1. Management and Collection of the State’s Accounts Receivable

Gary Crews introduced Jane Bailey, Deputy Legislative Auditor, to present the report.

He pointed out that this audit addresses several state agencies — mainly the major revenue producing agencies within the State. The report also takes a look at the Department of Administration’s, State Controller’s, and the State Attorney General’s role in this process.

Jane Bailey began by explaining the audit included an evaluation of the practices used by the State to manage and collect its accounts receivable. The scope of our audit included actions taken on fiscal year 1996 accounts receivable at six agencies: the Department of Taxation, Gaming Control Board, Department of Motor Vehicles and Public Safety, Department of Employment, Training, and Rehabilitation’s Division of Employment Security, State Industrial Insurance System, and the Department of Business and Industry’s Division of Industrial Relations. The objective of the audit was to determine if the State has a comprehensive system to effectively manage accounts receivable to ensure it maximizes collection.

Ms. Bailey found Nevada does not have a comprehensive system to effectively manage its accounts receivable to ensure it maximizes collections. For instance, most of the agencies reviewed lacked accurate and reliable receivable information and do not consistently use effective collection practices. As a result, agencies collected only about half of the receivables the auditors tested. By improving the management and collection of receivables, the State could enhance programs and services without raising taxes or fees.

Many agencies lack critical information needed to effectively manage their collection activity. An effective management system includes the methods and procedures used to ensure goals are met. This includes measuring, reporting, and monitoring performance. Policies and procedures should also ensure that valuable and reliable data are obtained, maintained, and fairly disclosed in reports. However, since the agencies are not required to measure and report the effectiveness of their collection activity, the management of accounts receivable is not a priority. The six agencies included in the audit reported accounts receivable balances totaling $103.5 million at the end of fiscal year 1996. Receivable balances were not available for two of the revenue sources—the short term auto lease tax and the special fuel tax collected from dealers. Without accurate and reliable information, management has no assurance all accounts are actively pursued or collection actions are effective.

Another problem with the reported receivable balances was they included uncollectible amounts because agencies did not consistently write off uncollectible accounts. Therefore, the auditors found the receivable balance reported by the agencies is significantly overstated. The agencies wrote off about $11 million in fiscal years 1995 and 1996. Based on testing, the auditors estimate about $50 million of the $103 million reported as receivable by the agencies will probably never be collected. Ms. Bailey added most agencies reviewed lack complete and accurate information on receivables and cannot measure the effectiveness of their collection efforts.

The lack of management information and performance measurement is caused, in part, by the lack of written policies and procedures. Agencies are not required to report receivable balances or effectiveness measures to an oversight body. Therefore, the policies, procedures, and information necessary to implement effective controls have not become a priority for the agencies.

Ms. Bailey found that although some collection practices were very effective, they were not consistently used by the agencies. Agencies did not coordinate collection efforts by sharing information and not all agencies were notified when debtors filed bankruptcies. As a result, the State collected only about half of the $4.7 million in receivables tested.

Some collection efforts are very effective when used. The auditors found the agencies collected about 350% more when they had payment plans and 80% more on accounts on which they used judgments.

Continuing on, Ms. Bailey informed the subcommittee the State lacks a process to ensure it does not make payments to businesses already owing the State money. None of the six agencies reviewed used the State Controller’s Office to offset or withhold payments made to debtors. Five businesses in the sample received payments totaling $41,000 from the State, even though they owed several agencies more than $200,000.

Using offsets can be a very effective tool. ESD collected $118,000 on 3 delinquent accounts by serving state agencies notices to withhold payments. Two problems keep the State from having an effective offset process: only ESD, SIIS, and Taxation have statutory authority to use offsets, and the agencies lack a common identifier, such as a federal employer identification number or a social security number. The absence of a common identifier makes matching debtor information with state payments difficult since information must be manually matched.

The timeliness of collection action and the process used to establish an account receivable affected the success of collection. Ms. Bailey added that referring a delinquent account to a credit reporting service or collection agency can be an effective collection tool; however, SIIS was the only agency to use these services.

Concluding, Ms. Bailey explained the State has an opportunity to improve the coordination of collection actions. The six agencies do not share information on debtors and not all agencies are notified when debtors file bankruptcies. Improved coordination of delinquent account information can result in: (1) using fewer resources to collect delinquent accounts; (2) increasing collections; and (3) improving taxpayer compliance. Not all agencies have statutory authority to use effective collection actions to protect the state assets. Penalties, late fees, and interest are an integral part of the collection process because they provide an incentive for prompt payment. Statutory provisions for penalties and interest vary greatly among the six agencies reviewed.

Ms. Bailey added the Department of Administration was requested to respond to this report because due to the nature of the recommendations, it will require a coordinated effort between the collecting agencies, the State Controller, and the Attorney General to implement these recommendations. The Department of Administration has accepted all four of the recommendations.

Assemblyman Marvel asked if the Department of Taxation has blanket authority on the short-term auto lease tax to impose interest and penalties. Ms. Bailey answered that during the audit the short-term auto lease tax was collected by the Department of Motor Vehicles and Public Safety. It has since been moved to the Department of Taxation who has additional authority than what is presented in this report.

Chairman Dini asked if there should be an overall statute to cover all agencies. Mr. Crews felt this is something that definitely needs to be looked at because of the inconsistencies in the statutes. Chairman Dini asked if a bill draft could be put together.

Mr. Don Hataway from the Budget Division testified Mr. Comeaux supports all four recommendations and intends to convene a management committee comprised of these major entities to look at this, including statutory changes that may be required.

ASSEMBLYMAN MARVEL MOVED TO APPROVE THE AUDIT ON

THE MANAGEMENT AND COLLECTION OF THE STATE’S ACCOUNTS

RECEIVABLE. SECONDED BY SENATOR RAWSON AND PASSED UNANIMOUSLY.

A. Department of Administration, Risk Management Division

Gary Crews introduced Lee Pierson, Deputy Legislative Auditor, to present the audit.

Mr. Pierson began with background information. He explained the Risk Management Division (RMD) is responsible for the administration of the employee benefit programs, the state’s property and contents insurance program, and workers’ compensation and safety programs. In fiscal year 1997, the Division spent about $115 million. Of this amount, more than $93 million was spent on group insurance programs. These programs provide health, dental, vision and other services to employees, their dependents, and retirees of participating employers. These employers include state agencies, the University System, and 35 other public agencies such as state boards, counties, school districts, and special service districts. The Division’s responsibility for group insurance include: determining and resolving eligibility, billing and collecting insurance premiums, answering questions, and resolving problems.

The group insurance program consists of two main areas: the billing process for premiums which is overseen by the Division, and the claims payment process which is handled by a third-party administrator. The audit focused on the billing process handled by the Division. The claims payment process was not audited because an annual claims audit is conducted by a CPA firm and during our audit the Committee on Benefits’ consultants were reviewing claims. The objectives of the audit were to determine if the Division has adequate controls in place to ensure it accurately bills public employers for group insurance premiums, and properly safeguards these premiums.

Mr. Pierson and the auditors found the Risk Management Division lacks management controls over the administration of the group insurance program. The Division has not established written policies and procedures to ensure participant information is processed timely and accurately and billing differences are corrected in a timely manner. Many of the methods and practices the Division uses contribute to the delays and processing errors. As a result, the Division has difficulty generating accurate group insurance billings. Although significant resources are spent attempting to solve these billing discrepancies, more than $3 million remained unresolved as of April 1997. Additionally, the Division has significant internal control weaknesses over the cash receipts process.

Insurance forms are prepared and sent to the Risk Management Division where staff review them for appropriateness. The information is entered into the computer system BISON. The system generates, monthly, a bill for each pay center, and after payment is received from the pay center, that information is again reviewed by RMD staff and entered into BISON. No adequate regulations, policies, and procedures over this process have been established. In addition, the Division lacks performance measures for assessing timeliness and accuracy of processing insurance information.

The lack of controls over this process has resulted in several problems. The first being the RMD does not always process insurance change forms timely. At the start of the audit RMD staff told us billing differences occur because pay centers do not send insurance forms timely. However, staff at the pay centers told us they send forms timely, but RMD loses the forms. The auditors selected 50 billing differences and found that in two-thirds of the cases, the problem occurred because RMD failed to process forms timely.

Mr. Pierson added that forms are also not processed timely because RMD lacks an effective system for managing these insurance forms. Forms processed are not maintained in a single participant file folder and are not readily available for review. Participant forms could be located in 11 separate locations within the RMD office. Forms processed since January 1996 have not been filed. As a result, some of the forms are not processed timely because they are lost or misplaced.

The lack of controls over the group insurance program has also resulted in billing differences not being resolved timely. In many cases these differences between RMD records and pay center records have remained unresolved for long periods. Although 31 of 44 pay centers were reconciled as of April 1997, this represents only one percent of the total amount billed. Since the start of BISON in January 1995, billing differences have grown rapidly and exceeded $3 million in April 1997.

The lack of controls over the group insurance program has also resulted in inaccurate information which, in turn, has caused a variety of problems. These problems include the inefficient use of staff, inaccurate financial information, the loss of state money, and poor service to participants. RMD’s failure to process forms timely and reconcile payments to billings has created additional work for the Division’s accounting and eligibility sections and large pay centers. Although the Division spent $2 million on a new computer system and added five new positions in fiscal year 1996, it is unable to process forms timely and generate accurate bills for large pay centers.

The Division began a concerted effort to reconcile pay centers’ payments to billings in December 1996. Although substantial resources have been spent on this project, several large accounts remain unresolved. Unless RMD improves its procedures for processing insurance forms and settling billing differences, additional staff and other resources are unlikely to resolve billing problems.

Another problem, explained Mr. Pierson, with inaccurate information is the improper transfers. He estimates the Risk Management Division has improperly transferred more than $600,000 from the retired employee group insurance account. This account contains payroll assessments from state agencies which are used to defray a portion of insurance premiums for state retirees. The problem occurred because RMD’s records show about 150 more retirees with insurance coverage than reported by PERS. Because the money was transferred to the group benefits fund, no losses occurred but this fund’s reserves are overstated by the amount of improper transfers.

Mr. Pierson informed the subcommittee the State has lost at least $63,000 in overpayment to one health maintenance organization (HMO). This problem occurred because RMD continued to pay insurance premiums to the HMO for 31 individuals who were no longer covered. Although RMD contends the pay centers were at fault because they failed to notify them of the terminations, we found documents indicating a shared responsibility for the problem.

A fourth problem has been poor service to participants. As a result of the untimely processing, participants could be forced to prepay for services when seeking medical treatment or receive rejected claims for services received.

The Risk Management Division is in the process of connecting its computer system, BISON, with State Central Payroll to eliminate some billing differences. After this is done, RMD would like to connect BISON with other pay centers; however, because of the high cost of developing computer systems, RMD needs to improve its process for handling insurance information and perform proper planning before moving forward with automated solutions. BISON cost more than $2 million to develop and took about four years to complete. The State missed an opportunity to connect BISON with other pay centers when the system became operational in January 1995.

Mr. Pierson said there is a concern with safeguarding of insurance premium payments. The auditors found RMD has significant internal control weaknesses over cash receipts. These weaknesses include a poor process for recording money received, untimely deposits, inadequate separation of duties, and improper use of cash receipt forms. An effective internal control system is needed over cash because during fiscal year 1997 RMD received more than $37 million in insurance premiums by check or in cash.

In conclusion, Mr. Pierson noted the prior audit had 19 recommendations, 5 of those were within the scope of the current audit. The Risk Management Division indicated four of these were implemented and one was partially implement; however, based on the audit work, none of the five have been implemented. Similar recommendations have been included this audit. The agency accepted all 10 of our recommendations.

Mr. Dave Thomas, Chief of the Risk Management Division, said the Division appre-ciates the work the auditors have done and accepts the recommendations. He added all of the recommendations except two have been implemented since the initiation of the audit. They had looked forward to the audit to identify deficiencies in the procedures of the Division.

With respect to Mr. Marvel’s question, Mr. Thomas explained that each of the pay centers were offered the opportunity to connect to BISON. The University pay centers told RMD they did not want to connect. The root problem the RMD encounters is the fact there are seven different payroll systems in the State. It is difficult to maintain consistency. Central payroll is close to connecting with BISON. PERS is the next major payroll system to implement.

Chairman Dini asked what percentage of money that becomes receivable does RMD collect. Mr. Thomas did not have an exact amount but answered that it is a high percentage.

Senator Rawson expressed his concern about many of the statements made, particularly where the Division indicated 16 prior audit recommendations were fully implemented, one partially implemented, and two not implemented. Only five of the recommendations were tested and four were not implemented and one was partially implemented. After hearing this, the Senator feels any response is not credible. He feels the statements have to be dealt with. He asked Mr. Thomas if he accepts those findings. Mr. Thomas replied he accepted the findings and his response is that he came on board since the last audit and has never seen the last audit. Each of the recommendations relating to the prior audit have since been resolved.

Senator Rawson was not satisfied to see the agency accept all of the recommendations and suggested he would like to see a follow through and he would like to see everyone of the recommendations evaluated by the audit staff so there is some credibility. He pointed out his dissatisfaction is not directed at individuals and he understands administration has changed, but he has to assume everything is not OK. He felt whatever it takes for the agency to straighten out the recommendations has to be done, and whatever it takes for the auditors to evaluate if they have been done, has to be done.

Assemblyman Marvel asked if the six-month reports are checked to see if the recommendations are actually implemented and Mr. Crews replied that his office relies on the Department of Administration and their follow-up process. The auditors do not physically go out and test those recommendations. He added there is discussion there may be another audit of the Risk Management Division and felt that would be a great opportunity to follow up on these recommendations at that time. If not, the auditors could follow-up on their own.

Senator Rawson added there is a year before next session and when he sees this come before the budget committee and he does not have assurance it is straightened out by then, he is prepared to take radical action. He recommended the audit staff should be directed to follow through on this case.

Chairman Dini suggested that when the audit report is accepted, it be with the condition the auditors continue to work with the agency and give a report at the next meeting.

Assemblyman Marvel asked that someone from the University come forward and explain why they are against connecting to BISON. Mr. Thomas Anderes, Vice Chancellor for Finance and Administration for the University and Community College System explained that this is the first time he has heard of any desire to connect BISON with the University System. If, in fact, an individual has gone to a campus or individual campuses and not had some kind of success, he cannot speak to. He did stress that no one has come to Richard Jarvis or Tom Anderes and asked to talk about the possibility. Mr. Anderes added there may be technical problems he is unaware of that will not allow this, but he has not been involved in the process of making that decision or working with the University computing staff to determine if it is feasible. Mr. Anderes said he would be happy to sit down with the University staff in conjunction with Mr. Thomas, and see if there are any problems.

Mr. Thomas answered Mr. Marvel that approximately six years ago he, the former Risk Manager, the former Chancellor, and the former Budget Director met to discuss this matter. At that time the University System wanted nothing to do with BISON. The Risk Management Division welcomes the opportunity to have their technical people get together with the University and make this work.

Assemblyman Marvel suggested this issue be pursued further by contacting all the major pay centers again. Chairman Dini agreed, and felt if the pay centers turned down the opportunity six years ago does not mean they should not try again. Mr. Thomas mentioned there is still resistance.

ASSEMBLYMAN MARVEL MOVED TO ACCEPT THE AUDIT ON

THE RISK MANAGEMENT DIVISION AND AT THE NEXT MEETING

THE RISK MANAGEMENT DIVISION WILL REPORT BACK TO THE SUBCOMMITTEE, WITH THE AUDITORS, CONCERNING WHAT

THEY HAVE DONE TO IMPLEMENT THE RECOMMENDATIONS. SECONDED BY SENATOR RAWSON AND PASSED UNANIMOUSLY.

4. Department of Museums, Library and Arts, Nevada State Museum

Gary Crews introduced Stephany Gibbs, Deputy Legislative Auditor, to present the report.

Stephany Gibbs began by explaining the audit included the financial and administrative activities of the Division of Museums and History—Office of the Administrator, Nevada State Museum in Carson City, and the East Ely Railroad Depot for fiscal year 1996. This report collectively refers to these entities as the Nevada State Museum (NSM).

The audit did not include the financial statements of the Dedicated Trust Fund since

this is private money. The audit did include selected transactions and compliance responsibilities of the Division that relate to the Dedicated Trust Fund.

The audit did not include the Museums, Library and Arts Foundation since it is a separate entity outside of state government. The objective of the audit was to determine if the Division of Museums and History—Office of the Administrator, Nevada State Museum, and the East Ely Railroad Depot complied with laws and regulations significant to their financial administration.

The Nevada State Museum has not always complied with laws, followed policies, or implemented audit recommendations to help ensure accountability for money held in the Dedicated Trust Fund. Statutes provide the Board of Museums and History authority over private funds, along with reporting requirements and budgetary control responsibilities. These control responsibilities have not been completely met. Policies approved by the Board to comply with statues have not been followed. Although annual audits have been performed on the Dedicated Trust Fund, the Board has not established a process to address audit recommendations.

Statutes and agency policy dictate an appropriate treatment of budgetary revisions to the Dedicated Trust Fund, yet private money budgets are frequently revised without the required Board approval. Only one budget revision in 1995 and one in 1996 was approved by the Board. In fiscal year 1996, $195,073 in expenditures, or 25% of total expenditures, were not approved by the Board. In those two instances when budgetary changes were properly approved by the Board, the changes were not entered in the Dedicated Trust Fund’s accounting system. Budgets are policy documents that serve as a financial plan, operation guide, and communication device.

The Legislature has established requirements involving the Dedicated Trust Fund providing a measure of control and accountability. The Statute states private money must be budgeted and expended at the discretion of the Board. The Board must be aware of and approve changes that take place throughout the year. Although not always followed, agency policy requires the Board to approve budget revisions.

Ms. Gibbs continued that the agency has established a general policy regarding the budget and allocation of costs, however, the general policy is neither clear nor consistently followed. The Division receives funding from several sources, but has not documented clear methods for allocating the costs of operations between its state and private accounts. Without appropriate controls and allocation methods, it is difficult to accurately track the results of operations and demonstrate legal compliance of the separate funds.

Since the Board does not always approve budget revisions and the accounting system is not adjusted, little reliance can be placed on the budget as a financial plan and allocation method. The Board states allocation methods are defined in agency policy, yet there are no controls to ensure this policy is followed.

The Museum, Library and Arts Foundation was formed in 1990 to offer fundraising opportunities to the Department of Museums, Library and Arts. It is a private not-for-profit organization that previously had its office at the Nevada State Museum in Carson City. Chapter 694, Statutes of Nevada, 1995, created the Trust Fund for the Support of the Division of Museums and History with a corresponding $300,000 appropriation. The appropriation was made on the condition an equal amount of money be donated to the Foundation from other sources on or before June 30, 1997. Since the auditors do not have authority to audit the Foundation, they were unable to determine if the matching condition was met. Financial statements for the Dedicated Trust Fund for fiscal year 1996 indicate that nearly $300,000 was donated from the Dedicated Trust Fund to the Foundation. It is uncertain how much of this donation was intended to meet the matching condition.

The auditors requested a legal opinion about this transfer. The Legislative Counsel responded that the statutes do not prohibit the Board from providing money from the Dedicated Trust Fund to the foundation to meet this requirement, if to provide the money is not contrary to any specific instructions of the donor. Transferring money in this fashion diminishes its degree of control. Statutes dictate specific actions must be taken by the Board with regard to budgets and expenditures of the Dedicated Trust Fund. Once the money is transferred to the Foundation it is considered spent and these controls no longer apply.

Although the Foundation is a separate legal entity, there is significant involvement by the Board of Museums and History and the Division’s administration. Distinguishing between activities and finances of the Division and Foundation can be difficult. This may be an issue requiring further examination.

Ms. Gibbs informed the subcommittee the agency is not fully complying with the statute requiring that the Dedicated Trust Fund reports be submitted to the Legislature and Budget Division. Although agency management states all required reports were submitted, written evidence was not provided.

The Board lacks a process to resolve audit findings. Audits of the Dedicated Trust Fund are performed annually. The full benefit of the audits is not achieved since the Board does not have a formal process for taking action on audit findings. In three of the last five financial audits, the independent auditors reported material weaknesses in the internal control structure of the Dedicated Trust Fund. While the Board minutes reveal some discussion regarding the material weaknesses reported, there is no written follow-up process to resolve findings. Without such a plan the Board cannot be sure material weaknesses are corrected. The risk that errors or irregularities may go undetected is reduced by having and implementing a specific process or plan for correcting audit findings.

Ms. Gibbs found there were two assets valued over $2,000 purchased with Dedicated Trust Fund money. The audited financial statements note fixed assets are part of the state’s general fixed assets account group. The agency reported these assets to State Purchasing but they did not notify the State Controller. Therefore, these assets were not included in the State’s Comprehensive Annual Financial Report.

The Board minutes were found to not adequately document significant administrative and fiscal activities of the Dedicated Trust Fund. The Board, as a public body, is part of the Executive Branch of Nevada State Government. Its function is to carry out laws within its jurisdiction. State open meeting laws require boards to maintain public records of the substance of all matters proposed, discussed, and decided. Clearly written and detailed minutes provide evidence that support the agency’s actions and make the Board’s decisions less susceptible to misinterpretation.

Ms. Gibbs pointed out the State Museum has implemented and monitored internal controls but there are some areas needing improvement. The agency’s controls do not completely ensure cash is safeguarded, payroll records are accurate, personnel evaluations are done timely, and admission numbers are reliable.

The scope of the current audit included 31 prior recommendations. Twenty-two were determined to be fully implemented and nine were not fully implemented. These nine have been modified and repeated and involved internal and administrative controls over cash, fixed assets, payroll, personnel, admission fees, and the methods for allocating costs between state and private accounts.

The Nevada State Museum administration accepted all nine recommendations but it stated many of the recommendations will require Board approval.

Senator Rawson commented this is another situation where he has a high regard for many of the people in the Museums, but there is this attitude that their business is not the Legislature’s business, or is "none" of their business. Senator Rawson continued that there appears to be an attitude of; "We accept all the recommendations and now let us get on with what we are doing." He feels there is not a clear history of listening to the auditors for advice, or that they follow the recommendations. Without more control and observation of this, the legislators cannot feel good about continuing to put public money into the Museum.

Chairman Dini remembered these same recommendations came up in prior audits and nothing has been done to correct them. Assemblyman Marvel agreed and wanted to know why these prior recommendations have not been implemented.

Scott Miller, Administrator for the Division of Museums and History, answered that they felt they had addressed these recommendations and if the auditors felt they were not fully implemented, then he would certainly go back and make another attempt at it. The Museum’s intention was to try to implement the recommendations. He explained they tried to create policies they felt dealt with the internal control issues and with issues of allocating state and private money. The Board adopted policies which may or may not have been adequately used in terms of Mr. Miller’s execution of a job, but that does not mean they didn’t make that attempt.

Mr. Miller sent apologies from the Chairman of the Board who could not be there because he was in court, but the Board did feel it had made every effort to implement the recommendations. He added that since this is not the case they will go back and try again.

Mr. Miller responded to Assemblyman Marvel’s question on who actually makes the expenditures not approved by the Board. He replied that if an individual museum

receives funds through its normal sources or a donation from a donor with specific requests how the money should be spent, then it is conducted through the staff activity with his approval.

Mr. Miller understands the way the auditors have recommended changes in their budget: to show every time there is a change, in terms of income or expense, and that be reflected in the budget and be approved by the Board each time. The Board requested the way they wish to have the information presented to them was in a quarterly report with all the fund balance statements and income and expenditure data that occurred within that three month period or was projected to occur. They have taken this position because they have a very limited amount of manpower to maintain and continue to update all these various documents. The result is they cannot always project what they are going to receive. As a result, the Board reviews how much money has come in at the end of the year, and approves the expenditures at that time—not necessarily when they actually occur. There is an annual audit by an outside firm and it has never been reported there are weaknesses in the Museum’s documentation.

Assemblyman Marvel inquired whether the Board would object to some kind of footnote on their budget, even though they have no control over some of these monies. This would show what actual monies are coming in and how they might have been spent. Mr. Miller felt the Board would have no problem with that. With the Board’s direction of how they wished it to be reported and approved, the Museum has wound up where they are now.

Mr. Marvel stressed the concern of the subcommittee members is that prior recommen-dations keep coming up. Mr. Miller explained they implemented the recommendations to the extent they would work.

Chairman Dini felt the weaknesses in the internal controls shouldn’t exist. He suggested Mr. Miller needs to inform the Legislature when more staff are needed. Mr. Miller had no excuses for the different weaknesses and felt that, as far as the personnel load in the Museum, he would love to go to the Legislature each year and ask for additional help for better internal control, but he felt that was a problem they needed to handle because he felt they would be spending large sums of money for what amounts to a relatively small return. Many times the cost of the individual exceeds the amount of money in terms of a control issue. The Museum’s position has been to try to tighten up when they can and seek better ways to make the system work.

Senator Rawson stressed there is state property, state workers, and there should be a state budget with adequate controls. If there isn’t, then the public demands to hold someone accountable. He does not seem to understand the nature of the problems. He asked if the property of the State Museum was state property. Mr. Miller answered yes, all physical property is state property and the employees are state employees. Senator Rawson commented that whether this property is kept, dispensed with, sold, or discarded, is really determined by a board of directors that don’t come under the control of the Governor or the Legislature.

Mr. Miller responded that policies in place require the Board to oversee and approve any instance where a collections item is traded or sold, or it can be destroyed depending on condition. Any action taken with a train would require board approval. The Governor and Legislature only have to become involved when it concerns a fixed asset, not on a collections item. Mr. Rawson said he understood that and does not want a series of controls that are impossible for the Museum to work with, but the problem is "it is state property." When the Museum gets rid of something the State has invested money in, then there is a reasonable criticism there is a diversion of state assets to some personal interests. The question is if the Board of Director’s is watching this because the Governor and Legislature have no control.

Mr. Miller explained the members of the Board are appointed by the Governor and very rarely the Museum gets rid of anything. Senator Rawson understands this, but his concern is a mechanism has been set where the Board of Directors make a decision that the Governor and Legislators could be held accountable for. Mr. Miller assured the subcommittee members the Board’s primary area of policy authority is over the private fund’s money. When it involves the fundamental mission or direction of action for the institution it would be a byproduct of the administration. He felt the Board would not make large decisions without passing that on to the Legislature.

Senator Rawson felt that was partially because Mr. Miller is a good administrator, but a less effective administrator with a stronger board could be different. This could be a conflict for the State. He wondered if the lines could not be defined better, such as the situation of the Dedicated Trust Fund. If a trust fund is being used in an inappropriate way, there can be serious consequences to that. Senator Rawson explained he does not care to see everything coming into the Foundation, but if there is a requirement there be a match, then the Legislature should see an independent auditor give assurance there has been that kind of a match. The whole Foundation account does not need to be seen, they just need to have the assurance that, yes, this has been legally matched. This way the Legislature can feel they have the adequate safeguard. Mr. Miller understood and informed Senator Rawson he would pass that concern on to the Board.

Senator Rawson informed Mr. Miller he would like to better define the private entity and the state entity. He stressed he wants to make sure any public money he is held accountable for is used appropriately.

Senator Rawson expressed his confidence in Mr. Miller and added he appreciates the attitude and approach he has had towards his job. He is not in any way trying to demean that or cause problems.

ASSEMBLYMAN MARVEL MOVED TO ACCEPT THE AUDIT

REPORT ON THE NEVADA STATE MUSEUM. SECONDED BY

SENATOR RAWSON AND PASSED UNANIMOUSLY.

Gary Crews introduced Sandra McGuirk, Deputy Legislative Auditor, to present the report.

Ms. McGuirk explained the auditors counted the money and securities in the State Treasury on Monday, June 30, 1997, in accordance with the provisions of NRS 353.060. On June 30, 1997, there was zero cash on hand, $43 million on deposit with financial institutions, $2.1 billion of state-owned securities, and $367 million of securities held for safe keeping, giving a grand total of $2.5 billion.

Mr. Marvel asked why the Treasurer’s Office is using the Bank of New York. Ms. McGuirk answered that represents the local government investment pool which was authorized by NRS 355.167.

John Callister, Operations Officer for the Treasurer’s Office, did not have an answer to the question, but he could tell them the Treasurer’s Office completes an RFP process for banking services on a regular basis. Chairman Dini asked Mr. Callister to write a note to the staff answering the question. Mr. Callister thanked the auditors for their work.

The majority of the day to day transactions are handled by the Bank of America and Ms. McGuirk added the average return on securities for the general fund was 6%.

ASSEMBLYMAN MARVEL MOVED TO ACCEPT THE COUNT OF

MONEY IN STATE TREASURY FOR JUNE 30, 1997. SECONDED

BY SENATOR RAWSON AND PASSED UNANIMOUSLY.

A. Agency for Nuclear Projects

Mr. Brown, Audit Supervisor, stated the audit report on the Agency for Nuclear Projects was presented in February 1996 and contained five recommendations. The Depart-ment of Administration indicates all five recommendations have been partially implemented.

Mr. Brown explained the audit found weaknesses in the agency’s contracting processes that do not ensure the fair awarding of contracts or the proper monitoring of contractor performance. The auditors recommended the agency document key elements and decisions of its contracting process, prepare solicitations that ensure fair competition, provide detail contract terms, and improve contract monitoring. The administrator indicates the agency has expended efforts in developing format and direction to its contracting process, and is approaching compliance as contracts are renewed, rebid, etc. As such, Mr. Brown suggested the subcommittee may want to know

if cost is now a required element when evaluating contract proposals and have the revised contracting policies and procedures been consistently followed for those contracts issued after the date of the audit.

Bob Loux, Executive Director for the Agency for Nuclear Projects answered yes to both questions. Cost is included as an element of all solicitations in contract awards, and the procedures have been developed for all new contracts executed since the audit. The partial implementation of these recommendations is by and large a function of the fact there has been a reduction in terms of money and contract activity. He believes only three or four new contracts have been implemented since the audit has occurred. No single-source contracts have been awarded.

ASSEMBLYMAN MARVEL MOVED TO ACCEPT THE SIX-MONTH

REPORT ON THE AGENCY FOR NUCLEAR PROJECTS. SECONDED

BY SENATOR RAWSON AND PASSED UNANIMOUSLY.

B. Department of Administration, Hearings Division

Paul Townsend, Audit Supervisor, explained the audit report on the Hearings Division was issued in September 1996, and contained four recommendations. The Department of Administration indicates one recommendation has been fully implemented and three recommendations have been partially implemented. He suggested more information be obtained regarding the status of the three partially implemented recommendations.

Since no one from the Division was present, Assemblyman Dini requested the questions be presented to the Hearings Division and a written response be mailed back to the Audit Subcommittee. Mr. Don Hataway, Chief Assistant Budget Administrator, said he would see this is done.

ASSEMBLYMAN MARVEL MOVED TO ACCEPT THE SIX-MONTH

REPORT ON THE HEARINGS DIVISION PENDING THE RESPONSE

FROM THE DIVISION. SECONDED BY SENATOR RAWSON AND

PASSED UNANIMOUSLY.

C. University and Community College System of Nevada

Paul Townsend, Audit Supervisor, explained the audit report on the University and Community College System of Nevada was presented in December 1996 and contained 10 recommendations. The Department of Administration indicates four recommendations have been fully implemented, five have been partially implemented, and one has no action. Overall the general concern with the direction UCCSN is taking

towards the recommendations is the lack of change in the organizational structure. Mr. Townsend continued that without this fundamental change, there will continue to be a lack of appropriate monitoring.

He continued that UCCSN’s response to the audit recommendations does not always address the weaknesses identified and they cannot be allowed to continue as before using after-the-fact reporting as a form of review and approval. Mr. Townsend feels a strong system of control would provide ongoing monitoring and eliminate the need for additional reports. It is the auditors’ opinion, the proposed reports will not provide a

level of control to justify the additional staff time necessary to prepare them; therefore, he suggested the subcommittee obtain additional information on the status of several of the recommendations.

Senator Rawson mentioned he is an employee of the University System and he does not perceive any of these recommendations have an effect on his position, so he will be voting since his vote is needed for a quorum.

Mr. Townsend’s first questioned what changes in the system-wide organizational reporting structure had been made to provide oversight and help ensure institutional accountability. Mr. Anderes, Vice Chancellor of Finance and Administration with the University and Community College System, replied the basic foundation from which they were working was the creation of new policies, financial policies, or the expansion of financial policies that addressed the LCB recommendations. The policies they tried to develop from an action plan created through the Chancellor and the presidents is the foundation from which they are working in addressing the auditors’ concerns. He added they do have a number of legitimate concerns and one they want to remedy.

Mr. Anderes continued they have also developed a controllers’ committee and a budget officers’ committee with representatives from each of the institutions. Their purposes are to be advisory to the system. He feels part of the problem that will not be resolved is that they put a great deal of responsibility at the institutional level and there were some organizational changes at the institutional level as well. UCCSN sees the absolute critical part of their plan is having the balance between a strong centralized oversight, which they are enhancing, along with similar responsibility and expectations at the institutional level.

Mr. Townsend’s next question was if uniform policies and procedures and consistent accounting practices had been put in place throughout the system. Mr. Anderes replied that yes they have.

Mr. Townsend asked if System administration will be conducting critical evaluations of self-supporting budgets as part of the budget review process. Mr. Anderes replied yes they will. They have expanded the number of budgets they will be reviewing in terms of the self-supporting budgets, and their concern right now is to have a process of review for the self-supporting budgets.

The next finding noted that because of weak controls, there were several areas where funds were spent on activities or purposes other than for which they were budgeted. Expenses initially charged to non-state funded accounts were often transferred to state-funded accounts at or near year end without adequate justification. A recommendation was to revise Board policy to require system administration approval for these accounting transfers, and the Department of Administration indicated full implemen-tation with Board policy representing an after-the-fact review and approval by the System and Board. The questions in this area were how many accounting transfers were reviewed by system administration for the first two quarters of fiscal year 1998. Of those reviewed, how many were approved and how many were denied.

Mr. Anderes answered they do after-the-fact reports to the Board regarding transfers, budget revisions, and a variety of other things. In the case of accounting transfers and budget revisions, those are reviewed and approved by system administration before they are implemented at the campus level. He feels there may be a little confusion on this recommendation. There are after-the-fact reports to make the Board aware of things but they, in fact, approve those prior to implementation by the institutions. Reports are being made to the Board regarding revisions and transfers. As of today they are looking at about 24 or 25 transfers that have taken place in the first 6 months. Of those requested, only one was denied.

Mr. Townsend discussed the next questions which cover the area of actual budget revisions. The finding had been that the budgets were routinely revised without Board and System review and approval. In addition, faculty salaries were shifted to other areas by institutions. The recommendation was to establish Board policy requiring System Administration approval for budget revisions and Board approval for those exceeding a certain level. Mr. Townsend asked how many budget revisions were reviewed by System Administration for the first two quarters of fiscal year 1998, and of those reviewed, how many were approved and how many were denied.

Mr. Anderes answered that as of the date of the meeting, 66 budget revisions have been requested and all have been approved. Mr. Townsend asked if any of those approved were presented to the Board. Mr. Anderes answered yes and they are trying to keep the Board aware of what is happening with the implementation of the policies.

The final question was if the Board policies now provide system-wide guidance for the utilization of state instruction funds that become reassigned or off loaded when a faculty member then goes to work on a grant or contract rather than instructing.

Mr. Anderes explained part of the problem with the tracking of funds is related to a position control system which they will be implementing in the near future. The UCCSN has implemented a process at the two universities where there is a combined computing/manual process of tracking off-loaded salaries. Almost all the dollars go back into the instruction program related to the teaching the individual faculty member has left to support other faculty to teach that subject, and it has also gone to vacancy savings. A position control system was projected to be fully implemented by June 30, 1998, but because of the problems, costs, and conflicts with implementing the changes with the year 2000, that date will have to be pushed back.

Mr. Townsend continued that the System Administration relies on an ineffective exception reporting process to monitor budgets. The recommendation was to replace the exception reporting process with regular monitoring of budgets at the System administration level. The Department of Administration indicates no action on this recommendation and that the system has chosen to strengthen the process through the development of more uniform formats and a broader analysis of accounts. Mr. Townsend asked if the reporting process now includes all accounts and considers those accounts that are not yet in deficit.

Mr. Anderes reported the process will include all self-supporting budgets and all state budgets, and they will have to look at all the budgets to make that decision. He concluded that they are currently reporting exceptions in a uniform format.

ASSEMBLYMAN MARVEL MOVED TO ACCEPT THE SIX-MONTH

REPORT ON THE UNIVERSITY AND COMMUNITY COLLEGE

SYSTEM OF NEVADA. SECONDED BY SENATOR RAWSON

AND CARRIED UNANIMOUSLY.

D. Department of Personnel

Mike Spell, Audit Supervisor, explained the audit report on the Department of Personnel was issued in December 1996 and contained seven recommendations. In the six-month report, the Department of Administration indicates four recommendations

have been fully implemented and three have been partially implemented. Mr. Spell added the Department of Personnel has been working closely with the Legislative Auditor’s office in implementing the recommendations and the audit was also presented to the Personnel Commission. The findings and recommendations have been well received and the Department of Personnel has been working on adopting new regulations.

Mr. Spell had a few questions. In the auditors’ examination of the financial management series, they found that because of long-standing promotional practices, many of the state’s financial managers were appointed to positions without facing competition or taking an exam. In addition, minimum qualification requirements for most of the state financial management positions did not ensure eligible applicants possess the conceptual knowledge and technical skills needed. The two recommendations were to encourage competition and administer written exams, and to strengthen financial management qualifications. The two recommendations have been partially implemented. The Department of Personnel has issued a memorandum to all department heads advising them of all the audit recommendations and encouraging them to seek applicants for financial management positions through open competition. Furthermore, appropriate competency exams and validated selection procedures are expected to be in place in March 1998. Mr. Spell inquired if the Department will meet the expected completion date.

Sharon Murphy, Director of the Department of Personnel, answered that when they agreed to do this they knew it was going to be an ambitious project. Three people on their staff have been put on the validation and development of the examinations. There will probably be another person for the validation of the minimum qualifications. She said they will have the examinations completed at that time and the job specifications will be completed. Ms. Murphy added that the minimum qualifications will be drafted and completed by the end of March.

Mr. Marvel asked if there was any resistance from the agencies. Ms. Murphy answered they have not. He then asked if they are making any attempt to recruit from the University of Nevada. Ms. Murphy informed the subcommittee that this was the area she thought would be very simple, and it has been the most frustrating for her personally. One member of the Personnel staff has been assigned this project and she has met with the deans of the College of Business in both the north and south. This was shown to be partially implemented, but they do not have a placement yet. The major problem is the College of Business has more paid internships available than they have students to fill them. Consequently, there is a two-tiered program—the Public Service Program which has the paid interns, and the Student Intern Program which has students working for the State for credit and not receiving money. When competing with private industry, the State is having a difficult time attracting people. Recruitments for accounting technician, accountant, and staff professional trainee have had a poor response from the College of Business. She reassured the members she will continue in this endeavor.

Assemblyman Marvel asked if the State could draw from any of the other colleges. Ms. Murphy says it appears, in analyzing this information, that there is more interest by the students in schools other than business. She found many administrators currently use interns. It seems there is a lot of activity in engineering, the health area, MH/MR, conservation, economic development and tourism.

ASSEMBLYMAN MARVEL MOVED TO ACCEPT THE SIX-MONTH

REPORT ON THE DEPARTMENT OF PERSONNEL. SECONDED

BY SENATOR RAWSON AND CARRIED UNANIMOUSLY.

E. Department of Personnel, Payroll Ssytem

Harry O’Nan, Audit Supervisor, explained the audit report on the State Payroll System was issued in September 1996 and contained four recommendations. The Department of Administration indicates three recommendations have been fully implemented and one partially implemented. There were no questions.

SENATOR RAWSON MOVED TO ACCEPT THE SIX-MONTH

BY ASSEMBLYMAN MARVEL AND CARRIED UNANIMOUSLY.

F. Department of Transportation

Harry O’Nan, Audit Supervisor, explained the audit report on the Department of Transportation was issued in December 1996 and contained six recommendations. The Department of Administration indicates five recommendations have been fully implemented and one was partially implemented. There were no questions.

Mr. Roger Grable, Assistant Director for Administrative Services for the Department of Transportation, responded the one partially implemented recommendation is involved with the presentation of consultant contracts for Board of Examiner’s approval and review. The Department is complying with the attorney’s recommendations in those areas and he expects to have two more off-system consultant contracts for consid-eration by the Board of Examiners in the next six-month period.

SENATOR RAWSON MOVED TO ACCEPT THE SIX-MONTH

SECONDED BY ASSEMBLYMAN MARVEL AND CARRIED

UNANIMOUSLY.

G. Department of Administration, Audit Follow-up Process

Rocky Cooper, Audit Supervisor, explained the audit report on the Audit Follow-up Process was presented in December 1996 and contained two recommendations. The Department of Administration indicates both recommendations have been fully implemented. There were no questions.

ASSEMBLYMAN MARVEL MOVED TO ACCEPT THE SIX-MONTH

REPORT ON THE AUDIT FOLLOW-UP PROCESS. SECONDED

BY SENATOR RAWSON AND CARRIED UNANIMOUSLY.

Chairman Dini thanked the audit staff for their great work on the audits and he was very pleased with the reports.

Assemblyman Marvel added the reports are helpful and during the legislative session he uses the audit findings extensively. He also appreciates the excellent work.

Senator Rawson asked if there was room for interns with the audit staff. Mr. Crews

answered that currently they are experiencing it is a seller’s market and there are more jobs out there than there are people. He added his office is looking at recruiting at the university level versus hiring experienced staff. It is becoming more and more difficult to hire experienced staff.

Chairman Dini felt it would be advantageous if they could pick up a couple every year.

Mr. Crews explained positions become available as there is turnover throughout the year. If this can be planned for in advance and if they know during the budget there will be new positions, recruiting can be done in the campuses in the spring for graduation. The logistics have to be looked at.

Chairman Dini suggested if Mr. Crews’ office budgeted for two interns that were seniors at the university, then there would always be staff available to step in with the training they have received. Mr. Crews agreed this would be feasible and would be something they want to look at.

There being no further business, the meeting was adjourned.

Respectfully submitted,

Marie Cavin, Secretary to the

Legislative Auditor

Assemblyman Joseph E. Dini, Jr.

Chairman of the Audit Subcommittee

of the Legislative Commission

Date

Wm. Gary Crews, Legislative Auditor

and Secretary to the Audit Subcommittee

of the Legislative Commission

Date