Pima County : report on internal control and compliance, year ended June 30, 2007

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              Report on Internal Control and Compliance
A REPORT
TO THE
ARIZONA LEGISLATURE
Pima County
Year Ended June 30, 2007
Financial Audit Division
Debra K. Davenport
Auditor General
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 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, investigates possible misuse of public monies, and
conducts performance audits of school districts, state agencies, and the programs they administer.
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
Pima County
Report on Internal Control and Compliance
Year Ended June 30, 2007
Table of Contents Page
Comprehensive Annual Financial Report
Issued Separately
Report on Internal Control over Financial Reporting and on Compliance and
Other Matters Based on an Audit of Basic Financial Statements Performed in
Accordance with Government Auditing Standards
1
Schedule of Findings and Recommendations 3
County Response
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
Independent Auditors’ Report on Internal Control over Financial Reporting
and on Compliance and Other Matters Based on an Audit of Basic Financial
Statements Performed in Accordance with Government Auditing Standards
Members of the Arizona State Legislature
The Board of Supervisors of
Pima County, Arizona
We have audited the financial statements of the governmental activities, business-type activities, the
discretely presented component unit, each major fund, and aggregate remaining fund information of Pima
County as of and for the year ended June 30, 2007, which collectively comprise the County’s basic
financial statements, and have issued our report thereon dated December 19, 2007. Our report was
modified to include a reference to our reliance on other auditors. We conducted our audit in accordance
with U.S. generally accepted auditing standards and the standards applicable to financial audits
contained in Government Auditing Standards, issued by the Comptroller General of the United States.
Other auditors audited the financial statements of the Stadium District, School Reserve Fund, Self
Insurance Trust, Wastewater Management, Pima Health System & Services, Development Services, and
Southwestern Fair Commission, as described in our report on the County’s financial statements. This
report includes our consideration of the results of the other auditors’ testing of internal control over
financial reporting and compliance and other matters that are reported on separately by those other
auditors. However, this report, insofar as it relates to the results of the other auditors, is based solely on
the reports of the other auditors.
Internal Control over Financial Reporting
In planning and performing our audit, we considered the County’s internal control over financial reporting
as a basis for designing our auditing procedures for the purpose of expressing our opinions on the basic
financial statements, but not for the purpose of expressing an opinion on the effectiveness of the County’s
internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of
the County’s internal control over financial reporting.
Our consideration of internal control over financial reporting was for the limited purpose described in the
preceding paragraph and would not necessarily identify all deficiencies in internal control over financial
reporting that might be significant deficiencies or material weaknesses. However, as discussed below, we
identified a certain deficiency in internal control over financial reporting that we consider to be a significant
deficiency.
A control deficiency exists when the design or operation of a control does not allow management or
employees, in the normal course of performing their assigned functions, to prevent or detect
misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control
deficiencies, that adversely affects the County’s ability to initiate, authorize, record, process, or report
2
financial data reliably in accordance with generally accepted accounting principles such that there is more
than a remote likelihood that a misstatement of the County’s basic financial statements that is more than
inconsequential will not be prevented or detected by the County’s internal control. We consider item 07-01
described in the accompanying Schedule of Findings and Recommendations to be a significant
deficiency in internal control over financial reporting.
A material weakness is a significant deficiency, or combination of significant deficiencies, that results in
more than a remote likelihood that a material misstatement of the financial statements will not be
prevented or detected by the County’s internal control.
Our consideration of internal control over financial reporting was for the limited purpose described in the
first paragraph of this section and would not necessarily identify all deficiencies in internal control that
might be significant deficiencies and, accordingly, would not necessarily disclose all significant
deficiencies that are also considered to be material weaknesses. However, we believe that the significant
deficiency described above is not a material weakness.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the County’s basic financial statements are free
of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations,
contracts, and grant agreements, noncompliance with which could have a direct and material effect on the
determination of financial statement amounts. However, providing an opinion on compliance with those
provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The
results of our tests and those of the other auditors disclosed no instances of noncompliance or other
matters that are required to be reported under Government Auditing Standards.
Pima County’s response to the finding identified in our audit is presented on page 5. We did not audit the
County’s response and, accordingly, we express no opinion on it.
This report is intended solely for the information and use of the members of the Arizona State Legislature,
the Board of Supervisors, federal awarding agencies, and pass-through entities and is not intended to be
and should not be used by anyone other than these specified parties. However, this report is a matter of
public record, and its distribution is not limited.
Dennis L. Mattheisen, CPA
Financial Audit Director
December 19, 2007
Pima County
Schedule of Findings and Recommendations
Year Ended June 30, 2007
3
07-01
Pima County should strengthen controls over investment activities
The Pima County Treasurer’s Office manages and invests more than $775 million in public monies. Of
these monies, approximately 50 percent is for Pima County, and the remainder is for other political
subdivisions, including school and fire districts. Historically, the County Treasurer only invested in the
Arizona State Treasurer’s investment pools. In April 2006, the County Treasurer began investing in United
States agency securities, repurchase agreements, and commercial paper. At June 30, 2007, the County
Treasurer had $420 million dollars in these investments and $195 million invested in the State Treasurer’s
investment pools.
To fulfill the responsibility of managing these monies, the County Treasurer’s Office should have strong
internal controls to safeguard public monies, promote overall operating efficiency and effectiveness, and
ensure compliance with investment laws and regulations. However, at June 30, 2007, the County
Treasurer’s Office did not have adequate written investment policies and procedures to ensure that timely
reviews of its investment brokers’ investment activities were performed and documented by authorized
employees. Furthermore, the County Treasurer’s Office should require its securities to be held with an
independent trust company or department in the County’s name to reduce the risk of investment losses in
case its investment broker failed. However, the County’s investments were held by its investment broker
who purchased and sold securities for the County in accordance with county investment policies. The
investment broker also recommended and sold its own investments to the County. Therefore, the County
was at risk of losing a large portion of its invested monies if its investment broker failed.
Because the County Treasurer’s Office invests monies in United States agency securities, repurchase
agreements, commercial paper, and other investments outside of the Arizona State Treasurer, it should
have strong policies and procedures in place to safeguard investments. Therefore, to help ensure that the
County Treasurer’s Office adequately manages public monies of the County and other political
subdivisions, the County should implement the following:
Investment Policies and Procedures—Improve written investment policies and procedures for
controlling, authorizing, and reviewing investment activities. Specific examples of the activities requiring
review include activities such as employee investment decisions, maintaining custody of investment-related
documents, and review of investment activity performed by the Treasurer’s external investment
brokers.
Custody of Securities—Use the services of an independent trust company or department in the County’s
name to hold the purchased securities to minimize the risk of loss that could arise from the investment
broker’s failure.

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TITLE	Pima County : report on internal control and compliance, year ended June 30, 2007
DESCRIPTION	8 pages (PDF version). 207 KB.
TYPE	Text
RIGHTS MANAGEMENT	Copyright to this resource is held by the creating agency and is provided here for educational purposes only. It may not be downloaded, reproduced or distributed in any format without written permission of the creating agency. Any attempt to circumvent the access controls placed on this file is a violation of United States and international copyright laws, and is subject to criminal prosecution.
DATE ORIGINAL	2007-06-30
Time Period	2000s (2000-2009)
ORIGINAL FORMAT	Born Digital
Source Identifier	LG 6.3:P 45 I 45
DIGITAL IDENTIFIER	Pima_Cty_6_30_07_Rpt_on_IC_Compliance.pdf
DIGITAL FORMAT	PDF (Portable Document Format)
REPOSITORY	Arizona State Library, Archives and Public Records--Law and Research Library
Full Text	Report on Internal Control and Compliance A REPORT TO THE ARIZONA LEGISLATURE Pima County Year Ended June 30, 2007 Financial Audit Division Debra K. Davenport Auditor General 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 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, investigates possible misuse of public monies, and conducts performance audits of school districts, state agencies, and the programs they administer. 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 Pima County Report on Internal Control and Compliance Year Ended June 30, 2007 Table of Contents Page Comprehensive Annual Financial Report Issued Separately Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Basic Financial Statements Performed in Accordance with Government Auditing Standards 1 Schedule of Findings and Recommendations 3 County Response 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 Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Basic Financial Statements Performed in Accordance with Government Auditing Standards Members of the Arizona State Legislature The Board of Supervisors of Pima County, Arizona We have audited the financial statements of the governmental activities, business-type activities, the discretely presented component unit, each major fund, and aggregate remaining fund information of Pima County as of and for the year ended June 30, 2007, which collectively comprise the County’s basic financial statements, and have issued our report thereon dated December 19, 2007. Our report was modified to include a reference to our reliance on other auditors. We conducted our audit in accordance with U.S. generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Other auditors audited the financial statements of the Stadium District, School Reserve Fund, Self Insurance Trust, Wastewater Management, Pima Health System & Services, Development Services, and Southwestern Fair Commission, as described in our report on the County’s financial statements. This report includes our consideration of the results of the other auditors’ testing of internal control over financial reporting and compliance and other matters that are reported on separately by those other auditors. However, this report, insofar as it relates to the results of the other auditors, is based solely on the reports of the other auditors. Internal Control over Financial Reporting In planning and performing our audit, we considered the County’s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the basic financial statements, but not for the purpose of expressing an opinion on the effectiveness of the County’s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the County’s internal control over financial reporting. Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses. However, as discussed below, we identified a certain deficiency in internal control over financial reporting that we consider to be a significant deficiency. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the County’s ability to initiate, authorize, record, process, or report 2 financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the County’s basic financial statements that is more than inconsequential will not be prevented or detected by the County’s internal control. We consider item 07-01 described in the accompanying Schedule of Findings and Recommendations to be a significant deficiency in internal control over financial reporting. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the County’s internal control. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies and, accordingly, would not necessarily disclose all significant deficiencies that are also considered to be material weaknesses. However, we believe that the significant deficiency described above is not a material weakness. Compliance and Other Matters As part of obtaining reasonable assurance about whether the County’s basic financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests and those of the other auditors disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Pima County’s response to the finding identified in our audit is presented on page 5. We did not audit the County’s response and, accordingly, we express no opinion on it. This report is intended solely for the information and use of the members of the Arizona State Legislature, the Board of Supervisors, federal awarding agencies, and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. However, this report is a matter of public record, and its distribution is not limited. Dennis L. Mattheisen, CPA Financial Audit Director December 19, 2007 Pima County Schedule of Findings and Recommendations Year Ended June 30, 2007 3 07-01 Pima County should strengthen controls over investment activities The Pima County Treasurer’s Office manages and invests more than $775 million in public monies. Of these monies, approximately 50 percent is for Pima County, and the remainder is for other political subdivisions, including school and fire districts. Historically, the County Treasurer only invested in the Arizona State Treasurer’s investment pools. In April 2006, the County Treasurer began investing in United States agency securities, repurchase agreements, and commercial paper. At June 30, 2007, the County Treasurer had $420 million dollars in these investments and $195 million invested in the State Treasurer’s investment pools. To fulfill the responsibility of managing these monies, the County Treasurer’s Office should have strong internal controls to safeguard public monies, promote overall operating efficiency and effectiveness, and ensure compliance with investment laws and regulations. However, at June 30, 2007, the County Treasurer’s Office did not have adequate written investment policies and procedures to ensure that timely reviews of its investment brokers’ investment activities were performed and documented by authorized employees. Furthermore, the County Treasurer’s Office should require its securities to be held with an independent trust company or department in the County’s name to reduce the risk of investment losses in case its investment broker failed. However, the County’s investments were held by its investment broker who purchased and sold securities for the County in accordance with county investment policies. The investment broker also recommended and sold its own investments to the County. Therefore, the County was at risk of losing a large portion of its invested monies if its investment broker failed. Because the County Treasurer’s Office invests monies in United States agency securities, repurchase agreements, commercial paper, and other investments outside of the Arizona State Treasurer, it should have strong policies and procedures in place to safeguard investments. Therefore, to help ensure that the County Treasurer’s Office adequately manages public monies of the County and other political subdivisions, the County should implement the following: Investment Policies and Procedures—Improve written investment policies and procedures for controlling, authorizing, and reviewing investment activities. Specific examples of the activities requiring review include activities such as employee investment decisions, maintaining custody of investment-related documents, and review of investment activity performed by the Treasurer’s external investment brokers. Custody of Securities—Use the services of an independent trust company or department in the County’s name to hold the purchased securities to minimize the risk of loss that could arise from the investment broker’s failure.

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Pima County : report on internal control and compliance, year ended June 30, 2007

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