Legislature(2003 - 2004)
09/28/2004 09:03 AM House BUD
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* first hearing in first committee of referral
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+ teleconferenced
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ALASKA STATE LEGISLATURE
JOINT COMMITTEE ON LEGISLATIVE BUDGET AND AUDIT
September 28, 2004
9:03 a.m.
MEMBERS PRESENT
Representative Ralph Samuels, Chair
Representative Mike Chenault
Representative Mike Hawker
Representative Beth Kerttula
Representative Reggie Joule, alternate
Senator Gene Therriault, Vice Chair
Senator Ben Stevens
Senator Con Bunde
Senator Lyman Hoffman
MEMBERS ABSENT
Representative Vic Kohring
Senator Gary Wilken
COMMITTEE CALENDAR
^APPROVAL OF MINUTES
^REVISED PROGRAMS (RPLs)
^EXECUTIVE SESSION
^CONSIDERATION OF AUDITS
^AUDIT REQUESTS
^OTHER COMMITTEE BUSINESS
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
KAREN REHFELD, Deputy Commissioner
Department of Education and Early Development (EED)
Juneau, Alaska
POSITION STATEMENT: Explained RPL 05-5-0655.
CHERYL FRASCA, Director
Office of Management & Budget (OMB)
Office of the Governor
Juneau, Alaska
POSITION STATEMENT: Presented RPL 05-5-6002 to the Joint
Committee on Legislative Budget and Audit.
SHELIA KING, Finance Officer
Postsecondary Education Commission
Department of Education and Early Development
Juneau, Alaska
POSITION STATEMENT: Answered questions regarding RPL 05-5-6002.
STEPHANIE BUTLER, Director Operations/Outreach
Postsecondary Education Commission
Department of Education and Early Development
Juneau, Alaska
POSITION STATEMENT: Answered questions regarding RPL 05-5-6002.
DICK MYLIUS, Deputy Director
Division of Mining, Land and Water
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Answered questions regarding RPL 10-5-5046.
DAVID TEAL
Legislative Fiscal Analyst
Legislative Finance Division
Juneau, Alaska
POSITION STATEMENT: Provided information to the Joint Committee
on Legislative Budget and Audit, testifying on RPL 10-5-5046.
PAT DAVIDSON, Legislative Auditor
Division of Legislative Audit
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Provided information on the audit requests
for the Alaska Railroad Corporation rolling stock procurement
and the Alaska Aerospace Development Corporation financial
controls.
ACTION NARRATIVE
TAPE 04-28, SIDE A
Number 0001
CHAIR RALPH SAMUELS called the Joint Committee on Legislative
Budget and Audit meeting to order at 9:03 a.m. Representatives
Samuels, Chenault, Hawker, Kerttula, and Joule (alternate) and
Senators Therriault, Ben Stevens, Bunde, and Hoffman were
present at the call to order.
APPROVAL OF MINUTES
SENATOR BUNDE made a motion to approve the minutes of the July
28 and 29, and August 18 meetings. There being no objection,
the minutes from those meetings were approved.
REVISED PROGRAMS (RPLs)
SENATOR BUNDE made a motion for RPL 05-5-0655, Additional
Federal Authority for US Department of Education Funds, to be
approved by the committee.
CHAIR SAMUELS objected.
Number 015
KAREN REHFELD, Deputy Commissioner, Department of Education and
Early Development (EED), reminded the committee that EED is
requesting approval of approximately $37.4 million in additional
federal authorization in the current year. These would be pass-
through funds to school districts. Ms. Rehfeld thanked David
Teal for his analysis and additional comments regarding this
RPL. The federal education funding for No Child Left Behind has
been increasing since fiscal year 2002. She explained that [the
department] hasn't requested enough authorization in the budget
to allow those funds to enter and be granted to the school
districts. Ms. Rehfeld highlighted that these are all direct
education program dollars that go to school districts.
SENATOR HOFFMAN asked if this additional request is the result
of unexpected underachieving students.
MS. REHFELD explained that these funds are coming from the US
Department of Education for various title programs. Those
increases at the federal level aren't specifically related to
the number of students who are or are not achieving rather it's
related to the number of children targeted under the specialized
programs, including migrant students, economically disadvantaged
students, and special education students.
CHAIR SAMUELS recalled that one of Mr. Teal's comments was in
regard to rounding up this request to $40 million so that this
process doesn't have to be revisited. Therefore, Chair Samuels
asked if there is a reason the department didn't do the
aforementioned.
MS. REHFELD said that she didn't have a problem with rounding up
the request to $40 million. However, the desire was to be as
specific as possible. She noted that if the authorization isn't
needed, the funds would lapse.
REPRESENTATIVE KERTTULA moved that the committee increase RPL
05-5-0655 to $40 million. There being no objection, it was so
ordered.
CHAIR SAMUELS removed his objection to the committee's approval
of RPL 05-5-0655. [Therefore, the committee treated RPL 05-5-
0655, in the amended amount of $40 million, as approved.]
Number 045
REPRESENTATIVE HAWKER made a motion for RPL 05-5-6002, College
Goal Sunday Grant, to be approved by the committee.
CHAIR SAMUELS objected for purposes of discussion.
Number 048
CHERYL FRASCA, Director, Office of Management & Budget (OMB),
Office of the Governor, informed the committee that [OMB] has
been awarded. This RPL will provide private sector funding to
help host College Goal Sunday, which is held to assist families
in applying for financial aide to attend college. She noted
that this is a request for statutory designated program
receipts.
REPRESENTATIVE HAWKER pointed out that the amount requested on
the grant page is $60,000. However, under the "PURPOSE" heading
it says: "The Alaska Commission on Postsecondary Education
(ACPE) is requesting authorization to receive and expend Lumina
Foundation Grant funds up to $60,000 for College Goal Sunday (of
CGS) each year for a three-year period." Therefore, he
questioned whether the request is for $60,000 or three times
that amount.
CHAIR SAMUELS turned attention to [the September 20, 2004, grant
approval from Lumina Foundation] for $210,000, which would be
for $70,000 [each year] for a three-year period. Therefore, he
questioned why the amount requested on the RPL is for $60,000.
Number 065
SHELIA KING, Finance Officer, Postsecondary Education
Commission, Department of Education and Early Development,
explained that when the RPL was originally completed, the
[department] thought the grant would be for $60,000. However,
the award notification specified that the College Goal Sunday
would receive $70,000 each year for a three-year period, which
amounts to $210,000 over the next three years.
MS. FRASCA suggested that the committee amend the RPL to reflect
that for this year the amount requested is $70,000 and the
amount will be submitted as part of [OMB's] budget in future
years.
REPRESENTATIVE HAWKER made a motion that the amount requested in
RPL 05-5-6002 be increased from "$60,000" to "$70,000" for this
year. There being no objection, it was so ordered.
SENATOR BEN STEVENS highlighted that one seminar is expected to
be held in Anchorage, Bethel, Juneau, and Palmer and two
seminars are to be held in Fairbanks. He questioned why two
seminars would be held in Fairbanks.
Number 082
STEPHANIE BUTLER, Director Operations/Outreach, Postsecondary
Education Commission, Department of Education and Early
Development, explained that two seminars are being held in
Fairbanks because [the department] couldn't find one site large
enough to house the number of individuals expected to attend.
Therefore, the seminar was divided into two smaller sites in
Fairbanks. Ms. Butler, in response to Chair Samuels, clarified
that [the department] was able to find larger locations in
Anchorage, but not in Fairbanks. She further clarified that
[the department] doesn't expect Fairbanks to have twice as many
individuals attending as in Anchorage.
Number 095
SENATOR HOFFMAN turned attention to the bullet point on page 5,
which specifies that the primary focus is on 19-year-olds.
However, Senator Hoffman opined that many 19-year-olds would've
already made their decision [regarding college]. He further
opined that the target group should be juniors [in high school]
and even possibly younger individuals. Therefore, he questioned
the reasoning behind targeting 19-year-olds.
MS. BUTLER explained that 19-year-olds were targeted because
this program specifically assists those filling out the
paperwork necessary for those individuals to avail themselves of
higher education. Ms. Butler informed the committee that this
is part of a larger initiative that actually contacts middle
school students in an attempt to get them to think about
college.
SENATOR HOFFMAN surmised then that Ms. Butler didn't see the
need to [target] 17-year-olds which is when students are
deciding whether to attend college.
MS. BUTLER pointed out that this service will be provided to
anyone, regardless of age. She noted her agreement that the
decision is made earlier than age 19, and therefore other
initiatives make contact with individuals over the course of the
middle school and secondary years.
SENATOR HOFFMAN opined that the primary focus of the [College
Goal Sunday] should be a younger age, possibly 16 or 17 years of
age.
MS. KING reiterated that the College Goal Sunday grant is meant
specifically to assist individuals with the paperwork necessary
to receive financial aide. "This particular grant, I don't
believe is necessarily seen as one to persuade, but more one to
assist them in getting through the paperwork process," she
noted.
REPRESENTATIVE KERTTULA asked if there is an expectation that
this grant/program will be expanded in the future to include
those younger individuals.
MS. KING informed the committee that the [commission] will seek
corporate sponsorship for some of the printed materials that
will be provided to other age groups. As [the commission]
becomes aware of other grant opportunities, those will certainly
be pursued. She said that she wasn't aware of any grant
opportunities for those outreach functions.
CHAIR SAMUELS removed his objection to RPL 05-5-6002. There
being no further objection, RPL 05-5-6002 was approved.
Number 150
REPRESENTATIVE HAWKER made a motion that the committee approve
RPL 10-5-5046, BLM [Bureau of Land Management] Recordable
Disclaimers.
CHAIR SAMUELS objected for purposes of discussion.
MS. FRASCA explained that this RPL is part of $2 million that
will be received from the Bureau of Land Management to do these
recordable disclaimers. This RPL will help free up some funds
to be used for the R.S. 2477 work. In federal [fiscal year] 04,
approximately $650,000 will be received. However, only $500,000
is expected to be spent in Alaska's fiscal year 05.
Number 161
SENATOR THERRIAULT inquired as to the language of the original
appropriation because under the "PREVIOUS LEGISLATIVE
CONSIDERATION" heading it specifies that funds were to work on
navigable waters and R.S. 2477s.
DICK MYLIUS, Deputy Director, Division of Mining, Land and
Water, Department of Natural Resources, explained that the
appropriation was in Section 22 of the CIP [capital improvement
project] for 2003, which was specifically for navigable waters
or R.S. 2477 assertions. In further response to Senator
Therriault, Mr. Mylius confirmed that the language is clear that
the money can flow between the two projects.
SENATOR HOFFMAN inquired as to why this RPL is before the
committee rather than being approved in the normal budgetary
process. He also inquired as to whether the remainder of the
funds would be approved in the normal budgetary process.
MS. FRASCA interjected that the legislature provided some money
in previous appropriations. This, she clarified, is new federal
money that has become available for this purpose, which is why
this RPL is before the committee. She noted that this will be
addressed in the fiscal year 06 budget in which a capital
project will be requested for the remainder of the dollars in
order that the funds can be used over the next several fiscal
years.
SENATOR THERRIAULT related that he had a conversation with Cam
Toohey, Department of Interior, who relayed that [the Department
of Interior] had just released [or taken action] on some new
recordable disclaimers. A fair amount of success has occurred
and it's nice that this RPL allows that to be covered with
federal dollars and to shift the dollars to R.S. 2477s.
CHAIR SAMUELS noted that the committee does have an update with
regard to the progress of the navigable waters team. Although
there has been a bit of a roadblock, he opined that it's
becoming more streamlined.
Number 194
CHAIR SAMUELS removes his objection to RPL 10-5-5046.
SENATOR HOFFMAN asked if any of the dollars requested in the RPL
will be used for new positions.
MR. MYLIUS explained that this would provide funding for an
Alaska Department of Fish & Game (ADF&G) position that exists
due to funding received from the legislature in the 2003 CIP.
Therefore, state funding is being shifted to the federal
funding. There will be one new position in DNR as well as part-
time hydrologist position. He clarified that there would be one
new position between the two departments.
Number 203
DAVID TEAL, Legislative Fiscal Analyst, Legislative Finance
Division, directed attention to the legislative fiscal analyst's
comment: "The balance from the previous appropriation for
navigable waters will be available for redirection at the
committee's discretion." He said the aforementioned may be an
overstatement because the appropriation in Section 62(a) SLA
2003 actually states the purposes for these contracts. While
money appropriated to the Joint Committee on Legislative Budget
and Audit for these contracts won't be needed, the money will
probably have to lapse because it was appropriated for a
specific purpose. Although redirection implies that the funds
can be used for anything else, Mr. Teal didn't believe that to
be the case.
CHAIR SAMUELS recalled that the original motion included either
navigable waters or R.S. 2477s.
MR. TEAL clarified that the funds could be redirected for either
contract for either department. However, the funds couldn't be
spent on something completely different because the purpose was
clearly stated in Section 62.
CHAIR SAMUELS related his assumption that the funds could move
from water work to land work.
MR. TEAL said that would be fine.
Number 233
SENATOR HOFFMAN said, "In your explanation you gave is that this
is going to supplant some other funds that we've previously
appropriated, specifically on at least one position. What are
those dollars going to be used for then?"
MR. MYLIUS related the hope that those funds would be used for
the R.S. 2477 project.
Number 244
CHAIR SAMUELS reiterated that he removed his objection and asked
if there was any further objection. There being no further
objection, RPL 10-5-5046 was approved.
EXECUTIVE SESSION
REPRESENTATIVE HAWKER made a motion to move to executive session
for the purpose of discussing confidential audit reports under
AS 24.20.301. There being no objection, the committee went into
executive session at 9:25 a.m.
CHAIR SAMUELS brought the committee back to order at 9:53 a.m.
CONSIDERATION OF AUDITS
REPRESENTATIVE HAWKER made a motion for the sunset audits for
the Board of Pharmacy and the Board of Dental Examiners to be
released to the appropriate agencies and boards for response.
There being no objection, it was so ordered.
REPRESENTATIVE HAWKER made a motion for the fiscal year 03
statewide single audit to be released to the public for
response. There being no objection, it was so ordered.
AUDIT REQUESTS
Number 265
PAT DAVIDSON, Legislative Auditor, Division of Legislative
Audit, Alaska State Legislature, informed the committee that two
audit requests were submitted to Chair Samuels' office for
consideration. The first audit is from Representative Gruenberg
who would like the committee to review the decision-making
process used by the Alaska Railroad Corporation (ARRC) in the
procurement of rolling stock and related large machinery and
equipment. The second audit request is from Senator Wilken and
it requests an audit of the financial internal controls and
investment policy utilized by the Alaska Aerospace Development
Corporation.
SENATOR BEN STEVENS addressed the ARRC audit request. He noted
his assumption that the ARRC is using federal funds to purchase
the rolling stock and the related heavy equipment. Therefore,
he questioned whether ARRC would fall under a single audit due
to receipt of federal funds. He further questioned why the
state would perform an audit that the federal government would
do.
MS. DAVIDSON replied that the federal audit would review
procurement in-depth from a federal compliance standpoint. This
audit request is to review the options and decision-making.
SENATOR BEN STEVENS surmised then that the single audit would
specify that there are approved procurement procedures that the
board is supposed to follow and the audit would review the
procurement procedures adopted by the board.
MS. DAVIDSON agreed that the aforementioned would be reviewed,
and added that the audit would also review why the number of
options were chosen as well as the waiting criteria utilized.
SENATOR BEN STEVENS said that he disapproves of the ARRC audit
request and would call for a vote once the discussion is
complete.
REPRESENTATIVE HAWKER related similar concerns. He highlighted
that the request specifies the auditor should determine whether
the rate of return versus the cost of capital justified the
purchases. He characterized the aforementioned as a vague
request. Therefore, he inquired as to what Representative
Gruenberg's concern is.
MS. DAVIDSON related her belief that the concern is in regard to
whether the federal funds that are available are being used
wisely or are merely being spent because they are available.
The aforementioned drives the request regarding the rate of
return versus the cost of capital. Coupled with that is the
fact that since the ARRC is outside of the Executive Budget Act,
its capital appropriations never go through legislative
scrutiny.
Number 323
REPRESENTATIVE JOULE asked if Ms. Davidson or anyone else knew
of an instance of questionable decision-making that has driven
this request.
MS. DAVIDSON replied, "There's something behind the request,
somebody's concerned about it." However, she said that she
couldn't really articulate the concern. This audit request
would probably result in the review of three to four major
procurements. She further clarified that the requestor wants to
make sure that the ARRC Board of Directors is making wise
decisions regarding expenditures.
SENATOR BEN STEVENS acknowledged that the initiation of the
request is for a reason. However, without a substantive
allegation he questioned the need to review the decision of an
independent board appointed by the executive branch.
REPRESENTATIVE HAWKER questioned whether this audit request is a
"fishing trip" or if there is enough specificity to define a
"work project." For example, the language "related large
machinery and equipment" seems to be a broad definition that
would include tracks. Therefore, he questioned whether that
language would require examination of the proposed rail spur to
the Port of Anchorage. Furthermore, the last statement of the
audit request seems to essentially request an inquiry of the
entire ARRC. The last statement says: "I encourage the
Division of Legislative Audit to pursue other issues related to
major purchases by the Alaska Railroad Corporation that may come
to the Division's attention during the course of the audit."
MS. DAVIDSON informed the committee that there have been two
major purchases of locomotives over an eight-year period. The
decision to purchase locomotives in recent years relates in some
part to which locomotive to purchase in the prior years.
Therefore, in discussing this with the requestor, Ms. Davidson
felt that it was necessary to go back to the original purchase.
With regard to the "rolling stock and the related machinery,"
the requestor is primarily interested in locomotives and any
machinery that had to be purchased because a particular
locomotive was purchased. Ms. Davidson informed the committee
that the last statement of the audit request regarding "other
issues" was her recommendation. However, she noted that it's up
to the committee. Ms. Davidson said that she could ask the
requestor to supply the committee with more information.
CHAIR SAMUELS said that this request could be held to the next
meeting at which Representative Gruenberg, the requestor, could
provide information.
SENATOR THERRIAULT agreed with the aforementioned suggestion.
CHAIR SAMUELS announced that Representative Gruenberg's request
would be on the agenda for the next meeting.
Number 437
MS. DAVIDSON moved on to the audit request from Senator Wilken,
which requests to perform an audit of the financial internal
control and investment policy used by AADC. This request is
partly due to the passage of HB 494, which removed AADC out of
the Fiscal Procedures Act and allowed it to establish its own
accounting system. The legislation moved the management of the
funds from the Department of Revenue's Treasury Division into
the control of AADC. Regarding whether this audit would
duplicate the efforts of AADC's federal compliance audit and
financial audit, Ms. Davidson said [this audit] would build on
those. She reminded the committee that an internal control
audit is more in-depth than reviewing the financial statements.
Furthermore, the audit is such that it can't begin until three
months after fully moving to the new accounting system. Ms.
Davidson noted that AADC will continue to be present on the
state's payroll system while moving to its own accounting
system.
MS. DAVIDSON, in response to Chair Samuels, commented that the
timing should be fine with the balance of those requests
waiting. She expressed the need to be sure to maintain contact
with AADC in order to ensure that the audit doesn't begin until
AADC is completely on its new system.
REPRESENTATIVE HAWKER inquired as to when the first audit, after
moving under its own accounting system, would occur.
MS. DAVIDSON explained that the state's accounting system has
been used as the original book of entry with duplicate entries
into the new system. The transition will occur some time in
fiscal year 05, and therefore the first financial statements
should be presented with the new accounting system for fiscal
year 05. She related that typically the audits for [AADC] occur
in August, September, and October.
REPRESENTATIVE HAWKER asked if the fiscal year 05 internal audit
included any evaluation of the control systems of the Timberline
system.
MS. DAVIDSON said that it will include that. She noted that the
Defense Audit Agency will be included as well. Furthermore, the
state's federal compliance opinion is actually qualified because
of AADC and its financial reporting to the federal government.
Therefore, [the division] will have two places from which to
work: the financial audit and the defense audit. She noted
that the audit will review the internal controls, which reviews
all the users, including management. In further response to
Representative Hawker, Ms. Davidson confirmed that there are
existing and diagnosed deficiencies with the internal control
system at AADC. She recalled that AADC received a qualified
federal compliance opinion because of reporting deficiencies.
She further recalled that testimony for HB 494 indicated that
[AADC] wanted to move off the state system because of the
aforementioned and the belief that the new system would better
meet the federal compliance reporting requirements.
Number 549
REPRESENTATIVE HAWKER made a motion that the special audit
request for AADC be approved by the committee. There being no
objection, it was so ordered.
OTHER COMMITTEE BUSINESS
MS. DAVIDSON requested that the committee solicit a contract for
audit services. She informed the committee that at the end of
the last budget cycle, the audit division was reappropriated its
unexpended unobligated balance, which amounted to approximately
$280,000. Ms. Davidson explained that the Division of
Legislative Audit is an organization that is primarily personal
services. She related her view that this is one-time money, and
therefore she wouldn't be doing any hiring. Therefore, the
question is in regard to how to utilize the aforementioned
resources. She noted that there are many pending audits, [new]
audits, recurring audits, and committee-requested audits before
the division. Thus, she requested the ability to put out a
solicitation for a contract for audit services.
MS. DAVIDSON informed the committee that in the past, contracts
were solicited for individual audits, which were typically
sunset audits. She explained that sunset audits are very
defined in scope and have been reviewed by the division in the
past, which makes such audits easy to contract out. However,
committee-approved audits are more difficult to contract out.
All this has led to the desire to bring in more manpower for the
single audit, which is a traditional audit. Ms. Davidson
explained that the notion is to rent audit staff based on the
cost per hour and the level of experience. The hope is to
obtain 2,000-3,000 audit hours to work on the single audit. For
example, when a team of auditors goes to the Department of
Education and Early Development, instead of the team consisting
of three auditors, it will consist of four auditors who will
work at the direction of the division. The aforementioned seems
to be the most effective manner in which to utilize staff.
Furthermore, this will achieve two goals, she opined. First,
the division's staff will be free to work on the special audits
faster. Second, the division will be able to move the timeline
on the single audit back allowing the single audit discussion to
occur in June or July rather than September. The federal
agencies want to move to a point at which the audit is complete
by the end of March with a month for distribution. [With these
contractual services], the division can come closer to meeting
that goal.
MS. DAVIDSON explained that the process would be such that bids
would be obtained from agencies. The auditors would have to
meet all of the division's minimum qualifications and will still
go through the nonpartisan requirements that exist for current
staff.
TAPE 04-28, SIDE B
MS. DAVIDSON indicated that the contract would amount to no more
than $225,000, which would consume most of the carry-forward
money.
Number 649
REPRESENTATIVE HAWKER made a motion that the committee authorize
the legislative auditor to solicit and award one or more
professional services contracts for professional services in an
aggregate amount not to exceed $225,000 for the purposes of
assisting in the performance of the statewide single audit for
fiscal year 04. There being no objection, it was so ordered.
MS. DAVIDSON reminded the committee that at the last meeting she
mentioned that the Office of the Inspector General of the
Environmental Protection Agency (EPA) had issued a report
reviewing the state Village Safe Water Program audit. The
report makes recommendations that oversight from the federal
agency be approved. The report has been distributed to the
committee, she noted. She offered to provide any additional
information if the committee so desired.
ADJOURNMENT
There being no further business before the committee, the Joint
Committee on Legislative Budget and Audit meeting was adjourned
at 10:23 a.m.
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