Legislative Joint Auditing-State Agencies
Video
Transcript
1 document
Machine transcript
May contain errors. Verify important quotations against the official video.
About transcript accuracy
- Source
- Whisper
- Model
- ggml-large-v3-turbo.bin RTX5060
- Processing date
- October 6, 2026
Senator Joshua Bryant
Unverified
0:00
All right, I'll call to order the Standing Committee on State Agencies. Everyone should have received the minutes from our meeting from January 11th. Without objection, I'll adopt those minutes. All right, Mr. Bullington, if you'd review the reports. Okay, thank you, Mr. Chair. Today
Speaker 3
0:19
we're presenting one deferred report and two current reports that have findings, and we also have
Speaker 5
0:23
several reports on the agenda without findings, and these are listed on page one of the audit summary. All right,
Senator Joshua Bryant
Unverified
0:32
without objection, we will file the reports with no findings.
Speaker 5
0:38
Commissioner Wellington? The first report we have with findings today is the Department of Commerce June 30, 2022 report. This report was deferred from our meeting back in January so that the committee could further discuss findings number two and three from that report. So what you have in your synopsis today are just findings two and three. so finding two because of the aces roles held by human resources personnel there exists a greater risk of non-compliance and misappropriation with the salaries paid to these employees in a test of 15 hr employees in the department of commerce we noted that appropriate documentation
to support promotions and or raises granted in fiscal year 22 was not included in the personnel files for five employees and finding three arkansas code requires division directors appointees of state commissions, and other public servants to file a written statement of financial interest that disclosed every office or directorship held in any business, corporation, firm, or enterprise subject to jurisdiction of a regulatory agency of the state. In addition, if transactions occur between the agency and these businesses, those transactions must be reported as related party transactions in the agency's year-end closing books with DF&A.
We noted three instances where statements of financial interest were not properly completed and or transactions were not disclosed in the year-end closing books. You can see the detail of these in the bullets of finding three. Let me make sure that concludes the findings for commerce. Thank you. If we
Senator Joshua Bryant
Unverified
1:59
could have members of the Department of Commerce come to the end of the table.
Speaker 15
2:16
Good afternoon. Hugh McDonald, Secretary of Commerce.
Speaker 17
2:20
Good afternoon, Allison Hatfield, Chief of Staff.
Senator Joshua Bryant
Unverified
2:23
Thank you both for being here. We reviewed these last month, held them over because some members had some questions and some
concerns. So we'll specifically just address finding number two. And I will start. I think
one of the concerns I recall was the documents were not accurate or reliable. They were put forth as kind of maybe as a cover
for the actions of the previous administration.
So could you maybe address why that occurred
and then to what extent the employees were counseled on
Speaker 15
2:57
that? Yes. Thank you, Mr. Chairman. We certainly took this investigation very
Hugh Mcdonald
Unverified
3:02
seriously from the top and looked at all options on the table on the employees in question. Uh, that specific issue with regard to the unreliability of the, of the, uh, documents,
um, that, that they were, they were created sort of post hoc, um, to support the audit, to support, to provide documents to the audit that were, that did not exist. The story after a full investigation of interviewing the employees face-to-face, interviewing the employees' direct supervision, searching e-mails, searching employment records,
we determined that on three of the employees there was appropriate management support and approval of those raises. The other two took additional approvals or additional searches, including phone records and ultimately text messages between the appropriate management level,
a chain of command that was documented that they did support. They did know at the time, back in early 2022, the time of the raises, that they were supportive of those raises. So it took bottom line, no question about it, sloppy paperwork, poor documentation, disciplinary action was actually instituted to one employee with an actual downgrade.
Senator Joshua Bryant
Unverified
4:57
Okay. Thank you for that explanation. Does any member have any questions for the secretary regarding finding number two? Okay. Seeing none, we'll move on to finding number three. and
i think uh from my recollection from last month the the topic that we were looking for answers on is is really what the warrants were for within both all three topics both the department
of aeronautics or division of aeronautics and the department of the osd as far as what what those grants
Hugh Mcdonald
Unverified
5:36
were issued for yeah for for osd specifically they were for um well the disclosure in question that was filled out by the member of the State Electrical Apprenticeship Committee. That person is also the President of a private electrical apprentice, apprenticeship school, and the mission for that State Electrical Apprenticeship Committee is to oversee the
electrical apprenticeships related to licensing and to improve curriculum, and also to give prior credit when an apprentice is transferring from another state to the state of Arkansas. There's no funding associated with, or no funding oversight associated with that committee, and the payments in question were actually reimbursements from the Office of Skills Development for the electrical instruction based on the number of hours, they call it
RTI-related technical instruction related to the DOL-registered apprenticeship. So that's the reason for those payments. Okay, so just
Senator Joshua Bryant
Unverified
6:43
to clarify, the SEAC, State Electrical Apprenticeship Committee, is which this individual sits on that committee. That's correct. And they make the recommendations to the Arkansas Apprenticeship Coordinating Steering Committee, which disperses the funding.
Hugh Mcdonald
Unverified
7:01
MR. And I may have to get Ms. Isaacs up here, but I believe it's the recommendation from the Arkansas Apprenticeship Coordinating Steering Committee that makes a recommendation to OSD. We verify that to make the actual payment to the electrical or plumbing steering, plumbing committee. MR. Correct? Kind of.
Speaker 18
7:34
All right. I think maybe just some clarity to the committee on
Senator Joshua Bryant
Unverified
7:40
at what level, member of what committee has several of our apprenticeship program vendors participate in the process. Stephanie
Speaker 32
7:50
Isaacs, Director of Office of Skills Development. The SEAC committee, which is what we call this, the acronym, they just have no funding. They approve curriculum and prior learning credit. They do not make recommendations to the AACSC.
The AACSC makes recommendations to the Office of Skills Development on the funding piece. Okay. So this member in question, he read the disclosure, the grant disclosure, as he was a committee member. And if you recall, it says boards and commissions. So it wasn't his interpretation necessarily that he needed to fill out, that he needed to disclose that. Legislative audit said it did rise to that threshold. So we have had all of our committee members who have these apprenticeship schools to note that on their grant disclosure.
In fact, because the audit finding actually refers to the statement of financial interest, we've had our committee members as well as our state board members go ahead and fill out their SOFIs. Okay, and I did discuss that with
Senator Joshua Bryant
Unverified
8:53
staff, and I'll let staff to maybe explain, because, members, there's a statement of financial interest as a separate document than what inside internal agencies require when they have members or staff receive grants from the state. Yes, Mr. Chair, so there are two things.
Speaker 8
9:10
There are two issues here, and all three of these don't
Speaker 5
9:13
have all the same issues. Some of them are statements of financial interest that were not filed. That's really in bullet points number one and two. And then there's the disclosure by the agency of any related party transactions, which could be with people that are on the boards of commission, but it could also be with employees that have businesses, these committee members that have businesses. These are disclosures, related party disclosures, that are required by accounting standards over to DF&A. And in this case, for bullet number three, it was only the related party piece that didn't disclose.
Those people did not necessarily have to fill out that statement
Senator Joshua Bryant
Unverified
9:49
of financial interest. Okay. Thank you for that clarification, sir. So in finding three, bullet three, does any member have any question on that topic? Okay, thank you for that explanation. We'll move to bullets number one and two on finding number three regarding the Division
Hugh Mcdonald
Unverified
10:06
of Aeronautics. Yes, finding number one, the $30,000 warrant, which was written from the Division of Aeronautics to an entity registered with the Secretary of State, listing the Division Director as one of its directors.
So in 2019, the Division of Aeronautics began giving an annual gift of $30,000 to the Arkansas Aviation Historical Society to be used to fund scholarships for flight training for aviation students enrolled in the flight program at Henderson State University or Ozarka College. Neither the director, Chisholm, nor the Division of Aeronautics is involved in the selection of scholarship recipients. In 2022, Aeronautics Director Chisholm became President of the Board of Directors for the Arkansas Association of Aeronautics Historical Society.
And the audit found that the statement of financial interest from Dr. Chisholm, Director Chisholm for 2022, did not list his position on AAHS as required. Upon notification, Director Chisholm did amend his 2022 SOFI and has listed that on his 2023 SOFI. Okay. Thank you for that explanation. Is
Senator Joshua Bryant
Unverified
11:27
there a member that has any question?
Senator Jimmy Hickey, Jr
Unverified
11:32
Senator Hickey? Just one. With either the director or the secretary that's below with the nonprofit, my question will be the same. Do you know if either one of those individuals, were they receiving any type of salary, compensation, management fee, any type of business dealings with that nonprofit whatsoever? That has not been disclosed
Hugh Mcdonald
Unverified
11:51
to me. I will find that out, though. Okay. I don't believe so, but I'll verify that. I would assume
Senator Jimmy Hickey, Jr
Unverified
11:58
with the statement of financial interest, if that was happening, that should have also been done.
Speaker 47
12:03
It would have included the revenue side, yeah. Thank you, sir. Any
Senator Joshua Bryant
Unverified
12:09
other member have any questions for the secretary regarding finding three? Okay.
Seeing none, thank you both for coming back and explaining that to us. Without objection, we'll go ahead and file the report for the Department of Commerce. Seeing none, we'll file the report.
Speaker 5
12:33
The next report we have with findings is the Arkansas Lottery June 30, 2023 report, and this report contained one finding. During our review of the October 2022 monthly disclosure report, we noted a draw integrity audit report issued by the Lottery's internal auditor. This report disclosed a damaged fiber optic cable, which caused a network outage between the central gaming system and the lottery. The lack of connectivity caused the automated draw system to not function as designed during the midday and evening draws held on August 1st and 2nd,
and the midday draws held on August 3rd for the Cache 3, Cache 4, and Natural State Jackpot games. Ultimately, the draws were conducted by lottery security and compliance staff using manual draw procedures on-site at Intralot. Through a review of these reports, we determined that there was not a clearly defined policy regarding which draw procedures should be followed in the event a lottery draw process failed.
Senator Joshua Bryant
Unverified
13:29
And that concludes the finding, Mr. Chair. Thank you. If we can get members of the FNA's Office of Arkansas Lottery to the end.
Speaker 50
13:42
Eric Higler, Director, Office of the Arkansas Lottery. Thank
Senator Joshua Bryant
Unverified
13:45
you, sir, for being here. I'll be the first to admit there's a lot of acronyms and procedures and policies which I have no
understanding of. So if you would, just kind of maybe go through the process on a normal activity and then what occurred that generated the audit. Absolutely. Happy to do
Speaker 50
14:01
so. When the Arkansas Lottery was formed, it was started with manual draw machines. And that was the standard in the industry at the time. And a manual draw machine requires human intervention. So you had draw managers. You had to have an internal auditor present at the time of the draw.
uh there was the potential for error as the industry has advanced there's a move towards auto draw and the new rng machines that are available now are automated draw machines so there is no human intervention there's an automated audit trail within the machine so you there's no necessity to have an internal auditor essentially babysitting the draw process what happened is is when we were transitioning from manual rngs to auto draw we didn't want to make an immediate change. We wanted to beta test the autodraw machines, so we left the manual
machines in place while we were making the transition. So we're running test draws alongside real draws. In the process of doing that, we had the original procedures for manual draw and manual draw failure. We also had developed simultaneously a set of procedures for the autodraw RNG and the procedures around any error associated with that. When the fiber optic cable got cut, and this fiber optic cable runs from our vendor, Entralot, from their location in North Little Rock next to
Maumelle, and it comes downtown. When it comes to downtown Little Rock, it forks, and that's where we have redundancy. So when we were doing reviews early and the lottery was forming, there was an idea that we have plenty of redundancy on the pipe, what we call our IT pipe, that if in fact there's a cut cable, we have a backup cable available to us. What went unaddressed and unnoted was is the front end of the pipe, the section that runs from North Little Rock to Levy, is one pipe. There is no redundancy. A contractor working on the freeway cut the pipe,
cut the cable. When that cable cut, it sends a notification in to our automated draw machine that said, you got a problem. You got a problem, you've got an IT problem, your system is not operating at 100% capacity. What that system then did was trigger a set of emails to the internal audit, to our security team, to our gaming director, and to myself. So overnight, and this is when all this is occurring, you're getting these repetitive emails. It's the same email over
and over and over. And of course, this caused some concern, and our internal auditor caught it immediately and began reaching out to our internal team and said, what has happened? Why are we receiving these emails? We quickly identified the problem. We conducted draws. We did conduct those draws using the procedures that we had pre-existing. And those procedures were procedures that were vetted, tested. The problem is, is we didn't have a procedure that said, in this type of incident, you will revert to this set of draw procedures.
procedures. We followed a set of draw procedures and we were able to go back and verify that the numbers that were drawn were the correct numbers and the correct winners were paid. The problem is is we learned a lesson there. We learned a couple of lessons and as a result of that we went back to Entralot and we asked them to remediate and we told them we need redundancy not only two forms of redundancy we'd like to see three and we would like to see full redundancy from your location all the way to the lottery so what they did is is they at their own expense came back and they
built a second pipe to to the branch we now have two different companies providing us access to cable if one's if one's cut we have a backup but we have a third redundancy which i think is really important it's the old adage if you've got three you got two if you got two you got one so we've got three and the third one is a wireless option and obviously that's that's your backup option It is secure. It does float on the cloud. By the same token, when you're in that kind of a risk environment, you would rather have it in a contained environment.
So it's an emergency option if both ground cables are cut. It's one of these things where it's a lesson learned. You sit after the fact and you look back forensically and you say, well, this should have been obvious that you can't run a single pipe to a fork that's multiple miles down the highway and somehow feel like you have true redundancy. But that's what happened. Once identified, we decided, let's take this one step further. Let's make sure we've got not only dual in the ground, but that we've got something in the cloud as well.
We don't want to be in this position before. With regard to the procedures, interestingly, the manual RNGs that we had were aging out anyway. And to certify those machines comes at a great cost to the lottery. So there was always the idea that we would eventually migrate these manual machines away from our environment. and move to the fully automated environment, and that's what we've done. So I can assure you now, while the confusion was a lesson learned on our part, there is no mechanism currently for a repeat of that scenario.
Senator Joshua Bryant
Unverified
19:04
All right. Thank you for that detailed explanation. I'll start off with a question. In the event,
I can't ever say never, but in the event both pipes are broken and one of those pipes happened to house something that went to the wireless side that failed, like what is the what is that fourth option if you got rid
Speaker 52
19:26
of the manual machines well you couldn't even run your your manual machines you could run on
Speaker 50
19:32
site but to maintain those machines you're talking at a significant cost so it's you would have redundancy but you're talking
about it's a cost benefit analysis so you have to ask yourself you know what are the percentage odds that we're going to lose both ground cables and the cloud if we're in that type of scenario I think the great percentage of time you're going to be in a natural disaster scenario or a scenario where distributing lotteries is going to be secondary importance. There really is none other than if we want to eat the cost and maintain those machines. Maintaining those machines creates a little bit of a liability as well. You have them sitting there. You're having to certify those machines.
You're having to run test draws on those machines. And they're machines you really never intend to use again. Okay. Oh, and I have one other thing I can clarify on that. We do have a backup system with Intralight now where if push came to shove and we lost our building, we lost our building, we can still conduct auto-draw from
Senator Joshua Bryant
Unverified
20:30
their location. Okay. I think that answers my question right there. Does any other member have any questions? Okay. Seeing none, thank you for your report. Without objection, we'll file this report.
Speaker 3
20:42
Thank you. All right. None noted. Please file. The last report we got today is the Department of Parks, Heritage, and
Speaker 5
20:54
Tourism, June 30, 2022 report, and this report contains two findings. The first finding, DFA's Financial Management Guide, requires agencies to maintain a record of all property. Accession logs are maintained in separate databases for the Arkansas State Archives as well as the various heritage museums. These databases are used to track and account for assets in museum collections and are considered
the official record. We compared the asset values recorded in the accession logs to the values recorded in ACES to determine accuracy and completeness, and our review revealed that variances remain between the accession logs and ACES with assets overstated in ACES by almost $700,000. In the second finding, Office of Personnel Management Policy allows for the payment of accumulated unused sick leave at retirement. A review of all 13 employee sick leave payouts made during the year revealed two instances in which employees did not receive the correct
payment amount. One employee received a payment of about $3,700 but was entitled to almost $6,400 resulting in an underpayment of just over $2,700. And the other employee was entitled to almost $6,600 but received only $3,700 in fiscal year 22. In an attempt to correct that miscalculation the agency made a payout of just over $1,200 to the employee in fiscal year 23, leaving around 1,600 still due the employee. Mr. Chair, that concludes the findings.
Senator Joshua Bryant
Unverified
22:15
All right. Thank you. If we get members of the Department of Parks, Heritage, and Tourism, if
you would just identify yourself and go ahead and proceed into finding number one for us. Good
Speaker 56
22:32
afternoon. Shea Lewis, Secretary of Department of Parks, Heritage, and Tourism. Jamie Fisher
Speaker 57
22:38
Chief Financial Officer with Parks Heritage and Tourism yeah if
Senator Joshua Bryant
Unverified
22:44
you would just finding one just kind of tell us you know what what got us there
what the procedures were and then you know maybe what what's
Shea Lewis
Unverified
22:53
going on in the future sure the initial issue with the first finding was directly related
to the maintain maintenance of two separate systems for, uh, collection management. Uh, the collections are historical treasures, uh, artifacts that relate to the state's history and heritage that are maintained by museums and state parks, uh, throughout the state. And so there was a collection management system, uh, past perfect that was being maintained. And then also the, uh, accounting system,
ACES of maintaining those records separately. So through this process, process, it's become apparent that we are in the process of reconciling the two and making sure that ACES matches what we have in the collection management system. So as far as
Senator Joshua Bryant
Unverified
23:39
collection goes with these different organizations, is that procurement through purchase or gifting or both? Both, both. And so as far as recorded value on a gift, do you have to assign a value to it
Shea Lewis
Unverified
23:54
or? We do, we do. It's
kind of interesting in in many of the artifacts or items that are either donated or purchased from state or for state collections the value could be anywhere from a dollar to priceless and hard to to assess the true value of some of those artifacts so within the collection management system as well as an ACES in most cases if we don't have a true cash value that was given for the purchase of that item it is entered in as one dollar
Senator Joshua Bryant
Unverified
24:26
okay i got you so it does any member have
Speaker 64
24:29
any question for finding number one senator hickey and so so the
Senator Jimmy Hickey, Jr
Unverified
24:35
value the value was they said it was overstated so it was actually you had a higher value on your books and through aces because of the dollar you just you just did and i guess that's because it wasn't entered entered in aces Just one question. This is because I just don't know how it works. As far as insurance that's on those assets that you all have purchased,
is the value, if there's ever a loss or anything, is that value off of your books, or is that the value off
Speaker 66
25:09
of ACES, or do you know? That's a good question specifically. I know that we have had those conversations with
Shea Lewis
Unverified
25:15
the Office of State Insurance before, and I know those buildings that are collection management facility buildings are insured at a higher rate based on those collections there? That's a good question. We can find that
Senator Jimmy Hickey, Jr
Unverified
25:26
out specifically. I understand the difference in this on the balance sheets and things like that, but that would be my worry is that we have some large loss
and somebody tries to use the ACES values in determining what the value was or try to
Speaker 64
25:39
say, well, that was depreciated value or whatever so that we don't get into some big legal battle. Understood. We can
Speaker 67
25:45
verify that information. TO FOLLOW UP ON THAT, WHEN YOU GET THAT
Senator Joshua Bryant
Unverified
25:49
INFORMATION, IF YOU WOULD, SEND IT TO STAFF AND WE'LL GET THAT OUT TO THE MEMBERS. DOES ANYBODY ELSE HAVE ANY QUESTIONS FOR FINDING NUMBER ONE? OKAY, WE'LL PROCEED INTO FINDING NUMBER TWO.
Shea Lewis
Unverified
26:07
SO THROUGH THAT PROCESS OF TWO EMPLOYEES THAT WERE RETIRING FROM THE DEPARTMENT, in
just most simple terms, a human calculation error was made in the calculation of those retirement balances associated with leave payouts. Since that point in time, we've put into a process that leads to a triple check of those numbers to make sure that our accounting is appropriate to avoid this for the future. Thank you for that explanation. Does any member
Senator Joshua Bryant
Unverified
26:41
have any questions for finding number two. All right. Seeing none, thank you both for your attendance. Without objection, we will file this report. Seeing
none, the report is filed. The next meeting will be June 13th, 2024. And without objection, we stand adjourned.
Agenda
A. Call to order by Chairman.
B. Adoption of minutes of the January 11, 2024 meeting.
C. Review of reports. (Refer to the Summary)
D. New Business. The next meeting will be held June 13, 2024
E. Adjournment.
Documents
| Title | Type | Pages | Source |
|---|---|---|---|
| Agenda — LEGISLATIVE JOINT AUDITING - STATE AGENCIES, Feb 8, 2024 | Agenda | 2 | Official source ↗ |
Speakers
Senator Joshua Bryant
Unverified
Speaker 3
Speaker 5
Speaker 15
Speaker 17
Hugh Mcdonald
Unverified
Speaker 18
Speaker 32
Speaker 8
Senator Jimmy Hickey, Jr
Unverified
Speaker 47
Speaker 50
Speaker 52
Speaker 56
Speaker 57
Shea Lewis
Unverified
Speaker 64
Speaker 66
Speaker 67