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
+ 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
agencies."
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
CONSENT
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
RECONSIDERATION
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
SHORT TITLE: AUDITS OF STATE GRANT & AID RECIPIENTS
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
SHORT TITLE: EMPLOYMENT INFO PROVIDED TO THE STATE
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
SHORT TITLE: DRIVER LICENSE/HANDGUN PERMIT SYSTEM
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
SHORT TITLE: GRANTS/LOANS FOR STORAGE TANK OWNERS
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
regulation.
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,
SANDERS.
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
GARY ANDERSON, DIRECTOR, DIVISION OF AUDIT & MANAGEMENT
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
defined.
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-
referenced.
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
disclosures.
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
$25,000.
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
review.
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
JACK FARGNOLI, SENIOR POLICY ANALYST, DIRECTOR'S OFFICE,
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
RANDY WELKER, AUDITOR, LEGISLATIVE AUDIT DIVISION, commented
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
employees.
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
structure.
Number 497
BOB WRIGHT, SENIOR AUDITOR, DEPARTMENT OF HEALTH & SOCIAL
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
audit.
Number 584
REPRESENTATIVE SANDERS asked if those agencies were also not
audited.
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
grantee.
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
back.
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
TENA BAVARD, GRANTS ADMINISTRATOR, DEPARTMENT OF COMMUNITY &
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
organizations.
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
grant.
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
assistance.
(REPRESENTATIVE SANDERS left the meeting at 9:55 a.m.)
Number 278
LENA SIMMONS, GRANT SECTION, DEPARTMENT OF ADMINISTRATION
(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.
ADJOURNMENT
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
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