Legislature(1997 - 1998)
07/22/1998 09:00 AM 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
July 22, 1998
9:00 a.m.
House Finance Committee, Room 519
State Capitol
Juneau, Alaska
Tape: LBA-982207 Tape 1 Side A
CALL TO ORDER
Chairman Phillips convened the meeting of the Legislative Budget
and Audit Committee on July 22, 1998, at approximately 9:10 a.m.
in the House Finance Committee, Room 519, State Capitol, Juneau,
Alaska.
PRESENT
The following members were present:
Senators Representatives
Chairman Phillips Representative Croft
Senator Donley Representative Therriault
Senator Halford
Senator Pearce
Senator Torgerson (alternate)
ALSO PRESENT
Pat Davidson, Legislative Auditor; Merle Jenson, Deputy
Legislative Auditor; Fred Fisher, Acting Legislative Fiscal
Analyst; Tom Williams, Senate Finance Committee staff providing
staff support for the Legislative Budget and Audit Committee.
STATUS OF AUDITS
Pat Davidson - Today we have one preliminary audit to discuss and
two special audit requests. I recommend that the Committee
consider going into Executive Session to discuss the preliminary
audit.
Senator Halford MOVED to go into Executive Session to discuss the
preliminary audit.
Hearing no objection, the motion was APPROVED.
The Committee went into executive session at approximately 9:11
a.m.
EXECUTIVE SESSION
Chairman Phillips reconvened the meeting to the public at
approximately 9:30 a.m.
ACTION ON AUDITS
Pat Davidson - We will need a motion to release the preliminary
audit. The other issue is we have two audit requests; one from
Representative Bunde looking at a contract that was let by the
State Recorder's Office; the second is from Senator Ward looking
at the Department of Corrections Inmate Accounts.
The one on the Inmate Accounts is basically a follow up to an
audit conducted in 1996 when we looked at the fiscal operations
overall. Back in 1996, we found that the Inmate Accounts were
out of balance between the detail ledgers and the control cash
account of $182, 000. We found that there was inadequate
segregation of duties; there was a sharing of passwords getting
into the computer system. It needed substantial improvements.
Someone got away with over $180,000. They are I believe at Grand
Jury status with that one. So although we may not get into the
embezzlement itself it will be another look at the controls.
(Representative Therriault is joined the meeting.)
Senator Halford MOVED to release the statewide audit for comment.
Hearing no objection, the motion was APPROVED.
Senator Halford MOVED to approve the two audit requests.
Hearing no objection, the motion was APPROVED.
OTHER BUSINESS - MEMORANDUM OF AGREEMENT
Senator Pearce - Did you explain to the Department of
Administration ...?
Pat Davidson - Yes, it is included in your packet. Last spring
we evaluated what our workload was. My job was to look at it,
define what we are required to do by Statute and focus our audit
efforts on those. One of the things that came to our attention
was the work doing the single audit in the compliance portion was
not a mandate of Legislative Audit. I notified the Department of
Administration that we would no longer be doing that portion of
the audit; that we would be happy to work with anybody they
wanted to do it.
They have come back with a request to us through a Memorandum of
Agreement asking us to continue doing that audit. What they came
to us with was some money to fund some unfunded positions that we
have right now. But more importantly they have came to us and
said we will dedicate a 1000 hours from our internal audit staff
to help on the audit and Administration will pick up some of the
administrative responsibilities for the audit. I think it is a
good thing for the state; I think it is going to get them more
active. It will cut down on the number of Federal findings we
have because all of the Administration is going to be aware of
what those requirements are. If we have more controls then it is
going to increase the amount of time and effort the auditors have
to work and I think that the direct relationship of falling back
to them is a good one. As I indicated in the memo, I was going
to be signing the Memorandum of Agreement.
Chairman Phillips - That is your recommendation? Do we need to
do something officially on that or are you saying this is what we
are going to do?
Pat Davidson - It will not detract from the efforts and what we
are making on our special (cough, tape inaudible).
Senator Halford - We are going to spend money through our agency
that we haven't formally approved in addition to what we did
approve? I think we should do something to approve it? I agree
with it. I think it is a good idea. I think the Committee
should say something because it is money to be spent through our
branch now from the other branch that is not appropriated out of
our branch.
Senator Halford MOVED to approve the Memorandum of Agreement.
Senator Torgerson - You said you are going to hire some people
for positions that are not filled now through this transfer?
Pat Davidson - Partially, I am going to use this to fund
positions.
Senator Torgerson - How much money are they transferring?
Pat Davidson - A maximum of $250,000. The Department of
Administration is going to be sort of brokering it. The costs
are actually going to be distributed out to all the agencies. It
is all Federally reimbursable. My sense of things is those
Federal programs that don't have a cap on them, i.e., CSED, a lot
of those are going to be picking up the cost. What we are
recognizing here is the cost to handle Federal money is the
audit. That is part of the cost of the Federal program and to
the extent possible they are going to be billing those Federal
programs. For those that have a cap it will be their choice as
to whether they want to bill the Federal program or have another
funding source; so it isn't going to be the Department of
Administration, they are just brokering it.
Senator Torgerson - I'm concerned about the integrity of the
audit; it's the fox guarding the hen house kind of thing. Your
employees, their money. But if you think it is going to work I
guess it's going to work. I would question the integrity of the
audit if you're using your people and a thousand hours of their
people. Where is the independent auditor? There isn't one. It
apparently doesn't bother you, but it bothers me as to what your
major goals are in auditing and trying to see if we are spending
money properly.
Pat Davidson - Our auditing standards do allow us to do that and
that is why I'm generally comfortable with it. I think in a
governmental environment that's even more of an issue. Basically
for us to use their staff, what they are going to be doing is
basically the leg work. We are going to plan; we are going to
review it and we're going to supervise their activity. They are
just going to run around and do some more of the work. It is not
inconsistent with the type of audits. Additionally, the work
that we are going to be using them for is on Federal compliance
issues. We have an attitude about how state money should be
spent and we are going to keep that attitude and I don't think
there is anything that is going to change it. In terms of
Federal compliance I am relatively comfortable with our level of
supervision of that staff; that we can handle it.
Senator Torgerson - What is the advantage of going together on
this? Why don't they hire their own auditors?
Pat Davidson - That is one of things they did consider. You
would probably have to talk to someone from the Department of
Administration. But to give you an example, Retirement and
Benefits contract out their audit work. Besides the cost of that
contract they dedicate between 1-1/2 and 2 positions on an annual
basis to do the legwork for those auditors and it fits well with
the financial audit. We have the resources and the knowledge of
the departments and we are just going to be one step ahead.
Senator Torgerson - I won't object but I think we have to watch
it. I think it loses the integrity of the audit to have
Administration pay for part of our work. To come with a budget
next year in spending part of the Administration's money on
memorandums of agreement for down the road I think spells
trouble. It doesn't keep a clean slate. What we are suppose to
do is audit state government.
Senator Donley - I don't mind them paying for it; I do share the
concern about their employees doing it. I think it is acceptable
procedure to charge for the auditing service. I was going to ask
the question if we could do more of that?
Senator Torgerson - I don't think I would object to charging but
we don't when we go into audit their stuff. Now we're saying we
might. And to be independent and say you've got to pay me to be
independent so I can come in and audit you even if it is on
Federal stuff around the state just doesn't seem to fit very well
in keeping the integrity of independent auditor.
Senator Donley - But we do that with the banks. Banks pay us to
inspect them and we do that with insurance companies. We do
audits on them. I don't mind taking the money to do it; I share
your concern with their employees performing a function like
this.
Senator Torgerson - This group is suppose to be independent and
the insurance industry are overseers by regulation; this by
Statute is suppose to be an independent group charged in the
Constitution with doing things, the others are not. It is just a
concern I have.
Senator Pearce - Is there a way for the Federal money to keep
directly to you? We are mostly talking about a Federal pass
through because it is Federal money. They require us to do the
audit; they pay for the audit.
Pat Davidson - We don't have the ability to directly access the
money.
Senator Halford - Senator Torgerson brings up some good points.
What is the timing of this request? When do you have to
(coughing, tape inaudible)
Pat Davidson - December through March. We have to gear up for
it. I do understand your concerns and I don't mean to be
lackadaisical about them. I think that using their internal
audit staff is good because I can visualize how the audit effort
works. What we are going to do with them is ask them to prepare
schedules, to locate documents basically to do a lot of work that
doesn't require a lot of planning or thought process. We are
going to tell them what we want; they are going to do it and then
we are going to review it. So I'm not concerned about that. The
benefit I see to using their staff is then they will understand
exactly what the issues are with that Federal money. As the
agency operates throughout the year these internal auditors can
be aware of those issues and be able to inform the agency about
how that is going to play out. Maybe we are going to stop some
of this stuff before it happens because we are going to get some
internal auditors in this Department who are trained about what
the appropriate issues are. In this state we do not have a very
strong internal audit function at all. It is pretty dismal
actually. I think it shows itself in a lot of things that come up
in an audit report where they misspent their Federal money or
have not reported things properly or they don't believe these
controls are necessary on the dollars. What I'm hoping to do
with this is develop stronger internal auditors within the
Department and I think it is going to benefit the state.
Senator Halford - Once this decision is made people will be hired
and an ongoing relationship will be established which is multi
year, is it not?
Pat Davidson - Yes
Senator Halford - I made the motion but that is a bigger decision
than I'm willing to make on the amount of information we have in
front of us. I would like to WITHDRAW the motion. I'd like us
to consider what is really going on. I agree with what Senator
Torgerson said; I agree with what you want to do but I think
there is a serious potential conflict.
Chairman Phillips - The motion has been withdrawn.
Senator Torgerson - Who would issue the report? Would Budget and
Audit issue the audit?
Pat Davidson - It would come exactly like a report is right now.
Senator Halford - I would ask that we get back to this in a time
when they can still gear up or Administration can still gear up
if we say "no". I think this is a significant question.
Senator Pearce - Do you have an alternative you'd like Pat
Davidson to consider? What more information do you require? I
don't disagree.
Senator Halford - There is nothing in writing; no hard number
about (cough, tape inaudible) $250,00 is a significant amount of
money. It's a transfer not just between departments but between
branches of government. It is something that if they did it to
us we would be furious about.
Senator Pearce - Do you want to see the proposed Memorandum of
Agreement?
Senator Halford - I think there are ways we can do it that
maintain that insulation or is it impossible? It is logical. I
think there is a separation. Our audits when we audit them is
because we want to. In this case, it is an audit they are
required to have to get the Federal funds. We are picking up a
ministerial function that the Administration needs done at
nobody's request; that is why they are willing to pay our branch
to do it.
Pat Davidson - We've been doing the Federal compliance portion of
the audit since 1982. We've always been doing it. The Federal
agencies developed the idea about auditing all the Federal
programs at one fell swoop in 1982. At that point of time, there
is a natural synergy to when they're looking at Federal dollars
and how they spend the Federal dollars. Basically we are the
audit organization that is geared up to do this.
Senator Halford - Why are you talking about a new program and
what is the change?
Pat Davidson - Basically it was a budgetary issue for me. I had
a workload that was ten months behind. In answer to your
question we've been doing it free for years and now we are going
to charge them.
Senator Halford - Are you saying this has been done for free for
years and now we are going to charge them?
Pat Davidson - Yes.
Senator Torgerson - You are going to hire how many people?
Pat Davidson - What I would like to do is hire two people and
then use the rest of the money to contract out other audits that
we have so we can keep momentum going.
Senator Torgerson - Would you use the money transferred from
Administration to do our work?
Pat Davidson - We are going to have to use some of our auditors.
We have about a four month window to get the audit done and we
can't just take and staff up to do that so what we'd be doing is
billing them for the amount of hours we commit. I don't want to
staff up a whole bunch of auditors and then experience a
reduction in special audits and have to lay off people. I am
funding two positions in the Division which are currently
unfunded right now in the budget through vacancy factors I can't
fill I think that is the historical norm for where the Division
is. I think to some degree we had a bubble in the number of
requests and I want to be able to deal with that and I think a
minimum of two more staff plus contracting out is the best way to
handle that.
Chairman Phillips - Is four to six weeks going to mess you up
when our next Budget and Audit Committee meets? I plan to have a
meeting within the next four to six weeks.
Pat Davidson - It would just delay things. Things would slow
down a little bit. If that's acceptable to you. I would rather
have the Committee comfortable with what we are doing.
Senator Pearce - You'd told the Department you were going to quit
doing this portion of the audit and you still have that ability?
They would have to do it but you'd have to audit their compliance
somehow.
Pat Davidson - Yes.
Senator Pearce - We've been looking at their backlog. In terms
of your budget we asked you to come tell us how you're going to
get rid of that backlog and one of the ideas you came up with was
to quit doing the federal compliance which we don't get paid to
do. They've come back to Pat Davidson with this idea. You could
just say we're not going to take your money and we're still not
going to do the federal compliance audit. Then it is their
problem?
Pat Davidson - Yes. To reiterate - one of my objections and one
of the reasons I agreed to this was to step Administration up to
the plate with some commitment of resources because I really feel
like the Executive Branch has been somewhat insulated from the
requirements of their own internal controls because the auditors
spend more time doing it. They don't recognize those
efficiencies and I think for us to be effective in what we do we
want that internal control implemented. I see this deal will
bring that additional accountable to the forefront of their own
minds because it is going to pay for them to do that and I think
it is really important from the overall state perspective.
Chairman Phillips - I think I'd be a little more comfortable to
delay the decision until the next meeting which we should have
within 30 days. How does that effect your scheduling?
Pat Davidson - It will just slow things down. If a 30 day delay
is acceptable to the Committee to make its decision, then we can
do it.
Senator Donley - I congratulate you on identifying an area we are
not required to do and attempting to save money and free up
resources for other things we want to do. Thank you, Pat.
Senator Halford - I agree with that. It is a significant
decision.
Representative Therriault - Basically getting the Administration
to kick in money for something we are already doing doesn't seem
that much of a leap but the hours that they would commit I'm not
sure I followed all of that. That would be a change? Their own
personnel would be gathering some of the information that we are
now doing?
Pat Davidson - To some degree. A lot of our audit staff gets
hired away into the Executive Branch, into internal audit
positions, finance officers. It is more typical of a private CPA
firm to give a list of things they require from the agency for
them to produce in order to do an audit because it limits the
amount of time the auditor has to spend there. It therefore
limits the amount the company has to pay. So if we are talking
about a banking institution they are going to commit significant
resources doing a lot of the running around pulling schedules
together, getting information for the auditors so the auditors
can come in, sit down, look at the information, do a test for
completion and then go away. That is one of the things I want to
bring audit approach is that type of idea, because not only does
it save from an audit effort perspective, I also believe it will
make the internal controls in the agencies stronger because their
people are going to know exactly what is important. Do I have a
concern about the caliber of help that I'm going to get? It has
to be acceptable to me. So I look at the few internal audit
positions there are and I see my former employees out there and I
know what the quality of work is and I'm willing to accept that.
Representative Therriault - That's acceptable to me. We have
this problem that we've told you to catch up on the backlog,
you've identified a way of doing that and now we're telling you
that you can't do that. I really haven't seen a Committee member
scrutinize the audit requests and turn them down and tell people
to do those with their own legislative staff so we can't just sit
here and say you can't do that.
Chairman Phillips - What I normally do with the audits is get a
hold of Pat Davidson and ask if she can do it without approving a
formal audit. If we can't do it any other way then it comes
before the Committee as a formal audit request. On the other
hand, you are right, we are getting more audit requests and we
have less and less staff.
Representative Therriault - I think it is a trend.
Chairman Phillips - It is a trend and it's hard to reject an
audit request. They may have a legitimate concern about a
Department or agency so I try to limit as many formal audits as
possible by taking care of it informally if possible. That is
the process I've tried to maintain as Chair. What percent do you
think it is more these two years versus the last two years, Pat?
Pat Davidson - I think it is up almost 100%. It is running high
again in 1998 about the previous years.
Chairman Phillips - I am concerned but I feel an obligation to
legislators to honor their audit requests.
Senator Halford - I think it is a trend not because they don't
want to use their staff it's because of the credibility of the
audit process. They do a good job. If you're trying to expose
something, you don't have the same credibility by going through
your own legislative staff. You don't have the same product as
with an independent audit. I haven't seen people doing their
staff work through Budget and Audit but I think it is a
credibility question. We are giving them more. It is a budget
increase; it's an ongoing program. Once you have the program
started and they say they won't pay for it next year then you've
got to decide what you're going to do and you have people in
those places.
Senator Donley - It would show up as a budget increase from the
legislature because you'd be accepting that money and it would be
legislative employees paying for it. I agree that people are
getting more and more confidence in the audit process. Also the
staff members have decreased over the years and the Legislative
Research and Legal staff has decreased also. It is a natural
consequence of us decimating our staff capabilities, which I
don't agree with but we are too far into it now. The constituent
levels have gone up especially in the Senate districts also. I
think it is appropriate if we want to focus efforts on this
function because it is the number one function that the
Legislature does, the budget and make sure things are operating
properly as we go through the budget. I don't begrudge people
these audits at all. They are good. I don't think our own staff
has the expertise that these folks have developed over time.
Representative Croft - It seems if we are going to postpone the
decision we should postpone the discussion. This wasn't
something that was on the agenda so if we're all discussing how
or when or where we postpone it then let's postpone that
discussion as well.
Senator Donley - If we move forward on the position that we
should no longer do the functions we aren't required to do by
statute the next decision after that is whether we accept money
to do it for them or not. I support the decision not to do those
functions under the existing status quo.
Chairman Phillips - I guess we will have to bring it up at the
next meeting; I will try to get it scheduled within the next 30
days. As to the selection of the Legislative Financial Analyst
we are still going through that process. The subcommittee is
going to meet hopefully in two weeks to select a candidate and
then another two weeks to bring the recommendation before the
full Committee. The motion to has been WITHDRAWN.
OTHER BUSINESS - Y2K
Senator Pearce - Y2K funding. The May 28 memo from Annalee
McConnell to Representative Mark Hanley that has something
written on it did not happen in our office but was the only copy
that we could find yesterday to put in these packets.
The first letter we got was May 15 from Annalee McConnell
questioning what we were going to do to fund Y2K since it did not
get the required 15 votes for a draw from the CBR on the Senate
side. The day after we ended session I went to Annalee McConnell
and Pat Pourchot and said to them, "You do not have the money to
do anything on Y2K. I suggested if you call us back to Special
Session for subsistence that you add Y2K funding to the call
because otherwise you have no money." The Governor chose not to
do that for either call.
I got a telephone call in the ensuing weeks after the first
Special Session from Pat Pourchot about continuing work on Y2K.
I told him he didn't have any money and he said we'd come to you
with a supplemental. I didn't give him a positive response.
Subsequently I got a letter on July 17 from Annalee McConnell
saying we wrote the Finance Committee to seek concurrence since
we haven't heard from you so we assume you want us to proceed
with the Y2K work, etc., with the most viable temporary funding
mechanism to book expenditures against the general liability
allocation of the state's risk management budget and that the
University should do the same thing and they'll request a special
supplemental appropriation. I do not know if other members got
it. They've done an analysis and decided the state has a
liability if they don't have their Y2K work done in time. My
staff asked Pat Davidson's opinion, which was not favorable. I
responded on Monday with the letter you have before you.
In the meantime the Administration put out a press release
stating they'd hired Bob Poe to head up the Y2K program and he
was currently attending a Y2K meeting in Washington, D.C. I
faxed a copy of Annalee McConnell's request for money to Bob Poe
stating he had no money, don't spend anything; but there was no
response.
The reason I'm bringing it to the Committee's attention is to
recommend that the Committee make a motion to send a Committee
letter to Annalee McConnell saying they have not money and
shouldn't spend it. My suggestion was they look at the
Governor's contingency fund for funding the program.
Senator Pearce MOVED that the Committee send a letter to
Administration as a committee we do not support the funding
mechanism for Y2K funding laid out in the July 17 letter.
Representative Croft OBJECTED.
Representative Croft - It seems to me outrageous to say that
when the Governor puts a proposal on us and the Legislature
doesn't act on it it's his fault for not calling us back in
Special Session to get us to do what we should have done in the
first place. It also seems though the apology is on the record
it is outrageous to include in the packet such a flippant
response. It is the fault of whoever prepared the packet. It
doesn't belong in here. On the issue to say we don't have a
solution; we didn't fund your solution and yet somehow we are
going to try and blame you lacks logic to me. I think we are
doing the state an injustice by not trying to find a solution and
simply telling them find any lapse and other excess money around
for this unquestionably serious problem. We either reject
there's or put our own, say it's not a real problem and therefore
nothing needs to be done. But to say it is a real problem we
don't like your proposal we don't have one of our own and just
find some money somewhere is irresponsible and I don't think we
should do it. We should work with Ms. McConnell to find that
money, to give us a supplemental to work on a problem that
everyone concedes is substantial.
Senator Pearce - First of all everyone doesn't concede it's a
real problem. The Administration did a very poor job in
explaining the problem and making it seem like a major problem.
Representative Hanley and I repeatedly asked the Administration
what are you going to request for Y2K, how much money are you
going to ask for, what sort of an appropriation do you want.
Until the last two days of session they didn't even have a number
for us. It's real hard to put together a budget when you don't
have a number. We finally funded it using CBR money. We came up
with an amount that Representative Hanley and I thought was a
doable figure. We asked them to sell it. When it came before
the Senate it was the minority members who turned it down. I
went to them with a solution to put it on the Special Session
call; they didn't do it. Two times we've come up with solutions.
Neither time did the Administration step forward, sell it or make
sure we funded it. What you want us to do is tell them go spend
money then commit the next Legislature, which we don't control.
Representative Croft - On this issue to say we put forward a
solution twice but it's the Governor's fault because he couldn't
sell it back to us is illogical. It it's our solution we either
do it or we don't. At least a conclusion this Committee can make
is we don't think this is a problem so get the money wherever you
can.
Chairman Phillips - Representative Therriault, did you get a
letter or follow up call from Ms. McConnell.
Representative Therriault - The same letter Senator Pearce
received and no call.
Senator Pearce - There was no discussion about hiring.
Chairman Phillips - I didn't get a letter or call. Tom, did
Senator Sharp?
Tom Williams - Senator Sharp did receive a follow-up call from
OMB. At Senator sharp's request, I advised OMB that the Senator
did not believe it was appropriate for him to approve the
request, so he would not be approving it.
Representative Therriault - I think a member of the
Administration should have been here asking us what you want us
to do rather than take silence as approval for them to go out and
use their creative funding scheme. I am also bothered by having
this marked-up memo in the packet just because I don't want any
action of the Committee to indicate this is our sentiment.
(End, Tape: LB&A-982207 Tape 1 Side 1)
(Start, Tape: LB&A-982207 Tape 1 Side 2)
Representative Croft - Was there any invitation to Ms. McConnell
coming to today's meting to defend this proposal and present
another?
Representative Therriault - Whether they got an invitation or
not, they can't just by letter override a negative vote of the
Legislature.
Senator Donley - I agree. The point here is this is clearly one
of the Constitutional powers of the Legislature that hasn't been
usurped by this Executive Branch. There was a specific vote on
this by the people with the Constitutional authority to decide
this issue and once again the Executive Branch is breaking the
Constitution of the state. To raid the risk management account,
which is something the Legislature allowed the money to be there
for a specific purpose, and now they are going to spend it for
another purpose. That is wrong and unconstitutional. It is
illegal.
Senator Halford - In the last 20 years and six Governors I've
never had one who didn't try to do this; but I also believe that
it is essential for the Legislature to defend against it. The
wording is unfortunate; it doesn't need to be personalized for
this Administration. This is truly a separation of powers issue.
The only place where it is authorized is a special statute on
disaster relief where the preceding officers are asked if they'll
go along with disaster funding for or do they agree to call a
Special Session. Any time any Administration tries to get the
commitment in a formal way of the any body in the leadership to
do something for the body in the next Session we who sign that
are abusing our power. That was the tack of this Administration
on this issue. It is our duty to protect the members of the
Legislature who are not here. The four people who received the
letter initially voted "yes" but they wouldn't sign the letter to
tie the hand of their fellows. That is the way it supposed to
be. We should never act to usurp the power of the body.
Since there was objection, Chairman Phillips called for a roll
call vote on the motion.
Yea Senator Donley, Senator Pearce, Representative
Therriault, Senator Torgerson, Senator Halford,
Senator Phillips
Nay Representative Croft
Chairman Phillips - The motion was APPROVED by a 6-1 vote.
OTHER BUSINESS - CONTRACTED AUDITS
Senator Pearce - What is the protocol to decide what should be
contracted out and how do you advertise who you are going to
contract to?
Pat Davidson - We actually have four contracts outstanding out
right now. Because the Legislative Auditor's position was vacant
for most of FY98 we had some money that was going to lapse and I
wanted to try to use it as much as possible. What I was
initially looking for because I had a very short window was those
audits that had a relatively straightforward scope and where it
had been an audit we had done in the past and there were some
pretty clear guidelines. The ones that we selected was the Board
of Pharmacy which is a sunset which we do periodically so we
could provide audit programs or actual examples of our reports;
we also have a contract for the Board of Marine Pilots; we have a
request from Senator Donley asking about ASMI AIDA positions and
there was already an outstanding contract with Peat Marwick for
the Salary and Compensation Survey so we asked for an addendum
for the same type of issues; and the fourth audit was the Real
Estate Surety Fund. I looked at those; they seemed relatively
short time frame. We put out a request for a proposal. We sent
it around to three of the accounting firms. The reason we used
accounting firms is I was looking for an audit to be conducted in
the course of government audit standards. Basically I think this
is the first time we have done it. We are going to have an
evaluation of the results of those audits so we can evaluate what
worked well, what didn't and improve it for the next time. In a
larger scope audit we will not necessarily contract everything
out. I will probably have our audit staff go in and do some of
the planning, develop the work that needs to be done and contract
for that.
Senator Pearce - Do you know if any of those have been
subcontracted? Are they all linked to audit firms?
Pat Davidson - Yes. Except for the Board of Marine Pilots; we
have contracted with somebody with experience in that area.
Senator Pearce - I attended a Marine Pilot Board teleconference
meeting last week. Walt Parker was at the meeting. Walt is
auditing a Board that is not regulating state employees, but
involves a state regulated function. At the same time he is
actively engaged in an oversight role he has taken on of the
industry and a lot of things that directly effect how pilots do
their job. I was surprised that he was conducting this audit
while having a relationship that could conflict with the state's
role in requiring pilots to do or be the best pilots. A lot of
money is involved in the industry. I think he has two hats on.
What did you go through to decide he was the proper person for
the job?
Pat Davidson - In that situation what we were doing was hiring an
expert in the area. We laid out the things we wanted him to look
at; we set the scope. What we recognize is that because he is
not an auditor we are going to have to do follow up work on what
he has done and make sure there is support for everything he is
saying. We'll have to do a little more work with that contract
than with some of the other ones. But we felt he had a better
handle on the issues with marine pilots than most anybody else.
Senator Torgerson - Did he disclose his potential conflict of
interest?
Merle Jensen - I did ask Walt if he had any obvious or known
conflict of interests. He said he didn't think he did. I was
unaware of this. We are going to be monitoring him. We actually
used him as an unpaid resource in 1992. I thought he did a good
job and we thought some of his information was excellent.
Senator Halford - One of the questions is to what degree did he
inform you of his conflict. He had a serious obligation to
inform you of what his conflict was. If he didn't he shouldn't
be there.
Senator Pearce - He is actually chairman of some group that makes
pronouncements on the whole industry. He has a lot of
information that is good.
Senator Halford - He's been around for a long time. He is a
knowledgeable person but sometime knowledgeable people get
disqualified for conflict of interest.
Senator Torgerson - Do you have people sign something that says
they do not have a conflict so that in a case similar to this you
have a recourse? If not, I think you should consider that.
Pat Davidson - I'll have to go back and check that contract.
Senator Pearce - I know he has made the pilots nervous.
Pat Davidson - I'll look into it.
Senator Torgerson - Does the Chairman approve your contracts or
is that under your discretion?
Pat Davidson - The procurement code for the state now allows me
to sign contracts under $25,000. For the most part, these are
ranging anywhere between $5,000 and $8,000.
OTHER BUSINESS - SALARY AND WAGE SURVEY
Representative Therriault - Where do we stand on the salary
study?
Tom Williams - KPMG expects to have a draft report by the end of
this month. They are coming to Juneau on August 7 to review that
draft report with the Administration and a representative of the
Committee. They hope to be able to provide a final report in
the weeks thereafter.
ADJOURNMENT
Chairman Phillips adjourned the meeting at approximately 10:40
a.m.
(End, Tape: LB&A-982207 Tape 1 Side 2)
LB&A 07/22/98
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