Legislature(2013 - 2014)HOUSE FINANCE 519

02/22/2013 08:00 AM Senate LEGISLATIVE BUDGET & AUDIT


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08:01:10 AM Start
08:01:59 AM Approval of Minutes
08:02:16 AM Executive Session
08:45:55 AM Other Committee Business
08:58:44 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Audits - EXECUTIVE SESSION
- State of Alaska Single Audit for FY12
- DOT/PF Knik Arm Bridge & Toll Authority
+ Other Committee Business TELECONFERENCED
- Alaska Statewide System for Employee Time
(ASSET) Audit Update
- Consideration of Audit Request
                    ALASKA STATE LEGISLATURE                                                                                  
             LEGISLATIVE BUDGET AND AUDIT COMMITTEE                                                                           
                       February 22, 2013                                                                                        
                           8:01 a.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Anna Fairclough, Chair                                                                                                  
Senator Click Bishop                                                                                                            
Senator Cathy Giessel                                                                                                           
Senator Donald Olson                                                                                                            
Senator Mike Dunleavy (alternate)                                                                                               
                                                                                                                                
Representative Mike Hawker, Vice Chair                                                                                          
Representative Kurt Olson                                                                                                       
Representative Andy Josephson                                                                                                   
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Kevin Meyer                                                                                                             
                                                                                                                                
Representative Alan Austerman                                                                                                   
Representative Bob Herron                                                                                                       
Representative Scott Kawasaki (alternate)                                                                                       
Representative Bill Stoltze (alternate)                                                                                         
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
APPROVAL OF MINUTES                                                                                                             
EXECUTIVE SESSION                                                                                                               
RELEASE OF AUDITS                                                                                                               
OTHER COMMITTEE BUSINESS                                                                                                        
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
KRISTIN CURTIS                                                                                                                  
Legislative Auditor                                                                                                             
Legislative Audit Division                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Provided information on the audit request.                                                               
                                                                                                                                
SENATOR HOLLIS FRENCH                                                                                                           
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:   Requested an  audit of  the Department  of                                                             
Revenue (DOR) oil and gas production tax audit process.                                                                         
                                                                                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
8:01:10 AM                                                                                                                    
                                                                                                                                
CHAIR  ANNA FAIRCLOUGH  called the  Legislative Budget  and Audit                                                             
Committee meeting to  order at 8:01 a.m.   Representatives Olson,                                                               
Josephson,  and Hawker  and Senators  Fairclough, Bishop,  Olson,                                                               
Giessel, and  Dunleavy (alternate)  were present  at the  call to                                                               
order.                                                                                                                          
^Approval of Minutes                                                                                                          
                      Approval of Minutes                                                                                   
                                                                                                                                
8:01:59 AM                                                                                                                    
                                                                                                                                
CHAIR  FAIRCLOUGH  announced that  the  first  order of  business                                                               
would be approval of the minutes.                                                                                               
                                                                                                                                
REPRESENTATIVE HAWKER  made a  motion to  approve the  minutes of                                                               
January 29,  2013.   There being no  objection, the  minutes from                                                               
the meeting of January 29, 2013 were approved.                                                                                  
                                                                                                                                
^Executive Session                                                                                                            
                       Executive Session                                                                                    
                                                                                                                                
8:02:16 AM                                                                                                                    
                                                                                                                                
CHAIR FAIRCLOUGH announced that the  next order of business would                                                               
be to move into Executive Session.                                                                                              
                                                                                                                                
REPRESENTATIVE HAWKER made a motion  to move to executive session                                                               
under Uniform Rule 22 for  the purpose of discussing confidential                                                               
audit reports under AS 24.20.301.   There being no objection, the                                                               
committee went into executive session at 8:02 a.m.                                                                              
                                                                                                                                
8:45:19 AM                                                                                                                    
                                                                                                                                
CHAIR  FAIRCLOUGH brought  the committee  back to  order at  8:45                                                               
a.m.   Representatives Olson, Josephson, and  Hawker and Senators                                                               
Fairclough,  Bishop,  Olson,  Giessel, and  Dunleavy  (alternate)                                                               
were present at the call back to order.                                                                                         
                                                                                                                                
^Release of Audits                                                                                                            
                       Release of Audits                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER made  a motion  for the  preliminary audit                                                               
for the State of Alaska Single Audit  for FY 12 to be released to                                                               
the appropriate agency  for response.  There  being no objection,                                                               
it was so ordered.                                                                                                              
                                                                                                                                
^Other Committee Business                                                                                                     
                    Other Committee Business                                                                                
                                                                                                                                
8:45:55 AM                                                                                                                    
                                                                                                                                
CHAIR FAIRCLOUGH announced that the  next order of business would                                                               
be reports on the next audits on the agenda.                                                                                    
                                                                                                                                
KRISTIN CURTIS, Legislative  Auditor, Legislative Audit Division,                                                               
Alaska State  Legislature, explained  that the  preliminary audit                                                               
report  on the  Knik  Arm Bridge  & Toll  Authority  was not  yet                                                               
prepared  for  release.   She  expressed  anticipation  that  the                                                               
report would be brought to the committee "in the near future."                                                                  
                                                                                                                                
8:46:29 AM                                                                                                                    
                                                                                                                                
MS. CURTIS  briefed the committee on  the status of the  audit on                                                               
the Alaska Statewide  System for Employee Time  (ASSET) which had                                                               
been started two  years prior.  She reported that  ASSET had been                                                               
purchased  by Department  of Administration  to replace  its time                                                               
and  attendance system.   The  audit  had been  initiated by  the                                                               
legislative  auditor  to support  the  opinion  on the  financial                                                               
statements.  She  directed attention to a  status report, "ASSET"                                                               
[Included  in members'  packet] which  revealed that  the project                                                               
had  been  cancelled  in  July,  2012.    She  relayed  that  the                                                               
Legislative  Budget  and  Audit  Committee  formal  policies  and                                                               
procedures had a procedure for  termination of an audit; however,                                                               
these procedures  referred to  a special  request audit,  and, as                                                               
this was  not a special  request audit,  it was not  necessary to                                                               
follow these procedures.   Therefore, no action  was necessary by                                                               
the  committee  members.   Referring  to  an earlier  Legislative                                                               
Budget  and Audit  Committee meeting  in which  she had  reported                                                               
that ASSET was  an ongoing audit, she stated that  this audit was                                                               
now terminated as the ASSET project had been cancelled.                                                                         
                                                                                                                                
8:48:09 AM                                                                                                                    
                                                                                                                                
CHAIR  FAIRCLOUGH  announced that  the  final  order of  business                                                               
would be an audit request by Senator French.                                                                                    
                                                                                                                                
8:48:22 AM                                                                                                                    
                                                                                                                                
SENATOR  HOLLIS   FRENCH,  Alaska  State   Legislature,  directed                                                               
attention  to his  letter to  the committee,  dated February  13,                                                               
2013, requesting that an audit  be performed on the effectiveness                                                               
of the Department  of Revenue's oil and gas  production tax audit                                                               
process [Included in members' packets].   He reported that Alaska                                                               
had shifted  to a  profits based  tax system  in 2006,  which was                                                               
then modified in 2007.  He  acknowledged that, as this was "a new                                                               
and difficult  era of  auditing company  tax returns,"  there had                                                               
been  a  request  at  that  time by  Department  of  Revenue  for                                                               
additional staff because  it had been difficult  to retain senior                                                               
auditors.  He  noted that the recently  released Statewide Single                                                               
Audit  Report had,  as in  past years,  "pointed out  significant                                                               
deficiencies in our  auditing function."  He relayed  that he had                                                               
met earlier  in the year with  Ms. Curtis, and had  asked for her                                                               
help to  streamline his "broad request  into specific verifiable,                                                               
measureable items,"  which were now listed  in the aforementioned                                                               
letter.   He  questioned the  reasons  for the  tax audit  delay,                                                               
noting  that this  was  the  sixth year  of  the  new tax  system                                                               
without audits.                                                                                                                 
                                                                                                                                
8:50:14 AM                                                                                                                    
                                                                                                                                
CHAIR  FAIRCLOUGH asked  if he  had submitted  these requests  to                                                               
Department of Revenue (DOR) for a response.                                                                                     
                                                                                                                                
SENATOR FRENCH replied that he had not.                                                                                         
                                                                                                                                
8:50:28 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  confirmed that the Legislative  Budget and                                                               
Audit   Committee  had   addressed  this   issue  several   times                                                               
previously, and that the Statewide  Single Audit Reports were the                                                               
only public  documents.  He  endorsed a  preliminary conversation                                                               
with DOR  for a  better understanding  of its  perspective before                                                               
framing this audit request.                                                                                                     
                                                                                                                                
8:51:33 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON  asked Senator French  if he had  been a                                                               
legislator  prior to  Alaska's Clear  and Equitable  Share (ACES)                                                               
and the production profits tax (PPT).                                                                                           
                                                                                                                                
SENATOR FRENCH replied that was correct.                                                                                        
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  asked Senator  French  if  he had  any                                                               
personal  recollection for  a  "backlog at  audit  under the  old                                                               
severance production tax system."                                                                                               
                                                                                                                                
SENATOR  FRENCH  replied   that  he  did  not   have  any  timing                                                               
information for  audit returns during  the economic  limit factor                                                               
(ELF) tax system.                                                                                                               
                                                                                                                                
SENATOR FRENCH  directed attention to  an e-mail he  had received                                                               
from DOR concerning the completion  of audits.  He confirmed that                                                               
he had  "checked with them  about the  level of completion."   He                                                               
read from this  e-mail from Matt Fonder,  Director, Tax Division:                                                               
"the department  has completed certain  audits covering  the 2007                                                               
tax year,  first filed in March,  2008, and is in  the process of                                                               
finalizing the  remainder of  the 2007  audits."   Senator French                                                               
shared that Mr. Fonder had pointed  to the complexity of the 2007                                                               
audits due  to that tax  year being  divided between the  PPT and                                                               
ACES tax systems.                                                                                                               
                                                                                                                                
8:53:20 AM                                                                                                                    
                                                                                                                                
CHAIR  FAIRCLOUGH   asked  Ms.   Curtis  about  the   timing  for                                                               
completion to this audit request.                                                                                               
                                                                                                                                
MS. CURTIS  replied that, currently,  there was one audit  in the                                                               
queue,  approved  at  a previous  Legislative  Budget  and  Audit                                                               
Committee  meeting,  on  the  Alaska  Public  Offices  Commission                                                               
(APOC).   She suggested  conducting this  proposed DOR  tax audit                                                               
alongside the Statewide Single Audit  during the upcoming summer;                                                               
however,  she pointed  to the  difficulty for  making conclusions                                                               
about  assessments prior  to completion  of the  DOR audit.   She                                                               
requested more  information on the  DOR timeline  for completion,                                                               
as that could impact the audit schedule.                                                                                        
                                                                                                                                
8:55:01 AM                                                                                                                    
                                                                                                                                
CHAIR FAIRCLOUGH  asked for  a projected  date for  resolution to                                                               
this audit.                                                                                                                     
                                                                                                                                
MS. CURTIS  replied that  the proposed  audit would  begin during                                                               
the   upcoming  summer,   and  be   available  during   the  next                                                               
legislative session.                                                                                                            
                                                                                                                                
8:56:09 AM                                                                                                                    
                                                                                                                                
CHAIR FAIRCLOUGH, noting  that the result for  the proposed audit                                                               
would not  be available until  next legislative  session, whether                                                               
or not  it was requested today  or in the near  future, suggested                                                               
bringing  DOR  to  speak  directly  to  the  committee  and  then                                                               
determining the timing for an audit proposal.                                                                                   
                                                                                                                                
8:57:22 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER expressed his agreement.                                                                                  
                                                                                                                                
8:57:42 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON offered his agreement.                                                                                 
                                                                                                                                
8:57:55 AM                                                                                                                    
                                                                                                                                
CHAIR  FAIRCLOUGH  said that  the  Legislative  Budget and  Audit                                                               
Committee would  meet in 30  days, and  that the Tax  Division of                                                               
DOR would be scheduled to testify.   She endorsed that a decision                                                               
for the proposed  audit be determined after  this presentation by                                                               
DOR.                                                                                                                            
                                                                                                                                
SENATOR FRENCH expressed his agreement.                                                                                         
                                                                                                                                
8:58:44 AM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There  being  no  further  business  before  the  committee,  the                                                               
Legislative Budget  and Audit Committee meeting  was adjourned at                                                               
8:58 a.m.                                                                                                                       

Document Name Date/Time Subjects
LB&A Agenda FINAL 2.22.13.pdf JBUD 2/22/2013 8:00:00 AM
LB&A Meeting Minutes 1.29.13.pdf JBUD 2/22/2013 8:00:00 AM
ASSETS project info.pdf JBUD 2/22/2013 8:00:00 AM
Sen. French Audit Request 2.13.13.pdf JBUD 2/22/2013 8:00:00 AM