Joint Legislative Audit

September 9, 2022

 

Caldwell Welcome to everyone. First on the agenda, we need to adopt the minutes from our August 19 meeting. Move to adopt. Second. All in favor, say aye. Thank you. Okay. Moving on. Report from our executive committee. I recognize my Co-chair, Representative Womack. 

 

Womack Thank you, Mr. Chair. The Executive Committee met Thursday, September 8, 2022. Staff reported to the committee the Audit Special Investigative and Shortage Report is scheduled to be presented to the standing committees and the Full Legislative Joint Auditing Committee this month. In new business, the committee approved a request for staff to conduct special procedures for and review selected transactions of the regional waste tire collection centers in the state, as well as review the Division of Environmental Quality’s processes for distributing waste tire fees to solid waste management districts. Also, staff informed the committee a request to provide the annual amounts being collected by district and circuit courts for the Drug Crime Special Assessment Fee authorized by Arkansas Code 12-17-106 had been completed. In other business, the committee approved a motion recommending the appointment of Kevin Wyatt as Legislative Auditor to take office upon Mr. Norman’s retirement. With no additional business to discuss, the meeting was adjourned. The next meeting of the committee is scheduled for Thursday, October 13, 2022. Mr. Chair, I move for adoption of this report. 

 

Caldwell With no objection, the report is adopted. 

 

Womack Mr. Chair, consistent with the Executive Committee’s recommendation, I move that the Legislative Joint Auditing Committee appoint Kevin Wyatt to serve as the next Legislative Auditor to take office upon the retirement of the current Legislative Auditor, Roger Norman. 

 

Caldwell Okay. That’s a motion from the committee. It does not require a second. Now, do we have questions? Senator Chesterfield.

 

Chesterfield Yes. Who is this person and what are his qualifications? 

 

Caldwell Beg your pardon? 

 

Chesterfield Who is this person that we’re– you’re moving to appoint, and what are the qualifications? 

 

Caldwell I’ll recognize Mr. Norman. 

 

Norman Thank you, Senator. Kevin has been with us for around 12 years. I think he is an attorney, a CPA. He has worked on some of the, the most complicated reports that we’ve had. He’s got a very diverse background, and we within the organization had a committee that met and, and came up with some candidates and presented those to the executive committee. 

 

Chesterfield And he was the one that you guys chose. 

 

Norman That, that the executive committee chose. 

 

Chesterfield Thank you. 

 

Caldwell No one else? All in favor, say aye. All opposed. Thank you very much. Okay. Standing committee on Counties, Municipalities. Representative Hillman, you have a report? 

 

Hillman Thank you. Thank you, Mr. Chairman. The subcommittee on Counties and Municipalities met yesterday afternoon. First item on the agenda, approved the minutes of the August 18, 2022, meeting. The committee reviewed 11 reports deferred from the August 18 meeting. Officials from four entities were present to address repeat findings from these reports. Five previously deferred reports were filed and six were deferred until the October 13 meeting. The committee reviewed 74 current reports. Of these, two were referred to the Governmental Bonding Board, and five other reports were referred to the prosecuting attorneys. An official from one entity was present to address a repeat finding in their current report. The committee filed 71 current reports and deferred 3 so that officials could attend the October 13 meeting to address the repeat findings. Mr. Chairman, I move for adoption of this report. 

 

Caldwell With no objection, the report is adopted. All right. Standing committee on Educational Institutions. Representative Berry. 

 

Berry Thank you, Mr. Chair. The standing Committee on Educational Institutions met yesterday, September 8. The committee reviewed a total of 8 audit reports, which consists of five school district reports, one education cooperative report and two higher education reports for the year end June 30, 2021. The education report of the River Education– excuse me, the audit report of the River Education Service Cooperative was referred to the applicable prosecuting attorney. The committee filed the 8 audit reports that were brought before it. At this time, Mr. Chairman, I ask for adoption of the report. 

 

Caldwell No questions, no objections. The report is adopted. Standing committee on state agencies. Senator Pistch. 

 

Pitsch Thank you, Mr. Chairman. Ten reports were on the committee’s agenda yesterday. One current report, which was for the Arkansas State Highway Employees Retirement System, contained a finding related to the overpayment of retiree benefits. Various agency staff members were present to report on how the agency intends to address the audit finding and to answer committee questions. During the meeting, the committee adopted a motion to file the 10 current reports. I move to adopt this report. 

 

Caldwell Okay. No questions. Without objection, report is adopted. Moving on to item D, number 1, the State of Arkansas Annual Comprehensive Financial Report. Recognize Christie Sanders. 

 

Sanders Thank you, Mr. Chair. This presentation covers the audit of the State of Arkansas’ Annual Comprehensive Financial Report or ACFR for the year ended June 30, 2021. The audit was completed by the staff of Legislative Audit. Although DFA was granted an extension to January 31 of the year to file the report, it was dated January 21 and early released on January 25. We issued two reports for the audit of the state’s financial statements. The first is the ACFR, which includes all the financial statements and notes to the financial statements for the state, 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 is included within the single audit report. Also included in the single audit report are the findings related to the state’s federal financial assistance, which Miss Shaw will cover next. The ACFR financial statements which were prepared by DFA include all state agencies, retirement systems, higher education institutions and three component units which include the Arkansas Development Finance Authority, or ADVA, the University of Arkansas Foundation, and the U of A Fayetteville Campus Foundation. We issued unmodified or clean opinions of the state’s 2021 ACFR. We audited all of the financial statements included within the ACFR or except for the following entities which were audited by private accounting firms: the three component units previously mentioned, the University of Arkansas for Medical Sciences and the revolving loan funds. The two largest revolving loan funds are the Construction Assistance Revolving Loan Fund and the state Safe Drinking Water Revolving Loan Fund, both of which are administered by ACFR. There were two reportable findings considered to be significant deficiencies related to the ACFR. These findings are included in the single audit reporting package as financial statement findings in the schedule of findings in question costs. The first finding noted that the state did not have the policies and procedures in place to appropriately record the financial effects of the unemployment insurance pandemic programs. As a result, operating revenues were overstated by $151.3 million when a portion of the federal grant receipts were erroneously coded. The state also attempted unrelated corrections to non-operating revenues totaling $8.7 million, but used an incorrect general ledger account. The net effect of these coding errors caused non-operating revenues to be understated by $142.6 million and operating expenses to be overstated by $8.7 million. Lack of appropriate controls over financial reporting could cause the financial statements to be misstated. Upon receiving notification of the potential misstatement, DFA Office of Accounting made a correcting entry in ASIS. We recommend the state work to improve its controls over financial reporting, creating policies and procedures that encourage more accurate reporting of its programs. The second finding noted that the Arkansas Department of Transportation failed to maintain a complete record of right of way property owned, in noncompliance with Arkansas code, which could lead to the misuse or misappropriation of assets. We recommend the agency develop and maintain a record of all right of way property owned with costs that support the balance reported in ASIS. I will now touch on some of the financial highlights of the state’s 2021 ACFR. The next six slides relate to the primary government and do not include the state’s retirement systems, which are discussed later in the presentation. As shown on page 20 of the report, the state had total assets at June 30, 2021, of approximately $33.2 billion. The major categories of the state’s assets include capital assets, cash in investments, and other assets as shown on the slide. Receivables and due from other governments make up most of other assets. The state’s total liabilities were $13.9 billion, as shown on page 21 of the report. The major categories include bonds, notes and leases payable, net pension liability, other post-employment benefit obligations and other liabilities. This chart shows trends regarding the state’s assets and liabilities over the past five fiscal years. The general increase in assets from 2017 to 2019 was primarily due to an increase in capital assets, mainly infrastructure and construction in progress. From 2019 to 2021, the majority of the increase was in cash and investments due to the CARES Act funding received from the federal government. Overall liabilities have fluctuated in previous years. The increase in fiscal year 2020 was due to an increase in post-employment benefits payables as well as payables related to unemployed, unemployment insurance programs due to the Pandemic and CARES Act funding. In fiscal year 2021, the increase in liabilities was significantly related to an accounting entry that has to be recorded, the American Rescue Plan Act, or ARPA, funds received in fiscal year 2021, but not yet spent at year end. The state had total revenues of $29.1 billion, as shown on pages 24 and 25 of the report. The major categories of the state’s revenues include grants and contributions, taxes, charges for services and other income. The state’s expenses totaled $27.1 billion. The major functions or programs making up these expenses were health and human Services, colleges and universities, education, general government, Division of Workforce Services, transportation and other expenses. This chart shows the trend of the state’s revenues and expenses over the past five fiscal years. Between 2017 and 2019, revenues increased primarily due to increases in Medicaid funding and personal corporate income tax. The increase in revenues in 2020 and 2021 was due to grants and contributions related to the pandemic and federal funding received through the CARES Act as well as ARPA. The increase in expenditures in fiscal year 2020 was significantly associated with unemployment related expenditures at the Division of Workforce Services due to the pandemic. There also were smaller increases in expenses related to Health and human services and transportation. The increase in fiscal year 2021 was the result of greater expenditures in general government, education and health and human services. I will now share some summary financial information for the state’s retirement systems. As shown on page 37 of the report, the state’s retirement systems had assets at June 30, 2021, totaling $36.7 billion. The major categories of these assets were cash, investments, security lending collateral, and other assets. The retirement systems had liabilities totaling $1.5 billion, as shown on page 37 of the report. The major categories of these liabilities were as follows: obligations under securities lending, investment principal payable and other liabilities. This chart shows the trend of the retirement systems, assets and liabilities over the past five fiscal years. The variation in assets from 2017 through 2020 was due to fluctuations in the financial markets or stocks and other investments. The increase in 2021 was a result of the high rate of return on investments. Liabilities for the retirement systems had only slight fluctuations over the past five years. The decrease in 2020 was due to a decrease in assets for the securities lending program. The retirement systems had total additions of $9.6 billion, as shown on page 38. The major categories of the retirement systems additions included contributions, net investment income and other additions. The retirement system had deductions totaling $2.1 billion, with benefits paid being the main component. This last chart shows the trend of the retirement systems’ additions and deductions over 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. The deductions for the retirement systems were steady over this period and were primarily benefit payments. This concludes my presentation. DFA and other agency representatives are here to answer committee questions. Thank you, Mr. Chair. 

 

Caldwell Okay. Representative Berry, you’re recognized. 

 

Berry I was trying to turn it off earlier. 

 

Caldwell Okay. Thank you. Any questions on this report? Representative Womack

 

Womack Thank you. On page– the chart on page 17, that last line, other assets of $201 million. Can you give me an example of what some of those other assets might be? That’s kind of a– 

 

Sanders On page 17? 

 

Womack Of this short– I’m just curious what– that’s a pretty big chunk of money. Yeah. 

 

Sanders The $201 million for retirement systems? 

 

Womack Can you give us an example of what those type things are that would total that much money? 

 

Sanders I’m not sure. I’m not as familiar with the retirement systems as I am some of the others. Securities lending collateral, capital assets are– oh, I’m sorry, no. The other assets, without the detail here, I mean, maybe someone from the retirement systems can answer it or DFA. 

 

Caldwell Anyone from retirement here? Okay. Maybe we could dig into that and get back to Representative Womack.  

 

Sanders We’ll have to get to the detail in the work papers and we can get you that answer. 

 

Caldwell Okay. Senator Chesterfield, you’re recognized. 

 

Chesterfield Thank you, Mr. Chair. I’m noticing on page 66 a repeat finding for DHS under the Children’s Health Insurance Program. What was the response of the agency to the repeat finding? 

 

Sanders Senator Chesterfield, that will be covered within the single audit report, which is next on the single audit findings. 

 

Chesterfield All right. So we’re not through? Okay. Thank you. 

 

Sanders You’re welcome. 

 

Caldwell Anyone else? No other questions or objections, we consider the report filed. Next on the list is the state of Arkansas single audit report for the year ended June 30, 2021. And I will recognize Tammy Shaw. 

 

Shaw Thank you, Mr. Chair. This presentation will cover the state of Arkansas Single Audit Report for the year ended June 30, 2021. A printed copy of the report has been made available today. The staff of Legislative Audit devoted just under 15,000 hours to the statewide federal project, which was finalized and submitted to the Federal Audit Clearinghouse on June 21, 2022. The Single Audit Act requires that the audit of the state be conducted to determine four objectives. First, are the financial statements of the state fairly presented? Miss Sanders addressed this objective during her presentation. Second, is the schedule of expenditures of federal awards, or SEFA, fairly presented? The SEFA is a listing of all federal programs with reported expenditures. We determined that the 2021 SEFA is fairly presented. The SEFA and related notes are located on pages 111 through 151 of the report. Third, has the State complied with laws, regulations, contracts and grant agreements that may have a direct and material effect on federal awards? Fourth, does the state have adequate internal controls in place to ensure compliance with the requirements of various federal awards? State agencies and state supported institutions of higher education disbursed federal funds totaling $14 billion from 408 federal award programs during the 2021 fiscal year. This was an increase of approximately $2.7 billion from 2020, largely due to funding related to COVID 19. Based on risk assessment criteria established by federal regulations, also known as uniform guidance, 20 programs were selected as the major programs reviewed for 2021. These 20 programs represented 72% 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 at 55%, the Division of Workforce Services within the Department of Commerce at 16%, the Department of Education and the Department of Transportation at 6% each, the Department of Health at 2%, and other state departments at 15%. The state received federal awards from 29 different federal agencies during the 2021 fiscal year. The first four federal agencies shown on this slide provided 84% of those awards. It’s the responsibility of all federal awarding agencies to review and provide resolution for all audit findings. This includes determining if the questioned cost identified by the auditor require recoupment. As shown in the chart on page 7 of the report and summarized on this slide, $5.3 million in questioned costs remained outstanding as of June 30, 2021. The audit resulted in 41 findings for six of the 20 major programs. Of these 41 findings, 12 were repeat findings, which indicates that an agency has not taken adequate measures to correct issues reported in the previous single audit. The audit status for unresolved prior audit findings is located on pages 250 through 262 of the report and gives the results of our follow up procedures regarding the uncorrected prior audit findings. Additionally, questioned costs are identified by the auditor because of a violation of a regulation and lack of adequate supporting documentation or costs that appear unreasonable. Questioned costs for 2021 total approximately $42.8 million. As the 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 an instance of noncompliance that is determined to be material, either individually or when aggregated with other noncompliance findings in relation to the major program as a whole. For the 2021 fiscal year, a qualified opinion was issued for findings representing the following programs: unemployment insurance, the Children’s Health Insurance Program, commonly referred to as CHIP, Medicaid, COVID 19 presidential declared disaster assistance to individuals and households, and the research and development cluster. These findings are identified on pages 21 through 110 of the report and will be discussed on the slides that follow. For the unemployment insurance program administered by the Division of Workforce Services, which was expanded due to the COVID 19 pandemic, we issued eight findings, two of which were repeat findings. One of the repeat findings, number 2021-004 on page 23, contributed to the qualified opinion. Specifically, our review of claimant data revealed numerous overpayments of benefits to claimants deemed ineligible and claimants who could not provide identification to validate their claims, as well as claims paid on behalf of deceased individuals. [00:30:04]Questioned costs for the unemployment insurance program totaled over $28.7 million. [4.8s] 12 findings at four agencies were issued regarding the coronavirus relief fund. These agencies were the Department of Finance and Administration with three findings, the Department of Human Services with six findings, the Arkansas Economic Development Commission with four findings, and the Department of Parks, Heritage and Tourism with one finding. Questioned costs for the CRF program totaled $10.5 million. Six findings affected both the CHIP and Medicaid programs, with three being repeat findings. The most significant of these deficiencies was finding 2021-024 on page 69, which noted that sufficient appropriate documentation could not be provided to auditors. And as a result, we were unable to perform testing to determine if the state met the required match in accordance with federal regulations. This finding contributed to the qualified opinion. Questioned costs for the six findings totaled $1.9 million. Two additional findings were issued for CHIP, with both being repeat findings. Questioned costs totaled $11,824. An additional four findings apply only to the Medicaid program, and all four are repeat findings. Questioned costs for the Medicaid program totaled just under $950,000. It should be noted that questioned costs were not calculated for selected findings due to regulations related to the COVID 19 pandemic. There were six findings at the Division of Workforce Services related to the COVID 19 presidential declared disaster assistance to Individuals and Households Program, which provided supplemental payments for lost wages. Two of these findings contributed to the qualified opinion. Finding 2021-035 on page 97 was issued due to benefit payments being issued to claimants who were later deemed ineligible. Finding 2021-039 on page 105 was issued because the state did not meet the 25% match required for the lost wages program, which occurred because the methodologies used to calculate the match contained an error and the agency did not have controls in place to properly review the methodologies. Questioned costs for this program totaled over $684,000. Mr. Chair, this concludes my presentation, and agency representatives are present to answer committee questions. Thank you. 

 

Caldwell Thank you, Miss Shaw. Okay. Questions from anyone? Senator Chesterfield, you’re recognized.

 

Chesterfield Yes. Thank you, Mr. Chair. I would just like to hear the response of the agencies concerning the repeat findings. 

 

Caldwell Who would you like to hear from? 

 

Chesterfield Well, let’s start with the biggest one, Department of Human Services. 

 

Caldwell Mr. White, you and your crew, please. Before you leave the building, I’d like to speak to you in private today. If you all would, please turn a mic on, introduce yourself for the record. 

 

Hayes Brett Hayes, deputy chief counsel for Regulatory, Security and Compliance with DHS. 

 

Gillespie Cindy Gillespie, secretary of DHS. 

 

White Mark White, Chief of Staff for DHS. 

 

Staley Dawn Staley, Deputy Director and Medicaid Director of DHS. 

 

Caldwell Senator Chesterfield, do you have a specific question or do you want them to answer in general about the repeat findings. Hold on a second. Are you on? Senator Chesterfield, do that again. We didn’t get you. 

 

Chesterfield I would like for them to answer in general, because when we continue to have repeat findings, there is great concern. So if you would just speak to those, because I did not find your response– well, I haven’t had a chance to find your response. I’m sure you made one. If you would deal specifically with repeat findings, I would appreciate it. 

 

Gillespie Yes, ma’am. I’ll start and then obviously others can chime in. The repeat findings that you see in here, the CHIP ones that you referenced, for example, are around provider enrollment, if I’m correct in that one. Yes. And in, in general, let me state, with us, the repeat findings are areas where it has taken us several years to put in place the changes. So you have in these years, part of the year where there’s repeat findings and then the change going into effect. So if you’ll remember, we came before you for several years with the issues we were having with provider enrollment and our whole process to change that out. That actually took place in May of 2019. So we have, as you know, a year for claims to come in– and sorry, I’ve gone into the other one. We have– those processes went into place and then the findings that occurred happened for issues from prior to the time that those, that new process went into place. I’m not stating this clearly, which is why you guys will have to jump in and help with that. The– 

 

Chesterfield I need to know if you have them in place now. 

 

Gillespie We do have them in place now. 

 

Chesterfield So when audit comes again, you’ll get a clean audit on this. 

 

Gillespie That is our hope. One can never give a 100% guarantee on something. But in the case of provider enrollment, part of what they are talking about is that because of the public health emergency, we cannot disenroll a provider. So we followed our procedures, but the providers could not be disenrolled. We do have John Parks’ audit unit going behind now and looking to make sure that what we’re doing is working. So I wanted to be clear about that. The other major repeat finding that they– we’ve been working on for several years deals with changing out our general ledger. Our federal– they’re not able to document that we have, that we’ve done the appropriate federal match is the audit finding. We had a system for our general ledger that was still Lotus. So we have been going through the installation of a new general ledger. That new general ledger is now, now in and we are going through the next level of operationalizing it. But that general ledger went in in this calendar year. So when we get to the point that they’re auditing in this calendar year, they should be able to see what they need to see in this new general ledger. 

 

Chesterfield If the Lord allows me to come back here next year to serve on this committee, I don’t want to see this again, Cindy. 

 

Gillespie I don’t– believe me, I totally understand. 

 

Chesterfield I’ve seen this last year on the last time we had one. And now here we are again. And we’ve got to be– we’ve got to find a way for it not to happen again. 

 

Gillespie We totally agree. And that’s why we’re making very major shifts around both of these programs and have made them. So you should not see the findings of the same type, at least, within those areas. And I can tell that Brett Hayes is dying to say something. 

 

Chesterfield Let us not let him die. 

 

Gillespie Yeah, please clean up anything I’ve said wrong. 

 

Hayes So one thing I do want to add as it relates to the repeat findings and, obviously, for the specific explanation as to how they pull the audit sample, I would defer to Legislative Audit. But it’s important to point out that we put these changes that related to our provider enrollment controls in place on May 31, 2019. There are claims that were identified as deficiencies in this audit where the original claim was billed and paid prior to May 31, 2019, but due to an adjustment that happened during the audit period, those claims were identified as deficient. I mean, it’s, it’s very possible that some of those claims, those pre-May 31, 2019, claims could show up during future audit cycles. But what we’ve been doing is we’ve been working with CMS on the return of questioned costs. And as long as CMS sees that those claims were related to that date before we implemented that corrective action, they’re not requiring us to return those questioned costs. But if it, if it’s after May 31, 2019, we would be required to return those questioned costs. For the last three audit cycles, we haven’t been required to return any questioned costs. I anticipate that will happen again. 

 

Chesterfield Thank you. Thank you, Mr. Chair. 

 

Caldwell I’ve got a question on the funding of the $1.9 million that they couldn’t review because of lack of paperwork. $2 million is a lot of money out here not to have paperwork. Could you elaborate on it, please? 

 

Hayes  Can you clarify which finding number that is, please? 

 

Caldwell You had it on your screen. 

 

Sanders Yes, that would be the six findings that applied to both CHIP and Medicaid, numbers 2021-023 through 2021-028. Okay. When you total those questioned cost, it’ll add up to the $1.9 million.

 

Hayes The $1.9 million, the $1.9 million is related to finding 2021-025, and that was for an overstatement of federal expenditures for the tobacco funded adjustments. And what happened there was when we were reporting that adjustment, we reported it on the incorrect line. So where we should have reported on the Medicaid line, we reported on the CHIP line. So we made that correction with CMS. So essentially, it was an adjustment of funds, and we didn’t have to return any funds for that finding. 

 

Hayes That still doesn’t explain to me why audit couldn’t find the documentation on it is, is the way I understood it. They, for simple terms, lack of paperwork, they couldn’t research the expenditure. 

 

White Senator Caldwell, I think that may be combining a couple of findings. So Mr. Hayes was addressing the finding related to that where we placed the dollar figure on the wrong line on the CMS report. And that was simply an error in that paperwork. But as far as the missing documentation, I think that’s more along the lines of the general ledger system, which has been an ongoing issue for several years. We’ve been working to get a new general ledger system in place. It is now in place and active and so that should resolve that going forward. 

 

Caldwell In other words, you didn’t take the $1.9 home with you. 

 

White Correct. 

 

Caldwell Represent Rye, you’re recognized for a question. 

 

Rye Yes, sir. Thank you, Mr. Chairman. Cindy, you know, just by looking at all of this, I don’t remember in past years of seeing that much deviation on the report, you know. Is– does this have a lot to do with COVID and all of this extra money coming in from the federal government that’s actually making it look like that we’re maybe off on our figures pretty good? 

 

White Representative Rye, I will point out one thing I think it is important to note. Some of this is contributable to Covid. When you look at the number of findings we have, just by comparison, if you go back to fiscal year 2016, we had 25 findings that year. For this year, we have 17, but five of those are related to that COVID 19 funding. 

 

Rye And it’s a hard thing to keep up with, I’m sure, because it’s money that probably for months at a  time you don’t have exactly the right answer on which way to go with that type of expenditure on certain things. Is that what maybe it is? 

 

White I think that is part of it. And also it was, it was a rushed process. And during the pandemic, we knew that providers were struggling. They needed help. And so we were rushing to try and address that. But it’s, certainly there’s some problems that erupted that came about during that time. 

 

Rye Thank you. Thank you. Thank you, Mr. Chairman. 

 

Caldwell Senator Gilmore. 

 

Gilmore Thank you, Mr. Chair. So just looking through the report, and just on pages 48 through 54, it states that funds will be recouped. It doesn’t state how that’s going to be done, especially when the questioned costs are, quote, unknown. So what steps, what actions, what, what measures can you all do to recoup the funds when it’s unknown? 

 

Staley Certainly. So part of what we try to do whenever a finding is brought to our attention or something that we see as we’re going through our own analysis is to be able to see, first and foremost, is there other available documentation? That’s part of what we’ve actually seen in this is that as we’ve gone back out, as Mr. White said, in some cases to some of the providers who received CARES funds or some of the some of the CARES funds, and said, you know, it looks like we’re either missing documentation or we have duplicate documentation. Can you provide that? In some of those cases, we were able to then resolve that and say, okay, it was a qualified payment that was made. In other cases, it’s determined that it was not. And so in those cases, we do go ahead and recoup from those providers. We try to do that. In this case, as a, what we call an off cycle, that way it’s not interfering with their Medicaid revenue, but rather is tied back to then the, the ARPA funds or the CARES funds in this case. 

 

Gilmore So do we anticipate being able to recoup most of the funds? 

 

Staley We do. 

 

Gilmore Okay. Thank you. 

 

Caldwell Senator Chesterfield, you’re recognized. 

 

Chesterfield Yes. Yes, sir. One of the problems at DHS has been employee turnover. What is the current turnover ratio and has that had an impact on your ability to deal with these issues about which we’re speaking today? 

 

Gillespie Our current turnover rate agency-wide overall still sits between 45 and 50%, okay, as we continue moving along. But this is largely because of the facilities. Remember that most, you know, about half of our staff are actually employed at facilities. And so you do end up with very high turnover rates at the HDCs. It still sits at over 100% turnover– so within, within the large groups of individuals, which affects what the entire agency’s turnover rate looks like. With that said, no, I, I would not– I would love to take an out. But no, I will not do that on this. Yes, we have turnover within our finance department and we have turnover within our Medicaid staff and administrative staff. But our findings, particularly our repeat findings in this case, really are tied to older, long-term issues we had where we have had to go through not just process changes and trainings, but have actually had to go through putting in place IT systems and bringing in additional contracted consulting help and getting all that up and going. So I can’t blame it on the turnover, ma’am. 

 

Chesterfield All right. Thank you. 

 

Caldwell No other questions for DHS? Thank you all very much. Any questions for any of the other agencies? Workforce Services. If you would, please turn your mic on and introduce yourself for the record. 

 

Childers Good morning. Charisse Childers, Director of the Division of Workforce Services. 

 

Traylor Courtney Traylor, Deputy Director, Workforce Services. 

 

Roseberry Kristen Roseberry, Assistant Director of Unemployment Insurance Benefits. 

 

Caldwell Senator Chesterfield, you’re recognized. 

 

Chesterfield Yes, sir. Thank you so very much. There are some repeat findings. Would you address those, please?

 

Childers Yes, ma’am. Thank you, senator Chesterfield, and thank you for your support through the years of the pandemic and, and understanding our circumstances. So, yes, we do have two repeat findings on this report, this single audit, pandemic related. So I’ll ask Courtney Traylor to speak to those. 

 

Chesterfield Thank you. 

 

Traylor The first one, finding 2021-004, is the result of about 264 claims, $2.4 million. That is the result of– we relaxed our state controls during the pandemic to require– we did not require ID verification and we also waived the waiting week. So in the urgency to get payments out, that created a lot of these items here. We completed the fix on that. We created some analytical reports in both our UI and our PUA system that was completed in August of 2020– is that correct, 2020– Okay. So that will prevent those findings from occurring in the future. The second repeat finding is number six, 2021-006, which regards about 30 claims and $87,000 in the questioned costs. That had to do– those were duplicate payments between the UI and the PUA system. 

 

Chesterfield Would you mind defining what UI and PUA for our audience as well? 

 

Traylor UI is our unemployment insurance. I’m sorry, we get stuck in the acronyms. 

 

Chesterfield Yes, we do. 

 

Traylor In our world, so thank you for reminding me that. PUA is our pandemic unemployment assistance, and that was the system that was new that we had to stand up during the pandemic, so, which was unprecedented in our department or division before. So we had to create that system and then also begin to process those payments. And in order to get those payments out, you had payments coming out of, out of both systems. So there were, there was some duplication. And we have the fix to integrate those two systems that was in place November of 2021. So we– it took a while, but– I’m sorry, November of 2020. The years run together sometimes. November of 2020, that was fixed. So that won’t be a recurring finding. Again, the control is in place. There still may be some questioned claims paid out, but the control is in place to prevent future payments. 

 

Chesterfield Well, let me say thank you so very much for, for your service during this unprecedented time. May I ask, how much money have we recuperated that was questionably paid, shall we say it that way?

 

Traylor I’m not quite sure. I can find out for you. We’re in discussions with the U.S. Department of Labor, as well as FEMA, to to come up with a plan for recouping the overpayments and if we’ll be liable for those. We’re not sure. We’re working on a blanket waiver with U.S. DOL. But we have recouped some and we have several methods of recouping payments. But at this moment, I’m not able to identify how much we have recouped. But I can get that. 

 

Chesterfield Thank you. Thank you, Mr. Chair. 

 

Caldwell Representative Mayberry. 

 

Mayberry Thank you, Mr. Chair. I’m just curious how we compared to other states with this, because we obviously weren’t the only state to be thrown into all this. And has there been any national look on how Arkansas ranked with other states? 

 

Traylor Yes. [00:52:31]So prior to the pandemic, we were 12th. So we ranked 12th in the country for our improper payments. So there were 11 states that were better than us. During the pandemic, we were 39th. So all states incurred the same issues of improper payments in our haste to get payments out. And then in 2021, we were 19– or 16. [23.6s] So we’re making progress. But that’s, that’s how we compared to other states. 

 

Caldwell Thank you. Representative McKenzie. 

 

McKenzie Thank you, Mr. Chair. Along those same lines. We’ve talked about the recoupment. How about actually the status on prosecution. Are we catching people? Are we– and how are we comparing with other states? They’re all having to, besides recoup, but they’re trying to prosecute individuals. 

 

Traylor So we can identify the overpayments or the fraud, and then we turn those over. So we’re not responsible for the prosecution of those, but we do identify and then turn that information over. I’m not sure what the actual statistics are for the prosecution. 

 

McKenzie So we don’t have– are we going to have a place where we can follow up and see as a state how we’re doing with the prosecution and report back to us to see? 

 

Traylor Yes, I can I can find that information out. 

 

McKenzie Okay. Thank you very much. 

 

Caldwell If you would, get that information to staff and we’ll put it out to the whole committee. Representative Speaks. 

 

Speaks Thank you, Mr. Chair. First of all, I want to thank you because you all were quick to help me when my constituents during COVID. But when you– where do you take your money to help when you don’t recoup the money, you know, when you’ve had the double payments and all of that? Where is it coming from to help pay back? 

 

Traylor Well, we, we haven’t had to pay that back yet. So, for example, our state match that we had to do for FEMA came from CARES Act funding. But since we haven’t had to pay that back yet, I’m not sure. If, if we do have to pay that back, we’ll have to work through those details of where or how we will do that. 

 

Speaks Okay. Thank you. 

 

Traylor In the waivers. Yeah, once the waivers are determined. 

 

Speaks Okay. Thanks. 

 

Caldwell I’ve got, I’ve got a series of questions that I’d like to know. I’ll read them. You may address them in one comment and may not. But, you know, $28 million in unemployment is a lot of money for overpayment. My real question is, you know, how many claims does that involve? What amount of money per claim would be involved? Are some counties more prone to fraud than other counties? I really don’t, I don’t understand the process, how we could pay out $28 million in fraudulent claims. But was any disciplinary action taken against any employees? And what kind of reforms have you done to prevent this in future? But , you know, $28 million would go a long way on teacher pay raises. 

 

Childers Senator Caldwell, thank you for your questions. Obviously, these were federal funds that were disbursed. So those came from United States Department of Labor to our agency to be distributed for the federal pandemic unemployment benefits. So obviously, it’s the United States Department of Labor that wants to recoup those funds when we have overpayments regardless of the amount. In the past, our overpayment, our overpayments have been minimal with the unemployment insurance benefits through our trust fund and then any federal benefits. But during the pandemic, because we were making changes so rapidly, had systems that had to be set up. As we were actually distributing payments, we were making changes to the system so that we could put all these controls in place. We are hopeful that we’ll receive waivers in order to, from the United States Department of Labor, in order to cover these overpayments. All states are in the same situation that we are in. So the, the– I don’t have the number on, the number of claims involved for the total amount of the overpayments, but I can find that number. Then your question about what counties were prone to fraud? Well, some of you probably have seen the fraud rings that have, that have been shut down or were, were– that the FBI investigated and those individuals were then charged. But those are few and far between because so much of our fraud was from identity theft. So the individual that filed the claim wasn’t actually the individual that received– that was whose name was on the claim. And so that’s why when we, we were– when we received a report that someone had filed a claim on an individual, because most likely they used an address or an old address and that came to that person and they knew they didn’t file an unemployment claim, they called our office and reported it to us. And then we had them file a police report in order for us to continue to follow up on those and to report those as fraudulent claims. I can’t say that there was one county that was more fraudulent than others. We know some of the fraud rings were exposed and there was, I believe there were one or two in northwest Arkansas. But I can’t say that those were Arkansas residents. That’s just, you know, that’s where it was investigated and reported of those individuals. As far as disciplinary action, this was no fault of our employees. This was, this was all the result of, of reducing the, the requirements that we had in place prior to the pandemic and the reason we had such a low fraud rate prior to the pandemic. Not requiring IDs in our offices, removing the waiting week. All of those things had been in place prior to the pandemic, and our fraud rates were very, very low. But during the pandemic, in an effort to expedite the payments to individuals as this body requested, the executive committee and your constituents were asking, all of those things were removed also to protect the safety of our our individuals working in the offices every single day during the pandemic, which many of you saw the the impact of that on our offices in the news and, and elsewhere. So no disciplinary, disciplinary action was taken because there was no wrong done by an employee. They were working as hard as they could to identify any suspect activity and or ensuring that we were using all the tools that we had in place in a new system that was created in 60 days. We were– we put out payments in 60 days receiving guidance almost daily initially from the, for the pandemic benefits. Moving forward, we are making progress. We have improved our processes. We have better coordination with the programs. And, and in addition, we are also being monitored and audited regularly by the U.S. Department of Labor on these same issues. So we definitely are aware of them. We are working to make sure that we recoup as many payments as possible through an overpayment process that we had in place prior to the pandemic and a repayment process for those individuals that we can identify. But then we have all of those that we can’t identify. And, and, and that’s, you know, those are the number of claims that I’ll provide to you. 

 

Caldwell Thank you very much. Representative Rye. 

 

Rye Thank you, Mr. Chairman. Miss Charisse, help me on this one just a little bit, okay. At one time, there was a tremendous amount of federal money that was thrown our direction– I guess in every states’ direction, that was exceeding the amount of money that people actually would draw for unemployment. You remember that? And then we switched that over to try to cut back on that type situation. Do you think that that may have had– during that transition of that, those figures, you know, from, from a high maybe $700 or $800, somebody making $300 or $400 a week– you think during that transition or when we actually changed the amount of money that we, you know, sent to someone that was actually, you know, unemployed, would that account for some of the problems that you could have possibly ran into? 

 

Childers Absolutely, Representative Rye. Prior to the pandemic, our benefits were $81 to $451 a week. And, and, of course, with the additional and the PU, pandemic unemployment assistance program, the benefits were higher, started at a higher rate. And so when you added the additional $600, which is what you’re referring to, yes, that, that encouraged individuals to take advantage of this opportunity where they could get at, you know, as much as $1,451 over what they– for each week, which was $600 over what the maximum amount they would have been entitled to under regular unemployment insurance. So, yes, that did– that is when we saw the increase, and, of course, many fraudsters were taking advantage of that in multiple, multiple claims. 

 

Rye Thank you. Thank you, Mr. Chairman. 

 

Caldwell Representative Berry. Excuse me. Representative Beatty. Sitting in the wrong seat.  

 

Beatty I wanted to feel smart like Jean. Question, the 28 million– I agree with the chairman. That is a lot of money. But to put that number in perspective, what was the total amount of federal PUA that was paid to, to Arkansans? 

 

Childers Yes, sir. We will give you the total amount for UI and for PUA. Before we get started, [01:04:02]I’ll just say prior to the pandemic in regular unemployment benefits, our our benefits paid out were $98.6 million. And now in perspective, in 2020 and 2021–[12.3s]

 

Traylor [01:04:17]In 2021, we paid out $790 million in benefits. [5.1s] That includes regular UI and it includes all the other federal programs for unemployment. 

 

Beatty So roughly, that’s what, 3.5, 4, just a little under 4% of the total, total funds. 

 

Traylor Correct. 

 

Beatty All right. Thank you. 

 

Traylor It’s a little more than that. I believe, I think the– yeah, it’s about 4. 

 

Caldwell One question on that before I go to the next one. You mentioned we may have to pay it back. If we pay that back, where do those funds come from? 

 

Childers Yes, sir. We will be working with the, you know, with the executive branch and also with Secretary Preston in order to identify the sources for that repayment. We obviously don’t have that within our agency. So we, I expect, that we would go back to ARPA funds, to the federal funds in order to to pay that back. But we are hopeful that we will receive the waiver from U.S. DOL. It’s, it’s very promising at this point. 

 

Caldwell Representative Meeks. 

 

Meeks Thank you, Mr. Chair. Just a real quick question, I know back when all this was happening, one of the big challenges was you all were trying to set up a new system from scratch for the PUA at the same time. The old system was very antiquated. And I know you were working on trying to combine them and upgrade the whole system, which would help prevent these kind of incidences going forward. Where are we at on that? Just an update on that new system. 

 

Childers Thank you, Representative Meeks, for the question. We, earlier, middle of last month, we decided that it was in the best interest of the state to not proceed with that procurement. We had started that procurement approximately a year ago. We have made a lot of progress since then. We’ve identified areas that we can, we can do internally. And so now we’re just reassessing, looking at what, what we need to do, what we cannot do. And we’ll need to possibly put out another RFP in the future. But right now, we are, we’re operating with our system that we have in place. But we’ve made significant improvements, I’m happy to say. It’s not where it needs to be, and we still have needs within our system, but we’ve made a lot of progress. 

 

Meeks All right. Thank you. Thank you, Mr. Chair. 

 

Childers Thank you. 

 

Caldwell Any other question? Seeing none, we will file this report. 

 

Childers Thank you, Mr. Chairman, and members of the committee. 

 

Caldwell Thank you very much. Next meeting of Legislative Joint Auditing will be held October 13-14. 

 

Norman Mr. Chairman. 

 

Caldwell Oh, excuse me. 

 

Norman Can I have a point of privilege, please? 

 

Caldwell Yes, sir. Mr. Norman. 

 

Norman I would like Marty Steele to stand. Marty, if you will. This is Marty’s last committee meeting with us. She’s going to be retiring. Marty’s been the deputy over cities and counties. So she’s had not only around 500 reports on municipalities and 75 counties that she has to present to us each year, she’s done a great job. She’s going to be missed greatly. Thank you, Marty. 

 

Caldwell We’re adjourned.