Legislative Joint Auditing-Educational Institutions

So for first or business we need a motion to adopt the minutes from the December first twenty twenty two meeting. Motion at second all in favor say aye All opposed motion passes all right Mr. Thank you Mr chair and good afternoon today we have ninety educational reports to review eighty nine of these reports are for for fiscal year twenty twenty two and one report is for fiscal year twenty twenty one of the ninety reports seventeen have reportable findings our current standing committee guidelines is to invite entity officials for deferred audit reports reports with repeat findings and reports of school districts currently classified as fiscal distress. There were no deferred daughter reports from the December twenty twenty two meeting and no fiscal distress school districts are being presented today. There are three reports with repeat findings we will begin with the University of Arkansas System report which was referred to the prosecuting attorney and then we will come back to Marmaduke a school district which is listed first on your synopsis. university of Arkansas system I'm going to summarize these findings instead of reading each one but you'll see six findings there on your synopsis and so the first finding which was a repeat related to the timeliness of financial statements that were submitted to a LA staff for inclusion in the annual comprehensive financial report or act for a timeline is established by DF in a and the UA system office so that financial statements of each campus can be submitted to the system office for consolidating. four campuses or units did not meet the deadlines established by system administration as a result system office was unable to provide the consolidator report to a LA staffed by the originally scheduled date which delayed the audit process. The remaining five findings for you a system mainly consisted of internal audit findings which were referred to the applicable prosecuting attorney pursuant to Arkansas Code these findings were related to payroll identity theft a fraudulent email resulting in a disbursement to a fictitious vendor. And authorize a CH transactions payroll payments to employees after their employment termination dates. over payments in excess of authorized amounts and questionable travel related expenses. Improper transactions in losses related to these findings at various campuses range from one thousand dollars two hundred forty four thousand dollars. This conclude this concludes the summary of findings for the you a system university officials are present to answer any questions the committee may have and you'll notice on your synopsis for each finding that's listed management of the university has provided a response. With the representatives from the U. of a system like to come to the table. If you would please state your name and your title and then just to get started if you all the bikes take a few minutes and just kind of give an opening statement or anything you want to let the committee know thank you. Hi my name's terra Smith and I served as the CFO at the university of Arkansas system. I'm down about it president of the U. a system. We're here to be able to answer any questions you may have on the any of the specific findings but I do want to call attention to as Mr Fink indicated that we have like financials this year and that we are committed to ensure that we denominator repeat finding there and and we have communicated all the deadline dates for campuses for FY twenty three under committed to ensure that were on time for for FY twenty three financial statement process that but we're here and happy to answer any questions you may have. I don't know that I have a question that may be just yes or no but I I know you went through a couple difficulties in some of the changes in your system what software you're that you're using that because some of the problems that you haven't had in the past that were new just because of that so if you don't mind could you address the Committee on some of those issues that were not and I know yet turnover significant turnover that for many different reasons but as I read through this I think there were several circumstances that were unique that may have caused some of the ways would you mind addressing that. Thank you Senator Solomon thank you this specific software you're talking about is work today and we anticipate that the issues that you just cited are not going to go away in fact they are going to be probably become more severe going forward and so we have to look to technology to try and I guess mitigate some of the influence of human capital on the system's financials and other areas of of importance while working as a system HR finance that consolidates and has protections built into it when humans to exactly what they're supposed to that prevents some of the steps that are on this particular a report and we're training our our staff to be able to address those needs you're actually right turnover is a problem I will tell you that we've lost two very significant financial staff individuals in the system over the past couple weeks with raise is that we could not touch the private sector of over fifty thousand we also lost a account for our grants management who is working for Californians to Jushin living in Arkansas and being paid California wages so it's a Brave New World out there if you will and and management of human capitals become one of our more challenge significant challenges in the system. I think those are our unique circumstances and have much as I hate losing employees to California are prepping Californians live here be counted they paid by California that is the new reality that we face but I appreciate your comments on that to me they're very justified reasons why this audit report shows as it does but if you have any additional comments go to. Thank you. I will go too far down the rabbit hole on workday when did you all begin implementation of that on the finance HR side sure we started implementation process in two thousand eighteen our first cohort of institutions went live on I work date for the fiscal year twenty one the second cohort of our institutions went live on workday fiscal year twenty two and then our last cohort which includes UAMS AS are one of our lock in our largest entities went live for fiscal year twenty three so we're now all effectively live on work days so for FY twenty three will be able to consolidate our financial statements on the same system. Talk about you said you anticipate the the issues you've had with workday getting worse going forward now actually I'm I'm anticipating that workday will solve some of the human capital issues we have and in fact it you know that that is really the strategy going forward from this point time. Okay thank you committee members during if you have any questions for the U. of a system. Okay seeing none. Thank you for coming. Okay. Our committee without objection will consider you a system audit to be reviewed. Okay the next audit that we're going to look at is Marmaduke school district if you'll turn back to page one of your synopsis. this report was certified to the bomb board the district discovered activity funds and daycare tuition totalling one thousand one hundred eighty dollars and seven hundred eighty dollars respectively we're still in from various classrooms beginning in January twenty twenty two on may second twenty twenty two the district's student resource officer inner interviewed evening concerning sherry Pitsch who admitted to taking a hundred forty dollars in cash from the classrooms subsequently Pitsch was charged with theft of property in criminal mischief and a trial is scheduled for February twenty twenty three just a quick update on this she did end up pleading guilty to theft of property. And that concludes the findings for Marmaduke school district. Committee members have any questions on the Marmaduke school district audit. Seeing none without objection will consider that audit reviewed. Okay our next audit to look at is buffalo island central school district and it did have a finding that was referred to the local prosecuting attorney the first finding the district paid a little over thirteen thousand dollars for supplies to a company in which to employees had financial interest without obtaining approval from Arkansas desi as required by Arkansas Code. In this second finding the district transferred funds from its food service fund to the operating fund to be used for operating activities and not for the benefit of the school food service resulting in question costs totaling seventy eight thousand dollars. And that concludes the findings for buffalo island central school district. I have a question. Do you when we look at finding to. the funds for food services to operating funds to be used for operating activities not for the benefit of school food school food service we have an itemized list of those that's it seventy eight thousand dollars so they're moving money around is there an itemized list. so I don't know that I have an itemized list for. How many transfers they made for the seventy eight thousand we could certainly go back and get it I do know that over in past years the school district had transfer funds from the general fund to the food service account to supplement and what they were trying to do is since they had a surplus in the current year simply put those funds back to the general fund but per our review of the federal regulations and per our discussion with child nutrition unit with desi that's not allowed like if the school wanted to make a loan from the general fund to the food service find and then repay that loan within the year that would have been allowable but what they chose to do was not. Okay thank you. Committee members any questions for the buffalo island report. seeing none that addiction will consider that report reviewed. The next report is Clarksville school district it also had one finding referred to the applicable prosecuting attorney. on October eleventh twenty twenty one the school district initiated to payroll direct deposits totaling sixty three hundred dollars to a fraudulent checking account after receiving an email request a change to employees direct deposit information the funds are sent to the fraudulent account on October eleventh twenty twenty one in school district personnel later discovered the email was falsified the school district notified law enforcement and it's making institution but was unable to recover the funds and that concludes the findings for Clarksville school district. Committee members any questions for the Clarksville school district on it. President okay in any questions. All right to that objection will consider that report reviewed. And the the last report which was referred to the prosecutor was got taken school district which had one finding on November tenth twenty twenty two the district discovered that employees payroll direct deposit of twenty seven hundred dollars was fraudulently diverted to another bank account after the employee contacted the district about not receiving her payroll direct deposit on November fourth twenty twenty to the district made the direct deposit change request after receiving an email that appeared to be from the same employee's email account the district was unable to recover these funds that concludes the findings for guy Perkins school district. Any questions for the guy Perkins reports. Representative Graham like I guess this is a broader issues I mean obviously it to school districts have the same issue is there not some sort of. Process that the state is saying schools have to go through because I mean and it just seems while I'm in there when with the date Sir within other within a year for each other but it seems while but there's not a system that all schools have to follow for doing this especially have nearly ten what nine thousand dollars is gone I'm I'm more comment than a question. So it looks like the school district if you look in their response they did make a change to try to prevent this in the future by requiring the employee to Sign a hard copy opposed to trying to do it through email since we are seeing so many of these cybersecurity issues spoofing emails phishing emails and so that the I think one thing that probably you know every institution needs to be doing is just having that cyber security awareness training and we are seeing more institutions start to to do that but that's just a comment. In the committee make a recommendation to the department of education that they sent out guidance to all the districts warning them about the the increase in incidence for saying of this and encouraging all. All schools to have adopt a policy in training on this. I mean committed in this committee make a motion with that recommendation. Okay the yes. So we just pass legislation in this last session the cybersecurity parched of the. Legislative audit was involved with the mayors council that includes all the all the schools. AT and and the goal is is that everybody have cybersecurity training. Section one already yeah how long that's going to take I don't know but I mean that is it will be in July it will be a law that that everybody has to have that training all school personnel throughout the everything. If I was saying is that the. Vice chair with senate chair would entertain a motion of someone wanted to make that that this committee make a recommendation that something go out immediately alerting districts to the problem from the department of education that this is a growing problem and that the queen are there are highly encouraged to address this immediately. I'm certainly happy to yeah take that motion so we do have a motion I guess the the motion would be that that this committee. working with legislative audit staff have a letter sense to the Department education right encouraging them to Alert school districts of the increasing number fishing or service carry attacks particular on payroll Nagarjuna to put some Some processes in place so we have a motion on that in a second. Second okay all those in favor say aye oh wait sorry who can I will discussion represented Duke. Thank you Mr I have just a quick questions are you talking to For the entire staff are you talking for the business manager is this training are you went from training to just saying Hey you need to be aware that this is happening so I just want some clarity on what we're gonna be putting here in writing encouraging I know it's not a mandate but is encouraging them want to do it because of clarity on what what you're envisioning here and who is targeted at is it the part of the staff or the targeted at the business manager the school board where where are you looking to kind of raise that focus on we're just notifying them that there's an increase in incidents okay so it's just it's not training or anything apart I just just saying Hey be aware this okay thank. That's it we probably don't have the authority to demand any kind of training but we can certainly at least get a letter because. I believe even though what we did in the audits were reviewing today we're seeing multiple incidences of this but it's fair to say Mister Frank this is more common than even just these cases so yeah I letter to the Department encouraging them to work with the district's probably set the superintendent level notifying them that this becoming more of an issue so. Any other discussion on that. We have a motion all those in favor say aye. Any opposed. Hi motion passes. Any other questions on the guy Perkins report. Seeing none without objection will consider purview reviewed. The next the next two reports contained repeat findings the first one is Dermott school district the district did not obtain a performance bond for the purchase and installation of a security system in the amount of two hundred thirty two thousand dollars as required by Arkansas Code in a similar finding was reported in the previous year that concludes the findings for Dermott school district. Is anyone from German school district present today. Okay doesn't appear so. Do you the committee members have any questions about this report. It's been a few years since I've been on the committee but for anyone who is new to this either audit or the subcommittee repeat finding it's probably pretty common sense but that means this is a report that they found multiple years in a row and so this is something that they've made a mistake last year last audit cycle and and have made the same mistake the following year so usually these repeat findings are kind of the ones that we typically pay more attention to because they're happening more than one year. from my own experience it from a few terms back typically folks at three P. findings they are and invited in and and I don't know if it's told or encouraged to attend these meetings but particular does a three P. findings typically do come to the committee so that they can answer questions especially there's a repeat finding so with that being the case probably my preference that we hold this a report until next meeting and request that folks from the school district come before this committee. Okay without objection then we'll hold this report and request that they come to our next committee meeting. The next report to review is a Marville school district or Marvell Elaine school district first finding the district's internal control system did not prevent or detect a significant error in the financial accounting records the district recorded three hundred fifty two thousand dollars the general fund June twenty twenty two revenues in the twenty twenty three fiscal year the financial statements were subsequently corrected by adjusting entry during audit fieldwork finding to which was a repeat finding our examination of cash reconciliations rebuild the district's operating bank account was on reconciled during the twenty twenty two fiscal year with unexplained variances ranging from thirteen dollars to two hundred twenty eight thousand dollars as of June thirty twenty twenty two there was an un reconciled variants of approximately two two hundred twenty eight thousand dollars a similar findings reported in the previous audit and finding three during our examination of payroll records we noted the following discrepancies one certified employee was over paid thirteen hundred dollars and one certified employee was under paid six hundred seventy dollars due to clerical errors and one class for one classified employee position was not included on the salary schedule and that concludes the findings for Marvel school district. We have representatives from model school district here. Thank you for coming if you please just state your name. And your position. Good afternoon I'm Katina race appointed in the modeling School District. Okay if you would just if you want to start off with any comments about any of these findings you're welcome to do so. We thank you for the opportunity to be able to speak on behalf of my for my school district for these findings we want to share that we've started working very closely with the Arkansas department of education to ensure that we've made the necessary corrections and of course you know we've had a lot of changes we've also had changes in this particular area with staff and so again we are ensuring that all of these are put in place these processes are put in place to ensure that these occurrences don't happen again. Thank you my first question is just on finding to and this could be for either your Mr Fink but on reconciled variants of ten or twenty thousand dollars is that money accounted for somewhere it was just an accounting error do we know where those funds are. We have worked with the department of education to ensure that those have been reconciled so that is they've been accounted for. Okay thank you. Thank you can you tell me what working with eighty means. We work. Do when you work with them what did they do and what do you short sell we work closely with the Office of coordinated I was get it wrong but Dr Eric Sanders is here today we work with his office and they send out specialists to support us weekly monthly basis initiative in an effort to ensure that we are putting all of the processes in place okay good thank you. Committee members you have any other questions from Marvell school district. Representative. Thank you Mr chair I'm. I don't really know the process here so I'm not sure I'm asking a question that is this is the type of place ask or not but it is never less I'm curious I know you're working as part of education to try to do this process do you want to have a co op that you all work with as well do you all have any other school districts maybe that have Just been proven to have a really good processes that maybe partner with your kind of mentor or coach you wise through some of the things that they do to to protect themselves or to ensure that they got best practices in line is there anything that's going on like that that is of assistance to you all. So we we do work closely with our coop system but with the financials we work again with the Arkansas department Department of Education but we also have a partnership with APS RC and they're also helping to assist us with financials the work specifically in that particular area to ensure that again that we have these processes in place as well as just looking at systems overall. Any other questions from the committee. Okay see none. Thank you for coming and without objection will consider this report reviewed thank you. For. The next ten reports contain findings that were not referred to a prosecuting attorney and they were not repeat findings staff recommends that the committee take a moment to read over these findings and file in mass as reviewed after taking any questions. Any questions about any of these reports. Seeing none we will without objection our file these as reviewed. The remaining seventy three reports which are listed on pages twelve and thirteen consistent audits with no reportable findings staff recommends that these reports be filed in mass. Any questions about these final reports in the findings. Okay. See no without objectionable consider these reviewed. Okay committee members that concludes our business for the day we don't have any other new business center sold in anything you want to add before we go okay. With that motion to adjourn. I think a motion to adjourn. Motion second I wasn't ever say aye any opposed are returned