Forestry Commission financial tangle continues | Arkansas Blog

Forestry Commission financial tangle continues

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With Republicans spoiling to lay a mismanagement charge on the Beebe administration, the Beebe administration rolled out its own background today, in advance of continuing legislative hearings tomorrow on the shortfall in Forestry Commission money that recently required layoffs of 36 workers. The agency manages state timberland, sells seedlings and provides forest fire protection.

Cheree Franco will be back with more, but, in the meanwhile, Roby Brock reports that the governor will ask for a $2.7 supplemental appropriation to pay off borrowed federal money and fix accounts depleted by declining severance tax revenue. The governor's office continues to blame the problem on internal bookkeeping error and says it wasn't aware of the problem until this fall. Republicans are circulating 2010 e-mails to dispute the governor, but none of those e-mails seem to have been sent to the governor's office. Gov. Beebe bears ultimate responsibility for several years of failed agency accounting, sure, but Republicans remain silent on what they'd do about it. Besides point fingers, of course.

UPDATE from Cheree, who attended the meeting:

The governor's spokesperson, Matt DeCample, and Department of Finance and Administration (DFA) director, Richard Weiss, claimed that DFA first became aware of financial discrepancy at the Forestry Commission in October, when the Commission indicated that it would need supplemental funds to finish out the 2011 fiscal year. DFA sent its own accountants to examine the books in November. Turns out, for the last four years, the Forestry Commission has been operating in the red and borrowing funds from federal grants to do so. That the Commission was operating on grant money in and of itself was no cause for alarm, according to Weiss — certain grants include operational funds. But when the accountants studied the terms of these particular grants, it became obvious to the DFA that directing these funds towards operational costs is illegal. Worse, the money had been counted twice in Commission financial reports — as both operational funds and as grant money — falsely inflating revenue figures by over three million dollars.

"DFA does not micromanage agencies. That's why you have an agency structure. They know their needs, they know their grants," said Weiss. "Up until this point, we had no idea how they were managing federal grants. That's internal."

DeCample called the discrepancy "an unfortunate but rare occurrence," that, had it been caught sooner, might have been processed more incrementally. The DFA knew the Forestry Commission's trust fund was low at the 2010 Commission meeting, but no one realized how bad the situation was. "The agency began to take measures to operate within its means, such as cutting all discretionary spending and not filling vacancies. None of this was kept secret or covered up," he said.

The Forestry Commission's operations, including extinguishing forest fires, are primarily funded through a severance tax on timber. Since this Forestry fiasco has come to light, Governor Beebe has been criticized for canceling a meeting in June 2010, where Shannon had proposed to talk about raising the severance tax. In a hearing on Dec. 20, Robert Araiza, the Forestry Commission’s former chief financial officer who signed off on the misleading financial documents, implied that the meeting was cancelled because Beebe didn't want to highlight budget troubles before the 2010 gubernatorial race. But DeCample said, "The governor cancelled the meeting because he did not want to raise taxes on an industry hit hard by the recession."

Weiss and DeCample said they don't know if the financial misreporting was intentional.

"There's no true motive," said Weiss. "No one made any money off of this." But he said he felt misled by Araiza, who has resigned as Forestry Commission CFO and taken a different state position. Unless future audits turn up incriminating evidence, the state has no plans to attempt to prosecute anyone involved in the misstatements.

According to DeCample, the immediacy of such a huge budget gap required drastic measures. "We would still be where we are today because the lumber industry is in a downturn, but we might have figured out something other than layoffs," DeCample said.

Weiss said John Shannon, director of the Forestry Commission, bore some responsibility. "Still, we trust him. Shannon says he was operating off of information given by his CFO. We asked him to act quickly and he did. These financial reports are fairly routine. Agency officers don't often go back and check what people do."

Currently the Commission is operating from a cash advance fund. On Jan. 17, when they present the state's proposed budget for 2012 to the legislature, Beebe plans to ask for between $2 and $3 million in supplementary funds for the Forestry Commission.

"If we don't get the supplemental, there will be more layoffs," said Weiss. "We'll have to take draconian measures to bring the budget in check and pay back the borrowed funds." The Commission currently owes the federal government $1.2 million.

Next month, Weiss expects the federal government to examine the Forestry Commission's books.

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