Legislature(2019 - 2020)ADAMS ROOM 519
05/15/2019 07:00 AM Senate LEGISLATIVE BUDGET & AUDIT
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| Audio | Topic |
|---|---|
| Start | |
| Approval of Minutes | |
| Agenda Update | |
| Legislative Audit Storage Area Procurement | |
| Fy18 Statewide Single Audit | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
LEGISLATIVE BUDGET AND AUDIT COMMITTEE
May 15, 2019
7:00 a.m.
MEMBERS PRESENT
Representative Chris Tuck, Chair
Representative Andy Josephson
Representative Ivy Spohnholz
Senator Click Bishop, Vice Chair
Senator Bert Stedman
Senator Natasha von Imhof
Senator Cathy Giessel
MEMBERS ABSENT
Representative Neal Foster
Representative Mark Neuman
Representative Jennifer Johnston (alternate)
Senator Lyman Hoffman
Senator Peter Micciche (alternate)
OTHER LEGISLATORS PRESENT
Senator Tom Begich
COMMITTEE CALENDAR
APPROVAL OF MINUTES
AGENDA UPDATE
LEGISLATIVE AUDIT STORAGE AREA PROCUREMENT
FY18 STATEWIDE SINGLE AUDIT
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
KRIS CURTIS, Legislative Auditor
Legislative Audit Division
Legislative Agencies and Offices
Juneau, Alaska
POSITION STATEMENT: Provided information and answered questions
on the procurement request and the FY18 Statewide Single Audit.
ACTION NARRATIVE
7:00:42 AM
CHAIR CHRIS TUCK called the Legislative Budget and Audit
Committee meeting to order at 7:00 a.m. Representatives Tuck
and Josephson and Senators Bishop, von Imhof, Stedman, and
Giessel were present at the call to order. Representative
Spohnholz arrived as the meeting was in progress. Also in
attendance was Senator Begich.
^Approval of minutes
Approval of minutes
7:01:11 AM
CHAIR TUCK announced that the first order of business would be
the approval of minutes.
7:01:22 AM
SENATOR BISHOP made a motion to approve the minutes of May 10,
2019. There being no objection, the minutes from the meeting of
May 10, 2019 were approved.
^Agenda Update
Agenda Update
7:01:48 AM
CHAIR TUCK announced that the next order of business would be an
update to changes on the agenda. He explained that the
committee would first take up the Legislative Audit Storage Area
Procurement and then release the Statewide Single Audit for FY
18 with any discussion afterward.
^Legislative Audit Storage Area Procurement
Legislative Audit Storage Area Procurement
7:02:04 AM
KRIS CURTIS, Legislative Auditor, Legislative Audit Division,
Legislative Agencies and Offices, referenced the memo [Included
in members' packets] which explained the need for a storage area
network (SAN). She relayed that, although a SAN had already
been purchased in April within her procurement authority for
$34,000, it did not work. She noted that her division was
working with the company to fix this, but, in the event it could
not be fixed, it would be necessary to return the SAN and
receive a refund. In that case, the next lowest bid for a SAN
was for about $40,000, which was more than her procurement
authority. She requested authority for the purchase of this
next lowest bid, adding that she had received a bid yesterday
for $41,000.
7:03:22 AM
SENATOR BISHOP moved and asked unanimous consent that the
Legislative Budget and Audit Committee authorize the Legislative
Auditor to procure a storage area network at a cost not to
exceed $41,000. There being no objection, it was so ordered.
^FY18 Statewide Single Audit
FY18 Statewide Single Audit
7:03:39 AM
CHAIR TUCK announced that the next order of business would be a
review of the FY18 Statewide Single Audit.
7:03:51 AM
MS. CURTIS, in response to Chair Tuck, explained that the
Statewide Single Audit was an annual project required to receive
federal financial assistance. She noted that there were two
main objectives to the report: first, to determine whether the
State's financial statements were fairly presented; and second,
to determine whether state agencies were complying with the
various federal laws and regulations in the administration of
various federal programs. She pointed out that the audit was a
very large document, with four main sections, each identified by
roman numerals at the bottom of the page.
MS. CURTIS directed attention to the first section, Roman
Numeral One, which contained the state's financial statements,
the notes to those statements, and the Division of Legislative
Audit opinion on the financial statements. She pointed out that
the state had received unmodified opinion on all the opinion
units, meaning these were free from material misstatement,
except for the general fund, which received a qualified opinion.
7:05:36 AM
SENATOR BISHOP moved and asked unanimous consent that the State
of Alaska Single Audit for the Fiscal Year ended June 30, 2018
be released as the final public report. There being no
objection, it was so ordered.
7:05:58 AM
MS. CURTIS moved on to the second section, identified as Roman
Numeral II on the bottom of the page. This section contained
the findings and recommendations to the individual state
departments. The third section, Roman Numeral III, included the
auditors report on federal compliance and internal controls over
financial reporting and federal compliance. She added that this
section also included the state schedule of federal awards. She
directed attention to III-11, the Schedule of Federal Awards,
which included all the federal financial assistance received
during Fiscal Year (FY) 18, approximately $4.3 billion. She
noted that this information was an appendix at the back of the
audit.
MS. CURTIS directed attention to Section IV, the corrective
action plans by each department in response to the findings.
She added that the members each had a hard copy matrix of the
findings which allowed members to "drill down to all the
details, you can sort it by department, by type of finding, to
help you really dig down into those findings."
MS. CURTIS moved on to Roman Numeral II-3, which was a summary
of the findings at the beginning of Section II, and included a
summary of the findings between financial, federal compliance,
and state compliance. She noted that it also showed the
internal control findings between material weaknesses and
significant deficiencies. She stated that there were 74
findings in FY 18. As perspective, in FY 15, there had been 44
findings which was considered a high year. She explained that
most of the increase was from the area for federal financial
reporting, as there were 27 financial recommendations in FY 18.
She explained that, as the audit was done in accordance with
federal rules for what had to be reported, the federal findings
were less informative for the Legislative Budget and Audit
Committee so the focus would be for the financial findings. She
directed attention to page II-3 of the matrix, and shared that
there were 4 material weaknesses and 23 significant deficiencies
in internal controls related to financial reporting. She noted
that most of these were in the Department of Administration and
the Department of Transportation & Public Facilities. She said
that she would focus on the financial findings that
significantly impacted the audit process as they were time
consuming or resulted in a qualified opinion on the financial
statements.
MS. CURTIS directed attention to the Department of
Administration, which had 11 financial findings, on page II-10.
She stated that she would highlight four of them. The first,
Finding #1 on page II-10, discussed errors in reporting the
financial activity of the Constitutional Budget Reserve (CBR),
and she noted that there had been a similar finding in FY 16 and
FY 17. She explained that the Division of Finance had made
numerous errors in the calculation for the draw from the CBR to
the general fund, which misstated the draw by over $300 million.
She stated that these errors were caused by inadequate
procedures. She shared Finding #6 on page II-14 addressing
revenue classification errors, which, in accordance with
generally accepted accounting principles, required they be
reported by classification. She noted that, since the new
accounting system, the Division of Finance had struggled to
report revenues in accordance with the generally accepted
accounting principles. She stated that it was very time
consuming to fix these problems, with the errors totaling more
than $110 million. She clarified that these errors had all been
corrected.
MS. CURTIS discussed Finding #7 on page II-15, identifying and
correcting capital assets errors. She said that this was very
time consuming and noted that there had been similar errors in
FY 16 and FY 17. The errors had been compounded in FY 18 when
state agencies began inputting the capital asset information
into the state accounting system. Prior to FY 18, capital
assets and depreciation were tracked via manual spreadsheets.
She explained that the problem happened when the information was
input into the state accounting system with no reconciliation
done to ensure that all the information on the legacy
spreadsheet was input into the state accounting system
accurately. She stated that not all the information had been
input accurately. She added that there had also been problems
with the footnote disclosures. She declared that this was very
time consuming to correct and directed attention to the total
amount of the errors listed on page II-16.
MS. CURTIS discussed the late OPEB (Other Post Employment
Employee Benefits) schedules and directed attention to Finding
#11 on page II-20. She reported that this discussed the failure
of the Division of Retirements and Benefits to issue audited
schedules of employer and non-employer OPEB allocations for the
Public Employees Retirement System and the Teachers Retirement
System. During FY 18, the State implemented Governmental
Accounting Standards Board statement number 75 that required
specific OPEB information be reported in the pension plans and
the plan participants' financial statements. The OPEB
information had to be first compiled into allocation schedules
and then audited by the plan auditors. Once the audited OPEB
schedules were available, the information could be disseminated
to all the plan participants. She stated that this did not
happen timely, and that delayed issuance of the OPEB allocation
schedules resulted in a delayed issuance of audited financial
statements for the pension plans, as well as the school
districts, local governments, state entities and the State
itself.
7:12:52 AM
MS. CURTIS moved on to page II-28 and Finding #15 for the
Department of Revenue, the first of three financial findings.
This was a material weakness in internal controls which led to a
qualified opinion on the general fund. Revenues eligible for
transfer to the Constitutional Budget Reserve Fund (CBRF) were
not transferred during FY 18, and revenues which should have
remained in the CBRF were moved to the general fund. This
finding had to do with a disagreement regarding whether Federal
Energy Regulatory Commission (FERC) related tax revenues should
be deposited into the CBRF. The attorney general argued that
the monies belonged in the general fund while her legal analysis
concluded that the monies belonged in the CBRF. She directed
attention to the Effect paragraph on page II-29, which listed
the amounts specific to the Department of Revenue which she had
determined to be misstatements to the FY 18 financial statement.
She reported that the total understatement in the CBRF balance
was $1.04 billion. She noted that $34.9 million of FERC related
revenues were offset to tax credits during FY 18.
7:14:05 AM
MS. CURTIS stated that most of the Department of Health and
Social Services findings were federal compliance related, which
she would address later. She directed attention to page II-62,
Finding #37, a shortfall finding which meant that an agency did
not collect all the revenue budgeted resulting in overspent
general funds. She reported that the department had seven
potential shortfalls in FY 18, with the largest being the
Medicaid Management information system for just over $3.5
million for budget year 2002, and more than $200,000 for budget
year 2007. These shortfalls were due to the federal oversight
agency disallowing the expenditures that were claimed beyond the
period of performance. She noted that Department of Health and
Social Services management had asserted that claims were delayed
due to litigation with the contractor.
7:15:03 AM
MS. CURTIS directed attention to the three potential shortfall
findings on page II-86 for the Department of Military &
Veterans' Affairs, the largest being about $126,000. According
to management, the shortfall was caused by problems recording
revenues during the conversion to the new accounting system.
7:15:21 AM
MS. CURTIS moved on to the four financial findings for the
Department of Natural Resources (DNR), two of which led to
qualifications to the opinion. She directed attention to page
II-90, Finding #53, which stated that DNR did not transfer to
the Alaska Permanent Fund all dedicated mineral lease revenues
received during FY 18. She reminded the committee that, as she
had gone into detail during the last meeting, she would just
direct their attention to the effect paragraph on the next page,
II-91, which showed that the error for FY 18 was $99.8 million.
MS. CURTIS reported that Finding #54, page II-92, was DNR's
finding related to the FERC related receipts and the deposit
into the CBRF. She reported that the effect paragraph on page
II-93 showed that the DNR related impact for this issue was
$287.9 million. She stated that the financial opinion was
qualified due to Findings #53 and #54. She directed attention
to the DNR shortfall on page II-105, Finding #63. The
department had four appropriations in shortfall, the largest
being $459,000. The management had stated that the shortfall
had been caused by the incorrect recording of cash related to
reimbursable service agreements and not monitoring shortfalls
due to staff turnover.
7:16:56 AM
MS. CURTIS pointed to page II-120, Finding #67, which explained
that the Department of Transportation & Public Facilities had
continued to struggle to record expenditures during the re-
appropriation period to the correct fiscal year. She noted that
there was a similar finding in FY 15, FY 16, and FY 17. She
added that the department had implemented training and
monitoring procedures during FY 18, but, although strides had
been made to correct this error, the training and monitoring did
not address capital project invoices. She moved on to Finding
#69, page II-122, which identified numerous errors related to
capital assets which were listed on page 122. She listed a lack
of training, oversight, and effective procedures as the cause
for errors. She pointed out that the effect of the errors was
shown at the bottom of pages II-123 and 124, reporting that the
auditors had spent months testing the capital assets and helping
correct the errors. She shared Finding #73, page II-127, which
reported on the department's shortfall finding. There were
three shortfalls for FY 18, the largest for approximately $1.5
million, a result of incorrectly calculating the unexpended and
unobligated balance of the appropriations which were carried
forward to FY 19. The Department of Transportation & Public
Facilities management had stated that staff turnover and a lack
of monitoring procedures had contributed to the shortfall.
7:18:56 AM
MS. CURTIS reported that the final financial finding, Finding
#74, page II-132, was related to the Alaska Permanent Fund
Corporation not collecting all the statutorily dedicated
revenues during FY 18 related to the permanent fund. She said
this was the same issue as discussed with the Department of
Natural Resources findings, an impact of $99.8 million.
7:19:17 AM
MS. CURTIS directed attention to page II-3, a summary of the
findings for the Federal Compliance Regulations. She explained
that federal programs were audited as directed by the federal
OMB, with specific requirements to report any questionable costs
over $25,000. She reported that there was material non-
compliance, resulting in the need to audit again next year, with
four major federal programs. She added that material non-
compliance also impacted required coverage for an audit, as the
state was no longer considered a low risk auditee.
MS. CURTIS directed attention to Page III-5 for the opinion on
federal compliance, and Page III-6 for a description on the
basis of a qualified opinion. The first program of material
noncompliance was with the United States Forest Service fire
suppression program, as timesheet testing found a high degree of
noncompliance, resulting in $163,000 of questioned costs. She
explained that these were federal agency reimbursements for
costs that did not meet the federal requirements and may have to
be repaid. She added that her division had identified incorrect
coding of costs for $45,000.
7:21:11 AM
MS. CURTIS shared that the Bureau of Land Management Fire
Suppression program was the second program with material
noncompliance, as well as errors with timesheet testing,
resulting in questioned costs of $111,000.
MS. CURTIS reported that the third program with material
noncompliance was with the 1332 State Innovation Waivers
program. This referred to Section 1332 of the Patient
Protection and Affordable Care Act which permitted the state to
apply for a State Innovation Waiver to pursue innovative
strategies for providing residents with access to health
insurance. She stated that Alaska had applied for and received
a waiver to implement a high-risk pool reinsurance program, the
Alaska Reinsurance Program, and that material noncompliance with
this program had been found in federal procurement, suspension
and debarment requirements, and subrecipient monitoring
requirements. She opined that the Division of Insurance was not
used to dealing with these federal requirements, and that this
could be more easily addressed in the future.
7:22:22 AM
MS. CURTIS described the fourth program of material
noncompliance, the Temporary Assistance for Needy Families
(TANF) program. She reported that there was material
noncompliance with the federal eligibility and special income
verification requirements. She noted that 10 percent of the 40
applications tested had not been processed within the 30-day
requirement, and 53 percent of the applications tested lacked
documentation that the agency had verified eligibility using the
electronic verification system. She added that eight
eligibility determination errors had also been found. She
reiterated that material noncompliance meant that the program
must be audited in the next year. She stated that this
concluded "the very fast overview of this very large document."
She noted that there could be a lot more discussion on these
findings. She reported that this audit was late, as it was due
by March 31. She listed three main reasons for being late: the
State's financial audit opinion was issued late; there were 74
findings which had to be first put into a management letter sent
to an agency, with a 10-day response period; and finally, as the
outside auditor for the Department of Health and Social Services
had found material noncompliance that impacted six major federal
programs, all of those programs had to be audited again this
year.
7:24:31 AM
SENATOR VON IMHOF asked if there were any repeat patterns. She
stated that, although it was "one thing to be able to identify
audit issues in your audit," the more important step was to plan
for improvement. She asked for suggestions to reduce the
noncompliance when the committee meets with the departments.
7:25:56 AM
MS. CURTIS explained that, with implementation of the new
accounting system, all the historical ideas for how things
progressed, "were just thrown out the window cause we're just
entering a new age with the new accounting system." She
reported that her first 20 years with auditing had been using
the legacy system and there had been stability in personnel.
She declared "that has totally changed." She reported a 50
percent turnover in the Division of Finance, noting that this
division was responsible for creating the financial statements.
She declared that this was "extremely detrimental." She
reported a high level of turnover in the agencies, especially
with the program people, resulting in constant recruitment and
training. She pointed out that this was evident on the audits
with the high levels of findings. She offered her belief that
this was due to the turnover at the agencies and the new
accounting system. She opined that the new accounting system
was starting "to settle out, they're starting to get those new
processes documented, they're starting to be able to handle the
change." She directed attention to the Summary of Prior Audit
Findings and explained that this was a mechanism to review
whether things had been corrected. She added that the new
administration was giving more attention to the audit findings
and attention to correction of problems, while reflecting on
whether this would continue. She expressed her agreement that
there could be efficient discussion with each department for the
current status during the House and Senate Finance Committee
sub-committee process. She noted that timing was an issue, as
her division was conducting its work during the finance sub-
committee process and there could not be discussion within the
audit until it was a public document. She allowed that status
of findings could be addressed during the interim.
7:29:16 AM
SENATOR BISHOP expressed his concern for "leaving cash on the
table." He stated, "we're fighting over pennies in the capital
budget and I'm looking here at several million dollars that it
appears we've left on the table that we didn't have to leave."
7:30:00 AM
CHAIR TUCK offered his belief that the budget sub-committee
chairs needed to be aware of the deficiencies in each department
so to hold the departments accountable.
7:30:58 AM
ADJOURNMENT
There being no further business before the committee, the
Legislative Budget and Audit Committee meeting was adjourned at
7:31 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Leg Audit Procurement Request 5-15-19.pdf |
JBUD 5/15/2019 7:00:00 AM |