Two state lawmakers said they want state Treasurer Martha Shoffner to explain Friday why her office sold hundreds of millions of dollars in bonds before they had matured and why her office has done so much business through a Russellville-based broker.
The Legislative Joint Auditing Committee co-chairmen want to know if it was Shoffner who ordered the sales and shifted so much treasurer business to the Pope County investment specialist.
Nearly three months ago,Shoffner - a Democrat who has been treasurer since 2007 - told lawmakers that she couldn’t recall why her office sold the bonds before they had matured.
That response came after auditors told lawmakers that the treasurer’s office incurred “a net economic loss” of more than $890,000 by selling bonds valued at more than $240 million before their maturity date.
According to Deputy Legislative Auditor Jon Moore, the state’s “net economic loss” from selling one bond early on a transaction involving St. Bernard Financial Services was $835,931.
He said the net economic loss is the difference between the $3.49 million the state would have earned if the bond had been held to maturity and the $2.66 million in earnings from its early sale and subsequent use of the funds.
But Robert Keenan, chief executive officer for St. Bernard Financial Services in Russellville, has maintained that the state actually made a profit of $534,610.
Keenan and Moore have disagreed over each other’s methods for calculations.
Keenan said in a letter dated Nov. 7 to Shoffner, and copied to committee members, that the Legislative Audit Division’s audit showed a gain of $1,099.11 on six other bond sales made by Shoffner’s office to his firm, but “the correct number is a gain of $25,478.02.”
“We are surprised that a full-time auditor would make such fundamental errors,” Keenan said of Moore.
Moore said that in October state auditors discovered two errors in their calculations. Auditors now calculate the state’s gain on those six transactions involving St. Bernard at $11,705, Moore said.
Debbie Rogers, Shoffner’s chief deputy, said Shoffner doesn’t disagree with the auditors’ figures. She declined to say whether Shoffner disagrees with Keenan’s numbers.
Committee co-chairman Rep. Tim Summers said he disagrees with Keenan’s comments. “I stand by the auditors’ report,” he said.
At next Friday’s meeting, co-chairman state Sen. Bill Pritchard, R-Elkins, said he doesn’t want to spend a lot of time debating whose calculations on certain bond transactions are correct.
“The issue is who made the decisions [to sell the bonds before maturity] and why,” he said.
“Was it Miss Shoffner or the broker,” asked Pritchard. “Who was driving the bus?”
Summers, R-Bentonville, said he also wants Shoffner to answer those questions.
In September, Shoffner’s chief investment officer, Autumn Sanson, told lawmakers that she had advised Shoffner not to sell the bonds early. Sanson asked lawmakers in September if she would be protected under the state’s whistle-blower law. An attorney for the Legislative Audit Division told Sanson that a judge - not lawmakers - would have to decidewhether to grant Sanson such protection.
Shoffner disputed Sanson’s assertion that she advised against selling the bonds early.
Pritchard and Summers issued subpoenas to compel Shoffner to appear at a Sept. 17 committee meeting, after she declined to attend a Sept. 14 committee meeting on her own volition.
Rogers said in a recent interview that Shoffner has been working on the answers that she intends to provide to legislators about why her office made these transactions.
Shoffner could not be reached for comment by telephone last week.
Moore said auditors will provide information to lawmakers Friday about 18 other bonds, involving several brokers, that Shoffner’s office sold before their maturity dates.
Sanson said that in June 2011 she made a handwritten note to remind herself that she had voiced concern to Shoffner about giving “so much more [business] than we’ve ever done” to a broker with St. Bernard Financial Services, and Shoffner told her that “we could ‘justify’ doing more with them.”
But Shoffner has insisted that she didn’t tell Sanson that she wanted the treasurer’s office to do more business through broker Steele Stephens of St. Bernard, that Sanson “never did” voice a concern about those investment decisions, and that Shoffner “never” told Sanson that she could “justify” doing morebusiness with St. Bernard.
In October of 2011, Shoffner told the Arkansas Democrat-Gazette that she didn’t realize that her office had purchased more than $500 million in bonds through St. Bernard, one of 13 brokers her office had dealt with in its bond investments at that time. That represented about a third of the office’s bond purchases.
At that time, Sanson referred questions to Rogers, who said Shoffner and Sanson approve each of the office’s investments.
Pritchard said he also wants to hear from Shoffner on Friday about what changes she plans to make.
“I agree with the auditors that the system is kind of loosey-goosey, and we have people who are not necessarily qualified in there to make the decisions,” he said.
Meanwhile, Rogers confirmed Friday that Shoffner has hired Hunter W. Johnson as an investment manager, at an annual salary of $80,000, to start work on Dec. 10. She said Johnson will replace an employee who has retired.
Johnson has been investment officer and treasury manager of Red River Bank in Alexandria, La., since October and previously worked for Warren Bank & Trust Co. in several posts from 2006 until September this year, according his resume.
Northwest Arkansas, Pages 15 on 12/09/2012