Legislative Joint Auditing-State Agencies
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I've got a motion. Without objection, those are adopted. Mr. Bullington, we'll move on to item C, review of reports. Okay. Thank you,
Speaker 2
0:09
Mr. Chair. Today we're presenting two reports with findings and one special report. We also have seven reports without findings, and these are listed on page
one of the audit summary. Without objection, we'll file those reports without findings.
Mr. Bullington, if you would tell us the ones with findings. Okay.
Speaker 2
0:30
The first report with findings is the Department of Education, June 30, 2023 report, and this report contains three findings. The first finding, Arkansas Code requires the Attorney General to provide legal services for all state officials, departments, institutions, and agencies. If the Attorney General is unable to provide the legal services needed, the Governor may authorize employment of special counsel. The Northwest Technical Institute, which is now part of the Department of Education, paid $4,900 for the services of an attorney in fiscal year 2023
without obtaining authorization from the governor. The second finding, the Arkansas Division of Higher Education oversees two state-funded student loan programs. Students who receive the loans may be eligible to have the loans forgiven if they meet certain criteria. Students not meeting the criteria are placed in repayment status. Our review of 44 individual student loan files revealed the following. Three instances totaling almost $49,000 of dental loan receivables that were forgiven without appropriate or sufficient evidence.
Five instances totaling almost $98,000 of an outstanding student loan balance that was appropriately granted loan forgiveness in state fiscal year 2023, but the subsidiary ledger loan balance was not updated as of that date. Two instances totaling over $39,000 in which loan forgiveness was appropriately granted in fiscal year 24, but the subsidiary ledger was prematurely updated in 23. One instance in which a loan account was listed on the subsidiary ledger for about $24,000, but no supporting documentation, such as a promissory note, was available. And two instances
identified in a prior year audit in which a loan account's subsidiary ledger had not been corrected as of June 30, 2023. We had similar issues noted in the prior year. The third finding, a review of Division of Higher Education scholarship disbursements revealed exceptions in four scholarship programs. The Teacher Opportunity Program, or TOP, provides reimbursements to employed teachers up to $3,000 to cover the cost of their student fees, books, and instructional supplies. Additionally, as documented on the ADHE website,
payments made with scholarships, grants, or aid given through a third party are not considered for reimbursement. Costs such as late fees are also not reimbursable. We reviewed 41 top expenditures to determine if adequate documentation was maintained and payments were correctly calculated based on supporting documentation. The review revealed 23 incorrectly calculated disbursements, resulting in a loss to the state of almost $8,200. The state teacher education program, or STEP, is used to provide a federal student loan repayment
for licensed teachers who graduated from a teacher education program after April 2004 and teaches in either a public school located in a critical geographical shortage area of the state or in a critical subject area. The amount of the loan repayment is $3,000 and an additional $1,000 for a minority teacher. We reviewed 41 step expenditures to determine if adequate documentation was maintained and that payments were correctly calculated based on supporting documentation. This review revealed that there were two disbursements to recipients who were not teaching
in a critical geographical shortage area or a critical subject area. resulting in a loss of six thousand dollars Arkansas code also authorized the Arkansas higher education coordinator board to administer the Arkansas health education grant program which makes grants for the benefit of Arkansas residents to assist in paying tuition for attending certain accredited schools of dentistry veterinary medicine optometry osteopathic medicine podiatric medicine or chiropractic medicine located outside the state a contract selected with an institution for the 2022-2023 school year awarded six chiropractic contract
slots at 5,000 per student for the year. Our testing revealed that a total of eight students were awarded the scholarship during the 2022 fall trimester, which exceeded the slots per the terms of the contract. The last program, in a course with rules governing the Governor's Higher Education Transition Scholarship Program, ADHE may award a scholarship to students admitted into a transition program not to exceed $2,500 per semester, this to be applied to their tuition, mandatory fees, programmatic fees, room and board, supplies, or extended support.
We reviewed all nine of the transition scholarship disbursements to universities totaling $190,000 and noted two exceptions. Although a payment of $20,000 was properly dispersed to an institution, the signed warrant request form indicating approval from finance to process payment was not updated to display the correct amount of the request. and also a duplicate scholarship payment of $2,500 was disbursed to an institution. Mr. Chair, that concludes the finance floor of the Department of Ed. I think the department is here.
Representative Justin Gonzales
Unverified
5:17
If there are any questions, we have a question. If you would, come to the table and state your name for the record. Nick Fuller
Senator John Payton
Unverified
5:37
with the Division of Higher Education. All right. Senator Payton, you're recognized for a question. Thank you, Mr. Chair. On finding number three, it says they reviewed 41 top expenditures.
Does that mean 41 expenditures or 41 different accounts for 41 teachers? Because we have more than a 50% fail rate here when they
found 23 transactions that were bad.
Nick Fuller
Unverified
6:00
Yes, sir. I believe it is 41 students that had submitted the reimbursement of the 41. And I will say those amounts that were off, it was our employee that reviews those did not take into account the awards for the HERF student aid that were done during ARPA. So they did not reduce the amount, which was inappropriately done.
That should have been reduced from the amount we reimbursed the students. So it was a majority of those
Senator John Payton
Unverified
6:26
students that happened. So of the 41 that they reviewed, 23 had mistakes. How many total students or accounts do you have?
41 is just a sampling. I don't have an exact
Nick Fuller
Unverified
6:39
number on what we do from that. It's usually going to over 100, 150 to 200. I can get you an accurate number on that for what we do
Senator John Payton
Unverified
6:49
for a year. So basically they probably sampled 20%?
Yes, sir. Okay. Well, that would reveal that there's a lot larger problem than just that $8,200 that they found when you
have more than a 50% fail rate. So what have you done to
Nick Fuller
Unverified
7:11
correct that? We have had additional, very extensive training with the staff over the financial aid area in response to how they review those expenses. And this program has also been added into our automated student account or scholarship application portal. so any of those expenses get reviewed through the automated system first
before the employees review it to try and catch any of these where this was done manually prior to the implementation into the
Senator John Payton
Unverified
7:39
system. So to wrap it up, you're satisfied that the problem is corrected and it will be
Nick Fuller
Unverified
7:44
monitored and done correctly? We believe that it is, and we will be monitoring it prior to needing to have audit come find it, and
Senator John Payton
Unverified
7:52
if we find issues, additional steps will be taken. Okay. So, Mr. Chair, I can come back in the queue later or address another one? I don't have any other questions at the moment. So, on the part where you track the student loans.
Yes, sir. And I guess I can't spot it fast, but basically, first I'd like to know, do these loans have an interest charge or are they just principal? They are just principal. There's not an interest on those. so it's very important when when you're trying to collect from people who owe you money that you keep a reliable set of books or they can really challenge whether or not they've paid or what they owe so when you have a bookkeeping errors is what's exposed in this report
on a collections account i mean it's not just your errors but it's amplified by the fact that those people that may owe you money can challenge your
bookkeeping. So what have you done to make sure that that's going to be in line? We have implemented an
Nick Fuller
Unverified
8:58
improvement plan on how we review these documents, additional checklist steps on making sure that once you receive something, before we approve any disbursement of funds or any loans,
that we have the proper documentation, and you do not proceed to the next step in the process until we have the documentation on file.
Senator John Payton
Unverified
9:18
So internally, what kind of audit do you do on that, or how many steps does it go through internally to make
Nick Fuller
Unverified
9:26
sure we get it right? We now have the person that's responsible for the program that reviews it initially, and then there is a financial aid supervisor above that person that will oversee that comes to them, and then it comes to my finance office after that.
So there's three steps in the process. Okay. Thank you. Thank you, Mr. Chair. Any other questions?
Representative Jack Ladyman
Unverified
9:55
Representative Blademan, you're recognized. Thank you, Mr. Chairman. Hey, on finding number one, it says that the person that made this error is retired and steps were taken to correct it. What were those steps?
Nick Fuller
Unverified
10:09
With the school being located in Springdale and just being brought in under transformation,
we've now implemented where any request for council or anything has to come through the department in the shared services model to make sure that our legal staff are responsible before they reach out to outside council. You didn't have to do that before. They were supposed to do that before, and the institution did not work within the full department. And we did not know about that until after the fact. But steps have been implemented to make sure before they go out with any expense like that
that is communicated through the entire department in the shared services area.
Representative Jack Ladyman
Unverified
10:50
Well, I mean, that's a minor error, but as the senator said, there's a lot of errors here. There are quite a few. You need to put in a lot of corrective actions. Yes, sir.
Thank you. Are there any other questions? Seeing none, thank you for your time. without objection we'll follow this report and moving on to the next one
Speaker 2
11:14
with findings okay the next report that we have with findings is the commissioner
of state lands 23 report which contains one finding amounts that exceed the amount of delinquent taxes owed and any fees associated with the settled land are considered excess proceeds excess proceeds collected from land sales are held until the original landowner or their descendant submit the claim to the commissioner of state lands and that claim is approved if no claim is received for the excess proceeds within three years from the date of the sale the excess proceeds are returned to the counties which the delinquent taxes were originally owed for financial reporting purposes a liability
and expenditure should be recorded in aces for only the portion of the excess proceeds for which the ac has received and approved a claim as of the end of the year or for excess proceeds which were received more than three years prior to the end of the year however the ac recorded the full amount of excess proceeds collected but not yet paid on the financial statements as a result their fiduciary fund liabilities and expenses recorded in aces were overstated by almost 18 million dollars an adjusting journal interest was made to
Speaker 4
12:16
the agency's financial statements to reflect this so their finances are properly reflected that concludes the finding mr chair thank you
Representative Justin Gonzales
Unverified
12:23
no we have any questions on this report seeing none without objection we'll file that report and that takes us to the uh the final thing on
our agenda the special reports okay as you said we have this special
Speaker 2
12:39
report related to arkansas pbs to present to the committee today this report was deferred from the full l jack meeting in september and you should have a copy of that report in your packet and i'll now recognize david webb one of our supervisors to present that report
Speaker 35
12:54
You're recognized. Thank you, Mr. Chair. This presentation covers a special report issued in response to a request which
Speaker 36
13:08
followed the fiscal year 2022 audit report of the Arkansas Educational Television Commission, which also goes by the name of Arkansas PBS. We were to examine processes and procedures of the agency, and our review period for this special report generally was July 1st, 2021 through December 31st, 2023.
Audit findings from fiscal year 22 and 23, as well as responses for management, are included in this special report as appendices A and B. The first objective of our special report was to review internal controls and processes surrounding expenditures and procurements, and during our review period, Arkansas PBS did not have formal written internal controls over contracts or a clear definition of what constituted
a project for procurement purposes. Therefore, a project could be construed either as an entire season or as a single episode of a broadcast series. Arkansas PBS has implemented a procurement guide in February of this year, and in this guide, individual episodes and segments are considered components of an overall project for procurement purposes. The second objective was to assess expenditures and procurements for compliance with Arkansas
laws, rules, and guidelines. Our review indicated that Arkansas PBS did not always utilize standard contract documents, which would have been reviewed by an attorney and authorized by the Office of State Procurement. For example, Arkansas PBS often utilized internally generated scope statements in addition to or instead of purchase orders and contracts. Now, as pointed out during the fiscal year 2022 audit report, on multiple occasions, Arkansas PBS entered into agreements just below the $20,000 bid threshold
with two companies that were owned by the same person in apparent violation of Arkansas code. To further address the risk that certain procurement laws may have been circumvented, we identified 44 additional instances during the review period in which multiple vendors at the same address received payments from Arkansas PBS. We reviewed payments associated with 17 of these instances, which accounted for $476,000 and represented vendors that received more than $1,000.
No questionable payments were identified other than those that were noted in the 2022 audit finding. Payments were often made to vendors before goods and services were received. Examples include an upfront payment of $13,000 for a video project that's incomplete and currently on hold, and over $19,000 for a portion of a documentary that was incomplete as of December 31st of 2023,
although the vendor was paid in full. The third objective was to analyze staffing levels of Arkansas PBS. The agency has written processes in place for hiring new personnel as well as documenting discipline or termination of employees. Exhibit 4 on page 7 of the report illustrates the number of filled full-time and extra help positions as of December 31, 2016 through December 31, 2023.
While the number of appropriated full-time positions decreased by 6% since fiscal year 17, the number of filled full-time positions decreased by 20%. The number of appropriated extra help positions has remained constant. Exhibit 5 on page 7 summarizes reasons for employee terminations and departures since fiscal year 2017, according to the Arkansas PBS and as recorded in ACES.
since fiscal year 2017 for the 13 administration positions that are shown on exhibit six on page eight nine positions have been held by 25 individuals three positions and the employees in those positions have not changed and one position was not filled after an employee departure At December the 31st, 2023, four management positions were vacant.
The fourth objective was to review processes and controls surrounding compliance with FCC requirements. According to Arkansas PBS staff, since the associate director position became vacant at the end of 2023, no single employee had been responsible for overseeing compliance with FCC requirements. Now, no payments to the FCC were necessary, and the FCC did not impose any fines on Arkansas PBS between July of 2021 and December of 2023.
A complaint had been filed with the FCC by a former employee in December of 2023 regarding problems with closed captioning for Rise and Shine programming. Arkansas PBS acknowledged that it experienced a production issue with embedded captions, but maintained that as locally produced educational programming, Rise and Shine is exempt from closed captioning requirements. Furthermore, since at least 2014, Arkansas PBS has utilized an out-of-state law firm
that specializes in non-commercial radio and TV broadcasting, broadcasting as well as educational telecommunications laws for its FCC issues. Arkansas PBS's last approved contract with the firm expired in 2019 and has not been renewed. Arkansas Code requires the Attorney General to provide legal services for state agencies, and if the AG is unable to provide such services, the governor may authorize an agency to obtain outside counsel. Legislative audit could not locate authorization for the services provided
to AETC by this firm since 2019. Now, during our review period, Arkansas PBS paid the firm slightly more than $14,000. This review also identified two other issues that are discussed on page nine of the report. First, the Corporation for Public Broadcasting, which is a major source of grant funding for the agency, assessed a penalty of just under $131,000 due to the late
filing of the fiscal year 22 annual financial report. CPB, or the Corporation for Public Broadcasting, reduced the penalty to approximately $33,000 and then deducted the penalty from a subsequent grant payment. Second, the Arkansas PBS director and an outside investor producer co-developed the concept for a program and entered into a co-production agreement in April of 2022.
Subsequently, Arkansas PBS received over $45,000 in production fee revenues and then recouped $100,000 from the investor producer for marketing and education services. The agreement included a key person clause, allowing the investor producer to terminate the agreement and engage with another PBS station if Arkansas PBS management were to change. In the event of such termination, all or part of future revenue payable to Arkansas PBS may be transferred to a new PBS station.
It is unknown how much additional revenue, if any, Arkansas PBS will collect in association with this agreement. So as a result of this review, legislative audit recommends that Arkansas PBS continue to provide procurement training to its employees, comply with procurement laws and guidelines, submit required reports to grantors and oversight organizations timely, and seek approval for the use of outside legal counsel when necessary.
This report was referred to the 20th Judicial District Prosecuting Attorney and the Attorney General, and management's response to the report is included in its entirety as Appendix C. Mr. Chair, this concludes my presentation. Agency officials are present to address any committee questions. Thank you very much.
Representative Justin Gonzales
Unverified
22:06
If agency, if you would come forward and state your name for the record.
Speaker 44
22:15
Courtney Pledger, Director, Arkansas PBS, AETN. Thank you. Do
we have any questions from the committee? I actually have one. In the
Representative Justin Gonzales
Unverified
22:41
revenue-generating agreement that was mentioned on page 9, where it said key person, key person clause was included in that.
Who was the key person
Speaker 47
22:52
or personnel? Key person was the director of
Representative Justin Gonzales
Unverified
22:56
the station. So that would be you? Yes. Okay. Senator Rice, do you have a
Senator Terry Rice
Unverified
23:05
question? Thank you. Mr. Bledger, what is the current
status of personnel as far as turnover in the several months this
Speaker 44
23:16
has been being looked at? We have been steadily filling positions that are open to be filled, and we have a new HR manager.
We are filling them as they come open as they are. We have a new HR manager as of when? as of about let's see it's about a month ago six weeks when was the last one before that when was
Speaker 44
23:53
for quite a while because it is uh but you had you had a lot of turnover we had from my perspective turnover that you know happened for a lot of different reasons, and COVID-19, you know, affected that.
We had attrition due to people deciding to stay home with their kids, and we have had 25 retirements in the time since I took the leadership, and we've had agency transfers, all
Speaker 47
24:20
kinds of different reasons for, you know, for that.
Senator Terry Rice
Unverified
24:25
Ms. Pledger, as somebody that's listened to this for a lot of months, and this
report kind of puts it all together,
I've heard blame, I've heard excuses, I've seen people leave. It all goes back. You're the executive director and the CEO. Yes. And what I would like, and what happens in private business, is that's where the buck stops. I understand. I own it. And I think had you been doing the CEO and executive job all along, it would have been much better.
But your focus, in my view, was on other things. And that's the reason I have not had confidence in the current executive director and felt there was a need for that to be changed. If that's not seen that it needs to be, so be it. But I hope things are more stable than they've been in the past, and they will be. But I know in private business, you would have already been gone.
Thank you, Mr. Chair. Thank you, Senator. Mr. Pledger, back to the
Representative Justin Gonzales
Unverified
25:45
key person question, there was a penalty. I forgot that was the second part of the question I had. It didn't define exactly how much that penalty would be if there was a management change. How much would it cost Arkansas PBS if you were to leave the position and the management was to
Speaker 44
26:03
change? If there was a change, they would have had the option to stay on.
Can you pull your microphone
Speaker 44
26:18
a little closer? Sorry. If management had changed, that is a fairly typical and creative industry, you know, for there to be a key person clause. If the person, if I had left, they would have the option to move the project, But whatever services Arkansas PBS would have provided up to that point would be paid to Arkansas PBS.
In the report, it says it would be no less than, I think it was $32,711. So it's going to be greater than
Speaker 57
26:58
that. I think that's the CPB. CPB, yes. Is that a
Speaker 44
27:03
different thing? That's a different thing. I mean, I can explain that
one. Okay. Okay. Do you have an estimate on what the penalty
Representative Justin Gonzales
Unverified
27:14
would be if you were to leave, what the key person clause penalty? Because the audit wasn't able to find that.
Speaker 44
27:21
Well, whatever the contracted amount is, Arkansas PBS was basically providing marketing and education services that come towards the end of the project. So, you know, if that had occurred, it would be whatever that negotiated amount is in the contract. In this case, it was $159,000. Okay,
Representative Justin Gonzales
Unverified
27:47
so $159,000 penalty, approximately, maybe a few cents here or there, but right at $159,000?
Speaker 44
27:54
Or less if the work had started and we were...
Okay. Is that clause already been, or has that contract already been
Speaker 44
28:03
completed at this point? And we, slightly over $200,000 was the agency's part
Speaker 47
28:08
of that. Are there any other outstanding contracts
Representative Justin Gonzales
Unverified
28:11
like that right now? No, sir. Okay. Are there any other questions? Representative Gonzalez,
you're recognized. Thank you, Mr. Chair. Is the Department of Education here still?
Representative Justin Gonzales
Unverified
28:25
Yes. Department of Ed or the Department of Higher Ed? Department of Ed. Department of Ed. Do you know what your question is related to, if it's finance or if
Speaker 64
28:43
it's... We've got all of them here. um so
Representative Justin Gonzales
Unverified
28:47
no it's not finance it's not finance so it's stacy you're up if
Speaker 68
28:53
you would state your name for the record stacy smith deputy commissioner department of education
Speaker 64
28:59
so looking at on the front page of this report it says that the uh education television was merged with the Department of Education but has remained operating separately can you tell me why that is
Speaker 70
29:16
they have an independent board that's appointed by the governor's office Mr. Rogers if you would
state your name for the record
Speaker 75
29:31
greg rogers department education so what i think what you're talking about is under title six right now the uh arkansas pbs aetn is is uh still listed as part of the department of education but that is only in title six they have a separate board a separate appropriation act they're a separate state agency from the department of education so maybe i
Speaker 64
29:56
have a question for audit then can y'all explain this farther on it's uh act 38 in 1971 merged
Speaker 77
30:03
arkansas education television into the department of education
Speaker 78
30:12
in arkansas code the name of the agency includes the words the Department of Education includes the words the Division of Elementary and Secondary Education which D-E-S-E used to be A-D-E
and then post-transformation the Department of Education became D-E-S-E and so the words and the names within Arkansas Code have not removed Arkansas Department of Education names from the Arkansas Educational Television Commission. But as far as I know, they have always acted independently.
Unfortunately, during transformation, AETC was listed as a separate standalone agency on the transformation org chart. But because Arkansas Code still includes that designation of the Division of Elementary and Secondary Education as part of the official name of the agency, that's why we have included it in our audit report. Okay, so it
Speaker 64
31:39
is in code still that Education Television has their own oversight board and is separate.
Okay. Correct. Okay. All right, so that makes sense why you all don't have direct oversight, but it seems like maybe you should in the future or somebody should with all the issues that are going on here.
Thank you. That answers my question. Sounds like legislation may be
brewing. Are there any other questions? Seeing none, what's the pleasure of the committee?
Representative Justin Gonzales
Unverified
32:21
File the report. I move that we file the report. I have a motion to file the report. Any discussion on the motion? All in favor? Aye. Any opposed? Motion is adopted. seeing no other business the next meeting will be held December 5th 2024 we are adjourned
Agenda
A. Call to order by Chairman.
B. Adoption of minutes of the September 12, 2024 meeting.
C. Review of reports. (Refer to the Summary)
D. New Business. The next meeting will be held December 5, 2024
E. Adjournment.
Documents
| Title | Type | Pages | Source |
|---|---|---|---|
| Agenda — LEGISLATIVE JOINT AUDITING - STATE AGENCIES, Oct 10, 2024 | Agenda | 2 | Official source ↗ |
Speakers
Senator Jim Dotson Chair
Unverified
Speaker 2
Representative Justin Gonzales
Unverified
Senator John Payton
Unverified
Nick Fuller
Unverified
Representative Jack Ladyman
Unverified
Speaker 4
Speaker 35
Speaker 36
Speaker 44
Speaker 47
Senator Terry Rice
Unverified
Speaker 53
Speaker 57
Speaker 64
Speaker 68
Speaker 70
Speaker 75
Speaker 77
Speaker 78