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Legislative Audit Commission Meeting


January 21, 2011

Members Present:

Representative Michael Beard   Senator David Hann
Representative Rick Hansen  Senator James Metzen
Representative Mary Liz Holberg   Senator Mike Parry
Representative Steve Simon Senator Ann H. Rest
Senator Claire Robling

Members Absent:

Representative Sondra Erickson   Senator Roger Reinert
Representative Phyllis Kahn    

Other Legislators Present:

Representative Alice Hausman Senator Scott Dibble
Representative Frank Hornstein   Senator Joe Gimse
Representative Ron Shimanski  


Senator Ann Rest, Chair, called the Legislative Audit Commission (LAC) meeting to order at 11:00 a.m. Senator Rest had the members introduce themselves since there were several new members appointed to the commission.

Senator Rest introduced Jim Nobles, Legislative Auditor. Mr. Nobles gave a brief overview of the process for an evaluation report. He then turned to the Governance of Transit in the Twin Cities Region evaluation. He said that the Office of the Legislative Auditor (OLA) is calling for a sequential order of change for the Metropolitan Council in the report. Mr. Nobles introduced Judy Randall, evaluation manager for the evaluation, to explain further.

Ms. Randall said the key recommendations of the report were that the Legislature should restructure the Metropolitan Council, extend the transit taxing district, allow consideration of the Dan Patch corridor, and clarify the goals and priorities of transit in the Twin Cities region. Ms. Randall said the evaluation found that the region’s transit system performs relatively well on efficiency, service-use, and access measures compared to 11 peer regions, including Denver, Phoenix, Portland, and Seattle. However, the governance structure is far from ideal because of many challenges, such as fragmentation and complexity, distrust among some of the transit organizations, time-consuming coordination, and no agreed-upon set of priorities. To eliminate some of the issues with the Met Council, the report recommends the Legislature restructure the Met Council so that it has a mix of appointed and elected members with staggered terms. The OLA believes this would improve accountability, credibility, and stability, and could lead to a more streamlined governance structure. In response to Representative Beard’s question regarding how the report’s recommendations relate to all of the Met Council’s responsibilities, Ms. Randall said that OLA feels the recommendations still stand since the council works with local governments and groups in all areas of responsibility that they deal with. Ms. Randall said that some of the other governance recommendations in the report include (1) eliminating the Transportation Advisory Board (TAB); (2) if the Legislature plans to leave the authority to levy taxes for transportation with the counties, OLA suggests keeping the Counties Transit Improvement Board (CTIB); and (3) since the six suburban transit providers are doing a good job, there is no reason to eliminate them.

Senator Rest asked Susan Haigh, Chair, Metropolitan Council, to come forward. Ms. Haigh said that the Met Council appreciated the professionalism of the OLA and agreed with some of the recommendations of the report, but not all of them. Ms. Haigh said the report understated how many other responsibilities the Met Council has, including the operation of the regional wastewater system and planning and development of the regional parks system. She emphasized how she is looking forward to working with the Legislature and the new governor to improve the council’s governance structure. She also said that the credibility issues cited in the report were overstated. Senator Rest invited Tom Furlong, Mayor of Chanhassen and Chair of the Suburban Transit Association, to address the commission. Mr. Furlong said that the report confirmed that the regional transit system is efficient and effective. He went on to read through his response included in the report, which noted that he agreed with the complexity issues of the administration of transit governance but that the well-coordinated operations of the regional providers result in quality service to transit users.

Representative Beard mentioned that the evaluation of Governance of Transit in the Twin Cities Region would be heard at the House Transportation Finance and Policy Committee meeting that he chairs on Monday, and it would be open for public comment if anyone was interested.

Senator Rest moved to the next item on the agenda regarding concerns about internal controls in state government. Senator Rest talked about the important role the OLA’s Financial Audit Division (FAD) plays in state government. She explained how she had discussed with Representative Beard about becoming the chair of a new Financial Audit Subcommittee in order for there to be more awareness of the issues being found by FAD. Mr. Nobles introduced Cecile Ferkul, Deputy Legislative Auditor. Ms. Ferkul gave a summary of how FAD’s audits have identified weaknesses in agencies’ internal controls over their financial reporting, federal program compliance, and other material financial processes. She said that in 2008, FAD began consistently holding agencies accountable for the design of their internal control processes.

Senator Rest invited Jim Showalter, Commissioner, Department of Management and Budget (MMB), and Dan Salomone, Commissioner, Department of Revenue (DOR), to come forward to make comments regarding the recently reported fraud within DOR. A long-term, trusted DOR employee who had extensive knowledge of a legacy computer system was able to exploit its weaknesses and issue nearly $2 million of fraudulent refunds over a period of five years before detection. Mr. Showalter said that MMB has been working very hard over the past several years to address issues in the area of internal controls. Mr. Showalter also explained that there is an information technology component to the control environment as well, which also needs to be updated and improved. Mr. Salomone said that the new system they are now putting in place should significantly improve their ability to detect fraud. Mr. Salomone said that this instance of fraud happened before the new integrated tax system was fully implemented. He also said that they fully welcome another audit by the Legislative Auditor’s Office. In response to Senator Robling’s question regarding tax refund fraud, Commissioner Salomone called Terri Steenblock, Assistant Commissioner, Individual Income Taxes for the Department of Revenue. Ms. Steenblock said that because of what happened with the fraud, they are looking at every “nook and cranny” to make sure nothing else is going on. She said that there are processes in place to verify that a refund is legitimate.

Senator Rest moved to the agenda item of electing a new chair of the commission. Representative Hansen nominated Representative Mike Beard. There were no other nominations. Senator Rest said she appreciated working with Representative Beard over the past two years as vice chair and she was confident he would do an excellent job as the chair. All were in favor of the motion and Representative Beard assumed the chair. Representative Beard asked for a vice-chair nomination. Senator Robling nominated Senator Roger Reinert as vice chair of the commission. There were no other nominations and the motion prevailed. Representative Beard said that he would appoint members to the Topic Selection Subcommittee over the next several weeks. He said he would also be selecting four members to serve on a new Financial Audits Subcommittee, which he wanted Senator Rest to chair. He said that he will be looking for volunteers to be on the subcommittee. He added that any member would be welcome, but this subcommittee’s main duty would be to receive the financial audit division reports.

With no further business, Representative Beard adjourned the meeting at 1:15 p.m.

Senator Ann H. Rest, Chair

Shelly Watterud, Recording Secretary


Office of the Legislative Auditor ♦ Room 140, 658 Cedar St., St. Paul, MN 55155