Legislature(2009 - 2010)BELTZ 105 (TSBldg)

03/18/2010 09:30 AM STATE AFFAIRS

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09:32:39 AM Start
09:33:39 AM SB259
10:14:59 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
<Bill Hearing Canceled>
Moved CSSB 259(STA) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
            SENATE STATE AFFAIRS STANDING COMMITTEE                                                                           
                         March 18, 2010                                                                                         
                           9:32 a.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Linda Menard, Chair                                                                                                     
Senator Kevin Meyer, Vice Chair                                                                                                 
Senator Hollis French                                                                                                           
Senator Joe Paskvan                                                                                                             
MEMBERS ABSENT                                                                                                                
Senator Albert Kookesh                                                                                                          
COMMITTEE CALENDAR                                                                                                            
SENATE BILL NO. 288                                                                                                             
"An Act relating to the disposition of human remains."                                                                          
     - BILL HEARING CANCELLED                                                                                                   
SENATE BILL NO. 259                                                                                                             
"An Act relating to the powers and duties of the legislative                                                                    
audit division."                                                                                                                
     - MOVED CSSB 259(STA) OUT OF COMMITTEE                                                                                     
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: SB 259                                                                                                                  
SHORT TITLE: LEGISLATIVE AUDIT DIVISION POWERS                                                                                  
SPONSOR(s): STATE AFFAIRS                                                                                                       
02/05/10       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/05/10       (S)       STA, FIN                                                                                               
02/23/10       (S)       STA AT 9:00 AM BELTZ 105 (TSBldg)                                                                      
02/23/10       (S)       <Bill Hearing Postponed>                                                                               
03/18/10       (S)       STA AT 9:30 AM BELTZ 105 (TSBldg)                                                                      
WITNESS REGISTER                                                                                                              
MICHAEL ROVITO                                                                                                                  
Staff to Senator Menard                                                                                                         
Alaska State Legislature                                                                                                        
Juneau, AK                                                                                                                      
POSITION  STATEMENT: Introduced  a  committee  substitute for  SB
PAT DAVIDSON, Legislative Auditor                                                                                               
Division of Legislative Audit                                                                                                   
Juneau, AK                                                                                                                      
POSITION STATEMENT: Provided information related to SB 259.                                                                   
SENATOR FRED DYSON                                                                                                              
Alaska State Legislature                                                                                                        
Juneau, AK                                                                                                                      
POSITION STATEMENT: Testified in support of SB 259.                                                                           
CHUCK KOPP                                                                                                                      
Staff to Senator Fred Dyson                                                                                                     
Alaska State Legislature                                                                                                        
Juneau, AK                                                                                                                      
POSITION STATEMENT: Provided information about SB 259.                                                                        
ACTION NARRATIVE                                                                                                              
9:32:39 AM                                                                                                                    
CHAIR  LINDA  MENARD called  the  Senate  State Affairs  Standing                                                             
Committee meeting  to order at 9:32  a.m. Present at the  call to                                                               
order were Senators French, Paskvan and Menard.                                                                                 
CHAIR  MENARD announced  that the  hearing  for SB  288 had  been                                                               
            SB 259-LEGISLATIVE AUDIT DIVISION POWERS                                                                        
CHAIR MENARD announced the consideration of SB 259.                                                                             
9:33:39 AM                                                                                                                    
SENATOR PASKVAN moved the proposed  committee substitute (CS) for                                                               
SB 259, labeled 26-LS1419\R, for discussion purposes.                                                                           
CHAIR  MENARD announced  that without  objection,  version R  was                                                               
before the committee.                                                                                                           
SENATOR MEYER joined the meeting.                                                                                               
MICHAEL ROVITO,  Staff to Senator  Menard, explained that  the CS                                                               
for  SB  259  will  give   the  Legislative  Audit  Division  the                                                               
authority  to  perform  a  financial  audit  on  non-governmental                                                               
entities that receive funds from the  state. SB 259 came about at                                                               
the urging of Legislative  Legal, particularly assistant revisor,                                                               
Jack  Chenoweth  and  attorney,  Theresa  Bannister.  Legislative                                                               
Legal has  previously recommended  that the Legislature  amend AS                                                               
24.20.271  to provide  a  statement of  authority  to audit  non-                                                               
governmental  entities. If  SB 259  passes, Alaska  will join  16                                                               
other states  with similar laws.  SB 259 would  allow Legislative                                                               
Audit, if so  directed by Legislative Audit  and Budget committee                                                               
(LB&A)  to perform  an audit  of a  non-profit that  has received                                                               
state money  to make certain the  money is being use  as intended                                                               
when appropriated.                                                                                                              
9:36:44 AM                                                                                                                    
The other  change in version  R is on page  2, line 2,  where the                                                               
word  "shall"  was  changed  to  "may" at  the  urging  of  state                                                               
auditor,  Pat Davidson.  Ms. Davidson  said that  while providing                                                               
accounting advice to clients is  a typical activity for auditors,                                                               
professional, independent auditing  requirements limit the amount                                                               
of advice  or assistance that  an audit organization can  give to                                                               
an agency before the ability to conduct audits is compromised.                                                                  
MR. ROVITO  summarized that the point  of SB 259 is  to make sure                                                               
that state  money, going to  a non-governmental entity,  is being                                                               
used for the requested purpose.                                                                                                 
SENATOR  FRENCH asked  for examples  of misspent  state money  by                                                               
MR. ROVITO said he does not have examples.                                                                                      
SENATOR  FRENCH said  he would  like to  see Legislative  Legal's                                                               
opinions about the need to modify the statute.                                                                                  
MR.  ROVITO replied  that he  will  get those  papers to  Senator                                                               
SENATOR PASKVAN  asked if nonprofits  are required,  federally or                                                               
otherwise, to be audited already.                                                                                               
MR. ROVITO said he would like  to yield to the state auditor, Pat                                                               
9:39:22 AM                                                                                                                    
SENATOR MEYER said  he noticed "shall" was used most  of the time                                                               
through SB 259 but paragraphs (4) and (11) use "may".                                                                           
MR.  ROVITO said  that language  was done  at the  urging of  Ms.                                                               
Davidson   to   allow   the  flexibility   needed   to   maintain                                                               
professional, independent standards.                                                                                            
SENATOR MEYER asked if a similar  bill to SB 259 had already been                                                               
MR. ROVITO replied yes, last year.                                                                                              
SENATOR MEYER asked why SB 259 is being heard.                                                                                  
CHAIR MENARD replied  that she was asked to bring  SB 259 forward                                                               
and Senator Dyson could answer that question during testimony.                                                                  
9:41:02 AM                                                                                                                    
PAT  DAVIDSON,  legislative   auditor,  Division  of  Legislative                                                               
Audit, addressed Senator Paskvan's  question about existing audit                                                               
requirements for  non-profits. Currently, the state  single audit                                                               
requires any  entity that  receives more  than $500,000  from the                                                               
state to  have an audit  looking for compliance with  the grantee                                                               
SENATOR PASKVAN asked what the intent of SB 259 is.                                                                             
MS. DAVIDSON  replied that she cannot  speak to the intent  of SB
259 because her office did not generate the bill.                                                                               
She  explained   that  typically   a  legislator   requests  that                                                               
Legislative Audit  conduct an audit. Legislative  Audit might use                                                               
audit requirements within the grant  to gain access to conduct an                                                               
audit.  She gave  an  example of  the  school district  receiving                                                               
money  for  transportation.  That  type  of  audit  is  not  just                                                               
financial  but looks  at the  school  district's compliance  with                                                               
statutes governing public school transportation.                                                                                
She understood  that the language  in SB 259 [Section  (11)] will                                                               
provide  more solid  ground for  Legislative Audit  to conduct  a                                                               
financial  audit  but  does  not  provide  any  more  access  for                                                               
performance oriented audits.                                                                                                    
9:44:43 AM                                                                                                                    
SENATOR  PASKVAN asked  if Legislative  Audit has  both financial                                                               
and  performance audit  authority  in statute  for amounts  above                                                               
MS. DAVIDSON  replied no. The  entity is required,  through their                                                               
grant agreement,  to get a  financial audit if they  receive over                                                               
$500,000 in total.  Legislative Audit is not  required to conduct                                                               
those audits, rather the entity hires  a private CPA firm. SB 259                                                               
only  address  financial  related  audits  and  gives  access  to                                                               
entities  with less  than $500,000  in  grants. SB  259 does  not                                                               
provide more  of a  base to conduct  performance audits;  it does                                                               
create solid ground for a financial audit.                                                                                      
9:47:12 AM                                                                                                                    
SENATOR FRENCH asked how long Ms. Davidson has been the auditor.                                                                
MS. DAVIDSON replied approximately 13 years.                                                                                    
SENATOR FRENCH asked Ms. Davidson  is aware of any misspent state                                                               
monies by private entities that receive state money.                                                                            
MS. DAVIDSON replied yes.                                                                                                       
SENATOR FRENCH asked what those are.                                                                                            
MS.  DAVIDSON gave  an example  of a  grant that  was given  to a                                                               
nonprofit in Fairbanks and the  executive director absconded with                                                               
the  money. She  has seen  questionable things  occur with  other                                                               
grants.  Legislative Audit  has also  assisted state  troopers on                                                               
work involving state money and white collar crime.                                                                              
MS. DAVIDSON  referred to Senator Meyer's  earlier question about                                                               
"may".  The use  of  "may"  in paragraph  (4)  is at  Legislative                                                               
Audit's  request. That  flexibility  helps  avoid doing  anything                                                               
that violates professional standards. She  is not sure what "may"                                                               
means in  paragraph (11).  When LB&A  approves an  audit request,                                                               
Legislative  Audit  does  not  take  this as  an  option  but  as                                                               
direction. The use of "may"  may be giving Legislative Audit more                                                               
flexibility in carrying  out the direction of  the LB&A committee                                                               
than it  should. She suggested  the committee might want  to take                                                               
another look at that.                                                                                                           
9:50:05 AM                                                                                                                    
SENATOR  MEYER  agreed  that Legislative  Audit  performs  audits                                                               
requested by LB&A.  He asked Ms. Davidson  if Legislative Audit's                                                               
workload would increase if SB 259 passes.                                                                                       
MS.  DAVIDSON replied  that  she  does not  expect  this. SB  259                                                               
expands opportunities  for the types  of audits  that legislators                                                               
request. SB 259 does not expand  what Legislative Audit does on a                                                               
mandatory basis.  She doubts that SB  259 will result in  a flood                                                               
of audit  requests because  it only  relates to  financial audits                                                               
which did  not have  many barriers previously.  She noted  a zero                                                               
fiscal note  is present because any  LB&A request is taken  up in                                                               
SENATOR MEYER commented that Legislative  Audit is about one year                                                               
behind in its audits.                                                                                                           
MS. DAVIDSON  replied yes,  Legislative Audit  is about  one year                                                               
behind for  LB&A audit  requests. Jobs  assigned in  statute with                                                               
deadlines are  prioritized followed by requests  from LB&A, taken                                                               
in turn.                                                                                                                        
SENATOR  FRENCH  asked  if  Legislative   Audit  has  any  excess                                                               
MS. DAVIDSON replied she has no excess capacity.                                                                                
SENATOR  FRENCH said  if the  LB&A committee  decided Legislative                                                               
Audit  needed  to do  financial  audits  of six  nonprofits  that                                                               
received state money  this year, that work would not  begin for a                                                               
MS. DAVIDSON  said it could take  a year. She explained  that one                                                               
required  audit is  the  statewide single  audit.  As that  money                                                               
moves  through the  state system,  it  must be  audited and  that                                                               
audit is more burdensome and  time consuming than typical federal                                                               
SENATOR FRENCH thanked  her for the work she does  for the state.                                                               
He expressed concern  for Legislative Audit if SB  259 passes. He                                                               
wondered if the amount of money  or the number of tasks should be                                                               
9:54:35 AM                                                                                                                    
MS.  DAVIDSON  described  one  circumstance  in  which  the  LB&A                                                               
committee looked into auditing an  entity who received a grant of                                                               
less than $50,000.  Before  undertaking the audit, LB&A asked her                                                               
to identify  the total amount  of money that entity  received and                                                               
if the amount  was less than a certain threshold,  LB&A would not                                                               
approve the audit. LB&A acts as the gatekeeper.                                                                                 
SENATOR FRENCH said LB&A is responsible in their authority.                                                                     
MS. DAVIDSON replied yes.                                                                                                       
CHAIR MENARD said  she did not intend to  hinder what Legislative                                                               
Audit  could do  but  to  address concerns  that  money given  to                                                               
nonprofits is spent correctly.                                                                                                  
SENATOR  PASKVAN  said  that  most  grants  require  a  financial                                                               
related  audit.  He asked  if  Legislative  Audit would  use  any                                                               
financial audit previously done by a private firm.                                                                              
MS. DAVIDSON replied  that is true. She provided an  example of a                                                               
legislator requesting  an audit  to make sure  a grantee  was not                                                               
spending  too  much money  on  travel  without accomplishing  the                                                               
goals of  the grant.  A private  CPA firm,  just doing  the state                                                               
single  audit,   will  look  for  proper   invoices,  categorized                                                               
properly,  to support  expenditures. The  private CPA  firm would                                                               
not analyze the  amount spent on travel in relation  to the grant                                                               
overall. Legislative Audit,  upon a request approved  by the LB&A                                                               
committee, would  rely the work  of the private auditor  and then                                                               
take a further look at the  travel, making sure it was consistent                                                               
with the grant requirements and  was not excessive. She explained                                                               
that an  audit can look  at any  type of transaction  and examine                                                               
not only if  the transaction is supported by invoices,  but if it                                                               
was necessary to support the  objective of the grant. Legislative                                                               
Audit would not  duplicate the work of another  auditor but would                                                               
use  that  as a  base  for  the  work specifically  requested  of                                                               
Legislative Audit.                                                                                                              
9:58:40 AM                                                                                                                    
SENATOR PASKVAN  asked about  a financial audit  as opposed  to a                                                               
performance audit.                                                                                                              
MS. DAVIDSON  replied that  a financial  related audit  will make                                                               
sure that the  travel was supported by invoices.  If a legislator                                                               
requested  the audit  out of  concern that  the grant  objectives                                                               
were not  being met, i.e.  the number of participants  served was                                                               
less than expected  due to too much travel  expenditure, then the                                                               
audit would  be performance based.  Legislative Audit  would look                                                               
at  travel records  but also  at the  number of  participants and                                                               
types of  participant outcomes. This kind  of performance related                                                               
audit is not covered in SB 259.                                                                                                 
CHAIR MENARD  asked if performance  based audits are  not covered                                                               
because she already has that ability.                                                                                           
MS. DAVIDSON replied no.                                                                                                        
10:00:48 AM                                                                                                                   
SENATOR PASKVAN said  he understands that the  LB&A committee can                                                               
currently request  that type of  audit. He  asked what SB  259 is                                                               
needed for.                                                                                                                     
MS.   DAVIDSON  replied   that  financial   related  audits   are                                                               
relatively easy  to access because  of existing  grant agreements                                                               
and statutes;  however, SB 259  makes it  black and white  in the                                                               
power and duties of Legislative Audit.                                                                                          
SENATOR  PASKVAN  asked  if   Legislative  Audit,  attempting  to                                                               
investigate, has ever had anyone  deny them access. He questioned                                                               
if a substantive  problem exists if Legislative  Audit has always                                                               
been able to do the work.                                                                                                       
MS. DAVIDSON  replied that  Legislative Audit  has been  able "to                                                               
get in  there" for  financial related  audits requested  by LB&A.                                                               
The  occurrences in  which  an  audit has  not  been  able to  be                                                               
complete have  been performance audits, not  financial audits. SB
259 does nothing to address that.                                                                                               
10:03:38 AM                                                                                                                   
SENATOR  MEYER said  the committee  needs an  explanation on  why                                                               
paragraph  (11) is  "may" and  not "shall"  as Legislative  Audit                                                               
does work for the LB&A committee.                                                                                               
SENATOR  DYSON said  he  has the  Legal  Services documents  that                                                               
Senator  French   asked  about  earlier.  He   said  he  believes                                                               
legislators  are responsible  for making  sure that  public funds                                                               
are spent for  the purposes for which they are  intended. He said                                                               
Ms. Davidson  has refused to audit  anything that is not  a state                                                               
employee  or  agency  saying  she  does  not  have  the  explicit                                                               
authority. Senator Dyson said his  reading of the statute is that                                                               
it  looks  like  Legislative  Audit   does  have  the  authority.                                                               
Legislative Legal has said, "you  should probably clear this up".                                                               
He  said Alaska  is a  small  state and  relationships get  cozy.                                                               
People have  come to him  over the years  and said, "Do  you know                                                               
person X who administers these  grants? Girlfriend and son-in-law                                                               
are  recipients of  these grants."  He noted  that LB&A  has been                                                               
responsible and we  don't need to worry about  them misusing this                                                               
10:07:21 AM                                                                                                                   
He  referred to  Senator Meyer's  question about  a similar  bill                                                               
being before  the legislature  and said as  a committee  bill, SB
259 will have more weight and  a better chance of getting through                                                               
the  process.  Not to  be  clear  that  the Legislature  has  the                                                               
authority to look after the people's money is irresponsible.                                                                    
SENATOR MEYER  asked if  Senator Dyson  knows why  paragraph (11)                                                               
says "may" instead of "shall".                                                                                                  
CHUCK KOPP, aide to Senator  Dyson, replied that language was the                                                               
result of a committee discussion last year.                                                                                     
SENATOR DYSON  said given the  authority that LB&A has,  he can't                                                               
imagine that Legislative Audit won't do as directed.                                                                            
SENATOR  MEYER said  he believes  Legislative Audit  would do  as                                                               
SENATOR DYSON  said paragraph (4)  is "may"  as well and  that is                                                               
because of professional ethics.                                                                                                 
SENATOR  MEYER  commented  that  all  the  other  paragraphs  say                                                               
"shall" but paragraph (4) and (11) use "may".                                                                                   
CHAIR MENARD  said the  committee can  make that  correction. She                                                               
reiterated that SB 259 is a committee bill.                                                                                     
SENATOR MEYER requested Ms. Davidson come back up.                                                                              
10:10:11 AM                                                                                                                   
SENATOR  MEYER  asked  if  Ms.  Davidson  recalled  hearing  this                                                               
legislation previously and  if "shall" was changed to  a "may" in                                                               
paragraph (11).                                                                                                                 
MS. DAVIDSON  said she  does remember  the language  in paragraph                                                               
(11) was  changed.   She thought the  original version  had "may"                                                               
but was  it was not  limited to  financial audits. She  is unsure                                                               
about what was done previously.                                                                                                 
CHAIR MENARD said she has a  copy of the original legislation and                                                               
it did say "may" [in paragraph (11)].                                                                                           
SENATOR MEYER  asked Ms.  Davidson if  she thought  "shall" would                                                               
read better.                                                                                                                    
MS.  DAVIDSON replied  that "shall"  would clearly  indicate that                                                               
Legislative  Audit  shall  carry  out  the  wishes  of  the  LB&A                                                               
committee which  would be consistent  with all other  sections in                                                               
the legislation.                                                                                                                
SENATOR PASKVAN  said he still  wonders if  SB 259 is  a solution                                                               
applied where  there is no  problem. He questioned what  is being                                                               
accomplished if  the LB&A  committee has the  ability to  do this                                                               
now. He  said Ms. Davidson has  always been able to  accomplish a                                                               
financial audit.                                                                                                                
CHAIR MENARD said SB 259 gives it more meat.                                                                                    
MR.  ROVITO   said  that  Legislative  Legal   suggested  that  a                                                               
statement of  authority in statute  would prevent  future issues.                                                               
For example, if someone wanted to  fight the audit, it would then                                                               
be  in  statute   that  the  audit  is  explicitly   a  power  of                                                               
Legislative Audit.                                                                                                              
10:13:46 AM                                                                                                                   
SENATOR MEYER  moved to adopt  conceptual amendment 1,  to change                                                               
"may" to "shall" on page 2,  line 24, paragraph (11). There being                                                               
no objection, the motion carried.                                                                                               
10:14:35 AM                                                                                                                   
SENATOR MEYER  moved to report  CS for  SB 259, as  amended, from                                                               
committee  with   individual  recommendations   and  accompanying                                                               
fiscal notes.                                                                                                                   
CHAIR  MENARD  announced  that without  objection  CSSB  259(STA)                                                               
moved from the Senate State Affairs Standing Committee.                                                                         
10:14:59 AM                                                                                                                   
CHAIR  MENARD, seeing  no  further business  to  come before  the                                                               
committee, adjourned the meeting at 10:14 a.m.                                                                                  

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