Alaska Mental Health Trust Authority responds to audit

The Alaska Division of Legislative Audit (DLA) released its audit into the Alaska Mental Health Trust Authority (AMHTA) over concerns that the Authority was not managing its assets and was not complying with various laws.

The audit concluded that the AMHTA invested $44.4 million in cash principal outside of the Alaska Permanent Fund Corporation, which under current law must manage and invest all cash principal for the AMHTA.

Out of the $44.4 million, $39.5 million was invested in commercial real estate properties, five of which were located out of state. The Trust Land Office facilitated the transactions and managed the properties. However, the audit says the Trust Land Office currently does not have legal authority to manage commercial real estate investments.

The remaining $4.9 million was used for land development activities.

The DLA did note:

“The board of trustees’ actions appeared to be well intentioned, driven by a desire to maximize revenue for use by beneficiaries. However, the actions did not comply with law and were contrary to the roles and responsibilities outlined in the settlement.”

The audit found that the AMHTA’s asset management policies fell short in several areas, including:

  • Lack of an entity-wide perspective that addresses all Trust assets
  • Lack of guidance for the TLO’s commercial real estate investment program
  • Failure to provide a rationale for using the TLO as a real estate investment manager at the time the investment decisions were made

The DLA also found that the AMHTA’s board of trustees did not comply with the Alaska Executive Branch Ethics Act, Open Meetings Act, and the Authority’s bylaws. The audit cites violations including:

  • Hosting periodic retreats for discussing board business without retaining meeting minutes
  • Discussing board business via email without including all members
  • Participating in working lunches without retaining meeting minutes
  • Considering 24-hour public notice sufficient
  • Making improper motions to enter executive sessions

The DLA has four recommendations for the AMHTA.

  1. The Authority board of trustees should stop investing in commercial real estate through the TLO, consult with the APFC on the treatment of commercial real estate investments acquired to date via TLO, and transfer the Trust Authority Development Account’s cash principal balance to the APFC.
  2. The Authority’s board of trustees should fund future program-related investment (PRI) activities from the Trust income account and reconstitute the APFC with cash principal used on PRIs to date.
  3. The Authority’s board of trustees should work with the Authority and TLO management to revise the Asset Management Policy Statement and Resource Management Strategy to incorporate industry best practices and facilitate compliance with State investment laws.
  4. The Authority’s board of trustees and chief executive officer should design and implement written procedures to ensure trustees comply with the Alaska Executive Branch Ethics Act, the Open Meetings Act, and Authority’s bylaws.

The AMHTA posted the following response to the audit on its website.

“In December 2016, the Legislative Audit and Budget Committee authorized an audit of the Mental Health Trust Authority. The audit has now been finalized and was accepted by the committee on June 5, 2018.  The audit essentially confirms the concerns that initiated the audit and were reported 18 months ago.

We appreciate the audit’s recommendations regarding necessary improvements for the Trust’s decision-making and meeting practices. Most of the report’s concerns in that area have already been addressed. Additional training for trustees and staff has already begun to ensure future compliance.

We respectfully disagree with the audit’s assertion that the Trust should not have invested in commercial real estate. It was a positive policy decision for our beneficiaries that has generated approximately $3 million more than would have been available for grants.

We also agree with one of the most important findings, that trustees and staff were always well-intentioned and trying to create more resources to support Trust beneficiaries. The Trust is committed to working with our beneficiaries, advisory boards, providers, legislators, administration and other stakeholders to ensure that future Trust activity meets high standards for quality of public service and maximum effort to improve the lives of Trust beneficiaries.”

The AMHTA also sent a response to the DLA’s recommendations, maintaining its view that the investments the AMHTA made were “appropriate and allowable” and pushed back on some of the DLA’s recommendations.

From Board Chair Mary Jane Michael’s letter to Legislative Auditor Kris Curtis:

“It is clear from the report that well intentioned people can have a difference of opinion, which means clarification is needed to ensure the Trust’s best performance for the beneficiaries. We appreciate the audit’s recognition of the Trustee’s motivations. We maintain our position that the Trust’s investment choices are appropriate and allowable and have increased the Trust’s spendable income. We will undertake a careful examination of the impacts of recommendations one and two on service delivery to our beneficiaries. Ultimately, if these recommendations are found to be in the best interest of the beneficiaries we will implement them. We concur with report recommendations three and four and have already taken actions to plan and execute changes necessary to implement those recommendations.”

AMTHA agreed to make no further real estate investments and will work with stakeholders to develop “forward-looking guidance for Trust investment subject to legislative and judicial review.”

The AMHTA manages one million acres of land and more than $500 million in cash assets on behalf of the beneficiaries, who are Alaskans with mental illness, developmental disabilities, chronic alcoholism, Alzheimer’s disease and related disorders, or traumatic brain injury.