Legislative Audit
December 12, 2025
Senator Jim Petty Members, if you’d go ahead and gather your seats, we’re going to get started. So I call the Legislative Joint Audit committee to order. The chair sees the quorum. Let’s begin with the first item on the agenda, which is the adoption of the minutes. Do we have any questions? If not, do I have a motion for adoption? Second. All those in favor say aye. Any opposed? Minutes are adopted. The first item on the agenda is my trustee co-chair here, Representative Hawk, for the Executive Committee report.
Executive Committee report
Representative RJ Hawk Thank you, Mr. Chair. The Executive Committee met Thursday, December the eleventh, 2025 and adopted the minutes from the meeting held on October the 9th, 2025. Staff reported to the committee that the audit and special reports scheduled to be presented at standing committees and the full Legislative Joint Auditing committee for this month.
Staff also noted reports that are anticipated to be completed soon. In other business, a study of fiscal impact statements were deferred until January of 2026. The committee discussed the withholding of state turnback funds from municipalities due to delinquent water sewer audits pursuant to Arkansas Code 14-234-120.
The Chair requests that staff provide a summary of key points regarding the issues. With no additional business to discuss, the meeting was adjourned. The next meeting for the committee is scheduled for Thursday, January 8, 2026, or at the call of the chair. And with that, that is my report for Executive Committee. I make a motion that we pass this report.
Senator Jim Petty Okay, you got ahead of me there. We have a second. And we have a motion. Any discussion? All those in favor say aye. Any opposed? The report is adopted. Next up is the Standing Committee on Counties and Municipalities. And Senator Stone is going to present that report. Senator Stone, you are recognized.
Counties and Municipalities report
Senator Matt Stone Thank you, Mr. Chair. The committee adopted the minutes of the meeting held October 9, 2025. The committee was updated on the status of December 31, 2022, delinquent private water and sewer audits. Twelve entities’ turnback funds have been reinstated after all required reports were submitted.
Based on the motion from the September 12 committee meeting, letters have been delivered to the Treasurer of State requesting restoration of turnback funds to 21 of the remaining delinquent entities that have filed a December 31, 2022, report or have provided an engagement letter stating that the reports for the December 31, 2022, and 2023 will be filed by the end of 2025 calendar year.
The committee was updated on the status of December 31, 2023, delinquent private water and sewer audits. Of the 64 delinquent entities, 57 have filed their December 31, 2023, reports since the LJAC meeting held on July 10, 2025. Officials for the town of Carthage were present to address questions regarding the town’s failure to meet the requirements of Act 709 of 2021 for repaying misused street funds.
The committee approved the request from the town to repay $170 or 10% of the general fund revenue to the street fund until the balance is paid in full. Officials from the City of Adona were present to address substantial noncompliance with municipal county law. The committee approved a motion to give city officials 60 days to reach compliance as required under Arkansas Code 14-59-117.
The committee reviewed 11 deferred reports and 189 current reports. Officials from seven entities were present to address repeat findings. Eight previously deferred reports were filed and three were deferred. Of the 189 current reports reviewed, 14 were referred to prosecuting attorneys and the attorney general and one was certified to the governmental bonding board. The committee filed 180 current reports and deferred nine reports to allow officials to answer questions or provide further information at a future meeting. I move for adoption of this report.
Senator Jim Petty Thank you. You’ve heard the report. And we have a motion to adopt the report. We have a second. Any discussion? If not, all those in favor say aye. Any opposed? Motion is adopted. The next item on the agenda is the Standing Committee on Educational Institutions. And Senator Sullivan is going to present that report for us.
Education report
Senator Dan Sullivan Thank you, Mr. Chair. The committee met Thursday, December 11, 2025, and adopted the minutes from the meeting held on October 9, 2025. Ten education audit reports for the year ended June 30, 2024, and 2025 were included in the committee’s agenda. There were five education audit reports that contained findings.
The findings for Bay School District were referred to the applicable prosecuting attorney and the attorney general. The remaining five audit reports had no finding. The committee filed ten audit reports that were brought before it. I moved to adopt this report.
Senator Jim Petty Thank you, Senator Sullivan. You’ve heard the report. We have a motion to adopt the report. Do we have a second? Have a second. Any discussion? All those in favor say aye. Any opposed, no. Motion is adopted. Next item on the agenda is the Standing Committee on State Agencies. And Representative Unger is going to present that report.
State Agencies report
Representative Steve Unger Sixteen reports were on the committee’s agenda yesterday. Three reports with the following findings were presented. The Arkansas Securities Department, which is part of the Department of Commerce, had unauthorized personal purchases of $2,900 on an agency travel card.
In addition, the Insurance Department, which is also a part of the Department of Commerce, did not properly record accounts receivable. The Commissioner of State Lands had contract overpayments for FY24 and FY25. The State Game and Fish Convention reported three incidents of theft of property.
Senator Jim Petty Thank you, Representative Unger. You’ve heard the report. And we have a motion to adopt the report. Do we have a second? Second. Any discussion? All those in favor, let it be known by aye. Any opposed? Motion is adopted. The next item on our agenda is the annual financial report for the Department of Education for the fiscal year ended June 30, 2024. And Mr. Christopher Maland is going to present this. You are recognized to present that report.
Education Department Audit
Christopher Maland Thank you, Mr. Chair. This presentation covers the annual financial report for the Arkansas Department of Education for the year ended June 30, 2024. This report was previously presented at the October 9 meeting of the Standing Committee on State Agencies and deferred by the full Legislative Joint Auditing Committee at its meeting held on October 10. This slide shows summary financial information for the department as of June 30, 2024.
Assets totaled approximately 1.4 billion, while liabilities totaled over 179 million. Net revenues totaled 1.3 billion. Other financing sources totaled $3.8 billion, and expenditures totaled almost $5 billion. Legislative Audit issued a clean opinion on the department’s financial statements. This report contains four findings, which can be found on pages five and six of the report. The first finding is a significant deficiency, and the remaining three findings are required to be reported under government auditing standards.
The first finding relates to Education Freedom Accounts, or EFAs, which the Division of Elementary and Secondary Education administers under the LEARNS Act. EFAs are state funded accounts used to cover approved educational expenses, including private school tuition, curriculum, and tutoring. Our review revealed that the agency did not have controls in place to review students with EFAs for duplicate enrollment in a public school.
We identified 239 students with potential duplicate enrollment in a public school during the 23-24 school year, which could result in duplicate funding to either the public school or to the EFA provider. A test of 34 of the 239 EFA students revealed 28 instances of duplicate enrollment.
Second, Act 572 of the 2023 regular session authorized a 10 million appropriation for the Merit Teacher incentive grants to local education agencies. Finding two notes that in addition to the 9.99 million dispersed from the Merit Teacher incentive appropriation, the agency used 1.9 million in unexpended funds appropriated for the National Board of Professional Teaching Standards financial incentives to pay the remaining Merit Teacher incentives.
The initial appropriation of 10 million dollars was an estimate amount and did not factor for fringe benefits. These 1.9 million was appropriated for one purpose but used for another in violation of Article 16, Section 12 of the Arkansas Constitution. The third finding relates to teacher incentive overpayment. ADE rules governing National Board for Professional Teaching Standards Incentive Payments based on teacher certification dates and school or district poverty levels.
Specifically, a teacher who is working full-time or in a public school that is not a high poverty school or a high poverty charter school may receive a yearly incentive payment of $2,500 for no more than five school years. The fourth finding relates to failure to report stolen property, which is required by the state’s financial management guide.
Specifically, the bonded officer, the disbursing officer of an agency is required to report any apparent loss of state funds or property to the state chief fiscal officer and to Legislative Audit within five business days of the date the employee learns of the loss.
The Board of Trustees for the Arkansas School for the Blind and Visually Impaired and the Arkansas School for the Deaf was informed on July 18, 2023, that a utility vehicle valued at approximately $10,000 was stolen. The agency notified law enforcement of the incident but did not report theft to the state chief fiscal officer or Legislative Audit as required. Mr Chair, this concludes my presentation. Agency officials are present to respond to committee questions.
Senator Jim Petty Thank you, Mr. Maland. Committee, you’ve heard the report. We do have representatives here from the Department of Education if you have questions. And I see one in the queue right now, so we’ll get started with Representative Mayberry. You’re recognized.
Representative Julie Mayberry Is it possible to bring ADE up because more of my questions really are for them?
Senator Jim Petty That’s what I wanted to verify before we brought them up. Yes, if those representatives would take the seat at the table.
Courtney Salas Ford Good morning, Courtney Salas Ford, Chief of Staff, Department of Education.
Darrell Smith Good morning, Darrell Smith, the Office of School Choice and Parental Empowerment.
Senator Jim Petty Okay, and if you would, as is our rules, if you would raise your right hand and we’ll swear you in. Do you solemnly swear or affirm that the testimony you’re about to give will be the truth, the whole truth and nothing but the truth? Thank you. Representative Mayberry?
Education Freedom Account questions
Representative Julie Mayberry Thank you so much. I’ll ask a few questions and then I’ll get out of the queue and then let others and get back in, because I’ve got a whole bunch. This was the very first year of EFAs and the very first opportunity really for our auditors to look at it. And so in this report, there’s just lots of questions that I have that need a deeper dive. I’m hoping y’all can answer.
We just want to make sure that there’s accountability with the program and that the taxpayers are seeing where the money is going and that’s really what it is. And I realize that things happen, and I think that you’ve been in the process of putting more money to the agency or the company that’s going to oversee this. And I do understand that there might be some more I’s dotted and T’s crossed in the future, but I want to specifically talk about what took place back then.
So it showed that there were 239 students with potential duplicate enrollment. They didn’t test all of that 239, they tested 34 and revealed that in fact 28 of them had duplicate enrollment. Now, if I understand correctly, this is not homeschool because homeschool wasn’t allowed an EFA account the first year.
So this is just painting a picture, a student, who money went to a public school and money went to a private school for that one student for that year. So when looking at those cases, what actually took place? Was the student enrolled and then maybe mid year switch to private school? Or how did you look at those instances, and can you tell me what was the common denominator of how that duplicate took place? Question number one.
Darrell Smith Happy to answer your question. Thank you for asking. So I think there has been a little bit of a confusion that a duplicate enrollment does not necessarily represent duplicate payments. And so, as you were alluding to just shortly, so in the first year, all the students were private school students. That was part of the law. That was the rule, that every quarter, our office had to verify enrollment in the private schools.
So we know that those 239 students were enrolled in private schools. So at that point, we know that no money was misallocated, I guess, if you want to use that word, out of the EFA program. What we’re looking at is, from the public school side, there’s two different ways that a student could be potentially on a public school roll and the EFA role as well, as far as an enrollment standpoint.
Number one, students that may be receiving services for special ed, some of these part-time students would show up on a public school roll for services. And so we would have to go in to those 239 and look at specifically at what was the case. And, individually, because some are special ed, some may have been taking other courses that they are allowed to take at the public school, so part-time students that can also take classes in a public school.
So between those two scenarios, typically, that’s what we found, that they were either– they may have joined a private school and didn’t notify the public school at the beginning of the year that they had switched. And so the public school had them on their roll at the beginning of the year, and so they stayed there.
And then when the report was run, there was still a student on the roll that had not attended that particular public school. Or they were a part-time student taking a course of some sort at a local public school. Or they were in special ed, which would have all created this duplicate enrollment, both on the EFA side and the public school side.
Representative Julie Mayberry So there are cases where you’re saying there was duplicate enrollment, but maybe not duplicate payment?
Darrell Smith Correct.
Representative Julie Mayberry So how many of those were duplicate payments? And if there was a duplicate payment, has the private school or has the public school refunded all or a portion or what have you in those specific cases?
Darrell Smith Well, I could say that we’ve cleared out all the private school concerns, right? We know that all of those students were enrolled at the appropriate time in the private school. So there was never an overpayment to a private school. Because, again, there was a quarterly verification that first year and in the subsequent years after that, making sure that every student in the EFA program was enrolled in that time in a private school.
So there would be no overpayment to a private school from that standpoint. From the public school standpoint, the ADE Finance Office is still investigating all of those 239 to see if there was in fact an actual payment to a public school. And obviously if there were, appropriate measures would be taken.
Representative Julie Mayberry So have there been some public schools then that have had to repay the state?
Courtney Salas Ford At this time, we have not identified any instances of duplicate payment. As Darrell stated, because of the nuances, we’re having to look at each individual student. And we have not identified any case in which a duplicate payment was made to the public school.
There are some instances where that public school may have received funding, but it was a valid receipt of that funding because, as Daryl stated, they were taking a course at that public school. So we have not made it through all 239. We’re still doing that, but at this time we’ve not identified any of those instances.
Representative Julie Mayberry Do you know what number you’re up to?
Courtney Salas Ford Unfortunately, I’m sorry I do not.
Representative Julie Mayberry Okay. I’ll let someone else ask some questions, if anybody has any, and then I’ve got more. So thank you. Thank you very much for lots of clarifications.
Senator Jim Petty Representative Brown, you’re recognized.
Representative Karilyn Brown Thank you, Mr. Chair. Just curious, if a student is enrolled in a private school and then they do receive services at a public school, are their funds for the private school diminished somewhat to compensate for what’s needed at the public school? Or do they pay the private school and then we pay extra for the services?
Darrell Smith At this time, as the law states, any student that takes a course– if that’s a private school or a home school student who takes a course at a public school will receive 1/6 of the foundation funding that goes to that public school. So at this time, no money is taken from the EFA account for services provided by the public school.
Representative Karilyn Brown Thank you. Appreciate the clarification.
Senator Jim Petty Senator Dismang, you’re recognized.
Senator Jonathan Dismang Thank you, Mr. Chairman. And one question on duplicate payments or whatever with a student that leaves a public school going to a private school. I mean, walk us through declining enrollment payment anyway. I’m assuming at some schools, they would actually still receive the money for a student that makes a transfer. I can’t remember what all we’ve changed, what haven’t we changed. But you may well in fact find that it was properly paid even though there was a ghost student at that school.
Courtney Salas Ford Correct. And, unfortunately, I’m not the financial expert, but I’ll do my best. So declining enrollment is still in statute, whereas for a year and a half after a student leaves the public school, and because public schools are funded in arrears, they continue to receive funding for that student again for a year and a half even after they’ve left.
So there are instances where it might look like a student is being double funded. That’s not the case because EFAs are current year funded. The private school is getting their EFA money. The public school might be getting that money for the student who left a year, a year and a half ago. And, again, that is why it takes us so long to go through each of these cases to see where specifically the funding came from or why it was generated.
Senator Jonathan Dismang Yeah, but none of us should be shocked if a student is getting paid for in two places. I mean, it’s not because of the EFA program. It’s because of a program that existed well before that. In fact, we could pay for a student twice prior to the EFA program, if I remember correctly, because if that student were to transfer from one district to another because of declining enrollment, we would again pay for that student twice, potentially, depending on the actual circumstance. So this isn’t something new or something that should surprise or whatever else. I’m not saying I agree with the policy, but the legislature did enact it.
Courtney Salas Ford Correct. Even if a student left a public school to go to another public school, both public schools for a year and a half would be receiving funding for that student.
Senator Jim Petty Representative Unger, you’re recognized.
Representative Steve Unger In a private school who played sports in the local public school, does that count as a duplicate enrollment?
Courtney Salas Ford It could. It depends. Many school districts, in order to play sports, will have the student enroll in a course as well. And so if they are enrolled for a sports course, then, yes, they would show up as duplicate enrollment.
Senator Jim Petty Representative Mayberry, you’re recognized.
Representative Julie Mayberry Thank you. So this question actually came up through a school district kind of asking me. And I feel like this is the next step in the EFA accounts because it now does affect homeschoolers. So they have someone who was in a homeschool at the beginning of the year and then transferred back to public school.
And so if that homeschooler, let’s just say, uses their EFA to buy that computer equipment and then transfers to the public school after that, what happens? They’re finishing the year in the public school, but they’ve already purchased a computer or curriculum or whatever. Do they owe that back? And can they spend all of it at once or is it only quarterly that you can spend? If you could kind of help me answer questions to a school district, I’d appreciate it.
Darrell Smith Yeah, absolutely. It’s a great question. So just to, I guess, help clarify that a little bit, when a student is within the program, so they are participating in the program, they obviously can purchase anything that is an eligible item at that time. If they leave the program, their account becomes inactive. So they can no longer spend EFA money from the point of withdrawal from the program.
So at the point you’re using your scenario, at the point that they enrolled in the public school, they can no longer use EFA money because their account becomes inactive. However, anything that they purchased while they were in the program still remains in their possession.
Representative Julie Mayberry So potentially, as this school district kind of brought to my attention, could someone– and what safeguards do we have that someone starts out homeschooling and purchases various items and then decides to go to a public school, they get to keep all those items. Could they just continuously do that every year to game–?
Darrell Smith I guess, potentially, but I think there is some clarification there of saying that they don’t get the full, in this case, $7,000 up front. They’re only getting a quarter of it at a time. So they’ll get their first payment somewhere around August. So which roughly is $1,700 at this time. So they can only spend up to $1,700. So yes, potentially, could they spend their $1,700 and then go to a public school in September or October? Absolutely.
Representative Julie Mayberry And so what can we do to make sure that people don’t abuse that? Because I see potential. I’m not like that. I don’t think of those scenarios, but other people do. And so I’m concerned that people will double dip and just figure out a way to make use of some accounts.
Darrell Smith Yeah, I think that may happen once. I mean, there’s a possibility of that, potentially. But there are safeguards in place already to keep people from jumping in and out of the program. So we have a lot of safeguards now since we put in, since year one, with some unique identifiers, with some new reports that look for anomalous activities, that look for same families going through some repeated patterns.
And so especially those families who leave a program and then come back in, those are flagged. And so we look at their expenses, put a lot more scrutiny under the items that they submit and those type of things. And so if we see a computer being bought every year, we would more than likely deny that.
So we’re looking at every receipt and every submission that comes into the EFA program and the history of their purchases. So there are already some controls in place to help us try to catch those things from happening. Will we catch them always right on the front line immediately? Yeah, that’s our goal. And we certainly do our best to do that. But we will certainly catch them, most of those within that current school year if they try to bounce in and out.
Representative Julie Mayberry Okay, thank you.
Senator Jim Petty Senator Dismang, you’re recognized.
Senator Jonathan Dismang Thank you. Just to add clarification to a little bit of that conversation, it sounds like a superintendent or somebody at the district is doing more fear-mongering than they are actually trying to find out information about how the programs work. Because I think there are safeguards.
And, again, I think you’ve walked through some of those. The first being that it can only be taken on a quarterly basis, which a quick phone call would have very quickly answered that question for how the program is implemented. And I mean, the way that I see it, the only entity that’s going to double dip in this instance potentially could be the school district that loses a child and then turns and gets paid declining enrollment because they went to homeschool, and then they come back and then they’re paid for that child while they’re still receiving declining enrollment.
But again, those are all things that we need to fix on the public school level in regards to the program, I believe. But I appreciate you walking through some of the safeguards. And it sounds like maybe we need to have something sent out to these school districts that are not asking some of the basic questions about the program and especially about things that have zero impact on their district. But thank you for that clarification.
Senator Jim Petty Representative Brown, you’re recognized.
Representative Karilyn Brown Thank you again. I didn’t quite understand. And I’m not sure I understand what’s meant by declining enrollment. I mean, obviously, declining enrollment is declining enrollment. But it’s being used in a different context here and I don’t know what that context is. On the EFA, I have two questions. On the EFAs, are students, they’re allocated their money quarterly. Is that correct? Is that what you said?
Darrell Smith Yes, ma’am.
Representative Karilyn Brown Okay. But do they have thresholds on what they can spend on electronics or curriculum or different things like that? That’s also a control, correct?
Darrell Smith Yes, ma’am. So right now there is a $1,000 threshold on technology devices.
Representative Karilyn Brown Now my other question, Mr. Chair, if you’ll indulge me. If public schools are paid in arrears, in your former discussion with Senator Dismang, and a student goes from this school district to this school district, they’re paid in arrears, how would one student be funded in two different schools at the same time?
Courtney Salas Ford Again, so our CFO could not be here today, who could very more clearly explain this than I can. But school districts are funded on average daily membership from the prior year’s attendance. And so students are counted for the year in which they were there.
And so if I was in school district A and I left, school district A is going to get funding for me for this year for last year and the next year for this year where I’m already gone. Whereas school district B that I’ve gone to, they might be getting growth funding. And declining enrollment funding, it’s a provision put in law to kind of soften the blow to public schools so that if they lose a lot of students, they don’t have a huge fiscal hit. And so it provides them additional funding to account for that loss of students.
Well, school districts who get a lot of students then get growth funding, and so they get current year money for the new students that they got who are also counted in their ADM. And so school district B is getting growth funding for the student the same year that School District A is getting declining enrollment funding and funding for their enrollment in that previous year. And school district B will get funding the following year for the first year that they were there. So that probably didn’t help a lot, but.
Representative Karilyn Brown It’s a lot to keep track of. Thank you very much.
Senator Jim Petty Representative Long, you are recognized.
Representative Wayne Long Thank you, Mr. Chairman. We homeschooled our three sons. So I’m very pro homeschool, but I’m very anti-fraud. And I was wanting to know, are we currently having somebody just go through and look at each individual receipt that’s submitted from the homeschoolers to verify if it’s an acceptable expense? Or have we moved to the card type deal, sort of like SNAP is going to be, where you can only purchase items that are from an approved list of curriculums, that type of thing?
Darrell Smith So, at this time, we review every submission that’s made from both a private school and a homeschool family. Some are for reimbursement. Some are for actual marketplace or direct pay type vendors. But our staff looks at every receipt that comes in and verifies vendor, verifies amount, verifies the items that were purchased were eligible items.
And as long as the items were eligible, then obviously we approve and that receipt or that reimbursement gets paid. If there is an item on that receipt or on that submission that is not eligible, then the entire submission is denied and sent back to the parent for either corrections, to correct it, or to take things off of the receipt to make sure that everything that comes through and that’s approved is an eligible item.
Representative Wayne Long Reason I asked, because I’ve had a superintendent bring up a case where he claimed that there was somebody had submitted a receipt for like a a gaming chair, which is, I guess, kind of a fancy chair for using for computer gaming, which is very expensive, of course, compared to just a regular office chair for the kid to sit at the desk. Have you seen any type of situation like that where y’all have paid for something that’s way above what’s needed?
Darrell Smith Yes, sir. And I think sometimes the nomenclatures there sometimes are maybe a bit misleading. Because a lot of things can be gaming chairs, right? And they’re not always $700, $800 chairs, right? So I think a little bit of the nomenclature and the naming of it sometimes is a little bit misleading. However, there is a process, as we’ve gone through the process, now that we’re in year three of the process of the EFA program, of creating more controls and making sure that there is a higher level of scrutiny about what things.
So we have a process called ordinary and necessary that every review goes under. And so it’s basically, is this an ordinary expense? Is this an ordinary, an item that would be used for education? And is it a reasonable cost? And so basically we’re continuing to work on finding that average cost for eligible items, and that kind of sets the standard.
And then based on the receipt that comes in, we can determine how it relates to that average cost. And if it’s above the average cost, a significant amount above the average cost, then we will ask the parent for more justification. Because there are times based on maybe a therapy, based on a tutor, based on maybe some other items that a student might need something that’s a little bit more expensive for their education.
And so as long as a parent can justify that or we have a qualified professional that can justify and can show us the justification for it, then maybe we’ll approve something that’s a little bit higher than maybe the normal. But for the most part, we try to stay in that average range based on what a reasonable person would consider average for that particular type of an item.
Representative Wayne Long And I wonder if you wouldn’t mind sometime, if you could maybe email me the list that you use as far as that ordinary and necessary type. I’d like to look at that.
Darrell Smith Happy to do that.
Courtney Salas Ford And Representative Long, if you don’t mind me adding, we also are committed to preventing fraud, to making sure that accountability is there for parents and for private schools and public schools. And in an effort to ensure that, we had the inspector general for the state do a complete review of our program and identify areas of potential weakness and make recommendations of ways and additional safeguards that we could put in place.
And we have put some of those in place and we’re in the process of putting those additional safeguards in place because we hear all of the same claims and allegations that you all do. And we want to ensure that we are implementing this program with fidelity and integrity. And so we are doing everything we can to prevent any types of fraudulent cases like that.
Representative Wayne Long Thank you all. Appreciate it.
Senator Jim Petty Thank you. And just to add a little color commentary here, my daughter is a public education– she’s a teacher, elementary teacher. And one of the days I went into her classroom I saw around her learning center about four or five different types of chairs.
And so she explained to me in a very thorough way how students learn differently and their comfort level and how they are sitting contributes to their education. So I learned something there. So I don’t know the situation there, but it’s very real. So thank you for your clarification. All right, Representative Mayberry, you’re up again.
Representative Julie Mayberry Thank you. I promise, my last time. And I told you I was going to separate it some. So kind of what was just mentioned, I just would like a little bit more information because, again, we want to make sure that there’s the appropriate accountability and all that.
When this report was done, auditors were looking at 5,000, maybe a little over 5,000 EFAs back in 23, 24. Now we have 46,000 or so. So that’s a lot. And if we still haven’t completely looked back at the 239 students from 23, 24 that the auditors kind of noted, how are we ever going to keep up with now the 46,000 accounts?
Do you have enough resources available to make sure that there’s time to catch up? Because if we’re still behind on 23, 24, and there were only 239 students in this report that were flagged, how do we handle the volume that potentially could be out there with 46,000 cases? Do you have those resources?
Darrell Smith So I would say we could always use more resources, right? But I will say this, that we have, to Courtney’s point earlier, we have been continuing to put more and more controls in place to help the team ensure that we stay up to date. So more frequent matching, running of the report between EFA and the public school rolls so we can catch things a lot faster.
First year was first year, and we were still putting the thing together. And so that report got run at the end of the year. And so that was one of the reasons. So that was really what, 25, I guess, end of 24 when that first report ran. And then we’d had to have to kind of figure out what was going on at that particular point and why would there potentially be duplicates? And does that really mean that there was a duplicate payment, or was it just something with a duplicate enrollment?
So it took us a little time to kind of figure the system out because it was new and to figure out why there were duplicates. Now we’ve got a better understanding of how that could happen, where it’s going to happen, where we can flag things. And so some of the controls, like I said, we’ve got better student identifiers now. We’ve got the OIG report, which has helped us streamline some things.
We’re working with Class Wallet to put some new controls in place that will help us identify faster. We’re now in the process now of working with eSchool so that we can take our EFA students and almost nightly run a duplicate report and find these things out really quickly.
So on a week or a monthly basis, we’ll know a lot sooner when a duplicate enrollment has occurred, which will allow us then to very quickly go back in and look at that individual student and see if there is truly a duplicate enrollment or if this was one of those cases that we had mentioned earlier.
Representative Julie Mayberry Okay. And then my final question, I promise. So I’ve just kind of wondered what type of control is there, when I’ve sat on Educational Audit just about every term I’ve been in here, and over and over again we have a school district that comes forward, and there’s an audit finding.
And the audit finding is that the school district purchased computers or textbooks or what have you, and in random checking they can’t find that computer. The auditor can’t. And so they get flagged. Where is this computer? What’s happened to it? We expect you bought it two years ago, it should still be there. If it’s not here, then where is it, right?
So I guess, my question is, if the EFA was used to purchase things, a computer or whatever, whatever is needed, the curriculum, what guarantee is it to the taxpayer that that still is being used by that student a year later, two years later?
If we are asking the public school to be accountable to that, where is it, how do we know that someone doesn’t purchase a computer, get the money from the state, and then return it or sell it to somebody else and not even make use of it. So do we have something in place that looks at that? We hope that someone doesn’t commit that type of fraud, but is it even fraud?
Darrell Smith Sure. Well, obviously, it was purchased appropriately at the time, right, at the time of purchase. Now some of these, we’re certainly not going to go into everybody’s home and see if they still have a computer and some of those types of things. We’ll have to assume that they’re still using it appropriately. But at the same time, what we do have controls for is repeat purchases.
So if someone is trying to, in some sense, game the system to, I’m buying it, I’m going to go return it and get half the money back and take the cash, and then try to do that again, we do have controls for that and we will catch up with very quickly. And that will get flagged the instant, not instantly, but fairly quickly within a couple of months. We’ll see that in our reports as they try to do it again.
And if we see what we call anomalous activity, so something that’s just not ordinary, the same receipt amount come through multiple times, large purchases that come through consistently. Those are the type of things that would get flags, that would flag the family or flag the vendor, which would then lead to a further investigation of those purchases.
And then at that point, we would then probably go in for a lot much more scrutiny of, can we see the information, can we see the purchases that you’ve got, how is it being used for education? So that would lead us into a deeper investigation. So the first part is identification, which we do have controls now for identification.
Are we perfect? Probably not, but we’re certainly getting much, much better. And because, as Courtney was mentioning, there’s probably nothing more important to this office than transparency and accountability. Because we realize there’s nothing that will ruin a program faster than misappropriation or fraud or abuse. Now we can’t control human beings, but we can do everything we can to catch those that are trying to do something from a nefarious standpoint.
Representative Julie Mayberry Right now, on our books, would that be considered fraud and abuse and something that someone could be criminally held for if they purchased this computer and sold it to someone else and didn’t use it and you figured it out on down the road? Do we have something in place that holds that person truly accountable and they don’t just get a– that stops them from doing it?
Courtney Salas Ford So if we identify true cases of fraud or intentional misuse of the program funds, we can seek to recoup those funds, we can seek to recoup that property, we can refer them to the prosecuting attorney for a further investigation.
So as Daryl said, we’ve put all the safeguards that we can in place to prevent it and identify it. And we do have the authority to refer that for prosecution if that fraud is identified. Now, not all cases are going to be fraudulent, exactly like we talked about earlier.
There are cases where a student might have used some funds which were valid at the time and then went back to a public school, which every student has the right to do and which we want them to have the right to do. You mentioned, how can we look at 46,000 students?
Every day we’re trying to monitor and identify the purchase for 450,000 students in public schools. And we have similar cases, as you mentioned, where public schools can’t find computers. Many of our public schools give a laptop or an iPad to every student in that school district, and those don’t always come back. We don’t know what those parents or those students are doing with those laptops and iPads.
But the public schools, they might ask for recoupment, but they don’t always get it. And they’re not going to keep that student from coming to school because they didn’t get that laptop back. They’re going to give that student another one and continue to educate them. And so with this program, as we do with public schools, we are doing everything we can to identify those cases, prevent those cases. But just like in the public schools, with this program, we can’t prevent every instance.
Representative Julie Mayberry Thank you very much for answering the questions. I appreciate it. Thank you.
Senator Jim Petty Representative Duke, you’re recognized.
Representative Hope Duke Thank you, Mr. Chair. Thank you for all this information. I think it’s been very helpful and informative. And I appreciate the questions because it’s easy to forget sometimes that there are people that watch this, that they learn from that as well. And I know I’ve learned several things today that I think will help me do a better job of answering questions when I go back home.
But I also think it’s great to have these questions asked here because, at the end of the day, we represent the people of Arkansas and they have questions. And it saves all of us some time when we air it out here and we all learn. And I really appreciate the questions that you’ve asked and the answers that we’ve gotten, because I know it’s going to make me do a better job.
And I know people across Arkansas that take the time– and I know there are many that take the time to watch these committees– will appreciate having the opportunity to learn more about it. So I thank you for that.
Also to what Representative Long asked for, that information, could you send that out to all the committee members? Because I think that was a good question and a good piece of information for us just to have in our tool belt as we serve our constituents. My final thing is, I guess you all made some areas of improvement from the first year. That’s great. I love that. I’m the unintended consequences girl. I’m always trying to look for, okay, what could I not necessarily be expecting to happen that could happen?
And as we know, fraud and scams, there are people that spend an awful lot of time trying to find ways to get free money, right, and to take advantage of good programs and good people. So as you all do that, because I think most of us don’t necessarily look for all the– we’re operating under, hopefully, although our hearts are desperately wicked and sinful at the root of it, that we are trying to do better. But there are, unfortunately, people that are not.
So do you all have also a space that’s proactively looking for, not playing defense, but playing offense in this arena of making sure that we don’t get that newest scam or the newest fraud that could potentially be happening? And I know you all have got a lot of irons in the fire in education and in this arena, but I do think we have to be proactive.
I think we’ve learned a whole lot in the last few years, I know I have personally, of the level of fraud and scams. And I know legislators are dealing with this on a regular basis with our constituents who are calling us in all kinds of different arenas. And I’m having to call people and say, Okay, I need some help. Is this actually legit or is this one of my constituents being scammed?
And so how are you all protecting that, even your sites? Is that discussion you’re having so that people don’t actually accidentally get directed to a wrong site when they’re trying to do something? Are you all being proactive and not playing defense?
Darrell Smith Absolutely. I think there’s a couple answers to your questions. First of all, thank you for your comments. Secondly, we don’t want to play defense. We want to try to stay on the forefront of this and we certainly know that’s difficult because things are changing fast as technology changes and those types of things.
And so we work with Class Wallet, who’s, obviously a national organization, has several states involved in EFA programs. And so they’re obviously working on the front end, trying to look to make sure that we have controls in place, that we’re using AI appropriately to help to identify certain things.
We’re also looking at what are other states experiencing, and trying to make sure that we’re advancing those things and learning from what others have already learned from and putting those controls in place on the front end before it becomes an issue for us. So we are always constantly trying to look out from the headlights, right? Look out as far as we can look out and say what are those potential risks, what are those potential areas that could create issues for us or that could start a fraud, or this area where there are people who are trying to take advantage of the system.
And so we are always looking for new ways to discover that, prevent those things, cover up as many– if there are any gaps in the system, to close those gaps so that there are less opportunities for people to take advantage of the system. And so we are always looking for best practices.
We’re looking at our vendor for those, and obviously they’re looking for best practices to ensure that the funds are safe and that we’re making sure that we’re taking every possible opportunity to close those gaps. And also I think when we look at things, we’re also, all the purchases all have to be inside of Class Wallet for the most part.
So that helps us protect some of those things that you’re talking about being sent to a wrong site. So those things have to happen inside this closed world that Class Wallet has. And so that helps us a lot. Reimbursement, certainly we have to look for those. And we’re putting new controls on that. How do we make sure? And how do we spot a potentially fraudulent receipt? Some of those types of things.
So we’re already looking at those things and trying to find new ways to identify receipts that may or may not be appropriate for the program. And so to answer your question, I know I was kind of babbling here a little bit, but we are certainly looking proactively at how can we continue to keep closing the gaps and to protect taxpayer money.
Representative Hope Duke Thank you. And I appreciate that. And I appreciate all that information. Again, it’s easy sometimes– I won’t say it’s easy, but we can forget that every dollar of taxpayer dollars we have to guard. And we can’t let our guard down in doing that. And so I appreciate. And it’s all the people’s money and responsibility, no matter where. They’re public school, private school, home school, whatever they are, we should all be equally vigilant on all areas of that.
So I appreciate what you guys are doing. I really do appreciate the information you shared today and that you weren’t defensive about it either, that you just came in here and answered the questions and shared it and helped us become better as legislators. So thank you.
Senator Jim Petty Okay, Representative Rye, you’re recognized.
Representative Johnny Rye Yes, sir. Thank you, Mr. Chairman. During the year 2021, during the Covid period, there were a tremendous amount of laptops that were bought and the children took those home. How did we handle that? Did they bring those back or–?
Courtney Salas Ford So as I stated, in many instances, yes, they did. That was each public school’s responsibility to to keep up and maintain inventory on any technology that they purchased with federal funds or state funds. And so most of the time, students brought them back and they would continue to use them. But not always.
We had many instances of cases where they did not come back or they were damaged beyond use. And so, again, public schools would just issue a new one. So I don’t know if that answers your question. But yes, most of them did, but not all the time.
Representative Johnny Rye I just remember during that period my nephew there in Marked Tree, that happened. And he did take it back. But I just kind of wondered how y’all were keeping up with that.
Courtney Salas Ford Yeah, we do audit public school districts, or I say monitor public school districts. They are audited by Leg Audit in most instances and inventory is part of that. And so we identify cases where laptops didn’t come back. But at that point, other than asking the parent to repay or recoup those funds, there’s not much you can do because you’re not going to deny that kid access to education or deny them the technology that they need to continue getting their education because they didn’t return or didn’t properly take care of one.
Representative Johnny Rye Yes, ma’am. And the reason I brought that up is I do remember that he did take that back to school. So thank y’all. Thank you.
Senator Jim Petty Okay. Seeing no other questions, do I have a motion to file the report? Second. Any discussion on the motion? If not, all those in favor say aye. Any opposed? Motion passes. The next item is a special report on cybersecurity incidents reported by public entities for the year end of June 30, 2025. Mr. Larry Doss is going to present this. So Mr. Doss, you’re recognized to present that report.
Cybersecurity report
Larry Doss Thank you, Mr. Chair. Arkansas Code requires Legislative Audit to compile and submit to the General Assembly an annual list of all cybersecurity incidents reported to us by public entities. This report fulfills that requirement. Prior to the passage of Act 260 of the 2021 regular session, there was no requirement for public entities in Arkansas to report cybersecurity incidents.
The General Assembly recognized the need to collect information about cybersecurity incidents occurring at public entities and evaluate these incidents so that proactive measures can be taken to prevent disruption of government operations. For the purposes of this report, the term public entity refers generically to organizations at all levels of Arkansas government, and a cybersecurity incident is any event that compromises the security, confidentiality, or integrity of an entity’s information systems, applications, data, or networks. During the 2025 regular session, the General Assembly enacted Act 489, the Arkansas Cybersecurity Act, which centralizes the approach to defending state government systems against cyber threats.
The Act created the State Cybersecurity Office, which is part of the Department of Shared Administrative Services and is responsible for providing centralized oversight and coordination of cybersecurity efforts across all state agencies. The office is led by the state information security officer, whose duties include setting statewide security standards, managing incident response, conducting audits of state agency compliance with cybersecurity governance standards, coordinating threat detection, and ensuring that mandatory cybersecurity training is provided.
Under Act 489, state agencies are required to report on cybersecurity matters to the office while retaining control over their day to day operations. Additionally, the office is required to submit reports to the legislature at least twice a year, detailing assessments, progress on remediation, and any instances of noncompliance. During the 2025 fiscal year, 217 cybersecurity incidents were reported to Legislative Audit by 124 public entities at all levels of state government. A complete list is provided in Appendix C.
Of the 217 incidents reported, 193 had been resolved and 24 remain under investigation. Exhibit one, shown on this slide and on page 2 of the report, provides a summary of incidents by type for fiscal years ’22-’25. As shown by exhibit four on page four and on this slide, the number of incidents reported to Legislative Audit increased by 64% from fiscal year 2024 to fiscal year 2025. During the review period, incident reports related to ransomware revealed the involvement of foreign threat actors.
Several highly active ransomware and data extortion groups have been operating in Arkansas since at least July 2023. These groups appear to be responsible for at least six incidents reported to Legislative Audit. Despite the rise in incidents, there were no reports of ransom payments made by public entities in Arkansas during fiscal year 2025.
The types of incidents that caused the most harm included business email compromise scams, spam or phishing attacks, and fraudulent transactions. Many of these incidents originated from email requests made by malicious actors impersonating legitimate vendors or employees asking for changes to bank routing and account numbers.
Senator Jim Petty Okay. Members, you’ve heard the report. Do we have any questions? Seeing none, do I have a motion to file the report? Second. Any discussion? All those in favor say aye. Any opposed? Motion passes. Okay. The next item on the agenda is a special report for the cost-benefit analysis of selected economic development incentive projects for the 10-year period into December 31, 2024. Mr. Clayton Smith is going to be recognized to present that report.
Economic Incentives report
Clayton Smith Thank you, Mr. Chair. The Consolidated Incentive Act of 2003 combined existing economic development tax incentives primarily into four statutory and five discretionary economic incentive programs. Legislative Audit is required to prepare a cost-benefit analysis of the economic incentive projects annually.
This report had two objectives. First was to evaluate controls over the awarding and issuance of CIA incentives by Arkansas Economic Development Commission and the Department of Finance and Admin. Second was to determine the overall effectiveness of CIA programs, as well as the effectiveness of selected CIA projects.
This chart, which is presented as Exhibit 2 on page three of the report, shows the distribution of CIA funds by region. Incentives awarded to companies totaled over $594 million, and incentives used totaled just under $634 million. The remainder of exhibit two, which is shown on this slide, illustrates the percentages of total incentive funds awarded in each region, as well as the percentage of total population.
This chart, which appears on page five of the report, shows the distribution of CIA funds by incentive. Statutory incentives accounted for 73.5% of all incentives awarded and issued, while discretionary incentives accounted for the remaining 26.5%. Exhibit three and four on page four of the report break down the CIA awarding and issuance of funds by calendar year and industry.
In 2013, Legislative Audit began an annual review of CIA programs on a project-by-project basis. With the accumulation of data from these reviews of individual projects, overall conclusions can be drawn about the cost effectiveness of entire CIA programs. As shown on this slide, and in exhibit six on page seven of the report, two statutory incentives resulted in a net positive benefit to the state.
One discretionary incentive returned a net positive benefit and one returned a negative benefit. For the remaining discretionary incentives, more projects will have to be reviewed and more time will have to elapse before conclusions can be drawn about their effectiveness. It should be noted that Act 327 of 2019 changed the R&D incentive from statutory to discretionary and limited eligible expenditures to wages and benefits in order to improve the overall effectiveness of R&D programs.
In addition to drawing conclusions regarding the overall effectiveness of CIU programs, we reviewed 24 individual projects with eligible investments of approximately 90 million that were awarded incentives totaling almost 66 million in tax credits, refunds, and rebates. As shown on the slide, the projects received six of the available incentives, and funds were distributed among their tier rankings, which are based on economic need. Of the 24 projects reviewed, five had unfavorable cost-benefit ratios calculated by Legislative Audit.
For these five projects, five companies received the in-house R&D incentive. The 19 remaining projects reviewed had a favorable cost-benefit ratio. For the 18 non-R&D projects reviewed, the state invested an average of $11,371 for each of the $4,287 new full-time permanent jobs created, assuming all credits are used.
Exhibit 7 on page 9 provides a summary of the 24 projects reviewed, and Schedule 1 on pages 12 through 14 provides a detail of each item tested. The report contains one finding which is discussed on page 10. As noted in the prior year report, we identified deficiencies in internal controls related to AEDC’s verification of tax credits awarded. We tested six R&D projects totaling 17 million that were awarded from 2017 through 2023, and noted the following issues.
Annual expenditure reports were not provided for all award years for one of the projects tested. Five projects tested contained no documented audit or review summary provided by AEDC explaining how they determined the existence, accuracy, and allowability of R&D expenses claimed by participating companies. Additionally, one project contained memos summarizing review steps taken by AEDC for calendar year 2023 only, which did not encompass the entire five-year life of the project.
Any disallowances noted for 2023 were not uniformly disallowed from the prior years. AEDC also incorrectly calculated state income tax credits for two of the projects tested, resulting in a total combined overpayment of more than 184,000. The lack of appropriate monitoring controls over tax credit awards, which includes a documented review of R&D project expenditures by AEDC could result in the loss of state funds.
We recommend that AEDC continue to evaluate and improve its internal controls over tax credit awards to ensure that expenditures supporting these awards are valid, accurate, and allowable. Company expense submissions should be substantiated by supporting documents, including invoices, org charts, W-2 forms, or job and project descriptions to establish a direct link to research and development.
We further recommend that AEDC continue its review of previously issued tax credits and attempt to recover any credits awarded in error. Mr. Chair, this concludes my presentation. Management response from AEDC is provided in appendix C of the report. Officials from AEDC are present to answer any committee questions.
Senator Jim Petty Thank you, Mr. Smith. Committee, you’ve heard the report. We do have DFA and Economic Development Commission available for questions. Looks like we have one for Representative Unger. Representative Unger, is this for staff or for DFA or AEDC?
Representative Steve Unger Mr. Chair, I don’t actually know. My question is, could somebody remind me what Advantage Arkansas was? Thank you.
Clayton Smith There is, in the report in Appendix A, there is a description of each of the incentive projects, and Advantage Arkansas is included there.
Senator Jim Petty Anyone else? All right. Seeing none, do I have a motion? Second. Any discussion? All those in favor say aye. Any opposed? Motion passes. Okay. The last report on the agenda is a summary of the intercollegiate athletic revenue and expenditures for 2024-2025 from the Arkansas Department of Education Division of Higher Education. And Mr. Nick Fuller is going to present that. So if you would state for the record your name and you will be recognized to present the report. Thank you.
Athletic Revenues and Expenses (in Higher Ed) report
Nick Fuller My name is Nick Fuller. I’m assistant commissioner for the Division of Higher Education. And as mentioned, it’s a presentation of the report on the 2024-2025 fiscal year athletic revenues and expenses for our higher education institutions. This is required to be presented to our Higher Education Coordinating Board each year, as per Act 245 1989. And once that report has been approved, we’re required to submit it to you all for review.
For the 24-25 fiscal year, athletic expenses totaled $282 million for the four-year universities and $6.1 million for the two-year institutions. This total represents an 11% increase over the prior year. Total of $288 million as compared to $260 million in fiscal 24.
The majority of that increase has been due to the higher travel costs for athletic teams as they’re going for those away games. Some of them further across the country, those costs have escalated. As well as, the largest one is for the expansion of coaching staffs and support personnel at some of the larger institutions. Not an increase of salary for current coaches, it’s just more coaches that they’re paying salary for is what that is for.
So with that, also, in comparison to the budget for each of these athletic expenses that are presented to us in the months prior to the year starting, this represents a 9 percent expenditure increase over the planned budget amount. These budgets are made within the broader budget of the institution. So even though they exceed the planned budget for athletics, it’s not exceeding the appropriation authority that you all grant them for the institution to spend. And with that, we’ll open up for any questions you may have.
Senator Jim Petty Thank you, Mr. Fuller. Anybody have any questions? If not, committee, you have heard the report. Barely, Representative Mayberry.
Representative Julie Mayberry I’m sorry. I’m just looking for a clarification because I don’t see University of Arkansas on here unless I’m just completely blind. Why am I missing that?
Nick Fuller It’s listed as UAF for University of Arkansas Fayetteville.
Representative Julie Mayberry Oh, okay. Thank you, because I was trying to figure out, how are we missing that? And this does not factor in the ASU Arkansas game, correct? Because that would have been–
Nick Fuller For current year.
Representative Julie Mayberry The current year.
Nick Fuller You also won’t see the revenue share yet for this past year because that did not start until 26. So the next reporting– or the 25-26, the revenue share, for the student athletes.
Representative Julie Mayberry Okay.
Nick Fuller So that’s not included in any of these expenses from the prior year either.
Representative Julie Mayberry Okay, thank you for that clarification. Sorry, but I got it in just in time.
Senator Jim Petty Barely. That’s okay. Thank you. All right. Seeing no other questions, do I have a motion? Second? All those in favor, let it be known by aye. Any opposed, no. Motion passes. That concludes the review of the ports. Our next meeting of the Legislative Joint Audit committees will be held on January 8 and 9. With that, we are adjourned.
