Legislature(2021 - 2022)SENATE FINANCE 532
03/03/2022 05:00 PM House LEGISLATIVE BUDGET & AUDIT
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| Approval of Minutes | |
| Executive Session: Procurement | |
| Status Update | |
| Special Audit Request Division of Workers' Compensation | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
LEGISLATIVE BUDGET AND AUDIT COMMITTEE
March 3, 2022
5:02 p.m.
MEMBERS PRESENT
Senator Natasha von Imhof, Chair
Representative Chris Tuck, Vice Chair
Senator Peter Micciche
Senator Lora Reinbold
Senator Bert Stedman
Representative Ivy Spohnholz
Representative Andy Josephson
Representative James Kaufman
Senator Click Bishop (alternate)
Representative Dan Ortiz (alternate)
MEMBERS ABSENT
Senator Lyman Hoffman
Representative Neal Foster
OTHER LEGISLATORS PRESENT
Senator David Wilson
COMMITTEE CALENDAR
APPROVAL OF MINUTES
EXECUTIVE SESSION: PROCUREMENT
STATUS UPDATE
SPECIAL AUDIT REQUEST DIVISION OF WORKERS' COMPENSATION
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
REPRESENTATIVE MATT CLAMAN
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Provided information on the audit request.
KRIS CURTIS, Legislative Auditor
Legislative Audit Division
Legislative Agencies and Offices
Juneau, Alaska
POSITION STATEMENT: Provided information on the audit request.
ACTION NARRATIVE
5:02:09 PM
CHAIR NATASHA VON IMHOF called the Legislative Budget and Audit
Committee meeting to order at 5:02 p.m. Representatives Tuck,
Spohnholz, Josephson, Kaufman, and Ortiz (alternate) and
Senators von Imhof, Micciche, Reinbold, and Bishop (alternate)
were present at the call to order.
^Approval of Minutes
Approval of Minutes
5:02:48 PM
CHAIR VON IMHOF announced that the first order of business would
be the approval of minutes.
5:02:56 PM
REPRESENTATIVE TUCK moved that the Legislative Budget and Audit
Committee approve the minutes for the January 17, 2022, and
January 27, 2022, meetings as presented. There being no
objection, the minutes were approved.
^Executive Session: Procurement
Executive Session: Procurement
5:03:22 PM
CHAIR VON IMHOF announced that the next order of business would
be executive session.
5:03:30 PM
REPRESENTATIVE TUCK moved that the Legislative Budget and Audit
Committee go into Executive Session under Uniform Rule 22(b)(3)
for the discussion of matters that may, by law, be required to
be confidential. He asked that the following persons remain in
the room or online: Megan Wallace; Kris Curtis, Legislative
Auditor, and necessary staff for the auditor; any legislators
not on the committee; and staff for legislators who are members
of the committee. There being no objection, it was so ordered.
5:04:03 PM
The committee took an at-ease from 5:04 p.m. to 5:50 p.m. for
the purpose of executive session.
5:50:46 PM
CHAIR VON IMHOF called the meeting of the Legislative Budget and
Audit Committee meeting back to order at 5:50 p.m.
Representatives Tuck, Spohnholz, Josephson, Kaufman, and Ortiz
(alternate) and Senators von Imhof, Micciche, Stedman, Reinbold,
and Bishop (alternate) were present at the call back to order.
Also present was Senator Wilson and Representative Claman.
5:51:18 PM
The committee took a brief at-ease.
5:51:30 PM
CHAIR VON IMHOF stated that during the executive session, the
committee discussed confidential legal matters and matters
related to procurement.
5:51:45 PM
REPRESENTATIVE TUCK moved that the Legislative Budget and Audit
Committee give approval to the legislative auditor to enter into
a contract not to exceed $350,000 for specialized information
technology and expertise. There being no objection, the motion
passed.
^ Status Update
Status Update
5:52:06 PM
CHAIR VON IMHOF announced that the next order of business would
be a Status Update of the Top 10 Audit Findings & Resolutions
and an Office of Information Technology Audit Review.
CHAIR VON IMHOF invited Representative Kaufman to present the
top 10 audit findings and resolutions and a proposed oversight
process. She stated her intent of ascertaining a sense of the
committee based on the findings as presented. She noted that
items 1a and 1b listed in the committee packet item, entitled
"iv a2 LBA Oversight Top 10 Audit Issues Summary - With Opinions
3.3.22.pdf," would be tabled for later discussion.
5:52:47 PM
REPRESENTATIVE KAUFMAN referred to two committee packet
documents: "iv a1 LBA Oversight Top 10 Status Draft
3.3.22.pdf," which contained the heading "3/3/2022: Evaluation
of progress and status of the Top 10 Oversight Process:"; and
"iv a2 LBA Oversight Top 10 Audit Issues Summary - With Opinions
3.3.22.pdf." He explained that the items listed under
"Oversight Step" had been ranked according to "risk ranking
criticality analysis" to assign prioritization. He noted for
the committee that [step] 1, listed in the status
draft/oversight process document, had been split into 1a and 1b
[as depicted on the audit issues summary document] due to the
divergence between the findings and proposed solutions. Also
found on the audit issues summary document are the responses
from agencies. He said next steps include communicating with
stakeholders for agency and budgetary planning. He drew
attention to the fourth column, third row, of the status
draft/oversight process document, which read, "House: Met with
the Speaker, Majority Leader, one FIN Co-Chair and the affected
finance sub-committee chairs" to further demonstrate the process
that had been undertaken.
REPRESENTATIVE KAUFMAN drew attention to the priorities listed
on the audit issues summary document. He explained that the
status of [the fourth priority], identified as "Medicaid
Eligibility System - ARIES," was pursuing closure. He drew
attention to priority 2 on the list, "State Financial Statement
Errors and Timelines," and explained that the columns following
captured the actions and provided current status on each of the
subsequent findings listed. He stated that many of the audit
findings were functionally closed. He highlighted priority 6,
entitled "Medicaid Dental Overutilization," for which a letter
would be sought from the department as being the current status
of that priority. He explained that the priorities which he
described as "functionally closed" would be verified as such in
a subsequent audit, and that another priority would be addressed
with the hiring of additional certified public accountants
(CPAs). He drew attention to the status of priorities 9 and 10
to illustrate that these had been closed, and he reminded the
committee that items 1a and 1b would require additional work,
which he characterized as reasonable.
5:56:38 PM
CHAIR VON IMHOF asked whether there existed additional audit
items to discuss at the current meeting.
REPRESENTATIVE KAUFMAN replied that additional matters would be
addressed in the same manner of risk assessment and ranking. He
suggested that matters which had been identified as closed
pending confirmation following a future audit may, in good
faith, be put aside. He concluded by suggesting that a
discussion at a future meeting could guide the same process and
the process could evolve by including the department
stakeholders in the discussion.
5:58:18 PM
CHAIR VON IMHOF lauded the suggestion to include the department
in discussions and complimented the work that had already been
done.
5:58:36 PM
REPRESENTATIVE SPOHNHOLZ shared with the committee that Chair
von Imhof and she had met with the commissioner of the
Department of Administration, the director of the Office of
Information Technology (OIT), and representatives from the
Office of the Governor regarding IT security. She stated that
there would be information and presentations forthcoming to the
legislature. She suggested that an IT security review could be
held and that the state audit team was occupied with statewide
single audit and comprehensive financial report deadlines during
session. She expressed her confidence in the approach and best
practices taken by OIT and that there existed more work to be
done and additional resources required to achieve the levels of
security needed.
6:00:59 PM
CHAIR VON IMHOF added that her experience in the meeting had
been "eye-opening" and stated her belief that the department had
been candid in addressing security matters such as the
Department of Health and Social Services security breach that
had occurred the year prior. She noted that the department had
also raised the issue of Russian hackers and noted that the
situation in Ukraine may have an effect on the potential risks
currently and going forward. She stated that she had suggested
that the department prepare to present to both bodies regarding
the approximate $24 million amended budget request.
6:02:03 PM
SENATOR MICCICHE asked whether it was appropriate for the
committee to consider end-user [cybersecurity] training. He
suggested that the higher organizational position an individual
held had been shown to be [the demographic most vulnerable to
hacking].
6:02:46 PM
REPRESENTATIVE SPOHNHOLZ shared that OIT conducts regular
training, and that most of the security breaches had occurred
because of "phishing" e-mails, despite extensive security in
place which filtered out the vast majority of threats. She
conceded that higher level staff may be more vulnerable due to
demands on their time competing with their ability to become
properly trained [to identify phishing emails]. She added that
[multi-factor authentication] could add security and that it
would involve additional time and resources.
6:04:50 PM
CHAIR VON IMHOF referred to an audit request that had been made
by the committee on November 9, 2021, that would proceed, the
development of the scope of which would benefit from
presentations by the department to the legislature.
6:05:36 PM
REPRESENTATIVE KAUFMAN suggested that the committee exercise
caution in discussing matters of operational security publicly.
6:06:01 PM
CHAIR VON IMHOF agreed with Representative Kaufman and recalled
that the department had also encouraged restraint regarding
matters of security.
^Special Audit Request Division of Workers' Compensation
Special Audit Request Division of Workers' Compensation
6:06:19 PM
CHAIR VON IMHOF announced that the final order of business would
be a Special Audit Request of the Division of Workers'
Compensation. She expressed her preference that a motion on the
matter not be taken up by the committee at the current meeting.
6:07:04 PM
REPRESENTATIVE MATT CLAMAN, Alaska State Legislature, read from
prepared remarks, as follows:
The Division of Legislative Audit last reviewed the
workers' compensation program in 1999, over 22 years
ago, and there's actually copies of the 1999 audit
here if you'd like them. The 1999 audit was done, in
part, to determine whether 1988 statutory changes
undertaken to better control and hopefully lower
workers' compensation rates were effective and whether
those changes had negatively affected the interests of
injured workers. It's always important to remember
that the goal of workers' compensation is timely and
effective treatment of workplace injuries with a
return to work as soon as possible.
The 90-page audit from 1999 identified problems in the
Division of Workers' Compensation. While the '99
audit found that some policy goals to reduce workers'
compensation costs had been achieved by the program,
other areas of the program needed further improvement.
Specifically, the audit found that circumstances had
developed that limited the protections provided to
injured workers.
The 1999 audit made 12 recommendations. The
underlying theme to the recommendations was to
rebalance the interests of injured workers and
employers, increase operational efficiencies, and
improve effectiveness. In Recommendation No. 2, the
1999 audit stated that the "balance between injured
workers and employers" had shifted "to the
disadvantage of the injured workers." One result of
the audit was passage of Senate Bill 130 in 2005,
which established the Workers' Compensation Special
Investigations Unit.
In 2018, the legislature passed House Bill 79, an
omnibus bill introduced by the Walker Administration
aimed at modernizing workers' compensation. As
enacted, House Bill 79 made one significant
substantive change: it provided a detailed definition
of independent contractor. The bill also allowed the
continued use of pre-employment health questionnaires,
refined who is considered an employee of an LLC, added
technical and clean-up language, and created a
legislative working group to analyze the Alaska
workers' compensation system. Finally, in late 2018,
the legislature convened the Legislative Workers'
Compensation Working Group that identified the
following topics for consideration by the legislature:
dispute resolution, permanent partial impairment, or
PPI, and death benefits.
The Division of Insurance has advised that workers'
compensation's rates have actually gradually dropped
since 2007 and dropped over 50 percent since 2012.
What I've learned over the last several years is that
the workers' compensation system continues to have
problems and that an audit will be distinctly
beneficial as we move forward, particularly since the
last audit is over 20 years old. Knowing there are
problems is not enough information to assess what
problems are greater and which are lesser, nor is it
enough information to prioritize potential
legislation. The purpose of this audit request is to
evaluate the workers' compensation program and to
assess the agency's administration, enforcement, and
functional application of the Alaska Workers'
Compensation Act. The goal is for a reasonable audit
that will improve the operations of the division,
increase public and legislative understanding of the
Division of Workers' Compensation, as we actually lack
the expertise to assess the program on our own, and
provide a fact-based foundation to consider whether
new legislation is needed.
In preparing this request, I worked extensively with
the Legislative Auditor, Kris Curtis, to narrow and
refine the request in light of both the information
gained from the 1999 audit and the current workload
of... the division of Legislative Audit.
6:10:53 PM
The request addresses 3 areas:
First, the dispute resolution process. The timeliness
of the dispute resolution process is important to both
employers and workers. Both parties want timely
resolution of disputes because it provides certainty
of treatment for workers and reduces overall system
costs, which are born by the employers. The request
is for review of that process.
Second, the adequacy of current substantive benefits.
As noted above, the 2018 Legislative Workers'
Compensation Working Group identified permanent
partial impairment and death benefits as two areas
that merit obtaining further information, and the
audit request asks for an overall assessment of all
benefits with a focus on permanent partial impairment
and Death Benefits. It also asks for a review of
whether injured workers lose their employer-sponsored
basic health insurance as a result of a workplace
injury, which may be impacting worker's families.
Since the 1999 audit, the big substantive change on a
national level is the Affordable Care Act which has
increased the number of workers who have health
insurance, and if they lose that insurance as a
product of a workplace injury, that has some
significant impact.
Third, the reemployment and training program is an
area of particular concern. Anecdotal reports suggest
that few injured workers make use of the services
offered by the program, partly because the training
available in the program may not be adequate to
meaningfully retrain a person for new work, and partly
because the amount of funding available for retraining
is not adequate to train an injured worker for a new
career. The funding available for retraining is often
added to a settlement agreement with the understanding
that the injured worker will undertake training on
their own. The audit should provide sufficient
information to allow the legislature to make a fact-
based decision about whether to discontinue the
reemployment and retraining program as currently
constituted.
Fourth, the audit request seeks information on the
prevalence of uninsured employers despite the
mandatory coverage requirement. With our mandatory
coverage requirement, one of the simplest ways to
reduce workers' compensation premiums is to actually
have near-universal participation by employers that
are required to have coverage. Many apparently do
not. Having a better understanding of the level of
compliance will be particularly helpful. The request
also asks for information on misclassification of
employees with particular emphasis on reviewing
independent contractors - and whether the 2018
statutory change in the definition of "independent
contractor" has been effective. The audit will also
review the effectiveness of the Special Investigations
Unit (created in the 2005 legislation) in
investigating fraud and holding employers accountable
for lapses in the mandatory coverage.
Fifth, the audit ... asks for information of patterns
on controversion. Controversion is what occurs when
an employer contests a claim for a variety of reasons,
from whether the injury is a workplace injury at all,
to whether the recommended course of treatment is
appropriate. Controverted claims are the part of the
system when claims can become extended, are often
litigated, and involve some of the greatest expenses.
The request includes information on the frequency of
controverted claims, the use of employer independent
medical exams and board-ordered second independent
medical exams, and the frequency that employees retain
legal counsel.
6:14:20 PM
SENATOR STEDMAN suggested that if the committee did not intend
to take action on the audit request at the current meeting, then
members could work on the request [outside of the meeting].
REPRESENTATIVE CLAMAN continued, as follows:
Sixth, the audit request asks for review of the
relationship between workers' compensation and the
Division of Insurance, including the frequency of
Division of Insurance investigations of frivolous
controversion notices.
And seventh, the request seeks additional information
about the treatment in workers' compensation of
injured workers with significant disabilities,
including mental illness, traumatic brain injury, and
post-traumatic stress disorder. We should have
information about whether people with known cognitive
disabilities have additional difficulties navigating
the often complex workers' compensation system.
And finally, the request, if approved, gives the
Division of Legislative Audit authority to follow-up
on areas of a related concern identified during the
audit.
REPRESENTATIVE CLAMAN thanked Kris Curtis for providing her
assistance and offered to answer any questions.
6:15:49 PM
REPRESENTATIVE JOSEPHSON suggested that, should the audit
request come before the committee at a subsequent meeting, he
would support it. He stated that he had carried House Bill 79
on behalf of former Governor Bill Walker, which was an omnibus
bill that benefitted all parties, and the bill had been modified
regarding independent contractors. He also noted House Bill
303, pertaining to reemployment training, had been considered.
He referred to the committee packet item, entitled "v a1 LBA
Spec Aud Req Workers' Compensation Division Claman 2.28.22.pdf,"
on page 3, item number 4, labeled "Enforcement and special
investigations of uninsured employers and misclassification of
employers," and suggested that there exist insufficient
resources at the Department of Labor & Workforce Development to
investigate such matters. He hypothesized that an audit would
conclude the same. He posed the hypothetical question whether
there exists a need for both a board and a commission [for
workers' compensation]. He stated his appreciation for the
efforts of Representative Claman.
6:17:16 PM
REPRESENTATIVE TUCK expressed his appreciation for
Representative Claman bringing the audit request before the
committee and asked whether the Workers' Compensation Board was
subject to periodic review. He further asked how independent
contractors would be audited, and how employers who either did
not maintain coverage or maintained inadequate coverage would be
investigated.
6:18:38 PM
KRIS CURTIS, Legislative Auditor, Legislative Audit Division,
Legislative Agencies and Offices, answered that the Workers'
Compensation Board was not subject to periodic review. She
offered that she did not yet know how [enforcement and
investigation of employers carrying inadequate, or no workers'
compensation insurance would occur]. She stated that there
exists a need to conduct research and then develop a scope of
the audit, after which the objectives of the audit would be
executed on a developed timeline. She stated that the request
would be "data intensive" and would likely result in some
limitations on the scope of the audit, and that data that would
be sought to address some of the questions as put forth may not
exist.
6:19:31 PM
REPRESENTATIVE TUCK asked Ms. Curtis to recap the steps involved
in the proposed audit request.
MS. CURTIS explained that the first phase, in compliance with
audit standards, is known as the survey phase in which the
division reviews the criteria, laws, and regulations, conducts
interviews, collects data, and performs a data reliability
review. She explained that, following the survey phase, a scope
of the audit is then developed and presented, subject to her
approval. She added that the budget and staffing needs are then
taken into consideration.
6:20:25 PM
REPRESENTATIVE TUCK allowed that action on the audit request
would not be taken at the current meeting and asked whether an
initial phase could be undertaken to start the process and plan
for potential budget and staffing.
6:21:27 PM
MS. CURTIS stated that [the first phase] would be a big
investment. She stated that, once an audit is requested [by the
committee], the committee is not consulted further until after
completion of the audit so that it remains a nonpolitical,
confidential process. She stated her belief that the request
before the committee would be a "big lift" audit, and the
previous audit of workers' compensation had consisted of over
3,200 hours.
6:22:12 PM
CHAIR VON IMHOF asked, should the committee approve a request
for the audit in April 2022, what the timeframe would be for the
delivery of audit results.
6:22:25 PM
MS. CURTIS estimated that the audit would likely not commence
for at least two years and would subsequently likely take a full
year to complete.
6:22:35 PM
CHAIR VON IMHOF asked whether Ms. Curtis had worked with
Representative Claman on the memorandum that he had presented to
the committee, to which she confirmed she had. She suggested
that the request was representative of the potential scope of
the proposed audit, and that the committee would be able to take
some time over the following month to consider it. She
suggested that Representative Claman consult with individual
members of the committee to further discuss the request and
answer any of their questions.
6:23:04 PM
REPRESENTATIVE CLAMAN offered that he had worked with Ms. Curtis
for two or three months on the request that was before the
committee, and Ms. Curtis had requested to be allowed to read
the 1999 audit, and he recalled her informing him that she had
learned much from the review of that audit. He suggested that
the 1999 audit would inform the committee on the potential scope
of the requested audit.
6:23:48 PM
SENATOR BISHOP asked Representative Claman to consult
individually with him and that he had ideas to share regarding
the request.
6:24:08 PM
CHAIR VON IMHOF referred to the 2018 review brought to the
legislature and that it had contained some discussion on
statutory changes that would benefit reemployment benefits in
particular. She characterized statutes related to reemployment
as "stifling" and not helpful. She suggested that the 2018
report contained useful information and recommendations. She
asked whether the Division of Workers' Compensation tracks the
information that may be sought in the audit and suggested that
there exists very little data on employers, while there exists
more data on employees.
6:25:37 PM
CHAIR VON IMHOF asked whether the 2018 report contained answers
to questions brought forth by Representative Claman. She noted
that data contained in the report reflected numbers of
employees, moneys collected, and comparative injury rates, and
analysis of claim data. She expressed her desire that any audit
be balanced to reflect both employees and employers.
MS. CURTIS answered that any audit conducted would be based on
the request [submitted by the committee] and that the points
raised by Chair von Imhof should be taken into consideration
prior to the audit request being made of the division.
6:27:11 PM
REPRESENTATIVE SPOHNHOLZ referred to the 1999 report's
conclusions which illustrated the framework of the previous
audit and its six key concepts that had included reasonable
costs to employers, laws not construed to either party by the
courts, compensation based on merits, among others, to allay
some of the concerns of a balanced approached as raised by
Senator von Imhof. She suggested that the audit request brought
forth had merit, and that, despite no report delivered following
the 2108 legislative working group, there existed bipartisan
interest in the audit request. She suggested that political
transitions had interfered with the final reporting from the
2018 group and that the report would be of benefit to the
legislature in addressing policy concerns raised by the working
group.
6:29:02 PM
CHAIR VON IMHOF reminded the committee that, once an audit
request is received by the division from the committee, the
Division of Legislative Audit would not consult further with the
committee until after completion of the audit. She expressed
her concern that the request be thoroughly developed, as well as
take into consideration the framework from the 1999 audit
request for continuity.
6:29:48 PM
REPRESENTATIVE CLAMAN added that the 2018 legislative report had
been required as a provision to House Bill 79 and, despite the
report having been completed, it had never been submitted in
final draft. He suggested that tight deadlines may have
impacted the depth of the report, and he agreed to review and
incorporate much of the framework of the 1999 audit into the
development of the request.
6:30:58 PM
ADJOURNMENT
There being no further business before the committee, the
Legislative Budget and Audit Committee meeting was adjourned at
6:31 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| LBA Agenda Final 3.3.22.pdf |
JBUD 3/3/2022 5:00:00 PM |
Agenda |
| iii LBA Memo IT Audit Procurement Approval 3.3.22.PDF |
JBUD 3/3/2022 5:00:00 PM |
Audit Procurement |
| v a1 LBA Spec Aud Req Workers' Compensation Division Claman 2.28.22.pdf |
JBUD 3/3/2022 5:00:00 PM |
Special Audit Request Workers' Comp Claman |
| v a2 Legislative Workers' Compensation Working Group _ Draft Report 12.14.2018.pdf |
JBUD 3/3/2022 5:00:00 PM |
Workers' Comp Working Group 2018 |
| v a3 Workers' Compensation Audit 10.31.1999.PDF |
JBUD 3/3/2022 5:00:00 PM |
Workers' Comp Audit 1999 |
| iv a2 LBA Oversight Top 10 Audit Issues Summary - With Opinions 3.3.22.pdf |
JBUD 3/3/2022 5:00:00 PM |
Top 10 Audit Findings Status |
| iv a1 LBA Oversight Top 10 Status Draft 3.3.22.pdf |
JBUD 3/3/2022 5:00:00 PM |
Top 10 Audit Findings Oversight Process |