Legislative Joint Auditing
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members if you'd have your seats we're going to get started with the legislative joint auditing committee of friday june 5th i'll call the
meeting to order chair sees a quorum first item on the agenda is the adoption of the march 13 2026 minutes have a motion have a second all
any discussion all those in favor let it be known by aye any opposed all right motion carries
next up are the adoption of the exec reports of the executive and standing committees first up my trustee co-chair will do the report for the executive committee thank you the executive
Representative Robin Lundstrum
Unverified
6:47
committee met thursday june 4th and adopted the minutes of the meeting held march 12 2000 2026 staff reported to the committee the audit and special reports scheduled to be presented to the standing committees and the full legislative audit committee this month. Staff also noted that one committee requested report that is outstanding and currently in progress.
In new business, the committee approved a request for staff to perform the city of Horseshoe Bend annual financial audit. Other business legislative auditor Kevin White updated
the committee regarding the Arkansas legislative audit intern program. Mr. White informed the committee that this is the second summer of the program and the interns would be attending the standing committees. and with no additional business to discuss the meeting was adjourned the next meeting of the committee will be scheduled for Thursday August 13th 20 26 or at the call of the chairs I move for adoption of this report
thank you representative Lundstrom we have a motion do we have a second any discussion if not all those in favor let it
be known by I any opposed motion carries next up is the Standing Committee on counties and music municipalities and senator stone is going to
Senator Matt Stone
Unverified
8:10
read that report the committee adopted the minutes of the meeting held March 12 2026 the
committee was updated on the status of December 31 2022 delinquent private water sewer audits the 28 entities turn back funds were reinstated after all required reports were submitted the committee was also updated on the status of December 31 2023 delinquent private water and sewer audits of the 65 delinquent entity 61 have filed the reports since the LJAC meeting held on July 10 2025 the committee was notified that after staffs follow-up visits to
the towns of Denning and Gum Springs the towns are now in substantial compliance with the with municipal accounting law officials from the town of home for president to address substantial non-compliance with municipal accounting law the committee approved a motion to give officials of the town of home and Fargo 60 days to reach compliance with municipal accounting law is required under Arkansas code annotated 1459 117 officials for the towns of Jericho and Haynes were present to address questions regarding failure
meet requirements of their approved plans for repaying misused street funds the committee voted to defer those reports until september officials for the pulaski county regional solid waste waste management district were present to address questions regarding a previously deferred special report the committee voted to defer this report until september the committee reviewed 24 deferred reports 215 current reports officials for 16 entities were present to address repeated findings 15 previously deferred reports were filed
and now were deferred of the 215 current reports reviewed 13 were referred to prosecuting attorneys and the Attorney General three were certified to the government bonding board and the committee filed 207 current reports and eight reports to allow officials to answer questions and provide additional information at a future meeting. Move for the adoption of this report. Thank
you Senator Stone. You're welcome. We have a motion. Do we have a second? Have a second.
Any discussion? If not all those in favor let it be known by aye. Any opposed? Motion carries. Next up is the Standing Committee on Educational Institutions and Senator Dees will be
Senator Tyler Dees
Unverified
10:44
presenting that report. Thank you, Mr. Chair. Members, the Educational Institutions Committee met Thursday, June 4th, 2026, and adopted the minutes from the March meeting. 103 education audits, audit reports were included on the committee's agenda for review. There were 89 audit reports with no findings and 14 reports with findings. Officials from the
Camden Fairview School District and Forest City School District were present to answer questions from the committee related to the findings and their respective audit reports, which were deferred from the previous meetings. The audit reports from the Conway School District, Magnolia School District, and Westside School District of Johnson County contained findings that were certified to the Governmental Bonding Board and referred to the applicable prosecuting attorney and attorney general. The audit report for Boonville School District contained a finding that was also referred to prosecuting attorney and attorney general.
The committee filed 103 audit reports that were brought before it. Mr. Chair, I move for adoption of this report. Thank
you, Senator Dees. Do we have a second? All right. Any discussion? If not, all those in favor, let it be known by aye. Any opposed? Motion carries. Next report is the Standing Committee on State Agencies, and I believe Representative Unger or Representative Brown is going to present that.
Representative Steve Unger
Unverified
12:05
reports were on the committee's agenda yesterday. The following findings related to the Department of Finance and Administration were presented. The agency had a piece of equipment stolen, disallowed expenditures of a federal grant awards, and unauthorized bank transactions. Various agency staff members were present to report on how the agencies intended to address the audit findings and answer the committee's questions. During the meeting, the committee filed 13 reports. The committee deferred the report regarding sexual risk avoidance education
federal funds at the Department of Health to the August meeting. Mr. Chair, I move that we adopt this
report. Thank you, Representative Unger. Do we have a second? Any discussion? If not, all those in favor, let it be known by aye. Any opposed? Motion carries. All right, moving right along. Next up on the agenda is the review of a couple well three reports but a couple of rather lengthy reports and along after the the agenda was posted we have a two-page summary provided by
DF&A that is up here if you would like that would go along with with these reports that are the financial highlights but not to distract from the reports at hand we will go ahead and go through with that but they're available here at the at the desk first up is the state of arkansas annual comprehensive financial report for the fiscal year ended june 30th 2025 it was early released on february 3rd 2026 and to present that is miss christy sanders
Speaker 25
13:51
thank you mr chair this presentation covers the audit of the state of arkansas's annual Comprehensive Financial Report or ACFER for the year ended June 30, 2025. The 25 ACFER was completed by the staff of Legislative Audit and the deadline for filing the ACFER was December 31, 2025. However, an extension was granted to the Department of Finance and Administration so the report was dated February 2nd and early released on February 3rd. Legislative Audit
issued two reports for the audit of the state's financial statements. The first is the ACFER, which includes all of the financial statements and notes to the financial statements for the year, as well as our independent auditor's report. The second is the report on internal control over financial reporting. This report includes any findings related to the state's financial statements and federal financial assistance, which Melanie Dozier will cover next. The ACFER's financial statements, which were prepared by DFA, include the following entities.
All state agencies, retirement systems, higher education institutions, and the three component units included in the ACFER are the Arkansas Development Finance Authority, or ADFA, the U of A Foundation, and the U of A Fayetteville Campus Foundation. Legislative audit issued unmodified or clean opinions on the state's 2025 ACFER. We audited all of the financial statements included within the ACFER except for the following entities which were audited by private accounting firms.
The three component units, the U of A Medical Sciences, and the revolving loan funds. The two largest revolving loan funds are the Construction Assistance and the Safe Drinking Water Revolving Loan Funds. These revolving loan funds are administered by ADFA. There were two reportable findings that are considered to be material weaknesses related to the ACFA. These findings are included in the single audit reporting package as financial statement findings and in the schedule of findings and question costs,
and they will be discussed later, though, in this presentation. First, I will touch on some of the financial highlights of the state's 25 ACFA. The next six slides relate to the primary government of the state. The financial information on these slides do not include the state retirement systems, which are included later in the presentation. As shown on page 18 of the ACFA report, the state had total assets at June 30, 25, of approximately $41.9 billion.
The major categories of these assets include cash and investments of $15.8 billion, capital assets of $22 billion, net receivables of $2.9 billion, and other assets totaling $1.2 billion. The state's total liabilities were $11.1 billion, as shown on page 19 of the report. The major categories of the state's liabilities include bonds, notes, and installment agreement payables of $3.3 billion,
the net pension liability of $2 billion, other post-employment benefit obligations, or OPEB, of $1.5 billion, and other liabilities of $4.3 billion, which some of the significant ones are the claims judgments and compensated absences, and then accounts payables. This chart shows the trends regarding the state's assets and liabilities over the past five fiscal years. The $6.4 billion increase in assets from fiscal years 22 to 25 was largely due to a $3.6
billion increase in investments. Also in 25, there was a $1.3 billion increase in construction and progress at the Arkansas Department of Transportation. Overall, liabilities have fluctuated slightly over the past five years, with the main factor for these changes being the decrease and increase in net pension liabilities. The state had total revenues of $30.7 billion as shown on pages 22 and 23 of the report. The major categories of the state's revenues include
grants and contributions of $12.9 billion, which most of this would be like federal grants, taxes of $10.4 billion, charges for services of $5.5 billion, and other income of $1.9 billion. The state's total expenses was $28.4 billion, and the major functions or programs making up these expenses were Health and Human Services of $11.6 billion, Colleges and Universities
$5.5 billion, Education $4.9 billion, General Government $1.6 billion, Transportation $1.4 billion, law, justice, and public safety, $1.2 billion, and other expenses of $2.2 billion. This chart shows the trend of the state's revenues and expenses over the past five fiscal years. The $1.3 billion increase in revenue for fiscal year 25 was mainly the result of better returns on investments, additional federal funding for Medicaid, and increased revenue from patient
services at UAMS. The increase in expenditures is due largely to the increase in Medicaid funding. The next five slides provide financial information regarding the state's retirement systems. As shown on page 35 of the report, the state's retirement systems had assets at June 30, 25, totaling $39.9 billion. The major categories of these assets were cash of $800 million, investments of $37.3 billion, securities lending collateral $1.6 billion, and other assets of $200 million.
The retirement systems had liabilities totaling $1.7 billion, which is also shown on page 35 of the report. The major categories of these liabilities were obligations under securities lending of $1.6 billion, investment and principal payment payable of $90 million, and other liabilities of $55 million. This chart shows the trend of the retirement system's assets and liabilities over the past five fiscal years. The change in assets over the past five years was mainly due to changes in investments due to market fluctuations.
There has been a steady increase of $6.8 billion in investments over the past three fiscal years. Liabilities for the retirement systems experienced only slight fluctuations over the past five years. Not reflected on this slide is the net pension liability related to these retirement plans. Net pension liability is an amount created when the promised retirement benefits owed to employees exceed the current market value of the pension plan's assets.
The retirement systems had total additions of $4.9 billion, as shown on page 36. The major categories of these additions include contributions of $1.3 billion, net investment income of $3.5 billion, other additions of $4 million. Deductions total $2.5 billion, with benefits paid to retirees being the main component. This last chart shows the trend of the retirement system's additions and deductions over the the past five fiscal years. The primary reason for the variation in additions or revenues over
this period was the fluctuation in the market value of investments from year to year. Investment income increased from 2022 to 2024. However, total investment income decreased slightly in fiscal year 25 compared to the prior year. The decreases were at teacher retirement system and state highway Employee Retirement System. The deductions for the retirement systems were steady over this period and consisted primarily of benefit payments. As previously mentioned, we issued two findings.
First, internal controls at the Office of State Technology, or OST, were found to be insufficient to monitor threats, which caused a security risk and made the servers vulnerable to unauthorized access. Once notified of the deficient internal controls, OST began implementing measures to address security risks. We recommend that OST continue implementation of a logging system and subsequent monitoring for its threats and unauthorized access. The second finding was for
the Division of Workforce Services, DWS, which changed its methodology for calculating the year end estimates for allowance for uncollectible accounts related to unemployment benefit payments. These changes were not justified, nor were they properly filed with DFA Office of Accounting. DWS also failed to maintain the proper documentation used in the preparation of its estimates. DWS changed the methodology for its calculations for both the total receivable due back from the overpayments to benefit claimants and the related payable due back to the federal
government. This change in methodology would have resulted in understatements ranging from anywhere from $12 million to $57 million for receivables and from $8 million to $29 million for payables. An additional allowance for an uncollectible accounts estimate is also prepared to reduce amounts due from judgments and bankruptcy liens against the state's employers. The difference between the two methodologies resulted in the allowance amount being understated by 100,000, which overstated receivables by the same amount.
Upon notification of these potential misstatements, correcting entries were made in ACES, thus also in the state's ACFER. We recommend the state work to improve its controls over documentation and related calculations required to book year-end accounting entries. Mr. Chair, this concludes my presentation, and agency representatives are here to answer committee
questions. thank you miss anders uh quite a comprehensive report do we i'm gonna i'm gonna make a call here
and uh let's go through
the next report and then we'll discuss any questions if that's okay all
right the next report is the state of arkansas single audit report for the fiscal year ended December 31st, or June 30th, 2025, which was early released on March 30th, 2026, and Ms. Melanie Dozier will be presenting that.
Speaker 32
25:06
Thank you, Mr. Chair. This presentation covers the state of Arkansas single audit report for the year ended June 30th, 2025. The Staff of Legislative Audit completed this statewide federal project, which was finalized and submitted to the federal government by the end of March 2026. The Single Audit Act requires that the audit of the state be conducted to meet five objectives. First is to determine if the financial statements of the state are fairly presented.
Ms. Sanders addressed this objective during her presentation. Second is to determine if the Schedule of Expenditures of Federal Awards, or CFA, is fairly presented. We determined that the 2025 CFA is fairly presented and is included on pages 86 through 138 of the report. Third is to determine if the state has complied with laws, regulations, contracts, and grant agreements that may have a direct and material effect on federal awards. Fourth is to obtain an understanding of internal controls over federal programs.
Fifth is to plan and perform testing of internal control over compliance for major programs. State agencies and state-supported institutions of higher education dispersed federal funds totaling $12.4 billion from 469 federal award programs during the 2025 fiscal year. This was an increase of approximately $133 million from 2024, largely due to new federal programs authorized in a continued response to the COVID-19 pandemic.
Based on criteria established by federal regulations, 16 major programs were reviewed for 2025. These programs represented 67% of the state's total federal expenditures. The state departments shown on this slide expended the federal awards received by the state. The Department of Human Services expended 63%, followed by the Department of Education at 10%, the Department of Transportation at 8%, the University of Arkansas System at 6%,
the Department of Commerce at 2%, and other state departments at 10%. The state received federal awards from 31 different federal agencies. As shown on this slide, the federal departments of Health and Human Services, Education, Agriculture and Transportation provided 93% of those awards. It is the responsibility of all federal awarding agencies to review and provide resolution
for all audit findings, as well as to determine if question costs identified by the auditors require recoupment or other adjustment. As shown on page six of the report, and on this slide, $12.9 million in question costs remained outstanding as of June 30, 2025. Pages 229 through 238 of the report provide the results of our follow-up procedures regarding the uncorrected prior audit findings. The audit for fiscal year 2025 resulted in 33 findings.
The two financial findings were previously covered by Ms. Sanders. The 31 federal findings related to nine different programs. Four findings, or 12%, were repeat findings, which were identified for two programs administered by the Department of Human Services. Non-question costs are reported in 14 findings and totaled $16.6 million. Question costs are defined by federal regulations and are identified by the auditor because of a finding that resulted from a violation of a regulation, including funds used to match federal awards, a lack of adequate supporting documentation, or costs that appeared unreasonable.
Question costs are not considered improper payments until they are reviewed and confirmed to be improper by the federal awarding agency. As auditors, our responsibility is to express an opinion on compliance for each major program based on the results of the audit. Although several findings were reported, we issued an unmodified or clean opinion on most of the major programs. A qualified opinion is issued if an audit finding results in
non-compliance that is determined to be material, either individually or when aggregated with other non-compliance findings in relation to the major program as a whole for the 2025 fiscal year a qualified opinion was issued for findings related to the summer electronic benefit transfer program for children coronavirus capital projects fund and child care development fund cluster these findings are included in the schedule of findings and question cost located on pages 20 through 85 of the report and are discussed on the slides that
follow. Four findings were issued regarding the summer electronic benefit transfer program for children. This newly authorized program is administered by the Department of Human Services. Two findings contributed to the qualified opinion. DHS improperly drew down federal funds in advance and unused funds were not returned to the federal agency timely. Additionally, financial reports were not completed and submitted correctly known question cost total just over five million dollars
eight findings for the coronavirus capital projects fund were reported based on review of broadband projects administered by the arkansas economic development commission arkansas broadband office this is a newly authorized program one finding with question cost of 6.7 million dollars concerning a lack of appropriate documentation to support disbursements contributed to the qualified opinion. Two findings were
issued for the child care development fund cluster also known as the CCDF cluster. This program is administered by the Department of Education. One finding regarding inaccurate financial status reports that were also not sufficiently reconciled to the schedule of expenditures of federal awards contributed to the qualified opinion. No question costs were reported. The remaining federal findings did not result in an
opinion modification. These findings will be summarized on the following slides. All findings are located on pages 20 through 85 of the report. The remaining findings represent nine federal programs and four state agencies. Four are repeat findings and question costs from these other federal findings total $4.9 million. Deficiencies in internal control or non-compliance included the following. Federal financial reports for two programs were not properly completed and submitted
to federal grantors, resulting in two findings. Sub-awards for four federal programs were not reported correctly to the Federal Funding Accountability and Transparency Act sub-award reporting system resulting in four findings documentation supporting payments for disbursements from two federal programs were inadequate resulting in two findings in 13 findings payments were made to providers or
recipients who did not meet eligibility requirements or for which eligibility determinations were not appropriately documented. In one finding, beneficiaries may have received duplicate benefits. Additionally, in one finding, sub-recipient payments were made to companies that were not listed on sub-grant agreements, which could represent a corporate parent-child relationship. In one instance, drawdowns of federal funds were not dispersed timely.
For one program, the sub-grant agreements did not specify the required matching amounts. In one finding, additional expenses were allowed after the project had been closed out. Lastly, for one federal program, the agency did not have adequate controls in place to verify that contractors met financial deliverables of certain requirements. Agreements. Mr. Chair, this concludes my presentation. Agency representatives are present to answer committee
questions. Thank you, Ms. Dozier. I wanted to kind of tie these two reports together
for a couple reasons. One, they actually are related to financial and compliance related matters, but the other reason is, for those of you that may not understand or know this, This is a major undertaking to prepare these two reports. It's a statewide effort, system-wide, agency-wide, and
it includes a lot of cooperation, and I know it doesn't happen easily.
And as a matter of fact, Kevin, would you like to speak on this and the task and share your thanks for the cooperation? Absolutely. Thank you, Mr. Chair. Yes, as a senator
Speaker 40
34:57
stated, these two are very large reports with a lot of information. It takes a significant portion of legislative audit staff to get these reports done. They're important in considering that the first one relates a lot of times to the bonding and the bond rating for the state of Arkansas and making sure we get those out timely.
And it's, again, financial statements for the state of Arkansas. And then the other one deals with the federal awards and federal funds we get to make sure we continue getting those federal funds each year. To accomplish these reports, it's done in conjunction with all of these individuals you see out in the audience, plus others from the executive branch, and they work very well with us in the completion of these reports. It's a team effort. It takes us working together to be able to get these done and get them done timely. I always appreciate the opportunity to say thank you to my staff who spends the time on getting these two reports done, as well as the executive branch assisting and helping make it happen.
Thank you, Kevin. And I, too, would want to express my thanks to, first of all, to you for leading legislative audit and to your staff, but also the agencies and other individuals
included in this process. With that being said, I know there are a lot of items that were discussed. There are likely questions, but my co-chair had a suggestion with, why don't you just
go ahead and share what your thoughts were.
We can work either way, but would you share your thoughts on this? I'm glad to.
Representative Robin Lundstrum
Unverified
36:27
This report is significant. I think it gives us a great overview. I think it needs to be digested. I realize it came out during fiscal session, and a lot of us are just now getting through this. If you can see mine, you can see all the little Post-it notes where I've had questions. I realize that some of you are just now getting through this and may have additional questions. I would ask that we not pass over this today and finish this in August and not take a vote on this
to give us more time to digest all this stuff. I
think it's incredibly important material. Okay. Thank you, Representative Lundstrom.
We also have some findings and question costs and items in there that in your standing committees we take seriously and we review. And so with that, it looks like there are several in the queue. Are they specific to reports or are they to the motion or the suggestion by Representative Lundstrom?
Representative Rebecca Burkes
Unverified
37:35
Did we hear a motion? There was a motion. I don't know that we used the word motion, but that was the motion to pass over. correct my thought
Representative Robin Lundstrum
Unverified
37:47
is we don't take a vote on this today if we want to start asking questions that's great because i know there are questions out there but that we at the end we hold it over to august to give people just a little more time to review this it's very significant so that would be my motion that we not take or pass this
on until after the august meeting there's a second
from senator dees so we have a motion and a second any discussion on the
motion discussion Discussion. All right. You're
Representative Howard M. Beaty, Jr.
Unverified
38:15
lit up, Representative Beatty. I guess my question is, we're going to have discussion today among the members that are here, and then we're going to have discussion again in August and re-plow the same row?
I think the motion was to not have
any discussion today, but to pass over discussion until August.
Representative Howard M. Beaty, Jr.
Unverified
38:40
So it's only discussed once. I see a lot of mics lit up in this room, so I would encourage to go ahead and have discussion today because some members may not be in attendance in August. And this report's been out since,
Representative Robin Lundstrum
Unverified
38:56
what, March? Yes, sir. This report came out in March. Unfortunately, it was during physical session, and lots of folks haven't had a chance to
truly digest it. It deserves to be thoroughly digested. It's with the will of the body. If people have questions, I think we hear those,
and we can conclude the discussion in
Representative Howard M. Beaty, Jr.
Unverified
39:14
August. Okay. Well, that's all. I just wanted to clarify and make certain. Thank you. All right. Thank you,
Representative. All right. Well, we will go through the discussion queue then, and we'll start with Senator Love.
Senator Fredrick J. Love
Unverified
39:29
Thank you, Mr. Chair. Can we have someone from DHS come forward? I want to talk or discuss
the EBT question costs in that program. could you repeat that I'm sorry we were discussing someone from DHS come
forward because I wanted to discuss the EBT program
and then also have a question about the broadband all right thank you senator love
Speaker 74
39:58
and first of all before that I think we need to button up the the motion to hold
over any discussion it looks like we've started down that path so I'll withdraw the
motion and take it up at the proper time okay now moving on thank you if
Speaker 80
40:34
you would introduce yourself for the record good morning I'm Mary Franklin director of the Division of County
Speaker 83
40:42
Operations for Arkansas Department of Human Services. Brett Hayes, Chief Deputy
Counsel for Arkansas Department of Human Services. Okay, we have a policy of swearing in, so if you would stand and repeat after me.
Do you solemnly swear or affirm that the testimony you're about to give will be the truth, the whole
Senator Fredrick J. Love
Unverified
41:06
truth, and nothing but the truth? Yes. All right, Senator Love. Thank you, Mr. Chair. So, Ms.
Franklin, as recent as last night, I was at an event, and when we're having issues of question costs about this program, one thing that has come up is that there's been a lot of missing funds or someone drawing down funds, and are these – well, let me ask first, staff,
Is that part of the question cost when we talk about funds that may have gone missing, may have gone? That's the question of the staff. Can you tell us
Senator Fredrick J. Love
Unverified
41:49
I'm not actually on any page number. I'm going from the presentation that was just provided
to us. Okay, around the question cost.
Senator Fredrick J. Love
Unverified
42:00
Yes, question cost. I just want to clarify, is any of the question cost in regards to funds that may have gone missing as a result of any breaches? Or
is these just funds that have been drawn down, not utilized properly, not dispersed? These are not
Speaker 32
42:23
the funds that were fraudulently taken. And this is funds that were drawn in advance, and
Speaker 91
42:28
they didn't have a cost to go with them.
So they needed to be returned to the Federal Awarding Agency. They were not
Senator Fredrick J. Love
Unverified
42:38
the same as the fraudulent. Okay, thank you. So to then another question of staff, how does audit resolve anything in regards to the fraudulence that has been taking place over the EBT program? Do you work with DHS on, how do you all work with DHS on that, and how is that reported?
Speaker 39
43:03
Thank you, Senator Love. There is a statutory requirement under law
Speaker 40
43:07
that when an official who's over public funds has identified that there's any fraudulent loss of funds of $1,000 or more, they're required to report to us. Just talking about normal processes at legislative audit, when we receive reports, those reports become, we're notified of those as we are not management. It's management's responsibility to work through that at the time. They keep us informed. They keep us updated. With those notifications, we include those in the subsequent audit that we do of those entities and look into those matters at that time.
Senator Fredrick J. Love
Unverified
43:42
Okay, do we have any reports on the past, the previous, and the current fraudulent? So, Senator Love, that's information that's not considered public at
Speaker 40
43:54
this time, and that whenever we get those reports, it becomes part of our working papers, and that is not until the audit's complete that it would be that if the agency's here, potentially, if they want to discuss. So, but we do,
Senator Fredrick J. Love
Unverified
44:11
uh, we do have working papers on that.
Uh, are they privy just to, are they privy to us so that we can review that? In consultation with legal counsel? No, sir. So then who are they privy to if it's not the
Speaker 99
44:43
body that, that is over legislative audit? senator love
the uh the work papers are part of the uh the the audit that is in process or that
will be in process and so the audit it is that audit is in
Senator Fredrick J. Love
Unverified
44:58
process right now when would that audit be released to the to to us so that we can we can discuss this matter because and i'm asking because this is this is has been an ongoing issue and it doesn't seem like we've gotten a hold of it and so that that's my that's my big
Speaker 66
45:21
concern you're talking about the statute
the the theft of the ebt
okay specifically to the working papers the statute is is clear that it is it is not available for review and it's not uh available for public consumption as i read it so but as far as the report and and the
status of the audit i don't know if staff has a thought on that yet
Speaker 40
46:04
sir love any transactions related to anything related to the current fiscal year which we are in fiscal year 2026 right now um that would end june 30th would be part of the dhs 2026 audit we would anticipate that in the um i would anticipate around summer of next year okay the summer of next year
Senator Fredrick J. Love
Unverified
46:29
all right great um then dhs i have no further questions for you but i do
have questions in regards to the broadband okay before
we let dhs leave okay we're going to see if there's any other questions anybody have questions for dhs i think i saw somebody waving was that representative baity okay representative baity you're up thank you mr chair i i guess my questions
Representative Howard M. Beaty, Jr.
Unverified
47:00
go back when i when i get an audit i always go back and look at the unresolved or
previous findings and in in our packet i guess that starts on like page 229 um and then they just kind of give a summary of all the unresolved audit findings from 2025 starting on page well not page number but in the actual report there are one two three four five six different findings with DHS that are showing unresolved I think it starts maybe on page 178 and I was just seeing if
you had a response for those unresolved findings from, uh, the 2025 audit. Did you
Representative Howard M. Beaty, Jr.
Unverified
47:55
that's the first, uh, at the back of the, of the report, starting on like page two 30, uh, it goes through the unresolved and it, and it gives a status finding at the bottom, either corrected or uncorrected or partially corrected. And it's DHS, I think the outstanding says it's page 178, 179 with foster care
is the first one that's showing uncorrected or partially. Yes,
Speaker 83
48:37
so this finding would have been corrected in July of 2025. Training was completed with the DCFS and managerial accounting staff on this finding,
Speaker 114
48:51
so it's been closed since the beginning of this past fiscal year. Okay,
Representative Howard M. Beaty, Jr.
Unverified
48:57
well, on the summary table, on page 234, it is clearly stating partially corrected. So that was my question, is what is still outstanding on that item, or is it noted that during the time of production of this report, that this was as lengthy as this is, that that was one error in
Speaker 117
49:19
the report? Yes, I believe that when the report
Speaker 83
49:24
was completed, it would have been partially corrected.
But then when legislative audit reached out to the agency for an update, So as of, there would have been 31 days into this fiscal year where it was partially corrected and then it was completed at the
Speaker 114
49:42
end of July of 25. So I think that's why it shows it's partially corrected. Okay,
Representative Howard M. Beaty, Jr.
Unverified
49:51
can staff opine to that if that's an accurate statement or not?
Speaker 38
50:00
Thank you, Representative Beatty. Brett Hayes all
Representative Howard M. Beaty, Jr.
Unverified
50:03
right next item is page 185 and 186 I think that's dealing with adoption assistance yes representative this is the same issue when legislative audit
Speaker 83
50:18
reached out to us at the beginning of the audit period it was partially corrected and then in July at the end of July we completed the training with the
Speaker 114
50:33
dcfs and managerial accounting staff to
Representative Howard M. Beaty, Jr.
Unverified
50:37
close this finding out okay next one is 189 through 191
and that's dealing with the chip
Speaker 83
50:57
program yes so these are related to our provider enrollment process and um on this year's audit report you
will notice that those are repeat findings uh they specifically relate to the revalidation process that we go through with all of our providers um on a five-year rolling basis uh the specifics related to these findings were that we would have providers that would start the revalidation process before the deadline the deadline to revalidate them would pass and we were still in the process of working those revalidation applications because maybe the provider had
failed to submit some required documentation and that put us past the revalidation date that we're required to meet by federal law. So what we've done in this audit cycle, we've updated our process to move the revalidation date in our system 60 days up so that we can work through any issues that we have with providers and that if somebody is past that revalidation deadline,
Speaker 123
52:09
if a provider past that deadline we would
Representative Howard M. Beaty, Jr.
Unverified
52:13
terminate them. Okay I guess the next one is page 194 and 195
with the medical assistance program. So
Speaker 83
52:28
this relates to payments that are made uh related to incarcerated juvenile juveniles and so i believe it's going to be a repeat too yeah so the the process here it's it's a timing issue so the i think 90 i think near i think 95
percent of the of the juveniles that legislative legislative audit identified in this finding have SSI Medicaid. So what that means is SSA, they have their own eligibility system that is separate from DHS's eligibility system. Their eligibility system controls whether or not that case remains open. In all of these cases, we have reported their incarceration status to SSA in a timely
manner. The issue is on their end, getting those cases updated. So if they don't get the cases updated timely, I believe 99% of these payments are capitated payments. So it's a timing issue. The capitated payment has gone out the door before SSA updates their system. And then what it will show is that there was a payment that was made after the incarceration date. So we have a process
in place on the back end to recoup any of those payments that went out the door after their incarceration date. We do that on a quarterly basis.
Representative Howard M. Beaty, Jr.
Unverified
54:05
Okay, we may need a little more information on that. The systems don't communicate with each other, so this is like you send a file in once a month or
Speaker 83
54:16
something along those lines? We notify them about each
Representative Howard M. Beaty, Jr.
Unverified
54:21
individual case. Okay. Next item is 202 and 204. We just went over that one. 205 and 207. This is the last one
and may be the same case. This is also a repeat finding.
Speaker 114
54:34
Yes, Representative Beatty. This is the same issue related to provider
Representative Howard M. Beaty, Jr.
Unverified
54:38
enrollment. Okay. Well, that's the only reason I brought these up. they were still showing on the on the form is no corrective action taken or uh partially corrected and if you look through everything on there that's the majority there are very few i think there's maybe one other uh that it that's showing uh on here is partially not corrected
and i think that's um 218 and 219 one other and that i think that's same thing with the map so that's probably uh covered in your explanation but but everything else from the outstanding of 2025 was showing corrective except those issues so just wanted further
clarification thank you. Thank you, Representative Beatty. Next up, Representative Richardson.
Speaker 129
55:34
Thank you, Mr. Chair. Mine is actually for the Office
of Technology. Okay. Representative Mayberry. Okay. Skipping.
Representative Rye. Is your question for DHS? Okay. Yes, sir, Mr. Chairman. You
Representative Johnny Rye
Unverified
55:52
are recognized. Thank you, sir. let me ask you this y'all is there a possibility that the funding from federal coming into us anticipated funds is there sometime a difference miss mary between the anticipated funds and the
Speaker 109
56:10
actual funding that comes in are you are you talking specifically about the summer ebt the federal the federal so the finding was because when we implemented the new summer ebt program which provides for a hundred and twenty dollar benefit to eligible children's to be used during the summer uh it's delivered on an ebt card the same as for snap and um for the whole summer the
benefit is 120 and when we implemented the program we funded the entire 120 dollars not knowing when the families would redeem those benefits they might redeem them at all at one time they may wait till later in the summer they may partially redeem them throughout the summer and so we mistakenly just funded those benefits so that as the family shopped the benefits to reimburse our provider would be in our bank account what we have learned and have since corrected and are doing it
correctly for this 2026 summer ebt cycle is we are doing it based on a report from our ebt vendor of what benefits were redeemed the previous day so now we are drawing funds as the benefits are redeemed and then we are wiring them to the ebt vendor rather than holding them in an account which is what we had done wrong in the past yes ma'am follow-up
Representative Johnny Rye
Unverified
57:42
please um but mary let me ask you this from the time that you actually turn you know your funding loose from the time that you
actually set this up maybe with the federal government maybe six months beforehand or something like that is there is there a time period that's actually separated there that would make a difference in the amount of that
Speaker 109
58:09
we're auditing? So because we drew the funds in advance and not everyone spent their funds there were funds that had to be returned summer EBT also has 122 day benefit period those those funds are only good for that amount of time and then
they're expunged meaning no longer accessible to be spent and they're you know returned to the government. So we did have excess funds in our account. We had drawn them early, which we should not have done. And then we had leftover money because all the benefits weren't spent and we needed to return them to the federal government. And we have
Speaker 80
58:44
done that. We have returned all the funds to the federal government. Okay. Thank you. Thank you, Mr. Chairman.
Thank you, Representative Rye. Senator Dees, I think you said you had a question for staff and maybe someone else.
Senator Tyler Dees
Unverified
58:58
Thank you. Thank you, Mr. Chair.
I think broadly asking, as we've already said, this is a significant report, the single audit report. And when it was stated we have $12 billion on 469 federal programs, I think it was said that we've only dove into 16 of those significantly.
And I think what I'm asking is when I hear from constituents about concerns that they see and read and watch, um, in Minnesota and California with waste and fraud and abuse on different programs, federal programs that are being audited by the states, um, if, if I heard that correctly, if there's 469 federal programs with $12 billion and we have 16 in this report that we double clicked and really, really audited extensively. There's just some concerns that are we missing anything with 400-plus programs that are out there.
And so I think that's my first question to staff is how detailed we are. And this is extensive, but if we're still missing 400-plus programs, I think I want to make sure
I heard that correct or understood that first. I'll let staff comment on that, but you're getting really, really deep in the technical weeds. That's a good
question, but I don't think that it is the fact that they're looking at some and not at others, looking at some deeper and not as deep.
I think it more has to do with the audit standards and what's considered a major program, but I'll let the experts comment on that. Thank
Speaker 40
1:00:49
you, Senator Petty and Senator Dease. Yes, the determination of which of the major programs we look at, that is defined by federal regulation. They identify for us, and then walking through the amount of expenditures, which programs we have to look at, which programs need to be audited on an annual basis, and they provide us some risk assessment procedures as well.
I would say that, you know, also just for contextual purposes, those 16 programs did represent about 67 percent of our total federal expenditures as well but
Senator Tyler Dees
Unverified
1:01:20
there's so specifically then on the child care development fund clusters i think those have gotten a lot of attention nationally so i maybe specifically my question is on the ones we did audit in that category for child care are does that mean we are physically sending leg audit teams to service providers to ensure services are provided correctly are we
going directly are there are there human beings going to these child care providers thank you senator
Speaker 40
1:01:53
this is a great question so the work that's done by legislative audit on that program particular is defined by the compliance supplement something that the feds put out every year for us to what to go audit at going all the way to that level is not part of what's covered in the
course of our review okay thank you thank you senator Deese good question representative Mayberry you said you
were some other agency okay senator
love are you still waiting for your next agency okay all right anybody else
with DHS before we let them leave the table if not thank
you thank you for your responses
Glenn Howey, State Broadband Director. Okay, Representative Mayberry, I accidentally knocked you out. It's not this one? Okay. All right. And
members, if you would, just to kind of speed things along, if you would, if you have a specific question about a specific page, if you would give us that page number so those at the at the table there or staff can find those quickly that would be
appreciated so all right if you would if you would state your name for the record and then we're gonna swear
you in Glenn Howie state broadband director all right if you would stand and repeat after me do you solemnly swear or affirm that the testimony you're about to give will be the truth the whole truth and nothing about the truth thank you senator love
Senator Fredrick J. Love
Unverified
1:04:13
thank you mr. chair and mr. chair I do
not have a number because I'm just going off the report that was just given but I had a question because there was a disbursement of six point six million dollars to a vendor and my first my first question is that um now we do have a we do have a guideline as it's as to far as far as vendors getting reimbursed for the work that they're doing
and i'm just curious about how this one vendor slipped through the cracks so can you walk me through can you walk me through that yeah I
Speaker 151
1:04:59
appreciate that senator and first I do want to say that you know our team worked well with with legislative audit we fully appreciate the work and the job that they do to bring transparency to government's very important and I'm glad to be able to provide some clarity so the 6.6 million in question here that you're referencing a senator
really it was not one provider on this one they reviewed I think hundreds and hundreds of invoices on this particular thing that they looked at right and this constitutes six point six million dollars in total over I think 212 different invoices okay to multiple providers and I think the clarity that I would like to bring today is that you know for every single dollar here the the 6.6 million right we have a documented invoice and proof of payment for every single dollar that this
is referencing what there is is a little bit of a difference in interpretation as to how detailed a particular invoice needs to be right um so it's you know multiple providers and hundreds of invoices that exist that they reviewed right with proof of payment for activities that took place in the build out of projects okay and there's just again difference of opinion between our office an audit around specific levels of detail within an invoice that we that we received okay so so
Senator Fredrick J. Love
Unverified
1:06:24
then i'm going to ask you audit did provide you with with what their interpretation was is it was there any corrective action on your part to ensure that we would get the the documentation
Speaker 151
1:06:36
moving forward sure so we have of the again of the 6.6 million question here we did a detailed review of all those as a result of this report when looking at that we think really in actuality it's probably our opinion would be about 47 000 out of the 6.6 that u.s treasury may
want to take a deeper look with us and this is we've done this with u.s treasury in the past so to date when we've engaged with u.s treasury around invoices and documentation at least until today it's always been satisfied to u.s treasuries um you know what they want to see to date we expect that to
thank you thank you mr chair thank you senator love representative richardson is this for broadband okay senator hammer is this
for broadband okay senator Jamie Scott is this
for broadband okay is your staff questions about broadband or
okay all right you are I think off the hook here So you you're welcome to leave
Senator Scott would you You're recognized. Thank you. Mr.
Senator Jamie Scott
Unverified
1:08:03
Chair. My question is I saw on the report Numbers by other findings, but I didn't see and maybe I'll overlook the numbers specifically for us having weak Systems that are not protecting like our websites in case of cyber is that what they were trying to say like I didn't see a number of how much money we lost for having weak structures with I assumed it was like cyber
attempts and stuff like that but can you can you provide further clarity or did I misinterpret that I was trying to understand what that specific slide was indicating how we lost money and what that amount might have been overall thank you
Speaker 38
1:08:50
the question you're referring to is it is it the finding that's in regard to the
Speaker 40
1:08:55
kind of an IT security issue that we had the OST in regard to that there's
there's not any kind of dollar amount that's associated with that it's basically there's there's a control issue they need to improve the system and they need to do something better there is staff here from again from that agency to respond to that finding if you had specific questions so nothing like we've
Speaker 163
1:09:19
seen at county level government or other you know agencies where they've
Senator Jamie Scott
Unverified
1:09:24
kind of hacked the page and they have to pay so-and-so amount to get that information back nothing like that that's
Speaker 39
1:09:31
correct there's no finding and that you're speaking of
Speaker 166
1:09:34
of that type regard in the information that's been
Representative Rebecca Burkes
Unverified
1:09:39
presented today okay thank you and correct me if I'm wrong this this was determined through the evaluation of the internal controls is that so there it
wasn't at it was part of the process of an audit is evaluating your controls and and this is the result of that evaluation of the internal controls is that correct
Speaker 39
1:09:55
yes sir that's correct and like saying this is the state of Arkansas some of
Speaker 40
1:10:00
those incidences you may be referring to or thinking of or down at the local level or
at those levels of which would be in separate reports
all right thank you Representative Lundstrom you had a
Representative Robin Lundstrum
Unverified
1:10:13
question yes being that this is the state of Arkansas and we've noted that these issues have occurred what has been done to stop us from having a cyber attack what's what fixes have been put in or have they been put in there was a recommendation but has it
been done is Is there someone here from shared services that can speak to that question?
If, thank you gentlemen, if you would state your name for the record, then we'll swear you in.
Speaker 174
1:10:58
Jay Harton, Director of Office of State Technology. Gary Vance,
Gary Vance
Unverified
1:11:03
State Chief Information Security Officer. All right, if you would stand and
we'll swear you in. 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? Yes. All
right, thank you. Would you repeat the question just so we're all on the same page?
Representative Robin Lundstrum
Unverified
1:11:23
Based on the recommendations, OST needed to have some updates to prevent threats and unauthorized access. What have you done? I'll start off first. So it
Speaker 173
1:11:36
wasn't every system. It was just a couple servers within the 1,200 servers that we have per view over. And so one of the – and they were coming to a central logging server. They just weren't being forwarded on to the analytics side of the house.
So we do have those logs if we needed to go back. So what we've done is, so I've talked, I think, before a couple committees. We're in the process of implementing ServiceNow, which is our IT system management system. So what we're doing with that system is we're doing discovery to find all the servers, and then we're comparing
Speaker 174
1:12:13
it against our logging server to make sure that we have those all there. Yeah, and in general, I
Gary Vance
Unverified
1:12:24
would say, what are we doing to protect ourselves from cyber threats?
And, you know, that's a big question because, as you guys know, the threat is prevalent and it increases day by day. We see, you know, especially at the local level, there's been several incidents that have been quite costly, both financially and from just a disruption of services in general. But at a state level, at the executive branch level, you know, there are core components of things that we have to do to be able to protect our intellectual capital as well as our assets and our data.
So, you know, some of the things that we've done is, you know, over the past really six to eight months, we've implemented an executive branch endpoint detection process where we now have our executive branch user endpoints. and some servers covered by an advanced endpoint of monitoring and detection service. Going forward into fiscal 27, as related to the finding on the monitoring,
the next level of maturity that we want to bring is a comprehensive enterprise-level event management and monitoring system so that we have insights into all of our critical assets would be the first order, but in general, we want to be able to monitor and protect those devices and be able to alert on those in advance to eliminate the possibility of a threat or it becoming something more adverse.
Representative Robin Lundstrum
Unverified
1:14:10
Thank you. I'll step out of the queue and let
other folks get in. I believe Representative Richardson has
Speaker 187
1:14:20
a question for these gentlemen. At least one. Thank you, Mr. Chairman. So, good morning. Thank you guys for being here as usual. So, just to sort of set the stage at this point, I know that there's been a number of reports and decisions made and a lot of changes that's going on over in the Office of State Technology, specifically regarding this type of circumstance.
Can you tell me, talk to a little bit about the funding mechanisms that you have in place and then what kinds of additional funding that you're looking for to be able to complete the mission as
Speaker 173
1:14:58
you migrate forward? Right, I'll take the first stab and then let Gary follow up. So a couple years ago we did the Arkansas Forward Study, and so that brought to light that as a state, as the executive branch as a whole, We spend about $6 million on cybersecurity.
The company that did that, the consulting company that did that, they compared us to other states that are kind of our size, and their recommendation was about $60 million is what we should be spending. So we're very much in a deficit of what we should be spending. Gary and I have talked about it, and we've talked with the other CIOs at the executive branch. We feel like we should be in that $25 to $30 million range on spending for cyber. Of course, we can't do that all at one time, right? So it's a gradual progression.
So Gary mentioned our endpoint detection that we rolled out across the executive branch. So all servers, all endpoints for the executive branch has this software on it. It's 24 by 7 monitored. And not only are the endpoints, but we're also watching the identities of all the executive branch employees to make sure that, you know, if we see a login coming from Germany, that's not a good login, right? So we're blocking those and not allowing those to happen.
So that crowd strike, endpoint detection, you know, so we've gone from about 6 million. We've added about 2 million over the last 12 to 18 months. And so that's where we see this, where Gary talks
Speaker 191
1:16:34
about the maturity, right? We slowly grow this to make the posture a lot better.
Gary Vance
Unverified
1:16:42
Yeah, and I would just add that, you know, there's a saying in the cyber world that says you can never invest your way out of a cyber incident. But the thing that we're doing is that, you know, we are paying attention to the things that matter the most first.
and those things are our critical assets, our intellectual capital, and our data. We have to be able to protect those as thoroughly as possible. So as a next step with the endpoint management system that we've talked about is going to be our enterprise log management and alerting system. So we work very closely with Secretary Fiskin and Finance and Jay, and I think the important thing about cyber investment is cyber forecasting, right?
You've got to forecast in advance what your needs are going to be for not just the next year, but for the next two to three years or five years. So that's one way that we can absorb or manage some of the investment because, as Jay said, if we had $20 million right now and you gave it to us right now, it would be difficult for us to use that money effectively. But if we can work on a strategic roadmap that has some alignment with funding,
we can mature at a rate that we can absorb with our resources that we have today and the staff that
Speaker 187
1:18:18
we have today. So I'll follow that up. Do you have and have you produced and published an existing roadmap for cybersecurity?
Gary Vance
Unverified
1:18:27
I do. We do have a roadmap. It's been probably a couple of years since it's been reviewed and looked
at, but we do have it. And that roadmap will go – it's a five-year view, if you will.
And it really – the purpose of the
roadmap is to give us an understanding of, you know, do we have – are we in a defensible position with the state of Arkansas? And so this maturity that we talk about is in alignment with that roadmap to get us to a point to where we have more assurance than we have today that we're protected, that our assets are
protected. So we do have a roadmap.
Speaker 187
1:19:14
Given the findings from this particular audit, I think if it would be appropriate, I'd like to see that sent to staff and sent out to provide it to this group so that we can see what that roadmap looks like and where your additional investments in security are going to be coming over the next few years. I think from my perspective, looking at a roadmap, that's something that you should be updating on an annual basis at very least to make sure that you're meeting those expectations, establishing those goals for the next year,
and then meeting those and reinvesting those numbers or those dollars where they're most relevant. What's the current process for evaluating the logs that are being, you're obviously consolidating those on a single server. That's what this finding was. You had a couple servers that weren't doing that. What's the process for actually reviewing those and assessing threats and then mitigating those risks?
Gary Vance
Unverified
1:20:13
So one of the things that we have to leverage and take full advantage of
within the technology frameworks that we have available to us today is automation, right? You know, the software today has become so advanced that we get the benefit of the technology and the advanced monitoring and advanced alerting that, you know, even two years ago we didn't have. And so we do have those processes in place. We just have to grow those and mature those over time.
So in reference to the servers that were talked about in the findings, those servers are now being monitored, and we can view and see alerts on those. But one of the biggest things that I'm trying to bring to bear within the cyber office and the way we manage cyber is, again, we've got to leverage the technology and we've got to leverage automation. In today's world, we couldn't bring enough people on staff
to monitor the number of alerts that we're seeing on a daily basis. So we take advantage of the technology that's in the software. We take advantage of the advanced threat intel that we get from some of our key service providers. And, you know, all that intel and all that data goes into a central management console, if you will. And then when you apply a level of automation to that, we can now see things that are going on within the state on a 24 by 7 basis.
And so it wasn't like before when we went home at 5, we didn't come back on until 8 o'clock the next morning. So we had a blind spot. Well, today, we've shrunk that blind spot significantly, and we want to continue to do that by
leveraging the technology that we've got available to purchase and to use. So,
Speaker 187
1:22:26
if I understood you correctly, you have deployed the software for reviewing the ongoing logging events and alerting on things that are anomalies.
That's correct. We do. Okay. All right. Thank you very much, Mr. Chairman. Thank you, Representative Richardson. I believe next up for
Representative Steve Unger
Unverified
1:22:54
these gentlemen is Representative Unger. Thank you, Mr. Chair. Here's a question. Is there collaboration among other states with cybersecurity? And if you compared us with the other 49, is there a state in the union
Speaker 198
1:23:04
that you could say these are the guys
that are closest to hitting the
Gary Vance
Unverified
1:23:12
target? First of all, we do collaborate. I can tell you we've worked very closely with North Carolina. We've worked very closely with Oklahoma. We've worked very closely with Louisiana. North Dakota. North Dakota has got really what I would consider to be a reference architecture for how a state cyber organization ought to look.
And so we have collaborated with those. Oklahoma, we've done a lot of collaboration with them. Oklahoma did their consolidation effort six years? About ten. Ten years ago. Okay, a little longer. But we have spent a lot of time with the former director of information technology and their CISO. You know, and how we compare to the, you know, to the contiguous 50, that would, I'm not sure I could give you an accurate ranking on that.
I can tell you what our goal is. Our goal is to be at the top of that list. We want to, you know, I want to see our cyber office and our cyber maturity to be in line with a North Dakota and a North Carolina and some other states that we work closely with. That's the goal. And I can tell you that state cyber is maturing. It's
year over year, it's maturing, and it's getting better.
And, you know, I plan on it getting better year over year. Next up, Representative Rye,
you have a question for these gentlemen. You're recognized.
Representative Johnny Rye
Unverified
1:25:02
Yes, thank you, Mr. Chairman. Fellas, let me ask you this. Is this to a certain degree kind
of like a moving target that's never changing? I mean, it's changing all the time. And let me ask you this. If you had what you would call up-to-date security against the people that are out there
trying to hack into what we have, how far do you think you're ahead of the ones that are actually trying to tap into information that they may want to tamper with? I'll
Speaker 173
1:25:38
start real quick and then let Gary follow up as well. So, I mean, you're never going to catch the end of it. It's changing. And, again, kind of one of the things back to the crowd strikes and what we're monitoring better today, some of the, you know,
the finding was around not sending server logs and all that kind of stuff. I would say that's kind of old-school architecture. Instead of just looking at logs, that's one of the reasons why we went with this new product is because it's looking at the identity and the biggest threat that we really have today is um and gary can go into much more detail is is phishing right are these emails where you give up credentials and they come in and impersonate you they're not necessarily finding the holes in
the websites or the applications they're getting valid credentials and logging into the systems and, you know, impersonating you or the credentials that they have, and that's how they're moving. And a good example is where they'll, you know, send an email and say, hey, I need to change my bank account for direct deposit for my paycheck. And you have no clue that they sent that to somebody. Or, you know, we see that with vendors on bills and those type of invoices that we pay.
Gary Vance
Unverified
1:27:03
Yeah, and just to add on to that, identity threat is probably really at the top of the list, you know, today. You know, identity compromise and identity threat is one of our biggest challenges. Two to five years ago, you know, adversaries looked to exploit known vulnerabilities in systems, right? And that takes time. What they do today is they just, through a phishing email, they will get you to give up your credentials, which is your username and your password.
And so now they've really jumped over all the work that they have to do to exploit a vulnerability. So if they get Jay's username and password, they've now got access to the kingdom because, you know, Jay obviously has privileged access as we have technicians that work across OST that have privileged access. Once they get your identity and they get your credentials, they've got us, right?
So that is probably our biggest concern, is being able to manage and protect against identity threats. But to your point earlier, the target is always moving. It never stops. It never changes. You know, I know we talk a lot about AI, but AI is bringing a whole new world into cyber threat and the way adversaries are going to use AI to attack us.
So, you know, we've got to always be ready, as ready as we can be, but that target is always moving. Thank
you, Representative Vryth. Thank you, gentlemen. Following up to your most recent comment about fishing, What kind of training do we do for, I mean, we have a lot of employees. I have a small company, but we do training on the latest phishing attacks or, you know, the latest scam.
What kind of training do we do
Gary Vance
Unverified
1:29:14
in that area? So one of the maturity things or the maturity items that we've done and we've advanced on is an executive branch of cyber awareness training program. We just recently got our cyber awareness program approved through the governor's office. And so what we do at the state level is that we are running quarterly mock campaigns to where we will send out a variety of e-mails to test our readiness.
And then based on the results of those phishing campaigns that we do, we issue some targeted training. So as a user, if you click on a phishing email, you will get a follow-up email that says, hey, you clicked on a phishing email. We need you to go out and take this remedial training. And it stacks a number of offenses, right? If you're a first offender and you seem to do well at identifying a phishing email,
then you'll get one training requirement. On the other end of that, we actually have people that are repeat offenders that just can't seem to, you know, maybe get it right when it comes to recognizing a phishing email. So phishing is something that we really stepped our game up on. We're working with the department CIOs, and we just recently met with our CIOs and had some great input from some of the other departments
about doing some video training to where we're continuously training and talking about fishing. We can never stop talking about fishing. It's just never going to go away. And so we're going to bring as much training to bear as we can to help our employees protect themselves from a fishing email. Thank you.
And they are getting more and more and more sophisticated. I received an email from the other day from myself. And it used to be they were Jim Petty, and then you had this long. Now it's actually from my domain. So they're getting very sophisticated. So thank you for what you're doing.
I believe we have one more in the queue. Representative Brown for these gentlemen. You're
Representative Matt Brown
Unverified
1:31:48
recognized. Thank you, Mr. Chair. Gentlemen, one of the first numbers that I heard you bring up
was how much other states our size are spending. And then it sounded like we were spending significantly less, and our projection on what we need to spend is still less than half of what these other states are spending. is how much we're spending a legitimate measure of how well we're doing, because it sounds like you all are on top of it, and that just concerned me that, well, if these states are spending all this money,
why aren't we spending closer to that? Not that I want to just spend money. I want to protect our structure here. So could you just address that a moment? Because are y'all just being more frugal or more efficient with software? Or can you address
Gary Vance
Unverified
1:32:47
that? Sure. You know, it's difficult to gauge
your level of cyber maturity based on the amount of money that you spend each year into your program. What I always tell Jay and, you know, when working with staff is that
I work very hard to try not and ask for things that we don't need, right? And so, you know, my approach is to applying those dollars and knowing that it's a challenge, you know, to get the funding in some cases. But that's never going to change, right? I've been doing this for a long time. Cyber investment is always something that there's a need for. But for us in our office, what we try to focus on
is the absolutely core essentials of what we need to protect our assets, to protect our employees, to protect our data. That endpoint example that we gave earlier is a key example of that. The network monitoring that we want to grow into and probably will be the next area that we invest in is another one of those areas. And then phishing. We talked about phishing. We're making a significant, not so much a financial commitment there,
but, you know, we are committing resources, training resources. We're meeting, you know, regularly on, you know, the things that we can do to prevent fishing. So it's difficult to say if you spend $60 million a year, in your mind's eye, you would think, well, we should never be attacked. And, you know, that's just not the case because it can happen where, you know, where your expense is very high and it can happen where your expense is very low.
I think the key to it is addressing, you know, what cyber capabilities we have today, where those gaps are, and very strategically applying that money in those areas that we know will defend
us and let us defend, you know. state assets thank you for that explanation thank
you representative Brown all right
gentlemen thank you thank you for sharing your your thoughts
and your answers to these questions next up we have
DFNA I think that's who Senator Hammer wanted. So do we have a representative from DF&A that can come to the table? Jim Utz and Secretary DFA. Andy Babbitt DFA. Thank you gentlemen you know the drill. Would you
stand to be sworn in, please. Do you solemnly swear or
affirm that the testimony you're about to give will be the truth, the
Senator Kim Hammer
Unverified
1:36:08
whole truth, and nothing but the truth? Yes, sir. We
do. Thank you. Good morning. Senator Hammer, you're recognized. Good morning, gentlemen. On page 93 of the report, it talks about the deficit net position workman's comp commission. If y'all found your way to that page yet, or when you do let me know we have it okay the way I read that it seems like we were
not in a good position we did some things to try to address that but yet it seems like their statement says the resulting reductions in claims paid have not been sufficient to cover the added liability caused by a change in the actuarially actual assumptions increasing the assumed life expectancy of the claimants can you give us a can you give us a an explanation or just talk
about that claim if you would please and are we in the right direction are we stagnant or just give us some insight please it reads like we did good it It reads like we did bad or we were not doing good. We addressed it, but is it enough to be in the
position we want to be in when it comes to this area? Yeah, Senator, I think I'd be reluctant. I'm always reluctant
Speaker 220
1:37:29
to say no problem. I think what I would prefer to do is get a better understanding
and look at the actual report and then maybe circle back with you on that in terms of what we think the fix is and is the fix actually working.
Speaker 222
1:37:45
Andy, I don't know if you have anything else. i do just very briefly if you take a look at page 172 and 173 that's a 10-year claims for that very fund and that can give you some additional insight into it and may help answer some of the questions well could you
Senator Kim Hammer
Unverified
1:38:03
go ahead and give us the explanation of 172 173 because i've not looked at it before
you just brought to our attention and tell me how it relates to what
Speaker 213
1:38:14
my question or concern was So this is going to give you kind of a 10-year history of
Speaker 222
1:38:20
the number of claims. And as you can see, the number of fund participants has really not declined as much as you might have expected. So actuarial assumptions, as I think we all know, are based off of statistical averages of life expectancies. and so uh over time we would have expected more participants the number of participants in this
fund to decline more rapidly but the bottom line number there is in the last 10 years we've gone from roughly 1400 down to roughly 1000 equal however the number of premiums coming in and investment income has generally remained what i'd call stagnant across that period of time to so we're not depleting that that liability that actuarial liability as quickly as we could but this kind of feeds into uh the the note that you see on page 93 yeah i guess the other thing
Speaker 220
1:39:19
i would just add to that is similar to pension accounting you know there is actuarial liability and then there's cash liability so you know the cash is sufficient to
Speaker 224
1:39:29
fund claims and claims are getting paid i'd probably say it's also a conversation to involve workers compensation Commission for them to give you any commentary about the actual operation of the comp fund at this point so is it
Senator Kim Hammer
Unverified
1:39:43
something that needs to be prepared to be addressed in the next legislative session or
do you feel that as it sits
right now that over time is going to correct itself to where it will be in a healthier position other than what page 93 reads it to be I would say it bears monitoring in
Speaker 224
1:40:03
the same way that you know our pension underfunding bears monitoring but no action required to this time but I do think we should be looking at it and having conversations making sure that we're continuing to move in a favorable trend not an unfavorable trend who's the actuary on this
Speaker 227
1:40:22
is it again the big workers compensation commission correct question
And this is not nested within DFA. Okay.
Senator Kim Hammer
Unverified
1:40:30
Mr. Chairman, I've got an idea what the motion coming up would be. I'd kind of like to flag this one to be discussed in August and maybe could come prepared to just touch on it a little bit more after we have a chance to talk and we'll just flag it to be discussed
Speaker 228
1:40:48
in August, please. Thank you. So noted, Senator Hammer. Gentlemen, you got off easy. Thank you, sir.
all right I believe the last item to be discussed is from education so we have representatives from Department
of Education here it can answer questions
Speaker 214
1:41:25
mr. Rogers you knew that know the drill if you would introduce yourself for the record
greg rogers department education and if you don't mind to stand to be
sworn in do you solemnly swear or affirm that the testimony you're about to give is the truth the whole truth and nothing
but the truth thank you representative mayberry you've waited patiently you are recognized
Representative Julie Mayberry
Unverified
1:41:53
thank you so much i appreciate it um first of all i i want to acknowledge the
the huge task of moving um the child care development block grant and and school readiness assistance from dhs over to ade and there's always going to be some paperwork in the mix you know people coming in that have not normally handled this paperwork that now suddenly are and I want to acknowledge that huge task that that was before you but I'm specifically asking here about I guess it's finding number 18 and finding number 19 and this deals with the child
care development block grant which I believe it correct me if I'm wrong but is that school readiness assistance program is that correct that's kind of the money that we're talking about And just to kind of remind everybody that child care providers around the state in the fall, in September, were given about a two-week notice that as of October 1st, their payments would be cut suddenly. And there wasn't a lot of heads up.
And it kind of created a big stir. Many will remember lots of discussions here at the Capitol about it. So I think many of us were left with a, how did this happen, and how did we not know about it? And we do understand there was an $8 million reduction from the feds. You know, yes, we understand that. That's been talked about. But this audit, does this help explain some of how it kind of caught us off guard, that there wasn't some reporting being done in a timely manner?
And I'm even looking on, let's see, page 51, it says the total expenditures reported by ADE in these reports was $14.5 million less than the amount reported by ADE on its portion in the ESFA. I don't really understand that whole sentence and probably need someone to explain that to me a little bit more, but it seems like there might have been some warning signs that this was coming. And so I wanted to give you the opportunity to explain maybe what this report really means and the things that you've done to make sure that we're not caught off guard again.
Because I do believe that in here you're saying that you're working on some cross-training and all that. So just want to have that discussion. Thank you. Yes, ma'am. So that was actually,
Speaker 234
1:44:28
it's actually two different things. So the thing where we got notification from the feds about the $8 million cut was in that
Speaker 235
1:44:34
last quarter of that grant based off poverty rates. And we're still working with the feds to understand how they collect the poverty rates and why that sudden change on there. So that's something that we're working on over there to try to get a better understanding of what that happens.
This right here are basically reconciliation 696 reports that we're supposed to do monthly to show how much funds we've pulled down from the CTF block grant. and sent out to the providers those there was a person that was supposed to be doing those that was supposed to do that reconciliation uh keeping those caught up um we had a changeover administration found out that they weren't doing that as probably as good as they should have been um and so that's where we started with this that this is the reconciliation reports that were late
or not fully reconciled so we replaced that person with someone with more of an accounting background that is come which worked in between finance and oec now so we've got those reports all caught up and they are being timely now but this was these are just uh i don't say just these are reconciliation reports the 696 reports that we have to turn into the feds so are you telling
Representative Julie Mayberry
Unverified
1:45:43
me someone was let go because of this or just moved to another area they're no longer with
the department they're no longer with the department okay that was overseeing this particular correct
Speaker 235
1:45:57
the the finances of oec they're they're no longer with us
Representative Julie Mayberry
Unverified
1:46:01
okay and and do you feel confident that these that we won't see this finding this next yes oh yes we
Speaker 234
1:46:08
we have two people and when we're looking to hire a third one so we're um improving the finance people the office and the
Speaker 235
1:46:16
finance for oec that we'll actually have more we'll have three there so we'll have to have some actually have some checks on that 696 before it's even filed now whereas before it was just this one
person's responsibility to do it and nobody really was checking it part of what we're setting up is a checks and balance that to
Representative Julie Mayberry
Unverified
1:46:36
make sure it is done and make sure it has reconciled okay i i just know that
there there were a lot of people yes the eight million dollars i'm glad you're explaining that that was sort of a different issue um but i believe that there were a lot in attendance in those meetings that still were saying this still doesn't add up you know yes there's a sudden eight million dollar cut but there was no warning ahead of
time so I guess would you say that maybe these reports were part of that no no these are just reports
Speaker 235
1:47:10
of how the expenditures we pulled down from the block grant and how we spend. They're just, they're required reconciliation
Speaker 234
1:47:17
reports that we have to do. And that didn't, that wouldn't have impacted the 8 million reduction on that. That was due with some counts that the fed, the federal had is dealing
Speaker 235
1:47:28
with our poverty that we're still working and understand where they got those numbers. Why did it change that? Why were we
notified so late? So we're still searching for those answers, but that this is completely different
Representative Julie Mayberry
Unverified
1:47:41
from that. Would not have affected any changes that were eventually made
have, no, correct. Okay, okay, thank you. Thank you, Representative Mayberry. Next up is Representative Long. You are
Representative Wayne Long
Unverified
1:48:02
recognized. Thank you, Mr. Chairman. For the department, I was wondering, does the state have a program where we're funding daycares with any amount of taxpayer money?
Speaker 234
1:48:13
So this program doesn't. there's two different programs there's the abc program that is taxed that is out of public school fund that is state revenues the ccdf block grant is 100 federal program and now
Representative Wayne Long
Unverified
1:48:26
on the state program if you could can you tell us what the inspection system is as far as you know based on what we've seen in minnesota to make sure that's not nothing like that's happening in arkansas and that question both for you and
Speaker 234
1:48:43
for for audit so yes so we have licensing specialists that are
required to go I've got the details early on it so there's but they're required to do at least two unannounced visits per year to all the providers in there and they the
Speaker 235
1:49:01
license special go through to make sure that they carry us up is operational it meets standards checks for the debt the attendance of the children they have signed up that are receiving the the vouchers that go there so they do that every year we have a lot we have state employees that are going out to all these daycares at least
twice a year looking that if it's a new one we require one within the first three months and then follow up after that they're all unannounced so we're we're constantly going out to make sure that that the daycare providers are providing that service and i guess
Representative Wayne Long
Unverified
1:49:33
y'all are doing like health inspections while you're there also that I know
Speaker 235
1:49:37
that's part of the license special there's a standard that we do go in and check for that when we go out there to check everything
Representative Wayne Long
Unverified
1:49:45
that the daycare is operational as it should be okay and for the leg audit I'm just wondering what what in particular y'all
do to make sure the funding is I guess as it should be
Speaker 244
1:49:55
thank you representative long um in regard to
Speaker 40
1:50:03
what um has been spoken to we're not going out to the actual uh providers like the you know the daycares and doing inspections but what we are doing is we're coming in and making sure that the department of ed is going out and making their inspections and look at the documentation of that so we're not making sure that you know we're making
ensure that they're monitoring, but we're not monitoring.
Senator Kim Hammer
Unverified
1:50:39
Okay. Thank you, sir. Appreciate it. Next up, Senator Hammer. Thank you, Mr. Chair. And this is a public disclaimer. I'm a board president of a 501c3 nonprofit daycare center that's faith-based and my questions are not directly related to ours because we do not accept any federal or state funding for the record so my questions for the daycare centers in my area
that have approached me about the subject of the waiting list the conversations that you if I understood you right a while ago the conversations you asked about having dialogue with the feds could you read restate what it is that is directly related to the funding that was cut that has created a waiting list well i think that there's actually that
Speaker 236
1:51:21
there we're still working on the wait list we
Speaker 235
1:51:24
understand there is a wait list the eight million dollars that we were talking about
last one was at the end of uh fy25 that we our last quarter payment of fy25 they the uh federal government senate's uh a notification saying that our block grant had been reduced by eight million dollars for that quarter and that was primarily due to the poverty counts reports they had received from arkansas showing that arkansas wasn't as poverty as they as we had had been reporting on the in the first uh three quarters of the year so not unsure not i'm still not real sure where
they got those numbers so i don't want to go deep deep into that because we are having some conversations about how they get that data and make sure that doesn't happen again
Senator Kim Hammer
Unverified
1:52:13
okay is that is that tied into the f map i don't know i'm still trying to understand it
okay but the takeaway then is this a fair takeaway from this conversation we recognize that there was a funding cut from the feds which created the shortage in funding subsequently which created the waiting list and that the department is in active conversations with the feds to come up with why it was they
identified us as a state that no longer qualified for the funding is that a fair statement
for no as much as we were getting i mean we still qualified but that with that
Speaker 235
1:52:47
reduction they had we're still getting that yes i'm sorry say that again we the reduction that that's what we're talking about why there was a reduction in our block grant and so we are still working with them on that okay and the
Senator Kim Hammer
Unverified
1:53:00
total of that reduction was the eight million dollars that that's eight million dollars yes and so that eight million is what has created was there a waiting
list before yes and how much how many were on the
waiting list before do you remember right off no i don't i i don't even know i'd have to get get that i could get that for you but i don't have it with me on that
okay because the number that's being thrown around is 3 000 but in reality there were a portion of those three thousand that were already on there so is the question the question would be um did somebody get taken off of the wait list or uh there were individuals that could
not be added to the wait list because we didn't get the eight million dollars funding i'd
Speaker 236
1:53:46
have to get that for you because when we get talking
Speaker 235
1:53:49
about the wait list i know it gets very uh tricky on the wait list because it deals with the there's also when you have the foster care and the different parts of the wait list how that goes and i'd rather just
Senator Kim Hammer
Unverified
1:53:59
get that information for him for you rather than just shooting from the hip yeah that's fine i appreciate that answer so
when you get together thank you thank you mr jerry thank you senator hammer representative mayberry is this uh
Representative Julie Mayberry
Unverified
1:54:13
follow up with okay you're recognized thank you
i i i actually wanted to ask staff and and
greg you can also chime in because i don't know if i still completely understand um and and if someone could just be in as layman's terms as possible, the line, the total expenditures reported, this is on page 51, was $14.5 million less than the amount reported by ADE and its portion of the SEFA. If someone could just explain that a little bit more to me and maybe somebody else
who might read this report, what does that mean?
Speaker 235
1:54:51
that means the previous person that was here was not doing the reconciliation right i mean it's just that simple she wasn't doing what she was supposed to do the expenditures that we were reporting in aces and the expenditures she reported on the 696 didn't equal she didn't go in and figure out why they didn't equal she didn't see where she might have made
Speaker 234
1:55:12
an error on that it was just not done correctly that's as plain as i can put it it just
Representative Julie Mayberry
Unverified
1:55:18
wasn't done right okay so that one report then probably made you seem like you have more money
than what you do is that is that correct and in making just in making decisions regarding the program if that had been reported correctly does that not lead to
you know maybe a little bit sooner of a heads-up oh we've got we've we've got some issues that that's a lot of money to 14 and a half million that's a big difference it wouldn't have caused
Speaker 234
1:55:49
the issue on that because we know we're still on
Speaker 235
1:55:52
the finance side when i'd go through on expenditures on it when we draw down from the federal government we keep up with
the the number that we have on that different block grant that we're working out of and we keep an excel spreadsheet we know how much we're taking out how much is left in that block grant what this is saying here is that when she got that information from my side and she looked at how much she pulled down on what claims were supposed to be she was off and she just reported it off rather than trying to figure out why it was off and so that's when we have somebody now that we are doing the reconciliation to find out why she was off did she code something wrong did
she miss a number did she you know what happened with that but no we keep up on the finance side We keep up with every expenditure we take out of the block grant through ACES and keep that as a rolling total. So we always know how much
Representative Julie Mayberry
Unverified
1:56:47
is left in that block grant. And about what time frame does that report, is that June of 25? It was multiple. When
Speaker 236
1:56:54
she was no longer there, we found out that the reports had not, I want to say it was several months
Representative Julie Mayberry
Unverified
1:57:03
Okay. When was this person no longer working with the department? Approximately. A
Speaker 261
1:57:12
Maybe. Maybe. I'm guessing now. Okay. It all runs together. I don't remember. I think it was like a year ago. Okay. Okay.
Representative Julie Mayberry
Unverified
1:57:22
Thank you. Just trying to understand the full issue, and I appreciate the transparency. Yes, ma'am. Thank you, Representative
Mayberry. Last one in the queue, he says, is a very short one, Senator Hammer.
Senator Kim Hammer
Unverified
1:57:37
You're recognized. I heard that laughing, Rick. The person left on their own accord, or were they terminated? I don't
Speaker 245
1:57:51
know. Can I answer that? Can I say? I don't
Speaker 263
1:57:57
know. I really don't know. Yeah, probably not. But here's my point. do you know if they went
Senator Kim Hammer
Unverified
1:58:05
to another state agency because if you do i think as we've said in other
meetings uh in other places and other committees including this one that um if they went to another state agency and they have any responsibility over any financial accounting matters that agency needs to be made aware of it within the limits of the law dealing with personnel issues but just to make you know and we all make mistakes I get that but if it if it was a issue where it should have been reported and it wasn't reported and that employee left for whatever reasons under whatever purposes
went to another state agency I think we owe it to that state agency if allowable under law to be able to notify them so it doesn't pop up in another agency somewhere you don't have
Chair
Unverified
1:58:57
to answer i wouldn't even ask you if you agree
Representative Rebecca Burkes
Unverified
1:59:02
but thank you thank you okay thank you senator hammer and now uh we have one more uh representative burks your record is it for this okay all right
you are dismissed and uh representative burks you're recognized
Speaker 268
1:59:19
Thank you. This question relates to 25.002, and it may be a question that staff can answer. DWS, Workforce Services, changed its methodology for calculating the year-end estimates, allowing uncollectible accounts, and how could they make that change internally without consulting with DF&A? so representative Berks that's the finding
Speaker 268
1:59:52
that they are able to make a change like that maybe workforce services needs to come to the table to answer that question but but that's what happened right they made a change without consulting DF a which resulted in the finding that
Speaker 93
2:00:07
is an accurate assessment of the finding yes
Speaker 272
2:00:28
okay is workforce services here good morning Christian Redsberry
Speaker 273
2:00:30
director of the division of re-employment Martin Talley I'm the
accounting manager at division workforce services thank you if
you too would stand and raise your right hand we will swear you
in 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 yes thank you thank you you heard the
Speaker 268
2:00:56
question do you want the question repeated or okay thank you so I'm addressing finding on page 17 which is 25 - 0 0 - I'm talking about an internal change that you made without DF and age input can you tell me
how that would come about and how we prevent doing
Speaker 277
2:01:11
that in the future yes yes I can. That was based on a very aged policy. And because it was in our policy book, policy is written by the director's discretion, which is myself. And it was based on information that was dated back to the 80s. So we were taking into account financial transactions from back in the 80s to make that estimate for how much we believe we would be collecting on in future transactions. And based on our calculations, that did not seem like it was a good estimate.
So in our efforts to be financially conservative, we made a change. I was not aware that that had to be reported to the Department of Finance and Administration because it was an estimate and it was inside our policy book. That existing policy was so dated and there was nowhere in that that indicated that it had to be changed with DF&A. We found that out later and it was submitted to DF&A in October of last year. Okay, and so going
Speaker 268
2:02:05
forward, how do we make sure that that doesn't happen? Yes, I now
Speaker 277
2:02:10
am aware of that change, and it was totally my fault.
And we have updated the policy to include that information on
it. Okay, all right. Thank you very much. Thank you. Follow-up question on that. So the estimate itself, you worked through that
with DF&A, and the methodology is sufficient now. It just was the cart before the horse?
Speaker 277
2:02:33
We totally put the cart before the horse. we had the best of intentions so that estimate the methodology to determine that estimate has been submitted over to DF&A accounting I do not believe we have gotten final approval on that and
so our plan is to go forward with the methodology we have in place with our IT process until we're told differently but I believe that that's on a conversation that's scheduled for later to be able to get final approval for that all right
and DF&A is here and they've heard this conversation so i guess it'll be forthcoming
soon hopefully so yes sir all right we are all clear uh in the queue for these two reports and uh as you can tell from the questions and from the the topics
covered this is uh this requires a a tremendous amount of staff knowledge about a broad spectrum of topic. So thanks again to legislative audit staff and to all the agency staff and representatives that have been here. They've been here for over two hours now. And so thank you for that. Okay, Representative Lundstrom, do you have a
question? One comment. Well, you do your motion
or whatever you're going to suggest first if
Representative Robin Lundstrum
Unverified
2:03:55
the body so desires i would like to hold this if you have questions so that we can have agency personnel available so that we can finish this in the august meeting to make sure that it's truly given the airing it deserves and
i would ask for it to be held okay
uh you're you're asking for these two reports to be held over until the august 13th and 14th meeting um can we can we have ahead of time can we can your motion i'm just asking
include a release of any agency staff that may not be nated uh and by uh that i mean can we get staff to or can we get the members of the committee to get to staff any questions or agencies that they want to
represent so if there's only one say for example it's workforce services we don't have all the other agencies here for another two hours is that something
that you could incorporate in your motion yes if
Representative Robin Lundstrum
Unverified
2:05:00
there's additional questions please email the chairs we'll have those folks there
if not we'll just continue with workforce services when we reconvene in August
all right so that's a that's a motion do we have a
second we have a second any discussion on the motion looks like representative Beatty you have I just restate the motion
Representative Robin Lundstrum
Unverified
2:05:26
for me sure just out of an abundance of caution we'll hold this report over till August if you have questions please get those
to the chair so we can have the proper agencies available and we can
Representative Howard M. Beaty, Jr.
Unverified
2:05:40
quickly dispatch with what needs to be
done i guess um based on that just a quick follow-up uh with that includes um instructions to members uh to have specific request to the chairs prior to the august meeting of agencies that they want to speak to and questions that they may have so that we don't
come back in August and have the volume of state employees and agencies sitting in this room waiting for maybe a potential question on the report, that it would be a specific and targeted and listed and identified agency on the
agenda for the meeting. I think that's a very legitimate request. Given the amount of volume, please take the
Representative Robin Lundstrum
Unverified
2:06:25
time to look over this in the next couple of and let us know where our questions need to be focused and we'll have those agencies present and the other ones we won't thank you could could we add that
as an amendment to your motion I was going to ask for a clarification and on the motion what
I what I heard I think between the two was that this is going
to be deferred but only to the extent of those agencies that are notified by say August 1st of their need to be here for
further questions I'll take that as a
friendly amendment okay thank you all right so we I guess we need a motion on the amendment I have my motion we have a second all those in favor let it be known by aye aye any opposed all right and then on the actual motion as amended all those in favor any discussion all those in favor of the amended motion let it not be known by aye aye any opposed all right motion carries but again to
recap we're going to have staff send out a reminder and sometime in mid-july to have any agency that is needed at the August meeting
notified by the members of this committee staff clear on that okay
so hopefully we will have a very limited scope discussion around these two reports which are very comprehensive so thank you to the
members and thank you for the agency staff for being here today we do have one more report it's a special report for the review of selected policies procedures and transactions for the hot spring
solid waste authority for the period january 1st 2023 through june 30 2025 and this will be presented by Mr. Charlie Kemp. Thank you, Mr. Chair.
Speaker 288
2:08:44
This report is issued in response to a legislative request approved by the Legislative Joint Auditing Committee for Arkansas Legislative
Speaker 289
2:08:52
Audit to conduct a review of selected policies, procedures, and transactions of the Hot
Speaker 288
2:09:01
Spring County Solid Waste Authority. The objectives of this review were to determine if the authority adhered to laws and regulations pertaining to the authority and its board of directors, competitive bidding, payroll, transfer station permits and inspections, and transactions involving board members, administrators, and employees. Other objectives were to assess internal control processes related to cash, revenues,
Speaker 289
2:09:31
and disbursements the authority was established by the hot spring county quorum court in february 1985 under act 699 of 1979 which authorized the formation of solid waste authorities by counties and municipalities the authority is managed by a board
Speaker 288
2:09:50
comprised of eight members one member each from donaldson friendship and midway and five members appointed by the quorum court Each year, the authority's board approves a budget that must be then approved by the quorum court.
The authority operates as an independent entity with its own management and employees. The private audit reports for the authority for the calendar years 2021 and 2022 contained one finding relating to segregation of duties. No response from the authority was provided in the reports. As of the date of this report, audit reports have not been obtained by the authority for calendar years 23, 24, or 25.
Speaker 289
2:10:35
According to the current authority administrator, who was hired on August 4, 2025, all the office staff and the private CPA firm that was employed to
Speaker 288
2:10:49
provide bookkeeping services resigned when he was hired. The authority received several types of revenue, including sales tax, site collections and use fees, recycling fees, dumpster rental, and interest. The authority provides solid
Speaker 289
2:11:01
waste management services for bulk, residential, and commercial waste
at locations throughout the county, including
Speaker 288
2:11:08
a recycling center and nine transfer stations. Residents who live in the unincorporated areas of the county or one of the member cities may use the authority's facilities free of charge, while residents of the cities of Malvern, Rockport, and Perla must pay a dump fee. The authority pays expenditures associated with these operations, including salaries
Speaker 289
2:11:31
and wages, employee benefits, recycling and disposal costs, and other related expenditures.
Revenues and expenditures for calendar years
Speaker 292
2:11:39
2023, 2024, and 2025 are provided in Appendix A. As a result
Speaker 289
2:11:47
of this review, we issued five findings. first the authority did not issue pre-numbered receipts for all revenue received in the mail or by credit card in non-compliance with accepted
Speaker 288
2:12:01
accounting practices second during disbursements tested testing we noted adequate supporting documentation was not maintained for six of
64 disbursements tested authorization or approval for payment was not indicated on all invoices documentation was not maintained to support equipment lease payments and payoffs the authority made payments of two thousand dollars per month plus additional hourly charges to an attorney without a
Speaker 289
2:12:28
contract a mac truck purchased in 2025 was not added to the authority's fixed asset listing and bid documentation was not maintained for all applicable purchases as required by arkansas
Speaker 288
2:12:41
code third in in october 2021 the board increased its per diem allowance
from $150 to $200 per board meeting but did not adopt a formal resolution to authorize this increase as required by Arkansas Code. Fourth, proper
Speaker 289
2:12:56
documentation was not maintained for all mileage reimbursement to board members. Additionally, per diem and mileage paid for board members' attendance at Hot Spring County Quorum Court and member city council meetings should be accompanied by copies of meeting minutes that document a business purpose related to the authority. Fifth, authority budgets did not contain individual salaries to
document approval by the board is required by Arkansas code. Mr. Chair, this concludes my presentation. The authority director is here to answer any questions. Thank you, Mr. Camp. Do we
have any questions from the membership? representative Lundstrom you have just a quick
Representative Robin Lundstrum
Unverified
2:13:42
question on the private audit report just just okay before
you before you start we need to swear and since we
do have questions so if you mr. daily if you would stand and raise your right hand
we'll get you sworn in do you
solemnly swear or affirm that the testimony you're about to give is the truth the whole truth and nothing but the truth yes
Representative Robin Lundstrum
Unverified
2:14:10
thank you all right represented lunchroom yeah just a quick question on the audit report second page middle section it says as of this date audit reports have not been attained by the authority for years 23 24 and 25 any
Speaker 300
2:14:23
updates on that no ma'am we we have a rephrase that we have allocated funds in
Speaker 301
2:14:31
this year's this year's budget to accomplish those we were waiting until we got the findings from this investigator not investigation but the evaluation of our spec of our procedures and all we want to make sure we were doing things the right way take care of that we weren't sure where this was going
to lead us so we didn't want to spend money on the audits until we knew you know exactly what issues we may have had in the past so we needed to make sure we corrected it we didn't want to use the and an accounting firm that had been telling us we were
Speaker 303
2:15:11
doing okay if we weren't okay just to follow up
Representative Robin Lundstrum
Unverified
2:15:15
so it's not that they were unable to obtain them it's the fact that they did
and 25 so there's no audit to
Speaker 304
2:15:29
be had no ma'am and and so i was my first
Speaker 301
2:15:34
day on the job was august 4th 2025 i believe the audit for year 2022 was completed and submitted to the solar waste board in either june or july 25 so they just proceeded the 22 audit whenever i came on board my first meeting i requested that the board allow me to reach out to our representative and ask for uh
some assistance from legislative audit to make sure that we were operating within the law and doing things uh correctly glad you reached out thank you
representative lundstrom senator hammer you are first in the queue you are recognized thank you mr
Senator Kim Hammer
Unverified
2:16:18
chair on the mac truck not being added to the authorities uh fixed asset listing has it since been added to it so it's being accounted for yes sir it has thank
you thank you senator hammer representative baity you're
Representative Howard M. Beaty, Jr.
Unverified
2:16:36
recognized thank you mr chair just a quick question on the private cpa firm that was employed to do the um uh bookkeeping and the audits was this the same firm that had had been doing previous audits that had completed the 2022 audit that was engaged to do
Speaker 307
2:16:55
the the ones that were outstanding uh yes the the firm that that performed
Speaker 301
2:17:01
the 22 audit was initially going to be uh retained to do both 23 and 24 and uh but we prior to 2022 it had been done by a a different
firm for at least the last 20 years. And then in, I think it was 21 or 22, they switched from the one firm and went to a new one. Okay, so did you
Representative Howard M. Beaty, Jr.
Unverified
2:17:26
have engagement letters signed by the firm? Not for 23 and 24.
Okay. And what reason did they give for withdrawing and resigning from performing work for you? No,
Speaker 307
2:17:39
it wasn't them it was the the board of directors of the solid waste authority
Speaker 301
2:17:45
wanted to wait until we had
gotten a the review done and make sure that we weren't in violation of anything make sure we were where we needed to be we didn't know if a complete audit would whenever we requested this we requested an actual audit so we didn't know if we were going to have to do another audit or exactly where we were going to be so we did not uh that there was discussion there was an offer made The board just tabled the performing of signing the engagement letter
and until this report was done and this action had been completed and now once this is public record, we'll address it with the board and then the board will move forward with selecting an accounting firm, whether it's the same one or not. I don't know. That will be a decision made by the board of directors.
Representative Howard M. Beaty, Jr.
Unverified
2:18:40
Well, I guess the only concern I would have there is
they'd completed audits in all the previous years. So they knew 23, 24, 25 and ongoing they were going to have to have an audit.
They knew that was going to be a substantial finding. I don't understand why they would not have moved forward with trying to secure a provider and a firm to perform that work. And that may have alleviated a lot of the issues that are here. So can you give any insight to that as to why they thought, well, we don't have to do audits now? We knew we were going to
Speaker 307
2:19:13
have to do the audits. And like I said, I think it was just we wanted
Speaker 301
2:19:19
to make sure that the firm that had done our previous audits,
if there were things that were not being done correctly and they weren't caught, we didn't want to use the same people. Yeah. And so we wanted to see what was found and know if anything, if a different firm needed to be hired or what was going on. As far as why they have chosen to completely wait, I know that I requested it in the budget for this year because I knew we needed to do them,
but they still have not done an engagement letter. But I'm pretty sure that by our next meeting, I know that our accountant that does our monthly books is actually they have asked him to reach out and start getting some ideas on firms that we could get the audits completed with. And so we're basically ready to engage and start that way. We were just waiting to, basically waiting on the results of this process
Speaker 314
2:20:30
to see if maybe we needed a different one.
Representative Rick McClure
Unverified
2:20:34
Go ahead. Thank you, Representative Beatty. One of the reasons that they asked for this was based on a lot of things he just described. This was almost a complete changeover of guard from the board to the in-house bookkeeping at all levels. So the new team came in from software to just day-to-day routine on the accounting processes. There was a lot of questions. It didn't interfere with day-to-day operations serving the community, but there was a lot of questions. And so they felt best to ask.
And I want to thank the executive committee for allowing this to happen because it gives a clean mark of this is what we need. need going forward and i have a good i have full trust in them to accomplish
Speaker 99
2:21:21
that thank you i appreciate the information thank you representative
just to follow up on on that uh you you've been there since august of 2025 but it there it said and this may be for staff but said that the private cpa firm that was employed to provide the bookkeeping services resigned as well that was
not the same firm that did the audit in 2022 i hope no sir they were different firms okay and were they current on their bookkeeping services through july or august of 2025 or were they behind in their reporting and financial statements do we have financial statements to be audited for 23 and 24 and and through part of 25 because if if they were doing your bookkeeping services and they were behind and they you don't have someone to do the books for 2023 or 2024 that's going to present a
problem when the audit does begin do you know anything
Speaker 300
2:22:15
about that they were not behind it was just a uh the the day I my first day
Speaker 301
2:22:20
on the job when I came in there was a letter on my desk from the accounting firm that had been that had been retained previously and they told me that as of august 31st they were no longer wish to continue uh as our accountant firm so but yes what we do have the the bookkeeping and all that is up to date and everything is uh everything is ready to
go it's just a matter of me getting word from the board of directors once they vote to move forward with the audits and then i will contact the whatever firm they tell me to use and i will start turning over whatever they need to perform
the odds okay so so it sounds like the financial internal financial statements were up to date did staff look at anything like that as
Speaker 317
2:23:09
part of this review we received general
Speaker 292
2:23:12
ledgers just just to do our basic procedures but as as far as any
prepared financial statements no sir we did not
Speaker 139
2:23:19
look at that okay thank you i do not see anyone else in the queue going
once going twice gone all right thank you
gentlemen you're dismissed thank you committee okay
do i have a motion to file this report motion and a second any discussion on the motion
all those in favor let it
be known by aye any opposed motion carries okay um that is it other than uh notifying of our
special or our next meeting which will be august 13th and 14th we will not have anything in july because of legislative conferences so As a reminder, we do have these two-page summary reports that go along with the two reports that we went through today.
If nobody else has anything, then we are adjourned.
Agenda
A. Call to Order by Chair
B. Adoption of Minutes
C. Reports of Executive and Standing Committees: 1. Executive Committee 2. Counties and Municipalities 3. Educational Institutions 4. State Agencies
D. Review of Reports:
1. State of Arkansas Annual Comprehensive Financial Report – Fiscal Year Ended June 30, 2025 (Early Released February 3, 2026)
2. State of Arkansas Single Audit Report – Fiscal Year Ended June 30, 2025 (Early Released March 30, 2026)
E. Other Business:
The next meetings of the Legislative Joint Auditing Committee will be held August 13 and 14, 2026.
F. New Business
G. Adjournment
Documents
No documents posted.
Speakers
Senator Jim Petty Chair
Unverified
Representative Robin Lundstrum
Unverified
Senator Matt Stone
Unverified
Senator Tyler Dees
Unverified
Representative Steve Unger
Unverified
Speaker 25
Speaker 32
Speaker 40
Representative Rebecca Burkes
Unverified
Representative Howard M. Beaty, Jr.
Unverified
Senator Fredrick J. Love
Unverified
Speaker 74
Speaker 80
Speaker 83
Speaker 43
Speaker 91
Speaker 39
Speaker 99
Speaker 66
Speaker 109
Speaker 114
Speaker 117
Speaker 38
Speaker 123
Speaker 129
Representative Johnny Rye
Unverified
Speaker 151
Speaker 156
Senator Jamie Scott
Unverified
Speaker 163
Speaker 166
Speaker 174
Gary Vance
Unverified
Speaker 173
Speaker 187
Speaker 191
Speaker 198
Representative Matt Brown
Unverified
Senator Kim Hammer
Unverified
Speaker 220
Speaker 222
Speaker 213
Speaker 224
Speaker 227
Speaker 228
Speaker 214
Representative Julie Mayberry
Unverified
Speaker 234
Speaker 235
Representative Wayne Long
Unverified
Speaker 244
Speaker 236
Speaker 261
Speaker 245
Speaker 263
Chair
Unverified
Speaker 268
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Speaker 93
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Speaker 273
Speaker 277
Speaker 288
Speaker 289
Speaker 292
Speaker 300
Speaker 301
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Representative Rick McClure
Unverified
Speaker 317
Speaker 139