MINUTES OF MEETING OF THE
AUDIT SUBCOMMITTEE OF THE LEGISLATIVE COMMISSION
Legislative Building
401 S. Carson Street, Room 4100
October 23, 1997
A meeting of the Audit Subcommittee of the Legislative Commission (NRS 218.6823) was called to order by, at 9:40 a.m., Thursday, October 23, 1997, in room 4100 of the Legislative Building, Carson City, Nevada.
AUDIT SUBCOMMITTEE MEMBERS PRESENT:
Assemblyman Joseph E. Dini, Jr., Chairman
Assemblyman Morse Arberry
Assemblyman John W. Marvel
Senator Joseph M. Neal, Jr.
Senator Raymond D. Rawson
LEGISLATIVE COUNSEL BUREAU STAFF PRESENT:
Gary Crews, Legislative Auditor
Stephen Wood, Chief Deputy Legislative Auditor
Marie Cavin, Audit Secretary
George Allbritten, Deputy Legislative Auditor
Timothy Brown, Audit Supervisor
Nancy Hayes, Deputy Legislative Auditor
Rick Neil, Deputy Legislative Auditor
Mike Spell, Audit Supervisor
Paul Townsend, Audit Supervisor
Item 1--Approval of the minutes of the meeting held on April 30, 1997.
ASSEMBLYMAN ARBERRY MOVED TO APPROVE THE AUDIT SUBCOMMITTEE’S MINUTES OF APRIL 30, 1997. THE MOTION
WAS SECONDED BY ASSEMBLYMAN MARVEL AND PASSED UNANIMOUSLY.
Item 2--Selection of the Vice-Chairman of the Audit Subcommittee of the
Legislative Commission.
SENATOR NEIL MOVED TO NOMINATE ASSEMBLYMAN ARBERRY
AS VICE-CHAIRMAN OF THE AUDIT SUBCOMMITTEE OF THE
LEGISLATIVE COMMISSION. THE MOTION WAS SECONDED BY ASSEMBLYMAN MARVEL. ASSEMBLYMAN MARVEL MOVED THAT
NOMINATIONS BE CLOSED. THE MOTION WAS SECONDED BY
SENATOR RAWSON AND PASSED UNANIMOUSLY.
Item 3--Presentation of audit reports.
A. Administrative Office of the Courts
Gary Crews introduced Rick Neil, Deputy Legislative Auditor, to present the report.
Rick Neil explained this audit was requested by the Supreme Court on February 12, 1997, and authorized by the Legislative Commission on March 13, 1997. This audit included the financial and administrative activities of the budget accounts under the control of the Administrative Office of the Courts (AOC) from July 1, 1994, to January 31, 1997. The activities of the Law Library were excluded from the audit since they were administered by Law Library staff.
The first objective of the audit was to determine whether the AOC has established systems and procedures to provide reasonable assurance revenues and expenditures are properly accounted for; assets are safeguarded against waste, loss, or misuse; and laws, rules, and policies are complied with. The second objective was to determine whether the AOC has complied with laws, rules, and policies significant to its financial administration.
Although the AOC has some controls over its financial administration, improvements are needed to ensure revenues and expenditures are properly accounted for, assets are safeguarded, and laws, rules, and policies are complied with. During the audit period the AOC expended about $370,000 without written agreements covering the terms and conditions of the payments. About $250,000 of this amount was provided to lower courts for automation efforts, and $120,000 was paid to independent contractors working on a Supreme Court task force. Without written agreements, the Supreme Court has no assurance money is used as intended or the Court is receiving needed services.
Mr. Neil added that the AOC, under the direction of the Supreme Court, is responsible for developing a uniform system for collecting and compiling statistics and other data regarding the operation of the state court system. As part of this effort, the AOC provides lower courts with grants or loans to help fund automation of court operations. During the audit period, the AOC provided courts with $671,000. In some cases the AOC had extensive written agreements with courts, and for about $250,000 of the funding provided, the AOC did not prepare written agreements.
Senator Neal asked if the lack of written agreements was a violation of statute and Rick Neil replied that it is good business practice to have written agreements.
The AOC did not prepare written agreements setting forth terms, duties, and respon-sibilities with two independent contractors or document its determination of independent contractor status for these two individuals. The AOC also lacks written policies and procedures for determining whether persons should be classified as independent contractors or employees, including the preparation of written contracts for independent contractors. Contractors have worked on the court’s task force studying potential racial and economic bias in Nevada’s court system since August 1995. From July 1, 1994, to January 31, 1997, they were paid $120,900.
The audit recommends the AOC prepare written agreements for all grants and loans made to courts to fund automation efforts; prepare written contracts for all independent contractors; and document the determination of independent contractor status for parties providing services to the court.
Continuing on, Mr. Neil stated the AOC lacked documentation explaining why checks totaling $379,280 were written to lower courts but never sent. Several months later the AOC canceled the checks. Delays in canceling the checks caused various misstatements in the state’s financial records; therefore, management and policy makers lacked accurate financial information concerning the uniform system account.
Chairman Dini asked how this money was accounted for at the end of the year. Mr. Neil explained the financial reports will show the checks as expenditures because they were not canceled until after the end of the year. The reserve balance would be lower than it actually is. Then in the following year when the checks are canceled, the expenditures would be reduced for the following year and any reserve would go back to where it really is. This happened over two fiscal years.
The AOC lacked documentation to support the authorization of purchases of office equipment and supplies, including three computers, made with personal funds. However, when receipts were submitted, the AOC reimbursed the employee. No encumbrance forms were prepared for these purchases totaling $13,361 during the audit period. Sales tax totaling approximately $500 was inappropriately paid on these purchases.
Allowing purchases from personal funds has several consequences: competitive prices may not be obtained, budgets may be overspent when funds are not encumbered, sales tax may be inappropriately paid, and goods that are not needed may be purchased. There is an increased risk that items purchased will be used for non-state purposes.
The auditors recommend the AOC document all expenditure transactions, prepare written justification when canceling checks, and establish guidelines for controlling purchases with personal funds.
Senator Neal asked if the phrase "personal funds" is used as peculiar to the office or to the individual. Rick Neil replied that he is referring to an individual’s personal funds.
Rick Neil added the agency did not comply with Supreme Court rules concerning fixed assets. Physical inventories of all equipment have not been done and established procedures were not followed when surplus property was disposed. According to AOC records, the Supreme Court currently has assets with an original cost of about $1.2 million. Complying with the rules will help ensure assets are safeguarded against loss or misuse.
The auditors found physical inventories of all assets have not been done since the new Supreme Court building opened about five years ago. Agency personnel could only provide evidence they had inventoried computer equipment. Supreme Court rules require division directors take inventories at least once every two years in accordance with procedures established by the AOC.
The AOC did not properly dispose of assets that were no longer needed. Four of the 40 items selected for testing were part of a donation of obsolete computer equipment to a local charity. Although the AOC prepared a list of the donated property, it was not signed by a supervisor approving the donation or by the donee acknowledging receipt of the donated items. Supreme Court rules require surplus property be disposed of in accordance with NRS 333.220. This statute requires a list of disposed property be prepared and approved by a supervisor or head of the agency. The auditors recom-mend they comply with Supreme Court rules concerning physical inventories of assets and disposition of surplus property.
The Supreme Court Clerk’s Office has control weaknesses with the collection of money. In fiscal year 1996, the Office collected over $250,000 in various fees. Duties over fee collection are not adequately separated among individuals. The same employee prepares the deposit from the cash receipt log, takes the money to the bank, and verifies monthly that deposits agree to the log. Internal control standards require key duties and responsibilities in authorizing, processing, recording, and reviewing trans-actions be separated among individuals.
In addition, money awaiting deposit is not adequately secured to prevent loss or theft. The Court Clerk’s Office deposits money weekly, unless they receive more than $10,000. Until fees are deposited, they are stored in an unlocked filing cabinet in an area accessible to anyone in the Office. The auditors recommend the Court Clerk’s Office separate key duties involving the collection of money, and ensure money awaiting deposit is safeguarded.
Mr. Neil found evaluations are not prepared for many Supreme Court employees. One Supreme Court division official stated evaluations are done, but are not documented. Officials at other divisions stated evaluations are not done at all, or are done only for clerical staff. Supreme Court policy requires all employees be evaluated at least annually. The auditors recommend employee performance evaluations required by Supreme Court policy be prepared.
The AOC has an inadequate internal accounting and administrative control system. Although the AOC has developed some written procedures, they are inadequate. They do not periodically review the system to ensure it is operating as intended. Many problems cited in the report are partially the result of the inadequately documented control system. The auditors recommend the AOC develop written procedure to carry out an internal control system for the Supreme Court and to perform periodic reviews of the system. The agency accepted all 12 recommendations.
Assemblyman Marvel inquired about implementation of the recommendations. Mr. Neil replied that at the time the auditors left the agency, AOC staff indicated they were working on them but he felt most of the work happened after they left.
Mr. Crews reminded the subcommittee members that statewide elected officials report directly to the Legislative Auditor on the status of their recommendations instead of going through the Department of Administration as the rest of the agencies do.
Chief Justice Miriam Shearing thanked the auditors for their efforts. She had asked for the audit when the financial manager was leaving and a new one was being hired because it is a good business practice. When the checks were found in the drawers, the audit became even more important. She assured the subcommittee the AOC is instituting practices to ensure this type of problem does not happen again.
Georgia Rohr, Acting Director, Administrative Office of the Courts, concurred that they are improving the policies and procedures for the handling of funds and expenditures within the court. She added that a number of the recommendations have been implemented and they welcome the auditors’ recommendations.
Senator Neal asked why there was a number of checks written and not sent out. Ms. Rohr explained the checks were written to specific courts and some of them were canceled prior to her being named the acting director and some were canceled after she discovered them. The only thing she can determine, and it is only conjecture on her part, is this would appear to inflate what was actually done for the courts. She contacted one of the courts about the checks and they had no information they were going to be getting the money. The AOC has a contract drafted every time they send money to another court, even if it is a grant, setting forth what the money is to be spent on and then they have implemented a policy where the accountant will then get verification from the court and it is contained in the contract that they will furnish not only invoices, but proof the invoices were paid by the court.
ASSEMBLYMAN MARVEL MOVED TO ACCEPT THE AUDIT REPORT
ON THE ADMINISTRATIVE OFFICE OF THE COURTS. SECONDED
BY ASSEMBLYMAN ARBERRY AND PASSED UNANIMOUSLY.
B. Division of Agriculture
Gary Crews introduced George Allbritten, Deputy Legislative Auditor, to present the report.
Mr. Allbritten stated the Division’s programs are mainly funded by general fund appropriations, federal grants, and user fees. User fees have grown from about $1.5 million in fiscal year 1992 to over $2.2 million in fiscal year 1996.
The audit discusses the Division’s funding policies and cost accounting systems in place from July 1, 1995, to December 31, 1996. The objectives of our audit were to determine if the Division had adopted formal funding policies and if reliable cost accounting systems were in place.
The Division has not established formal policies regarding program funding. Although Division programs are funded by a variety of sources, a policy defining goals and strategies has not been formulated. The review of the Division’s funding process determined only limited planning has occurred, programs are inconsistently funded, and some services are provided at no charge. Further, the Division has not established formal processes for periodically reviewing, analyzing, or adjusting fees.
Although the Division developed a strategic plan in accordance with the Governor’s instructions in 1994, it lacks any funding goals or strategies. The lack of a formal comprehensive funding policy often results in revenue decisions being made on a reactive crisis driven basis.
The Governor emphasized the importance of planning with the implementation of the strategic planning process. Planning is crucial in developing a policy by identifying goals and strategies necessary to achieve the funding policy.
Mr. Allbritten continued by noting the Division has inconsistently funded programs over the years with no evidence these changes reflect Board or management intentions. Our examination of the weights and measures program found the funding mix has fluctuated significantly over the past five years. The weights and measures program verifies the accuracy of all measuring devices used in commercial trade. The program is funded by a general fund appropriation and measuring device inspection fees.
The general fund has provided as low as 15% of the program’s funding in fiscal year 1995, and as high as 60% in fiscal year 1992. Conversely, device inspection revenue provided 85% and 40% of program funding in those same years. We found no evidence during our audit to suggest that this fluctuation was a planned or desired outcome.
The weights and measures programs act as a third party to help maintain fairness in the marketplace and benefit both consumers and businesses. Because of this dual benefit, the Division should define the benefit accruing to each party and establish an appropriate funding policy. Without such a policy, one benefitting party may be incurring a disproportionate share of the program’s operating costs.
Assemblyman Marvel asked if there was an explanation for the fluctuation in the fees charged. Mr. Allbritten replied they do not feel there is any real strategy for funding the weights and measures program.
The Division does not charge fees for certain services that may directly benefit specific individuals or groups rather than the general population. For instance, the Bureau of Animal Industry, funded in fiscal year 1996 by a $628,000 general fund appropriation, provided various veterinary diagnostic services at no charge. These laboratory services are provided to localities, private veterinarians, and individual citizens. We surveyed labs in several western states and found that fees are commonly charged for similar testing services. Our survey also revealed many veterinary professionals have mixed philosophies on the charging of fees. Some believe diagnostic fees can have a negative impact on the program while others believe fees are appropriate if used within reason. These differing views should be taken into consideration in developing a funding policy appropriate to the entity.
Chairman Dini inquired about the types of tests and Mr. Allbritten explained they were mainly for the benefit of public health, such a rabies.
The Division has not established a process to periodically review or assess the adequacy of its revenues. Revenues should be monitored to ensure they remain sufficient to achieve the goals established by the funding policy. Without adequate review and adjustment, revenue sources may not remain consistent with the underlying factors originally involved in the decision.
Mr. Allbritten recommends the Division of Agriculture conduct comprehensive planning and develop a formal funding policy, and review funding levels periodically to ensure they remain sufficient to achieve funding goals.
The Division is responsible for a complex array of programs, many funded primarily from user fees generated by the constituents served. Other programs are funded by a combination of user fees, general fund appropriations, and federal grants. In this environment, reliable cost reporting is critical; however, the Division’s current system does not provide reliable or sufficient information for proper program management. Further, the indirect cost allocation plan does not properly distribute all costs to applicable programs, nor is program information always complete.
The Division had in excess of 50 different fees for products and services, supporting approximately one-half of its operating budget in fiscal year 1996. Where applicable, user charges should be set at levels that will allow the Division to recover a defined portion of the cost of providing the service. Because reliable cost information is not always generated, fee decisions cannot be systematically made. As a result, fees may not include all costs, increases may be reactionary and crisis driven, and programs may need to be subsidized by general funds or other revenue sources.
Mr. Allbritten stressed knowing the cost of operating a program is essential for proper management. The Division needs reliable financial information to set fee levels, control program costs, and ensure funds are spent as intended. However, the Division is not fully utilizing the state’s accounting system to generate accurate and complete program costs. In fiscal year 1996, more than $1.6 million in costs should have been distributed to specific programs to appropriately reflect actual program expenses.
The Division categorizes its operations into 41 programs. However, it has established only 29 category codes in the state’s accounting system to segregate costs for these 41 programs. Consequently, the Division commingled many nonrelated program costs. We estimate the Division commingled approximately $843,000 of program costs in fiscal year 1996, representing about 17% of the Division’s total costs.
The Division does not record certain expenditures to any specific program. During fiscal year 1996, about $800,000 in costs were not identified with specific programs, including the cost of administrative personnel doing work for all bureaus. In fiscal year 1996, these administrative costs totaled approximately $337,000. Without a rational method for assigning these expenses, true program cost information cannot be generated.
The Division does not always record personnel costs for employees working on multiple activities to the program benefitted. Mr. Allbritten stated 10 employees were selected to determine if their salaries were being charged to the appropriate programs. In all 10 cases, each employee worked on multiple programs while their associated costs were recorded to only 1 program. In 9 out of 10 cases, the employee worked on a program recorded in a different budget account than the one from which they were paid. Eight of these employees were paid out of a budget account supported in part by a general fund appropriation while performing services for programs funded by non-general fund sources.
The Division does not use the state’s accounting system to develop information necessary for federal grant reporting. The Division accounts for federal grants independent of the state’s accounting system. As a result: (1) The Division requested greater than 100% of a certain employee’s personnel costs from a combination of grants; (2) The Division used estimated payroll costs rather than actual payrolls for grant reimbursements; and (3) The Division requested all of certain employees’ personnel costs from grants despite the employees’ involvement in unrelated activities.
Assemblyman Marvel asked if there was danger of sanctions being levied on the Division if there is any misuse of federal funds. Mr. Allbritten replied that there are sanctions, such as the Federal Government could withhold future funds or require reimbursement of certain funds that have been submitted.
Senator Neal asked how the Division of Agriculture prepared their budget for the State since they didn’t seem to know where they were in terms of funding. Mr. Allbritten feels the configuration of the budget has developed over time and has continued under its own inertia. The categorization of these costs has been occurring for a long time and to a certain degree, he feels the Division is somewhat of a patchwork quilt that has been added to several times, and it has complicated the accounting system. This basically is the point of the auditors. It needs to be looked at from top to bottom.
Assemblyman Marvel asked if under funding was the cause. Were other categories supporting other categories? Mr. Allbritten felt that was the implication of the audit report and there is a lot of overlap with the different programs because of the lack of clarity in the accounting records. There are clearly incidences where one program is subsidizing another program. There is also a lot of cross-over of the various programs by the employees, which is probably legitimate in many cases. Mr. Allbritten explained they just feel it needs to be accounted for when that occurs.
The auditors discovered reversion and carry-forward calculations were inaccurate in some cases. Rather than using information generated from the state’s accounting system, the Division relied on manual, year-end calculations to generate reconciling items. Use of the state’s accounting system throughout the year would be a more efficient method for generating the calculations necessary for these reconciliations.
As a result of an audit issued by the Department of Administration in February 1995, the Division developed an allocation plan for distributing indirect costs attributable to more than one program. During fiscal year 1996, the Division used this plan to allocate approximately $260,000 in indirect costs.
The auditors reviewed the plan and noted several weaknesses.
Mr. Allbritten added that cost information is not always complete. The Division has not developed cost information necessary to make fully informed management decisions. As a result, management decisions are often made without complete information. For example, the Bureau of Livestock Identification is funded by fees and taxes generated from the livestock industry. Since 1989, the Bureau’s expenses have exceeded revenues in every year except 1992 and 1996, when brand renewal fees were collected. During this period cash reserves dropped from $640,000 to about $200,000. While revenues increased by 12%, expenses have grown by almost 35%. During this same period the auditors felt the Division generated minimal cost information, other than state accounting system reports, to identify the issues impacting the Bureau’s solvency.
The auditors recommended the Division of Agriculture; (1) Utilize the state’s accounting system to fully identify, allocate, and accurately record all costs to operate each state and federal program; (2) Allocate all indirect costs on a consistent and logical basis; (3) Document the methodologies used to allocate each indirect cost; and (4) Develop cost reports to help management monitor program activities and facilitate informed decisions.
The agency accepted all six recommendations.
Paul Iverson, Administrator, Division of Agriculture, along with John Cooper, Vice Chairman, State Board of Agriculture, spoke to the subcommittee and expressed their appreciation for the audit and the tremendous work in preparing the audit. This audit will be the foundation they have been looking for to begin some reorganization as far as fiscal management and internal controls. Mr. Iverson explained they have already developed programs to address all of the issues. This audit was not a surprise. Additional accounting staff was needed, and they were able to get a job reclassified and bring in an administrative services officer to help address these issues. During the legislative session they also got the authority for another accounting position and four part-time employees. He stressed they do know where every dollar is spent and they are working on allocation programs to better define the distribution of the money.
Assemblyman Marvel asked why the state’s accounting system had not been fully utilized in the past and Mr. Iverson responded that they track 26 programs on the state’s accounting system. They have a tracking program to track every dollar. He feels they need to define which of the programs are real programs. Some may only require $150 to $200 a year.
ASSEMBLYMAN MARVEL MOVED TO ACCEPT THE AUDIT REPORT
ON THE DIVISION OF AGRICULTURE. SECONDED BY SENATOR
NEAL AND PASSED UNANIMOUSLY.
C. Nevada State Library
Gary Crews presented the audit report. He stated the objectives of the audit were to determine if the Nevada State Library established appropriate management controls for awarding, monitoring, and accounting for Construction Act grants, and complied with laws and regulations significant to its financial administration.
NRS 353A requires state agencies to establish and maintain an effective management control system. However, the State Library has not fully established the appropriate level of controls over the awarding, monitoring, and accounting for Library Services and Construction Act grants. As a result, grant transactions were not always properly recorded, equipment inventory records were incomplete, and key grant transactions were not always documented.
Testing of the 11 Cooperative Libraries Automated Network (CLAN) grants awarded and administered by the State Library in fiscal years 1993 to 1996 identified deficiencies related to the documentation of grant applications. Some of the problems dealt with grant applications not being signed, budgets weren’t accurate and applications were incomplete or couldn’t be located.
Mr. Crews informed the subcommittee that testing of financial reports relating to these grants could not be found for 4 of the 11 grants. In the ones they could locate, there were other exceptions noted, such as one not being signed by the project director, reports had incomplete payment records, reports did not indicate how the money was spent, reports did not indicate the total funds spent during the individual quarter, and various other documentation problems. He also noted one of the grants had an original budget of $78,000, yet the final grant award was $156,000 and there was no documentation showing why that change was made.
The Nevada State Library’s current process for awarding and accounting for CLAN subgrants to the local county libraries provides misleading information to state, county, and federal officials because the amounts shown as awarded to local libraries are not accurate. In addition, the grant-in-aid award issued in some cases has no relationship to how the funds were actually spent. We reviewed subgrants to local libraries during fiscal year 1993 to 1996. Approximately $75,000 of the $156,000 awarded was spent on equipment purchased for the CLAN program by libraries who did not receive the actual equipment.
The auditors found the State Library records indicate the Churchill County Library was awarded a $40,000 CLAN subgrant with the grant-in-aid award broken down as $10,000 for equipment, $20,000 for contracts, and $10,000 for other operating. In reality, the Churchill County Library spent approximately $30,000 for equipment installed in other county libraries. Only $3,132 of the $40,000 was actually spent on equipment at the Churchill County Library. This was systematic of all the grants reviewed.
The Nevada State Library’s current process and administration of the CLAN grant program gives the appearance the local county libraries apply for, receive, and administer the subgrants when, in fact, the county libraries only act as a fiscal agent for payment of equipment ordered by the State Library.
Mr. Crews explained the equipment inventory records for the CLAN program are incomplete and inaccurate. At least $97,934 of equipment purchased for the CLAN program between 1993 and 1996 is not recorded on the Nevada State Library’s federal fixed asset inventory list.
CLAN expenditure records in the administrative budget account were not correctly recorded. $163,000 of CLAN program expenditures were recorded in the administrative account when they should have been recorded in the CLAN budget account.
The auditors recommend the Nevada State Library should completely and accurately document the awarding and monitoring of the grants including grants under the control of the Nevada State Library; ensure all accounting transactions are fully documented; and record county CLAN expenditures by program project with the CLAN budget account. They also recommend the CLAN inventory records should be updated.
Mr. Crews added that performance evaluations were not being conducted as required by statute and the State Library’s system of internal accounting and administrative controls is incomplete and outdated. It has not been updated since 1993. As a result, some of the agency’s systems and procedures are outdated, ineffective, and not clearly defined.
The State Library accepted all six recommendations.
Joan Kerschner, Director of the Department of Museums, Library and Arts introduced herself and Diane Baker, Grants Administrator for the State Library. Ms. Kerschner explained they will be able to use a number of the recommendations to revamp some of their processes. This audit primarily focused on $100,000 of CLAN grants. Out of the granting process, the State Library does approximately $1 million a year.
Ms. Kerschner explained the agreement allows any library to become a fiscal agent for a project. Where it looks like Churchill County received a $40,000 grant, they were just being a fiscal agent for all the other libraries. What the members of CLAN do with equipment is what belongs to one, belongs to all. Equipment rotates to different county libraries. That is part of the problem that was occurring with the inventory. She believes the inventories are complete, but because equipment moves they did not have a real good tracking system. They only do that every two years which is required by the Federal Government.
ASSEMBLYMAN MARVEL MOVED TO ACCEPT THE REPORT ON
THE NEVADA STATE LIBRARY. SECONDED BY SENATOR NEAL
AND PASSED UNANIMOUSLY.
D. State Railroad Museum
Gary Crews introduced Nancy Hayes, Deputy Legislative Auditor, to present the report.
Ms. Hayes stated that in 1985, the Nevada State Railroad Museum was established as an institution within the Department of Museums and History. The Railroad Museum had 11 employees as of June 30, 1996. During 1996, the Nevada State Railroad Museum received a general fund appropriation of $197,105.
The Railroad Museum did not always comply with laws and regulations significant to its financial administration. The Museum allowed a nonprofit organization to retain $2,073 of train ride receipts. NRS 381.0031 provides that admission charges and the proceeds from the sale of tickets for the train rides are state money. All money that belongs to the State must be deposited in the state treasury per NRS 353.249. They did not have the statutory authority to allow the nonprofit organization to operate the steam train and retain the train ride receipts of $2,073 that were collected on December 30, and 31, 1995. As a result, the State Railroad Museum understated its train ride receipts and reversion to the general fund for fiscal year 1996 by $2,073.
The auditors recommend the $2,073 be remitted to the general fund and all admission fees and train ride receipts be deposited to the general fund.
Ms. Hayes informed the members that in fiscal year 1996, the Railroad Museum waived admission fees for six days and train ride fees for two days, without authorization from the Board of Museums and History. Admission fees were waived July 1, 2, 3 and 4, 1995, and December 9 and 10, 1995. Train ride fees were waived on December 9 and 10, 1995. We estimate a maximum potential loss of $12,000 in admission fees and $4,000 in train ride fees for these dates.
NRS 381.0045 authorizes the Board of Museums and History to establish fees for admission to the institutions of the Division and set the policy and charges for the incidental use, rental, and lease of the buildings. Therefore, only the Board of Museums and History has the authority to waive fees. As a result, the Museum was in noncompliance with state law by not obtaining prior authorization from the Board to waive the fees. The auditors recommend approval be obtained from the Board of Museums and History prior to waiving admission or train ride fees.
The Railroad Museum has not developed current work performance standards for 6 of its 11 employees. NRS 284.335 provides that supervising officers of each agency establish standards of work performance for each class of position and provide each employee with a copy of the standards for the position. In addition, the Railroad Museum did not always prepare performance evaluations for its classified employees in accordance with state law. The auditors recommend the Railroad Museum develop work performance standards for each employee and prepare employee performance evaluations in accordance with NRS 284.340.
The State Railroad Museum accepted all six recommendations.
Nancy Hayes confirmed Chairman Dini’s question that if the Railroad Museum had asked the Board of Museums and History for permission to waive the fees, they would have been in compliance with existing statutes.
Scott Miller, Administrator, Division of Museums and History and John Ballwebber, Curator, State Railroad Museum spoke to the subcommittee. Mr. Miller explained that he made the call to allow the Friends of the State Railroad Museum to operate the train without thinking it through. He explained he does know his statutes and cannot charge fees for train rides without reverting that money to the general fund. The Friends are a good group and do a lot for the Railroad Museum—12,000 man hours per year, and quite a few dollars to go with it. It was an opportunity for them to build their member-ship. The Friends of the State Railroad Museum have made it clear they are prepared to send a check in the amount of money involved to the State Railroad Museum, which they will deposit in the general fund. Mr. Miller explained the December activity which involves the Santa train is the Railroad Museum’s thank you to the people in the local area. They waive the fee because the Friends of the Railroad go out and raise the money for the fuel oil, get the candy canes donated, and they dress up and play Santa Claus for the kids. He felt it was appropriate to waive the fee under those circumstances. The actual admission fee waiver that went along with that was simply a means of giving people access to the Museum at the same time.
Mr. Miller added that at the June board meeting, the trustees provided a framework and a policy within which the directors now have the authority to waive fees, up to a certain number of times per year, under their own discretion. This will bring the Railroad Museum under compliance concerning admission fees, but the train rides are not dealt with in statute. It will have to be clearly determined in statute.
Chairman Dini inquired about what the dollar value of the volunteer group is worth to the Railroad Museum. Mr. Ballweber was not sure how to put a dollar value on that but he calculated for the last 12 months there are 83 active volunteers and 13,000 hours. They do everything from being locomotive engineers to museum store sales and tour guides.
ASSEMBLYMAN ARBERRY MOVED TO ACCEPT THE REPORT ON
THE NEVADA STATE RAILROAD MUSEUM. SECONDED BY
ASSEMBLYMAN MARVEL AND PASSED UNANIMOUSLY.
Item 4 - Presentation of six-month reports.
A. Department of Transportation - Computer System Security Controls
Steve Wood, Chief Deputy Legislative Auditor, gave an analysis of Department of Administration’s six-month report on NDOT’s Computer System Security. That report was issued in February 1996 and included five recommendations. The Department of Administration indicates all five recommendations have been fully implemented.
ASSEMBLYMAN MARVEL MOVED TO ACCEPT THE SIX-MONTH
REPORT ON THE DEPARTMENT OF TRANSPORTATION - COMPUTER
SYSTEM SECURITY CONTROLS. SECONDED BY SENATOR NEAL
AND CARRIED UNANIMOUSLY.
B. Western Interstate Commission on Higher Education
The report was issued in June 1996, and included five audit recommendations. The Department of Administration indicates all five have been partially implemented. Based on the auditors’ analysis of that report, Mr. Wood explained there were several questions and concerns the subcommittee may want to address.
The WICHE program had not established a strategic plan that would be used to guide the activities and programs. In conjunction with that finding, the agency did not really use any established methodology or practice to determine what slots to fund; therefore, two recommendations were made. One was to develop a comprehensive strategic plan containing appropriate mission, goals, objectives, strategies, and outcome measures, and the other was to conduct assessments of the state’s workforce needs to determine the positions to be funded.
Mr. Ron Sparks, Director of the Nevada WICHE program, commented they have never been required to do a strategic plan in the past; however, for the next budget season, they will definitely have one in place. Currently, a new mission statement has been approved and the program has changed dramatically since 1959 so they do need to go back and have a strategic plan in place for the next budget season.
Regarding the issue concerning how students in different professions will be funded, Mr. Sparks explained that during the last budget session they did use some different methods to determine this. They used an ESD report that showed different percen-tages of growth in the medical fields and they also utilized and looked at the different number of students who wanted funds in the different slots. WICHE is currently formalizing this process and they are doing a study on the needs of the State, especially rural communities, to determine where they are going to be placing funds in the future. The Legislature approved the Health Care Access Program which will allow students to be placed in areas of need. They have done a good job of bringing students back to the state, but they did not do a good job of putting them in areas of need. With the HCAP program WICHE will be doing site development and placement of students out in the areas, such as the rurals, and into pockets of the urban areas as well.
Mr. Sparks explained the new HCAP program was developed to help place students from an area-need basis.
Mr. Wood explained when the State funds the students to put them through school, it asks the students to come back and practice in the State and then the debt is forgiven. WICHE did not really have a solid program to ensure the students were coming back to practice in Nevada. The issue of the verification of practice requirement still needs to be addressed.
According to Mr. Sparks, WICHE is tightening up that process through a new position approved during the legislative session. Now there is a new person to oversee the entire professional student exchange program.
Assemblyman Marvel asked how WICHE collects from students that go to other states. Mr. Sparks replied that the Attorney General’s Office has jurisdiction over those students and they report to the AG’s Office if there is a collection problem.
ASSEMBLYMAN MARVEL MOVED TO ACCEPT THE SIX-MONTH
REPORT ON THE WESTERN INTERSTATE COMMISSION FOR
HIGHER EDUCATION. SECONDED BY SENATOR NEAL AND
CARRIED UNANIMOUSLY.
C. Gaming Control Board
The audit report on the Gaming Control Board was issued in February 1996 and included four recommendations. The Department of Administration indicates three of the recommendations have been fully implemented and one has not been implemented because the agency took a different course of action that addressed the issue in the audit. There were no other concerns.
ASSEMBLYMAN MARVEL MOVED TO ACCEPT THE SIX-MONTH
REPORT ON THE GAMING CONTROL BOARD. SECONDED BY
SENATOR NEAL AND CARRIED UNANIMOUSLY.
D. Division of Publications
Paul Townsend, Audit Supervisor, explained the audit report on the Division of Publications was issued in June 1996 and contained two recommendations. The Department of Administration indicates the two recommendations have been fully implemented and they have no questions.
ASSEMBLYMAN MARVEL MOVED TO ACCEPT THE SIX-MONTH
REPORT ON THE DIVISION OF PUBLICATIONS. SECONDED BY
SENATOR NEAL AND CARRIED UNANIMOUSLY.
E. Division of Tourism
Paul Townsend explained an audit report on the Division of Tourism was issued in June 1996 and contained four recommendations. The Department of Administration indicates three recommendations have been fully implemented. One recommendation partially implemented relates to the finding that the Division had bypassed state budgetary and expenditure controls to instruct an advertising agency under contract to make $44,000 in payments to employees, vendors, and contractors. Making payments in this manner resulted in violation of state laws and policies, unnecessary costs, and increased the risk for misuse of state funds. Many payments lacked adequate supporting documentation that is required when payments are made appropriately through the state system.
The Department of Administration indicated the Division coordinated with the Budget Office to construct changes to the State Administrative Manual to allow these types of expenses to be processed through the state accounting system. The recommended language changes have been accomplished and were slated to be heard by the Board of Examiners in June 1997. The Department of Administration indicates that if the Board of Examiners approves those changes, the recommendation would be fully implemented. The auditors would like to know if the Board of Examiners did approve the changes and if the Division is now processing these types of payments through the state system rather than through the advertising agency.
Don Hataway with the Budget Division spoke briefly and verified that the Budget Division has processed for the Director’s review, that portion of the SAM Manual concerning pre-audit. This authority has been discussed with the Attorney General’s Office and they have no problem with the proposal.
Clara Fitz, Business Manager, Division of Tourism, reassured Chairman Dini that the Division is no longer processing payments through the advertising agency.
ASSEMBLYMAN MARVEL MOVED TO ACCEPT THE SIX-MONTH
REPORT ON THE DIVISION OF TOURISM. SECONDED BY
SENATOR NEAL AND CARRIED UNANIMOUSLY.
F. Commission on Economic Development
Tim Brown, Audit Supervisor, explained the audit report on the Commission on Economic Development was issued in June 1996. The report contained two recommendations which the Department of Administration indicates have been fully implemented. There were no questions for the Commission.
ASSEMBLYMAN MARVEL MOVED TO ACCEPT THE SIX-MONTH
REPORT ON THE COMMISSION ON ECONOMIC DEVELOPMENT. SECONDED BY SENATOR NEAL AND CARRIED UNANIMOUSLY.
G. Taxicab Authority
Tim Brown, Audit Supervisor, explained the audit report on the Taxicab Authority was issued in February 1996. This report contained four recommendations. The Department of Administration indicates one recommendation has been fully implemented, two recommendations have been partially implemented, and one recommendation is no longer applicable. Mr. Brown suggested the subcommittee obtain additional information on the status of two recommendations.
The first finding stated that although the Authority established management controls for auditing trip charge documentation, it has not followed its procedures since 1992. The audit report recommended the Authority perform routine and periodic audits of the taxicab industry. The Department of Administration’s response indicates that four of seven owners have been audited with the remaining audits to be completed by July 31, 1997. Mr. Brown suggested the subcommittee may want to know if the remaining audits had been completed and if a plan/schedule has been developed to ensure that audits continue to be performed on a routine and periodic basis.
Beth Turrietta, Management Analyst for the Taxicab Authority responded that as of this date, seven out of seven owners have been audited and they have started to repeat the cycle of audits. She added they have also updated their procedures manual and are prepared to do any special audits should there be a request.
Another finding reported the Authority performed spot and unannounced audits as a method for reviewing reported trip fee revenues; however, the Authority could not provide any documentation showing trip fee charges had been audited or that this type of audit provides assurances trip fees are properly reported. The audit report recommended the Authority document all special audits of trip fees.
The Department of Administration’s response indicates that guidelines for spot and unannounced audits have not been developed and no such audits have been performed or are anticipated. If they are done, they will be documented similar to a regular audit. As such, the subcommittee may want to ask if since the date of the response, have any special audits been performed and/or are any anticipated in the future? If so, have procedures been developed to help ensure they are properly documented?
Ms. Turrietta responded that normally the Authority has had a show-cause type process and there has not been a need for a special audit in the strict sense of the word. In regard to the temporary allocation for holiday and convention medallions, the Authority has incorporated in their regular audit a sample of those. In some ways they may be considered a special audit because they are temporary allocations. She added that their current procedures for the special medallions for revenue issues will also take care of any special samples. The procedures have been developed to make sure everything is documented.
In answer to Assemblyman Marvel’s question, Ms. Turrietta indicated the Taxicab Authority does have enforcement responsibility at the Las Vegas airport.
ASSEMBLYMAN MARVEL MOVED TO ACCEPT THE SIX-MONTH
REPORT ON THE TAXICAB AUTHORITY. SECONDED BY SENATOR NEAL AND CARRIED UNANIMOUSLY.
H. Division of State Lands
Tim Brown presented the six-month report on the Division of State Lands. The audit report was presented in September 1996 and contained four recommendations. The Department of Administration indicates three recommendations have been partially implemented and one has been fully implemented. The auditors suggest the subcommittee obtain more information regarding two of these partially implemented recommendations.
The audit report recommended the Division update the index of state lands and separately identify properties transferred to other entities, properties sold, and site selection information. The Department of Administration’s response indicates the Division has computerized and updated the master state land index and is currently developing an expanded state land list which includes interests no longer held or considered for future acquisitions. Mr. Brown mentioned the subcommittee may want to know if a timetable or plan has been established for when the index will be updated and if a process has been established to ensure the index stays current.
Pam Wilcox, Administrator for the Division of State Lands responded that the index of state lands is complete with just a few items with questions. She thanked the auditors for the push to create this document. Ms. Wilcox added the State owns approximately 240,000 acres.
Mr. Brown continued by saying the Division has only formally assigned about _ of state lands to appropriate state agencies as required by NRS 321.003. The audit report recommended the Division assign all state-owned land or interest in land to the appropriate agencies. The Department of Administration’s response indicates that when the statute was changed requiring the State Lands Office hold title to all the state’s lands, a backlog was created that still exists. Currently the Division is managing the backlog in the following ways:
The auditors recommend asking if the parcels can be identified and assigned as part of the file reviews necessary to implement recommendation #1. They also recommend asking how many parcels have been assigned since the audit report?
Pam Wilcox responded that it was not convenient to identify and assign the parcels as part of the file reviews necessary to do the indexing for recommendation #1. They did not have to go back to the original paper files to do the index work. She added it will be done as part of #2, which is the big project. As far as the new properties, the process is now automatic. They have found seven properties with no assignment since the audit was complete.
ASSEMBLYMAN MARVEL MOVED TO ACCEPT THE SIX-MONTH
REPORT ON THE DIVISION OF STATE LANDS. SECONDED BY
SENATOR NEAL AND CARRIED UNANIMOUSLY.
I. Division of Water Resources
Mike Spell, Audit Supervisor, explained the audit report on the Division of Water Resources was issued in June 1996 and contained eight recommendations. The Department of Administration indicates five recommendation have been fully implemented and three recommendations have been partially implemented. He suggested the subcommittee obtain more detailed information on the status of two of the audit recommendations.
The auditors found the Division did not prepare detailed budgets showing estimated costs for each water system, including factoring in the amount of funding available at the start of the fiscal year when determining subsequent year’s assessments. The audit report recommended the Division prepare detailed water system budgets showing estimated costs and provide documentation of amounts budgeted, and to use accumulated account balances when determining annual assessment levels.
The Department of Administration indicates that while the Division used an assessment form to determine what activities the agency will undertake for each account, the agency did not include total cost estimates for these activities and resulting ending balances. Without this information, the Division does not have written justification for determining appropriate water assessments or how accumulated account balances were used to determine annual assessment levels. The Department of Administration added the Division will complete the forms before the next basin budget cycle in the fall and use this information to determine water assessments for FY 99.
It was suggested the subcommittee inquire if the Division has completed their water system budget for fiscal year 1999, and, if so, have all estimated costs been documented to support each budget and were accumulated account balances used to determine fiscal year 1999 assessments?
Mike Turnipseed, Nevada State Engineer for the Division of Water Resources responded that the Division is now in the process of developing budgets to be sent to the county commissioners for collection in 1998, for expenditure in 1999. He added they have until the first Monday in December to finish the 1999 budget.
Chairman Dini asked if the ending fund balances would have to be used up before the counties could be billed. Mr. Turnipseed answered no. One of the recommen-dations they initially rejected that they have since relented to doing, was establishing some formula for ending year balances and the Division has done that. It is basically a five-year spending plan and can be modified if they expect future studies or litigation. They always expect to have an ending year balance and they will either decrease or increase the assessments to keep the projected end-of-year balance.
ASSEMBLYMAN MARVEL MOVED TO ACCEPT THE SIX-MONTH
REPORT ON THE DIVISION OF WATER RESOURCES. SECONDED
BY SENATOR NEAL AND CARRIED UNANIMOUSLY.
J. Division of Water Planning
Mike Spell, Audit Supervisor, explained the audit report on the Division of Water Planning was presented in September 1996 and contained six recommendations. The Department of Administration indicates all six recommendations have been fully implemented.
ASSEMBLYMAN MARVEL MOVED TO ACCEPT THE SIX-MONTH
REPORT ON THE DIVISION OF WATER PLANNING. SECONDED BY SENATOR NEAL AND CARRIED UNANIMOUSLY.
Item 5 - Public Comment
The next meeting of the Audit Subcommittee was scheduled for Thursday, January 15, 1998, at 9:30 a.m.
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