Legislature(2007 - 2008)BELTZ 211

03/20/2008 09:00 AM Senate STATE AFFAIRS


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ SB 198 CAMPAIGN FINANCE/ELECTION CODE VIOLATIONS TELECONFERENCED
Failed To Move Out Of Committee
*+ SB 203 LEGISLATIVE ETHICS: VOTING & CONFLICTS TELECONFERENCED
Heard & Held
*+ SCR 12 AMEND UNIFORM RULES: ABSTAIN FROM VOTING TELECONFERENCED
Heard & Held
*+ SB 199 CAMPAIGN FINANCE COMPLAINTS TELECONFERENCED
Moved SB 199 Out of Committee
*+ SB 213 LEGISLATIVE AUDIT DIVISION POWERS TELECONFERENCED
Moved CSSB 213(STA) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
            SB 213-LEGISLATIVE AUDIT DIVISION POWERS                                                                        
                                                                                                                                
10:23:42 AM                                                                                                                   
CHAIR MCGUIRE announced the consideration of SB 213.                                                                            
                                                                                                                                
10:23:56 AM                                                                                                                   
SENATOR FRED  DYSON, Alaska  State Legislature,  said he  has had                                                               
interesting  discussions on  the  scope  of auditors'  authority.                                                               
Page 1 of SB 213 notes that:  "Audit has authority to look at the                                                               
books  and accounts  of all  custodians of  public funds  and all                                                               
disbursing  officers  of  the state."  Senator  Dyson  wants  the                                                               
division  to have  authority, if  directed by  Legislative Budget                                                               
and Audit  Committee (LBA),  to audit  any organization  that has                                                               
public  funds. Pat  [Davidson]  said she  only  has authority  to                                                               
audit state organizations.  The bill makes it clear  that she has                                                               
authority  to audit  any  organization that  gets  money from  or                                                               
through the state, including federal money.                                                                                     
                                                                                                                                
10:26:17 AM                                                                                                                   
SENATOR BUNDE said line 13, page  1, is current law, and he asked                                                               
if the difference of opinion is what constitutes a custodian.                                                                   
                                                                                                                                
SENATOR DYSON  said yes. "Paragraph  2 doesn't quite go  where we                                                               
would want, because  it seems to mandate that that  be done every                                                               
three  years, and  I wouldn't  want Pat  and her  organization to                                                               
have  to  audit  every  group that  receives  money  every  three                                                               
years." So the new paragraph is necessary.                                                                                      
                                                                                                                                
10:27:12 AM                                                                                                                   
SENATOR STEVENS  said senior citizen organizations  are funded by                                                               
the  state, including  the  one  in Kodiak,  which  pays for  and                                                               
performs its  own audit. That duty  will now go to  the state. Is                                                               
that what would happen?                                                                                                         
                                                                                                                                
SENATOR DYSON said he would hope  not. His goal is giving LBA the                                                               
authority to order  an audit, "at their discretion  and for their                                                               
reasons," on any organization that  gets money through the state.                                                               
"It wouldn't be anything that they  would be required to do, only                                                               
that they would have the authority to do."                                                                                      
                                                                                                                                
SENATOR FRENCH  said the bill says  "shall … perform an  audit of                                                               
an organization that  receives money from or  through the state."                                                               
He asked how many organizations that entails.                                                                                   
                                                                                                                                
SENATOR DYSON said he missed that.                                                                                              
                                                                                                                                
10:28:38 AM                                                                                                                   
CHAIR  MCGUIRE moved  conceptual Amendment  1 to  replace "shall"                                                               
with "may" on line 4 of page 1.                                                                                                 
                                                                                                                                
SENATOR FRENCH  objected and  said, "Don't we  want them  to keep                                                               
doing what they have been doing?"                                                                                               
                                                                                                                                
CHAIR MCGUIRE apologized.                                                                                                       
                                                                                                                                
SENATOR FRENCH suggested adding "as necessary" after "shall".                                                                   
                                                                                                                                
SENATOR GREEN suggested putting "may" at the end of line 22.                                                                    
                                                                                                                                
CHAIR MCGUIRE  said conceptual  Amendment 1  will change  page 2,                                                               
line 22 or 23, adding "and may" or "or may".                                                                                    
                                                                                                                                
SENATOR  GREEN  said  the  drafter  might  want  to  rewrite  the                                                               
paragraph.                                                                                                                      
                                                                                                                                
CHAIR MCGUIRE  said that  is conceptual  Amendment 1.  Hearing no                                                               
objections, conceptual Amendment 1 was adopted.                                                                                 
                                                                                                                                
SENATOR  GREEN said  the legislature  can't audit  or require  an                                                               
audit of a school  district. It is up to the  school board or the                                                               
borough assembly  to order the  audit. "I  think we are  making a                                                               
mighty  reach here  to think  that we  can go  to nonprofits  and                                                               
funders that  happen to  receive state money  that they  can come                                                               
under our authority."  She doesn't object to it,  but there needs                                                               
to be  legal consideration.  There are  audits in  the department                                                               
that  are   required  for  school  districts,   but  they  aren't                                                               
necessarily legislative audits.                                                                                                 
                                                                                                                                
10:31:31 AM                                                                                                                   
SENATOR DYSON said  some states have this wording so  they can be                                                               
a  watch dog  for public  funds.  Several states  are allowed  to                                                               
audit schools.  He asked  what can  be done if  there is  a rogue                                                               
school district that the state  pours money into. The legislature                                                               
has the responsibility  to watch public funds. He  said there was                                                               
some scandal  with money that  was distributed to  nonprofits out                                                               
of  health and  human  services. There  was  a cozy  relationship                                                               
between  the department  and the  grantees.  Currently the  audit                                                               
division  can  only  audit  health and  human  services  and  its                                                               
process, not  how the money  was used.  He wants the  division to                                                               
see how the public money was used.                                                                                              
                                                                                                                                
SENATOR  BUNDE  noted  that  the  Adak  School  District  had  no                                                               
students for a year or  more, and the superintendent kept getting                                                               
money  and the  school  board  kept hiring  him  because he  kept                                                               
hiring  them. He  thinks the  education  department finally  shut                                                               
them down.  He asked if the  bill refers to federal  money passed                                                               
through the state and funded directly.                                                                                          
                                                                                                                                
SENATOR DYSON  said, "From or  through the state, that's  line 23                                                               
and 24 on page 2."  The federal government trusts the legislature                                                               
to be stewards of the money it gives.                                                                                           
                                                                                                                                
10:34:12 AM                                                                                                                   
SENATOR  GREEN  said the  federal  government  sometimes does  an                                                               
audit, taking a  cue from the state. She noted  an audit on sewer                                                               
wastewater.                                                                                                                     
                                                                                                                                
SENATOR DYSON said  he has seen some past federal  audits, and if                                                               
the state is  not conforming in several areas there  will be some                                                               
draconian things that  happen. He wants to catch  them before the                                                               
federal government does.                                                                                                        
                                                                                                                                
10:35:14 AM                                                                                                                   
PAT DAVIDSON,  Auditor, Division  of Legislative Audit,  said her                                                               
ability  to go  beyond  state agencies  is limited.  "Legislative                                                               
audit  has  very broad  but  very  vague authority."  Legislative                                                               
auditors  have been  around prior  to  statehood. Auditing  other                                                               
than a  state agency depends  upon the grant agreement,  and some                                                               
allow audits and  some don't. If, for example,  the Department of                                                               
Health and  Social Services gave  money to  an entity to  build a                                                               
health facility and LBA required  Davis-Bacon wages, unless it is                                                               
in  the grant  agreement that  they  will comply  with that,  she                                                               
doesn't have a basis  for an audit. The intent of  the bill is to                                                               
open up  the scope of inquires  that could follow state  money or                                                               
federal money  flowing through  the state.  It would  broaden her                                                               
ability to  look at financially and,  possibly, performance-based                                                               
issues. If  the legislature wanted legislative  audit to evaluate                                                               
a  school district's  policies, procedures,  and how  well it  is                                                               
achieving goals, the bill will allow it.                                                                                        
                                                                                                                                
10:38:39 AM                                                                                                                   
SENATOR BUNDE asked if Ms. Davidson wants this authority.                                                                       
                                                                                                                                
MS. DAVIDSON  said anything that  will help the  legislature make                                                               
decisions is something that her group should do.                                                                                
                                                                                                                                
SENATOR BUNDE  said he  served on  LBA and  has seen  some audits                                                               
with  personal and  political agendas,  and audits  aren't cheap.                                                               
How much does it cost to conduct an audit?                                                                                      
                                                                                                                                
MS. DAVIDSON said from $10,000 to  over $100,000. "We do bill out                                                               
under federal  at a complete  billing rate  at about $50  an hour                                                               
for the  division." Professionals  do the  work. "Whether  or not                                                               
you want that  section to be able  to be done at  my direction as                                                               
legislative auditor or you want  to invest that authority only in                                                               
the  budget  and  audit  committee  to authorize  that  …  is  an                                                               
important distinction."  Now the legislative auditor  is required                                                               
to do  certain things, and  the way  it is written  is permissive                                                               
for  the  division to  start  a  financial-related audit.  But  a                                                               
performance  audit needs  to be  approved by  LBA. The  LBA is  a                                                               
gatekeeper of her work load.                                                                                                    
                                                                                                                                
10:41:23 AM                                                                                                                   
SENATOR BUNDE suggested  that the cost of an audit  should be put                                                               
forward so  the LBA knows what  it will cost, particularly  if an                                                               
audit is not motivated by altruist reasons.                                                                                     
                                                                                                                                
MS.  DAVIDSON  said  financial   audits  can  be  estimated,  but                                                               
performance audits  can't. "You don't  know what you're  going to                                                               
get into.  You don't  know what sort  of records  are available."                                                               
The LBA asks if an audit will be big or small or go smoothly.                                                                   
                                                                                                                                
10:43:01 AM                                                                                                                   
SENATOR  BUNDE said  the number  of  audits will  blossom if  the                                                               
committee isn't extremely thoughtful.                                                                                           
                                                                                                                                
SENATOR  STEVENS said  the custodians  perform their  own audits,                                                               
and  asked if  the  division has  access to  those.  It would  be                                                               
duplication unless the organization's audit was respected.                                                                      
                                                                                                                                
MS. DAVIDSON  said she  would not duplicate  any audits,  and she                                                               
would not  assume the  responsibility for  audits of  any entity.                                                               
That model already  exists. The division is required,  by law, to                                                               
audit  the state's  financial statements;  however, organizations                                                               
such as the Alaska Housing  Finance Corporation and the permanent                                                               
fund contract with  CPA firms to do their audits.  There is a way                                                               
the division can rely on the work of others.                                                                                    
                                                                                                                                
10:45:38 AM                                                                                                                   
SENATOR  STEVENS  asked  if  the  division  can  use  the  school                                                               
districts' audits.                                                                                                              
                                                                                                                                
MS. DAVIDSON said  she believes that is true. She  has been asked                                                               
to audit school busses. There  are a number of statutes governing                                                               
how  school  districts  deal  with   bussing.  The  statutes  are                                                               
referred to when the money is  given to the districts, so she has                                                               
done those audits. The division  doesn't repeat financial audits.                                                               
The  bill  authorizes  something beyond  that,  like  performance                                                               
audits or something very specific.                                                                                              
                                                                                                                                
CHAIR MCGUIRE  asked if anything  needs to  be added to  the bill                                                               
regarding duplication.                                                                                                          
                                                                                                                                
MS. DAVIDSON said  conceptual Amendment 1 may do  that. The other                                                               
policy is  to let the  legislative auditor initiate the  audit or                                                               
require direction from LBA. It  is the practice of the profession                                                               
to work with other auditors instead of duplicating work.                                                                        
                                                                                                                                
CHAIR MCGUIRE said  SB 213 is a good idea  and will keep everyone                                                               
on their toes, but she wants legal advice.                                                                                      
                                                                                                                                
10:48:18 AM                                                                                                                   
SENATOR  BUNDE asked  Ms. Davidson's  opinion  if the  additional                                                               
audits allowed by the bill should be originated by the LBA.                                                                     
                                                                                                                                
MS. DAVIDSON  said that  is a  policy call.  She has  seen issues                                                               
come up where she approached the  chair of LBA. Not being able to                                                               
initiate  audits wouldn't  create any  substantial barriers.  The                                                               
legislature needs to decide who to give the authority to.                                                                       
                                                                                                                                
SENATOR BUNDE  said he agrees with  the goal of the  bill. But he                                                               
is concerned  about political motives  from the people on  LBA to                                                               
intimidate people or cause trouble.                                                                                             
                                                                                                                                
SENATOR FRENCH asked how many  extra audits can actually be done.                                                               
There are 2,000 groups that receive grants through the state.                                                                   
                                                                                                                                
10:50:52 AM                                                                                                                   
MS.  DAVIDSON   said  audits  with  statutory   deadlines  are  a                                                               
priority.  Everything else  just gets  done as  it comes  up. The                                                               
delay   can  be   several  months.   There  have   been  informal                                                               
discussions about  creating a priority process.  She doesn't know                                                               
how  many audits  will be  generated  by SB  213. As  legislators                                                               
understand that  these organizations  can be audited,  there will                                                               
be more requests coming to LBA.                                                                                                 
                                                                                                                                
10:52:22 AM                                                                                                                   
SENATOR  DYSON said  there may  be some  additional costs  at the                                                               
discretion of  LBA, but fraud and  wasting money has a  cost. The                                                               
legislature  has  an  innate responsibility  to  be  stewards  of                                                               
public money. There is no downside  to SB 213. It may be misused,                                                               
but  he trusts  those on  the LBA.  On page  2, line  23, he  has                                                               
thought about adding "when approved by LBA" after "perform".                                                                    
                                                                                                                                
10:54:31 AM                                                                                                                   
SENATOR BUNDE moved conceptual Amendments 1 and 2.                                                                              
                                                                                                                                
CHAIR  MCGUIRE said  conceptual Amendment  1 has  been addressed.                                                               
The committee can offer conceptual Amendment 2, as follows:                                                                     
                                                                                                                                
     Page 2, line 23, following "perform"                                                                                       
          Insert: "when approved by the Legislative Budget                                                                      
          and Audit Committee"                                                                                                  
                                                                                                                                
SENATOR BUNDE said there may be  some problems, but there is more                                                               
good  to   this  bill  than  negatives.   A  positive  unintended                                                               
consequence will be more forethought.                                                                                           
                                                                                                                                
Hearing no objection, conceptual Amendment 2 was adopted.                                                                       
                                                                                                                                
SENATOR BUNDE moved to report SB 213 from committee with                                                                        
individual recommendations and attached fiscal note(s). There                                                                   
being no objection, CSSB 213(STA) passed out of committee.                                                                      
                                                                                                                                
SENATOR DYSON said he will get legal advice to ensure that the                                                                  
statutes do not preclude this, "and if there is, we'll deal with                                                                
it."                                                                                                                            
                                                                                                                                

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