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Archive for the ‘Auditor’ Category

Don’t do as I do; do as I say do

Posted in Auditor, Governor's Office, Public Records, Transparency, Uncategorized on May 5, 2011| 7 Comments »

When a state audit of the Governor’s Office of Homeland Security and Emergency Preparedness (GOHSEP) turned up a number of deficiencies, GOHSEP Director Mark Cooper, judging from his response, must not have gotten the message from Gov. Bobby Jindal.

Among the shortcomings found by the audit were;

Inadequate preparation of the annual fiscal report—for the fourth consecutive year, no less;

Understating the amount reported for the Public Assistance Program by $120 million;

Inaccurate Federal Financial Reports, including a $25 million understatement of the federal authorized amount on the Public Assistance Report for Hurricane Katrina;

Untimely draws and inaccurate reporting of draws to Office of State Reporting and Accounting Policy resulting in delays in state reimbursements and potential lost interest revenue;

The audit report made numerous recommendations to remedy the shortcomings and Cooper responded in classic fashion:

“I have reviewed the finding(s) in (the audit report) which covers activities of the Governor’s Office of Homeland Security and Emergency Preparedness for Fiscal Year 2010,” Cooper wrote.

“Additional staff has been hired and additional training is planned to ensure that multiple layers of review are implemented,” he said.
Wait. What?

“Additional staff?”

What was it that Jindal said a few months back about doing more with less?

Perhaps that doesn’t apply to certain agencies.

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Second week of hearings brings more confusion on OGB sale

Posted in Auditor, Governor's Office, House, Senate, Legislature, Legislators, OGB, Office of Group Benefits, Transparency, Uncategorized on May 2, 2011| 7 Comments »

Some would call it bureau-speak but to those sitting through Monday’s Senate Retirement Committee hearings on the privatization of the Office of Group Benefits, it was more like gooney-babble.

Commissioner of Administration Paul Rainwater, just as he did last week, tried to convince legislators of the wisdom of privatizing the agency that has amassed a $500 million surplus and which has an administrative cost of only 3.5 percent.

As if that were not enough, Legislative Auditor Daryl G. Purpera testified that Rainwater has refused to provide documents that his office is constitutionally entitled to have in order to conduct proper assessments. “We requested certain documents, particularly those pertaining to the Chaffe contract we were told by Mr. Rainwater that those documents would not be provided,” Purpera said.

“We also tried to get specifics of the proposal but I received a letter from Mr. Rainwater saying those would not be provided under exceptions. My office cannot do its job if we have scope limitations,” he said.

The proposal to which he alluded was the proposal submitted by Goldman Sachs to conduct a financial assessment of OGB and to market the agency for a buyer, according to the RFP. The Chaff contract was a $49,999.99 contract with Chaffe and Associates of New Orleans to conduct an interim assessment. The contract amount was one cent less than the amount that would have required concurrence by the Office of Contractual Review.

Rainwater started his testimony by comparing Louisiana to other states, zeroing in on the staff sizes of the other states as compared to OGB’s 300 employees.

At times appearing to talk down to committee members and once even admonishing committee Chairman Sen. D.A. “Butch” Gautreaux (D-Morgan City) to not interrupt while he was speaking, Rainwater said the $500 million surplus “is not for sale. It will not be diverted for any other use other than to pay claims.”

What he did not say on Monday but did say a week ago was that while the surplus would indeed be used to pay claims, it would no longer be OGB surplus funds paying the claims because the surplus would go over to the buyer who would use the fund to pay claims.

It was only a couple of weeks ago that Rainwater said the OGB $500 million reserves are an attractive selling point because the private company that ultimately purchases the agency would not have to dip into its own capital to pay claims. His own office’s press release of April 26 describing his appearance before the Retirement Committee repeatedly alluded to his testimony on the “potential sale and privatization of the state’s Office of Group Benefits” and of the procurement of a financial advisor “to help the state evaluate a potential sale of OGB….”

On Monday, however, a casual observer would have had difficulty in believing Rainwater was talking about the same proposal. Suddenly, it turns out that OGB is not for sale after all, that the RFP will instead be for a third party administrator of the state’s PPO (Preferred Provider Organization).

“At the end of the day,” he told the committee, “we will still have the Office of Group Benefits with 149 employees.”

“I’m not getting answers to my questions here,” Gautreaux said.

“You are getting answers,” Rainwater shot back.

Gautreaux said if the agency is privatized, “There will have to be rate increases and/or benefit reductions. There’s no way to avoid that with a private company trying to turn a profit.”

Division of Administration (DOA) Chief of Staff Dirk Thibodeaux, who had earlier promised the committee that a new RFP would be completed by week’s end, said Gautreaux was incorrect. “The legislature will have to approve any contract” for a third party administrator, he said, so lawmakers would have the opportunity to examine the rate structure.

Rainwater said there would be a five-year contract with a third party administrator. “At the end of the five years, we’ll take a look at it.”

“What’s going on here?” Gautreaux demanded. “Last week we were talking about selling OGB and now we’re talking about a contract with a third party administrator. You three (Rainwater, Thibodeaux, and OGB newly-appointed CEO Scott Kipper) may know what you’re talking about but the rest of us surely don’t.”

Rep. Hollis Downs (R-Ruston), sitting in as a guest for the second week in a row, said, “The state’s HMO is self-insured but administered by a third party, in this case, Blue Cross/Blue Shield, am I correct?”

“That’s correct,” Rainwater said.

“The state’s PPO is now self-insured and self-administered with the state paying all claims but you’re proposing that it become self-insured but administered by a third party?”

“Yes, sir.”

“And my understanding is you may combine both the HMO and PPO into one, am I correct again?”

“Yes, we could conceivably bundle the two for greater efficiency.”

“So, you’re just selling a block of business and the state would continue to have oversight?” Downs asked.

“That’s correct,” Rainwater said.

Following Rainwater’s departure from the committee room, Travis McIlwain, director of the General Government Section of the Legislative Fiscal Office spoke briefly on efforts by his office to analyze the administration’s proposal.

“Frankly, we have nothing in hand that would allow us to analyze this proposal,” he said. “Until today, we have heard only that the administration wants to sell OGB and now, Mr. Rainwater says it’s not for sale but is for lease to a third party administrator. I’m as confused as you, Mr. Chairman,” he said to Gautreaux.

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Administration gives State Auditor private data on OGB study but denies access to Dept. of Economic Development records

Posted in Auditor, Contract, Contracts, Economy, Governor's Office, OGB, Office of Group Benefits, Teague, Transparency on March 19, 2011| 1 Comment »

A $49,999.99 contract between the Office of Group Benefits (OGB) and Chaffe and Associates appears to give the legislative auditor’s office complete and unfettered access to all records of Chaffe’s work for OGB, something it lacked in its recent audit of the Louisiana Office of Economic Development (LED).

Chaffe’s contract with OGB, executed on Feb. 16, calls for the New Orleans investment banking firm to prepare a “detailed report structured to provide sufficient information to permit OGB and the State Affiliated Parties (Office of the Governor and/or the Division of Administration) to understand the data, reasoning, and analysis underlying its (Chaffe’s) conclusion of value” of OGB.

Chaffe is charged with preparing and submitting a report setting forth its opinion of the current fair market value of the operations of OGB in preparation for Gov. Bobby Jindal’s anticipated attempt to privatize the office.

Capital News Service earlier reported that the Wall Street investment banking firm Goldman and Sachs was brought in for several weeks to assist in the preparation of a request for proposals (RFP) from “qualified financial advisors” to assess the market value of OGB.

The deadline for bids was March 7 with interviews of bidders scheduled to begin last Monday, March 14. The problem of timing arose when the administration realized it needed preliminary figures at least in time for the presentation of the governor’s proposed budget on March 11, three days before interviews were to begin.

Chaffe was given a contract to fast track the valuation of the agency in time for the budget presentation. The $49,999.99 contract amount was for one penny less than the minimum contract amount requiring Office of Contractual Review approval. CNS first reported that the contract was for $49,999 but upon receipt of a copy of the contract pursuant to a request under the Louisiana Public Records Act, it was learned that the contract was actually for an additional 99 cents.

While the contract was signed by Tommy Teague, chief executive officer of OGM, and Chaffe Managing Director Jonathan Briggs on Feb. 16, it was back-dated to Feb. 10 and runs through June 30, according to terms outlined in the document.

The contract also gives the legislative auditor the right to audit Chaffe’s work. “Chaffe grants to the Office of the Legislative Auditor, the Office of the State Inspector General, and any other duly authorized agency of the state the right to inspect and review all books and records pertaining to services rendered under this contract,” it says.

State auditors recently complained that the Louisiana Office of Economic Development (LED) denied them complete, unfettered access to requested documents during an audit of that agency.

The audit report said two meetings were held with LED Secretary Stephen Moret and the legislative auditor also sent two letters requesting unrestricted access to records but LED, citing workload issues and legal concerns, refused to cooperate, thereby preventing auditors from knowing to what extent documentation that was provided may have been compromised or whether or not they received complete information.

LED is a public agency, supported by taxpayer dollars, while Chaffe is a private entity.

R.S. 24:513 (I) provides that the legislative auditor’s authority to audit extends to “all documents, records, and files, whether confidential or otherwise.”

While appearing to give the legislative auditor carte blanche in the examination of Chaffe’s work product, the contract also takes careful measures to protect the firm’s report and work papers from public disclosure.

“Chaffe will not release any information to any third party about OGB or this engagement without OGB’s prior written permission,” the contract says, adding, “Chaffe’s work product or other written or electronic documentation regarding this engagement does not carry with it the right of publication without Chaffe’s previous written consent.”

The last sentence might be open to legal challenge inasmuch as once the report is submitted to OGB, DOA, or the governor’s office, it is presumed to be a public document under the state’s public records law and Chaffe would have no say in any decision to make the report public. The contract does appear to recognize that contingency in the next paragraph when it says that OGB agrees to notify Chaffe in writing “prior to the production of any Chaffe work product in response to a request pursuant to the Louisiana Public Records Act or any proceeding before a court or governmental or regulatory body.”

Payment terms of the contract calls for OGB to pay Chaffe a fee of $45,000 for the report, due upon delivery. The maximum payment, inclusive of other fees, expenses and copies is not to exceed $49,999.99, according to terms of the contract.

At the March 7 formal bid opening for the state’s RFP on the “qualified financial advisor,” an RFP in which Goldman Sachs played a major role in drafting, the only bidder was Goldman Sachs.

The global investment banking firm’s bid to more fully assess the fair market value of OGB and to find a buyer for the agency was for $6 million. A spokesman for DOA said that under terms of its bid, Goldman Sachs would receive the $6 million even if it is unsuccessful in securing a purchaser for the agency.

The same source said OGB’s current surplus of more than $500 million would be discounted and the state would receive $150 million to $200 million of that to help Jindal plug the gaping $1.6 billion budget gap with the purchaser retaining the balance.

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What is LED hiding from state auditors?

Posted in Auditor, Economy, Governor's Office, Public Records, Transparency on March 16, 2011| 1 Comment »

It’s one thing when a news reporter encounters resistance from a state agency in obtaining public records. It’s quite another when the legislative auditor’s office cannot get its hands on crucial documents when conducting an audit of that agency.

Yet, that’s precisely what happened with the “most ethical, most transparent administration” when state auditors tried to examine the Discretionary Incentive Programs of the Louisiana Department of Economic Development (LED).

The audit report focused on three discretionary incentive programs of LED: Mega Project Development (Mega Fund), Rapid Response Fund (RRF), and the Economic Development Award Program (EDAP)/Economic Development Loan Program (EDLOP).

The Mega Fund is a special fund created to fund large-scale economic development projects to secure the creation or retention of jobs.

The RRF is also a special fund created within the State Treasury for the immediate funding of economic development projects that may be necessary to secure the creation or retention of jobs. RRF project funding requires the approval of the governor and the LED.

EDAP’s purpose is to finance publicly-owned infrastructure for business development projects that require state assistance. EDLOP is a program that provides loans for site and/or infrastructure improvements for projects. Its purpose is to assist in financing privately-owned property and improvements to promote economic development.

The audit report did not cite any financial irregularities, but five pages into the report the problem of obtaining needed documents from LED was addressed.

“R.S. 24:513(I) states that the legislative auditor’s authority to audit extends to all documents, records, and files, whether confidential or otherwise,” the report said. “However, throughout the audit, LED resisted fulfilling some of our document requests and never gave us complete, unfettered access to all documentation. For example, LED reviewed files for all three programs before allowing us to see them. For RRF and Mega Fund files, LED would not provide some of its internal analyses used in decision-making processes concerning whether to offer awards to specific businesses.”

Auditors said two meetings were held with LED Secretary Stephen Moret. In addition, the legislative auditor sent two letters requesting unfettered access to records. “However, LED cited workload issues and legal concerns in not wanting to provide us with documents,” the report said. While unfettered access to records was never granted, LED eventually provided auditors with specific documents but only in response to specific questions on each objective, a practice auditors said limited the effectiveness of their audit. “For example, problems with programs may exist at LED that we were not able to identify because of lack of access to information in files. Also, we cannot know to what extent documentation furnished us may have been compromised or is incomplete,” auditors said in their report. “In addition, these access problems also affect the efficiency of our work as the audit took longer than planned.

“According to state law (R.S. 24:513), LED should furnish all documents and files requested by the legislative auditor. LED officials should work to ensure that LED provides requested information in a timely manner when requested by the legislative auditor,” the report said.

Moret, the $320,000-a-year LED secretary, said in his response to the report that requested information should be provided but he did so with a caveat: “LED agrees that it should provide requested information, including documents and files, in a timely manner when requested by the legislative auditor in accordance with state law, including…constitutional separation of powers, and lawful privileges, as recognized in Kyle v. Louisiana Public Service Commission (LPSC).”

In that case the Public Service Commission withheld documents from state auditors in 2003 until documents could be reviewed “to determine whether or not they contained privileged communications,” Moret said. “This action taken by the commission’s counsel was reasonable, and probably required. Our review of the cases leaves no doubt that the LPSC has the right to assert both the attorney-client and the deliberative process privileges to prevent access to its records.”

Moret added that LED “acted per state law in providing requested information to the legislative auditor for this audit, and made it a priority to provide information to the legislative auditor as quickly as possible. Specifically, LED worked diligently to provide the legislative auditor with files on over 40 EDAP/EDLOP, Mega Fund, and Rapid Response projects identified as part of the audit.

“In summary,” Moret said, “the legislative auditor had access to all pertinent LED documents and a detailed body of publicly available information for the projects included in its audit. LED worked to ensure that the files were made available to the audit team in a timely manner,” he said.

The furor might well mean little were it not for Gov. Bobby Jindal’s repeated insistence at fundraisers throughout the U.S. that he has created the most transparent administration in the nation and that he has strengthened the state’s ethics laws.

The otherwise obscure controversy might give one pause to wonder what it is the administration does not want the legislative auditor—or the public—to know. How sensitive can economic development efforts really be, after all?

In fact, the LED web page touts what it considers to be three major reasons for an industry or business to relocate to Louisiana and one of those is that the state is “First in ethics disclosure laws.”

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State audit critical of Recovery School District

Posted in Auditor, BESE, Education, RSD, Transparency on January 17, 2011| Leave a Comment »

A state audit of The Recovery School District (RSD) has revealed a fourth consecutive year of sloppy record keeping for more than $2 million in assets and more than $188,000 in movable property either missing or stolen in Fiscal Year 2010.

RSD is a special school district created by legislation in 2003 and administered by the Louisiana Department of Education. The district’s mission is to provide support and intervention as necessary to help academically struggling schools by putting them on a path toward success.

The audit report indicates RSD failed to enter 13,247 items within the required 60 days of receipt and that 1,262 items valued at $2,141,347 could not be located.

Moreover, RSD reported 35 incidents involving 380 movable property items with an approximate value of $188,600 as missing or stolen.

The audit report also indicated that for the fourth consecutive year, RSD identified overpayments to employees, did not verify that employee termination dates were accurate or timely, and lacked adequate documentation to support certain payroll charges. Payroll overpayments of $18,206 were identified by RSD during FY 2010. “Failure to support payroll charges with adequate documentation increases the risk that employees will be paid improperly and may result in federal disallowed cost(s),” the report said.

Other findings of the audit, conducted by the Louisiana Legislative Auditor for the fiscal year ending June 30, 2010, included:

 There were 1,097 assets that had incorrect tag numbers, duplicate serial numbers, incorrect vehicle identification numbers, and/or no manufacturer’s serial number entered in the asset management system;

 Seventy-eight tagged assets were found but were not listed in the asset management system and no paperwork was available to determine the acquisition cost;

 A physical search of property determined nine trailers with an acquisition cost of $24,750 each and 10 other assets with an apparent value of $1,000 or more each were not tagged or entered in the asset management system;

 Daily vehicle logs were not properly completed or audited for completeness by the approving supervisor. In addition, RSD failed to provide proof of maintenance and failed to use the preventive maintenance log;

 Two of 24 employees did not have a time sheet for the requested pay period;

 Two of 11 employees did not have approved leave slips on file;

 For 11 of 24 employees, RSD could not provide supporting documentation to confirm the employees’ approved rates of pay.

One other identified problem, one not controlled by RSD or the Department of Education, was that RSD does not have a capital structure which allows it to receive advance funding of reimbursement programs. That in turn prevents RSD from paying vendors in a timely manner, the report said, adding, “RSD was created by the Louisiana Legislature as a state agency without the benefit of a capital structure that is found in most school districts.”

The reported recommended that the legislature consider legislation to provide advance funding to allow RSD to make timely vendor payments.

RSD Superintendent Paul Vallas, in his written response to the audit findings, took an overall defensive posture while acknowledging shortcomings pointed out in the audit report.

While saying that many of the deficient conditions found in the audit had since been corrected, he also pointed out that RSD “is the only school district in the state which has to tag and input into a system items of $1,000 and above. All other school systems in the state are only required to do this for items of $5,000 and above. If RSD would be treated under such guidelines, none of the (audit) items indicated would be relevant….”

He said RSD has in the State Reporting System 204 assets with a value of more than $1.6 million that have individual asset values of $5,000 or greater.

In referring to the non-existent capital structure to allow timely vendor payments, Vallas fairly bristled. “As you did not note in your finding, the Recovery School District disclosed this situation in our Annual Financial Report.” He added that RSD has applied for legislative remedy for the cash flow restrictions. “To date, these efforts have not been successful,” he said.

Vallas was equally testy when addressing the employee overpayments. “What seems to get lost in your recant of history is that the Recovery School District has an effective internal control system over payroll,” he said. “The numbers quoted in your finding are the result of the Recovery School District’s identification and recovery of overpayments in past years, not new overpayments.”

He did concede, however, that missing time sheets and leave sheets for employees was “not acceptable,” adding that maintaining such documentation in paper form “is not the best solution to the storage issues resulting from our time keeping paper requirements.” He said a more foolproof method of document archiving would be implemented.

Vallas, along with Education Superintendent Paul Pastorek, came under sharp attack last year when it was discovered that Vallas, with the apparent blessings of Pastorek, took some three dozen trips to visit family in Chicago in a state vehicle. The trips weren’t discovered until Vallas was involved in an accident in the state vehicle.

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