Legislative Joint Auditing-Educational Institutions

And the first item. adult the minutes of August twelfth two thousand twenty one meeting. I have a chance okay ma'am motion and second all those in favor of the motion say aye. Posed motion care. see review of reports. Mr thank you have thank you Mr chair and good afternoon committee today we have seventeen educational reports for the fiscal year twenty twenty to review of the seventeen reports there eight reports with findings one of which was referred to the applicable prosecuting attorney and three reports which had repeat findings we will begin with the report that was referred to a prosecuting attorney Warren school district had to findings the first funding for an author of an unauthorized withdrawals totaling twenty four hundred dollars were made from the district's bank account in July of twenty nineteen district personnel discovered the unauthorized withdrawals in the funds were recovered from the bank finding to the board obtain authorization from the Commissioner of Education allowing the district to conduct business with the bank where a member of the district's board of education is also a member of the bank's board of directors although this authorization expired on June thirty of twenty nineteen the district continue to conduct business with this bank through the audit report date without authorization from the Commissioner of Education in conflict with Arkansas Code and that concludes the findings for Warren school district. Okay first of all of them we have representatives from. Ward no no okay of the three questions for. Mackenzie. couple questions this is an authorized withdrawals do we know what they were I mean. so in July there is a check cashing company from another state who actually contacted the district saying that they thought that these were fraudulent and so the district contacted the bank and found out that they were in fact fraudulent in the bank reimburse the district they do not know who made the on authorized withdrawals it was someone obviously out of state not with the district and I don't believe that in less the bank filed one I do not believe there is a police report filed on this. Okay and one more question on the approval from the the Commissioner key and I see it's just renewed during. I will be in effect until June I'm confused June thirtieth twenty twenty is that. That was their response I think they probably meant June thirtieth twenty twenty one which that's expired too. So I was just wondering first of all what is the criteria of obviously were doing it just in the peers year annual increments I just kind of wondering why we do that an annual increments there must be something that we're evaluating each time to see for and continue to allow this to be do you know by any chance yes yes so we'll check on that like for the FY twenty one audit when we go do that we will check to make sure that they had that approval in place from the Commissioner of Education and that something that we look at on most of our audits as related party transactions like that and make sure that they are in accordance with Arkansas Code. The further questions. If no well further questions Without objection who will file this out of them then go to the next rush thank. Okay the next three reports contained repeat findings the first is Henderson state university finding one the university's internal control system did not detect or prevent material misstatements in the financial statements key errors included cast was overstated by one two point two million and deposits with trustee was understated by one point eight million due to a miss classification accounts payable was understated by net amount of four hundred seventy six thousand due to errors in accruals. Capital assets were understated by three hundred and eight thousand dollars. On the statement of revenues expenses and changes in that position the following errors were noted prior period adjustments were overstated by three hundred eight thousand dollars due to an error in calculating construction in progress supplies and other services was overstated by net amount of ninety thousand dollars due to miss classification of interest and fees on long term debt. Interest and fees on long term debt was understated by net amount of fifty three hundred dollars due to errors in accruals and miss classifications and investment income was understated by sixteen hundred due to unrecorded interest the financial statements for the above misstatements were corrected by university personnel during the audit a similar finding was reported in the previous two audit's finding to. Our examination of bank reconciliations reveal the following the university's Februar February twenty twenty operating bank account was on reconciled by thirty five thousand dollars the university did not perform monthly bank account reconciliations for the operating bank account from March of twenty three twenty three may of twenty twenty. And the June thirty twenty twenty bank rex for five bank accounts including reconciling items totaling a hundred twelve thousand dollars they had not been corrected through adjustments to the general ledger of this amount ninety five thousand dollars was identified by audit staff in corrected by university personnel during the audit and seventeen thousand remained uncorrected university officials are in attendance to answer any questions that the committee may have. Chuck Welch president Arkansas state university system. Read Fleming vice chancellor for finance and administration Henderson state university. So thank you Mr chairman and and I will be brief I would I would start by reminding everyone this is the time period for July one twenty nineteen to June thirtieth twenty twenty so August of twenty nineteen is when we stepped in to start helping so this was the time period when things were really just an incredible disarray at the university the repeat finding has to do with the errors in the financial statement which are just that errors in the statement They my how can say this but the individuals who are preparing the financial statements are no longer at the university in fact we've had almost complete turnover in the business office you for fiscal year twenty one this the next year they will actually not be yeah fiscal year twenty one Henderson will actually be part of the issue system consolidated audit which we have a very different set of controls in place to try to catch these types of financial statement errors you know the comptroller that have been the university had been there for over thirty years and I think they had very few if any of these types of misstatements but the turnover the chaos I think we really is what created that with regards to the bank reconciliations it was a combination of two things one was turned over the individual that has historically did that no longer the university and covid to be honest with you we don't have any overdraft we didn't have any bounce checks anything of that nature they were literally focused on trying to see how much was in the account basically the whole year it was a very challenging environment those are now being done on a regular basis that has been corrected as well so feel very comfortable that the errors that have been made both from a personnel standpoint and from a standards and protocols standpoint are now in place again obviously guarantee it'll never happen again but very very different system for reporting and the individuals that are there and then as I said on the bank reconciliation we do have that staff replaced and that's been done on a regular basis so that'll include my comments be happy to answer any questions. Have questions thank you senator Bledsoe. Thank you Mr chair of a listen to what you said but let me just ask this question you saw no fraud and there was no missing money correct correct that's absolutely thank you very much yes ma'am thank you. It became the. Thank you Mr chair so I'm just trying to learn on this process here so I wrote recognized that we had that you all are you came into a situation so obviously I'm guessing from what your statement is that you reconcile now the seventeen thousand that was out of that was uncorrected the we've our our bank rex are now. Where. what is the process for the for the audit when you're in a situation like your thank you are stepping into have obviously a lot of issues with person Helen Ryan and mess but the books what's the oversight process for you on are you when it continual oversight process yes so obviously the new staff they do it differently we put in institutional protocols but then it also goes to the system level before the financial statements are completed to go through a different set to look for variances or possible heirs to catch on there before anything is reported so it's actually a two step process now at the campus level and at the system level okay so that's why I guess and so will we see reviews are more findings in the future we or me reading your house regularly sure I sure hope all of you so we'll have a word yes and let's be part of the consolidated on an X. as opposed to be a separate audit that was just Anderson yes. Still annual and more timely ours are quicker than what had happened historically because the bigger audits typically happen first in the smaller audits trail so Henderson will now be part of the bigger one it will come faster more timely. Of each senator Chesterfield thank you and then micellar. We say. Thank you Mrs hearing centers just afield under the first response and that their last sentence where you said of it says additional training on financial statement preparations to ensure proper classification this is this a person in this position that you think actually needs additional staffing assistance for precautionary precautionary because it's actually a new individual individual who's our controller on the campus now has been a CFO at multiple institutions in the past but we also do it from the system level so there is a new training component just to make sure they get moved into Arkansas dated audit but it's not a concern of what's there's just doubling up to me just so that person can be consistent all right thank you. That's in this. Map of. Senator you're recognized thank you Mr and if if I'm a man to don't thank you and I know this is perhaps a little bit off topic but it sounds like that you guys obviously came in during a very tumultuous time in or working to improve things around create that and I certainly appreciate you Mr president for being here thank you but one of things I I that is of concern and I'm hearing from folks and why you're here I would like to ascertain a significant decrease in enrollment right I think thirty something percent and I just want to kind of hear your thoughts on how may be going for how you're looking to address that and Ryan and lot of it could be just due to you know shifting under United in the system and all that but if you would sure absolutely a couple things to that I would say the thirty percent and it is a little inflated we actually strategically offloaded concurrent enrollment which was a ten or eleven percent decrease and enrollment the reason for that was it wasn't generating any revenue for the University and was actually costing us money to operate and very few of the students were actually matriculating to the university so we made the decision last year to off load those enrollments to a community college to let them handle that concurrent enrollment a it saves money the loudest were strategically focused on you know other issues that we needed to do and because with those what students are likely gonna go to Henderson anyway so um that skews the number a little bit but yes the enrollment still definitely down both years one I am from a student that anyone else was because they were scholarship being at such a high level so in the last numbers that will run which were I think eighteen nineteen I guess it was nineteen twenty the the state average for scholarship expenditures as a percentage of tuition fee budget was nine point four percent Henderson's percentage was twenty three point six percent so effectively they were buying the enrollment and so one of the things that I said to the faculty and staff a couple weeks ago as I can make an Roman go up next week it's not gonna help the financial finances of the institution at all so one of the things we're trying to do is write size that and make that more sustainable so that even if you get to the point where there's your students it could be financially stronger actually said to my issue board of trustees about five years ago that we were down and enrollment it was the strongest financial picture we had had in years and they looked at me like I had seventeen I have also that's it's all about the mix it's about who's coming who's paying who's staying what you're discounting average is in so yes it's down but it's a situation where I think that you really have to break that down a little bit further to twenty spending roughly a fourth of your budget on scholarships is simply not sustainable it'll make that enrollment numbers look good but from a financial balance sheet situation it's a nightmare so we have actually we're working on a financially optimization schedule right now to try to right size that we were putting the employees of different strategies we've turned over the entire admissions department save maybe one maybe two people and already seen much better returns the other thing I would tell you in this course wasn't financially related but admissions wasn't contacting students when they inquired about the university they were waiting till they actually applied which is too late by the time so we're we're being much more aggressive in strategic from that so I feel good that that will correct itself and. It will be numbers that actually means something to the finances of the University so definitely very sensitive to that working on it but I can certainly understand with just looking at numbers that it scares folks scares me to sometimes. Sure. Okay if. We have a more. We have a more. We have a motion to file in the second. And all those in favor of the motion say aye. Oppose motion care thank you for being here a section. Thank. The next report with one repeat finding is national park college a material misstatement in the financial statements was detected during audit the misstatement had no effect on the colleges reported net position at June thirty twenty twenty and the financial statements were subsequently corrected by college personnel during audit fieldwork. The misstatement in the financial statements consisted of an understatement of scholarships and fellowships an overstatement auxiliary prize. Auxiliary enterprise expenses by nine hundred eighty seven thousand dollars due to the miss classification of scholarship allowances and that concludes the findings. Okay do we have. Mr Phil. So what's the repeat part of it that's what I'm. I understand. Would you help me understand what is the repeat part of this because we're saying that their misstatements rather than Anything that's wrong just stated incorrectly so are they consistently misstating is that the finding that entity in the prior year we noted F. in the FY nineteen audit report we noted a similar finding to this one that they had made a mistake. And in visiting with them upon the exit you pointed this out the last time. Yes ma'am is this a new administration. They're here the way they can they can probably answer that question better than I can. We have so River station from. National Park college if you would identify yourself in. If you have some opening comments just proceed with the installation. Thank you I'm Kelly Embry and I'm the vice president for administration and national park college I am I'm per seconds the chief financial officer at national park college. That I would like to make a comment about the repeat finding. This is a repeat finding in the area of scholarship allowances it is actually two different type of findings in the previous year we did actually miscalculate the scholarship allowance which resulted in a statement in this year we calculated the allowance correctly it's just that we actually put it in the wrong place on the financial statements. That's what. Thank you so much I appreciate. You for the questions. What to be honest with you. Until I read this report and I don't want to sound that way I've never heard of national park college and out of I'm sorry. Well then I deserve that is. The. But where is it located in the Washita mountains we just you know. Okay well thank you for do we have any other questions. But I just want to say of a message of I apologize to be believe you and I should have done that. But but the other thing is I want to say we we actually I've actually be held a meeting at your site I recall it really is a real site and it was a very good meeting so that we will cover both ends of this we know you there we don't know you there but we're all better off now because of the speed thank you all for everything thank you. Represent court are you Mister senator Clark and let me suggest. So it is actually and in center samples district right on the edge of mine although because students come from mine that we have another meeting there so that everyone knows or for capitol park alleged. We would be happy to host that Sir. Represent Dalton motion filed. Motion made the file second. All those in favor of the motion say aye. Opposed motion carried. Thank you. Thank. The next report with one repeat finding was south Arkansas community college a material misstatement in the financial statements was detected during the audit the misstatement had no effect on the colleges reported net position and the financial statements were subsequent subsequently corrected by college personnel and the air was not as noted is cash flows from operating activities for payments to suppliers was overstated by five hundred seventy four thousand dollars in cash flows from capital and related financing activities for the purchase of capital assets was understated by that same amount in the notes to the financial statements the pension expense amount was overstated seven hundred sixty six thousand dollars the deferred outflows of resources related to pensions resulting from contributions subsequent to the measurement date was overstated two hundred twenty eight thousand dollars cash on deposit state treasury was understated five hundred fifty nine thousand dollars insured coverage was overstated and collateralized deposits were understated by two hundred fifty thousand amounts reported for operating expenses by functional classification had heirs totaling two hundred forty five thousand dollars and was not in agreement with the statement of revenues expenses and changes in that position the amount reported for county millage revenue. Source related to pledge revenues was overstated two hundred eighteen thousand dollars and was not in agreement with the amount reported on the statement of revenues expenses and changes in that position and bonds payable as of year end was overstated a hundred ten thousand dollars a similar finding was reported in the previous five audits. We have. Reputation from. College. Introduce yourself please in the end if you have some comments go ahead. Good afternoon my name is Bentley Wallace on the president south Arkansas community college appreciate the opportunity to come and and visit about this audit these the repeat finding goes back across two different controllers over the past eighteen months or so we change controllers of the summer of twenty twenty and again just recently we're restructuring our finance area with the new vice president for finance or CFO and changing our controller position to have much more focused on reporting financial statements and general accounting practices at the college recognized these problems have persisted a special that repeat finding was with basically the same money two years in a row related to insurance proceeds from a fire that we had in twenty eighteen. And one controller Mr we corrected it with the audit new controller came in missed it again despite having the audit similar mistake two different lines in our accounting system and so with that we recognize the need to refocus our efforts we're basic accounting and reporting is concerned. Are there any questions committee. Measured up. Thank you Mr chair at. I hadn't heard dropped explanation there over the last couple years but. What's the deal with five of the last five audits so thank you for that question I went by the same question myself and I went back and I pulled each of those audits it is a similar situation each of those times was miss classification of money just simply being put either into the wrong account on the wrong line there was never money missing there was never fraud associated with it unfortunately they were perpetual mistakes when I arrived at college last year that was pointed out to me we had conversations with the the CFO at the time about controls on about responsible for audit have a sure that we were recognized in those situations and and correcting them before audit have and then clearly we did not survive if I understand you correctly the previous C. CFO was responsible for the first four audits Mr works for UPS CFO was there through each of those yes and then the new one what we're looking for the new one now look okay thank you so the one's been making all these mistakes is gone and it I wasn't there so I hate to pin it on one for I don't know exactly what happened but the the personnel that was in place has turned over since these issues occurred thank you. He further questions. Is not there to a motion to file a report. Motion made and seconded all those in favor motion say aye opposed motion carried thank you for being here. Mr Frank. The next four reports had findings which were not referred to PA and they were not repeat findings. And if the committee so moves staff would recommend that. The Committee take time to look over these findings instead of me reading each one and then if you have any questions I can answer those. If the committee would do that then we will. The lawyer Mr Chesterville. Here. Yes the Craighead county sheriff's department they concluded their investigation and there were no charges filed. Dotson. Thank you Mr chair is a. Northwest Arkansas community college Somebody here Mr Wilson. They're it since it was not I repeat finding of they were not okay. All right thank you. Senator Bledsoe. Okay. All right if there's not any other questions you're telling motion to file a report. Motion made and seconded all those of favour say aye. Lows motion care. Mr Frank and the remaining nine reports which are listed on page seven of the synopsis consist of audits with no findings staff recommends that these reports be filed in mass. The second. The question okay of you're recognized. Ritual. Do we do we know the the property that was misused and and how it was misuse just out of curiosity. I'm that was detailed with in the police report and there were multiple allegations come up. I'm Michelle actually legislative audit and I have the letter from the prosecuting attorney and and he indicated that most of the missing property was borrowed and later returned some of it was trailers and an excavator send out of service buses. And there was also some allegations that a front end loader attachment was missing but it was decommissioned and no longer in use. The remaining property was a food mixer a Walker mower a barrel old in a cart with the train horn. Actually I am so after we will be running Quitman rental business. It sounded like from reading and this letter in its entirety that. The way it had always worked at the school district is there wasn't really a policy in place out as how to dispose of commitment that was no longer in use and so that's why there was no charges filed is because there was never any proof that this equipment was something that could be in use and there was no proof that it was stolen as opposed to like you said borrowed loaned. So that's all I can tell you that's that's the letter from the prosecutor. Okay you have a motion to file. And I think we have a second. Okay. So all those in favor of the motion say aye. Opposed motion carried. The New business and if there's not any other business come before the committee we are Jr. Thank you for being here.