Legislative Joint Auditing

Hi we're gonna call this meeting to order this morning appreciate everybody would take you seats. Thank you members are of first order of business is we the adoption of minutes of the June fourth two thousand twenty one meeting I know everybody says chance to see those of we have a motion to adopt and the second. I have a second all those in favor say aye. All opposed no. I thank you does stand up to. Our next order of business will be reading of the reports of the executive and standing committees Senator call will you're recognized. Thank you represent one of the executive committee met Thursday August twelfth twenty twenty one staff reported to the committee of the audit special investigative and shortage reports schedule be presented to the standing committees in the fullest flavor join audit committee this more of this month. In other business staff reported that the Attorney General had been mailed a request to attend the legislative audit committee on September tenth twenty twenty one to discuss the status of revoking the town of all ports charter. The motion was adopted to withdraw the request for staff to review certain transactions relating to the potential sale of land by the University of Arkansas division of agriculture Pinetree research experimental station with no of additional business to discuss the committee was adjourned the next meeting of the committee is scheduled for Thursday September not a nine twenty twenty one I move for adoption this report thank you are there any questions or comments regarding a report. C. N. I have a second. I have a second to adopt all those in favor say aye All opposed no. Thank you that was not adopted Senate Colo yes thank you of. We're giving notice that the we're holding a order to leg audit executive committee if fifteen minutes upon adjournment of this meeting in room one oh four so if you're on the executive committee please pay attention that we will be meeting in room one oh four. Thank you senator. All right next up is the report from standing committee on counties municipalities are representative Ron. You're recognized yes Sir thank you Sir of yesterday of committee adopted amendments to June third two thousand twenty one meeting the Committee discuss the status of the towns of twin oaks and Gilmore. And they're noncompliance with the municipal accounting law. They have informed the committee that the town of twin oaks and made substantial improvements and recommended its process outlined in Arkansas code annotated fourteen fifty nine days one seventeen we stopped for them the staff informed the committee that the town of Gilmore remained in substantial noncompliance with the municipal council will recommended its process of withholding term backs they continued the standing committee on counties and municipalities recommends that the Legislative Joint autotune Committee that the process of withholding term back for Arkansas code annotated fourteen fifty nine dash one seventeen we discontinued on the town of twin oaks and continued on the town Gilmore the Committee reviewed thirteen reports differed from the June third two thousand twenty one meeting officials from six entities will present to address repeat findings from these reporters eight previously deferred reports were filed and five were deferred to the September ninth twenty twenty one meeting of the committee reviewed a hundred forty five current report of these one was certified to the bundle or. And six were referred to the prosecuting attorney's. Officials from six entities will present to address ripping findings and their current reports the Committee filed a hundred forty one courage proportion differed for show that officials could attend the September ninth two thousand twenty one meeting to add to address repeat and other findings and our I move for adoption as reporters. Thank you are there any questions. Regarding. All right see and none are we have a motion to have a second to adopt. We have second all those in favor say aye All opposed no thank you that was not adopted. next will be the report on the standing committee on educational institutions are. Representative very thank you press your button. You're recognized thank you Mr chairman. On August twelfth twenty twenty one the committee met educational. Committee met reviewed seventy one school district audit reports. For higher education all reports of open enrollment charter school audit reports and for educational cooperative audit report for the year ending June thirty twenty twenty. Officials with the Arkansas Department of Education Division of elementary and secondary education were present and answer questions from the committee related to findings and surf the school district audit report. The other report to the university of central Arkansas and westside consolidated school district or referred to the respect prosecuting attorney the Committee file the eighty four current. Reports that were brought before it. Mr chairman this time a moved to adoption of the report. Thank you any question or comment on that report. Senate may have a second to adopt. Got a second all those in favor of adoption say aye All opposed no thank you have a stand up and next up is the reporting standing committee on state agencies senator. Will certainly recognize Senator just feel. Mr if Mr Norman would please explain to me when we refer. The prosecuting attorney what you're not made to the Chechens general would you please explain to me when these things are referred yes ma'am the law is pretty clear anytime there's and a parent on authorized disbursement or unaccounted for funds and I have the statutory duty to refer that to the prosecuting attorney. Senator Solomon you're recognized read your report. Thank you Mr chair ten reports run the committee's agenda yesterday to current reports and one deferred report with findings for president at report differed from the June twenty twenty one meeting was the Arkansas teacher retirement system ET R. S. invested funds into entities without review from an investment consultant or approval by the board in violation of investment policy AT R. S. has updated its policy related to the direct investments to require approval by the investment committee and the A. T. R. S. board after receiving a recommendation from a third party investment consultant the northwest technical institute which is part of the department of education did not maintain adequate state vehicle logs therefore the extent of personal use of state vehicles could not be determined the department of veteran affairs did not include sufficient information on its cash receipts and did not deposit receipts in a timely manner the department also made payments to a vendor that exceeded the contract contract them out there is agency staff members were present to report on how the agencies intended to address the audit findings and the answer committee questions during the meeting the committee adopted a motion to file the one deferred report and the night and current reports Mr chairman I move to accept this reporter about this report thank you senator any question or comment on the report. C. N. on may I have a second. To adopt got a second all those in favor say aye All opposed no all right I'll stand up to thank you. Our next up this morning's review of selected records and state funding on the pharmacy benefit managers are for specified time period if your member members this is something that we had held over color couple couple questions if those members have those two questions will be happy to to deal with them today but otherwise I think this should be a fairly short short reports saw recognized miss Lampkin and Mr what to get that report. Thank you Mr chair. This report which reviews and analyzes financial records and other documentation concerning state funding of pharmacy benefit managers or PBMs was initially discussed at the June twenty twenty one L. Jack meeting the committee voted to hold the report for further discussion today and I will be presenting a brief summary. The objectives of this review review were to provide an overall perspective on how PBMs are regulated in Arkansas identify state programs using PBMs and determine how state funds flow through PBMs pharmacies and insurance companies to test for compliance with state laws and regulations. To compare Arkansas laws and regulations related to PBMs with those of other states and to review complaints received by the state agencies in program management regarding PBMs. Our review focused primarily on the for plans that encompass approximately ninety four percent of annual government funded pharmacy expenditures Medicaid fee for service Arkansas works the past managed care program and the employee benefit division or EBT employee health insurance plan. For Medicaid fee for service programs funds flow directly from DHS is fiscal agent to pharmacies without passing through PBMs. Funds do flow through P. through a PBM before reaching pharmacies for Arkansas Works pass an EBT for funds for these programs is provided in appendices II through L.. We found limited instances of non compliance with laws and regulations regarding reporting the pharmacy claims to the Arkansas all payer claims database or a PCD actuaries contracted with the Arkansas insurance department or a ID noted instances of call backs for Arkansas Works infer pass. Both L. A. and a IT contractors noted spread pricing by certain PM's for the past in Arkansas Works programs a ID received a total of two hundred thirty seven PBM related complaints in twenty nineteen and twenty twenty with the majority being resolved as of the report date of may seventh twenty twenty one. Additionally the attorney general's office received over five thousand complaints from pharmacies from twenty eighteen through early twenty twenty regarding low reimbursement rates by PBMs. As noted in the June discussion of this report the General Assembly address several PBM related issues during the regular session of twenty twenty one including disclosure of conflict of interest rebates the jurisdiction of a ID and standards for mail order pharmacies and home delivered medications. Based on legislation enacted in other states the General Assembly may wish to explore further PBM related legislation. Based on the motion adopted at the June twenty twenty one meeting representatives from DHS a ID the Attorney General's office EBT Arkansas state police higher education institutions that did not submit pharmacy claims and pass entities were asked to attend in order to answer committee questions. And this concludes my presentation. Thank you are there any questions. Committee members. All right I don't see any so we will consider that reviewed. And we'll move on to the next item on the agenda thank you. Next up is a cricket council financial audit reports Jamie Franklin will be represented. You're recognized. You're recognized for. Thank you Mr chairman. This presentation covers the financial audit Craighead county for the years ended December thirty first twenty nineteen and twenty twenty these reports were dated December twentieth twenty twenty may seventeenth twenty twenty one respectively. Cricket county in northeast Arkansas maintains dual county seats in Jonesborough and like city and has a population of over a hundred ten thousand the county is governed by a thirteen member quorum court and day to day operations were managed by eight elected officials to earn sixty six full time employees and ten part time employees as of June twenty second twenty twenty one. This slide shows the county's assets and liability totals for general road and all other funds combined assets totaled nineteen million and twenty five million liabilities totaled three point two million and four point one million at December thirty first twenty nineteen and twenty twenty respectively. This led shows the county's revenues and expenditures for general road and all of the funds combined revenues or twenty eight point four million and thirty three point four million and expenditures totaled twenty six point nine million in twenty eight point one million December thirty first twenty nineteen to twenty twenty respectively. Audit procedures indicated that the office of the county judge treasurer sheriff's tax collector circuit Clerk assessor and District Court Clerk were in substantial compliance with Arkansas fiscal financial loss however non compliance with state law and accepted accounting practices as noted in the office of the county Clerk in twenty nineteen the result in one finding regarding unauthorized transfers in the county clerk's office. After being contacted by a financial institution regarding questionable account transfers the county judge in conjunction with I'd staff determined twelve unauthorized transfers from payroll clearing account totaling one point six million were made to a personal account during the paid January twenty third through June twenty fourth twenty twenty. Also during this period funds totaling over one hundred sixty thousand were transferred from the personal account back to the payroll claim count leaving a shortage of one point four million. In the twenty twenty audit report we identified a deficiency in internal controls that we consider to be a material witness after deputy county Clerk employment was terminated in October twenty nineteen the county Clerk obtained exclusive authority over the aeroplane County creating elected segregation of duties. Subsequently the county Clerk had sole responsibility for making payments from the federal planning council the various vendors for payroll deductions this control deficiency was due to management's failure to maintain the status controls and resulted in the county Clerk being able to make unauthorized transfers noted in the twenty nineteen audit finding was totaled one point four million. The council adopted an ordinance in December twenty twenty that established internal control down Ebeling oversight between elected officials office. Subsequent to an Arkansas state police investigation county Clerk Kade Holliday resigned from office and was arrested on June twenty nine twenty twenty. The county filed suit in civil court against holiday in September twenty twenty and was awarded damages for active fraud embezzlement breach of fat is fiduciary duty conversion unjust enrichment and violation of public trust damages awarded included one point four million in compensatory damages thirty five thousand pre judgment interest twenty one thousand and attorney fees and costs imposed judgment interest in accordance with Arkansas law as of June tenth twenty twenty one the county had received fifteen thousand. In terms of criminal litigation holiday was charged in state court with thirteen counts of felony theft of property and one count of abuse of office with the trial scheduled for August and September of this year additionally holiday was charged in federal court with eleven counts of wire fraud and a trial has been scheduled for October. Mister chair this conclude my presentation of the financial audits Craighead county for the years ended December thirty first twenty nineteen and twenty twenty county officials are here to answer committee questions all right thank you appreciate that I'm gonna assume we're gonna have some questions. Do I see any from a committee because we do have some folks from the county here. Yes all right. If my can officials if you just remain standing there turn your microphones on. It's our. Custom in order to a. To have a right to testify as. Get under oath and I keep from. Thank. Here we go. All right just on my left please get your microphone loan well one of the time Please state your name employer position Leslie pending Craighead county Clerk. A do you solemnly swear or affirm that the testimony you're about to give will be the truth the whole truth and nothing but the truth so help you god yes thank you next Marvin day cricket county judge thank you Sir would you please raise your right hand do you solemnly swear or affirm that the testimony you're about to give will be the truth the whole truth and nothing but the truth I do thank you Sir thanks Lisa Lawrence County administrator thank you do you solemnly swear or affirm that the testimony you're about to give will be the truth the whole truth and nothing but the truth so help you god. All right thank you you guys might be seated I appreciate you being here today. looks like first up representative Meeks you're recognized thank you Mr Reiter thank you folks for being here this morning so the the question I had is that the report told us that one point forward going to a personal account that going to was it Cade's holiday due to going to his personal account and if so it looks like he hasn't reimburse that money just fifteen thousand dollars which is you know drop in the bucket compared to the the night. Was that money spent on anything or that money still sitting in a county where we know what the disposition of that was. Yes Sir through the many hours of research that the we have done in our staff and others have done. He took that money and then we'll move it from out of the camp the bank that the county has it moved that money into another bank and at that point then he would district distributed to different entities of the heat pad of quite a substantial amount of personal belongings he invested in several businesses Of and and the probably the largest location of the county money he he did a leasehold improvements to a building in Nashville Tennessee for a of a food business that he was a man of and in really with no no way to call any of that money back because because of what was going on there okay and that was gonna be my for my follow up for one of the First prospects of getting any of that money back. Of you know so right now it's in the bankruptcy court proceedings there was a decent amount of money that came back into the bankruptcy the of trust the amount you know realistically. I'm speculating we we might see two hundred fifty thousand dollars out of that amount of the total of. You know there's there's been a few things in the bankruptcy trustees of the a little disappointing one business that he will of the first check that he took from Craighead County went into a business and I thank The eighty six thousand dollars in the bankruptcy trustee settled all eleven in income clawing that money back so there's there's been some things that were disappointed in but we're working through the process thank you thank you Mr. President Maddox you're recognized. Thank you Mr chair a John Maddox is missing but I'm sitting in this seat I'd like to ask questions yeah you're recognized thank you first of all to all three of you thank you so much for stepping up at a time when cricket council and our constituents needed. Some real hard working and honest decent people to back fill. What to okay did. And I applaud you I guess the question I have is. Are some of the people in our county that were hurt from his. You're responsible and illegal activities are they ever going to see some of that money returned. To them personally not just to the county but to those people that he pulled in and deceived thank you. Representative Smith in my opinion no. Of this disk despondency how the how the the Courts ranked the property of of leans and and how all that works you know anything could happen in the future cage a young relatively young person but but probably not okay follow up please. Has Cade holiday ever shown any remorse for what he did. Not in my opinion okay thank you. Right now what what were the deficiencies in in your system allow this to to get there you know for to allow this to happen and if you wouldn't mind telling us what action has been taken to to prevent this from happening again something similar so this will have to be a team effort this is the real leader of Craighead county is so of but I'll start inching correct me You know so what happened was Kate had multiple people that would manage the payroll process. That other person that was involved in that kind of triangle he she got fired in in so what happened the the nuts and bolts of what happened you think about payroll so every two weeks of payroll is run you people turning their time cards and it generates buckets of money that need to be put in various locations so for example. The employee's paychecks you know that goes into one account within their electronically distributed to all the employees same way with the money going to the IRS it gets put in a separate account you initiated trade online transaction for Irish to come and pull that money same way with us department of finance same way with papers so all these checks were out there to for these monies in these transactions that happen. so if you think about that the Clerk Cade was presenting a bill to the treasurer's office and says I need X. Y. NZ for these various accounts. He would get the checks for that he would deposit in the account but he would not initiate the withdrawal of that money from those various entities at that point is where it gets a little strange in that. He would convince that bank branch manager that because of the legislative audit he needed that money written into a cashier's check. In his name or he would deposited into his personal account at that bank and then at that point he would move to a different bank and it would go to his other entities that he wanted done so. In in in simple the the biggest flaw that that we had was that there was not There was not someone there to check bank statements you know that he had he had taken that person out of the the equation he was the only one getting the emails from a present the FNA of deficient payments of those are the two big issues of lost my train of thought of. In that there really was not a good checks and balances among other elected officials so. If you remember in the past session we ask you all we appreciate your help in that so that other people can learn from our mistakes we ask that a prison the FNA when there's a problem with those transactions we ask that you notify the county judge's office as well as the clerk's office we appreciate y'all's help with that we also set up a internal policy that established really three different offices so Office of the clerk's office in the treasurer's office where we all have read only access to each other's accounts so that somebody's watching we also made sure that there was differentiation of who received the statement and who wrote the checks so that you can have that opportunity to make sure that that multiple eyes are looking at it and and reduce that risk of of someone you know stealing that money And and I assume the deficiencies with R. S. and apers and other entities on those lines of an might hold at this point. Whatever Penfield's confident in saying that was the FNA and apers R. S. you get a. You're crazy no the mail you months and years later than you thought you had squared away we I believe we're squared away with them but the effort in my we lease and congressman Crawford so office of a been doing all we can for that okay I appreciate it and and I have just question maybe this maybe more for staff the the bank manager that was doing that is there any. It's even brought into that at all that's I know this is necessarily for these guys but that just seems a little sketchy so whenever we sat down with a financial institution in the judge looked over the transfers and everything that was something that the judge had had talked a little bit about and that's going to be more less a legal question as to the county attorney in the county more so okay or the liability that they hold in. Okay but start to our knowledge Nathan's but not the moment no service okay thank you the. What I add to that showing we did we by our contract relationship with the bank there are certain timelines on if there's a potential malfeasance or anything of that nature we did make a filing with the bank of the potential issue we've not gone forward with that at this time uh and you know this but we have we have got a reserve our rights if there is something there we determined yeah thank you thank you for that President speaks you're recognized. thanks so training in. Something. Does not respond summary. Okay thank you Mr chair. I'm not sure how all the bombs were works but wasn't he bonded. Yes ma'am yes ma'am would you not be able to get some money from that to help with what he took. So long as all somebody's trying Michael. When turned also make. Hello there yeah thank you. Mystique's the up. We'll be counted. But but but but. On again of from my understanding the of the process for that I think we had to get through this point to then go before that commission to ask for our bond you know the the big debate for us as you saw on Jamie's presentation you know there are fourteen different instant incidents that relate you know that that had that amount of money. In our bond policy it shows that we have coverage of three hundred thousand dollars per incident. We're going to contend that we had fourteen ints incidents they're gonna pry contend that there was one incident that happened fourteen times so you know we we we believe will get R. three hundred thousand less than twenty five hundred dollar deductible but we hope that we might get a little more than that. The Arkansas thank you. So that twelve two hundred fifty thousand it was referenced earlier that. That you've gotten back anticipate getting back where where is that coming from it's in the it's in the federal bankruptcy proceedings you know he he filed bankruptcy August September so so that some asset somewhere that they're going to take you know that's that process yes yes okay yeah all right thank you. representative Ryan. You're recognized thank you thank you Mr chairman judge. If you're going to allow this. Add an owner say this wants to from the time it is storage or with you guys and. A even to a a tremendous amount and I'll tell you that I really believe that you've done a great job yes thank thank you thank you Mr. Representative Mayberry you're recognized for a question. Thank you Mr chair over here I know it's hard to tell where we. Some of my questions were kind of answered but I want to go back to this bank part because that's just really disturbing that on behalf of the council that the bank would allow a cashier's check to an individual person to put their name on it but and at. Kinda added address date in answered some of those questions but you made reference to more than one thank you said that he went to one bank and then would go to another so how many banks did he go to that there's someone in the bank reading a cashier's check in an individual's private name on behalf of the county. I thank I caught up with that so there was really only one transaction that went from county direct deposit of county funds into a bank and it was all it within that one institution at that point he would have money that would be in his personal name well actually the first transaction it was into his personal account subsequent transactions when into an LLC that he had. And then at that point he would move those funds into a different bank. Then does it more than one different banks actually were then he would then decide whether he was going to of put money into this venture in in Nashville put money into one of the ventures in Jonesborough of purchasing real estate a pretty substantial amount of real estate you know real property personal belongings like Senator it it it's of a very complicated amount of accounting trying to to follow that trail around. Okay thank you yeah thank you thank you are there any other questions from committee. All right I don't see any so we will are consider this of. For review to thank you Mr Franklin a committee I think that was his first report to bring to us and thank you know outstanding job so appreciate his work on that and I appreciate you have something you'd like to I do I I appreciate everyone thinking of a make given us accolades on a day of these two ladies only the side they deserve all the credit up missed penny has stepped in as the Clerk in cades absence and has brought the team together from just such an emotional you know thing that they've gone through and they're done a fabulous job and I can't say enough wonderful things about her and leases a CPA and and she works really hard to make me look smart so I deliver a project that we're much no John we thank you guys for being here today and for the worker to. You are dismissed that moves us to other business. Now the next meeting of Legislative Joint audit committee will be held September ninth and tenth twenty twenty one. Hi is there any new business anybody what bring before the committee. All right I don't see any and I'd like to remind the members executive committee that we will have a meeting at ten o'clock in room one oh four of and we will see you shortly their hope of if there's nothing no other business for this committee that will consider it adjourned thank you.