MINUTES OF THE meeting
of the
ASSEMBLY Committee on Government Affairs
Seventy-Second Session
March 12, 2003
The Committee on Government Affairswas called to order at 8:00 a.m., on Wednesday, March 12, 2003. Chairman Mark Manendo presided in Room 3143 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
Note: These minutes are compiled in the modified verbatim style. Bracketed material indicates language used to clarify and further describe testimony. Actions of the Committee are presented in the traditional legislative style.
COMMITTEE MEMBERS PRESENT:
Mr. Mark Manendo, Chairman
Mr. Wendell P. Williams, Vice Chairman
Mr. Kelvin Atkinson
Mr. Chad Christensen
Mr. Tom Collins
Mr. Pete Goicoechea
Mr. Tom Grady
Mr. Joe Hardy
Mr. Ron Knecht
Mrs. Ellen Koivisto
Mr. Bob McCleary
Ms. Peggy Pierce
Ms. Valerie Weber
COMMITTEE MEMBERS ABSENT:
None
GUEST LEGISLATORS PRESENT:
None
STAFF MEMBERS PRESENT:
Susan Scholley, Committee Policy Analyst
Eileen O'Grady, Committee Counsel
Rosemary Zienter, Committee Secretary
OTHERS PRESENT:
William Chisel, Chief, State of Nevada Department of Administration, Internal Audits
Mary Keating, Administrator, State of Nevada Department of Administration, Administrative Services
Chairman Manendo:
Good morning, members. Madam Secretary, will you please call the roll? [Roll called] Please mark Mr. Collins and Mr. Christensen present upon their arrival. Mr. McCleary, thank you very much for looking over the minutes you were in. Mr. Goicoechea was very obliging when I delivered his set to him.
We have a bill draft, [BDR] 22-728, provides for abolishment of city and county planning commissions in certain larger cities; it’s basically a skeleton form. I believe there’s a lot of data that’s going to be included with this testimony. It’s requested by Ms. Giunchigliani. I need a motion for introduction.
· BDR 22-728—Provides for abolishment of city and county planning commissions in certain larger counties. [A.B. 291]
ASSEMBLYMAN WILLIAMS MOVED FOR INTRODUCTION OF BDR 22-728.
ASSEMBLYMAN KNECHT SECONDED THE MOTION.
THE MOTION PASSED UNANIMOUSLY.
Chairman Manendo:
Thank you, Committee. Let’s turn to our agenda this morning. Does anyone need to go first? Assembly Bill 216. Good morning.
Assembly Bill 216: Revises manner in which certain claims against state are audited. (BDR 31-491)
William Chisel, Chief, State of Nevada Department of Administration, Internal Audits:
[Introduced himself] I’m here to speak on A.B. 216. This bill addresses two areas: First, the change from pre-auditing expenditures to post-auditing expenditures, and second, the requirement of the Division of Internal Audits to comply with the Institute of Internal Audit standards. As for the transition from pre-auditing to post-auditing, prior to fiscal year 2002, expenditures were reviewed for correctness in a central location which was called pre-auditing. After that time through the automation and IFS [Integrated Financial System], this process is now decentralized, and transactions are reviewed at the agency location because that’s where they’re in put. As far as A.B. 216, it eliminates reference to the pre-audit process and addresses the post-audit function. It also addresses eliminating the post-auditing of the Controller, Treasurer, and Secretary of State’s transactions, due to a conflict with NRS [Nevada Revised Statutes] 353A.055. And finally, A.B. 216 clarifies the Division of Internal Audit’s responsibility regarding compliance with the Institute of Internal Audit’s standards. The Division of Internal Audit consists of financial management, internal audits, and post-review. According to the NRS, the division must comply with the Institute of Internal Audit’s standards, and this just clarifies the intent for the Internal Audit Section to comply with those standards. Are there any questions?
Chairman Manendo:
Mr. Collins.
Assemblyman Collins:
It looks like you’re deleting examining the books of the State Controller and the State Treasurer. My question is—because the Controller’s Office has a whole lot of outstanding money to collect—am I missing something here? Why would you not want to try and make them do better? I’m missing the point here, I guess.
William Chisel:
The Division of Internal Audits is not allowed to audit constitutional officers’ books because we do report to the Executive Branch Audit Committee, which consists of the Controller, Secretary of State, and Governor. So, we would not have the independence necessary to review those processes. [Inaudible question from Committee member] The LCB would be looking at those when they do audits.
Chairman Manendo:
Any other questions, Committee? Mrs. Koivisto.
Assemblywoman Koivisto:
Whose books do you audit then?
William Chisel:
The division examines the Executive Branch agencies, so we look at all the Executive Branch agencies, except we do not look at the constitutional officers unless requested, or the Legislative Branch, or the courts. The post-audit team does look at the transactions for all Executive Branch agencies except constitutional officers.
Chairman Manendo:
Mr. Hardy.
Assemblyman Hardy:
Sir, if I may, what do you actually find out, and do we do anything with it, and are you justifying your existence?
William Chisel:
Yes, yes, and yes. The post-audit team, their focus is to look at transactions for compliance with state guidelines, and they go out and make sure that the agencies are complying with the requirements of NRS and NAC [Nevada Administrative Code]. Their presence there is to make sure that the agencies do comply with this because, once again, the expenditure process is being taken care of at the agency level. There is no central examination done at any point now. The post-audit team does this for the Board of Examiners to insure that all agencies throughout the state are complying.
Assemblyman Hardy:
Do you find any problems, ever?
William Chisel:
Oh, sure. What we do is we send a letter to the agency for corrective action. Then they send us responses to correct those actions, and we develop a risk assessment based on the items we find. And the higher risk agencies we will return to and examine the transactions further. If the items are significant, we do go to the Board of Examiners and identify the issues to them.
Assemblyman Hardy:
Does the legislator ever see that report, or does that report of the audit findings go to an Executive Branch that you can’t audit?
William Chisel:
The report findings go to the Board of Examiners. That’s who the post-audit works for directly. No, it does not go to the Legislative Branch; it’s an internal function.
Assemblyman Hardy:
And the Board of Examiners reports to the Executive Branch that you can’t audit?
William Chisel:
The Board of Examiners is an Executive Branch which includes the Governor, Secretary of State, and Attorney General.
Assemblyman Hardy:
There’s a loop there? Is somebody watching the fox? Who is watching the hen house?
William Chisel:
The Legislative Branch provides oversight of the Executive Constitutional Officers.
Assemblyman Hardy:
If we’re providing oversight, and we never see the report, how do we do oversight?
William Chisel:
The post-audit team that was working for the Board of Examiners, providing that oversight. The Legislative Branch provides oversight on the Constitutional Officers.
Assemblyman Hardy:
Am I making sense? If we never see the report, how do we do oversight? Did I say that already?
William Chisel:
When the post-audits are done, we submit to the Board of Examiners the results, and that’s a public document which is available to anyone.
Assemblyman Hardy:
Does the legislator have to ask for the public document, or does the public document come de facto in that loop?
William Chisel:
They would have to ask for that document.
Assemblyman Hardy:
May we have that document in perpetuity?
William Chisel:
Yes, not a problem.
Chairman Manendo:
Mr. Knecht, then Ms. Weber.
Assemblyman Knecht:
Thank you, Mr. Chairman. As I heard you and as I look at this bill, I thought the key thing was that it, or was that it would substitute a post-audit of claims for the current check, and pre-audit, is that the essence of it?
William Chisel:
That’s correct.
Assemblyman Knecht:
Could you explain in a simple, non-technical, fairly pedestrian paragraph, exactly the purpose and intent of the existing pre-audit, and what effect it would have to remove that and substitute a post-audit for that? I know you tried to do that at the beginning, but if you would take one more whack at it trying to put it in the big picture context and not just the technical aspects of this bill, I think it would help the Committee.
William Chisel:
As far as prior to 2002, when an agency would process a claim, they would submit it to a central location for review, for correctness. In other words, if an agency wanted to make a payment, that payment would be reviewed at a central location, and that was called pre-audit, and pre-audit would examine that transaction and make sure it was signed off, it was properly approved, it was going to the right accounts, and then they would send it forward to the controller for payment. After 2002, the expenditure process was automated with IFS, in other words, agencies could now make their payments from the agency location. They did not need to process that paper through a pre-audit transaction review. So, pre-audit has been eliminated and now post-audit was born out of that and post-audit is basically a team that goes out to the agency and looks at the expenditures and makes sure they’re complying and have the proper approvals and they are coded to the right accounts and they’re reviewing those transactions at the agency location, and then submitting the results to the agency head and Board of Examiners.
Assemblyman Knecht:
Mr. Chairman, if I may continue just briefly. That explanation was very helpful because I don’t think many members of the Committee had an understanding of what the process is; and I’ll speak for myself, I didn’t. I appreciate now the bill. Do I recall seeing in here a specification that the post-audit process would be done primarily by random sampling?
William Chisel:
A statistical sampling, not a random sample. We are also using risk assessment. Of course, the ones that we find the higher error rates, we will go in again and again, and follow up. We also request follow up from the agencies when we do have findings. They submit a follow-up report explaining they’ve corrected the item or what processes they’re doing to remedy the problem.
Assemblyman Knecht:
That’s helpful, and I understand the difference. I don’t think it’s particularly important to try to elaborate on the record here the difference between random and risk-based statistical samples, but I understand what you mean. Is it accurate and fair to characterize this bill as starting from the fact that we’ve had a change, an innovation of sorts, in our operating approach of an automation, and that has somewhat obviated the pre-audit, and that the intent of this is to continue the audit oversight by getting off the pre-audit and focusing now on a post-audit process that, and tell me if this is true, that you would expect is as affective in protecting the public?
William Chisel:
Yes, it is, and the pre-audit no longer exists. Once it was automated, that unit was disbanded, and it is now converted to a post-audit. Actually, it should be more effective, based on the fact that we’ll be using statistical sampling, and we’ll be targeting non-compliant agencies.
Assemblyman Knecht:
Final question, and I thank you for your indulgence, Mr. Chairman. Final question, is there anything else that this bill does?
William Chisel:
Other than transition from pre-audit to post-audit in terms of the statute, and eliminate the auditing of the Controller, Treasurer, and Secretary of state, that’s the other item, and also as far as the Division itself, the statute says the Division, as a whole, must comply with the Institute of Internal Audit standards. Well, the intent was for the Internal Audit Section, which does conformance audits, to comply with those standards. The other Section’s financial management is a training section which doesn’t do internal audits, and the post-audit section just looks at transactions; it is not an internal audit function, specifically.
Assemblyman Knecht:
Mr. Chairman, I thank you, and I thank the witness. This has been helpful.
Chairman Manendo:
Ms. Weber.
Assemblywoman Weber:
Thank you, Mr. Chairman; I believe my question was answered due to lengthy questioning from my colleague to my right. Thank you.
Chairman Manendo:
Ms. Pierce.
Assemblywoman Pierce:
What kind of compensation gets deferred? What is that about? It says the Public Employees Deferred Compensation Program.
William Chisel:
That would be the next bill.
Chairman Manendo:
Any other questions, Committee? Thank you very much. Is there anybody else on Assembly Bill 216? For or against, neutral? We’re going to close the hearing on Assembly Bill 216.
Assembly Bill 225: Provides that Public Employees’ Deferred Compensation Program approved by committee to administer the Program may consist of any plan to reduce taxable income. (BDR 23-505)
Chairman Manendo:
We’re going to open the hearing on A.B. 225.
Mary C. Keating, Administrator, State of Nevada Department of Administration, Administrative Services:
Good morning, Mr. Chairman. I’m the Vice Chairman of the State of Nevada Employees’ Deferred Compensation Committee. Thank you for this opportunity to be here today. Assembly Bill 225 is intended to provide expanding, enabling legislation on behalf of those participants in the state’s Deferred Compensation Plan. Specifically, what we are asking for is to allow for any other type of plan authorized by federal law, and that would be Code [United States Code], Section 457, to reduce taxable compensation or other forms of compensation. Compensation is defined as wages. It’s normally just payroll that is deferred. It is my understanding, talking with your legal department, that a technical amendment would be needed to this bill to include that string of language in several other sections that apply to this.
Chairman Manendo:
Would that be Sections [Nevada Revised Statutes] 287.270, 287.340, and 287.350?
Mary Keating:
Yes, in addition to 287.320, Section 1, paragraph 5 on the back of the second page of this bill.
Chairman Manendo:
Our Legal caught that. Thank you.
Mary Keating:
So I’m available for any questions.
Chairman Manendo:
Mr. Grady.
Assemblyman Grady:
Thank you, Mr. Chairman. My only question—and I support the idea of it; would this be any program? If you had a thousand people come in with 401(k)s, any department could accept any program, or are there going to be certain ones that are set up?
Mary Keating:
The statute establishes a committee that is appointed by the Governor. There are five members appointed by the Governor. We are willing to look at any type of plan that we believe would benefit our participants; however, there is a plan document that regulates how the plan is administered. We have two providers, currently, that administer that on our behalf, Hartford and ING [Direct]. And for any of you that may have heard from your constituents, we did do a transfer this past year from ICMA to ING [Direct], after doing a vendor search and using a consultant and legal advisors to do that, and we did do a transfer, and they administer the plan. But it’s not whatever any individual wants to participate. It would go through a plan document through the committee. But I would like to introduce—I have two other members in the public. Jack Crawford is our current chairman, and he represents retired employees, one of our plan committee members in retirement; and then Terra Hagen, our new district representative. She came from San Francisco to represent ING [Direct] Financial Services, which is our second provider. And just real quickly, we have about 9,600 participants that have about $210 million invested in this of their deferred wages.
Assemblywoman Koivisto:
Just an observation since state employees aren’t going to get a raise for at least two years and we’re going to be taking a cut because the PERS [Public Employees’ Retirement System] multiplier is going up. I’m feeling just a little concerned—concerned is probably not the right word but I’m just wondering what the need of this is. We’re not going to have any money we need to defer.
Mary Keating:
For example one of the plans that could be incorporated into this, if this legislation is passed, is what is called a VEBP, Voluntary Employee Benefits Program. Currently under state law, as an employee retires, and assuming they had 20 years of service, they’re entitled to an $8,000 payoff of sick leave, if they have enough hours of sick leave to fund that, as well as any annual or comp time that they have on the books. Under this plan they would be allowed to—instead of taking a payment on those dollars, paying income tax on those dollars, they could roll them into an account and use that to pay some of their post-retirement medical bills, pay their premiums, pay that.
So we’re not asking for any fiscal impact to this state. We’re not asking for additional funding. We’re asking for options of things to do with existing. Now whether or not we’re going to expand participation, in light of no pay raises and possibly a reduction in pay as a result of a PERS hit, that’s anybody’s guess. Compared to other jurisdictions, 9,600 participants out of approximately 14,000 or 15,000 employees without any match on behalf of the employer is a very high percentage. So we feel very confident that we’re going to have some employees that want to participate in these plans. And all we’re trying to do is provide the enabling legislation.
Chairman Manendo:
Any other questions, Committee? Mr. Christensen.
Assemblyman Christensen:
Thank you. I just have a question for you. Within your deferred comp program, it says down here in Section 1, that they’re able to choose from one or more of the plans authorized by the U.S. Code, within your VEBP plan. How long have you all been using the VEBP?
Mary Keating:
We haven’t, and that’s the intent of this legislation is to allow us to do that.
Assemblyman Christensen:
Within the VEBP plan that you all would design—did I hear you right? That after 20 years of service there would be a $8,000 payout?
Mary Keating:
Right. Currently under state law, when an employee retires and they have enough sick leave on the books, they’re entitled to an $8,000 pay off; that’s currently in statute. This is a way of deferring that payment into an account that can then be used on a pre-tax basis to pay post-retirement medical bills, prescriptions, and so forth. There’s probably a lot more strings on that than I’m explaining to you today, but that would just be an option for an employee as they leave. If you retire with less, then you may not have that $8,000. It may be something else.
Assemblyman Christensen:
I actually have some more questions. This is part of what I deal with in my other life, and I would have a couple questions about this. Can you leave me a card or a card of someone who I can call instead of asking a lot of questions here?
Mary Keating:
I’d be happy to answer, and if I can’t, I’d refer you to our providers who are technically much more competent in this than I am.
Assemblyman Christensen:
Thanks. Thank you, Mr. Chairman.
Chairman Manendo:
Mr. Christensen, do you have an uncomfortable level with this bill by chance?
Assemblyman Christensen:
No. Depending on the plan, VEBP hasn’t been holding up very well, so I don’t know if private enterprise is much different than how it relates to a government body. So maybe—We don’t recommend a whole lot of VEBPs these days. So it depends on use and that’s what I want to find out.
Chairman Manendo:
Any other questions, Committee? Thank you very much.
Mary Keating:
Thank you, Mr. Chairman.
Chairman Manendo:
Anybody else testifying on Assembly Bill 225? For or against? I’m going to close the hearing on Assembly Bill 225.
Committee, I believe everybody received the previously requested information from Bonnie Parnell that was distributed.
Is there anything else to come before the Committee? Mr. Collins, we have all Friday that we are going to be working on some bills. Mr. Christensen, if you could let us know by Friday if you have any uncomfortable level with [A. B.] 225. We were going to move it today, but I’m just going to hold on to it. We are adjourned.
Rosemary Zienter
Committee Secretary
APPROVED BY:
Assemblyman Mark Manendo, Chairman
DATE: