Editorial: Audit warrants probe

Wednesday, May 23, 2007 | 7:05 a.m.

Questions raised in March by Nevada Treasurer Kate Marshall regarding past management of the state's $3.3 billion College Savings Trust Fund have proven to be well - founded.

Marshall, who took office in January, asked why millions in state income generated by the trust fund had not been deposited into the state treasury, as required by law.

A state audit of the trust fund was approved and its findings were released Monday by a legislative subcommittee.

The trust fund, begun in 2001, allows parents to begin saving early for their children's education. Parents invest tax-free with the state, which in turn invests their money with four mutual fund firms.

In exchange for the right to invest the money, the firms pay the state fees, which are used for administering and promoting the program. Although the program has a board of trustees, it is mainly overseen by the state treasurer.

Brian Krolicki, now lieutenant governor, was the state treasurer from the inception of the program until January, when he assumed his new office.

The audit found that all the money invested by parents was properly handled. At the same time, however, it found that "money earned by the state was not." Of the income the program generated, more than $6 million was "held outside the state system and used to pay program expenses," the audit found.

By holding the money back, the treasurer's office was able to circumvent normal budgetary procedures, the audit said. Negatives for the state included a loss of interest income and higher costs for consulting, legal work, advertising and marketing.

Not covered in the audit was Marshall's allegation, also made in March, that the treasurer's office purged records during Krolicki's final days.

Krolicki has said Marshall's allegations are "reckless" and Monday he defended himself before the subcommittee by saying he had followed the advice of legal and accounting professionals.

We believe the audit has uncovered enough mismanagement of state funds to warrant further investigation by the attorney general's office. This matter is far from settled.