Special Investigation
Arizona High Intensity Drug
Trafficking Area (HIDTA)
Federal Grant Program
Mishandling of Public Monies
Special Investigative Unit
Debra K. Davenport
Auditor General
APRIL • 2007
A REPORT
TO THE
ARIZONA LEGISLATURE
The 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.
The Joint Legislative Audit Committee
Senator Robert Blendu, Chair Representative John Nelson, Vice Chair
Senator Carolyn Allen Representative Tom Boone
Senator Pamela Gorman Representative Jack Brown
Senator Richard Miranda Representative Pete Rios
Senator Rebecca Rios Representative Steve Yarbrough
Senator Tim Bee (ex-officio) Representative Jim Weiers (ex-officio)
Audit Staff
George Graham, Manager
Theresa Garcia, Senior
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
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
WILLIAM THOMSON
DEPUTY AUDITOR GENERAL
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
April 3, 2007
Members of the Arizona Legislature
Arizona HIDTA Executive Board
Pima County Board of Supervisors
Santa Cruz County Board of Supervisors
The Office of the Auditor General has conducted a special investigation of the Arizona
High Intensity Drug Trafficking Area (HIDTA) federal program administered through Pima
County for the period December 2004 through October 2005. The investigation
determined the amount of public monies misused, if any, and whether there were
misfeasance and procurement violations during that period.
The investigation consisted primarily of inquiries and examination of selected financial
records and other documentation. Therefore, the investigation was substantially less in
scope than an audit conducted in accordance with generally accepted auditing standards.
Accordingly, the Office does not express an opinion on the adequacy of the financial
records or the internal controls of the High Intensity Drug Area federal program
administered through Pima County. The Office also does not ensure that all matters
involving the program’s or the County’s internal controls, which might be material
weaknesses under standards established by the American Institute of Certified Public
Accountants or other conditions that may require correction or improvement, have been
disclosed.
The accompanying investigative report describes the Office’s findings and
recommendations as a result of this special investigation.
After this report is distributed to the members of the Arizona State Legislature, it becomes
public record.
Sincerely,
Debbie Davenport
Auditor General
Enclosure
page i
Office of the Auditor General
SUMMARY
In October 2005, Pima County administrators requested that the Office of the Auditor
General investigate allegations of potential misfeasance and misuse of public
monies by officials within the Arizona High Intensity Drug Trafficking Area (HIDTA)
federal grant program. Although the program is administered by the HIDTA Executive
Board, Pima County was the federally designated grantee to administer the HIDTA
program in the Arizona Region. As a result of Pima County’s request, we conducted
an investigation of those allegations.
Our investigation revealed that from December 2004
through October 2005, the former Arizona HIDTA Director
and former Arizona HIDTA Finance Manager falsified
public records and mishandled grant monies to obtain
salary increases totaling more than $133,000 for
themselves and other staff members. In addition, the
Arizona HIDTA Executive Board did not properly oversee
the administration of HIDTA operations and did not
ensure that grant resources were used prudently. Finally,
Santa Cruz County, a subrecipient of HIDTA grant
monies, failed to follow any procurement procedures
when contracting for HIDTA administrative services,
thereby eliminating all competition and fostering an unfair
economic advantage that benefited former HIDTA
administrative staff.
Investigation Highlights:
Arizona HIDTA Director and Arizona
HIDTA Finance Manager falsified
records and mishandled grant monies
to obtain salary increase.
Arizona HIDTA Executive Board did not
properly oversee the administration of
HIDTA operations.
Santa Cruz County officials failed to
follow any procurement procedures
when contracting with HIDTA
administrative staff.
State of Arizona
page ii
Office of the Auditor General
TABLE OF CONTENTS
1
3
4
5
7
9
11
13
2
3
5
Introduction & Background
Finding 1: HIDTA program employees manipulated
records
Improper actions by Arizona HIDTA Director
Improper actions by Arizona HIDTA Finance Manager
Finding 2: Arizona HIDTA Executive Board failed to
fulfill fiduciary duty
Finding 3: Santa Cruz County officials violated
procurement rules
Recommendations
Conclusion
Exhibits
1 HIDTA Southwest Border Regions
2 Arizona Administrative Staff Salary Increases
3 Timeline: 2005 Activities
page iii
State of Arizona
page iv
HIDTA Grant
The mission of the HIDTA grant program is to enhance and facilitate the coordination
of America’s drug control efforts among federal, state, and local law enforcement
agencies in order to eliminate or reduce drug trafficking and its harmful
consequences in critical regions of the United States. For federal fiscal year 2005, the
federal Office of the National Drug Control Policy awarded Pima County a federal
grant totaling $10,104,040. These monies are provided to approximately 23
programs within various federal, state, and local law enforcement agencies
throughout the State of Arizona.
Establishment of Program—In 1990, the Pima County Sheriff’s Department
became the designated federal grantee for grant funding in the Arizona HIDTA
program. Accordingly, for grant monies awarded from 1990-2005, Pima County
acted as the nonfederal agency responsible for the financial management and
physical control of the federal HIDTA grant monies used in Arizona. However, in
September 2005, Pima County elected to no longer act as the HIDTA grantee.
Subsequently, the Arizona Criminal Justice Commission accepted that responsibility.
Structure of Program—As illustrated in Exhibit 1(see page 2), the federal Office
of the National Drug Control Policy (ONDCP) structured the HIDTA Southwest Border
into five regions based on historical drug trafficking corridors. Those five regions
include Arizona, California, New Mexico, South Texas, and West Texas. Each region
has its own Executive Board and administrative staff led by a regional director. The
Arizona Executive Board comprises at least 10 members, but not more than 20, from
agency executives in Arizona equally represented by federal, state, and local law
enforcement departments.
Office of the Auditor General
INTRODUCTION
& BACKGROUND
page 1
Administrative Staff
In 1991, the Arizona Executive Board hired the Arizona HIDTA Director, who was
designated a Pima County employee, to administer HIDTA programs. Subsequently,
the remaining four administrative staff members were also designated as Pima
County employees. Together, they were responsible for support services such as
administrative and technical support, reprogramming services, initiative
development, preparation of drug strategy, threat assessment, and specialized
reports. Although the administrative staff were Pima County employees, their duties
were specific to HIDTA program activities. As such, the Arizona HIDTA Executive
Board was directly responsible for their oversight and supervision.
In December 2005, the Arizona Executive Board suspended the Arizona HIDTA
Director from his position along with the other four administrative staff members
discussed in this report. Further, in February 2006, the Arizona HIDTA Executive
Board terminated all five administrative staff members.
State of Arizona
page 2
Office of National
Drug Control Policy
Arizona
Executive Board
California
Executive Board
New Mexico
Executive Board
South Texas
Executive Board
West Texas
Executive Board
outhwest Border
HIDTA
S
Executive Board
Arizona
HIDTA Director
Administrative Staff
California
HIDTA Director
Administrative Staff
New Mexico
HIDTA Director
Administrative Staff
South Texas
HIDTA Director
Administrative Staff
West Texas
HIDTA Director
Administrative Staff
Exhibit 1: HIDTA Southwest Border Regions
HIDTA program employees manipulated records
In 2005, the Arizona HIDTA Director and Arizona HIDTA Finance Manager
manipulated financial records, acted outside their authority, and mishandled public
money in order to obtain salary increases for themselves and other staff members.
Arizona Executive Board Proposed Salary Increases
Based on salary comparisons among administrative positions for the five
Southwest Border Regions, the Arizona Executive Board proposed salary
increases for the Arizona administrative staff to match those of the other
regions. However, because the staff were all Pima County employees and
currently paid appropriately within the county personnel structure, the County
notified the Arizona Executive Board that the proposed salary increases would not be
allowed.
Despite Pima County’s notification in December 2004, the Arizona Executive Board
approved the proposed salary increases in April 2005, effective for the 2006 budget.
The Arizona Executive Board approved salary increases totaling $133,226. As
illustrated in Exhibit 2, the salary increases ranged from 14 to 70 percent. In fact, the
Arizona HIDTA Finance Manager’s salary went from $63,697 to $102,782, a 61
percent increase.
Source: Auditor General staff analysis of HIDTA and Pima County records.
Office of the Auditor General
FINDING 1
page 3
Position
2005
Annual Salary
2006
Annual Salary Increase
Director $ 125,478 $ 142,871 $ 17,393 14%
Deputy Director 104,674 121,459 16,785 16%
Finance Manager 63,697 102,782 39,085 61%
Coordinator 1 60,617 102,782 42,165 70%
Coordinator 2 84,984 102,782 17,798 21%
Total Salary Increase $ 133,226
Exhibit 2: Arizona Administrative Staff Salary Increases
The proposed salary increases
ranged from 14 to 70 percent.
Improper actions by Arizona HIDTA Director
Although the Arizona Executive Board had approved the staff raises effective for the
2006 budget, the ONDCP had not yet provided final approval. Despite this, the
Director proceeded to make the raises effective in the 2005 budget. However, the
Director’s 2005 budget did not have enough funding to pay for these raises. In order
to obtain the monies necessary to make the staff raises effective within the 2005
budget, the Director took back monies from grants that had already been awarded
to law enforcement agencies for 2005. Specifically, in April and May of 2005, the
Director acted outside his authority by unilaterally taking more than $182,000 of grant
money budgeted for 13 other law enforcement programs to increase his own
administrative budget. In fact, the Director initiated 10 individual transfers totaling
$62,240 in a single day and another 22 individual transfers totaling more than
$119,000 in a single day. The Director never received approval from ONDCP or the
Arizona Executive Board to make these transfers, and notified only 1 of the 13
programs that its budget had been reduced. These transfers reduced the monies
available for the intended law enforcement programs that had been properly
approved.
Because Pima County refused to provide the proposed salary increases, the Director
approached other agencies that would accommodate such increases. As such, in
May 2005, the Director negotiated a contract for him and his staff as independent
contractors with Santa Cruz County. As a result, by the end of May 2005, the Arizona
HIDTA staff signed individual service contracts with Santa Cruz County. The Director
began his contract employment on October 2005, although the remaining four
members began 2 months earlier, in August 2005.
In negotiating employment with Santa Cruz County, the Director acted improperly by:
Independently authorizing the employment contracts without Executive Board
review or approval, or properly established cooperative agreements between
Pima County and Santa Cruz County. In fact, the Director failed to even present
the contracts to the Executive Board for review;
Allowing this activity even though he was fully aware that Santa Cruz County
failed to follow any procurement procedures; and
Increasing the contracts’ salary amounts by at least $60,000, in total, above the
increases approved by the Arizona Executive Board.
In addition, the Director inappropriately advanced his entire 2005 budget totaling
$535,147 to Santa Cruz County to fund the staff’s expenditures such as the increased
salaries as well as travel and car allowances. Under HIDTA regulations, local and
state law enforcement agencies must finance their HIDTA programs, and then seek
reimbursement from ONDCP. Advancements are provided only on a limited basis.
However, Santa Cruz County refused to fund the administrative staff on a
reimbursement basis. Therefore, in order to pay the staff’s expenditures while under
contract with Santa Cruz County, the Director improperly advanced the County
HIDTA grant money.
page4
State of Arizona
The Director reduced other law
enforcement program budgets
by more than $182,000
without any approval from
ONDCP or the Arizona
Executive Board.
The employment contracts
negotiated by the Director
included salary amounts of
$60,000 above amounts
approved by the Arizona
Executive Board.
In particular, he improperly authorized two “Request for Advances” forms
totaling $535,147 for the next year’s expected cash outlays for the staff’s
salaries, falsely certifying that the expenditures were in accordance with the
grant agreement. His actions violated federal HIDTA policies that restrict
advancement of grant funding by limiting requests for expenditures that will
occur within 60 days. Additionally, the cooperative agreement between Pima
County and Santa Cruz County finalized after the Director inappropriately
authorized employment contracts with Santa Cruz County further restricts advances
to 30 days.
Source: Auditor General staff analysis of ONDCP, Arizona HIDTA Executive Board, Pima County, and Santa Cruz County records.
Through his attorney, the Director declined an interview with Auditor General staff.
Improper actions by Arizona HIDTA Finance Manager
In order to perpetuate her supervisor’s inappropriate actions and ensure that she
received the salary increase, the Finance Manager falsified public records by
preparing and submitting financial reports that concealed the Director’s improper
advancement requests. Specifically, in October 2005, the Finance Manager
submitted two reports to ONDCP that were required to substantiate the two “Request
for Advances” forms totaling $535,147 authorized by the Director. However, the
reports documented only $82,985 of appropriate administrative staff
salaries and travel. The Finance Manager concealed the purpose of the
remaining advancement request amount totaling $452,162 by falsely listing
expenditures from other HIDTA programs completely unrelated to
administrative staff activities or by failing to include any supporting
documentation.
Office of the Auditor General
page 5
Exhibit 3: Timeline: 2005 Activities
The Director improperly
advanced his entire 2005 budget
totaling $535,147 to Santa Cruz
County to fund the staff’s salary
increases.
The Finance Manager falsified
public records to perpetuate her
supervisor’s inappropriate
actions and receive her salary
increase of almost $40,000.
Director improperly
reduced other program
budgets by $62,240
Staff signs employment
contracts with
Santa Cruz
Director improperly
reduced other program
budgets by $119,967
Improper advancements
$535,147
Staff resigns from Pima
County employment
Director resigns from
Pima County
employment
Initial employment
negotiations with
Santa Cruz
Board approves raises
for 2006 budget
April May July August September
In March 2006, Pima County notified ONDCP of these improprieties, and $422,171
was reverted back to the ONDCP. However, by this time, the Director’s and the
Finance Manager’s improper actions allowed $112,976 to be spent on salaries for
the Finance Manager and three other staff members. The Director had elected not to
receive the extra emolument.
State of Arizona
page 6
Arizona HIDTA Executive Board failed to fulfill
fiduciary duty
The Executive Board failed to properly oversee the management of
HIDTA grant monies and inappropriately allowed the Director and his
staff to violate HIDTA policies. HIDTA policy requires expenditures to be
within the regulation and policies of the federal grantee, and no
exemptions are permitted by the unilateral action of administrators,
grantees, or participants.
Despite Pima County’s notification that the proposed staff salaries far exceeded
limits within the County’s pay structure, and that the County refused to provide such
increases, the Executive Board proceeded to approve the salary increases. In fact,
the Executive Board did nothing to minimize the requested raises or otherwise ensure
the prudent management of grant resources. To the contrary, the Executive Board
imprudently approved the proposed raises even though the staff’s responsibilities
had not changed. In fact, as Pima County employees, staff had received salaries
during the past 8 years in accordance with HIDTA policies.
Furthermore, the Executive Board violated the HIDTA policy that establishes the
Executive Board as having responsibility for ensuring the accountability of grant
resources by improperly allowing administrative staff the option of seeking
employment outside Pima County. Consequently, in May 2005, administrative staff
members signed individual service contracts with Santa Cruz County, thereby
evading the financial controls and limitations that were in place with Pima County.
Finally, because the Executive Board provided limited supervision of the Director and
his staff, and did not exercise proper management of the administrative
activities, it failed to request, review, and ultimately approve the
administrative staff’s final employment contracts. Although the
Executive Board allowed the general process of seeking employment
outside Pima County, it was unaware of the staff’s finalization of
employment with Santa Cruz County. As a result, the Executive Board
page7
Office of the Auditor General
FINDING 2
The Executive Board imprudently
approved the salary increases even
though the staff’s duties did not change
and their current salaries were in
accordance with HIDTA policy.
The Executive Board failed to request,
review, and ultimately approve the
administrative staff’s final employment
contracts.
did not discover that the signed contracts had even higher salary amounts than those
it previously approved, and that the staff was inappropriately receiving the raises
outside the approved 2006 budget. The approved salary increase amount was
$133,226; however, the contracts integrated salary increases totaling $193,962, for
an additional increase of more than $60,000.
State of Arizona
page 8
Office of the Auditor General
Santa Cruz County officials violated procurement
rules
Santa Cruz County, a subrecipient of HIDTA grant monies, failed to follow any
procurement procedures when contracting for HIDTA administrative services with the
independent contractors. This violation effectively eliminated all competition and
created an unfair economic advantage that benefited former administrative HIDTA
staff.
Federal grant recipients are required to adhere to appropriate procurement
procedures designed to eliminate unfair competitive advantage and restraint of free
trade. Specifically, federal grant regulations outline specific procurement procedures,
including guidelines for soliciting goods and services. Additionally, as a public entity,
Santa Cruz County officials have an obligation to its citizens and taxpayers to follow
proper procurement procedures to help ensure the best value is obtained for the
goods and services purchased. At a minimum, the County would be required to
follow the competitive request for proposal process for professional services as
required by state law.
However, in May 2005, Santa Cruz County officials ignored their obligation and failed
to perform any procurement activities before hiring the HIDTA administrative staff
under individual private service contracts totaling $633,415. In particular, the Santa
Cruz County Attorney inappropriately coordinated exclusively with the
then-existing HIDTA administrative staff members in order to establish
contracts with Santa Cruz County for performing the HIDTA
administrative services. In addition, the County approved contract
amounts for these individuals at rates totaling more than $60,000 higher
than what the Executive Board had approved. Consequently, Santa Cruz
County officials eliminated competition and did not receive the best
possible value in terms of cost.
page9
Office of the Auditor General
FINDING 3
Santa Cruz County approved contract
amounts at rates totaling more than
$60,000 above the Arizona Executive
Board’s approval.
State of Arizona
page 10
Office of the Auditor General
To help ensure the proper use of federal grant monies, the Executive Board should
properly monitor program activities and ensure required policies are consistently
followed. Specifically, the Executive Board should implement and ensure that these
policies and procedures are followed:
1. The Executive Board Chair and Vice Chair should meet with the Director on a
monthly basis to discuss critical program issues and monitor current
administrative issues.
2. The Executive Board must establish ongoing internal program reviews to ensure
all budget modifications (i.e., budget transfers) are in accordance with agency
regulations and HIDTA policy. Further, these reviews should ensure that no
administrative employee has the ability to independently perform improper
budget modifications without the appropriate approval from the ONDCP and the
Executive Board.
3. The Executive Board should take greater care to ensure the accountability of
grant resources by administrative employees. Accordingly, the Board should
establish periodic reviews of administrative activities such as budget transfers,
request for advances, and monthly financial reports. Further, the results along
with recommendations should be reported during a formal board meeting.
4. The Executive Board must ensure the prudent use of public money by approving
only expenditures that comply with HIDTA policy and federal grant regulations.
page11
Office of the Auditor General
RECOMMENDATIONS
State of Arizona
page 12
This report was submitted to the Office of the Arizona Attorney General to review for
possible criminal charges. After reviewing our report, that Office declined to initiate a
criminal prosecution.
page13
Office of the Auditor General
CONCLUSION
