Legislature(1997 - 1998)

02/11/1998 04:00 PM House BUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
Legislative Budget and Audit                                                   
February 11, 1998                                                              
4:00 p.m.                                                                      
Senate Finance Committee Room                                                  
State Capitol                                                                  
Juneau, Alaska                                                                 
                                                                               
                                                                               
Tape: LBA-981102                                                               
Tape 1 Side 1                                                                  
                                                                               
                                                                               
CALL TO ORDER                                                                  
                                                                               
Chairman Phillips convened the meeting of the Legislative Budget               
and Audit Committee on February 11, 1998, at approximately 4:06                
p.m. in the Senate Finance Committee Room of the State Capitol,                
Juneau, Alaska.                                                                
                                                                               
In your packet, you should have gotten a Status Report of                      
Outstanding Audits prepared by Pat Davidson.  We also got a                    
letter from AIDEA which is required by law; it goes to the                     
Chairman but I feel as Chairman of the Committee that you should               
be made aware of it.  It is a procedural thing.                                
                                                                               
PRESENT                                                                        
                                                                               
The following members were present:                                            
                                                                               
 Senators     Representatives                                                  
                                                                               
 Chairman Phillips    Representative Martin                                    
 Senator Adams    Representative Bunde                                         
 Senator Pearce     Representative Croft                                       
 Senator Torgerson (alternate)   Representative                                
Therriault                                                                     
       Representative Hanley                                                   
(alternate)                                                                    
                                                                               
ALSO PRESENT                                                                   
                                                                               
Pat Davidson, Acting Chief Legislative Auditor, Dane Larson,                   
Legislative Auditor, Anchorage Manager; Mike Greany, Legislative               
Fiscal Analyst                                                                 
                                                                               
PROPOSED COMMITTEE LEGISLATION                                                 
                                                                               
Chairman Phillips - Mike Greany has two concepts he'd like us to               
look out and hopefully introduce as legislation requested by this              
Committee.                                                                     
                                                                               
Mike Greany - There is actually two items before you today.  One               
deals with the 45-day rule; the other is legislation I've                      
requested.  The Legislative Access to Executive Branch                         
Information and Resources memo includes draft legislation that                 
I've laid out.  I've given you the background, the problem and my              
proposed solution.  Generally in carrying out the functions of                 
the the budget analyst office for this Committee and the Senate                
and House Finance Committees, we rely on information that is in                
the possession of various state agencies that have been used in                
the course of administering their programs.  Actually this is                  
something we've taken for granted over the years.  In other                    
words, I've been doing this about 15 years and only in the last                
few years has this even become an issue where when we're trying                
to get basic information such as student count or how much money               
it costs to operate each one of the ferry vessels it is not very               
forthcoming any more.                                                          
                                                                               
I characterize it as a cone of silence or filter and I don't                   
think the Legislature wants to be in the position of having to                 
duplicate all those resources that exist in the Executive Branch.              
We should be able to plug in and get the information and get it                
in a raw fashion and not have to wait until it's been reviewed by              
the policy types or whatever type of packaging they want to put                
around it before it is furnished to us.  We want to get the                    
information in a timely fashion.  The legislation I've proposed                
was developed in concert with the Tam Cook.  What it would be is               
an addition to Title 37 of the Executive Budget Act spelling out               
that this information should be available and forthcoming when                 
requested.                                                                     
                                                                               
Senator Adams - Just by looking at this legislation it basically               
looks too broad.  I don't know what the public or press can get                
from different agencies.  Many of my concerns have to do with                  
confidential information that maybe Oil & Gas or Natural                       
Resources might have.  Are we getting too broad?                               
                                                                               
Senator Torgerson - I would have those same concerns.  This is                 
not meant to be so broad that we couldn't protect confidential                 
information.  In other words if we were asking for confidential                
information I think we would also need some Statutes in place.                 
What I have in mind here is to the standard information which                  
should be available to anybody.  We need Tam Cook to clarify this              
confidentiality issue.                                                         
                                                                               
Senator Adams - What information are we not getting today without              
this legislation?                                                              
                                                                               
Mike Greany - For example, you or I should be able to get the                  
fall student counts that go into the formula.  They are due on                 
October 15.  Generally in years past that information has been                 
available within a month of that time and given to us.  We can                 
use it when we do our preliminary spending analyst getting an                  
estimate of the cost of full funding the formula. We look at what              
the percentage increase in enrollment and run it against last                  
year's appropriation.  It comes out close but its something we                 
use.  This year we didn't actually get those counts until we got               
the Governor's budget around December 15.  I think we should have              
been able to get it a month earlier.  We've recently run into a                
problem where we are trying to find out how much it costs to                   
operate each vessel of the ferry system.  That information the                 
Department said they have, they were short staffed about getting               
it updated for the most recent year but it was there.  It was to               
be provided us.  It didn't come.  We were able to dig it out on                
our own from other sources.  Quite frankly it's turned into a                  
hassle just getting basic information.                                         
                                                                               
(Representative Hanley and Senator Pearce are present)                         
                                                                               
Representative Croft - In the case of the ten days, it seems                   
there is some information they should give almost immediately and              
in some cases the ten days isn't enough time.  You were talking                
about the October 15 information and that a month was about                    
appropriate but you were disappointed to get it by December 15.                
I know a little flexibility in that timeline and some indication               
that they have it or have it compiled is necessary.                            
                                                                               
Mike Greany - The ten day was actually suggested by Tam Cook and               
what she was addressing here was you might be in a situation                   
where the agency agrees to give you the information and that's it              
and there's no performance as to when you will get it.  Tam Cook               
thought some time certain should be on there.  Personally I would              
be comfortable within a reasonable time or some words like that.               
My real intent is to put out on the table the problem and this is              
one of the solutions.  There are other solutions.                              
                                                                               
Representative Martin - I think it is a step in the right                      
direction in helping the Legislature get information we need to                
make informed decisions on the budget.  I differ with Senator                  
Adams in that it may not be broad enough.  As Chairs of Finance,               
Senator Pearce and Representative Hanley can tell us the problems              
they've had in getting information.  If we let this proposed                   
legislation go through then they can really express themselves on              
the committee level and they could have the agencies come forward              
and say we are frustrated with this and that.  Why can't we get                
the information?  I'd like to see a broader piece of legislation.              
I think it is too narrow.                                                      
                                                                               
Representative Bunde - There was some expressed concern about                  
confidentiality.  As auditors you are dealing with confidential                
information all the time are you not and do you have a level of                
security in your Division that confidential information would not              
leak out?                                                                      
                                                                               
Mike Greany - I'm not the budget guy.  The auditors have access                
to confidential information that I don't and I'm not asking for                
that.  They can get at tax records; I have no interest in getting              
at tax records.  My interest would be more like requests such as               
Department of Revenue saying if these certain changes were made                
to the corporate tax structure how many firms would it impact?                 
What would be the dollar impact?  I don't need to go in and look               
at the actual files.                                                           
                                                                               
Representative Bunde - If there was verbiage relating to                       
budgetary information would that focus on information you wanted               
but reduce the anxiety about the other branch of auditors and the              
kind of confidential information they may have?                                
                                                                               
Mike Greany - I would consider it an improvement in here if there              
was a specific portion that said either this does not include                  
confidential information or if it does there will be policies or               
procedures or rules put in place to ensure that they remain                    
confidential.                                                                  
                                                                               
Representative Bunde - I would consider the latter rather than                 
the former.  On the broader scope you call it a cone of silence I              
call it a conspiracy of silence but I think that you are not the               
only person.  The Legislature in general is being limited in                   
access to people and information and I share your quest for                    
reasonable access to timely information.                                       
                                                                               
Senator Torgerson - Does this cover the University?                            
                                                                               
Mike Greany - Yes, it would.  The definitions and the language                 
here are in the context of Title 37 of the Executive Budget Act                
and under the meaning of agencies it would fit the University.                 
It also as you notice in the title refers to the Judicial system               
and the Executive Branch.  I want to emphasize as I did in my                  
memorandum we don't have a problem with the Judicial Branch.  Any              
request for information from them we've gotten in a timely                     
manner.  It is the Executive Branch we are having the problem                  
with.                                                                          
                                                                               
Representative Hanley - I don't know how to draft it; I agree                  
with Mr. Greany that we need cooperation to get this stuff out.                
When you say information regarding the operation of an office or               
agency that is not that I'm not trying to get the broad stuff but              
also I don't think we need to be asking or have the authority to               
ask something's about a welfare case.                                          
                                                                               
Chairman Phillips - I think the Senate and House Finance                       
Committees will bring up those points at the time it's heard in                
the respective committees.  I just wanted to get a sense of the                
Committee whether they wanted to go in this general direction                  
before we proceed.  Unless you want to do some drafting right                  
here?                                                                          
                                                                               
Senator Torgerson MOVED to introduce the bill as defined by the                
Legislative Analyst in both the House of Representatives and                   
Senate.                                                                        
                                                                               
Chairman Phillips - Hearing no objection, the motion was                       
APPROVED.                                                                      
                                                                               
Chairman Phillips - On the 45-day rule on RPL's you basically                  
have five different options which I'm assuming the members have                
seen and that you are recommending option no. 2 as our course of               
action?                                                                        
                                                                               
Mike Greany - This memo was initially handed out at the December               
Committee meeting and we didn't have time to address it.  It was               
also handed out again prior to this meeting and I hope people                  
have had time to look at it.  The final options were developed in              
concert with Tam Cook and George Utermohle in Legal Services                   
laying out the various possibilities.  What I've done is                       
recommended to you one of the them, option no. 2.  I could                     
describe why in more detail.                                                   
                                                                               
Chairman Phillips - Are there any questions on the other options?              
                                                                               
Senator Torgerson - On option no. 3 can we selectively put in the              
front part of the budgets which ones we want to approve (tape                  
inaudible)                                                                     
                                                                               
Mike Greany - We are selective to some degree by specifying which              
fund sources.  This past interim you've been dealing with Federal              
funds, the two nongeneral mental health fund types, the new                    
statutory designated receipts and the EVOS funds.  That front                  
section is limited to those specific fund sources now.  If I                   
understand your question could we take it a little further and                 
specify a particular program and amounts?  My feeling is perhaps               
but I think based on discussions I've had with Tam Cook we might               
be getting into some of the separation issues and some of the                  
contingent language issues that we are now in Court over.  What                
Tam Cook was trying to help us do was come up with a statutory                 
change to the status quo that could be most legally defensible                 
and the option no. 2 in her mind was most legally defensible.  It              
is just a variation on the existing theme that the Executive has               
agreed to and worked under.                                                    
                                                                               
The major change is instead of being a turned down or denied, the              
RPL goes into effect 45 days after the Committee turned it down                
if the Governor makes the findings to approve it that waiting                  
period would be extended such that it would go into the next                   
regular session so the Legislature would have the opportunity to               
back up that Committee denial of the RPL.  It would be similar to              
Executive Orders.  In effect, there is a clock running up through              
the 60th day of the regular session that you have up to that day               
to disapprove an Executive Order, you have the 60 days to back up              
the Committee's denial of the RPL while the Governor could not go              
ahead with the expenditure of those until that 60 day clock                    
during session has run.  That's the thinking there.                            
                                                                               
You need that front section that Senator Torgerson referred to                 
initially to make the appropriation of the additional receipts.                
They are basically legally out the door with that front section                
appropriation.  What has happened is this Committee has been put               
in the middle with the review process saying that before the                   
money is actually spent it should come before the Committee and                
hopefully the Committee will approve it.  If the Committee                     
doesn't approve it, then the Governor has a mechanism to go ahead              
with it.  In option no. 3, you would have no front section                     
appropriation making additional receipts.  The agencies would be               
in the position of no RPL process; that they would have to live                
exactly within the budgets appropriated to them in the regular                 
session and that any adjustments would have to come through a                  
supplemental appropriation bill that subsequent session.  But as               
you and I think that through, we can think about some                          
noncontroversial Federal funds or other fund sources you may want              
to deal with.                                                                  
                                                                               
On the other hand, if you feel that the Governor has used this                 
45-day rule to the point it is causing you heartburn then the                  
ultimate approach is to not have that front section.  Since this               
process was put into place, there has been five instances where                
the Governor has used the 45-day rule and if you're interested                 
they are:  The first two occurred during Governor Hickey's                     
Administration, one dealing with the Red Sea Urchin Fishery and                
the other with the Stick Airport; the third one dealt with the                 
overexpenditures during the current Administration; the fourth                 
one was in the Fall with the Pilt issue and the most recent was                
the EVOS attempt dealing with the Homer Spit land acquisition.                 
                                                                               
Representative Martin - I'm glad Mr. Greany did go over the                    
history.  It shows after t40 years, three Governors have used it               
and this could be accelerated.  If the Legislature now does not                
address it, future Legislatures may find themselves with an                    
increased budget they didn't dream.  If they continue with the                 
open authority of so called program receipts, they are never                   
going to let us know what the number is in the first place.  I                 
can see a Governor waiting until the day after session to come to              
the Committee and say these are new expenditures, new RPL's and                
if we don't answer them in 45-days then our agency will                        
automatically spend it and we've lost our control of the budget.               
I'd take option no. 2.  I'd like to get rid of all RPL's but                   
since option no. 2 is more reasonable, I'd accept it.  I hope the              
Committee realizes we have to close that door on the 45-day rule.              
                                                                               
Representative Bunde - If option no. 2 were adopted, do you see                
time and limitations on the Administration to react to your                    
Division?                                                                      
                                                                               
Mike Greany - I could foresee some circumstances where their                   
ability to react would be limited.  I have a problem with the                  
undo; I don't really know.  In my experience over the years what               
kind of RPL rose to that kind of level that it absolutely needed               
to action, I think those even come down to judgment calls.  I can              
remember some flood situations where we needed authority to spend              
additional Federal money, i.e., highway washouts.  On the other                
hand for true emergencies, there are in Statutes provisions for                
the Governor to tap any other available appropriation with the                 
proper findings.  There are alternatives.  A real emergency would              
be so massive you probably would have to deal with it in a                     
Special Session.                                                               
                                                                               
Representative Croft - If we adopt some of these proposals we                  
wouldn't have the Homer Spit land and the Pilt money which we                  
rejected and the Governor wouldn't be able to then done it in the              
manner he did.                                                                 
                                                                               
Mike Greany - If for example you used option no. 2 and you put                 
the effected period sometime into the next session, there would                
be 60 days for the Legislature to back up the Committee's                      
turndown of the process.  There are a lot of things that could                 
happen during that 60 day period.  First of all, instead of                    
releasing the money last November/December, the Governor would                 
not have been able to do that.  The earliest he would have                     
released it would have been the 60th day of the current session                
which would have been February 25.  Unless before hand you pass                
some other legislation or took some other action to make it                    
happen, the Committee could have met again, rescinded its action               
and approved it.  That would have been one possibility but under               
the instance in hand the example you site, the Governor would not              
have been able to in effect release the money in the Fall.  It                 
would still be locked up until the Legislature had acted to turn               
it loose.                                                                      
                                                                               
Chairman Phillips - It's all based on the right of the                         
Legislature to appropriate.                                                    
                                                                               
Senator Adams - On option no. 2, the second paragraph sometimes                
the Legislature is kind of slow in proceeding with these so I'd                
like to see changing the words.  The Governor could proceed with               
the expense of the funds when the full Legislature failed to take              
action to implement the Committee's denial of approval within ten              
days of start of Session.  It gives the Legislature a chance to                
look at those and if they fail to act on it . . . then the                     
Governor has that option to go ahead and expend.                               
                                                                               
Mike Greany - What ever number of days the Committee is                        
comfortable with - I just threw out the 60th - it is something                 
you're use to see as far as the Executive Orders.  There are the               
deadlines.                                                                     
                                                                               
Representative Martin - I'm wondering if we could give Mr. Greany              
the opportunity to now ask Legal Service to draw proposed                      
legislation and then introduce it.  The give and take will be                  
discussed at the Finance Committees which have a lot more                      
experience.  My major concern is the Constitutional authority                  
that Representative Croft brought up.  Expenditures only by                    
Legislature will not be circumvented by this rule.  We need to                 
close that rule.                                                               
                                                                               
Representative Hanley - We can do what Mr. Greany suggests                     
although Senator Pearce and I have to take the blame because we                
grant broad appropriation.  We appropriate everything we know we               
are getting and everything we don't know we're getting and at                  
that point the Governor gets the projects.  It sounds like we                  
have a Constitutional problem.  I would prefer to eliminate the                
45-day because - if there are specific projects submitted by the               
Governor that are turned down then apparently you get into legal               
questions.  If Budget and Audit turns it down then it doesn't go               
or we can get rid of the front section.  That does have the                    
impact of possibly effecting things that we'd all agree could go               
ahead and it would slow things down.  We have that option at any               
time.                                                                          
                                                                               
Senator Torgerson - My option is to tighten up the front section               
to what you actually know or don't have a problem with.  I don't               
have a suggestion as to what that would be right now.  I think                 
you could throw out a few of these past problems we have and                   
maybe keep designated program receipts in there.  They don't seem              
as controversial as EVOS or some Federal program money.                        
                                                                               
Mike Greany - I can think back and every time we've thought we've              
had that nailed down we've found another way to carry it one step              
further.  A couple of observations.  As Representative Hanley                  
said option no. 3 to eliminate the front section is always                     
available to the Finance Committees or Conference Committee.                   
Another reason I was suggested option no. 2 rather than 3 was it               
is valuable to the Legislature's overall oversight responsibility              
that we have this RPL process.  It does give an occasion for the               
Executive Branch to come in and let you know what is going on                  
before they proceed.  In many instances, it is an oversight tool               
available to you.                                                              
                                                                               
One other possible effect by eliminating the front section and                 
going with option no. 3 would be a tendency to build excess                    
Federal authority into the regular budget.  So without putting a               
value on it in some cases it may be a good thing and it may not                
be.  They maybe asking for more authority than they need if they               
don't know the RPL process is going to be available to them.  I                
think it will just mean that the Committee and staff will have to              
put great scrutiny in analyzing the other and Federal funds than               
we have in the past.  We have tried to focus on Federal and other              
and not just the general more specifically in the last couple of               
years and I think we would have to do that more strenuously if we              
didn't have the front section appropriating the additional                     
receipts.                                                                      
                                                                               
Representative Bunde MOVED to go forward with Option No. 2 to                  
extend the 45-day period with legislation drafted to implement                 
Option No. 2.                                                                  
                                                                               
Senator Adams objected.                                                        
                                                                               
Representative Croft  - It's only happened five times in our                   
history and the last two examples are ones I remember and I think              
we were wrong and the Governor was right.  Those were close                    
votes.  It was a rare thing and we're taken very drastic measures              
on something that is not usually a problem.  We don't need to                  
shoot ourselves in the foot over something that has only happened              
once or twice.                                                                 
                                                                               
Chairman Phillips hearing the objection called for the roll call               
vote.                                                                          
                                                                               
 Yea Representative Martin, Representative Therriault,                         
Senator Pearce, Representative    Hanley,                                      
Representative Bunde, Senator Phillips                                         
 Nay Senator Adams, Representative Croft                                       
                                                                               
Chairman Phillips  - The motion was APPROVED by a 6-2 vote.                    
                                                                               
SPECIAL AUDIT REQUESTS                                                         
                                                                               
Chairman Phillips - The next thing we have on our calendar is a                
request for an audit.                                                          
                                                                               
Senator Adams MOVED that the audit requested by Speaker Phillips               
of the Alaska Science and Technology Foundation grants approval                
procedures be approved.                                                        
                                                                               
Chairman Phillips - Hearing no objection, the motion was                       
APPROVED.                                                                      
                                                                               
OTHER BUSINESS                                                                 
                                                                               
Chairman Phillips - I want to make the Committee aware of the two              
reports, one by Pat Davidson, the other by Dane Larson.  I wanted              
to provide the Committee with an opportunity to ask questions of               
Ms. Davidson or Mr. Larson.                                                    
                                                                               
Senator Pearce - Because all of us received these late this                    
afternoon, I want an opportunity to read them before I ask                     
questions I'd like to ask that we have another meeting soon after              
we've had an opportunity to look at them.                                      
                                                                               
Senator Adams - I concur.                                                      
                                                                               
Representative Therriault - I agree.  I'm wondering if we want to              
give them an opportunity to give us a brief overview.                          
                                                                               
Chairman Phillips - That's what I wanted to do so they could tell              
us how they arrived at their conclusions.                                      
                                                                               
Pat Davidson - At the last Budget and Audit Committee, we were                 
asked to give the Committee more information about the work that               
we do and come up with a cost if any associated with relocation                
of the Legislative Audit position to Anchorage.  Both Dane and I               
took an independent approach to this, independent of one another.              
First I provided the Committee with a little history of what                   
Legislative Audit is, basically it was established by the Fiscal               
Procedures Act which basically predates the Constitution.  It                  
established for an auditing function to be in the Legislature and              
recognized it was an important element in legislative control.                 
Those same elements were echoed in the Alaska Constitution where               
it again was set up as part of the legislative function.                       
Statutes followed that more thoroughly describe what they wanted               
us to do.                                                                      
                                                                               
One of the things I did was to take a look at the workload of                  
Legislative Audit.  I basically came up with three categories.                 
First one being sunset.  Second being Committee requests and                   
third the Federal compliance portion of our workload.  We are                  
looking at the numbers here in a span of about five years.                     
                                                                               
What I did was look at them, discussed them with the managers who              
ran those jobs.  If you take away the geographic constraints,                  
where the staff is, and just look at whose agency you needed to                
spend more time at and where would the job have been more                      
efficiently run, that is where I came up with these numbers.  The              
limitation on that is that with a staff of 30 professionals you                
are going to develop individual expertise.  A lot of these                     
agencies are complex.  I would say outside the Alaska Railroad                 
Corporation no body knows their operation better than two or                   
three of our staff in Anchorage.  They know it very well.  That                
is going to be an element that really didn't come into play here.              
We were just looking at geographics.                                           
                                                                               
My analyst basically showed that if you set financial compliance               
audits aside, combined sunset and LB&A requests, the workload is               
about 5% heavier in Anchorage than it is in Juneau.  The                       
financial compliance portion of the audit dominants the workload               
in the Juneau office.                                                          
                                                                               
We've tried to lessen the impact of sunset audits on our office                
by extending lapse dates. We tried legislation to get a few of                 
the boards and commissions out of the sunset law.  Generally both              
have failed.  It sends a message back to us from the legislators               
that they are continually interested in that approach, therefore,              
we continue to do those audits.                                                
                                                                               
Budget and Audit requested at the last meeting I gave a five year              
history on the number of those requests.  They come and go.                    
Sometimes we'll get a lot of requests, other times less.                       
                                                                               
When we go into the financial compliance portion most of our                   
financial compliance audit hours relate to the statewide single                
audit.  Basically what it does is keep our nose and being your                 
eyes and ears into the Executive Branch financial operation.  We               
are in there every year looking.  We're looking for over-expended              
appropriations.  We are looking for compliance with                            
appropriations.  We're looking at properties of money.  We're out              
there doing more than just putting an opinion on the financial                 
statement.                                                                     
                                                                               
One of the things we have to recognize is we are in a situation                
right now where we are not being able to be timely with meeting                
the Committee's requests.  They are building up and we are                     
getting slow.  We have to do something about that.  My                         
proposition is if we look at the financial compliance audit what               
we really do is have two audits going on.  One primarily benefits              
the Legislature and it looks at state compliance and compliance                
with financial related laws and regulations.  There is also a                  
Federal compliance element to it.  The primary beneficiary of the              
Federal audit is the Governor and basically the Executive Branch               
agencies.  Everytime they sign a grant agreement, they agree they              
are going to have their audit done.  I think it may be time for                
them to step up and use their resources to do that.  There are a               
couple of ways to do that.  We could act as the contract agent                 
for them.  We could let a contract for them and monitor it using               
our expertise in the area.  Or we could just turn it over to                   
them.  That's my analysis on the workload.                                     
                                                                               
I think one of the options or the discussions about contracting                
out our audit process is you have to recognize the loss of                     
knowledge that is available to the Legislature when it is run by               
a contractor.  We can no longer answer questions that typically                
come up.  I answer a lot of questions coming from Legislative                  
Finance and various aides.  We are in there auditing and know                  
what's going on.  So the loss if you contracted out is your staff              
won't be able to answer those questions for you.                               
                                                                               
(End, Tape:  LB&A-981102 Tape 1 Side 2)                                        
                                                                               
. . . to the Anchorage office.  In the past it's averaged about                
$5,000 but the maximum would be about $10,000.  If we move more                
than four positions we would probably have to get additional                   
lease space in Anchorage.  Right now we are in the State Office                
Building and to our budget there is no cost.                                   
                                                                               
My conclusion on the situation is the Legislator Auditor position              
still belongs in Juneau.  I think that if you put aside the issue              
of whether you can contract all or a part of statewide, I don't                
think that there is that significant difference between what the               
staff in Juneau should be versus in Anchorage.  I think that the               
Legislative Auditor should be at the call of the Legislature.  I               
think he or she should be here and talking to you.  I think that               
the Legislative Auditor is a position that should be active in                 
promoting the implementation of our audit recommendations and                  
that means being in the face of the people who are making the                  
decisions on the Executive Branch side and primarily those people              
are in Juneau.                                                                 
                                                                               
Dane Larson - Pat outlined some of our process.  We tried (cough,              
tape inaudible) the same as far as looking at the special audit                
requests.  What could most efficiently be done.  We came up with               
different results but primarily the key finding that I came up                 
with is that I believe that there is opportunity here for you to               
allow us to change business.  I recommend that we contract out                 
the statewide audit.  I recommend that we contract out the                     
financial audit and Federal compliance audit.  That would allow                
us to focus on special audits, allow us to get those done in a                 
timely manner.  With that contracted out, we could rebalance the               
staff, reducing long distance auditing.  What we are currently                 
doing is using Juneau staff to conduct Anchorage audits, travel                
wise, telephone wise; we're talking with people about what is                  
going on in Juneau.  There is a lot of inefficiencies.                         
                                                                               
I believe there is an opportunity to pick up the budget also                   
here.  That is significant.  I believe the Legislature gets more               
from special audits, focusing on the trouble areas.  Statewide                 
audits paint everything with a broad brush whether there are                   
problems or not.  That is the problem I have with that approach.               
I think there is very little legislative interest in our                       
statewide interests.  We get few requests for copies.                          
Traditional financial audits simply don't meet legislative needs.              
From the auditors perspective, special audits are different than               
statewide in that they focus on trouble areas; they are narrow in              
scope.  Many times they are performance related.  Because of that              
difference, they don't limit themselves to private sector                      
contract.                                                                      
                                                                               
Legislative Audit should not perform work that can be more                     
efficiently done in the private sector.  Statewide work is                     
routine, repetitive work that traditional CPA firms do.  They can              
do it, meet the state's recording needs for significantly less                 
money.  We contacted four national CPA firms for rough estimates.              
The difference between what they told us and what we are spending              
to do it is somewhat around half to three quarter million dollars              
per year.  That savings would reduce the budget and also improve               
our performance audit capabilities.  We can shift resources that               
we use from statewide to performance auditing.                                 
                                                                               
I think we should get the bid out this Spring; I think if it's                 
delayed more than a couple of months I think those bidders                     
wouldn't have an opportunity to do pre-year end audit work which               
is real efficient for them and as a result the bids would be                   
higher.                                                                        
                                                                               
I looked at three indicators as to location where special audits               
should have been done most efficiently, location of state workers              
and location of legislators and staff for most of the year.                    
Overall it is 70% Anchorage.  Specifically I came up with 68%                  
special audits from the past six years should have been done in                
Anchorage.  Most of them were done out of Juneau since that's                  
were the staff is but we're saying Anchorage is where it should                
have been done.  Seventy three percent of the state's                          
Anchorage/Juneau workforce is in Anchorage.  Workforce location                
is fundamental to the auditing.  We survey top management                      
policies and controls, but we spend much of our time with lower                
management or rank and file workers.  This is particularly                     
critical in performance.  Listening to management's party line in              
Juneau is a starting point, but it doesn't constitute an audit.                
Eighty five percent of the Anchorage/Juneau legislators are in                 
Anchorage most of the year.  I also compared the Anchorage/Juneau              
workforce as far as a trend.  I looked at 1990 and 1997.                       
Anchorage went up 31%; Juneau went down 4%, the shift is                       
definitely in that direction and probably will continue.  An                   
auditor has to audit where the services are being provided so                  
that trend may well continue.                                                  
                                                                               
Pat mentioned the cost differential.  This reorganization will                 
save money on lease cost, annual travel.  It would be a very slow              
degree by moving cost.  We don't have an out of budget payment                 
for lease cost, but I think we pay for the space we occupy, paid               
for from different funds but we as a state pay for the State                   
Office Building. Our space in Anchorage is 86 cents a foot and                 
that is significantly less than what it would be here.  Travel                 
cost every year averages $28,000 to send Juneau staff to                       
Anchorage for Anchorage jobs.  The bottom line on cost savings is              
$500,000-750,000 a year which is pretty much overwhelming and                  
these other costs are relatively minor.                                        
                                                                               
As to where the Legislative Auditor should be based, I think it                
should be based where the workload is and I believe that is                    
Anchorage.  I believe the audit requires a direct hands on                     
management and I don't feel it can be effectively managed from                 
Juneau.  The auditor would even with a differential spend more                 
time in Anchorage than in Juneau, would need to be in Juneau for               
session anyway and a great many of the audit issues could be                   
addressed at that point.  So travel to Juneau by the Legislative               
Auditor would be relatively minor.  Given the workload which is                
substantially in Anchorage if you had a Juneau Legislative                     
Auditor they would have to travel to Anchorage certainly more                  
than an Anchorage auditor would travel to Juneau.  That is the                 
bottom line.  Travel costs would be reduced.                                   
                                                                               
The auditor needs to maintain a close year around relationship                 
with the Committee and the Legislature as a whole and I think                  
this plan provides for that.  It is more efficient and effective.              
The budget reduction is we will be more efficient in this                      
approach through less long distance auditing.  There will be huge              
cost savings from contracting out the statewide and again I would              
propose splitting that between beefing up our special audit                    
capabilities and budget reduction.  How much of a budget cut                   
depends on the bids we get and what sort of resources you would                
like.  This is what we look for in agencies.  This is one of                   
those opportunities where we can improve services and cut the                  
budget.                                                                        
                                                                               
Representative Therriault - With regard to your comment that the               
audit function can't be managed long distance, you can manage                  
though long distance.  Do you think your work function has not                 
been effective?                                                                
                                                                               
Dane Larson - What I'm talking about is the scope of the work.  I              
don't believe it would be appropriate to have 30 in one office                 
and 5 in another and try to manage 30 from a distance.  I believe              
it is easier to do a smaller shop and that is what I'm proposing               
here.                                                                          
                                                                               
Representative Therriault - With regard to contracting out, what               
credibility do you give to the argument that although some of                  
that is rote number crunch, it provides a basis of understanding               
in and outside the working so that when you do have a performance              
audit you have a base to build on?  What do you think about the                
loss of that by contracting out?                                               
                                                                               
Dane Larson - I would agree that there is a loss but for the kind              
of money we are talking about, we can afford to do some special                
audits, afford to spend time monitoring certain features.  We                  
could have several people full time doing just that and coming                 
anywhere near these sort of savings.  One person full-time $50-                
60,000 could easily cover a lot of that.  I would also propose                 
occasional cycle basis departmental audits of financial and                    
operation in content.  That would provide a great deal of                      
expertise.                                                                     
                                                                               
Representative Therriault - In the audit work being done on                    
behalf of the Administration that could be split off, if it was                
split off and they do it or they contract with us to do it, what               
kind of monetary money is attached to that?                                    
                                                                               
Pat Davidson - I don't know that I can answer that well right now              
in terms of what my approach would be somewhat similar to Mr.                  
Larson's and say if we got another funding source for that part                
the first thing we would do is how would we get more timely with               
our Committee requests.  If there is any left over then it would               
be a budget reduction.  One of the things I'm sensitive to is                  
cost savings versus cost shifting.  Federal compliance audit                   
costs are eligible for Federal reimbursement, however, except for              
programs in Health and Social Services, most Federal programs are              
capped and that is a spending limit on it.  If you introduce some              
of those funds for audit costs, you are going to have reduction                
in the program costs.  Right now DHSS for its uncapped programs                
does bill out through what is called statewide cost allocation                 
plan.  All the costs associated with what we do (tape inaudible)               
and those funds right now are general funds.  So when you look at              
that that has to be an element of the discussion.  It isn't like               
there is new free money out there to pay for it.  In a lot of                  
cases when I look at the three departments where we spend most of              
our efforts on a Federal level Health and Social Services,                     
Education and Transportation, only DHSS is the agency that I                   
don't believe is going to take a hit to their programs because                 
they maybe already funnel off some costs to pay for their                      
administrative services.  That will be more of a cost shift than               
a cost savings.                                                                
                                                                               
Representative Therriault - So the function and proposed savings               
that you spoke about, Mr. Larson, is that everything we are                    
talking about here or a portion?                                               
                                                                               
Dane Larson - It is roughly 30%.                                               
                                                                               
Representative Martin - I think this is a worthwhile thing to do.              
For the ten years I've been on the Committee, we never had an                  
understanding of what you all were doing or why.  This has been                
of great value.  I think we need more time before we make a                    
decision.                                                                      
                                                                               
Chairman Phillips - What we've done is have the auditors audit                 
themselves.                                                                    
                                                                               
Senator Adams - I'm going to need more information.  One is I                  
know there was a turnover rate in the Division and one has stated              
less turnover rate.  I'd like the turnover rate for the last                   
couple of years in the Division.  The other thing is I need to                 
weigh out the contracting out.  What happens is the agencies lose              
its familiarity or knowledge of an agency when the Legislature                 
wants a day to day accountability of different agencies.  I hope               
people will look at.  The other thing is contracting versus a                  
resource person and I think that is going to be a problem.  If                 
you think it's cheaper contracting out but you change your RFP's               
so you have to train another agency, I don't know in the long run              
you save.  I think in the long run you're better with a resource               
person within the agency.                                                      
                                                                               
Chairman Phillips - I need some time to; I hope to get a meeting               
scheduled for next Tuesday or Wednesday.  We'll try for next                   
Wednesday.  That will give us a week to look at this, to clarify               
in our minds which way we want to go.                                          
                                                                               
ADJOURNMENT                                                                    
                                                                               
Chairman Phillips adjourned the meeting at 5:15 p.m.                           
                                                                               
(End, Tape:  LB&A-981102 Tape 1 Side 2 #658)                                   
                                                                               
LB&A 4 02/11/98                                                                

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