Legislative auditors have once again found fault with Idaho State Treasurer Ron Crane, saying his financial practices exposed the state investment pool to unnecessary risk and expense.

A new statewide audit released Friday said the state lost more than $10 million last year because Crane's office shifted several distressed securities from a local government investment account into the state account, in an effort to keep ratings agencies from downgrading the local government pool.

The treasurer's office is responsible for investing “idle” funds that aren't immediately needed by state agencies. It performs a similar function for city and county governments. The two accounts are separate, but a lending agreement approved in 2000 allowed funds to be co-mingled for the purpose of buying securities.

In 2008 and 2009, according to the audit report, Crane's office authorized the transfer of several mortgage-backed securities from the local government account to the state account. They were transferred at face value, rather than market value – meaning the state effectively paid $86 million for securities that were only worth about $66 million at the time.

Their price has fluctuated since then, but auditors said the state pool eventually lost $10.2 million when most of the securities were sold last year. As of July, it also had an unrealized loss of $17.4 million on the remaining securities.

In an intentional effort to avoid a likely downgrading of the LGIP (local government investment pool), the treasurer's office reallocated securities from the LGIP in exchange for (state investment pool) assets,” notes the audit report. “The LGIP did not participate in the realized losses related to those transferred securities, and now has no exposure to any remaining risk of loss.”

Crane disagreed with the finding, saying in his response to the audit report that the investment practices it addressed are no longer used by his office.

Moreover, based on information available at the time of the transactions, he said, anybody with an understanding of securities lending “would conclude that the treasurer's office made decisions that were consistent with its duties.”

In hindsight, however, he agreed that “certain process and control weaknesses were present.”

For more on this story, see www.lmtribune.com or Saturday's Lewiston Tribune.