Legislative Joint Auditing-State Agencies

Let's start with the adoption of minutes from last meeting August the twelfth. Do we have any corrections. We have a motion to accept the minutes from the last meeting. So moved by Senator Rice all in favor. all right let's start with the review reports Mr toms thank you thank you madam chair today representing two reports that have findings and we also have nine reports without findings and these are listed in the Alzheimer's on page one. Okay those without findings will be accepted let's go to the ones with findings. Okay our first report findings is the Department commerce June third two thousand twenty report and this report contains three findings. The first finding is that and this was a fine that we had in our state wide single report were repeating it here for the Department the state did not have the policies and procedures in place to probably record the financial effects of the new unemployment insurance pandemic programs although authorized under the cares Act of two thousand twenty. As a result we noted operating revenues were overstated by fifty three million dollars when a portion of federal grant received with Iran's the code to generate your account related to operating revenues as opposed to the more appropriate your ledger can't relate to non operating revenues. An attempt was made to correct the misstatement but modification was not for the correct amount or to the correct general ledger accounts. As a result of this attempt at the correct entry called the nineteen million dollar overstatement of not operating revenues and a seventy two million dollar overstatement of operating expenses. We also noted that there was a federal stable of a hundred seventy point five million related to the new pandemic program that was not recorded and unemployment benefits payable of almost two hundred ninety four million for the new pandemic programs was not recorded. We we calculate this pay will be over three hundred three million. During our audit we notified the FAA and the AC of the potential misstatements and entries were made in ace to correct the amounts listed so they got this all corrected during the audit. The second finding using data analytics we identified nine hundred eighty six thousand dollars and warns that were written from the Department commerce to an entity registered with the secretary of state as a nonprofit corporation that listed the secretary commerce is one of the one of its directors. Arkansas Code requires the secretary commerce as a public servant file a written statement financial interest with which discloses these types of relationships. Transaction between the Department commerce and this not for profit are considered related party transactions for financial reporting purposes. Our audit revealed that the state's financial interest filed by the secretary of commerce for County years nineteen and twenty did not disclose this director position that he held with the nonprofit corporation. And the your enclosing books submitted by the department commerce to DFA did not disclose any related party transactions. And the third and final final for the Parma commerce. Arkansas real bit rehabilitation service which became part of the department commerce under transformation notified us of six warrants totaling twenty three thousand five hundred dollars there were paid to the vendor in June and July of two thousand twenty for services that were not provided. I review performed by management revealed relationship between the vendor and an AC employee who potentially falsified documentation on behalf of the vendor. After being contacted by the AC in July of twenty twenty the vendor return one warrant totaling two thousand dollars that had not been cashed. The AC is actively seeking repayment of the remaining twenty one thousand five hundred. The employee was terminated the vendor was deactivated from the AC case management system and the AC has initiated a criminal investigation with state police this report was referred to the prosecuting attorney manager that includes the financial department commerce thank you if we could have department of workforce services come to the end the table I'm sure they'll be pokes it'll have questions miss Mister Preston here. Let's start at the very top of page two with findings number one. Tom if you could read just that first part again just refresh folks' memory okay yes the first finding had to do with basically just accounting entries they received as you know there's a lot of federal money for unemployment and the recording that they got it recorded in the wrong place in when they went to correct it the corrections kind of messed that up so that was the first part the second part was they didn't record the proper payables and receivables related to unemployment for the federal programs are there any questions on this subject Senator Hammer. Thank you committee chair. You will have them introduce themselves yes thank you you could start with you Mr president Sir Mike Preston secretary commerce. David bell CFO Department converse thank you. Senator isolation if you have a statement first on this subject. No we do not hi Senator Hammer okay thank you measure I'm I'm looking at the bottom of where are the agency response is and it says under normal circumstances the U. I. program unit uses a prescribed formula to calculate to payable for you I regular benefits. Does that implies to me that we're not using the normal practices to calculate that in my right in that interpretation or and I'm misinterpreting that statement. All. No that's correct I think the issue was with the new federal money was coming in because of the code Medical emergency I think that it kind of. It was a different process and that's why in this to the accounting correctly. So it's just an unusual situation. So what is what is the procedure that that okay committee is okay so what is it what is the procedure that we had two very away from the normal circumstances and did that in turn create this problem. Hi am Courtney trailer deputy director of workforce services the parameters of that formula changed because of the pandemic. money the additional money that had come in and so the formula had changed itself but when we applied the original calculation we were using a standard United formula which had different parameters and I can I think some of the examples of those parameters are Duration timing and you know that that change the number of weeks and then the payment itself the amount of the payment. Did this have any bearing on how much we have in the unemployment trust fund or how did the numbers affect anything else once they were corrected no cash was there wasn't any impact on the trust fund it was just a journal entry an estimated The estimation in the calculation okay thank you the manager. Any other questions. So all the moneys president accounted for a system of accounting misstep yes ma'am. Any other questions. Okay item number finding number two Thomas if you could re enter it was sure just a some refining number two this had to do with the with a not for profit that the agency did business with which the secretary commerce with the director on that not for profit and so we're looking for a couple things one that it was disclosed in the State of financial interest into that that the right to party be disclosed in their clothes and books okay any questions Secretary Preston do you have any comments first. I'll just say this is just the and oversight on by financial disclosure and several board so I'm on report of every year and this is one that I just missed that I was on because we had met as a board of directors but it's a nonprofit Arkansas center for data sciences it's focused on driving IT talent into the state and just want to have been on and privy to but they did receive a grant to the office of skills development for that year but went back and corrected my financial statement to reflect my position on the board for a okay and how long have you been on the board Yes eighteen or nineteen it was this was formed out of a Blue Ribbon commission that the governor did for to look at data analytics in the state from that Blue Ribbon commission this is seventeen eighteen it was created the Arkansas Senate FOR data sciences several the members from the Blue Ribbon commission transition into the Board of that nonprofit the center for data sciences so since two thousand seven seventeen eighteen somewhere in that time frame eighteen is when the center was kind of started it really started in state fiscal year nineteen but then the Blue Ribbon was stunning seventeen okay questions from the committee. But there was no no monetary a benefit of being on that was or was that thank you. Okay. Senator Hammer. Thank you a would you say about the board not meeting or what was that statement again please it's been awhile since the board matter I had attended a meeting maybe they met and I just had made it but it's probably been about two years since I've been actually to one of those board meetings. Eight and as far as the money that has been given to them what measureable results have we seen as a result of that money going to. they've done phenomenal work in terms of the apprenticeship program so they actually have an apprenticeship for and I. T. world so and data sciences we actually recently rated as the number two apprenticeship program in the tire country FOR IT apprentices and a lot of it's to do the work for that center for data science is there there's a ranking hero number two with the ninety one premises in the state so I think they've actually done significant work in the little time that they've been aboard an organization okay thank you. Any other questions. All right hearing none. First third finding. Okay just to summarize the third finding this was our sorry bill pay services reported to us that they paid twenty three thousand five hundred to a vendor but no services were rendered to the agency so we're just with that reported that US which is reporting that the committee okay. I'm I'm a little fuzzy on this one no services were rendered but we paid twenty three thousand so help us out here. Good afternoon Joe Baxter Commission rehab services thank you Mr Baxter thank you that right yes Baxter thank you Sir help us out yet the warrants were cut for authorized services and then went to confirm with the clients were the actually receive the services we have statements back from them that they never know the person never showed up they never receive the services it's just a of regular follow up that we do and once we confirm that we went on and start taking action to recover the funds and report to state police and audit. Senator Hammer. Who is the vendor Irvine I don't this is stated in his lifetime credit it should be in there what was the name again. Lifetime credit services LLC. I have not done that directly but we made our report still was being everyone else I'm hoping that's happening. Can staff answer that question and we make sure there is a mind meld going yeah I'm looking the Sirohi we looked and there were no other payments to the vendor okay all right thank you and as far as the follow up I mean is is a company of solvent or we make any progress in getting the money back no idea on that but we did to speak to our state please rep yesterday is still an active criminal case and we're doing everything we can to cover the state's funds are thank you Sir. But when was the report filed. Our report is dated October fifteenth twenty twenty. well. Senator Hickey. So so does this company do they actually invoice you all for that or yes the invoice to us we paid based on the invoice and we follow up with clients because we naturally reach back out to a did you get the services no. Thank you. How how long did it go on for Sir. So the first warrant is dated June twenty fifth the twenty twenty was real short period of six once total last warrant was July twenty six twenty twenty we recover that last one. I'm a little bit confused so we pay them we pay them and we pay them and they paid them. In a very short window from June twenty fifth through July twenty six we're following up with the client sometimes they don't respond directly right away in they want to hear from them then we follow up with the a vendor to see what was happening at that point very short window within two months. Senator Rice. This doctor over. You called up to take place listed are still taken into what seems to be out and out fraud. The New COVID delays may be. What's taking so long to determine somebody filing something. No idea on the state police's investigation if that's what you're asking for wise taking them so long we reported it back in October fifteenth to twenty twenty. Do you know if the entity. Is still in business I don't know that. Do you know the principal of the entity I don't know that either you don't have that name no I don't the state does business with people they don't have the name who owns the corporation all right now I understand your question we did have some we do have some names on Astros life for our general counsel to come up with those names I still haven't heard from me. Here those I don't know I'm not I ask for those B. no shares available select fine I just wanna know. If if there's some. Exchange going on between October now with the person. That it appears to have. Read it fraud and. Pretty black and white to me. Well the way it was trying to follow up other than report. The employee was terminated right away state police was notified and they conducted an investigation almost immediately as and as I understand it and so we're still waiting for the results of their active investigation right now. And I'm I'm not just being in own you but yes same thing I hear from constituents is sometimes you have to try your own case get get your own evidence and all and you got to push a little bit to get something done you know when when we sit here and talk about this and nobody follows through this I was just twenty one thousand dollars we go all but you know sometimes you can pick up phone calls okay and he gave them the audit state police but I would appreciate if somebody would you know site is something going to be filed if it's if it's plainly the bill does a prosecutor The to be contacting say you know can you look at this again I just goes on it goes on and on it It the public sees it. It It public feels like it was them they'd be thrown under the jail what is my concern as well and I don't want it in impede an active investigation but we'll do everything we can to recover these funds we appreciate final Sir thank you. I'm I'm senseless that Senator Hickey center and thank you. I just want to go on the same line and maybe maybe we need to do this for audit a pretty much anything on them but if you don't mind would you would you make sure that they have all the principles that we have because I would like for them to at least do a search of those principles to make sure there's not any other companies out there that possibly could be doing any other business to agency of state and I appreciate to state police looking at it but since it's a you know we've we've seen this issue here I think it be easy for us to do some searches just to make sure that we don't see anything that pops up sure I know the state police has principles while make sure it gets to a the card as well thank you. Senator Solomon you've been awfully patient the that sound like the practice is pay the invoice then check. So have we change that process to pay then check to check them pay or is that not necessarily that's part of the frog here the council that was of all those terminated is one that's supposed to check and ensure the services were rendered and she was falsifying those checks okay all right thank you. Senator Hammer and then Senator Hickey. Thank you ma'am chair that is you've you've made adjustments to the processes was it. Was two months or six pay periods the normal length of time before you would have followed up and checked to make sure services were delivered or what was the reason six six to much maybe the normal time that you have a chance to audit based on how much manpower you haven't processes just wonder about about that part and you have made corrective changes to the procedure now we change to add another manager involvement in the reviewing and three or more invoices going out to the same vendor in a certain time period will trigger a review at a manager level but the again the person that was involved it they should have been of reviewing authorizing and re confirming that these of of payments were made properly and services were rendered was part of the problem that she was committing a fraud and forging the fact is services were received okay and when the term principles are used in the conversations if that could you include that individual that doesn't impede the investigation of the cures now she's working for another state agency or if she is working for maybe even the private sector and doing something you know to somebody privately I don't know how you get that out without a kind of like to know that one too much so we can pass a name to legislative orders well all right thank you. Senator Hickey. I'm sorry. Well we don't know which ones in an insult to the most. I'm not sure either. Anyway I was just going to do is we have a follow up next month on on what's taking place in the next thirty days only this I think that everyone have this order that fall through the cracks will talk about it one month and then it goes away and I would suggest that next month they come back with a report on what's been done thank you madam chair in the center to give Charlotte a and spiritual that. I think that's a great idea what we held that over and and have you come back with the report thank you for. Having on what we have next on okay we have one more report that's the department of agriculture yeah June thirtieth two thousand twenty report. In this report has one finding. The Department culture discovered in a Roni is an authorized paper disbursement of over one thousand dollars resulting from employees paychecks being deposited into the incorrect bank account. Further he revealed that the employees direct deposit account information was changed without the employee's authorization using another employee's new direct deposit account information. The department's able to recover all but fourteen dollars the over payment through bank reversal in the payroll Clerk who made the incorrect transaction donated the fourteen dollars to make a whole. We conducted further testing in Notre three additional instances in which the Department change employee account details without a completed direct deposit enrollment form that concludes a fine after nine. Any questions I'll let senator Caldwell go first just in case he wants to be identified. With the agency like to come up. Please identify yourself. Thank you ma'am was for from the Arkansas department of agriculture. This is a key to fiscal officer all right give a statement for us. Yes ma'am just briefly the certainly this is something the department recognizes was a something that shouldn't happen that way that occurred back in October of two thousand nineteen it was something that you up I've got a memo here where our HR staff caught the discrepancy very very quickly as far as that first piece within or not on October seventh October the eleventh the identified and start working immediately to try to correct it so we we agree with the finding and have implemented additional control mechanisms to make sure that that doesn't happen again on the one that the payroll information was entered on the wrong employee of the second piece where there were three on authorize transactions that that ultimately resulted from peanut grading we have a lot of part time extra help employees that often don't have an email address it may come on very quickly to perform a certain service integrating and in particular they work through their their program supervisor to submit information and so we've we've corrected that as well where even the part time employees before before any information is changed when the when they're hired on they have to submit that information so that this doesn't happen again but we we agree with the findings and taking action to correct all those. Okay thank you are there any questions. No questions. See if you guilty looks Senator Hammer. The the Fraser jumps off of the patient is change without employees authorization. And was that. I mean was that accidental or or was that unintentional and just trying to put in context of everything else is set in the funding. Yes Sir serve if you're if you're looking at the finding that first paragraph under the finding the information center at the boys authorization you just using another employee's new direct deposit account information so what what happened there was this it was a mistake by but it's your staff when they were looking very similar names was looking at the information got syncing appointed failure to entered on the wrong person thank you. The names of the same initials it was like Dan and Doug and the last name was like salmon Smith correct so it was an innocent mistake over similar yes ma'am Eminem was with the initials okay. So everything's been replaced backset for fourteen dollars and the person that made a mistake by the fourteen dollars so everything's been put back correctly. What's next for the. Without any further questions of believe we have one thing that's coming back next for review and everything else we can pass on right without any further business any further business we are adjourned.