Legislature(1997 - 1998)
02/11/1998 04:00 PM House BUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
Legislative Budget and Audit
February 11, 1998
4:00 p.m.
Senate Finance Committee Room
State Capitol
Juneau, Alaska
Tape: LBA-981102
Tape 1 Side 1
CALL TO ORDER
Chairman Phillips convened the meeting of the Legislative Budget
and Audit Committee on February 11, 1998, at approximately 4:06
p.m. in the Senate Finance Committee Room of the State Capitol,
Juneau, Alaska.
In your packet, you should have gotten a Status Report of
Outstanding Audits prepared by Pat Davidson. We also got a
letter from AIDEA which is required by law; it goes to the
Chairman but I feel as Chairman of the Committee that you should
be made aware of it. It is a procedural thing.
PRESENT
The following members were present:
Senators Representatives
Chairman Phillips Representative Martin
Senator Adams Representative Bunde
Senator Pearce Representative Croft
Senator Torgerson (alternate) Representative
Therriault
Representative Hanley
(alternate)
ALSO PRESENT
Pat Davidson, Acting Chief Legislative Auditor, Dane Larson,
Legislative Auditor, Anchorage Manager; Mike Greany, Legislative
Fiscal Analyst
PROPOSED COMMITTEE LEGISLATION
Chairman Phillips - Mike Greany has two concepts he'd like us to
look out and hopefully introduce as legislation requested by this
Committee.
Mike Greany - There is actually two items before you today. One
deals with the 45-day rule; the other is legislation I've
requested. The Legislative Access to Executive Branch
Information and Resources memo includes draft legislation that
I've laid out. I've given you the background, the problem and my
proposed solution. Generally in carrying out the functions of
the the budget analyst office for this Committee and the Senate
and House Finance Committees, we rely on information that is in
the possession of various state agencies that have been used in
the course of administering their programs. Actually this is
something we've taken for granted over the years. In other
words, I've been doing this about 15 years and only in the last
few years has this even become an issue where when we're trying
to get basic information such as student count or how much money
it costs to operate each one of the ferry vessels it is not very
forthcoming any more.
I characterize it as a cone of silence or filter and I don't
think the Legislature wants to be in the position of having to
duplicate all those resources that exist in the Executive Branch.
We should be able to plug in and get the information and get it
in a raw fashion and not have to wait until it's been reviewed by
the policy types or whatever type of packaging they want to put
around it before it is furnished to us. We want to get the
information in a timely fashion. The legislation I've proposed
was developed in concert with the Tam Cook. What it would be is
an addition to Title 37 of the Executive Budget Act spelling out
that this information should be available and forthcoming when
requested.
Senator Adams - Just by looking at this legislation it basically
looks too broad. I don't know what the public or press can get
from different agencies. Many of my concerns have to do with
confidential information that maybe Oil & Gas or Natural
Resources might have. Are we getting too broad?
Senator Torgerson - I would have those same concerns. This is
not meant to be so broad that we couldn't protect confidential
information. In other words if we were asking for confidential
information I think we would also need some Statutes in place.
What I have in mind here is to the standard information which
should be available to anybody. We need Tam Cook to clarify this
confidentiality issue.
Senator Adams - What information are we not getting today without
this legislation?
Mike Greany - For example, you or I should be able to get the
fall student counts that go into the formula. They are due on
October 15. Generally in years past that information has been
available within a month of that time and given to us. We can
use it when we do our preliminary spending analyst getting an
estimate of the cost of full funding the formula. We look at what
the percentage increase in enrollment and run it against last
year's appropriation. It comes out close but its something we
use. This year we didn't actually get those counts until we got
the Governor's budget around December 15. I think we should have
been able to get it a month earlier. We've recently run into a
problem where we are trying to find out how much it costs to
operate each vessel of the ferry system. That information the
Department said they have, they were short staffed about getting
it updated for the most recent year but it was there. It was to
be provided us. It didn't come. We were able to dig it out on
our own from other sources. Quite frankly it's turned into a
hassle just getting basic information.
(Representative Hanley and Senator Pearce are present)
Representative Croft - In the case of the ten days, it seems
there is some information they should give almost immediately and
in some cases the ten days isn't enough time. You were talking
about the October 15 information and that a month was about
appropriate but you were disappointed to get it by December 15.
I know a little flexibility in that timeline and some indication
that they have it or have it compiled is necessary.
Mike Greany - The ten day was actually suggested by Tam Cook and
what she was addressing here was you might be in a situation
where the agency agrees to give you the information and that's it
and there's no performance as to when you will get it. Tam Cook
thought some time certain should be on there. Personally I would
be comfortable within a reasonable time or some words like that.
My real intent is to put out on the table the problem and this is
one of the solutions. There are other solutions.
Representative Martin - I think it is a step in the right
direction in helping the Legislature get information we need to
make informed decisions on the budget. I differ with Senator
Adams in that it may not be broad enough. As Chairs of Finance,
Senator Pearce and Representative Hanley can tell us the problems
they've had in getting information. If we let this proposed
legislation go through then they can really express themselves on
the committee level and they could have the agencies come forward
and say we are frustrated with this and that. Why can't we get
the information? I'd like to see a broader piece of legislation.
I think it is too narrow.
Representative Bunde - There was some expressed concern about
confidentiality. As auditors you are dealing with confidential
information all the time are you not and do you have a level of
security in your Division that confidential information would not
leak out?
Mike Greany - I'm not the budget guy. The auditors have access
to confidential information that I don't and I'm not asking for
that. They can get at tax records; I have no interest in getting
at tax records. My interest would be more like requests such as
Department of Revenue saying if these certain changes were made
to the corporate tax structure how many firms would it impact?
What would be the dollar impact? I don't need to go in and look
at the actual files.
Representative Bunde - If there was verbiage relating to
budgetary information would that focus on information you wanted
but reduce the anxiety about the other branch of auditors and the
kind of confidential information they may have?
Mike Greany - I would consider it an improvement in here if there
was a specific portion that said either this does not include
confidential information or if it does there will be policies or
procedures or rules put in place to ensure that they remain
confidential.
Representative Bunde - I would consider the latter rather than
the former. On the broader scope you call it a cone of silence I
call it a conspiracy of silence but I think that you are not the
only person. The Legislature in general is being limited in
access to people and information and I share your quest for
reasonable access to timely information.
Senator Torgerson - Does this cover the University?
Mike Greany - Yes, it would. The definitions and the language
here are in the context of Title 37 of the Executive Budget Act
and under the meaning of agencies it would fit the University.
It also as you notice in the title refers to the Judicial system
and the Executive Branch. I want to emphasize as I did in my
memorandum we don't have a problem with the Judicial Branch. Any
request for information from them we've gotten in a timely
manner. It is the Executive Branch we are having the problem
with.
Representative Hanley - I don't know how to draft it; I agree
with Mr. Greany that we need cooperation to get this stuff out.
When you say information regarding the operation of an office or
agency that is not that I'm not trying to get the broad stuff but
also I don't think we need to be asking or have the authority to
ask something's about a welfare case.
Chairman Phillips - I think the Senate and House Finance
Committees will bring up those points at the time it's heard in
the respective committees. I just wanted to get a sense of the
Committee whether they wanted to go in this general direction
before we proceed. Unless you want to do some drafting right
here?
Senator Torgerson MOVED to introduce the bill as defined by the
Legislative Analyst in both the House of Representatives and
Senate.
Chairman Phillips - Hearing no objection, the motion was
APPROVED.
Chairman Phillips - On the 45-day rule on RPL's you basically
have five different options which I'm assuming the members have
seen and that you are recommending option no. 2 as our course of
action?
Mike Greany - This memo was initially handed out at the December
Committee meeting and we didn't have time to address it. It was
also handed out again prior to this meeting and I hope people
have had time to look at it. The final options were developed in
concert with Tam Cook and George Utermohle in Legal Services
laying out the various possibilities. What I've done is
recommended to you one of the them, option no. 2. I could
describe why in more detail.
Chairman Phillips - Are there any questions on the other options?
Senator Torgerson - On option no. 3 can we selectively put in the
front part of the budgets which ones we want to approve (tape
inaudible)
Mike Greany - We are selective to some degree by specifying which
fund sources. This past interim you've been dealing with Federal
funds, the two nongeneral mental health fund types, the new
statutory designated receipts and the EVOS funds. That front
section is limited to those specific fund sources now. If I
understand your question could we take it a little further and
specify a particular program and amounts? My feeling is perhaps
but I think based on discussions I've had with Tam Cook we might
be getting into some of the separation issues and some of the
contingent language issues that we are now in Court over. What
Tam Cook was trying to help us do was come up with a statutory
change to the status quo that could be most legally defensible
and the option no. 2 in her mind was most legally defensible. It
is just a variation on the existing theme that the Executive has
agreed to and worked under.
The major change is instead of being a turned down or denied, the
RPL goes into effect 45 days after the Committee turned it down
if the Governor makes the findings to approve it that waiting
period would be extended such that it would go into the next
regular session so the Legislature would have the opportunity to
back up that Committee denial of the RPL. It would be similar to
Executive Orders. In effect, there is a clock running up through
the 60th day of the regular session that you have up to that day
to disapprove an Executive Order, you have the 60 days to back up
the Committee's denial of the RPL while the Governor could not go
ahead with the expenditure of those until that 60 day clock
during session has run. That's the thinking there.
You need that front section that Senator Torgerson referred to
initially to make the appropriation of the additional receipts.
They are basically legally out the door with that front section
appropriation. What has happened is this Committee has been put
in the middle with the review process saying that before the
money is actually spent it should come before the Committee and
hopefully the Committee will approve it. If the Committee
doesn't approve it, then the Governor has a mechanism to go ahead
with it. In option no. 3, you would have no front section
appropriation making additional receipts. The agencies would be
in the position of no RPL process; that they would have to live
exactly within the budgets appropriated to them in the regular
session and that any adjustments would have to come through a
supplemental appropriation bill that subsequent session. But as
you and I think that through, we can think about some
noncontroversial Federal funds or other fund sources you may want
to deal with.
On the other hand, if you feel that the Governor has used this
45-day rule to the point it is causing you heartburn then the
ultimate approach is to not have that front section. Since this
process was put into place, there has been five instances where
the Governor has used the 45-day rule and if you're interested
they are: The first two occurred during Governor Hickey's
Administration, one dealing with the Red Sea Urchin Fishery and
the other with the Stick Airport; the third one dealt with the
overexpenditures during the current Administration; the fourth
one was in the Fall with the Pilt issue and the most recent was
the EVOS attempt dealing with the Homer Spit land acquisition.
Representative Martin - I'm glad Mr. Greany did go over the
history. It shows after t40 years, three Governors have used it
and this could be accelerated. If the Legislature now does not
address it, future Legislatures may find themselves with an
increased budget they didn't dream. If they continue with the
open authority of so called program receipts, they are never
going to let us know what the number is in the first place. I
can see a Governor waiting until the day after session to come to
the Committee and say these are new expenditures, new RPL's and
if we don't answer them in 45-days then our agency will
automatically spend it and we've lost our control of the budget.
I'd take option no. 2. I'd like to get rid of all RPL's but
since option no. 2 is more reasonable, I'd accept it. I hope the
Committee realizes we have to close that door on the 45-day rule.
Representative Bunde - If option no. 2 were adopted, do you see
time and limitations on the Administration to react to your
Division?
Mike Greany - I could foresee some circumstances where their
ability to react would be limited. I have a problem with the
undo; I don't really know. In my experience over the years what
kind of RPL rose to that kind of level that it absolutely needed
to action, I think those even come down to judgment calls. I can
remember some flood situations where we needed authority to spend
additional Federal money, i.e., highway washouts. On the other
hand for true emergencies, there are in Statutes provisions for
the Governor to tap any other available appropriation with the
proper findings. There are alternatives. A real emergency would
be so massive you probably would have to deal with it in a
Special Session.
Representative Croft - If we adopt some of these proposals we
wouldn't have the Homer Spit land and the Pilt money which we
rejected and the Governor wouldn't be able to then done it in the
manner he did.
Mike Greany - If for example you used option no. 2 and you put
the effected period sometime into the next session, there would
be 60 days for the Legislature to back up the Committee's
turndown of the process. There are a lot of things that could
happen during that 60 day period. First of all, instead of
releasing the money last November/December, the Governor would
not have been able to do that. The earliest he would have
released it would have been the 60th day of the current session
which would have been February 25. Unless before hand you pass
some other legislation or took some other action to make it
happen, the Committee could have met again, rescinded its action
and approved it. That would have been one possibility but under
the instance in hand the example you site, the Governor would not
have been able to in effect release the money in the Fall. It
would still be locked up until the Legislature had acted to turn
it loose.
Chairman Phillips - It's all based on the right of the
Legislature to appropriate.
Senator Adams - On option no. 2, the second paragraph sometimes
the Legislature is kind of slow in proceeding with these so I'd
like to see changing the words. The Governor could proceed with
the expense of the funds when the full Legislature failed to take
action to implement the Committee's denial of approval within ten
days of start of Session. It gives the Legislature a chance to
look at those and if they fail to act on it . . . then the
Governor has that option to go ahead and expend.
Mike Greany - What ever number of days the Committee is
comfortable with - I just threw out the 60th - it is something
you're use to see as far as the Executive Orders. There are the
deadlines.
Representative Martin - I'm wondering if we could give Mr. Greany
the opportunity to now ask Legal Service to draw proposed
legislation and then introduce it. The give and take will be
discussed at the Finance Committees which have a lot more
experience. My major concern is the Constitutional authority
that Representative Croft brought up. Expenditures only by
Legislature will not be circumvented by this rule. We need to
close that rule.
Representative Hanley - We can do what Mr. Greany suggests
although Senator Pearce and I have to take the blame because we
grant broad appropriation. We appropriate everything we know we
are getting and everything we don't know we're getting and at
that point the Governor gets the projects. It sounds like we
have a Constitutional problem. I would prefer to eliminate the
45-day because - if there are specific projects submitted by the
Governor that are turned down then apparently you get into legal
questions. If Budget and Audit turns it down then it doesn't go
or we can get rid of the front section. That does have the
impact of possibly effecting things that we'd all agree could go
ahead and it would slow things down. We have that option at any
time.
Senator Torgerson - My option is to tighten up the front section
to what you actually know or don't have a problem with. I don't
have a suggestion as to what that would be right now. I think
you could throw out a few of these past problems we have and
maybe keep designated program receipts in there. They don't seem
as controversial as EVOS or some Federal program money.
Mike Greany - I can think back and every time we've thought we've
had that nailed down we've found another way to carry it one step
further. A couple of observations. As Representative Hanley
said option no. 3 to eliminate the front section is always
available to the Finance Committees or Conference Committee.
Another reason I was suggested option no. 2 rather than 3 was it
is valuable to the Legislature's overall oversight responsibility
that we have this RPL process. It does give an occasion for the
Executive Branch to come in and let you know what is going on
before they proceed. In many instances, it is an oversight tool
available to you.
One other possible effect by eliminating the front section and
going with option no. 3 would be a tendency to build excess
Federal authority into the regular budget. So without putting a
value on it in some cases it may be a good thing and it may not
be. They maybe asking for more authority than they need if they
don't know the RPL process is going to be available to them. I
think it will just mean that the Committee and staff will have to
put great scrutiny in analyzing the other and Federal funds than
we have in the past. We have tried to focus on Federal and other
and not just the general more specifically in the last couple of
years and I think we would have to do that more strenuously if we
didn't have the front section appropriating the additional
receipts.
Representative Bunde MOVED to go forward with Option No. 2 to
extend the 45-day period with legislation drafted to implement
Option No. 2.
Senator Adams objected.
Representative Croft - It's only happened five times in our
history and the last two examples are ones I remember and I think
we were wrong and the Governor was right. Those were close
votes. It was a rare thing and we're taken very drastic measures
on something that is not usually a problem. We don't need to
shoot ourselves in the foot over something that has only happened
once or twice.
Chairman Phillips hearing the objection called for the roll call
vote.
Yea Representative Martin, Representative Therriault,
Senator Pearce, Representative Hanley,
Representative Bunde, Senator Phillips
Nay Senator Adams, Representative Croft
Chairman Phillips - The motion was APPROVED by a 6-2 vote.
SPECIAL AUDIT REQUESTS
Chairman Phillips - The next thing we have on our calendar is a
request for an audit.
Senator Adams MOVED that the audit requested by Speaker Phillips
of the Alaska Science and Technology Foundation grants approval
procedures be approved.
Chairman Phillips - Hearing no objection, the motion was
APPROVED.
OTHER BUSINESS
Chairman Phillips - I want to make the Committee aware of the two
reports, one by Pat Davidson, the other by Dane Larson. I wanted
to provide the Committee with an opportunity to ask questions of
Ms. Davidson or Mr. Larson.
Senator Pearce - Because all of us received these late this
afternoon, I want an opportunity to read them before I ask
questions I'd like to ask that we have another meeting soon after
we've had an opportunity to look at them.
Senator Adams - I concur.
Representative Therriault - I agree. I'm wondering if we want to
give them an opportunity to give us a brief overview.
Chairman Phillips - That's what I wanted to do so they could tell
us how they arrived at their conclusions.
Pat Davidson - At the last Budget and Audit Committee, we were
asked to give the Committee more information about the work that
we do and come up with a cost if any associated with relocation
of the Legislative Audit position to Anchorage. Both Dane and I
took an independent approach to this, independent of one another.
First I provided the Committee with a little history of what
Legislative Audit is, basically it was established by the Fiscal
Procedures Act which basically predates the Constitution. It
established for an auditing function to be in the Legislature and
recognized it was an important element in legislative control.
Those same elements were echoed in the Alaska Constitution where
it again was set up as part of the legislative function.
Statutes followed that more thoroughly describe what they wanted
us to do.
One of the things I did was to take a look at the workload of
Legislative Audit. I basically came up with three categories.
First one being sunset. Second being Committee requests and
third the Federal compliance portion of our workload. We are
looking at the numbers here in a span of about five years.
What I did was look at them, discussed them with the managers who
ran those jobs. If you take away the geographic constraints,
where the staff is, and just look at whose agency you needed to
spend more time at and where would the job have been more
efficiently run, that is where I came up with these numbers. The
limitation on that is that with a staff of 30 professionals you
are going to develop individual expertise. A lot of these
agencies are complex. I would say outside the Alaska Railroad
Corporation no body knows their operation better than two or
three of our staff in Anchorage. They know it very well. That
is going to be an element that really didn't come into play here.
We were just looking at geographics.
My analyst basically showed that if you set financial compliance
audits aside, combined sunset and LB&A requests, the workload is
about 5% heavier in Anchorage than it is in Juneau. The
financial compliance portion of the audit dominants the workload
in the Juneau office.
We've tried to lessen the impact of sunset audits on our office
by extending lapse dates. We tried legislation to get a few of
the boards and commissions out of the sunset law. Generally both
have failed. It sends a message back to us from the legislators
that they are continually interested in that approach, therefore,
we continue to do those audits.
Budget and Audit requested at the last meeting I gave a five year
history on the number of those requests. They come and go.
Sometimes we'll get a lot of requests, other times less.
When we go into the financial compliance portion most of our
financial compliance audit hours relate to the statewide single
audit. Basically what it does is keep our nose and being your
eyes and ears into the Executive Branch financial operation. We
are in there every year looking. We're looking for over-expended
appropriations. We are looking for compliance with
appropriations. We're looking at properties of money. We're out
there doing more than just putting an opinion on the financial
statement.
One of the things we have to recognize is we are in a situation
right now where we are not being able to be timely with meeting
the Committee's requests. They are building up and we are
getting slow. We have to do something about that. My
proposition is if we look at the financial compliance audit what
we really do is have two audits going on. One primarily benefits
the Legislature and it looks at state compliance and compliance
with financial related laws and regulations. There is also a
Federal compliance element to it. The primary beneficiary of the
Federal audit is the Governor and basically the Executive Branch
agencies. Everytime they sign a grant agreement, they agree they
are going to have their audit done. I think it may be time for
them to step up and use their resources to do that. There are a
couple of ways to do that. We could act as the contract agent
for them. We could let a contract for them and monitor it using
our expertise in the area. Or we could just turn it over to
them. That's my analysis on the workload.
I think one of the options or the discussions about contracting
out our audit process is you have to recognize the loss of
knowledge that is available to the Legislature when it is run by
a contractor. We can no longer answer questions that typically
come up. I answer a lot of questions coming from Legislative
Finance and various aides. We are in there auditing and know
what's going on. So the loss if you contracted out is your staff
won't be able to answer those questions for you.
(End, Tape: LB&A-981102 Tape 1 Side 2)
. . . to the Anchorage office. In the past it's averaged about
$5,000 but the maximum would be about $10,000. If we move more
than four positions we would probably have to get additional
lease space in Anchorage. Right now we are in the State Office
Building and to our budget there is no cost.
My conclusion on the situation is the Legislator Auditor position
still belongs in Juneau. I think that if you put aside the issue
of whether you can contract all or a part of statewide, I don't
think that there is that significant difference between what the
staff in Juneau should be versus in Anchorage. I think that the
Legislative Auditor should be at the call of the Legislature. I
think he or she should be here and talking to you. I think that
the Legislative Auditor is a position that should be active in
promoting the implementation of our audit recommendations and
that means being in the face of the people who are making the
decisions on the Executive Branch side and primarily those people
are in Juneau.
Dane Larson - Pat outlined some of our process. We tried (cough,
tape inaudible) the same as far as looking at the special audit
requests. What could most efficiently be done. We came up with
different results but primarily the key finding that I came up
with is that I believe that there is opportunity here for you to
allow us to change business. I recommend that we contract out
the statewide audit. I recommend that we contract out the
financial audit and Federal compliance audit. That would allow
us to focus on special audits, allow us to get those done in a
timely manner. With that contracted out, we could rebalance the
staff, reducing long distance auditing. What we are currently
doing is using Juneau staff to conduct Anchorage audits, travel
wise, telephone wise; we're talking with people about what is
going on in Juneau. There is a lot of inefficiencies.
I believe there is an opportunity to pick up the budget also
here. That is significant. I believe the Legislature gets more
from special audits, focusing on the trouble areas. Statewide
audits paint everything with a broad brush whether there are
problems or not. That is the problem I have with that approach.
I think there is very little legislative interest in our
statewide interests. We get few requests for copies.
Traditional financial audits simply don't meet legislative needs.
From the auditors perspective, special audits are different than
statewide in that they focus on trouble areas; they are narrow in
scope. Many times they are performance related. Because of that
difference, they don't limit themselves to private sector
contract.
Legislative Audit should not perform work that can be more
efficiently done in the private sector. Statewide work is
routine, repetitive work that traditional CPA firms do. They can
do it, meet the state's recording needs for significantly less
money. We contacted four national CPA firms for rough estimates.
The difference between what they told us and what we are spending
to do it is somewhat around half to three quarter million dollars
per year. That savings would reduce the budget and also improve
our performance audit capabilities. We can shift resources that
we use from statewide to performance auditing.
I think we should get the bid out this Spring; I think if it's
delayed more than a couple of months I think those bidders
wouldn't have an opportunity to do pre-year end audit work which
is real efficient for them and as a result the bids would be
higher.
I looked at three indicators as to location where special audits
should have been done most efficiently, location of state workers
and location of legislators and staff for most of the year.
Overall it is 70% Anchorage. Specifically I came up with 68%
special audits from the past six years should have been done in
Anchorage. Most of them were done out of Juneau since that's
were the staff is but we're saying Anchorage is where it should
have been done. Seventy three percent of the state's
Anchorage/Juneau workforce is in Anchorage. Workforce location
is fundamental to the auditing. We survey top management
policies and controls, but we spend much of our time with lower
management or rank and file workers. This is particularly
critical in performance. Listening to management's party line in
Juneau is a starting point, but it doesn't constitute an audit.
Eighty five percent of the Anchorage/Juneau legislators are in
Anchorage most of the year. I also compared the Anchorage/Juneau
workforce as far as a trend. I looked at 1990 and 1997.
Anchorage went up 31%; Juneau went down 4%, the shift is
definitely in that direction and probably will continue. An
auditor has to audit where the services are being provided so
that trend may well continue.
Pat mentioned the cost differential. This reorganization will
save money on lease cost, annual travel. It would be a very slow
degree by moving cost. We don't have an out of budget payment
for lease cost, but I think we pay for the space we occupy, paid
for from different funds but we as a state pay for the State
Office Building. Our space in Anchorage is 86 cents a foot and
that is significantly less than what it would be here. Travel
cost every year averages $28,000 to send Juneau staff to
Anchorage for Anchorage jobs. The bottom line on cost savings is
$500,000-750,000 a year which is pretty much overwhelming and
these other costs are relatively minor.
As to where the Legislative Auditor should be based, I think it
should be based where the workload is and I believe that is
Anchorage. I believe the audit requires a direct hands on
management and I don't feel it can be effectively managed from
Juneau. The auditor would even with a differential spend more
time in Anchorage than in Juneau, would need to be in Juneau for
session anyway and a great many of the audit issues could be
addressed at that point. So travel to Juneau by the Legislative
Auditor would be relatively minor. Given the workload which is
substantially in Anchorage if you had a Juneau Legislative
Auditor they would have to travel to Anchorage certainly more
than an Anchorage auditor would travel to Juneau. That is the
bottom line. Travel costs would be reduced.
The auditor needs to maintain a close year around relationship
with the Committee and the Legislature as a whole and I think
this plan provides for that. It is more efficient and effective.
The budget reduction is we will be more efficient in this
approach through less long distance auditing. There will be huge
cost savings from contracting out the statewide and again I would
propose splitting that between beefing up our special audit
capabilities and budget reduction. How much of a budget cut
depends on the bids we get and what sort of resources you would
like. This is what we look for in agencies. This is one of
those opportunities where we can improve services and cut the
budget.
Representative Therriault - With regard to your comment that the
audit function can't be managed long distance, you can manage
though long distance. Do you think your work function has not
been effective?
Dane Larson - What I'm talking about is the scope of the work. I
don't believe it would be appropriate to have 30 in one office
and 5 in another and try to manage 30 from a distance. I believe
it is easier to do a smaller shop and that is what I'm proposing
here.
Representative Therriault - With regard to contracting out, what
credibility do you give to the argument that although some of
that is rote number crunch, it provides a basis of understanding
in and outside the working so that when you do have a performance
audit you have a base to build on? What do you think about the
loss of that by contracting out?
Dane Larson - I would agree that there is a loss but for the kind
of money we are talking about, we can afford to do some special
audits, afford to spend time monitoring certain features. We
could have several people full time doing just that and coming
anywhere near these sort of savings. One person full-time $50-
60,000 could easily cover a lot of that. I would also propose
occasional cycle basis departmental audits of financial and
operation in content. That would provide a great deal of
expertise.
Representative Therriault - In the audit work being done on
behalf of the Administration that could be split off, if it was
split off and they do it or they contract with us to do it, what
kind of monetary money is attached to that?
Pat Davidson - I don't know that I can answer that well right now
in terms of what my approach would be somewhat similar to Mr.
Larson's and say if we got another funding source for that part
the first thing we would do is how would we get more timely with
our Committee requests. If there is any left over then it would
be a budget reduction. One of the things I'm sensitive to is
cost savings versus cost shifting. Federal compliance audit
costs are eligible for Federal reimbursement, however, except for
programs in Health and Social Services, most Federal programs are
capped and that is a spending limit on it. If you introduce some
of those funds for audit costs, you are going to have reduction
in the program costs. Right now DHSS for its uncapped programs
does bill out through what is called statewide cost allocation
plan. All the costs associated with what we do (tape inaudible)
and those funds right now are general funds. So when you look at
that that has to be an element of the discussion. It isn't like
there is new free money out there to pay for it. In a lot of
cases when I look at the three departments where we spend most of
our efforts on a Federal level Health and Social Services,
Education and Transportation, only DHSS is the agency that I
don't believe is going to take a hit to their programs because
they maybe already funnel off some costs to pay for their
administrative services. That will be more of a cost shift than
a cost savings.
Representative Therriault - So the function and proposed savings
that you spoke about, Mr. Larson, is that everything we are
talking about here or a portion?
Dane Larson - It is roughly 30%.
Representative Martin - I think this is a worthwhile thing to do.
For the ten years I've been on the Committee, we never had an
understanding of what you all were doing or why. This has been
of great value. I think we need more time before we make a
decision.
Chairman Phillips - What we've done is have the auditors audit
themselves.
Senator Adams - I'm going to need more information. One is I
know there was a turnover rate in the Division and one has stated
less turnover rate. I'd like the turnover rate for the last
couple of years in the Division. The other thing is I need to
weigh out the contracting out. What happens is the agencies lose
its familiarity or knowledge of an agency when the Legislature
wants a day to day accountability of different agencies. I hope
people will look at. The other thing is contracting versus a
resource person and I think that is going to be a problem. If
you think it's cheaper contracting out but you change your RFP's
so you have to train another agency, I don't know in the long run
you save. I think in the long run you're better with a resource
person within the agency.
Chairman Phillips - I need some time to; I hope to get a meeting
scheduled for next Tuesday or Wednesday. We'll try for next
Wednesday. That will give us a week to look at this, to clarify
in our minds which way we want to go.
ADJOURNMENT
Chairman Phillips adjourned the meeting at 5:15 p.m.
(End, Tape: LB&A-981102 Tape 1 Side 2 #658)
LB&A 4 02/11/98
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