Legislature(1993 - 1994)
03/01/1994 08:00 AM STA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SB 128 - LEGISLATIVE AUDITS Number 340 SHELBY STASTNY, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET (OMB), offered his concerns on CSSB 128. He said CSSB 128 requires the Division of Audit and Management Services (AMS), OMB, to follow up legislative audit reports. He felt this should be done, however, in a cooperative manor between the AMS and the Division of Legislative Audits (DLA) to agree which audits should be followed up on. MR. STASTNY said statutorily requiring a follow up will completely redirect the efforts of the AMS. The AMS has only eight to ten auditors, whereas the DLA has nearly 30 working year round. He felt the appropriate function of the AMS was to work primarily on audits under the executive branch and redirecting the AMS to the DLA would not be proper. The executive branch does, however, feel the DLA audits should be followed up. MR. STASTNY stated the function of the auditors is to sell their recommendations to the agencies. The subject matter is very familiar to those who did the audit, and the OMB feels those people ought to be working on the acceptability and implementation of the recommendations. Another entity added to the process would require them to be duly informed of the recommendations, of which it would require an overview of almost the entire audit. He felt this would be an inefficient process to use the AMS. If the recommendation is not good enough for the agency to follow, even the executive branch would have the same difficulty as the DLA in convincing an agency. MR. STASTNY noted the DLA has an Anchorage office where many of the audits are performed. The OMB sends people to Anchorage sometimes, but requiring follow up on these reports may result in significant amounts of travel. MR. STASTNY said the OMB is concerned that, with the additional work load, they would have to hire more employees. He felt three people would be required to carry out the current work load and distribute the additional work load. The AMS currently regularly follows up their reports after six months to determine whether or not the agencies have accepted their recommendations. He felt this was a good idea for the DLA also. He noted the AMS would be willing to work with recommendations where the governor's office, for example, agrees there is a good idea which an agency is reticent to follow. (REPRESENTATIVE SANDERS left the meeting at 8:30 a.m.) Number 424 CHAIR VEZEY stated he had difficulty interpreting the wording. CHAIR VEZEY asked MR. STASTNY to clarify if he was implying that on page 2 the OMB will be at the direction of the Legislative Budget and Audit Committee (LB&A)? He commented that he did not interpret page 2 in this way. Number 435 MR. STASTNY responded that the words do not say it, but they believe it will be the result. The words say the OMB shall monitor the implementation and recommendations made by the LB&A. He stated Mr. Welker wrote a letter to Senator Steve Frank basically saying through some administrative procedures they would be able to take care of some of the OMB's concerns. He believed the letter also mentioned the legislative auditor will work in concert with OMB to balance the resources reasonably available; the legislative auditor will prioritize items according to significance; and basically the legislative auditor and OMB will work with the resources available. Number 453 CHAIR VEZEY asked if MR. STASTNY stated that the LB&A currently has 30 auditors working. Number 454 MR. STASTNY replied around 30. Number 455 CHAIR VEZEY thought they only had two to three. He asked how many auditors the AMS had. Number 459 MR. STASTNY answered the AMS has eight to ten. Number 461 CHAIR VEZEY clarified the AMS would have to add approximately four people to keep up the work load. Number 462 MR. STASTNY corrected that their fiscal note stated three. Number 466 CHAIR VEZEY noted CSSB 128 mandates additional work will be done; however, there is a question as to whether additional people are required. This was of concern to him considering the current budget pressures. He wondered how much work could be created with two agencies cyclicly deriving work for each other to keep checking on. Number 480 MR. STASTNY agreed with CHAIR VEZEY. He stated the DLA operates at the direction of the legislature on larger tasks and the AMS primarily works at the request of the governor's office or an agency if a department has asked for an audit of their procedures. Number 497 REPRESENTATIVE ULMER asked if MR. STASTNY had an alternative recommendation. She believed the Senate State Affairs Committee meant for LB&A, after an audit, analysis and recommendation, to see action because LB&A and the legislature cannot really enforce the recommendation. She stated the LB&A has the option of withholding funds to an agency. CHAIR VEZEY asked if withholding funds would be the "ultimate hammer." Number 505 REPRESENTATIVE ULMER said yes, but the "ultimate hammer" may also hurt the LB&A, as well as the agency. The legislature often chooses between not giving the agency money, even though they want them to do the work. She believed CSSB 128 would involve the AMS in the work while being one step short of withholding all funds. The executive branch could implement the agency in direction. She said CSSB 128 states that recommendations will be directed to the AMS to either implement or respond why they would rather not. Number 520 MR. STASTNY stated the recommendations of the LB&A are heard; however, they are not always agreed with. He said the OMB would like to work with LB&A to find things they agree on. He felt the AMS should not be put in the middle of the auditor and the audited agency. He felt if the agencies were not on task they should be dealt with through the budget or legislative process. Procedural detail is up to the executive branch and there may be differences of opinion as to how policy is carried out. Number 545 CHAIR VEZEY asked if the LB&A and the legislature has been frustrated with this problem in the past. Number 548 REPRESENTATIVE ULMER responded that the chair of the Senate State Affairs Committee introduced a bill to deal with frustrations he or the LB&A feels. She said SENATOR PHILLIPS, Chair of LB&A, would have to answer why the bill was introduced. REPRESENTATIVE ULMER said generally the executive branch responds positively to the recommendations of LB&A. Sometimes an audit uncovers a practice which frustrates the will, then if the people get mad enough, they turn to the budget process and try to take away funding. Number 573 MR. STASTNY replied the alternative proposal would be to possibly meet on a regular basis to discuss concerns not currently voiced. He said the OMB values the efficient management of their departments and prefers an informal form of action. Number 587 REPRESENTATIVE ULMER asked if MR. STASTNY ever meets with RANDY WELKER. Number 588 MR. STASTNY did not know how regularly, but thought GARY ANDERSON, DIRECTOR OF OMB AUDIT DIVISION, meets with MR. WELKER. Number 589 CHAIR VEZEY asked REPRESENTATIVE ULMER, member of LB&A, why she had not introduced this type of legislation. Number 591 REPRESENTATIVE ULMER did not feel it was a big problem. She said the agencies had generally been responsive in terms of responding to the initial audit and in implementing reasonable requests. She stated Senator Phillips may be aware of something she was not. Number 598 CHAIR VEZEY asked if the demand on services would influence REPRESENTATIVE ULMER's decision. A zero fiscal note from Senate Rules and the House State Affairs Committee was before the committee, as was a modest fiscal note from OMB of about $206,000 a year, escalating every year of three people. He stated auditors create a lot of work and, with the offices working together, there could be a lot of jobs created. These jobs would have to be funded. Number 610 REPRESENTATIVE ULMER felt it would be appropriate to ask RANDY WELKER how many times there has been a problem, and if CSSB 128 was necessary. Number 614 CHAIR VEZEY stated zero fiscal note bills have been known to show impacts. He asked how much work would be driven by CSSB 128. Number 622 MR. STASTNY responded that the submitted fiscal note was prepared by the AMS, which indicated possibly 20 percent of the recommendations of LB&A would be followed up. This would amount to about 3,600 hours for the AMS, which would take three auditors. Number 633 REPRESENTATIVE KOTT questioned how many audited agencies agree with the recommendations of the LB&A. He noted, if the audited agency agrees with the recommendation, the AMS will be responsible for monitoring the implementation. He wondered what it would take to follow up the implementation. Number 640 MR. STASTNY said he did not know, but he could possibly find out from RANDY WELKER. Number 642 REPRESENTATIVE KOTT asked if there were a lot of disagreements. Number 645 MR. STASTNY said not really; LB&A does good work and the agencies generally agree with their work. Number 647 REPRESENTATIVE KOTT clarified that 80-90 percent could perhaps be in agreement with recommendations by LB&A, therefore, the AMS would have to implement these recommendations. MR. STASTNY said the AMS would have to become familiar with the implementation, and this is why he felt the DLA would be better to do the implementation because they prepared the audit. Number 658 CHAIR VEZEY stated there does not seem to be any recourse, and the LB&A would be free to request services from another branch of government's budget without restraint. He said government would drive government in cost. He asked for a recommendation to temper this effect, perhaps a set number of auditors who would respond to the LB&A requests. The legislature could choose whether or not to fund those auditors. Number 671 MR. STASTNY recommended there be monthly meetings with DLA, as an informal method, and not statutory requirements. Number 676 REPRESENTATIVE G. DAVIS asked if "monitoring" was an auditing term with specific meaning. Number 679 MR. STASTNY believed "monitoring" was used just in general English language. Number 681 REPRESENTATIVE G. DAVIS stated CSSB 128 directed the AMS to "monitor," and it could have different meanings to different people. Number 685 MR. STASTNY replied that "monitor" does not have special meaning. Number 686 CHAIR VEZEY introduced RANDY WELKER as the next person to testify. Number 692 RANDY WELKER, LEGISLATIVE AUDITOR, LEGISLATIVE AUDIT DIVISION, LEGISLATIVE AFFAIRS AGENCY, answered questions on CSSB 128. He addressed CHAIR VEZEY and said there is not an urgent need for CSSB 128, but SENATOR PHILLIPS was primarily interested because there could be a better success rate on LB&A recommendations. TAPE 94-18, SIDE B Number 000 MR. WELKER believed SENATOR PHILLIPS was looking for a long term mechanism to not only improve implementation rate, but also keep significant recommendations before the LB&A. He said a formal mechanism provides a systematic review. MR. WELKER addressed REPRESENTATIVE KOTT and said he did not know the specific number of agreements because it was constantly changing. The DLA has a high success rate in getting agencies to agree with recommendations, but their follow up in implementation does not always match. The agencies may have a matter of priority within their shop or they may not have the resources to implement the recommendations. He suspected some agencies may even agree with the recommendation to have the audit come to a smooth end. Some agencies simply disagree. He stated CSSB 128 is designed to involve the OMB and the recommendations the LB&A thinks are important for policy matters. To create continuity, the LB&A would like the perspective of the governor's office on recommendations it decides to forward to the OMB. Number 077 REPRESENTATIVE G. DAVIS asked what sort of responses from the OMB does the DLA get. Number 097 MR. WELKER responded that the current DLA involvement with the OMB implementations is limited. A copy of all DLA audit reports is supplied to the OMB for their files. Currently, the DLA and the AMS are working on different things; however, they do communicate to make sure work is not duplicated. Number 100 REPRESENTATIVE ULMER asked MR. WELKER's reaction to MR. STASTNY's recommendation to have informal meetings. Number 107 MR. WELKER thought MR. STASTNY's idea would eliminate a formal mechanism to bring recommendations before the LB&A. With a concern for administration changes, CSSB 128 would assure a continued program. Number 128 CHAIR VEZEY asked MR. WELKER to comment on the fiscal notes, feeling CSSB 128 obviously has the potential of creating more work. He asked, Would the administration have to hire more people and appropriate money to allow for this, or would the legislature address it as though, since extra money was not appropriated, they do not expect the OMB to respond to the bill this year? Number 144 MR. WELKER responded that Senate State Affairs discussed this issue and resolved it with a zero fiscal note. He stated the current fiscal note is similar to the 1993 version and Senate State Affairs felt there would be flexibility in dealing with the resource limitations. He thought three people, present or additional, were not necessary. He said AMS would have to adjust and communicate with the DLA on the amount of work they receive. Since the majority of the recommendations received will have the affected agencies in agreement, he felt the agencies would have to be monitored, not intensely reaudited. The agencies need to know they are not going to slide through without changes, he said. CHAIR VEZEY asked what the penalty would be for violating this statute if CSSB 128 were to pass. Number 184 MR. WELKER answered, not criminal penalties, but the LB&A may bring on pressure through the budget processes. He said CSSB 128 does not include specific penalties. Number 194 CHAIR VEZEY asked why CSSB 128 should be put into statute if it did not have a means of enforcement. He asked if the legislative "hammer" was increasing and the administrative "hammer" was decreasing. He asked what CSSB 128 is improving. Number 208 MR. WELKER replied the intent is not to change the balance of power, but further a goal that both the legislature and administration share to improve state government. Number 214 CHAIR VEZEY asked what the "tool" would be in CSSB 128 to enforce the statute. Number 218 MR. WELKER answered there are several laws without specific penalties, but their formal expression of policy by the legislature gives them recognition so as agencies will follow them. He said CSSB 128 would not be an ineffective law. Number 229 REPRESENTATIVE G. DAVIS asked if MR. WELKER gets frustrated with the OMB when he has to relate to them. Number 234 MR. WELKER replied that over the years there have been shifts in implementation and the DLA has no specific concern with the current OMB. He said CSSB 128 is an accumulation of frustration by some LB&A members and also the frequent sight of good recommendations not taken advantage of. He stated the DLA should take care of implementation, and he did not strongly disagree, but implementation of recommendations is ultimately the responsibility of the administration. (REPRESENTATIVE ULMER left the meeting at 9:05 a.m.) Number 257 REPRESENTATIVE KOTT asked about current audits on agencies and implementation followed up by the DLA. Number 262 MR. WELKER stated the DLA's primary large audit, the State Single Audit, which is the financial audit of the State of Alaska in its entirety, averages 70-75 significant recommendations. The DLA follows up on the recommendations they made to the state in the previous year. The DLA makes recommendations on special audits looking at particular areas of concern requested by the LB&A, but they may not return to those areas for several years. He said CSSB 128 is focused towards these special audits. Number 285 REPRESENTATIVE KOTT asked for clarification that the DLA does not reevaluate if the recommendations have been implemented. He asked if anyone does. Number 288 MR. WELKER said there is no formal mechanism and CSSB 128 would help in this area. Noting the sunset process, the DLA is sometimes asked to revisit agencies several times. In these cases the DLA has the advantage of file history. Number 304 REPRESENTATIVE KOTT questioned why the DLA would not want to reevaluate agencies to see if the recommendation had been implemented. Does lack of funding or man power limit the DLA? He felt the follow up should not be that difficult. Number 318 MR. WELKER responded that he has no control over his workload and he probably has 15-20 requested special audits, which he has not even been able to start yet. He noted that even if he did follow up on the special audits, he still has no enforcement mechanism, and he would have to relay the same recommendation that the agency ought to do it. He thought pressure from the executive branch would create pressure and help in quick direct implementation. The problem is a resource issue, he said. (REPRESENTATIVE ULMER rejoined the meeting at 9:24 a.m.) Number 335 REPRESENTATIVE KOTT asked MR. WELKER to comment on the number of audits he was responsible for in the 18th Legislature, as compared to the 17th Legislature. He asked if this was a new problem. Number 340 MR. WELKER answered no, the DLA has always been busy. Number 349 Hearing no more questions, CHAIR VEZEY announced CSSB 128 would be held in committee and called for a short recess at 9:12 a.m. CHAIR VEZEY called the meeting back to order 9:18 a.m. and reopened HB 404 for discussion. REPRESENTATIVE G. DAVIS was present.