Performance audit, Pinal County transportation excise tax

              A REPORT
TO THE
ARIZONA LEGISLATURE
Debra K. Davenport
Auditor General
Performance Audit
Pinal County
Transportation
Excise Tax
Performance Audit Division
June • 2011
REPORT NO. 11-05
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 impartial information and specific recommendations to im-prove
the operations of state and local government entities. To this end, she provides financial audits and accounting services to
the State and political subdivisions, investigates possible misuse of public monies, and conducts performance audits of school
districts, state agencies, and the programs they administer.
The Joint Legislative Audit Committee
Audit Staff
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.azauditor.gov
Dale Chapman, Director
Dot Reinhard, Manager and Contact Person
Karl Kulick, Team Leader
Genny Wilson
Senator Rick Murphy, Chair
Senator Andy Biggs
Senator Olivia Cajero Bedford
Senator Rich Crandall
Senator Kyrsten Sinema
Senator Russell Pearce (ex officio)
Representative Carl Seel, Vice Chair
Representative Eric Meyer
Representative Justin Olson
Representative Bob Robson
Representative Anna Tovar
Representative Andy Tobin (ex officio)
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
MELANIE M. CHESNEY
DEPUTY AUDITOR GENERAL
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
June 27, 2011
Members of the Arizona Legislature
The Honorable Janice K. Brewer, Governor
Transmitted herewith is a report of the Auditor General, A Performance Audit of the Pinal County
Transportation Excise Tax. This report is in response to and was conducted under the authority
vested in the Auditor General by Arizona Revised Statutes §41-1279.03. I am also transmitting within
this report a copy of the Report Highlights for this audit to provide a quick summary for your
convenience.
As outlined in their responses, the Town of Kearny, the City of Maricopa, and the Arizona
Department of Transportation agree with the findings and plan to implement the
recommendations directed to them. As outlined in their responses, the Towns of
Mammoth and Superior agree with all but one of the findings and plan to implement all of
the recommendations directed to them.
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 28, 2011.
Sincerely,
Debbie Davenport
Auditor General
Attachment
cc: Pinal County Board of Supervisors and Manager
Incorporated Cities’ and Towns’ Councils and Managers
Arizona Department of Transportation
Pinal County residents authorized the
current transportation excise tax in 2005,
which is effective until December 31, 2026.
State law restricts the use of this excise tax
to street and highway purposes and
transportation projects.
2011
June • Report No. 11-05
Pinal County
Transportation
Excise Tax
Our Conclusion
Transportation excise tax
money is statutorily
restricted to street and
highway purposes and
transportation projects.
However, during some or
all of fiscal years 2006
through 2010, the Towns
of Kearny, Mammoth, and
Superior had loaned
excise tax monies for other
purposes, such as to cover
cash deficits in other
funds. Kearny has repaid
all of the monies, but
Mammoth and Superior
should repay the loaned
monies. Further,
municipalities lacking
policies and procedures on
appropriate excise tax
expenditures should
establish them and
provide training. Finally,
Pinal County and most
municipalities can
demonstrate the excise
tax’s impact.
Excise tax history
During fiscal years 2006 through 2010, the
time period this audit covers, the excise
tax generated $81.8 million for Pinal
County and its ten incorporated cities and
towns, which was distributed based on
population.
Recipient
Fiscal Years
2006 to 2010
Excise Tax
Distributions
2010
Population
2010
Lane Miles
Maintained1
Pinal County $30,286,896 375,770 4,229
Apache Junction 14,355,561 34,004 372
Casa Grande 11,480,528 48,571 827
Coolidge 3,543,727 11,825 411
Eloy 4,722,079 16,631 560
Florence 7,832,095 25,536 211
Kearny 1,023,665 1,950 29
Mammoth 801,983 1,426 36
Maricopa 6,219,820 43,482 509
Queen Creek 54,152 1,558 14
Superior 1,481,100 2,837 46
Total $ 81,801,606
Additional procedures and training needed to
ensure appropriate excise tax use
Three towns inappropriately loaned their
excise tax monies—At the end of fiscal
year 2006, the Town of Kearny had an
outstanding loan balance of nearly
$207,000 in road monies, which includes
excise tax monies. These monies were
used to keep its Utilities Fund going, but it
repaid all of the monies by the end of fiscal
year 2007.
During some or all of fiscal years 2006
through 2010, the Towns of Mammoth and
Superior loaned excise tax monies to other
funds to cover cash deficits. At the end of
fiscal year 2010, Mammoth had a loan
balance of nearly $389,000. As of June 30,
2008, Superior had an outstanding loan
balance of approximately $1.5 million. As
of this audit, it is unknown whether
Superior’s balance has increased or
decreased because it has not yet
completed its financial audits for fiscal
years 2009 and 2010.
Mammoth and Superior should repay the
loans. If we determine at our 6-month
followup that Mammoth and Superior have
not repaid their loans or developed and
REPORT
HIGHLIGHTS
PERFORMANCE AUDIT
Excise Tax Recipients,
Distributions, 2010 Population,
and Lane Miles Maintained
1 Lane miles are the length of the lane measured along the centerline of each lane. For example,
1 mile of a two-lane road equals 2 lane miles. The lane miles reported include both paved and
unpaved roads.
Pinal County
Transportation
Excise Tax
REPORT
HIGHLIGHTS
PERFORMANCE AUDIT
June 2011 • Report No. 11-05
A copy of the full report is available at:
www.azauditor.gov
Contact person:
Dot Reinhard (602) 553-0333
implemented a repayment schedule, the State
should also exercise the statutory option of
withholding the excise tax revenues that would
otherwise be distributed to Mammoth and Superior
until they have repaid the loans.
In addition, Mammoth, Superior, and the City of
Maricopa should develop policies and procedures
on the appropriate use of excise tax monies. These
three municipalities, as well as Kearny, which already
has policies and procedures, should train staff on
their policies and procedures.
Recommendations
• Mammoth and Superior should repay the excise
tax.
• If necessary, after our 6-month followup, the
State should withhold excise tax monies from
Mammoth and Superior until they repay the
loans.
• Mammoth, Maricopa, and Superior should
develop policies and procedures on appropriate
uses of the excise tax, and they, as well as Kearny,
should train staff on their policies and procedures.
Excise tax funded various projects—Since 2006,
one important project the County used its excise tax
for was the Edwin Road project. This project,
completed in June 2009, improved traffic safety by
paving and widening a narrow gravel road and
adding drainage
crossing
improvements (see
Photo). This project
cost approximately
$2.3 million, of which
the County contributed
approximately
$784,000 in excise tax
monies, with
additional funding
coming from other
sources.
Most cities and towns
can also show how
the excise tax
benefited their
transportation needs.
The City of Maricopa
constructed a $2.8
million bridge over a wash, with $355,000 coming
from the excise tax and the remainder coming from
other sources. The bridge was needed because this
principal route was inaccessible to citizens and
emergency responders when water was flowing in
the wash. The City of Casa Grande used
approximately $2.7 million of its excise tax monies to
improve traffic in the downtown area, and the City of
Coolidge used approximately $366,000 of its excise
tax monies on a grader and water truck to maintain
unpaved roads.
Two towns should improve project
documentation or planning—Superior received
about $1.5 million in excise tax revenue between
fiscal years 2006 and 2010, but has not been able to
demonstrate how the money was used. Other cities
and towns have project records, costs, plans, and
photographs of their projects.
Our 2006 transportation excise tax audit report
recommended that Mammoth formalize its
transportation planning process to include steps
such as developing a road evaluation system and
holding regular, documented transportation planning
meetings to identify and prioritize transportation
projects. Mammoth had provided evidence during
the audit follow-up process to demonstrate that it
had implemented the recommendation. However,
now, the town receives input only from town officials.
Recommendations
• Superior should document and demonstrate how
it has used transportation excise tax revenues.
• Mammoth should expand its planning process.
Pinal County and most municipalities can demonstrate
excise tax’s impact
Edwin Road
Before and After Improvement
Source: Photos courtesy of Pinal County.
TABLE OF CONTENTS
continued
Introduction 1
Finding 1: Additional procedures and training needed
to ensure excise tax monies used appropriately 3
Statute restricts excise tax expenditures to specific
purposes 3
Three towns inappropriately loaned excise tax
monies 3
Recurring pattern indicates need for further action 5
Recommendations 7
Finding 2: Most entities can adequately demonstrate
excise tax’s impact, but some improvements needed 9
County used excise tax to address significant issues in its
transportation plan 9
Cities and towns generally able to show how excise tax monies
benefit transportation, but two can improve 10
Recommendations 13
Appendix A: Methodology a-i
Response
Auditor General Reply to Response b-i
page i
Office of the Auditor General
TABLE OF CONTENTS
concluded
Tables
1 Excise Tax Recipients, Distributions,
2010 Population, and Lane Miles Maintained 2
2 Schedule of Loan Balances Due from Other Funds
As of June 30, 2006 through 2010 4
Photos
1 Edwin Road Before and After
Improvement 10
2 Santa Rosa
Wash Bridge 11
page ii
State of Arizona
Scope and Objectives
Introduction
Pinal County transportation excise tax
The Office of the Auditor
General has conducted a
performance audit of the
Pinal County transportation
excise tax (excise tax)
pursuant to and under the
authority vested in the
Auditor General by Arizona
Revised Statutes (A.R.S.)
§41-1279.03(A)(6). This
statute requires the Auditor
General to conduct a
performance audit in the
tenth year that a county
transportation excise tax
has been in effect and then
every fifth year thereafter.
This is the fourth
performance audit of the
Pinal County excise tax
since its initial
establishment in 1987.
Consistent with the
requirements of A.R.S.
§41-1279.03, this audit
addresses (1) whether the
County and the
incorporated cities and
towns receiving excise tax
revenues met the statutory
requirement to use these
revenues only for street
and highway purposes or
transportation projects, and
(2) whether the County and
the incorporated cities and
towns receiving excise tax
revenues can demonstrate
the excise tax’s impact in
solving transportation
problems.1
Excise tax history1
In 1986 and again in 2005, pursuant to A.R.S. §42-6107, Pinal County
(County) residents enacted a half-cent sales tax to provide additional
funding for the construction, reconstruction, maintenance, repair, and
roadside development of county, city, and town roads, streets, and
bridges.2 The reapproved excise tax began on January 1, 2007, and will be
in place until December 31, 2026.
Excise tax uses and restrictions
A.R.S. §28-6392(B) restricts excise tax use to street and highway purposes
or for transportation projects. In a 2005 publicity pamphlet, the Pinal
County Board of Supervisors further defined how the excise tax could be
used by the County and the ten incorporated cities and towns receiving the
tax (see Table 1, page 2, for a listing of the cities and towns). Purposes
outlined in the pamphlet included roadway construction, transportation
systems, and studies (see textbox).
1 A.R.S. §41-1279.03 also requires a review of the distribution of Highway User Revenue Fund monies to
ensure compliance with A.R.S. Title 28, Ch. 18, Article 2 (A.R.S. §28-6531 et seq.). Because the Auditor
General’s Office reviewed this information in its compliance attestation report titled Pinal County Highway
User Revenue Fund Monies, Year Ended June 30, 2009, it was not addressed in this audit.
2 A.R.S. §42-6107 gives counties the authority to levy a transportation excise tax if the majority of qualified
electors voting at a county-wide special election or on a ballot proposition at a general election approves
the transportation excise tax.
page 1
Highway and street purposes
• Construction—Includes new roads, streets,
and bridges, and maintenance and repair.
• Bond payments—Includes principal and
interest payments on highway and street
bonds.
• Transportation systems—Includes trails,
sidewalks, curbs, and pathways.
• Studies—Includes regional and interagency
transportation projects and studies.
Source: Auditor General staff analysis of the County’s 2005
publicity pamphlet.
Scope and Objectives
INTRODUCTION
Office of the Auditor General
page 2
Excise tax revenues and
distribution
Since its inception, the excise tax has
generated almost $182 million in revenue for
the County and its incorporated cities and
towns. During fiscal years 2006 through
2010, the period covered by this audit, the
tax generated $81.8 million. Table 1 shows
the amount distributed to the County and
each of its incorporated cities and towns
during this period. The Pinal County
Treasurer’s Office distributes the excise tax
monies collected to the County and its
incorporated cities and towns proportionately
based on their population. In addition to
excise tax revenue, the County and its
incorporated cities and towns rely on other
monies to complete their transportation
projects, such as Highway User Revenue
Fund, and Local Transportation Assistance
Fund monies (see textbox).1
1 A.R.S. §§28-8101 through 28-8104 were repealed effective June 15, 2010. This legislative action eliminated the LTAF
and its state lottery revenue distribution.
Other transportation revenue
Highway User Revenue Fund (HURF)—Consists of revenue from various
transportation taxes and fees, such as motor fuel taxes, and title, registration, and
driver licenses fees. These monies are distributed by the State Treasurer, and the
amount distributed is based, in part, on population.
Local Transportation Assistance Fund (LTAF)—Most of the revenue deposited in this
fund was generated from state lottery revenue and distributed by the State Treasurer.
The amount distributed was based on population.1
1 A.R.S. §§28-8101 through 28-8104 were repealed effective June 15, 2010. This legislative action eliminated the LTAF
and its lottery distribution.
Source: Auditor General staff summary of A.R.S. §§28-6501, 6532, 6533, 6538, and 6540; and Title 28, Ch. 24, Article 1, as
repealed by Laws 2010, 7th S.S., Ch. 12, §12.
Table 1: Excise Tax Recipients, Distributions,
2010 Population, and Lane Miles Maintained
1 Lane miles are the length of the lane measured along the centerline of each
lane. For example, 1 mile of a two-lane road equals 2 lane miles. The lane miles
reported include both paved and unpaved roads, but exclude portions of roads
such as turning and median lanes.
2 The City of Apache Junction and the Town of Queen Creek are located in both
Maricopa County and Pinal County. The lane miles listed in this table are for
Pinal County only. In addition, auditors used the 2009 population estimate,
which provided the Pinal County portion of the city or town. Auditors used the
2009 figure because the 2010 population breakout by county for cities or towns
that lie within multiple counties will not be available until July 1, 2011.
Source: Auditor General staff analysis of 2009 and 2010 U.S. Census Bureau
population data, Pinal County Treasurer’s Office transportation excise tax
distribution data for fiscal years 2006 through 2010, and calendar year
2010 lane miles information provided by the Arizona Department of
Transportation.
Recipient
Fiscal Years
2006 to 2010
Excise Tax
Distributions
2010
Population
2010
Lane Miles
Maintained1
Pinal County $30,286,896 375,770 4,229
Apache Junction 14,355,561 34,004 372
Casa Grande 11,480,528 48,571 827
Coolidge 3,543,727 11,825 411
Eloy 4,722,079 16,631 560
Florence 7,832,095 25,536 211
Kearny 1,023,665 1,950 29
Mammoth 801,983 1,426 36
Maricopa 6,219,820 43,482 509
Queen Creek 54,152 1,558 14
Superior 1,481,100 2,837 46
Total $ 81,801,606
2
2
State of Arizona
Additional procedures and training needed
to ensure excise tax monies used
appropriately
The Towns of Kearny,
Mammoth, and Superior
inappropriately loaned
transportation excise tax
(excise tax) monies during
some or all of fiscal years
2006 through 2010. Statute
requires excise tax monies
be used only for street and
highway purposes or
transportation projects.
Previous audit reports
raised this same concern.
Although the Town of
Kearny has repaid all of the
loaned monies, the Towns
of Mammoth and Superior
still had outstanding loan
amounts. As a result, if the
Towns of Mammoth and
Superior have not made
sufficient progress in
complying with this report’s
recommendations at the
time the Office of the
Auditor General performs
its 6-month followup, it
would be appropriate to
invoke a statutory provision
Arizona Revised Statutes
(A.R.S.) §28-6392(B), that
would withhold further
excise tax distributions
from these towns until they
can repay the
inappropriately used
monies. Further,
municipalities lacking
policies and procedures on
appropriate excise tax
expenditures should
establish them and provide
training.
Statute restricts excise tax expenditures to specific
purposes
A.R.S. §28-6392 states that transportation excise tax revenues may be
used only for street and highway purposes or for transportation projects.
Highway and street purposes include costs of rights-of-way acquisitions as
well as the construction, reconstruction, maintenance, repair, and roadside
development of county, city, and town roads, streets, and bridges. Excise
tax revenues may also be used to pay principal and interest on highway
and street bonds and personnel costs, including salaries and benefits, for
employees working directly or indirectly on transportation projects.
Three towns inappropriately loaned excise tax
monies
Auditors reviewed audited financial statements and a sample of the
County’s and its ten incorporated cities’ and towns’ excise tax expenditures
made during fiscal years 2006 through 2010. For most of these entities,
excise tax monies were used for purposes authorized by statute. However,
auditors determined that the Towns of Kearny, Mammoth, and Superior
inappropriately loaned excise tax monies. These towns were cited for
inappropriate loans or expenditures in prior performance audits as well.
Current audit found inappropriate loans of excise tax
monies—As shown in Table 2 (see page 4), auditors found that the
Towns of Kearny, Mammoth, and Superior inappropriately loaned excise
tax or road fund monies to other funds during some or all of fiscal years
2006 through 2010.1 Specifically, the Town of Kearny indicated that it
borrowed nearly $207,000 in road monies in fiscal year 2006 to maintain
ongoing operations of its Utilities Fund, but repaid this amount to its road
1 The Town of Kearny, in fiscal year 2006, and the Town of Mammoth, in fiscal years 2006 through 2010,
each combined their excise tax revenues with other restricted road monies, such as Highway User
Revenue Fund (HURF) monies, into single funds.
page 3
FINDING 1
Office of the Auditor General
page 4
fund by June 30, 2007. However, two of the towns—Mammoth and Superior—still
had outstanding loan amounts. For fiscal years 2006 through 2010, the Town of
Mammoth inappropriately loaned monies to other funds. As of June 30, 2010, the
Town of Mammoth had an outstanding loan balance of nearly $389,000.1 The Town
of Mammoth loaned monies to cover cash deficits in its general and grants funds.
In addition, in fiscal years 2006 through 2008, the Town of Superior inappropriately
loaned monies to other funds. As of June 30, 2008, the Town of Superior had an
outstanding loan balance of approximately $1.5 million.2 Auditors were unable to
determine whether the Town of Superior had made additional loans or reduced the
outstanding loan balance during fiscal years 2009 and 2010 because Superior
had yet to complete its annual financial audit for each of these fiscal years, and the
Town of Superior was unable to provide auditors with any additional information
regarding the outstanding loan balance during the audit. However, according to
the Town of Superior’s June 30, 2008, financial statements, the $1.5 million due to
its HURF/LTAF Fund, which includes excise tax monies, was used to pay for
excess grant expenditures the Town of Superior made over grant reimbursement
monies it received.
Loans of excise tax monies to other funds are inappropriate because they do not
fall within the statutory definitions of street and highway purposes or transportation
projects. Further, if excise tax monies are loaned to other funds, then these monies
are not available for appropriate purposes such as road construction and
maintenance.
1 The loan balance includes HURF monies.
2 For fiscal year 2008, the Town of Superior’s financial statements did not indicate how much of the money loaned to
other funds was specifically from its excise tax monies. Therefore, this amount also includes other restricted road
monies, such as HURF monies.
Loans of excise tax
monies for purposes
other than street,
highway, or transportation
projects are
inappropriate.
Table 2: Schedule of Loan Balances Due from Other Funds
As of June 30, 2006 through 2010
1 The Town of Kearny, in fiscal year 2006, and the Town of Mammoth, in fiscal years 2006 through
2010, each combined their excise tax revenues with other restricted road monies, such as HURF
monies, into a single fund.
2 For fiscal years 2007 and 2008, the Town of Superior’s financial statements did not indicate how
much of the money loaned to other funds was specifically from its excise tax monies. Therefore,
these amounts include other restricted road monies, such as HURF monies.
3 The Town of Superior had yet to complete its annual financial audit for either fiscal year 2009 or
2010 at the time of this performance audit; therefore, auditors were unable to determine if the town
had repaid these loans or made additional loans.
Source: Auditor General staff analysis of the Towns of Kearny’s and Mammoth’s fiscal years 2006
through 2010 audited financial statements, and the Town of Superior’s fiscal years 2006
through 2008 audited financial statements.
2006 2007 2008 2009 2010
Kearny1 $206,996
Mammoth1 495,452 $542,445 $ 458,179 $455,915 $388,766
Superior 170,670 486,9972 1,511,0962 NA3 NA3
State of Arizona
page 5
Previous audits identified inappropriate expenditures, including
loans—The Auditor General’s 1998 (see Report No. 98-8), 2001, and 2006 (see
Report No. 06-03) performance audits found that some of the incorporated cities
and towns—including the three identified in this current audit—had inappropriately
used excise tax monies.1 Specifically, the municipalities of Apache Junction, Eloy,
Florence, Kearny, Mammoth, and Superior were previously found to have
inappropriate expenditures for items such as loaning excise tax monies to other
funds and using excise tax monies to pay for things such as bonuses, food, and
liability insurance. These prior audits recommended that these municipalities pay
back the inappropriately loaned or expended monies, and develop and implement
written policies and procedures that specifically address how excise tax monies
can be used. All the municipalities provided evidence during the audit follow-up
process that the prior audits’ recommendations had been implemented.
Recurring pattern indicates need for further action
Auditors identified several actions that are needed to ensure greater compliance with
statutory requirements for spending excise tax monies. These actions include, where
appropriate, (1) repaying inappropriately loaned monies, (2) formal written procedures,
(3) training on established procedures, and (4) steps to ensure transportation monies
are not inappropriately deposited in other funds.
Towns should repay loans—The three towns that inappropriately loaned excise
tax monies should take the following actions:
• Although the Town of Kearny has repaid the inappropriate loan it made in fiscal
year 2006, it should ensure that it does not loan any restricted road fund
monies, including excise tax monies, to other funds in the future.
• The Towns of Mammoth and Superior need to repay the inappropriately
borrowed excise tax or other restricted road fund monies and discontinue the
practice of loaning excise tax or road fund monies to other funds. If resources
are not currently available to completely repay the loans, a repayment
schedule should be developed and implemented.
Given that previous audits also identified inappropriate expenditures for these
towns, if the Office of the Auditor General determines that the Towns of Mammoth
and Superior have not repaid their loans or developed and implemented a
repayment schedule at the time of its 6-month followup, the State should take the
additional step of withholding excise tax monies from the Towns of Mammoth and
Superior. According to A.R.S. §28-6392(B), if the Auditor General identifies a
jurisdiction that has not used its excise tax revenues as required, the Arizona
1 The 2001 performance audit was conducted by KPMG LLP under contract with the Arizona Auditor General’s Office.
Office of the Auditor General
page 6
Department of Transportation shall notify the Arizona State Treasurer to withhold
excise tax revenues from the noncomplying jurisdiction until it can present
satisfactory evidence to the Auditor General that it has spent monies for street and
highway purposes from a nonrestricted revenue source equal to the amount of
excise tax monies inappropriately spent.
Additional training or procedures needed—The Town of Kearny has
developed written policies and procedures that outline the appropriate use of
restricted road fund monies, including the excise tax. However, to help ensure that
it continues to appropriately spend excise tax monies, the Town of Kearny should
provide training on its written procedures, including the appropriate uses of excise
tax monies, to the staff who are responsible for approving excise tax expenditures.
Three Municipalities—the City of Maricopa and the Towns of Mammoth and
Superior—do not have written policies and procedures regarding the appropriate
use of excise tax monies.1 Given the recurring problem of inappropriate loans or
expenditures at the Towns of Mammoth and Superior, they should develop and
implement written policies and procedures regarding the appropriate use of excise
tax monies and provide training to appropriate staff on the developed policies and
procedures. In addition, staff at the City of Maricopa do not have written policies
and procedures and would benefit from guidance on the appropriate uses of
excise tax monies. According to internal control standards, control activities such
as policies and procedures help ensure compliance with applicable laws and
regulations.2 Therefore, in addition to the Towns of Mammoth and Superior, the
City of Maricopa should develop and implement written policies and procedures
that outline the appropriate use of excise tax monies and ensure that appropriate
staff are trained on them.
Mammoth should implement reconciliation process—Auditors also
reconciled the Pinal County Treasurer’s excise tax revenue distributions for fiscal
year 2010 to the County’s and its cities’ and towns’ respective funds into which
they deposit excise tax monies.3 Only one entity—the Town of Mammoth—had a
reconciliation problem. Auditors determined that Mammoth had inappropriately
deposited more than $27,000 of its excise tax monies into funds other than its
HURF/LTAF Fund, which is the fund where it deposits excise tax monies.
Specifically:
• In fiscal year 2010, Mammoth, which deposits into a single fund both its excise
tax monies along with other similarly restricted road monies such as HURF
monies, inappropriately deposited $9,027 of its excise tax monies in a fund
other than its HURF/LTAF Fund.
1 The other municipalities within the County had written excise tax policies and procedures.
2 United States General Accounting Office (1999). Standards for internal control in the federal government [GAO/AIMD-
00-21.3.1]. Washington, DC: Author.
3 The Cities of Apache Junction and Eloy and the Towns of Florence, Mammoth, and Queen Creek combine excise tax
revenues with other restricted road fund monies, such as HURF monies, into a single fund.
The Town of Mammoth
inappropriately deposited
more than $27,000 of its
excise tax monies into
the wrong funds.
State of Arizona
page 7
• Because auditors identified this concern, they also reviewed Mammoth’s fiscal
years 2006 through 2009 revenue receipts and identified that in fiscal year
2007, Mammoth also deposited $18,305 of its excise tax monies into a fund
other than its HURF/LTAF Fund.
Mammoth should repay its HURF/LTAF Fund with those monies inappropriately
deposited in other funds and perform at least annual revenue reconciliations to
prevent this significant error from recurring in the future.
Recommendations:
1.1 The Town of Kearny should ensure that it does not loan any restricted road fund
monies, including excise tax monies, to other funds in the future.
1.2 The Towns of Mammoth and Superior need to repay the inappropriately
borrowed excise tax or other restricted road fund monies and discontinue the
practice of loaning excise tax or other restricted road fund monies to other
funds. If resources are not currently available to completely repay loans, a
repayment schedule should be developed and implemented.
1.3 If the Office of the Auditor General determines at its 6-month followup that the
Towns of Mammoth and Superior have not repaid their loans or developed and
implemented a repayment schedule, in accordance with the provisions of
A.R.S. §28-6392(B), the Arizona Department of Transportation should notify the
Arizona State Treasurer to withhold excise tax revenues from the Towns of
Mammoth and Superior until they can present satisfactory evidence to the
Auditor General that they have repaid inappropriately loaned monies.
1.4 The Town of Kearny should provide training on its written procedures regarding
the appropriate uses of excise tax monies to the staff who are responsible for
approving excise tax expenditures.
1.5 The City of Maricopa and the Towns of Mammoth and Superior should develop
and implement written policies and procedures that outline the appropriate use
of excise tax monies and train staff on them.
1.6 The Town of Mammoth should repay its HURF/LTAF Fund for the $27,332
inappropriately deposited in other funds and perform at least annual revenue
reconciliations to prevent this from recurring in the future.
Office of the Auditor General
page 8
State of Arizona
Most entities can adequately demonstrate
excise tax’s impact, but some
improvements needed
Pinal County (County) and
its ten incorporated cities
and towns are generally
able to show how the
expenditure of the Pinal
County transportation
excise tax (excise tax)
monies has affected
transportation problems in
their respective
communities. Further, most
have planning processes
that allow them to identify
how to spend these monies
in the future. However,
although most entities have
satisfactory procedures,
the Town of Superior can
improve documentation of
the excise tax impact and
the Town of Mammoth can
improve its planning
procedures by using
procedures in place in
other municipalities.
County used excise tax to address significant
issues in its transportation plan
The County was able to demonstrate that it used its fiscal years 2006
through 2010 excise tax monies to help address issues, such as traffic
safety and congestion, as well as deteriorating road conditions. For future
expenditures, the County uses Transportation Advisory Committees to
identify transportation needs and to develop a 5-year plan to address
those needs.
County projects improved traffic safety, congestion, pollution,
and road conditions—Since the Auditor General’s last performance
audit in 2006 (see Report No. 06-03), the County has used excise tax
monies for projects that have helped address major transportation
problems. According to the County, three of its most important projects
were:
• Thornton Road—The County resurfaced 3.5 miles of this road in
March 2011 to prevent further deterioration. This project cost
approximately $3.3 million, of which the County contributed
approximately $1.7 million in excise tax monies. In addition, the City
of Casa Grande contributed approximately $1.6 million to this
project.
• Edwin Road—This 1.3-mile project, completed in June 2009,
improved traffic safety by paving and widening a narrow gravel road
and adding drainage crossing improvements (see Photo 1, page
10). The project cost approximately $2.3 million, of which the County
contributed $784,000 in excise tax monies. In addition, Robson
Communities, an adult retirement community, contributed
approximately $900,000, and Pima County contributed approximately
$567,000.
• J-Curve Hunt\Ellsworth—This approximately 1.5-mile project,
completed in February 2009, improved traffic congestion by
eliminating the existing “offset” four-way stop at the intersection of
Hunt Highway and Ellsworth Road by constructing a continuous
page 9
FINDING 2
Office of the Auditor General
flowing, curved, two-lane road with a separate left-turn
lane. The project cost approximately $715,000, of which
the County contributed approximately $615,000 in excise
tax monies. In addition, the Town of Queen Creek and
Maricopa County each contributed $50,000.
In addition to funding these specific projects, the County
has also used excise tax monies to generally improve
road conditions. For example, it has a program to reduce
the number of dirt roads in the County and reduce air
pollution concerns resulting from these roads, and a
pavement preservation program to maintain the existing
paved roadways.
County uses Committees to identify
transportation needs—The County uses
Transportation Advisory Committees (Committees)—one
for each of its three board of supervisor districts—to
review and observe road conditions, hold public meetings
to obtain citizen input, and compile input from the
County’s Public Works Department, including feasibility
analyses, cost estimates, and recommendations.1 The
Committees then annually draft recommendations and
compile them into a 5-year transportation plan. According
to the Committees’ bylaws, the projects included in the
plan are based on consideration of traffic safety, long-range
transportation and land-use planning, and
economic and environmental issues. The Committees
then present the plan to the County Board of Supervisors
for approval. Some of the County’s planned projects include
continuing to widen Hunt Highway, the main thoroughfare connecting northern
Pinal County with the Metropolitan Phoenix Southeast Valley, and the widening of
or construction of multiple-lane roadways to help relieve congestion in the north-central
part of Pinal County.
Cities and towns generally able to show how excise tax
monies benefit transportation, but two can improve
Most of the ten cities and towns receiving excise tax monies were able to adequately
demonstrate how they used these monies to address their transportation needs.
Although their efforts vary, most also have a planning process in place to identify
1 At the time of the audit, according to the County, it was in the process of revising its Transportation Advisory Committee
process to make it more efficient, including consolidating its three committees into a single committee.
page 10
Photo 1: Edwin Road Before and After
Improvement
Source: Photos courtesy of Pinal County.
State of Arizona
future needs. However, the Town of Superior should better document completed
street, highway, or transportation projects, and the Town of Mammoth should take
steps to improve its planning process.
Cities and towns used excise tax monies in various ways—Since the
last performance audit in 2006, the incorporated cities and towns in Pinal
County have used excise tax monies for road maintenance, new road
construction, dust abatement, and equipment to maintain and repair
roads. For example:
• City of Maricopa’s bridge project—This project improved road
conditions by constructing a bridge over a wash (see Photo 2). Prior
to the bridge’s construction, this principal arterial route was
inaccessible to citizens and emergency responders when water
was flowing in the wash. This project cost approximately $2.8
million, $355,000 of which came from excise tax monies, with the
remainder coming from other sources, including the City of
Maricopa’s General Fund.
• City of Casa Grande’s Downtown Phase I project—This ¾-mile project
improved traffic circulation in downtown Casa Grande by reconstructing the
existing roadways in the downtown area and making pedestrian and
landscape improvements along Main Street. The City of Casa Grande used
approximately $2.7 million in excise tax monies to pay for the project.
• City of Coolidge’s equipment purchase—The City of Coolidge spent almost
$224,000 on a road grader and approximately $142,000 on a water truck to
more efficiently maintain its unpaved roads.
Cities and towns use various planning methods to identify
transportation needs—The cities and towns use different planning methods
to identify appropriate projects and/or uses of future excise tax monies. Seven
municipalities have long-term planning processes to identify transportation
projects. Specifically, the Cities of Casa Grande, Coolidge, Eloy, and Maricopa
and the Towns of Florence, Queen Creek, and Superior have all completed a small
area transportation study and/or have developed a regional transportation plan or
capital improvement plan that helps identify and prioritize projects. The remaining
three municipalities have more limited planning processes. Specifically, the City of
Apache Junction and the Town of Kearny use an annual planning process. For
example, the City of Apache Junction prepares an annual street maintenance plan
and uses the excise tax monies on the projects with the highest expected impact.
The Town of Mammoth’s planning process, the least developed of all the
municipalities, is discussed below.
Two towns should take additional steps—Auditors identified ways in which
the Towns of Superior and Mammoth should improve their processes:
Seven municipalities
have long-term planning
processes to identify
transportation projects.
page 11
Photo 2: Santa Rosa
Wash Bridge
Source: Photo courtesy of the
City of Maricopa.
Office of the Auditor General
page 12
• The Town of Superior should improve documentation of impacts—The
Town of Superior received approximately $1.5 million in excise tax monies
during fiscal years 2006 through 2010. Although Superior completed a small
area transportation study in August 2008, which includes a list of transportation
improvement projects, a town official indicated that he could not identify any
road repairs that had been completed. Further, although this town official
indicated that excise tax monies had been used to purchase or replace signs,
such as stop signs, Superior was unable to provide project record documents
such as a list of signs purchased along with associated purchase orders or
invoices. Other cities and towns document the impact of the excise tax through
a variety of project records, including scopes of work, estimated and actual
costs, contracts, project plans, and photographs. Town of Superior officials
should be able to take similar actions. Therefore, the Town of Superior should
develop a record-keeping mechanism for completed street and highway and
transportation projects.
• The Town of Mammoth should strengthen its planning process—Using
steps already in place in other county municipalities, the Town of Mammoth
can improve its planning process for using future excise tax distributions. The
Town of Mammoth received approximately $802,000 in excise tax monies
during fiscal years 2006 through 2010. According to town officials, Mammoth
restricts its planning efforts to obtaining input from the town council and public
works director about projects that can be completed with available resources,
such as road maintenance. However, the Town of Kearny, which received a
similar amount of excise tax monies during the audit period, conducts street
condition assessments and develops street repair and maintenance
recommendations based on those assessments. The recommendations are
then presented to its town council for approval. The Town of Mammoth should
add similar steps to its planning process. The Auditor General’s 2006
performance audit report (see Report No. 06-03) similarly recommended that
the Town of Mammoth formalize its planning process by implementing steps
such as developing a road evaluation system and holding regular, documented
transportation planning meetings to identify and prioritize transportation
projects. Although Mammoth officials provided evidence during the audit
follow-up process that this prior recommendation had been implemented, as
of May 23, 2011, Mammoth had not provided auditors with documentation to
support that it continued this practice beyond October 2006. In addition,
during this audit, town officials indicated that its planning process is now
limited only to input from its town council and public works director.
State of Arizona
page 13
Recommendations:
2.1 The Town of Superior should develop a record-keeping mechanism for
completed street and highway and transportation projects.
2.2 The Town of Mammoth should add steps to its planning process, as it did in
October 2006, such as developing a road evaluation system and holding
regular, documented transportation planning meetings to identify and prioritize
transportation projects.
Office of the Auditor General
page 14
State of Arizona
Methodology
This appendix provides
information on the methods
auditors used to meet the
audit objectives.
We conducted this
performance audit in
accordance with generally
accepted government
auditing standards. Those
standards require that we
plan and perform the audit
to obtain sufficient,
appropriate evidence to
provide a reasonable basis
for our findings and
conclusions based on our
audit objectives. We
believe that the evidence
obtained provides a
reasonable basis for our
findings and conclusions
based on our audit
objectives.
The Auditor General and
staff express appreciation
to Pinal County’s manager
and staff, and its
incorporated cities’ and
towns’ managers and staff
for their cooperation and
assistance throughout the
audit.
Auditors used the following specific methods to meet its audit objectives:
• To determine compliance with statutory requirements for the Pinal
County transportation excise tax expenditures, auditors obtained and
analyzed the County’s, cities’, and towns’ revenue and expenditure
data for fiscal years 2006 through 2010.1 Auditors reconciled the Pinal
County Treasurer’s excise tax disbursements for fiscal year 2010 to the
County’s, cities’, and towns’ respective funds into which they deposit
excise tax monies.2,3 To determine if the data was reasonably complete,
auditors compared the general ledger data the County, cities, and
towns provided to their fiscal years 2006 through 2010 audited
financial statements. However, auditors were unable to determine
whether the data the Town of Superior provided was reasonably
complete because Superior did not provide sufficient information and
its fiscal years 2009 and 2010 financial statements were not yet
completed. For fiscal years 2006 through 2010, auditors tested a
judgmental sample of 141 of the 56,224 excise tax expenditures,
interfund transfers, and adjusting entries. The expenditures, interfund
transfers, and adjusting entries were selected for further review based
on vendor name or transaction description. Auditors then obtained
additional information, such as invoices from the County, cities, and
towns to determine the appropriateness of the expenditures.
• To determine the County’s, cities’, and towns’ ability to demonstrate
the impact of the excise tax in solving transportation problems,
auditors analyzed information related to county, city, and town projects
completed during fiscal years 2006 through 2010, including project
costs, descriptions, and contract information. Auditors also reviewed
information related to future project planning and selection processes,
including a 5-year transportation plan, small area transportation
studies, pavement management plans, and capital improvement
plans.
1 The County, cities, and towns sent auditors their general ledger data that was used to compile their annual
financial statements and independent auditors’ reports. However, data for the first 6 months of fiscal year
2006 was not readily available for the Town of Queen Creek. In addition, the Town of Superior did not
provide its general ledger data for fiscal year 2006.
2 The Cities of Apache Junction and Eloy and the Towns of Florence, Mammoth, and Queen Creek combine
excise tax revenues with other restricted road fund monies, such as Highway User Revenue Fund monies,
into a single fund.
3 For the Town of Mammoth, auditors also reconciled fiscal years 2006 through 2009.
APPENDIX A
page a-i
Office of the Auditor General
• Auditors’ work on internal controls focused on the County’s, cities’, and towns’
processes or procedures established for ensuring compliance with excise tax
statutory requirements and for identifying and selecting transportation projects.
Auditors did not conduct test work on information system controls, but took
other steps such as reconciling revenue and expenditure data to audited
financial statements to ensure the data the County, cities, and towns provided
was reasonably complete and accurate for this audit’s purposes.
page a-ii
State of Arizona
RESPONSE
RESPONSE
The following auditor comments are provided to address the statements the Town of
Mammoth made related to Finding 1, Recommendation 1.2:
The Town of Mammoth’s response indicates that it has not loaned its Pinal County
transportation excise tax (excise tax) monies in any permanent way to any other
portion of the Town or for any other purpose and that there is no statute that directly
or indirectly disallows for a temporary transaction that may be made to properly
reflect its financial statements. However, auditors’ review of the Town of Mammoth’s
financial statements and other financial information found that Mammoth did not
have sufficient general fund cash or other resources to pay for its operations. To help
cover these shortfalls, Mammoth loaned monies from another fund, which primarily
consists of restricted monies such as excise tax and Highway User Revenue Fund
monies, to its general fund. This borrowing from its restricted fund, which has
persisted in various amounts since June 30, 2006, (see Table 2, page 4) is considered
a loan. Additionally, if no other revenue source besides its general fund existed,
Mammoth would have had to borrow money or obtain a line of credit to pay for its
operations. According to A.R.S. §28-6392(B), a town can only use the excise tax
revenues for street and highway purposes or transportation projects. Therefore, the
Town of Mammoth had no authority to loan these restricted monies, even on a
temporary basis, to cover its general operations.
AUDITOR GENERAL
REPLY TO RESPONSE
page b-i
AUDITOR GENERAL REPLY
Office of the Auditor General
Performance Audit Division reports issued within the last 24 months
10-04 Department of Agriculture—
Food Safety and Quality
Assurance Inspection Programs
10-05 Arizona Department of Housing
10-06 Board of Chiropractic Examiners
10-07 Arizona Department of
Agriculture—Sunset Factors
10-08 Department of Corrections—
Prison Population Growth
10-L1 Office of Pest Management—
Regulation
10-09 Arizona Sports and Tourism
Authority
11-01 Department of Public Safety—
Followup on Specific
Recommendations from
Previous Audits and Sunset
Factors
11-02 Arizona State Board of Nursing
11-03 Arizona Department of Veterans'
Services—Fiduciary Program
11-04 Arizona Medical Board
09-06 Gila County Transportation
Excise Tax
09-07 Department of Health Services,
Division of Behavioral Health
Services—Substance Abuse
Treatment Programs
09-08 Arizona Department of Liquor
Licenses and Control
09-09 Arizona Department of Juvenile
Corrections—Suicide Prevention
and Violence and Abuse
Reduction Efforts
09-10 Arizona Department of Juvenile
Corrections—Sunset Factors
09-11 Department of Health Services—
Sunset Factors
10-01 Office of Pest Management—
Restructuring
10-02 Department of Public Safety—
Photo Enforcement Program
10-03 Arizona State Lottery
Commission and Arizona State
Lottery
Future Performance Audit Division reports
Arizona Department of Veterans’ Services—Veteran Home