The Senate Committee on Government Affairs was called to order by Chairman Ann O'Connell, at 12:40 p.m., on Friday, April 23, 1999, in Room 2149 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Senator Ann O'Connell, Chairman

Senator William R. O’Donnell

Senator Joseph M. Neal, Jr.

Senator Terry Care

COMMITTEE MEMBERS ABSENT:

Senator William J. Raggio, Vice Chairman

Senator Jon C. Porter

Senator Dina Titus

STAFF MEMBERS PRESENT:

Amelie Welden, Committee Secretary

OTHERS PRESENT:

Chairman O’Connell opened the meeting as a subcommittee and began the hearing on Assembly Bill (A.B.) 255.

Wm. Gary Crews, CPA, Legislative Auditor, Audit Division, Legislative Counsel Bureau, testified A.B. 255 was requested by the Audit Division through the Audit Subcommittee of the Legislative Commission. Mr. Crews explained A.B. 255 is a "follow-up" to Senate Bill (S.B.) 460 of the Sixty-eighth Session.

Mr. Crews asserted S.B. 460 of the Sixty-eighth Session addressed concerns that state agencies did not have appropriate controls and were consequently expending substantial amounts of money unnecessarily and not collecting some revenues. He noted S.B. 460 of the Sixty-eighth Session required each agency to establish and evaluate internal controls and to then report these controls to the director of the Department of Administration every 2 years. Mr. Crews stated the Audit Division conducted an audit of this process during the last biennium, and the division found many agencies are not evaluating their controls. He added many agencies that do evaluate their controls are late in submitting reports to the Department of Administration, so the department cannot provide the agencies appropriate guidance and assistance.

Mr. Crews continued the Audit Division believes legislation is necessary to address the lack of compliance with S.B. 460 of the Sixty-eighth Session. He explained such legislation should strengthen the reporting process and hold agencies accountable for their internal controls. He distributed a handout with background information on A.B. 255 (Exhibit C). Mr. Crews pointed out page 2 of the handout identifies some problems that have occurred due to lack of internal controls. He summarized state agencies have problems with accounts-receivable and collection processes, noting "$50 million fell through the cracks because of poor controls and procedures."

Mr. Crews mentioned problems with the Committee on Benefits can also be attributed somewhat to a lack of internal controls. He added the Audit Division found $5 million that could be saved if the Department of Prisons had better controls in its medical operations. He further commented a recent audit report identified $1 million that was lost in fiscal year 1998 because of poor controls in the Division of Child and Family Services. Mr. Crews elaborated children were not placed in foster care soon enough and were thus left too long in emergency-shelter care. He recalled the Audit Division had identified similar control problems in the Division of Child and Family Services in 1993. Chairman O’Connell commented such problems were identified in 1987, as well.

Mr. Crews emphasized internal controls are "extremely important" in state agencies. He maintained A.B. 255 would provide the necessary information for the Legislature to evaluate controls during the budget process. He noted the money committees appropriate billions of dollars to state agencies each session, with little assurance that the agencies will spend the money appropriately.

Mr. Crews expressed section 1 of A.B. 255 would require the director of the Department of Administration to submit to the Legislature a report indicating to what extent agencies have not implemented appropriate controls. Mr. Crews asserted this process would be more proactive than current procedures and would provide relevant information to the money committees.

Mr. Crews continued A.B. 255 would require individual agencies to be identified if they have not complied with statutory provisions regarding internal controls. He explained the aforementioned report would also delineate the ways agencies are improving or changing their internal-control systems. He concluded the report would include information regarding the effectiveness of agencies’ internal controls.

Mr. Crews stated A.B. 255 would "give the Legislature another valuable tool in the budgetary process" and would "help plug some of the problems we’ve [we have] identified in the past."

Chairman O’Connell asked if Mr. Crews had discussed this issue with the Governor’s Office. She contended the Legislature had passed laws regarding agency controls in the past, but had "never been able to get the administration to really feel this is important."

Mr. Crews responded he has talked to the Governor about the issue, and the Governor has indicated he will "take a more serious interest" in state agencies and their compliance with audit recommendations. Mr. Crews stated the Governor has expressed concerns on issues such as some of the possibly-avoidable problems with the Committee on Benefits. Mr. Crews concluded the Governor "[wants] to be more involved in the process."

Chairman O’Connell commented her experience has shown the Governor’s Office needs to be involved in order to capture the attention of state agencies. Mr. Crews reiterated the Governor is involved with and interested in the audit follow-up process. Mr. Crews indicated the Governor has expressed a desire to monitor the implementation of recommendations made by the Audit Division.

Chairman O’Connell asserted A.B. 255 "is one of the most important bills that we have seen in the Legislature to date." She elaborated agencies should be held responsible for the funds they receive and administer. Mr. Crews agreed.

Mr. Crews indicated Paul V. Townsend, CPA, Audit Supervisor, Audit Division, Legislative Counsel Bureau, participated in the audits of both the internal-control reporting process and the Division of Child and Family Services.

Mr. Townsend testified he was a supervisor on the audit that recommended A.B. 255. He contended the Department of Administration would be able to implement the requirements of the bill with "very little additional effort." He noted the department already receives internal-controls reports from state agencies and already performs some analysis on them. Mr. Townsend maintained A.B. 255 would only require the department to perform some additional analysis, summarize the relevant information, and submit that information to the Legislature.

Mr. Townsend explained the Department of Administration’s report would note which agencies have not documented their internal-control systems or have not implemented such systems. He pointed out the Division of Child and Family Services has not yet documented its internal-control system, though the requirement for such a system has been in place since 1987. Mr. Townsend mentioned the division was created in 1991, and is thus "somewhat new." However, he stated the division cannot perform an effective review or meet the statutory requirements without documenting its internal-control system. He noted such information about the Division of Child and Family Services would be available during budget hearings, if A.B. 255 passes.

Senator Care commented submitting a late report is grounds for dismissal in the private sector. He asked, "Have you got agency directors who just don’t [do not] care?" Mr. Crews responded perhaps agency directors do not place a high priority on reporting about internal-controls systems. He stated directors are responsible for running agency programs, but the financial aspect of the directors’ role is equally important. Mr. Crews indicated agencies have the necessary resources to establish and report on internal controls, but it is a matter of setting priorities. He asserted, "You’ll [You will] never spin out of this circle unless you finally put your foot down and make the effort to do that. It’ll [It will] pay dividends in the long run."

Chairman O’Connell expressed a double standard exists for public and private sectors. She said she "went for the whole ball of wax" in a previous session by attempting to require audits for every agency. However, she explained that approach was too expensive. Chairman O’Connell elaborated:

Chairman O’Connell reiterated bills in previous sessions have addressed reporting and internal controls.

Senator Neal asked, "What are the penalties for this statute, when we put a mandate in it and it’s [it is] not carried out?"

Mr. Crews answered he does not know. Chairman O’Connell stated no penalty exists.

Senator Neal said he thinks a general-penalties statute allows the Legislature to "go back and deal with" individuals who do not follow statutory requirements.

Mr. Crews responded the director of the Department of Administration has the statutory authority to withhold the salary of an administrator whose agency does not implement an audit recommendation. Mr. Crews added the director of the Department of Administration can also reduce the agency’s budget under those conditions. Mr. Crews asserted that authority has never been used and has been threatened on only two occasions. He maintained the threats were effective.

Senator Neal asked if the Legislature could put into statute a provision such as malfeasance in office to address situations in which a mandated action is not implemented.

Kim Marsh Guinasso, Committee Counsel, Legal Division, Legislative Counsel Bureau, stated those types of wrongdoings are applicable only to elected officials. She suggested perhaps the Legislature could do "something along those lines" by putting into statute a penalty for failure to comply.

Senator Neal raised concern that the Legislature could lose its power if its directions are continually not followed. He commented the Executive Branch could then begin to dictate policy to the Legislative Branch.

Chairman O’Connell agreed. She indicated:

Mr. Crews suggested the budget is the Legislature’s "biggest tool" for requiring compliance, and he stated the Legislature does not have to give agencies the amount they request. He continued A.B. 255 would be an additional tool to "give [the Legislature] more leverage" during budget hearings.

Senator O’Donnell expressed A.B. 255 contains "good recommendations," and he said he agrees with Senator Neal’s previous statements. Senator O’Donnell asserted perhaps the state auditor should be required to make a presentation to the money committees on every agency budget that is not in compliance or is not filed. Senator O’Donnell elaborated the state auditor would be present at the relevant agencies’ budget hearings to identify noncompliance.

Senator O’Donnell commented communication between the audit committee and the money committees is often not effective. He stated the money committees need timely and understandable information from the audit committee in order to realize the status of agency budgets. He reiterated requiring the state auditor to provide noncompliance information at budget hearings would give the money committees "a very quick and succinct heads-up that something’s [something is] wrong in this department."

Chairman O’Connell requested that Mr. Crews and Mr. Townsend be present at further discussions on A.B. 255.

Becky Moody, Chief, Office of Financial Management, Training and Controls, Department of Administration, testified the director of the Department of Administration asked her to attend the hearing on A.B. 255. She requested to be notified regarding future discussions of the bill.

Chairman O’Connell closed the hearing on A.B. 255 and opened the hearing on A.B. 414.

Alan H. Glover, Lobbyist, County Fiscal Officers Association, indicated the Senate Committee on Government Affairs would be hearing various bills from that association.

In response to a question from Chairman O’Connell, Mr. Glover indicated counties take audit recommendations "very seriously." He noted elected officials can be removed from office for uncorrected audit exceptions. Mr. Glover suggested the city manager would likely remove a department head who did not comply with an audit, and such a removal was threatened in Carson City. Mr. Glover contended, "They got their attention real[ly] quick[ly] because they do not want those audit exceptions in there." He further asserted most audit concerns "can be worked out." Mr. Glover continued a district court recently overran its budget due to a big trial at the end of the fiscal year. He pointed out the budget-overrun information was publicly available, and a written response had to be given.

Chairman O’Connell indicated:

Mr. Glover stated A.B. 414 resulted from the county recorders’ participation at a recent conference of the County Fiscal Officers Association in Fallon, Nevada. He asserted A.B. 414 is "somewhat of a cleanup bill" which would change the fee charged for certification of copies. Mr. Glover explained the bill would provide that a straight $4 fee be charged, rather than a charge of $3 for the first seal and $1 per each additional seal. He elaborated the cost for certifying each page of a 10-page document is currently $13, but the cost for the same certification under A.B. 414 would be $4. He added the price for certifying a 1-page document would increase from $3 to $4.

Mr. Glover contended:

Mr. Glover mentioned he contacted the Governor’s Office, and the office responded A.B. 414 would not be vetoed, if passed by the Legislature.

Mr. Glover continued page 2 of A.B. 414 would require that the assessor’s parcel number be included on the recording of the following documents: a notice of completion, a declaration of homestead, an affidavit of death, a lien or notice of lien, or a mortgage or deed of trust. Mr. Glover indicated only deeds are currently required to include the assessor’s parcel number. He maintained that number "follows through all the time," and including it on the aforementioned documents would make it easy for customers to track records that affect their property. He expressed assessor’s parcel numbers are particularly helpful with regard to liens because such numbers identify the particular property to which a lien applies.

Addressing page 3 of A.B. 414, Mr. Glover contended the Legislature had previously amended the relevant statute to place "a rather onerous requirement" on recorders. He stated the recorders worked with the Welfare Division to provide the proposed language in A.B. 414, which outlines how recorders would submit to the Welfare Division information on affidavits of the death of a joint tenant. Mr. Glover explained this process addresses situations in which the division is "trying to track the property of people who have received state assistance, and now it’s [it is] time for the deceased heirs and families to fork over the bucks." Mr. Glover continued:

Mr. Glover concluded the recorders are "very, very pleased" about the proposed language in A.B. 414.

Chairman O’Connell closed the hearing on A.B. 414 and adjourned the meeting at 1:10 p.m.

RESPECTFULLY SUBMITTED:

Amelie Welden,

Committee Secretary

APPROVED BY:

Senator Ann O'Connell, Chairman

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