Legislative Joint Auditing
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Unknown speaker
2:24
Members if you'd go ahead and gather your seats we're going to get started
Speaker 4
3:28
So I called the legislative joint audit committee to order
the chair sees a 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 you have a motion for adoption? Second all those in favor say aye any opposedins are adopted the first item on the agenda is my trustee co-chair here uhpresentative hawk for the executive committee report. thank you Mr Chair. The
Representative RJ Hawk
Unverified
3:59
executive committee met Thursday December 11,2025 and adopted the minutes from the meeting held on October 9th,2025 staff reported to the committee that the audit and special report scheduled to be presented at standing committees and the full legislative joint auditing committee for this month.taff also noted reports that are anticipated to be completed soon and other business the 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
persuant to Arkansas code 14,234,120. The chair requests 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 January8,2026 or at the call of the chair and with that that is my report for executive committee I make a motion that it's it I make a motion that we pass
Speaker 8
4:52
this this OK, 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 my 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
5:21
thank you the committee adopted the minutes of the meeting held October 9,2025. The committee was updated on the status of December31,2022, delinquent
private water and sewer audits. 12 entities turnback funds have been reinstated after all required reports were submitted based on the motion from from the September 1elth committee meeting, letters have been delivered to the treasurer of state requesting restoration of turnback funds to 21 of the remaining delinquent entities that have filed a December31,2022 report or have provided an engagement letter stating that the reports for the
December31,2022 and2023 will be filed by the end of 2025 calendar year. the committee was updated on the status of December31,2023 delinquent private water and sewer audits of the64 delinquent entities,57 have filed their December31,2023 reports since the Ljack meeting held on July10,2025. fi ci al s for the town of Carthage were present to address questions regarding the town's failure to meet the requirements
of Act709 of2021 for repaying miss misused street funds. The committee approved the request from the town to repay $170 or 10% of the general fund revenue to the street fund until the balance is paid in full fi ci al s from the city adona were were present to address substantial noncompliance with municipal county law the committee approved a motion to give city officials60 days to reach compliance as required under Arkansas code 1459117.
the committee reviewed 11 deferred reports and 189 current reports officials from seven entities were present to address repeat findings eight of the 8 previously deferred reports were filed and3 were deferred of the 189 Current reports reviewed 14 referred to prosecuting attorneys and the attorney general and won't was certified to the governmental bonding boardard the committee filed 180
current reports and deferred 9 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
Senator Dan Sullivan
Unverified
8:42
Thank you Mr chair the committee met Thursday December 11,2025 and adopted the
minutes from the meeting held on October 9,2025. enation audit reports for the year ended June30,2024 and2025 were included in the committee's agenda. There were5 education audit reports that contain findings the findings for basey 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 senatorulllivan. 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 andpresentative Unger is going to present that report
Representative Steve Unger
Unverified
9:45
16 reports were on the committee's agenda yesterday ree reports with the following findings were presented The Arkansas Securities Department, which is part of the department oferce had unauthorized personal purchases of $2900 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 stateame andish convention reported three incidents of theft of property in addition the special report lad 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 moved to adopt this report Thank you Representative Unger.
you've heard the report and we have a motion to adopt the report. do we have a second Second any discussion all those in favor let it be known by I ay 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 June30th,2024 and Mr. Christopher Mayland is going to present this you are recognized to
Speaker 27
11:33
present that report. Thank you Mr chairir this presentation covers the annual financial report for the Arkansas Department of Education for the year ended June30,2024. this report was previously presented at theoctober 9 meeting of the standing Committee on state agencies and deferred by the full legislative joint auditing committeetee at
its meeting held on October 10. this slide shows summary financial information for the department as of June30,2024 assets totaled approximately 1.4 billion while liabilities totaled over 179 million net revenues totaled 1.3 billion other financing sources totaled3.8 billion and expenditures totaled almost5 billion. Legislative audit issued a clean opinion on the department's financial statements
This report contains four findings which can be found on pages5 and6 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 freedomc accounts or EA's 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 identified 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 of34 of the excuse me34 of the239 EFA students revealed 28 instances of duplicate enrollment.
Second, Act572 of the2023 regular session authorized the 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 offessional Teachingandards financial incentives to pay the remaining merit teacher incentives the initial appropriation of $10
million was an estimate amount and no and did not factor for fringe benefits these 1.9 million was appropriated by the 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 forfessional Teachingandards 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 $2500 for no more than five school years. our review of the incentive payments for eligible national board professionals teaching
identified one instance in which an eligible teacher who was not in a high school a high poverty school or district was paid5,000 dollars rather than $2500 resulting in an overpayment of $2500 The fourth finding relates to a failure to report stolen property which is required by the state's financial management guide specifically the bonded officer
the disbursing officer of an agency is required to report any apparent loss of state funds or property to the state chief financial fiscal officer and to legislative audit within5 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 deaf was informed on July18th
2023 that utility utility vehicle valued at approximately $10,000 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.aggency officials are present to respond to committee questions. thank you Mr Maylan
committee you've heard the report we do have representatives here from
the department ofducation if you have questions and I see one in the queue right now so
Chair
Unverified
16:43
we'll get started with Representative Mayberry you're recognized is
Representative Julie Mayberry
Unverified
16:48
it possible to bring up because more of my questions really are for them that's to verify before
we brought them up yes if those representatives would take the seat at the table
Speaker 38
17:17
Good morning Courtney Salifod chief of staff department of Education. good morning Darrelsmith
Speaker 40
17:21
the office of school Choice and arental empowerment 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 right thank you Representative Mayberry thank you so much I'll ask a
Representative Julie Mayberry
Unverified
17:41
few questions and then I'll get out of the queue and then let others and get back in cause 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 are you know seeing where the money is going and 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 that or the company that's kind of oversee this and I I do understand that there might be some more eye's dotted and t's crossed in the future but I want 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 tested34 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 in 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 midyear 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 placeues number one pp y to answer your question thank you for for asking because
Speaker 40
19:48
I think there is some has been a
little bit of confusion that 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 of the students were private school students say oh that was part of the law that was the rule that they could 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 roll 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 roll for services that and and so we would have to go in of those 239 and look at specifically at what was the case individually because some are 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 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 had not attended
that particular public school or they were a part time student taking a course of some sort at that at a at a local public school or
Representative Matt Brown
Unverified
21:34
they were in a special ed which would have all created this duplicate enrollment so in both on the EFA
Representative Julie Mayberry
Unverified
21:42
side and the public school side so where there are cases where payment you're saying there was duplicate enrollment but maybe not duplicate payment 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 we've
Speaker 40
22:07
cleared out all the private schools concerns right because we 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 is 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 there would be no overpayment to a private school that you know from 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 would be taken
Representative Julie Mayberry
Unverified
22:50
so have there been some public schools then that have had to repay the state at this time we
Senator Jonathan Dismang
Unverified
23:00
have not identified any instances of duplicate payment as
Speaker 38
23:03
Darrell stated because of the 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 Darryl stated they were taking a course at that public school there is specific coding in our e-school system. So again as Darryl 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 were still doing that but at this time we've not not identified any of those instances. you know what number you're up to? Unfortunately, I'm sorry I do
Representative Julie Mayberry
Unverified
23:47
not. OK. 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 Represented brown you're recognized
Representative Matt Brown
Unverified
24:03
just curious if if a student is enrolled in a private school and then they do receive services at a public school are there funds for the private school diminished somewhat to compensate for what's needed at the public school or or do they pay the private school and then we pay extra for the services at this time as the law states any student that takes
Speaker 40
24:28
a course from it that's a private school or a homeschool student who takes a
course at a public school will receive 16 of the foundation funding that goes to that public school so that this time no money is taken from the EFA account for services provided by the public school you appreciate the clarification Senator
Speaker 60
24:48
Dismayne you're recognized thank you Mr Chairman and
Senator Jonathan Dismang
Unverified
24:56
one question on duplicate payments or whatever with the student that leaves a public school going to a private school I mean
walk us through declining enrollment payment anyway I'm I'm assuming it's 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 will in fact find that it was properly paid even though there was a ghost student at that school. correct
and unfortunately I'm not the the financial expert
Speaker 38
25:30
but I'll do my best 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 years 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 a 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
26:13
was generated but none of us should be shocked if a student is getting paid for
in two places and mean and it's not because 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 to 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 surprise 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 school to go to
Speaker 38
26:53
another public school, both public schools for a year and a half would be receiving funding for that student. re p re s ent ative Unger you're recognized
Representative Steve Unger
Unverified
27:12
in a private school who played sports in the local public school does that count as a duplicate enrollment it
Speaker 38
27:21
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 duplelate enrollment. Represented Mayberry he
Representative Julie Mayberry
Unverified
27:42
recognized thank you so this question actually came up through a school district to kind of asking me and 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 EFA to buy that computer equipment and then transfers to the public school after that what happens 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 they 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
Speaker 40
28:48
appreciate it 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're 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's still they could potentially their count becomes inactive so they can no longer spend EFA money from the point of withdrawal from the program
so we at the point you in using your scenario at the point that they enrolled in the public school they can no longer use EFA money because
Representative Matt Brown
Unverified
29:23
every their account becomes inactive however anything that they purchaseprivacy while they were in
Representative Julie Mayberry
Unverified
29:29
the program still remains in their possession so potentially as this 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 guess potentially to gain yeah potentially but I think there
Speaker 40
29:58
is some clarification there of saying that they don't get the full in this case7,000 dollars upfront they're only getting a quarter of it you know at at a time so that but they'll get their first payment somewhere around August sorichard roughly is $1700 at this time so at that they can only spend up to $1700
so yes potentially could they spend their $1700 and then go to a public school in September oroctober absolutely and
Representative Julie Mayberry
Unverified
30:26
and so 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 and just figure out a way to make use of some accounts they're that may
Representative Matt Brown
Unverified
30:46
happen once I mean there's a possibility of
Speaker 40
30:51
that you know potentially 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 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 we're looking at every receipt and every submission that comes into the EFA program and the history of their of their purchases so there are already some 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 we're that's our goal and we're certainly do our best to do that but we will certainly catch them you know most of those within within that current school year if they try to bounce in and out Senator dismay you're recognized thank you just to add clarification
Senator Jonathan Dismang
Unverified
32:15
to a little bit of that conversation I think it sounds like a superintendent or somebody at 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 programs 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 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 that those are all things that we need to fix in on the public school level in regards to the program I believe. but again again I appreciate you walking through some of the safeguards and it sounds like maybe we need to have some something sent out to the the school districts that are not asking some of the basic questions about the program and especially about things that have zero impact on their district but thank you for that clarification
Representative Matt Brown
Unverified
33:27
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 it 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 our students they're allocated their money quarterly is that correct is
that what you said? ma'am OK 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 ma'am so there are there right now is a $1000 threshold on
technology devices. Now my other question, Mr Chair, if you'll indulge me if school public schools are paid in arrears and your firmer 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 time again so
Speaker 38
34:42
I I'm our CFfo could not be here today and two could very 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 a growth funding because and declining enrollment funding it was it's a provision put in law to a kind of soften the blow to public schools so that if they lose a lot of students they don't have a huge fiscal fiscal hit 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
Speaker 70
36:06
following year for the first year that they were there. so that's probably
Chair
Unverified
36:17
keep track of thank you very much Represented long
Representative Wayne Long
Unverified
36:20
you are recognized thank you Mr Chairman we we homeschooled our our three sons so I'm very pro pro homeschool but I'm I'm very anti fraud and I was wanting to know
you know are we currently you're having somebody just go through and look at each individual receipt that's submitted from the homeschoolers to to verify if you know if it's an acceptable expense or have we moved to the the card type deal like sort of like snap is gonna be we're you can only purchase items that are from an approved list of curriculums that type of thing so
Speaker 40
36:55
at this time we review every submission that's made from either both the private school and a homeschool family some are for reimbursement some are for actual marketplace or direct pay
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 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 res you know 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 and that's approved isn't
Representative Wayne Long
Unverified
37:42
eligible item I ask because I've had a superintendent bring up a case where he claimed that there was some somebody had submitted a receipt for like a 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 set up the desk have you seen any type of situation like that where y'all have paid for a you know something that's
Speaker 40
38:09
way above what's needed yes sir and I 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 always7800 dollars chairs right? 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 creating more controls and making sure that there is a higher level of scrutiny about which what things
so we have a pro 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 we 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 of significant amount amount above
the average cost and we will ask the parent for more justification because there are times based on maybe a 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 average for that particular type
Representative Matt Brown
Unverified
39:45
of an item and I wonder if
Representative Wayne Long
Unverified
39:48
y'all wouldn't mind sometime if you could maybe email me the the list that you use as far as you know that ordinary necessary type I'd like to look at that happy to do that thank you and
Senator Jonathan Dismang
Unverified
40:01
Representative Long if you don't mind me adding we also are committed to preventing fraud to
Speaker 38
40:06
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 fatality 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 color commentary here my daughter is a public education she's a teacher elementary teacher and one of the days I went into her classroom I saw around her learning center about4 or5 different types of chairs and so she explained to me in a very thorough way how students learn differently and and they're comfort level and and how they are sitting contributes to
their education so I I learned something there so I don't know the situation there but it it's a very real so thank you for your clarification. All right
Representative Mayberry you're up again thank you. I promised
Representative Julie Mayberry
Unverified
41:26
my last time and I told you I was you know gonna separate it some so kind of what was
just mentioned I 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 um5000 maybe a little over5,000 you know EFA's back in 2324. Now we have46,000 or so 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 the46,000
accounts do you have enough resources available to make sure that there's time to catch up because if we're still behind on 2324 and there were only 239 students in this report that were flagged, you know how do we handle the volume that potentially could be out there with46,000 cases do you have those resources so I would say we we could always use more resource
Speaker 40
42:50
resources right but but I will say this that we have 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 we stay up we stay up to date so more frequent matching running of the report between EFA and the public school rolell 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 a that was one of the reasons that was really what 25 I guess 2 or end of 24 when that first report ran and then we'd had to 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 with 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 to figure out why there were duplicates now we've got a better understanding of how that could happen where it's gonna happen, where we can flag things and so some of the
controls like I said we're looking we got better student identifiers now we've got the OIG report which has helped us streamline some things we're working withlass wallet to put some new plates and some new controls in place that will help us identify faster we're now in the process now of working with echool so that we can take our EFA students and and almost nightly run a duplicate report and find these things out you know really quickly so within on a week or a monthly basis we'll know a lot sooner when we
when the a duplicate enrollment has occurred which will allow us then to very quickly go back in and look at those at that individual student
Speaker 83
44:28
and see if there is a truly a duplicate enrollment or if this was one of those cases that we
Representative Julie Mayberry
Unverified
44:36
had mentioned earlier 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 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 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 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 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,2 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
Speaker 59
46:16
at a you know appropriately at the time right at the
Speaker 40
46:20
time of purchase now some of these we're we're certainly not gonna go into everybody's
home and see if they still have a computer and and some of those types of things as we have to assume that there's 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 I'm taking it I'm buying it I'm gonna go return it and get my get half the money back and take the cash and then try to do that again that we are we do have controls for and that we will catch up with very quickly and that will get flagged very
you know ins or not instantly but fairly quickly within a couple of months we'll see that in our reports when as they try to do it again and so or if we see and what we call anomalous activity so something that's just not ordinary the same receipt amount come through multiple times a 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 not lead to a further investigation of those
purchases and then at that point we would then probably go in for a much more scrutinized of can we see the information can we see the purchases that you've vet can we you know what how 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 a much much better and because 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't do everything we can to catch what those that are trying to do something that's from a nefarious point of
Representative Matt Brown
Unverified
48:13
s you know standpoint is that would
Representative Julie Mayberry
Unverified
48:18
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, purchase 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 from
Speaker 38
48:43
doing it. So if we identify a true cases of fraud or intentional misuse of the program funds we can seek to recoup those funds. we can seek to recoup that that property. we can refer them to the prosecuting attorney for a further investigation. So as Darryl 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 at46,000 students every day
we're trying to monitor and identify the purchase for450, 000 students in public schools and we have similar cases as you mentioned where or public schools can't find computers. manyy 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're 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 thank you very much
Representative Julie Mayberry
Unverified
50:26
for answering the questions. um, I appreciate it thank you
Representative Hope Duke
Unverified
50:34
Representative Duke, you're recognized thank you Mr Chair. thank you all for all this information I think it's been very helpful and informative and I appreciate the questions because it's easy to forget sometimes that 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 a 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 gonna 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 to learn more about it so I thank you for that I also to re what representative law asked for that information could you send that out to all the committee members because I think that was a good question and and a good piece of information for us just to have
in our tool belt 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 ok 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 pla 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 y'all have got a lot of irons in the fire
and 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 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, OK I need some help. iss 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 actually get accidentally get directed to a wrong site when they're trying to do something. are you all being proactive and not playing defense? Absolutely I think
Speaker 40
53:18
there's a couple a couple answers to your question first of all thank you for for your comments secondly we we don't want to play defense. we want to try to stay on in in on the forefront of this and we certainly we know that that's that's a that's difficult because things are changing fast and would you know as technology changes and those types of things and so we work withlass
Wallet who's obviously a national organization has several states involved in an EFA programs and so they're obviously working on the front end trying to make sure that we have in controls in place that there's some different that we're using AI appropriately that we're using to help to help to help to identify certain things we're also looking at what are other state's 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 at look out from the headlights right look out as far as we can look out and say what what are those potential risks what are those potential areas that could create issues for us or or that could cau 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 you know cover
Representative Matt Brown
Unverified
54:36
up as many if there are any gaps in
Speaker 40
54:42
the system to 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 oflass 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 thatlass wallet has and so that that helps us a lot reimbursement certainly we have to look for those and we we we're putting new and new controls on that and 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 receipts that may or may not be
appropriate for the for the program and so to answer your question I know it was a kind of babbling here a little bit but d
Representative Matt Brown
Unverified
55:51
we are certainly looking proactively at how can we continue to keep closing the gaps and to protect taxpayer money you and
Representative Hope Duke
Unverified
55:59
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 our guard down in doing
that and so I appreciate and and it's all the people's the money and responsibility no matter where their public school private school home school 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 like 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 as legislators so thank you OK Representative y you're recognized sir thank you Mr
Representative Ryan A. Rose
Unverified
56:46
Chairman. During the year 2021 during the COVId period there were tremendous amount of laptops that were you know
Representative Johnny Rye
Unverified
56:52
bought and 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
57:02
as I stated in many instances yes they
Speaker 38
57:05
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 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 where they were damaged beyond use and then so again public schools would just issue a new one and so I don't know
Senator Jonathan Dismang
Unverified
57:32
if that answers your question but yes most of them did but not all
Representative Ryan A. Rose
Unverified
57:35
the time. I just remember during that period my my nephew there're Markree that happened and he did take it back but you know I just kind of wondered how y'all were keeping
Speaker 38
57:50
public school districts or or say monitor public school districts they are audited by leg audit in most instances an inventory is part of that and so we identified cases where laptops didn't come back 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 or didn't properly take care of
Representative Johnny Rye
Unverified
58:19
one. yes ma'am and the reason I brought that up is I do remember that he did take that back to school so thank y'all
thank you seeing no other questions do I have a motion to file the report Second any discussion on the motion if not all those in favor say aye any opposed motion passes. the next item is
a special report on cybersecurity incidents reported by public
entities for the year ended June30th,2025. Mr. Larry Doss is going to present this so Mr.das you're recognized to present that report. Thank you
Speaker 123
59:04
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 public entity this report fulfills that requirement
Prior to the passage of Act260 of the2021 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 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 Act489, 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 stateation 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 Act489, state agencies are required to report on cybersecurity matters to the office while retaining control over their day to day operations d d ition ally 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 and24 remain under investigation. exhibit one shown on this slide and on page two of the report provides a summary of incidents by type for fiscal years 2022 through 2025.
as shown in exhibit four on page 4 and on this slide the number of incidents reported to legislative audit increased by64% 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 202 July2023.
these groups appear to be responsible for at least6 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 request 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. OK 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 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 December31st,2024. Mr. Clayton Smith is going to re be recognized to present that report Thank you Mr chair the consolidated incentive Act
Speaker 127
1:04:02
of 2003 combined existing economic development tax incentives primarily into four statutory and ive discretionary economic incentive programs legislative audit is required to prepare 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 CA incentives by Arkansas Economic Development Commission and the department of finance and admin
secondcond was to determine the overall effectiveness of CIE programs as well as the effectiveness of selected CIA projects This chart which is presented as exhibit two on page three of the report shows the distribution of CIA funds by region incentives awarded to companies totaled over594 million and incentives used totaled just under634
The remainder of exhibit two 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 five of the report shows the distribution of CIA funds by incentive statutory incentives accounted for73.5% of all incentives awarded and issued while discretionary incentives
accounted for the remaining 26.5%. exhibit three and four on page four of the report break down the CA awarding an issuance of funds by counter year and industry In2013 legislative audit began an annual review of CIE 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 CIE programs
as shown on this slide and in exhibit six on page 7 of the report two statutory incentives resulted in a net positive benefit to the state. one discretionary incentive returned to 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 Act327 of2019 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 CIU programs we reviewed 24 individual projects with eligible investments of approximately 90 million that were awarded incentives totaling almost66 million dollars 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 the24 projects reviewed ive had unfavorable cost benefitne ratios calculated by legislative audit for these 5 projects5 companies received the in-house R&D incentive the 19 remaining projects reviewed had a favorable cost benefit ratio. for the 18 non R andD projects reviewed the state invested an
average of $11,371 for each of the4,287 new full time permanent jobs created assuming all credits are used exhibit se on page 9 provides a summary of the 24 projects reviewed and schedule one on pages 12 through 14 provides a detail of each item 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 ive 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. d d ition ally 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 byEdC noted in the testing above resulted in the disallowance of428,000 and 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 EDC 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 expenditure supporting these awards are valid, accurate, and allowable. Company expense submissions should be substantiated by supporting documents including invoices work 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 an attempt to recover any credits awarded an error Mister Chair this includes 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 DFNA andconomic
Development Commission available for questions looks like we have one forpresentative Unger Representative Unger is this for staff or for dFNA or AEDC? Mr chairir, I don't actually know my question is
Representative Steve Unger
Unverified
1:11:04
could somebody remind me what advantage Arkansas was. Thank you thank you there is a in the
Speaker 127
1:11:22
in appendix A there is a description of
Speaker 133
1:11:29
each of the incentive projects in advantage Arkansas is
included there Anyone else all right seeing none do I have a motion to second
any discussion all those in favor say aye any opposed motion passes. OK. the last report on the agenda is a summary
of the intercollegiate athletic revenue and expenditures for 20242025. from the Arkansas Department of Education division of higherducation 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 name is
Nick Fuller
Unverified
1:12:24
Nick Fuller I'm assistant commissioner for the division of higherducation. Yz mentioned it's a presentation of the report on the 2024025 fiscal year athletic revenues and expenses for our higher education institutions this is this is required to be presented to our higher education coordinating board each year as per A2451989 and once that report has been approved we're required to submit it to you all for review. for the 2425 fiscal year
athletic expenses totaled $282 million for the uni four year universities and6.1 million dollars for the two year institutions this total represents an 11% increase over the prior year 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. with that also the 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 9% 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
Speaker 125
1:14:13
open up for any questions you may Thank you
Mr. Fuller. Anybody have any questions if not committee you have heard the report oh
barely miss erpresentative Mayberry I'm I'm
Representative Julie Mayberry
Unverified
1:14:35
sorry I'm just looking for a clarification because I don't see University of Arkansas on here unless I'm just completely
Speaker 137
1:14:42
blind. why am I missing that's listed as UaF
Representative Julie Mayberry
Unverified
1:14:46
for University of Arkansas Fayetteville. oh ok thank you ma'am had it I was trying to figure
out how are we missing that and this does not factor in the ASsu Arkansas game correct? because that
Nick Fuller
Unverified
1:15:01
would have been for the current year to point out as well you 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 the 2526 the revenue share for the the student ath le te s so that's not included in any of these expenses from prior year either
Representative Julie Mayberry
Unverified
1:15:19
OK thank you for that clarification. sorry but I did got it in just in time
barely that's ok thank you all right seeing no other questions do I have a motion to
second all those in favor let it be known by I. any opposed no motion passes that concludes the review of the ports our next meeting is of the legislative joint audit committees will be held on January8th 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 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 83
Speaker 59
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