Performance audit, Arizona Commission on the Arts, report to the Arizona Legislature

              State of Arizona
Office
of the
Auditor General
PERFORMANCE AUDIT
LICENSING BUREAU
Report to the Arizona Legislature
By Debra K. Davenport
Auditor General
ARIZONA
COMMISSION
ON THE
ARTS
June 2001
Report No. 01-11
The Auditor General is appointed by the Joint Legislative Audit Committee, a bipartisan committee
composed of five senators and five representatives. Her mission is to provide independent and impar-tial
information and specific recommendations to improve the operations of state and local government
entities. To this end, she provides financial audits and accounting services to the state and political
subdivisions and performance audits of state agencies and the programs they administer.
The Joint Legislative Audit Committee
Senator Ken Bennett, Chairman
Representative Roberta L. Voss, Vice-Chairman
Senator Herb Guenther Representative Robert Blendu
Senator Dean Martin Representative Gabrielle Giffords
Senator Peter Rios Representative Barbara Leff
Senator Tom Smith Representative James Sedillo
Senator Randall Gnant (ex-officio) Representative James Weiers (ex-officio)
Audit Staff
Melanie Chesney—Manager
and Contact Person (602) 553-0333
Ryan Curtis—Team Leader
Nikkie Johnson—Team Member
Copies of the Auditor General’s reports are free.
You may request them by contacting us at:
Office of the Auditor General
2910 N. 44th Street, Suite 410
Phoenix, AZ 85018
(602) 553-0333
Additionally, many of our reports can be found in electronic format at:
www.auditorgen.state.az.us
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
WILLIAM THOMSON
DEPUTY AUDITOR GENERAL
June 20, 2001
Members of the Arizona Legislature
The Honorable Jane Dee Hull, Governor
Ms. Shelley M. Cohn, Executive Director
Arizona Commission on the Arts
Transmitted herewith is a report of the Auditor General, A Performance Audit of the Arizona
Commission on the Arts. This report is in response to a June 16, 1999, resolution of the Joint
Legislative Audit Committee. The performance audit was conducted as part of the Sunset
review set forth in A.R.S. §41-2951 et seq. I am also transmitting with this report a copy of the
Report Highlights for this audit to provide a quick summary for your convenience.
As outlined in its response, the Arizona Commission on the Arts will implement 3 of the 4
recommendations directed at the Commission and implement one recommendation in a
different manner.
My staff and I will be pleased to discuss or clarify items in the report.
This report will be released to the public on June 21, 2001.
Sincerely,
Debbie Davenport
Auditor General
Enclosure
i
OFFICE OF THE AUDITOR GENERAL
SUMMARY
The Office of the Auditor General has conducted a performance
audit and Sunset review of the Arizona Commission on the Arts
(Commission) pursuant to a June 16, 1999, resolution of the Joint
Legislative Audit Committee. This audit was conducted as part
of the Sunset review set forth in A.R.S. §41-2951 et seq.
Established by executive order in 1966 and by statute in 1967, the
Commission’s main purpose is to encourage the presentation
and appreciation of the performing and fine arts throughout
Arizona. The Commission largely fulfills this purpose by provid-ing
financial support in the form of grants to help pay arts or-ganizations’
administrative expenses and to help fund arts edu-cation
and other artistic projects throughout the State. The
Commission’s existence also makes Arizona eligible to receive
and disburse federal funding for the arts from the National En-dowment
for the Arts (NEA). The NEA has consistently ranked
the Commission as one of the best arts commissions in the coun-try.
The Commission’s Grants
Provide Varied Benefits to
Organizations and Projects
Statewide
(See pages 11 through 20)
The Commission provides grants that benefit arts organizations
and projects throughout the State. The Commission estimates
that in fiscal year 2001, nearly two-thirds of its spending will be
for grants to arts organizations, schools, and other community
organizations. It issues grants to both large and small arts
organizations to help pay administrative expenses. It also issues
grants to organizations for arts education and other arts projects.
These grants provide different but important benefits, according
to grant recipients auditors spoke with.
Summary
ii
OFFICE OF THE AUDITOR GENERAL
n General operating support grants to large organizations
(approximately $1.14 million in fiscal year 2001)—These
grants fund 2.3 percent of administrative expenses for 13
large arts organizations, such as the Arizona Theatre Com-pany
and the Museum of Northern Arizona. These organiza-tions
said the grants provide more flexibility than most other
funding they receive, which is often earmarked for specific
projects. They also said a Commission grant acts as a “seal of
approval” that gives them added credibility with the public
and helps them raise additional funding from private
sources.
n General operating grants to smaller organizations (ap-proximately
$1.1 million in fiscal year 2001)—These grants
went to more than 120 smaller arts organizations for operat-ing
expenses. Grant recipients said the grants were important
to their core operations, such as covering a substantial por-tion
of a director’s salary, maintaining current projects and
services, and making the arts more accessible to children and
rural and ethnic communities.
n Arts education project grants (approximately $425,000 in
fiscal year 2001)—These grants support 260 education-specific
projects throughout the State for such things as arts-related
after-school programs or hiring artists to work in
schools. Many of these programs target particular popula-tions,
including rural communities and minorities.
n Other arts project grants (approximately $471,000 in fis-cal
year 2001)—These grants funded artistic projects such as
theatre productions, festivals, and music performances
throughout the State. Some grant recipients said that without
the grants, programs would have to be canceled or scaled
back.
Summary
iii
OFFICE OF THE AUDITOR GENERAL
The Commission Needs to
Improve Its Management of the
Endowment Program
(See pages 21 through 24)
The Commission needs to improve its management and over-sight
of the State’s arts endowment program. In 1996, the Legis-lature
established the State’s arts endowment program, known
as Arizona ArtShare, to establish a public-private partnership for
the long-term funding of the arts in Arizona. ArtShare consists of
state monies placed in the Arizona Arts Endowment Fund (En-dowment
Fund) to generate investment income to benefit the
Commission and donations made to foundations under contract
with the Commission to receive such donations on its behalf. The
Commission contracts with private foundations because private
donors are sometimes reluctant to donate to government-run
endowments. The Commission also considers donations to pri-vate
arts endowments as contributions to ArtShare. Auditors
found two problems with the Commission’s management and
oversight of and use of investment income from one foundation
contracted to collect private donations.
n A foundation under contract with the Commission to receive
and invest private donations to the endowment program
charged three times more than it should have for its adminis-trative
fees in 1999 and 2000. The Commission did not know
that the contractor had deducted $17,550 more than it should
have because the Commission did not review the quarterly
statements the contractor submitted. The Commission recov-ered
these monies from the foundation in March 2001.
n The Commission inappropriately used approximately $3,000
of investment income from private donations managed by
the contractor. The money was used to create a database and
to pay phone and promotional expenses. While these expen-ditures
were related to the endowment program, they were
inappropriate because they were not used in conjunction
with interest earned from state contributions to the Endow-ment
Fund, as required by statute. In addition, the Commis-sion’s
policies state that such monies should be used to sup-port
specific purposes, such as management training and
administrative expenses for arts organizations.
Summary
iv
OFFICE OF THE AUDITOR GENERAL
Sunset Factors
(See pages 25 through 34)
The Commission appears to be effectively meeting its objective
and purpose and generally operates efficiently. However, one
statutory change is needed to resolve certain outstanding issues.
The Legislature should consider amending the Commission’s
statutes to establish the position and responsibilities of the
Commission’s executive director and to clarify the role of the
Commission’s chairperson. Current statutes state that the Gov-ernor-
appointed chairperson shall be the Commission’s chief ex-ecutive
officer. Although the Commission has employed an ex-ecutive
director for most of its history, the statutes do not allow
the Commission to delegate discretionary responsibilities to the
executive director. As a result, many day-to-day decisions, such
as spending and personnel matters, must be approved by the
Commission members.
v
OFFICE OF THE AUDITOR GENERAL
TABLE OF CONTENTS
Page
Introduction and Background..................... 1
Finding I: The Commission’s Grants
Provide Varied Benefits to Organizations
and Projects Statewide ........................... 11
The Commission Devotes Most
of Its Resources to Grants......................................... 11
General Operating Grants Provide
Varying Benefits to Arts Organizations................... 13
Project Grants Are Vital
to Arts Endeavors
Throughout the State ................................................ 17
Recommendation...................................................... 20
Finding II: The Commission Needs to
Improve Its Management of
the Endowment Program........................ 21
A Contracted Foundation
Overcharged for Its
Administrative Services............................................ 21
Some Expenditures Were Not
Consistent with Statutes and
Commission Guidelines........................................... 22
Commission Overstates
Private Contributions to the
Endowment Fund ..................................................... 23
Recommendations .................................................... 24
Sunset Factors............................................. 25
Agency Response
Table of Contents
vi
OFFICE OF THE AUDITOR GENERAL
TABLE OF CONTENTS (Cont’d)
Page
Tables
Table 1 Arizona Commission on the Arts
Statement of Revenues, Expenditures,
and Changes in Fund Balance
Years Ended or Ending June 30, 1999,
2000, and 2001 (Unaudited).................... 5
Table 2 Arizona Commission on the Arts
Arizona Arts Endowment Fund, A
Nonexpendable Trust Fund
Statement of Revenues, Expenses, and
Changes in Fund Balance
Years Ended or Ending June 30, 1998,
1999, 2000, and 2001 (Unaudited)........... 7
Table 3 Arizona Commission on the Arts
General Operating Grants
Awarded to Large Arts Organizations
Year Ending June 30, 2001
(Unaudited)............................................. 15
Figures
Figure 1 Arizona Commission on the Arts
Estimated Spending
Year Ending June 30, 2001
(Unaudited)............................................. 12
Figure 2 Arizona Commission on the Arts
Amount and Number of Estimated
Distributions of Operating Grants by
Size of Arts Organization and
Project Grants by Purpose
Year Ending June 30, 2001...................... 13
Table of Contents
vii
OFFICE OF THE AUDITOR GENERAL
TABLE OF CONTENTS (Concl’d)
Page
Photos
Photo 1 Arts education project............................. 18
Photo 2 Arts festival project ................................. 19
viii
OFFICE OF THE AUDITOR GENERAL
(This Page Intentionally Left Blank)
1
OFFICE OF THE AUDITOR GENERAL
INTRODUCTION AND BACKGROUND
The Office of the Auditor General has conducted a performance
audit and Sunset review of the Arizona Commission on the Arts
(Commission) pursuant to a June 16, 1999, resolution of the Joint
Legislative Audit Committee. This audit was conducted as part
of the Sunset review set forth in A.R.S. §41-2951 et seq.
History and Purpose
In 1966, the Governor signed an executive order to establish
what is now known as the Arizona Commission on the Arts.
One year later, the Arizona Legislature established the Commis-sion
in statute. The purpose of the Commission is to encourage
the presentation and appreciation of the performing and fine arts
throughout Arizona. The existence of the Commission also
makes Arizona eligible to receive and disburse federal funding
for the arts from the National Endowment for the Arts (NEA).
The NEA has consistently ranked the Commission as one of the
best arts commissions in the country, and in January 2000 it
scored Arizona as the best commission among its pool of 14 arts
commissions.
The Commission:
n Provides financial support to arts organizations and for arts
projects in the State through its grants program;
n Sponsors programs that make the arts more accessible to ru-ral
and other underserved communities, and helps arts pro-fessionals
attend workshops and seminars that provide man-agement
training; and,
n Serves as a clearinghouse of information and referrals for
communities, arts organizations, schools, and artists.
Introduction and Background
2
OFFICE OF THE AUDITOR GENERAL
Organization and Staffing
The Commission consists of 15 Governor-appointed members
who serve three-year terms. Members are selected from
throughout the State for their experience in arts-related fields.
The Commission provides executive oversight of the agency’s
day-to-day operations, which are managed by an executive di-rector.
The executive director directs 20 full-time equivalent (FTE) staff.
Ten and one-half of the Commission’s FTE perform administra-tive
and support duties, such as managing the Commission’s
budget, contracts, and the release of grant funds; recruiting and
coordinating grant review panels; updating and maintaining the
Commission’s Web site; providing information to the public;
maintaining, transporting, and installing traveling art exhibits;
and updating and maintaining grant applicant databases. The
other nine and one-half FTE manage the Commission’s various
programs to stimulate the arts in Arizona and provide support
services to grant applicants and recipients.
The Commission’s
Grants Program
Most of the Commission’s budget is granted to nonprofit arts
organizations, schools, and other community organizations to
help pay for administrative expenses or specific arts projects (see
Finding I, pages 11 through 20). The Commission offers two
types of organizational grants:
n General operating grants provide monies to assist with ad-ministrative
expenses for arts organizations whose primary
mission is to produce or present the arts. General operating
grant awards are based on a percentage of the organization’s
operating budget, or can be awarded to pay up to 50 percent
of the organization’s managing director’s salary.
n Project grants provide monies to schools, local governments,
and other community organizations for arts education and
Introduction and Background
3
OFFICE OF THE AUDITOR GENERAL
other artistic projects such as theatre productions, musical
performances, and arts festivals. These grants may fund up
to 50 percent of a project’s costs.
General operating and project grants are awarded on an annual
basis. Each year, the Commission’s largest grants to large arts
organizations in Arizona are reviewed directly by the Commis-sion
members. Other grants are reviewed first by several peer
review panels that judge grant applications on criteria such as
artistic quality, service to the community, managerial ability of
the organization, and the appropriateness of the projected
budget. Additionally, statutes require that the Commission
award a portion of its grant monies to benefit underserved com-munities.
After reviewing the applications, the panels make
funding recommendations to the Commission members, who
make all final grant award decisions.
In addition to grants to organizations, the Commission also pro-vides
fellowships and grants to individuals from Arizona’s arts
community.
n Fellowships award up to $7,500 to professional artists in Ari-zona
to recognize their artistic excellence in areas such as
creative writing, performing arts, and visual arts.
n Professional development grants are awards of up to $750
that help individual Arizona artists and representatives of
smaller arts organizations attend arts conferences and work-shops
that will contribute to their professional development.
Funding and Budget
As presented in Table 1 (see page 5), the Commission’s fiscal
year 2001 estimated operating revenues are approximately $4.8
The Commission issues
grants to organizations and
individuals.
Introduction and Background
4
OFFICE OF THE AUDITOR GENERAL
million.1 These revenues come from state, federal, and other
sources.
n General Fund appropriations compose an approximate $2.4
million, or 50 percent, of the Commission’s estimated operat-ing
revenues, the single largest source of agency revenue for
fiscal year 2001. Some of the General Fund appropriations are
restricted for use in the Commission’s grants program.
n A portion of corporate filing fees collected by the Arizona
Corporation Commission is placed in the Arizona Arts Trust
Fund. For fiscal year 2001, this funding makes up an esti-mated
$1.3 million, or 27.2 percent, of the Commission’s op-erating
revenues. The Arizona Arts Trust Fund helps pay for
general operating grants to arts organizations.
n Intergovernmental funding for the arts comes from the NEA
and other agencies. As Arizona’s official state arts agency, the
Commission receives an annual federal aid grant from the
NEA. The Commission also receives NEA funds for special
grant projects. For fiscal year 2001, the Commission estimates
that federal funding from the NEA will make up $609,200, or
12.7 percent, of the Commission’s estimated operating reve-nues.
In addition to funding from the NEA, the Commission
estimates it will receive $393,600, or 8.2 percent of its operat-ing
revenues from other federal, state, and local government
sources. This includes grant monies from the U.S. Depart-ment
of Labor for an arts education School-To-Work initia-tive
that the Commission has received since 1999.2
1 The Commission’s operating revenues include only the monies that are
available for the Commission to spend. This does not include annual ap-propriations
to the Arizona Arts Endowment Fund, which are not avail-able
to spend, nor the interest earned on those monies. See Table 2, page 7,
for information regarding the Endowment Fund’s appropriations, interest
earnings, and expenses.
2 The U.S. Department of Labor issued a School-To-Work grant to the Ari-zona
Department of Commerce, which re-granted a portion of its School-
To-Work grant to the Commission.
Introduction and Background
5
OFFICE OF THE AUDITOR GENERAL
Table 1
Arizona Commission on the Arts
Statement of Revenues, Expenditures, and Changes in Fund Balance 1
Years Ended or Ending June 30, 1999, 2000, and 2001
(Unaudited)
1999 2000 2001
(Actual) (Actual) (Estimated)
Revenues:
State General Fund appropriations $2,360,400 $2,365,900 $2,376,100
Sales and charges for goods and services:
Corporate filing fee 2 1,199,070 1,299,435 1,300,000
Other 14,487 11,609 18,400
Intergovernmental:
National Endowment for the Arts 598,141 597,502 609,200
Other federal, state, and local 108,521 208,702 393,600
Private gifts and donations 27,666 58,641 52,500
Other 36,590 30,644 36,000
Total revenues 4,344,875 4,572,433 4,785,800
Expenditures:
Personal services and employee-related 742,502 754,747 797,900
Professional and outside services 99,290 161,783 165,000
Travel 39,050 35,163 38,000
Aid to individuals and organizations 3,292,870 3,144,042 3,609,200
Other operating 264,834 269,278 275,000
Equipment 3,265 12,259 15,000
Total expenditures 4,441,811 4,377,272 4,900,100
Excess of revenues over (under) expenditures (96,936) 195,161 (114,300)
Other financial sources (uses)
Net operating transfers in (out) 5,000 (370)
Reversion to the State General Fund (891)         
Total other financing sources (uses) 4,109 (370)      
Excess of revenues over (under) expenditures and other
financing uses (92,827) 194,791 (114,300)
Fund balance, beginning of year 463,840 371,013 565,804
Fund balance, end of year $ 371,013 $ 565,804 $ 451,504
1 Statement excludes the financial activity of the Arts Endowment Fund. See Table 2, page 7, for this information.
2 Amount collected by the Corporation Commission and deposited in the Arizona Arts Trust Fund in accordance with Arizona
Revised Statutes §10-122.E.
Source: Auditor General staff analysis of the Arizona Financial Information System Revenues and Expenditures by Fund, Program,
Organization, and Object, Status of Appropriations and Expenditures, and Trial Balance by Fund reports for the years ended
June 30, 1999 and 2000; the State of Arizona Appropriations Report for the year ending June 30, 2001; and the Department-provided
estimates for the year ending June 30, 2001.
Introduction and Background
6
OFFICE OF THE AUDITOR GENERAL
Arizona’s Arts
Endowment Program
The Commission also receives additional public monies as well
as private monies through its endowment program known as
Arizona ArtShare. In 1996, the Legislature established an en-dowment
program to create a public-private partnership for the
future support of the arts in Arizona through a long-term com-mitment
of both public and private monies.
n State Contributions—State contributions to ArtShare are
placed in the Arizona Arts Endowment Fund (Endowment
Fund). The State Treasurer invests these monies to provide
income to the Commission. Beginning in fiscal year 1998, the
Endowment Fund has received $2 million annually from
state sales taxes collected on admission to entertainment
events, and will receive up to $2 million each year through
2007 for an estimated total principal investment of $20 mil-lion.
As illustrated in Table 2 (see page 7), the Endowment
Fund has received $6 million in state monies through the end
of fiscal year 2000. According to statute, the Commission can
spend only the income earned from investments. The Com-mission
estimates that in fiscal year 2001, the Endowment
Fund will generate an additional $250,000 for the Commis-sion’s
use.
n Private Contributions—Additionally, the Commission will
be able to use investment income generated from private
monies donated to and invested by two private nonprofit
charitable organizations under contract with the Commis-sion.
Private foundations are used to manage private dona-tions
because private donors are often hesitant to contribute
to government-run endowments. While the donated funds
become assets of the foundations, investment income will be
used to benefit the Commission. One contractor had received
approximately $1.2 million in donations and pledges through
December 2000, while the other contractor had not yet re-ceived
any donations or pledges.
Arizona ArtShare is a pub-lic-
private partnership for
the future funding of the
arts in Arizona.
Introduction and Background
7
OFFICE OF THE AUDITOR GENERAL
n Donations to Private Arts Endowments—As part of Art-
Share, the Commission also tracks donations made to private
organizations’ arts endowment funds. The Commission re-ports
that as of December 2000, private arts endowments had
received over $18.6 million since ArtShare was established in
1996. However, these donations are invested and used by the
organizations that receive them and the Commission does
not have any input into how they are spent.
Table 2
Arizona Commission on the Arts
Arizona Arts Endowment Fund, A Nonexpendable Trust Fund 1
Statement of Revenues, Expenses, and Changes in Fund Balance
Years Ended or Ending June 30, 1998, 1999, 2000, and 2001
(Unaudited)
1998 1999 2000 2001
(Actual) (Actual) (Actual) (Estimated)
Revenues:
State sales taxes 2 $2,000,000 $2,000,000 $2,000,000 $2,000,000
Interest 88,599 227,796 250,000
Total revenues 2,000,000 2,088,599 2,227,796 2,250,000
Expenses 2 48,000 187,000
Excess of revenues over expenses 2,000,000 2,088,599 2,179,796 2,063,000
Fund balance, beginning of year 2,000,000 4,088,599 6,268,395
Fund balance, end of year $2,000,000 $4,088,599 $6,268,395 $8,331,395
Fund balance at the end of year consists
of:
Reserved $2,000,000 $4,000,000 $6,000,000 $8,000,000
Unreserved 88,599 268,395 331,395
Total fund balance, end of year $2,000,000 $4,088,599 $6,268,395 $8,331,395
1 The Commission is prohibited from spending appropriations; however, it is permitted to spend the interest earned to support arts programs.
2 The Department is appropriated $2,000,000 from state sales taxes collected on admissions to entertainment events in accordance with Laws
1996, Chapter 186. Expenses consist solely of grants awarded to arts organizations.
Source: Auditor General staff analysis of the Arizona Financial Information System Revenues and Expenditures by Fund, Program, Organization, and
Object and Trial Balance by Fund reports for the years ended June 30, 1998, 1999, and 2000; and Department-provided estimates for the
year ending June 30, 2001.
Introduction and Background
8
OFFICE OF THE AUDITOR GENERAL
1981 Report and Update
The Auditor General’s last Sunset review was conducted in 1981
and recommended that the Commission improve in two areas.
The legislative Committee of Reference subsequently performed
a Sunset review of the Commission in 1991, but it contained no
recommendations other than continuance.
Auditor General staff revisited the concerns identified in the
Commission’s 1981 performance audit (see Auditor General Re-port
No. 81-23). Below is a summary of the report’s recommen-dations
and their current status.
n Peer-panel review of grant applications needed—The
1981 report recommended that the Commission improve its
grants award process by a) establishing a peer-panel system
for the review of grant applications, b) making peer-panel re-view
meetings open to the public, c) providing an opportu-nity
for grant applicants to respond to and, if necessary, ap-peal
panel recommendations prior to final award decisions,
and d) providing greater detail in written correspondence to
unsuccessful grant applicants regarding reasons for denying
applications.
Current status: The Commission uses peer review panels
that hold meetings open to the public to evaluate most grant
applications. At the culmination of their review, the panels
make recommendations to the Commission regarding which
applications should receive grant awards. The Commission
has an appeals process for applicants who are not awarded
grants. The Commission sends out standard rejection letters
and, if asked by applicants, provides specific comments
made by panel members regarding the applications and rea-sons
for denial.
n Commissioner attendance at quarterly meetings needed
improvement—The 1981 audit found that Commission
members’ poor attendance prevented the Commission from
having a quorum for the duration of several meetings and
hindered the Commission’s decision making. The report rec-ommended
two measures to offset the problem’s impact: (1)
A.R.S. §41-981 should be amended to provide for the removal
Introduction and Background
9
OFFICE OF THE AUDITOR GENERAL
of Commission members for excessive absenteeism, and (2)
the Commission should establish in its bylaws standards for
the meaning of excessive absenteeism and procedures for the
removal of members who are excessively absent.
Current status: In 1982, the Legislature amended A.R.S.
§41-981. It now states that three unexcused absences from
consecutive Commission meetings shall be considered an
abandonment of a Commission member’s appointment and
the Governor shall appoint a person to fill the unexpired
term. Based on auditors’ review of the Commission’s recent
meeting minutes, absenteeism has not been a problem.
Audit Scope and Methodology
During the course of the audit, auditors focused on the Commis-sion’s
grants program and Arizona’s arts endowment program
after they assessed several program areas administered by the
Commission. The program areas reviewed include programs
that coordinate multiple arts education initiatives, encourage the
growth and expansion of Arizona’s ethnic artistic traditions, and
assist local governments in obtaining works of art for permanent
installation in public areas. These activities appear to be well
managed based on this review. Further, state arts commissions
are periodically reviewed by the National Endowment for the
Arts, in part to determine how much federal funding they are
eligible to receive. In January 2000, the Commission was scored
as the best arts commission among its pool of 14 commissions
(see Sunset Factor No. 2 on pages 26 through 27 for additional
information).
This performance audit and Sunset review presents two find-ings.
The first finding explains how the Commission’s grants af-fect
Arizona’s arts organizations. The second finding reports that
the Commission needs to better manage and more appropriately
report private donations to its endowment program. In addition,
this report presents responses to the 12 statutory Sunset factors
(see pages 25 through 34).
Introduction and Background
10
OFFICE OF THE AUDITOR GENERAL
Auditors used the following research methods for this review:
n To determine how the Commission’s grants affect Arizona’s
arts organizations, auditors reviewed a sample of 22 grant
applications and compared them to the grant requirements to
ensure that the grant recipient provided all needed informa-tion.
Auditors also interviewed applicants from all of the
grant categories. This included interviewing representatives
from Arizona’s largest arts organizations and 25 representa-tives
of smaller arts organizations, educational institutions,
and other organizations who applied for general operating
and project grants. This included some applicants whose
grant applications had been denied. Finally, auditors inter-viewed
representatives of 11 other states’ arts commissions
and the National Endowment for the Arts.1
n To obtain information related to Arizona’s arts endowment
program, auditors reviewed statutes and legislative meeting
minutes to determine the intent of creating the Arizona Arts
Endowment Fund. Further, auditors interviewed representa-tives
of the National Endowment for the Arts, two nonprofit
charitable organizations that collect private contributions to
the arts in Arizona, and four representatives of arts industry
associations to learn more about the reasons for establishing
arts endowments. Finally, auditors reviewed quarterly finan-cial
reports provided by one of the contractors who manages
and invests private contributions to the endowment pro-gram.
This audit was conducted in accordance with government audit-ing
standards.
The Auditor General and staff express appreciation to the Com-mission
on the Arts, its executive director, and staff for their co-operation
and assistance throughout the audit.
1 Auditors interviewed representatives from the following 11 states regard-ing
their granting practices: Delaware, Indiana, Iowa, Minnesota, Mis-souri,
Montana, Nebraska, New Jersey, North Dakota, Texas, and Utah.
11
OFFICE OF THE AUDITOR GENERAL
n General operating grants pro-vide
monies to Arizona arts or-ganizations
to assist with admin-istrative
expenses, including large
organizations, such as the Phoenix
Art Museum, and small organiza-tions,
such as the Bisbee Commu-nity
Chorus.
n Project grants support two types
of projects: 1) arts education pro-jects,
such as in-school and after-school
art classes taught by artists,
and 2) other artistic projects, such
as dance performances and art
festivals.
FINDING I THE COMMISSION’S GRANTS
PROVIDE VARIED BENEFITS
TO ORGANIZATIONS AND
PROJECTS STATEWIDE
The Arizona Commission on the Arts provides grants that bene-fit
arts organizations that serve the public throughout the State.
The Commission grants a large portion of its budget through
general operating and project grants to arts organizations. The
Commission’s general operating grants assist arts organizations
with administrative expenses and support the services they pro-vide
to the public. The Commission’s project grants cover costs
associated with arts education and various other artistic projects
that help provide accessibility to art endeavors statewide.
The Commission Devotes Most
of Its Resources to Grants
The Commission, like several other states’ arts agencies, spends
much of its budget on
grants to organizations.
There are two types of
organizational grants—
general operating grants
and project grants. Arts
agencies in 10 of the 11
other states auditors
contacted likewise pro-vide
operating grants,
and all 11 provide
project grants.1
1 Texas does not provide general operating support grants to arts organiza-tions.
Finding I
12
OFFICE OF THE AUDITOR GENERAL
The Commission devotes nearly two-thirds of its spending to
these two types of grants (see Figure 1). In fiscal year 2001, the
Commission estimates that it will award nearly 600 grants total-ing
more than $3 million to nonprofit organizations, schools, and
government entities. Approximately 44 percent of the Commis-sion’s
spending will go to general operating grants for arts or-ganizations,
and 18 percent will go to arts project grants.
As Figure 2 (see page 13) shows, the Commission’s general oper-ating
grants for 2001 were split about evenly between large or-ganizations
(those with annual operating budgets of more than
The Commission devotes
nearly two-thirds of its
spending to grants to or-ganizations.
Figure 1
Arizona Commission on the Arts
Estimated Spending1
Year Ending June 30, 2001
(Unaudited)
1 Includes approximately $4.9 million of expenditures for fiscal year 2001 and
$187,000 from the Endowment Fund.
Source: Auditor General staff analysis of the Arizona Commission on the
Arts grants database and estimated spending for fiscal year 2001
provided by Commission staff.
General operating
grants (44%)
$2,239,614
Project grants (18%)
$891,127
Administrative
expenses (25%)
$1,290,900
Other programs
(13%)
$665,455
Finding I
13
OFFICE OF THE AUDITOR GENERAL
$500,000) and smaller organizations (those with annual budgets
of $50,000 to $500,000). Similarly, awards for project grants were
split about evenly between arts education projects and other
types of projects.
General Operating Grants
Provide Varying Benefits
to Arts Organizations
The benefits of general operating grants vary somewhat, de-pending
on whether the organization is large or small. The
Commission’s grants to large organizations generally constitute
less of the organizations’ total budget than for smaller organiza-tions.
Representatives of large organizations said the grants’
benefits included the ability to fund necessary activities that
Figure 2
Arizona Commission on the Arts
Amount and Number of Estimated Distributions of
Operating Grants by Size of Arts Organization and
Project Grants by Purpose
Year Ending June 30, 2001
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
Large Smaller Arts Education Other
Source: Auditor General staff analysis of the Arizona Commission on the Arts grants database and estimated
expenditures for fiscal year 2001, provided by the Commission staff.
General Operating Grants Project Grants
13 124 260 191
Grants Grants Grants Grants
Finding I
14
OFFICE OF THE AUDITOR GENERAL
might not draw private contributions, and enhanced credibility
in attracting donations from other sources. Representatives of
smaller organizations said administrative grants funded projects
and programs that might otherwise be scaled back or not occur
at all.
For large organizations, operating grants help provide services
and increase credibility—In fiscal year 2001, the Commission es-timates
that it will distribute approximately $1.14 million to Ari-zona’s
13 major arts organizations. Individual grants ranged
from approximately $29,000 to $167,000. Table 3 (see page 15),
shows the 13 organizations and the amount of each organiza-tion’s
grant. The Commission began granting a substantial por-tion
of its budget to large arts organizations in 1989, when many
of these organizations were struggling financially. Now, most of
these organizations said they could continue to operate without
the Commission’s support. In fiscal year 2001, general operating
grants to large organizations fund 2.3 percent of each organiza-tion’s
operating budget. However, representatives of the organi-zations
said Commission funding is vital to their ability to pro-vide
a variety of programs and services to the public. They de-scribed
three main types of benefits, as follows:
n Flexibility—Grants from the Commission provide greater
financial flexibility than most other funding they receive.
Many other donations are designated to sponsor specific pro-jects,
but the Commission’s operating grant can be used to
support a variety of expenses. Recipient organizations indi-cated
that they use the grant monies to cover such things as
employee salaries, starting new productions, and reduced
ticket prices.
n Credibility—The organizations reported that receiving an
operating grant from the Commission acts as a “seal of ap-proval”
that gives them added credibility with the public and
helps them raise additional funding from private sources.
n Increased education programs—Many organizations said
that without the Commission’s general operating support,
they would likely increase prices or cut their education pro-grams.
For example, the Phoenix Symphony Orchestra said
that it now performs for approximately 250,000 people per
Finding I
15
OFFICE OF THE AUDITOR GENERAL
year, including educational concerts for 35,000 students.
Without the Commission’s support, the Orchestra said that it
would likely provide fewer educational concerts.
For smaller organizations, operating grants help with core op-erations—
The Commission’s general operating grants to smaller
arts organizations are critical to core operations, according to or-ganization
representatives auditors contacted. These grants,
while generally smaller than those for large organizations, none-theless
provide a greater portion of total funding to the organiza-tions
that receive them. These grants equal up to 10 percent of
their operating budgets, or up to 50 percent of the organization’s
full-time director’s salary. In fiscal year 2001, the Commission
Table 3
Arizona Commission on the Arts
General Operating Grants
Awarded to Large Arts Organizations
Year Ending June 30, 2001
(Unaudited)
Organization Awarded
Phoenix Art Museum $ 167,376
Phoenix Symphony Association 162,384
Scottsdale Cultural Council 135,758
Heard Museum 126,274
Arizona Theatre Company 120,053
Arizona Opera Company 99,131
Ballet Arizona 67,159
Tucson Museum of Art 56,182
Tucson Symphony Orchestra 53,976
Museum of Northern Arizona 52,346
Childsplay, Inc. 36,000
Tucson-Pima Arts Council 35,626
Phoenix Arts Commission 28,731
Total $1,140,996
Source: Auditor General staff summary of data in the Arizona Commission on the Arts’
fiscal year 2001 grants database.
Finding I
16
OFFICE OF THE AUDITOR GENERAL
awarded approximately $1.1 million in general operating sup-port
to 124 developing organizations, ranging from $600 to
$36,000. All but 17 of these organizations received operating
support in the previous year. Grant recipients auditors contacted
reported that the grants are critical to their organizations in sev-eral
ways:1
n Meeting basic administrative expenses—Organizations
reported that the operating grants help pay for administra-tive
costs such as employing art directors. For example, the
White Mountain Apache Heritage Museum’s $9,000 grant is
used to support its director’s salary. Without the grant, the
Museum said that it would be difficult to maintain a full-time
professional director.
n Offering projects and services—Organizations said that
the operating grants help them maintain their current pro-jects
and services. Without this funding, some organizations
reported that they would likely scale back their services and
hours of operation. For example, the Santa Cruz Valley Art
Association uses a portion of its $14,823 grant to support a
children’s summer art program. However, without the grant,
the organization reported that it may not be able to continue
the program.
n Increasing accessibility to the arts—Organizations re-ported
that the Commission’s operating grants help them
make arts more accessible to children, as well as rural and
ethnic communities. For example, the Black Theatre Troupe
said that the Commission’s $10,970 grant is one of the few
sources that support ethnic arts organizations. This organiza-tion
provides a unique service to the community and en-hances
awareness of African-American culture.
1 Auditors interviewed representatives of four smaller arts organizations
that received operating grants: Black Theatre Troupe, Great Arizona Pup-pet
Theatre, Santa Cruz Valley Art Association, and White Mountain
Apache Heritage Museum.
Finding I
17
OFFICE OF THE AUDITOR GENERAL
Project Grants Are Vital to Arts
Endeavors Throughout the State
Project grants for arts education and other artistic projects, the
other main category of organizational grant funding, had a simi-lar
range of uses, according to representatives of the organiza-tions
that received such grants. These grants tend to be smaller
than administrative grants. In general, these grants help extend
art programs and projects to persons and groups that might not
otherwise receive them.
Project grants fund arts education efforts that benefit many Ari-zona
children—The Commission’s grants for education-specific
projects serve children in over 200 schools and in community or-ganizations
statewide. Schools and organizations that receive
arts education grants are typically eligible to receive grants that
cover up to 50 percent of the projects’ costs. Recipients use the
grant monies to cover expenses such as bringing an artist to a
school to provide instruction in a specific art form or after-school
art programs for at-risk youth. In fiscal year 2001, the Commis-sion
awarded 260 arts education project grants that totaled ap-proximately
$420,000. At least 35 of the recipients had not re-ceived
project grants the previous year. The grants ranged from
$500 to $6,000 each and include the following:
n The Tucson Unified School District was awarded a $4,125
grant to hire arts instructors to help over 100 teachers learn
how to implement the Arizona Department of Education’s
art education standards for K-12 students and how to teach
fine arts and performing arts.
n The Arizona Department of Juvenile Corrections was
awarded a $3,600 grant to help bring in various artists to
teach art forms, such as creative writing and drawing, to 93
children in custody at its Adobe Mountain, Black Canyon,
and Catalina facilities.
n Alpine Elementary School, in Alpine, was awarded a $1,450
grant to cover a portion of the fee for a visiting folk artist. For
10 days, the artist will teach folk arts to approximately 35
students, hold a workshop for 8 teachers and aides, and help
the children perform for more than 100 people.
Education project grants
benefit Arizona’s school-children.
Finding I
18
OFFICE OF THE AUDITOR GENERAL
Education grant recipients that auditors spoke with said com-munity
organizations and schools depend on the grants to serve
their communities—principally their youth.1 Specifically, these
monies enable children to observe and participate in the arts, in-cluding
art forms that are unfamiliar to them. Further, some of
the grant recipients said that it would be difficult or impossible
to continue the programs without the Commission’s support.
For example, the City of Casa Grande’s Recreation Department
was awarded an arts education grant for $2,459 that helps pay a
visiting artist for an after-school program. The Department said
that the program would not likely happen without the grant.
Many art endeavors throughout the State depend on the Com-mission’s
project support—In addition to education-specific pro-ject
grants, the Commission also distributes grants that support a
variety of arts projects, including theatre productions, festivals,
and music performances throughout the State. Like arts educa-tion
grants, these other project grants can cover up to one-half of
a project’s costs, typically covering expenses such as artist’s fees.
In fiscal year 2001, the Commission awarded approximately
1 Auditors interviewed representatives from six organizations that received
education grants: Alpine Elementary School, Arcadia Neighborhood
Learning Center, Arizona Department of Juvenile Corrections, City of
Casa Grande Recreation Department, and YMCA South Mountain and
Chris-Town Branches.
Photo 1: Arts education project
Photograph by David Barr provided by the Arizona Commission on the
Arts.
Finding I
19
OFFICE OF THE AUDITOR GENERAL
$471,000 in grants for 191 arts projects, 48 of which did not re-ceive
funding the previous year. The awards can range from ap-proximately
$500 to $10,000 each and included the following:
n The Gila Valley Arts Council in Safford was awarded $6,500
for its “Bach to Blues” program in which various music art-ists
are hired to work with schoolchildren and to perform for
the community. The Council estimates that in 2001, these art-ists
will work with nearly 8,000 students and participate in 7
community performances.
n The Frank Lloyd Wright Foundation of Scottsdale was
awarded $3,375 to help pay for the conservation of Frank
Lloyd Wright’s architectural drawings.
n Chicanos por la Causa of Tucson was awarded $2,925 to dis-play
ethnic artwork for a two-day arts and cultural festival.
Over 40,000 people typically attend this event.
Grant recipients auditors contacted stressed the importance of
the grants in providing opportunities for arts experiences state-wide.
1 Several of the sponsored projects target particular popula-
1 Auditors interviewed representatives of seven organizations that received
project grants: Black Theatre Troupe, Chicanos por la Causa, Eastern Ari-zona
College, Frank Lloyd Wright Foundation, Foundation for Blind Chil-dren,
Great Arizona Puppet Theatre, and Santa Cruz Valley Art Associa-tion.
Photo 2: Arts festival project
Photograph by David Barr provided by the Arizona Commis-sion
on the Arts.
Finding I
20
OFFICE OF THE AUDITOR GENERAL
tions, including rural communities and ethnic minorities. The
Commission reports that over 45 percent of the 2001 projects will
serve rural, ethnic, and/or disabled populations. Commission-funded
projects will occur in 13 of Arizona’s 15 counties.1 Most
recipients also said it would be difficult for the programs to con-tinue
without the Commission’s grants. Several said that the
programs would be either scaled back or canceled without the
Commission’s support.
Recommendation
This finding provides information only. Therefore, no recom-mendations
are presented.
1 The Commission did not award project grants for projects occurring in La
Paz or Greenlee Counties in fiscal year 2001. However, organizations in
these counties received other types of Commission grants.
Nearly one-half of 2001 pro-jects
will serve rural, ethnic,
and/or disabled populations.
21
OFFICE OF THE AUDITOR GENERAL
FINDING II THE COMMISSION NEEDS TO
IMPROVE ITS MANAGEMENT
OF THE ENDOWMENT
PROGRAM
The Commission needs to improve its management and over-sight
of private donations to Arizona ArtShare, the State’s public-private
endowment program. A foundation under contract with
the Commission to receive and invest private donations to Art-
Share overcharged for its administrative services, but the Com-mission
did not identify the error due to inadequate contract
oversight. Additionally, the Commission used about $3,000 of
private donations for purposes that, while related to the arts,
were not consistent with statutes and Commission guidelines.
Finally, the Commission has established a rule that requires it to
consider donations to private arts endowments as matches to the
State’s contributions to the Endowment Fund; however, this rule
is inconsistent with statute and should be revised.
A Contracted Foundation
Overcharged for Its
Administrative Services
A foundation under contract with the Commission to receive
and invest private donations to ArtShare overcharged for its
administrative services, but the Commission did not identify the
error due to inadequate contract oversight. Because donors may
be reluctant to contribute to a government-run endowment, Ari-zona,
like some other states, contracts with private nonprofit
foundations to manage private donations to ArtShare. The foun-dations
are paid for their services by retaining an agreed-upon
portion of the monies they administer. However, in 1999 and
2000, one of the foundations deducted more than three times the
amount it should have for its administrative fees according to its
contract with the Commission. First, the foundation deducted
Contractors are used to col-lect
and invest private do-nations
to ArtShare.
Finding II
22
OFFICE OF THE AUDITOR GENERAL
a higher percentage for its fees than it should have. Second, the
foundation also applied that percentage to the value of pledges it
has not yet received. Before auditors identified this error, the
contractor had deducted $17,550 more than it should have. The
Commission was made aware of this situation during the audit
and recovered these monies from the foundation in March 2001.
Finally, the foundation has been inappropriately deducting its
administrative fee monthly. However, the contract states that the
fee shall be drawn by the foundation “at such times coincident with
the distribution” of the income.
Better oversight of the Commission’s contracts with such foun-dations
could prevent similar problems from occurring in the
future. The foundation submits quarterly statements to the
Commission that report private donations collected, investment
activity, and the amounts deducted for administrative services;
however, the Commission had not been reviewing these reports.
Such reviews are essential to ensure that the monies are properly
managed and that the foundations are complying with the con-tracts.
Some Expenditures Were Not
Consistent with Statutes and
Commission Guidelines
The Commission used a portion of the investment income from
private monies for purposes not consistent with statutory re-quirements
and the Commission’s own policies. In 2000, the
Commission used approximately $3,000 of investment income to
pay for the creation of a database, phone expenses, and other
promotional expenses related to the ArtShare program. While
these expenses were related to ArtShare, these purchases were
inconsistent with statute because they were not used “in conjunc-tion
with” interest earned from state contributions to the Arizona
Arts Endowment Fund, as required by A.R.S. §41-986(E). Sec-ond,
these purchases were not consistent with the Commission’s
own policies requiring ArtShare monies to be used to support
specific purposes, such as management training and administra-tive
expenses for arts organizations, as well as arts education en-deavors.
The Commission did not
review quarterly reports
from a contractor.
Finding II
23
OFFICE OF THE AUDITOR GENERAL
Commission Overstates
Private Contributions to the
Endowment Fund
The Commission’s method of reporting private matches to the
Arizona Arts Endowment Fund is inconsistent with statute and
does not accurately reflect how much is being contributed.
A.R.S.§41-986(F) requires the Commission to report the amount
of private monies donated for use in conjunction with monies
from the Endowment Fund. However, the Commission has
adopted a rule, R2-2-102, that requires it to count contributions to
private organizations’ arts endowment funds as matches to the
Endowment Fund, even though these monies are not for the
Commission’s use. This Office’s legal counsel determined that
this rule is inconsistent with statute. Further, the only monies
that should be considered as a match are those contributed to the
two nonprofit charitable foundations under contract with the
Commission which will be used in conjunction with monies from
the Endowment Fund. The Governor’s Regulatory Review
Council and Joint Legislative Budget Committee staff have
agreed with this conclusion. Therefore, the Commission should
revise R2-2-102 to no longer require the Commission to consider
donations to private arts endowment funds as matches to the
Arizona Arts Endowment Fund.
Because the Commission considers donations to private arts en-dowment
funds as matches to the State’s contributions, it has
overstated the success of the Endowment Fund. Commission
reports indicate that from 1996 to the end of 2000, donors con-tributed
approximately $19.8 million as private matches to the $6
million contributed by the State to the Endowment Fund. How-ever,
only approximately $1.2 million received by a charitable
foundation under contract with the Commission should be
counted as matches.1 The remaining $18.6 million went to 14
other private organizations’ arts endowment funds. While the
Commission should continue to report these monies, it should
not consider them as matches to the Endowment Fund.
1 This includes approximately $664,000 in donations that have been re-ceived
by one of the foundations and approximately $492,000 in pledges
that have yet to be collected. Another foundation under contract with the
Commission had not yet received any donations through the end of April
2001.
Finding II
24
OFFICE OF THE AUDITOR GENERAL
Recommendations
1. To ensure that the foundations under contract with the
Commission to receive and invest private donations to Art-
Share deduct the proper amount of administrative fees, and
fully comply with the terms of the contract, the Commission
should thoroughly review all quarterly reports provided by
the foundations and immediately notify them of any prob-lems
that need to be corrected.
2. The Commission should ensure that it expends investment
income from private donations only in conjunction with in-terest
earned from the Endowment Fund and in accordance
with its own established policies for ArtShare monies.
3. The Commission should revise its rule R2-2-102 related to
counting donations to private arts endowment funds as
matches to the Arizona Arts Endowment Fund because it is
inconsistent with statute.
4. The Commission should discontinue reporting donations to
private endowments as a match to the Arizona Arts En-dowment
Fund.
25
OFFICE OF THE AUDITOR GENERAL
SUNSET FACTORS
In accordance with A.R.S. §41-2954, the Legislature should con-sider
the following 12 factors in determining whether to continue
or terminate the Arizona Commission on the Arts (Commission).
1. Objective and purpose in establishing the Commis-sion.
The Arizona Commission on the Arts was originally es-tablished
as the Arizona Commission on the Arts and
Humanities by executive order of the Governor in 1966
and, one year later, the Legislature established the Com-mission
as a permanent state agency. In 1982, the Legisla-ture
changed the agency’s name to the Arizona Commis-sion
on the Arts.
The Commission’s mission is “To enhance the artistic de-velopment
of all Arizona Communities, arts organiza-tions
and artists through innovative partnerships and
stewardship of public funds.”
The Commission has a number of statutorily required du-ties
that include:
n Stimulating the arts in Arizona by encouraging the
study and presentation of the arts as well as encourag-ing
public interest and participation;
n Working with arts organizations in the State to en-courage
public participation in and appreciation of
the arts; and
n Encouraging public interest in the State’s cultural heri-tage
and expanding the State’s cultural resources.
Sunset Factors
26
OFFICE OF THE AUDITOR GENERAL
The Commission was also established to receive and dis-burse
federal funding from the National Endowment for
the Arts (NEA) on Arizona’s behalf.
2. The effectiveness with which the Commission has
met its objective and purpose and the efficiency with
which the Commission has operated.
The Commission appears to effectively meet its objective
and purpose and generally operates efficiently. It has
consistently been ranked as one of the best arts commis-sions
in the country by the NEA. The NEA evaluates the
processes of each state arts commission periodically as
part of its competitive state’s aid grant application proc-ess.
1 The evaluation is based on the commissions’ basic
plan for the arts in their states, the quality of the strategies
used to advance arts education, and the strategies for in-volving
underserved communities in the arts. In January
2000, the NEA scored Arizona as the best commission
among its pool of 14 arts commissions. 2
Receiving a good evaluation by the NEA increases the
federal funding the Commission receives. All states with
arts commissions currently receive a minimum of
$200,000 annually from the NEA, and additional funding
is based on the state’s size and evaluation in the three ar-eas
previously mentioned. Arizona scored especially well
in the arts education and underserved community com-ponents
of the evaluations and received more federal as-sistance
based on its evaluations in those areas than many
1 Fiscal year 2000 was the final year that the NEA performed biennial
evaluations of state arts commissions. It recently completed a transition to
a three-year evaluation schedule in which it evaluates one-third of the
states each year.
2 The 13 other arts commissions in Arizona’s NEA evaluation pool were
Arkansas, the District of Columbia, Florida, Guam, Idaho, Illinois, Ken-tucky,
Louisiana, Michigan, Montana, Nevada, New Hampshire, and
Tennessee.
Sunset Factors
27
OFFICE OF THE AUDITOR GENERAL
larger states.1 The Commission’s fiscal year 2001 total
funding from the NEA will exceed $600,000 and be the
twelfth highest in the country.
Further, the Commission fulfills its objective of stimulat-ing
the arts in Arizona through its grants program (see
Finding I, pages 11 through 20). Through a competitive
peer review process, the Commission awards grants to
several organizations in Arizona to help pay administra-tive
expenses and for specific arts projects. In fiscal year
2001, the Commission will issue nearly 600 grants totaling
more than $3 million. The Commission is continually
working to streamline and improve the granting process.
Most applicants auditors spoke with, including those
who had been rejected for funding, reported that they
were satisfied with the Commission’s administration of
the grants process.
Finally, the Commission’s grants and other services also
help fulfill its purpose of developing the management
skills of Arizona’s artists and arts organizations. The
Commission issues several grants that help developing
arts organizations, such as museums and theatre compa-nies,
hire full-time professional managers. The Commis-sion
also offers professional development grants up to
$750 that help artists and representatives of Arizona’s
small arts organizations attend out-of-state conferences
and workshops. Additionally, the Commission offers
year-round assistance in areas such as marketing, fund-raising,
and developing on-line capabilities.
3. The extent to which the Commission has operated
within the public interest.
The Commission has generally operated in the public in-terest
through its grants and other program areas; how-ever,
the Commission did not act in the public interest
when it failed to identify that one of the foundations con-tracted
to receive and invest private donations to its en-
1 The Commission received more NEA funding in these areas than Califor-nia,
Florida, Illinois, Michigan, Pennsylvania, and Texas.
Sunset Factors
28
OFFICE OF THE AUDITOR GENERAL
dowment program was overcharging for administrative
fees.
The Commission’s grants program supports arts organi-zations
and art projects throughout the State. In fiscal year
2001, grants were issued to support organizations or pro-jects
in all counties and all legislative districts. Addition-ally,
through its outreach efforts, the Commission strives
to ensure that new applicants apply for grants each year.
This includes finding and encouraging new applicants to
apply and providing assistance to help all applicants
produce competitive applications. For fiscal years 1999
and 2000, the Commission did indicate that over 20 per-cent
of its grant recipients had not applied for grants the
previous year.
In addition to its grants program, the Commission oper-ates
in the public interest through several other services it
provides:
n First, the Commission maintains a roster of Arizona
artists that schools and other organizations may use
when selecting artists from various disciplines to
speak or perform for them. The roster benefits the or-ganizations
seeking artists by screening artists and
helping the organizations choose those that are ap-propriate
for their objectives and who demonstrate
high artistic quality. The roster also gives exposure to
many of Arizona’s artists.
n Second, the Commission’s Traveling Exhibition pro-gram
provides rural communities that often do not
have access to museums with the opportunity to host
artwork in their own communities. Urban centers
may also host traveling exhibitions to complement the
State’s museums. Hosting organizations pay a fee to
help cover the Commission’s costs of organizing and
transporting the exhibitions. These exhibitions may
also be sent out of state, providing greater exposure to
Arizona artists’ work.
Sunset Factors
29
OFFICE OF THE AUDITOR GENERAL
n Third, the Commission maintains a non-circulating li-brary
of arts industry information available to arts or-ganizations
and working artists. The library maintains
current publications regarding arts fund-raising, pub-licity,
and organization management.
While the Commission has acted in the public interest
through its grants program and other services, it did not
act in the public interest when it failed to identify that a
foundation contracted to collect and invest private dona-tions
designated to benefit the Commission was over-charging
for its administrative fees. During 1999 and
2000, this foundation was deducting three times the
amount it agreed to deduct in the contract for its adminis-trative
fees. Because the Commission failed to review
quarterly financial statements provided by the founda-tion,
it was unaware that the contractor was deducting
more than it had agreed to.
4. The extent to which rules adopted by the Commis-sion
are consistent with the legislative mandate.
The Commission has not adopted all rules required by its
statutes, and some rules the Commission has adopted are
inconsistent with its statutes. According to the Governor’s
Regulatory Review Council, the Commission needs to
promulgate rules to govern its grants program as re-quired
by statute. A.R.S. §41-983.02(B) requires the Com-mission
to establish rules for administering the program,
including grant applications and the criteria to be used
when evaluating grant applications. The statute requires
that this criteria include artistic quality, creativity, poten-tial
public exposure and benefit, and the recipient’s ability
to properly administer the granted funds. Additionally,
the rules must establish criteria to ensure that a portion of
grants are issued to organizations representing rural
communities, disabled persons, and to artists from racial
or ethnic minorities. The Commission has been made
aware that these rules are needed and has begun drafting
them.
Sunset Factors
30
OFFICE OF THE AUDITOR GENERAL
As discussed in Finding II (see pages 21 through 24), the
Commission has established a rule regarding matching
private donations with money from the Arizona Arts En-dowment
Fund (Endowment Fund) that is inconsistent
with statute. The Commission has established R2-2-102,
which states that it shall consider monies donated to pri-vate
arts endowment funds as matches to the Endow-ment
Fund. However, according to statute, only monies
donated to private funds established to benefit the Com-mission
should be considered as a match. The Commis-sion
should discontinue reporting donations to private
arts endowments as matches to the Arizona Arts En-dowment
Fund and revise the rule related to this practice.
5. The extent to which the Commission has encouraged
input from the public before promulgating its rules
and regulations and the extent to which it has in-formed
the public as to its actions and their expected
impact on the public.
The Commission is in compliance with Open Meeting
Law requirements. The Commission has filed a notifica-tion
statement with the Secretary of State’s Office and
meeting notices have been posted in the proper location
at least 24 hours before Commission meetings. Meeting
minutes are properly maintained for all of the Commis-sion’s
public meetings, including quarterly Commission
meetings and several volunteer grants panels that review
applications each spring.
The Commission also informs the public of its actions
through its Web site, workshops, and several publica-tions.
The Commission’s Web site contains information
regarding upcoming arts events, the grants application
process, Commission meeting notices, and other news re-lated
to the arts in Arizona. Further, the Commission
conducts many workshops that provide information on
the grants process, and helps teach management skills to
representatives of arts organizations. Additionally, in
1999 and 2000, the Commission held public meetings in
14 of 15 Arizona counties to obtain community input
when developing its strategic plan. Finally, Commission
Sunset Factors
31
OFFICE OF THE AUDITOR GENERAL
publications include its annual grants guide that de-scribes
available grants and how to apply for them; its
annual report to the Governor, which provides informa-tion
about all of its programs and lists all grant recipients
from the previous year; and a newsletter published 10
times a year, which has information on upcoming arts
events, such as conferences, opportunities such as grants
and scholarships, and job openings with various arts or-ganizations
in Arizona.
6. The extent to which the Commission has been able
to investigate and resolve complaints within its juris-diction.
This factor does not apply since the Commission does not
have investigative or regulatory authority.
7. The extent to which the Attorney General or any other
applicable agency of state government has the au-thority
to prosecute actions under enabling legisla-tion.
This factor is not applicable because the Commission is
not a regulatory agency with enforcement or oversight
responsibilities.
8. The extent to which the Commission has addressed
deficiencies in the enabling statutes which prevent it
from fulfilling its statutory mandate.
The Commission has not sought any recent changes to its
enabling statutes.
Sunset Factors
32
OFFICE OF THE AUDITOR GENERAL
9. The extent to which changes are necessary in the
laws of the Commission to adequately comply with
the factors listed in the Sunset review statute.
The Legislature should consider amending the Commis-sion’s
statutes to establish the position and responsibili-ties
of the Commission’s executive director and to clarify
the role of the Commission chairperson. A.R.S. §41-981(B)
states that the Governor shall designate one Commission
member to serve as chairperson, and that the chairperson
shall be the chief executive officer of the Commission. For
most of its history, the Commission has employed an ex-ecutive
director who manages the Commission’s day-to-day
operations. However, the Commission’s statutes
make no mention of an executive director and do not al-low
the Commission to delegate discretionary responsi-bilities
to anyone. For example, when the current execu-tive
director hires new staff, the Commission members
must vote to ratify those employment decisions. Addi-tionally,
the Commission must approve all spending de-cisions.
The Commission allows the current executive di-rector
to spend up to $3,000 without its approval; how-ever,
statutorily, the Commission does not have the au-thority
to delegate this type of authority. Both the current
Commission chairperson and the executive director agree
that it may not be practical for the Commission and its
chairperson to approve all day-to-day management deci-sions
because the Commission’s budget and responsibili-ties
have increased significantly since its creation in 1966.
10. The extent to which the termination of the Commis-sion
would significantly harm the public health,
safety, or welfare.
Terminating the Commission would not significantly
harm the public health, safety, and welfare of Arizona
citizens; however, it could affect the public negatively in
other ways.
First, without an arts commission, Arizona would be in-eligible
to receive or distribute federal arts funding from
the National Endowment for the Arts. In fiscal year 2001,
Sunset Factors
33
OFFICE OF THE AUDITOR GENERAL
Arizona will receive more than $600,000 from the NEA.
In fiscal year 2000, NEA funding was partially used to
fund art organizations and projects throughout Arizona
through the Commission’s grants program. Currently, all
50 states, the District of Columbia, and 5 U.S. Territories
have arts commissions or councils.
Second, many grant recipients auditors spoke with said
that without the grant funding they received from the
Commission, their services or projects would be signifi-cantly
scaled down or may not occur. Many of these pro-jects
provide significant arts educational services in areas
of the State that do not have access to art institutions or
significant funding for arts education.
Third, the Commission acts as a catalyst for raising pri-vate
funds to support the arts in Arizona. A large major-ity
of grants issued by the Commission require that the
receiving organizations match their state contributions
with funding from other sources. Additionally, organiza-tions
of all sizes reported that receiving a Commission
grant acts as a “seal of approval” from the State, which is
effective in leveraging contributions from private sources.
11. The extent to which the level of regulation exercised
by the agency is appropriate and whether less or
more stringent levels of regulation would be appro-priate.
Since the Commission is not a regulatory body, this factor
does not apply.
12. The extent to which the Commission has used pri-vate
contractors in the performance of its duties and
how effective use of private contractors could be a c-complished.
The Commission uses private contractors for manage-ment
training for arts organization personnel, occasional
graphic design work, and for assistance with computer
network installation at the Commission’s offices. One
Sunset Factors
34
OFFICE OF THE AUDITOR GENERAL
contract with a nationally known arts organization was
procured through the State Procurement Office for in-depth
strategic and management planning training for
mid-sized arts organizations. The Commission also has
contracts with two nonprofit charitable organizations to
collect and invest private contributions intended to match
state contributions to the Endowment Fund. Currently,
there do not appear to be any other opportunities for us-ing
private contractors.
OFFICE OF THE AUDITOR GENERAL
AGENCY RESPONSE
OFFICE OF THE AUDITOR GENERAL
(This Page Intentionally Left Blank)
June 15, 2001
Debbie Davenport
Office of the Auditor General
2910 North 44 Street #410
Phoenix AZ 85018
Dear Ms. Davenport:
We received the report of the Sunset Audit and performance review of the Arizona
Commission on the Arts.
We appreciated your staff’s thoughtful report, their extensive research and their
compliments about the work of the agency, its value locally and credibility nationally.
We have the following responses to the report.
Program Fact Sheet:
Goals: The Commission believes that its goals accurately reflect the interactive,
constituent-based process that involved hundreds of individuals in all counties that
developed the strategic plan and hundreds more that endorsed the plan. The report
particularly targets the sixth goal regarding resources. The Commission thoroughly
discussed this goal and determined that it was vital and appropriate to include a distinct
goal regarding resources. They discussed past planning processes where the plan was
compromised by not weighting the need for resources equally with other goals.
Performance Measures: The Commission has developed a wide range of performance
measures and indicators for its new strategic plan to learn from and improve the impact
of its work. We are thoughtful about selecting performance measures that are reasonable
to collect and which lead to improving the quality of the work.
We welcome and have used constructive input into the design and reporting of valid
measures from training from the state and our national service organization. We did not
find the statements about performance measures in the audit report useful.
There are reasons that the agency has chosen not to study the cost of grant workshops.
Those workshops have multiple goals: information, public relations, grant assistance,
networking. Multiple and differing staff participate in the workshops at differing salary
levels and spend different amounts of time in the communities. It would be cumbersome
to track grant workshops in isolation and we do not believe this knowledge would lead to
increased understanding of the work or improvements.
The same holds true for determining percentage of school children that participate in
Commission-sponsored events. We currently track the number of youth that participate
in Commission-sponsored events. It is not possible to analyze that number in relation to
the total number of students in schools. The same students may participate in several
Commission-sponsored events. That would be unreasonable to track.
The Commission has corrected the inconsistency of wording in the documents used for
collecting data.
In page iv and Page 32:
The agency agrees that it would be helpful to clarify the role of the executive director in
the enabling legislation.
Finding II Recommendation 1, page 24:
The finding of the Auditor General is agreed to and the audit recommendation has been
implemented. The agency has requested new reporting procedures from the Arizona
Community Foundation that includes the monthly general ledger sheets. These sheets are
easier to review and track administrative charges where the prior quarterly statements
were not.
Finding II, Recommendation 2:
The finding of the Auditor General is agreed to and has been implemented. The
expenditure identified was part of a project initiated and paid for by a small grant from
the Arizona Community Foundation when ArtShare started. Its purpose was to support
the initial administrative expenses of ArtShare, where none had been previously
authorized or budgeted. This minor expenditure completed that project.
Finding II, Recommendation 3, page 24:
The agency does not agree with the Auditor General and will implement as described.
We will study amending the rule to differentiate language regarding the two kinds of
funds that are reported to the legislature.
The agency does not believe that it overstates the contributions to the Endowment Fund.
The spirit and intent of the law was to stimulate community and arts organizations’
thinking and contributing for the long-term support of the arts through endowments. The
program has been a model of public/private collaboration in stimulating both state and
private giving at all levels. Other states have used Arizona as a model to create similar
programs.
The rule package was developed to comply with the intent implied in the legislation and
approved through the process of the Governor’s Regulatory Review Council. The agency
was reporting in accordance with the adopted rules.
All reports clearly differentiate between those funds that are deposited in Arizona
ArtShare accounts at either the Arizona Community Foundation or Community
Foundation for Southern Arizona and in those accounts specifically for non-profit arts
organizations. The agency is accurately disclosing the two different kinds of
contributions that are made.
There is no way to determine with any certainty that contributions to endowments of arts
organizations were or were not a result of the state’s endowment fund.
The Joint Legislative Budget Committee has favorably accepted annual reports that
separately document and report contributions to non-designated fund accounts over
which the agency has authority for the distribution of the funds and the endowment gifts
to arts organizations.
There is no language in the legislation that says the appropriation will be increased or
reduced if the comparable funding is or is not reached. The agency believes it is making
good faith efforts to document contributions to designated funds at the Arizona
Community Foundation and Community Foundation for Southern Arizona as well as the
successful efforts of non-profit arts organizations.
Finding II, Recommendation 4:
The agency agrees with the recommendation and will implement it. The agency will
continue to report contributions to endowments of non-profit arts organizations separately
as it has done and not call it match.
Contributions to create and increase endowments of non-profit arts organizations, as well
as contributions to non-designated funds at the Arizona Community Foundation or
Community Foundation for Southern Arizona, demonstrate a commitment to the long-term
health of the arts in the state that has been enhanced by the legislative leadership in
creating the Arts Endowment.
Thank you for the opportunity to respond in writing.
Sincerely,
Jane Jozoff Shelley M. Cohn
Chairperson Executive Director
Other Performance Audit Reports Issued Within
the Last 12 Months
01-10
Future Performance Audit Reports
State Board of Chiropractic Examiners
Department of Real Estate
Department of Corrections—Private Prisons
00-15 Arizona Department of Agriculture—
Commodity Development
00-16 Arizona Department of Agriculture—
Pesticide Compliance and Worker
Safety Program
00-17 Arizona Department of Agriculture—
Sunset Factors
00-18 Arizona State Boxing Commission
00-19 Department of Economic Security—
Division of Developmental
Disabilities
00-20 Arizona Department of Corrections—
Security Operations
00-20 Universities—Funding Study
00-21 Annual Evaluation—Arizona’s
Family Literacy Program
01-01 Department of Economic Security—
Child Support Enforcement
01-02 Department of Economic Security—
Healthy Families Program
01-03 Arizona Department of Public
Safety—Drug Abuse Resistance
Education (D.A.R.E.) Program
01-04 Arizona Department of
Corrections—Human Resources
Management
01-05 Arizona Department of Public
Safety—Telecommunications
Bureau
01-06 Board of Osteopathic Examiners in
Medicine and Surgery
01-07 Arizona Department
of Corrections—Support Services
01-08 Arizona Game and Fish Commission
and Department—Wildlife
Management Program
01-09 Arizona Game and Fish
Commission—Heritage Fund
01-10 Department of Public Safety—
Licensing Bureau