10-30049A-08

Purpose of the Report

In accordance with Title 24 of the Alaska Statutes and a special request by the Legislative Budget and Audit Committee, we have conducted an audit to address various issues and concerns related to the closure and eventual dissolution of the Creamery Corporation which does business as Matanuska Maid (MatMaid). The Creamery Corporation was a private sector, dairy product wholesaler. The State of Alaska through the Department of Natural Resources, Division of Agriculture (DoAg), Agricultural Revolving Loan Fund (ARLF) is the sole stockholder in the Creamery Corporation.

Report Conclusions

As part of a multi-stage audit, we were directed to identify the sources of funding for the Division of Agriculture (DoAg) and Matanuska Maid (MatMaid). We were also directed to report on funding sources used to finance activities of the Board of Agriculture and Conservation (BAC) and the Creamery Board (Board). This funding information is set out in the organization and function and the background information sections of this report.

The Report Conclusions section sets out our findings related to the other audit objectives, as follows:

1. The Creamery Corporation has appropriately paid federal and state income tax.
2. All disbursements linked to state funding were consistent with appropriation language. Although the $600,000 General Fund appropriation was approved in June 2007, MatMaid did not receive the funds until November 2007. The funds were deposited in the corporation’s main checking account, commingled with the other corporate cash and operating proceeds. Since the state funds were commingled with MatMaid’s corporate cash, we analyzed all MatMaid expenditures between November 15, 2007 (the day after the state funds were received) and February 29, 2008.We confirmed the expenditures identified as being funded by the state appropriation was consistent with the language accompanying the appropriation and reiterated by the Department of Natural Resources (DNR) financial managers.
3. Payment to dairy farmers inconsistent with the Creamery Board’s corporate responsibilities. Disbursements of just over $39,000 were made to four in-state dairy producers who had sold raw milk to MatMaid while it was an operating dairy. MatMaids’s governing board – the Creamery Board, decided to make a final payment to these suppliers after the end of operations, although they were under no contractual obligation. Such action is not consistent with the financial interest of the corporate shareholder – the State’s Agricultural Revolving Loan Fund. The funds were not attributed to the General Fund appropriation, but were made from other MatMaid funds.
4. MatMaid financial records indicate sufficient assets to cover known liabilities and creditors. The cash position of the corporation at the end of February 2008, and the underlying value of MatMaid equipment and rolling stock, indicates sufficient assets to pay known existing liabilities and creditors. Property located in Anchorage (on Northern Lights Boulevard) and in downtown Palmer on which MatMaid operated is owned by ARLF. The proceeds from any sale of these properties would not be used to fund future or unknown, MatMaid creditor claims.
5. State executive who oversaw MatMaid’s closure was compensated by the State, not the corporation. Since late August 2007, day-to-day management of MatMaid and wind-up has been carried out by a state official – a special assistant to the commissioner of Department of Commerce, Community, and Economic Development (DCCED). From our review of MatMaid expenditures, we saw no evidence this individual was compensated through the corporation. Rather, any compensation he received came through his capacity as a state employee.We estimate the total state personnel costs for this individual was more than $45,000 between September 2007 and February 2008 In our view a conservative estimate would be that MatMaid was subsidized by at least $25,000 for the efforts of the state executive.
6. MatMaid equipment and rolling stock is accounted for and still sufficiently controlled.
7. Restrictions over loans for board members with ARLF have been observed.