Legislative Budget and Audit February 11, 1998 4:00 p.m. Senate Finance Committee Room State Capitol Juneau, Alaska Tape: LBA-981102 Tape 1 Side 1 CALL TO ORDER Chairman Phillips convened the meeting of the Legislative Budget and Audit Committee on February 11, 1998, at approximately 4:06 p.m. in the Senate Finance Committee Room of the State Capitol, Juneau, Alaska. In your packet, you should have gotten a Status Report of Outstanding Audits prepared by Pat Davidson. We also got a letter from AIDEA which is required by law; it goes to the Chairman but I feel as Chairman of the Committee that you should be made aware of it. It is a procedural thing. PRESENT The following members were present: Senators Representatives Chairman Phillips Representative Martin Senator Adams Representative Bunde Senator Pearce Representative Croft Senator Torgerson (alternate) Representative Therriault Representative Hanley (alternate) ALSO PRESENT Pat Davidson, Acting Chief Legislative Auditor, Dane Larson, Legislative Auditor, Anchorage Manager; Mike Greany, Legislative Fiscal Analyst PROPOSED COMMITTEE LEGISLATION Chairman Phillips - Mike Greany has two concepts he'd like us to look out and hopefully introduce as legislation requested by this Committee. Mike Greany - There is actually two items before you today. One deals with the 45-day rule; the other is legislation I've requested. The Legislative Access to Executive Branch Information and Resources memo includes draft legislation that I've laid out. I've given you the background, the problem and my proposed solution. Generally in carrying out the functions of the the budget analyst office for this Committee and the Senate and House Finance Committees, we rely on information that is in the possession of various state agencies that have been used in the course of administering their programs. Actually this is something we've taken for granted over the years. In other words, I've been doing this about 15 years and only in the last few years has this even become an issue where when we're trying to get basic information such as student count or how much money it costs to operate each one of the ferry vessels it is not very forthcoming any more. I characterize it as a cone of silence or filter and I don't think the Legislature wants to be in the position of having to duplicate all those resources that exist in the Executive Branch. We should be able to plug in and get the information and get it in a raw fashion and not have to wait until it's been reviewed by the policy types or whatever type of packaging they want to put around it before it is furnished to us. We want to get the information in a timely fashion. The legislation I've proposed was developed in concert with the Tam Cook. What it would be is an addition to Title 37 of the Executive Budget Act spelling out that this information should be available and forthcoming when requested. Senator Adams - Just by looking at this legislation it basically looks too broad. I don't know what the public or press can get from different agencies. Many of my concerns have to do with confidential information that maybe Oil & Gas or Natural Resources might have. Are we getting too broad? Senator Torgerson - I would have those same concerns. This is not meant to be so broad that we couldn't protect confidential information. In other words if we were asking for confidential information I think we would also need some Statutes in place. What I have in mind here is to the standard information which should be available to anybody. We need Tam Cook to clarify this confidentiality issue. Senator Adams - What information are we not getting today without this legislation? Mike Greany - For example, you or I should be able to get the fall student counts that go into the formula. They are due on October 15. Generally in years past that information has been available within a month of that time and given to us. We can use it when we do our preliminary spending analyst getting an estimate of the cost of full funding the formula. We look at what the percentage increase in enrollment and run it against last year's appropriation. It comes out close but its something we use. This year we didn't actually get those counts until we got the Governor's budget around December 15. I think we should have been able to get it a month earlier. We've recently run into a problem where we are trying to find out how much it costs to operate each vessel of the ferry system. That information the Department said they have, they were short staffed about getting it updated for the most recent year but it was there. It was to be provided us. It didn't come. We were able to dig it out on our own from other sources. Quite frankly it's turned into a hassle just getting basic information. (Representative Hanley and Senator Pearce are present) Representative Croft - In the case of the ten days, it seems there is some information they should give almost immediately and in some cases the ten days isn't enough time. You were talking about the October 15 information and that a month was about appropriate but you were disappointed to get it by December 15. I know a little flexibility in that timeline and some indication that they have it or have it compiled is necessary. Mike Greany - The ten day was actually suggested by Tam Cook and what she was addressing here was you might be in a situation where the agency agrees to give you the information and that's it and there's no performance as to when you will get it. Tam Cook thought some time certain should be on there. Personally I would be comfortable within a reasonable time or some words like that. My real intent is to put out on the table the problem and this is one of the solutions. There are other solutions. Representative Martin - I think it is a step in the right direction in helping the Legislature get information we need to make informed decisions on the budget. I differ with Senator Adams in that it may not be broad enough. As Chairs of Finance, Senator Pearce and Representative Hanley can tell us the problems they've had in getting information. If we let this proposed legislation go through then they can really express themselves on the committee level and they could have the agencies come forward and say we are frustrated with this and that. Why can't we get the information? I'd like to see a broader piece of legislation. I think it is too narrow. Representative Bunde - There was some expressed concern about confidentiality. As auditors you are dealing with confidential information all the time are you not and do you have a level of security in your Division that confidential information would not leak out? Mike Greany - I'm not the budget guy. The auditors have access to confidential information that I don't and I'm not asking for that. They can get at tax records; I have no interest in getting at tax records. My interest would be more like requests such as Department of Revenue saying if these certain changes were made to the corporate tax structure how many firms would it impact? What would be the dollar impact? I don't need to go in and look at the actual files. Representative Bunde - If there was verbiage relating to budgetary information would that focus on information you wanted but reduce the anxiety about the other branch of auditors and the kind of confidential information they may have? Mike Greany - I would consider it an improvement in here if there was a specific portion that said either this does not include confidential information or if it does there will be policies or procedures or rules put in place to ensure that they remain confidential. Representative Bunde - I would consider the latter rather than the former. On the broader scope you call it a cone of silence I call it a conspiracy of silence but I think that you are not the only person. The Legislature in general is being limited in access to people and information and I share your quest for reasonable access to timely information. Senator Torgerson - Does this cover the University? Mike Greany - Yes, it would. The definitions and the language here are in the context of Title 37 of the Executive Budget Act and under the meaning of agencies it would fit the University. It also as you notice in the title refers to the Judicial system and the Executive Branch. I want to emphasize as I did in my memorandum we don't have a problem with the Judicial Branch. Any request for information from them we've gotten in a timely manner. It is the Executive Branch we are having the problem with. Representative Hanley - I don't know how to draft it; I agree with Mr. Greany that we need cooperation to get this stuff out. When you say information regarding the operation of an office or agency that is not that I'm not trying to get the broad stuff but also I don't think we need to be asking or have the authority to ask something's about a welfare case. Chairman Phillips - I think the Senate and House Finance Committees will bring up those points at the time it's heard in the respective committees. I just wanted to get a sense of the Committee whether they wanted to go in this general direction before we proceed. Unless you want to do some drafting right here? Senator Torgerson MOVED to introduce the bill as defined by the Legislative Analyst in both the House of Representatives and Senate. Chairman Phillips - Hearing no objection, the motion was APPROVED. Chairman Phillips - On the 45-day rule on RPL's you basically have five different options which I'm assuming the members have seen and that you are recommending option no. 2 as our course of action? Mike Greany - This memo was initially handed out at the December Committee meeting and we didn't have time to address it. It was also handed out again prior to this meeting and I hope people have had time to look at it. The final options were developed in concert with Tam Cook and George Utermohle in Legal Services laying out the various possibilities. What I've done is recommended to you one of the them, option no. 2. I could describe why in more detail. Chairman Phillips - Are there any questions on the other options? Senator Torgerson - On option no. 3 can we selectively put in the front part of the budgets which ones we want to approve (tape inaudible) Mike Greany - We are selective to some degree by specifying which fund sources. This past interim you've been dealing with Federal funds, the two nongeneral mental health fund types, the new statutory designated receipts and the EVOS funds. That front section is limited to those specific fund sources now. If I understand your question could we take it a little further and specify a particular program and amounts? My feeling is perhaps but I think based on discussions I've had with Tam Cook we might be getting into some of the separation issues and some of the contingent language issues that we are now in Court over. What Tam Cook was trying to help us do was come up with a statutory change to the status quo that could be most legally defensible and the option no. 2 in her mind was most legally defensible. It is just a variation on the existing theme that the Executive has agreed to and worked under. The major change is instead of being a turned down or denied, the RPL goes into effect 45 days after the Committee turned it down if the Governor makes the findings to approve it that waiting period would be extended such that it would go into the next regular session so the Legislature would have the opportunity to back up that Committee denial of the RPL. It would be similar to Executive Orders. In effect, there is a clock running up through the 60th day of the regular session that you have up to that day to disapprove an Executive Order, you have the 60 days to back up the Committee's denial of the RPL while the Governor could not go ahead with the expenditure of those until that 60 day clock during session has run. That's the thinking there. You need that front section that Senator Torgerson referred to initially to make the appropriation of the additional receipts. They are basically legally out the door with that front section appropriation. What has happened is this Committee has been put in the middle with the review process saying that before the money is actually spent it should come before the Committee and hopefully the Committee will approve it. If the Committee doesn't approve it, then the Governor has a mechanism to go ahead with it. In option no. 3, you would have no front section appropriation making additional receipts. The agencies would be in the position of no RPL process; that they would have to live exactly within the budgets appropriated to them in the regular session and that any adjustments would have to come through a supplemental appropriation bill that subsequent session. But as you and I think that through, we can think about some noncontroversial Federal funds or other fund sources you may want to deal with. On the other hand, if you feel that the Governor has used this 45-day rule to the point it is causing you heartburn then the ultimate approach is to not have that front section. Since this process was put into place, there has been five instances where the Governor has used the 45-day rule and if you're interested they are: The first two occurred during Governor Hickey's Administration, one dealing with the Red Sea Urchin Fishery and the other with the Stick Airport; the third one dealt with the overexpenditures during the current Administration; the fourth one was in the Fall with the Pilt issue and the most recent was the EVOS attempt dealing with the Homer Spit land acquisition. Representative Martin - I'm glad Mr. Greany did go over the history. It shows after t40 years, three Governors have used it and this could be accelerated. If the Legislature now does not address it, future Legislatures may find themselves with an increased budget they didn't dream. If they continue with the open authority of so called program receipts, they are never going to let us know what the number is in the first place. I can see a Governor waiting until the day after session to come to the Committee and say these are new expenditures, new RPL's and if we don't answer them in 45-days then our agency will automatically spend it and we've lost our control of the budget. I'd take option no. 2. I'd like to get rid of all RPL's but since option no. 2 is more reasonable, I'd accept it. I hope the Committee realizes we have to close that door on the 45-day rule. Representative Bunde - If option no. 2 were adopted, do you see time and limitations on the Administration to react to your Division? Mike Greany - I could foresee some circumstances where their ability to react would be limited. I have a problem with the undo; I don't really know. In my experience over the years what kind of RPL rose to that kind of level that it absolutely needed to action, I think those even come down to judgment calls. I can remember some flood situations where we needed authority to spend additional Federal money, i.e., highway washouts. On the other hand for true emergencies, there are in Statutes provisions for the Governor to tap any other available appropriation with the proper findings. There are alternatives. A real emergency would be so massive you probably would have to deal with it in a Special Session. Representative Croft - If we adopt some of these proposals we wouldn't have the Homer Spit land and the Pilt money which we rejected and the Governor wouldn't be able to then done it in the manner he did. Mike Greany - If for example you used option no. 2 and you put the effected period sometime into the next session, there would be 60 days for the Legislature to back up the Committee's turndown of the process. There are a lot of things that could happen during that 60 day period. First of all, instead of releasing the money last November/December, the Governor would not have been able to do that. The earliest he would have released it would have been the 60th day of the current session which would have been February 25. Unless before hand you pass some other legislation or took some other action to make it happen, the Committee could have met again, rescinded its action and approved it. That would have been one possibility but under the instance in hand the example you site, the Governor would not have been able to in effect release the money in the Fall. It would still be locked up until the Legislature had acted to turn it loose. Chairman Phillips - It's all based on the right of the Legislature to appropriate. Senator Adams - On option no. 2, the second paragraph sometimes the Legislature is kind of slow in proceeding with these so I'd like to see changing the words. The Governor could proceed with the expense of the funds when the full Legislature failed to take action to implement the Committee's denial of approval within ten days of start of Session. It gives the Legislature a chance to look at those and if they fail to act on it . . . then the Governor has that option to go ahead and expend. Mike Greany - What ever number of days the Committee is comfortable with - I just threw out the 60th - it is something you're use to see as far as the Executive Orders. There are the deadlines. Representative Martin - I'm wondering if we could give Mr. Greany the opportunity to now ask Legal Service to draw proposed legislation and then introduce it. The give and take will be discussed at the Finance Committees which have a lot more experience. My major concern is the Constitutional authority that Representative Croft brought up. Expenditures only by Legislature will not be circumvented by this rule. We need to close that rule. Representative Hanley - We can do what Mr. Greany suggests although Senator Pearce and I have to take the blame because we grant broad appropriation. We appropriate everything we know we are getting and everything we don't know we're getting and at that point the Governor gets the projects. It sounds like we have a Constitutional problem. I would prefer to eliminate the 45-day because - if there are specific projects submitted by the Governor that are turned down then apparently you get into legal questions. If Budget and Audit turns it down then it doesn't go or we can get rid of the front section. That does have the impact of possibly effecting things that we'd all agree could go ahead and it would slow things down. We have that option at any time. Senator Torgerson - My option is to tighten up the front section to what you actually know or don't have a problem with. I don't have a suggestion as to what that would be right now. I think you could throw out a few of these past problems we have and maybe keep designated program receipts in there. They don't seem as controversial as EVOS or some Federal program money. Mike Greany - I can think back and every time we've thought we've had that nailed down we've found another way to carry it one step further. A couple of observations. As Representative Hanley said option no. 3 to eliminate the front section is always available to the Finance Committees or Conference Committee. Another reason I was suggested option no. 2 rather than 3 was it is valuable to the Legislature's overall oversight responsibility that we have this RPL process. It does give an occasion for the Executive Branch to come in and let you know what is going on before they proceed. In many instances, it is an oversight tool available to you. One other possible effect by eliminating the front section and going with option no. 3 would be a tendency to build excess Federal authority into the regular budget. So without putting a value on it in some cases it may be a good thing and it may not be. They maybe asking for more authority than they need if they don't know the RPL process is going to be available to them. I think it will just mean that the Committee and staff will have to put great scrutiny in analyzing the other and Federal funds than we have in the past. We have tried to focus on Federal and other and not just the general more specifically in the last couple of years and I think we would have to do that more strenuously if we didn't have the front section appropriating the additional receipts. Representative Bunde MOVED to go forward with Option No. 2 to extend the 45-day period with legislation drafted to implement Option No. 2. Senator Adams objected. Representative Croft - It's only happened five times in our history and the last two examples are ones I remember and I think we were wrong and the Governor was right. Those were close votes. It was a rare thing and we're taken very drastic measures on something that is not usually a problem. We don't need to shoot ourselves in the foot over something that has only happened once or twice. Chairman Phillips hearing the objection called for the roll call vote. Yea Representative Martin, Representative Therriault, Senator Pearce, Representative Hanley, Representative Bunde, Senator Phillips Nay Senator Adams, Representative Croft Chairman Phillips - The motion was APPROVED by a 6-2 vote. SPECIAL AUDIT REQUESTS Chairman Phillips - The next thing we have on our calendar is a request for an audit. Senator Adams MOVED that the audit requested by Speaker Phillips of the Alaska Science and Technology Foundation grants approval procedures be approved. Chairman Phillips - Hearing no objection, the motion was APPROVED. OTHER BUSINESS Chairman Phillips - I want to make the Committee aware of the two reports, one by Pat Davidson, the other by Dane Larson. I wanted to provide the Committee with an opportunity to ask questions of Ms. Davidson or Mr. Larson. Senator Pearce - Because all of us received these late this afternoon, I want an opportunity to read them before I ask questions I'd like to ask that we have another meeting soon after we've had an opportunity to look at them. Senator Adams - I concur. Representative Therriault - I agree. I'm wondering if we want to give them an opportunity to give us a brief overview. Chairman Phillips - That's what I wanted to do so they could tell us how they arrived at their conclusions. Pat Davidson - At the last Budget and Audit Committee, we were asked to give the Committee more information about the work that we do and come up with a cost if any associated with relocation of the Legislative Audit position to Anchorage. Both Dane and I took an independent approach to this, independent of one another. First I provided the Committee with a little history of what Legislative Audit is, basically it was established by the Fiscal Procedures Act which basically predates the Constitution. It established for an auditing function to be in the Legislature and recognized it was an important element in legislative control. Those same elements were echoed in the Alaska Constitution where it again was set up as part of the legislative function. Statutes followed that more thoroughly describe what they wanted us to do. One of the things I did was to take a look at the workload of Legislative Audit. I basically came up with three categories. First one being sunset. Second being Committee requests and third the Federal compliance portion of our workload. We are looking at the numbers here in a span of about five years. What I did was look at them, discussed them with the managers who ran those jobs. If you take away the geographic constraints, where the staff is, and just look at whose agency you needed to spend more time at and where would the job have been more efficiently run, that is where I came up with these numbers. The limitation on that is that with a staff of 30 professionals you are going to develop individual expertise. A lot of these agencies are complex. I would say outside the Alaska Railroad Corporation no body knows their operation better than two or three of our staff in Anchorage. They know it very well. That is going to be an element that really didn't come into play here. We were just looking at geographics. My analyst basically showed that if you set financial compliance audits aside, combined sunset and LB&A requests, the workload is about 5% heavier in Anchorage than it is in Juneau. The financial compliance portion of the audit dominants the workload in the Juneau office. We've tried to lessen the impact of sunset audits on our office by extending lapse dates. We tried legislation to get a few of the boards and commissions out of the sunset law. Generally both have failed. It sends a message back to us from the legislators that they are continually interested in that approach, therefore, we continue to do those audits. Budget and Audit requested at the last meeting I gave a five year history on the number of those requests. They come and go. Sometimes we'll get a lot of requests, other times less. When we go into the financial compliance portion most of our financial compliance audit hours relate to the statewide single audit. Basically what it does is keep our nose and being your eyes and ears into the Executive Branch financial operation. We are in there every year looking. We're looking for over-expended appropriations. We are looking for compliance with appropriations. We're looking at properties of money. We're out there doing more than just putting an opinion on the financial statement. One of the things we have to recognize is we are in a situation right now where we are not being able to be timely with meeting the Committee's requests. They are building up and we are getting slow. We have to do something about that. My proposition is if we look at the financial compliance audit what we really do is have two audits going on. One primarily benefits the Legislature and it looks at state compliance and compliance with financial related laws and regulations. There is also a Federal compliance element to it. The primary beneficiary of the Federal audit is the Governor and basically the Executive Branch agencies. Everytime they sign a grant agreement, they agree they are going to have their audit done. I think it may be time for them to step up and use their resources to do that. There are a couple of ways to do that. We could act as the contract agent for them. We could let a contract for them and monitor it using our expertise in the area. Or we could just turn it over to them. That's my analysis on the workload. I think one of the options or the discussions about contracting out our audit process is you have to recognize the loss of knowledge that is available to the Legislature when it is run by a contractor. We can no longer answer questions that typically come up. I answer a lot of questions coming from Legislative Finance and various aides. We are in there auditing and know what's going on. So the loss if you contracted out is your staff won't be able to answer those questions for you. (End, Tape: LB&A-981102 Tape 1 Side 2) . . . to the Anchorage office. In the past it's averaged about $5,000 but the maximum would be about $10,000. If we move more than four positions we would probably have to get additional lease space in Anchorage. Right now we are in the State Office Building and to our budget there is no cost. My conclusion on the situation is the Legislator Auditor position still belongs in Juneau. I think that if you put aside the issue of whether you can contract all or a part of statewide, I don't think that there is that significant difference between what the staff in Juneau should be versus in Anchorage. I think that the Legislative Auditor should be at the call of the Legislature. I think he or she should be here and talking to you. I think that the Legislative Auditor is a position that should be active in promoting the implementation of our audit recommendations and that means being in the face of the people who are making the decisions on the Executive Branch side and primarily those people are in Juneau. Dane Larson - Pat outlined some of our process. We tried (cough, tape inaudible) the same as far as looking at the special audit requests. What could most efficiently be done. We came up with different results but primarily the key finding that I came up with is that I believe that there is opportunity here for you to allow us to change business. I recommend that we contract out the statewide audit. I recommend that we contract out the financial audit and Federal compliance audit. That would allow us to focus on special audits, allow us to get those done in a timely manner. With that contracted out, we could rebalance the staff, reducing long distance auditing. What we are currently doing is using Juneau staff to conduct Anchorage audits, travel wise, telephone wise; we're talking with people about what is going on in Juneau. There is a lot of inefficiencies. I believe there is an opportunity to pick up the budget also here. That is significant. I believe the Legislature gets more from special audits, focusing on the trouble areas. Statewide audits paint everything with a broad brush whether there are problems or not. That is the problem I have with that approach. I think there is very little legislative interest in our statewide interests. We get few requests for copies. Traditional financial audits simply don't meet legislative needs. From the auditors perspective, special audits are different than statewide in that they focus on trouble areas; they are narrow in scope. Many times they are performance related. Because of that difference, they don't limit themselves to private sector contract. Legislative Audit should not perform work that can be more efficiently done in the private sector. Statewide work is routine, repetitive work that traditional CPA firms do. They can do it, meet the state's recording needs for significantly less money. We contacted four national CPA firms for rough estimates. The difference between what they told us and what we are spending to do it is somewhat around half to three quarter million dollars per year. That savings would reduce the budget and also improve our performance audit capabilities. We can shift resources that we use from statewide to performance auditing. I think we should get the bid out this Spring; I think if it's delayed more than a couple of months I think those bidders wouldn't have an opportunity to do pre-year end audit work which is real efficient for them and as a result the bids would be higher. I looked at three indicators as to location where special audits should have been done most efficiently, location of state workers and location of legislators and staff for most of the year. Overall it is 70% Anchorage. Specifically I came up with 68% special audits from the past six years should have been done in Anchorage. Most of them were done out of Juneau since that's were the staff is but we're saying Anchorage is where it should have been done. Seventy three percent of the state's Anchorage/Juneau workforce is in Anchorage. Workforce location is fundamental to the auditing. We survey top management policies and controls, but we spend much of our time with lower management or rank and file workers. This is particularly critical in performance. Listening to management's party line in Juneau is a starting point, but it doesn't constitute an audit. Eighty five percent of the Anchorage/Juneau legislators are in Anchorage most of the year. I also compared the Anchorage/Juneau workforce as far as a trend. I looked at 1990 and 1997. Anchorage went up 31%; Juneau went down 4%, the shift is definitely in that direction and probably will continue. An auditor has to audit where the services are being provided so that trend may well continue. Pat mentioned the cost differential. This reorganization will save money on lease cost, annual travel. It would be a very slow degree by moving cost. We don't have an out of budget payment for lease cost, but I think we pay for the space we occupy, paid for from different funds but we as a state pay for the State Office Building. Our space in Anchorage is 86 cents a foot and that is significantly less than what it would be here. Travel cost every year averages $28,000 to send Juneau staff to Anchorage for Anchorage jobs. The bottom line on cost savings is $500,000-750,000 a year which is pretty much overwhelming and these other costs are relatively minor. As to where the Legislative Auditor should be based, I think it should be based where the workload is and I believe that is Anchorage. I believe the audit requires a direct hands on management and I don't feel it can be effectively managed from Juneau. The auditor would even with a differential spend more time in Anchorage than in Juneau, would need to be in Juneau for session anyway and a great many of the audit issues could be addressed at that point. So travel to Juneau by the Legislative Auditor would be relatively minor. Given the workload which is substantially in Anchorage if you had a Juneau Legislative Auditor they would have to travel to Anchorage certainly more than an Anchorage auditor would travel to Juneau. That is the bottom line. Travel costs would be reduced. The auditor needs to maintain a close year around relationship with the Committee and the Legislature as a whole and I think this plan provides for that. It is more efficient and effective. The budget reduction is we will be more efficient in this approach through less long distance auditing. There will be huge cost savings from contracting out the statewide and again I would propose splitting that between beefing up our special audit capabilities and budget reduction. How much of a budget cut depends on the bids we get and what sort of resources you would like. This is what we look for in agencies. This is one of those opportunities where we can improve services and cut the budget. Representative Therriault - With regard to your comment that the audit function can't be managed long distance, you can manage though long distance. Do you think your work function has not been effective? Dane Larson - What I'm talking about is the scope of the work. I don't believe it would be appropriate to have 30 in one office and 5 in another and try to manage 30 from a distance. I believe it is easier to do a smaller shop and that is what I'm proposing here. Representative Therriault - With regard to contracting out, what credibility do you give to the argument that although some of that is rote number crunch, it provides a basis of understanding in and outside the working so that when you do have a performance audit you have a base to build on? What do you think about the loss of that by contracting out? Dane Larson - I would agree that there is a loss but for the kind of money we are talking about, we can afford to do some special audits, afford to spend time monitoring certain features. We could have several people full time doing just that and coming anywhere near these sort of savings. One person full-time $50- 60,000 could easily cover a lot of that. I would also propose occasional cycle basis departmental audits of financial and operation in content. That would provide a great deal of expertise. Representative Therriault - In the audit work being done on behalf of the Administration that could be split off, if it was split off and they do it or they contract with us to do it, what kind of monetary money is attached to that? Pat Davidson - I don't know that I can answer that well right now in terms of what my approach would be somewhat similar to Mr. Larson's and say if we got another funding source for that part the first thing we would do is how would we get more timely with our Committee requests. If there is any left over then it would be a budget reduction. One of the things I'm sensitive to is cost savings versus cost shifting. Federal compliance audit costs are eligible for Federal reimbursement, however, except for programs in Health and Social Services, most Federal programs are capped and that is a spending limit on it. If you introduce some of those funds for audit costs, you are going to have reduction in the program costs. Right now DHSS for its uncapped programs does bill out through what is called statewide cost allocation plan. All the costs associated with what we do (tape inaudible) and those funds right now are general funds. So when you look at that that has to be an element of the discussion. It isn't like there is new free money out there to pay for it. In a lot of cases when I look at the three departments where we spend most of our efforts on a Federal level Health and Social Services, Education and Transportation, only DHSS is the agency that I don't believe is going to take a hit to their programs because they maybe already funnel off some costs to pay for their administrative services. That will be more of a cost shift than a cost savings. Representative Therriault - So the function and proposed savings that you spoke about, Mr. Larson, is that everything we are talking about here or a portion? Dane Larson - It is roughly 30%. Representative Martin - I think this is a worthwhile thing to do. For the ten years I've been on the Committee, we never had an understanding of what you all were doing or why. This has been of great value. I think we need more time before we make a decision. Chairman Phillips - What we've done is have the auditors audit themselves. Senator Adams - I'm going to need more information. One is I know there was a turnover rate in the Division and one has stated less turnover rate. I'd like the turnover rate for the last couple of years in the Division. The other thing is I need to weigh out the contracting out. What happens is the agencies lose its familiarity or knowledge of an agency when the Legislature wants a day to day accountability of different agencies. I hope people will look at. The other thing is contracting versus a resource person and I think that is going to be a problem. If you think it's cheaper contracting out but you change your RFP's so you have to train another agency, I don't know in the long run you save. I think in the long run you're better with a resource person within the agency. Chairman Phillips - I need some time to; I hope to get a meeting scheduled for next Tuesday or Wednesday. We'll try for next Wednesday. That will give us a week to look at this, to clarify in our minds which way we want to go. ADJOURNMENT Chairman Phillips adjourned the meeting at 5:15 p.m. (End, Tape: LB&A-981102 Tape 1 Side 2 #658) LB&A 4 02/11/98