By Mike Cason
Gov. Kay Ivey started her second term in office with an executive order to shed more light on how public agencies spend taxpayer dollars. It’s an initiative that has made a difference but that has also faced some resistance from those agencies still holding onto millions of dollars in public funds in private accounts.
In January 2023, Ivey issued Executive Order 726, which included, among other requirements, that all state agencies move their operating funds into the state treasury.
Some agencies, boards, and commissions have kept their money in private bank accounts instead of in the state treasury, and those dollars receive less public oversight.
Expenditures from accounts within the state treasury are pre-approved by the state comptroller and are available to the public via searches on the state’s Open Alabama website.
That’s not the case for money that agencies hold in accounts outside the treasury.
Ivey’s order required agencies to close their private accounts, called “checkbook” accounts. The order prohibited new checkbook accounts and required agencies to put their money into the state treasury by October 2023.
More than a year after the original deadline, some agencies continue to operate outside the state treasury and cite state law for giving them that authority despite the governor’s order. Among those that have not moved their funds are the three state boards that regulate physicians, dentists, and pharmacists.
The Board of Medical Examiners, which regulates physicians, cited a state law that requires it to put its money in a bank selected by the board.
“The Legislature uses mandatory language in at least eight separate statutes to state that the Alabama Board of Medical Examiners is authorized to retain its own funds,” Carla Kruger, public information officer for the board, said in a statement.
Kruger cited Alabama Code 34-24-54, which says, “All funds received by the State Board of Medical Examiners shall be deposited to the credit of the board in a federally insured financial institution selected by the board.”
Kruger said the board’s leaders are talking to the governor’s office to see whether the funds can be moved into the state treasury.
“We respect the intent of the Governor’s EO; however, we must comply with state law, which supersedes any executive order,“ Kruger said.
The Board of Medical Examiners, Board of Dental Examiners, and Board of Pharmacy were granted temporary exemptions to the executive order, but that exemption was supposed to end on Oct. 1, according to the governor’s office.
“Our board is still in discussions with the Governor’s Office regarding this executive order,“ Blake Strickland, executive director of the Board of Dental Examiners, said in an email.
The state law setting up the Board of Dental Examiners, like the one for Medical Examiners, says the board controls the funds.
Likewise, the state law creating the Board of Pharmacy says, “The treasurer of the board shall have custody of all funds derived from the various provisions of this chapter.”
Donna Yeatman, executive secretary of the Board of Pharmacy, could not be reached for comment about whether the board intended to move its funds.
Although some agencies have not moved their money, the governor’s office said the executive order has resulted in substantial transfers from private bank accounts into the state treasury. The State Employees Insurance Board immediately complied and transferred almost $1.5 million. Starting in June 2023, the Department of Public Health began transferring money from about 200 private checkbook accounts throughout the state, which will bring more than $100 million into the State Treasury on an ongoing, annual basis, the governor’s office said.
The dental, medical, and pharmacy boards are funded by licensing fees, penalties, and other money collected from the professionals that they license and regulate, rather than by money from the state General Fund as determined by the Legislature.
According to audits by the Examiners of Public Accounts, the Board of Medical Examiners had a balance of about $9 million in its operating fund at the end of the last fiscal year in September 2023. The dental and pharmacy boards each had balances of about $4 million.
Rachel Riddle, chief examiner of public accounts, said there are good reasons to keep public funds in the state treasury.
“The benefit of agencies being in the State Treasury is that the Comptroller has certain internal controls in place to pre-audit expenditures that are being submitted for payment,” Riddle said in an email. “This tends to alleviate a lot of issues on the front end before it is time for those entities to be audited. From an auditor’s perspective, having a good system of internal controls in place is crucial. Stopping issues before they happen is more preferable. Generally, checkbook agencies do not have such stringent internal controls in place.”
Riddle said agencies that operate from private accounts are not required to send their contracts for professional services through the Legislature’s Contract Review Committee, with the exception of legal contracts. The Contract Review Committee holds monthly meetings at which it questions state agencies about the need, cost, and selection of contractors.
“This is also another level of oversight absent for checkbook agencies,” Riddle said.
“When our Department comes in to audit these types of entities, we are generally the first time there has been oversight,” Riddle said. “Knowing that is the case, we do tend to have to do a deeper dive into things at checkbook agencies. I will say that some checkbook agencies do a good job of handling their funds and having some sort of controls in place. They just don’t have the same outside internal controls in place as one would that does go through the State Treasury.”
Examiners of Public Accounts audits public agencies and reviews the operations and finances of boards and commissions, generally every four years, for what are called Sunset reports. The Legislature’s Sunset Committee holds hearings on those reports and can recommend legislation changing how a board or commission operates.
In August, lawmakers on the Sunset Committee were critical of the operations of the Board of Pharmacy after a Sunset report said the board collected penalty fees in excess of what was allowed by law and did not clearly disclose how much it was collecting in fees.
Rep. Kerry “Bubba” Underwood, R-Tuscumbia, a CPA who is a member of the Sunset Committee, said he wants to see all public boards move their funds into the state treasury as was intended by Ivey’s order.
“I think that’s extremely important,“ Underwood said. ”I think that’s your checks and balances and I think her executive order was well-placed, well considered and thought out. And I support that entirely.
“It’s another checks-and-balances. You’re not just writing checks without any oversight except for once every four years. When it comes through the state house treasury, there’s an extra set of eyes that are making approvals and sending it to and from the state treasury. And I think that’s important for everyone.“
The Board of Medical Examiners got mostly positive reviews at its Sunset Committee hearing in September. But the Sunset report did find that the board paid a total of $288,000 to five former employees under separation agreements, confidential deals the agency had no legal authority to make, the examiners said.
The lawmakers who chair the General Fund committees in the House and Senate say Ivey’s executive order is important and that all state funds should be in the state treasury.
“My position is this: every organization and/or entity, established and holding government authority handles public funds, not private funds,” Sen. Greg Albritton, R-Atmore, chair of the Senate General Fund committee, said in a text message. “Therefore all public money should and must be controlled as ALL public funds. Put the money in the public treasury!”
Rep. Rex Reynolds, R-Huntsville, who chairs the House General Fund committee, said, “I believe the Executive order moving and centralizing the accounts is good for transparency and we can see how they are doing and that proper procedures for spending are followed. Also, the (General Fund) typically receives the interest in those accounts unless otherwise allocated by law.”
Albritton said he would support legislation to repeal any authority state boards have to keep their funds in private accounts. Reynolds said he would be glad to look at such legislation.
