Annual report / Arizona Office of the Auditor General

              Table of Contents
1998-99 Annual Report 1
EXECUTIVE SUMMARY .......................................................................................... 2
VISION ................................................................................................................... 5
THE AUDITORGENERAL ...................................................................................... 6
MISSION ................................................................................................................ 8
OFFICE OVERVIEW................................................................................................ 9
PURPOSE AND RESPONSIBILITIES .................................................................................... 9
ORGANIZATION .............................................................................................................. 9
EXTERNAL QUALITY CONTROL AND SUNSET REVIEW .................................................. 12
ORGANIZATIONAL STRUCTURE ...................................................................................... 14
AUDITORGENERAL REPORTS AND SERVICES.................................................... 15
TYPES OF AUDIT SERVICES.............................................................................................. 15
PROFESSIONAL STANDARDS ........................................................................................... 16
VALUE OF AUDIT REPORTS AND OTHER SERVICES........................................................ 16
FINANCIALAUDITACTIVITIES ............................................................................ 19
PERFORMANCE AUDITACTIVITIES ..................................................................... 27
ACCOUNTING SERVICES ACTIVITIES .................................................................. 37
SUPPORT GROUPS’ ACTIVITIES ........................................................................... 42
FINANCIAL SUMMARY .......................................................................................... 45
APPENDIX A........................................................................................................... 46
APPENDIX B........................................................................................................... 48
APPENDIX C........................................................................................................... 53
APPENDIX D .......................................................................................................... 54
Executive Summary
2 Arizona Office of the Auditor General
The Office of the Auditor General was established by statute, and is responsible for
conducting annual financial and compliance audits; special financial audits, reviews,
and investigations; and performance and Sunset audits; as well as developing uniform
accounting systems for counties, community college districts, school districts, and
charter schools, and a Uniform Expenditure Reporting System for political subdivisions
subject to a constitutional expenditure limitation. We provide this information to the
various governmental entities and the Legislature to assist them in overseeing
government operations, to provide the public with a measure of accountability, and to
assist state agencies and other governmental entities in improving their financial
management and effectiveness.
In 1992, at the Auditor General’s recommendation, the Legislature established the Joint
Legislative Audit Committee (JLAC) to oversee all audit functions of the Legislature
and state agencies including Sunset, performance, and special and financial audits, and
to introduce legislation as a result of audit recommendations. JLAC is composed of five
members of each house who are appointed by the President of the Senate and Speaker
of the House of Representatives, with the President and Speaker serving as ex-officio
members.
ORGANIZATION
The Office is composed of three operating divisions: Financial Audit, Performance
Audit, and Accounting Services; and three groups that provide support services to
those divisions; Professional Practice, Information Technology Services, and
Administration.
AUDIT ACTIVITIES
During fiscal year 1998-99 we completed 46 financial audits, 22 performance audits, and
many other reviews and special audits. Our audit reports contained a number of
recommendations to improve governmental management and operations.
1998-99 HIGHLIGHTS
• We recently received a “Recognition of Impact” award from the National
Conference of State Legislatures, National Legislative Program Evaluation Society.
This national award was based on our 1997 performance audit report of the Arizona
State Land Department. Acting on one of the recommendations, the Arizona
Legislature referred a ballot initiative to Arizona’s voters requesting voter approval
to amend the State Constitution. This amendment proposed allowing a portion of
the earnings from the sale of state lands to be invested in stock. Voters passed this
Executive Summary
1998-99 Annual Report 3
ballot initiative in 1998. By investing a portion of the state land funds in stocks, the
State can now potentially furnish higher levels of income to beneficiaries, and
protect the Fund from inflation.
• We continued a cooperative investigation with the Attorney General’s Office which
revealed that, from July 1994 through June 1998, certain Scottsdale Unified School
District No. 48 administrators and employees were responsible for circumventing
and otherwise violating procurement rules that affected projects totaling $11.8
million. Two former District employees were indicted on various charges including
theft, fraud, and conspiracy to restrain trade. Furthermore, our Office has
supervised the first of three mandated procurement audits that resulted in
additional procurement findings.
• We are in the middle of the second year of audits under the revised Single Audit Act
Amendments of 1996. Beginning with fiscal year 1998-99, auditors and auditees
faced a new deadline for submitting single audit reports. Single audit reports are
now due 9 months after fiscal year-end, instead of 13 months after fiscal year-end.
We have been performing federal compliance test work at interim periods before the
close of fiscal year 1998-99 to ensure that the single audits and resulting reports will
be completed and filed by the new deadline.
• In June 1999, the Governmental Accounting Standards Board approved the most
significant and comprehensive change in history to the financial reporting standards
for state and local governments. The new standards will require a dramatic change
in the way state and local governments report financial information to the public
and will take effect between fiscal years 2002 and 2004, depending on the
government’s size. We have planned an extensive training program to prepare our
auditors and auditees who must implement these sweeping changes.
• We developed and issued the first school district and charter school budget forms on
a school-by-school basis in cooperation with the Arizona Department of Education
and school officials. The school-by-school format was mandated in legislation
passed in 1998.
• We made the Uniform Accounting Manual for Arizona County Treasurers (UAMACT)
available in a downloadable electronic format in a continuing effort to improve the
usefulness of the uniform accounting and compliance manuals. To provide easier
access to all of our computer-formatted manuals, we have posted them on our Web
site.
Executive Summary
4 Arizona Office of the Auditor General
• We made various presentations on subjects related to our accounting and
compliance manuals and emerging school district issues. We also presented
workshops on school district procurement to Scottsdale Unified School District in
accordance with a consent judgment between the District and the State of Arizona,
and gave a presentation on school district procurement practices to an Ad Hoc
Committee of the Arizona House of Representatives.
HUMAN RESOURCES
During fiscal year 1998-99, the Office continued its commitment to professionalism and
leadership in the field of governmental auditing. The achievements of our 165
professional staff members demonstrate this commitment. There are 54 Certified Public
Accountants; 4 Certified Fraud Examiners; 18 Certified Government Financial
Managers; 9 employees who passed the uniform CPA Examination, but are not yet
certified; 4 employees who hold doctorate degrees; and 39 employees who hold other
graduate-level degrees. In addition, most of them are active in professional
organizations. Employees refine their skills in the Office’s broad continuing
professional education program, with classes in such topics as audit planning,
sampling, interviewing, computer software applications, communications, writing, and
management.
1998-99 Annual Report 5
Vision
We endeavor to be a major contributor to
improving the quality and accountability of
government in Arizona.
As professionals, we will meet the needs of our
customers through relevant, timely, and
objective reporting of activities, innovations,
and recommendations.
     
The Auditor General
6 Arizona Office of the Auditor General
Debra K. Davenport began her career with
the Office of the Auditor General before
moving to a public accounting firm, where
she worked seven years before rejoining the
Office. Debbie worked for the Office for five
years before being appointed Deputy
Auditor General in 1992. After Doug Norton
retired as Auditor General on June 29, 1999
(see next page), she became the Acting
Auditor General, and was appointed Auditor
General on October 12, 1999.
The Office of the Auditor General is a
legislative agency under the direction of the
Joint Legislative Audit Committee (JLAC).
Debbie has developed a close working
relationship with JLAC members and increased the Office’s visibility by bringing
information about our duties and activities directly to legislators’ attention.
Debbie is a graduate of Arizona State University and sits on the Professional Advisory
Board of the University’s School of Accountancy. She is a Certified Public Accountant
with memberships in the American Institute of CPAs and the Arizona Society of CPAs.
Debbie is active in the government auditing community, serving on the Auditing
Standards, AICPA Relations, and Single Audit Committees of the National State
Auditors Association. She is past chairperson for the Executive Committee and co-chairperson
of the Training Committee of the Western Intergovernmental Audit Forum.
In her leisure time, Debbie is an avid golfer and tennis player.
Debra K. Davenport, CPA
The Auditor General (1976–1999)
1998-99 Annual Report 7
Douglas R. Norton, CPA
Douglas R. Norton served as the Auditor
General from 1976 to his retirement on June
29, 1999. During that time, Doug brought
the Auditor General’s Office from relative
obscurity in state government to one of the
leading audit organizations in the country.
Upon Doug’s retirement, the Arizona
Senate passed a resolution enumerating and
recognizing Doug’s achievements. We have
included this resolution in Appendix A.
Mission
8 Arizona Office of the Auditor General
The mission of the Office of the Auditor
General is to serve the public and its
legislative representatives by
independently providing impartial
information and specific recommendations
to improve the operations of state and local
governmental entities.
     
Office Overview
1998-99 Annual Report 9
PURPOSE AND RESPONSIBILITIES
The Office of the Auditor General is charged with a
number of responsibilities. First, we examine the
State’s operations by conducting financial and
compliance audits or performing procedural reviews
of state agencies, conduct Sunset and performance
audits of those same agencies, and evaluate state
programs. Next, we establish and enforce a uniform
system of accounting for counties, community college
districts, school districts, and charter schools. In
addition, we conduct audits of Arizona counties and
community college districts and oversee school
district and charter school audits or perform their
procedural reviews. We also prescribe and update the
uniform expenditure reporting system and assure
adherence to it. Finally, we perform special audits
and investigations.
We provide reports to the Legislature that help it
oversee operations budgeted at more than $9.79
billion. Our financial audit reports of the counties
and other political subdivisions similarly help their
governing bodies to oversee operations.
We encourage you to request further information on
any of these topics by contacting us at the phone
number, address, or Web site on the inside back cover.
ORGANIZATION
The Office is under the direction of the Auditor
General, who is the executive officer and has ultimate
responsibility for the Office’s policies and practices.
In recognition of potential conflicts that existed when
the Attorney General represented both the auditors
and the agencies they audit, Jeff Larson was
appointed as General Counsel several years ago.
The Office is organized into three operating divisions
and three support groups:
The Auditor General
provides financial audits
and accounting services
to the State and political
subdivisions, and
performance audits of
state agencies.
Office Overview
10 Arizona Office of the Auditor General
• The Financial Audit Division conducts annual
financial and compliance audits of all state
agencies, counties, community college districts,
and universities to meet the requirements of the
federal Single Audit Act. On a rotating basis, the
division also performs procedural reviews of
school districts that did not require single audits.
In addition, the division conducts special financial
audits, reviews, and investigations at the
Legislature’s request. Dennis Mattheisen is the
Director.
• The Performance Audit Division conducts
comprehensive performance evaluations of state
agencies and the programs they administer. These
evaluations are conducted at the Legislature’s
request, and under the provision of the various
laws, including Arizona’s Sunset Law, which
mandates the periodic review of state agencies.
Bill Thomson is the Director.
• The Accounting Services Division is responsible
for prescribing, in accordance with Arizona
Revised Statutes, uniform systems of accounting
and financial reporting for counties, community
college districts, school districts, charter schools,
cities, and towns, and determining entities’
compliance with them. In addition, the division
reviews the annual expenditure limitation reports
of counties, community college districts, cities,
and towns to ensure that each entity’s spending is
within its constitutional expenditure limitation.
Magdalene D. Haggerty is the Director.
• Information Technology Services (ITS) provides
computer technology support. Specifically, the
group performs audit software and general
computer support activities, and provides
computer-related training to our staff. The group
also maintains the Office’s information systems
The Office is organized
into three divisions and
three support groups.
Office Overview
1998-99 Annual Report 11
including the Office’s Web site and administrative
and accounting applications; and performs system
development and network administration. Joe
Moore is the Director.
• The Professional Practice Group performs quality
assurance reviews of all reports and manuals the
Office issues. The group also provides technical
research and assistance to the divisions and the
entities we audit. In addition, the group
administers the Office’s professional training
program. Randy Roberts is the Director.
• Administration is responsible for the Office’s fiscal
management, and officewide printing, purchasing,
and operational support.
Providing staff members with a means of
communicating questions and concerns to
management, and responding in a timely manner
to the issues they raise, is important to our
organization’s long-term success. It is equally
important that all employees be aware of the
Office’s goals and accomplishments. To facilitate
open communications between staff and
management within the Office, we hold an annual
officewide meeting and have organized an
officewide advisory committee. At the annual
officewide meeting, we discuss our mission, goals,
and significant accomplishments since the last
meeting. We also present awards that recognize
employees’ years of service and outstanding
performance.
The officewide advisory committee comprises
representatives from each division. Committee
members compile questions and concerns from
employees within their respective divisions, and
discuss them in quarterly meetings with the
Auditor General.
Office Overview
12 Arizona Office of the Auditor General
The committee also considers issues that impact the
Office as a whole and, when appropriate,
recommends policy changes to management.
See page 14 for a chart that represents the Office’s
organizational structure.
EXTERNAL QUALITY CONTROL AND SUNSET REVIEW
We are occasionally asked, "Is the auditor ever
audited?” The answer is yes. Every three years, the
Office undergoes an independent assessment of our
quality control system. We consider this assessment
process, commonly referred to as peer review, to be
valuable. Conducted as part of the National State
Auditors Association (NSAA) External Quality
Control Review Program, it scrutinizes the Office's
system of quality control policies and procedures
used to ensure compliance with the professional
standards established by the American Institute of
Certified Public Accountants and Government Auditing
Standards issued by the Comptroller General of the
United States. We received our fifth consecutive
unqualified opinion on our system of quality control
in September 1998.
Participation in the NSAA External Quality Control
Review Program is not unilateral. Audit managers
and seniors from our Office join their peers to
perform reviews of other state auditor offices.
In addition to the peer review, about every ten years
the Office also undergoes a Sunset review. The
purpose of the review is the same for each state
agency—to determine whether it serves its intended
purpose and whether it should be continued. The
National Conference of State Legislatures conducted a
Sunset review of our Office and submitted it to the
Legislature in April 1999.
We support the indepen-dent
assessment of the
Office’s system of quality
control.
Office Overview
1998-99 Annual Report 13
The reviewers found that the Office performs a
significant function in state government and
stakeholders acknowledge our high-quality work.
Further, unbiased research supports the findings and
conclusions of our reports. The review also
recognizes that we provide excellent training to our
staff as well as adequate access to information
technology. The review also made recommendations
to improve the Office’s operations, all of which we
have implemented. Additionally, the review
identified turnover as a major challenge and
recommended that the Office work with the
Legislature to address salaries.
Organizational Structure
14 Arizona Office of the Auditor General
Debra K. Davenport, CPA
Auditor General
IT Services
Joseph D. Moore
Director
Administration
General Counsel
Jeffrey P. Larson
Performance Audit Division
E. William Thomson
Director
Financial Audit Division
Dennis L. Mattheisen, CPA
Director
Accounting Services Division
Magdalene D. Haggerty, CPA
Director
Professional Practice
Randy C. Roberts, CPA
Director
Auditor General Reports and Services
1998-99 Annual Report 15
TYPES OF AUDIT SERVICES
Financial Statement Audits are planned and conducted
to provide reasonable assurance of whether the
entity’s financial statements are fairly presented in
conformity with generally accepted accounting
principles and to determine compliance with laws
and regulations.
Single Audits are financial audits performed in
accordance with the Single Audit Act, as amended,
and its implementing regulations. They are designed
to meet the needs of all federal grantor agencies and
other financial report users. Single audits require
additional testing of internal controls and compliance
with laws and regulations relevant to federal program
awards.
Performance Audits and Program Evaluations are
designed to determine whether an agency is
achieving the objectives the Legislature has
established. These studies also identify whether an
agency is managing its resources in an economical
and efficient manner. If not, the study identifies the
causes of the inefficiencies, such as inadequate
administration, management information systems,
and purchasing policies and procedures. Sunset
audits are performance audits that also answer the
specific questions in A.R.S. §41-2954(D) relating to the
continuation of agencies.
Special Audits are financial or performance audits of
limited scope.
Procedural Reviews evaluate the entity’s internal
control policies and procedures established to help
safeguard its assets. These reviews may also assess
the risk that fraud, waste, or abuse may occur within
an entity.
The Office provides
several types of reports,
including financial and
performance informa-tion.
Auditor General Reports and Services
16 Arizona Office of the Auditor General
Compliance Status Reviews follow up on letters of
noncompliance issued to school districts and charter
schools for significant deficiencies in their internal
control. The review determines whether the district
or charter school has attained compliance.
PROFESSIONAL STANDARDS
We performed our audits in accordance with the
following auditing standards and OMB requirements:
• Generally Accepted Auditing Standards promulgated
by the American Institute of Certified Public
Accountants (AICPA)
• Government Auditing Standards issued by the
Comptroller General of the United States
• The Office of Management and Budget (OMB)
Circular A-133, Audits of States, Local Governments,
and Non-Profit Organizations.
VALUE OF AUDIT REPORTS AND OTHER SERVICES
To the Legislature—Auditor General financial and
single audit reports provide members of the
Legislature with objective, independently developed
information about the audited entity’s receipt and use
of public monies. Our performance audit and
program evaluation reports provide them with
timely, accurate information about the operation and
management of state agencies and programs. The
Auditor General also responds to the Legislature’s
special requests that go beyond the scope of
scheduled audits to assist members in their oversight
of state government. Members of the Legislature can
rely on the information we provide to help them
make informed decisions.
Adherence to standards is
the basis for the quality
of our work.
Information from reports
assists the Legislature
and the auditees.
Auditor General Reports and Services
1998-99 Annual Report 17
To emphasize the importance of performance audits
and ensure that state agencies improve their
performance, the JLAC approved policies and
procedures to ensure that agencies implement the
audit recommendations issued by our Office. These
policies and procedures require agencies to provide
JLAC a written response detailing the agency’s efforts
in, and status of, implementing the audit
recommendations within six months of each audit
report’s issue date. Between July 1, 1998 and June 30,
1999, 27 agencies provided six-month status reports
updating JLAC on the status of implementing the 302
associated audit recommendations. Based on the
agencies’ responses and follow-up conducted by
audit staff, it appears that 280 of the 302
recommendations, or 93 percent, have been
implemented or are in the process of being
implemented by the agencies. Twenty-two, or 7
percent, have not been implemented.
To the Auditee—Auditor General financial and single
audit reports provide auditee management with
specific recommendations to help ensure future
compliance with applicable state and federal laws and
help strengthen their internal controls over assets and
financial transactions. Our performance audit reports
give state agencies an independent analysis as to
whether they are executing their management
responsibilities in compliance with applicable laws,
rules, regulations, and policies. These reports provide
useful and practical recommendations for agencies to
improve their operations and services.
Uniform accounting system manuals provide
guidance to political subdivisions and charter schools
on developing internal controls that adhere to
generally accepted accounting principles and state
and federal laws and regulations.
Compliance status review reports help school districts
and charter schools that continue to have significant
93%
7%
Agencies have implemented
93% of audit recommendations.
Auditor General Reports and Services
18 Arizona Office of the Auditor General
deficiencies by identifying the areas where
improvement is needed and recommending
corrective measures.
To the Federal Government—Single audit reports we
issue satisfy the federal government’s demand for
accountability of federal monies allocated to the
Arizona entities we audit. We identify material
weaknesses and other reportable conditions noted in
internal controls and findings of noncompliance in
these reports.
To Other Report Users—Auditor General financial
reports provide investors and creditors with objective,
unbiased, and independently developed information
they can rely on to make decisions. For example,
Auditor General opinions on financial statements are
often relied on by the financial community in setting
bond ratings for debt issued by counties and
community college districts. Performance audits
provide interested citizens with an accounting of
what is being accomplished with their tax dollars, and
how those government services can be improved.
Generally, we distribute all reports to the Joint
Legislative Audit Committee, the audited entity, the
Governor and other Executive Offices, the
Department of Library, Archives and Public Records,
and to others who specifically request the report. We
also distribute performance audit reports to
Committee of Reference members and Senate and
House staff members. In addition, we distribute a
summary to every legislator who does not receive a
complete performance audit report.
All reports become public documents and are available
on our Web site.
Financial Audit Activities
1998-99 Annual Report 19
Most of our hours Officewide are dedicated to
conducting financial audits and related services. The
distribution of hours among the divisions and
support staff is shown below:
PARTNERING WITH OUR AUDITEES TO IMPROVE
REPORTING TIMELINESS AND QUALITY
We face ever-increasing audit demands imposed by
the federal government, as evidenced by significant
changes made to the Single Audit Act; and by the
profession, as evidenced by a new accounting and
reporting standard that will significantly change state
and local governments’ financial reporting, both of
which are briefly described below.
Second Year of Audits Under the Revised Single Audit
Requirements—We are in the middle of the second
year of audits under the revised Single Audit Act
Amendments of 1996. The new single audit
requirements, especially the risk-based approach,
have broadened our coverage of federal programs
administered by our auditees. In particular, the risk-based
approach has allowed us to focus our audit
attention on high-risk programs and programs that
have not been previously audited, while still
providing significant overall audit coverage.
Accounting Services Division
Support
Performance Audit Division
Financial Audit Division
Hours by Division
9% 10%
56% 25%
Financial Audit Activities
20 Arizona Office of the Auditor General
Before the 1996 Amendments were implemented, we
conducted an extensive training program to prepare
our auditors and our auditees who must account for
federal grants to comply with the new requirements.
The training program helped to ensure that the new
audit requirements were successfully implemented
For audits beginning after June 30, 1998, auditors and
auditees were faced with a new deadline for
submitting single audit reports. Such single audit
reports will be due 9 months after the fiscal year-end,
rather than 13 months. For several of our auditees we
implemented the reduced filing timeline early, and
submitted their fiscal year 1997-98 reports within the
9-month filing deadline. We are taking various steps
to help ensure the single audits and related reports
will meet the new deadline.
The Governmental Accounting Standards Board
releases new standard that will significantly change
financial reporting by state and local governments—
In June 1999 the Governmental Accounting Standards
Board approved the most significant and
comprehensive change in history to the financial
reporting standards. The new standard will require a
dramatic change in the way state and local
governments report financial information to the
public. When implemented, it will present new
information and will restructure much of the
information that governments have presented in the
past. Consequently, citizens, the media, bond rating
agencies, creditors, legislators, and others will have
more and easier-to-understand information about
their governments. The new standards’ major
innovations will require governments to:
• Report on the overall condition of the
government’s financial health, not just its
individual funds.
Financial Audit Activities
1998-99 Annual Report 21
• Provide the most complete information ever
available about the cost of delivering government
services to its citizens.
• Require, for the first time, information about the
government’s public infrastructure assets, such as
bridges and roads.
• Prepare an introductory narrative section
analyzing the government’s financial activities.
The new standard will take effect for large
governments in fiscal year 2002, for medium-size
governments in fiscal year 2003, and for smaller
governments in fiscal year 2004.
The changes in the financial reporting model are
significant and will greatly affect our auditees and
our staff. To help prepare our auditees to implement
these sweeping changes and our staff to audit the new
financial reports, we have already started planning
extensive training programs.
More Timely Audit Reports—Reports for all audits
subject to the Single Audit Act must be issued within
nine months after the end of the period audited. In
addition, there are statutory and other authoritative
deadlines for financial audits of entities such as
county health plans and college and university radio
stations.
In an effort to improve reporting timeliness, we have
improved communication with our auditees, offered
them training, and provided more on-site assistance.
Our goal is to help our auditees promptly meet their
responsibilities to provide the financial statements
and information necessary to conduct an audit. Our
efforts have resulted in significant improvement in
the timely issuance of reports.
Overall, as shown to the right, we have reduced the
number of audits issued after the deadline by 67
percent over the last five years. 0
2
4
6 8
10
12
14
16
1994 1995 1996 1997 1998
NUMBER
OF
ENTITIES
Auditees Issuing Late Reports
Financial Audit Activities
22 Arizona Office of the Auditor General
Excellence in Financial Reporting—Some of our
auditees choose to issue a Comprehensive Annual
Financial Report (CAFR) rather than the traditional
general purpose financial statements. The CAFR, a
substantial undertaking by any reporting entity,
includes a transmittal letter containing a discussion
and analysis of the entity's financial condition and
results of operations, combined and combining
financial statements and related schedules, and
statistical tables that provide considerable
supplemental information.
We allocated the resources necessary to complete the
audits of all CAFRs in time for their preparers to meet
the deadline for applying for the Certificate of
Achievement for Excellence in Financial Reporting
awarded by the Government Finance Officers
Association. This certificate is awarded only for
CAFRs that achieve the highest standards in financial
reporting, disclosure, and format. Maricopa, Mohave,
Pima, Pinal, and Santa Cruz Counties, and Coconino,
Maricopa, and Pima County Community College
Districts all received the certificate for fiscal year
1997-98.
STATEWIDE AUDIT A SIGNIFICANT UNDERTAKING
The graph on the following page illustrates the
distribution of Financial Audit Division hours by
entity type.
Financial Audit Activities
1998-99 Annual Report 23
This graph below shows that almost a third of
financial audit hours are spent on the statewide audit
and audits and procedural reviews of various state
agencies. The State incorporates the audited financial
statements of 18 state agencies, data from the Uniform
Statewide Accounting System, and agency information
to prepare a CAFR. When the State's CAFR is
compared to the financial statements of leading U.S.
companies, the State would rank 62nd in assets,
ahead of Boeing, Mobil, Sears Roebuck, and Motorola;
and 131st in revenues, ahead of McDonald’s and
Kimberly-Clark.
Our independent auditors’ report on the State’s CAFR
for the year ended June 30, 1998, was no longer
qualified due to a scope limitation on the General
Fixed Assets Account Group. We worked with the
Department of Administration to make
improvements in the State’s accounting for buildings,
which allowed us to express an unqualified opinion.
SPECIAL AUDIT UNIT
The Office established the Special Audit Unit ten
years ago to conduct special investigations and
reviews requested by the Legislature.
In addition, the Arizona Attorney General’s Office
and local county attorneys often request the Office’s
assistance in investigating matters for possible
criminal prosecution.
Our Special Audit Unit
provides invaluable
assistance to state and
county law enforcement
officials.
0
10
20
30
40
50
60
70
State Counties Community
Colleges
Universities School
Districts
Other
Hours by Entity Type
In Thousands
Financial Audit Activities
24 Arizona Office of the Auditor General
The Unit provides special training in fraud, waste,
and abuse detection and deterrence to our audit staff
and assists other governmental entities to meet their
needs for such training. The unit is also an immediate
resource for our auditors who may discover unusual
activities or allegations of irregularities while
conducting financial or performance audits. In such
instances, the unit develops and/or recommends
additional audit steps, creative methods of obtaining
information, and other courses of action to meet
auditors’ needs. Further, the unit has responded to
citizens’ concerns by answering questions or directing
them to other resources.
Financial Audit Division teams develop audit
programs specifically tailored for the various entities
to detect potential fraud, wasteful spending, or
administrative abuse of state resources. All discovered
deficiencies are not necessarily of a criminal nature;
however, each time we identify deficiencies, we are
promoting increased governmental accountability.
When the financial auditors uncover indications of such
deficiencies, the Fraud Unit reviews the incidents.
During fiscal year 1998-99, the Unit conducted 33 such
reviews, 6 of which resulted in criminal investigations.
Following is a summary of 4 of our most significant
investigations.
Scottsdale School District—The cooperative
investigation by our Office and the Attorney
General’s Office of alleged financial improprieties by
administrators and employees of the Scottsdale
Unified School District No. 48 continues. Subsequent
to the consent judgment agreement reached between
the District and the Attorney General’s Office on
October 20, 1998, two former District employees, the
spouse of one of those employees, and a District
vendor were indicted on various charges including
theft, fraud, and conspiracy to restrain trade. We also
Financial Audit Activities
1998-99 Annual Report 25
supervised the first of three mandated procurement
audits that resulted in the following findings:
• An emergency purchase of fencing worth $83,215
was not properly documented.
• Change orders worth $47,724 were not properly
approved and were outside the scope of the
original contracts.
• Rather than soliciting its own price quotations for
building a $14,544 shade cover, the District relied
on a vendor to obtain such quotations.
• Other findings included blanket purchase orders
lacking specificity, failure to gain Governing
Board approval on purchases, vendors being paid
more than documented on original price
quotations, and issues relating to the lack of
proper documentation.
Paloma Elementary School District—Our Office
concluded an investigation of the former
superintendent, who was alleged to have misused
public monies. We determined that the
superintendent caused public monies to be used to
purchase health insurance for dependents outside his
employment contract, used the District’s credit card
for personal expenditures, and received pay for
vacation time that he had not accrued.
As a result of this investigation, the former
superintendent pleaded guilty to one count of conflict
of interest and was ordered to pay restitution.
Department of Building and Fire Safety—Our
investigation determined that over $71,000 was
embezzled from the Department’s receipts. Due to a
lack of management oversight, these monies were
taken over a period of four months. By employing a
common fraud scheme (i.e., lapping), the embezzler
used later receipts to replace those stolen earlier. Our
investigative report was issued to the Attorney
General’s Office.
Financial Audit Activities
26 Arizona Office of the Auditor General
Tolleson Justice Court—We conducted an
investigation of the Tolleson Justice Court that
resulted in the former fines manager pleading guilty
to one count of theft and being ordered to pay
restitution. The former court employee
misappropriated at least $1,328 of defendants’ cash
payments for her personal use.
Performance Audit Activities
1998-99 Annual Report 27
The graph at right illustrates the percentage of
Officewide hours attributed to the Performance Audit
Division.
Following is a summary of the reports that the
Performance Audit Division issued during fiscal year
1998-99.
Universities’ Auxiliary Enterprises (98-11)—
Auxiliary enterprises represent a very wide variety of
activities and services, including bookstores, student
housing, intercollegiate athletics, and parking
services. Changes may be needed if the universities
are to successfully review services for possible
privatization, as required by 1996 legislation. The
report recommends that the universities: 1) encourage
and pursue partnership opportunities to operate their
auxiliary enterprise on campus; and 2) develop and
implement standardization policies for purchasing
commonly used supplies and equipment, as ASU
currently does.
Universities’ Enrollment Management (98-12)—
Arizona’s universities and the Board of Regents need
to develop enrollment forecasts to predict future
enrollment growth at the universities. Several past
forecasts have tended to overestimate enrollment.
Additionally, the universities need to revise the
existing plan used to manage future enrollment
growth. The plan identified several strategies for
managing university growth, including expanding
the universities’ evening and weekend programs,
distance learning programs, and partnerships with
community colleges, and establishing two new
branch campuses. The universities should revisit the
current plan with the Board of Regents, and initiate a
statewide master plan to more effectively meet future
enrollment growth.
More can be done to increase enrollment at ASU West,
one of ASU’s branch campuses. ASU and ASU West
Performance Audit Division
Other
25%
75%
Performance Audit Activities
28 Arizona Office of the Auditor General
should consider expanding the number of programs
offered, ensuring that course credits transfer between
programs at ASU and ASU West, and offering students
incentives for enrolling there.
Private Enterprise Review Board (98-13)—PERB was
established in 1983 to provide an independent body that
could review state government functions that compete
with private enterprise. PERB’s duties include reviewing
complaints about state agencies competing with private
enterprise and soliciting and evaluating written notices
of interest from the private sector to perform agency
activities. While PERB has made efforts to increase its
public visibility and implement procedures for handling
cases brought before it, the continued need for PERB
remains questionable. Additionally, other entities have
been established since 1996 that could likely perform the
same functions as PERB.
Arizona Supreme Court, Administrative Office of the
Courts, Adult Services Division (98-14)—Although
probation programs in Arizona are operated at the
county level, the Supreme Court’s Administrative
Office of the Courts has administrative responsibility
for all court programs. The Division’s duties include
distributing state monies for programs such as
standard and intensive adult probation, and
performing a variety of oversight activities. Funding
for both the standard and intensive probation
programs has been overestimated for fiscal year 1999.
Additionally, inaccurate projections caused the
Division to overestimate the need for state funding.
Moreover, the Division cannot adequately monitor
collection of probation fees nor ensure that the fees
are fully used.
Board of Podiatry Examiners (98-15)—The Board of
Podiatry Examiners generally investigates and
resolves complaints in a timely manner. It spent an
average of 116 days resolving the 30 cases it closed in
Performance Audit Activities
1998-99 Annual Report 29
1997, but can improve its complaint-handling process
by:
• Separating its investigative and adjudicative
functions by assigning one of its members to
investigate each complaint, appointing an
investigative panel, or hiring a staff investigator;
• Considering podiatrists’ disciplinary history when
deliberating new complaints against them; and
• Better documenting the rationale behind its
decisions to dismiss complaints and issue letters of
concern.
The Board also needs to provide more complete
information to consumers inquiring about podiatrists’
disciplinary histories.
Board of Medical Examiners (98-16)—Based on a review
of 117 complaints resolved by the Board in fiscal year
1997, we determined that complaint investigations are
often incomplete, medical review of complaints is
sometimes inadequate, and the Board lacks policies and
procedures for its investigation and medical review
process. Additionally, most complaints are resolved
with no disciplinary action, and the Board continues to
misuse letters of concern, fails to use its disciplinary
guidelines, and does not enforce some disciplinary
orders.
Arizona Department of Health Services, Division of
Assurance and Licensure Services (98-17)—This report
focuses on the Division’s regulatory duties over five
licensing programs including Behavioral Health, Child
Care, Home and Community Based Care, Long Term
Care and Medical Facilities. Specifically, we found that
the Division has not taken sufficient enforcement action
against facilities that repeatedly violated licensing
standards, has not restricted or prevented some facilities
from operating when they fail to meet licensing
Performance Audit Activities
30 Arizona Office of the Auditor General
standards, and has failed to provide consumers with
complete, appropriate, and easily accessible regulatory
information.
Governor’s Council on Developmental Disabilities (98-
18)—The Council annually contracts with six regional
district councils to serve their local developmentally
disabled citizens including informing the Council of local
issues facing these citizens, providing information
regarding local service providers and services offered,
and referring developmentally disabled citizens and
their families to needed services. The process by which
the Council has historically contracted with its district
councils has resulted in contracts that do not correspond
with the Council’s stated goals. Additionally, some
district councils do not perform in accordance with
contract requirements.
Arizona State Personnel Board (98-19)—To improve the
timeliness of hearing officer reports and Board decisions,
the Board should cease providing transcripts to hearing
officers and provide transcripts only at the request of
parties to the hearings. Further, the Legislature should
consider increasing the statutory time the Board has to
issue its decision from 30 to 45 days, and shortening the
Board’s meeting notice period to 10 days.
Department of Liquor Licenses and Control (98-20)—The
Department inconsistently issues penalties for liquor law
violations and does not always take appropriate action
against licensees who repeatedly violate the State’s liquor
laws. The lack of formal policies and procedures
governing the Department’s enforcement practices
contributes to the inconsistent and sometimes
inappropriate treatment of licensees who violate liquor
laws. Additionally, while hundreds of licensees fail to
renew their licenses on time, the Department does not
ensure that these licensees cease liquor sales until they
have renewed their licenses.
Performance Audit Activities
1998-99 Annual Report 31
Arizona Department of Insurance (98-21)—Although
Arizona adopted an open competition approach to
regulating most property and casualty rates in 1980, the
Department continues to subject all rate filings to the
same scrutiny as it did when rates required Department
approval prior to their use. Since market forces serve as
the primary regulator of rates in an open competition
environment, such detailed and comprehensive reviews
are unnecessary and offer minimal consumer protection.
Rather than reviewing every filing in detail, the
Department should adopt a targeted approach to
reviewing open competition rate filings, and should
expand its market monitoring activities.
State Compensation Fund (98-22)—Although the Fund
remains the major provider of workers’ compensation
insurance in Arizona, competition has reduced the
Fund’s market share and premium earnings. In 1995, the
Fund collected approximately $334.5 million in
premiums, or nearly 50 percent of the total $671.6 million
paid to all workers’ compensation carriers. Since then,
premium rates have steadily declined as have total
premiums paid to all workers’ compensation carriers in
the State. In 1997, employers in Arizona paid workers’
compensation premiums of approximately $563 million.
Of that total, the Fund collected approximately $228.7
million, or about 41 percent.
Because the Fund has implemented, or is in the process
of implementing, a number of process improvements
and operational changes, no recommendations for
additional actions are offered in this audit report.
Department of Administration, Human Resources
Division (99-1)—While the Division has made some
progress in addressing prior Auditor General
recommendations, the State’s job evaluation system
remains the same as it was in 1993. Specifically, the
current system is subjective and easily manipulated
by state employees, and continues to have outdated
job classifications. However, the Division has
Performance Audit Activities
32 Arizona Office of the Auditor General
decreased the time it takes to produce candidate
hiring lists for state agencies from eight weeks to
three days. The Division has also made progress in
employee benefits management and hiring.
However, more can be done to monitor contracts with
health benefits carriers and track state employees’
complaints.
Arizona Air Pollution Control Hearing Board (99-2)—
The Air Pollution Control Hearing Board (Board) is
responsible for hearing appeals of Arizona Department
of Environmental Quality (ADEQ) decisions regarding
air quality permits and related matters. While no
significant harm to the public would likely result if the
Board were terminated, the Board does provide an
appeal opportunity that is less costly to the taxpayers
and more accessible than appeal through Superior Court,
and is unlike other ADEQ appeal processes for which the
ADEQ Director has final authority.
Home Health Care Regulation and Expenditures (99-
3)—As a result of the National State Auditors’
Association’s multi-state audit, Arizona and nine
other states agreed to study their respective
Medicaid-supported home health service delivery
systems to determine whether regulation, claims
payment processes, complaint investigations, and
quality-of-care assurance programs are appropriate
and sufficient.
Our review of DHS’ responsibilities found that DHS’
licensure and complaint investigation processes are
inadequate. In addition, DHS has failed to conduct
timely inspections and has also failed to conduct
timely complaint investigations. Finally, when DHS
identifies licensing violations during home health
agency inspections and complaint investigations, it
does not consistently use its enforcement authority to
take progressive action.
Performance Audit Activities
1998-99 Annual Report 33
Our review of AHCCCS’ responsibilities identified
some improvements that could be made to controls
over the claims payment process and as well as some
improvements that could better ensure home health
clients receive quality care.
Adult Probation Programs (99-4)—We describe
factors that contribute to adults successfully
completing probation, including substance abuse
treatment programs, differing probation management
approaches counties have adopted, and outcomes
associated with gender and other demographic
characteristics. Of particular note was the fact that
substance abusers who consistently attended or
successfully completed alcohol or drug abuse
treatment were much more likely to successfully
complete probation than the general sample of
probationers we evaluated. Consistent employment
and completion of community service also predict
successful probation outcomes. Education, age, and
income were correlated positively with probation
success for men, but not for women.
Arizona Department of Gaming (99-5)—We
recommend that state officials, including the
Governor and Legislature, determine whether the
Department’s current regulatory stance is the optimal
approach for monitoring Indian gaming operations in
Arizona. Though the Department employs extensive
oversight activities that are well designed for
ensuring the integrity of gaming operations, its
approach is among the most extensive and costly in
the nation. Further, since the tribal-state gaming
compacts negotiated between the State and tribes do
not clearly delineate the extent of state oversight or
enforcement, disagreement exists in Arizona between
the Department and several tribes regarding what
level of involvement the State should have within
Indian gaming.
Performance Audit Activities
34 Arizona Office of the Auditor General
Department of Health Services, Bureau of Emergency
Medical Services (99-6)—The Certificate of Necessity
(CON) system provides more regulation than is
necessary for overseeing ambulance services.
Although CON systems are intended to ensure
ambulance coverage throughout the State, and to
provide quality assurance, Arizona’s CON system
does not guarantee either outcome. Additionally, it
limits competition and may prevent the introduction
of service improvements that would better meet a
community’s needs. As a result, the system should be
reevaluated, and other forms of regulation should be
considered.
Arizona Drug and Gang Policy Council (99-7)—The
1996 Auditor General Report (Report No. 96-11)
found the Council to be ineffective in fulfilling its
evaluation and coordination of publicly funded drug
and gang prevention and treatment programs in
Arizona due to poor member attendance and lack of
monetary support. Since the last audit, the Council
has made significant progress in improving its
attendance and developing an accountability system
to measure the State’s effectiveness in preventing and
treating drug abuse and gang participation.
However, the Council’s continued progress is
dependent on future funding. Because the Council
receives no dedicated funding, it has had to rely on
external grants to finance its activities, which expire
by the year 2001.
Arizona Department of Water Resources (99-8)—
Under the current regulatory structure, the safe yield
goal for water supply will not likely be achieved by
the Prescott, Phoenix, and Tucson areas. Safe yield is
accomplished when no more groundwater is
withdrawn from the aquifer than is annually
replaced. The Groundwater Code contains a number
of statutory restrictions and exemptions that limit the
Active Management Areas’ ability to achieve
Performance Audit Activities
1998-99 Annual Report 35
safe yield. We recommend that the Legislature
consider forming a study commission to address the
State’s ability to achieve the safe yield goal. The
second finding notes that Arizona may experience
future water supply problems related to population
growth.
Department of Health Services, Arizona State
Hospital (99-9)—The hospital’s patient treatment
units are often insufficiently staffed to provide
patients with appropriate treatment and a therapeutic
environment. The hospital’s staffing problems,
including high turnover and vacancy rates, are long-standing
and are compounded by problems in the
method used to allocate staff among the patient units.
In addition, ASH’s facilities do not provide an
adequate environment for treating patients.
Residential Utility Consumer Office (RUCO) and
Residential Utility Consumer Board (Board) (99-
10)—The Residential Utility Consumer Office (RUCO)
is generally effective in advocating on behalf of
residential utility consumers. RUCO should develop
a comprehensive strategic plan and formalize its
processes for determining in which rate and non-rate
cases to intervene and for evaluating the effectiveness
of its intervention efforts.
We also found that stronger fiscal monitoring is
needed for RUCO to accurately determine its annual
assessment. For the past few years, RUCO has
incorrectly calculated its annual assessment, which
has created a large and unnecessary fund balance.
While statute requires the Residential Utility
Consumer Board to advise RUCO on rate cases, the
Board’s efforts in recent years have had minimal
impact. Inadequate processes and information have
contributed to the Board’s limitations. Therefore, the
Performance Audit Activities
36 Arizona Office of the Auditor General
Board should work with RUCO to develop and
implement various processes that will enable it to
better fulfill its responsibilities.
Accounting Services Activities
1998-99 Annual Report 37
The graph at right illustrates the percentage of
officewide hours attributed to the Accounting
Services Division. Their work includes developing
and maintaining seven accounting policies and
procedures manuals and a Uniform Expenditure
Reporting System manual. These eight manuals were
developed and are maintained in accordance with
generally accepted accounting principles, the Arizona
Constitution, and state and federal laws. The division
continues to be an authority in the State for school
district and charter school financial reporting,
accounting, and compliance and the internal controls
over them.
Last year, schools in Arizona received approximately
$4.5 billion from county, federal, local, and state
sources to educate students in kindergarten through
the 12th grade. One of the division’s oversight
responsibilities is establishing policies and procedures
to account for these monies that are distributed to the
approximately 400 school districts and charter schools
in the State.
Our activities during fiscal year 1998-99 are described
below.
SCHOOLS
School Districts—Over 20 years ago, the Office
established a Uniform System of Financial Records
(USFR) which remains the standard to which all
school districts must adhere. During the fiscal year,
we issued numerous memorandums revising the
manual in an effort to provide school districts with
the most up-to-date information on internal controls
and state and federal laws.
School districts subject to the Single Audit Act
Amendments of 1996 must submit for our review single
audit reports and compliance questionnaires
prepared by their auditors. We review these audits to
91%
9%
Accounting Services Division
Other
Accounting Services Activities
38 Arizona Office of the Auditor General
determine the district’s compliance with the USFR
and whether the audit was conducted in accordance
with professional standards and the Single Audit Act
Amendments of 1996.
Charter Schools—Since the first Arizona charter
school opened in 1995, the number of charter schools
in Arizona has grown rapidly. In response to
legislation passed for charter schools, we developed a
Uniform System of Financial Records for Arizona Charter
Schools (USFRCS), which establishes the standards for
charter school financial accountability. We
continually update this manual to ensure charter
schools have the most up-to-date information.
All charter schools are subject to either a financial
statement audit or single audit by independent
certified public accountants. We reviewed these
audits to determine whether the school has
established and maintained internal controls in
accordance with USFRCS requirements and whether
the audit was conducted in accordance with
professional standards and OMB requirements.
As of July 7, 1999, responsibility for oversight of
charter schools sponsored by either the Arizona State
Board of Education or Arizona State Board for
Charter Schools was shifted to those boards. As a
result, the Office’s responsibility for audit and
compliance oversight of charter schools was greatly
decreased beginning with the 1999-2000 fiscal year.
Enforcing School District and Charter School
Compliance—If we determine that a district or charter
school has not substantially met USFR/USFRCS
requirements, we issue a letter of noncompliance
giving it 90 days to correct the cited deficiencies. At
the end of the 90-day period, we determine whether
the district/school has made substantial progress
toward compliance.
Accounting Services Activities
1998-99 Annual Report 39
MANUALS AND REPORTS
Developing and Maintaining Accounting and
Compliance Manuals—The division has developed
and maintains manuals that establish uniform
accounting, reporting, and compliance requirements
to assist school districts, charter schools, counties,
county treasurers, county school superintendents,
community college districts, and justices of the peace
in establishing and maintaining effective internal
controls over such requirements. The Division has
also developed a Uniform Expenditure Reporting System
(UERS) manual to assist counties, community college
districts, cities, and towns in complying with
constitutional expenditure limitation reporting
requirements. We revise these manuals as necessary
to inform users about current accounting, reporting,
and legal requirements.
In an effort to improve the usefulness of the uniform
accounting and compliance manuals, we have made
six of our eight manuals available on computer
diskette or from our Web site.
In addition to the uniform accounting manuals, we
periodically issue newsletters to school districts and
charter schools to communicate current accounting
and financial reporting requirements and to provide
information regarding compliance with federal and
state laws.
Developing Annual Forms—The Office is required to
develop annual financial report forms for Arizona’s
special taxing districts, charter schools, and school
districts. These reports disclose financial activity for
the reporting period along with governing board
action taken during the year. We provide detailed
instructions for users to prepare the annual reports as
easily and completely as possible.
Accounting Services Activities
40 Arizona Office of the Auditor General
We also develop annual budget forms for counties,
community college districts, school districts, charter
schools, and cities and towns. The budget packages
contain detailed instructions and ready-to-use forms
for users to prepare their budgets as easily and
completely as possible. Forms are also available on
computer diskette or from our Web site.
In fiscal year 1997-98 the Legislature made changes to
the laws for school district and charter school budgets
requiring budget information to be prepared on a
school-by-school basis beginning in fiscal year 1999-
2000.
During the fiscal year we developed and issued
budget forms for school districts and charter schools
for fiscal year 1999-2000 on a school-by-school basis.
These forms were provided with all necessary
instructions and allocation formulas to allow school
districts and charter schools to prepare school-by-school
budgets.
PRESENTATIONS AND WORKSHOPS
To keep entities informed of changes in federal and
state laws, and professional standards, we conducted
various presentations and workshops.
• We presented various topics at the summer,
winter, and spring conferences for the Arizona
Association of School Business Officials, as well as
a presentation on the new school district budget
forms on a school-by-school basis.
• We made a presentation to the Association of
Government Accountants on the Uniform
Expenditure Reporting System.
• We presented topics from the current revisions to
the Uniform Accounting Manual for Arizona County
Treasurers at a meeting of county treasurers.
Accounting Services Activities
1998-99 Annual Report 41
• We provided two workshops on procurement
policies and procedures to Scottsdale Unified
School District.
• We made a brief presentation to the Arizona
House of Representatives Ad Hoc Committee on
school district procurement practices.
Support Groups’ Activities
42 Arizona Office of the Auditor General
The graph at left illustrates the percentage of
Officewide hours attributed to the Information
Technology and Professional Practice support groups.
These groups provide the services that assist Office
staff in performing their tasks efficiently and
effectively. The support groups’ more significant
activities in the past year are described below.
INFORMATION TECHNOLOGY SERVICES
Section Highlights
In 1999, the ITS group accomplished a number of its
significant goals, including upgrading the Office’s
computer network, implementing Internet access, and
replacing and expanding our e-mail system. The group
also continued its efforts to automate audit activities,
and provide more efficient audit data processing.
Upgrading our computer network—We replaced older
servers, network operating systems, and
communications devices, and upgraded and expanded
our network cabling. We also significantly upgraded
field staff’s ability to connect to the network from
remote locations, which provided them with much
better access to the network. These changes have
increased the Office’s capacity to provide better
communications between staff, and made it easier for
them to collaborate.
Implementing Internet access—One of the group’s
most popular accomplishments this year was
implementing Internet access for all staff. The
Internet provides the Office with the capability to
perform more efficient research and obtain
information that was previously difficult to get.
Replacing and expanding e-mail—We also replaced
the Office’s outdated and limited e-mail system. All
staff can now send and receive both internal and
Internet-based messages. This system will not only
90%
10%
Support Groups
Other
Support Groups’ Activities
1998-99 Annual Report 43
improve communications within the Office but also
between our staff and audit clients/professional
colleagues, and the Legislature.
Continuing the commitment to provide the most
effective automation of audit activities—The Office's
commitment to automating audit activities continued
during the past year. We replaced a large number of
our aging computers, providing staff with the
increased capacity they need to implement
improvements in our auditing techniques. This new
equipment, combined with training specifically
targeted to applying our technology to audit
activities, has resulted in improvements in our
auditors' efficiency and effectiveness.
Providing more efficient audit data processing—
During the year, we continued to provide audit staff
significantly faster turnaround on data requests. We
also developed and implemented a number of
software tools that allow staff auditors to perform
more of their own audit analysis. We continue to
provide staff with data in a wider variety of formats
so that they have more direct access to audit data and
can perform additional analysis, which up to now has
not been possible.
PROFESSIONAL PRACTICE GROUP
Administering an effective training program—The
Office must ensure that all professional staff receive at
least 40 hours of continuing professional education
each year. To meet that responsibility, the group
administers a training program that offers classes in
accounting and auditing, computer applications,
professional development, and writing. The graph at
right illustrates the percentage of classes offered in
each of these areas in 1999.
Using the expertise of our staff and that of selected
professional trainers, we keep staff up to date on
16% 62%
14%
8%
Accounting and Auditing
Professional Development
Computer Applications
Writing
Support Groups’ Activities
44 Arizona Office of the Auditor General
changing standards, how to apply the latest audit
methodologies, and how to use new computer
applications, management techniques, and reader-friendly
writing.
Providing timely technical research and assistance to
our staff and auditees—New accounting and auditing
standards and earlier audit and report due dates
challenge our staff and auditees. The best way to
meet these challenges is to provide ongoing technical
research and assistance to those who need the
information. During the year, the group provided
that information in a number of ways.
The group provided research and assistance to our
staff and auditees on accounting, auditing, and
reporting issues as the audits were being performed.
This approach allowed auditors and auditees to
address and resolve issues in a timely manner. The
group also made presentations to staff and auditees at
office meetings, auditee conferences, and professional
association meetings throughout the year.
Financial Summary
1998-99 Annual Report 45
Summary Statement of Revenues,
Expenditures, and Changes in Fund Balances
Year Ended June 30, 1999
General Fund
Revenues:
General Fund appropriations $10,112,700
Expenditures:
Personal services 6,885,440
Employer related 1,200,390
Other 1,763,605
Total expenditures 9,849,435
Excess of expenditures over revenues (263,265)
Fund balance, July 1, 1998 753,366
Fund balance, June 30, 1999 $ 1,016,631
Audit Services Revolving Fund
Revenues:
Charges for services $1,316,874
Expenditures:
Personal services 845,400
Employer related 157,200
Other 46,950
Total expenditures 1,049,550
Excess of expenditures over revenues (267,324)
Fund balance, July 1, 1998 279,172
Fund balance, June 30, 1999 $ 546,496a
aReserved for federal single audits.
Appendix A
46 Arizona Office of the Auditor General
Douglas R. Norton
Resolution on the Retirement from
The Office of the Auditor General by Douglas R. Norton, CPA
Whereas, Douglas R. Norton retired from his legislative appointment as the
Auditor General on June 29, 1999; and
Whereas, in 1976, the Legislature sought out Doug Norton to lead the legislative
Office of the Auditor General into a new era of governmental accountability and Mr.
Norton left a private Certified Public Accountant practice in Prescott to begin the first of
more than four terms as this state’s second Auditor General. During his service, Doug
Norton has overseen significant developments in the financial oversight of public
monies and assets and has reviewed fiscal responsibility for the efficient and effective
use of public monies and assets; and
Whereas, in 1978, the Legislature implemented the sunset review of all state
agencies and charged the Auditor General with the primary responsibility of
conducting those sunset reviews, as well as other performance audits to determine
whether state resources were being used in an economical and efficient manner, the
causes if state resources were not being used in an economical and efficient manner and
whether legislative objectives were being met. These Sunset and performance audits
have become increasingly important to the Legislature as evidenced by the growth of
the Auditor General’s Performance Audit Division from 6 employees to 49 employees
who produce over 20 reports annually; and
Whereas, in 1984, Congress passed the Single Audit Act in an effort to
consolidate a multitude of federal audits occurring on a state and local basis. On Mr.
Norton’s recommendation the Legislature enacted legislation that made it easier to
comply with the federally mandated guidelines providing for audits of federal grants.
Mr. Norton also promoted adherence to government auditing standards and the
preparation of financial statements in accordance with generally accepted accounting
principles for this state and its political subdivisions; and
Whereas, in the course of his service Mr. Norton elevated Arizona to national
prominence in the field of government accounting and auditing through his
involvement in national state auditor organizations. He served as the chairman of the
Western Intergovernmental Audit Forum and of the Post Auditors’ Section of the
National Conference of State Legislatures. He was president of the National State
Auditors Association and the National Association of State Auditors, Comptrollers and
Treasurers. He was appointed to the United States Comptroller General’s Government
Auditing Standards Advisory Council; and
Appendix A
1998-99 Annual Report 47
Whereas, in recognition of his service, Mr. Norton received the federal
government’s Joint Financial Management Improvement Program’s Donald L.
Scantlebury Memorial Award, the Western Intergovernmental Audit Forum’s Jack
Birkholz Leadership Award, and the Association of Government Accountants’ Frank
Greathouse Distinguished Leadership Award.
Therefore
Be it resolved by the Senate of the State of Arizona:
That the members of the Senate extend their appreciation for a job well done as
Auditor General of the State of Arizona to Douglas R. Norton, CPA.
Unanimously adopted by the Senate, June 22, 1999.
Filed in the Office of the Secretary of State, June 22, 1999.
Appendix B
48 Arizona Office of the Auditor General
Financial Audit Division
Audit Reports Issued—Counties, County Hospitals,
and County Health Plans
County, County Hospital,
or County Health Plan
Comprehensive
Annual Financial
Report or Report on
Audit of Financial
Statements
Reports on Internal
Control and
Compliance in
Accordance with
GAS and the Single
Audit Act
Report on Audit
of Annual
Expenditure
Limitation
Report
Cochise County June 30, 1996 and
June 30, 1997
Graham County 1 June 30, 1998 June 30, 1998 June 30, 1998
Greenlee County 1 June 30, 1998 June 30, 1998
La Paz County1 June 30, 1998 June 30, 1998 June 30, 1998
Maricopa County June 30, 1998 June 30, 1998 June 30, 1998
Maricopa County AHCCCS and ALTCS
Plans
June 30, 1998 N/A N/A
Maricopa County Medical Center June 30, 1998 N/A N/A
Maricopa County, Arizona—
Risk Management and Employee
Benefits Trust Funds June 30, 1998 N/A N/A
Mohave County1 June 30, 1998 June 30, 1998 June 30, 1998
Navajo County1 June 30, 1997 and
June 30, 1998
June 30, 1997 June 30, 1997
Pima County June 30, 1998 June 30, 1998 June 30, 1997 and
June 30, 1998
Pima County, Arizona—
Department of Wastewater
Management June 30, 1998 N/A N/A
Pima County, Arizona—
Development Services Enterprise Fund June 30, 1998 N/A N/A
Pima County, Arizona—
Pima Health Care System June 30, 1998 N/A N/A
Pima County, Arizona—Self-Insurance
Trust
June 30, 1998 N/A N/A
Pinal County June 30, 1998 June 30, 1998 June 30, 1997 and
June 30, 1998
Santa Cruz County June 30, 1998 June 30, 1998 June 30, 1998
Yavapai County1 June 30, 1998 June 30, 1998 June 30, 1998
Yuma County June 30, 1996 and
June 30, 1997
June 30, 1996 June 30, 1996
1 Reports issued by certified public accountants under contract with the Office of the Auditor General.
Appendix B
1998-99 Annual Report 49
Financial Audit Division
Audit Reports Issued—State and State Agencies
State Agency
Annual Financial
Report
or Report on Audit of
Financial Statements
Reports on Internal
Control and
Compliance
in Accordance with
GAS and the Single
Audit Act
State of Arizona June 30, 1998
Criminal Justice Commission—
Drug and Gang Enforcement Account Distributions June 30, 1998 N/A
Department of Economic Security June 30, 1998 N/A
Department of Economic Security—
Division of Developmental Disabilities (ALTCS Contract) June 30, 1998 N/A
Office of the Treasurer June 30, 1998 N/A
State of Arizona—Report on Audit of
Statement of Federal Land Payments
October 1, 1997-
September 30,
1998
N/A
Audit Reports Issued—Universities
University
Annual Financial Report
or Report on Audit of
Financial Statements
Arizona State University June 30, 1998
Northern Arizona University June 30, 1998
The University of Arizona June 30, 1998
Appendix B
50 Arizona Office of the Auditor General
Financial Audit Division
Audit Reports Issued—Community College Districts
Community College District
Comprehensive
Annual Financial
Report or Report on
Audit of Financial
Statements
Reports on Internal
Control and
Compliance in
Accordance with GAS
and Single Audit
Report on Audit
of Annual
Budgeted
Expenditure
Limitation
Report
County Community College Districts
of Arizona1 June 30, 1998 N/A N/A
Cochise County Community College District June 30, 1998 and
June 30, 1997 and
June 30, 1996
June 30, 1998 and
June 30, 1997 and
June 30, 1996
June 30, 1998 and
June 30, 1997 and
June 30, 1996
Coconino County Community College District2 June 30, 1998 June 30, 1998 June 30, 1998
Graham County Community College District
(Eastern Arizona College)2 June 30, 1998 June 30, 1998 June 30, 1998
Maricopa County Community College District June 30, 1998 June 30, 1998 June 30, 1998
KJZZ-FM Radio (Maricopa County
Community College District)3 June 30, 1998 N/A N/A
KBAQ-FM Radio (Maricopa County
Community College District)3 June 30, 1998 N/A N/A
Mohave County Community College
District (Mohave Community College)2 June 30, 1998 June 30, 1998 June 30, 1998
Navajo County Community College
District (Northland Pioneer College) 2 June 30, 1998 June 30, 1998 June 30, 1998
Pima County Community College
District (Pima Community College) June 30, 1998 June 30, 19984 June 30, 1998
Pinal County Community College District
(Central Arizona College) 2 June 30, 1998 June 30, 1998 June 30, 1998
Yavapai County Community College District June 30, 1997 June 30, 1997 June 30, 1997
Yuma/La Paz Counties Community College
District (Arizona Western College)2 June 30, 1998 June 30, 1998 June 30, 1998
1 A Full-Time Equivalent Student Enrollment Report was issued instead of a Report on Audit of Financial Statements.
2 Reports issued by certified public accountants under contract with the Office of the Auditor General.
3 A Schedule of Nonfederal Financial Support and a Corporation for Public Broadcasting Annual Financial Report were also issued.
4 A Report on Internal Control and Compliance in Accordance with Governmental Auditing Standards was issued by the Office of
the Auditor General. A Report on Internal Control and Compliance in accordance with the Single Audit Act was issued by
certified public accountants under contract with the college.
Appendix B
1998-99 Annual Report 51
Financial Audit Division
Procedural Review Reports Issued—School Districts
Bowie Unified School
District No. 14
Hackberry Elementary School
District No. 3
Bagdad Unified School
District No. 20
Maine Consolidated Elementary School
District No. 10
Chevelon Butte Elementary School
District No. 5
Owens-Whitney Elementary School
District No. 6
Double Adobe Elementary School
District No. 45
Pomerene Elementary School
District No. 64
Elfrida Elementary School
District No. 12
Valentine Elementary School
District No. 22
Procedural Review Reports Issued—State Agencies
Arizona Board of Regents Arizona State Board of Tax Appeals
Arizona State Board of Cosmetology Office of Tourism
Arizona State Board of Directors for
Community Colleges
Appendix B
52 Arizona Office of the Auditor General
Financial Audit Division
Agreed-Upon Procedures Reports Issued
Cochise County
Landfill
Coconino County
Page Justice Court
Gila County
Clerk of Superior Court
Globe Justice Court
Hayden Justice Court
Maricopa County
Chandler Justice Court
East Mesa Justice of the Peace
Gila Bend Justice Court
Glendale Justice of the Peace
North Mesa Justice Court
Scottsdale Justice Court
Tolleson Justice of the Peace
Landfill
Mohave County
Bullhead City Court
Clerk of the Superior Court
Pima County
Precinct No. 3 Justice Court
Landfill
Santa Cruz County
East Justice Court
Landfill
Special Review Reports Issued
Arizona Veteran’s Service Commission—
Procedural Review
Special Audit Unit Investigation Reports Issued
Arizona Department of Building and Fire Safety
Paloma Elementary School District
Scottsdale School District
Tolleson Justice Court
Appendix C
1997-98 Annual Report 53
Performance Audit Reports Issued
Year Ended June 30, 1999
98-11 Universities’ Auxiliary Enterprises
98-12 Universities’ Enrollment Management
98-13 Private Enterprise Review Board
98-14 Arizona Supreme Court, Administrative Office of the Courts, Adult Services
Division
98-15 Board of Podiatry Examiners
98-16 Board of Medical Examiners
98-17 Arizona Department of Health Services, Division of Assurance and Licensure
Services
98-18 Governor’s Council on Developmental Disabilities
98-19 Arizona State Personnel Board
98-20 Department of Liquor Licenses and Control
98-21 Arizona Department of Insurance
98-22 State Compensation Fund
99-1 Department of Administration, Human Resources Division
99-2 Arizona Air Pollution Control Hearing Board
99-3 Home Health Care Regulation and Expenditures
99-4 Adult Probation Programs
99-5 Arizona Department of Gaming
99-6 Department of Health Services, Bureau of Emergency Medical Services
99-7 Arizona Drug and Gang Policy Council
99-8 Arizona Department of Water Resources
99-9 Department of Health Services, Arizona State Hospital
99-10 Residential Utility Consumer Office (RUCO) and Residential Utility
Consumer Board (Board)
Appendix D
54 Arizona Office of the Auditor General
Accounting Services Division
Projects Completed
Year Ended June 30, 1999
Reviewed 98 School District Audit Contracts with CPA Firms
Reviewed 105 Charter School Audit Contracts with CPA Firms
Reviewed 132 School District Audit Reports and USFR Compliance Questionnaires
Reviewed 38 Charter School Audit Reports and USFRCS Compliance Questionnaires
Performed 9 audit working paper reviews of 8 CPA Firms
Performed 10 USFR/USFRCS 90-Day Compliance Status Reviews
Reviewed Alternative Expenditure Limitation Proposals of 8 Cities and Towns
Reviewed Permanent Base Limit Adjustment Proposals of 2 Cities and Towns and 2
Counties
Reviewed Compliance with the Uniform Expenditure Reporting System (UERS)
• 73 Cities and Towns
• 2 Counties
• 5 Community College District
Conducted 14 Outside Training Sessions
• Arizona Association of School Business Officials winter, spring, and summer
conferences—USFR compliance, audit requirements, uniform chart of accounts
(4)
• Arizona House of Representatives Ad Hoc Committee—School District
Procurement Practices
• Association of Governmental Accountants—current UERS issues
• County Treasurer Affiliates—recent revisions to UAMACT
• Scottsdale USD—Training on school district procurement (2)
• AASBO Bi-monthly meetings—school district issues and school based budgeting
(5)
Revised One Manual and Issued It in Computer Format
• Uniform Accounting Manual for Arizona County Treasurers (UAMACT) in its
entirety
Appendix D
1998-99 Annual Report 55
Issued Uniform Accounting and Financial Reporting Memorandums and Newsletters
• 1 UAMACT Memorandum
• 8 USFR Memorandums
• 8 USFRCS Memorandums
• 2 School District Financial Issues Newsletters
• 3 Charter School Financial Issues Newsletters
Issued Budget Forms
• Cities and Towns
• Community Colleges
• Counties
• School Districts:
Revenue
Expenditure (Districtwide and School-by-School)
• Charter School Annual Budget (Charter Schoolwide and School-by-School)
•
Issued Annual Report Forms
• School District Annual Financial Report
• Charter School Annual Financial Report
• Special District Annual Report
Other Projects
• Monitored legislation for its impact on our Office and our clients
• Reviewed Creighton Elementary School District’s application for the Accounting
Responsibility Program
• Reviewed changes to the School District Procurement Rules as required by A.R.S.
§15-213
• Reviewed and approved the audit reports for the Water Infrastructure Finance
Authority of Arizona