Legislative Joint Auditing-State Agencies
Video
Transcript
1 document
Machine transcript
May contain errors. Verify important quotations against the official video.
About transcript accuracy
- Source
- Whisper
- Model
- ggml-large-v3-turbo.bin RTX5060
- Processing date
- October 6, 2026
Representative Robin Lundstrum
Unverified
0:18
a quorum. I believe we will start. Does everybody have their minutes in front of them from the last meeting?
If you'll take a minute to look at your minutes.
minutes? Do I have a motion to accept those minutes?
All right. Representative Bentley moves we adopt the minutes from May 3rd. Do I have a second? Senator Pitch? All in favor?
All right. We'll move to a review of reports. If you'll look
Speaker 12
1:15
at your summary. Thank you, Mr. Chairman. Today, we're presenting one deferred report and two current reports with findings. We also have two reports without findings that are listed on page one of the summary.
Representative Robin Lundstrum
Unverified
1:26
All right. Let's open up to the findings. okay we need a motion to find the one file the ones without findings
okay we have a motion from senator pitch and a second from representative bentley all in favor all right mr
Speaker 12
1:51
tom our first report with findings today is the arkansas teacher retirement system june 30 2020 report which contains one finding we earlier released this report back in March, and it was presented at our meeting last month, and it was deferred to this meeting so that board members could be present to answer committee questions.
The agency's investment policy indicates the board is responsible for prudently investing funds and maintaining proper allocation of the agency's investment assets. For assets that will not be managed by an investment manager, the policy does not permit the agency to make an investment without a review and recommendation from the investment consultant. In May of 2019, the AAC invested $58 million in conjunction with multiple other parties to execute a promissory note to Big River Steel tolling $290 million. The AAC did not obtain a review and recommendation from the investment consultant
or board approval for this investment. In June 2020, loans of $48 million to Highland Pellets were recapitalized to purchase 45,000 Class B units. The newly converted Highland Pellet Class B units were combined with some existing 155,000 Class B units and re-characterized as Class A units. Again, the AC did not receive review and recommendation from the investment consultant or board approval
Speaker 19
3:04
for the conversion of this loan to equity. That concludes the finding for teacher retirement system.
Representative Robin Lundstrum
Unverified
3:11
All right. I'd like to ask the board members present to please come to the end of the table so we can
have a discussion. And the director as well. If you could introduce yourself
Speaker 25
3:38
for the record, and if you have a statement. I'm Danny Knight, President and Chairman of the Arkansas Teacher Retirement System.
Speaker 27
3:46
Thank you, Mr. Knight. And you, sir? Clint Roden,
Representative Robin Lundstrum
Unverified
3:52
Executive Director, Arkansas Teacher Retirement System. Do
Speaker 25
3:54
you have an opening statement, either of you? I do, Madam Chair. As I said, I'm Danny Knight, the present chairman of the Teacher Retirement System. It's been a long time before I've sat before this board. I don't recognize many faces. I remember his granddad. It's been some time.
I've had 38 years of experience as a superintendent, so I'm somewhat familiar with a few audits. And I must admit, I was always kind of relieved when they left my house with a clear finding, even though I always was, know that they were helpful to me in so many ways as a young superintendent when I started out. I always looked at an audit as a learning experience,
something that you shouldn't be afraid of if you're following policies and directions as presented. I was in complete compliance with everything except one. I never did understand how I could go through the segregation of duties when it was just me and a bookkeeper. But Mr. Norman explained that a few times, and we were successful with that. along with those 38 audits I had as a superintendent of school,
I've been fortunate enough to be a part of 10 or 12 with the Arkansas Teacher Retirement System. And I can tell this committee today that speaking for the trustees, I know they feel the same way that I do concerning the audits that we have on a yearly basis. We are very aware that when there's changes in the laws and changes in the policies, we want to make sure that we are in complete compliance. We have the utmost respect for our legislative auditors and the work they do to make sure
that we are in compliance. Our agency serves better than, I think I was reading recently, some 134,000 people that belong to the Arkansas teacher retirement system, with some 50,000 of those retired such as I am. I watched the last meeting multiple times, and I don't pretend, I don't pretend to know all of the answers that were raised during that meeting, but I do know that we're
aware of the concerns that this committee has that our audit has presented. And we have always had a great relationship with our auditors, even with our inside auditors, along with the state auditors, and always with this committee. As Senator Hammer mentioned the last time you met. He used the language as an old country boy language once or twice that I can assure you
that the ATRS and our employees want to do what is best for the people that we serve. We also want to work with this legislative body in full cooperation because they are vital to our success as an agency. I hope by being here today, not only as the current chairman, we have with us the past chairman, we have with us two long-term members, and of course our director
and deputy director, whom I will be happy to turn it over to in just a minute. I want this committee to know, as chairman of the Arkansas Teacher and Recyberman Trustees Board. We want to be and we will be in compliance. I am willing to make a change. We are willing to make changes that we need to make as directed by this body that will bring us into full compliance and your satisfaction. Madam Chair, thank you very much for allowing me to speak
as the chairman of our committee. And at this time, if it's agreeable, I'd like to ask our deputy director along with our director to come to this table and ask questions this body might have. Thank you. If you would the directors
Representative Robin Lundstrum
Unverified
8:23
would like to come up and we will open it up to questions. If you
could stay sir I think there's room at the
Speaker 32
8:33
table they could sit on either side. Okay. If you could introduce yourself for the record sir.
Speaker 33
8:44
yes thank you rod graves arkansas teacher retirement all
Representative Robin Lundstrum
Unverified
8:49
right thank you do you have anything you'd wish to say first i believe we have a question in
Speaker 35
8:56
the queue if not i i think we're ready for questions i'll yield to my the board chairman for
Representative Robin Lundstrum
Unverified
9:02
our opening comments and we'll just take questions
Speaker 36
9:05
all right representative board law i believe you had a question
Representative Jeff Wardlaw
Unverified
9:09
thank you madam Chair. So reading over the legislative audit deal here, you guys responded and said that as outlined in attached resolutions and the board's decision, the board has historically
approved initial investments only after receiving and reviewing the recommendation of investment consultant. It's
my understanding Simmons Bank used to do that for you guys, but there is not anyone in that role at the moment. Is
Speaker 42
9:38
that true? I'm going to let Deputy Director answer that. Yes, that's, well, it's partial. So Simmons would make initial recommendations for the deployment of capital to these investments, and typically in the way the consultant relationships
would work with ATRS and more what I would call traditional type investments, a consultant would make a recommendation, the board would approve that recommendation, and then capital would be deployed to a third-party manager that would actually manage the investment. In the case of these, what I would call direct investments, or investments that don't have a third-party money manager assigned, Simmons would make the initial recommendation, the board would approve that recommendation, capital would be deployed, but instead of being turned over to a
third-party manager to make these sort of steps that we're talking about here today, there was no one in that role to fill that role. So then it reverted to staff to work with other investors and project managers and legal counsel to try to make the best, you know, to make the best recommendations up. So, you know, the answer to that question is Simmons would make initial recommendations. They are under a contract right now that expires June 30,
and that contract was not renewed. So essentially, no, there's no one in that role right now. Is there
Representative Jeff Wardlaw
Unverified
11:06
plans to fulfill that role in the coming, in the future? So
Speaker 45
11:12
I'll answer that. Yeah, I mean, we definitely want to fill that role. um you know it's typically an rfq process um but that that's where we're at is needing to fill that role and
Representative Jeff Wardlaw
Unverified
11:25
in fact but but you're yes you're sitting here telling us that there's no one in the role
the contract expires june 30th which is a few weeks away right and there's not someone
that's going to be there july 1st so you're going to have investment opportunities in front of you I'm sure people offer you guys investment opportunities daily. So do we have an RFQ, an RFP going out to fulfill that? I mean, to me, that seems to be the missing link here is that you don't have that consultant to bring that information to the board. So it'd make me feel a lot better as a legislator if that role is fulfilled by someone that is capable and experienced to do that.
So when is that planned? And when are you putting that RFP out or when are
Speaker 35
12:17
you looking for those people? That is, I mean,
Speaker 45
12:20
that is a great suggestion and that is exactly what we want to do. We have not started that process yet, but I do feel like that is a really good suggestion and that's the way I would like to go, to be quite frank. So, yeah, very open to that.
Representative Robin Lundstrum
Unverified
12:40
Thank you, Madam Chair. Do you want to follow up to
Senator Terry Rice
Unverified
12:52
that one? All right. Senator Rice. Thank you, Madam Chair. We are talking about
$290 million investment, correct? That is correct. From the testimony in the last committee where this was held, something that I heard, and again, you may clarify, that was somewhat troubling to me
was the process of the investment and who determined maybe just steps or timelines. It was reported to, I think I heard the chair of the trustees and then it was up to the chair to report that to the board. But what I took out of that meeting is the commitment was already made. Could somebody clarify that process for me?
Speaker 42
13:51
what I was concerned about. Well, sir, the process always involved notification to the board chair prior to any commitments being made and then further relaying that information to the board at usually the next available board date. That's after the commitment was made. Right. Notification to board chair prior to anything.
And then that's the way the process had always worked, was notification to board chair and then further relaying the information to the board at the next meeting. Relaying
Senator Terry Rice
Unverified
14:34
the information of the investment. Yes, sir. So the trustees
Speaker 42
14:40
are not required for the process. The current process is always involved notification to board chair, which there is a longstanding resolution that the board reviews
and adopts each year that speaks to notification to board chair as being notification to the board. But that's the way processes work. Let me try
Senator Terry Rice
Unverified
15:01
to get a little more detail. what i want to hear
is what the legal process requires versus tradition we heard i believe last time well we've always done it that way without having the person that's required
to have some oversight and input what i want to know are all investments able to be made without any input from the board of trustees so so what we're
Speaker 61
15:37
what the process has always been is that again rather than you go
Senator Terry Rice
Unverified
15:42
down that rabbit trail right i want to know legally what's required who can answer that so i don't know that i can
Speaker 63
15:51
leave i mean i can answer that but i will attempt to answer that um in the sense that legally we WE ARE REQUIRED TO HAVE AN INVESTMENT CONSULTANT FOR INVESTMENTS. AND WHERE WE'RE AT IN THIS, YOU KNOW, SITUATION IS THE INITIAL INVESTMENT, THE INITIAL CAPITAL EXPENDITURE INTO THIS DIRECT INVESTMENT WAS REVIEWED, YOU KNOW, BY SIMMONS AS MR. WARDLAW WAS, YOU KNOW, POINTED OUT. AFTER THAT INITIAL INVESTMENT CONSULTANT ALLOCATION OF THAT CAPITAL WAS MADE, IT HAD ALWAYS
been the process of, you know, the management of that investment. As long as there was no additional capital from ATRS going into
Speaker 45
16:36
that project, then it was, it fell upon the executive staff of the, of the ATRS, you know, management team to make those day-to-day decisions. And it included significant restructurings of that initial investment. So as far as legally goes, you know, I think we're fine as far as, you know, the initial investment was approved by
investment consultants, but once that initial capital was approved and sent out, the management of the, you know, recallable distributions and the restructuring and the management decisions fell upon the ATR staff. And let me just take this opportunity to point out that I am 100% in agreeance with the legislative audits finding that significant changes in investments should go through an investment consultant. That is a missing hole in ATRS right now. I will
be completely honest with you, and for two years I have been probably too slowly trying to adjust that type of decisions to an independent third-party investment consultant. And, you Anything that we can do to work together
Speaker 63
17:46
to get us towards that, I think, would be a very prudent goal at this point.
Senator Terry Rice
Unverified
17:53
Let me wind up, Madam Chair, if I can, just make this point. What you said
in response to representative ward laws, you called it a suggestion.
I want to get to what is required and follow the requirements. That's what we're all supposed to be doing. i still don't have the answer maybe i'm just not knowledgeable enough i would like to know what you have a trustee board for if it's just for after review because you told the chairman it would be like legislative council because you told the chairman it's all right to go ahead and
do whatever you want when there's 60, 80 more people that need to be in on the conversation. That's my concern, and that's what I'm not hearing. So if you want to address that now or if you want to address it offline, I'm open. But that troubles me because the Board of Trustees is there for a purpose. Yes, sir. Thank you. Senator Rice, I believe we're going to have the
Representative Robin Lundstrum
Unverified
18:59
auditors come down to the end of the table in just a minute and actually give us what the actual rules are. I'll go to Senator Hickey, and
if the auditors could queue that up in just a minute.
Senator Jimmy Hickey, Jr
Unverified
19:09
Thank you. And maybe mine's going to be to Mr. Knight, because I know that we had asked you to come down here. And I heard what you said about policy and everything. It is a policy that you all have in place that you're supposed to have this consultant.
Speaker 25
19:27
Is that correct, Mr. Knight? That's the legislative audit's findings. The legislative audit's findings were correct. our policy states that what we're doing is correct. How so?
Sir? How so? Because that's what our policy says in that we've been getting by with Simmons, so to speak. But as far as having other people after this direct investment is made, the initial large investment. When it comes to getting back money, the staff can redirect that money back in to the system, which I think the two that we're talking about is Big River Steel and the Pellet
Company at Pine Bluff. And I'm notified of that. And the next board meeting, we tell the staff, We tell the trustees, or Clint does, what they have done in the interim. But as far as calling a board meeting to see if they're in agreement with it, we don't.
Senator Jimmy Hickey, Jr
Unverified
20:41
Let me ask you a question.
It's my understanding from the last meeting that we had this position with the company, and I'm not going to say the name, but with the pellet is what I'm going to refer to it, just as the pellets. Okay, so we had this investment. There was another company that come in that made a substantial investment in the company, but we subordinated our position. Is
Speaker 25
21:12
that your understanding? That is true, but I'd rather these guys that handle that directly answer that
because I'm not that knowledgeable on
Senator Jimmy Hickey, Jr
Unverified
21:19
all the subordination and so on and so forth. That is my understanding, yes. But I am going to go there because what we're sitting at the
end of the table saying is that once we put the initial money out or that we've basically obligated ourself for that, then that's okay if they keep managing that around. But any time that you would subordinate your position, you're going to change the value of that investment drastically. So do you all, and in my opinion, they're ultimately responsible too, and I do that,
but you all as the board, that's your responsibility to make sure that they bring that before you all before they subordinate that position and go into what I call a second lean position. That's not right, a second or a third position, because now this new investor is ahead of you all with whatever assets the company may have in place. I'm not saying the company is going to go under or whatever, but you have to look at it from that type of standpoint to make sure that you're being physically responsible.
So that in itself is a transaction that the board should have looked at. I
Speaker 25
22:33
don't disagree with that. That's what we're telling you today, that we're here. I'm here as a chairman of the board to work with all of our trustees to make sure that we do just that very thing. Now, the reason why we hadn't already gone out to seek bids on this person or the people, I don't know. Are you all going to revamp your policy?
Senator Jimmy Hickey, Jr
Unverified
22:58
Have you got a meeting set up based on what these findings were and the subordination of those type of positions, that anything in the future that that won't be allowed to happen again? Have we already got a meeting set up so that we can address that?
Speaker 25
23:13
We're going to set up a meeting to address that. Our next meeting is next week. That's the problem we're having with this coming up as an issue because it's never come up before. But we, I can assure you, as an old country boy said, we're going to take care of this.
But I'm not promising you it's going to take care of the next three months, but hopefully by, I'd say, December, this will be in place. but it's going to take a little time to do it because we've got nine elected board members and four state people or five that's on our board. And we're depending on these guys right here to present to the board some findings that will take the place of what you guys and ladies are looking for. But it's going to take some time from both of us on our part
and with the understanding that we want to do what you want us to do because we're dependent on our legislature, as I said before, to do what we're supposed to do. And I feel sure that it will be taken care of. I may come back
Speaker 74
24:22
with that. Thank you. Thank you, Mr. Knight. Do we
Representative Robin Lundstrum
Unverified
24:27
have another question in the queue? Senator Pitch.
Senator Mathew Pitsch
Unverified
24:33
Thank you, Madam Chair, everyone. I wish Senator Hammer was here because we did this exact same thing almost word for word a month ago. We basically, and he summed it up very well, he said, you guys have policies. They got called out in audit, and we're not good with your policies. That was the summary of a month ago and why we wanted you to be here. And I really wish Senator Hammer, I saw him in the Capitol earlier this morning. He must have been pulled away to some other event. but that is in a nutshell that we don't think the policies you have are fiduciary responsibility to
your board etc are are worth what we're putting into this my biggest issue was we basically own a company and if that company goes under the taxpayers money what do we do with that and almost no board and i sat on several of them other people sat on some of them in here we would never let ourselves see that type of an exposure. Now, whether that's due to the seat being open, relying on Simmons up front and not through the whole process, I don't know. But Senator Hammer, you know, we all kind of tiptoed
around it last month. But at the end of that meeting, he said, in summary, we don't like your policies, go fix them or else. And I don't know that that message, I think you've, by your attendance today, got that message. But we need to see that fixed pretty quickly because we've got hundreds of millions of dollars out there and if one of these two companies says uh-oh you know well for whatever reason we just put the taxpayers without notice with a large sum of money
and we're we're not good with the policies we've got to get that policy fixed sooner than yesterday is should be the message coming out of this and i'm not a banker but there's bankers in the room And I think that's what I hear them trying to say, that we met last month and we had an open seat. I'm not convinced the open seat is the problem. I think your policy of not going to your full trustees board to make that decision is a problem. I'm not sure your trustees size, the number of them, is the right size for quick and nimble decisions.
I'm not sure you need quick and nimble in a board. But what we've got going here is a whole bunch of policies structured that aren't working in our minds for the safety of the taxpayer and the teacher retirement system. So I don't know. I guess wouldn't you agree we're supposed to ask questions. But that's, in a nutshell, Senator Hammer said it way better, and I wish he was here to say it again, but that's where we're at.
Speaker 25
27:09
We don't disagree with you at all, Senator, and as a matter of fact, I will apologize to this committee. I would have certainly been here with Rod.
Our director couldn't be here, but Rod was our spokesperson. And he was not in position to tell you, yes, we're going to do this. I'm in position to tell you we're going to work hard at it with the cooperation of the trustees to come into compliance with what this body wants us to do. But, again, Senators, you well know, I didn't disagree with what Senator Hammer said. But, again, Rod wasn't in position to make that call to you guys.
And as chairman of the board, I think I'm in position to talk to the trustees. And we got three of them here today that I know of. Here's this message, and we hear
Speaker 24
28:03
it clearly. So with that, what else can I do? Us, we do. Can I be recognized?
Speaker 45
28:14
Yes, please. Thank you. And follow up on that as far as my position in this is I'm in a position to actually put this before the board,
and I actually have my desire is to put this before the board, in fact, Monday. I wanted to hear what this committee had to say before I formalized that agenda item, but I have already prepared the agenda item, in other words. So whether Mr. Knight knows it's going to be on Monday's agenda or not, it's my plan to have that initial discussion in order to fix the policy because that is where we have to start is the policy, and I agree 100%.
Speaker 82
28:55
Members, any additional questions? senator hickey and and i appreciate you saying that mr knight you know the thing the thing is especially
Senator Jimmy Hickey, Jr
Unverified
29:12
with this since i since that was subordinated you know i'm and everybody wants to serve on the board or you know and appointments and things and or you know and i say that you know we appreciate people doing it we've got to have them to do it but by the same token you know
So especially in y'all's case, I mean, you're taking on some responsibility, some fiduciary responsibility. You know, the way that personally I see it is we have a policy in place. Policy was not followed. I don't know where that fault lies, but, you know, in the end, you know, we've got some huge money right here that could be lost because of that subordination of the debt. So that fiscal responsibility, you ask what we need to do.
You know, it's our deal, too, is not to sit you at the end of the table, but we want to make sure that you all keep yourself out of a position so that you all as trustees, which is what the trustee stands for, that some of this doesn't come back on them at a
Senator Mathew Pitsch
Unverified
30:19
later date. Thank you, sir. Senator Pitch. Senator Hickey just said something that's very critical that goes to your you've got us on the agenda i think i and i don't speak for the whole membership here but i think it's time to bring whether it's simmons or somebody to that meeting because this
organization needs to function like other organizations that function in the 300 million dollar range and whether that's simmons or somebody saying you can't make a decision as solely the chairman and then come back a month later and make sure our board at our next meeting is okay. There are folks out there, and I don't claim to be one. I don't think we have them at this board, but there's a policy. There's a Robert's Rule of Order for this type of a business, and we need to find those people to be at your meeting Monday, because I don't want you to just
set up policies that make it look like we're going in the right direction because we feel like that. I want to go find the expert and say we're dealing in $300 million, $290 million, and they tell us, you need to do this. He's got to go to his committee, whether that's whatever means of communication. He's got to get a sign from them that they're good, bad, indifferent. I hear Senator Hickey's concerns about the subordination of this, and that's real. It's a decision. But I'm also just worried about I've never seen an investment where you own the whole company
unless you're the founder of it. And that is not a typical investment strategy that I've ever seen from an investment group. So I think you need a big-time expert at that meeting Monday saying this is how we need to put checks and balances in place. And don't just all put in the room, you know, with that knowledge. I think you need the expert, whether that's Simmons or who it is.
Representative Robin Lundstrum
Unverified
32:04
Thank you. I think that's a good suggestion. I'm a little concerned that there wasn't already an emergency board meeting
given the gravity of the situation what is the will of the committee are there any other thoughts or any other questions Senator
Senator Terry Rice
Unverified
32:23
Rice I have a motion at the
Representative Robin Lundstrum
Unverified
32:26
proper time could we go ahead
Senator Terry Rice
Unverified
32:28
and discuss that motion I would move that we defer this until next month and give them time to meet and decide what their response is going to be to two
Representative Robin Lundstrum
Unverified
32:39
meetings. All right. And we have a second from Representative Wardlaw.
All right. Any discussion? I think it's the will of the body. They'd like to hear who your consultant's going to be and what the plan is going to be. I'm understanding we don't have a meeting in July, but we do have one on August the 12th. Is that correct? Yes. We have a meeting August 12th, so we can come back together at that point in time and hear a report if that's Senator Pitch. Are
Senator Mathew Pitsch
Unverified
33:07
you still in discussion? Yes, we are. Then I
might propose, too, that you guys don't wait until our August meeting, but rather you talk to staff after their meeting and we find out where they're headed.
And if they see something, Tom, if you see something, call the chairs together. Yeah, and we're certainly not investment
Speaker 92
33:25
experts by any means. That suggestion you made is fine, but we'd be happy to look at whatever policy. I
Senator Mathew Pitsch
Unverified
33:30
think we need to hear from them how your Monday meeting went. Let's not
sit around all summer. If they do that, we can certainly send that
Representative Robin Lundstrum
Unverified
33:37
out to the committee. Yes, we would like to have that information. We will send it out. Is that the will of the body? Let's hear a clear motion. Senator Rice, if
Senator Terry Rice
Unverified
33:48
you could state that again. I just move this be deferred to next meeting.
Representative Robin Lundstrum
Unverified
33:52
With the report from the body, from the gentleman at the end of the table, the board. All in favor? All right.
Thank you. Thank you, gentlemen. I believe we have the next report from the Southwest Arkansas Counseling and Mental Health Center. This is the June 30th, 2020 report containing three findings.
Speaker 12
34:24
Thanks, Madam Chair. As you said, this report is a Southwest Arkansas Counseling Mental Health Center. It does have three findings, and this entity was audited by a private CPA firm, not by legislative audit. The first finding in their report was during the year, the center's billing and accounts receivable sub-ledger structure changed significantly. The reserves for uncollectible amounts were not being appropriately analyzed, and the center used a new methodology of calculating the reserves for uncollectible amounts, which did not account for the current accounts receivable payment percentages. As a result, accounts receivable reserves and bad debt expense were
understated by approximately $706,000. The second finding, the private audit procedure disclosed that accounts payable for prepaid insurance and telephone expense were overstated by approximately $160,000. And the third finding, their procedure disclosed that grant revenue was understated by almost $114,000. That concludes the findings for Southwest Arkansas
Speaker 19
35:20
Counseling and Mental Health Center, Madam Chair.
Representative Robin Lundstrum
Unverified
35:24
All right. Do we have someone from the Southwest Arkansas Counseling and Mental Health Center here?
Can we ask them to come to the end of the table, please? And please
Speaker 101
35:51
identify yourself. Welcome. Could you turn your mic on, please? Do you want me to repeat? Yes, please. Yes, sorry. I'm Michael Klutz, the current CEO of
Speaker 103
35:59
Southwest Arkansas Counseling and Mental Health. I'm Amy Coleman, and I am the CFO of Southwest Arkansas Counseling and Mental Health.
Okay, do you all have a statement? The statement we have, I've never been here before, so I know that they had to come last year, and I'm relatively new to the organization. I started September 1st, and I know our fiscal year in June, but I've, you know, done a lot of research on this and worked with our auditors and, you know, found the flaws in some of the, you know, previous bookkeeping.
We have addressed those issues. I think in the past, the main thing that I found, there was just not a lot of oversight and review, mainly by my predecessor. We have, you know, addressed those issues. We've put in new internal controls where things are analyzed on a monthly basis. Everything, you know, does go through the staff accountant and then also my office. So I think, you know, we have addressed these.
We do meet monthly with our board of directors. We also have a finance committee that all of these findings and all of the corrective actions that we've taken, we did meet with our finance committee. I do meet with them on a regular basis because the main finding was the reserves, which last year I believe they were overstated. This past year we were understated. We do meet on a regular basis to address that,
and I monitor those on a monthly basis.
Speaker 18
37:44
Okay, questions from the committee? Senator
Senator Jimmy Hickey, Jr
Unverified
37:49
Hickey? Just one, of course. You all are in my area. What
you had found with this, was this just coding areas? Was there any money
Speaker 106
38:00
missing? There was no money missing. Okay. There was no money missing. The main thing
Speaker 103
38:05
on the reserves, they had based it on a two-year historical average,
and that's what they were basing the reserves on. What they didn't take into account was several things changed in our AR in that time period. The largest thing was the pass. They had moved the pass from it when it first came in that had been put in the private insurance line. So that was reserved at a much higher percent. Well, after the audit and the findings last year, the auditor had recommended they move that to Medicaid
because traditionally the pass is kind of part of Medicaid. So when they moved that to Medicaid, they should have readjusted the calculations. They didn't, whereas the private insurance they were reserving at, say, 53%, 54%. You bump it to Medicaid, that's reserved anywhere from 6% to 11%, 13%. Well, the pass is our largest payer. You move that big chunk of money to a different line, you needed to adjust that,
and they didn't factor in that. But the CFO, she was stepping down at the time. We had a change in CEO. We had a change in CFO. The staff accountant was kind of overwhelmed, kind of over her head. There was nobody, no oversight, no review, and it just, yeah. It was just a big mistake. But
Senator Jimmy Hickey, Jr
Unverified
39:36
you had to pass under Medicaid. We did. Okay. And we
Speaker 103
39:40
do. We analyze that monthly because, and also at the time, that historical average did not work
because through the pandemic, none of our payers were paying what they had been paying in that two-year average. I mean, the paying there for a while just screeched to a halt, so our reserves had to shoot way up, which now everything is starting to level back out. We're still having trouble with a few passes, you know, not paying like they should. They don't pay quite as well as Medicaid, but we are working on those, and we do stay on top of that. Senator Piazza?
Speaker 75
40:16
thank you well i'm not sure this question is for
Senator Mathew Pitsch
Unverified
40:20
them so much as maybe staff this sounds like something that's occurred like i've got a center in my district senator rice and i do i mean are we're facing this this movement this bookkeeping in in other centers because that's a dramatic change that's probably going to happen with the passes and i'm guessing they're all dealing with that at some level or worse yet they're not dealing with it and they just happen to be caught because
we audited them well we did not this was again this was a private audit we did not audit them
Speaker 12
40:50
well but my but it's very possible that it could be we haven't seen it if we do see it and
Senator Mathew Pitsch
Unverified
40:56
others will report it to this committee just like we did this one quick follow-up is it typical that all of the centers utilize the audit department for audits or do they use typically they're all privately audited so do you maybe you could educate the committee do you guys meet on a regular basis with all the centers under some association name and have they talked about this at that location so we don't have all of our centers failing audits yes okay so it's being
discussed elsewhere so when when I call my senate or my ceo of my center they're going to know about this and they've already adjusted thank you any other members any questions motion to file
Representative Robin Lundstrum
Unverified
41:44
Senator Pitch do I need a second Senator Hickey thank you we'll motion to file thank you thank you for coming thank you our last report
Speaker 12
41:57
is the Arkansas Department of Corrections Certification of Consumption of Farm Produce June 30, 2020 report which contains one finding this report is prepared every year in order to certify that the amount of farm produce consumed by the Department of Correction is more than the amount of their revolving loan. The amount consumed was indeed more than their loan, therefore the loan will be forgiven, and of course with Arkansas Code. The finding is that the agency mistakenly reported the November 2017 egg consumption amount as the November 2019 egg consumption amount.
The farm records we tested revealed that the November 19 egg consumption was almost $80,000 less than the November 17 amount. The ACS would have still exceeded the loan amount if the correct egg consumption was used. So it was just a record-keeping error. That concludes
Representative Robin Lundstrum
Unverified
42:44
the finding. I think we can file the report as everybody likes eggs. All right. Any? Senator Rice?
Senator Terry Rice
Unverified
42:54
I have some questions from a member that hadn't got out of a doctor's appointment quick enough.
Representative Robin Lundstrum
Unverified
43:00
All right. We need to have agency direct come to the end of the table, please. If you could state your name for the record. I'm Dexter Payne, I'm
Speaker 120
43:21
the Director for the Division of Corrections. Thank you. Lamont Wembley, I'm the CFO. Thank you.
Senator Terry Rice
Unverified
43:30
Jeff Cherry, I'm the Controller. you. Senator Rice. Thank you. Hello, gentlemen. Mr. Payne, again, I'm relaying some
questions from a member that couldn't get here, and I've heard some of this discussion in the past is, in borrowing for the
Speaker 122
44:06
meet the consumption amount, so we wouldn't have to pay the loan amount back. the amount is usually 5.6 million and if we meet the 5.6 we don't have to pay the loan back okay so if you meet that the
Senator Terry Rice
Unverified
44:19
loans are not paid back all right do you have a
breakdown on the cost of labor at the farm we don't have that
Speaker 129
44:33
with us but we can get that for you okay
Senator Terry Rice
Unverified
44:36
i'll get with you offline and we'll
we'll get you the member that wants that some of the the questioning i'll just kind of wrap up is the efficiency uh is is the discussion i've heard in past years in questioning about if you're expending money say on fruits do you have you if you've got an an orchard or Or have you invested in the type production where you don't have to bring in some of that?
I know what this member's looking at, again, goes back to efficiency, of the amount of money that's spent, and could we do better with more in-house stuff?
Speaker 130
45:29
stuff are we utilizing uh our monies correctly well what we've done this year to
Speaker 120
45:39
try to make our farm more efficient we're trying to add more
wells to our farm we've done some dirt work to try to make the land that we farm uh better farmland uh yes we do have orchards in north central unit we have apple orchards but we have gardens that at several of our facilities that provide fresh vegetables for the inmate consumption. So, yes, I think we are efficiently trying to feed the inmate population. That was one thing that was mentioned
Senator Terry Rice
Unverified
46:12
here, and I know we had that discussion before,
was the lack of water. Have you drilled wells? We're in the
Speaker 132
46:21
process of drilling them now. We've got contracts to get that done. That's coming. Yes.
Senator Terry Rice
Unverified
46:25
I will report that back, and if we've got more questions, we'll get with you offline. Yes, sir. Thank you. Yes, sir. Thank you, Madam Chair. Thank you,
Representative Robin Lundstrum
Unverified
46:34
Senator Rice. Any other questions? All right. Hearing none, we'll file the report. All right. Any
other business for the good of the body?
All right. The next meeting will be August the 12th. And for this meeting, and then tomorrow morning, we will have our conclusion. We'll be at Big Back A at 9 o'clock tomorrow morning. Any other questions, comments? All right. We are
adjourned. We'll see you tomorrow morning. Thank you.
Agenda
AGENDA
STANDING COMMITTEE ON STATE AGENCIES
THURSDAY, June 3, 2021 1:30 P.M. ROOM 130 – STATE CAPITOL BUILDING LITTLE ROCK, AR
A. Call to order by Chairman.
B. Adoption of minutes of the May 3, 2021 meeting.
C. Review of reports. (Refer to the Summary)
D. New Business. The next meeting will be held August 12, 2021
E. Adjournment.
Documents
| Title | Type | Pages | Source |
|---|---|---|---|
| Agenda — LEGISLATIVE JOINT AUDITING - STATE AGENCIES, Jun 3, 2021 | Agenda | 1 | Official source ↗ |
Speakers
Speaker 1
Representative Robin Lundstrum
Unverified
Speaker 12
Speaker 19
Speaker 25
Speaker 27
Speaker 32
Speaker 33
Speaker 35
Speaker 36
Representative Jeff Wardlaw
Unverified
Speaker 42
Speaker 45
Senator Terry Rice
Unverified
Speaker 54
Speaker 55
Speaker 61
Speaker 63
Senator Jimmy Hickey, Jr
Unverified
Speaker 74
Senator Mathew Pitsch
Unverified
Speaker 24
Speaker 82
Speaker 92
Speaker 101
Speaker 103
Speaker 18
Speaker 106
Speaker 75
Speaker 120
Speaker 126
Speaker 122
Speaker 129
Speaker 130
Speaker 132