Appeals court: Counties don't have to hire Otto's office for MN audits

Updated 2:30 p.m. | Posted 11:12 a.m.

The Minnesota Court of Appeals on Tuesday upheld a 2015 law giving counties more power to use private firms for financial reviews rather than rely on the state auditor.

The 2-1 decision turns back a challenge by State Auditor Rebecca Otto. The third-term DFLer contended the law allowing counties to choose who does the routine audits is flawed in its intent and the way it was passed.

The appeals panel ruled the law to be constitutional. The two majority judges wrote that the auditor retains the power to set standards for and review any private audit so core duties were not stripped from the office's control.

"Moreover, the state auditor remains authorized to visit counties, without notice, for the purpose of examining their records; to require additional information from CPA firms conducting county audits; and to make additional examinations as she determines to be in the public interest," Appeals Judge Louise Dovre Bjorkman wrote in the opinion joined by Judge Randolph Peterson.

She added, "In sum, the county audit statute permissibly modifies, rather than transfers, the state auditor's core functions.

In his dissent, Chief Appeals Judge Edward Cleary said the anticipated lost state revenue by outsourced work will cripple the auditor's office.

Otto has said that if 50 of Minnesota's 87 counties hire private CPAs, the state auditor will see its payments drop by almost $4 million, or 44 percent of its total budget.

"The Legislature's removal of auditing duties from the state auditor, stripping much of the authority and the primary core function from the office and crippling the funding of the OSA in the process, is more than a mere modification of the authority of a constitutional office — it is the dismantling of a constitutional office," Cleary wrote.

Otto, who is running for governor in 2018, has racked up hundreds of thousands of dollars in taxpayer-funded legal fees pursuing her case.

Hours after the appeals court defeat, she vowed to appeal to the Minnesota Supreme Court.

"As the current steward of this constitutional office, I must do what is right, not politically expedient, and therefore, I will be asking the Minnesota Supreme Court to settle this issue," Otto said in a statement.

The state's highest court is not obligated to grant review.

Rep. Sarah Anderson, R-Plymouth, chair of the House State Government Finance Committee and the lawmaker who sponsored the law in question, noted it was passed with Republican and DFL support and signed into law by DFL Gov. Mark Dayton.

Earlier in the day, Anderson had urged Otto to end the matter at the appeals court level.

With two courts already upholding the law, a state Supreme Court appeal "would serve no purpose other than to waste taxpayer dollars to promote (Otto's) gubernatorial bid," Anderson wrote.