Legislature(1993 - 1994)

03/15/1994 08:00 AM House STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
             HOUSE STATE AFFAIRS STANDING COMMITTEE                            
                         March 15, 1994                                        
                            8:00 a.m.                                          
  MEMBERS PRESENT                                                              
  Representative Al Vezey, Chairman                                            
  Representative Pete Kott, Vice Chairman                                      
  Representative Bettye Davis                                                  
  Representative Jerry Sanders                                                 
  MEMBERS ABSENT                                                               
  Representative Gary Davis                                                    
  Representative Harley Olberg                                                 
  Representative Fran Ulmer                                                    
  COMMITTEE CALENDAR                                                           
  SB 242:        "An Act relating to office hours of state                     
                 PASSED FROM COMMITTEE                                         
  *HB 481:       "An Act relating to audits of recipients of                   
                 grants and of certain other financial                         
                 assistance from state agencies."                              
                 HELD IN COMMITTEE                                             
  *HB 482:       "An Act making permanent a temporary                          
                 requirement relating to the provision of                      
                 employment information to the state."                         
                 NOT HEARD                                                     
  *HB 480:       "An Act relating to sales and attempted sales                 
                 of handguns; requiring the Department of                      
                 Public Safety to issue driver's licenses and                  
                 identification cards with a magnetic strip                    
                 encoded with information as to whether the                    
                 subject of the license or card has been                       
                 adjudicated mentally incompetent within the                   
                 previous five years or has been convicted of                  
                 a felony; requiring the Department of Public                  
                 Safety to develop a computerized data base of                 
                 felons and persons adjudicated mentally                       
                 incompetent; providing that federally                         
                 licensed firearms dealers must use a magnetic                 
                 card reader to determine if the subject of                    
                 the license or card is eligible to purchase a                 
                 firearm; providing criminal penalties                         
                 relating to magnetic reader strips; providing                 
                 for the seizure of driver's licenses and                      
                 identification cards by the court upon                        
                 conviction of a felony or adjudication as                     
                 mentally incompetent; and providing for an                    
                 effective date."                                              
                 NOT HEARD                                                     
  *HB 513:       "An Act relating to financial assistance for                  
                 certain owners or operators of underground                    
                 petroleum storage tank systems; and providing                 
                 for an effective date."                                       
                 NOT HEARD                                                     
  (* First public hearing)                                                     
  PREVIOUS ACTION                                                              
  BILL:  SB 242                                                                
  SHORT TITLE: HOURS FOR  STATE OFFICES                                        
  SPONSOR(S): SENATOR(S) TAYLOR; REPRESENTATIVE(S) Kott                        
  JRN-DATE     JRN-PG               ACTION                                     
  01/12/94      2478    (S)   READ THE FIRST TIME/REFERRAL(S)                  
  01/12/94      2478    (S)   STATE AFFAIRS                                    
  02/23/94      2936    (S)   STA RPT  3DP                                     
  02/23/94      2936    (S)   ZERO FN PUBLISHED                                
                              (ADM/ALL DEPTS)                                  
  02/23/94              (S)   STA AT 9:00 AM BUTROVICH RM 205                  
  02/23/94              (S)   MINUTE(STA)                                      
  03/01/94              (S)   RLS AT 01:00 PM FAHRENKAMP                       
                              ROOM 203                                         
  03/01/94              (S)   MINUTE(RLS)                                      
  03/02/94      3029    (S)   RULES TO CALENDAR  3/2/94                        
  03/02/94      3030    (S)   READ THE SECOND TIME                             
  03/02/94      3030    (S)   ADVANCED TO THIRD READING UNAN                   
  03/02/94      3030    (S)   READ THE THIRD TIME  SB 242                      
  03/02/94      3030    (S)   PASSED Y20 N-                                    
  03/02/94      3031    (S)   Duncan  NOTICE OF                                
  03/03/94      3065    (S)   RECONSIDERATION NOT TAKEN UP                     
  03/03/94      3066    (S)   TRANSMITTED TO (H)                               
  03/04/94      2598    (H)   READ THE FIRST TIME/REFERRAL(S)                  
  03/04/94      2598    (H)   STATE AFFAIRS                                    
  03/15/94              (H)   STA AT 08:00 AM CAPITOL 102                      
  BILL:  HB 481                                                                
  SPONSOR(S): REPRESENTATIVE(S) BUNDE                                          
  JRN-DATE     JRN-PG               ACTION                                     
  02/14/94      2377    (H)   READ THE FIRST TIME/REFERRAL(S)                  
  02/14/94      2377    (H)   STATE AFFAIRS, FINANCE                           
  03/15/94              (H)   STA AT 08:00 AM CAPITOL 102                      
  BILL:  HB 482                                                                
  SPONSOR(S): REPRESENTATIVE(S) HANLEY,Ulmer                                   
  JRN-DATE     JRN-PG               ACTION                                     
  02/14/94      2377    (H)   READ THE FIRST TIME/REFERRAL(S)                  
  02/14/94      2377    (H)   STATE AFFAIRS                                    
  03/15/94              (H)   STA AT 08:00 AM CAPITOL 102                      
  BILL:  HB 480                                                                
  SPONSOR(S): REPRESENTATIVE(S) SANDERS                                        
  JRN-DATE     JRN-PG               ACTION                                     
  02/14/94      2377    (H)   READ THE FIRST TIME/REFERRAL(S)                  
  02/14/94      2377    (H)   STATE AFFAIRS,JUDICIARY,FINANCE                  
  03/15/94              (H)   STA AT 08:00 AM CAPITOL 102                      
  BILL:  HB 513                                                                
  SPONSOR(S): LABOR & COMMERCE                                                 
  JRN-DATE     JRN-PG               ACTION                                     
  02/28/94      2551    (H)   READ THE FIRST TIME/REFERRAL(S)                  
  02/28/94      2551    (H)   L&C, STATE AFFAIRS, JUDICIARY                    
  03/02/94      2586    (H)   L&C REFERRAL WAIVED                              
  03/15/94              (H)   STA AT 08:00 AM CAPITOL 102                      
  WITNESS REGISTER                                                             
  SENATOR ROBIN TAYLOR                                                         
  Alaska State Legislature                                                     
  Alaska State Capitol, Room 30                                                
  Juneau, AK  99811-0460                                                       
  Phone:  465-3873                                                             
  POSITION STATEMENT:  Prime sponsor of SB 242                                 
  REPRESENTATIVE CON BUNDE                                                     
  Alaska State Legislature                                                     
  Alaska State Capitol, Room 112                                               
  Juneau, AK  99811-0460                                                       
  Phone:  465-4843                                                             
  POSITION STATEMENT:  Prime sponsor of HB 481                                 
  GARY ANDERSON, Director                                                      
  Division of Audit & Management Services                                      
  Office of Management & Budget                                                
  P.O. Box 110020                                                              
  Juneau, AK  99811-0020                                                       
  Phone:  465-4668                                                             
  POSITION STATEMENT:  Answered questions on HB 481                            
  JACK FARGNOLI, Senior Policy Analyst                                         
  Director's Office                                                            
  Office of Management & Budget                                                
  P.O. Box 110020                                                              
  Juneau, AK  99811-0020                                                       
  Phone:  465-3568                                                             
  POSITION STATEMENT:  Commented on HB 481                                     
  RANDY WELKER, Auditor                                                        
  Legislative Audit Division                                                   
  P.O. Box 113300                                                              
  Juneau, AK  99811-3300                                                       
  Phone:  465-3830                                                             
  POSITION STATEMENT:  Commented on HB 481                                     
  BOB WRIGHT, Senior Auditor                                                   
  Department of Health & Social Services                                       
  P.O. Box 110602                                                              
  Juneau, AK  99811                                                            
  Phone:  465-3121                                                             
  POSITION STATEMENT:  Commented on HB 481                                     
  TENA BAVARD, Grants Administrator                                            
  Department of Community & Regional Affairs                                   
  P.O. BOX 112100                                                              
  Juneau, AK  99811                                                            
  Phone:  465-4731                                                             
  POSITION STATEMENT:  Commented on HB 481                                     
  LENA SIMMONS, Grant Section                                                  
  Department of Administration                                                 
  P.O. Box 110208                                                              
  Juneau, AK  99811                                                            
  Phone:  465-4731                                                             
  POSITION STATEMENT:  Commented on HB 481                                     
  ACTION NARRATIVE                                                             
  TAPE 94-30, SIDE A                                                           
  Number 000                                                                   
  CHAIRMAN AL VEZEY called the meeting to order at 8:02 a.m.                   
  Members present were REPRESENTATIVES KOTT, SANDERS, and B.                   
  DAVIS.  REPRESENTATIVE G. DAVIS and OLBERG were detained in                  
  a House Finance Committee Meeting.                                           
  SB 242 - HOURS FOR STATE OFFICES                                             
  CHAIRMAN VEZEY opened SB 242 for discussion.                                 
  Number 018                                                                   
  SENATOR ROBIN TAYLOR, PRIME SPONSOR, addressed SB 242.  He                   
  stated SB 242 was introduced because flexible state office                   
  hours would give state agencies leeway in setting their                      
  "standard state office hours."  Each state office would be                   
  required to review the preferences and needs of its'                         
  clientele, and recommend to the Administration which hours                   
  would be best for each community.  This would allow state                    
  offices the flexibility to serve the public without adding                   
  to the state operating budget.  The agencies would have to                   
  periodically review their office hour structure.                             
  SENATOR TAYLOR commented the state's goal should be service                  
  to the public.  The state's current 37 1/2 hour workweek                     
  requires most people to take time off from work to be able                   
  to utilize the services.  He felt this was inappropriate and                 
  people should not have to lose money or make special                         
  arrangements to accommodate the state offices.  He felt                      
  state offices in the larger communities around the state                     
  should shift their office hours, whereby they could be open                  
  from 7:30 a.m.-5:30 p.m.  He relayed some state employees                    
  have responded positively to the idea of shifting office                     
  hours, to better accommodate both the public and their                       
  personal lives.  SENATOR TAYLOR mentioned the Commissioner                   
  of Administration, Nancy Usera, indicated to him that even                   
  if SB 242 were not to pass, she would still attempt to put                   
  it into effect by regulation.                                                
  SENATOR TAYLOR felt SB 242 should be passed into law to                      
  prevent future administrations from disregarding the                         
  implementation of the policy.                                                
  Number 097                                                                   
  REPRESENTATIVE PETE KOTT believed SB 242 was a good idea.                    
  He asked for a specific example of how SB 242 would apply to                 
  a particular agency.                                                         
  SENATOR TAYLOR replied in a smaller community, with only two                 
  or three employees, a state office could announce it would                   
  be open from 10 a.m. to 6:30 p.m., rather than closing at                    
  4:30 p.m.  This change may appease both the public and the                   
  employees, while not increasing cost for the state's budget.                 
  Number 124                                                                   
  REPRESENTATIVE KOTT thought vehicle registration would be a                  
  similar example.                                                             
  Number 125                                                                   
  SENATOR TAYLOR responded most smaller communities do not                     
  have a full-time employee in charge of vehicle registration,                 
  therefore it may not be an appropriate assimilation.  He                     
  implied using a Department of Environmental Conservation                     
  office to obtain a building permit might be another example.                 
  Number 141                                                                   
  REPRESENTATIVE BETTYE DAVIS stated SB 242 was a good bill.                   
  She noted some state agencies were already extending their                   
  hours past 4:30 p.m. to accommodate their clients.                           
  SENATOR TAYLOR appreciated their motivation.                                 
  Number 150                                                                   
  CHAIRMAN VEZEY asked what SB 242 would actually do.                          
  Number 153                                                                   
  SENATOR TAYLOR answered SB 242 requires agencies to review                   
  their hours in an attempt to carry the policy out.  The                      
  agencies would report back periodically on their success.                    
  Having the policy in law would be stronger than having it in                 
  Number 165                                                                   
  REPRESENTATIVE KOTT moved to pass SB 242 out of committee                    
  with individual recommendations.                                             
  Number 168                                                                   
  CHAIRMAN VEZEY recognized the motion and asked the committee                 
  secretary to call the roll.                                                  
  IN FAVOR:      REPRESENTATIVES VEZEY, KOTT, B. DAVIS,                        
  ABSENT:        REPRESENTATIVES ULMER, G. DAVIS, OLBERG.                      
  CHAIRMAN VEZEY announced SB 242 passed from the House State                  
  Affairs committee.                                                           
  HB 481 - AUDITS OF STATE GRANTS & AID RECIPIENTS                             
  CHAIRMAN VEZEY opened discussion on HB 481.                                  
  Number 192                                                                   
  REPRESENTATIVE CON BUNDE, PRIME SPONSOR OF HB 481, gave a                    
  brief statement.  The intent of HB 481 is fiscal                             
  accountability.  State grant recipients of $25,000 to                        
  $149,999.99 need to be accountable for the use of the money.                 
  HB 481 requires organizations that receive less than                         
  $150,000 to have a yearly financial audit in accordance with                 
  governmental auditing standards.                                             
  REPRESENTATIVE BUNDE stated approximately 236 organizations                  
  are receiving financial assistance without being required to                 
  have an audit of any type.  Single audits are, however,                      
  required of those organizations receiving over $150,000.                     
  REPRESENTATIVE BUNDE explained HB 481 would require a                        
  financial audit.                                                             
  Number 241                                                                   
  CHAIRMAN VEZEY asked for the definition of single audit and                  
  financial audit.                                                             
  Number 245                                                                   
  REPRESENTATIVE BUNDE deferred to the accountants who would                   
  testify next for the definitions.                                            
  Number 250                                                                   
  CHAIRMAN VEZEY clarified single audits are currently                         
  required by statute for organizations receiving grants over                  
  $150,000.  He asked why HB 481 seemed to be adding it to                     
  statute when it is already in statute.                                       
  Number 253                                                                   
  REPRESENTATIVE BUNDE replied HB 481 adds to the current                      
  statute requirement of single audits.                                        
  Number 267                                                                   
  CHAIRMAN VEZEY asked if the single audit provision would be                  
  in the statutes twice.                                                       
  REPRESENTATIVE BUNDE corrected the single audits are                         
  currently being done by regulation.                                          
  Number 272                                                                   
  CHAIRMAN VEZEY clarified regulation would change to statute                  
  with HB 481.  He asked if the state required any type of                     
  audit for those receiving less than $150,000.                                
  REPRESENTATIVE BUNDE answered no.                                            
  Number 275                                                                   
  CHAIRMAN VEZEY questioned how long the regulation requiring                  
  audits of more than $150,000 has been in effect.  He                         
  deferred the question to other witnesses.  He asked                          
  REPRESENTATIVE BUNDE's opinion of the limits set in HB 481.                  
  Number 281                                                                   
  REPRESENTATIVE BUNDE thought $150,000 was too high.  Anyone                  
  receiving more than $100,000 in state moneys should have the                 
  more in-depth audit.  This policy dates back to when there                   
  was a lot of money to give out, however, times are tough and                 
  the money should be accounted for.                                           
  REPRESENTATIVE BUNDE brought up the cost of a financial                      
  audit for an organization receiving less than $150,000.  The                 
  cost would not be easy to judge.  The amount of money and                    
  the type of organization would have to be taken into                         
  consideration.  Organized offices may cost less than $1,000,                 
  but those in disarray could be rather expensive.                             
  Number 306                                                                   
  CHAIRMAN VEZEY clarified HB 481 requires the organization                    
  that receive the grant, pay for the audit.                                   
  Number 326                                                                   
  SERVICES, OFFICE OF MANAGEMENT & BUDGET, introduced himself                  
  and answered questions on HB 481.                                            
  Number 330                                                                   
  CHAIRMAN VEZEY stated HB 481 sets up thresholds for two                      
  different audit standards.  He asked if single audit was                     
  MR. ANDERSON replied single audit is defined in single audit                 
  regulation, 2 AAC 45.010.  Single audit, however, is better                  
  defined in the Office of Management & Budget (OMB) audit                     
  guide which they publish annually.                                           
  Number 337                                                                   
  CHAIRMAN VEZEY inquired if a statutory term should be                        
  defined in a regulation, so the regulation could                             
  subsequently be changed into statute.                                        
  Number 341                                                                   
  MR. ANDERSON felt the reference to a single audit currently                  
  in statute was a good approach and it was sufficient.                        
  Number 348                                                                   
  CHAIRMAN VEZEY believed there were great differences in                      
  audits, therefore the definition would be critical.                          
  Number 352                                                                   
  MR. ANDERSON responded the differences in audits are what                    
  the required products are and at what level of                               
  responsibility the Certified Public Accountant (CPA) is                      
  taking, with regard to the financial statements.                             
  Number 365                                                                   
  CHAIRMAN VEZEY stated he was not even aware that financial                   
  and single audits were terms that existed within general                     
  accepted accounting principles.                                              
  Number 373                                                                   
  MR. ANDERSON clarified if a CPA was asked to do an audit,                    
  and they were informed that some of the money was from the                   
  state of Alaska or the federal government, they would                        
  inquire about the level of responsibility they would have to                 
  have.  A CPA is required to notify a person if they think                    
  that person has reporting requirements in addition to a                      
  regular financial audit.                                                     
  MR. ANDERSON defined a financial audit as a normal set of                    
  financial statements, with footnotes, for full disclosure.                   
  A CPA would not be required to issue either a report on                      
  compliance or on internal control structure.  With a single                  
  audit, a CPA is required to issue both a report on                           
  compliance and on internal control structure.                                
  Number 385                                                                   
  CHAIRMAN VEZEY felt MR. ANDERSON's definition of a financial                 
  audit made it sound like a compilation or a review.                          
  Number 386                                                                   
  MR. ANDERSON made clear a financial audit is a step above a                  
  review or a compilation.  In a compilation, a financial                      
  statement is prepared and they disclaim any opinion on the                   
  results.  In a review, they indicate negative assurance.  In                 
  an audit, they take an opinion on whether or not the                         
  financial statements are in accordance with generally                        
  accepted accounting principles, or some other basis of                       
  presentation.  He noted as part of generally accepted                        
  auditing and reporting standards, the CPA is not required to                 
  provide a letter on internal control or on compliance.                       
  Number 396                                                                   
  CHAIRMAN VEZEY clarified under a financial audit, the CPA is                 
  not required to provide an opinion on internal controls.  He                 
  asked what level the single audit would be.                                  
  Number 407                                                                   
  MR. ANDERSON replied in a commercial background, government                  
  auditing standards or single audits, are not frequently                      
  dealt with.                                                                  
  Number 416                                                                   
  CHAIRMAN VEZEY stated, in commercial practice, the generally                 
  accepted accounting principles gives a financial audit the                   
  highest level of review.  He asked if the government had a                   
  higher level of review.                                                      
  MR. ANDERSON answered "absolutely."                                          
  Number 421                                                                   
  CHAIRMAN VEZEY commented HB 481 is "way out of line," if MR.                 
  ANDERSON was referring to a financial audit of the same                      
  standard as to what he was familiar with as an audit.  He                    
  noted HB 481 would ask organizations to spend $2,000-$4,000                  
  for an audit of a $25,000 grant.                                             
  Number 429                                                                   
  REPRESENTATIVE BUNDE stated a financial audit would be                       
  cheaper than a single audit.                                                 
  Number 433                                                                   
  CHAIRMAN VEZEY clarified a financial audit, under generally                  
  accepted accounting principles, would be equivalent to an                    
  audit.  He had never heard of an audit costing less than                     
  $3,000.  He asked how much assurance was necessary to keep                   
  the accountability of the money.                                             
  Number 444                                                                   
  MR. ANDERSON responded the cost of an audit depends on the                   
  organization.  If $25,000 worth of state money was within a                  
  $1 million organization, the audit would cost a substantial                  
  proportion of what that state money was.                                     
  Number 450                                                                   
  CHAIRMAN VEZEY stated this increase would be because of the                  
  verification that the state money would not be mixed with                    
  other large pools of money.                                                  
  Number 452                                                                   
  MR. ANDERSON noted a financial audit is typically an                         
  organizational-wide audit.  He said HB 481 could create a                    
  financial audit of the entire organization, and not just the                 
  state money.                                                                 
  Number 454                                                                   
  CHAIRMAN VEZEY interpreted HB 481 would only audit the state                 
  moneys involved.                                                             
  Number 456                                                                   
  MR. ANDERSON clarified when only state moneys are involved,                  
  the term "program audit" is used.                                            
  Number 459                                                                   
  CHAIRMAN VEZEY asked if a "program audit" is not what they                   
  were really interested in.                                                   
  Number 461                                                                   
  REPRESENTATIVE BUNDE replied they were not interested in a                   
  "program audit" because they want to know what type of                       
  organizations the money is going to.  He noted the state                     
  cannot even provide a list of who is subject to audit and                    
  who is not.                                                                  
  Number 469                                                                   
  CHAIRMAN VEZEY asked how an entity would relay that the                      
  services they were providing were being duplicated.  He                      
  inquired if the organizations would be classified so                         
  different audits from different agencies could be cross-                     
  Number 477                                                                   
  REPRESENTATIVE BUNDE responded the duplication would not be                  
  noticed unless someone reads the audit.                                      
  Number 480                                                                   
  CHAIRMAN VEZEY commented, in reading audits, he has not seen                 
  individuals describe exactly the same function in exactly                    
  the same way.  He felt they were relating to an "idealistic                  
  standard of conformity" if they were going to use HB 481 to                  
  compare different institutions.                                              
  Number 495                                                                   
  MR. ANDERSON responded the Federal Single Audit Act and the                  
  State Single Audit Regulation both require an entity-wide                    
  audit to account for how the organization is handling their                  
  money.  He noted in the final analysis, one has to judge                     
  where the limit is going to be set on the organizational-                    
  wide audit.  He explained at the federal level, program                      
  audits are done below their threshold for single audits.                     
  However, HB 481 suggests an organizational-wide audit would                  
  still be done down to $25,000.                                               
  Number 505                                                                   
  CHAIRMAN VEZEY stated a problem may exist when an entity is                  
  set up to administer a grant.  He asked how far down the                     
  corporate structure should the audit be taken.                               
  Number 509                                                                   
  MR. ANDERSON answered all single audits, federal or state,                   
  require subrecipient monitoring response abilities on behalf                 
  of the primary grantee.  If a subsidiary was handed down                     
  state money from its' major entity, it would require both                    
  entities to undergo a single audit.  He felt all of the                      
  related organizations to an entity would not be included                     
  into any particular audit.                                                   
  Number 526                                                                   
  CHAIRMAN VEZEY asked how far into the corporate ladder the                   
  audit would go.                                                              
  MR. ANDERSON replied the depth of the audit would depend on                  
  who the grantee is.  If upper organization fed the state                     
  money to a related entity, as long as they both met the                      
  threshold, both entities would have an audit.  Under                         
  generally accepted auditing standards there would be                         
  Number 549                                                                   
  CHAIRMAN VEZEY clarified an audit of a subsidiary group,                     
  which has control of the state money, the audit would scale                  
  up the hierarchy of the larger entity.                                       
  Number 552                                                                   
  MR. ANDERSON affirmed CHAIRMAN VEZEY.  The disclosures and                   
  financial statements of the relationships would have to be                   
  relied upon.                                                                 
  REPRESENTATIVE B. DAVIS clarified REPRESENTATIVE BUNDE                       
  wanted to cover all organizations getting between $25,000                    
  and $150,000 with HB 481.  She had understood program audits                 
  were already being done on all nonprofit agencies receiving                  
  state money.  She believed guidelines were set up by the                     
  agencies that were distributing the funds to the nonprofit                   
  organizations, whereby a report would have to be supplied to                 
  the agency at the end of that year.  She noted audits of a                   
  different type were also being done randomly, as opposed to                  
  program audits.  She asked why a higher standard was                         
  required of some agencies which only have just enough money                  
  to cover their costs.                                                        
  Number 584                                                                   
  MR. ANDERSON answered local governments and nonprofit                        
  organizations all have to be treated the same.  To have a                    
  single audit, they would have to meet the $150,000                           
  threshold.  He had not been involved in the program audit                    
  process, only the single audit.                                              
  Number 595                                                                   
  REPRESENTATIVE B. DAVIS thought monitoring the agencies to                   
  keep track of the distributed grants should be set in                        
  statute, rather than put the full burden on the smaller                      
  organizations which do not have the money for an audit.  She                 
  noted most nonprofit organizations have some sort of                         
  volunteer audit done.  HB 481 would require those                            
  organizations to do more.                                                    
  Number 602                                                                   
  CHAIRMAN VEZEY clarified the type of audit REPRESENTATIVE B.                 
  DAVIS was referring to did not relate in definition to                       
  either audit included in HB 481.  The nonprofit                              
  organizations are doing an internal control.                                 
  Number 609                                                                   
  REPRESENTATIVE B. DAVIS agreed, and stated she would like                    
  RANDY WELKER to testify and offer more information.                          
  Number 615                                                                   
  CHAIRMAN VEZEY asked how long $150,000 has been a threshold.                 
  He felt HB 481 dealt with extremely small sums of money.                     
  Number 619                                                                   
  MR. ANDERSON was not sure, but he stated about 3-4 years ago                 
  the $100,000 and $300,000 limit in regulation, was changed                   
  to $150,000.  He believed if an individual was in excess of                  
  $100,000 over one year, and in excess of $300,000 over two                   
  years, then a single audit was required.  He noted the                       
  single audit regulation began after the federal act was                      
  passed in 1984.  He estimated single auditing began in 1985                  
  or 1986.                                                                     
  Number 629                                                                   
  CHAIRMAN VEZEY asked, regarding a fairly large organization,                 
  what the cost for a single audit would be.  He mentioned                     
  MR. ANDERSON responded from his knowledge, a CPA cannot do                   
  an audit for less than $3,000.  A large organization may                     
  range between $15,000-$25,000.  He noted these large                         
  organizations may already be having financial audits.                        
  Number 639                                                                   
  CHAIRMAN VEZEY stated an audit to a large organization may                   
  only seem an incremental cost.  If an entity wanted to audit                 
  their first grant it would be terribly expensive because the                 
  would be going from an audit to a single audit level of                      
  Number 644                                                                   
  MR. ANDERSON did not think the additional cost to a                          
  financial audit would be much more expensive.  The number                    
  and type of grants an entity has varies the cost.                            
  Number 658                                                                   
  CHAIRMAN VEZEY called for a recess at 8:47 a.m.                              
  TAPE 94-30, SIDE B                                                           
  Number 000                                                                   
  CHAIRMAN VEZEY resumed the meeting at 8:54 a.m.                              
  Number 014                                                                   
  OFFICE OF MANAGEMENT & BUDGET (OMB), commented on HB 481.                    
  He understood the intent of HB 481 is to reach those                         
  programs uncovered by adequate audit procedures.  He                         
  supported this intent.  He questioned the ease in                            
  identification of these programs, because a number of                        
  programs already have their audit regulations in place and                   
  they have not been identified.  He questioned the degree of                  
  burden applied versus the yield of the organization.  He                     
  asked what would be done with the yield of information                       
  received from the audit in regard to corrective action.                      
  MR. FARGNOLI stated departments have different degrees of                    
  internal controls and a number of them have formal grant                     
  auditing regulations already in place.  He felt identifying                  
  these organizations would be the main problem.  Smaller                      
  municipalities and organizations would have a different kind                 
  and degree of audit than the larger communities.  He                         
  mentioned "intractability," whereby solving the problems of                  
  smaller communities may be difficult, and should the grants                  
  cease or should they be assisted in correction.  He noted                    
  each administrative agency does, however, view the questions                 
  he brought up differently.                                                   
  Number 114                                                                   
  REPRESENTATIVE KOTT stated if HB 481 was passed, there would                 
  be approximately 250 financial audits submitted to OMB.                      
  MR. FARGNOLI agreed with REPRESENTATIVE KOTT, but felt there                 
  may be even more.                                                            
  Number 127                                                                   
  REPRESENTATIVE KOTT asked what OMB would do with the                         
  increase in audits and what would be the relationship                        
  between OMB and the agencies which administer the grants.                    
  Number 134                                                                   
  MR. FARGNOLI responded the audit would be reviewed, the                      
  questions that arise out of the audits would be given back                   
  to the departments for follow-up, and then the findings of                   
  the follow-up would be reported back to OMB.  He noted after                 
  this point the severity of the question is a judgment call.                  
  Moneys could be rescinded or advice can be given to augment                  
  correction.  He felt the largest volume of problems received                 
  would be from smaller communities with little resources or a                 
  change in personnel.                                                         
  Number 162                                                                   
  REPRESENTATIVE KOTT asked how an anomaly involving a grant                   
  in a small community would be dealt with.                                    
  Number 166                                                                   
  MR. FARGNOLI replied very delicately, because they may only                  
  have one person, without training, handling all of their                     
  grants.  Smaller communities have a tendency to have a lot                   
  of grant management personnel turnover, therefore they                       
  require adopting flexible standards.  The type of resolution                 
  depends on the severity of the problem.                                      
  Number 214                                                                   
  REPRESENTATIVE JERRY SANDERS believed if the organizations                   
  are currently being run by nonprofessionals, there is a                      
  steady turnover rate, and the money is not being accounted                   
  for, then there is no control for the state.                                 
  Number 220                                                                   
  MR. FARGNOLI responded even though there are not always                      
  formal audits, documentation is required on expenditures.                    
  He noted some organizations receive 20 percent up front and                  
  the remaining 80 percent is distributed on a reimbursement                   
  basis.  Desk audits function as an internal control to                       
  ensure a person did require and obtain the proper                            
  documentation on expenditures.  He stated there are                          
  virtually no organizations left with moneys untended.                        
  Number 247                                                                   
  CHAIRMAN VEZEY introduced RANDY WELKER as the next                           
  individual to testify.                                                       
  Number 256                                                                   
  on HB 481.  He believed HB 481 addressed smaller communities                 
  and nonprofit corporations.  Most communities fall within                    
  the $150,000 threshold and are also receiving federal funds                  
  passed through the state government.  The federal single                     
  audit requirement threshold is $25,000; therefore any                        
  entity, small, large or nonprofit, receiving this level of                   
  federal funds is already having a federal single audit.  He                  
  stated it is the responsibility of the department who passes                 
  on the funds to ensure with the effort of OMB, that the                      
  audits are being done and reviewed.                                          
  MR. WELKER stated the number of grantees which fall between                  
  the $25,000 to $150,000 threshold is difficult to count.                     
  There is no central database of pass through grantees.                       
  Programming the state accounting system could be done to                     
  locate where the money is going, but in what form the money                  
  is distributed would be difficult to determine.                              
  MR. WELKER felt the major question in HB 481 is what level                   
  of audit responsibility should be placed on smaller                          
  organizations receiving $25,000 to $150,000 in state                         
  assistance.  If the grant is the only money the organization                 
  receives, the cost of the audit potentially becomes                          
  significant.  A form of compliance could be added on top of                  
  a larger audit already in place in an organization.  He                      
  noted, when the state single audit regulation was discussed                  
  in 1985, the financial burden of the threshold level was                     
  important.  The state had settled on $100,000 in 1985 and it                 
  was increased to $150,000 in 1990.                                           
  Number 339                                                                   
  REPRESENTATIVE BUNDE offered a federal list (not in the                      
  packets) he had of those organizations who currently receive                 
  between $25,000 and $150,000.  He noted $25,000 may seem to                  
  be a low limit, but he felt there were "habitual recipients"                 
  who, after 10 years, have collected a large amount of money.                 
  REPRESENTATIVE SANDERS asked to be given a copy of the                       
  federal list later.                                                          
  Number 378                                                                   
  CHAIRMAN VEZEY asked if the state engages in financial                       
  oversight processes less than the audit standards.                           
  MR. WELKER answered for those under $150,000 the nonaudit                    
  process of grant reimbursement requires some degree of                       
  review on the claims submitted for grant reimbursement.                      
  This process, however, is not as in-depth as an audit.  The                  
  amount of review by an agency can also vary.                                 
  Number 429                                                                   
  REPRESENTATIVE KOTT looked over the fiscal note and asked                    
  for a clarification.  He commented that if HB 481 were to                    
  pass, a half-time employee dedicated to grant review would                   
  be taken from another area.                                                  
  Number 447                                                                   
  MR. ANDERSON explained a formal desk review is done on all                   
  state single audits currently required and also federal                      
  single audits involving state pass through money,                            
  approximately 500 per year.  With the passage of HB 481,                     
  they felt a simplified desk review would take place on                       
  financial audits.  He clarified HB 481 would merely expand                   
  the job priorities of current employees.                                     
  Number 464                                                                   
  REPRESENTATIVE KOTT questioned if the expanded job                           
  priorities would have a devastating affect on the OMB                        
  Number 467                                                                   
  MR. ANDERSON replied no, the OMB review would be relatively                  
  simple because the financial audit they receive would not be                 
  as complex as a single audit.  Additional work time might be                 
  apparent when agencies try to follow up on the review.                       
  There may also be the possibility that auditors will                         
  disclaim, instead of render, an opinion.  Auditors will                      
  identify material weaknesses in the internal control                         
  Number 497                                                                   
  SERVICES, commented on HB 481.  He stated part of the                        
  implementation of the original single audit regulations was                  
  the elimination of 80 percent of the audit staff.  Presently                 
  MR. WRIGHT and another half-time staffer, review about 120                   
  single audit reports per year, covering 250 grants worth                     
  $80+ million.  He relies on the OMB to make sure they comply                 
  with the standards, and then he supplies a report, which                     
  reconciles the numbers reported to the granting agency, to                   
  the numbers reported from the audits.  He noted smaller                      
  agencies have a problem with turnover and disorganized                       
  files, whereby documentation cannot be found.  He stated                     
  they do 6-8 special reviews per year of either grantees who                  
  do not fall within the thresholds of the single audit                        
  program or problems that were not addressed in the single                    
  audit.  MR. WRIGHT stated they often work on a backlog.  He                  
  explained the reviews are not required to be submitted to                    
  the state until a year after the fiscal year, and a large                    
  number do not meet the deadline.                                             
  Number 551                                                                   
  CHAIRMAN VEZEY wanted a clarification as to why 80 percent                   
  of the auditing staff was lost with the implementation of                    
  the single audit requirements.                                               
  Number 554                                                                   
  MR. WRIGHT responded the auditors were lost because the                      
  grantees were being audited by CPA firms under the single                    
  audit regulations, and the auditors were no longer needed to                 
  go out into the field and conduct audits.  The reason for                    
  the single audit program was to eliminate the duplication of                 
  audit effort.                                                                
  Number 571                                                                   
  REPRESENTATIVE SANDERS asked if MR. WRIGHT was testifying                    
  about grants which would be affected by HB 481 or grants                     
  above $150,000.                                                              
  Number 576                                                                   
  MR. WRIGHT replied he was explaining what was being done                     
  with the existing single audit regulations.                                  
  Number 578                                                                   
  REPRESENTATIVE SANDERS inquired if single audits applied to                  
  those grantees in HB 481.                                                    
  Number 579                                                                   
  MR. WRIGHT answered single audits are currently only                         
  conducted on agencies which receive $150,000 or more.  He                    
  noted this figure is a combination of all state moneys.  For                 
  example, an agency may have $10,000 from Health & Social                     
  Services, $20,000 from another agency and $120,000 from a                    
  third agency, totalling $150,000 and requiring a single                      
  Number 584                                                                   
  REPRESENTATIVE SANDERS asked if those agencies were also not                 
  Number 586                                                                   
  MR. WRIGHT replied no, not by department auditors.                           
  Number 588                                                                   
  REPRESENTATIVE KOTT clarified REPRESENTATIVE SANDERS's                       
  point.  If HB 481 were to pass, and there was an anomaly in                  
  the figures the grant recipient turned into OMB, would OMB                   
  convey their findings back down to the department level so                   
  he would have to take some action.                                           
  Number 591                                                                   
  MR. WRIGHT said yes, if the reports do not meet the                          
  standards, the OMB will send a letter to the different                       
  agencies, who have money with the organization, notifying                    
  them their reports did not meet standards and requesting                     
  additional information.  If the reports show more money was                  
  received by the organization than was expended, the agency                   
  will find it in the reconciliation process.                                  
  Number 613                                                                   
  REPRESENTATIVE KOTT asked if there was any impetus that the                  
  nonprofit organization would roll the cost of a financial                    
  audit into the grant application process.                                    
  Number 619                                                                   
  MR. WRIGHT responded the organizations do now.  The cost of                  
  either kind of audit is an allowable grant to be paid with                   
  state money.  He noted most of the organizations do not have                 
  additional resources for an audit.                                           
  Number 625                                                                   
  CHAIRMAN VEZEY inquired how the incremental cost of going to                 
  an audit would be tied into an organization which already                    
  has a sort of financial oversight in place.                                  
  Number 630                                                                   
  MR. WRIGHT answered the grant administrators examine in the                  
  grant approval process what other sources the agencies have                  
  and what audit requirements there are for the other funding                  
  sources.  He believed the audit cost should be prorated                      
  between the different funding sources or on the terms of how                 
  many employees work for a certain program.                                   
  Number 637                                                                   
  CHAIRMAN VEZEY asked if MR. WRIGHT had any comments about                    
  the threshold limits in HB 481.                                              
  Number 638                                                                   
  MR. WRIGHT said $25,000 seemed awful low, even though it is                  
  the federal requirement.  Some $25,000 agencies run on                       
  volunteers, however, there are some only funded for $25,000                  
  that are part of a larger agency, with additional resources                  
  they can tap.                                                                
  Number 652                                                                   
  CHAIRMAN VEZEY asked what he felt a reasonable threshold                     
  level would be for a financial audit.                                        
  Number 654                                                                   
  MR. WRIGHT felt the $150,000 threshold in the current state                  
  single audit requirement was reasonable.  A threshold below                  
  that level would not be worth the necessary amount of                        
  resources spent.                                                             
  Number 658                                                                   
  REPRESENTATIVE BUNDE interjected and asked how often MR.                     
  WRIGHT found moneys misspent or an "anomaly" as                              
  REPRESENTATIVE KOTT stated.  How many organizations.                         
  Number 661                                                                   
  MR. WRIGHT responded grantees are usually billed between                     
  $150,000 and $700,000 a year for misspending.  This is a                     
  small percentage considering they oversee $80-$90 million.                   
  He estimated the refunds come from 50-100 grantees.                          
  Number 671                                                                   
  CHAIRMAN VEZEY clarified he meant $1,000-$2,000 refunded per                 
  Number 672                                                                   
  MR. WRIGHT stated on an average, a group will owe $30,000 to                 
  $60,000 back and a number of them will owe $1,000 to $6,000                  
  Number 676                                                                   
  CHAIRMAN VEZEY thought MR. WRIGHT had said $100,000 was the                  
  amount usually reimbursed.                                                   
  Number 677                                                                   
  MR. WRIGHT corrected $100,000 to $700,000.  He noted the                     
  single audit reports have been improving to where there are                  
  not as many variances with the numbers reported to the state                 
  at the end of the fiscal year.  This is due to follow-up by                  
  grant agencies at the end of the fiscal year.  The amount of                 
  unpaid money is now being requested to be paid back before                   
  the single audit report arrives.                                             
  Number 689                                                                   
  REPRESENTATIVE BUNDE stated MR. WRIGHT was talking about                     
  four organizations with 150+ subject to single audit.  For                   
  those below the 150+ that may not have any audit, he                         
  believed there would be a higher percentage of "slippage."                   
  Number 693                                                                   
  REPRESENTATIVE B. DAVIS asked what the departments do for                    
  grants under $150,000.                                                       
  Number 697                                                                   
  MR. WRIGHT stated currently there is no financial oversight                  
  for those grantees under $150,000, unless the grant division                 
  notices a problem and requests him or another group to                       
  review them.  The concern would be to make sure the agency                   
  is meeting their goals and objectives of their program,                      
  rather than the money.                                                       
  TAPE 94-31, SIDE A                                                           
  Number 011                                                                   
  REPRESENTATIVE B. DAVIS wanted to hear testimony from                        
  Community & Regional Affairs.                                                
  Number 019                                                                   
  REGIONAL AFFAIRS (CRA), commented on HB 481.  Currently, she                 
  administers grants under AS 316, unincorporated communities,                 
  and AS 317, named recipients.                                                
  Number 027                                                                   
  CHAIRMAN VEZEY asked her to clarify which statutes she used.                 
  Number 028                                                                   
  MS. BAVARD answered AS 37.05.316 and AS 37.05.317,                           
  legislative grants.  She continued 90 percent of the grants                  
  she issues fall within $25,000 to $150,000.  CRA requires                    
  documentation; however, smaller communities have a harder                    
  time always providing it.  There are no regulations to force                 
  the communities to provide the information, but most                         
  communities do.  CRA has local government specialists                        
  assigned to every community in the state.  If there is a                     
  problem, she can request a specialist to investigate.                        
  Number 054                                                                   
  CHAIRMAN VEZEY asked if financial audits of grants down to                   
  $25,000 were desirable.                                                      
  Number 059                                                                   
  MS. BAVARD responded her biggest concern was the grants                      
  administrator.  The audit section's workload would increase.                 
  They currently do not audit her CRA grants specifically,                     
  unless there is a concern from a community or if there is a                  
  questioned cost, whereby the community has met the single                    
  audit threshold.                                                             
  Number 072                                                                   
  CHAIRMAN VEZEY referred to earlier testimony which said the                  
  audit burden of the agency went down when grant recipients                   
  were required to furnish the single audit.                                   
  Number 078                                                                   
  MS. BAVARD replied the previous testimony could be true.                     
  The CRA audit section consists of two persons.  The CRA                      
  covers a lot of federal pass through moneys in large state                   
  programs.  She noted most of the communities she distributes                 
  to are small and unincorporated receiving small amounts of                   
  money.  Most legislative money they receive is for                           
  construction projects, boardwalks, etc.  The cost of the                     
  materials is often not covered; therefore she questioned,                    
  with an audit, what would happen if they did not comply.                     
  She emphasized her job was to distribute with accountability                 
  within her limits, the money that is already appropriated.                   
  She felt HB 481 did not answer her questions as to what                      
  happens if the communities do not comply.                                    
  Number 116                                                                   
  REPRESENTATIVE B. DAVIS questioned what the requirements                     
  were for a nonprofit organization to receive for example,                    
  $100,000.  What is the procedure?                                            
  Number 128                                                                   
  MS. BAVARD replied when she receives the legislative                         
  appropriations for the year, she sends out an award letter                   
  with a fifteen page questionnaire, asking specific objective                 
  questions.  The questionnaire also asks if they want an                      
  advance, which most of her entities do because they do not                   
  have any cash flow.  She requires the communities to roughly                 
  document how the advance will be used.  Most of the small                    
  villages need cash up-front to order their materials.  If                    
  the requests are reasonable, she will give them an advance                   
  and they are required to submit monthly reports to her with                  
  documentation for their expenditures.  She noted some                        
  communities are watched closer than others because of their                  
  past compliance history.  Most of the grants she works with                  
  are on an advance-by-advance basis, as the communities send                  
  in their month-to-month reports.  The procedure is the same                  
  for all of her grants, including grants for nonprofit                        
  Number 165                                                                   
  REPRESENTATIVE BUNDE believed she had said that if she                       
  wanted financial accounting the community did not have to                    
  comply by regulation, and she would still have to distribute                 
  the money.                                                                   
  Number 171                                                                   
  MS. BAVARD stated she did not have a choice.  The grants she                 
  administers under AS 37.05.316 and AS 37.05.317 have no                      
  regulation because they are legislative appropriation.  Even                 
  if the money is appropriated again the next year, she cannot                 
  interrupt the cycle because they did not spend their money                   
  in the previous year.                                                        
  Number 180                                                                   
  REPRESENTATIVE BUNDE clarified MS. BAVARD was obligated to                   
  pass on the money even if "it is good money after bad."                      
  Number 183                                                                   
  REPRESENTATIVE KOTT inquired if MS. BAVARD would classify                    
  the grant money she administers under a project or block                     
  Number 186                                                                   
  MS. BAVARD stated her grants are for capital improvement                     
  projects.  She emphasized she had no idea of who is getting                  
  what amount of money until after the legislature                             
  appropriated and the Governor has signed the appropriations                  
  bill.  She then picks out the grants which will come through                 
  the statutes to her.  She does not split up a lump of money.                 
  Number 200                                                                   
  REPRESENTATIVE KOTT questioned if there isn't already an                     
  Alaska Statute which covers the fraudulent misuse of                         
  legislative appropriations.  Is there a penalty?                             
  Number 208                                                                   
  MS. BAVARD directed REPRESENTATIVE KOTT to AS 37.05.318.  If                 
  the money is not used for the intent of the legislature, the                 
  community would have to give it back.  She stated the                        
  example of a community trying to go back and pay off a bill                  
  from the previous year, with the current year's                              
  appropriations.  She emphasized the process to deal with                     
  those who misspend money is long and drawn out.  Extra money                 
  can be withheld from a project if the project is continuing                  
  from the previous year, but money for a new project cannot.                  
  Number 233                                                                   
  REPRESENTATIVE BUNDE asked if there was any follow-up to see                 
  if the projects had been completed.                                          
  Number 239                                                                   
  MS. BAVARD responded if a community has had previous                         
  problems she can require photographic documentation and she                  
  also has access to a local government specialist.  Usually a                 
  desk audit is performed.                                                     
  Number 251                                                                   
  REPRESENTATIVE BUNDE inquired if someone would have to                       
  trigger the suspicion in a community.                                        
  Number 252                                                                   
  MS. BAVARD affirmed REPRESENTATIVE BUNDE.  Either the                        
  information the community sent was way out of line, or she                   
  would receive letters from community members concerned with                  
  the application of the funds.  She noted the local                           
  government specialists do visit the communities for work                     
  other than her requested inspections and they contact her                    
  with details on the projects.                                                
  Number 265                                                                   
  REPRESENTATIVE KOTT commented there are Senators and                         
  Representatives for those areas if MS. BAVARD needed                         
  (REPRESENTATIVE SANDERS left the meeting at 9:55 a.m.)                       
  Number 278                                                                   
  (DOA), commented on HB 481.  They administer grants for the                  
  Older Alaskans, Public Broadcasting System, Municipal                        
  Grants, and the Municipal Matching Grants program.  She                      
  stated the grants are distributed with a 20 percent advance                  
  and then the rest of the appropriation is distributed on a                   
  reimbursement basis.  Monthly reports are sent in.                           
  Number 318                                                                   
  CHAIRMAN VEZEY asked MS. SIMMONS how many grants she had                     
  above and below $150,000.                                                    
  MS. SIMMONS answered the majority fall below $150,000.  More                 
  than half.  Most of the capital appropriations are for more                  
  than $10,000.  In Municipal Matching Grants, everyone                        
  received at least $25,000.  Under statute each project had                   
  to be at least $10,000.                                                      
  Number  329                                                                  
  REPRESENTATIVE KOTT asked if the state had any role in the                   
  oversight of federal grant money or pass through money.  Is                  
  there any incentive conveyed back to the state.                              
  MS. SIMMONS replied the pass through money the DOA has is in                 
  Older Alaskans and those grant program people watch very                     
  carefully what is being spent and what is not.  In terms of                  
  oversight, if the communities do not turn in adequate                        
  financial documentation, they do not get their money.  She                   
  noted since most of the money is federal, the money is                       
  audited; therefore, there are not very many findings or                      
  questioned costs.  MS. SIMMONS stated most of the problems                   
  she has with her audits are with separation of duties.                       
  Number 355                                                                   
  CHAIRMAN VEZEY mentioned that time had run short and the                     
  committee had other commitments.  He stated HB 481 would be                  
  rescheduled and apologized for not hearing the other items                   
  on the agenda.  The meeting adjourned at 10:00 a.m.                          
  BILLS NOT HEARD                                                              
  HB 482 - EMPLOYMENT INFO PROVIDED TO THE STATE                               
  HB 480 - DRIVER LICENSE/HANDGUN PERMIT SYSTEM                                
  HB 513 - GRANTS/LOANS FOR STORAGE TANK OWNERS                                

Document Name Date/Time Subjects