The Arkansas Department of Information Systems overbilled about $7.6 million for some services, underbilled about $17.7 million for other services in fiscal 2013, and refused to follow rate-setting requirements, according to an audit by the Department of Finance and Administration.
Previous billing problems cost Arkansas $44 million in 2006 after the state settled a lawsuit with the federal government over improper billing practices. The audit's billing analysis -- which doesn't include fiscal 2014 data-- shows that the agency has not completely corrected its billing formulas and could once again face federal scrutiny.
The audit also found dozens of violations of the state's travel policies ranging from improper travel upgrades to unapproved trips resulting in more than $5,000 that finance department officials said should be reimbursed to the state, including more than $2,200 from the department's former director.
The audit was done at the request of Gov. Mike Beebe after a national nonprofit did an analysis of broadband availability to school districts and found the department was using antiquated and costly copper wire and charging school districts rates that varied greatly across the state.
Herschel Cleveland, the interim director of the Department of Information Systems, said Tuesday that staff members are still preparing answers.
"We're working on responses and we'll respond to every finding that they have," Cleveland said. "We have our chief fiscal officer working on it and some of the other people working on it in the office."
The 19-page audit, obtained by the Arkansas Democrat-Gazette on Tuesday, details the billing issues between fiscal 2010 and fiscal 2013. It also criticizes the rate-setting process that the agency uses, which is supposed to correct from year to year for over- or under-billing because, under state law, the agency is not allowed to make a profit.
"The rates are supposed to be designed to help the agency break even. ... The audit has the methodology in there, and the model appears to be a good working model," said Paul Louthian, the administrator for the Office of Accounting at the Department of Finance and Administration. "The upper level management, however, chose to change those amounts. Say if the rate was supposed to be a dollar, they decided to charge 97 cents. There's no documentation of why. They made a judgmental call about rates rather than letting the model determine where they should be."
Louthian said the audit recommends that the agency follow the rate model. If Department of Information Systems officials deviate from that formula, they should document why they did so, in order to justify them if challenged, the audit said.
The federal government asked the state to reimburse about $9.2 million in department-billed costs between 1997-2000. The federal government contended that the department's method of billing some state agencies that used federal funds for computing and telephone services was improper because those agencies were billed more than the actual cost of service.
But the state resisted and defended the billing methods, keeping them in place during a lengthy court fight.
So the improper billing continued for years. In a 2006 court settlement, the state agreed to repay the money it had improperly received. Including fees and interest, the state had to pay $44 million.
The Finance Department audit said problems persist.
Auditors found that monthly charges to some customers for Internet access were wrong because work orders were not processed in a timely manner. When customers tried to decrease or increase Department of Information Systems services, the agency took anywhere from 33 to 336 days to update the service and change the bill amounts. The audit also notes that the agency paid its bills late, sometimes 68 days after the due date.
Finance Department auditors also found dozens of instances of improper travel expenses worth tens of thousands of dollars, and a handful of contracts that did not follow state procurement procedures.
Louthian said the audit will not be complete until the Department of Information Systems administration responds to the findings.
The audit looked at a sample of 110 employee trips in fiscal 2013 and 56 trips in fiscal 2014, finding that the agency sent up to a dozen employees to the same conference in some cases.
The audit findings included:
• 12 inappropriate travel expenses including costs for upgraded hotel rooms, incorrect mileage claims and other issues totalling about $2,800.
• 13 instances of increased airfare for upgraded seats and early check-in fees, not covered under the state's travel policy worth about $975.
• six automobile trips with mileage charges exceeding the cost of airfare, resulting in $1,055 disallowed expense reimbursements.
• 29 expense reimbursements for 24 trips totaling $10,844, where adequate supporting documents were not submitted.
The findings also included three trips where employees extended business trips for personal reasons, one of which involved the department's former Director Claire Bailey, who resigned last month citing her health. The audit notes that Bailey reimbursed the state Oct. 21 for 24 hours of leave time from one of those trips. Louthian said Bailey sent a check for $2,285.44.
The audit also notes that Bailey failed to disclose two speaking engagements where travel was paid by outside groups in 2012 and 2013, as required by Arkansas financial disclosure requirements.
Other issues included $24,000 in lodging that exceeded the federal per diem rate, issues with travel dates not matching approved leave, missing administrative approval on dozens of trips that cost more than $59,000 and a handful of other issues.
Cleveland said the department's staff is talking with employees about the travel issues.
"There are several travel issues [in the audit] but they're not huge. One of them was pretty big, but I don't know what to do with that because the employee is deceased," he said. "I reckon that everybody is paying it back once they are finding out that they owe the state. But some of them got wrong advice. We're working through it."
The audit recommends a reimbursement of about $5,145 from employees as well as training moving forward.
The contract issues identified in the audit include missing approvals to make sure the equipment purchased met the state's technology plan, missing certifications that no illegal aliens worked on a contract, missing certifications that software could be adapted as required by state law to be used by the blind or vision-impaired, a contract that should have been competitively bid but wasn't and a handful of others.
Finance department officials had recommended earlier this month that the Legislature eliminate 49 positions within the Department of Information Systems -- 28 employees would be fired and 21 vacant positions would not be filled. They also suggested transferring another 25 employees who get paychecks from the agency but perform tasks solely for other agencies. The move was suggested as a way to streamline costs and services at the department, Department of Finance and Administration staff members said.
The Joint Budget Committee voted Thursday to wait until the audit was finished before deciding if and how to cut staffing at the agency.
A section on 11/26/2014