Related Posts
Legislative Audit
December 2, 2022
Jump to section
Sen Stubblefield: If everybody will take their seats, we’re going to call this meeting of Legislative Audit. First order of business, we have an adoption of minutes of the October 14 meeting. We need a motion. We have a motion to adopt those minutes. Second?
Committee members: Second.
Sen Stubblefield: All right. All those in favor say aye.
Committee members: Aye.
Sen Stubblefield: All opposed? Those minutes will be adopted. First order of business is the Executive Committee report. I will read that. The executive committee met Thursday, December 1, 2022. Staff reported to the committee the Audit and Special Investigative and Shortage report scheduled to be presented to the standing committees and the full Legislative Joint Auditing Committee this month. In new business, the committee took no action on a request to staff to review certain transactions involving the city of Grubbs, because the city’s audit report was released in November of 2022. Staff reported that information had been provided in response to requests concerning certain grant programs administered by the Department of Finance and Administration. The Committee tabled the request until it was determined if the requestor needed additional information. In other business, the staff updated the Committee regarding the status of its review of the waste tire program. Also, the Committee approved the 2023 Legislative Joint Audit Committee calendar and staff to conduct the financial audit of the Forrest City School District for the fiscal year ending June 30, 2022. With no additional business to discuss, the meeting was adjourned. The next meeting of the Committee is scheduled for Thursday, April 13, 2023. I move for an adoption of this report. All right. It’s been moved. Second. This report will stand as it will be adopted. Next report is the standing committee on counties and municipalities. I understand Representative Rye, you have that?
Rep Rye: Thank you, Mr. Chairman. The Committee yesterday adopted the minutes of October 13, 2022, meeting. Committee discussed the City of Cotton Plant’s substantial noncompliance with municipal accounting law. Staff reported that the city has made substantial improvements and corrected most of their findings. The Standing Committee on Counties and Municipalities recommends to the Legislative Joint Auditing Committee that the State Treasurer be notified to resume the city of Cotton Plant’s turnback payments, as well as restoring to the city any turnback funds held in escrow. The Committee approved a request from the town of Twin Groves to annually repay $500 per month of their general revenues, rather than 10% of general revenues, as required by Arkansas Code Annotated 27-70-207 for monies owed from the general fund to the street fund. The Committee reviewed nine reports deferred from the October 13, 2022, meeting. Officials from three entities were present to address repeat findings from these reports. All nine of the previously deferred reports were filed. The Committee reviewed 73 current reports. Of these, two were referred to the Governmental Bonding Board, and eight were other reports referred to prosecuting attorneys. Officials from six entities were present to address repeat findings in their current report. And also there’s a co-chair’s report of Legislative Joint Audit Committee. Oh, no– sir, this has been added. Didn’t need it. This was added to the report, and it actually was for another committee. So that’s all we have.
Sen Stubblefield: Okay. All right. We also have a– before we adopt it, are there any questions concerning this report? We have a motion from Senator Garner.
Sen Garner: Thank you, Mr. Chairman. Representative Rye read that report and did an excellent job. But there needs to be an actual motion in there because we need to recommend to the State Treasurer to give that money back to Cotton Plant. And so I’d like to make a proper motion at this time that the Legislative Joint Audit Committee recommends that the State Treasurer be notified to resume the City of Cotton Plant’s turnback payments, as well as restoring to the city any turnback funds held in escrow.
Sen Stubblefield: So we have a motion to return the turnback funds to Cotton Plant.
Sen Garner: And I can explain that motion if needed, Mr. Chairman.
Sen Stubblefield: If you want to go and explain it so everybody will understand it, go ahead.
Sen Garner: Sure. Part of the process we pass that law for is to hold cities accountable so that audit can go in there, look at their records, and make sure we can do substantial findings to make sure they’re following our various laws. The City of Cotton Plant was out of compliance, and the Audit Committee found that we should hold them to hold back their turnback funds. As staff reported and Representative Rye reported, they’ve made substantial steps to correct those mistakes, and staff and ourselves, the Subcommittee, felt that they have earned that right to have that turnback money put to them. This is basically our motion to say you did the right thing. We’re going to return that money back to you by notifying the Treasury Department, and that will move forward until the next audit.
Sen Stubblefield: Okay. Members, you’ve heard the motion. Is there a second? Any discussion? All those in favor say aye.
Committee members: Aye.
Sen Stubblefield: All opposed? All right. Motion will carry. The next report is the Standing Committee on Education. Representative Berry, is that you?
Rep S Berry: Thank you, Mr. Chairman. The standing Committee on Education and Institutions met yesterday, December 1, 2022. The Committee reviewed a total of 10 audit reports, which consist of two higher education reports, two school district reports and one education cooperative report, and two open enrollment charter school reports for the year ending June 30, 2021, and two higher education reports, and one school district report for the year end June 30, 2022. Representatives from Arkansas State University System were present and answered questions from the Committee related to one finding in the audit, which was referred to applicable prosecuting attorney. South Arkansas Community College had a repeat finding and representatives were present and answered questions from the committee related to the findings. The audit report of Earle School District, which is currently classified as being in physical distress by the state Board of Education, was presented with no findings. The committee filed the 10 audit reports that were brought before it. And at this time, Mr. Chairman, I move for adoption of this report.
Sen Stubblefield: All right, members. You’ve heard the report. We have a motion to adopt this report. Any discussion? We have a second? We have a second. All those in favor say aye.
Committee members: Aye.
Sen Stubblefield: All opposed? All right, that report is adopted. The next report is the standing Committee on State Agencies. Representative Richardson.
Rep Richardson: Thank you, Mr. Chair. Twelve reports were on the committee’s agenda yesterday. Five reports with findings were presented. The Attorney General paid 29 employees in excess of their line item salary appropriation in conflict with the Arkansas Constitution. The Auditor of State overpaid one deputy prosecuting attorney due to a posting error to the payroll master file. The Department of Health failed to follow procurement guidelines for various transactions involving the Office of Health Equity, split P Card purchases in violation of policies, could not locate five equipment items, and several locations did not submit all monthly revenue reconciliation reports. In addition, a summary of contact tracing expenditures were presented. The Judicial Discipline and Disability Commission overpaid a record storage vendor. Various agency staff members were present to report on how the agency intended to address the audit findings and to answer committee questions. During the meeting, the committee adopted a motion to file 11 of the reports. The Attorney General report was deferred to the next meeting. We move to adopt this report.
Sen Stubblefield: All right members, you’ve heard the report. There’s a motion to adopt this report. Any discussion? Is there a second? We have a second. All those in favor say aye.
Committee members: Aye.
College athletic expenditures
Sen Stubblefield: All opposed? All right, number D on your agenda. It’s a summary of intercollegiate athletic revenues and expenditures 2021 to 2022. I guess we have someone from the Arkansas Department of Education. Mr. Fuller, if you’ll come down and identify yourself for the record, you may proceed. Do you have a handout?
BLR Staff: In their packet.
Sen Stubblefield: Everyone does?
BLR Staff: Yeah, it should be.
Sen Stubblefield: Okay. There’s a handout in your packet for this report.
Fuller (Higher Ed): Good morning. I’m Nick Fuller. I’m the Assistant Director for Finance for the Division of Higher Education. I’m here to present to you our report on the fiscal year 2021-2022 intercollegiate athletic expenditures and revenues. For 2021 and 2022, the total amount of athletic expenditures reported by state-supported universities was $216,894,095. For the two-year colleges, the amount was $3,039,112. Statewide total of $219,933,207 is an increase of $48,337,000, or 28% from the amount that was spent in fiscal year 2021. The comparison of 2021-2022 actual expenditures to budgeted revenue certified to the Higher Ed Coordinating Board in July is also illustrated at the bottom of the chart that you have. Total expenditures for 2021-2022 exceeded this budget amount by 11.3%. Actual expenditures varied from certified budgets from a range of 18% below budget to 71% above the budgeted amounts for each institution. And I am available for any questions you might have on this report.
Sen Stubblefield: All right. Members, you’ve heard the report. Are there any questions for Mr. Fuller? Senator Garner, you got a question?
Sen Garner: Yes, sir.
Sen Stubblefield: You’re recognized.
Sen Garner: Thank you, Mr. Chairman. So if I’m reading this right, there was a nearly $50 million increase, 30%, in one year’s time?
Fuller (Higher Ed): Yes, sir. The previous year from 2021 was one of the years that COVID impacted.
Sen Garner: So is this–
Fuller (Higher Ed): All our sporting events– so it’s the increase of everyone coming back into the stadiums.
Sen Garner: Okay.
Fuller (Higher Ed): The fans.
Sen Garner: You might not have this information, but what is it comparable to pre-COVID? Is the trajectory now, do we expect 30% every year or is it just returning to normal average?
Fuller (Higher Ed): No, sir. It should level out more single digit growth in year to year. This is just the big jump coming back from no one being on the campuses for the events.
Sen Garner: Just going to make sure. Because if it’s 30% increase every year, that’s–
Fuller (Higher Ed): No, sir.
Sen Garner: All right, thank you.
Sen Stubblefield: All right, any other questions from members? We have Representative Richardson. You are recognized.
Rep Richardson: Thank you, Mr. Chair. And I don’t know if you can answer this question or not, but I’m curious to know if dollars are tracked for NIL disbursements.
Fuller (Higher Ed): No, sir. Those would not be directly from the institution payments. Those would be payments directly to those athletes. It wouldn’t be coming from the institution. These are expenses from the school themselves.
Rep Richardson: So the school receives nothing from that then?
Fuller (Higher Ed): Right.
Rep Richardson: I thought they got a percent. Okay, thank you.
Sen Stubblefield: Any other questions from members? If not, this report will stand as adopted. Thank you, Mr. Fuller. Item E on your agenda, a special report from the Arkansas State Government Transformation annual cost savings report for the period July 1, 2021, through June 30, 2022. Is anyone here to present that report? Oh, right here. You’re recognized.
Transformation
Leg Audit: Thank you, Mr. Chair. This report is presented in accordance with state law which requires legislative audit to verify the amounts and cost savings reported annually by the 15 cabinet-level departments under the Transformation and Efficiencies Act of 2019. The objectives of this review were to verify cost saving information reported by the departments, review supporting information for and determine the reasonableness of transformation related cost savings identified by the departments, determine the reasonableness of other cost savings identified by the departments but not directly related to transformation. Schedule 1 on page 3 summarizes the required information submitted by the departments. In total, the departments reported decreased expenditures of $325 million, primarily related to the reduction of CARES Act funding at the Departments of Commerce and Finance and Administration. The departments also reported transformation related cost savings of over $93,000 and other cost savings of $370 million. Legislative Audit verified the transformation-related cost savings, all of which were reported by the Department of Energy and Environment for rent and related operational costs. Legislative Audit also verified all other cost savings reported. The Department of Health attributes a cost savings to a reduction of CARES Act funding and a one-time COVID-19 vaccination program. And at the Departments of Military and Public Safety, the lack of available materials and equipment contributed to cost savings. It should be noted that the departments varied in how they reported the required information. Mr. Chair, this concludes my presentation. I will be happy to answer any questions from the committee.
Sen Stubblefield: All right, members, you’ve heard the report. Are there any questions? Senator Garner.
Sen Garner: Thank you, Mr. Chairman. So I remember going through this transformation process and all the rigmarole and hundreds of pages of bills and all the promises made. And as I look through this now, after all of that and all this talk about how this is going to be some amazing transformation of government, it looks like we saved in actual money, $93,000, if I’m reading that correct. So I’m just very interested in it from all the promises that were made that we’re going to save these hundreds of millions of dollars, that it is going to completely transform state government, at the end of the day, now that we sit here in 2022, at the end of it, we saved $93,000. Just wanted to point that out as a very interesting reality of what was promised versus what the reality of this is. Thank you, Mr. Chairman.
Sen Stubblefield: Thank you, Senator Garner. Senator Pitsch.
Sen Caldwell: Actually, it’s Senator Caldwell. I’m sitting in Senator Pitsch’s seat.
Sen Stubblefield: Senator Caldwell.
Sen Caldwell: Mr. Chairman, thank you very much.
Sen Stubblefield: You’re welcome.
Sen Caldwell: I appreciate you sitting in for me today. I had a doctor’s appointment this morning, just got out. One other thing I want to follow up on what Senator Garner stated is the fact that transformation was supposed to save several thousand jobs in state government that we could eliminate because of shared services and other things. But in reality, I checked yesterday, and we actually have 400 more state employees today than we did before we had the transformation of government. And so I agree and concur with Senator Garner that in reality, transformation flopped. Thank you. Mr. Chair.
Sen Stubblefield: You didn’t happen to get a total of the number of state employees? Total number?
BLR Staff: Senator Caldwell, we’ve got some updated information since we visited yesterday, and I feel like Tom can explain that to you.
BLR Staff: Yes, Senator Caldwell, the numbers we gave you yesterday, after further research by my staff, there were some things that weren’t included in those numbers. So I got some new numbers I was going to give you this morning, but I hadn’t seen you yet this morning. So back in 2019, the total employee count was just over 33,000 employees. And as of June, 30 of 2022, it’s down to 30,000. That includes everybody. That’s everything from ASIS plus ARDOT. And total expenditures, however, if you look at total payroll costs, have gone up over that same time period.
Sen Caldwell: Thank you for that report. And based on that, then, I’ll apologize for my previous statement, because it was supposed to save a couple of thousand jobs, and the number I had yesterday, it had gone up 400 people. Thank you for that correction. Thank you, Mr. Chairman.
Sen Stubblefield: Thank you Senator Caldwell. Any other questions for members? Senator Rapert.
Sen Hammer: Actually, Hammer.
Sen Stubblefield: Senator Hammer, you’re recognized.
Sen Hammer: Thank you. I was just curious if the staff could comment as to when asked the question about why they included savings that was directly attributed to CARES Act funding, how that was interpreted as savings?
BLR Staff: It’s my understanding that the way that the law is written, it talks about expenditures and so it doesn’t deviate. So the way the law is written, we have to present any decrease in expenditures. And so that’s the primary reason that we’re just following the law in the way that this is being presented.
Sen Hammer: I’m trying to get my question in my head. Would the results have been different if we would have taken a different approach such as instead of looking at it from a cost savings if we would have looked at it from an increase in expenses, would the outcome have been different, and if so, how?
BLR Staff: I’m not for sure on that. Tom, do you know if we look at it as far as increases in expenses? I think that generally that there were increases in expenses on several of these, is that correct? Yeah. We didn’t look at it like that. We followed what the law told us to do to look at that. We don’t have that information.
Sen Hammer: Okay, thank you.
BLR Staff: One thing I might point out, this is the third report dealing with the transformation, as you all may, and I don’t have those reports with me. But as you recall, the first report, it was put forth that the transformation was going to save $50-something million dollars. And I think in that report, we basically said that there were no savings. And last year the report, there were substantially no savings. And this is the third report that shows that there is no savings. We are required by law to do this report every year. Since this is the third year out or the third report on the transformation. The further you get away from that, the more meaningless this report is going to be. Therefore, it would be the staff suggestions that we try to get the law amended this next session where we don’t have to do this report anymore because I think it’s becoming more irrelevant the further we get from transformation.
Sen Stubblefield: All right, members, any other questions? Senator Garner, are you back up?
Sen Hammer: No. You got Hammer lit up.
Sen Stubblefield: Senator Hammer.
Sen Hammer: Mr. Norman, let me ask you this question because sponsor of the bill. So do you think the legislation has proved the point,– and maybe you don’t want to answer this. It would appear then, that based on three reports, that the point has been proven that when it comes to the matter of transformation having created the savings that was projected, that after three reports, it would seem like that would be undebatable if the numbers had turned out different.
BLR Staff: Well, particularly in the numbers that were being claimed, I think because a lot of them had nothing to do with actual savings. They were budget reductions or things like that. There were some savings as far as combining the buildings together and moving agencies together, reducing the footprint of state government. But those were where most of the savings were. Not in salaries or other items.
Sen Hammer: All right, thank you. And Mr. Chair, I’ll just put this out there. The legislation, having done what it was intended to do, we’ll get legislation drafted to where the Legislative Bureau– Audit won’t have to continue to do this report. Thank you.
Sen Stubblefield: All right. Thank you, Senator Hammer. Any other members have questions? Representative Wardlaw.
Rep Wing: This is Representative Wing in Representative Wardlaw’s seat.
Sen Stubblefield: All right. You’re recognized, Representative Wing.
Rep Wing: Thank you, Mr. Chair. Just a quick question. So if we’ve got a decrease in 1,900 jobs, would that not be reflected financially?
BLR Staff: Well, there was an increase in salaries. So the number of personnel decreased, but the actual cost increased.
Rep Wing: So the salaries went up for the folks who remained employed, but we still dropped the number of employees.
BLR Staff: Yes, sir. Even though the number of employees decreased, the payroll expenses increased.
Rep Wing: Okay. All right. Well, thank you.
Sen Stubblefield: All right, any other questions for members? Representative Berry.
Rep M Berry: Thank you, Mr. Chairman. So when we’re talking the salary increases, most of those salary increases, to my understanding, are at the executive level, chiefs of staff’s positions, and Chief Counsels, and so forth, and not necessarily the normal payroll increases, is that correct?
BLR Staff: Well, there have been several increases. Part of that is there have been increases there. Obviously, the transformation created some secretary positions and other positions. Some of those director positions have not been filled. However, it’s my understanding that they’re still listed in the appropriation bills even though they’re unfilled. So there are positions that could be filled in the future that would further increase that. But overall, there have been, as you are aware, there’s been cost of living increases and other increases by the executive branch in the past year or two. I’m not sure we can say it’s just those high-level people. I think more than anything, it’s just the cost of living increases, merit increases have taken place over the years.
Rep M Berry: Thank you. And would you agree with me that the hierarchy did grow as far as payroll at the upper level?
BLR Staff: Well, obviously, Secretary positions were created that were no longer there. And the Deputy or the Director positions in most, if not all cases are still there. Some of them are filled, some of them are not. So yes, it did create another layer.
Rep M Berry: Great. Thank you. Thank you, Mr. Chairman.
Sen Stubblefield: Thank you, Representative Berry. Any other questions from members? Representative Berry?
Rep S Berry: Thank you, Mr. Chairman. We talked about a lot of things. Since the savings is still $93,000, is that figure still good? Total savings transmitted.
BLR Staff: Well, that was just for this past year. I mean, this is not a cumulative report.
Rep S Berry: Okay, thank you.
Sen Stubblefield: Any other questions on transformation? All right. If not, this report will stand as adopted. Next on the agenda is Financial and Compliance report for the City of Bonanza, years ended December 31, 2021, 2019. Mr. Lock, are you going to come up and–
Bonanza
Leg Audit: Thank you, Mr. Chair. This is the financial and compliance report for the City of Bonanza for 2019 through 2021, and we discovered a shortage while performing these procedures, so the Standing Committee on Counties and Municipalities referred it to the full committee. Bonanza is located in western Sebastian County and has approximately 600 residents. The city operates under the Mayor-Council form of government with a six-member City Council. And as with other cities, Legislative Audit does not do the financial audit for their water department. Instead, the city is responsible for hiring a CPA firm to conduct their water department audit. We issued two findings for the Mayor. The first one was an annual audit or agreed-upon procedures report has not been completed and submitted to Legislative Audit for the City’s Water Department for the years 2016 through 2021 as required by Arkansas Code.
Leg Audit: And the second one is the minutes did not indicate that the City Council reviewed our prior report and accompanying findings as required by Arkansas Code. We issued several findings for the administrative assistant. Bank accounts were not properly reconciled. The General fund balances and disbursements were overstated due to posting errors, unrecorded checks, and undocumented adjustments. There were numerous payroll issues noted. Payroll taxes were not properly filed, reported, and remitted to DFA. The administrative assistant, who also served as the payroll preparer, did not always issue payroll disbursements through the payroll system, and she did not properly report payroll disbursements to herself on her W-2, and several of these payroll issues were noted in the prior report. As shown on the slide, we had a shortage at Bonanza several years ago that covered the period of January 2012 through January 2016, and we found that the administrative assistant made $13,000 in unauthorized salary payments to herself.
Leg Audit: These findings were referred to the prosecutor and the administrative assistant pled guilty to theft by deception and paid restitution in full. And it should be noted that the Mayor that was elected in 2016 is the father of the administrative assistant, and the administrative assistant continued to be employed by the city even after the guilty plea. This current report also contains a shortage finding for the administrative assistant who maintains bank accounts and accounting records, and was responsible for receipting and depositing city funds, including Water Department funds. Our review of city records, including the Water Department records for the period of January 2018 through May 5, 2022, revealed a shortage totaling $216,916. This consisted of $178,874 in unaccounted for funds and $38,042 in unauthorized disbursements. Non-accounted-for funds consisted of $173,404 in undeposited water bills, bill payments, and $5,470 in undeposited manual receipts from other city funds. Unauthorized disbursements consisted of $16,708 in salary overpayments. She wrote herself 36 extra checks, which resulted in a salary overpayment of $16,708.
Leg Audit: And then there were $21,334 in gift cards purchased by the administrative assistant. We also discovered that several manual receipts and bank statements were altered in an apparent attempt to conceal the unaccounted-for funds and unauthorized disbursements. And this slide is an example of an altered bank statement. In this example, the top image is a bank statement provided by the bank that shows check number 15994 for $445.30, cleared on March 31, 2020. The bottom image is the altered bank statement that the city provided to auditors. And as you can see, check number 15994 has been removed from the list of cleared checks. And the image of this check had also been removed from the bank statement. And that particular check, check number 15994, was a check that was made payable to and cashed by the administrative assistant. Last month, the mayor was re-elected to a four-year term, and the administrative assistant resigned from her position. The state police are conducting an investigation, and to my knowledge, the city has still not scheduled an audit for their water department. And that concludes my presentation, and the mayor is here to respond to any questions from the committee.
Sen Stubblefield: Mayor, if you will just identify yourself for the record.
Nelson (Bonanza): My name is Elmer Nelson.
Sen Stubblefield: If you want to stand up, we’re going to go ahead and swear you in. If you’ll state your name, your employ, and your position, and raise your right hand.
Nelson (Bonanza): Elmer Nelson, Mayor of the city of Bonanza, Arkansas.
Sen Stubblefield: Do you solemnly square to affirm that the testimony you’re about to give will be the truth, the whole truth, and nothing but the truth?
Nelson (Bonanza): I do.
Sen Stubblefield: All right, you may take a seat then. You’re recognized to speak.
Nelson (Bonanza): Everything that was there, everything about it is true. She’s pleaded to everything. Everything except the money on the water department. I was totally unaware of it. She took care of all the books and stuff, and it hit me like a wedge. And she was there a year before I got voted in. And the city council made the exception that she could stay and work for me since she was there prior to that. And so she’s been here with me– was with me for the duration of the time. The first time she got in trouble, and we came down here and she made reimbursements, and the city council voted to keep her, so.
Sen Stubblefield: All right, we’re going to go ahead– we got some members with questions. Senator Garner, you’re up first.
Sen Garner: Thank you. Over here to your left. Mayor, over here to your left.
Nelson (Bonanza): Okay.
Sen Garner: Let me get this right. The staff said that this woman, her dad was the mayor before you, is that correct? Did you say that?
Nelson (Bonanza): No.
Sen Garner: Okay.
Nelson (Bonanza): She worked for the previous mayor before I took over. She is my daughter.
Sen Garner: She’s your daughter?
Nelson (Bonanza): My daughter, yes.
Sen Garner: She pled guilty to stealing thousands of dollars of taxpayers’ dollars and you kept her on your staff after she pled guilty to that, is that correct?
Nelson (Bonanza): Which time are you talking about, sir? Last year? I mean, the time before or this time?
Sen Garner: The first time that she was pled guilty in a criminal proceeding for stealing taxpayer dollars on the city roll.
Nelson (Bonanza): Yes.
Sen Garner: And you kept her on the staff?
Nelson (Bonanza): Yes, I did. Like I said, City Council, she paid all the money back and the city council wanted her to stay.
Sen Garner: I know she’s your daughter, but unsurprisingly, she stole more money, is that correct?
Nelson (Bonanza): That’s correct.
Sen Garner: What kind of dereliction in common sense and duty did you as a father allow that to happen to the citizens of your city?
Nelson (Bonanza): I was unaware of it.
Sen Garner: How are you unaware of it when she plead guilty to it and you kept her on staff?
Nelson (Bonanza): No, sir, I didn’t keep– after the second time. No, sir. She’s been terminated.
Sen Garner: Sir, we deal with a lot of issues with people stealing. I understand it can happen to any city or county official. I understand she’s your daughter. But the fact that she got found guilty and admitted to that, and then you allowed her to stay there. And you can blame it on the city council all you want. You’re the mayor and you’re her father. And then she defrauded the people of your city again? You’re responsible for that as much as she is, sir, and that’s unacceptable as an elected official, and I hope that the people of your town hold you accountable. That’s all I got.
Sen Stubblefield: All right, Senator Hammer, you’re up next. You’re on, Senator Hammer.
Sen Hammer: Thank you. When she took the money the first time, that was under the previous mayor. I’m right here, sir, by the post. Look a little bit to your left. Here you go. Here you go. See? Good morning. The first time that she stole the money was under the previous mayor’s watch, is that correct?
Nelson (Bonanza): That was correct.
Sen Hammer: Okay. And then she made restitution, and the council voted to keep her on under your watch as mayor, is that correct?
Nelson (Bonanza): Yes.
Sen Hammer: Okay. And then from that point forward, she began to take the money again, which was under your watch, is that correct?
Nelson (Bonanza): That is correct.
Sen Hammer: Okay. At what point did you become aware that she was taking money the second time under your watch?
Nelson (Bonanza): I only realized it when the auditors came and disclosed it to me. I had no earthly idea that she was taking the money.
Sen Hammer: Okay. And as far as who audits your water department, you don’t have anyone auditing the books?
Nelson (Bonanza): Yes. I came in and they were three years behind when I came in in 2015. And immediately I got a gentleman who lives somewhere in this area down here to do the audits, signed for him to do three audits, and he did one for me. And I don’t believe– you’re going to have to check with the auditors, but I believe they finally got a second one out of him after they started doing the audits. But I have got a person on line to do the audit. I’ve got a person lined up right now that I’m fixing to start getting the audits taken care of.
Sen Hammer: And so when it was discovered that she was taking money, that was the result of our auditors coming in and auditing your books? Or how was it that it got above the radar screen that you realized that she was taking the money?
Nelson (Bonanza): When? At the audit time. After the audits when they came back and disclosed it.
Sen Hammer: Mr. Chairman, is that our auditors, or is it the auditors that they had hired? Was it our auditors that discovered this?
BLR Staff: I’m sorry, could you repeat the question, Mr. Hammer?
Sen Hammer: Yes sir. Was it the result of our auditors going in and finding the discrepancy in the funds? Or was it the result of the auditor or the bookkeeper that the mayor had hired that it was discovered?
Leg Audit: It was us, Legislative Audit.
Sen Hammer: Okay. And did the Legislative Audit have any reason to believe that the other auditor who had done audits was aware of any of this going on? Or was there a gap in that time between the last time he did an audit and the time we went in?
Leg Audit: Well, of course, the other auditor is a CPA firm, and the water department is completely separate from our audit. So we would have no communication from him. But as far as I know, he was not aware of any money being missing.
Sen Hammer: All right. If I may, Mayor, when you talk about you had a bookkeeper come in and do an audit, was that of the water department or was that of other books?
Nelson (Bonanza): It was the water auditor. Steven Savage is his name.
Sen Hammer: And what was the last year he did a audit of your water books?
Nelson (Bonanza): I paid him for 2013, 2014, and 2015, and I only saw one returned back. I believe this gentleman here told me that somebody pursued it and they got an audit released to them on it.
Sen Hammer: Okay. And then last thing, your daughter’s–
Nelson (Bonanza): I may be wrong on that, but that’s what happened.
Sen Hammer: Your daughter’s not working for the city any longer, correct?
Nelson (Bonanza): No, no. She’s been terminated.
Sen Hammer: Okay. Thank you, Mr. Chairman.
Sen Stubblefield: Yes. Representative Love.
Rep Love: Thank you, Mr. Chair. Mayor, I’m pretty sure this has to be a difficult situation in which your daughter is actually stealing from you. She stole from the previous administration. But I am at a loss in regards to this, because I heard you say that the city council kept your daughter on.
Nelson (Bonanza): That’s correct.
Rep Love: Okay. But she worked under your administration, is that correct? Are you over the water department?
Nelson (Bonanza): Yes.
Rep Love: Okay. And so when you want an audit done of the water department, who coordinates that?
Nelson (Bonanza): It’s supposed to be done on a yearly basis, but we were having problems money-wise. We were having problems getting– the man never did fulfill his obligation to us that we paid the three years for. So at that particular time, I started looking for someone else, and it just rode on for all this time during all that.
Rep Love: So, Mayor, you were charged with procuring someone to do a water audit.
Nelson (Bonanza): Yes. That’s what the city is supposed to have done on a yearly basis, and it did not happen.
Rep Love: Okay. And then your daughter simultaneously started stealing from the water department, or however we want to put it.
Nelson (Bonanza): I understand what you’re saying.
Rep Love: So do you understand how that looks to us?
Nelson (Bonanza): Yes, I do. But I really have some questions about the auditing part of the water department anyway. I mean, our expenses and the amount of money that we bring in really doesn’t have– it would be very hard to see that kind of money disappearing out of it, but they say that it happened.
Rep Love: All right. So, Mayor, so the position that your daughter held– because I was listening to this on the way in. The position that your daughter held in the previous administration was what position?
Nelson (Bonanza): Same position, administrative assistant.
Rep Love: And so the administrative assistant is also the bookkeeper.
Nelson (Bonanza): And the water department lady and everything. If you got a town where– you’re talking only a three, four person town of employees.
Rep Love: I got you, and I get that. What I don’t get is that she moved from a financial position to a financial position, pleading guilty to–
Nelson (Bonanza): She held the same title. Same title for the previous mayor.
Rep Love: And so after pleading guilty and then getting the new job, did nobody think of actually overseeing the work that she was doing?
Nelson (Bonanza): Well, when I took over in 2015, the town was a total– it was really, really messed up. They couldn’t even pay the bills out of the right department funds. So in the first year or so that I was there, we got everything straightened up, and the town was making its bills and paying it on time. And I guess we were all too happy that we had made such an improvement, we didn’t– no one was looking down the road to see what was really happening, I guess is what I’m trying to say. That make any sense?
Rep Love: Mayor, I’m not going to say it doesn’t make any sense, because I understand in small towns you have– people are doing double duty, sometimes triple duty. But what doesn’t make sense to me is that we would put someone in a financial position that has pled guilty to theft of funds from the city, and then we put her in another financial position. And I know this is your daughter, and it’s difficult to say, but I’m just saying it’s kind of hard for me to believe that we would move her from a position of overseeing finances to another position of overseeing finances, regardless and despite of the fact that the city council said it was okay. And I guess then it just doubles down on it when the mayor is now her father and her boss. So Mayor, I just hope that this would never happen again. And I think that we probably should put some safeguards in place that– and that’s what I want to ask you about. What are the safeguards you have in place now to oversee someone else?
Nelson (Bonanza): Well, the city council had talked about– they’ve already found another person, got her on, interviewed her, and she is now working. No relation to me. A very thorough person for everything that she’s doing. But we are talking about–
Rep Love: Well, that’s great, Mayor. Hold on for a second, Mayor. That’s great. But who is going to also oversee that person? Because that person could come in and do the same thing.
Nelson (Bonanza): I understand that. The city council had talked about possibly having our books– after she does everything she does, take on a monthly basis to a CPA and have him look over what she’s doing.
Rep Love: Okay. All right, Mayor. Well, thank you, and I wish you the best on this. Truly do.
Sen Stubblefield: Representative Beck, you’re recognized.
Rep Beck: Yes. Over here, Mayor.
Nelson (Bonanza): Okay.
Rep Beck: I can appreciate the– thank you, Mr. Chair. And I can appreciate that this is not a comfortable issue for you to talk about, but I would take it one step– and Representative Love over there approached what I was going to ask, but I would take it one step further. As opposed to having someone audit what they’re doing, I would suggest, if at all possible, to have someone– almost a double signature type of thing on some of these activities. Because auditing something a month later is– the money’s– it’s too late, right? The milk’s already spilled. So you should probably ask the city council and yourself to adopt some policy that monitors that position, because apparently they have a lot of capabilities of pulling money out. And a double signature or something of that nature, that where you have two eyes looking at that person all the time–
Nelson (Bonanza): All of this had double signatures on them. Every check that went out of there had double signatures.
Rep Beck: Who was the other signature?
Nelson (Bonanza): Three different people in the city council and myself.
Rep Beck: Then maybe you should have somebody else audit it. Thank you.
Sen Stubblefield: Senator Hammer, you’re recognized.
Sen Hammer: Thank you. I just want to pick up on where you just– here you go, sir. So the checks that went out all had double signatures on them?
Nelson (Bonanza): Yes sir.
Sen Hammer: Who was the one that signed the checks the most, other than your daughter?
Nelson (Bonanza): Now we’re talking back in 2018, is that correct? 2018, 2019. Probably would have been a gentleman by the name of Floyd Rowe.
Sen Hammer: Okay. Well, let me restate the question. Is it the policy of the city to have two signatures on the checks? And how long has that policy been in place?
Nelson (Bonanza): Ever since I’ve been here.
Sen Hammer: So while your daughter was taking this money, somebody else was signing the check by which she was getting the money? Or was she diverting the money some other way other than writing checks?
Nelson (Bonanza): Yes. And I still haven’t figured out exactly how it was done. I still don’t know.
Sen Hammer: Can I ask the staff a question, Mr. Chairman?
Sen Stubblefield: Yes, go ahead.
Sen Hammer: Do we know, for the amount that has been embezzled, how much of it occurred by checks being written and signed by somebody else? Or was it through debit cards and other means where there would not have been two signatures on a check?
Leg Audit: Of the unauthorized disbursements of $38,000, pretty much all of that was paid by check. Now a large part of it, $21,000 of it, were the gift cards that she purchased from Staples. It was like a credit account, and the only documentation that she would provide would be the monthly statement showing we owe Staples $300. You didn’t see that that was for a gift card to Bath and Body Works or whatever. So I’m not sure that they were getting the itemized detail of expenditures that they were needing, but they were paid by check.
Sen Hammer: Which would require that somebody else put their signature on that check besides her.
Leg Audit: Yes sir, that’s correct.
Sen Hammer: Okay. What’s the total amount? I’m looking at the report. What’s the total amount that has been– and I’m going to use the word embezzled. The total amount.
Leg Audit: Let’s see. $216,916.
Sen Hammer: And did the auditors talk to the other person that’s put their name on the check?
Leg Audit: No sir, we did not.
Sen Hammer: Okay. And I can’t find where it has been, but has this been turned over to the prosecutor? And which prosecutor has it been turned over to?
Leg Audit: Yes sir. It was turned in to the prosecutor in Fort Smith, Dan Shue.
Sen Hammer: And do we know the status of it? Is it being actively pursued, or are you at liberty to answer that.
Leg Audit: There’s a state police investigation that I guess he’s waiting on the completion of that before filing charges.
Sen Hammer: Okay. And then my last thing is, Mayor, do you have any comments you want to make?
Nelson (Bonanza): Not really. I think you guys have– that’s about all I can tell you.
Sen Hammer: One question to the staff. Do you know if it’s the same person that signed that check every time? Or was it multiple people that were signing that check? Or do you have that information readily available?
Leg Audit: I don’t have that information with me. Just based on my memory, I want to say that it changed. It was two or three different people. It wasn’t the same people every time. But that’s just strictly based on my memory.
Sen Hammer: Okay. All right. And the state police would be made aware of that, right?
Leg Audit: Yes sir, that’s correct.
Sen Hammer: Okay, thank you.
Sen Stubblefield: All right. Representative Rye, you’re recognized.
Rep Rye: Thank you, Mr. Chairman. Right here, sir. Sir, you know, each year when you actually draw up a budget for the water, you’re going to have 12 months that you have bills for 12 parts of the year. Could you not see anything going on? If you got an average of $40,000 coming in one month, then all of a sudden you have, say, $70,000 worth of expenditures, to where those things should balance out– just wondering if it would help you, sir. Because what you’re looking at, sir, is an overshot probably of the budget, for one thing.
Nelson (Bonanza): The projected budget for the previous year was somewhere in $200,000 total income coming in, $230.000 coming in. And out of that $230,000, I think we paid about $260,000, and over $230,000 of it was expenses paid out. So it was only $20,000 profit made in the water department last year.
Rep Rye: Yes sir.
Nelson (Bonanza): And that’s why I can’t understand how the water department could– as small as it is, how it could have that much money taken out of it at any given time throughout and still be alive and holding something.
Rep Rye: Right, sir.
Nelson (Bonanza): I kept thinking that our water department takes money in, and the water and sewer and the garbage is on there. And so as the months roll over, the water department has to pay, because it’s collected on the water department, the garbage– about $2,300-$2,400 a month has to be turned over, taken out of there and put in and paid for the garbage every month. And I was just thinking maybe there was some kind of something that they missed when they was doing it. The gentleman that told me he did that soft water on that water department told me that he had never done it before, ever. He never ran that program, so. And I don’t know anything about the program either. So that’s why I couldn’t– I still can’t– I just know that with 190-some people– we have 190 people that has water and sewer. There’s 30 that live in a– 23 live in a gated community over there, and we just sell them water. So you got just a little over 225 operating people in a town. And the expenses just to pay the bills and the loan payments on that is somewhere between– and buying the water and taking the garbage out is somewhere in the neighborhood of $14.5, to $17,000 dollars a month just to break even. So that doesn’t leave a whole lot of money for somebody to get into and spend.
Rep Rye: Yes sir. Follow up please.
Nelson (Bonanza): Now the other part of it– the other part of– I’m not just– every bit of that other– I’ve got a piece of paper here where she signed it and admitted to it. She told the state police that we– they audited her, and she admitted to taking the money from the Staples and taking money from the– making herself extra checks. She admitted all that. And then after that deal is when I found out that it happened. They told me the same thing about two days later. They told me exactly what she had done. And when I said something about the water department, the guy over at state police says, “I’m really not worried about the water department.” But I am worried about the water department. But I also did not run for re-election this year. And I guess maybe the people in that town, nobody else ran either. So I’m still the mayor, but nobody else went for it, so. Anyway, I’m answering anything you guys want to know. I’ll try to.
Rep Rye: Yes, sir. Follow up, please, sir.
Sen Stubblefield: Yes, go ahead.
Rep Rye: Sir, even the person that’s coming in new that will take your place– or I’ve seen counties do a quarterly. But in a situation like you are in now, it looks like to me that may be need to be a monthly report of checks and balances, sir.
Nelson (Bonanza): That’s exactly what I think. I mean, a lot of it was probably when you talk about it, she could have and she did, evidently. And some of it out of our notice was she’d make checks for the week and one of them would come up and we would sit there and sign it and really not pay a whole lot of attention to what we were signing. If you saw a Staples bill came through there, you signed the Staples bill, and it might be a month or two behind. And you didn’t really pay attention because it’s a Staples bill. I had no idea that people could embezzle stuff off of a Staples bill. You know what I’m saying?
Rep Rye: Yes, sir.
Nelson (Bonanza): Had not dreamed of anything. But it is all my fault because she worked for me. Although she was my daughter, she worked for me. But like I said, the town was flourishing, really. I mean, every department over there has got money in it except– well, the water department still has money in it, enough money that makes me question it, I guess.
Rep Rye: Thank you, sir. Thank you, Mr. Chairman.
Sen Stubblefield: Representative McKenzie.
Rep McKenzie: Thank you, Mr. Chair. Just one last question. I’m on your left on the front row. The questions have been asked most that I had with regard to the lack of effective safeguards. I think that’s a key component here is you got to have safeguards, but they got to be effective. My question is, I’ve been curious about the city council that they rehired her. And also, apparently, they had check-signing authority. Was there any relationship? We know that there’s a father-daughter relationship here, Mr. Mayor. Was there also a relationship with any of the city council members, whether family or close relationship?
Nelson (Bonanza): No. No relationship whatsoever.
Rep McKenzie: And was the vote unanimous to retain her?
Nelson (Bonanza): Yes. At that particular time, ma’am, she had paid all the money back and had a very likable personality. And she actually ran the city. They said she runs the city because she took care of everything. If somebody wanted something, they call her and talk to her instead of me usually. But anyway, that is what kept the city, the city council decided, even though after she had been caught and we were down here three or four years ago or whatever for it, that they still continue to, voted to keep her.
Rep McKenzie: Okay. Thank you.
Sen Stubblefield: All right, members, we’re not taking any more questions. We’ve beat this into the ground. So we have a motion to adopt this report after all this is pending. So have a motion to adopt this report and a second. All those in favor, say aye.
Committee members: Aye.
Sen Stubblefield: All opposed? All right. This motion is adopted. All right. Special report, Cybersecurity incidents reported by public entities for the period. David Coles.
Cybersecurity
Leg Audit: Thank you, Mr. Chair. Legislative Audit is required by law to compile and submit to the General Assembly an annual list of all cybersecurity incidences reported to us by a public entity. Prior to the passage of Act 260 of the 2021 Regular Session, there was no requirement for public entities in Arkansas to report cybersecurity incidences. The General Assembly recognized the need to collect information and evaluate these incidences so that proactive measures can be taken to prevent disruption of government operations. For the purpose of this report, the term public entity refers generically to organizations at all levels of Arkansas government, and a cybersecurity incident is any event that compromises the security, confidentiality, or integrity of an entity’s information systems, applications, data, or networks. During the review period, 63 cybersecurity incidences were reported to Legislative Audit by 48 public entities at all levels of government. As shown on the slide and page two of the report, exhibit one provides a summary of incidences by type, and a complete list of these incidences is provided in appendix C. 15 entities responded to Legislative Audit’s follow-up survey, which is discussed on pages 3 through 5 of the report. To remediate security events, most entities reported that they received additional help and resources from an established vendor. A few reached out to other state agencies for assistance, but most incidences were small enough that no further assistance was necessary.
Leg Audit: However, having the appropriate resources available accelerates recovery time, allowing entities to resume normal operations more quickly than would otherwise be possible. Additionally, most entities surveyed did not conduct any cybersecurity training or were in the process of developing a training program. Several entities conduct or use a vendor to conduct a cybersecurity risk assessment, although the majority do not. While the reported incidences appear less than catastrophic, such incidences can negatively affect an entity’s financial health and reputation, the citizen’s ability to conduct business with the entity. As public entities in Arkansas become more aware of cybersecurity and its implications, Legislative Audit expects the number of incidences reported to increase. Mr. Chair, this concludes my presentation. We have the director of the Division of Information Systems, the state chief cybersecurity officer, and the Division of Information Systems chief operating officer available to discuss the state cybersecurity issues.
Rep Womack: Okay, thank you, sir. I don’t see any questions in the queue. There’s no sense in bringing these folks forward unless somebody has a question. I’m not seeing any. All right. Well, thank you, folks, for being here today, but I don’t guess your presence was required. I’ll turn it back over to–
Sen Stubblefield: All right. No questions. And we have a motion to adopt this report. We have a motion to adopt, a second. All those in favor, say aye.
Committee members: Aye.
Sen Stubblefield: All opposed? All right. Report’s adopted. Any other business?
BLR Staff: Mr. Chair, can I have a point of privilege?
Sen Stubblefield: Sure, Roger.
BLR Staff: I just want to take this opportunity to recognize our chairs, Senator Caldwell and Representative Womack, and from a staff standpoint and the vice chairs and all the members of the committee. Thank you all so much for your service, and we certainly do appreciate you all. Thank you.
Sen Stubblefield: Well, we appreciate it Roger and your staff, too. You’ve been very good to work with and very easy to work with, and you’re always there when we need you. So thank you. Anybody have anything to say before we adjourn? No Merry Christmases? All right. With no other business, we’re adjourned.