Legislative auditors file Arkansas comprehensive financial and single-audit reports, cite three material weaknesses and federal program findings

Legislative Audit staff presented the State of Arkansas Annual Comprehensive Financial Report for the year ended June 30, 2024, and the accompanying single-audit report, and the committee voted to file both reports.

The reports matter because they contain the state's audited financial statements, identify material weaknesses and compliance failures that affect federal funding, and support actions such as bond issuances and federal audit resolution.

Matt Welch, legislative audit staff, told the committee the annual report covered all state agencies, five retirement systems, higher-education institutions and component units and that legislative audit issued an unmodified opinion on the state's financial statements, with three findings considered material weaknesses. Welch said the state's total assets were approximately $40,000,000,000 and total revenues were about $29,500,000,000 for 2024, with the retirement systems holding about $37,300,000,000 in assets.

Melanie Dozier, legislative audit staff, presented the single-audit results, saying state agencies and institutions expended $12,250,000,000 in federal funds from 482 award programs in fiscal 2024 and that 15 major federal programs were tested. Dozier said auditors issued a qualified opinion for the coronavirus State and Local Fiscal Recovery Funds, the Children's Health Insurance Program (CHIP), and the Medicaid cluster because of material noncompliance in those programs.

The reports identified three reportable findings for fiscal 2024. Welch said the first involved insufficient controls in the Treasurer's Office that failed to detect two fraudulent warrants redeemed in 2024, one for over $609,000 redeemed in July and another for $3,600 redeemed in August; the treasurer's office filed fraud claims and was reimbursed for the larger warrant but not the smaller. The second finding involved the Department of Finance and Administration processing over 1,500 fraudulent tax-refund claims totaling nearly $1,500,000, of which about $340,000 had been recovered and $1,100,000 remained outstanding; DFA notified law enforcement and the IRS. The third finding related to programming conversion errors in DFA's tax system that resulted in incorrect refunds, including six refunds totaling over $362,000; auditors reported recoveries of more than $319,000 and about $43,000 remained outstanding.

Dozier also described follow-up work on prior findings and said known questioned costs reported in the audit totaled about $7,700,000, with $9,300,000 in question costs outstanding as of June 30, 2024. She said most major federal programs received clean opinions despite multiple findings, but repeated problems at some agencies contributed to qualified opinions for the programs noted above.

Committee members asked clarifying questions about what a qualified opinion means and about the status of recoveries and referrals to prosecuting attorneys. The committee filed the ACFRA and the single-audit report and approved presentation of the reports to the full committee.

The audit staff recommended that affected agencies strengthen internal controls, enhance program controls over tax filing and refund disbursement, validate programming changes before deployment, and continue efforts to recover funds. The committee recorded the filing by voice vote.