HOUSE BILL NO. 126 "An Act extending the termination date of the Board of Public Accountancy; and providing for an effective date." 2:38:02 PM REPRESENTATIVE STEVE THOMPSON, SPONSOR, introduced himself. He thanked the committee for hearing HB 126. He read the sponsor statement (copy on file): HB 126 extends the termination date for the Board of Public Accountancy for eight years until June 30, 2029. Legislative Audit conducted their review of this board and concluded that "the board served the public's interest by conducting meetings in accordance with state laws, amending certain regulations to improve the public accountancy occupation, and effectively licensing and regulating certified public accountants and partnerships/corporations engaged in the practice of public accountancy." The Board of Public Accountancy consists of seven members appointed by the Governor. Five members are certified public accountants or public accountants, and two members are public members. Extending the Board of Public Accountancy is critical in protecting the public interest by ensuring that only qualified persons are licensed, and that appropriate standards of competency and practice are established and enforced. Representative Thompson indicated Ms. Curtis with the Division of Legislative Audit would present the audit findings. 2:39:58 PM AT EASE 2:40:52 PM RECONVENED Co-Chair Merrick asked Ms. Curtis to present the audit findings. KRIS CURTIS, LEGISLATIVE AUDITOR, ALASKA DIVISION OF LEGISLATIVE AUDIT, drew attention to a transmittal letter that accompanied the audit (copy on file). She clarified that the audit was conducted in accordance with auditing standards with the exception of the standard of independence, which she and her staff did not meet because they were CPAs. Ms. Curtis reported that the audit found the Board of Accountancy to be serving the public's interest by conducting its meetings in accordance with law and by effectively licensing CPAs and partnerships and corporations engaged in public accountancy. The audit recommended an eight-year extension. She directed members to page 8 of the audit for standard licensing statistics. She highlighted that Exhibit 2 showed 1,328 active licenses and permits as of January 2020. When compared to the prior sunset audit in 2012, the number represented a 10 percent increase. She explained that the audit had found Alaska to be one of the few states that did not require a social security number for licensure, consequently there were a high number of international applicants. Ms. Curtis directed attention to page 7 of the audit and highlighted the schedule of revenues and expenditures. As of the end of FY 19 there was a surplus of over $84,000. She noted the fees were shown on page 8. The audit made one recommendation for improvements beginning on page 11. The audit recommended the Division of Corporations, Business and Professional Licensing (CBPL) chief investigator ensure investigations were completed timely. She detailed there had been 101 complaints open during the audit period and 40 of the complaints had taken over six months to complete. Auditors had reviewed five of the 40 and found that two had unjustified periods of inactivity ranging from 64 days to 219 days. According to staff, the inactivity was the result of turnover and competing priorities. Ms. Curtis addressed management's response to the audit beginning on page 21. She relayed that the Department of Commerce, Community and Economic Development (DCCED) commissioner agreed with the report conclusions except for the conclusion that 40 percent of investigations took over six months to complete. She reported the commissioner stated that CBPL had no control over how an investigation would unfold or how long it would take, and the division did not have a policy to complete all investigations within a specific timeframe. However, the commissioner agreed to authorize an additional investigative supervisor to help with the caseloads. The commissioner also took exception regarding the audit conclusion that the use of technology impacted board operations and believed that the technological tools had been successful for all boards. Ms. Curtis relayed that the board chair's response was located on page 25 of the audit report. She stated that the chair did not disagree with any of the report conclusions but had taken the opportunity to highlight a disagreement the board had with DCCED regarding what should be considered essential travel. 2:44:39 PM Representative Josephson referred to the April 8, 2020, audit and asked about the 101 board related cases. He asked how many accountants there were [in Alaska]. Ms. Curtis responded that as of January 2020 there were 1,328 active licenses and permits. Representative Josephson asked if the issue should be cause for a shorter extension period. Ms. Curtis answered that the criteria used to evaluate the sunset process included the efficiency to which the complaints were addressed. She elaborated that some occupational boards had continuing education requirements. She detailed there could be investigations related to the continuing education requirements, which most people would consider less concerning than something like malpractice. The sunset extension recommendation did not take the number of complaints into consideration, rather it considered the efficiency aspect of the time it was taking to complete investigations. 2:46:27 PM Representative Josephson noted that the cost of a two-year license was much less compared to the license for another profession discussed in committee the previous day. He wondered whether there could be a fee increase (in separate legislation) and a requirement for the hiring of additional investigator positions. Ms. Curtis responded that the question may be better directed to Ms. Chambers. She relayed that the audit had not looked at what type of policy could be put in place. 2:47:18 PM SARA CHAMBERS, DIRECTOR, DIVISION OF CORPORATIONS, BUSINESS AND PROFESSIONAL LICENSING, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT (via teleconference), thought raising fees to hire additional staff was a sound suggestion. The division had already added one or two investigators to the team of 19 investigators responsible for covering the 43 professional licensing programs and business licensing investigations. The division was already augmenting its team in order to address some of the workload concerns addressed in the audits. She explained that the investigators charged only to the programs as they were working them. She used CPAs as and example and explained that if there was an increase in CPA casework, the CPA program would be charged that amount, which could lead to an increase in fees. 2:48:31 PM Representative Rasmussen observed that it appeared the board anticipated a surplus of $531,524. She wondered if the board remained in possession of the funds. Ms. Chambers responded that all of the professional licensing boards carried forward any surpluses or deficits from fiscal year to fiscal year. The department was required by AS 08.01.065 to do a fee analysis and set fees to ensure a surplus or deficit was not too high. She elaborated that as a program grew a surplus, the department likely would reduce the fees. Conversely, if a program had a deficit, the department would likely increase fees to keep the program from sinking further into deficit. The fees were always retained for use for the specific licensing program's expenses. Representative Rasmussen wondered why a board with a $530,000 projected surplus was not granted the opportunity for travel to meetings determined by the board. She asked if statutory or regulatory change was needed. Alternatively, she wondered if the decision was made by the department. Ms. Chambers responded that the fiscal expenditure authority for each board was set at the division level. She detailed that when the state budget was set via the legislative process, the department was allocated a specific amount of expenditure authority for all of the licensing programs. She expounded that each board was not allocated the independent authority by the legislature. She explained that just because a board may have a surplus did not mean the department had the expenditure authority from the legislature to spend that much money during a fiscal year. 2:51:56 PM Representative Wool looked at page 6 of the audit report. He observed that 40 out of 101 cases had been open for over 180 days. He reasoned they took too long to process. He asked if his understanding was accurate. Ms. Curtis responded that the audit indicated 40 percent seemed high on a case-by-case basis. Representative Wool asked for verification it was just coincidence that five cases had been reviewed in the audit and 40 percent of the five had periods of unjustified inactivity within the 180 days. He noted the audit's mention of staff turnover. He asked for verification the turnover pertained to board staff only and not CBPL staff. Ms. Curtis clarified that the investigative function was carried out within CBPL, and the report was referring to division staff. Representative Wool thought it sounded like the same thing the committee had heard about the midwifery board. He stated that the boards were getting called out for taking too long, but it had to do with the staff at CBPL, which was out of the boards' control. He asked if his understanding was accurate. Ms. Curtis agreed that the audit highlighted the issue as an area for improvement. However, she noted that the recommended term of extension was not impacted by the issue. Representative Wool asked if CBPL was audited. Ms. Curtis replied that the division was audited as part of the sunset process as support to the board. She elaborated that every time a board was audited, the auditors looked at CBPL support. She detailed that licensing processing was not done by board members. She explained that largely there was an audit of CBPL every time the Division of Legislative Audit looked at an occupational board. 2:54:28 PM Representative Carpenter referred to page 7 and highlighted a discrepancy in the licensing fees charged between the years FY 17 and FY 19. He noted that the fees were $179,000 in FY 17 and $730,000 in FY 18. Ms. Curtis responded that the board was on a biannual renewal cycle causing an influx in fees every other year. She relayed that the off-year fees collected included people getting licensed in between or renewing a license. She explained it was the reason an audit included at least three years to see one full licensing cycle. 2:55:26 PM Representative Edgmon knew from his time on the committee that Ms. Curtis had done many audits. He remarked there had been four bills in the last two days with wildly varying fees. He asked if it was Ms. Curtis's experience that the user fees were established board-by-board with no regard to any uniformity standards or benchmarking. For example, for the current bill, fees occurred under the realm of the Board of Public Accountancy and were not related to sportfishing, midwives, or other. Ms. Curtis responded that statute specified a fee had to be set to cover the cost of regulation. She explained that the cost of regulating each occupation was tracked. She elaborated that the variance in fees was the variance in regulating the occupation, which was often driven by investigations (as was the case in the midwifery board seen by the committee the previous day). She furthered that boards with a large number of licensees (e.g., the Board of Nursing) tended to have lower fees because they were spread out over a larger number of people. Representative Edgmon thought the information was helpful. He stated it helped him understand why the midwifery board fee was $3,800 for two years versus sportfishing licenses and nonresident fees in the $100 to $200 range. He remarked on the long schedule for the Board of Public Accountancy. He asked for verification that the money would be swept from the General Fund if the reverse sweep did not occur. Ms. Curtis responded in the negative. She clarified the money did not go into a sub-fund of the General Fund that was subject to the sweep. She elaborated that the fees were not dedicated revenue and went into the General Fund; there was no separate tracking at the sub-fund level. She explained that the appropriation to expend for regulation of boards was at the division level and came from the General Fund. Representative Edgmon asked for verification that the fees would not be subject to the annual vote on the reverse sweep. Ms. Curtis agreed. 2:58:23 PM Representative Josephson stated his understanding that the General Fund was sweepable. Ms. Curtis replied that certain sub-funds of the General Fund were sweepable. Representative Josephson noted that in July 2019 the Senate Finance Committee had discussed how the dollars could be swept away and there had been consideration of the legal consequences of that potential action. 2:59:13 PM Representative Wool asked about the length of time it took to process an investigation, which was in part due to CBPL staffing. He remarked that the audit recommended an eight- year extension. He pointed out that a separate audit of the midwifery board included the board chair's response to the audit. The midwifery board chair had pointed out that the length of time it took to process an investigation was not the board's fault and was due to CBPL. He stated that a board was being charged with being deficient in its time response for an issue that resided with the department. Ms. Curtis addressed her testimony from the previous day regarding the midwifery board. She had stated that the board's term of extension was two years, significantly below eight years due to an issue identified during the audit and the board's reluctance to recommend statutory changes in the public's interest. She elaborated that the board did not want to increase fees, which was not appropriate. She could not speak to the issue identified in the audit on the record. She relayed that her separate recommendation relating to the timeliness of investigations did not factor into her recommended extension. She regarded the nature of a health board's investigations and impact to public safety as more important and more likely to influence a recommended term of extension as opposed to boards like public accountancy and barbers and hairdressers that did not have as tight a connection to public health. 3:01:54 PM Representative Wool understood that health and public safety prevailed over accountancy. However, the issue of timeliness had been addressed by the audit as something the board needed to respond to. He highlighted the issue of a CBPL staff shortage impacting timeliness. He felt that some of the boards were being unfairly called out for something beyond their control. Ms. Curtis replied that the issue had been raised to her multiple times from board chairs and House Finance Committee members. She recognized that CBPL was not the board itself; however, it was board support. She explained that the audit was a legislative oversight mechanism, and she always brought the issue to legislators' attention when the support was not as good as it should be and whether she believed it impacted the timeline of coming back in to do more legislative oversight. She stated there were numerous things that could impact delays apart from insufficient staff. Whether a board had good procedures and supervision also impacted delays. Ms. Curtis reported that the audit did not address the specifics of why something was not working. She had done a deeper dive in 2005 when she had looked at the investigative function and had found other contributing aspects related to how it was organized. She clarified that the current audit was not a specific evaluation of the investigative section. The audit highlighted problems. She believed that the delay in 40 percent of the board's investigations indicated that things could be done faster. She stated one would expect that if the cases were not a priority or the evidence could not be obtained, the cases should be cleaned up and closed out. She stated there were many different things that could contribute to the situation. 3:04:33 PM Representative Carpenter stated there had been discussion on money and potential staff shortages and whether it would help to solve problems. He referenced the unjustified inactivity on 40 percent of the board investigations. He noted that the audit specifically identified staff turnover, competing priorities, and an absence of documentation showing supervisory reviews were occurring. He noted that Ms. Curtis had just mentioned good procedures. He thought Ms. Curtis was making the case that better management would help to address the issue of inactivity. He asked if the statement was fair. Ms. Curtis responded that she had not done a deep enough dive to say specifically what the department should do. The auditors typically asked the department why something was happening, and the department provided the cause such as competing priorities and turnover. She thought Ms. Chambers would like to speak to the issue. Ms. Chambers responded that management of the investigative process was important to CBPL, and the division had operating procedures followed by its team. The division agreed with the audit that it could improve, and it had taken steps to hire an additional supervisor. Additionally, the division had adjusted some of its policies and procedures to ensure it was clarifying priority cases. She reported there was a focus on life, health, and safety cases. Ms. Chambers explained that the auditor had identified the concern that the division's team was not meeting its own procedures in terms of documenting case activity. The division was continuing to add resources and doubling back to ensure its investigators and three-member investigative team were ensuring the documentation happened. She noted that on the next audit of any of the division's programs (stretched across 21 licensing boards) the auditors would be able to see the reasons why a case may have taken too long according to the division's standards. She provided examples such as a respondent not being forthcoming with information, inability to reach witnesses, staff turnover, and/or competing health and safety priorities. She explained that it would enable the auditor to see the reason and a finding like the one included in the current audit would not occur. The division was continuing to improve its management and always appreciated the auditors' feedback. 3:07:39 PM Representative Carpenter remarked that the question was not intended to poke anyone in the eye. He stated his intention to highlight that if the division was not following its own procedures, it could be remedied fairly easily. He believed it was not about needing more resources, but merely a will for the division to follow its procedures in some cases. He thought the issue was primarily management related and not funding related. Representative Josephson looked at page 6 of the audit and the 101 board related cases spanning 3.5 years. He wondered to what degree the cases were essentially complaints about an accountant's negligence. For example, if a person was audited or they did not like their return. He compared the first examples to an accountant missing a deadline or having a substance abuse problem, which was something the board may want to know about. He wondered if there was a clearing system where complainants were told their complaint was outside the division's jurisdiction. Ms. Curtis responded that there was a process in place if something was not in the division's jurisdiction. She noted the 101 number pertained to complaints or cases. She explained that the division had a process to close them out and not pursue them. There was a complaint phase and an investigative phase, and one had to meet a threshold before it was investigated. Co-Chair Merrick moved to invited testimony. 3:10:07 PM LESLIE SCHMITZ, CHAIR, ALASKA BOARD OF PUBLIC ACCOUNTANCY, ANCHORAGE (via teleconference), thanked the audit process for the recommendation of the maximum extension of eight years. She relayed that the board made every effort to stay interactive with stakeholders and licensees and it tried to reach out to the people it was regulating or the people who were looking to the board to protect public safety. The board also made every attempt to stay active at the national level to address issues affecting the profession. She elaborated that the board maintained ongoing projects to update and modernize its statutes and regulations in order to remain current with the direction of the profession. She thanked the committee for hearing the bill. 3:11:35 PM DON RULIEN, PAST MEMBER, STATE BOARD OF PUBLIC ACCOUNTANCY and CURRENT MEMBER, ALASKA SOCIETY OF CPAs, ANCHORAGE (via teleconference), spoke in support of HB 126. He provided detail about his work in the field and term on the board. He stated that the State Board of Public Accountancy played an integral part in providing protection to the public that ensured all CPAs meet all statutory requirements and regulations. He appreciated the committee hearing the bill and supported the recommended eight-year extension. 3:12:55 PM Co-Chair Merrick OPENED public testimony. 3:13:11 PM CRISTA BURSON, PRESIDENT AND CEO, ALASKA SOCIETY OF CPAs (AKCPA), ANCHORAGE (via teleconference), supported HB 126 in extending the termination date of the Board of Public Accountancy. She reviewed the duties of the board. She highlighted that the board was inclusive of all interested parties including the AKCPA. She detailed that the AKCPA and the Board of Public Accountancy had a very positive and collaborative relationship. She thanked the committee for its consideration. 3:14:17 PM Co-Chair Merrick CLOSED public testimony. She asked the department to review the fiscal note. Ms. Chambers reviewed the fiscal note. The note reflected that the board would sunset if the bill did not pass and there would no longer be the $25,600 necessary to support the activities of the board. The note reflected the $25,600 in the outyears to support the board's activities. She remarked that sometimes fiscal notes for extension bills were not intuitive. She explained that the licensing program would continue if the board were to sunset. She clarified that the note did not show the cost of the licensing program; it showed the cost for board member travel, the advertising of board meetings, and additional meals and incidentals board members received while traveling. Co-Chair Merrick indicated amendments for the bill were due to her office by the end of Saturday, April 17, 2021. HB 126 was HEARD and HELD in committee for further consideration. Co-Chair Merrick reviewed the schedule for the following meeting.