Performance audit, Contractors' Recovery Fund Board

              DOUGLAS R. NORTON. CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
August 14, 1984
Members of the Arizona Legi sl ature
The Honorable Bruce Babbitt, Governor
Mr. Cliff Jensen, Chairman
Contractors' Recovery Fund Board
Transnlitted herewith is a report of the Auditor General, A Performance
Audit of the Contractors' Recovery Fund Board. This report is i n response
to an April 27, 1983, resolution of the Joint Legislative Oversight
Committee. The performance audit was conducted as a part of the Sunset
Review set forth in A. R. S. § § 41- 2351 through 41 - 2379.
The blue pages present a summary of the report; a response from the
Contractors' Recovery Fund Board i s found on the yellow pages preceding
the appendix.
My staff and I will be pleased to discuss or clarify i terns i n the report.
Respectful ly submitted,
L? duglla's R. Norton
Auditor General
Staff: William Thomson
Peter N. Francis
Arthur E. Heikkila
Jerome E. Miller
Kurt L. Schul te
Enclosure
11 1 WEST MONROE SUITE 600 0 PHOENIX. ARIZONA 85003 ( 602) 255- 4385
SUMMARY
The Office of the Auditor General has conducted a performance audit of the
Arizona Contractors' Recovery Fund Board i n response to an April 27, 1983,
resolution of the Joint Legislative Oversight Commi ttee. The performance
audit was conducted as part of the Sunset Review s e t forth i n Arizona
Revised Statutes ( A. R. S. ) $ 541 - 2351 through 41 - 2379.
The Recovery Fund Board was established July 1, 1981, to oversee the newly
created contractors' recovery fund. The Board consists of the Registrar
- of Contractors, and four public members appointed by the Governor. The
contractors' recovery fund was established to provide increased protection
for consumers w i t h val i d complaints against 1 icensed contractors. The
recovery fund covers claims against contractors made by residential
property owners. The recovery fund pays a maximum of of $ 15,000 per
consumer and $ 75,000 total per contractor. Licensed contractors pay an
i n i t i a l fee of $ 75 upon licensure and any additional yearly assessments
when their license i s renewed. To receive payment from the fund,
consumers must f i l e w i t h i n 2 years of the cause of action and obtain a
successful court judgment against the contractor.
The Recovery Fund Board Could
be A1 1 owed to Terminate ( see Daae 1 1 1
The Board's limited statutory duties do not require Board oversight. The
Board's statutory tasks are administrative, rather than of a policy
nature. The Board has focused largely on nonstatutory tasks, primarily
a1 1 ocati ng recovery fund monies for consumer education. However,
according to the Legislative Council, the Board does not have statutory
authority to expend monies from the fund for consumer education. Board
members agree that the Board i s not necessary i f limited to performing
only i t s statutory duties.
The Registrar o f Contractors could assume the Recovery Fund Board's
1 imited s t a t u t o r y duties. The ROC already administers a l l o f the recovery
fund's processes. A l l other recovery funds we examined are managed by a
parent agency and do not have separate boards.
The Legislature should consider a l l o w i n g t h e Recovery Fund Board t o
terminate under the Sunset Act provisions i f the Board's r o l e i s l i m i t e d
t o i t s c u r r e n t s t a t u t o r y duties. If the Board i s terminated, a l l o f i t s
duties should be assigned t o t h e R e g i s t r a r o f Contractors.
Contractors ' Recoverv Fund Shoul d
Be More Accessible ( see page 17)
The c u r r e n t recovery fund process i s too complicated and cumbersome.
S p e c i f i c s t a t u t o r y procedures can cause consumers d i f f i c u l ty with the
process. Because the process i s compl icated most consumers u t i l i z e 1 egal
assistance, which increases the cost o f recovery fund claims. Allowing
the ROC t o adjudicate cases would simpl i f y the process, reduce costs, and
improve the f u n d ' s a c c e s s i b i l i ty.
The recovery fund process could be simpl i f i e d by using administrative
hearings- t o adjudicate claims. The Office o f Manufactured Housing has a
much simpl er recovery fund process using administrative hearings. The
Registrar noted several advantages t o t h i s method o f adjudication. Claims
could be processed f a s t e r and a t less cost t o consumers, and consumers
could use a single forum t o resolve problems with contractors.
The Legi s l ature should consider modifying A. R. S. $ 32- 1 136 t o a1 1 ow
c o n t r a c t o r s ' recovery fund claims t o be adjudicated through the Registrar
of Contractors' a d m i n i s t r a t i v e hearing process. I n a d d i t i o n , t h e
Legi s l ature shoul d consider el i m i n a t i ng the requirements t h a t consumers 1 ) 4
exhaust the contractors' 1 icense bond ( A. R. S. $ 32- 1 136. C. 4),
2) demonstrate that the claimant i s not a spouse or personal
representative of spouse ( A. R. S. § 32- 1136. C. 1 ) , and 3) demonstrate that
the 1 icensee has no other assets ( A. R. S. S32- 1136. C. 5) before seeking
compensation from the fund. Finally, the Legislature shoul d consider
allowing the Registrar to waive the prior notice requirement i f the
Registrar determines i t i s i n the public interest or the claimant has made
a good faith effort.
TABLE OF CONTENTS
Page
INTRODUCTION AND BACKGROUND . . . . . . . . . . . . . . . . . . . . . . 1
SUNSET FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
FINDING I: THE RECOVERY FUND BOARD COULD BE ALLOWED TO TERMINATE . . . 11
Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Duties do n o t r e q u i r e Board oversight . . . . . . . . . . . . . . . 11
Registrar o f Contractors could assume Board duties. . . . . . . . . 14
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . 16
FINDING 11: CONTRACTORS' RECOVERY FUND SHOULD BE MORE ACCESSIBLE . . . 17
Current claim adjudication process. . . . . . . . . . . . . . . . . 17
Current process too compl icated . . . . . . . . . . . . . . . . . . 18
Administrative hearings would simp1 ify process. . . . . . . . . . . 21
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . 23
AGENCYRESPONSE....... . . . . . . . . . . . . . . . . . . . . .
APPENDIX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legislative Council opinion on Recovery Fund Board expenditures
f o r a d v e r t i s i n g . . . . . . . . . . . . . . . . . . . . . . . . . .
LIST OF TABLES
Page
TABLE 1 - Recovery Fund Cases, Payments, Revenues and
Expenditures f o r F i s c a l Years 1981 - 82 Through
1 983- 84 Year- to- Date . . . . . . . . . . . . . . . . . . . . 3
TABLE 2 - FInufnodrsm Aaltlioocna: teFdis Fcaolr YReeacrosv e1r9y8 F1- u8n2d TChornosuugmhe r 1983- 84. . . . . . 13
TABLE 3 - Recovery Fund Management Systems . . . . . . . . . . . . . . 15
TABLE 4 - A Comparison o f Recovery Fund Process Requirements for OMH and ROC. . . . . . . . . . . . . . . . . . . . . . . 22
INTRODUCTION AND BACKGROUND
The Office o f the Auditor General has conducted a performance audit o f the
Arizona Contractors' Recovery Fund Board i n response t o an A p r i l 27, 1983,
resolution o f the J o i n t L e g i s l a t i v e Oversight Committee. This performance
audit was conducted as p a r t o f the Sunset Review set f o r t h i n Arizona
Revised Statutes ( A. R. S. ) § § 41- 2351 through 41 - 2379.
The Recovery Fund Board was established July 1, 1981 t o oversee the newly
created contractors' recovery fund. The contractors' recovery fund was
establ ished to provide increased economic protection f o r consumers using
licensed contractors. The 1979 Auditor General Sunset Review determined
t h a t the bonding system favored those f a m i l i a r w i t h the legal processes
involved, ( u s u a l l y n o t t h e consumer) and t h a t the revenues generated by
the bonding system were not available t o reimburse consumers who s u f f e r
financial 1 osses i n deal i ng with contractors.
The recovery fund covers claims against contractors made by r e s i d e n t i a l
property owners. The recovery fund provides a maximum payment o f $ 15,000
per consumer and $ 75,000 t o t a l per contractor. Licensed contractors pay
an i n i t i a l fee o f $ 75 upon licensure and any additional yearly assessmerlts
when t h e i r license i s renewed. To receive payment from the fund,
consumers must f i l e w i t h i n 2 years o f the cause o f action and obtain a
successful court judgment against the contractor.
The Contractors' Recovery Fund Board consists o f t h e R e g i s t r a r o f
Contractors and four public members appointed by the Governor. The Board
members are appointed t o 3- year terms, and are e l i g i b l e f o r reimbursement
f o r travel expenses, but receive no compensation. A. R. S. § 32- 1134
establishes the f o l l o w i n g s t a t u t o r y duties o f the Board:
" 1. Maintaining the fund a t a minimum level o f one hundred thousand
do1 1 ars.
2. F i x assessments basing such assessments on an actuarial
projection o f anticipated claims and an anticipated annual
i n f l a t i o n rate of ten percent.
3. Establish claim reserves based on the i n c u r r a l date o f claims and
an earned basis o f income.
4. Cause an examination of the fund t o be made every three years.
5. F i l e with the state insurance department an annual statement of
the condition o f the fund, prepared i n accordance with generally
accepted insurance accounting principles and showing claim
reserves c e r t i f i e d by a qua1 i f i ed actuary. "
To carry out these r e s p o n s i b i l i t i e s , the Board has held pub1 i c meetings as
needed and retains actuarial services. The Registrar performs a l l
accounting and administrative tasks f o r the fund as required by statute.
I n addition, the Board has used advertising and printed pamphlets to
inform the public about the recovery fund process.
Table 1 shows recovery fund a c t i v i t y , revenue and expenditures from i t s
inception to March 31, 1984.
TABLE 1
RECOVERY FUND CASES, PAYMENTS, REVENUES AND
EXPENDITURES FOR FISCAL YEARS 1981- 82 THROUGH 1983- 84 YEAR- TO- DATE
RECOVERY FUND
Claims f i l e d
Claims paid
REVENUE
Fees:
I n i t i a l $ 919,096
Renewal 281,933
I n t e r e s t 112,338
Gross Receipts 1,313,367
Refunds** ( 7.810)
NET REVENUE 1,305,557
EXPENDITURES
Travel 836
Consumer Pamphlet 1,792
Advertising 18,978
Actuari a1 Services -
Other 203
TOTAL
EXPENDITURES ( 21,809)
JUDGMENTS ( 32,391)
BALANCE $ 1.251 ,357
Total Since
FY 1982- 83 FY 1983- 84" Inception
x As o f March 31 , 1984
** I n i t i a l recovery fund fees were returned because o f an unsuccessful
1 icensure attempt.
A u d i t Scope and Purpose
The purpose of our review of the Contractors' Recovery Fund Board was to
address the 12 Sunset Factors set forth i n A. R. S. $ 41- 2354, and to
evaluate the effectiveness of the recovery fund. Specifical ly, we
examined:
o The extent to which the Contractors' Recovery Fund Board is
necessary to oversee the recovery fund.
s The extent to which the recovery fund i s accessible to consumei- s.
The Auditor General and staff express appreciation to the members of the
Recovery Fund Board and the Registrar of Contractors' staff f o r t h e i r
cooperation and assistance during the course of our audit.
SUNSET FACTORS
I n accordance with Arizona Revised Statutes ( A. R. S. ) $ 41 - 2354, the
Legislature should consider the f o l l owing 12 factors i n determining
whether the Arizona Contractors' Recovery Fund Board should be continued
or termi nated.
1. 0b. iective and Durpose i n establishina the Board
The Contractors' Recovery Fund and the Board were established i n 1981
to provide monies f o r consumer protection. A. R. S. $ 32- 1132. A. states:
" There i s established the contractors' recovery fund,
t o be administered by the r e g i s t r a r , from which any
person i n j u r e d by an act, representation, transaction
or conduct of a contractor, which i s i n v i o l a t i o n o f
t h i s chapter or the regul ations promul gated pursuant t o
t h i s chapter, may be awarded i n the county where the
v i o l a t i o n occurred an amount o f not more than f i f t e e n
thousand dollars f o r damages sustained by the act,
representation, transaction or conduct. An award from
the fund i s l i m i t e d t o the actual damages suffered by
the c l aimant, i n c l udi ng reasonabl e attorney fees,
except t h a t an award from the fund s h a l l n o t be
avail able t o persons i n j u r e d by an act, representation,
transaction or conduct o f a contractor whose license
was i n an inactive status a t the time o f t h e i n j u r y . "
The statutes divide the management o f the fund between the Board and
the Registrar o f Contractors ( ROC). A. R. S. $ 32- 1 132. A. requires the
ROC t o administer the fund. The Board, on the other hand, i s charged
with maintaining the f i n a n c i a l solvency o f the fund. A. R. S. $ 32- 1134
establishes the powers and duties of the Board:
" 1. Maintain the fund a t a minimum level o f one
hundred thousand do1 1 ars.
2. F i x assessments basing such assessments on a
actuarial projection of anticipated claims and an
anticipated annual i n f l a t i o n rate of ten per cent.
3. Establish claim reserves based on the i n c u r r a l
date of claims and an earned basis o f income.
4. Cause an examination of the fund t o be made every
three years.
5. F i l e with the state insurance department an annual
statement of the condition o f the fund, prepared i n
accordance with general ly accepted insurance accounti ng
principles and showing claim reserves c e r t i f i e d by a
qua1 i f i e d actuary. "
2. The effectiveness with which the Board has met i t s ob. iective and
purpose and the e f f i c i e n c y w i t h which it has operated
The Board has maintained a solvent recovery fund by exercising i t s
statutory duties. The fund balance has been so substantial t h a t no
renewal fee has been required since January 1983. The Board has met
as needed, a t l e a s t twice a year. The Board has no s t a f f and no
expenditures other than travel expenses.
3. The extent t o which the Board has operated w i t h i n the public i n t e r e s t
The Board has operated w i t h i n t h e p u b l i c i n t e r e s t by seeking
l e g i s l a t i o n t o increase fund payment l i m i t s . I n addition, the Board
has sought t o make the public more aware o f the fund. However,
according t o a Legislative Council opinion the Board has made
unauthorized expenditures o f recovery fund monies f o r advertising the
fund ( see page 13).
4. The extent to which rules and regulations promulgated by the Board are
consistent with the l e g i s l a t i v e mandate
The Board does not have statutory authority t o make rules, and no
rules have been promul gated.
5. The extent t o which the Board has encouraged input from the public
before promulgating i t s rules and regulations and the extent t o which
it has informed the public as to i t s actions and t h e i r expected impact
on the public
The Board does not have s t a t u t o r y a u t h o r i t y t o make rules. The Board
has compl ied with the open meeting law by posting pub1 i c notice o f i t s
meetings and maintaining minutes t h a t are available t o the public a t
the Registrar o f Contractors' o f f i c e .
6. The extent t o which the Board has been able t o investiqate and resolve
complaints t h a t are w i t h i n i t s j u r i s d i c t i o n
This f a c t o r i s not applicable because the Board i s not a r e g u l a t o r y
agency.
7. The extent t o which the Attornev General o r any other a ~ ~ l i c a b l e
agency o f state government has the authority t o prosecute actions
under enabl i ng 1 egi s l a t i on
This f a c t o r i s not applicable because the Board i s not a r e g u l a t o r y
agency.
8. The extent t o which the Board has addressed deficiencies i n the
enabling statutes which prevent it from f u l f i l l i n g i t s statutory
mandate
The Board recommended l e g i s l a t i o n increasing recovery fund payment
l i m i t s and a more s p e c i f i c cause o f action date. In 1983, the
Legislature i n House B i l l 2255 increased recovery fund 1 i m i t s from
$ 5,000 t o $ 10,000 per consumer to $ 15,000 to $ 75,000 maximum per
contractor. Senate B i l l 1084, passed i n 1984, c l a r i f i e d the cause o f
action date t o which the new claim l i m i t s applied.
9. The extent t o which chanaes are necessarv i n the laws o f the Board t o
--
adequately comply with the factors l i s t e d i n the Sunset Laws
If the Legislature wishes t o allow the use o f recovery fund monies f o r
advertising the fund, then specific statutory authority i s needed. I n
addition, we i d e n t i f i e d several statutory changes t h a t would improve
consumer a c c e s s i b i l i t y to the recovery fund. Claims should be
adjudicated through the Registrar o f Contractors' administrative
hearing process rather than the courts. I n addition, specific
statutory requirements t h a t compl i cate the recovery process coul d be
el i m i nated. These include the conditions t o exhaust the contractors'
license bond, demonstrate t h a t the licensee has no other assets and
demonstrate t h a t the claimant i s not the contractors' spouse or
personal representative o f the spouse. Also, the Registrar should be
allowed t o waive the p r i o r notice requirement i f the Registrar
determines it i s i n the public i n t e r e s t or the claimant has made a
good f a i t h e f f o r t ( see page 20).
10. The extent t o which the termination of the Board would s i g n i f i c a n t l y
harm the public health, safety or welfare
If the Board i s 1 imited t o i t s current statutory role, termination o f
the Board would not s i g n i f i c a n t l y harm the public heal t h y safety or
welfare. The Board's duties are of an administrative nature,
delegated t o actuaries and accountants, and could be assumed by the
ROC. Other s t a t e s ' contractor recovery funds and s i m i l a r recovery
funds w i t h i n Arizona use a parent agency such as the Registrar of
Contractors t o manage the fund.
Termination o f the recovery fund statutes, on the other hand, would
reduce the f i n a n c i a l protection t h a t i s provided t o consumers against
insolvent or incompetent contractors. Before the recovery fund was
establ i shed the only financial protection avail able t o consumers was
the contractors' 1 icense bonds. Materials suppliers and other
contractors i n most cases had claimed available funds by the time
consumers appl ied f o r r e s t i t u t i o n .
11. The extent to which the level of regulation exercised by the Board is
appropriate and whether l e s s o r more stringent levels of regulation
would be appropriate
T h i s factor i s not applicable because the Board is not a regulatory
agency.
12. The extent to which the Board has used ~ r i v a t e contractors i n the
performance of i t s duties and how effective use of private contractors
coul d be accompl i shed.
The Recovery Fund Board has retained actuarial services to a s s i s t i n
performing its statutory duties. In addition, the Board has hired
advertising firms to increase public awareness of the recovery fund.
FINDING I
THE RECOVERY FUND BOARD COULD BE ALLOWED TO TERMINATE
The Recovery Fund Board i s unnecessary and could be allowed t o terminate
under the Sunset Act provisions. I t s l i m i t e d statutory duties do not
require Board oversight. The Registrar of Contractors ( ROC) a1 ready
administers the fund and could assume the Board's duties.
Background
The Contractors' Recovery Fund Board and the recovery fund were
established i n 1981 by House B i l l 2112 i n the f i r s t regular session o f the
Legislature. The 1 e g i s l a t i o n was the culmination o f recommendations
included i n the 1979 Auditor General Sunset Review o f the Registrar o f
Contractors and the subsequent report o f the Contractors' Regulatory Study
Commission. The 1979 Sunset Review recommended establ i shment o f a
recovery fund. The 1980 Contractors ' Regul atory Study Commi ssion
concurred with the 1979 Sunset Review recommendation and f u r t h e r
recommended t h a t a Contractors' Recovery Fund Board be established t o
oversee the recovery fund.
The Contractors' Recovery Fund Board consists o f f o u r p u b l i c members
appointed by the Governor, and the Registrar o f Contractors. Board
members are not e l i g i b l e t o receive compensation but are reimbursed f o r
travel expenses.
Duties Do Not Require
Board Oversight
The Board's 1 imited statutory duties do not require oversight by a board.
The Board's statutory tasks are administrative, rather than o f a p o l i c y
nature. The Board has focused l a r g e l y on nonstatutory tasks, mainly
a1 1 ocating recovery fund monies f o r consumer education. However,
according t o the L e g i s l a t i v e Council, the Board cannot expend monies from
the fund f o r consumer education. Board members agree t h a t the Board i s
not needed i f l i m i t e d t o only performing i t s statutory duties.
Duties are Administrative, Not Policy Oriented - The Board's statutory
tasks are administrative, rather than o f a p o l i c y nature. The Board's
statutory functions are out1 ined i n Arizona Revised Statues ( A. R. S. )
$ 32- 1 134:
" The board shall :
1. Maintain the fund a t a minimum 1 eve1 o f one
hundred thousand dollars.
2. F i x assessments basing such assessments on an
a c t u a r i a l projection o f anticipated claims and an
anticipated annual i n f l a t i o n rate o f ten per cent.
3. E s t a b l i s h claim reserves based on t h e i n c u r r a l
date o f claims and an earned basis o f income.
4. Cause an examination o f the fund t o be made every
three years.
5. F i l e with the state insurance department an annual
statement o f the condition o f the fund, prepared i n
accordance with generally accepted insurance accounting
p r i n c i p l e s and showing claim reserves c e r t i f i e d by a
qua1 i f i e d actuary."
I n addition, A. R. S. $ 32- 1133. C empowers the Board t o h i r e s t a f f t o carry
out the Board's duties:
" C. The board may employ such personnel , i n c l uding
attorneys and actuaries, as may be necessary t o e f f e c t
performance o f the duties o f the board."
The ~ o a r d ' s statutory duties are delegated t o accountants or actuaries.
The Board does not do the work, but selects the i n d i v i d u a l s t o perform the
analyses and subsequently approves t h e i r conclusions.
Board Has Focused Largely on Nonstatutory Tasks - Since i t s inception, the
Board has focused l a r g e l y on tasks not required by statute. I n few Board
meetings have s t a t u t o r i l y authorized tasks been performed. Most o f the
Board meetings have focused on consumer education and other matters.
The Recovery Fund Board met f o r the f i r s t time i n May 1981, and through
January 1984 has met 13 times. I n f i v e o f these meetings the Board made
decisions regarding statutory duties: two i n 1981, two i n 1982, and one
i n 1983.
I n ten meetings the Board took a c t i o n n o t r e l a t e d t o i t s statutory
charge. It a1 1 ocated monies f o r consumer education, selected advertising
firms o r decided other matters. For example, the Board discussed and
recommended an increase i n the recovery fund payment l i m i t s and the date
on which the new l i m i t s would take e f f e c t . Both o f these issues were
subsequently addressed through 1 egi s l a t i on submitted by the Registrar of
Contractors. I n addition, the Board discussed a1 1 owing ROC hearing
o f f i c e r s t o adjudicate recovery fund cases.
Unauthorized Expenditures f o r Consumer Education - The Board has expended
recovery fund monies for consumer education without statutory authority.
According t o the Arizona L e g i s l a t i v e Council, the Board can only expend
monies f o r payment o f v a l i d claims against contractors.
From i t s inception i n 1981 through March 31, 1984, the Board expended
$ 1 09,135 f o r consumer education. The Board has r e t a i n e d a d v e r t i s i ng
firms, run t e l e v i s i o n and radio advertisements and p r i n t e d pamphlets f o r
consumer information. The Board has allocated the following sums for
consumer i nformation s i nce 1 981 .
TABLE 2
FUNDS ALLOCATED FOR RECOVERY FUND
CONSUMER INFORMATIOId: FISCAL YEARS 1981- 82 THROUGH 1983- 84
1982- 83 50,000
1983- 84 65,000
Source: Contractors ' Recovery Fund Board minutes
According t o the L e g i s l a t i v e Council, the Board has no statutory a u t h o r i t y
t o expend monies f o r consumer education. L e g i s l a t i v e Council concluded:
" Because the fund monies are public monies, the board
and the registrar of contractors may only expend these
monies if the legislature has authorized them to do
so. The 1 egi sl ature has expl ici tly del ineated the
manner i n which fund monies may be used. This
delineation does not include the expenditure of fund
monies for consumer education purposes."
Board Members Agree Board i s Unnecessary - If limited to performing only
i t s statutory duties, Board members agreed that the Recovery Fund Board i s
n o t needed. They classified i t s statutory duties as being of an
accounting nature not requiring board oversight.
Registrar of Contractors
Could Assume Board Duties
The Registrar of Contractors could assume the Recovery Fund Board's
1 imited statutory duties. The ROC a1 ready administers all of the recovery
fund's processes. All other recovery funds we examined are managed by a
parent agency and do not have separate boards. If the ROC assumed the
Board's responsibilies, some savings would be realized.
ROC Administers All of Fund Processes - The ROC administers all of the
recovery fund processes i ncl udi ng i nvesti gati ve, administrative and
accounting functions. The ROC'S Compliance Division investigates recovery
fund cases. The investigators' report is used by the ROC to help
determine the validity of claims and the potential judgment amounts. The
Registrar also defends the fund in court against any claim deemed by the
Registrar to be excessive or i n violation of statutory requirements.
The statutes require the Registrar t o administer the recovery fund.
A. R. S. S32- 1132. A. states i n part:
" There i s establ i shed the contractors' recovery fund,
to be administered by the registrar . . ." ( emphasis
added)
The ROC maintains a l l recovery fund records, receives fund assessments and
may authorize fund payments. I n addition, the Recovery Fund Board's
annual statement o f the fund i s prepared by the ROC.
Other Recovery Funds Managed By Parent Agency - A l l other recovery funds
we examined are managed by a parent agency such as the Registrar of
Contractors. Our analysis i ncl uded other states' contractor recovery
funds and other Arizona agencies' recovery funds. The f o l lowing tab1 e
i l l u s t r a t e s the types o f management systems used f o r the various recovery
funds analyzed.
TABLE 3
RECOVERY FUND MANAGEMENT SYSTEMS
State or Aaencv Name o f Fund
Other States:
Hawai i
V i r g i n i a
Managed By
Contractors ' Recovery Fund Parent Agency
V i r g i n i a Contractor Parent Agency
Transaction Recovery Fund
Arizona:
REGISTRAR OF
CONTRACTORS Contractors ' Recovery Fund D i v i ded- Special Board
and Parent Agency
Real Estate Department Real Estate Recovery Fund Parent Agency
Real Estate Department Subdivision Recovery Fund Parent Agency
Office of
Manufactured Housing Trust Account Recovery Fund Parent Agency
I)
Five of the s i x recovery funds analyzed are managed by the parent agency.
Only i n the case o f the Registrar does a special board share management
duties with the parent agency. The two other states with contractors'
recovery funds both use the parent agency t o manage the fund.
ROC States i t Could Assume Recovery Fund Board Duties - The Registrar of
Contractors states that i t could assume the Recovery Fund Board's
statutory and consumer education tasks. By transferring these duties,
some savings and increased efficiencies woul d be real ized. Board travel
and per diem expenses would be eliminated. In addition, the ROC could
immediately implement the recommendations of actuaries or accountants.
Currently, a Board meeting is he1 d to accept and sustain these findings.
Finally, the Registrar would not need to use its resources to organize and
keep records of Board meetings.
CONCLUSION
The Recovery Fund Board could be allowed to terminate under the Sunset Act
provisions. I t s 1 imi ted statutory duties do not require board oversight.
The Regi s t r a r of Contractors a1 ready admi n i s t e r s the recovery fund, and
could perform the Board's limited duties as is done w i t h most other
recovery funds.
RECOMMENDATIONS
1. The Legislature should consider a1 lowing the Recovery Fund Board to
terminate under the Sunset Act provisions.
2. The Legislature should assign a1 1 Recovery Fund Board duties to the
Registrar of Contractors.
3. I f the Legislature wishes to allow use of recovery fund monies for
advertising, i t should provide the Board specific statutory authority
to do so.
FINDING I1
CONTRACTORS' RECOVERY FUND SHOULD BE MORE ACCESSIBLE
The Contractors' Recovery Fund could be more accessible to consumers. The
current process of recovering from the fund i s too complicated and
cumbersome. A1 1 owing the Registrar of Contractors ( ROC) t o adjudicate
cases would simplify the process, reduce costs, and improve the fund's
accessibil i ty.
Current Claim Adjudication Process
Consumers must appear in court twice and f i l e w i t h the ROC to receive
payment from the recovery fund. To initiate a recovery fund claim the
consumer must f i l e suit against the contractor i n court w i t h i n 2 years of
the cause of action. A t the commencement of the action the consumer must
also notify the ROC of the suit. Upon receipt of the notification the ROC
requires from the consumer copies of any contracts, receipts and canceled
checks relating to the claim. In addition, the ROC asks the consumer to
obtain three bids for completion or repair of the work in question. The
ROC al- so inspects the job site. All of this information i s used by the
ROC to verify the claim and estimate the cost of the total damages. With
this information the ROC can protect the fund i n court i f i t appears that
the claim i s exorbitant.
If the consumer demonstrates to the court that he i s entitled to recovery
because of a violation of the contracting statutes, a judgment against the
contractor may be granted. After receiving a judgment against the
contractor and giving 10 days notice to the ROC, the consumer may then
apply to the court a second time for an order directing payment from the
recovery fund. The claimant must prove to the court that:
1. The claimant is not a spouse or personal representative of the
contractor's spouse; ;
2. Notice of the lawsuit and request for an order allowing payment
from the fund has been given to the Registrar;
17
3. The judgment i s f i n a l and s t a t e s t h e judgment amount and the
amount of money owed t o the property owner a t the time the
request f o r payment from the fund i s made;
4. The property owner has proceeded against any e x i s t i n g bonds
covering the contractor and has n o t c o l l e c t e d $ 15,000 or more
from those bonds; and
5. The property owner i s not aware o f any other assets owned by the
contractor t h a t can be used t o s a t i s f y the judgment.
If the consumer successfully demonstrates the above, t h e c o u r t i s required
t o d i r e c t payment from the fund. The consumer must f i l e a c e r t i f i e d copy
of the order d i r e c t i n g payment with the ROC, which may then authorize
payment from the fund.
According t o the ROC, the recovery fund process was designed t o be
somewhat compl icated f o r two reasons. F i r s t , there was apprehension t h a t
the recovery fund would turn i n t o a " big giveaway program." Second,
because o f t h i s p o s s i b i l i t y , there was a1 so concern t h a t contractors would
repeatedly be assessed the $ 200 maximum recovery fund renewal fee to
replenish the fund. To date, recovery fund payments have not been
numerous and the fund balance has been so substantial t h a t - no renewal fee
has been required since January 1983.
Current Process
' Too Com~ ilc ated
The current recovery fund process i s too complicated and cumbersome.
Specific statutory procedures can cause consumers d i f f i c u l t y with the
process. Because the process i s complicated, most consumers need legal
assistance, which increases the cost o f recovery fund claims.
Specific Procedures Complicate Process - Specific statutory procedures
compl i c a t e the recovery fund process for the consumer. We i d e n t i f i e d five
procedures t h a t cause p a r t i c u l ar d i f f i c u l ty and 1 i m i t consumer
a c c e s s i b i l i t y t o the fund.
Court Judgment and Payment Order - The requirement f o r the consumer t o
obtain both a court judgment and a payment order lengthens and
complicates the court process. I n addition, some consumers may be
unwilling to p a r t i c i p a t e i n the court process. A consumer must obtain
a judgment against the contractor and then a t a l a t e r date go back
i n t o court f o r an order to receive payment from the fund.
Bond Exhausted - This requirement could complicate and impede the
consumer's a b i l i ty t o obtain a recovery fund payment." Currently, the
law requires t h a t the consumer f i r s t proceed against any remaining
amounts i n the c o n t r a c t o r ' s l i c e n s e bond before recovery fund payment
can be made. If there are bond monies remaining the consumer must
f i r s t f i l e s u i t against the bonding company and the contractor before
proceeding against the recovery fund. This could cause a s i g n i f i c a n t
delay i f the bonding company decided t o f i g h t the case i n court.
Spouse/ Personal Representative - This requirement may be d i f f i c u l t f o r
the consumer t o meet without l e g a l assistance. The law requires t h a t
the consumer demonstrate t h a t he i s not the contractor's spouse or
personal representative of the spouse. Although easy f o r a lawyer t o
prepare, most consumers are not f a m i l i a r w i t h w r i t i n g a f f i d a v i t s t o
declare t h i s . According t o the Registrar, the court does not
investigate or v e r i f y t h i s information.
No Other Assets - This requirement i s the most d i f f i c u l t f o r the
consumer t o meet. The law requires t h a t the consumer must show t h a t
he i s not aware of any assets owned by the contractor t h a t could be
used t o s a t i s f y the judgment. The current practice has been t o obtain
a release from stay from bankruptcy court, because most contractors
have been insolvent i n cases where payments are made. This
requirement also has the potential to cause f u r t h e r consumer
d i f f i c u l ty. According t o the Registrar, the ROC coul d theoretical ly
* We recommend elimination o f the bonding requirement i n Registrar of
Contractors Finding I 1 I ( see page 33).
intervene t o require the consumer t o f i n d assets or force the sale o f
remaining assets before recovering from the fund. The ROC, however,
has the r i g h t o f subrogation t o pursue contractors' assets.
P r i o r Notice - F a i l u r e t o meet t h i s requirement could t e c h n i c a l l y
i n v a l i d a t e a case. The consumer i s required t o n o t i f y the ROC a t the
time o f the commencement o f the action and a t l e a s t 10 days before
f i l i n g f o r a payment order. According t o the ROC, i f a consumer f a i l s
t o meet t h i s requirement the case i s t e c h n i c a l l y i n v a l i d . I n
contrast, the real estate recovery fund statutes s p e c i f i c a l l y
authorize the commissioner t o waive the p r i o r notice requirement if
the commissioner determines it i s i n the public i n t e r e s t or the
claimant has made a good f a i t h e f f o r t . The ROC does not have t h i s
authority.
Process Requires Legal Assistance - Most consumers use 1 egal assistance
because the recovery fund process i s so complicated. This increases the
cost o f claims and may f u r t h e r deter some consumers from f i l i n g f o r
r e s t i t u t i o n .
The complicated recovery fund process generally requires the claimants t o
use legal assistance. We found t h a t 138 o f the 178 recovery fund cases
( 78 percent) f i l e d through December 13, 1983, were l i t i g a t e d by
attorneys. As mentioned previously, several o f the conditions f o r
processing claims, such as a f f i d a v i t s and releases from stay, may require
legal s k i l l s .
Because attorneys are u t i l i z e d , the cost o f claims i s increased. Our
analysis determined t h a t the average attorney f e e p a i d per successfu~
recovery fund case was $ 702. The fees ranged from $ 200 for a $ 398 claim
t o $ 1,500 f o r a $ 3,500 claim. The ROC requires documentation f o r fees of
/
more than $ 1,000.
Legal fees comprise a significant proportion of the total recovery fund
payments. Overall, for those claims i n which an attorney was used,
attorney fees averaged 30 percent of actual damages awarded. We
identified two claims i n which attorney fees were greater than the claim
amount. For one claim, damages equaled $ 791.50 and attorney fees totaled
$ 900, for a total claim of $ 1,691.50. In a recovery fund case currently
pending the consumer suffered damages totaling $ 853 and the attorney
estimated fees of some $ 3,100.
The need for legal assistance may further deter some consumers from
participating in the recovery fund process. Some consumers may not have
sufficient monies to sustain a claim through the complicated recovery
process. In addition, consumers may not want to risk further financial
1 oss not knowing i f the claim will be successful. Moreover, consumers may
be unwilling to accrue legal fees of an amount greater than the actual
damage.
Administrative Hearings
Noul d Sim~ il f v Process
The recovery fund process could be simplified by using administrative
hearings to adjudicate claims. The Office of Manufactured Housing ( OMH)
has a much simpler recovery fund process using administrative hearings.
The Registrar noted several advantages to using this method of
adjudication.
OMH Has Simpler Process - The Arizona Office of Manufactured Housing has a
much simpler adjudication process for its recovery fund. Claims are
adjudicated internally through the agency's administrative hearing
process. The agency does not have any of the various statutory
requirements that complicate the ROC'S recovery fund process. The OMH
director noted several advantages to the agency ' s process.
The OMH t r u s t recovery fund* claims are adjudicated through the agency's
administrative hearing process. The assigned hearing o f f i c e r eval uates
a1 1 re1 evant, competent evidence offered by the claimant and 1 icensee.
After the hearing i s concluded the hearing o f f i c e r must render a decision
w i t h i n 15 days, denying or g r a n t i n g t h e claim. The Office o f Manufactured
Housing Board then pays the judgment from the recovery fund.
OMH does not have any o f the requirements t h a t complicate the ROC'S
recovery fund process. Because OMH uses administrative hearings t o
adjudicate c l aims, the p r i o r notice and court judgment/ payment order
requirements are unnecessary. OMH does not require the claimant t o verify
t h a t he i s not a spouse or personal representative o f the spouse, and the
consumer i s not required to exhaust the bond or determine t h a t no other
assets are available. OMH, through i t s r i g h t o f subrogation, has i t s
Attorney General representative pursue the bond or other assets i n court.
The following table i l l u s t r a t e s the differences between the OMH and ROC
recovery fund process requirements.
TABLE 4
A COMPARISON OF RECOVERY FUND
PROCESS REQUIREMENTS FOR OMH AND ROC
- 0M H - ROC
1. P r i o r Notice No Yes
2. Court Judgment/ Payment Order No Yes
3. Bond Exhausted No Yes
4. Spouse/ Personal Representative No Yes
5. No Other Assets No Yes
* The OMH t r u s t recovery fund provides monies t o people damaged as a
r e s u l t o f an a c t o r omission o f t r u s t and escrow requirements by
1 icensed dealers or brokers o f manufactured homes or factory b u i l t
bui 1 d i ngs.
The OMH director 1 isted several advantages to his agency's process.
First, no court judgment is required. Second, consumers do not need an
attorney, b u t both the consumer and licensee may have legal assistance i f
desired. Third, consumers do not have to exhaust the bond or prove the
licensee has no other assets. Finally, the process is timely, requiring
about 6 weeks i f attorneys are not involved.
Advantages of Using Administrative Hearings - The Regi s t r a r noted several
advantages of using administrative hearings to adjudicate recovery fund
claims. The Registrar said that claims could be processed much f a s t e r
through administrative hearings. In addition, administrative hearings
would be less costly to consumers. Moreover, the consumer could apply for
restitution using only one forum. If a consumer filed a complaint against
a licensed contractor and the contractor did not respond to the ROC's
hearing order, the consumer could then proceed directly against the
recovery fund. In addition, the admi n i strative heari ng process a1 1 ows
petitions for rehearing and appeals to Superior Court. Consumers or
contractors not satisfied w i t h administrative hearing decisions could
s t i l l have a case heard i n court.
CONCLUSION
The contractors' recovery fund process can be improved to enhance consumer
accessi bil i ty. Various requirements now compl icate the adjudication
process for the consumer. The need for legal assistance may deter some
consumers seeking restitution from the fund. Using the ROC's
administrative process to adjudicate claims would alleviate many of these
probl ems.
RECOMMENDATIONS
1. The Legislature shoul d consider modifying Arizona Revised Statutes
( A. R. S. 532- 1136 to allow contractors' recovery fund claims to be
adjudicated through the Registrar of Contractors' administrative
hearing process.
2. The Legi sl ature should consider el imi nati ng the requirements that the
consumer 1 ) exhaust the contractor's 1 icense bond ( A. R. S.
$ 32- 1136. C. 41, 2) demonstrate that he i s not a spouse or personal
representative of spouse ( A. R. S. S32- 1136. C. 1) , and 3) demonstrate
that the licensee has no other assets ( A. R. S. S32- 1136. C. 5).
3. The Legislature should consider allowing the Registrar to waive the
prior notice requirement if the Registrar determines i t i s in the
public interest or the claimant has made a good faith effort.
Registrar of Contractors
@ BRUCE BABBITT
GOVERNOR
contractors' Recovery Fund
August 10, 1984
Douglas R. Norton
Auditor General
111 West Ihroe, Suite 600
Phoenix, AZ 85003
1818 WEST ADAMS
PHOENIX, ARIZONA 85007
( 602) 255- 1525
BOARDMEMBERS
CLIFFORD JENSEN, CHAIRMAN
JOHN PAYSON
FRANK ESTAVILLO
MARCIA BUSCHING
DAVID M. TALAMANTE
Dear Fk. Norton:
The menibers of the Recovery Fund Board have carefully reviewed the find-ings
and recormendations in the audit report. The Board feels your report
confirms the success of the recovery fund concept as a viable remedy for
the public with a minimal cost to the contractor. Given this success,
under the Boards ' rnanagerrsnt , the h e r s cannot agree with recormendations
J/ 1 and $/ 2 of Finding I.
D Finding I recamends that the Legislature allow the Recovery Fund Board to
terminate because of perceived limitations in the duties of the Board. As
noted in the report, the Board members would agree with this recormendation
if the perceived limitations were accepted. However, the Board does not
agree with the report's assessment that allocating recovery fund nmnies for
consumer education is unauthorized. Consequently, the Board cannot agree
with the reconmendation as stated in the report.
The asswtions relied upon by the auditors in arriving at the conclusion
that the expenditures for consumer education are unauthorized are seriously
flawed. The arguments presented in the report and those contained in the
Legislative Council opinion are incorrect as they relate to the legal in-terpretation,
legislative intent and conclusion that authorization to expend
mnies for consumer education is lacking.
The initial argwent put forth by the Legislative Council is that payouts
from the fund are not appropriated by the Legislature and therefore violate
Article IX, Section 5 of the State Constitution and A. R. S . $ 35- 154. This
contention is not correct for the following reasons:
1. The Constitution applies to mies paid out of the state
treasury. Because the mnies are held in a special trust
fund " for carrying out the purposes of the fund", they are
not " treasury" mnies as such. The State Treasurer's only
function in the fund process is to invest the monies for the
recovery fund.
2. The mies can not be regarded as " public mnies" by the
Legislative Council's own argument. The mnies are held
in trust for a small group of beneficiaries as opposed to
the general public referred to in the opinion. Contractor
license bonds are maintained for the general public whereas
the recovery fund only applies to that group meting the
specific criteria outlined in the definition of " person
injured" contained in A. R. S. 532- 1131. This group is nar-rowed
further by the provisions of A. R. s . ~ 3211136 which is
recognized in another part of your report.
3. Even if the recovery fund mnies are subject to appro-priation,
such appropriation can be implied frm the
language of the statutes. Per A. R. S. 532- 1133, the Board
nay expend funds on outside professionals to "... effect
performance of the duties of the Board." The contention
that the Board can expend funds on only those specific
duties listed in 1134 can not be sustained in light of the
fact that the Board may employ attorneys yet none of the
duties listed require the expertise of an attorney.
On a mre practical note, it is inconceivable that the Legislature would
contemplate keeping the existence of the fund quiet in view of the stated
intent to enhance public protection. For the Board to accomplish its duties
consistent with the intent to protect the public by compensating consumers
wronged by contractors, it is necessary to adequately inform the public as
to the existence of the fund. Additionally, the Arizona fund was closely
patterned after the Hawaii contractors fund in which consumer awareness
plays a large part.
It is also interesting to note that after all the openness with which the
consumer awareness program has operated, a challenge to its appropriateness
has not been put forth until now. Not only has the program been brought to
the attention of all legislators as well as contractors ( open letter August,
1982), but public- ard meetings discussing the program and published requests
for bids have further exposed the program to public scrutiny. If such expendi-tures
were not intended by the Legislature, we would have heard about it
before now!
Despite the above, we do a'gree that the statutory authority to rnake the
expenditures for consumer awareness is less than explicit. As a result,
the Board feels that legislation similar to that enacted by the Department
of Real Estate in the last legislative session should be recomnended. That
provision specifically authorized expenditures for consunaer awareness out
of the interest generated by the fund. The Board is confident that this
reconmendation will have the overwhelming support of the construction in-clustry.
With regard to Finding 11, the Board agrees with and endorses all three
recmndations. However, in implementing these changes the Board feels
that its continued existence is necessary for the same reasons justifying
its creation. The apprehension noted in the report that the Recovery Fund
could become a " give away program1' would certainly be revived by the
implementation of the recomnendations. By giving the Registrar direct
administrative authority to order payouts from the fund, contractors
m y fear they will be subjected to increased and mre frequent govern-mtal
control. An independent board will operate as a balance to that
concern.
Finally and to reemphasize the point, those familiar with the Recovery
Fund will attest to its tremendous success as a source of consumer
remedy at a minimal cost to the contractors. This latter point, while
not unexpected by the Board, came as a pleasant surprise to the construction
industry. This Board looks forward to a continuation of this same success.
Sincerely,
RECOVERY FUND BOARD
wistrar of Contractors
APPENDIX
LEGISLATIVE COUNCIL OPINION ON RECOVERY FUND BOARD
EXPENDITURES FOR ADVERTISING
May 9, 1984
TO: Douglas R. Nor ton, Auditor General
FROM: Arizona Legislative Council
RE: Request for Research and Statutory Interpretation ( 0- 84- 2)
This memo is sent in response to a request made on your behalf by William
Thomson in a memo dated April 23, 1984.
FACT SITUATION:
The contractors' recovery fund ( fund) is established pursuant to Arizona Revised
Statutes section 32- 1132.
The contractors' recovery fund board ( board) has expended monies annually since
fiscal year 1981- 1982 for the purpose of consumer education. The monies specifically
have been expended to retain advertising consultants, print consumer education pamphlets
and place advertisements in magazines and on television. Recent legislation has provided
for the expenditure of monies in a similar fund, the real estate recovery fund, to increase
public awareness of that fund.
QUESTIONS PRESENTED:
1. Does t: itc board have the authority to expend fund monies for consumer
education purposes ?
2. Should any expenditures from the fund other than claim payments be initially
appropriated by the legislature?
ANSWERS:
1. The Constitution of Arizona provides that money shall not be paid out of the
state treasury except as provided by law. Constitution of Arizona article IX, section 5.
The Arizona supreme court has interpreted this provision to mean that "/& To money can
be paid from the State treasury unless and except the legislature or the constitution itself
has made an appropriation therefor, and it can only be used then for the purposes
specified by the appropriation." Webb v. Frohrniller, 52 Ariz. 128, 134, 79 P. 2d 510, 513
( 1938). The expenditure of state monies not authorized by an appropriation is also
prohibited by A. R. S. section 35- 154.
Although the monies in the fund are obtained through assessments against persons
applying for a contractor's license, they are still monies in the state treasury and are
subject to the restrictions contained in article IX, section 5, Constitution of Arizona, and
A. R. S. section 35- 154. In determining whether certain monies are public funds the use of
the monies should be examined. Monies held by a public officer for the benefit of the
public and not for a few citizens are public monies. City of Phoenix v. Superior
Court, Maricopa County, 109 Ariz. 533, 514 P. 2d 454 ( 1973), Sims v. Moeur, 41 Ariz. 486,
19 P. 2d 679 ( 1933).
Monies in the fund are to be awarded to persons injured by any act, representation,
transaction or conduct of a contractor licensed by the registrar of contractors. A. R. S.
section 32- 1132. Once an assessment is paid, the contractor has no claim on the monies.
The monies are also not held for a select group of beneficiaries but are to be used to
protect the general public from the bad acts of licensed contractors. The monies in the
fund are, therefore, public monies for the purposes of article IX, section 5, Constitution
of Arizona, and A. R. S. section 35- 154.
Because the fund monies are public monies, the board and the registrar of
contractors may only expend these monies if the legislature has authorized them to do so.
The legislature has explicitly delineated the manner in which fund monies may be used.
This delineation does not include the expenditure of fund monies for consumer education
purposes.
A. R. S. section 32- 1 135 states, in part, " The assessments received by the registrar
for deposit in the fund shall be held in trust for carrying out the purposes of the fund."
The purposes of the fund, stated in A. R. S. section 32- 1132, subsection A, are to provide
- monies:
/ F/ rom which any person injured by an act, representation,
transac7Ton or conduct of a contractor, which is in violation of this chapter
or the regulations promulgated pursuant to this chapter, may be awarded in
the county where the violation occurred an amount of not more than fifteen
thousand dollars for damages sustained by the act, representation,
transaction or conduct. An award from the fund is limited to the actual
damages suffered by the claimant, including reasonable attorney fees,
except that an award from the fund shall not be available to persons injured
by an act, representation, transaction or conduct of a contractor whose
license was in an inactive status at the time of the injury.
The method of accomplishing these purposes is set forth in A. R. S. section 32- 1136.
Notice must be provided to the registrar of any action which might result in collection
from the fund. A person injured by a contractor must obtain and attempt to enforce a
judgment against the contractor. The registrar may only authorize payment from the
fund if a court orders payment of the unsatisfied judgment. A. R. S. section 32- 1136,
subsection E.
Because the registrar must use the fund monies for the purposes of the fund and
these purposes do not include consumer education, he may not make expenditures from
the fund for this purpose. The board also lacks this authority. Its duties, prescribed in
A. R. S. section 32- 1134, are to:
1. Maintain the fund at a minimum level of one hundred thousand
do llar s .
2. Fix assessments basing such assessments on an actuarial
projection of anticipated claims and an anticipated annual inflation rate of
ten per cent.
3. Establish claim reserves based on the incurral date of claims and
an earned basis of income.
4. Cause an examination of the fund to be made every three years.
5. File with the state insurance department an = nual statement of
the condition of the fund, prepared in accordance with generally accepted
insurance accounting principles and showing claim reserves certified by a
qualified actuary.
The board's major responsibility is to maintain the solvency of the fund. The
legislature has not given it the authority to expend fund monies for consumer education
purposes.
This conclusion is supported by the legislature's recent action i- regard to the real
estate recovery fund. As noted in the statement of facts, the state real estate
commissioner has been authorized to expend interest earned on monies in the real estate
recovery fund to increase public awareness of that fund. Laws 1984, chapter 107, section
1. The provisions dealing with the use of monies in the real estate recovery fund are very
similar to the provisions in A. R. S. sections 32- 1132, 32- 1135 and 32- 1 136. The passage
of Laws 1984, chapter 107 indicates the legislature's belief that the state real estate
commissioner did not have the power to make expenditures of real estate recovery fund
monies to increase public awareness of that fund.
2. As discussed in the answer to question 1, payments may only be made from the
fund as prescribed by A. R. S. section 32- 1136. Expenditures of fund monies for any other
purposes must be authorized by the legislature.
cc: William Thomson, Manager
Performance Audit Division