Legislature(2019 - 2020)ADAMS 519
03/03/2020 09:00 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB121 | |
| HB209 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 121 | TELECONFERENCED | |
| *+ | HB 209 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 121
"An Act relating to performance reviews and audits of
state agencies, the University of Alaska, and the
Alaska Court System; and providing for an effective
date."
9:04:32 AM
REPRESENTATIVE STEVE THOMPSON, SPONSOR, thanked the
committee for hearing the bill that would repeal the
statutory requirement for state agency performance audits.
He read from a prepared statement:
• House Bill 121 repeals the statutory obligation for
performance review audits.
• In 2013, the House and Senate passed HB 30 that set
out to audit all agencies
• 4 audits have been completed (3 Agencies):
o Corrections
o Education
o Commission on Post-Secondary Education
o Health & Social Services
• 15 Agencies Audits remain on the books until the
program is set to end in 2023
• Funding requests have been denied for the last 4
fiscal years
• This takes it out of the statutes
Representative Thompson elaborated that the bill would
remove the statutory obligation because it had not been
used. The change would mean the statute would be taken out
of the books and removed from the budget. He introduced his
staff Crystal Koeneman who was available for questions.
9:06:21 AM
Representative Josephson agreed that if the work was not
being done, it was not being done. He asked if anything had
been learned with the audits that had been completed since
the passage of the statute in 2016.
Representative Thompson replied that the completed reviews
mentioned had received recommendations from an auditor
located in the Lower 48. He explained that the auditor's
recommendations did not fit with Alaska and none of the
recommendations had been acted upon. He explained that it
had been determined that the state could not afford to
continue the reviews without receiving results that could
be utilized.
Representative Wool asked if the audits were always
intended to be outsourced to an outside agency. He wondered
if there had been intent for the work to be done
internally.
Representative Thompson replied that he was uncertain. He
deferred to Ms. Curtis with the Division of Legislative
Audit.
Representative Wool surmised that the Division of
Legislative Audit was busy doing its own audits. He
believed auditing an agency like the Department of Health
and Social Services would be a heavy lift.
9:08:07 AM
KRIS CURTIS, LEGISLATIVE AUDITOR, ALASKA DIVISION OF
LEGISLATIVE AUDIT, clarified that the reviews were not
audits, but performance reviews. She elaborated that audits
communicated a level of assurance in accordance with
criteria. The performance reviews had been facilitated by
the Division of Legislative Audit and had been conducted by
consultants who were experts in the field. The intent had
been to review all state departments over a ten-year
period. She reported that three departments had been
reviewed. The intent of the reviews was to determine
whether agencies were performing well and to identify what
they could do better. She believed there was a bit of an
expectation gap that the reviews would be the mode to
reduce the budget, in anticipation that in the future there
would be serious budget cuts.
Ms. Curtis continued that the statute effective date began
on July 1, 2013 before the budget had decreased. She
explained that the reviews were not structured to be a
mechanism to reduce the budget. She detailed that as part
of the reviews, agencies were required to provide a list of
10 percent budget cuts. She expounded that as part of the
review, the consultant was tasked with determining whether
the list of cuts was reasonable in line with their review
of the department. There was a budget implication to the
process, but it was primarily to determine what the
departments could do in order to do their job better.
Ms. Curtis elaborated that the reports for the Department
of Corrections (DOC) and the Department of Education and
Early Development (DEED) had been fairly well received by
the Legislative Budget and Audit Committee (LB&A). The
reports were available on the web and were an excellent
tool for reviewing a department, especially DOC and DEED.
The Department of Health and Social Services (DHSS) was the
other review that had been conducted and she agreed that it
had been a big lift. The Division of Legislative Audit had
been responsible for helping to create the scope of the
performance reviews and for hiring the contractor. She
reported that the contractor had come out in strong support
of Medicaid expansion, which had not been well received by
the committee.
Ms. Curtis reported that the reviews had been defunded
effective FY 16. She believed it was very difficult to
review departments when there was so much change underway.
She explained that by the time a review was started to the
time it was completed "you'd be looking at a different
animal." She believed it was likely not the best climate to
conduct the reviews until there was some stability.
9:11:07 AM
Vice-Chair Ortiz asked if the reviews were called for with
the realization that the Division of Legislative Audit had
its hands full and the reviews would need to be done by
someone else to dig more deeply into things.
Ms. Curtis relayed that the concept of the reviews had been
underway for years and the legislation was passed when she
had started her current position. She believed the idea was
modeled after the Texas Sunset Commission - that it was an
important function of government to examine itself and make
sure it was operating as efficiently and effectively as
possible. She explained that it took experts in the field.
She detailed that even if the work was done by the Division
of Legislative Audit, the agency would have to hire experts
in the correctional industry or education to do the deep
dive.
Representative Wool thought it sounded like there was some
value to the reviews, especially in determining how an
agency was performing. He knew there had been studies done
for the University to identify where it could be doing
better and where it was spending too much money. He asked
if the reviews had not been done primarily due to cost. He
asked if it had always been the intent to outsource the
reviews and if the Division of Legislative Audit had been
supportive of the concept.
Ms. Curtis replied that she was willing to do whatever the
legislature directed. She highlighted that the reviews
required significant procurement and three additional staff
that had nothing to do with the audit function. She had
carved the staff out to the side and had interacted with
the leader of the group. She relayed that it had resulted
in a lot of extra work on her shoulders; however, it was
her perspective that if the legislature wanted the Division
of Legislative Audit to do performance reviews, it would do
them.
Ms. Curtis highlighted that how the reviews would be used
had not been well thought out and needed to be tweaked. She
pointed out that if people did not know whether the reviews
had been done and they had not been utilized, something was
wrong with the process. She had been asked in the past how
the process could be improved, and she had notes on what
could be improved from four years back when the process had
stopped. She believed there would have to be a rewrite of
the process to make it effective. She recommended starting
from scratch. She was always supportive of reviews, and
whether it was on the legislature's priority list of what
it wanted to spend funds on was a question for policy
makers.
9:15:07 AM
Representative LeBon thought back to his "banking days." He
explained that banks were subject to numerous audits,
examinations, and reviews. In the banking world there were
internal reviews of programs, the most common was in
lending in order for the bank to know it was making good
credit decisions. Banks also had internal and external
audit functions. Additionally, the FDIC [Federal Deposit
Insurance Corporation] visited banks to do examinations. He
elaborated that the FDIC looked at reviews and internal and
external audits to arrive at a conclusion on the soundness
of the bank and its operations. He asked if the state
auditors looked at performance reviews and made a
conclusion about their work when they did an audit.
Ms. Curtis replied that the reviews were not exactly
helpful for the purposes of the Division of Legislative
Audit. She explained that the division was the
external/independent financial auditor. The executive
branch had an internal audit function for approximately 15
years. She did not know how many states had no internal
audit function. She clarified that the focus of the reviews
did not have much to do with the financial audit. She
elaborated that if the reviews were available, the division
would look to them as a source when it did periodic
performance audits.
9:16:53 AM
Representative Josephson asked if the state used to provide
or pay for an executive internal audit function. He asked
if the work would be redundant to work performed by the
Division of Legislative Audit.
Ms. Curtis replied that there had been an internal audit
function under the governor's office, and she believed it
had been eliminated under the former Knowles
administration. She believed there had been eight positions
and some of the functions had been moved to the Division of
Finance. There was an existing state single audit
requirement function. She believed they had done internal
reviews on a whole range of topics.
Representative Wool remarked on the fact that an outside
group had been paid to review the department and had made
recommendations, which had not been well received. He
surmised the recommendations had not gone along with the
presumption of the group, yet [Medicaid expansion] had
taken place.
Ms. Curtis replied that one of the requirements of the
performance reviews was quantifying their fiscal impact.
The DHSS review produced over $2 million in net savings to
the state. She noted it was the only one. She reported that
the review had cost over $1 million to conduct. She stated
that hired consultants typically recommended additional
studies. She stated it was necessary to keep an eye on
consultants who were usually very passionate about the
field they were in and were most likely supportive of "that
type of thing." It was her opinion that the review had not
been well received by the committee or legislature at the
time.
9:19:27 AM
Co-Chair Johnston referenced performance measures in the
budget. She asked if the performance measures had been
evaluated as part of the process.
Ms. Curtis replied that obtaining the performance measures
had been part of the process. She had not seen much value
in the performance measures, and they had not been key to
any of the reviews.
Co-Chair Johnston noted that she had a good friend who had
been one of the initiators of the performance measures.
Ms. Curtis replied that in theory it was great thing, but
she had not seen any impact.
Representative Josephson referenced Ms. Curtis' statement
that the state had saved money through the DHSS review. He
asked if it was due to SB 74 [Medicaid reform legislation
passed in 2016]. He asked how the $2 million in savings
materialized.
Ms. Curtis would have to double check, but she believed the
savings had to do with recommendations under the Office of
Children's Services (OCS). The savings had something to do
with the federal reimbursement. She elaborated that OCS
could change its procedures related to documenting and
timing and possibly qualify for increased federal
reimbursement.
9:20:44 AM
Representative Knopp looked at line 1 of paragraph 2 in the
sponsor statement. He noted that the sponsor statement
specified that four audits had been completed, but it only
listed three departments. He asked what the fourth
department was.
Ms. Curtis replied that there had been two reviews for DEED
- one had been done on the department as a whole and the
other had been done on the Alaska Commission on
Postsecondary Education (ACPE).
Co-Chair Johnston requested to hear the sectional analysis.
CRYSTAL KOENEMAN, STAFF, REPRESENTATIVE STEVE THOMPSON,
complied. She highlighted a list of repealers in committee
members' packets (copy on file). She noted that because the
bill only listed repealers, she believed it would be more
advantageous to provide the list of repealers instead of a
sectional analysis. Sections 24.20.231(7), Section
24.20.271(2), and Section 24.20.311(b) were all conforming
language changes that removed references to the performance
reviews. Section 44.66.020 included agency programs that
set out the agency performance audits. Section 44.66.040
included the extensive list of the duties of the review
team. Section 44.66.070(2) defined the review team.
Representative Josephson stated that when he arrived in the
legislature in 2013, he would have thought the legislature
funded things it said it was going to fund. He asked if in
around 2016 the item had been in the budget's adjusted
base, but it had been removed.
Ms. Koeneman replied that the budget request had been put
forward by LB&A. When Legislative Council reviewed the
budgets, it had made the determination to not move forward
with that. There had been partial funding in 2016 for FY
17, but Legislative Council had denied the increment in FY
18 through FY 21.
Representative Josephson referenced the language "every
year, the legislative audit division shall ensure..." [Sec.
44.66.020(a)]. He was thinking of the Permanent Fund
Dividend debate and the senior deduction and other things
discussed by Representative Jonathan Kreiss-Tomkins. He
highlighted that the legislature was the appropriating
body.
Ms. Curtis clarified that Legislative Council did not
review the LB&A budget. She explained the appropriation was
separate. She detailed that the funding had been cut in the
House Finance Committee process. She relayed that because
the item was in her statutes, she was required to request
an increment annually. She reported that the request was
$1.8 million in the current year. She noted it was a
substantial amount of funding.
9:24:28 AM
Representative Wool looked at the list of agencies outlined
in statute that were to be reviewed in specific years. He
observed that the first three departments on the list had
been completed and then the reviews had stopped at the
Office of the Governor, agencies of the executive
[legislative] branch, and the Court System in 2017. He
asked for verification that $1.8 million [the figure cited
for FY 21 by Ms. Curtis] would pay for one year. He
surmised it would depend on the year. He observed that
based on the statutory list it would be one, two, or three
audits depending on what was called for in a particular
calendar year.
Ms. Curtis agreed.
Representative Sullivan-Leonard asked about the anticipated
savings from the legislation that would discontinue the
performance reviews.
Representative Thompson replied that the budget request was
$1.8 million in FY 21. The increment had been removed from
the budget, the same as it had been in the past three
years. He highlighted that the increment had not been
funded for four years. He questioned why it should be
included in statute and annually listed in the budget.
Representative Wool appreciated Ms. Curtis's statement that
a new approach should be made. He thought there was some
value in conducting reviews of agencies that were receiving
$300 million per year. He speculated that if it cost $1
million to $2 million, the state may end up saving $5
million. He continued there were definitely savings to be
had and people want to cut budgets all of the time, but
there were ways to cut and ways to take a deep dive to
discover how to operate more efficiently. He remarked that
sometimes it was necessary to spend money to save money. He
thought a new approach sounded reasonable.
9:27:10 AM
Co-Chair Johnston OPENED and CLOSED public testimony.
HB 121 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 121 Repealer List 2.4.2020.pdf |
HFIN 3/3/2020 9:00:00 AM |
HB 121 |
| HB 121 Sponsor Statement 2.4.2020.pdf |
HFIN 3/3/2020 9:00:00 AM |
HB 121 |
| HB 209 Budget Processes in the States - Spring 2015 Tables 2-5-20.pdf |
HFIN 3/3/2020 9:00:00 AM |
HB 209 |
| HB 209 FY11-20 OMB PS ED 2-5-20.pdf |
HFIN 3/3/2020 9:00:00 AM |
HB 209 |
| HB 209 Sectional Analysis v. M 1.28.2020.pdf |
HFIN 3/3/2020 9:00:00 AM |
HB 209 |
| HB 209 Sponsor Statement 1.28.2020.pdf |
HFIN 3/3/2020 9:00:00 AM |
HB 209 |