Annual Report Year Ended June 30, 2007 Our Authority The Office of the Auditor General is a legislative agency under the direction of the Joint Legislative Audit Committee. The Office provides information to the Legislature and various other governmental entities, which assists them in overseeing operations, improving their financial management and effectiveness, and giving the public a measure of accountability. Our Mission To improve state and local government operations and accountability by independently providing the Legislature, government decision-makers, and the public with timely, accurate, and impartial information; relevant recommendations; and technical assistance. Auditor General Staff Has Excellent Reputation in Government Auditing The Office conducts high-quality work and demonstrates leadership in the government auditing field. As a result, we have an excellent national reputation among audit organizations, including recognition for the quality of our work and involvement in professional organizations. One recognition of the quality of our work and national reputation is our recent Quality Control Review by the National State Auditors Association (NSAA). This review represents an independent “audit” of our Office. Specifically, the review measured our compliance with following professional standards when we perform our audit work and issue our resulting reports. After reviewing our fiscal year 2007 audit activities, the NSAA review team issued an opinion indicating that our Office has an appropriately designed quality control system, and that our compliance with that system ensures that we follow Government Auditing Standards. Our Quality Control Review results give us the highest mark a state audit organization can receive in such a review. Our staff’s involvement in professional organizations demonstrates their expertise, energy, and enthusiasm as leaders in the government auditing field. Numerous employees participate in professional organizations in various capacities, at the national, state, and local levels. They serve in these organizations at the board, executive, committee, task force, and conference levels. They are involved in standards-setting, oversight and monitoring, best-practices sharing, and training activities. These activities directly contribute to our staff’s professional development and improves the audit quality of other government auditors and accountability over government auditees. As individuals, and cumulatively as an audit organization, these efforts have helped to establish our Office as one of the premier state audit organizations in the country. Our Vision To serve as catalysts for improving the effectiveness, efficiency, and accountability of government in Arizona. National Awards and Recognition • NSAA Quality Control Review Team issued an opinion that our Office has a quality control system that ensures we follow professional standards • Numerous staff actively participate in national, state, and local professional accountability organizations z 2007 Year Ended June 30, 2007 Gave 19 presentations to numerous professional organizations and local governments, providing technical assistance and education Auditor General Responsibilities and Activities The Office has audit and oversight responsibility for state agencies, universities, counties, community colleges, and school districts. We also complete specific research and investigative projects at the Legislature’s request. The Office’s responsibilities and activities detailed below are carried out by four operating and three support divisions. Financial and compliance audits • The State and its agencies • Universities • Counties • Community college districts Auditor General Performance audits and program evaluations • State agencies and programs • School districts Deputy Auditor General Financial Audit Performance Audit Information Technology School Audits Professional Practice Accounting Services Administration Special audits, IT audits, and procedural reviews, and investigations • State agencies • Certain political subdivisions Uniform accounting systems • School districts • Counties • Charter schools • Community college districts Uniform expenditure reporting system • Most political subdivisions Auditor General Issued Nearly 200 Reports The Office issued 197 reports in fiscal year 2007, providing the Legislature, state and local governments, and the public with reliable, valuable information. These reports communicate the results of our audits and reviews, broadly summarized in three categories as follows: Performance audits, evaluations, studies, and reviews—These reports focus on determining how effectively, efficiently, and economically state agencies and school districts conduct business. For example, sunset audits help the Legislature determine whether to continue or terminate an agency. Our follow-up letters tell the Legislature how well state agencies and school districts are implementing our recommendations. Financial audits and related letter reports— These reports focus on the accuracy of financial data, effectiveness of internal controls, and compliance with required accounting practices of the State, its agencies, and local governments. Also, we page 2 issue letter reports that provide recommendations to improve financial practices. Compliance reports and letters—These reports focus on whether the State, its agencies, and local governments are complying with laws and regulations for various administrative and reporting requirements. Various federal and state agencies use these reports to monitor state and local governments’ activities. For example, single audits satisfy federal audit requirements, and are necessary for the State and local governments to continue receiving federal funding. The table on page 3 summarizes the number of reports issued, by type, for each of the state agencies and local governments we audit. Many reports are accompanied by report highlights, which summarize the results and conclusions of our audits and reviews. All of our reports can be accessed from our Web site at www.azauditor.gov. Number of Reports Issued by Type of Report and Government Type of Report State Community School Agencies Universities Counties Colleges Districts Performance audit Sunset audit Audit follow-up letter Special legislative report/study Information brief Questions and answers Financial statement audit Single audit Special investigation Management letter Procedural review letter Compliance review Status review Agreed-upon procedures report Expenditure limitation Other special reports 7 2 41 1 3 1 7 1 10 4 4 19 2 3 3 8 4 3 5 7 4 1 7 1 21 12 3 3 4 7 1 Auditor General Activities Positively Impact State and Local Governments We are committed to making a difference in the way state and local governments operate. We accomplish this through our audit and oversight activities by providing impartial, objective information in our reports or at briefings and hearings, and technical assistance to the State and local governments. All of these activities focus on helping state agencies and local governments to improve their accountability. Our audit results and oversight activities provide recommendations to state agencies and local governments, which give guidance on improving an agency’s operations. For example, our performance audit of the delivery of behavioral health services to adults with serious mental illness in Maricopa County addressed how the money for these services was being spent, whether there was an adequate focus on the outcomes achieved by the services, and how effectively the Department of Health Services' Division of Behavioral Health Services (Division) conducted financial oversight and reviewed the levels and costs of services provided. Our audit found that Arizona has a well-funded mental health system managed by the Division. However, our report recommended that the Division increase its existing efforts to measure whether adults with serious mental illness are making progress. In addition, our report recommended that the Division also provide greater assurance that monies are spent appropriately and sufficient services are provided. This year's school district performance audits are another example, identifying some common issues that affect accountability and the effective use of public monies. In three of our four school district performance audit reports issued during fiscal year 2007, we found that districts paid employees bonuses or stipends that may not have been legally appropriate. Three reports made recommendations for improving the accuracy and integrity of accounting information. These reports also made recommendations for more efficient bus routes and accurate route miles reporting, both of which impact transportation costs and funding. page 3 TO OBTAIN MORE INFORMATION Or to obtain copies of our reports, call (602) 553-0 0333 or visit our Web site at: www.azauditor.gov z z z z z z One measure of our success is how many of our recommendations are implemented. During fiscal year 2007, state agencies and school districts implemented 100 percent and 97 percent, respectively, of our performance audit recommendations. Local governments are also addressing our Uniform System of Financial Records compliance and single audit recommendations for improving their accountability. Department of Education in the creation of English Language Learner budget request forms that school districts and charter schools will use to request Compensatory Instruction Fund monies. We have also begun employing various strategies to help our State’s rural counties and community college districts as they address the demands placed on them by comprehensive governmental reporting Another way our Office makes a difference is requirements implemented in fiscal year by helping state agencies and local govern2003. These demands have resulted in some ments establish practices that improve operarural counties and community college districts tions, compliance with laws, and financial not being able to meet financial reporting reporting. For example, our Office issued five deadlines, which could lead to a loss in budget preparation packages and three federal funding or lower bond ratings. To help annual report preparation packages to address this problem, we have been counties, cities and towns, community college partnering with those governments to provide districts, school districts, charter schools, and assistance and tools that will improve their special districts. We also modified school ability to issue more timely and accurate district and charter school budget packages to financial reports. As a result of these include the Structured English Immersion strategies, we have begun to help governFund and provided assistance to the Arizona ments catch up, auditing and releasing 6 county and community college district financial Results of Audit Work statement and single audit reports over the The Legislature implemented 100 percent of our performance audit past 2 years for fiscal recommendations years ranging from 2003 through 2005. We plan to State agencies implemented or were in the process of implementing continue these strategies, 100 percent of our performance audit recommendations looking forward to the opportunity to improve School districts implemented or were in the process of implementing accountability in Arizona's 97 percent of our performance audit recommendations local governnments. 72 percent of school districts corrected deficiencies sufficiently to These efforts provide comply with the Uniform System of Financial Records guidance that helps local governments implement Single audits identified nearly $6.4 million in federal grant monies that annual financial state and local governments spent in violation of federal grant accounting and reporting provisions requirements to comply with Arizona law. Special investigations found that over $359,000 was stolen from and over $465,000 was misused by employees of three local governments z Provided technical assistance to other agencies, universities, counties, cities, community college districts, and school districts about financial reporting, compliance, and other matters Annual Report of the Office of the Auditor General page 4 YEAR ENDED JUNE 30, 2007