Legislative Joint Auditing
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Unknown speaker
0:00
Thank you.
Thank you.
Thank you.
Thank you.
Speaker 2
2:00
members if you'd go ahead and gather your seats we're going to get started
Speaker 4
3:00
So I called the Legislative Joint Audit Committee to order.
the chair sees the quorum let's begin with the first item on the agenda which is the adoption
of the minutes do we have any questions if not do i have a motion for adoption second all those in favor say aye any opposed minutes are adopted the first item on the agenda is my trustee co-chair here representative hawk for the executive committee report thank you
Representative RJ Hawk
Unverified
3:53
mr chair The executive committee met Thursday, December the 11th, 2025 and adopted the minutes from the meeting held on October the 9th, 2025.
Staff reported to the committee that the audit and special reports scheduled to be presented at standing committees and the full legislative joint auditing committee for this month. Staff also noted reports that are anticipated to be completed soon. In other business, a study of fiscal impact statements were deferred until January of 2026. The committee discussed the withholding of state turnback funds from municipalities due to delinquent water sewer audits pursuant to Arkansas Code 14-234-120. The chair requested that staff provide a summary of key points regarding the issues.
With no additional business to discuss, the meeting was adjourned. The next meeting for the committee is scheduled for Thursday, January the 8th, 2026 or at the call of the chair. And with that, that is my report for
Speaker 8
4:47
executive committee. I make a motion that we pass this report. Okay, you got ahead
of me there. We have a second, and we have a motion. Any discussion? All those in favor say aye. Any opposed?
The report is adopted. Next up is the Standing Committee on Counties and Municipalities, and Senator Stone is
going to present that report. Senator Stone, you are recognized.
Senator Matt Stone
Unverified
5:16
Thank you, Mr. Chair. The committee adopted the minutes of the meeting held October the 9th, 2025. The committee was updated on the status of December 31, 2022, delinquent private water and sewer audits. Twelve entities' turn-back funds have been reinstated after all required reports were submitted.
Based on the motion from the September 12th committee meeting, have been delivered to the treasurer of state requesting restoration of turn back funds to 221 of the remaining delinquent entities that have filed a December 31 2022 report or have provided an engagement letter stating that the reports for the December 31 2022 and 2023 will be filed by the end of 2025 calendar year the committee was updated on the status of December 31 2023
delinquent private water and sewer audits of the 64 delinquent entities 57 that file their December 31 2023 reports since the L Jack meeting held on July the 10th 2025 officials for the town of Carthage were present to address questions regarding the town's failure to meet the requirements of Act 709 of 2021 for repaying miss miss you street funds the committee approved in the request from the town to repay $170 10% of the general fund revenue to the
street fund until the balance is paid in full officials from the city of Dona were were present to address a potential non-compliance with municipal county law the committee approved a motion to give city officials 60 days to reach compliance as required under Arkansas code 1459 117 the committee reviewed 11 deferred reports and 189 current reports officials from seven entities were present to address repeat findings eight of the eight previously deferred reports
were filed and three were deferred of the hundred and eighty-nine current reports reviewed 14 referred to prosecuting attorneys and the Attorney General and one was certified to the governmental bonding board the committee filed 180 current reports and deferred nine reports to allow officials to answer questions or provide further information at a future meeting. A move for adoption of this report. Thank you. You've heard the report and we
have a motion to adopt the report. We have a second.
Any discussion? If not, all those in favor say aye. Any opposed? Motion is adopted. The next item on the agenda is the Standing Committee on Educational Institutions and Senator Sullivan is going to present that report for us.
Senator Dan Sullivan
Unverified
8:27
thank you mr. chair the committee met thursday december 11th 2025 and adopted the
minutes from the meeting held on october 9th 2025 10 education audit reports for the year ended june 30th 2024 and 2025 were included in the committee's agenda there were five education audit reports that contain findings the findings for bay school district were referred to the applicable
prosecuting attorney and the attorney general the remaining five audit reports had no finding the committee filed 10 audit reports that were brought before it i moved to adopt this report thank you senator sullivan
you've heard the report we have a motion to adopt the report do we have a second have a second any discussion all those in favor say aye any opposed no motion is adopted. Next item on the agenda is the Standing Committee on
State Agencies and Representative Unger is going to present that
Representative Steve Unger
Unverified
9:39
report. Sixteen reports were on the committee's agenda yesterday. Three reports with the following findings were presented. The Arkansas Securities Department, which is part of the Department of Commerce and unauthorized personal purchases of two thousand nine hundred dollars on an agency travel card in addition the insurance department which is also a part of the Department of Commerce did
not properly record accounts receivable the Commissioner of State lands had contract overpayments for FY 24 and FY 25. The State Game and Fish Commission reported three incidents of theft of property. In addition, the special report related to law enforcement agencies adoption of racial profiling standards was presented. Various agency staff members were present to report how the
agencies intend to address the audit findings and answer the committee's questions during the report the committee filed 16 reports I move to adopt this report thank you representative Unger you've heard the report
and we have a motion to adopt the port do we have a second second any discussion all those in favor let it be known by aye aye any opposed motion is adopted the next item on our agenda is the annual financial report for the
Department of Education for the fiscal year ended June 30th 2024 and mr. Christopher Mayland is
going to present this you are recognized to present that report thank you mr.
Speaker 27
11:28
chair this presentation covers the annual financial report for the Arkansas Department of Education for the year ended June 30, 2024. This report was previously presented at the October 9 meeting of the Standing Committee on State Agencies and deferred by the
full Legislative Joint Auditing Committee at its meeting held on October 10. This slide shows summary financial information for the department as of June 30, 2024. Assets totaled approximately 1.4 billion while liabilities totaled over 179 million net revenues totaled 1.3 billion other financing sources totaled 3.8 billion and expenditures totaled almost 5 billion legislative audit issued a clean opinion on the
department's financial statements this report contains four findings which can be found on pages 5 and 6 of the report the first finding is a significant deficiency and the remaining three findings are required to be reported under government auditing standards. The first finding relates to education freedom accounts or EFAs which the Division of Elementary and Secondary Education administers under the LEARNS Act. EFAs are state funded accounts used to cover approved educational expenses including private school tuition,
curriculum, and tutoring. Our review revealed that the agency did not have controls in place to review students with EFAs for duplicate enrollment in a public school we identify 239 students with potential duplicate enrollment in a public school during the 2324 school year which could result in duplicate funding to either the public school or to the EFA provider a test of 34 of the excuse me 34 the 239 EFA students reveal 28 instances of duplicate
enrollment second act 572 of the 2023 regular session authorized a 10 million appropriation for the merit teacher incentive grants to local education agencies finding two notes that in addition to the 9.99 million dispersed from the merit teacher incentive appropriation the agency used 1.9 million in unexpended funds appropriated for the national board of professional teaching standards the financial incentives to pay the remaining merit
teacher incentives the initial appropriation of ten million dollars was an estimate amount and no and did not factor for fringe benefits these 1.9 million was appropriated by for one purpose but used for another in violation of article 16 section 12 of the Arkansas Constitution the third finding relates to teacher incentive overpayment ADE rules governing
National Board for professional teaching standards incentive payments based on teacher certification dates and school or district poverty levels specifically a teacher who is working full-time or in a public school that is not a high poverty school or a high poverty charter school may receive a yearly incentive payment of $2,500 for no more than five school years our review of the incentive payments for eligible National Board professional teaching identified one
instance in which an eligible teacher who was not in a high school high poverty school or district was paid $5,000 rather than $2,500 resulting in an overpayment of two thousand five hundred dollars the fourth finding relates to failure to report stolen property which is required by the state's financial management guide specifically the bonded officer the
dispersing officer of an agency is required to report any apparent loss of state funds or property to the state chief financial a fiscal officer and to legislative audit within five business days of the date the the employee learns of the loss the board of trustees for the arkansas school for the blind and visually impaired and the arkansas school for the death was informed on july 18th 2023 that utility utility vehicle valued at approximately ten
thousand dollars was stolen the agency notified law enforcement of the incident but did not report theft to the state chief fiscal officer or legislative audit as required mr. chair this concludes my presentation agency officials are present to respond to committee questions Thank
You mr. Malin committee you've heard the report we do have representatives here from the Department Education if you have questions and I see one in the queue right now so we'll
Chair
Unverified
16:39
get started with representative Mayberry you're recognized is
Representative Julie Mayberry
Unverified
16:43
it possible to bring ADE because more of my questions really are for them that's what I
wanted to verify before we brought them up yes if those representatives would take the seat at the table good morning
Speaker 38
17:12
courtney solace ford chief of staff department of education
Speaker 40
17:15
good morning daryl smith office of school choice and parental
empowerment okay and if you would as is our rules if you would raise your right hand and we'll swear you in do you solemnly swear or affirm
that you the testimony you're about to give will be the truth the whole truth and nothing but the truth. All right. Thank you.
Representative Julie Mayberry
Unverified
17:36
Representative Mayberry. Thank you so much. I'll ask a few questions and then I'll get out of the queue and then let others and get back in because I've got a whole bunch. This, this was the very first year of EFAs and the very first
opportunity really for our auditors to look at it. And so in, in this report, there's just lots of questions that I have that need a deeper dive. I'm hoping y'all can answer. We just want to make sure that there's accountability with the program and that the taxpayers are seeing where the money is going. And that's really what it is. And I realize that things happen. And I think that you've been in the process of putting more money to the agency or the company that's going to
oversee this. And I do understand that there might be some more I's dotted and T's crossed in the future, but I want to specifically talk about what took place back then. So it showed that there were 239 students with potential duplicate enrollment. They didn't test all of that 239, they tested 34 and revealed that in fact 28 of them had duplicate enrollment. Now if I understand correctly, this is
not homeschool because homeschool wasn't allowed an EFA account the first year. So this is just painting a picture, a student who money went to a public school and money went to a private school for that one student for that year. So when looking at those cases, what actually took place was the student enrolled and then maybe mid-year switch to private school
or how did you look at those instances and can you tell me what was the common denominator of how that duplicate took place question number one happy to answer your
Speaker 40
19:43
question thank you for for asking so I think there is some has been a little bit of confusion uh that uh rep that a duplicate enrollment does not necessarily represent duplicate payments and so as as you were alluding to just shortly so in the first year all
the students were private school students they oh that was part of the law that was the rule that they could take that every quarter our office had to verify enrollment in the private schools so we know that those 239 students were enrolled in private schools so at that point we know that no money was misallocated I guess if you want to use that word out of the EFA program what we're looking at is from the public school side there's two different ways that a student could be potentially be on a public school role and the EFA role as well as far as an enrollment standpoint
number one students that may be receiving services for special ed some of these part-time students they would show up on a public school role for services that and so we would have to go in of those 239 and look at specifically at what was the case individually because some were special ed some may have been taking other courses that they are allowed to take at the public school so part time students that can also take classes in a public school so between those two scenarios typically that's what we found that that they were either like they may have joined a private
school and didn't notify the public school at the beginning of the year that they had switched and so the public school had them on their roll at the beginning of the year and so they stayed there so and then when the report was run there was still a student on the roll that was not it had not attended that particular public school or they were a part-time student taking a course of some sort at that at
Representative Matt Brown
Unverified
21:29
a local public school or they were in a special ed which would have all created this duplicate enrollment so
Representative Julie Mayberry
Unverified
21:37
in both on the efa side and the public school side So were there cases where payment, you're saying there was duplicate enrollment, but maybe not duplicate payment.
Correct. So how many of those were duplicate payment? And if there was a duplicate payment, has the private school or has the public school refunded all or a portion or what have you in those specific cases? Well, I could say that
Speaker 40
22:02
we've cleared out all the private school concerns, right? Because we know that all of those students were enrolled at the appropriate time in the private school. So there was never an overpayment to a private school because, again, there was a quarterly verification that first year.
And in the subsequent years after that, making sure that every student in the EFA program was enrolled in that time in a private school. So there would be no overpayment to a private school from that standpoint. From the public school standpoint, the AD Finance Office is still investigating all of those 239 to see if there was, in fact, an actual payment to a public school. And obviously, if there were, appropriate measures
Representative Julie Mayberry
Unverified
22:45
would be taken. So have there been some public schools then that have had to repay the state?
Senator Jonathan Dismang
Unverified
22:52
At this time, we have not identified any instances of duplicate payment. As Daryl
Speaker 38
22:58
stated, because of the nuances, we're having to look at each individual student and we have not identified any case in which a duplicate payment was made to the public school. There are some instances where that public school may have received funding, but it was valid receipt of that funding because, as Daryl stated, they were taking a course at that public school. there is specific coding in our e-school system so again as daryl stated if they were receiving
special ed services they're coded in a certain way so that they don't generate funding so we have not made it through all 239 we're still doing that but at this time we've not identified any of those instances do you know what number you're up to unfortunately i'm sorry i do
Representative Julie Mayberry
Unverified
23:42
not okay i'll let someone else ask some questions if anybody has any and then i've got more so Thank you. Thank you very much for lots of clarifications. Representative Brown, you're recognized.
Representative Matt Brown
Unverified
23:58
Thank you, Mr. Chair. Just curious, if a student is enrolled in a private school and then they do receive services at a public school, are their funds for the private school diminished somewhat to compensate for what's needed at the public school or do they pay the private school and then we pay extra for the services? At this time, as the law states,
Speaker 40
24:23
any student that takes a course from it, if that's a private school or a home school student who takes a course at a public school
will receive one-sixth of the foundation funding that goes to that public school. So at this time, no money is taken from the EFA account for services provided by the public school. Thank you. I
Speaker 60
24:43
appreciate the clarification. senator dismayne you're recognized
Senator Jonathan Dismang
Unverified
24:51
thank you mr chairman and one question on duplicative payments or whatever with a student that leaves a public school going to a private school i mean walk us through declining enrollment payment anyway i'm assuming at some schools they
would actually still receive the money for a student that makes a transfer i can't remember what all we've changed what haven't we changed but i mean you may well in fact find that it was properly paid even though there was a
ghost student at that school correct and unfortunately
Speaker 38
25:25
i'm not the the financial expert but i'll do my best um so declining enrollment is still in statute whereas for a year and a half after a student leaves the public school and because public schools are funded in arrears they continue to receive funding for that student again for a year
and a half even after they've left so so there are instances where it might look like a student is being double funded that's not the case because efas are current year funded the private school is getting the efa money the public school might be getting that money for the student who left a year year and a half ago and that's again that is why it takes us so long to go through each of these cases to see where specifically the funding came from or why it
Senator Jonathan Dismang
Unverified
26:08
was generated yeah but none of us should be shocked if a student is getting paid
for in two places i mean and it's not because of
of the EFA program it's because of a program that existed well before that in fact we could pay for a student twice prior to the EFA program if I remember correctly because if that student were transferred from one district to another because of declining enrollment we would again pay for that student twice potentially depending on the in actual circumstance so this isn't something new or something that's the prize or whatever else I mean it's the I'm not saying I agree with the policy, but the legislature did enact it. Correct. Even if a student left a public
Speaker 38
26:48
school to go to another public school, both public schools for a year and a half
would be receiving funding for that student.
Representative Steve Unger
Unverified
27:05
Representative Unger, you recognized. in a private school who played sports in the local public school does that count as a duplicate
Speaker 38
27:16
enrollment it could it depends many school districts in order
to play sports that will have the student enroll in a course as well and so if they are enrolled for a sports course then yes they would show up as duplicate enrollment Representative
Representative Julie Mayberry
Unverified
27:39
Mayberry you recognized thank you so this question actually came up through a school district of kind of asking me and I feel like this is the next step in the EFA accounts because
it now does affect homeschoolers so they have someone who was in a homeschool at the beginning of the year and then transferred back to public school and so if that homeschooler let's just say use their afa to buy that computer equipment um and then transfers to the public school after that what happens um they're they're finishing the year in the public school but
they've already purchased a computer or curriculum or whatever do they owe that back or do they and have the and can they spend all of it at once or is it only quarterly that you can spend if you could kind of help me answer questions to a school district I'd appreciate it
Speaker 40
28:43
yeah absolutely it's a great question so just to I guess help clarify that a little bit when a student is in the program so they are participating in the program they obviously can purchase anything that is an
eligible item at that time if they leave the program then if there is still um they could potentially their account becomes inactive so they can no longer spend efa money from the point of withdrawal from the programs or at the point you're in using your scenario at the point that they enrolled in the public school they can no longer use efa money because their account becomes
Representative Matt Brown
Unverified
29:18
inactive However, anything that they purchased while they were in the program still
Representative Julie Mayberry
Unverified
29:24
remains in their possession. So potentially, as the school district kind of brought to my attention,
could someone, and what safeguards do we have that someone starts out homeschooling and purchases various items and then decides to go to a public school, they get to keep all those items could they just continuously do that every year to i guess potentially gain yeah potentially but i think there's
Speaker 40
29:53
some clarification there of saying that they don't get the full in this case seven thousand dollars up front they're only getting a quarter of
it you know at a time so but they'll get their first payment somewhere around august so roughly $1,700 at this time so at that they could only spend up to $1,700 so yes potentially could they spend their $1,700 and then go to a public school in September or October absolutely and and so
Representative Julie Mayberry
Unverified
30:21
what what can we do to make sure that people don't abuse that because I I see potential I'm not like that I don't think of those scenarios but other people do and so I'm concerned that people will
double dip um and just figure out a way to make use of some accounts i think there um
Representative Matt Brown
Unverified
30:41
that may happen once i mean there's a possibility of that you know potentially
Speaker 40
30:46
but there are safeguards in place already to keep people from jumping in and out of the program so we have a lot of safeguards now since we put in since year one of identifying you know with some unique identifiers with some new reports that look for anomalous activities that look for same families going through some
repeated patterns and so especially especially those families who leave a program and then come back in those are flagged and so we look at their expenses much put a lot more scrutiny under the the items that they submit and the and those type of things and so if we see a computer being bought every year. We would more than likely deny that. So we're looking at every receipt and every submission that comes into the EFA program and the history of their purchases. So there are already
some controls in place to help us try to catch those things from happening. Will we catch them always right at the front, you know, on the front line immediately? That's our goal, and we certainly do our best to do that but we will certainly catch them you know most of those within the within that current school year if they try to bounce in and out. Okay thank you. Senator Dismain you're recognized. Thank you just to
Senator Jonathan Dismang
Unverified
32:10
add clarification to a little bit of that
conversation I think it sounds like a superintendent or somebody the district is doing more fear mongering and then they are actually trying to find out information about how the programs work because I think there are safeguards. And again, I think you've walked through some of those. The first being that it can only be taken on a quarterly basis, which a quick phone call would have very quickly answered that question for how the program is implemented. And I mean, the way that I see it, the only entity that's going to double dip in this instance potentially could be the school district that loses a child and then turns and gets paid declining enrollment
because they went to homeschool. And then they come back and then they're paid for that child while they're still receiving declining enrollment. But again, those are all things that we need to fix on the public school level in regards to the program, I believe. But again, I appreciate you walking through some of the safeguards. And it sounds like maybe we need to have something sent out to these school districts that are not asking some of the basic questions about the program, especially about things that have zero impact on their district.
But thank you for that clarification.
Representative Matt Brown
Unverified
33:26
representative Brown you're recognized thank you again I didn't quite understand and I'm and I'm not sure I understand what's meant by declining enrollment I mean obviously declining enrollment is declining enrollment but it's being used in a different context here and I don't know what that context is. On the EFA, I have two questions. On the EFAs, are students, they're allocated
their money quarterly, is that correct? Is that what you said? Yes, ma'am. Okay, but are they, do they have thresholds on what they can spend on electronics or curriculum or different things like that? That's also a
control, correct? Yes, ma'am. So there are, there right now is a thousand dollar
threshold on technology devices now my other question mr. chair if you'll indulge me if school public schools are paid in arrears and you're from a discussion with senator dismaying
and a student goes from this school district to this school district they're paid in arrears how would one student be funded in two different schools at the same
Speaker 38
34:37
time again so i'm our cfo could not be here today um two could very uh more clearly explain this than i can but school districts are funded on average daily membership from the prior years of attendance and so students are counted for the year in which they were there and so if i was in school district
a and and i left school district a is going to get funding for me for this year for last year and the next year for this year where i'm already gone whereas school district b that i've gone to they might be getting um and growth funding because in declining enrollment funding it was it's a provision put in law to a kind of soften the blow to public school so that if they lose a lot of students they don't have a huge fiscal fiscal hit um and so it it provides them additional
funding to account for that loss of students well school districts who get a lot of students then get growth funding and so they get current year money for the new students that they got who are also counted in their ADM and so school district B is getting growth funding for the student the same year that school district A is getting declining enrollment funding and funding for their enrollment in that previous year and school district B will get funding the following year
Speaker 70
36:00
for the first year that they were there. So that probably
Representative Wayne Long
Unverified
36:15
Thank you very much. Representative Long, you are recognized. Thank you, Mr. Chairman. We homeschooled our three sons, so I'm very pro-homeschool, but I'm very anti-fraud. And I was wanting to know, are we currently having somebody just go through
and look at each individual receipt that's submitted from the homeschoolers to verify if it's an acceptable expense, or have we moved to the card type deal sort of like SNAP is going to be where you can only purchase items that are from an approved list of curriculums, that type of thing.
Speaker 40
36:50
So at this time, we review every submission that's made from either both a private school and a homeschool family some are for reimbursement some are for actual marketplace or direct paid type vendors but our staff looks at every receipt that comes
in and verifies vendor verifies amount verifies the items that were purchased were eligible items and as long as the items were eligible then obviously we go we approve and that that receipt or that reimbursement gets paid if there was an item on that receipt or on that submission that is not eligible then the entire submission is denied and sent back to the parent for either corrections you know to correct it or to take things off of the receipt to make sure that everything that comes through that's approved is an eligible item. The reason I ask is I've had a
Representative Wayne Long
Unverified
37:39
superintendent bring up a case where he claimed that there was somebody had submitted a receipt for like a gaming chair you know which is you know i guess kind of a fancy chair for using for computer gaming which is very expensive of course you know compared to just a regular office chair for the kid to sit at the desk um have you seen any type situation like that where y'all have paid for you and you know
Speaker 40
38:03
something well i mean yes sir and i think sometimes we get the nomenclatures there sometimes are maybe a bit misleading because a lot of things can be gaming chairs
right and they're not always seven eight hundred dollar chairs right uh so i think a little bit of the nomenclature and the naming of it sometimes is a little bit misleading however there is a process and as more as we've gone through the process now that we're in year three of the process of the of the efa program of contributing creating more controls and making sure that there is a higher level of scrutiny about which what things so we have a process called ordinary and necessary that every review goes under and so it's basically is this an ordinary expense is this an ordinary something an item that would be used for education and is it a
reasonable cost and so we have basically we're continuing to work on finding that average cost for eligible items and that kind of sets the standard and then based on the receipt that comes in we can determine how it relates to that average cost and if it's above the average cost a significant amount above the average cost then we will ask the parent for more justification because there are times based on maybe a therapy based on a tutor based on maybe some other items that a
student might need something that's a little bit more expensive for their education and so as long as a parent can justify that or we have a qualified professional that can justify and can show us the justification for it then maybe we'll approve something that's a little bit higher than maybe the normal but for the most part we stay in we try to stay in that average range based on what a reasonable person would consider uh
Representative Matt Brown
Unverified
39:40
average for that particular type of an
Representative Wayne Long
Unverified
39:43
item and i wonder if you wouldn't mind um sometime if you could maybe email me the the list that you use as far as you
know that ordinary and necessary type i'd like to look at
Senator Jonathan Dismang
Unverified
39:56
that happy to do that thank you and representative long if you don't mind me adding we
Speaker 38
40:01
also are committed to preventing fraud to making sure that accountability is there for parents and for private schools and public schools and in an effort to ensure that we had the inspector general for the state do a complete review of our program and identify areas of potential weakness and make recommendations of ways and additional safeguards that we could put in place and and we are we have put some of those in place and we're
in the process of putting those additional safeguards in place because we hear all of the same claims and allegations that you all do and we we want to ensure that we are implementing this program with fidelity and integrity and so we are doing everything we can to prevent any types of fraudulent cases like that thank
y'all appreciate it thank you and just to add a little uh color commentary here my daughter is a public education she's a teacher elementary teacher and uh one of the days i went into her classroom i saw around her learning center about four or five different
types of chairs. And so she explained to me in a very thorough way how students learn differently and their comfort level and how they are sitting contributes to their education. So I learned something there. So I don't know the situation there, but it's very real. So thank you for your clarification. All right, Representative Mayberry, you're up again. Thank you. I promised
my last time and i told you
Representative Julie Mayberry
Unverified
41:21
i was you know going to separate it some so kind of what was just mentioned
i just would like a little bit more information because again we want to make sure that there's the appropriate accountability and and all that when this was when this report was done auditors were looking at um 5 000 maybe a little over 5 000 you know efas back in 23 24 now we have 46,000 or so um so that's a lot and if we're still we still haven't completely looked back
at the 239 students from 2324 that the auditors kind of noted how are we ever going to keep up with now the 46,000 accounts, do you have enough resources available to make sure that there's time to catch up? Because if we're still behind on 23, 24, and there were only 239 students in this report that were flagged, how do we handle the volume
that potentially could be out there with 46,000 cases? do you have those resources so i would say we could
Speaker 59
42:42
always use more resources resources right but but i
Speaker 40
42:46
will say this that we have uh at to courtney's point earlier we have been continuing to put more and more controls in place to help the team ensure that we stay up we stay up to date so uh more frequent matching uh running of the report between efa and uh the public school role
so we can catch things a lot faster first year was first year and we were still putting the thing together and so that report got right at the end of the year and so that's that was one of the reasons that was really what 25 I guess 20 or end of 24 when that first report ran and then we had had to kind of figure out what was going on at that particular point and why would there potentially be duplicates and does that really mean that there was a duplicate payment or was it just something was a duplicate enrollment so there was it took us a little time to kind of figure the system out because it was new, and to figure out why there were duplicates.
Now we've got a better understanding of how that could happen, where it's going to happen, where we can flag things. And so some of the controls, like I said, we've got better student identifiers now. We've got the OIG report, which has helped us streamline some things. We're working with ClassWallet to put some new controls in place that will help us identify faster. We're now in the process now of working with eSchool so that we can take our EFA students and almost nightly run a duplicate report and find these things out really quickly.
So on a week or a monthly basis, we'll know a lot sooner when a duplicate enrollment has occurred, which will allow us to very quickly go back in and look at that individual student and see
Speaker 83
44:23
if there is truly a duplicate enrollment or if this was one of those cases that we had
Representative Julie Mayberry
Unverified
44:31
mentioned earlier. Okay. And then my final question,
I promise. So I've just kind of wondered what type of control is there when I've sat on educational audit just about every term I've been
in here. And over and over again, we have a school district that comes forward and there's an audit finding. And the audit finding is that the school district purchased computers or textbooks or what have you and um in random checking they can't find that computer you know the auditor can't and so they get flagged where is this computer what's happened to it you know we expect you bought it two years ago it should still be there um if it's not here then where is it right so i guess my
question is is if if the efa was used to purchase things um a computer or whatever whatever is needed the curriculum what guarantee is it to the taxpayer that that still is being used by that student a year later two years later if we are asking the public school to be accountable to that where is it how do we know that someone doesn't purchase a computer get the money from the state
and then return it or sell it to somebody else and not not even make use of it so it do we have something in place that looks at that you know we hope that someone doesn't commit that type of
fraud but is it even fraud sure well obviously it was it was purchased at a
Speaker 59
46:11
you know appropriately at the time right at the time of
Speaker 40
46:15
purchase now some of these were we're certainly not going to go in everybody's home and see if they still have a computer and some of those types of things.
We'll have to assume that they're still using it appropriately. But at the same time, what we do have controls for is repeat purchases. So if someone is trying to, in some sense, game the system, you know, I'm taking it, I'm buying it, I'm going to go return it and get half the money back and take the cash and then try to do that again, that we do have controls for and that we will catch up with very quickly. And that will get flagged very, you know, not instantly, but fairly quickly within a couple of months.
We'll see that in our reports as they try to do it again. And so or if we see what we call anomalous activities or something that's just not ordinary, the same receipt amount come through multiple times, large purchases that come through consistently. Those are the type of things that would get flags. that would flag the family or flag the vendor, which we would then lead to a further investigation of those purchases. And then at that point, we would then probably go in for a much more
scrutinize of, can we see the information? Can we see the purchases that you've had? Can we, you know, how is it being used for education? So that would lead us into a deeper investigation. So the first part is identification, which we do have controls now for identification. Are we perfect? Probably not, but we're certainly getting much, much better. And because as Courtney was mentioning, there's probably nothing more important to this office than transparency and accountability, because we realize there's nothing that will ruin a program faster than misappropriation or fraud or abuse, right? Now, we can't control human beings, but we can do
everything we can to catch what those that are trying to do something that's from
Representative Matt Brown
Unverified
48:08
a nefarious point, you know, standpoint. Is
Representative Julie Mayberry
Unverified
48:13
that, would that right now on our books, would that be considered fraud and abuse and something that could be someone could be criminally held for if they you know purchased this computer and sold it to someone else and didn't use it and you figured it out on down the road do we have something in place that that holds that person truly accountable
and they don't just get a you know that stops them
Speaker 38
48:38
from doing it so if we identify case true cases of fraud or intentional misuse of the program funds. We can seek to recoup those funds. We can seek to recoup that property. We can refer them to the prosecuting attorney for a further investigation. So as Daryl said, we've put all the safeguards that we can in place to prevent it and identify it. And we do have the authority to refer that for prosecution if that fraud is identified. Now, not all cases are going to be fraudulent, exactly like we talked
about earlier there are cases where a student might have used some funds which were valid at the time and then went back to a public school which every student has the right to do and which we want them to have the right to do you mentioned how you know we can look at 46,000 students every day we are trying to monitor and identify the purchase for 450,000 students in public schools and we have similar cases as you mentioned where or public schools can't find computers many of our
public schools give a laptop or an ipad to every student in that school district and those don't always come back we don't know what those parents or those students are doing with those laptops and ipads but the public schools they might ask for recoupment but they're not they don't always get it and they're not going to keep that student from coming to school because they didn't get that laptop back they're going to give that student another one and continue to educate them and so with this program as we do with public schools we are doing everything we can to identify those
cases prevent those cases but just like in the public schools with this program we we can't prevent every instance okay thank you very much for
Representative Julie Mayberry
Unverified
50:21
answering the questions um i appreciate it thank you representative duke you're recognized thank
Representative Hope Duke
Unverified
50:32
you mr chair thank you all for all this information um i think it's been very helpful and informative and i appreciate the questions because it's easy to forget sometimes that um there are people that watch this that they learn
from that as well and i know i've learned several things today that i think will help me do better job of answering questions when i go back home but i also think it's great to have these questions asked here because at the end of the day we represent the people of Arkansas and they have questions and it saves all of us some time when we air it out here and we all learn and I really appreciate the questions that you've asked and the answers that we've gotten because I know it's going to make me do a better job and I know people across Arkansas that take the time and I know there are many that take the time to watch these committees will appreciate having the opportunity to learn more about it.
So I thank you for that. Also, to what Representative Lawn asked for that information, could you send that out to all the committee members because I think that was a good question and a good piece of information for us just to have in our tool belt of as we serve our constituents. My final thing is I guess you all made some areas of improvement from the first year. That's great. I love that. I'm the unintended consequences girl. I'm always trying to look for okay what could I not necessarily be expecting to happen that could happen and as we know fraud and scams there are people that spend
an awful lot of time trying to find ways to get free money, right, and to take advantage of good programs and good people. So as you all do that, because I think most of us don't necessarily look for all the, you know, we're operating under, hopefully, although our hearts are desperately wicked and sinful at the root of it, that we are trying to do better, but there are unfortunately people that are not. So do you all have also a space that's proactively looking for not playing defense but playing offense in this arena of making sure that we don't get that newest scam
or the newest fraud that could potentially be happening. And I know you all got a lot of irons in the fire in education and in this arena. But I do think we have to be proactive. I think we've learned a whole lot in the last few years. I know I have personally of the level of fraud and scams. And I know legislators were dealing this on a regular basis with our constituents who are calling us in all kinds of different arenas, and I'm having to call people and say, okay, I need some help. Is this actual legit, or is this one of my constituents being scammed?
And so how are you all protecting that, even your sites? Is that discussions you're having so that people don't accidentally get directed to a wrong site when they're trying to do something? Are you all being proactive and not playing defense? Absolutely.
Speaker 40
53:13
I think there's a couple answers to your questions. First of all, thank you. for your comments. Secondly, we don't want to play defense. We want to try to stay on the forefront of this. And we certainly know that that's difficult because things are changing fast
as technology changes and those types of things. And so we work with Class Wallet, who's obviously a national organization, has several states involved in EFA programs. And so they're obviously working on the front end, trying to make sure that we have controls in place, that we're using AI appropriately that we're using to help to identify certain things. We're also looking at what are other states experiencing and trying to make sure that we're advancing those things and learning from what others have already learned from and putting those controls in place on the
front end before it becomes an issue for us. So we are always constantly trying to look out from the headlights, right? Look out as far as we can look out and say, what are those potential risk what are those potential areas that could create issues for us or that could you know start a fraud or could be you know there's areas where there are people who are trying to take advantage of the system and so we are always looking for new ways to discover that prevent those things
Representative Matt Brown
Unverified
54:32
you know cover up as many if there are any gaps in
Speaker 40
54:37
the system to close those gaps so that there are less opportunities for people to take advantage of the system and so we are always looking for you know best practices we're looking at our our vendor for those and they're obviously they're looking for best practices to ensure that the this the funds are safe and that we're that we're making sure that we're taking every possible opportunity to close those gaps and also i think
when we when we look at things we're also you know all the purchases all have to be inside of class wallet for the most part so that helps us protect some of those things that you're talking about being sent to a wrong site so they have those things have to happen inside this closed world that class wallet has and so that that helps us a lot reimbursement certainly we have to look for those and we put we're putting new and new controls on that how do we make sure how do we spot a potentially fraudulent receipt you know some of those types of things so we're already looking at those things and trying to find new ways to identify um receipts that may or may not
be appropriate for the for the program. And so to answer your question, I know I'm kind of babbling here a little bit, but we are
Representative Matt Brown
Unverified
55:46
certainly looking proactively at how can we continue to keep closing the gaps and to protect taxpayer money. Thank you. And
Representative Hope Duke
Unverified
55:54
I appreciate that. I appreciate all that information. Again, you know, we would,
it's easy sometimes, I won't say it's easy, but we can forget that every dollar of taxpayer dollars, we have to guard and we can't let our guard down in doing
that. And so I appreciate, and it's all the people's money and responsibility, no matter where their public school, private school, homeschool, whatever they are, we should all be equally vigilant on all areas of that. So I appreciate what you guys are doing. I really do appreciate the information you shared today and the lack that you weren't defensive about it either, that you just came in here and answered the questions and shared it and helped us become better
Chair
Unverified
56:36
as legislators. So thank you. Okay, Representative Rowe, you're recognized. Yes, thank
Representative Ryan A. Rose
Unverified
56:40
you, Mr. Chairman. During the year 2021, during the COVID period, there were a tremendous
amount of laptops that were, you know, bought and
Representative Johnny Rye
Unverified
56:47
the children took those, you know, students took them home. How did we handle that? Did they bring those back or? So
Senator Jonathan Dismang
Unverified
56:57
as I stated, in many instances yes they
Speaker 38
57:00
did that was each public school's responsibility to to keep up and maintain inventory on those those any technology that they purchased with federal funds or state funds um and so most of the time students brought them back and they would continue to use them but not
always we had many instances of cases where they did not come back or they were damaged beyond use and then so again public schools would just issue a new one um so i don't know if that
Senator Jonathan Dismang
Unverified
57:27
answers your question but yes most of them did but not all the time
Representative Ryan A. Rose
Unverified
57:30
i just remember during that period my nephew there in mark tree uh that happened and he did take it back but you know i just kind of wondered how y'all were keeping up with it yeah we we
Speaker 117
57:42
do audit public school districts or i say monitor
Speaker 38
57:46
public school districts they are audited by leg audit in most instances um and inventory is part of that and so we identify cases where laptops didn't come back um but at that point other than asking the parent to to repay or recoup that those funds there there's not much you can do because you're not going to deny that kid access to education or deny them the technology that they need to continue getting their education because they didn't return or didn't properly take care of one yes ma'am and the
Representative Johnny Rye
Unverified
58:14
reason i brought that up is i do remember that he did take that back to
school so thank y'all thank you okay
seeing no other questions do i have a motion to file the report second any discussion on the motion not all those in favor say aye any opposed motion passes the
next item is a special report on cyber security incidents reported by public entities for the year
ended June 30th 2025 mr. Larry Doss is going to present this so mr. Doss you're recognized to present
Speaker 123
58:51
that report Thank you, Mr. Chair. Arkansas Code requires legislative audit to compile and submit to the General Assembly an annual list of all cybersecurity incidents reported to us by a public entity. This report fulfills that requirement. Prior to the passage of Act 260 of the 2021 regular session, there was no requirement for public entities in Arkansas to report cybersecurity incidents.
The General Assembly recognized the need to collect information about cybersecurity incidents occurring at public entities and evaluate these incidents so that proactive measures can be taken to prevent disruption of government operations. For the purposes of this report, the term "public entity" refers generically to organizations at all levels of Arkansas government, and a cybersecurity incident is any event that that compromises the security, confidentiality, or integrity of an entity's information systems,
applications, data, or networks. During the 2025 regular session, the General Assembly enacted Act 489, the Arkansas Cybersecurity Act, which centralizes the approach to defending state government systems against cyber threats. The act created the State Cybersecurity Office, which is part of the Department of Shared Administrative Services and is responsible for providing centralized oversight and coordination of cybersecurity efforts across all state agencies.
The office is led by the State Information Security Officer, whose duties include setting statewide security standards, managing incident response, conducting audits of state agency compliance with cybersecurity governance standards, coordinating threat detection, and ensuring that mandatory cybersecurity training is provided. Under Act 489, state agencies are required to report on cybersecurity matters to the office while retaining control over their day-to-day operations.
Additionally, the office is required to submit reports to the legislature at least twice a year, detailing assessments, progress on remediation, and any instances of noncompliance. During the 2025 fiscal year, 217 cybersecurity incidents were reported to legislative audit by 124 public entities at all levels of state government. A complete list is provided in Appendix C. Of the 217 incidents reported, 193 have been resolved and 24 remain under investigation.
Exhibit 1, shown on this slide and on page 2 of the report, provides a summary of incidents by type for fiscal years 2022 through 2025. As shown in Exhibit 4 on page 4 and on this slide, the number of incidents reported to legislative audit increased by 64% from fiscal year 2024 to fiscal year 2025. During the review period, incident reports related to ransomware revealed the involvement of foreign threat actors.
Several highly active ransomware and data extortion groups have been operating in Arkansas since at least July 2023. These groups appear to be responsible for at least six incidents reported to legislative audit. Despite the rise in incidents, there were no reports of ransom payments made by public entities in Arkansas during fiscal year 2025. The types of incidents that caused the most harm included business email compromise, scams, spam or phishing attacks, and fraudulent transactions.
Many of these incidents originated from email requests made by malicious actors impersonating legitimate vendors or employees asking for changes to bank routing and account numbers. This concludes my presentation. I would be happy to answer any questions from the
committee. okay members you've heard the report do we have any questions seeing none do I have a motion to file the report second any discussion all those in favor say
aye any opposed motion passes okay the next item on the agenda is a special report for
the cost-benefit analysis of selected economic development incentive projects for the 10-year period into December 31st, 2024. Mr. Clayton Smith is going to be recognized to present that report. Thank you,
Speaker 127
1:03:53
Mr. Chair. The Consolidated Incentive Act of 2003
combined existing economic development tax incentives primarily into four statutory and five discretionary economic incentive programs. Legislative audit is required to prepare a cost-benefit analysis of the economic incentive projects annually. This report had two objectives. First was to evaluate controls over the awarding and issuance of CIA incentives by Arkansas Economic Development Commission and the Department of Finance and Admin.
Second was to determine the overall effectiveness of CIA programs as well as the effectiveness of selected CIA projects. This chart, which is presented as Exhibit 2 on page 3 of the report, shows the distribution of CIA funds by region. Incentives awarded to companies totaled over $594 million, and incentives used totaled just under $634 million.
The remainder of Exhibit 2, which is shown on this slide, illustrates the percentages of total incentive funds awarded in each region as well as the percentage of total population. This chart, which appears on page 5 of the report, shows the distribution of CIA funds by incentive. Statutory incentives accounted for 73.5% of all incentives awarded and issued, while discretionary incentives accounted for the remaining 26.5%.
Exhibit 3 and 4 on page 4 of the report break down the CIA awarding and issuance of funds by counter year and industry. In 2013, legislative audit began an annual review of CIA programs on a project-by-project basis. With the accumulation of data from these reviews of individual projects, overall conclusions can be drawn about the cost-effectiveness of entire CIA programs.
As shown on this slide and in Exhibit 6 on page 7 of the report, two statutory incentives resulted in a net positive benefit to the state. One discretionary incentive returned a net positive benefit and one returned a negative benefit. For the remaining discretionary incentives, more projects will have to be reviewed and more time will have to elapse before conclusions can be drawn about their effectiveness. It should be noted that Act 327 of 2019 changed the R&D incentive from statutory to discretionary and limited eligible expenditures to wages and benefits in order to improve the overall effectiveness of R&D programs.
In addition to drawing conclusions regarding the overall effectiveness of CIE programs, we reviewed 24 individual projects with eligible investments of approximately $90 million that were awarded incentives totaling almost $66 million in tax credits, refunds, and rebates. As shown on the slide, the projects received six of the available incentives, and funds were distributed among their tier rankings, which are based on economic need.
Of the 24 projects reviewed, five had unfavorable cost-benefit ratios calculated by legislative audit. For these five projects, five companies received the in-house R&D incentive. The 19 remaining projects reviewed had a favorable cost-benefit ratio. For the 18 non-R&D projects reviewed, the state invested an average of $11,371 for each of the 4,287 new full-time permanent jobs created, assuming all credits are used.
Exhibit seven on page nine provides a summary of the 24 projects reviewed, and schedule one on pages 12 through 14 provides a detail of each item tested. The report contains one finding which is discussed on page 10. As noted in the prior year report, we identified deficiencies in internal controls related to AEDC's verification of tax credits awarded. We tested six R&D projects totaling 17 million
that were awarded from 2017 through 2023 and noted the following issues. Annual expenditure reports were not provided for all award years for one of the projects tested. Five projects tested contain no documented audit or review summary provided by AEDC explaining how they determine the existence, accuracy, and allowability of R&D expenses claimed by participating companies. Additionally, one project contained memos summarizing review steps taken by AEDC for calendar year 2023 only,
which did not encompass the entire five-year life of the project. Any disallowances noted for 2023 were not uniformly disallowed from the prior years. AEDC also incorrectly calculated state income tax credits for two of the projects tested, resulting in a total combined overpayment of more than $184,000. It should be noted that one project reviewed by AEDC noted in the testing above
resulted in the disallowance of $428,000 in unqualified expenses originally submitted by the company, highlighting the importance of their reviews. The lack of appropriate monitoring controls over tax credit awards, which includes a documented review of R&D project expenditures by AEDC, could result in the loss of state funds. We recommend that AEDC continue to evaluate and improve its internal controls over tax credit awards to ensure that expenditures supporting these awards are valid, accurate, and allowable.
Company expense submissions should be substantiated by supporting documents, including invoices, org charts, W-2 forms, or job and project descriptions to establish a direct link to research and development. We further recommend that AEDC continue its review of previously issued tax credits in an attempt to recover any credits awarded in error. Mr. Chair, this concludes my presentation. Management response from AEDC is provided in Appendix C of the report,
And officials from AEDC are present to answer any
committee questions. Thank you, Mr. Smith. Committee, you've heard the report. We do have DF&A and Economic Development Commission available for questions. Looks like we have one for Representative Unger. Representative Unger, is this for staff or for DF&A or AEDC? Mr. Chair, I don't actually know.
Representative Steve Unger
Unverified
1:11:02
My question is, could somebody remind me what Advantage Arkansas was? Thank
Speaker 133
1:11:12
you. Thank you. There is a, in the report,
Speaker 127
1:11:19
in Appendix A, there is a description of
Speaker 133
1:11:24
each of the incentive projects, and Advantage Arkansas is included there.
anyone else all right seeing none do I have a motion second any
discussion all those in favor say aye any opposed motion passes okay the last report on the agenda
is a summary of the intercollegiate athletic revenue and expenditures for 2024-2025 from the Arkansas Department of
Education Division of Higher Education and Mr. Nick Fuller is going to present that so if you would state for the record your name and you will be recognized to present the report. Thank you. My
Nick Fuller
Unverified
1:12:19
name is Nick Fuller. I'm assistant commissioner for the Division of Higher Education and as mentioned it's a presentation of the report on the 2024-2025 fiscal year athletic revenues and expenses for our higher education institutions. This is required to be presented to our Higher Education Coordinating Board each year as per Act 245-1989,
and once that report has been approved, we are required to submit it to you all for review. For the 24-25 fiscal year, athletic expenses totaled $282 million for the four-year universities and $6.1 million for the two-year institutions. this total represents an 11 percent increase over the prior year a total of 288 million as compared to 260 million in fiscal 24 the majority of that increase has been due to the the higher
travel costs for athletic teams as they're going for those away games some of them you know further across the country those costs have escalated as well as the the largest one is for the expansion of coaching staffs and support personnel at some of the larger institutions not an increase of salary for current coaches it's just more coaches that they're paying salary for is what that is for so with that also the uh in comparison to the budget for each of these athletic expenses that are presented to us in the months prior to the year starting this represents a nine percent
expenditure increase over the budget the planned budget amount these budgets are made within the broader budget of the institution so even though they exceed the planned budget for athletics it's not exceeding the appropriation authority that you all grant them for the institution to spend with that we'll open up
Speaker 125
1:14:08
for any questions you may have thank you mr
fuller anybody have any questions if not committee you have heard the report
barely miss our representative mayberry i'm sorry i'm just
Representative Julie Mayberry
Unverified
1:14:30
looking for a clarification because i don't see university of arkansas on here unless i'm just completely
Speaker 137
1:14:37
blind why am i missing that Listed as
Representative Julie Mayberry
Unverified
1:14:41
UAF for University of Arkansas Fayetteville. Oh, okay. Thank you. Yes, ma'am. Because I was
trying to figure out how are we missing that. And this does not factor in the ASU Arkansas game, correct?
Nick Fuller
Unverified
1:14:55
Because that would have been the current year. Yes, and to point out as well, you also won't see the revenue share yet for this past year because that did not start until 26. So the next reporting, or 2526, the revenue share for the student athletes. Okay. So that's not included in any of these expenses
Representative Julie Mayberry
Unverified
1:15:14
from prior year either. Okay. Thank you for that clarification. Sorry, but I got
it in just in time. Barely. That's okay. Thank you. All right. Seeing no other questions, do I have a motion to second?
All those in favor, let it be known by aye. Aye. Any opposed? No. Motion passes. That concludes the review of the reports. Our next meeting is of the legislative joint audit committees will be held on January 8th and 9th. With that, we are adjourned.
Agenda
A. Call to Order by Chair
B. Adoption of Minutes
C. Reports of Executive and Standing Committees:
D. Review of Reports:
E. Other Business:
F. New Business
G. Adjournment
Documents
| Title | Type | Pages | Source |
|---|---|---|---|
| Agenda — LEGISLATIVE JOINT AUDITING, Dec 12, 2025 | Agenda | 1 | Official source ↗ |
Speakers
Speaker 2
Speaker 4
Senator Jim Petty Chair
Unverified
Representative RJ Hawk
Unverified
Speaker 8
Senator Matt Stone
Unverified
Senator Dan Sullivan
Unverified
Representative Steve Unger
Unverified
Speaker 27
Chair
Unverified
Representative Julie Mayberry
Unverified
Speaker 38
Speaker 40
Representative Matt Brown
Unverified
Senator Jonathan Dismang
Unverified
Speaker 60
Speaker 70
Speaker 32
Representative Wayne Long
Unverified
Speaker 59
Speaker 83
Representative Hope Duke
Unverified
Representative Ryan A. Rose
Unverified
Representative Johnny Rye
Unverified
Speaker 117
Speaker 123
Speaker 127
Speaker 133
Nick Fuller
Unverified
Speaker 125
Speaker 137