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Okay. Good morning. We are going to call this meeting of Government Operations and Audit Committee to order. I want to welcome everybody in the room, and if you're listening and got nothing better to do today and watching and listening on at home, Welcome. Reminder, let's turn our cell phones off or to silent. And with that, I'll ask the secretary to call the roll.

Senators Foster? Here.

Grove?

Here.

Karr?

Here.

Otten?

Here.

Auch?

Here.

Emery?

Here.

Lems?

Here.

Moore?

Howard Overwing here.

We'll go back to car.

Yep, here.

Thank you, Mr.

Chair.

You have a quorum.

Thank you. Okay, the first item we're going to do is to approve the minutes of our. Last meeting. Do I hear a motion?

Mr.

Chair, I make a motion to approve your minutes from last meeting.

Been made by Representative Auch and seconded by Representative Lems to approve the minutes of last meeting. All those in favor say aye.

Aye.

Opposed? We are approved. Okay, with that, we'll move into our first order of business. Our second is Department of Legislative Audit to review the FY 2025 single audit report for the state of South Dakota. Welcome, gentlemen. Please introduce yourselves and give us your report. Mr.

Chair, members of the GOAC board, I am Russ Olson. I am the Auditor General with the Department of Legislative Audit. It is our pleasure to come today to present to you the FY 25 single audit. We will— I have basically 2 of my specialists here, Audit Manager Mike Kogelman and Audit Manager Lisa Schofield, that will be basically going through the details. We're more than welcome to address any questions that you may have, and I'll turn it over to Mike and we'll let him get started on the presentation.

Okay, welcome. You should be good. All right.

Mike Coghlan, Department of Legislative Audit, State Government Audit Manager, and I'll go through the memo kind of at a high level for the single audit, and then at the end we'll get into more detail on the findings. Obviously, at any time interrupt if you want me to go in more detail on some of the financial statements or other information shown, shown in the single audit. So, the single audit includes both the entity's financial statements and its federal awards. It includes examination of the financial records, internal controls, and compliance with state and federal laws. On Attachment 4 of the memo, I get into a little bit about all the different standards that we follow during— during the course of the audit.

Okay.

On the screen there on the memo, it lists 6 of them there. It's kind of the summary there, but on Attachment 4, it goes into a little more detail. I won't go into that right now. So from that, the report starts out essentially with the ACFR, the Annual Comprehensive Financial Report, which is the state's financial statements. That gets issued under a separate cover at the end of December as well.

Okay.

So it's about half the size of the printed copy of the single audit here. It has the financial statements. So that's usually available in PDF on BFM's website immediately, which would normally be December 31st, and then there'll be printed copies usually available in January. With that, we'll go into the audit— independent auditor's report, which is The report we prepare after we've completed our audit of the financial statements. With that, we do give an opinion on the financial statements. An unmodified opinion indicates that in our opinion the state's financial statements are fairly stated and in accordance with generally accepted accounting principles. In this opinion letter, there's 13 separate opinions that we give. There's 3 on the government-wides, 9 With the major funds. So GASB defines what a major fund is. So the state's general fund is always going to be a major fund, so it's going to have its own opinion. Then there's going to be the other funds in relation— it's kind of in relation to each other. There's a formula we go through, but when you get right down to it, it's the bigger funds of the state will each have their own opinion. And then there's going to be the last opinion is going to kind of be everything else encompassing. So the non-major governmental funds, the non-major enterprise funds, the fiduciary funds, those will all have one opinion associated with them. In all cases, we gave an unmodified opinion for all those opinion units, which is your standard opinion, which is they, you know, these do present fairly.

Okay.

the position of the state. So with those different opinion units, there's different measurement focuses within the financial statements. So we have the economic resource accrual basis of accounting, which are going to be your government-wide statements, your proprietary funds, which are your enterprise funds, your internal service funds, and then the fiduciary funds. So your enterprise funds, I mean, this is going to be similar to the measurement focus that you would see in a private business. So full accrual, everything's kind of in there. The government-wide kind of take everything within the government and combine them up to a single column for governmental activities and a single column for business-type activities. Your business-type activities Are going to be your funds that are designed to meet their own cost. They don't take general governmental— government assistance. So your ready fund gives out loans, gets money back, makes some interest. It's designed not to get subsidies from the government. Lottery, the lottery operating fund, so forth. Your fiduciary funds are going to be like your Some of your custodial funds where it's not necessarily the state's money, where an example of that would be with the Department of Revenue where they collect all the sales tax comes into the state, but we are also collecting the city's portion. So we collect it, it goes through this fund, and then it gets distributed back. It's not the state's money. It gets put in this fiduciary fund, which is just kind of a temporary holding account for the state. Then the other measurement basis is going to be your current financial resources or modified accrual basis, which is going to be all your governmental funds, the general fund, the highway fund, et cetera. This method attempts to answer the question of whether there's enough current resources available for spending in the near future, so it's closer to your budgetary basis that we have.

Okay.

Revenues are recognized when measurable and available. So if we have a receivable out there in a governmental fund, it has to be collected within 60 days to be recognized as revenue within the governmental funds. Whereas on the full accrual, that, that would still be— we don't have the 60-day window. Another difference is with your expenditures. It's recognized in the period which the fund liability is incurred, except for like long-term liabilities, such as a bond, leases. If the general fund were to be— have the obligation for a long-term lease, the general fund would really only report when they make the payments. The actual liability is going to be shown rolled up in the governmental funds there. So from that, I put together Attachment 1 here, which is certain financial statements. And then I put over on the left there in the yellow, it's kind of more of a— more descriptive of what is represented in each one of the— either the accounts or the columns. I'm not going to get into that too much.

Okay.

But I put it out there for your information, or if you had any, any questions. Obviously, the printed copy of this is quite difficult to read, so it's good to have it in PDF. Same way with the financial statements. Some of these financial statements, there's so many different rows that they get a little difficult to read in the printed copy that the PDF I generally use to, uh, to blow it up to 150% or so, and it's a lot easier to actually see what's going on there. So then I get down to the bottom of Attachment 1 here, starting on page 9. Goes into a little bit more detail comparing what's in the ACFR as opposed to what's in the Blue Book that we put out in September, October, November timeframe that I, I think you guys are a little more familiar with, that you That is used during session a lot. So I put together a comparison between a couple of funds. I used the State Motor Vehicle Fund, which is a governmental fund, and then the next one's going to be the Lottery Operating Fund. So I put in what the— what's in the Blue Book and compared it to what's in the ACFR. And then on the page, the immediate page after that, there's little descriptions.

Okay.

Of the differences. So, and in a lot of cases, the Blue Book is going to come right off the accounting system, which is essentially a cash basis. So you're not going to see a lot of receivables or payables on the accounting system. But like here in the State Motor Vehicle Fund, you can see, you know, we're bringing in due from other governments of $16 million. There's also some cash, another $23 million in cash that comes in. Okay. That's going to be stuff that has been remitted to the state. It's in a holding account on June 30th on the accounting system, but generally accepted accounting principles say you have to distribute that money on your financial statements. So this would be fees collected that were reported to the Department of Revenue. Department of Revenue actually disperses the money to, like, the state motor vehicle fund here and various other funds in July, but for financial reporting purposes, you got to go back and make your statements have those distributions happen as of June 30th, so they're reflected in your— the actual fund that was supposed to receive the money. Then the next attachment is Attachment 2 here, and that's on fund equity in the governmental funds. It's kind of what's left over at the end of the year. There's 5 different categories that are reported. I'll make— I'll go into a couple of them here. The assigned fund balance, that's what either the executive branch or the legislature can assign certain funds for a particular purpose. So an example of that would be when the legislature passes a multi-year appropriation for a specific purpose at the end of the year of the first appropriation, First year of the appropriation, you're going to have some funds left over, and that is going to be reflected in the statements as assigned for that particular purpose. The incarceration construction fund is a perfect example of this. Set aside a bunch of money for the state prison. It's going to take however many years to build. At the end of the year, that's going to show up here as assigned fund balance. The next one is the unassigned fund balance, and the only Fund that shows a positive unassigned fund balance is the general fund. So that's kind of what's left over in the general fund at the end of the year on a GAAP basis. I will make one note with that, however. The budget reserve fund and the general revenue replacement fund get reported within the general fund. And based on how our statutes are written for it and how kind GASB has done their standards, that amount has to be shown as unassigned. So there's $492 million at the end of FY25 in fund balance for the general fund that's actually unassigned. And the note disclosure in Attachment 2 here goes into a little more detail on that. You can get to this 3rd page of that. It talks about the budget reserve and then general revenue replacement fund. So, and then that's kind of the financial statements in a nutshell there, as far as the ACFR portion of, of the report. Went through that pretty quick, obviously. I'll take any questions if there's any out there before we kind of transition into the single audit portion.

Thank you, bud.

All right. So then attachment 3 is a summary of the next portion here. The next portion in the single audit is going to be the schedule of expenditure of federal awards, and that starts on page 185. It's basically the state spending on a cash basis of federal grant money. There's a few grants that aren't necessarily shown on a cash basis that are disclosed in the notes to the schedule of federal awards, but the vast majority is just simple cash basis, money in, money out. This is what we spent for the year. So on this summary, it's broken down between Type A programs and Type B programs. Type A programs are going to be your larger programs, which in FY25 is everything over $11 million. And that's Type A and Type B is what's defined in the uniform guidance, and it's 0.3% of total federal expense spending for the year. So you calculate that, you come up with your Type A programs, and then you come up with everything else is below that threshold is going to be your Type B programs. And that kind of defines how our audit goes for the single audit. Type A programs are required to be Tested at a minimum once every 3 years. There are certain programs that the federal government has designated as high risk, so we have to audit them every year then, such as Medicaid is the main one that we do every year, and that's been designated as high risk for, you know, many years. So another one that they had was the State and Fiscal Recovery Fund. That was the COVID money that came out. Right at first. We had to audit that a couple years in a row, and then they sometimes remove it as high risk. So it's high risk at first, and then after a few years they might take it off. But I do know for FY26 they're talking about designating a few other grants as high risk when they issue a compliance supplement every year, and that's what defines what's going to be high risk. So this year we had to audit 9 Type A programs, and then we also had to pick up 5 Type B programs, which are the higher-risk Type B programs. We go through a formal risk assessment, and the uniform guidance also defines how many Type B programs you have to pick up based on how many Type A programs you have. So, so we did it for a total of 14. In combination, they're called major programs. So that's what we have is 14 major programs in FY25. As compared to FY24, there were 16 major programs. So a little comparison there. And then in addition, we're required to have 40% coverage. So total grant testing, if we weren't to have met that 40% coverage with the 14 major programs, we would then have to go back and pick up more major programs. But we did have 43.3% coverage. So about $1.6 billion.

Thank you.

Of the $3.78 billion were covered within the single audit portion of our audit here. Then from there, in the single audit— let me scroll through here— the next Part of the single audit are going to be a couple more, a couple of opinion, a couple of reports that we issue in relation to both the financial statement part of this and the single audit. Let me get to them here. All right, here we go. So here's the, the first report we do relates to the audit of the financial statements, and it identifies any significant deficiencies or material weaknesses in internal control, and then also instances of noncompliance that were identified during our audit of the actual financial statements. It doesn't actually offer an opinion on the overall design and operation of the state's internal control or compliance. It just identifies what we found during our audit. So for FY25 here, we had one material weakness and one significant deficiency that then gets put in this report. It also gets reported at— in the schedule of findings and questioned costs at the end of the report here, which I'll be getting into here shortly. So we'll go through each one of the findings in detail at that point. The next report is going to be The results of compliance and internal control over compliance for each of the major programs. So this is the one on the federal awards. We have to issue an opinion on each one of the awards on whether they were materially in compliance with the compliance requirements that the federal government required us to test, which they issue their compliance supplement each year.

Okay.

That kind of lists out different areas that they're requiring to be tested. Obviously, these grants have a ton of regulations attached with them, but they kind of narrow down to what they think is important, such as it was spent on allowable activities. When we have to, in most cases, test the federal reports that get submitted on a quarterly or annual basis. So those are the type of requirements we're testing for here. So, we did issue unmodified opinions for each of the major programs. However, we did come up with 5 material weakness findings and then 4 significant deficiencies findings in the internal controls within these major programs. All 9 of these findings also had instances of noncompliance. And then there was one additional finding within this report for the total of 10 that was strictly related to noncompliance.

Okay.

So, and that— those also will go straight into the schedule of findings and question costs, and we'll go through those here momentarily. So, and that is going to start on page 233. Here is the schedule of findings and question costs. So these first couple pages, it's just kind of a summary.

Okay.

of what's to follow. So I'll just go straight into the first one here, unless anybody has any questions on what I've presented so far. We can then just kind of move into the findings. Seeing none, I will then move into the findings here. I'm going to ask my counterpart, Lisa Schofield, with the Department of Legislative Audit. She's She's going to be audit manager over a couple of the agencies, some of the agencies here that we have the findings with. I'll be audit manager with some of them, so we'll kind of tag team this and go back and forth between who knows the findings the best.

Sure, that's fine. Come on up, introduce yourself for the record, and we'll get into it. Welcome, by the way.

Thank you. Good morning, Mr. Chair, members of the committee. I'm Lisa Schofield, State Government Audit Manager, and I'm in charge of the single audit for the state. The first audit finding actually deals with— is a finding out of the first report that Mike mentioned, the Government Audit Standards Report that reports any material weaknesses over financial statement accounts. And what we found here was in the Revolving Economic Development Initiative Fund, where cash transfers from another fund within state government were erroneously reported as operating income and Generally Accepted Accounting— the GASB standards require that it be reported as transfers below the non-operating income, and because there was a material adjustment there, we're required to show a material weakness in internal controls. And Mike, I'll turn it back to you for the next one.

Excuse me, if I could just ask you a question. So what was— on this one, what was the Board of Economic Development— what was their answer to you when you told them this? Can you just talk about that a little bit? I mean, you raised the question, but can you kind of go deeper into what happens then? I mean, did they agree with you? Are they going to change?

If I may, Mr. Chair, we did discuss it with them, and they did agree that the statement should be adjusted. There was a little bit of Disagreement in whether it was a material weakness. What we go by when we report is based on what the auditing standards require, and if there's a reasonable possibility that a material misstatement could occur, we're required to report that as a material weakness. And so, um, there was some disagreement on the part of the board that we had the discretion as to whether we could report that as a material weakness or not, but under auditing standards, we really don't have that discretion.

Okay.

The classification error was material, and so we're required to report that because their controls over the financial statements did not identify that as part of their internal control process. Mr.

Chair.

Thank you. Representative Auch.

May I ask a question?

Sure, go ahead.

So just for those of us who are not accountants and do not under all the, you know, understand all the legal Terminology. So what exactly— so what they did is they used money that they reported as an operating expense as something else. Is that what you're telling us, Mr.

Chair?

Go ahead.

It was actually a transfer in of cash that they intend to use for ready fund purposes, and they reported it as operating revenue instead of, instead of a transfer in.

Correct.

So they used, um, so they're— they said that they were going to possibly use the money for operating expense. Instead, they were using it for ready fund. Is that what you're saying? Just so I have it straight in my head.

Mr.

Chair?

Go ahead.

No, it was simply a matter of how the, the transfer was reported. If it's reported as operating revenue, then it, then it will overstate what they Earned in operating income, where if it's reported as a transfer down below, it's easier to identify on the financial statements as something aside from their operations.

Got it.

Okay, and so they agreed with your assumption in the end, and then they're going to do it differently in the future is what you're saying?

Yes, that's correct. They've already spoken with us this year on how to handle similar transfers.

Great. Any other questions? If not, you may continue.

Okay, Mr. Chair, I'll do finding number 2. So finding number 2 is at the Department of Revenue. It's ineffective internal controls over the calculation of motor vehicle excise taxes. We determined it to be a significant deficiency, so that's the level down from the material weakness. We determined it wasn't— the amount wasn't going to be material, but it was important enough to be communicated to those charged with governance, which is BFM, Governor's Office, and you guys as part of the GOAC committee. So we had the finding here. I'll get into the details here. So SDCL 325 is what Governs the 4% being charged for what you pay in excise tax when you buy a vehicle and you go, go to the county and register it. You're going to pay your 4% excise tax. Then 325 goes into how that's calculated and how you can, when you do a trade-in, that reduces that value that you have to pay the 4% tax on. So from that, the condition was, um, as of February 17th, 2025, Department of Revenue switched over to the 605 Drive system, and then that system was the one calculating the fees and maintaining the documentation for the titles and registrations. We went from the SD-CARS system that was outdated, and that February 17th date was when they switched over. So we had 2 different systems during the year that we had to test. The SD-CARS portion of the testing We did and didn't have any problems with, which was the old system. Of course, you switched— you're switching systems in the middle of the year, you know, problems are going to happen when you have a new system. So in this case, there were certain cases where trade-in values were incorrectly— they were incorrect within the system, which affected the taxable value, which is used then obviously To calculate the excise tax. So the taxpayer paid more on the ones that we, we identified here. So there were, there were 2 issues: incorrect data entry or improper data conversion into the 605 Drive system. So there's that. When we hit that February 17th date, there was certain stuff in the old system that had to be incorporated into the new system, outstanding stuff. Where they hadn't showed up at the county yet to pay their taxes, because you buy your vehicle, you have 30 to 45 days— I don't remember exactly what that is— to show up. But there might be an application loaded into the old system. So that information gets imported into the new system, and in certain cases, the trade-in values weren't coming in correctly. So When we did our sample, we tested 112 transactions, and we found 3 issues where that— the trade-in values weren't in there correctly, which ended up the taxpayers overpaid by $1,400 for those 3 vehicles that they were paying excise tax on. So the cause was internal controls over the accuracy of the data in determining the taxable value in motor vehicle excise tax transactions as they related strictly to the trade-in values were not operating effectively within the county title transaction process. And then additionally, the secondary control at the title— at the Department of Revenue, the title processor review, was also not effective in identifying the issues in certain instances. So the effect— So those 3 were overpaid. Recommendations. We recommended that the Department of Revenue implement a thorough review of the internal controls relating to the titling and registering of motor vehicles, including those internal controls embedded within the 605 Drive system, to ensure accuracy of the transactions in the future, and that that control should be monitored and reviewed regularly to evaluate the results. We also recommend a thorough review be performed by the Department of Revenue to identify additional overpayments, which when identified, we recommend be refunded to the taxpayers. One additional thing I want to throw out there on this was early on in the conversion process, the Department of Revenue had identified this as an issue. So they had spoken, put the information out there to the counties that When people are coming in, you need to double-check the taxable, the trade-in values, because for some reason some of this wasn't being converted correctly. But, you know, in the end, that wasn't a good enough control to prevent the 3 that we found. And when we have 3 out of 112 transactions, that raises to the level of having to have a finding on it. So that's, that's where the finding came about. They did concur with the finding. And their corrective action plan, which starts on page 271, I'll just scroll down to that quick so we can have that on the screen.

Okay.

So here's the corrective action plan for the Department of Revenue. They're going to review previously processed applications with identified conversion errors to determine if there's any adjustments that need to be made to the tax that was paid. They say the refunds have been issued or are in the process of being issued where applicable, so the ones we'd identified. Okay. They did create a new classification, a new person that would then do the motor vehicle title as a compliance auditor. So that was the person that was then going to evaluate, do the evaluation of the, the other applications that got processed to see, you know, were there any other overpayments identified. And it is my understanding that they Recently completed that process, and they're— they identified 24 more errors. Well, step back from that. They identified 24 errors where the taxpayers actually owed money totaling about $4,200. They found an additional 9 that resulted in refunds of $1,400, $1,450. And then there was 56 more errors noted that didn't— didn't change how much tax was paid, but changed what, you know, what they needed in the system. Maybe it was related to the car information or something, but it didn't— it didn't have a financial effect. So they have completed that process, and I— it's my understanding that was done fairly recently here.

So.

Thank you. I think we had something last year, if I remember right, with trucks, didn't we, that they had a rebate, something?

Correct.

So it was okay. Well, that's not a question for you, I guess, but thank you for catching it. Any other questions?

Mr.

Chair.

Representative— or Senator Grove, sorry.

That's okay.

I tried to up you a little bit.

That's funny. Um, so I have a question on— you are referring to the $1,400 So in the, in the book here, our review, it's for— you found 3 that were at the $1,400. Is that like basically a little under $500 each, or— and then in here you said 9, so I'm just wondering, were— is it 9 at $1,400 each, or like Well, can you just say that again, please?

Mr.

Chair?

Go ahead.

Okay, um, yeah, so during our audit we found 3. The total was for those 3 was $1,400. So there was an $80 one, there was an $800 one, and a $520 one to make— that made up the $1,400. When the Department of Revenue did their review, is my understanding that they found an additional 9 for a total of $1,445. So they average there, you know, $150 apiece approximately that they found and are going to refund relating to their review.

So just follow up.

Go ahead, ask your question.

So, um, so these ones who, um, paid like extra $800 or whatever, $500, they have received their refunds back, and these new ones that you found, they're in the process of Mr. Karr, go ahead.

Um, so for the 3 that we found, 2 of them have been refunded. The other one was in a— in the process of being refunded. They found another issue with it. I think it was with the VIN number or something that they are working with the dealership to resolve, and then they're going to be refunding that one. Um, and the, the 9 was what the Department of Revenue found. I would be clear on that. It wasn't what we found. This is what they did To follow up with our finding, I believe those have either been refunded or are in the process of being refunded. So it's certainly, from my understanding, the Department of Revenue's intent, if they haven't already refunded those, to refund them.

Are you good, Senator? Good. Okay, further questions? I'd just like to note, I'd be— I would— my luck, I'd be the guy that owed $4,200, but Go ahead.

Okay. So that would be completion of finding number 2, and I will turn it back over to Lisa if that works for you, Mr.

Chair.

Absolutely.

Mr.

Chair?

Yes, go ahead.

Finding number 3 addresses a material weakness and a noncompliance at the Department of Human Services for For the Adult Services and Aging cluster. What happened there— the department's required to submit and obtain approval every year for how they allocate costs. In this particular case, it was personal services with the aging cluster. And they allocate those costs to the federal programs based on a cost allocation plan. That's required to be approved every year. By the cognizant agency, which in this case is the federal Department of Health and Human Services. And because of inadequate controls and staff turnover, the department did continue to charge these costs, these payroll costs, without having their plan approved for fiscal years 2023 to 2025. We did recommend that they establish controls to ensure timely submission.

Okay.

of an updated cost allocation plan. And upon being informed of the finding, they did submit a letter to their cognizant agency right away and told them that they had been allocating costs according to the prior approved cost allocation plan, which was in fiscal year '22, and their cognizant agency told them to continue charging costs the way they had been under that old plan. So they are working on getting that resolved right away. They're very responsive to our finding.

Okay, questions? You're gonna have to tell me if there's one from online. Let us know. Okay, all right, continue.

Okay, for finding 4, it was also with the aging cluster. It was a reporting finding under the Federal Funding Accountability and Transparency Act. Recipient agencies are required to report online what obligations they've made to subrecipients within the month following the month that they make that obligation. And we found, because, again, because of control weaknesses and staff turnover, that reporting was not done for fiscal year '25. We recommended that that reporting be done and— Implement and that they implement controls to ensure that it gets done for future periods.

So may I ask, these, these reports, they're due every year, right?

No, Mr. Chair, they're, they're due actually monthly. When they make an obligation to a subrecipient, they're required on the— by the first of the month following the month that the obligation is made, they're required to go out and report on a federal reporting system what obligation they made.

Okay, but the reports are repetitive, right? I mean, they just keep— you have to do them, right, at certain times? So how did— my question is, how did they just forget to do it?

They had staff turnover in which they weren't aware of the requirements of the Federal Funding Accountability and Transparency Act, which we call FFATA. This reporting is in addition to their normal financial reports. It goes on a federal system so that it can be viewed on a website called USA Spending. Not everybody is aware of these FFATA requirements. It's not an uncommon finding. Because they had significant staff turnover, they weren't aware of the reporting requirements.

Representative Lems.

I just have a quick question. So, you know, you're saying they didn't do this report for the whole year of 2025 right here, and, uh, So is there any controls from the federal level then, like saying, hey, by the way, we didn't get your report for May? Or, I mean, what's the penalty then, I guess, if there's no reporting for a whole year?

Go ahead and answer.

No, they don't get any contact from the federal government. Technically, the federal government could claim they weren't aware that any subrecipients were obligated funds. The federal government puts out on this site what's been awarded, And what costs have been incurred or drawn down by the state agency. But what's been obligated to subrecipients is not available if the state doesn't report it. And to my knowledge, there's never been any federal repercussions or notification that they've expected.

Okay.

It looks like everybody's good. Oh, Senator Grove.

So is it, is it just simply that we basically didn't get busted by the federal government for not submitting, and, uh, and so we kind of slid by? Is that kind of basically how it happened, Mr.

Chair?

Yes, that's correct.

Okay.

Just just to add to that, Mr. Chair, if I could, the corrective action plan for that finding appears on page 272, and they they did determine how they're going to correct that for the future.

Mr.

Chair, Representative Alk.

May I ask one question?

You may ask your question.

So what were they spending these dollars on?

Mr. Chair?

Go ahead and answer if you can.

Uh, this particular program funds services for— it's called Long-Term Services and Supports, and they give a variety of subawards to different organizations that serve elderly and disabled individuals. It may be legal services, adult daycare, or nutrition programs. So they do, they do obligate considerable subawards. to these programs. And this isn't a matter of the expenditures to these agencies, it's a matter of what grants they had signed. So I should be clear on that. This is them reporting what they've obligated, not expenditures. Expenditures do get reported on quarterly in financial reports, and those were properly submitted.

Thank you.

I, I just wanted to make sure, you know, if they were saying they were short-staffed on, you know, short Staffing. If they were spending the money on staffing, that doesn't make any sense. Okay, so I appreciate that very much. So they were receiving the money for specific areas, they just didn't have the staffing to report it properly is basically what happened.

That's correct. And turnover in the finance office resulted in the ensuing personnel not being aware of the reporting requirements.

I, I figured that was what happened, but I just wanted to clarify it for our listeners. Thank you very much.

I appreciate Okay.

Seeing no further questions, continue, please.

Okay. Moving on to finding number 5, then. This is also over the aging cluster program. Every year, federal regulations require a specific report. They require them to certify that they met maintenance of effort requirements. for the program, and again, because of the staffing turnover and the inadequate controls, they didn't submit the proper certification of the maintenance of effort form by the deadline. It's not that they didn't meet the maintenance of effort, it was more of a technicality of not submitting the report that's required.

Um...

They agreed with the finding. We recommended that they submit the required federal reporting in a timely manner for the future. And then implement monitoring controls to ensure that it— that it got submitted. Their corrective action plan appears on page 272, and upon realization of the unsubmitted certification, they did complete the maintenance of effort calculation and provided the form and submission instructions to their finance staff to be submitted. And it appears it has been submitted. Okay.

Okay. I don't see any questions for you.

Okay.

Moving on to finding number 6. This finding dealt with the vocational rehabilitation services grant, and there's required reporting Under this grant, they're required to submit a quarterly case service report containing the specific data elements that are outlined in the reporting regulations. That data is supposed to be supported in each client's case file. Client files are maintained through a combination of both electronic records or a paperless file and then information entered into a case management system. The information in the case management system is what they use to submit the case services report. Our testing identified that the electronic case files were missing some information and contained some discrepancies with the data reported on the case service report. Because of inadequate internal controls in place to ensure proper maintenance of client files, there's just an increased risk that the case service reports might contain inaccurate data.

Okay.

We recommended that DHS strengthen their internal controls to ensure that all the case files contain adequate documentation in the future.

Mr.

Chair, one more question.

Representative Auch.

Staff, how many of the cases did you audit versus how many we actually have?

Go ahead and answer if you can.

I'm not sure I have the specific information in front of me. Okay, so what we look at are the different reporting fields that they consider key line items, and there are different fields that we looked at. For example, the date of eligibility determination. Of 151 fields reported within our sample, We noted that 5 cases where the eligibility date reported could not be verified. Of 71 fields reported within our sample for the start date of employment in a primary occupation, we noted 3 cases where the start date of employment on the underlying support didn't agree to the start date that was reported on the case service report. And then the hourly wage at exit, of the 65 fields reported within our sample, we noted 7 cases where the The hourly wage at exit on the underlying support provided did not agree to the hourly wage that was reported on the case service report. So essentially, the caseworkers may have entered the information into their case management files, but they didn't have the underlying support, for example, that came from the employer asserting that the employment date started on this day. So it was more a matter of What was reported didn't necessarily tie to the specific documentation in the case file. There are— all of the quarterly cases this information is to be submitted for, and we tested a fairly significant sample of those. This was considered a significant deficiency, not a material weakness in internal controls. They do have a manual that instructs their employees.

Okay.

Um, on how to document the information contained in the case file. Um, they do have controls in place, but it was one of those human error things where it just did not get— did not get put into the case file. And their corrective action plan for that, um, appears on page 273. They determined that they'd strengthen the case file review processes to ensure, you know, both the presence of required documentation and the accuracy of the data. They said they will provide further training to staff to reinforce documentation requirements. And then a case closer checklist is currently in development and will be implemented as a tool for counselors to ensure that when a case gets closed, the completeness and accuracy of the case documentation. Okay.

Are you good, Representative Auch?

I, I think so for now.

Okay, back to you.

Thank you, Mr.

Chair.

Moving on to finding number 7, this was at the Department of Social Services. And it had to do with the timeliness of health and safety survey requirements, and this was not an internal control finding. It was a finding of noncompliance. In this case, the federal government tells them when they need to— how often they need to do health and safety certifications for different types of providers of the Medicaid program, and the department's designated The Department of Health— the Department of Social Services administers Medicaid, and they've designated the Department of Health as the state agency responsible for performing these health and safety surveys of Medicaid providers. Under federal regulations, there's a set timeframe, a set schedule for performing these surveys for different provider types. A lack of resources, increase in required complaint investigations, and staff vacancies at the DOH, along with inspection backlogs created by the COVID-19 pandemic, resulted in DOH not having enough staff available to complete the surveys within the required timeframes. We recommended that they complete those surveys within the required timeframes. They were well aware of the timeframes and they had those documented, but they did have a significant influx of— First, what the feds require them to review, which is The, um, complaint investigations— they're required to get to those first, and there was an increase in those. They're still trying to catch up on the COVID backlog of reviews because everything was shut down for a while, and then just finding the staff to go out and do those reviews was also an issue for them. The corrective action plan for that finding appears on page Page 274 of the report. They've evaluated the factors in the delays, and to strengthen these issues and strengthen compliance, they gave a list of corrective actions that they plan to implement, which includes staffing and resource enhancements, Workload prioritization, backlog reduction efforts, and then ongoing coordination. Department of Social Services will continue to coordinate and oversight with the Department of Health to monitor that compliance, and then improve tracking and monitoring as well.

Thank you. Can I ask you a question? You don't have to answer it if you don't. I'm not— I don't mean to put you on the spot, but it seems like every— everything you caught, it all says short of staffing. Is that just a— is that just a general excuse normally? Or, you know, because as a board we should— or as a committee, we should know if that's the problem.

If I may, in, in these instances, that did appear to be the issue. Um, again, turn— significant turnover in the finance Yes. Staff at the Department of Human Services definitely resulted in some of those issues there. For the vocational rehabilitation grant, that was not the case. It was more just a matter of staff maybe neglecting certain documentation elements. For this particular case, it's nurses, medical professionals that go out and do these surveys, and there is a shortage. of those. They, they prioritize cases as much as they can, but when there are complaints against safety, they have to get to those, and that affects the amount of time it takes to get to their regular schedules as well.

Yeah, so I would just, you know, because in all the— in all their explanations how they're going to fix it, none of them say hire more staff, but their excuse for not doing it was short staff shortage. So I'm just I'm just questioning if that was just a general, you know, excuse or if that actually was some— but you probably don't know that, so.

What I find is it depends on the situation, but you're correct, the agencies would be better able to answer those questions.

Thank you. Please continue.

Okay, moving on then to finding number 8. This finding was deemed a significant deficiency and noncompliance. It dealt with federal regulations require the automated data processing system that's used to administer the Medicaid program, required to have biennial system security reviews that include an evaluation of physical and data security operating procedures and personnel practices.

Okay.

DSS was not able to provide documentation that the required biennial ADP system risk— the ADP risk analysis and system security review had been conducted since the last review that they were able to provide a report for was in FY22. We recommended that internal controls be strengthened over the initiation and completion of a biennial ADP system security review.

Thank you. Um...

They have been working with the Bureau of Information and Telecommunications on making sure that the system security reviews get performed. There's been— they've been working with the Board of Internal Control as well, and they've reached out to us on what the requirements are and how best to meet those. So, they have been working on this process.

Okay.

Oh, question?

I do have one.

Senator Grove, thank you. You got to kind of raise your hand and get my attention.

Oh no, it's okay. I was trying to figure out how to formulate my question because, um, this is, you know, it's kind of, it's a little disconcerting because there's so much Thank you. There's so much talk, you know, about Medicaid fraud and Medicare fraud, and we're not meeting basic— the basic standards and reporting and stuff. And so, I mean, I understand that you have significant deficiency in compliance, but I'm just wondering, like, how do we really address this to make sure that we're not doing what nearby states are now, you know, contending with?

Mr.

Chair?

Go ahead and answer.

This is one specific special testing provision that we're required to look at, and it deals with the basic systems security over certain elements. They do have the Medicaid system and the surveillance and utilization review system where they look for fraud and things like that. There are many other elements of internal control That are in place over the Medicaid program. We also test a sample of claims every year. We test eligibility every year. We test these things every year, and we did not find any problems with that as a result of our testing procedures. This was just a special test and provision that this specific scan be performed, and they weren't able to provide documentation of that. There still are controls in place over the system through the Bureau of Information and Telecommunications. They just weren't able to provide us a report that said this specific scam was conducted and this is what we found.

Okay, Representative Auch, you're good, Senator? Okay, Representative Auch— sorry, Representative Lems.

Thank you, Mr. Chair. I know we look a lot alike. So what's concerning to me is it's a repeat finding from the prior year, so it's an ongoing problem that wasn't Fixed according to the report?

Mr.

Chair?

Go ahead and answer if you can.

It's a problem that they've been in the process of addressing. It's just one of those things. They had initially contracted with an outside provider to do this review. That did not get performed by the outside provider, and, and they've since determined that the Bureau of Information and Telecommunications probably was performing all of these duties anyway, and they're working on documenting that and then also providing the report to us. that we need for our documentation for having met this requirement.

You good? Senator Foster.

Thank you, Chair.

Um, so as you're going through these internal control—

oh, questions, sorry.

Yes, you're fine. What's your question?

Are these findings— could they be related to, um, the weaknesses in the system that allowed for that high-profile $1.8 million embezzlement through Child Protective Services. Could you assume that if these are strengthened that cases like this would be lessened or—

Mr.

Chair?

Is there any connection?

Answer if you can.

This is a separate system from that that was dealt with there. The Medicaid system has different controls in place than the system that deals with Child Protective Services.

Are you good, Senator?

Yeah.

Okay.

Seeing no other questions, continue, please. Excuse me.

Moving on to finding number 9. This was also with the Department of Social Services. It was a significant deficiency in noncompliance with The block grants for prevention and treatment of substance abuse. With this one, states are required to spend a given amount of state funds to meet what's referred to as maintenance of effort requirements for some federal programs. The maintenance of effort requirement for the block grants for prevention and treatment of substance abuse wasn't met for FY25. Some services that were previously provided using the maintenance of effort for this program, they began being charged to Medicaid because they were eligible under Medicaid after expansion of the Medicaid program in FY24. And then controls weren't adequate to ensure the applicable MOE requirement was still met for FY25 with this shift in funding. Now they are able to request a waiver of the MOE requirements and document certain things, they had not yet reached out to the federal government to request that waiver. I believe they are now working with the federal awarding agency in order to make sure that everything gets approved for the future. Their corrective action plan to that finding? Appears on page 275. And they did note that this was due to a structural shift, and they've established and implemented ongoing monitoring and internal controls over the MOE calculations, which is true. They did have those calculations there. Um, right now they're pursuing an allowable remedy under those federal regulations. By requesting the waiver or exemption.

Representative Auch, do you have a question?

Well, you know, yes, I do. I'm just— I'm struggling with, once again, how to ask it. So, you know, $1.6 million shortage. Were the dollars spent, or are they just sitting in an account? I mean, where, where did the money go? It's unaccounted for. What are they saying? Where did it go?

Go ahead and answer if you can.

This particular money wasn't necessarily sitting there. It's money that they didn't expend for these cases out of state funds. So specifically whether those funds had been budgeted or not, these— the state agency would be better able to answer that. But it was they didn't have the number of treatment cases that didn't qualify for Medicaid in order to spend the state amount of funds for that program.

May I?

Follow-up, Ashley, go ahead.

Follow-up question. So the money did not get spent.

They—

I just, I want to make sure I have this okay. The program was $26,419,000. But the total only was $24,752,000, so they did not spend the $1.6 million. Well, that's a big difference. Well, I don't know, I guess about $1.6 million.

That's correct. It was state funds that they did not expend, that they're required to meet a certain benchmark in state spending in order to continue getting the federal funding, and they fell short of that.

I understand.

So do you know the result of them not spending that money then? Will we have to spend it later? Will they not get federal funding? What?

The federal awarding agency is the one that makes the call on that, but they are currently working with the federal awarding agency, and the awarding agency did come out with some additional information lately that this, this was happening with other states and that they're working with the states to get it all Thank you.

Representative Lems.

Quick question, Mr.

Chair.

So maybe we're going over this too much, but so did we get those federal funds and then later they're like, oh, you fell short from getting these funds, so you really owe us this much more money? Or did we never get that amount from the feds?

Go ahead.

We did draw the entire federal award and it was expended. Generally, the MOE reporting occurs after the fact, and so they're working with the federal agency to resolve that now.

Mr.

Chair. Senator Grove.

Did I hear you say that— sorry, question.

Ask your question. You're fine.

Did I hear you say that We did not have the— we couldn't find the people that fit the program. Is that why we didn't? Did I misunderstand that we didn't have the people to fit the program and that's why we didn't spend it?

Go ahead if you can answer.

I think the state agency would be better able to answer the specifics on that, but it was my understanding that the expenditures did not They did not need that money, or they did not spend that money for whatever reason. And what they told us was that because many of those cases now fell under the Medicaid expansion funding rather than the strictly state maintenance of effort.

Okay, everybody good? Back to you.

Okay.

Moving on to finding number 10, which also was a Federal Funding Accountability and Transparency Act finding. Again, like we discussed with the other FFATA finding, they're required to report— direct recipients of grant awards are required to report certain obligations to subrecipients through that federal reporting system. And DSS did receive funding under the Child Care and Development Block Grant, and they allowed the Governor's Office of Economic Development to administer some of those grant awards to subrecipients. Both of those agencies made multiple awards to subrecipients. Some of the awards that we tested were administered by DSS were reported late, while the subawards tested administered by GOED did not get reported at the time of the audit. We did— we recommended that they submit the required FFATA reporting in a timely manner and implement monitoring controls to ensure proper submission for future periods. And the exact number of transactions that we tested and the dollar amounts are shown on the table on page 256. Again, this is simply that reporting system error.

Okay. Any questions?

On—

I'll have— on 257, it said question cost none. Can you kind of explain a little bit there or not?

Sure.

With reporting errors, those generally do not report— do not result in question costs because it's simply a matter of reporting what obligations were made to subrecipients. It doesn't have anything to do with what was paid out.

Okay.

Thank you.

Okay, no questions. I guess you can move on.

Finding number 11 also dealt with the Child Care and Development Block Grant. There was certain supplemental funding that was awarded under CCDBG. They were That funding was required to be obligated by September 30th, 2023, and then liquidated by September 30th, 2024. During FY25, DSS allowed the Governor's Office, as we mentioned, Governor's Office of Economic Development, to administer some of these funds as grant awards to subrecipients. And these were for child care expansion grants. 10 payments amounting to $350,235 to contractors and subrecipients that we tested were not obligated within the allowable period for obligation. Now, they were all paid out within the allowable period for liquidation. We recommended that they develop written procedures defining the obligation of grant funds in accordance with federal regulations and implement monitoring controls to make sure obligation requirements are met for future periods.

Okay.

So it was a matter of, um, the contracts with these child care expansion providers were not signed within the required time frame. All the payments were made within the required time frame to spend the money. They just weren't obligated within the time frame to obligate it.

Okay.

Okay, no questions.

Okay, moving on to Finding 12 then. Um, this was a material weakness and non-compliance, as was the previous finding, over the allowability of costs. Again, the American Rescue Plan Act provided supplemental funds that could be used for child care purposes that were governed by the same regulations as those governing regular child care funding. Those regulations require sufficient documentation be maintained to support that expenditures are allowable under federal regulations. They also prohibit grant funds from being used for certain expenditures like construction costs or prepayment of future expenditures. Our testing identified certain expenditures that were not allowable under program regulations and others that didn't have sufficient documentation for us to determine if they were allowable under the program. We recommended that internal controls be strengthened to ensure program funds are used in accordance with federal regulations and that adequate documentation is obtained to retain and support amounts paid. The question costs on this finding were $238,475.38. Those were also included in the obligation question costs in the prior finding.

Okay.

Please continue.

Mr. Chair, just one quick question.

Representative Auch, go ahead, ask your question.

In your sample of 16— and I'm on ARPA funds, page 262, correct? We're still on the same. I just want to make sure that I'm keeping up right. It says here 5 payments were made to subrecipients for activities that do not appear to be allowed under federal regulations. 2 of these payments totaling $76,798.89 were made for architectural and engineering design services on a construction project. 2 other payments totaling $3,458.70 were made to a subrecipient to repay 18 months of water service and repay— prepay $2,000 for unknown amount of propane. Are there corrective actions being taken? And, you know, not to scoot over it, but child ARPA funds amounting $1.4 million was tested out of 157 vouchers paid. A total dollar amount of payments, discretionary ARPA funds, was $11 million.

Yes.

Total questioned costs identified below— I mean, these are significant payments. So they misused funds. Did they put the money back?

Answer if you can.

That's up to the federal awarding agency to determine whether their questioned costs aren't the same as improper payments. There are federal regulations require us under the uniform guidance to question certain costs, and because the federal program does not allow construction costs, we consider these architectural and engineering costs to be construction costs. They generally don't allow prepayments, so we, we did question those costs, but when it comes to whether they need to repay the funds or not, that's up to the federal awarding agency to determine. We don't make a determination on that.

Okay.

Representative Lems.

So does your report go to these federal agencies as well?

Go ahead.

Mr.

Chair, it goes to the Federal Audit Clearinghouse, which is the repository for federal agencies to go out and obtain these reports. Our cognizant agency is the federal Department of Health and Human Services, which also is the agency that awards these Okay, Mr.

Chair.

Senator Grove, question?

I, I— okay, so in my previous notes I had, um, that there— it was like around $200,000 that was spent that wasn't, um, expenses that were not allowed. Is that right? And then I guess my question is— well, 2 questions. What is the solution, and how exactly did that happen, that they're spending money in places where it's not allowed?

If you can answer the question, please.

What we determined was that internal controls weren't strong enough to prevent these payments from being issued. I think the specifics on each particular payment would be more better answered by the state agency.

Yeah, Representative Oak.

Thank you. And once again, you may not be able to answer this question, but could this possibly— part of these problems that we're having with DHS and, and Social— whatever this is, apologize— so Department of Social Services, could it be that The board of BFM, and by the time it hits the auditor, there isn't maybe a check and balance, or would that even not be a stopgap? I mean, would the auditor not even be aware what the dollars need to be spent and where and all those areas? How are we not having— I mean, this is— I mean, to me, that's significant money, $200,000 that was misspent, that shouldn't have been spent the way it was spent.

Right.

And someone in those 2 offices should have known that it shouldn't have been spent for buildings. It was not allocated for that. It was actually allocated for child care, correct?

Mr.

Chair, if you can answer—

these specific funds were allocated for a variety of purposes to go to subrecipients, and one of those things that, that could be funded was the expansion of child care. So there were several costs within these projects that were allowable for equipment and such, They felt that architectural and engineering services would be allowable. I can tell you that there was a lot of money that was given out in a short timeframe and required to be obligated and spent within a short timeframe. I can only speculate as to how that may have affected the internal controls in place, but the state agency could answer that better.

Okay. Yeah, some of these questions are going to just be for the agencies. I get it, you catch it. What's up, Tuesta? Yeah. Okay, go ahead and continue, please.

With that, I'll turn it over to—

All right.

While they're getting ready, I'm just going to— I should have did some housecleaning stuff. We have to remember to register if you're going to testify today. On our little computer over there. If you have trouble, just wave your hand. Jacob would be glad to come over there and help you. So anybody that's testifying today, um, I apologize for my voice. We'll break for a bathroom after the third, but I plan to work right through lunch. We have— we don't have a very long agenda, so we're just gonna, you know, kind of keep going. Um, hopefully that works. And then as GOAC works, it, uh, will take public testimony at the end of our meeting, and you'll have 5 minutes if you're here to do public testimony at the end. That's what we'll do. So, okay, go ahead. Thank you for listening.

Mr. Chair, um, I— one, one thing I wanted to point out too, um, dealing with the findings that we have, you know, you're basically seeing a lot here with the Department of Human Services, Department of Social Security.

Mr. Otten, could you just introduce yourself for the record?

Excuse me. Russell Otten, Auditor General with Thank you. The findings that we have dealing with Department of Human Services, Department of Social Services, one thing you have to understand, those 2 agencies and probably DOT handle the most grants that we have. They do a tremendous amount. And to at least give them the standpoint with all the grants that they have, there are a tremendous amount of regulations that go with it. As you've seen in some of these comments, the FFATA reporting, the different things. New things coming up all the time from the federal government. And so, you know, it is a difficult part of the process. One of the things that we always look for is, again, are you putting controls in place and are you putting people in charge and having them have the understanding and then follow up, you know, from that standpoint? And again, to— Lisa made the comment about, you know, the federal awarding agency makes the determination. That is just the normal process that Based on uniform guidance, that's how it is done. We basically find the issues, we report the issues to them. It's then up to them to contact the agency and say, okay, how are we going to resolve this? So one of the other things is, on an ongoing basis, we are going to follow up on these. So next year, we will be following up on these findings and say, what happened? You went to the federal government, what did they do? Did you correct it? Did you do this? So again, there's a follow-up process to all of this.

Okay.

Also, Mike and I are basically just going to finish it out with the last section. I'll let Mike jump into it and we'll go from there. Thank you.

Go ahead, introduce yourself again.

Mike Coleman, Legislative Audit, State Government Audit Manager. And we are on to finding 13. I, if it pleases the chair, I'm going to take 13 through 18 all at once.

It would please him much.

Okay. So we've got the Soybean Promotion Council, the Corn Council, Council and the Wheat Commission. Each of them have 2 findings. They're the same exact findings. One, there's going to be a financial statement preparation finding, and this other finding is going to be a segregation of duties finding. So each one of them has each one of those. So I'll take the financial statement prep finding at first. This is similar to what they've had at least the last 3 or 4 years. They're not preparing their own financial statements. They Contract with Eide Bailly, who then helps prepare the financial statements, or will have material adjustments within those financial statements. Boom, they have to report a finding similar to the ReadyFund finding that we had with number 1. They didn't prepare their financial statements properly. We have to report a finding. They've— their response is similar to what it's been in the past years, that, you know, they're aware of it, but I would expect this to continue based on the responses for the 3 of them. So that's, that's the financial statement prep finding. The segregation of duties findings are similar to what they've been in the past as well, where there's these councils and the commission are small. They don't have enough staff to properly segregate their duties. So They end up with a finding on that. So they do run their— a lot of their operations through local bank accounts as well, which they have more duties to contend with under that scenario. So that's pretty much where we're at with those 6, same, same 6 findings they had last year.

So.

Okay.

No questions.

Mr.

Chair.

Go ahead. That, I believe, Mike, concludes with what we had basically prepared for the reports. Again, part of our process is a continual audit, is a continual process. So, you know, everything that we find, we basically follow up on. We continue to work with the entities on an ongoing basis. with the Board of Internal Controls, with Bureau of Finance and others to make sure that, you know, things are getting implemented and taken care of. We certainly appreciate this board's, you know, ability to review these findings. It's nice from our standpoint to be able to let you guys know what we're finding and hear your questions and responses so that we can basically make sure that we're, you know, serving the duty that way. So unless you have any additional questions, I believe that is the Okay, I think Senator Grove has a question.

Can I go backwards, Mr. Chair?

You can go backwards, frontwards, sideways.

Well, since you're the head dog, I'm actually— it's a little perplexing on 2025-009 when they're talking about that there's this $1.7 million that wasn't spent, and in And in part it's because they couldn't find the people that fall under the program, if I understood correctly. My problem with it is that that is our highest prison population group, are the people who have substance use disorders. And so I'm struggling with that. The comment is that— or maybe the argument is that we're not spending the money because we aren't finding the right people to fit in the program when it's one of our state's biggest problems?

I'll help you out here a little bit. He can add, but this is policy, Senator, and I don't, I don't know if Mr. Olson wants to try to answer this, but you may try.

But Mr. Chair, one, just one point. I guess when I look at it from my standpoint, just trying to understand, one of the things that took place with the expansion of Medicaid was a switch. So we have a history of how we were doing things and what we had to meet from the state standpoint of spending funds. That changed under enhancement. So then basically it sets a new base and we have to monitor and basically, you know, make sure that we're still meeting our maintenance of effort. So part of that gets down to, as Lisa pointed out, this is not just a problem in the state of South Dakota. This is a problem that has been seen in other states that have gone through through this too, in that the switch basically wasn't anticipated. So it's more along the lines of working with the federal government to get this resolved and to basically move forward from that standpoint. So, um, I, I don't believe it— it isn't that they're not going out and doing what they're supposed to. They are doing what they're supposed to. It's just a math problem right now. Okay.

Look at there, you could answer it. I undersold you.

Thank you all very much.

Thank you. Okay, is there a motion? I should ask any more questions just to wrap this up from anybody.

Okay, Mr.

Chair.

Representative Lems.

I move to acknowledge receipt of the single audit report prepared and submitted by the Auditor General pursuant to SDCL 4-11-2.

Is there a second? Okay, it's been moved by Representative Lems, seconded by Senator Grove to accept the report. All those in favor say aye.

Opposed?

We will accept it. Thank you. We'll move on to agenda number 3, report from the Auditor General on compiled authorizations to derive direct benefit from a contract. Welcome back.

Mr. Chair, Russell Olson, Auditor General with Legislative Audit. Mitch, if you could, do we have that report up? Tab right to the right of that one.

One more.

Oh, no, that one.

Yeah.

Yep.

Okay. Thank you very much. So today I'm basically here to present a report that is required by statute that I present to the GOAC on a yearly basis. What this report does is it is a compilation of the conflict of interest disclosures for state State authorities, boards, and commissions. This is required based on House Bill 1170.

I'll move this up.

House Bill 1170 in 2017, you know, revised the conflict of interest disclosure requirements for members of boards and commissions. SDCL 323.31 requires these members to make an annual disclosure of any interest in a contract or direct benefit. Based on that, I am then required— they are required, excuse me, to file the disclosure with myself and with the Attorney General. I am then required to compile this, bring this report to the Government Operations and Audit Committee, and basically discuss the various disclosures with you at that time. You know, one of the things, and again, based on, you know, making good use of your time, one of the things that I've done in the past When I receive all of these throughout the year, I review them, and what I look for is from my auditor standpoint, my professional experience of, is this an issue? Is it a problem? Is this something we should go in and do something about and look at? I can tell you, you know, on an ongoing basis as I'm going through this, these— there's nothing in this report perked my interest to the fact that I felt we had to pull some sort of a special review or go in and do some special thing. They were normal. There were certain instances where I would see something and it would perk my interest. I would go out then and go to that board or that commission and review through their minutes and make sure that I had a clear understanding what was taking place. Again, nothing rose to the level that I was concerned as an auditor from that standpoint. The report itself is basically— has the COVID letter, and then each one of the disclosures that were filed and the minutes are then in the report. And in the report, it is linked, so when you're on this table of contents, if you click on one of those, it's going to take you to that document. There is other ways, you know, you can pull up different things that will take you back, you know, to the beginning. So this is the intent of— or the entire disclosure of all those that were filed with me up until a week ago when I put this report together and sent it to the LRC to get it out to you guys. Some of these are annual disclosures. That is, again, part of the requirement that they disclose on an annual basis. So you'll see some of them where it just says none. They don't have any conflicts. That's great. Others you'll see are waivers. And the waivers are a little different in that that's where something comes up on an agenda item in a board meeting that that individual on that board goes, you know, I want to recuse myself from having any discussion with that. And that's what I look for because that's what we want them to do. If they have something that they have a conflict with, they should not be involved in hearing that item and they should recuse themselves and not vote. That's what I saw happen.

Okay.

Which is good. An additional step from my standpoint is making sure that I get out to all the boards and commissions to make sure and remind them on an ongoing basis that these are required to be filed. The Attorney General and myself both basically try to inform boards and commissions whenever we talk to them that this is part of the requirement. Let's, you know, keep it going. Let us know. The other thing is, on any of these boards, one of the other things that I always tell the boards and commissions that I have discussions with, or their executive directors, is if something comes up, don't wait to tell me. Don't wait for a waiver. Call me, tell me, let's discuss it, let's figure it out. We always want to do the right thing, and that's one of the things that we always have to do. So I'm not going to sit and go through the entire list. It's 170-some pages long.

Yeah.

121 pages long. I'm just going to tell you from my professional experience, there's nothing in here that concerns me dramatically at this point in time. If there is, I will bring it to your attention.

Can I ask you a question?

Yes.

Do you ever get somebody that calls and complains about an offense that happened? And if so, how— what can you just very shortly just go through what you would do in that situation?

Yes, certainly, Mr. Chair. Yes, you know, I've had people that called me up and said, hey, you know, this person's there. And so what I then basically do is I go to the documents, the minutes, the whatever it may be of that meeting. I read through them to find out what was going on. The nice part with a lot of these now is I can go and listen. And so I will go and listen to it and see what took place. At that point in time, I'll either reach out to the board member myself or to the executive director, and I will say, okay, did they file a disclosure?

Right.

Didn't they? What was the issue? You know, why was it interpreted by your board or your legal counsel that you didn't have to? So, you know, I— if I get calls and complaints, I usually try to follow up them, you know, to basically find out if there is something that is going on.

Okay.

Representative Auch.

Thank you.

Thank you very much, Mr. Chair. Mr. Russell, Mr. Russell Olson, do you ever find There is a possibility of a little bit of a conflict, or, um, I, I want to use the word insider trading, but if we have several different people, one person on several boards, could you imagine that being a conflict?

Mr.

Chair, go ahead and answer.

Um, it certainly may, you know, from that standpoint. Um, I don't know of any that I, I guess that have came to mind in my time that has given me that concern. And again, each board has their own duties defined in statute, what they do and how they do it, you know, from that standpoint. It's certainly something that I, I guess I would always be aware of, you know, based on the filings. I just haven't had anything that's basically came to mind that has required me to look into that. Okay, well, but I will keep it in mind.

We've had it happen in the past.

Right.

So, you know, we just, just keeping that in mind, the simple fact that when we have one person serving on multiple entities of the government that have access to government dollars, it can create a little bit of a problem, or maybe a big problem. So I guess that would be my biggest concern with this report.

Thank you very much for that.

Okay, everybody good? Thank you, Mr. Olson. Representative Limbs.

Mr. Chair, I move to acknowledge receipt of the annual report from the Auditor General detailing the authorizations to derive direct benefit from a contract submitted pursuant to SDCL 3-23-3.

Is there a second? Okay, it's been moved by Representative Limbs, seconded by Representative Auck, to receive the report. All those in favor say aye. Opposed? Aye. Report is received. And with that, I think we're going to take about a 10-minute break, bathroom break. If you haven't registered, please take this time to register with Jacob. He's Got a little— he's pretty sharp at it. He can help you. So let's try to get back here by quarter to. Thank you. Okay, we're gonna come back in and we are going to move to— let's see, we are on number 3 or 4, review the annual work plan of the State Board of Internal Control. Welcome.

Thank you, Mr. Chairman and members of the committee. My name is Jim Twilliger. As you know, I work with the Bureau of Finance and Management, but also I serve as the chair of the State Board of Internal Control. And so I'm, you know, kind of going back to last year with the same committee, we went into a little bit more robust discussion of what some history of the State Board of Internal Control, kind of how it's set up, and a little bit about what we do. This year I have with me Ali Kerr, who is the staff that really makes everything work.

Hi.

As it relates to the work underneath the State Board of Internal Controls. And our board is made up of 7 members. We meet quarterly. We actually met yesterday for our second quarterly meeting. We go through a variety of items, but in the end is what we do is mostly preventative type work on the front end where you just heard from Auditor General and his staff. And the audit that they do, a lot of that is things that have already happened. Internal controls is really more preventative in nature to make sure that we as a state have a good system that is consistently documented across agencies. And if you remember last year in the 2025 legislative session, we had a big discussion about internal controls and reporting.

Right.

And making sure that we have a good system in place. And thank you to this body and the legislature for providing some additional resources for internal controls, not only with Ali and her team, with some of the state agencies. And I'm really proud to say that I think we're in a really good position, a lot better position than we were maybe 2 or 3 years ago as far as our internal control efforts. When we were sitting here a year or so ago, we still had 6 or 7 agencies that we hadn't got to yet. And as Allie will report through her presentation, that we're crossing that finish line where we got all agencies onboarded, and now we're kind of moving into the next phases of, you know, going through and making sure annually that agencies are updating and looking at their risk control matrix to making sure. And this is a continuous improvement process. And so we're really never done in that improvement. And so With that, I will just turn it over to Ali, and she will go through the annual work plan, and we will stand by. If you have any questions for me, I'll be available. Thank you.

Okay, welcome. Well, please introduce yourself for the record and give us your report.

Great, thank you. So as Jim said, I'm Ali Kerr. I'm the director of the internal control team with the Bureau of Finance and Management. I want to thank you for the opportunity to present on our functions of the State Board of Internal Control. So, again, we're just going to give you a bit of background on our office. We serve as the central resource for internal control activities across state government. We work with all executive branch agencies, and our primary responsibility is managing the implementation and continued evolution of our statewide internal control framework document. And so, we partner with state agencies by researching issues. We interpret requirements and provide guidance and technical assistance to strengthen internal controls across our state. Each year we develop an annual work plan and an annual report to establish priorities and communicate progress to the board and our other stakeholders. Our office also staffs the 7-member State Board of Internal Control, as Jim mentioned, and that supports statewide oversight, coordination, and collaboration. Our authority and responsibilities are called out under SDCL 1-56, and as our program continues to mature, again, we're entering the next phase of this implementation. So I kind of like to call this phase Whereas starting in FY27, we're placing greater emphasis on validating that controls that we have identified and documented are operating effectively through a risk-based testing process. So when issues or opportunities for improvement are identified, my team will provide recommendations to strengthen internal control environments and support continuous improvement. So ultimately, our goal is to promote effective operations, reliable reporting, and compliance with laws and regulations, and really a strong accountability for our public Resources. So at its core, the statewide internal control framework provides a consistent approach for all of our state agencies to identify, assess, and manage risk while strengthening accountability across our state government. Our framework was originally established through Senate Bill 162 in 2016, and it was further enhanced through Senate Bill 61 during the 2025 legislative session. And so Senate Bill 61 strengthened the framework by establishing additional requirements for ongoing risk and control monitoring and overall agency accountability. Our framework is designed to provide reasonable assurance that our agencies achieve their operational reporting and compliance objectives. And while internal controls cannot eliminate all risk, they do help ensure that risks are identified, managed, and monitored in a consistent and effective manner. Although internal controls are often associated with financial processes, our framework extends well beyond just financial risks and controls. We also address operational, technology, compliance, fraud, and public perception risks that can impact an agency's ability to fulfill their mission and duties. So ultimately, a strong internal control system helps agencies operate more effectively, strengthen accountability, safeguard our public resources, and enhance public confidence in our state government. All right, so the statewide internal control framework has provided a consistent approach to accountability, risk management, and operational oversight across our state government. And so while all of our agencies have unique or different missions and objectives, we're able to use a common framework statewide to help us identify potential risks, to document controls, and then to monitor the performance of those controls. And so one of the most significant benefits has been strengthening agency operations through clearly defined responsibilities, through documented policies and procedures, and improved internal controls. So this whole process helps ensure continuity, accountability, and consistency in how our state programs are managed and administered. Our framework process has also encouraged agencies to look critically at their processes, for both operational improvements, you know, greater efficiency and stronger stewardship for our taxpayer resources. This creates opportunities to identify and address weaknesses before they become potential audit findings, compliance issues, or costly issues to the state. Ultimately, our framework provides state leadership with a valuable tool to measure organizational health, monitor risks, and support informed decision-making. So here are some highlights from the past year since we met with you. Our State Board of Internal Control reviewed 7 separate subrecipient audit reports, including those findings and the management decision letters, which strengthens statewide oversight of federal funds and ensures accountability for compliance and corrective actions. We continued expanding implementation of our statewide internal control framework. So as Jim mentioned, we Rolled out our framework to 6 additional agencies, and we have one remaining to wrap up this process. To support the implementation effort, we conducted 220 interactive workshop sessions involving agency staff from across state governments to achieve all of that mission. And so all of our trainings are virtual, highly interactive, and easily accessible for state employees that are located outside of PEER as well. We achieved a 98.6% response rate on semiannual internal control attestations. So our attestation process requires agencies to confirm twice a year that their key internal controls are in place and operating as intended. And so to illustrate the scale of this effort, for the period that we just finished in June, we sent out 2,670 control attestation questionnaires to 548 control owners statewide.

Wow.

And so that's really an excellent response rate, and it reflects strong participation by our agency leadership and their accountability to the controls that they own and manage. Following the passage of SB 61 in 2025, agencies just completed their first year of the annual reviews of their risk and control matrices. And so that work involved all state agencies to review their documented risks and controls and making sure that those are up to date. Finally, agencies have significantly strengthened their commitment to the internal control process following the passage of SB 61. So many larger state agencies have now designated an internal control officer, and dedicated positions have been funded in recent years, further enhancing accountability and embedding internal control responsibilities with agency leadership. These are just a few more details on those 7 subrecipient audit reviews that our board looked at this past year. And so just to give you an overview, so federal grant funds are passed through state agencies to local organizations, so our subrecipients, and those are subject to independent audit requirements to ensure proper use of those public funds. And so when audit findings occur, SDCL 156.9 requires the auditor general to submit those to our board of internal control for review of those findings.

Okay.

So agencies must then report within a set timeframe through a management decision letter, and that states whether the finding is accepted. It explains the determination and then outlines any corrective actions that they plan to take. So agency finance officials present those audit findings to our board and those— the management responses, and then the board's focus is on whether the agencies are addressing those findings appropriately and making sure that they're making timely, reasonable steps to correct those issues and prevent recurrence.

Okay.

If we have repeat findings, the board applies enhanced oversight, including increased monitoring, structured follow-up, and then direct subrecipient reporting to the board as well. Reviewing these findings publicly enhances transparency, especially since subrecipients work with several agencies across state government. So to help frame how this work is carried out across state government, This is our ongoing lifecycle we use to assess risk and implement internal controls across state government. So internal controls are not a one-time exercise. This is an ongoing cycle that helps agencies identify risks, implement safeguards, evaluate the control effectiveness, and continuously improve over time. And so this process begins with identifying risks that could prevent agencies from achieving their objectives. They include operational, financial, technology, compliance, fraud, or public perception risks. And then once we identify risks, agencies design and implement controls to address those potential risks. So those safeguards may include policies and procedures, additional approvals or authorizations, segregation of duties, maybe system or automated controls, and ongoing monitoring activities. Documenting controls is just the starting point, though. Agencies must also monitor performance of the controls to confirm that they're operating as they're intended to do. So this monitoring occurs through the annual risk and control matrix reviews that I referenced earlier. We also send out those semiannual control attestations. Going forward, we'll be doing risk-based testing, and we also include management oversight and corrective action tracking. So as conditions change, such as new technologies, legislative updates, organizational changes, or just new emerging risks, we want to make sure that agencies reassess and adjust their controls accordingly. So you'll see that this process is cyclical, results from monitoring and testing feedback into our risk assessment process. So this is a continuous cycle of improvement. And this approach supports a proactive risk-based framework that strengthens accountability Improves our state decision-making and helps safeguard our public resources. So, one of the key accomplishments of our Internal Control Office has been the continued expansion of the framework across state government. So, you'll see here that we have 28 agencies that are fully implemented, have gone through the process, and all of those have additionally reviewed their information during this past year. We have one agency that is still in progress. That is the Secretary of State's office. So we'll continue to work closely with them until their implementation is complete. We've also seen continued interest from entities not required to participate under statute. And so we have a couple of those listed on this. But additionally, last week we met the Investment Council's leadership team after they expressed interest in adopting our state's framework. And so we expect to onboard the Investment Council's team in the coming weeks. This level of statewide implementation has been made possible through strong collaboration with agency leadership, designated internal control officers, and agency leadership. As our framework matures, our focus is shifting from implementation to sustainment. And so we're going to be supporting agencies in maintaining and continuously improving their control environments through annual reviews and risk-based testing. So these are some reporting results from our June State Board of Internal Control meeting that we just had yesterday. So you'll see here, I know this is a little bit small, but agencies to date have collectively identified 14,035 risks across state government. You'll see the majority of those, about 53%, are operational risks and are tied to our day-to-day agency programs and functions. Approximately 20%, or about 2,800 risks, are classified as high or critical risks. So our statewide average is about 20% of those. And in response, agencies have documented about 3,800 documented controls designed to mitigate higher-risk areas and strengthen safeguards where exposure is greatest. One of the metrics we track is the number of control issues or failures that we identify through those semiannual attestation questionnaires that go out. So this past quarter, the agencies that were due up to report reported 175 instances where a control Maybe didn't operate as designed, or maybe where processes needed corrective action. So that number might seem a little bit concerning at first, but it actually demonstrates that the framework is working as intended. The purpose of internal controls is not to suggest that problems will never occur, but it's to identify issues early before there are audit findings or compliance issues or issues to the state. You'll see every organization will experience control issues from time to time, but the difference on is really whether those issues are identified, reported, and corrected, and they do under our system. So in other words, those 175 issues represent transparency and accountability and not necessarily program failure. Any questions on the metrics report?

I think you're good.

Okay.

I think you can just continue.

Perfect.

There'll probably be some questions at the end.

All right.

So this work plan is freshly adopted as of yesterday from our State Board of Internal Control. This is our FY27 work plan. And with implementation substantially complete, FY27 represents a significant transition from just onboarding our agencies to moving to Phase 2, where we're going to be performing our risk-based testing. And so that next phase will allow us to move beyond documenting controls and really focus on validating that the controls are performing as they're intended to do. You'll see in our quarterly meetings that our board reviews subrecipient audit findings. We receive updates from GOAC and everything that you guys have been up to. And we also look at agency-submitted internal control reports. Our board also addresses emerging risks, compliance issues, and any remediation efforts that might come up throughout the year. You'll see in the 4th quarter, our board uses information gathered throughout the year to put together our new work plan for the next fiscal year. And this work plan outlines planned activities, but all of our work remains risk-based. So if we see the need to do something in a different area, we're going to pivot to that and spend our time where the risk is highest. I thank you for allowing me to speak this morning, and I will stand by for any additional questions.

Okay, is there any questions? I'll bring up a— it's probably for you or for Commissioner Twiliger, and I'm— and I don't care who answers it, but, um, I've always wondered about this board, and just because there's no legislative members on it, and I know we can't, but this was— this board was created after EB-5 and Gear Up. So I guess my question is, are we doing enough? Do you need more? It's that simple.

Mr. Chair, that's a fair question. Jim Twiliger with the State Board of Internal Control. I really believe the comprehensive changes that occurred in the 2025 legislative session through Senate Bill 61, the Attorney General added to that with a whistleblower reporting mechanism. I can't remember exactly what piece of legislation that was. There was additional resources that were given, given to Ali and her team. And so at this time, I feel really good about where we're at.

Okay.

The tricky part with that question is, is we want to make sure that putting the controls in place are not more expensive than the actual risk, if you will. And so there's not an easy way to answer that question. I think we're much better off than we were 2 or 3 years ago. I feel a lot better about where we're at right now today, having gotten through the agencies and moving on to the next phase, which is, um, Allie and her team will be out proactively kind of testing those. And again, more of a preventative on the front end basis. And so I think we're in a really good spot, um, right now today. And again, it's just like the legislative session. Every year you want to look at it, evaluate it. Where are we at? Do we need to make any tweaks? But as far as we're at right now, I think we're in a pretty good position based on the changes that were made in the 2025 legislative session.

Okay, thank you. Any other questions from the committee? Is there any online? I can't see the online, so no. Okay, well, thank you for your report. Uh, Representative Lems.

Mr. Chair, I move to acknowledge receipt of the annual work plan prepared and submitted by the State Board of Internal Controls pursuant to SDCL 1-56 Is there a second?

Second.

It has been moved by Representative Limbs and seconded by Representative Auch to accept the report. All those in favor will say aye.

Aye.

Opposed? All right. We will move now to our 5th order of business to review the Brand Board 2025 annual report. Welcome.

Thank you.

There you go. Please introduce yourselves and give us your report.

My name is Corey Byerly.

I'm from Midland, South Dakota, and I was recently appointed to the Brand Board by the governor just this spring.

Mr. Chairman, members of the committee, Debbie Trapp, Director for the Brand Board.

Okay.

The South Dakota Brand Board was established in 1937 and is responsible for administering the state's livestock brand registration and the livestock ownership inspection program. The board plays a vital role in protecting livestock ownership and deterring theft through a comprehensive system of brand registrations and ownership inspections.

inspections.

The board is composed of 5 members appointed by the governor. These individuals bring experience and insight from the livestock industry to ensure the integrity and the effectiveness of brand regulations across the state. The members of this board are appointed for a 3-year term. The board members for '25 are listed in the report. The Brand Board also employs 12 full-time brand inspectors, of which 4 are district supervisors. The full-time inspectors are responsible for inspection staff at the livestock markets in western South Dakota, inspecting over a million head annually. Other staff include part-time and local brand inspectors, office staff, and brand enforcement livestock investigators. The South Dakota Brand Board operates on funds generated from the livestock brand registration program and the brand inspection program. The Brand Board does not receive any general fund appropriations. The main portion of the brand fund is generated every 5 years from the brand registrations. These renewals are in years ending in 0 and 5. The Brand Board uses the state's accounting system system for processing invoice vouchers through the State Auditor's Office. Payroll is through the Bureau of Human Resources, and revenue is deposited with the State Treasurer's Office. Legislation to increase the maximum fee was opposed during the 2025 session, and so then Department of Ag and Natural Resources hosted ad hoc meetings To discuss the need to increase the fee and any other topics for legislation, these meetings were productive in producing draft legislation supported by the ag groups in attendance. Brand inspectors are reimbursed a mileage rate of 70 cents a mile, and this rate is set by the state. Prior to October 1st, 2025, the mileage rate was 60. 67 cents a mile. Personnel costs equate about 80% of our expenditures. During 2025, the Brand Board authorized the transfer of $700,000 from the brand fund to the inspection fund to continue the operation of the inspection program. It was fortunate that 2025 was a brand renewal year, which generated brand revenue to cover the shortfall in inspection. The inspection fee has gone from 10 cents in 1924 to the current rate of $1 a head, equaling a 90-cent increase over 100 years. The maximum fee of $1 a head was set in 2008, and the inspection fee reached that cap of $1 per head in 2013. The livestock ownership inspection area in South Dakota is west of Missouri River. Livestock leaving this area must have an ownership inspection or a transportation permit prior to leaving. Producers from other states in eastern South Dakota also pay the inspection fee when they transport livestock from the inspection area or if they sell livestock within the inspection area. Livestock sold at the livestock markets in western South Dakota are inspected for ownership when they arrive. Livestock sold privately within the inspection area must also have an ownership inspection. Brand owners currently pay $90 every 5 years to maintain their brand registrations. The livestock inspections in calendar year 2025 Let's see. Were a total of 1,558,632 head. This is a decrease of 56,381 head from 2024. When livestock are presented for sale without proof of ownership, the funds are held in trust until the seller provides ownership. 44 holds were submitted to the Brand Board office as the seller did not provide proof of ownership within 60 days of selling their livestock. Table 1 shows the number of livestock inspected based on the livestock markets, if they were inspected at a locker plant. The local inspections are those done out on the ranches. A lifetime horse permit is a permit which is honored in all the other brand inspection states. And once obtained, allows that individual to transport their horse in and out of the inspection areas with no further inspections. So for example, in January of calendar year '25, the 91,587 head inspected at the livestock— the livestock markets would hold the producer's revenue— or excuse me, hold from their proceeds for the inspection fee, and then the livestock markets submit that fee monthly to the brand board.

Ms. Trapp, can you move your computer up so we can see the— sorry about that, we can't see the—

oh, I'm sorry.

There you go.

Okay, so the locker plants also submit their inspections for the most part if there's a brand inspector assigned there. Otherwise, an individual will have a locker prior to going to the locker plant. The local inspection fees are collected by the brand inspector at the time of inspection and then also submitted to the office. Moving on to page 6, that is just a breakdown to show you The market inspections, the revenue, the producers paid the inspection fees there, and then the local brand inspections, that would include your locker plants and your horse permits. The number of livestock reported missing or stolen to the brand board in calendar year '25 was 376 head. This is a decrease of 234 head down from calendar year '24. Any producer who believes their livestock have been stolen should contact their local law enforcement immediately. When they contact the brand office to report livestock missing or stolen, one of the questions that we do ask is, have you contacted your local law enforcement, and would you like the brand board investigator to contact you. Once we receive that missing report, we send it out to the brand inspectors and to the Sheriffs Association, who then forwards it to the statewide— to the sheriffs. Table 5 then shows you a breakdown of the livestock that was reported missing or stolen in 2025. We do ask producers to let us know if the livestock has been found, so we get a more accurate indication of that, that was missing at the end of the year. The next table is just the livestock reported in calendar year 2024, and then moving down to the recovered strays. Brand inspectors recover strays while conducting brand inspections at livestock markets or out in the country. They may get a call from an individual that there's cattle on their property that they can't identify, so the brand inspector will go out and read the brands and determine from that who the ownership is. Getting back to the brand board holds, again, that, you know, the holds establish that the brand program is working because of the fact that individuals are required to provide proof of ownership when they present livestock for sale. They are given 60 days to prove ownership after the date of the sale. If after that time ownership hasn't been proven, then the funds are submitted to the brand board and recorded as restricted funds. And the brand board staff then work with the seller trying to provide proof of ownership. During 2025, the restricted funds were paid out of $60,422. So during that year after the sale, then the producer They did provide proof of ownership, and so the funds are released to them. If after 1 year's time ownership hasn't been established or the— no one has come forward to claim the funds by providing proof of ownership, before board action, then they can transfer it to an unrestricted fund.

Okay.

The Brand Board investigators enforce the brand laws statewide, and they also assist local law enforcement in the cases of missing or stolen livestock. They are certified law enforcement, but they are limited to their authority under Statutes 40-18-14. Expenses for the brand investigators are paid from the brand fund since brand laws apply statewide. Table 9 is a breakdown, a comparison of '25 and '24 of the cases that were opened by the livestock investigators, closed throughout the year, cases opened at year-end, convictions, arrests. Warnings issued for brand inspection violations, the number of road checks conducted, and narrative reports. The brand program is responsible for maintaining the brand registration, processing brand applications, transfers, brand renewals, shipper permits, grazing permits, and trailing permits. Brand— or 2025 was a renewal year, so this was a There's a substantial increase in the fees collected for the brand registrations. The next renewal will occur in 2030, and brand owners do have the option of renewing their brands online. If the brand owner does not renew their registration by May 1st, then they have 2 additional years to apply to re-record the brand. Table 10 then shows you a breakdown of the revenues received for the registrations, transfers, and you can see '25 was an increase in transfers over '24, which typically during renewals a lot of individuals will do a transfer at that time. Okay. And in summary, the cost to operate the livestock inspection program exceeded revenue in '25 and also in '24 and '23. Again, the legislation that was proposed in '25 was not successful. Thankful Danner hosted ad hoc meetings in 2025 in the fall and then drafted legislation for 2026.

Okay.

The brand board did transfer $700,000 from the brand fund to sustain the inspection fund, and they also did transfer from the theft prevention fund. What that fund is, is again where those holds are, where the money is restricted or unrestricted. The Brand Board has limited funds, but we did continue development on electronic inspection form, and the work is still progressing with that. That form would then be used by our brand inspectors out in the field to complete the documents, and then it will be electronically submitted to the office. Without brand inspections, livestock, including the strays, could get sold without providing proof of ownership. The structure of the 4 brand district supervisors have improved the strength of our inspection program, and we also updated the webpage in 2025 to better serve our public. We urge anyone with questions or concern to contact the brand office or their brand board representative, and I stand by for questions.

Okay, is there any questions from the committee? Senator Foster.

Thank you, Chair.

I was wondering if you could give me a little bit of insight on the 56,000 decrease in livestock inspection. Just, it could give me a little bit of insight just on the industry in general.

From '24 to '25?

Yeah.

There just weren't that many cattle.

Can you answer that question? Go ahead, use the mic.

Mr. Chairman?

Go ahead, answer.

There just weren't that many cattle. The drought had impacted the area and they'd been shipped out, and there just weren't that many cattle.

Are you good?

Thank you.

Yeah, I was—

that's the type of information I was looking for, is just kind of what was dictating that.

Thank you.

Sure. Any other questions from the committee? Any online? More members online. Oh sure, go ahead, Senator Foster.

Given that, do you expect a continual decrease this next year, or do you think that it's rebounding back up?

Go ahead and try to answer.

The board is anticipating a further decline, Senator, just because cattle numbers have continued Mainly because range conditions haven't improved that much, as you're well aware of, especially in your neck of the woods and mine. Yeah, yeah, we just physically can't hold that many anymore.

Okay. Any other additional questions? Seeing none, Representative Lems.

Mr.

Chair, I move to acknowledge I move that the House approve the receipt of the annual report prepared and submitted by the Brand Board pursuant to SDCL 40-18-18.

Is there a second?

Second.

It has been moved by Representative Lems and seconded by Representative Auch to receive the report from the Brand Board. All those in favor will say aye.

Aye.

Opposed?

Aye.

We receive it. Thank you so much. Okay, well, that concludes the committee's business. So now we will, unless there's any other questions from the committee, we will move into public testimony. Uh, the chair will explain. Um, anybody is allowed 5 minutes to, to testify as long as it is germane to what the committee heard today. So is there any public testimony? Come on up, introduce yourself, and give us your testimony. Hit your mic, hit your mic on there, and then introduce yourself. All right, and your time is starting.

Mr. Chair, members of the committee, My name is Renee Randall, and I'm testifying on my own behalf. This fiscal year 2025 legislative audit is not legitimate in my view. I worked for the state of South Dakota for 22 years. I was fired from the South Dakota Investment Council May 30th, 2025, as a senior investment manager for whistleblowing about a collapse of internal controls. I sent the Department of Legislative Audit this fraud report, which I think I sent to you guys, which was acknowledged by Russell Olson on June 23rd, 2025, before the fiscal year 2025 close. It was never investigated, as I have been unable to successfully report it to the AG office. But they issued a clean audit anyway. I have all the evidence of what happened in this situation on exposelies605.com. As someone with a master's degree in accounting, this, this is practically a case study of all the red flags for fraud. So it is highly likely that there is a fraud in the South Dakota Investment Council. It seems to me that Department of Legislative Audit goes out of its way to not look for fraud, rendering this fiscal year '25 audit meaningless. I would also like to add that the SDIC changed their whistleblower policy on the November 2025 board meeting to something different than state law. So that is something for the Department of Legislative Audit to look for in fiscal year '26. In case Legislative Audit doesn't understand, an agency that illegally changes its whistleblower policy to something different than state law after they develop a whistleblower problem is also a red flag for fraud. Thank you.

Thank you.

Is there any other public testimony?

I guess I have one more for the Internal Control Board.

Okay, it's going to be your 5 minutes, but keep going.

Um, with the SDRS/SDIC whistleblower situation is proof that at least one whistleblower of a collapse of internal controls at a state agency was not investigated but actively covered up by breaking several laws for 13 months now. I suspect there are other whistleblowers at several other state agencies in similar situations. So this seems to be a common practice in South Dakota's government agencies. How can the public be assured that any of the work plan is actually being followed?

Thank you. Thank you. I guess I should ask, are there any committee questions?

Mr. Chair?

Senator Grove.

Um, it was stated that there was information that was sent to each one of us. I, I didn't receive that.

I was—

okay.

Oh, I sent it through the thing.

Yeah, it was sent to the LRC. This is more the chairs, kind of the chairs deal. This is more of an e-board. We looked at it on the And the staff looked at it from GOAC, but unless we're involved with e-board, it more with the investments and stuff like that goes to the e-board, if that makes sense to the committee. Okay. Any questions? Is there any other testimony? Okay. Then we are going to close public testimony, and I think that concludes our business. So I will be looking for a motion. Representative Lems.

I move to adjourn.

It has been moved by Representative Lems, seconded by Senator Grove, to adjourn. All those in favor say aye. Opposed? We are adjourned.