COMMONWEALTH OF PENNSYLVANIA HOUSE OF REPRESENTATIVES APPROPRIATIONS COMMITTEE BUDGET HEARING OFFICE OF AUDITOR GENERAL
MAIN CAPITOL BUILDING MAJORITY CAUCUS ROOM WEDNESDAY, MARCH 1, 2006, 10:46 A.M. VOLUME II OF V
BEFORE: HONORABLE BRETT FEESE, CHAIRMAN HONORABLE DWIGHT EVANS HONORABLE MATTHEW E. BAKER HONORABLE STEPHEN E. BARRAR HONORABLE STEVEN W. CAPPELLI HONORABLE CRAIG A. DALLY HONORABLE GENE DiGIROLAMO HONORABLE TERESA E. FORCIER HONORABLE JOHN A. MAHER HONORABLE EUGENE F. McGILL HONORABLE FRED McILHATTAN HONORABLE STEVEN R. NICKOL HONORABLE SCOTT A. PETRI HONORABLE DOUGLAS G. REICHLEY HONORABLE SAMUEL E. ROHRER HONORABLE CURT SCHRODER HONORABLE JERRY A. STERN HONORABLE PETER J. ZUG HONORABLE KATIE TRUE HONORABLE PETER ZUG HONORABLE DAN FRANKEL
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1 BEFORE (Cont'd.): HONORABLE HAROLD JAMES 2 HONORABLE KATHY M. MANDERINO HONORABLE ANTHONY J. MELIO 3 HONORABLE PHYLLIS MUNDY HONORABLE JOSH SHAPIRO 4 HONORABLE MIKE STURLA HONORABLE THOMAS A. TANGRETTI 5 HONORABLE DON WALKO HONORABLE GREG S. VITALI 6 HONORABLE JAKE WHEATLEY
7 ALSO PRESENT: 8 MIRIAM FOX ED NOLAN 9
10 HEATHER L. ARTZ, RMR, CRR 11 REPORTER - NOTARY PUBLIC
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1 I N D E X
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3 TESTIFIER PAGE
4 Auditor General Jack Wagner 4
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1 REPRESENTATIVE FLEAGLE: The House
2 Appropriations Committee will come to order. In front
3 of us for testimony at this time is Auditor General
4 Jack Wagner. Welcome, General Wagner. If you would
5 first be sworn in by the stenographer, we'd appreciate
6 that.
7 GENERAL WAGNER: Yes.
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9 JACK WAGNER, called as a witness, being duly
10 sworn, was examined and testified, as follows:
11 REPRESENTATIVE FLEAGLE: Again, welcome. We
12 look forward to your testimony. We'll have some
13 questions for you.
14 GENERAL WAGNER: Thank you, Representative
15 Fleagle. And I know Chairman Feese was here.
16 Minority Chairman Evans, members of the House
17 Appropriations Committee, good morning. Seated to my
18 right are my senior staff of the Department of Auditor
19 General.
20 Thank you for the opportunity to review the
21 Department of Auditor General during fiscal year
22 2005-2006, and for the funding received in the budget,
23 also to discuss our budget request for 2006-2007. As
24 you know, I took office one year ago with great
25 reverence for the Auditor General's historical role as
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1 the Commonwealth's independent fiscal watchdog.
2 Today I have even greater appreciation for
3 that job, for my role as Auditor General involves much
4 more than dollars and cents, or making sure financial
5 columns are in balance. It's about people. It's
6 about 12 million people in Pennsylvania. It's about
7 hard working families of Pennsylvania, making sure
8 that their dollars aren't wasted or misused. It's
9 making sure that government lives within its budget,
10 and makes every penny count, just as mothers and
11 fathers must do every day. It's making sure that
12 schools educate as well as protect our children, on
13 the buses and in the classrooms; seeing that roads and
14 bridges are inspected and repaired; and that
15 restaurants, hospitals, and nursing homes are clean
16 and are safe.
17 A year ago I sat here and told you that my
18 mission would be to improve the performance of
19 government so that it improves the quality of life for
20 all Pennsylvanians. During the past fiscal year our
21 talented and experienced staff, some of which is here
22 today, worked hard to achieve that goal.
23 Our field auditors completed more than 5,000
24 audits, uncovering instances of waste, fraud, and
25 abuse that saved taxpayers millions of dollars.
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1 I want to thank the General Assembly for
2 taking legislative action in response to
3 recommendations made in several of our audits.
4 The Department of Auditor General conducts
5 two primary types of audits. Finance audits and
6 performance audits. The Department also conducts
7 special investigations. Financial audits make sure
8 that financial information is presented appropriately
9 and that tax dollars are spent in compliance with the
10 laws that all of you pass.
11 Performance audits go a step further. They
12 make sure that government programs and services are
13 working as intended for taxpayers. In financial
14 audits, the Bureau of Corporate Tax Audits settled
15 more than 418,000, and I repeat 418,000, corporate tax
16 returns during the year ended January 31, 2006, a 19
17 percent increase over the previous year. More than
18 half of the corporate tax returns, 224,000, were
19 settled electronically.
20 The Bureau of Corporate Tax Audits found
21 errors that benefited the Commonwealth totalling $115
22 million. It also discovered 137 million in errors
23 that benefited corporate taxpayers, a very business
24 friendly result. That was the past year. Other years
25 sometimes it is in favor of the Commonwealth. But
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1 this past year it was in favor of the taxpayer.
2 The Bureau of Municipal Pension Audits
3 identified the mishandling of 2.4 million in municipal
4 pension funds, as well as 900,000 in funds due to the
5 Commonwealth.
6 Field auditors and our legal staff teamed up
7 to collect 1.8 million in state funds that had been
8 lying dormant in inactive municipal pension funds, in
9 some cases for many years. These funds can now be
10 redirected to municipalities across the Commonwealth
11 for use in their active pension funds.
12 The County Audits Bureau reported 3.4 million
13 in inappropriate or questionable spending of liquid
14 fuel funds intended for road maintenance and repair.
15 Audits of district justice offices and county offices
16 distributed 87,000 in funds owed to the Commonwealth,
17 as well as 457,000 in misappropriations.
18 Education spending and one of the most -- is
19 one of the most important issues in Pennsylvania. Our
20 Bureau of School Audits kept a close watch to make
21 sure that taxpayer dollars were not wasted or
22 misappropriated and that schools are safe for our
23 children.
24 We issue audits showing that more than a
25 dozen school districts lost more than 1.5 in a pyramid
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1 scheme involving the purchase of exercise equipment,
2 of which I'm sure many of you read of.
3 We also issued reports on bus driver
4 qualifications and the half million dollar buyout of a
5 superintendent's contract that led to legislation by
6 the House of Representatives here in the General
7 Assembly.
8 We will continue to monitor these and other
9 issues in the coming year. Our Bureau of Special
10 Performance Audits issued two reports of great
11 significance, an investigation in the Department of
12 Corrections' Prisoner Work Program found that the
13 program had many deficiencies and stockpiled $32
14 million in an isolated fund. We recommended that the
15 money be returned to the rightful owners, Pennsylvania
16 taxpayers, if it was not needed to operate those
17 programs.
18 As a result of our recommendation, in the
19 special performance audit Governor Rendell is seeking
20 to use the Prisoner Work Program stockpile funds to
21 augment the Department of Corrections' operating
22 budget for fiscal year 2006-2007.
23 With more and more Pennsylvania families
24 dining out, our report on restaurant licensing and
25 health inspections gave consumers important
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1 information. Our auditors found that the Pennsylvania
2 Department of Agriculture was jeopardizing public
3 safety by issuing annual restaurant licenses without
4 completing health inspections prior to the reissue of
5 those licenses.
6 Our report prompted the Department of
7 Agriculture to take several remedial steps. We will
8 continue to monitor its improvements to make sure that
9 the health of Pennsylvanians is properly protected.
10 Our department also successfully negotiated
11 the settlements of two lawsuits that have permitted
12 two important audits to proceed.
13 We reached the settlement with the State
14 Employees Retirement System, SERS, and the Public
15 School Employees Retirement System, PSERS, that has
16 permitted the Department of Auditor General to conduct
17 special performance audits of the two retirement
18 plans. The audits began last year and we expect to
19 issue reports in July of 2006.
20 We also successfully reached an agreement
21 with the Pennsylvania State Police that has permitted
22 the Department of Auditor General to complete an audit
23 of the performance of Megan's law. Under the
24 agreement, the Pennsylvania Attorney General has acted
25 as an intermediary to provide information from the
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1 state police files to our auditors.
2 Most of the field work has been completed.
3 And we expect to issue our report on Megan's law in
4 April of this year.
5 The Department of Auditor General's Office of
6 Special Investigations follows up on information
7 uncovered during routine audits or from tips received
8 from taxpayers.
9 OSI investigates uncovered -- excuse me. OSI
10 investigations uncovered several instances of
11 potential criminal wrongdoing that have been referred
12 to law enforcement agencies and the Pennsylvania State
13 Ethics Commission.
14 For example, the abuse of student activity
15 funds in York County School district is now in the
16 hands of that county's district attorney. In
17 Lancaster County a township supervisor was sentenced
18 to a year in prison as a result of the work of our
19 auditors and investigations into abuse of liquid fuel
20 funds.
21 Our taxpayer advocate helps taxpayers cut
22 through bureaucratic red tape and gets answers to
23 their questions.
24 Last year we received and responded to 6,000
25 inquiries via our toll-free hotline. We encourage the
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1 taxpayers who suspect instances of waste, fraud, or
2 abuse, to call our hotline at 1-800-922-8477, or to
3 e-mail us at auditorgeneral.state.pa.us. The
4 Department of Auditor General's Web site was
5 redesigned to make it more user friendly with more
6 information. Our audits as well as our documents and
7 important information are now available electronically
8 at our Web site, www.auditorgen.state.pa.us. The
9 updated Web site not only improves public access, it
10 saves taxpayer money by reducing mailing cost.
11 We also have implemented a new program, the
12 first in department history, that we believe will
13 enhance the value of our findings and our
14 recommendations. We will follow up on our most
15 important special performance audits, investigations,
16 and financial audits to make sure that our
17 recommendations are being carried out.
18 Making sure that past recommendations are not
19 collecting dust. In other words, making sure they are
20 implemented.
21 Our state's independent fiscal watchdog is an
22 important -- is important to lead by example. The
23 Department of Auditor General's commitment to making
24 sure that every taxpayer dollar is spent wisely and
25 efficiently begins with our own department.
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1 We strive every day to make sure that money
2 is spent only on what's needed to do our jobs. We are
3 doing all that we can to hold down our own spending.
4 But as hard as we strive, there are some obligations
5 over which we have no control.
6 The work conducted by the Department of
7 Auditor General is labor intensive. About 92 percent
8 of our annual budget is devoted to personnel costs.
9 Another 5 percent goes to field work expenses. Thus,
10 97 percent of our budget is devoted to labor-related
11 expenses.
12 Labor contracts, negotiated by the Governor's
13 office, require us to provide three salary increases,
14 three, that will cost our department, in total, an
15 additional 5.13 percent during the next fiscal year.
16 We must provide increased benefits as part of
17 that contract. These increases translate into
18 personnel cost increases of approximately $2,655,000.
19 Operationally, we are forced to seek a 228,000
20 increase to cover higher automotive fuel costs. We
21 have an unusually mobile work force. With hundreds of
22 our auditors on the road every day in every corner of
23 the Commonwealth, visiting 501 school districts, 654
24 liquor stores, 2,185 municipal pension plans, and
25 hundreds of other department and agencies we are
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1 mandated to audit.
2 Because of these unavoidable demands, I must
3 seek an increase of 2,883,000, that includes the
4 previous number and the automotive fuel cost, for the
5 2006-2007 general budget.
6 Separately, I request another 829,000 for
7 necessary computer enhancements, which represent a 17
8 percent decrease from the previous year, which we very
9 much appreciate the allocation last year.
10 This increase will be used to modernize our
11 technology capabilities and make our department in the
12 future more efficient and more effective.
13 Governor Rendell's proposal of a zero
14 increase in the Department of Auditor General's budget
15 would require us to implement painful reductions in
16 every budget category, especially personnel.
17 The biggest losers would be 12 million
18 Pennsylvanians who rely on us to make sure their tax
19 dollars are being handled and properly spent on a
20 daily basis.
21 The Department of Auditor General accounts
22 for less than two-tenths of 1 percent of the state
23 budget, of the $25 billion state budget, but is
24 responsible for auditing over $50 billion in state
25 allocations and approximately 25 of which -- of which
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1 25 million is state and 25 million is federal dollars.
2 Our budget request is fair and prudent. All
3 of the increase will be used to meet rising personnel
4 and fuel cost. Thank you for the opportunity for me
5 to speak today. I'm here also, obviously, to answer
6 questions. Thank you, Mr. Chairman.
7 REPRESENTATIVE FLEAGLE: Thank you, General
8 Wagner. I just had one question that came to mind
9 when -- from your testimony. I think it was about six
10 months ago that it was in the print media and also
11 electronic media, there was big stink about
12 restaurants and how they weren't being inspected.
13 How does your department logistically
14 audit -- or who do they audit? Do they audit the Ag
15 Department just to find out if they did do an
16 inspection? Or what do they specifically audit that
17 would directly relate to the safety of consumers?
18 GENERAL WAGNER: Representative Fleagle, it's
19 a good question and I appreciate it. Our special
20 performance audit was an audit of the Department of
21 Agriculture's responsibility for oversight of
22 restaurant licensing and inspections. And in the
23 Commonwealth of Pennsylvania we have a mixed bag of
24 responsibility for restaurant licenses and
25 inspections. Six of the 67 counties have taken that
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1 responsibility on within those counties, such as
2 Allegheny and Philadelphia. Another 200
3 municipalities, in addition to the six counties, of
4 which some of them are within the six counties, have
5 taken on that responsibility.
6 In the other 61 counties, the responsibility
7 for licensing and inspection of restaurants is within
8 the domain of the Department of Agriculture. The
9 General Assembly changed that back in 1994, I believe.
10 So what we do under a special performance
11 audit is go in and determine whether or not the
12 management, the policy and procedures that are in
13 place and are required by law to be implemented and
14 enforced, whether or not they're being carried out.
15 REPRESENTATIVE FLEAGLE: So do you go into
16 restaurants? Or not you, but I mean does your -- do
17 your folks?
18 GENERAL WAGNER: Some of our auditors
19 accompanied Department of Agriculture inspectors into
20 restaurants to see the type of job they were doing.
21 But what we did mostly as part of our audit was
22 whether or not -- we determined whether or not
23 Department of Agriculture was doing their job of
24 licensing and inspections.
25 REPRESENTATIVE FLEAGLE: So if they had the
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1 paperwork then that was the audit, that you showed
2 that the Department of Agriculture actually did those
3 inspections?
4 GENERAL WAGNER: Yes. For instance -- for
5 instance, Pennsylvania law requires an annual
6 inspection of every restaurant that has a license
7 prior to reissue of the license. And what we found,
8 unfortunately, in our audit was out of 17,000-plus
9 restaurants in Pennsylvania, over 4,000 did not
10 receive an inspection for up to two years. So in
11 other words, licenses were reissued without an
12 inspection.
13 REPRESENTATIVE FLEAGLE: And who did you
14 give -- and I'm asking this out of ignorance.
15 GENERAL WAGNER: Okay.
16 REPRESENTATIVE FLEAGLE: I don't have an
17 agenda here. Who did you give that report to and what
18 happened after that?
19 GENERAL WAGNER: We gave that report to the
20 Secretary of Agriculture, Dennis Wolff. We've had
21 numerous meetings with the Department. They have
22 taken remedial action. They have initiated an
23 accelerated process of inspections. They have told us
24 they have incorporated a new computer system that will
25 help them in their management of the programs.
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1 Quite frankly, we still don't think it's
2 enough. But we think our audit is an excellent
3 document for them to correct the problems that exist.
4 REPRESENTATIVE FLEAGLE: How many restaurants
5 are there, approximately? I'm sure you can't pull
6 that out of your head, but --
7 GENERAL WAGNER: Well, there are
8 approximately 17,500 restaurants under our
9 jurisdiction, Department of Agriculture.
10 REPRESENTATIVE FLEAGLE: And they are to be
11 inspected every year?
12 GENERAL WAGNER: They are to be inspected
13 annually, prior to the issuance of license initially,
14 and prior to the reissue on an annual basis.
15 REPRESENTATIVE FLEAGLE: And how many do you
16 audit per year? How many -- how many of those
17 inspections do you audit per year?
18 GENERAL WAGNER: Well, what we did in our
19 audit, and we don't audit every year. But what we did
20 in this special performance audit was we pull out a
21 percent of -- of restaurants and determine whether or
22 not they're being properly monitored by the Department
23 of Agriculture. In other words, we don't inspect the
24 restaurants. It's their job. We're making sure
25 they're doing their job. And in this audit we found
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1 out they weren't.
2 REPRESENTATIVE FLEAGLE: I guess what I was
3 getting at is you do these reports. And then what
4 happens? Or what if they don't do anything? Do you
5 slap them on the wrist or --
6 GENERAL WAGNER: Well, we had a news
7 conference in the release of our audit.
8 REPRESENTATIVE FLEAGLE: I mean, do they
9 start arresting people in the Department of
10 Agriculture if they don't do this stuff?
11 GENERAL WAGNER: We don't -- we obviously
12 don't have that power. But there are also, as part of
13 that audit, several recommendations for legislative
14 enhancements to the law.
15 REPRESENTATIVE FLEAGLE: Penalties if a
16 specific Ag personnel don't do that?
17 GENERAL WAGNER: One of the recommendations
18 is to increase the penalties, the fines for repeated
19 violations within restaurants. Something that hasn't
20 been updated for decades.
21 REPRESENTATIVE FLEAGLE: But if they're not
22 inspected they can't have that violation, right.
23 GENERAL WAGNER: That's true.
24 REPRESENTATIVE FLEAGLE: You weren't
25 inspecting the violations -- or you weren't auditing
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1 violations. You were just auditing the fact that they
2 weren't inspected.
3 GENERAL WAGNER: We were auditing whether or
4 not the Department of Agriculture was doing their job
5 based on the law passed by the General Assembly.
6 REPRESENTATIVE FLEAGLE: Okay. Thank you,
7 General.
8 GENERAL WAGNER: Thank you.
9 REPRESENTATIVE FLEAGLE: The Chair recognizes
10 Representative Petri.
11 REPRESENTATIVE PETRI: Thank you,
12 Mr. Chairman. Thank you, Mr. Auditor General. I
13 noticed in your testimony you talked about 5,000
14 audits and that some of those were broken down between
15 performance audits and what you called financial
16 audits. Being a big fan of performance audits, can
17 you give me a breakdown between how that breaks out,
18 so many percent for financial, so many for
19 performance?
20 GENERAL WAGNER: Yes, Representative. The
21 number of perform -- special performance audits come
22 in a variety of categories. There is special
23 performance audits such as restaurant licensing
24 inspection. There are the SERS and PSERS audits which
25 are special performance audits. But we also perform
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1 school audits and do more than a financial audit in
2 performing those audits. We look at bus driver
3 certification.
4 I don't have that exact number, but in the
5 category of special performance audits, the big audits
6 so to speak, it's less than 1 percent of our total
7 volume. But if -- including what we do also with
8 school audits, state-owned facilities, it is in the
9 hundreds. And I am happy to get you that information
10 later.
11 REPRESENTATIVE PETRI: If you can provide to
12 our chairman, Brett Feese, a list of all the
13 performance audits you've performed in the last year,
14 I think that would be helpful.
15 Now, when you decide what areas to do a
16 performance audit, does your department consider the
17 size of the relative budget of that area as it relates
18 to the whole state budget so that you would be
19 concentrating in the primary areas, say, school
20 because that's a big funding item? Or maybe DPW? Or
21 do you do it another way?
22 GENERAL WAGNER: Well, a number of factors
23 come into consideration when doing a special
24 performance audit. Now that's excluding doing school
25 audits of 501 school districts, which are a
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1 performance audit, because we include other categories
2 when we audit school districts. But when it comes to
3 picking what areas of state government to do a special
4 performance audit, a variety of things come into view.
5 Number one, our people. Our people will give
6 us ideas on what they think should be audited. A good
7 example is the restaurant licensing and inspection.
8 The food-borne illness problem that was part of a
9 restaurant in Beaver County several years ago, of
10 which four or five people died, was really the genesis
11 behind the initiation of the food licensing and
12 inspections.
13 Some ideas come from the public via our
14 hotline. Some come from representatives and senators.
15 We give considerable thought and do considerable
16 research prior to entering a special performance
17 audit, because they are very time intensive. The
18 audits of SERS and PSERS, for instance, will take
19 almost a year and each require an audit team of four
20 or five people.
21 REPRESENTATIVE PETRI: Do you find that those
22 performance audits usually yield, if you will, the
23 best results for the Commonwealth, at least as far as
24 identifying where our money is well spent and when it
25 isn't well spent?
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1 GENERAL WAGNER: We try to do performance
2 audits in areas of public importance. Presently,
3 we're doing a special performance audit of the
4 Opportunity Grant Program to determine if literally
5 hundreds of millions of dollars in economic
6 development are producing job retention and job growth
7 in Pennsylvania.
8 REPRESENTATIVE PETRI: We all know that the
9 cost of our welfare budget is increased dramatically
10 and continues to be a real problem area. How many of
11 your performance audits have been in the area of
12 welfare, in the welfare budget since it now even
13 outpaces education?
14 GENERAL WAGNER: I can't give you a precise
15 answer at this time. I'm happy to get back to you.
16 But you are right, Representative. That is a growing
17 concern, both with state taxpayer dollars and federal
18 dollars passing through the state.
19 REPRESENTATIVE PETRI: One area that I'm
20 particularly concerned about and have some
21 legislation, and I'd like some comments from you on is
22 the area of Children and Youth Services. These are
23 funds, as you know, that are used to protect our most
24 vulnerable in our society. And the question I have is
25 do you -- does your team, when they're deciding to do
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1 a performance audit, look at increases in the
2 individual county's request and in their budgets to
3 determine, you know, well, gee, maybe forensically
4 that's a place we ought to start looking, if you see a
5 county or group of counties or even a block on the
6 budget start to increase dramatically, would that be a
7 signal to you that maybe this is an area we ought to
8 look at? Or how do you go about it?
9 GENERAL WAGNER: Well, it could possibly be,
10 but as you know, we have a post-audit function. And
11 we audit dollars that have been spent in all
12 categories. Consequently, we are looking at what all
13 of you are requiring those counties to do. And we are
14 not auditing their request to you. We are auditing
15 the spending of the dollars that you provide.
16 REPRESENTATIVE PETRI: And one final question
17 in this area. With Children and Youth Services,
18 you're probably aware that it's a need -- it's a needs
19 based budget. In other words, the county completes
20 its need, it submits it to DPW. Have you ever tried
21 to audit or determine whether DPW actually reviews
22 those needs based and to what level?
23 I'm concerned, because I'm aware of a number
24 of counties that have had dramatic increases. And
25 what I'm concerned about is not so much how much money
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1 is spent on these children, but whether we're really
2 getting any of the results we intend to get from the
3 various programs that are implemented.
4 GENERAL WAGNER: Representative, in my one
5 year as Auditor General, I don't believe we have done
6 that. You are giving us a good idea of something to
7 review. And one of the new initiatives that we're
8 trying to incorporate into the Department is to
9 enhance the financial audits.
10 Now we do over 5,000 audits a year, the far
11 majority are financial audits. We are trying to put
12 an element of performance into those financial audits.
13 And that could be one area that we could consider.
14 REPRESENTATIVE PETRI: The legislation I've
15 had introduced the last two terms would require the
16 Department of Public Welfare to do performance audits
17 on all the county agencies across the Commonwealth.
18 It is somewhat expensive. Do you believe that that's
19 an area that they would be more qualified to do since
20 they already do licensing inspections of the various
21 counties? Or do you think it's more the role of the
22 Auditor General to do those type of audits?
23 GENERAL WAGNER: Well, I think it's the role
24 of both, quite frankly. And it's the role of both
25 especially as relates to Department of Public
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1 Assistance, Department of Education, based on the laws
2 passed by the General Assembly and what they're
3 required to do. And then it's our job to go in and
4 determine whether or not they are doing what all of
5 you have mandated them to do.
6 REPRESENTATIVE PETRI: One final question,
7 Mr. Chairman. If no one, either the Department of
8 Public Welfare or the Auditor General's office or
9 anyone else in state government is doing audits in
10 those areas, do you think that's an area that we
11 really ought to start addressing, given that these are
12 vulnerable children?
13 GENERAL WAGNER: Yes.
14 REPRESENTATIVE PETRI: Thank you.
15 GENERAL WAGNER: Thank you.
16 REPRESENTATIVE PETRI: Thank you,
17 Mr. Chairman.
18 CHAIRMAN FEESE: The Chair thanks the
19 gentleman and recognizes Representative Cappelli.
20 REPRESENTATIVE CAPPELLI: Thank you,
21 Mr. Chairman. Good morning, General Wagner. Nice to
22 have you here.
23 GENERAL WAGNER: Good morning, Representative
24 Cappelli.
25 REPRESENTATIVE CAPPELLI: If I could just for
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1 a moment go back to the issue of performance audits,
2 federal Welfare Reform Act and our own Act 35 have
3 established new work participation requirements for
4 TANFF beneficiaries. I'm curious as to whether or not
5 you have planned or are currently conducting
6 performance audits with DPW to determine whether or
7 not we're, in fact, in compliance with both federal
8 and state law with respect to work requirements of
9 TANFF benefits.
10 GENERAL WAGNER: Representative, to the best
11 of my knowledge, we are not doing a performance audit
12 of the Welfare Reform Act. We are more than welcome
13 to take that under consideration.
14 REPRESENTATIVE CAPPELLI: I appreciate that
15 answer, General, due to the fact that we could stand
16 to lose upwards of $70 million if found to be in not
17 compliance with that federal statute.
18 Secondly, I know, and as you indicated in
19 your testimony, your office is responsible for
20 compliance with Act 205 of Municipal Pension Plan
21 Funding Standard Recovery Act. I believe it's 2185
22 municipalities who fall under the purview of that
23 statute.
24 I was wondering if you could give us a
25 financial forecast, if you will, of just what is the
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1 state, particularly of our third class cities, of
2 their pension plans, and are they on average
3 underfunded? You know, what are these accrued
4 actuarial liabilities and are we going to have serious
5 troubles down the road with respect to meeting pension
6 obligations at the municipal level?
7 GENERAL WAGNER: Well, Representative, the
8 issue you bring up is one of great concern to all of
9 us. And I believe our special performance audit of
10 SERS and PSERS will be an indicator of whether or not
11 the investments made by these pension funds are
12 prudent investments for the members of the funds.
13 We also see indicators across the
14 Commonwealth where pension funds are encountering
15 problems. And there's a wide variety of reasons for
16 those problems. It's declining populations, declining
17 contributions. It is making benefits more liberal in
18 many municipalities beyond what was ever anticipated.
19 We don't have a common thread yet to know,
20 but it is an issue that we talk about with my bureau
21 director, Tom Swider, municipal pensions, and it's
22 something that we would try -- we are trying to get a
23 handle on. In other words, we're trying to see what
24 some of the common elements are of municipal pension
25 plans, police pension plans, of fire pension plans;
28
1 and offer some degree of predictability with the
2 individual plans and also try to analyze in a more
3 comprehensive way what the future holds. I'm not --
4 this is a big task, quite frankly. And we're hoping
5 to learn a lot from our performance audits of SERS and
6 PSERS that can carry over in an analytical way with
7 the other pension plans.
8 REPRESENTATIVE CAPPELLI: I appreciate your
9 thoughts on that, General Wagner. As a member of the
10 Public Employee Retirement Commission, I see these
11 numbers. And, quite frankly, some of the -- some of
12 the liabilities faced by municipalities around the
13 state are staggering, quite frankly will probably
14 never be fully funded or obligations provided to each
15 of the beneficiaries.
16 Lastly, in recent years we've seen several
17 well-publicized examples of illegal receipt funds to
18 the Firemen's Relief Fund, Harrisburg and Dunmore fire
19 companies most noteworthy. Are you confident here
20 today that abuses of this in the illegal receipt of
21 funds by noneligible associations are nonexistent,
22 that we are, in fact, providing funds through this
23 fund to eligible active associations and not
24 associations that are receiving them illegally?
25 GENERAL WAGNER: Well, our individual
29
1 volunteer fire relief audits determine whether or not
2 funds are properly received and properly spent. It is
3 really up to the General Assembly to change the law if
4 you want to see those dollars redirected. And some --
5 a volunteer fire relief funds, there is what some
6 would term as an excess number of dollars. In others
7 they are desperate for funds. But they are allocated
8 according to the law. And they are spent and we audit
9 to make sure they are spent according to the law.
10 So we are doing that more on an individual
11 basis in terms of analyzing the spending and
12 misappropriation. So I would, again, I would suggest
13 that all of us work together if you want to see some
14 changes as it relates to the allocation of those
15 dollars.
16 REPRESENTATIVE CAPPELLI: Thank you, General
17 Wagner. That concludes my question, Mr. Chairman.
18 REPRESENTATIVE FLEAGLE: The Chair thanks the
19 gentleman, recognizes Representative Maher.
20 REPRESENTATIVE MAHER: Thank you,
21 Mr. Chairman. Again, good to see you.
22 GENERAL WAGNER: Representative Maher, nice
23 to be here.
24 REPRESENTATIVE MAHER: As you may remember,
25 by trade I'm a CPA, spent a lot of my life doing that.
30
1 GENERAL WAGNER: Yes.
2 REPRESENTATIVE MAHER: No one enjoys talking
3 auditing more than I do, so delighted to see you.
4 When I look at the Governor's budget proposal
5 for the Auditor General, side by side with the
6 information that you testified to, the Governor's
7 negotiation on labor contracts will cause 5.13 percent
8 increase in your payroll in the year ahead.
9 How will you disburse payroll in accordance
10 with the Governor's union contract if the Governor's
11 proposal for your budget is enacted?
12 GENERAL WAGNER: Representative Maher, I
13 appreciate the question and is really the primary
14 request of my budget address --
15 REPRESENTATIVE MAHER: Sure.
16 GENERAL WAGNER: -- which is to seek
17 additional funding for this department, of which I
18 believe -- and you know, being a CPA, that the role of
19 this department is vital to the future of the
20 Commonwealth of Pennsylvania. And as I indicated in
21 my testimony, we are two-tenths of one percent of the
22 total state budget, which is a minute sum in
23 comparison to total dollars that are spent. We don't
24 negotiate our contracts. We don't, within the Auditor
25 General's department.
31
1 REPRESENTATIVE MAHER: I understand that.
2 GENERAL WAGNER: And your point is accurate.
3 REPRESENTATIVE MAHER: So what happens if the
4 Governor's budget is enacted?
5 GENERAL WAGNER: Because of a state line
6 proposal in the Governor's budget, and the reason why
7 I'm here today asking for all of your help, we will be
8 forced to make some drastic cuts within our
9 department.
10 REPRESENTATIVE MAHER: And which underlines
11 your ability to be the watchdog.
12 GENERAL WAGNER: To perform our job, to do
13 performance audits and public assistance, and anywhere
14 and everywhere else where they may be needed.
15 REPRESENTATIVE MAHER: Now, certainly people
16 in your office know how to do basic arithmetic. And
17 certainly the people in the Governor's budget office
18 know how to do their basic arithmetic. How is it that
19 you suppose that -- do you think the Governor hasn't
20 told the budget office that there's this 5 percent
21 increase in pay that needs to be factored into the
22 budget? Or what's your understanding what the budget
23 office's theory is about how you're supposed to pay
24 your auditors in accordance with the contract that the
25 Governor negotiated if the Governor won't support
32
1 funding for your office?
2 GENERAL WAGNER: Well, I can't -- I don't
3 have a crystal ball. And I can't analyze the thinking
4 of the administration in their budget proposal. But I
5 also know this is a give-and-take process.
6 REPRESENTATIVE MAHER: Have they provided
7 you, the Office of the Budget or the Governor, any
8 suggestions on how you accomplish your payroll in
9 accordance with this contract under the proposal that
10 they've made for your funding?
11 GENERAL WAGNER: No, they haven't. But if
12 you recall, I was here last year asking for additional
13 funding and all of you were receptive to that request.
14 And it is my hope in having sat in the seat you're in
15 for a number of years, it is my hope that the case we
16 present to all of you is a good one, similar to the
17 one presented by the Attorney General. And that all
18 of you will consider our modest request to make sure
19 we can meet those budgetary demands and those cost
20 increases, of which we have no control.
21 REPRESENTATIVE MAHER: I appreciate that.
22 Have -- I'm going to guess, actually more than guess.
23 I've seen some other indications that your department
24 is perhaps not an isolated instance of the Governor's
25 negotiated union contract not being reflected in the
33
1 Governor's budget proposal.
2 Has anybody in the Auditor General's office,
3 not a full-fledge performance audit, but just sort of
4 checking the numbers in the Governor's budget, has
5 there been any assessment in your office about whether
6 or not the problem that you're encountering for your
7 particular line item there that is actually pervasive
8 throughout the budget?
9 GENERAL WAGNER: That would not be an
10 auditing function of our department --
11 REPRESENTATIVE MAHER: But it could be?
12 GENERAL WAGNER: -- which was an
13 anticipated --
14 REPRESENTATIVE MAHER: Well, it could be a
15 performance audit. Do they know how to extrapolate in
16 the budget office, if I say, well, here's the payroll,
17 here's the head count or here's the new contract, you
18 certainly can take a performance audit of that process
19 without getting into the judgments of the budget, but
20 rather the factual integrity of the budget proposal.
21 GENERAL WAGNER: Well, the facts are the
22 facts. On July 1 of 2006 there will be a 2.25 percent
23 increase in payroll within our department. On January
24 1, '07, there will be an additional 2.25 percent, but
25 for six month period within the fiscal year that will
34
1 be a 1.25 percent added on to the 2.25. In addition
2 to that, there's a longevity increase for six months
3 of the fiscal year. The total increase in our budget
4 is 5.13 percent.
5 Now we are straight-lined in the proposal.
6 And my suspicion is the other statewide row offices
7 are in similar position. And we're here, I think in
8 a -- at least hearing the Attorney General saying to
9 all of you, we appreciate and would please -- we
10 believe warrant your consideration towards us meeting
11 these demands that are placed on us, both in quality
12 and quantity of work, but also contractually.
13 REPRESENTATIVE MAHER: And I'm not going to
14 really ask for a response to this unless you wish to
15 offer one. But we have spent a great deal of time in
16 the last three years, four years of the budget
17 process, trying to establish variances or resolve
18 variances between what the budget volume is purported
19 to present and what the actual underlying math is.
20 And it strikes me that it's an inefficient way to go
21 about a budget process. This process should be about
22 sharing our opinions and arm wrestling about concepts,
23 about what are the spending priorities for the state,
24 how do we control costs, so on and so forth. It seems
25 to be an inefficient and perhaps should be unnecessary
35
1 that we have to try to peel the onion, department by
2 department, line item by line item, to see whether or
3 not the budget has arithmetic integrity.
4 And I seriously am encouraging you to
5 contemplate a performance audit of the budget process,
6 the Governor's preparation of the budget. Not to
7 second-guess the judgments or the policy decisions,
8 but simply the arithmetic integrity, does the budget
9 volume coincide with what is characterized as.
10 Because it ought to. It ought to be a no-brainer.
11 But we're having cases again and again, and your line
12 item is one of those, where the Governor never
13 suggested that you were going to have to furlough 50
14 people.
15 He's talking about business as usual. Well,
16 that's not business as usual. It doesn't add up. And
17 you pointed out and I certainly will support ensuring
18 you have sufficient funds to meet the contract
19 obligations that the Governor agreed to. Thank you,
20 General.
21 GENERAL WAGNER: Thank you, Representative
22 Maher. I appreciate that.
23 REPRESENTATIVE FLEAGLE: The Chair thanks the
24 gentleman and recognizes Representative Wheatley.
25 REPRESENTATIVE WHEATLEY: Thank you,
36
1 Mr. Chairman. And thank you, Mr. General, for being
2 here. First, let me say, as always, an honor and a
3 privilege to talk with you as a senator, state
4 senator. I definitely appreciate the work that you
5 did on behalf of the City of Pittsburgh and Allegheny
6 County. And I'm certain that your work at the Auditor
7 General office and as the Auditor General will be just
8 as superb.
9 So with that being said, I've been sitting
10 here, and I've been here now for a little over three
11 years. And all in that time I've had the honor and
12 privilege to serve on this committee. And every one
13 of those years have began with us going through a
14 series of budget hearings. And at every one of those
15 budget hearings we've brought departments,
16 departmental heads before us. And each one of them
17 talked about whatever their budgetary needs were.
18 And it is my understanding, I guess I'm
19 asking you, is this hearing different? I mean, it
20 normally begins with the governor presentation of what
21 he deems as issues and priorities for the
22 administration. And in that process, from my
23 understanding, there is a legislative process that
24 goes to work on what he presents to us. And then
25 there is coming together of the minds and a
37
1 negotiation and a presentation that all of us can
2 agree that these are our shared priorities for the
3 Commonwealth. Is that your understanding?
4 GENERAL WAGNER: Yes, it is, Representative
5 Wheatley. It's a give-and-take process. And one of
6 the reasons why I appreciate so much having the
7 opportunity to appear in front of all of you is for
8 all of you to hear our case so that you can take that
9 into consideration within the Appropriations Committee
10 in your final negotiation of the budget.
11 REPRESENTATIVE WHEATLEY: And is it
12 unusual -- I mean, take it beyond this administration.
13 You were here in the General Assembly many years
14 before you became Auditor General. So is it unusual
15 under republican governors or democratic governors
16 that this process somehow changes?
17 GENERAL WAGNER: The process appears to be
18 the same in all the years that I've been interacting
19 with state government.
20 REPRESENTATIVE WHEATLEY: And so when we talk
21 about integrity of budgets and priorities of
22 governors, I mean, generally speaking, maybe -- I'm
23 not a CPA. But it seems to me that regular, everyday
24 folks that walk around in the 19th District at least,
25 they somehow are disconnected from this process. All
38
1 they know is, you know, they hear that something's
2 being cut or we're up here talking about something
3 being cut. But this is, from my understanding, and
4 maybe you can correct me, you've been here longer,
5 this is just the first step in the process. We're now
6 in the second step with the legislative body, correct?
7 GENERAL WAGNER: Well, yes, Representative
8 Wheatley. The governor, the executive, proposes the
9 budget. The legislative body passes the budget. And
10 the budget that is ultimately passed is your budget.
11 REPRESENTATIVE WHEATLEY: Now, what you --
12 just in general, I mean, you had interaction with the
13 Governor and his budgetary people. Would you say he's
14 not supportive of the work that you are doing, your
15 department does?
16 GENERAL WAGNER: No. We have had respectable
17 communication and dialogue with the administration in
18 regard to a number of issues, especially audits, as
19 you heard my testimony. We have been tough on a
20 couple departments, state government, one of which we
21 have identified a 20 -- or excuse me, $32 million fund
22 that was sitting in isolation that even the General
23 Assembly I doubt knew it was there. As a result of
24 our audit, that $32 million has been freed up. And we
25 know all of you recognize that. And we appreciate it.
39
1 And I believe the administration does also.
2 REPRESENTATIVE WHEATLEY: And the fund that
3 you were speaking of is the work release -- the
4 work -- what was that, the prisoners, correct,
5 Department of Correction working program?
6 GENERAL WAGNER: Pennsylvania Correctional
7 Industries Manufacturing Fund.
8 REPRESENTATIVE WHEATLEY: And I guess what
9 I'm getting at and where I would like to end is
10 sometimes we lose perspective and we go too far into
11 the political muck when we start to say and make
12 attacks and say, you know, the governor doesn't care
13 about this program or that, the governor doesn't care
14 about crime or doesn't care about departments spending
15 money appropriately.
16 And believe me, I've looked at this budget
17 and I don't like everything in this budget either.
18 There was a lot of things that I would like to see
19 change and a reprioritization of it. And I'm getting
20 my chance to do that when this process works its way
21 through.
22 And I just think, again, I said, this last
23 year and the year before when we brought Department of
24 Public Welfare in here, we cannot continuously make
25 these kind of attack and say we're for this, we're for
40
1 that, then turn around and say we don't want to
2 increase revenues to pay for it, and we want to
3 protect all these interests but not those interests.
4 I mean, we can say that but it would be
5 unfair, I think, if we're trying to really be, you
6 know, open and have this process be something that
7 people can respect, then we need to limit those types
8 of comments. And I just, I appreciate your coming
9 here and asking for the needs of your department and
10 the needs of your staff and your individuals that work
11 under you. But we are trying to figure this whole
12 thing out in the larger scheme of things, as relates
13 to the context of the budget, how much money do we
14 have to spend and where can we strategically put it to
15 really meet the needs of the people of Pennsylvania.
16 And if people want to protect your department, and
17 every department -- every department that comes in
18 here and all these interests, then all we have to do
19 is decide as a body of where we're going to raise the
20 revenue or where we're going to jointly make those
21 cuts.
22 So I'm looking forward to having serious
23 dialogue on that, in that level. So thank you,
24 Mr. General. Thank you, Mr. Chairman.
25 GENERAL WAGNER: Thank you, Representative
41
1 Wheatley.
2 REPRESENTATIVE FLEAGLE: The Chair thanks the
3 gentleman. General Wagner, we appreciate your
4 presence here today and your testimony and your
5 answers to our questions. That's all the questions.
6 We look forward to working with you during this
7 budget, budget cycle.
8 GENERAL WAGNER: Thank you, Representative
9 Fleagle.
10 REPRESENTATIVE FLEAGLE: This committee will
11 be in recess for approximately ten minutes.
12 (Testimony of Jack Wagner concluded at
13 11:39 a.m.)
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1 I hereby certify that the proceedings and
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3 notes taken by me on the within proceedings and that
4 this is a correct transcript of the same.
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