Legislative Joint Auditing-State Agencies

Russian to adopt the minutes. Twenty second for that ninety seconds. Come on now we're gonna be different all right thank you. I have a second. Without objection will file those. I don't see is a review report and Tom I will turn that over to you. Commission chairman today we're presenting three reports with findings and we also have twenty four reports without findings that are listed beginning on page one of the audit summary. We have a motion to file those without findings. Thank you senator Hannum of second for the motion. Thank you we have a motion the second without objection will file those. And time we have the ones with findings now okay our first report is the Arkansas public employees retirement system June thirty twenty twenty report which contains two findings we releases report back in March. The first finding in accord with Arkansas Code the AC informed us of over payments to retirees and beneficiaries may throughout the fiscal year. These payments involve forty eight individuals in total almost a hundred forty eight thousand dollars for the public employees plan and to individuals in almost thirteen thousand dollars for the state police plans. The second finding the A. SIS member system compass apply to six percent cost of living adjustment to a limited number of retirees monthly benefits when the authorized code was actually three percent resulting in overpayments of over ten thousand dollars to the members from July nineteen through November twenty twenty. They're not testing of members exiting the deferred retirement option program we identified a member who received to call increase in July two thousand nineteen. Based on our testing and discuss with management it appears the color was limited to retirees exiting the drop on July first two thousand nineteen. We requested that the Asian review the monthly benefit payments for all dropped exists on that date and measure identified an additional eleven errors of this type which brings the total to the ten thousand dollars that concludes the fines for the aper system. The agency we have someone from the agency that will come forward and if you would please introduce yourself. Duncan Baird I'm the executive director of the Arkansas public employees retirement system. Jason will it the CFO for the Arkansas public employee retirement system in German if you would kind of address those two findings please. Thank you so we'll go ahead and start with the first one the first one is related to overpayments these are primarily due to the death of retirees and so I wanted to give you some background on that You know in the case of death and you know we're relying on a third party to report those you know when a member dies you know we're reliant on their family or one of the services that we use we use three death verification services or you know newspaper obituaries I mean we're relying on a third party to tell us that a member has died so that's kind of the first issue they're you know not a lot of times there's a delay in the reporting of that you know which which could cause us to make an overpayment there the thing that really compounds that for a person's we pair benefit on the first day of the month so who I think many of you are familiar with the you know if you retired from state government on June thirtieth you get your first retirement check on July first you know when when it comes to overpayments and deaths this kind of creates a complex issue because if someone dies on for example you know may twenty fifth you know we've already run the payroll were already planning to pay them on the you know just the following week basically so we've been working through the process means an ongoing issue we've been taking steps to try to you know identified deaths number one so that we can prevent over payments and then on the back and try to recoup those so that's kind of a a quick summary but wanted to give you a little bit of background on that. Yeah this my first round here so it is this on this committee there are your numbers trending up down about the same on this particular finding. You know I think they're about the same right now I mean I I think they go up and down from year to year we report on a weekly basis the overpayments over a thousand dollars to both the FNA and legislative audit I think that's something we started doing a couple years ago you know I think I think the trend we're seeing this year is probably a little bit higher than it was last year you know that could be COVID related you know just you know with everything we have going on in the last calendar year I hope it's always a good catch all in the well it certainly this year but at you but you know the numbers aren't I don't think they're they're they swing wildly but it is I. You know it is in the hundreds and hundreds of thousands of dollars you know ultimately that that were for paying members and members have any questions. Yes Senator you're recognized. What what what are we doing or what we've done as far as trying to recoup the money. You know so our our current process right now you know we we you know we we identify and we report these right now we send out three letters so we send the three letters from our finance staff we sent an additional letter from our legal staff you know what what we like to do going forward and and in fact we did this session is we ran some legislation that would give us the ability to make claims against tax refunds you know so that's something that we'll be able to utilize at the end of this calendar year so that's really kind of a probably a next step for us you know on the information side you know what we're finding in another complicated factor universes maybe ten or twenty years ago is if you go back in time we would pay people to check and you know these days for paying people by direct deposit and so if you think about it we're paying on the first of the month you know these month moneys or flowing out through direct deposit and you know over time people move you know records become you know not as accurate as they were in the past and so you know we mention in our management response that we do want to take steps on the front end to try to kind of better manage the contact data that we have in the information that we have on our retirees you know we think that will help us you know maybe even you potentially notes you know with the I've you know within a quicker time frame that someone has died you know so that that's one of the things that we want to do is try to manage it better on the front end and then you know continue to look at ways to collect on the backend. So if it's made with direct deposit we have the ability to try to ask the bank to reverse to reverse that out of that account and have we and have we done it on these particular ones so we do that a you know we transferred by a CH and so there's a limited amount of time within a few days of that a CH that were able to ask for that back in so typically what will happen and and Jason if you have anything to add you can but but if you think about it you know in order to pay on the first of the month for having to run that process several days before that and so you know someone can die very late in the month we may find out about it even but we've already in essence run that process and maybe consent those dollars you know in that case were able to to reverse that a CH and get those dollars back but it is a very time sensitive process you know I I think what we don't have is you know maybe the authority that we hear that someone like the Social Security Administration has which is really to go out and grab that money really for an extended period of time so you know in some ways or a little bit blind because the money's going out by direct deposit the members deceased and we don't know so even though. Who took the money where when at that point but you know we do you we can look at other states other state policies and we do have some ideas for you know some steps that we can continue to take as we go forward to try to improve the process. One one where I would if we if we need legislation on that you know so that we can the contract to develop that I wish you would bring that because there's no reason for those plans not to you know to to lose that money to so. So anything if we could develop legislation that would be. Helpful thank you thank you thank. Senator Pitsch you're recognized. Thank you Mr chairman the engineer in me wants to define the problem better. What it probably is going to have to go to a percentage if we have a hundred forty eight hundred fifty thousand lost what what's our return what we getting back how much of that are we losing what words the the data on this I think it I'd have to get you the numbers on on like how much we're actually getting back you know to give you some context we have you know thirty seven thousand retirees were paying out about five hundred eighty five million in the benefit payments on an annual basis so it's a you know I think relative to the total benefits it's a small amount but I think it gets larger when you consider you know the total number of deaths during the year and just the fact that you know a lot of those go unreported for at least a month I follows I get the the concept that it's a very small number of the overall but it's still I think it's cool center issues driving it it's a it's a big enough number to elicit a response so I guess if it's a hundred forty eight thousand and you've already got policies and procedures you say stated you're improving and and we're losing you know or maybe ten thousand or less I don't know what less is needs to be but if you're getting most of that hundred forty eight thousand back then that policy works if you're if you're not getting any of that back then we need to do something legislatively or give you some rules and rags to be able to trace the yeah the these figures would be you know these were if at the end of the fiscal year so it's unlikely that you know like if you're looking at those that none of that amount you know anything that that had been collected was not within that number said so this is a you know it is a real loss when you look at that number. you know it is unlikely I think as time goes by you know just the fact that these are you know retirees who have died you know I think as time goes by if you don't get in the first few months I think it becomes less likely that you're going to get it but like I said we did pass that legislation has to do with the the set offs against tax refunds you know in and it'll be the end for the current fiscal year so really be next year before we know how effective that tool is but we do think you know if five you know this state for filing a final tax return you know there is a possibility that that that is an effective tool for a someone that's also cost effective you know because there are you know I think the further down the list you go you can talk about collection agencies you can talk about law firms but as you get down that list you also start thinking about the cost of those actions you know so I think on the front and we're trying to do things that are very cost effective so that you know we really work our way down that list and consider or their additional things that need to be done for example if you had you know some banking legislation that that maybe gave us additional abilities that might help us avoid the expense of I think I said class action by mint collection agencies collection agencies or law firms down the road. And and I will say once again you know we pay on the first of the month we administer three other systems that one of them pays on the fifteenth the other to pay on the I think at the end of the month we really don't of course our populations are smaller but we don't see a similar issue there something part of it is just the traditional timing of our benefits as well just really squeezes that time frame in which you have to identify a a retiree death. The other questions on finding one. Customer to finding to. I can just give you a quick summary on that and if if you want to so you know as you saw on the reports legislative audit identified I think initially they may have identified one member who received a double Cola we did some further analysis and I think ultimately we identified twelve that receive that that was July one of twenty nineteen so immediately we thought you know we're the people in twenty eighteen that were impacted with the people in twenty twenty we look at those two years and found no similar errors so we continue to research that and we found that we had put in place an update to our pension administration system in may of twenty nineteen. There's incredibly complex logic there when you think about the administration of the pension and all the various aspects of it but one small piece of logic was thrown off it impacted individuals who were exiting the drop in twenty nineteen around July one of of twenty nineteen and it wasn't even the full. Group of drop exits it was a subset of that and We did further research we found that in November of twenty nineteen that issue was corrected so we haven't seen any further issues there but as we stated in our response we do want to work to strengthen our internal controls to make sure that we're doing additional analysis as we go forward so that we do catch things like this down the road and I can walk you through just kind of just give you a general idea if that would be helpful. Members anyone have any questions or like further explanation. I don't see any. Thank you without objection will go ahead and file this thank you. And let's move on to the next one yes. Okay our next report is the Arkansas teacher retirement system Jean thirty twenty twenty report. The report has one finding we also early releases back in June. The aces investment policy indicates the board is responsible for prudently investing funds and maintaining proper allocation of agencies investment assets. Presses that will not be managed by an investment manager the policy does not permit the AC to make an investment without a review and recommendation from the investment consultant. In may of two thousand nineteen the ace invested fifty eight million dollars in conjunction with multiple other parties to execute a promissory note to big river steel telling two hundred ninety million dollars. The AC do not obtain a review and recommendation from investment consultant or board approval for this investment. Additionally in June of twenty twenty loans of forty eight million dollars to Holland political recapitalized purchased forty five thousand class B. units. The newly converted Holland public class B. units were combined with the existing hundred fifty five thousand class B. units that the system had and re characterizes Class A. units. The AC do not receiver you and recommendation from investment consultant or board approved for the conversion of the loans to equity for this investment well that concludes defining for hours Arkansas teacher retirement system. We have somebody from a TRS if you would please come forward introduce yourself. Thank you rod graves Arkansas teacher retirement system. Curtis Carter CFO Arkansas teacher retirement from German if you would go ahead and present the agency's response. yes thank you. So in response to that the agency reviewed a draft of that finding back in January I believe we have to have a board meeting at the first of February so the agency brought that back in front of the board these are longstanding processes that have been followed sensually to different protection I think that the the board reaffirmed and at the February meeting to resolution twenty twenty one thirteen. That Yes initial investment required a consultant recommendation however once that initial capital occult principles deployed income generated from that can be recycled or return to that investment similar to when if you have like a mutual fund account or stock account there's a box and you can check to see reinvested dividends interest income et cetera so once the original investment thesis has been approved by consultant distributions can be recalled and there's a process that the agency would go through includes notice to the board chair and then periodic updates to the full board as as as necessary. that essentially for the first part of it finding that was done with a recall distributions that have been generated from the initial approved investment big river still at that point in time the system and received about ninety two million dollars in income distributions from big river and when it was time for the parties to. put up the equity for phase two it was done on a pro rata basis across all so it was really a benefit for the system systems able to maintain its twenty percent ownership in big river without putting in any new principal or capital is all done through just basically reinvestment of income. That process called recall will distributions that was reaffirmed in and that's a long standing process I think the board passed its first resolution on that back in maybe twenty fourteen. To the second the part mentioned that there. There's a a difference in some of the APRS investments in the direct investment such as highland and big river and and some of these others. There's not assigned investment manager to those projects so it essentially falls there's assigned project manager there are people that build the plants bring him up out of the ground operate them that sort of thing once the system has an investment in those. and and more of a traditional type funders that stance there would be a manager sort of doing that thing for a TRS and examples like this there's not necessarily that manager so HR staff works with the other investors the project developers and outside legal counsel to try to make sure A. terraces interests are preserved and maintained throughout the process. That is I think we're some of the difference in interpretation is come in as far as the board policy states investments not assigned to a manager shall be managed by the system. investments shall not be made without a council recommendation. Back at the the board February meeting they reaffirm that that the processes that have been in place basically include the board understanding that investment recommendation applies to initial outlay of of principle. But then once that investments done ongoing management use for call distributions fall the process of staff working with with others an outside legal counsel and reporting to the board chair so with that with that being said that is a long standing process that's been followed but we do value legislative audit's input opinion oversight I had discussions with both the director and board chair and what we feel what the process has been successful in the past and the process was followed according to the board's view of the process we are always circle is most process is there can be improvements and we are open to look at improvements look at other ways to possibly do things and actually over the past couple of years we've we've started the process with some there's there's different levels to going back through the different management agreements over the years and things and in essence one thing the board did a couple years ago was re position some directly owned timberland to manager which took some of this process out of that we're reviewing the process. Currently that they could do a similar thing to remove Is much staff input it or process for some directly held farmland three position that so there is we are making steps to try to improve the process is all the time and value any any input. So if I can summarize that so other words you said thanks. But you're you're you're simply saying our longstanding processes have been successful that were comfortable with those the board for review them and we're comfortable thanks for the look but we're going to stay using the point the processes we have is that essentially what you're saying. I would say essentially the thanks of course and the board does that the board has reaffirmed its longstanding process but we also feel is with most process is there can always be room for improvement yeah okay thank you senator Hammer you have a question. Thank you Mr what if we said no thanks let me say thanks but we say no thanks and we want you to change it to comply with what legislative audit has found what what would be the process is to change to align with the recommendations of the agency or the of like audit. We would certainly take that and prepare some proposes for the board to read discuss and Uponor and when you change unnoticed on the auto finding He says forty eight million to highland pellets were recapitalized to purchase forty five thousand class B. units the newly converted highland pellets class B. units were combined with the existing hundred fifty five thousand Class B. injury characterized as Class A. units can you explain what that means and why if they were re classified when they were combined. For re cat characterized yes senator they wore a nationally. That was at a point when the plant was going through some upgrades there was going to be additional capital required to finish those upgrades. There was a and we're thankful for a of a group called Orion energy the New York based private equity firm that reviewed the project decided that a they were willing to invest up to a hundred thirty five million to help improve the the not only the project but upside the upside as the production levels of that project which would benefit all the investors going forward. But for them to really consider that they think they were wanting to simplify the capital structure there so this was intended to. Take those promissory notes and in a pretty complicated existing capital structure that have been in place for a number of years simplify that down to allow comfort with the new investor coming in. But three characterization. Is that a reflection that it became stronger or that it became weaker. By grouping them together and re characterizing them I don't I don't understand that I'm wondering did that that make it a stronger investment or did you re characterize it because it became a weaker investment. Senator I would sit made a stronger investment due to the increase of of non a TRS capital coming in and so okay and just. If I could expand on that just a little bit three characterization also allowed a terrace to take debt that had some set locked in rates and convert that over to equity that had a lot higher upside potential at a time when the risk for the project was actually coming down due to the completion of the upgrades okay thank you. Senator pitchman senator Hickey then Senator Dismang. Thank you Mr chairman my question is pretty similar I think we've got rules in place but it all goes back to page five of the top where it says another word similar types of eighty are as vestments are assigned to specific investment manager help us understand what similar type because I think what happens is we look at these investments and we think they should have had a specific investment manager and yet we're hearing it might be still good it within the rules maybe that's what needs tied up if you need us to find a middle ground so that we don't have this occurrence again comments there because if you've got this type investment in this type investment well clearly defines it needs an investment manager on this one and not that because I think that's where we're struggling probably as a body okay we'll thank you for the question opportunity to respond to that I could the I'll take an example of a local based firm Stephens they are a small cap stock manager for the system so when they're assigned to mandate their allocated a portion of money. An investment management agreement signed with that group of course done under state contract we follow those those processes to. And once they are assigned that management agreement then they have discretionary authority to go buy sell. Reinvest convert all these things that we're discussing now in the case of a project to make a project or or even smaller that like big river highland. There are groups that raise money to go out bring the project up out of the ground get it into production and produce returns for the investors. Where we don't have a management agreement there is what that developer group in other words what's the capital's deployed to that developer group. There's a a space there that in in the more traditional senses is filled by the investment manager will quick follow up. I would think that would be a bit process who's going to do that and would that be one of the requirements to build is that you'll provide an investment manager because of size project I guess to me that I think in a nutshell and maybe we need to define that if it's an investment bigger than this you need to be in your bed specs we need a we need a provided investment manager maybe that's to simplify it but to me as I look at this I think you've got projects that are going per bed to a company that doesn't provide an investment manager a very similar type investment in scale and scope that does have an investment manager were wondering why when we ought to this does not. Yes Sir that that definitely could be asleep I think that might be where we're headed trying to fix this thing. Senator Hickey thank you Mr chair of thank you I can agree with senator Hammer I'm kind under the no thank you part personally the not to be disrespectful I think the board as the blue share responsibility to look at this so they're not involved in it then I think we've got some major issue so that's my opinion my opinion what I want to ask though is a little bit more detail with this forty eight million dollars alone so it says in June of twenty twenty. We have a loan to highland pellets forty eight million how how long those loans been on the books. So that was the that was actually two notes there was one for about twenty six million I want to say that came on and about twenty sixteen. And then the fifteen million was was later maybe twenty nineteen inch. Okay and we're low structured so that they would have payments whenever whenever they were originated the original twenty six million started with payments the fifteen was at which later converted over to the Packer compounding interest the fifteen million was always a picker compounded interest K. E. and was everything current on those whenever you you all have done your recap legislation oval yes so there was where the collateralized loans they were collateralized to a degree being a promissory note they were secure is a complicated structure they did have some collateral I forget exactly where the structure those for. Okay I know I talked to a few months ago yes just because we were looking at some credits or something for this company but At that time and I forgot what you tell me told me went whenever you all it paid off the the loan. Did you include that like in your overall gain on your investment per teacher retirement. Of yes that's it and I did some research on that and I'd responded it's been some time so it may not remember my exact response but essentially when the the compounding interest is included. when the consultants do their performance calculations those are done by outside parties and I verified with them that that is fairly standard in and in doing that because accumulated interest is. Whether realized or unrealized it still could be included in the calculation of into the pointed to the realized or you or treat coughs so it is and also verified with them that you know given the amount of of of those type of investment in the system overall Effect is is neutral on the actual performance given the size. I struck out struggle with that is you provision over it because from my standpoint you all you all done alone interested accumulated on the loan. So you're sitting there you're sitting there with that money that you would not put into your return until it was collected from the company that didn't happen there was another transaction that was done were you well recapitalized it purchased shares whatever you want to say. It does and those proceeds were used to do that but that was your investment. It just and I hate to say the word is it seems a little bit like a Ponzi scheme to me but I mean I don't know what are the words to use it's just since it's not arms length transactions so personally I wish your board would look at that I just don't feel that that's right in those type transactions that you would that you would use those money as part of your overall return that you're reporting to your to your shareholders because like I say you're the one that originated that investment. It was not paid by the company you all did another transaction. That was. Your shareholders money. And they were calling to return it just doesn't feel right to me. Yes Sir okay yes thank you. Senator Dismang you're recognized. Thanks any and I'm probably a little bit off on this so put the forty eight thousand dollars converted to forty five thousand class B. units and then those were combined with the existing one fifty five Class B.. Units so the valuation of class B. units was about a thousand sixty seven dollars per unit. So that that would be the forty eight million over the without I have other roughly I would say the track by having everything in front of me okay in so as far as what is are we what we what we consider the valuation of the company at this point that because if and again I may be wrong it depends what happened when it got converted to Class say. units but. You mean that puts us at what two hundred and I had it here somewhere in a loss at the at two thirteen million dollars is what we say our valuation generally was at that point I think. and we're to what is our ownership percentage in the company so what's the valuation the company what's ownerships and jim company at this point to all the conversions right through all the conversions and. These we basically surround numbers right because I don't have it and and this this is actually valued once a year at ten thirty we do it an independent third party comes and does a valuation for it so. I don't have that specific valuation right now because we're coming up on June thirty for our current kind of valuation. As of last June thirty. This system of essentially that point basically owned the investment and that was about it. Basically yes there was around there's been about two hundred twenty million invested through different debt and equity of programs and at that point. I think the valuation of around two hundred forty million at June thirtieth twenty twenty. So going forward I would have to gets more numbers together to to answer your questions appropriately right now take a take a little bit of figuring on my part I don't want to just throw some numbers out without backing it up but what we're the we're we're the sole longer than at this point what you're saying and that that all happened that loans conversion whatever I mean essentially the so there were some minor legacy type owners that we're we're you know possibly gonna get some sort of a buyout the future if their cash flow provided through the company. and that was why it was important to try to do this re capitalisation to get the third party money to come in with Orion energy to it to twenty million I think the system felt like it was it was involved enough. Yes we didn't want to essentially just get keys to play handed to us either but that was that was a a tough ask when you already have to twenty in and there's more capital needed. It made more sense to seek that Capital from people outside of state agencies and let's get some more capital in their. And we're we're glad to have Ryan energy in there with their additional money in their expertise. Okay at the. Senator Hammer you're recognized. Okay I just wanna give you a layman's interpretation I just heard said so teachers retirement basically invested to get the plant up and going and we were pretty much a hundred percent owners of the plant and at some point the decision was made I guess because the plant came asking for more money that they needed in order to keep it short up to keep going and instead of teachers retirement investing in it. A third party has come in to invest that capital which has reduced the liability of teachers retirement because now you got another owner in the game is set up Lehman's interpretation where we are. Yes senator thank you okay so when you do your annual. Third party. Report what is the fiscal condition and are we at jeopardy of losing the retirement money because the plant is not solvent what is the condition. Of our of the plant. We are still we'll do that it June thirty for for this year I I can tell you the current condition of the plant is the the upgrades are almost complete and the additional capital actually came in an increase the plant's annual production from six hundred thousand tons of pellets per year to six hundred seventy five thousand tons per year. In association with that we were able to increase the off take agreement with the parties or supplying pellets to to match that increase production. It's going to be an overall increase of about fifteen million per year in cash flows for the company all due to the upgrade of the plant so. While I can't just sit here and say the planet will be solving it June thirty it's not June thirty but I can tell you're on a great trajectory and political start should start coming out at the either end of this month or first of next. Okay and the board not. Because Leominster Teixeira thanks and said it would appear that the board. Either under negligence or. Denied the opportunity to be involved in the decision making process the decision being made outside of the board review of the decision is in my interpreting this whole audit finding correct if I said it that way. No Sir I do not in not in the board's opinion that was also addressed at the February meeting okay all of this is done in connection with communications to the board chair who is fully aware and then it's reported to the board periodically and that's address through an annual resolution that was twenty twenty one dash. Okay to which okay the border reviews or news annually and has for a number for years so your response to the finding this is not her petition which saying aye my your response to the finding is. You didn't do anything wrong because you operated within the standing practice of how things like this are handled I would say on our side. The we have a question is that the right process and we need to look at changing the process to what we feel on this side of the looking at from our lenses is what we need to address is that a fair. Characterization. Yes senator I think that's fair okay thank you all right thank you. Members or others have questions Senator Hickey you're recognized just just one more whenever you're discussing the money that Ryan at putting in support whether any contingencies guarantees any type of subordination is done of any sort of tie up that you all had to do yes your assets yes we did subordinate to the level of their commitment of around a hundred thirty million so they actually for lack of a better word or in a first lien position and everything we have is behind them. It would be that in the event of default however in in the event of a successful project we're still positioned it more the top of the waterfall. Yeah. So. So although although we say that we're a hundred percent owner of the thing you know we're or the way that it is we actually allow them to come in and take a first position. To put that money in and then we we're we're behind all that so in the event of liquidation. and I'm not I'm not saying the companies liquidate I'm just trying to get all the assets of all these trips are the. The way this transaction happened. If you were to go into liquidation. At this point in time. What what would what would the real value of a. That would be determined based on You know the value of the land the equipment that is there the. Foundations as of as of your latest evaluation to be just rephrase it that we what as of the latest valuation what is a valuation of that company is around two hundred forty million. I have put Hammer Jean one thirty five. Thank you. It It if I may um a. Just. Clarify that when when I stated that the terrace was a hundred percent owner that was free okay thank you. Members any other questions Senator Hammer. Once you get that review June thirtieth how long does it take for them to report back to teachers retirement as far as the findings. once after June thirty hits we typically have those valuations and by about September. Mr chairman I'd like to make a request that they come back to report to us when they get that. A report back and. I mean go ahead let this get out of here but I would like to ask that you would question come back before this committee and bring that report so we can look at it number one and the number two would like to ask unless some individual legislators going to take up the. Responsibility to do it like to ask like audit staff to work with a TRS to bring back the proposed resolution between their view of where they are in our view of or they think they ought to be and work with the agency to see if they can come up with a recommendation bring back for this committee for discussion thank you yes I agree I think we need to do that second part of your recommendation before. September hi when you might have that report done so I'm hearing two meetings one to be done maybe and June July where you come back in and like audit can get with them to address I've heard more questions arise on other things besides this so can we. We don't have means in July we have a meeting in three weeks which would be June third then we'll have a meeting in August okay let's look at the August meeting them to look at a comparison between what the board feels appropriate what the legislature feels like might be appropriate and maybe we can have those meetings and report back in August and then we'll come back and. September to look at the second part Senator hammer to I'd like a staff questions pollution sure this is just one example of one investment are there others out there that would fall under the same maybe disagreement of interpretation of what they're allowed to do our system only one sitting out there Genish begin when these type investments we look at all the changes in those when we did the audit for the June third twenty twenty and these are the only two exceptions that we had their policy okay thank you. Senator Richard. Two questions the and I'll go the first because he just brought it up so what we're looking at it in an audit report all you found that changed it wasn't analyzing the whole thing is that a correct thing we look at all the changes in those investments as my understanding and we and we went to look for board approval for any new investments and these are the two that we notice that did not get that approval will get investment consultant let's get changes the second question and I guess it's probably to our Speaker here but because of the way meetings are set up on one if we don't wanna leave this is an open report so that we stay on top of this we get the June thirty we deal with that because we don't have a meeting in a timely manner. The to review this tomorrow I don't know what staff's pretty Pena that is but I think several of us on this so that they would like to keep this is an open report. And from the Committee. Well let's Committee you Yakin differed however long you want to I will tell you this we will be starting the twenty one audit at the retirement system. Summertime July August range you is when we start so we'll be back on site at that point. I mean we can bring it back in August we can wait till September try to do it all at once whatever the committee prefers. Well I guess I'm new to state agencies but I know an education when I was insuring that we would have things cross year to year we live a report open so that it was key at the start of the next one I guess that's kind of what I'm asking for here I don't know if that's a doable thing or not. Are you. If the suggestion is that we just leave this open tomorrow however that leave the language is right so that we can continue I would concur with that I don't think we're ready to say this is required because so would you want to talk to about every meeting or you want to specify specific media I think that news I think our next meeting and I don't know if you'll be done with twenty twenty one audit by by June we will not be all that by August or when you know we would just be beginning at that point okay we should be looking into this situation to get with the but the agency in thank god I I guess leaving the and when we can review it depends on what that is brought from the committee but I don't think we're ready to reveal the. Senator Hickey did you have a question or comment but no one I know that you know this is agency response and I know the board may have filed something I'm not for sure in this case that the we shouldn't gets more clarification on the board on what they believe their duties are you know that we we don't filed this report we leave it open but you know to say that you know that whenever you do investments of this size that they're not going to be the ones making the recommendations and reviewing it I'd like to I'd like to hear that from them in writing from the board itself right now I think I will be looking at on the June the third meeting right. Senator Hammer. I think I'd like to make a motion to hold this report over to the. Thank you guys can get it done but. I'd like to make a motion to hold us over to the June and have the the the up president of the board president to be available to answer questions and hold this reporter with over till then good grief second. Per second that motion I have a second. All in favor aye. There. German thank you far presenting today we'll look forward to seeing you on June third thank you thank you. Irvine to the next finding okay our last report today is a special report for the office the Arkansas lottery. The information contained in synopsis summarize the contents of the special report the special what was early in March and has been referred to the prosecuting attorney. During our fieldwork for the lottery fiscal year twenty twenty financial audit we tested twenty lottery drawings and noted to exceptions. During the mid day draw on February twelfth twenty twenty we noted that the lottery draw to record the winning cash three number incorrectly on the AC's activity checklist. And the internal auditor did not notices when reviewing the draw documents the correct winning numbers were paid out this was just a record keeping error. The second one during the mid day draw on may twenty six two thousand twenty we know the winning cast for number was incorrectly was entered incorrectly into the system used to pay out lottery winnings. As a result the wrong winning number was declared this resulted in a net loss to proceeds of twenty seven hundred dollars what was paid out on the wrong winning number and what would have been paid out for the correct winning number. When from the lottery these errors in the entire auditor and the director of security for the law reviewed all the draws from January first twenty twenty three June thirty twenty twenty they did not notice any additional errors. After a lot of you are staff reviewed all draws from December first two thousand nineteen three July thirty first two thousand twenty and we found no additional heirs as well. We also interviewed various lottery staff is was a lotteries consultant contract employees located in Little Rock to see if they are aware of any fraudulent activity at the lottery and we reviewed the large purchase a random number generators no issues were noted in these areas. As discussed in the results review section the lottery has implemented new procedures to help prevent similar errors in the future and I believe there's a lot of staff here to answer any questions that concludes a finding. If the three of them a staffer to please come forward introduce yourself. My name is Erica I'm the director of the office of the Arkansas lottery. My name is William Miller I'm the director the internal audit department for the Arkansas scholarship lottery thank you your may respond to the audit findings thank you thank you Mr chairman Mr chairman is noted in the in the findings the errors that occurred or of human nature and there are two types of draws that can occur in the lottery environment one is a manual draw and historically that is the type of machine that has been utilized by the office of the Arkansas lottery as a result of advancements in technology and also in response to these findings it was determined that it would be best practices for the state of Arkansas to move to an auto draw machine which does not rely on human intervention for the recordation of winning numbers and we've done so those machines and follow up to this report are now implemented in place and our operational. I also have I have are my director of security and compliance here to answer any specific questions a committee may have with regard to the nature of the auto drum machines that we're now using and sitting next to me is Mr Miller who is the internal auditor who covers the Arkansas lottery. Sure thank you so is there an error human error rate that point in the lottery business deals with. Don't know if there's an industry standard Mr chairman we did a forensic this predated my tenure but my review of the file indicates that there was an extensive forensic look back multiple levels of sampling were done and of this sixteen hundred draws that were conducted during that fiscal year these two were the two that were noted I think that's pretty standard in the industry anytime you have human intervention you do have an error factor technology recognized that the in the lottery secretary and they now have advancements Arkansas is the seven states that has adopted the auto drop procedure it we were fortunate in that. What we were fortunate that are random number generators for reaching an end of life anyway and technology had advanced such that we were able to step into that that advanced position so we are the seven state doing it we have six states of in front of us that we studied we did reach out to them we had discussions with them regarding the efficacy of the auto machines and whether they had seen any problems they have not the automated is not just on the draw side it also is on the audit side and it generates an audit trail that the internal auditors can then review but there's no human intervention during that process so everything now becomes a review of the automated system as opposed to manual entry. Okay members have any questions. Seeing no questions will view this is filed thank you very much thanks for your time. And member seeing no further business we are Journal thank you. Well I know what happened to