MINUTES OF MEETING OF THE

AUDIT SUBCOMMITTEE OF THE LEGISLATIVE COMMISSION

Legislative Building

401 S. Carson Street, Room 4100

September 3, 1998

A meeting of the Audit Subcommittee of the Legislative Commission (NRS 218.6823) was called to order by Vice Chairman Morse Arberry, Jr., at 10:00 a.m., Thursday, September 3, 1998, in room 4100 of the Legislative Building, Carson City, Nevada.

AUDIT SUBCOMMITTEE MEMBERS PRESENT:

Assemblyman Joseph E. Dini, Jr., Chairman

Assemblyman Morse Arberry, Jr., Vice Chairman

Assemblyman John W. Marvel

Senator Raymond D. Rawson

AUDIT SUBCOMMITTEE MEMBERS ABSENT:

Senator Joseph M. Neal, Jr.

LEGISLATIVE COUNSEL BUREAU STAFF PRESENT:

Gary Crews, Legislative Auditor

Marie Cavin, Audit Secretary

George Allbritten, Deputy Legislative Auditor

Timothy Brown, Audit Supervisor

Darin Conforti, Deputy Legislative Auditor

Stephany Gibbs, Deputy Legislative Auditor

Rick Neil, Deputy Legislative Auditor

Rick Pugh, Deputy Legislative Auditor

Paul Townsend, Audit Supervisor

COMMITTEE MINUTES OF APRIL 23, 1998. THE MOTION WAS

Gary Crews explained the contract auditor, Kafoury, Armstrong and Co., had requested an increase for the amount of the Single Audit contract that was awarded during the spring of 1997. The contract was awarded to complete the Single Audit for fiscal years 1997, 1998, and 1999, and after the awarding of the contract, the Federal Government changed the regulations relating to how Single Audits are to be conducted. Because of the unanticipated changes, Kafoury, Armstrong and Co. was there today to make a presentation.

Felicia O’Carroll, partner with Kafoury Armstrong, charged with the daily activity for the audit of the State of Nevada, accompanied by Dave Silva, partner with Kafoury Armstrong, described the circumstances for the request. Ms. O’Carroll explained the original Request for Proposal was due on March 28, 1997, and the Federal Govern-ment finalized the regulations under which they were to be auditing on June 30, 1997. Many of the items included in the original document and some of the preliminary documents available were adopted as expected, but a few items significantly changed the way the financial and compliance audit of the State is done.

Ms. O’Carroll explained the State receives $824 million every year in moneys from the Federal Government and the Single Audit is the audit of that money. She went over the major changes mandated by A-133 and, as a result, Kafoury, Armstrong and Co. has requested the audit fee be adjusted by $19,665 per year to cover the cost of the changes made by the Federal Government. She added they are willing to absorb the cost for the first year of the audit. This would bring the contract to $466,830 over the three-year life of the contract.

In reply to Assemblyman Marvel, Ms. O’Carroll replied Kafoury Armstrong and Co. charges $51 per hour.

ASSEMBLYMAN MARVEL MOVED TO DISCUSS AMENDING THE

SINGLE AUDIT CONTRACT WITH KAFOURY ARMSTRONG

$449,700. SECONDED FOR DISCUSSION BY SENATOR RAWSON.

Assemblyman Dini commented that this seemed like a reasonable proposal and Kafoury, Armstrong is going to absorb the first year’s expenses and needs to recover part of their costs for the second and third years. Any firm would have had to seek this increase.

ASSEMBLYMAN DINI AMENDED THE MOTION TO INCREASE

Assemblyman Arberry stated his biggest concern is the contract was awarded to Kafoury, Armstrong because it was the lowest bidder and now they are raising the total cost. The person that was the bidder just above this company might have a possible lawsuit.

Assemblyman Dini didn’t think this change would have any bearing on the subcom-mittee’s position because the Federal Government changed the program after the fact and it is only reasonable to give them some relief.

Ms. O’Carroll added it had been 14 years since the Federal Government had changed

the Single Audit and these sweeping revisions were made on June 30, 1997. There is virtually no likelihood there would be any changes. Ms. O’Carroll gave her commitment that she has no intention to come back before the committee and request another change. She informed the subcommittee that even with the entire increase amount, the total cost is still below the cost the next lowest firm initially proposed.

Gary Crews added that most other states were experiencing some increase in hours as a result of the changes.

Item 3--Presentation of audit reports.

A. Department of Prisons, Inmate Medical Services

Gary Crews introduced Paul Townsend, Audit Supervisor, and Rick Pugh, Deputy Legislative Auditor in-charge, to present the report.

Mr. Pugh explained the majority of the Medical Division staff, about 40%, worked in medical services, 38% worked in mental health, and the remaining staff was allocated to administration, dentistry, and pharmacy services. As of April 1998, there was a total of 8,982 inmates and 347 beds for medical use throughout the prison system. This includes the private medical units at Ely State Prison and Southern Nevada Women’s Correctional Facility. In fiscal year 1997 the Medical Division had 317 authorized positions and total expenditures of $27 million.

This audit evaluated the management controls used by the Department of Prisons to administer inmate medical services. The audit objective was to determine whether

the Department has appropriate processes and controls to properly manage inmate medical care activities.

Mr. Pugh noted the Department of Prisons uses private contractors to provide inmate healthcare at two of its seven institutions — Ely State Prison and Southern Nevada Women’s Correctional Facility. Because of the limited history the Department has with these contractors, and the lack of comparative cost data on inmate health care maintained by the Department, it is difficult to determine whether contracting for Nevada’s entire prison health care system should be considered. After the Department establishes sufficient and reliable information, Mr. Pugh suggested this area should be considered for further review.

Although Nevada’s prison system has one of the lowest overall costs per inmate in the nation, its healthcare costs rank among the highest. Nevada allocates a higher percentage of its prison budget to inmate health care than any other state in the country. At nearly 22 percent, inmate healthcare in Nevada is funded at more than twice the national average. By strengthening management controls and improving planning, inmate healthcare costs could be brought closer to the national averages and, as a result, significant dollars could be reallocated to other priorities.

In fiscal year 1997, the DOP had a daily medical cost per inmate of $9.37. At that cost level, Nevada ranks as fourth highest of the Western states and eighth highest in the country. Based on inmate population, Nevada spends $4.6 million per year more on healthcare than the western states’ average and exceeds the national average by $8.5 million annually. Establishing an effective system of management controls will help reduce prison medical costs.

The auditors found the lack of established controls continues to be a problem within the Medical Division and is aggravated by high turnover in key management positions within the division. For example, since 1988 the Department has had three Department Directors, five Medical Directors, two Mental Health Coordinators, and five Medical Administrators. During the same period the inmate population increased 75%.

While the Department has made efforts to ensure inmates are provided quality healthcare, it has not established adequate controls to ensure the healthcare is delivered cost-effectively. This lack of controls has resulted in a poor process for controlling access and payments to outside healthcare providers. Furthermore, the DOP has had difficulty implementing legislative reforms designed to control costs.

Mr. Pugh and the auditors reviewed 110 cases for which outside medical procedures were performed in fiscal year 1997. They found 57 instances, or 52%, where prior Department approval was not documented as required in Department policy. This policy is designed to control access to outside medical care by obtaining the approval of the Medical Director or his designee before an outside appointment is scheduled.

The auditors also reviewed inmate cases associated with the 29 most expensive surgeries performed in fiscal year 1997 to determine if these cases received more scrutiny from the DOP than other medical procedures. Of the 29 cases, the auditors found documentation of prior approval in 17 cases or about 59%. Therefore, they concluded the more costly procedures did not receive a much higher level of attention than other procedures.

By failing to comply with its own cost containment policies, the DOP cannot ensure the expenditures for outside medical care, approximately $5 million, are necessary and appropriate.

In July 1995, the DOP established a policy to govern the use of outside medical consultants. In addition to the DOP’s lack of compliance with its stated requirements, the auditors found weaknesses with the policy itself. Among these were a lack of direction on which medical procedures needed the Medical Director’s approval and how follow-up visits would be authorized.

Despite the DOP spending approximately $7,000 per month in fiscal year 1997 for third party administration services, the DOP has an inadequate system to ensure medical claims are processed accurately and appropriately. No written guidelines were available for DOP staff to use when determining the reasonableness of provider charges prior to approving payment. In addition, during the audit period the DOP used the same contractor to determine medical necessity and pay the medical bills of providers.

Assemblyman Dini asked if this was a conflict. Mr. Pugh found there was a potential problem in having the same company determine whether or not a visit is necessary and authorizing the payment of bills to the providers. He noted the Prison’s response explains they have changed contractors for those two functions.

Mr. Pugh added the DOP has no process to periodically review inmate cases or independently compile information on outside medical visits and it has no assurance services were actually provided appropriately. Duplicate or overpayments could be made to healthcare providers and not be detected by the DOP. The DOP has little assurance provider payments are appropriate, only preferred providers are used whenever possible, and erroneous payments are recovered whenever they occur. During the audit, examples were reviewed where erroneous payments had occurred. The auditors also found that although the third party administrator had not met all of the terms of its contract, the DOP exercised no penalties against the contractor as available in the contract.

Mr. Pugh mentioned there have been various reforms passed by the Legislature designed to control inmate healthcare costs, though the DOP has had difficulty implementing these reforms. Among these difficulties experienced by the DOP were:

• no system to measure the impact of these reforms on healthcare utilization by inmates;

• a weak process in place to determine medical charges eligible for reimbursement, and

• an inadequate system for identifying and collecting co-payments from inmates.

Senator Rawson inquired what kinds of surgeries are performed. Mr. Pugh did not have that information available, but he did have it in his workpapers and could get it for him. He also inquired if the auditors reviewed to see whether or not there was anything out of the ordinary compared to inmate populations in other western states. Mr Pugh replied they did not.

Senator Rawson noticed a higher percentage of beds in the Northern Nevada Correction Center and wondered if there was a place where the ill inmates are concentrated. Mr. Pugh answered that they just looked at the allocation as it was and not at how the beds were allocated or why.

Senator Rawson noticed the radiology and lab test expenditures are significant and inquired if there were any controls on this matter. Mr. Pugh explained that when they reviewed inmate cases they didn’t try to second guess whether a medical decision was appropriate. A medical decision was found in only about half the cases.

Assemblyman Marvel asked if the auditors had any idea about how much money was paid on duplicate payments. Mr. Pugh replied that the reporting problems from the third party administrator made that impossible to even guess. In fiscal year 1997 there was $21,000 in overpayment recouped by the State, but there is no idea on what is out there.

Paul Townsend, Audit Supervisor, discussed the lack of adequate planning which has affected the DOP’s ability to develop and maintain a cost-effective inmate healthcare system. The Medical Division has not clearly defined its goals, objectives, or methods to measure performance. Without having these elements defined, it contributes to the Medical Division’s inability to collect and maintain basic program information.

Inmates have a constitutional right to healthcare and the auditors recognize the DOP operates in an environment where lawsuits are filed frequently. DOP has taken steps to ensure an appropriate level of care is provided but they have not taken steps to ensure this care is provided at a reasonable cost.

The current medical plan does not provide adequate direction for staff. This plan was developed in 1993 with some minor revisions in 1995. The plan cites general goals but does not provide specific guidance on methods to use in providing an appropriate level of care that maximizes resources. The auditors feel the Medical Division would benefit from strategic planning. Strategic planning is the first step in Nevada’s strategic planning and budgeting system which recognizes the necessary relationship between strategic planning, allocation of resources, and performance in providing quality services.

A problem with the Medical Division has been the turnover and other issues over the years. DOP has never really established goals and objectives for the Division. Without these goals and objectives in place they have not determined methods to measure their success and identify the information necessary for performance measurement.

Information management is an important tool for containing healthcare costs. The Medical Division does not collect and maintain basic program information in a summarized and readily available format. Through strategic planning, once these information needs are identified, a system for collecting and reporting data can be developed. A properly developed system will collect complete, valid, and reliable information.

Mr. Townsend continued that more planning and evaluation is also needed in mental health services. It is possible a constitutionally-acceptable range of services could be offered using fewer staff. However, the DOP has not defined the level of mental health care it wants to provide and, consequently, the staff and resources necessary to provide it. The level of staffing has primarily been driven by the Taylor v. Wolff lawsuit. This was filed in 1979 by an inmate challenging many of the state’s conditions and practices of the mental health services system. At that time the situation was bad compared to today.

Since that time there have been many improvements. Mental heath facilities now exist in both the north and the south, procedures exist to identify mental illness when inmates enter the prison system, a mental health coordinator has been hired, and mental health staff has increased to over 120 positions.

Due to the many variables involved, there is no single optimum staffing ratio for mental health services. In the DOP’s 1991 plan, they stated little information exists regarding adequate staffing levels for delivery of mental health services in prisons. The American Correctional Association’s standards specify only that the facility shall systematically determine its personnel requirement in all categories on an ongoing basis. The auditors found no evidence that such an ongoing and systematic review of personnel requirements has been performed.

Mr. Townsend explained the result is the staffing levels for mental health in Nevada’s prisons is more than twice the national average. Based on 1997 national data, Nevada’s prison system has the 4th most staff-intensive mental health program of the western states and 17^th in the nation. For every 76 inmates there is 1 staff person. The western states’ average is 129 inmates to 1 staff person and the national average is 194 inmates to 1 staff person.

Assemblyman Marvel asked if all the 120 mental health positions were full or if contract work was being done. Mr. Townsend was not aware of any contract workers.

Mr. Townsend added that if the DOP chose to realign its staffing levels with the western states or national average, services may be provided with significantly less mental health staff than are currently used. Based on the national average, more than $2 million annually may be freed up in deferred hiring of mental health staff as future prison facilities are opened.

Assemblyman Dini asked if the staffing was because the State was under the gun for so many years because of Taylor v. Wolff. He also suggested Nevada is getting tougher criminals in the system that require more care, and wondered if Nevada is really out of proportion of the averages or if we are dealing with really bad prisoners that need these services. This needs to be looked at objectively.

Mr. Townsend felt that was a very accurate representation of the situation and pointed out the lawsuit was originally filed in 1979 and quite a few improvements have been made since that time and maybe it is time to take another look.

Mr. Townsend pointed out the eight recommendations designed to improve controls over inmate medical services. He indicated the auditors are pleased with the DOP’s response and they feel they are moving in a direction to strengthen controls and ulti-mately reduce costs. The DOP accepted 7 recommendations with a conditional rejection of one recommendation. Based on the auditors’ analysis of the DOP response, they feel the Director agrees with the intent of the one recommendation

and this results in an acceptance of the recommendation as well.

Assemblyman Marvel asked how much money was collected in co-payments and if the DOP is utilizing AB 389. As of the end of the audit, the DOP had collected $105,000 and Mr. Townsend understands collections have increased from a combination of co-payments and AB 389.

Mr. Crews added that one of the problems was the lack of systems and the information tracking co-payments. This is an area DOP needs to work on if they are going to implement that program correctly.

Dr. D’Amico, Medical Director for the Nevada State Prison system, stated that the DOP staff pretty much agree with what was uncovered by the auditors. This mirrors some of the analysis he had on the system when he took over at the beginning of the year. He added the DOP response to the audit is rather specific in every area.

Assemblyman Marvel asked Dr. D’Amico if they were staying within budget now or were they going to have to come before IFC for supplementary funding. Dr. D’Amico could not overtly promise things he could not control at this point but he assured the committee he is doing everything he can to avoid that situation.

Phil Novak, Medical Administrator for the Medical Division, summarized the response to the audit report for the subcommittee. He informed the members that while they have a Medical Administrator and a Medical Director at the head of the medical operation, unless these two positions are staffed concurrently and they are consistent in their approach to the functions of medical, what will happen is what has happened at the DOP. There is no consistent policy of controls with respect to medical care and then the resulting fiscal issues are what has been seen. Mr. Novak described that if there is a request from a DOP staff physician for an inmate to receive outside medical treat-ment, that request does not go anywhere until it is cleared through Dr. D’Amico. A log is maintained that ensures the request is actually looked at and reviewed.

Dr. D’Amico concurred with Assemblyman Marvel that many of the inmates were just referred out without anyone signing off. He felt there was an urgency in the system to meet community standards of medical care and to avoid lawsuits. In order to do that a tremendous reliance was put on the community and decisions on inmate care were often left to the community physicians. There was no close evaluation as to what surgeries were performed and whether they were adequate and appropriate.

Assemblyman Arberry asked if the management style of having everything go through the Medical Director was necessary. Dr. D’Amico explained they are currently forming a firm matrix of operation that will be handled by the procedures and guidelines that have been set down. When he first took over, the system was bleeding and they have put pressure to take control of this. Dr. D’Amico has taken on more duties to evaluate every case that goes through. At the same time, DOP is putting in place procedures that will not necessitate the Medical Director evaluating each and every case.

SENATOR RAWSON MOVED TO ACCEPT THE AUDIT REPORT

ON THE DEPARTMENT OF PRISONS, INMATE MEDICAL SERVICES.

SECONDED BY ASSEMBLYMAN DINI AND PASSED UNANIMOUSLY.

B. State Board of Parole Commissioners

Mr. Crews introduced Darin Conforti, Deputy Legislative Auditor, to present the report.

Mr. Conforti explained the objective of the audit was to determine if the State Board of Parole Commissioners complied with laws and regulations significant to its adminis-tration of personnel. He added the State Board of Parole Commissioners complied with most laws and regulations significant to its administration of personnel. In particular, the Board complied with laws pertaining to the composition, qualification, and training of Parole Commissioners and parole case hearing representatives. However, the Board did not comply with provisions governing employee performance evaluations.

The Board accepted both of the recommendations.

ASSEMBLYMAN MARVEL MOVED TO ACCEPT THE REPORT

ON THE STATE BOARD OF PAROLE COMMISSIONERS. SEC-

ONDED BY SENATOR RAWSON AND PASSED UNANIMOUSLY.

C. Department of Conservation and Natural Resources, Division of Wildlife

George Allbritten, Deputy Legislative Auditor, began with background information. In 1997 the Division of Wildlife (DOW) issued more than 290,000 hunting and fishing licenses, permits, and stamps, generating approximately $4.5 million in revenues. Game tags issued contributed an additional $1.5 million. The DOW also generated $1.2 million from boat registrations and title documents.

The audit evaluated the Division’s control systems over wildlife revenues. For the purposes of the audit, the auditors considered this to include hunting and fishing licenses, stamp sales, game tag sales, and boat registration fees. The audit included the license years ended during the period January 1, 1996, to July 31, 1997.

The audit scope also included game draw contracts in effect during the period December 1992 through June 1997 as they related to wildlife revenues and contract compliance. This review included only the financial administration of the process and did not include a review of the processes used for drawing and issuing big game tags.

Continuing, Mr. Allbritten explained weaknesses in the oversight of the game draw reduce DOW’s ability to ensure wildlife revenues are properly controlled. The DOW does adequately control and comply with laws, regulations, and policies regarding non-game draw related revenues; however, the auditors found evidence of improper practices of financial administration and inadequate fiscal records with respect to the game draw.

Pursuant to a bill enacted in the 1991 legislative session, the DOW has outsourced the administration of the game draw to a private contractor since 1993. Since this outsourcing, approximately $37 million in application, tag, and license fees have been collected. Of this amount, the contractor refunded over $28 million to unsuccessful applicants. Despite these significant dollar amounts, the DOW has not established adequate oversight controls over the financial administration of the game draw. The contract and application hunt procedures manual identified numerous oversight and control features to ensure proper financial control; however, the auditors found no evidence DOW adequately reviewed or monitored the financial administration of the game draw.

Since the game draw process was the primary subject of the audit, the auditors developed a general understanding of the processes involved with this process. Some key financial and administrative aspects of this process addressed in the report include the initial receipt of fees by the contractor, and their deposits to the state’s central bank account. After the draw is completed the contractor issues game tags and sends refund checks to unsuccessful applicants. These checks are drawn on the contractor’s private bank account which is funded by cash transfers from the State Treasurer’s Office.

The DOW does not periodically monitor or employ procedures to ensure the game draw bank account is safeguarded. The auditors found no evidence to indicate the bank account is properly reconciled. They also identified about a $40,000 variance between the bank and the cash book balance, and about $97,000 of checks not formally reported to the DOW. In addition, the auditors noted $95,000 of outstanding checks in excess of 180 days that were not voided. Furthermore, the contractor did not use checks in a sequential order thus violating a basic cash control principle.

The 1992 and 1995 contracts indicated the contractor will reconcile the game draw bank account and provide monthly status reports to the Division. The auditors found no evidence the game draw bank account was being properly reconciled or that the Division received monthly status reports.

Weaknesses in the internal control system permit the game draw contractor to issue certain refund checks without a procedure to formally notify the DOW. Through June 1997, they identified approximately $97,000 in refund checks not reported to the DOW on a register. This $97,000 was also not recorded in the DOW fiscal records, thus overstating wildlife revenues.

Allowing the contractor to write checks without a formal process to notify the DOW substantially increases the chances for abuse. Besides the financial exposure, this practice overstates wildlife revenues and impacts the accuracy and reliability of the accounting records.

Assemblyman Arberry inquired about the $97,000 that does not show on the register.

Mr. Allbritten explained that normally after a draw is conducted, refund checks are issued and reported back to the DOW on a register. This is an accounting for the amount of money that must be transferred to cover the checks. Checks occurring after the initial process (refund of a license, etc.) were never accounted for in the state’s accounting records.

Assemblyman Marvel asked where the $97,000 was accounted for and Mr. Allbritten replied the money was not accounted for on the state’s records. The checks were written by the contractor and covered by cash flow that existed in the account.

Mr. Allbritten explained further that on a game draw all the money taken in is recorded in suspense account and after the draw occurs and the refunds are made, all the remaining revenue is recorded in the state’s books. Since DOW did not know these checks were written, that recording was overstated.

The DOW has taken no action to void approximately $95,000 in uncashed applicant refund checks that are in excess of 180 days old. These checks, dating back to 1993, are listed as outstanding as of June 1997. Consequently, the monies transferred by the State Treasurer to the game draw bank account to cover these checks has not been returned by the contractor to the state treasury.

The DOW does not require the contractor to issue game draw refund checks in sequential order. Using checks out of sequence circumvents basic control principles established to help safeguard and control cash and checks. It also creates incon-sistency in the accounting records which impacts the division’s ability to monitor and review check usage.

Continuing, Mr. Allbritten explained that prior to the payment of game draw refunds, the State Treasurer is notified and money is transferred to the contractor, as needed, to cover checks. Since the outsourcing of the game draw, the State Treasurer has transferred over $28 million to the contractor’s bank account. However, the Division did not fully account for all of these transfers. Although DOW officials stated transfers have been reconciled with the Treasurer’s Office, the auditors were able to identify approximately $68,000 that had been transferred and not accounted for.

The auditors noted over 300 game tags from the 1996 hunt year were not accounted for as of March 31, 1998. Because game tags are in such demand and have an inherent value, they must be carefully controlled. During the auditors’ reconciliation of the 1996 tags, they identified tags that were not issued according to game draw records and could not be physically located at either DOW or the contractor offices. The Division also performed a reconciliation during this period and confirmed that not all game tags had been accounted for.

In answer to Mr. Arberry’s question, Mr. Allbritten replied the contractor is Systems Consultants in Fallon, Nevada. Mr. Arberry asked whose mistake it was to take care of these records. Mr. Allbritten felt it was primarily the Division of Wildlife’s responsibility to keep track of these records and though the function has been outsourced, it does not relinquish any responsibility from DOW to implement a proper system to keep control of the tags. A system is currently in place to issue tags to the contractor and procedures to report back to DOW, but that system has broken down and is not fully functional.

Mr. Crews added that this a not an uncommon situation when looking at outsourcing or privatization. There still is a responsibility to ensure everything is handled properly and accounted for. All agencies are going to have to be more cognizant of this in the future.

Inventory records maintained by the Division were not always complete or accurate. In reconciling license records, the auditors attempted to physically observe 22,725 non-resident hunting licenses listed in the records as returned by the game draw contractor.

However, they could not locate 20,000 of these documents. Eventually, the auditors were informed the licenses were destroyed without being documented on a record disposal form. In other instances, the auditors physically observed various inventory documents in the DOW warehouse that DOW indicated had been destroyed.

Tim Brown, Audit Supervisor, continued with the presentation. He informed the subcommittee that the game draw process is complicated. If an applicant is successful, all fees are retained and recorded as earned revenue in the DOW fiscal records. If unsuccessful, only the application processing fee is retained and recorded. DOW does not always conduct a full accounting of this process.

Game draw revenues and disbursements are accounted for through the preparation of a revenue and disbursements register. This information is used to record the results of the game draws. Nine draws were conducted in 1997 and four of them did not have a revenue and disbursements register prepared. Because registers were not generated for each draw, DOW can not be assured the results of these draws are accurately controlled or accurately recorded. Since game draw revenues support several pro-grams, not having adequate fiscal records can impact those programs.

Mr. Brown explained DOW did not always record game draw revenues to the correct fiscal year. For example, about $344,000 in 1998 game draw revenues were deposited and recorded in fiscal year 1997, and about $319,000 in 1998 refunds were also recorded to fiscal year 1997. The net result of these recording errors was approxi-mately a $25,000 overstatement of game draw revenue in fiscal year 1997.

DOW did not always record revenues based on the revenue and disbursements registers prepared by the contractor. Often the game draw revenues did not agree

with the amounts reported on the registers. Further, at year end undocumented adjustments were made to the revenue accounts to balance the agency’s fiscal records.

DOW has not established controls to ensure all contract payments are proper. It sometimes paid for contracted services not performed, and paid for services outside the scope of the contract without Board of Examiners’ approval.

DOW has not required the game draw contractor to comply with certain contract requirements designed to protect the State. These requirements help monitor the contractor’s financial strength and stability and protects the State from liability and failure to perform. The auditors found the Division did not require the contractor to submit financial statements, obtain bonding, or obtain necessary insurance coverage.

The auditors found no evidence an annual report or financial statements were ever submitted as required in the 1992 and 1995 contracts. The financial strength and stability of a business can, and often does, change rapidly. As such, DOW should regularly monitor the financial viability of the contractor.

Mr. Brown added the 1992 contract also included certain bonding requirements. Again, no evidence the contractor complied with these requirements was found. Bonding helps protect the State against contractual non-performance and irregularities. Since the contractor has not obtained bonding, the State is not adequately covered. Given the impact the game draw has on the hunters of Nevada, and that approximately $9 million a year is processed through the contractor’s bank account, it makes good business sense to include a bonding requirement in each contract.

The audit report contains 12 recommendations to help DOW strengthen its financial administration and oversight of the game draw. The DOW response indicates they believe the recommendations will improve the financial administration of the draw and, accordingly, accepted all 12 recommendations.

Mr. Crews mentioned they reviewed extensively the DOW plan they have laid out in response to the audit and the auditors feel it is an appropriate response to strengthen the controls.

Mr. Willie Molini, Administrator for the Division of Wildlife, informed the subcommittee he will be retiring from the State with 30 years of service on September 25, 1998. He thanked all the members of the committee who have been with him through the trials and tribulations of the tag draw system. He stressed this has continually been one of the most controversial aspects of the Division of Wildlife’s business and feels tremen-dous strides have been made in this area.

Mr. Molini added that when the auditors wanted certain data, DOW was not always able to get the complete data at that point in time, but have demonstrated there is no missing money. They have been able to reconcile all but $122 out of $37 million that has been handled by the contractor during the audit period. Out of the 341 tags not accounted for, DOW can physically account for all but 2 of those tags. Employees recall those 2 as being unusable and marked void.

Assemblyman Marvel expressed his satisfaction with the Division of Wildlife’s accep- tance of all of the recommendations.

Mr. Molini stressed they are currently working with the contractor and moving to implement all of the recommendations. The target is to have all of the recommen-dations implemented in the six-month report.

ASSEMBLYMAN MARVEL MOVED TO ACCEPT THE REPORT ON

THE DIVISION OF WILDLIFE. SECONDED BY ASSEMBLYMAN DINI

AND PASSED UNANIMOUSLY.

The members of the committee wished Mr. Molini well on his retirement.