOMY FOR SEVERAL YEARS RIGHT NOW. WHAT HAPPENS IF THAT ECONOMY TURNS SOUTH, AND ARE THERE INDICATIONS THAT COULD HAPPEN?

Vaudt: I THINK IF YOU LOOK AT HISTORY, WE KNOW THAT IT'S JUST SOME POINT IN TIME, PROBABLY PRETTY SOON, WE'RE GOING TO HAVE THE DOWNTURN TOO. AND THAT'S WHY IT'S SO IMPORTANT THAT WE REESTABLISH OUR EMERGENCY FUNDS AND GET SOME OF OUR RESERVES IN PLACE, BECAUSE IF YOU SET YOURSELF UP AND PLAN LONG TERM, YOU WILL BE ABLE TO TAKE THOSE DIPS IN THE ECONOMY AND STILL PROVIDE A LEVEL GROUP OF SERVICES RATHER THAN GOING UP IN SERVICES. THE PROBLEM IS WE ARE PRACTICING SPENDING EVERYTHING THAT COMES IN. AND SO IF YOU JUST SIMPLY RAISE TAXES, I CAN GUARANTEE YOU THE TAXES WILL NEVER BE ENOUGH, BECAUSE WE ALWAYS SPEND WHATEVER COMES IN THE DOOR.

Yepsen: AND HOW DO YOU RESPOND TO WHAT I KNOW WILL BE THE DEFENSE OF ALL THIS FROM BOTH THE DEMOCRATIC GOVERNOR AND THE REPUBLICAN LEGISLATURE THAT, WELL, OUR BOND RATING IS GREAT? COMPARED TO OTHER STATES WE'RE IN GOOD SHAPE. HOW DO YOU RESPOND TO THAT?

Vaudt: I ALWAYS TELL PEOPLE, NUMBER ONE, KEEP IN MIND THE BOND RATING AGENCIES ARE LOOKING AT THE GENERAL FUND. AND THEY'RE NOT NECESSARILY LOOKING AT ALL THESE SHIFTS THAT WE'RE DOING TO OTHER FUNDS, WHICH I THINK HAS A DIFFERENCE. AND IF THEY SAW ALL THAT ACTIVITY, I THINK THEY WOULD PROBABLY CHANGE THEIR OPINION SOME. PLUS, THE CREDIT RATING AGENCIES HAVE ALSO COME BACK AND SAID TO THE EXTENT YOU CONTINUE TO TAP THESE OTHER FUNDS LIKE THE CASH RESERVE FUND AND ECONOMIC EMERGENCY FUND, IT'S GOING TO AFFECT YOUR RATING GOING FORWARD. AND TREASURER FITZGERALD HAS COME THROUGH AND MADE THAT SAME CONCERN RAISED WITH THE LEGISLATURE AND THE GOVERNOR'S OFFICE.

Yepsen: SO YOU'VE GOT THE PROBLEM, AS YOU TOLD MIKE, OF SPENDING MORE THAN IS COLLECTED IN REVENUES. NOW, TALK A LITTLE BIT MORE ABOUT THIS FUND SHIFTING. HOW DOES THAT WORK?

Vaudt: OKAY. WHAT HAPPENS IS WE'VE BEEN TAKING COSTS SUCH AS MEDICAID -- AND WE DON'T FEEL LIKE WE HAVE ENOUGH MONEY IN OUR 'CHECKING ACCOUNT,' IN OUR GENERAL FUND. SO WE REACH OUT TO THE SENIOR LIVING TRUST FUND, WHICH WAS A LIMITED TIME FEDERAL PROGRAM THAT WAS DESIGNED TO HELP SENIORS STAY AT HOME LONGER AND AVOID INSTITUTIONAL CARE. WE START PAYING OUR MEDICAID COSTS OUT OF THAT PARTICULAR FUND. AND THEN WE KIND OF IGNORE THAT IT'S OVER THERE AND WE TALK ONLY ABOUT WHAT WE'RE SPENDING OUT OF OUR CHECKING ACCOUNT. SO WE, NUMBER ONE, KIND OF FOOL OURSELVES ON HOW MUCH SPENDING HAS GONE UP, AND WE'RE ALSO TAPPING THESE OTHER RESOURCES. AND THAT FUND WILL DEPLETE ITSELF AT THE END OF '07.

Yepsen: AS YOU'RE VERY AWARE, WE'RE IN THE MIDDLE OF A VERY HOT POLITICAL SEASON. THE GOVERNOR'S OFFICE IS COMING OPEN. WE'VE GOT CHET CULVER AND JIM NUSSLE RUNNING AGAINST EACH OTHER. I'M ALREADY STARTING TO HEAR THE TAX CUT PROMISES COMING FROM THOSE TWO CANDIDATES: WE'LL FIND A WAY TO CUT YOUR TAXES; WE'LL FIND A WAY TO GIVE YOU THIS PROGRAM, GIVE YOU THAT PROGRAM. ARE WE AGGRAVATING THE PROBLEM BY THE POLITICAL SEASON OF PROMISING TAX CUTS AND PROMISING MORE SERVICES?

Vaudt: I THINK DEFINITELY, BECAUSE YOU TAKE A LOOK AT THE STRAIN THAT WE ALREADY HAVE ON OUR BUDGET AND YOU TAKE A LOOK AT SOME OF THE MULTIYEAR ACCELERATING COMMITMENTS THAT WE MADE IN THE '07 BUDGET FOR TEACHER QUALITY, STUDENT ACHIEVEMENT, PRESCHOOL, THOSE KINDS OF THINGS. WE'VE GOT A HUGE STRAIN COMING FORWARD IN FISCAL YEAR '08 AND BEYOND. SO IF SOMEBODY IS GOING TO COME IN AND ACTUALLY BALANCE THE BUDGET THEY'RE GOING TO PROPOSE, THEY'VE GOT TO EITHER INCREASE TAXES OR REDUCE EXPENDITURES SOMEPLACE BECAUSE THAT'S THE ONLY TWO SIDES OF THE EQUATION WE CAN WORK ON.

Borg: CAN YOU BE MORE SPECIFIC IN SOME OF THE RED FLAGS THAT YOU SEE? I'M THINKING OF IOWA'S GRAYING POPULATION. ARE WE HEADED FOR PROBLEMS IN MEDICAID, SENIOR LIVING TRUST FUND? WHERE DO YOU SEE SOME TICKING TIME BOMBS?

Vaudt: YEAH, I MEAN DEFINITELY WE NEED TO LOOK AT MEDICAID,. MEDICAID COSTS CONTINUE TO GO UP, AND I THINK THE REASON FOR THAT IS YOU TAKE A LOOK AT HEALTH CARE COSTS THAT CONTINUE TO GO UP. SO IF WE DON'T START CONTROLLING HEALTH CARE COSTS, WE'LL NEVER BE ABLE TO CONTROL THOSE MEDICAID PAYMENTS. AND WHEN YOU TAKE A LOOK AT THE SENIOR LIVING TRUST FUND, AT THE END OF FISCAL YEAR '07, IT'S PROJECTED TO HAVE ONLY $14 MILLION LEFT IN IT. AND WE RECEIVED OVER $600 MILLION OVER THE LAST FIVE OR SIX YEARS. NOW, THAT $14 MILLION THAT WE WILL HAVE LEFT INCLUDES THE $21 MILLION FROM THE '06 SURPLUS THAT'S SUPPOSED TO GO BACK INTO THAT FUND. SO WE PUT $21 MILLION BACK IN, BUT WE TOOK ANOTHER 7 OUT. SO THERE'S ONLY A NET OF 14 AT THE END. AND WE'RE ACTUALLY FUNDING $74 MILLION WORTH OF MEDICAID COSTS OUT OF THE SENIOR LIVING TRUST FUND THIS YEAR THAT WE CAN'T DO NEXT YEAR.

Yepsen: MR. VAUDT, HOW MUCH DO -- HOW OFTEN DO YOU LOOK AT HOW GOVERNMENT PERFORMS AS OPPOSED TO WHETHER THE BOOKS BALANCE AND EVERYTHING IS KOSHER? I MEAN THE CIETC SCANDAL, IT STRIKES ME AS AN EXAMPLE OF WHERE YOU AND YOUR OFFICE UNCOVERED SOME ABUSES THAT WERE GOING ON, SOME IMPROPRIETIES. BUT IF YOU LOOK AT THE VALUES FUND, FOR EXAMPLE, ARE YOU GOING TO LOOK AT HOW THIS PERFORMS, OR ARE YOU JUST GOING TO TELL US IT'S CREATE 'X' NUMBER OF JOBS AND THEN OTHER PEOPLE CAN DECIDE WHETHER OR NOT THAT'S GOOD OR BAD?

Vaudt: NO, WE'RE GOING TO BE TRYING TO TAKE A LOOK AT THAT PROGRAM AND SEE HOW IT'S BEEN STRUCTURED, WHAT IT'S ACTUALLY ACCOMPLISHED, AND TRY AND MAKE RECOMMENDATIONS SO THAT IF CHANGES NEED TO BE MADE, THEY CAN BE TWEAKED IN THE NEXT SESSIONS.

Yepsen: AND HOW ABOUT OTHER LEVELS OF GOVERNMENT, LOOKING MORE AT THE PERFORMANCE RATHER THAN JUST WHETHER THE NUMBERS ADD UP?

Vaudt: YEAH, I'D LOVE TO DO EVEN MORE OF IT. OBVIOUSLY WE HAVE LIMITED RESOURCES AND WE HAVE TO PERFORM THE FINANCIAL AUDITS ON AN ANNUAL BASIS. SO IT'S A DIFFICULT BALANCE THERE, BUT I THINK MORE AND MORE WE'RE GOING TO HAVE TO LOOK AT PERFORMANCE, AND WE HAVE TO LOOK AT PROGRAMS AND ARE THEY ACCOMPLISHING WHAT WE EXPECTED THEM TO ACCOMPLISH, BECAUSE IF WE START LOOKING AT THOSE THINGS, I THINK THAT WILL HELP GUIDE OUR DECISIONS AND HOW WE CAN CHANGE OUR BUDGETING.

Glover: AUDITOR VAUDT, PEOPLE IN IOWA ARE FOND OF SAYING THAT WE HAVE REALLY SQUEAKY CLEAN GOVERNMENT ALL THROUGHOUT IOWA AT ALL LEVELS, THAT IOWA'S GOVERNMENT IS BEYOND REPROACH. WE STARTED LOOKING AT CIETC. WE STARTED LOOKING AT THESE OTHER PROGRAMS. IS THAT A GOOD ASSUMPTION TO START WITH, OR SHOULD WE ASSUME THAT MAYBE WE OUGHT TO KEEP A LITTLE BIT CLOSER EYE ON OUR STATE AND LOCAL GOVERNMENTS?

Vaudt: I THINK OVERALL IOWA AFFAIR IS VERY, VERY WELL. WE DON'T HAVE A LOT OF THOSE ISSUES. BUT I CAN TELL YOU THAT AT ANY POINT IN TIME, WE PROBABLY HAVE FIVE OR SIX INVESTIGATIONS GOING ON IN SOME LEVEL OF GOVERNMENT FOR SOME ISSUES OF GOVERNMENT TAX DOLLARS. AND I THINK THAT'S THE KEY IS WE'VE ALWAYS GOT TO KEEP IN MIND THAT THERE'S ALWAYS GOING TO BE SOME OF THAT GOING ON, AND THE MORE WE CAN PREVENT IT AND IDENTIFY IT EARLIER, THE BETTER OFF WE ALL ARE.

Glover: AND WHAT'S THE BIGGEST CAUSE OF THAT?

Vaudt: YOU KNOW, A LOT OF IT TENDS TO BE TRUST AND FAITH THAT'S PUT IN EMPLOYEES WITH LACK OF SEGREGATION OF DUTIES. A LOT OF THE SMALLEST THINGS THAT WE SEE OCCUR IN SMALL CITIES OR SMALL ORGANIZATIONS WHERE THE TRUST AND FAITH IS PUT INTO ONE INDIVIDUAL AND NO ONE PERFORMS ANY TYPE OF OVERSIGHT.

Yepsen: WELL, DO WE HAVE TOO MUCH GOVERNMENT IN IOWA: 99 COUNTIES, 950 CITIES, 369 OR -70 SCHOOL DISTRICTS? IS IT TOO MUCH?

Vaudt: YEAH, I THINK YOU ALWAYS HAVE TO STEP BACK. AND AS I'VE TRAVELED THE STATE AND TALKED TO OUR CITIZEN GROUPS AND PRESENTED INFORMATION ON THE BUDGETS, I'M ENCOURAGING EVERYBODY TO STEP BACK AND SAY LET'S LOOK AT HOW WE'RE DELIVERING SERVICES. IF YOU LOOK AT A BUSINESS TODAY, THEY DO NOT DELIVER THEIR PRODUCTS OR THEIR SERVICES THE SAME WAY THEY DID FIFTEEN OR TWENTY YEARS AGO BECAUSE THEY WOULDN'T BE IN BUSINESS IF THEY DID. THE GOVERNMENT ESSENTIALLY IS DOING THE SAME WAY AS WE DID BEFORE.

Yepsen: ALL RIGHT. GIVE ME A SPECIFIC EXAMPLE OF SOMEPLACE WE COULD CHANGE. IN THE ABSTRACT, EVERYBODY IS GOING TO AGREE WITH YOU UNTIL YOU COME IN AND SAY, WELL, WE NEED TO GET RID OF COUNTY RECORDERS OR WE NEED TO MERGE SCHOOLS OR MERGE COUNTIES. SO YOU GIVE ME SOME EXAMPLES OF WAYS WE COULD IMPROVE THE PERFORMANCE.

Vaudt: I THINK DEFINITELY SOME OF THE PROPOSALS THAT I'VE HEARD THAT I THINK ARE GOOD THAT PEOPLE ARE TALKING ABOUT IS HOW CAN WE TAKE THE EDUCATION SYSTEM AND MAKE SURE THAT WE SPEND MORE OF OUR DOLLARS TOWARDS THE TEACHERS IN THE CLASSROOMS WITH STUDENTS. AND THAT MEANS WE NEED TO TAKE A LOOK AT HOW WE ADMINISTRATE THOSE SCHOOLS, AND MAYBE WE SHOULD HAVE A COUNTYWIDE ADMINISTRATION FOR SCHOOLS AND WORK TOGETHER MORE LIKE THAT. AND THEN SHARED SERVICES. A GOOD EXAMPLE OF ONE OF THE THINGS THAT TOOK PLACE IS THE DRIVERS LICENSE STATIONS THAT ARE IN THE COUNTIES. THE COUNTIES ARE HELPING PROVIDE THAT SERVICE THAT OTHERWISE D.O.T. HAD TO PUT OUT ON THEIR OWN. AND SO THERE'S GOOD, EFFECTIVE WAYS TO DO A LOT OF THINGS, BUT IT TAKES US STEPPING BACK AND LOOKING AT THINGS DIFFERENTLY.

Glover: WELL, TURNING THAT QUESTION JUST A LITTLE BIT ON ITS EAR AND TO GO BACK TO CIETC FOR JUST A SECOND, CIETC WAS A SMALL GOVERNMENT THING. CIETC WAS SET UP BECAUSE GOVERNMENT WAS GOING TO OFFER JOB TRAINING PROGRAMS, BUT WE ALL KNOW PRIVATE ENTITIES ARE MUCH MORE EFFICIENT AND MUCH BETTER THAN THE GOVERNMENT AT DELIVERING THOSE THINGS. SO WE CREATED CIETC AND LOOK WHAT HAPPENED THERE. IS IT ALWAYS BETTER TO ELIMINATE GOVERNMENT?

Vaudt: NO. THERE'S I THINK, YOU KNOW, CERTAIN SERVICES THAT SHOULD AND ONLY BE PROVIDED BY GOVERNMENT, BUT I THINK THE KEY PART IS WHATEVER THE LEVEL OF SERVICE OR THE ORGANIZATION PROVIDING THIS TO SAY HOW CAN I DO IT THE BEST WAY I CAN DO IT. AND WE'VE GOT TO CONTINUALLY MAKE OURSELVES LOOK AT THINGS, DOING THINGS DIFFERENTLY AND SAYING IS THERE A MORE EFFICIENT, EFFECTIVE WAY TO DO IT.

Yepsen: I WANT TO GO BACK TO THIS BUDGET PROBLEM THAT WE HAVE IN THIS STATE. AS MIKE MENTIONED, YOU DON'T HAVE AN OPPONENT IN THIS ELECTION, SO MAYBE YOU CAN ANSWER THIS. WHAT SHOULD WE DO? SHOULD POLICYMAKERS RAISE TAXES OR SHOULD THEY CUT SPENDING OR A LITTLE OF BOTH?

Vaudt: I THINK IT WILL PROBABLY COME DOWN TO A COMBINATION OF BOTH, BUT THE FIRST THING I RECOMMEND IS WE'VE GOT TO CONTROL OUR SPENDING BECAUSE WHAT'S HAPPENING RIGHT NOW IS WE CONTINUE TO EXPAND THE LEVEL OF SERVICES WE'RE PROVIDING OR THE NUMBER OF PROGRAMS. AND UNTIL WE CONTROL SPENDING, WE'LL NEVER HAVE ENOUGH REVENUE.

*****THE COMPLETE TRANSCRIPT OF THIS PROGRAM IS AVAILABLE BY DOWNLOADING THE RICH TEXT FORMAT FILE AT THE TOP OF THIS PAGE -- WE APOLOGIZE FOR ANY INCONVENIENCE******


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