FY 98 STATEWIDE SINGLE AUDIT, SECTION V

Thank you for the opportunity to reply to the Preliminary audit report on the State of Alaska, Single Audit for the fiscal year ended June 30, 1998, Department of Administration.

Recommendation No. 1

The state accountant should adopt policies and procedures necessary to present the General Fixed Asset Account Group in the Comprehensive Annual Financial Report (CAFR) in accordance with generally accepted accounting principles (GAAP).

The Department of Administration concurs with the recommendation. Resolution of this issue remains a priority for the Division of Finance (DOF). Research has determined that adequate historical cost records for state-owned buildings do not exist or cannot be found. Options for determining the historical value of these buildings are limited. Continued searching for cost records is pointless. Contracting with a consultant or appraiser to develop estimated historical cost for the large-dollar state-owned buildings is believed to be cost prohibitive. The next option to be explored is to use Risk Management�s replacement values for state owned buildings as a basis for back trending to estimate historical cost.

Daily operational priorities prevented work from continuing on the project in FY 99. However, DOF did meet with a professional audit firm during FY 99 to discuss potential alternatives for resolving this matter. Their recommendation was to contract with a consultant at an approximate cost of $45,000. However, these costs would only be for developing a plan to compile and maintain general fixed assets records. At this time, DOF does not have sufficient funding to be able to implement their recommendation.

DOF plans to resume work on this project in February 2000. That work will likely only result in a determination of whether or not the Risk Management database can be used to estimate historical cost. If it is determined the database is sufficiently accurate and complete, an effort will be made to complete the back trend for buildings valued at more than a million dollars by June 2001.

Recommendation No. 2

The director of the Division of Finance should ensure that a complete audit trail of payroll activity is maintained.

DOF concurs a more readily useable audit trail file should be available. Currently, all update activity performed on the AKPAY databases is written to the ADABAS log files and is available through the use of the AUDITRE

software. This requires a programmer to use but is sufficient to identify a user ID responsible for a specific change. Due to the complex interrelationships of data elements in AKPAY, it is not practical to create or maintain historical data that indicates authorization for every transaction that may become the source for a single accounting entry. This complexity may be inherent in large payroll systems, but when a replacement for AKPAY is sought, DOF will seek a system that provides for audit reporting capabilities with as much detail as is possible. There are no plans to replace AKPAY at this time.

Time and attendance transactions are not traceable to authorizing individuals

DOF does not concur time and attendance transactions are not traceable to authorizing individuals. All update activity performed on the AKPAY databases, including time and attendance data, is written to the ADABAS log files and is available through the use of the AUDITRE software. This requires a programmer to use but is sufficient to identify a user ID responsible for a specific change. Due to the complex inter-relationships of data elements in AKPAY, it is not practical to create or maintain historical data that indicates authorization for every transaction that may become the source for a time and attendance entry. DOF believes a more readily useable audit trail file should be available. When a replacement for AKPAY is sought, DOF will seek a system that provides for audit reporting capabilities with as much detail as is possible. There are no plans to replace AKPAY at this time.

Recommendation No. 3

Changes made to the AKPAY tables should be supported by an automated audit trail.

The Division of Finance concurs with the recommendation. DOF intended to implement a solution to this finding. However, payroll issues with higher priority such as OS390 conversion, implementation of contact codes in AKPAY for enterprise directory support, and Y2K remediation hindered efforts to address this issue in a timely manner. Complexities relating to table maintenance in the Tesseract software product make this a particularly difficult problem to solve. DOF will continue to work toward resolution of this item.

Recommendation No. 4

The Department of Administration�s (DOA) director of the Division of Senior Services (DSS) and the executive director of the Alaska Commission on Aging (ACOA) should ensure personal services costs are properly allocated to federal programs.

The DOA, DSS concurs with this recommendation.The Division is currently in the process of conducting a complete review of staff activities relating to Medicaid Services to assure all possible dollars are being collected , and no inappropriate expenses are being charged.A separate review and cost allocation plan is being developed for the general administration grant received for ACoA expenses.

Recommendation No. 5

DOA directors of administrative services and DSS should work with the state accountant to establish a cost allocation plan approved by the appropriate federal agency.

The DOA, DSS concurs with this recommendation.Administrative staff are currently working with appropriate federal agencies to comply with what is required from DSS.The process of obtaining the services oftheDivision of Finance�s existing contractor, Joel Noland, to prepare the cost allocation plan is already underway.When completed, the cost allocation plan will be submitted to the federal agency for approval.

Recommendation No. 6

DOA�s director of DSS and the executive director of ACOA should improve its monitoring of subrecipients to ensure that federal funds passed through to grantees are spent in accordance with federal requirements.

DOA, DSS acknowledges that any subrecipient that spends$300,000 or more in federal awards is required by OMB Circular A-133to undergo an audit of their records.A part of this audit will include havingthe actual grant form sent to subgrantees revised to included a statement that they are eligible to receive federal grant funds according to their Corporate status and IRS non-profit tax exempt status.The subrecipient will be required to certify this is a true statement.This will improve the control procedures.In addition, verification will certify the ACoA is awarding federal money only to eligible subrecipients.

The Division of Administrative Services will track grant award amounts and verify the authorization has been adjusted and the funds have been distributed and /or encumbered in a timely manner, such as 45 days from the issuance of a Grant award to the distribution of funds to the grantee.At the conclusion of the state fiscal year, grant award notices will report separate State, Match andFederal Funds by grant type.

Subrecipient monitoring procedures will be established to monitor compliance with federal requirements.The ACoA is currently reviewing the approaches to accomplish these monitoring requirements with Region 10 ACoA Coordinator.This monitoring will include verification for the agency that the federal funds are being used in compliance with federal requirements.

Recommendation No. 7

DOA�s director of DSS should establish procedures to ensure that costs are charged to federal awards in accordance with the relative benefits received.

DOA, DSS concurs with this recommendation.The cost allocation plan will help to resolve issues of this nature in the future.We will work closely with the appropriate federal staff to comply with all federal cost allocation plan requirements that the federal agency will require from the DSS.

The Administrative staff of DSS have established procedures to ensure that goods and services costs are now charged or assigned to an award in accordance with the relative benefits in a cost allocation methodology.

Recommendation No. 8

DOA�s director of administrative services should resolve an overspent appropriation.

The Director of Administrative Services concurs.A shortfall does exist in this appropriation and a supplemental appropriation request will be submitted to the Office of the Governor, OMB to correct this error.

Thank you again for the opportunity to respond to this Preliminary audit for the Fiscal Year Ended June 30, 1998.

Sincerely,

Robert Poe, Jr.

Commissioner

RP/CP/bb

cc:Alison Elgee

Deputy Commissioner

Commissioner�s Office

Department of Administration

Dan Spencer

Director

Division of Administrative Services

Department of Administration

Kim Garnero

Director

Division of Finance

Department of Administration

Kay Burrows

Director

Division of Senior Services

Department of Administration

Jane Demmert

Executive Director

Alaska Commission On Aging

Department of Administration

Department of Law

August 31, 1999

Pat Davidson, CPA

Alaska State Legislature

Legislative Budget and Audit Committee

Division of Legislative Audit

P.O. Box 113300

Juneau, AK 99811-3300

Dear Ms. Davidson:

I am in receipt of your August 10, 1999 letter regarding the State of Alaska, Single Audit For the Fiscal Year Ended June 30, 1998 � Preliminary Report.

I have reviewed Recommendation No. 9 relevant to the Criminal Division Medicaid Fraud Control Unit along with Attorney General Botelho�s June 22, 1999 written response to this recommendation.

Essentially, nothing has changed since our June 22 response. Specifically:

1.We are in the process of recruiting for the vacant Investigator II position.

2. We do not yet have a final draft revising the MOU.

3.As a result of meetings with the Division of Medical Assistance, we do not anticipate any further difficulties accessing DURS records and we continue to work toward an improved relationship with DURS.

A copy of this response will be sent to you electronically. Please contact me if there�s anything further I can provide.

Very truly yours,

Kathryn A. Daughhetee, CPA

Administrative Services Director

cc:
Bruce Botelho, Attorney General

Cynthia M. Cooper, Deputy Attorney General

Eric Johnson, Chief Assistant Attorney General

Stephen Branchflower, Assistant Attorney General

Department of Revenue

Aug. 31, 1999

Pat Davidson

Legislative Audit Division

P.O. Box 113300

Juneau, AK99811-3300

Dear Ms. Davidson:

The Department of Revenue, Child Support Enforcement Division, is responding to the three recommendations pertaining to our operations from your division�s State of Alaska, Single Audit for the Fiscal Year Ending June 30, 1998.

Before offering our responses and corrective-action plans for the three recommendations, however, I�d like to note that we�ll probably be discussing the same issues after your FY 1999 audit.Because of the time lag between your audits (one year after the end of the respective fiscal year), and our corrective action (always working to do better tomorrow than yesterday), the substantial improvements we�ve undertaken at the Child Support Enforcement Division will not show up until your FY 2000 audit.Budget shortfalls that created high vacancy rates (starting in FY 1998 and reaching more than 10 percent of positions in FY 1999), and the lost production time from the 1998 conversion to a new computer system, pushed back the start of any meaningful improvements until this summer.

To give you an accurate picture of our operations, I�d like to discuss our current efforts in this response.My comments are in no way intended to minimize our past problems.They�re merely to ensure an accurate picture of how far we�ve come and how we�re going to complete the job.We are committed to complying with all federal child support enforcement timeframes and I believe your FY 2000 audit will find us in compliance by the end of the fiscal year.

Recommendation No. 10

The Department of Revenue�s director of the Child Support Enforcement Division (CSED) should take steps to ensure that federal requirements for the child support enforcement program are met.

1.Yes, we are out of compliance in the areas of establishing paternity and support orders.To remedy that shortcoming, we�ve adopted a management plan that includes monthly updates to the commissioner�s office on our progress in clearing up case delays.The child support division has set targets for bringing its casework up to date in all of its areas, and our plan calls for achieving full compliance with federal timeframes for establishing paternity and support orders by the end of April 2000.

The start of the new fiscal year on July 1 allowed us to fill many of the positions we were required to hold vacant throughout FY 1999.As those workers are trained and assigned to various sections at the agency, we expect to see a measurable reduction in case delays starting this fall.

2.Meanwhile, we already have made great strides in our Interstate Section and are currently in compliance with federal timeframes in most areas.We are out of compliance, however, with federal timeframes for responding to requests from other states, but we plan to meet the timeframes by the end of October 1999.

3.Your audit showed we were very close to complying with the federal timeframes for enforcement actions, and we believe we are now in compliance with the federal requirement.Continued improvements in our operations and full funding for FY 2000 have allowed us to meet and exceed the 75% requirement mandated by the federal rules.

Though it is crucial to collecting child support owed to custodial parents, our enforcement section was hurt the most by the high vacancy rate imposed on the division in FY 1998 and FY 1999.As you discussed in the audit, our ability to comply with federal timeframes was seriously hampered by problems with the 1998 yearlong conversion and adjustment to a new federally mandated computer system.Although we need to continue to make improvements in the system, its operations are becoming routine and we will focus our full attention on meeting all of the federal timeframes for casework.

Recommendation No. 11

The Department of Revenue�s director of CSED should develop and implement policies and procedures to review and resolve collections being held to ensure timely resolution.

We�ve been working very hard to reduce the amount of money we have on hold, and have made great strides in the past several months.The child support division has assigned specific staff members to review every case with money on hold in a comprehensive effort to answer any outstanding questions so that we can distribute the full amount to the appropriate party.

The money on hold has been reduced by almost 200 percent from when we converted to our new computer system and is substantially less than when we were audited by your staff.As of Aug. 10, 1999, we had reduced the total to about $1.6 million on hold, much less than half of the amount at the height of our problems.That number is even more encouraging when you see that more than $400,000 of the $1.6 million on hold was received ahead of the date it is to be distributed � it represents payments in advance that will be disbursed on the first of the month.

Recommendation No. 12

The Department of Revenue�s director of CSED should continue efforts to isolate and correct deficiencies in the new computer system.

CSED has been working since this past spring with the contractor that developed the system to speed up programming corrections and to ensure that all federal requirements are met in a timely fashion.The contractor currently has eight programmers working full time on our system.CSED personnel also are correcting problems with the system.This has been made easier by the fact that we were finally able this summer to fill all of the previously vacant programmer positions on the child support staff.To further accelerate the work, one additional position has been upgraded to allow the hiring of another programmer; the hiring process is under way.

In addition to errors in the case management system, the staff also has other priorities that must be dealt with, however, such as Y2K and new federal requirements for handling and tabulating casework.

Our programming work also includes better management of our checking account.CSED has completed a program that produces a list of outstanding checks.The program will be run monthly so that the bank account can be reconciled on a regular basis.The agency has assigned an Accounting Technician I to monitor the bank account, to reconcile daily deposits and to reconcile checks drawn on the account. The individual also researches items to ensure that the differences between the NSTAR balance and the actual bank balance are attributable to legitimate financial activity.

We are pleased to be working with you to identify the problems and always welcome your recommendations for the Department of Revenue and Child Support Enforcement Division.We are committed to achieving compliance with federal requirements and improving our services to Alaskans, and we appreciate your role in reviewing and advising us on our operations.

Sincerely,

Wilson Condon

Commissioner

Department of Education and Early Development

TONY KNOWLES, GOVERNOR

Department of Education & Early Development

Office of the Commissioner

Goldbelt Place

801 West 10^th Street, Suite 200

Juneau, Alaska 99801-1894

(907) 465-2800

(907) 465-4156 Fax

August 31, 1999

Pat Davidson

Legislative Auditor

Division of Legislative Audit

PO Box 113300

Juneau, AK 99811-3300

Dear Ms. Davidson:

The preliminary audit report on the State of Alaska, Single Audit for the fiscal year ended June 30, 1998 has been reviewed.We appreciate the opportunity to respond to the recommendations made to the Department of Education & Early Development.

Recommendation No. 13

The Department of Education�s (DOE) program manager for the School to Work (STW) program should establish adequate procedures to ensure administrative costs do not exceed the federal limit and the expenditures are properly reported.

The Department concurs with this recommendation.Corrective action is being taken to ensure administrative costs are identified and reported accurately. A separate ledger code has been established for STW administrative expenditures.The STW program manager has demonstrated that expenditures incurred since inception of the grant through June 1998 have not exceeded the ten-percent administrative cost cap.Work is expected to be completed by December 31, 1999 that demonstrates STW expenditures recorded from July 1998 through October 1998 have not exceeded the ten-percent administrative cost cap.

Since November 1998 the Department has accurately captured all administrative expenditures in the newly established administrative cost ledger code.

Recommendation No. 14

The Commissioner of DOE should ensure the distribution of personal services costs to federal programs comply with federal requirements.

The Department concurs and is in the process of addressing the findings identified in this recommendation.The leave/time report used by all departmental employees working solely on one federal program is being revised to include the required certification.The department is also reviewing the allocation of holiday and leave to federal programs to ensure that the appropriate programs are charged.Procedures are expected to be developed by the end of this fiscal year.

Questions regarding corrective action for the above recommendations should be directed to Dorotherine Eaddy, Internal Auditor, at 465-8683.

Sincerely,

Richard S. Cross

Commissioner

Department of Health and Social Services

September 3, 1999

Pat Davidson

Legislative Auditor

Division of Legislative Audit

P.O. Box 113300

Juneau, Alaska 99811-3300

Dear Ms. Davidson:

This is in response to the Preliminary Audit Report for the State of Alaska Single Audit for the Fiscal Year Ended June 30, 1998.Our responses to each of the recommendations are as follows:

Recommendation No. 15

The program officer for the Division of Public Assistance (DPA) should fully comply with requirements to perform electronic benefit reconciliations.

DHSS concurs with the recommendation.DPA recognizes the identified weaknesses and has demonstrated considerable progress toward compliance.Previously identified weaknesses have been complied with, with the exception of these two issues.Their status is as follows:

Title 7 CFR 274.12(j)(v).DPA is currently not in full compliance with the required reconciliation of funds exiting from and remaining in the system each day.DPA did not receive access to Alaska�s Food Stamp Account Statement in the Automated Standard Application for Payments (ASAP) system until August 30, 1999.Access to this account information in ASAP is required to complete the reconciliation.The rule requires that the State reconcile the total funds entering into, exiting from, and remaining in the Electronic Benefit Transfer (EBT) system with its Eligibility Information System (EIS) on a daily basis.It must be noted that the State had no access to AMA and ASAP, and had received no guidance or training on this new expectation to reconcile funds against the AMA and ASAP during this audit period.

In December 1998, States received a letter advising them of a new recommendation to validate EBT issuance information entered into the Account Management Agent (AMA) system operated for Food and Nutrition Services (FNS) by the Federal Reserve Bank.States were provided DRAFT issuance reconciliation procedures and a report providing issuance/authorizations and net draws for each day from EBT inception through September 30, 1998.In addition, FNS recommended that States obtain AMA/ASAP on-line inquiry access to facilitate this daily reconciliation going forward.

Effective June 1999, the State of Alaska has complied with these instructions both by reconciling with the issuance report provided by FNS, and by obtaining AMA/ASAP on-line inquiry access.Currently, the State routinely reconciles Food Stamp issuance information between EIS, the EBT system, and AMA on a daily basis.

On May 27, 1999, FNS issued EBT Reconciliation Guidance for State Agencies.This guidance was followed by reconciliation training for states in August 1999.With the information presented at the training, and the recently acquired AMA and ASAP access, the state will be establishing procedures to perform a complete daily reconciliation of Alaska�s EBT account from EBT inception forward.These procedures will be completed by March 2000.

Title 7 CFR 274.12(j)(iv).DPA concurs that the State is not in full compliance with the requirement to review retailer�s credits against deposit information entered in the automated clearinghouse (ACH) network.The new EBT reconciliation guidance and training by FNS in August have provided key information necessary to develop adequate procedures to perform this review.For example, it is essential to understand the system design of the state�s EBT processor (not the prime contractor) in order to account for the method of posting and reporting retailer suspense activity.In some instances, the contractor must provide additional reports and make system modifications in order for states to fully comply with EBT reconciliation requirements.It must be noted that the State had no access to AMA and ASAP, and had received no guidance or training on this new expectation to reconcile funds against the AMA and ASAP during this audit period.

With the information presented at the training in August 1999, and the recently acquired AMA and ASAP access, the state will be working with the EBT contractor and processor to establish procedures to perform the daily review of retailer credits against deposit information entered into the ACH network.These procedures will be completed by March 2000.

Recommendation No. 16

The director of the Division of Medical Assistance (DMA) and the deputy attorney general of the Department of Law (DOLaw), Criminal Division, should ensure the Medicaid Fraud Control Unit is operating in accordance with federal law and regulation.

The Division of Medical Assistance has neither the responsibility nor the authority, state or federal, to act in any capacity regarding the operation of the Medicaid Fraud Control Unit (MFCU).However, DMA concurs that the Memorandum of Agreement (MOA) between the Division and the Department of Law should be periodically revised.As pointed out in the audit, DMA and the MFCU have been exchanging drafts of the MOA.DMA expects that it will be completed by the end of July 1999.

As stated in the audit, DMA has not permitted the MFCU to participate in DMA�s drug utilization review (DUR) meetings.This is true since the purpose and focus of the DUR process is pharmacist and prescriber education rather than surveillance and utilization review and fraud control.There is no such requirement to include the MFCU in its required DUR meetings.

The result of the recent meeting of the DMA director with Cynthia Cooper, the deputy attorney general of DOLaw, Criminal Division and previous meetings of respective staffs, DMA is developing a positive working relationship with the MFCU.

Procedures are being updated and improved for handling of referrals to the MFCU as well as the complete access by MFCU with DURs records.DMA expects that these procedures will be incorporated into the final MOA.

Recommendation No. 17

The administrative officer for DFYS should revise the calculation for the federal share of Residential ChildCare (RCC) expenditures and process adjustments as needed.

DHSS concurs with the recommendation.DFYS recently completed all the revisions of their quarterly spreadsheet calculations for FY 1998 and as a result, the Title IVE federal participation has been over claimed by $248,573.This over claimed amount was reported as a decreasing claim adjustment in the June 30, 1999 quarterly report.Also, DFYS is now current with their RCC quarterly claims and will continue to prepare future quarterly claims accurately and timely.

Recommendation No. 18

The internal control structure over the Supplemental Food Program for Women, Infants, and Children (WIC) should be improved at the Department of Health and Social Services�s (DHSS) Division of Public Health (DPH).

DHSS concurs with the recommendation.The improvement of the internal control of the WIC program is one of DPH priorities as well as its continuing effort to work and attain full compliance.In regard to the identified specific instances of non-compliance or system weaknesses in the audit, DPH progress and clarification of the status are as follows:

(1) DPH concurs that the system to safeguard and account for WIC warrants is weak since the physical inventory as indicated in our response of October 1997 was not performed as scheduled due to time constraints.To insure compliance, DPH WIC Program will be conducting physical inventory every last working day of July and January each year.Since DPH did not conduct the second physical inventory in June 1999, an inventory has been conducted on July 30, 1999.The next physical inventory will be conducted on January 31, 2000.

(2)DPH does not concur with the auditor�s finding that four warrants associated with the mail out program, Department of Health & Social Services was unable to obtain information from the local agency that the warrant benefited an eligible program participant.In clarification of our position, the auditors did not inform the DPH WIC Office that some local agencies they contacted have not responded with the required information regarding the eligibility of those participants.It must be noted that during this year, some local agencies have no permanent WIC coordinators and it was likely that this is the reason for their failure to respond.Had the DPH WIC Office been notified, this office could have assisted in contacting the non-responding local agencies to provide their response directly to the auditors.The DPH WIC Office will be very happy to work with the auditors to obtain the required information.

(3)DPH concurs that some redeemed WIC warrants were unreadable, however, this problem has been resolved.With the new CDROM imaging, WIC warrants are much more legible than in prior years.

It must be noted that the WIC warrants are issued as vouchers to participants and there are some participants

that do not exercise care causing the warrant to be mutilated which in this situation may not be within our

ability to fix.However, the WIC Office will exercise every effort to insure the validity and appropriateness

of the charges in the warrant.

(4)DPH concurs that there are WIC warrants that are redeemed prior to their issuance dates, which are not within the approved state plan timeframe.DPH status of compliance is almost current.The new WIC computer system that was fully implemented in FY99 has a report that lists warrants redeemed outside the valid redemption dates.This information will be used to follow-up on such warrants.Also, the DPH position responsible for the function of performing follow-up actions to vendors is currently vacant due to the State hiring freeze; however, an exemption request to fill the position is in process and will be submitted to the agency head for approval

Recommendation No. 19

The director of the Division of Medical Assistance should ensure that the division effectively monitors utilization control of the Medical Assistance program.

DHSS concurs with this recommendation.DMA has made progress toward updating the post payment review manuals during the last year.This work included evaluating and flowcharting all post payment review/surveillance and utilization review unit responsibilities, processes and tasks, identifying areas needing improvement, and drafting updates to certain review procedures.These updates are currently pending final evaluation and implementation.

Although their will always exist a group of post-payment review cases which are pending additional action, DMA concurs that the backlog of post-payment review cases is currently excessive.In addition to assigning an additional staff member to the division�s surveillance and utilization review process, DMA is currently addressing this situation by incorporating a review of these cases within the Deloitte audit contract services.

The contractor is actively reviewing the most aged cases.This intervention will assist in resolving the backlog of previous surveillance and utilization review cases, and prevent a backlog from developing in the future.Assignment of the additional staff member to the surveillance and utilization review process will also support efforts to ensure effective and efficient management of the provider audits under contract.

Recommendation No. 20

The director of the Division of Medical Assistance should take steps to ensure that a biennial automated data processing (ADP) system security review of the Medicaid Management Information System (MMIS) is performed and documented.

DHSS concurs with this recommendation.DMA contractor, First Health Services Corporation (FHSC) contracts for Medicaid claims processing with two other states, Washington DC and Virginia.Those states have had security system reviews performed by the First Health Services Data Center and MMIS programs in the last several years.Alaska accepts the results of those reviews as representative of the Alaska Medicaid claims processing contract.During FY 1999 completion of security reviews have been in direct competition for work resource priority with the Y2K remediation effort by both the FHSC and the state�s staff.The State�s and the FHSC�s priority has been and remains Y2K remediation and testing of the MMIS.

Once that effort is completed Alaska will notify Washington DC and Virginia and direct First Health Services to complete a security review by the end of state FY 2000.Those states will then have the opportunity to accept that security review as meeting their federal system security review requirements as well.

Recommendation No. 21

The director of the Division of Medical Assistance should ensure that providers are eligible and are aware of its disclosure requirements by updating enrollment on a periodic basis.

DHSS concurs with this recommendation.A project to re-enroll some providers was included on the Division�s FY 1999 workplan and is now on the FY 2000 workplan.However, when compared with projects such as Y2K remediation of the MMIS, implementation of the Children�s Health Insurance Program and Working Disabled bills this project is not as high a priority on the work-plan.This project remains a medium priority in the workplan.In the coming fiscal year this project will continue to compete for resources with the Y2K remediation and its attendant subprojects such as the upgrade of the KeyMaster program to Y2K compliance for electronic claims submission to the claims payment system as well as submission of electronic prior authorizations.In the coming year staff resources will be committed to other high priority projects.Examples of higher priority projects include planning and implementation of the recommendations contained in the Long Term Care Task Forces� report to, and accepted by the last legislature.In the mental health area resources will work on implementing the Diagnostic, Evaluation and Treatment portion of the API 2000 plan appropriated by the legislature.Similarly, resources will be devoted to work on implementation of the foster care Levels of Care reimbursement plan presented and approved by the Legislature.In addition to the higher priority projects for FY 2000, the Legislature appropriated a reduction to the Medical Assistance Administration BRU totaling $930,000. A funding reduction of this magnitude dramatically impacts the Division�s ability to undertake and complete new work efforts as well as lengthening the time necessary to complete those work efforts.

Recommendation No. 22

The administrative managers at DHSS should implement procedures to ensure personal services expenditures charged to federal programs comply with federal cost principles.

DHSS concurs with the recommendation.Toward the end of FY 1998, DHSS administrative managers implemented and enforced procedures to insure personal services expenditures charged to federal programs are in compliance with OMB Circular A-87 federal cost principles.No retroactive actions were undertaken for the prior periods when the FY 1997 audit findings were received toward the end of FY 1998 since the primary focus compliance has been with the current and future periods.DHSS should be in compliance in FY 1999.

Thank you for the opportunity to respond to the preliminary audit report.

Sincerely,

Karen Perdue

Commissioner

Department of Labor

September 8, 1999

Ms. Pat Davidson

Legislative Auditor

Division of Legislative Audit

P.O. Box 113300

Juneau, AK 99811-3300

Dear Ms. Davidson:

Re: Preliminary Statewide Single Audit, 1998

We have reviewed the preliminary audit report for the statewide single audit for the fiscal year ending June 30, 1998, for both the Department of Labor (DOL) and the Department of Community and Regional Affairs (DCRA).As of July 1, 1999, the DCRA Joint Training Partnership Act (JTPA) program was consolidated within DOL.Our response to each of the recommendations follows:

Recommendation No. 23

The director of the Employment Security Division and the director of the Administrative Services Division should ensure that federal financial reports are submitted with accurate and complete information.

DOL concurs with the finding regarding the ETA 581.Tax has been aware of the error in the receivables portion of the 581 report.Until such time as Data Processing staff can be devoted to working on this report, it will be on our list of high priority projects.

DOL concurs with the finding regarding the ETA 227 report for Fiscal Year 98.This problem was corrected in FY 99 when programming logic was re-written, tested, and moved to production.

Recommendation No. 24

The DOL director of Administrative Services should insure that prepaid contracts are not used to circumvent the budget act.

The department concurs that the Director of ASD should, and does, insure that prepaid contracts are not used to circumvent the budget act.Historically, DOL records support that only 12 months of contract expense were charged for each fiscal year.Over the next fiscal year the department will, however, give review and consideration to changing the timing for posting of these charges to allow for direct alignment with the fiscal year.

Recommendation No. 35

The director of the Division of Community and Rural Development (DCRD), department of Community and Regional Affairs (DCRA) should ensure that the Joint Training Partnership Act (JTPA) cost limitation requirements are met.

We concur that JTPA cost limitation requirements should be met.Prior to DOL and DCRA consolidation, DCRA requested journal entry adjustments to bring JTPA expenditures into cost limitation compliance.As part of the DOL, JTPA will now be administered and monitored according to DOL procedures and guidelines for cost limitation requirements.

Recommendation No. 36

DCRA�s Division of Administrative Services finance officer should follow state and federal procedures for revenue collection.

The department agrees with this recommendation and will make the recommended adjustments to ensure revenues are reported in accordance with GAAP.

If you have any questions or require additional information, please contact JoEllen Hanrahan, Internal Auditor, at 465-5673.

Sincerely,

Ed Flanagan

Commissioner

EF/JH:ets

cc:JoEllen Hanrahan, Internal Auditor

Remond Henderson, ASD Director

Rebecca Gamez, ESD Director

Department of Fish and Game

DEPARTMENT OF FISH AND GAME

OFFICE OF THE COMMISSIONER

TONY KNOWLES, GOVERNOR

P.O. BOX 25526

JUNEAU, AK99802-5526

PHONE: (907) 465-4100
FAX: (907) 465-2332

August 25, 1999

Pat Davidson, CPA

Legislative Auditor

Division of Legislative Audit

P.O. Box 11300

Juneau, Alaska 99811-3300

Dear Ms. Davidson:

We have reviewed relevant portions of the preliminary FY98 Statewide Single Audit and appreciate this opportunity to respond.Our response to each recommendation follows.

Recommendation No. 25

The commissioner of the Department of Fish and Game (DFG) should ensure that personal service charges are supported by timesheets.

The department concurs with this recommendation.The department conducted timesheet-training sessions for 700 employees during November and December 1998 in various locations across the state. The message delivered was to record time in the project where worked on a daily basis. The department also produced a video of one of its training sessions to provide training to those employees unable to attend the scheduled training sessions. We distributed 21 copies with handouts used in the training to various department offices around the state. In addition, we created a timesheet standard operating procedure and plan to develop a timesheet handbook to be disseminated to each department employee.

The department put significant effort into the training and part of it involved enhancing the timesheet formats.The coding scenarios in the original Earnings Verification System (EVE) timesheet were replaced with daily recording of effort in hours by project.This revision greatly improves the accuracy of daily time accounting documentation. The department also has a two-page timesheet format for those employees working on more than four different projects during a pay period.

The results of the Legislative Audit�s interviews with our employees proved encouraging that the timesheet-training message was received by department employees.Employees commented that they are now recording their time as worked and not as budgeted. We will continue to work towards correcting the problem with training on properly completing and processing timesheets.

Recommendation No. 26

The Department of Fish and Game director of the Division of Administrative Services should implement procedures and policies to comply with federal regulations, AS 37.05.160, the state property accounting manual and its delegated purchasing authority.

The department concurs with the recommendation.The Division of Wildlife Conservation manages the Hunter Information and Training (HIT) program and therefore has most of the firearms in question.The division has now gathered the serial numbers for these firearms and has forwarded this information to the procurement section in headquarters.The procurement section has already started entering this information to the State�s property system.

In addition to the firearms, a fish-tagging trailer purchase was referred to in this recommendation.The nature of this trailer caused some confusion regarding proper purchasing and tagging procedures.It was custom built for the department and first considered closer to a mobile laboratory than a vehicle.When it came up in our annual inventory last year, we realized it to be a vehicle and requested a title from the manufacturer.This was received in April 1999 when we requested the Department of Transportation and Public Facilities to include the item on their inventory system.

The department has authority delegated to regional offices to purchase boat trailers, which are outside the State Equipment Fleet (SEF) program. The department is changing the current process for trailer purchases to prevent problems in the future.Any purchases for �trailers with wheels� will be coordinated through the headquarters� procurement section, which makes the initial determination whether or not the purchase falls under the delegated purchasing authority given to the department.

The nature of our work requires us to purchase a variety of equipment so property control, especially over sensitive items, is a priority for our procurement staff.The requirements are brought up and discussed in each approving officer training session conducted by the Division of Administration. We use the purchasing card software, as well as manual review of invoices as they are paid, to assist in gathering information for the state property system.Training employees about the requirements is an ongoing function that the Division of Administration will place additional emphasis on in the coming year.

The department is in the process of revising an existing SOP on property control.We are planning on expanding this section to include a section on property custodian duties where physical inventory is required when there is a change in custodian position.

Thank you for the opportunity to respond to the preliminary audit report.If you have any questions regarding the department�s response or require additional information, please contact Kevin Brooks, Director of Administration, at 465-5999.

Sincerely,

Frank Rue
Commissioner

cc:
David Benton
Robert Bosworth
Kevin Brooks
Kevin Delanay
Doug Mecum
Mary Pete
Ken Taylor
Wayne Regelin
Tuula Marquardt
Kristin Wright

Department of Public Safety

August 13, 1999

Ms. Pat Davidson

Legislative Auditor

Division of Legislative Audit

P. O. Box 113300

Juneau, AK 99811-3300

RE: State of Alaska, Single Audit for the Fiscal Year ended June 30, 1998

Dear Ms. Davidson:

In reply to your request for our comments regarding this preliminary audit report, no new recommendations were made for FY98.

Thank you.

Sincerely,

Ronald L. Otte

Commissioner

Department of Environmental Conservation

410 Willoughby Ave., Ste 105

Juneau, AK99801-1795

PHONE:(907) 465-5065

FAX:(907) 465-5070

http://www.state.ak.us/dec/

OFFICE OF THE COMMISSIONER

October 12, 1999

Pat Davidson
Legislative Auditor
Division of Legislative Audit
PO Box 113300
Juneau, AK 99811-3300

Dear Ms. Davidson:

We have reviewed the relevant portions of the FY98 Statewide Single Audit and appreciate this opportunity to respond.

Recommendation No. 27
The Village Safe Water (VSW) section chief and the financial service manager should implement accounting procedures that facilitate the identification of expenditures and funding by source for VSW projects maintained by the private accounting firm.

Response:The Department of Environmental Conservation (DEC) concurs with this recommendation.The financial service manager has identified the specific accounting information necessary to comply with financial reporting per GAAP.These needs have been incorporated into the contractor service agreement.

Recommendation No. 28
The VSW project engineers should follow procedures that ensure compliance over expenditures and procurement practices.

Response: The Department concurs with this recommendation.All engineering staff recently completed a one-day course on proper procurement procedures.This course focused on both the procurement process and expenditure documentation requirements.

Recommendation No. 29
DEC�s financial service manager should improve revenue collection procedures for infrastructure grant funds to ensure federal revenues are not overcollected.

Response:The Department concurs with this recommendation. The financial services manager has identified weaknesses in our revenue collection process and procedures have been implemented that eliminate the types of cash management issues identified.Additionally, the overcollection of federal funds identified has been resolved.

Recommendation No. 30
DEC�s financial service manager should ensure controls are established and maintained to properly account for expenditures charged to the state public water system supervision program.

Response: The Department concurs with this recommendation.During fiscal year 1999, staff has been provided additional training on the various uses of the state accounting structures.The questioned costs identified in this recommendation have been adjusted in the accounting system and funds returned to the federal agency.

Recommendation No. 31
The finance officer at DEC should denote the state interest liability for the Alaska Clean Water Fund (AWCF) as exempt on the annual report to the Treasury Division, Department of Revenue.

Response: The Department concurs with this recommendation.

Again, thank you for the opportunity to respond to these recommendations.If you have any questions or require additional information, please contact me.

Sincerely,

Michele Brown

Commissioner

cc:Barbara Frank, Director/ Administrative Services/ADEC

Dan Easton, Director/ Facilities Construction & Operation/ADEC

bcc: Laura Beason, Finance Officer/ Administrative Services/ADEC

Department of Corrections

August 31, 1999

Alaska State Legislature

Legislative Budget and Audit Committee

Division of Legislative Audit

Attn: Pat Davidson, Legislative Auditor

P.O. Box 113300

Juneau, Alaska 99811-3300

Dear Ms. Davidson:

RE: State of Alaska Single Audit for the fiscal year ended June 30, 1998

Recommendation No. 32

The Department of Corrections (DOC), director of administrative services (DAS) needs to establish internal control policies and procedures ensuring compliance with federal grant requirements.

Agency Response

The Department of Corrections (DOC) agrees with this recommendation.The FY99 State of Alaska Accounting System (AKSAS) has been used to establish separate collocation codes for each federally funded project.These codes will capture expenditures towards federal funds and general fund match by program and location.This will allow grant expenditures claimed for federal reimbursement and documented on federal financial reports to be readily identified by the AKSAS system rather than through manual tracking procedures, and will clearly demonstrate our state general fund matching expenditures for each project.

Recommendation No. 33

The DOC director of administrative services should establish year-end procedures to ensure accounts receivable are recorded for amounts due, but not yet received.

Agency Response

The DOC agrees with this recommendation.Internal procedures have been implemented to ensure that Department of Administration (DOA) directives and generally accepted accounting principles for recording year-end accounts receivables are followed.

Recommendation No. 34

The DOC director of administrative services should establish procedures to ensure federal personal service costs are supported as required.
Agency Response

The DOC agrees with this recommendation.The DOC will maintain positive time keeping records to document and support allowable amounts billed to the federal granting agency.

Thank you for the opportunity to comment.If you need more information, please feel free to contact me.

Sincerely,

Margaret M. Pugh

Commissioner

CC:Dwayne B. Peeples, Director/Division of Administrative Services

Rhonda Lundborg, DOC Federal Aid Coordinator

Department of Community and Regional Affairs

For Department of Community and Regional Affairs� Recommendation Nos. 35 and 36, refer to Department of Labor�s Response on page V � 46.

Department of Transportation and Public Facilities

3132 CHANNEL DRIVE

JUNEAU, ALASKA99801-7898

TEXT :(907) 465-3652

FAX: (907) 586-8365

OFFICE OF THE COMMISSIONERPHONE:(907) 465-3900

Ms. Pat Davidson

Legislative Auditor

Division of Legislative Audit

P.O. Box 113300

Juneau, AK 99811-3300

Dear Ms. Davidson:

Thank you for allowing me to respond to the recommendations contained in the preliminary audit report on State of Alaska, Single Audit for the Fiscal Year Ended June 30, 1998.The following are our comments regarding the Department of Transportation and Public Facilities:

Recommendation No. 37

The Commissioner of the Department of Transportation & Public Facilities (DOT&PF) must ensure all divisions comply with Alaska statutes and state equipment fleet policies.

The Commissioner of the Department of Transportation and Public Facilities currently assures that all divisions comply with Alaska statutes and state equipment fleet policies.The department disagrees with the audit findings that suggest that we are not in compliance.

The audit report begins by stating that M&O sections had revenue shortfalls and the report makes a connection between this lack of revenue with the non-payment of State Equipment Fleet (SEF) bills.The revenues that were not collected are specific to the implementation of Title 17 regulations that have not yet been promulgated.There is no relationship between that shortage of funds and the payment of SEF invoices.M&O each year reviews available funding to determine if stockpiles of commodities such as gravel, calcium chloride and magnesium chloride can be replenished.Available funds are always dependent upon the type of weather encountered during the winter season and how much snow fall we have received.During FY98 M&O managers became aware of the available credits and determined that they needed to make appropriate purchases to replenish those stockpiles.These management decisions are outside the jurisdiction of the SEF.The Department has always lived within its budget.

Because this situation is a result of salvage values used to determine replacement rates, it might be helpful to include a little history on how we got to this point.

· SEF attempted to increase to a more realistic level the book salvage values of equipment that had been put into service in the 1970s and 1980s.During those years salvage values were obviously too low, as little as $50 for a grader.At a meeting on March 6, 1995, SEF argued that the values were in error.Legislative Audit required that SEF reinstate the original salvage values.At that time Legislative Audit stated that the original values were not �errors� but just �poor estimates.�SEF complied.

· SEF replacement rates are based on the projected replacement cost minus the book salvage value of the unit.If the book salvage value is too low, the replacement rate will be too high.In FY92 SEF changed the salvage values for newly acquired assets by using the actual class average sale prices.In FY98 SEF further refined the book salvage values by using a methodology of averaging actual sale prices for sold units as a percent of original average cost and applying that percent to the cost of the new unit to establish the salvage value, but for new units only.

· During the period of FY95 through FY97 SEF had realized a $1.4 million "gain" on sale of assets because of the low book salvage values that SEF was not allowed to change.This resulted in the over collection in the replacement rates.

· SEF paid a $100,000 refund to the federal government for over collecting in FY96 and FY97 and was given a release from any further financial liability by them.SEF had already refunded overcharges to the federal government for the years up through FY95.

· In the over/under calculations the gain on sale of assets would normally have been used to reduce the overhead percentage that is added to the base replacement rates.However, if SEF had done this, the federal government would have been given a "double refund" of the SEF over collection.That same overhead percentage is also added to the depreciation portion of the FUR rates in order to recover the cost of managing and procuring HEWCF vehicles that are charged to federal projects.

· In March of 1998 it was decided to refund the gain on sale of assets by issuing "credits" to SEF customers.The credit mechanism is established in SEF P&P 11.05.022.The "gain" credits could not be used for the purchase of additional vehicles but could be used for shortages where the amount paid in by the customer was not sufficient to cover the cost of the replacement unit.

The audit report indicates that the State Equipment Fleet�s (SEF) Policy and Procedures Manual (P&P) 11.05.022 is being interpreted inconsistently from its historical intent.SEF has always discouraged the use of credits to pay agency�s billings.However, if an agency does not pay their SEF bills, then SEF would offset the unpaid bills by reducing the agency�s credit balance.That is exactly what was done in this case.

The use of replacement credits to pay SEF rental costs was not limited to DOT&PF.All state agencies have the SEF P&P and receive quarterly reports on outstanding billings and credits.As stated earlier, SEF does not encourage the use of credits to offset billings but as a last resort they are used.Many agencies do not pay the full amount of their billings and have been charged as bad debt on the financial statements.The use of the credits protects the Highway Equipment Working Capital Fund (HEWCF) assets and actually reduces the violators� future replacement purchasing power.The Department of Natural Resources was unable to pay $50,000 in FY99 billings and SEF correspondingly reduced their credits.

Finally, we do not agree with the recommendation to request a supplemental appropriation for the over-expenditure of the FY98 Maintenance and Operations� (M&O) budget.If the M&O expenditures are understated as a result of the use of these credits, then prior years would be overstated because of the higher than necessary replacement rates paid into the HEWCF.The higher rates were caused by the poorly or erroneously estimated salvage values for the 1970s and 1980s vehicles.A restatement of all concerned years may be just as appropriate.Additionally, we see little difference between returning the credits through a reduction in payments and through a reduction to the annual usage rates since the rates are developed on an agency basis.

Sincerely,

Joseph L. Perkins, P.E.

Commissioner

cc: Gene Darling, Manager, Statewide Equipment Fleet

Bob Janes, CPA, Internal Review

Nancy Slagle, Director, Administrative Services

Alaska Court System

Rhonda McLeod
Manager, Fiscal Operations
ALASKA COURT SYSTEM

Snowden Administrative Office Building
820 West 4^th Avenue
Anchorage, AK 99501-2005

(907) 264-8215 Fax (907) 264-8292

rmcleod@courts.state.ak.us

September 13, 1999

Pat Davidson, Legislative Auditor

Division of Legislative Audit

P. O.Box 113300

Juneau, AK99811-3300

Dear Ms. Davidson:

We have received and reviewed the preliminary audit report on State of Alaska, Single Audit for the Fiscal Year Ended June 30, 1998.

We concur with the financial information and comments relevant to the Alaska Court System.

If you have any questions on our position, please feel free to contact me at 264-8215.

Sincerely,

Rhonda McLeod

Manager, Fiscal Operations

cc:Stephanie J. Cole, Administrative Director

		TONY KNOWLES, GOVERNOR
Department of Education & Early Development Office of the Commissioner	Goldbelt Place 801 West 10^th Street, Suite 200 Juneau, Alaska 99801-1894 (907) 465-2800 (907) 465-4156 Fax

	Agency
Federal	Within	CFDA	Grant or Other			Federal
Agency	Dept/IA	Number	Identifying Number	Cluster	Federal Program Title	Expenditures

			Department of Administration
USDA	FNS	10.570			Nutrition Program for the Elderly (Commodities)	$ 328,986
USDOI	BLM	15.GR38230			USDOI-BLM	78,384
USDOJ	OJJDP	16.541			Juvenile Justice and Delinquency Prevention: Special Emphasis	51,548
USDOL	ETA	17.235			Senior Community Service Employment Program	1,825,483
USDOT	FHWA	20.205			Highway Planning and Construction	68,490
GSA		39.003			Donation of Federal Surplus Personal Property	2,121,592
EPA	OW	66.433			State Underground Water Source Protection	100,000
USDHHS	AA	93.041			Special Programs for the Aging: Title VII, Chapter 3: Programs for Prevention of Elder Abuse, Neglect, and Exploitation	24,957
USDHHS	AA	93.042			Special Programs for the Aging: Title VII, Chapter 2: Long Term Care Ombudsman Services for Older Individuals	23,237
USDHHS	AA	93.043			Special Programs for the Aging: Title III, Part F: Disease Prevention and Health Promotion Services	77,936
USDHHS	AA	93.044		AC	Special Programs for the Aging: Title III, Part B: Grants for Supportive Services and Senior Centers	1,484,148
USDHHS	AA	93.045		AC	Special Programs for the Aging: Title III, Part C: Nutrition Services	2,332,281
USDHHS	AA	93.046			Special Programs for the Aging: Title III, Part D: In-Home Services for Frail Older Individuals	51,914
USDHHS	ACF	93.563			Child Support Enforcement	9,216
USDHHS	HCFA	93.778		MC	Medical Assistance Program (Medicaid)	1,040,399
USDHHS	HCFA	93.779			Health Care Financing Research, Demonstrations and Evaluations	84,942
			Total Department of Administration			9,703,513

			Alaska Aerospace Development Corporation
USDOD	NGB	12.400			Military Construction, National Guard - Kodiak Launch Complex	1,656,511
NASA		43.002			Technology Transfer - Kodiak Launch Complex	45,000
			Total Alaska Aerospace Development Corporation			1,701,511

			Alaska Housing Finance Corporation
HUD	HFHC	14.117			Mortgage Insurance: Homes	1,017,686
HUD	HFHC	14.182		S8C	Lower Income Housing Assistance Program: Section 8 New Construction/Substantial Rehabilitation	2,419,288
HUD	HFHC	14.191			Multifamily Housing service Coordinators	43,780
HUD	CPD	14.227			Technical Assistance Program	41,950
HUD	CPD	14.228			Community Development Block Grants	24,221
HUD	CPD	14.231			Emergency Shelter Grants Program	162,792
HUD	CPD	14.238			Shelter Plus Care	123,864
HUD	CPD	14.239			HOME Investment Partnerships Program	2,298,063
HUD	CPD	14.239	0241-1529-3815		HOME Investment Partnerships Program - Pass-through from Municipality of Anchorage	40,297
HUD	CPD	14.241			Housing Opportunities for Persons with Aids	565,844
HUD	PIH	14.850			Public and Indian Housing	11,867,092