Legislature(2021 - 2022)ANCH LIO DENALI Rm

08/27/2021 09:00 AM Senate LEGISLATIVE BUDGET & AUDIT

Note: the audio and video recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.

Download Mp3. <- Right click and save file as

Audio Topic
09:05:53 AM Start
09:07:08 AM Approval of Minutes
09:08:57 AM Executive Session
10:36:55 AM Final and Preliminary Audit Releases
10:41:41 AM Other Committee Business
11:24:51 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Capitol location: Adams 519
I. Executive Session
a. Final Audit Reports:
1. Alaska Mental Health Trust Authority (Special)
2. Board of Examiners in Optometry (Sunset)
b. Preliminary Audit Reports:
1. Board of Chiropractic Examiners (Sunset)
+ II. Other Committee Business TELECONFERENCED
+ a. Discussion: Audit Oversight Framework TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
             LEGISLATIVE BUDGET AND AUDIT COMMITTEE                                                                           
                       Anchorage, Alaska                                                                                        
                        August 27, 2021                                                                                         
                           9:05 a.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Natasha von Imhof, Chair                                                                                                
Senator Lora Reinbold (via teleconference)                                                                                      
Representative Ivy Spohnholz                                                                                                    
Representative Andy Josephson (via teleconference)                                                                              
Representative James Kaufman (via teleconference)                                                                               
Representative Dan Ortiz (alternate, via teleconference)                                                                        
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Chris Tuck, Vice Chair                                                                                           
Senator Peter Micciche                                                                                                          
Senator Bert Stedman                                                                                                            
Senator Lyman Hoffman                                                                                                           
Representative Neal Foster                                                                                                      
Senator Click Bishop (alternate)                                                                                                
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
APPROVAL OF MINUTES                                                                                                             
EXECUTIVE SESSION                                                                                                               
FINAL AUDIT REPORTS                                                                                                             
PRELIMINARY AUDIT REPORT                                                                                                        
OTHER COMMITTEE BUSINESS                                                                                                        
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
KRIS CURTIS, Legislative Auditor                                                                                                
Legislative Agencies and Offices                                                                                                
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  During discussion of other committee                                                                     
business, presented 10 issues to address through an audit                                                                       
oversight process.                                                                                                              
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
9:05:53 AM                                                                                                                    
                                                                                                                                
CHAIR NATASHA VON  IMHOF called the Legislative  Budget and Audit                                                             
Committee  meeting  to  order  at   9:05  a.m.    Representatives                                                               
Spohnholz,   Kaufman   (via   teleconference),   Josephson   (via                                                               
teleconference), and Ortiz (via  teleconference) and Senators von                                                               
Imhof and Reinbold were present at the call to order.                                                                           
                                                                                                                                
^APPROVAL OF MINUTES                                                                                                            
                      APPROVAL OF MINUTES                                                                                   
                                                                                                                              
9:07:08 AM                                                                                                                    
                                                                                                                                
CHAIR VON IMHOF announced that  the first order of business would                                                               
be the approval of minutes.                                                                                                     
                                                                                                                                
9:07:12 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SPOHNHOLZ  moved that  the Legislative  Budget and                                                               
Audit Committee approve the minutes from the 7/29/21 meeting.                                                                   
                                                                                                                                
9:07:21 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAUFMAN objected.                                                                                                
                                                                                                                                
REPRESENTATIVE  KAUFMAN moved  to amend  [the third]  sentence of                                                               
the third paragraph  on page 4 of the  7/29/21 Legislative Budget                                                               
and  Audit   Committee  meeting  minutes,  such   that  the  word                                                               
"protective"  be  replaced with  "corrective"  and,  in the  same                                                               
sentence,  the words  "a"  and  "mode" be  deleted.   With  those                                                               
changes,  the  sentence  would read:    "He  proposed  corrective                                                               
action  tracking on  the most  critical items."   There  being no                                                               
objection, it was so ordered.                                                                                                   
                                                                                                                                
9:08:49 AM                                                                                                                    
                                                                                                                                
CHAIR VON IMHOF  asked if there was any objection  to the 7/29/21                                                               
minutes, as amended.   There being none,  the 7/29/21 Legislative                                                               
Budget and Audit Committee minutes, as amended, were approved.                                                                  
                                                                                                                                
^EXECUTIVE SESSION                                                                                                              
                       EXECUTIVE SESSION                                                                                    
                                                                                                                              
9:08:57 AM                                                                                                                    
                                                                                                                                
CHAIR VON IMHOF  announced that the next order  of business would                                                               
be an executive  session to consider the final  audit reports for                                                               
the  Alaska  Mental  Health  Trust Authority  and  the  Board  of                                                               
Examiners in Optometry  and the preliminary audit  report for the                                                               
Board of Chiropractic Examiners.                                                                                                
                                                                                                                                
9:09:15 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SPOHNHOLZ  moved that  the Legislative  Budget and                                                               
Audit  Committee go  into executive  session  under Uniform  Rule                                                               
22(b)(3)  for the  discussion of  matters  that may,  by law,  be                                                               
required  to  be confidential.    She  asked that  the  following                                                               
persons remain  in the room  or online:  The  legislative auditor                                                               
and necessary  staff of the  auditor; any legislators not  on the                                                               
committee; staff for  legislators that are on  the committee; and                                                               
the  House   Finance  Committee   secretary.    There   being  no                                                               
objection, it was so ordered.                                                                                                   
                                                                                                                                
9:09:45 AM                                                                                                                    
                                                                                                                                
The committee  took an at-ease from  9:10 a.m. to 10:36  a.m. for                                                               
the purpose of executive session.                                                                                               
                                                                                                                                
10:36:22 AM                                                                                                                   
                                                                                                                                
CHAIR  VON   IMHOF  called  the  Legislative   Budget  and  Audit                                                               
Committee meeting back to order  at [10:36] a.m.  Representatives                                                               
Spohnholz,   Kaufman   (via   teleconference),   Josephson   (via                                                               
teleconference),  Ortiz   (alternate,  via   teleconference)  and                                                               
Senators  von  Imhof  and   Reinbold  (via  teleconference)  were                                                               
present at the call to order.                                                                                                   
                                                                                                                                
^FINAL AND PRELIMINARY AUDIT RELEASES                                                                                           
              FINAL AND PRELIMINARY AUDIT RELEASES                                                                          
                                                                                                                              
10:36:55 AM                                                                                                                   
                                                                                                                                
CHAIR VON IMHOF  announced that the next order  of business would                                                               
be the final and preliminary audit releases.                                                                                    
                                                                                                                                
[Two motions made  at this point were repeated  forthwith for the                                                               
purpose of required roll call  voting when an alternate is needed                                                               
to establish a quorum.]                                                                                                         
                                                                                                                                
10:38:20 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE SPOHNHOLZ  moved that  the Legislative  Budget and                                                               
Audit Committee release  the following final audit  reports:  The                                                               
Alaska mental Health  Trust Authority and the  Board of Examiners                                                               
in Optometry.                                                                                                                   
                                                                                                                                
10:38:30 AM                                                                                                                   
                                                                                                                                
A  roll   call  vote  was  taken.     Representatives  Spohnholz,                                                               
Josephson  (via  teleconference), Kaufman  (via  teleconference),                                                               
Ortiz (alternate, via teleconference)  and Senators von Imhof and                                                               
Reinbold  (via teleconference)  voted in  favor of  releasing the                                                               
final audit reports.  Therefore,  the final audit reports for the                                                               
Alaska Mental Health  Trust Authority and the  Board of Examiners                                                               
in Optometry were released by a vote of 6-0.                                                                                    
                                                                                                                                
10:40:44 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE SPOHNHOLZ  moved that  the Legislative  Budget and                                                               
Audit Committee  release the  following preliminary  audit report                                                               
to the agencies for response:  Board of Chiropractic Examiners.                                                                 
                                                                                                                                
10:40:51 AM                                                                                                                   
                                                                                                                                
A  roll   call  vote  was  taken.     Representatives  Spohnholz,                                                               
Josephson  (via  teleconference), Kaufman  (via  teleconference),                                                               
Ortiz (alternate, via teleconference)  and Senators von Imhof and                                                               
Reinbold  (via teleconference)  voted in  favor of  releasing the                                                               
preliminary  audit.   Therefore,  the preliminary  audit for  the                                                               
Board of Chiropractic  Examiners was released to  the agencies by                                                               
a vote of 6:0.                                                                                                                  
                                                                                                                                
^OTHER COMMITTEE BUSINESS                                                                                                       
                    OTHER COMMITTEE BUSINESS                                                                                
                                                                                                                              
10:41:41 AM                                                                                                                   
                                                                                                                                
CHAIR VON IMHOF announced that  the final order of business would                                                               
be other committee business.                                                                                                    
                                                                                                                                
CHAIR  VON  IMHOF  invited  Kris  Curtis  to  present  the  audit                                                               
oversight framework.   She stated  that members would  have until                                                               
October to consider the oversight  process and offer ideas and/or                                                               
propose changes, at which point  the committee would vote whether                                                               
to adopt the  process.  She noted that the  related documents are                                                               
available to the  public on BASIS.  She said  there are currently                                                               
10 recommendations.                                                                                                             
                                                                                                                                
10:43:12 AM                                                                                                                   
                                                                                                                                
KRIS CURTIS, Legislative Auditor,  Division of Legislative Audit,                                                               
reviewed that  at its  last meeting  the committee  had discussed                                                               
ways  in  which  it  could  encourage  the  resolution  of  audit                                                               
findings.  Subsequently, Representative  Kaufman had asked her to                                                               
suggest  a  framework to  formalize  an  audit finding  oversight                                                               
process.   She  began a  PowerPoint presentation,  entitled "LB&A                                                               
Oversight  - Top  10 Audit  Issues"  [hard copy  included in  the                                                               
committee packet].                                                                                                              
                                                                                                                                
MS.  CURTIS  displayed slide  1,  on  which  is a  graph  showing                                                               
exponential  growth of  single audit  findings  from fiscal  year                                                               
2010 (FY 10)  to FY 20.   She explained that the  single audit is                                                               
the annual audit that covers  federal compliance, all the federal                                                               
programs, and includes audits of  financial statements.  As shown                                                               
on the graph, in FY 10  there were 30 audit findings; that number                                                               
grew  to  94 in  FY  20.   The  most  significant  cause of  that                                                               
increase  has been  turnover and  lack of  effective training  at                                                               
executive branch agencies.  She  said agencies have not addressed                                                               
findings  in  a  timely  manner, and  many  audit  issues  remain                                                               
unresolved year after year.                                                                                                     
                                                                                                                                
MS.  CURTIS turned  to slide  2,  which suggests  a more  formal,                                                               
five-step LB&A oversight process:                                                                                               
                                                                                                                                
     01. Focus                                                                                                                  
       Identify top audit findings in terms of fiscal or                                                                        
     societal impact and degree of difficulty in addressing                                                                     
     findings.                                                                                                                  
                                                                                                                                
     02. Communicate                                                                                                            
      Work with auditees to identify corrective action for                                                                      
     top audit findings.                                                                                                        
                                                                                                                                
     03. Evaluate                                                                                                               
    Determine    whether    corrective   action    requires                                                                     
     legislative action. Refer to legislative committee for                                                                     
     consideration.                                                                                                             
                                                                                                                                
     04. Measure                                                                                                                
        Examine progress through the legislative finance                                                                        
     committee process.                                                                                                         
                                                                                                                                
     05. Repeat                                                                                                                 
     Once Single Audit is released - repeat. Process covers                                                                     
     all audit reports issued over a fiscal year.                                                                               
                                                                                                                                
10:45:15 AM                                                                                                                   
                                                                                                                                
MS. CURTIS identified the top 10 audit issues [listed on slides                                                                 
4-13].  Number one [on slide 4] was as follows:                                                                                 
                                                                                                                                
     1. ACFR Opinion Modifications                                                                                            
                                                                                                                              
     Issues that led to Qualified Audit Opinion                                                                                 
   square4 Revenues eligible for transfer to the Constitutional                                                                 
     Budget Reserve  Fund (CBRF) due to  FERC decisions were                                                                    
     not transferred  during FY  18 through  FY 20  and fund                                                                    
     balances  that should  have remained  in the  CBRF were                                                                    
     moved to the General Fund.                                                                                                 
   square4 The Department of Natural Resources did not transfer                                                                 
     to  the Alaska  Permanent  Fund  all dedicated  mineral                                                                    
     lease revenues received during FY 18 and FY 19.                                                                            
                                                                                                                                
     Single Audit Findings (Reference)                                                                                          
   square4 2020-019, 2020-068 (CBRF transfers)                                                                                  
   square4 2020-067 (Perm Fund transfers)                                                                                       
                                                                                                                                
MS.  CURTIS  explained  a  change  to  the  annual  comprehensive                                                               
financial  report  (ACFR)  from   a  previous  acronym  that  was                                                               
discovered to be an offensive term  in South Africa.  She pointed                                                               
out that each  slide has a reference to the  single audit and can                                                               
be  found on  legaudit.akleg.gov, in  Section 2.   Regarding  the                                                               
second  bullet point,  she said  the  fiscal impact  of the  non-                                                               
transfer was $200 million.                                                                                                      
                                                                                                                                
MS. CURTIS covered audit issue number two, on slide 5:                                                                          
                                                                                                                                
     2. ACFR Errors and Timeliness                                                                                            
                                                                                                                              
     Significant errors and late draft statements                                                                               
   square4 FY 20 draft financial statements provided to                                                                         
     Legislative Audit  six weeks late    similar to  past 5                                                                    
     years.                                                                                                                     
   square4 Although improvements noted in the FY 20 number and                                                                  
     severity  of  errors  compared to  prior  three  years,                                                                    
     auditors  still  note a  lack  of  support provided  to                                                                    
     division    responsible    for   preparing    financial                                                                    
     statements in terms of resources and training.                                                                             
                                                                                                                                
     Single Audit Findings (Reference)                                                                                          
   square4 2020-001, 2020-006, 2020-007, 2020-008, 2020-009,                                                                    
     2020-011,   2020-025,  2020-057,   2020-067,  2020-068,                                                                    
     2020-070, 2020-078, 2020-015                                                                                               
                                                                                                                                
MS. CURTIS emphasized the delinquent  receipt of draft statements                                                               
and explained that  means the division cannot  meet the statutory                                                               
timeline  of providing  an audit  opinion  by December  14.   She                                                               
added, "That  is because the  Division of Finance is  not getting                                                               
the support  that it needs;  it has very significant  turnover, a                                                               
lack  of  training,  and  so  those  issues  really  need  to  be                                                               
addressed in order to produce statements in a timely manner."                                                                   
                                                                                                                                
10:47:44 AM                                                                                                                   
                                                                                                                                
MS. CURTIS addressed audit issue number 3, on slide 6:                                                                          
                                                                                                                                
     3. Medicaid Eligibility Determinations                                                                                   
                                                                                                                              
     Significant  errors  in   accuracy  and  timeliness  of                                                                    
     eligibility determinations                                                                                                 
   square4 Division of Public Assistance (DPA) eligibility                                                                      
     technicians did  not process  applications in  a timely                                                                    
     manner  or redetermine  eligibility  when required  for                                                                    
     27.5 percent  of Medicaid cases  tested and  36 percent                                                                    
     of CHIP cases tested.                                                                                                      
   square4 Inaccurate eligibility determinations found in 32.5                                                                  
     percent  of Medicaid  cases tested  and  40 percent  of                                                                    
     CHIP cases tested.                                                                                                         
   square4 Special audit 06-30094-20 found that, during FY 19,                                                                  
     DHSS  paid  $28  million  in State  general  funds  for                                                                    
     ineligible benefits due to eligibility errors.                                                                             
                                                                                                                                
     Single Audit Findings (Reference)                                                                                          
   square4 2020-045, 2020-046                                                                                                   
                                                                                                                                
MS. CURTIS covered audit issue number four, on slide 7:                                                                         
                                                                                                                                
     4. Medicaid Eligibility System - ARIES                                                                                   
                                                                                                                              
     Material weakness in internal controls                                                                                     
   square4 DHSS staff did not maintain, in all material respects,                                                               
     effective  internal controls  for  the Alaska  Resource                                                                    
     for  Integrated  Eligibility  Services  (ARIES)  System                                                                    
     during FY 20.                                                                                                              
   square4 System control deficiencies contribute to eligibility                                                                
     errors.                                                                                                                    
                                                                                                                                
     Single Audit Finding (Reference)                                                                                           
   square4 2020-044                                                                                                             
                                                                                                                                
MS. CURTIS said, "This has  been contributing to the problem that                                                               
we just talked about."  She said  the system was new as of FY 14;                                                               
it  was implemented  as a  result of  Medicaid expansion  and has                                                               
significant   control   issues   contributing  to   problems   in                                                               
eligibility determination.                                                                                                      
                                                                                                                                
MS. CURTIS brought attention audit issue number five, on slide                                                                  
8:                                                                                                                              
                                                                                                                                
     5. Medicaid Claims Reprocessing Errors                                                                                   
                                                                                                                              
     Cumbersome  process for  analyzing claims  outside MMIS                                                                    
     is prone to error                                                                                                          
   square4 Services provided to Medicaid-eligible   American                                                                    
     Indian/Alaska Native members  received through a Tribal                                                                    
     Health  Organization but  rendered at  a non-IHS/Tribal                                                                    
     provider   are  eligible   for   100  percent   federal                                                                    
     reimbursement   if   certain  requirements   are   met.                                                                    
     Eligible claims  are reprocessed outside MMIS  based on                                                                    
     DHSS staff analysis.                                                                                                       
   square4 Errors led to $1,007,134 in questioned costs. Similar                                                                
     error in prior year.                                                                                                       
                                                                                                                                
     Single Audit Finding (Reference)                                                                                           
   square4 2020-043                                                                                                             
                                                                                                                                
MS. CURTIS  said the manual  process of making  these claims                                                                    
is prone to  error.  She related that in  addition to the $1                                                                    
million error  shown in the  second bullet point,  last year                                                                    
errors were approximately  $3 million, and this  is why this                                                                    
issue is listed in the top 10.                                                                                                  
                                                                                                                                
10:49:08 AM                                                                                                                   
                                                                                                                                
MS. CURTIS discussed audit issue number six, on slide 9:                                                                        
                                                                                                                                
     6. Medicaid Dental Overutilization                                                                                       
                                                                                                                              
     Likely   overutilization   of    dental   services   by                                                                    
     individuals under the age of 21                                                                                            
   square4 Children's dental services require prior authorization                                                               
     at a much lower rate than adult dental services.                                                                           
   square4 Review of FY 20 claims for those under the age of 21                                                                 
     found alarming indications of likely overutilization.                                                                      
   square4 DHSS's surveillance and utilization and control                                                                      
     procedures  were  not   effective  at  identifying  and                                                                    
     following up suspicious billing patterns.                                                                                  
   square4 Similar deficiency identified for FY 19.                                                                             
                                                                                                                                
     Single Audit Finding (Reference)                                                                                           
   square4 2020-040                                                                                                             
                                                                                                                                
MS. CURTIS continued to audit issue number seven, on slide 10:                                                                  
                                                                                                                                
     7. Medicaid SURS Program                                                                                                 
                                                                                                                              
     DHSS  has   not  implemented  an   effective  statewide                                                                    
     surveillance   and  utilization   control  program   to                                                                    
     safeguard against  unnecessary or inappropriate  use of                                                                    
     Medicaid services.                                                                                                         
     SURS  program  historically  carried  out  by  Medicaid                                                                    
     fiscal agent.                                                                                                              
     Department  took  over program  during  FY  19 but  has                                                                    
     program is not effective.                                                                                                  
                                                                                                                                
     Single Audit Finding (Reference)                                                                                           
   square4 2020-050                                                                                                             
                                                                                                                                
MS. CURTIS added that the program was found in FY 20 to be                                                                      
completely ineffective.  She then brought attention to audit                                                                    
issue number 8, on slide 11:                                                                                                    
                                                                                                                                
     8. TANF Eligibility                                                                                                      
                                                                                                                              
     Material  weakness  and   material  noncompliance  over                                                                    
     eligibility and special tests and provisions                                                                               
   square4 High rate of error in determining eligibility. (18 of                                                                
     58 cases or 31 percent)                                                                                                    
   square4 28 of 58 cases (48 percent) lacked documentation to                                                                  
     support  the   request  and   use  of   data  exchanges                                                                    
     necessary  for  determining   eligibility  and  benefit                                                                    
     amount.                                                                                                                    
   square4 DPA has been unable to allocate the necessary                                                                        
     resources  to fully  develop  and implement  adequately                                                                    
     designed internal controls to ensure compliance.                                                                           
                                                                                                                                
     Single Audit Findings (Reference)                                                                                          
   square4 2020-033, 2020-037                                                                                                   
                                                                                                                                
MS. CURTIS added that this has been a problem for the Department                                                                
of Health and Social Services for multiple years.                                                                               
                                                                                                                                
10:50:53 AM                                                                                                                   
                                                                                                                                
MS. CURTIS highlighted audit issue number nine, on slide 12:                                                                    
                                                                                                                                
     9. UI Subsystem                                                                                                          
                                                                                                                              
         Unemployment claims were paid to Department of                                                                         
     Corrections inmates that were unavailable for work.                                                                        
   square4 New UI subsystem was not programmed to cross-match                                                                   
     with DOC or outside source data.                                                                                           
                                                                                                                                
     Single Audit Finding (Reference)                                                                                           
   square4 2020-060                                                                                                             
                                                                                                                                
MS. CURTIS noted  the UI Subsystem was implemented in  a hurry by                                                               
the Department  of Labor &  Workforce Development (DLWD)  to deal                                                               
with  new  groups  eligible  under  "the  COVID  funding."    The                                                               
Legislative    Audit   Division    found   that    inmates   were                                                               
inappropriately obtaining UI through this subsystem.                                                                            
                                                                                                                                
MS. CURTIS brought  attention to audit issue number  10, on slide                                                               
13:                                                                                                                             
                                                                                                                                
     10. DOR Investment Oversight                                                                                             
                                                                                                                              
     The  DOR commissioner's  decision to  loan up  to $22.5                                                                    
     million to  MOC 1 [the Mustang  Operation Center] under                                                                    
     the authority  of the department's  investment statutes                                                                    
     was not appropriate when compared  with behavior that a                                                                    
     prudent person would consider reasonable.                                                                                  
   square4 The legislature should consider enhancing oversight of                                                               
         DOR's [the Department of Revenue's] investment                                                                         
     functions.                                                                                                                 
                                                                                                                                
     Audit Report Finding Reference                                                                                             
   square4 Audit Control Number 04-30093-20 Recommendation No. 4                                                                
                                                                                                                                
MS.  CURTIS  noted  MOC  was   owned  by  the  Alaska  Industrial                                                               
Development and Export Authority (AIDEA).                                                                                       
                                                                                                                                
10:52:13 AM                                                                                                                   
                                                                                                                                
MS. CURTIS said  she would now move into  the suggested oversight                                                               
process in  more detail, slides  14 and 15.   She began  with the                                                               
description of the oversight process, on slide 14:                                                                              
                                                                                                                                
     Suggested Oversight Process                                                                                              
                                                                                                                              
     Letters from  LB&A Committee  to audit  agencies asking                                                                    
     for corrective action plan.                                                                                                
   square4 Letters drafted by Legislative Auditor and reviewed by                                                               
     Chair.                                                                                                                     
   square4 Request corrective action plan and dates for                                                                         
     resolution.                                                                                                                
                                                                                                                                
     LB&A Committee evaluates responses                                                                                         
   square4 Legislative Auditor reviews agency responses and                                                                     
     presents summary to LB&A Committee.                                                                                        
   square4 Committee determines whether any action is necessary                                                                 
     to facilitate resolution.                                                                                                  
   square4 Information is forwarded  to    the   appropriate                                                                    
     legislative committee  for consideration.  Single Audit                                                                    
     findings  and corrective  action  are  sent to  finance                                                                    
     committees for follow-up during the budget process.                                                                        
                                                                                                                                
MS. CURTIS then gave the oversight process timeline, on slide                                                                   
15:                                                                                                                             
                                                                                                                                
     Oversight Timeline                                                                                                       
                                                                                                                              
     May  Sep                                                                                                                   
     Identify Top 10 audit  issues. LB&A [Legislative Budget                                                                    
     &  Audit] Committee  sends letter  to executive  branch                                                                    
     agencies asking for corrective action.                                                                                     
                                                                                                                                
     Oct  Dec                                                                                                                   
     LB&A  Committee reviews  corrective action,  identifies                                                                    
     issues   for  legislative   consideration,  refers   to                                                                    
     appropriate committees for consideration.                                                                                  
                                                                                                                                
     Jan  April                                                                                                                 
     Finance committees  review progress in  resolving audit                                                                    
     issues. Other  committees consider  legislative action,                                                                    
     if determined necessary.                                                                                                   
                                                                                                                                
     Apr  Jun                                                                                                                   
     Legislative Audit  identifies Top  10 audit  issues for                                                                    
     next cycle and evaluates progress from prior year.                                                                         
                                                                                                                                
MS. CURTIS concluded the presentation with slide 16:                                                                            
                                                                                                                                
     Summary                                                                                                                  
                                                                                                                              
     Audit findings are not being resolved timely.                                                                              
                                                                                                                                
       A process is needed to encourage collaboration and                                                                       
     resolution.                                                                                                                
                                                                                                                                
      The LB&A Committee, working through the Legislative                                                                       
     Auditor, is well-positioned to encourage resolution.                                                                       
                                                                                                                                
        Utilizing the finance committees can facilitate                                                                         
     accountability and collaboration.                                                                                          
                                                                                                                                
10:54:37 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  KAUFMAN stated  that  this plan  merges what  the                                                               
Legislative  Budget  and  Audit  Committee has  been  doing  with                                                               
quality management  processes that  try to  find a  resolution to                                                               
the problem.   He  encouraged collaboration.   He said  he thinks                                                               
this is a good process.                                                                                                         
                                                                                                                                
10:55:37 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  expressed   thanks  to  Representative                                                               
Kaufman.  He  then directed attention to slide  [14], to "Letters                                                               
from  LB&A  Committee to  audit  agencies  asking for  corrective                                                               
action  plan,"   and  he  asked   whether  "audit"   should  read                                                               
"audited."                                                                                                                      
                                                                                                                                
MS.  CURTIS confirmed  yes.   She indicated  the reference  is to                                                               
auditees.                                                                                                                       
                                                                                                                                
10:56:07 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE SPOHNHOLZ noted that one  of the objectives of the                                                               
House Special Committee  on Ways & Means, [which  she chairs], is                                                               
to look for  efficiencies in government.   She expressed concern,                                                               
having  read the  single statewide  audit,  about known  problems                                                               
that  are not  being addressed  and cost  the state  money.   She                                                               
opined that considering the  state's current financial situation,                                                               
it needs  to be  utilizing every  tool available.   She  said the                                                               
House Special Committee  on Ways and Means would  be inviting Ms.                                                               
Curtis  to come  speak on  opportunities for  efficiencies, after                                                               
which she suggested  there could be a joint  committee meeting to                                                               
delve  into the  financial  implications  of the  recommendations                                                               
made by the legislative auditor.                                                                                                
                                                                                                                                
10:57:37 AM                                                                                                                   
                                                                                                                                
SENATOR  REINBOLD  expressed, "I  think  this  is an  outstanding                                                               
idea."   She stated  that for  a long time  she has  thought that                                                               
audits  should  be  part  of   the  subcommittee  process.    She                                                               
expressed  her  support  and  her  thanks  to  Chair  von  Imhof,                                                               
Representative Kaufman, and Ms. Curtis.                                                                                         
                                                                                                                                
10:58:16 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE ORTIZ echoed the comments of Senator Reinbold.                                                                   
                                                                                                                                
CHAIR VON  IMHOF asked Representative  Kaufman and Ms.  Curtis to                                                               
reiterate "the activity  and the action" that  would happen going                                                               
forward.                                                                                                                        
                                                                                                                                
10:58:44 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE KAUFMAN  referred to  the oversight timeline.   He                                                               
stated that "the nominees for  the top 10" are being "socialized"                                                               
for  opportunity to  consider further  issues.   He  acknowledged                                                               
there are  more than 10  issues; the 10  on the list  were chosen                                                               
via "a  criticality ranking  process" that  discerned high-dollar                                                               
impacts and high  service quality impacts, as  well as considered                                                               
how old the findings are.   He emphasized that it is important to                                                               
think  systemically,  and  this  is  not  about  blaming  current                                                               
workers   but   rather   the   systems   that   are   in   place.                                                               
Representative   Kaufman  talked   about   the  current   divided                                                               
political situation where there  are differing opinions about how                                                               
much  money to  spend,  and  he said  the  convergence is  around                                                               
incorporating this  improvement process.  He  suggested that some                                                               
may feel  more comfortable about  spending money on  services and                                                               
programs if they felt the  services and programs delivered better                                                               
value.  He stated, "I believe  that ... there's a space here that                                                               
we can  work in around  this type of  process, as applied  to the                                                               
many  things that  we  deal with  legislatively."   He  expressed                                                               
willingness to  help, and he thanked  Ms. Curtis for her  work on                                                               
this issue and her presentation today.                                                                                          
                                                                                                                                
11:01:19 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  JOSEPHSON asked  whether there  was "an  eleventh                                                               
item" with which Ms. Curtis had "wrestled."                                                                                     
                                                                                                                                
11:01:59 AM                                                                                                                   
                                                                                                                                
MS. CURTIS responded no.  She  said compiling the list was pretty                                                               
easy; there are  94 findings in the single audit,  all with which                                                               
she is familiar.   She said she also looked  over all the special                                                               
audits.  She remarked that the  number doesn't have to be 10, and                                                               
she  recommended allowing  the flexibility  to determine  year by                                                               
year whether to add more or include fewer.                                                                                      
                                                                                                                                
CHAIR VON  IMHOF stated  that the  list is  public, and  over the                                                               
next six  weeks both the committee  and the public would  have an                                                               
opportunity to consider the list, at  which point the list may be                                                               
"expanded or replaced with an item or two."                                                                                     
                                                                                                                                
11:03:14 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE KAUFMAN  commented that the minority  of issues is                                                               
causing the most  problems.  After working  on those, progression                                                               
can  be  made.    He  explained that  there  may  be  synergistic                                                               
problems wherein one is feeding another.                                                                                        
                                                                                                                                
11:04:47 AM                                                                                                                   
                                                                                                                                
CHAIR  VON  IMHOF  noted  that  the second  audit  finding  is  a                                                               
grouping of findings, and hopefully  addressing it will take care                                                               
of several  audit findings.   She  reiterated that  the committee                                                               
had between now  and October to review this list,  at which point                                                               
it would take action.                                                                                                           
                                                                                                                                
MS. CURTIS confirmed that is correct.                                                                                           
                                                                                                                                
CHAIR VON IMHOF thanked Ms. Curtis and Representative Kaufman.                                                                  
                                                                                                                                
11:05:53 AM                                                                                                                   
                                                                                                                                
CHAIR VON  IMHOF noted  that another item  to be  addressed under                                                               
other   committee  business   would   be  regarding   information                                                               
technology (IT), as presented by Representative Spohnholz.                                                                      
                                                                                                                                
11:05:59 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  SPOHNHOLZ  stated  that  in the  last  few  years                                                               
Alaska has  had IT security  breaches, attacks on  state websites                                                               
and databases, that  have caused serious challenges.   There have                                                               
been  a  couple  attacks  on  the  Division  of  Elections  where                                                               
personal  information of  over 100,000  registered Alaska  voters                                                               
was shared.  She said the  Alaska Court system and the Department                                                               
of Health  and Social  Services had  their websites  attacked and                                                               
had  to return  to paper  systems for  extended periods  of time.                                                               
She said she  thinks this points to a weakness  in IT security in                                                               
Alaska.                                                                                                                         
                                                                                                                                
REPRESENTATIVE SPOHNHOLZ  said she  learned from Ms.  Curtis that                                                               
an IT governance audit was done  in 2008 that was helpful but has                                                               
not been  done since.   She remarked  that the  sophistication of                                                               
hackers  is greater  than  it was  in  2008.   She  said she  has                                                               
reached  out to  the statewide  Office of  Information Technology                                                               
(OIT) but "they  have been reluctant to talk with  us."  She said                                                               
it is  not her intention to  reveal security-related information,                                                               
but  she thinks  the issue  needs to  be examined  to ensure  the                                                               
administration has  the resources necessary to  ensure the safety                                                               
and  security  of  Alaska's  state systems.    She  talked  about                                                               
exploring  submission   of  a  request  for   a  confidential  IT                                                               
governance  audit  which  looks  at operating  procedures.    She                                                               
proffered  that   in  addition  to  helping   the  administration                                                               
identify  "a  road map  for  addressing  some of  these  security                                                               
vulnerabilities,"  the   audit  could   also  identify   for  the                                                               
legislature  opportunities  to   support  the  administration  by                                                               
ensuring it  has the  resources necessary  to reduce  the state's                                                               
vulnerability to these kinds of attacks.                                                                                        
                                                                                                                                
11:09:27 AM                                                                                                                   
                                                                                                                                
CHAIR VON  IMHOF asked whether  Ms. Curtis understood  what would                                                               
be  asked  of the  Legislative  Audit  Division and  whether  the                                                               
division would be able to respond.                                                                                              
                                                                                                                                
11:09:40 AM                                                                                                                   
                                                                                                                                
MS.  CURTIS  answered  yes.   She  said  she  and  Representative                                                               
Spohnholz have discussed the issue  and what the objectives would                                                               
be.  She said she thinks they need  to sit down with the chief of                                                               
OIT to  determine what  steps are  already being  taken; however,                                                               
she understands  that OIT has  been reluctant to take  a meeting.                                                               
She expressed  a desire to  have cooperation so the  division can                                                               
move  forward with  a draft  request.   In terms  of whether  the                                                               
division is ready  to move forward on this, she  said it does not                                                               
have  the  technical expertise  and  would  likely have  to  hire                                                               
someone on contract.                                                                                                            
                                                                                                                                
11:11:05 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  SPOHNHOLZ indicated  one  benefit of  contracting                                                               
for the audit would  be that the audit would not  be in the queue                                                               
with  all  the  division's  other  audits  and,  thus,  could  be                                                               
completed  more expediently.   She  indicated  the importance  of                                                               
this factor considering  the amount of time it has  taken DHSS to                                                               
get back online.                                                                                                                
                                                                                                                                
11:12:23 AM                                                                                                                   
                                                                                                                                
CHAIR VON  IMHOF thanked Representative Spohnholz  and Ms. Curtis                                                               
and said  she thinks they  are "on the  right track."   She asked                                                               
how they would like to proceed.                                                                                                 
                                                                                                                                
REPRESENTATIVE   SPOHNHOLZ   expressed    her   hope   that   the                                                               
administration would  enter into a conversation.   She reiterated                                                               
her  desire for  a collaborative  process and  to speak  with the                                                               
chief of OIT.   If that cannot happen, she  said, the Legislative                                                               
Budget  and Audit  Committee  has a  responsibility  to meet  its                                                               
obligations; therefore,  she recommended proceeding  forward with                                                               
an  audit request  at  the next  meeting in  October.   She  said                                                               
[breaches  in security]  create a  risk  for the  state, and  "we                                                               
cannot  afford  to  delay  much   further."    She  stressed  the                                                               
importance for the legislature to  have the information necessary                                                               
to allocate  resources.   She commented on  the aging  systems in                                                               
place and the importance of updating them.                                                                                      
                                                                                                                                
11:14:16 AM                                                                                                                   
                                                                                                                                
SENATOR REINBOLD  thanked Representative Spohnholz for  bring the                                                               
issue forward.   She referred  to Article  I, Section 22,  of the                                                               
United States Constitution, regarding  the protection of privacy,                                                               
and she  said it is the  responsibility of the legislature.   She                                                               
said she did not remember whether  it was Cisco or Microsoft that                                                               
manages  a lot  of  the State  of Alaska's  data,  but said  [the                                                               
legislature] needs  to specify  what it expects  from them.   She                                                               
recommended "a  company such  as Tanium," which  she said  has an                                                               
excellent  reputation.   Senator Reinbold  stated support  for an                                                               
outside audit to be put forth  in October.  She expressed concern                                                               
for the  "massive amounts of  lawsuits" that could be  brought to                                                               
the state  as a  result of  the security  breaches.   She thanked                                                               
Representative  Spohnholz  again  and   said  she  supports  this                                                               
effort.                                                                                                                         
                                                                                                                                
REPRESENTATIVE  SPOHNHOLZ  clarified  there  is  no  evidence  to                                                               
suggest  that  medical  diagnoses or  other  highly  confidential                                                               
protected information has been released.   The data that has been                                                               
released was from  the voter files and had no  impact on election                                                               
security.   She  said there  are hardcopy  backup paper  ballots.                                                               
What  was shared  was voter  registration  information "that  was                                                               
available on the Division of  Election's website."  She concurred                                                               
with Senator  Reinbold that people's personal  information should                                                               
not be vulnerable  to attacks and that the government  has a core                                                               
responsibility to ensure the protection of that information.                                                                    
                                                                                                                                
SENATOR  REINBOLD said  she has  heard from  multiple individuals                                                               
that they  have been unable  to get their information  from DHSS,                                                               
and  she  expressed  interest  in   finding  out  "the  scope  of                                                               
violation."                                                                                                                     
                                                                                                                                
CHAIR VON  IMHOF, on that point,  advised allowing Representative                                                               
Spohnholz and Ms. Curtis to continue  to reach out to OIT so that                                                               
"a  comprehensive  and  collaborative   scope  of  audit  can  be                                                               
developed"  in time  for the  next Legislative  Budget and  Audit                                                               
Committee meeting.                                                                                                              
                                                                                                                                
11:18:13 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  KAUFMAN described  the  next improvement  project                                                               
that could be  undertaken, in terms of audits, as  being "an idea                                                               
hopper"  with a  simple scoring  system  on a  spread sheet  that                                                               
allows the  committee to evaluate  the proposed use  of resources                                                               
and ensure getting "the best bang for our buck."                                                                                
                                                                                                                                
11:19:28 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  offered  his understanding  that  [the                                                               
Legislative Audit Division] does that.                                                                                          
                                                                                                                                
11:19:39 AM                                                                                                                   
                                                                                                                                
MS. CURTIS  responded that historically, the  division deals with                                                               
audits  on a  "first-in/first-out"  basis.   She  stated, "If  an                                                               
audit request is approved by the  committee, it has merit, and so                                                               
I don't know  how I'd approach ranking them."   She suggested one                                                               
exception  may have  been  the acceleration  of  the [CARES  Act]                                                               
Audit  in   spring  2021  to   prioritize  it.     She  mentioned                                                               
prioritizing the IT  audit because it would not  [affect the work                                                               
order  of the  division] since  it  would be  done via  contract;                                                               
therefore, "why would  you want to put it in  the hopper and just                                                               
have  it  sit there  instead  of  getting  it  out there?"    She                                                               
expressed  interest in  speaking to  Representative Kaufman  more                                                               
about this  idea but  reiterated the  "first-in/first-out" method                                                               
and treating audits with equal merit.                                                                                           
                                                                                                                                
11:21:08 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE KAUFMAN explained that  "this would be more within                                                               
the committee confines" in order  for the committee to understand                                                               
its own  priorities and have  clear visibility "on the  front end                                                               
and the back end."  He  concluded, "We rank importance of what we                                                               
ask for, and we rank importance  of what we receive, and that's a                                                               
feedback loop that's very beneficial."                                                                                          
                                                                                                                                
11:21:45 AM                                                                                                                   
                                                                                                                                
CHAIR VON IMHOF  suggested the committee could request  a list of                                                               
special  audits   from  Ms.  Curtis,  with   expected  start  and                                                               
completion dates.   She said there is statute to  follow, as well                                                               
as the  method expressed by  Ms. Curtis  of "first-in/first-out."                                                               
There is a process followed for moving or eliminating an audit.                                                                 
                                                                                                                                
MS. CURTIS confirmed she would provide the list.                                                                                
                                                                                                                                
11:22:29 AM                                                                                                                   
                                                                                                                                
SENATOR  REINBOLD said  she would  like an  update on  "the COVID                                                               
money, the  state audit, and  the federal audit," which  she said                                                               
she had  anticipated in  early August  but has yet  to see.   She                                                               
said she would like a comprehensive overview, as well.                                                                          
                                                                                                                                
CHAIR  VON  IMHOF  offered  her  understanding  that  "the  COVID                                                               
overview is  the purview of administration,"  which provides that                                                               
on a  monthly basis.  She  asked whether there may  exist another                                                               
"COVID audit" other than the one for the business grants.                                                                       
                                                                                                                                
11:23:16 AM                                                                                                                   
                                                                                                                                
MS.  CURTIS answered  yes.   She offered  her understanding  that                                                               
Senator Reinbold  was referring  to "a  desk review  that's being                                                               
conducted  by the  U.S.  Treasury  on the  state's  use of  COVID                                                               
funds," which  was expected  in August.   She  said she  does not                                                               
expect  the federal  report to  come out  for a  few months.   In                                                               
terms of the current audit on  the CARES Act business grants, she                                                               
said she  anticipates the report  will not come to  the committee                                                               
before "early next year."                                                                                                       
                                                                                                                                
CHAIR  VON  IMHOF asked  whether  Ms.  Curtis would  provide  the                                                               
committee  the report  from  the federal  audit  when it  becomes                                                               
available this fall.                                                                                                            
                                                                                                                                
MS. CURTIS  replied that  when it becomes  a public  document she                                                               
could give the committee an overview of the results.                                                                            
                                                                                                                                
11:24:51 AM                                                                                                                   
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the                                                                       
Legislative Budget and Audit Committee meeting was adjourned at                                                                 
[11:25] a.m.                                                                                                                    

Document Name Date/Time Subjects
IVa LBA Audit Oversight Framework.pdf JBUD 8/27/2021 9:00:00 AM
Oversight Framework
IIa LBA 072921 Meeting Minutes.pdf JBUD 8/27/2021 9:00:00 AM
July 2021 Minutes
8 27 21 LBA Agenda final.pdf JBUD 8/27/2021 9:00:00 AM
August 2021 Agenda final