Annual Report

Year Ended June 30, 2013

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 serve as catalysts for
improving the effectiveness,
efficiency, and accountability
of Arizona state and local
governments’ operations
by independently providing
the Legislature, government
decision-makers, and
the public with timely,
accurate, impartial, and
impactful information,
technical assistance, and
recommendations.

Our Vision
To make a positive difference
in the lives of Arizona’s
citizens by promoting better
government.

2013
Year Ended June 30, 2013

Office makes a positive difference by promoting better
government
We are committed to making a positive difference in the way our State and its local
governments operate, and we focus on helping state agencies and local governments
improve their accountability and effective use of public monies. We accomplish this
through our audit and oversight activities by providing impartial, objective, and useful
information and recommendations in our reports, at briefings and hearings, and by
providing helpful technical assistance to government officials who manage operations.

Office audits provide effective information and recommendations—As the
State’s independent auditor, our primary responsibility focuses on conducting audits
and issuing effective reports. Our reports focus on various ways that state agencies
and local governments can make positive differences in the way they operate. During
fiscal year 2013, we issued 190 reports that covered various matters regarding state
agencies, universities, school districts, counties, and community colleges (see the table
on page 2). These reports can be broadly categorized into three main types described
in the textbox below.

Special audits requested by the Legislature—The Arizona State Legislature relies
on our Office to provide useful information, which helps legislative members make
better decisions in governing our State. One of those special requests includes our
annual state-wide school district
spending report, which provides
Office report types
details about how Arizona’s school
districts spend their monies both
Performance and special audits—Reports
in the classroom and for other
focus on how effectively, efficiently, and
operations. Also, during fiscal
economically state agencies and school districts
year 2013, we issued two other
conduct business and include special studies
special reports requested by the
requested by the Legislature.
Legislature. One report about the
Financial and federal compliance audits—
Arizona Independent Redistricting
Reports are about the accuracy of annual
Commission addressed how it
financial statements and on internal control
spent over $4 million for mapping
and compliance over financial and federal
consultant services and software
grant regulations.
and other administrative personnel
and tasks during fiscal years
Procedural and compliance reviews and
2011 and 2012. The second
investigations—Reports show whether entities
report covered how Pima County
have fully complied with expenditure limitations;
manages its $893 million general
whether school districts have fully complied with
obligation bond program. Further,
certain standards over financial operations; or
the Legislature has asked our
results of special fraud investigations.
Office to conduct four more special
audits, which we will be conducting
in fiscal year 2014. These include three reviews of the Arizona Department of Economic
Security—Children Support Services covering various services provided to Arizona’s
children and a review of selected state practices for information technology procurement.

Office reports issued totaling 190 by report type and government
Fiscal year 2013
Report type

State
School
Community Total
agencies Universities districts Counties colleges reports

Performance and special audits
Performance audit
7
Sunset audit
1
Audit follow-up letter
18
Special legislative requests
1
Financial and federal compliance audits
Financial statement
5
3
Internal control
3
3
Federal compliance
1
Procedural and compliance reviews and investigations
Special investigation
1
Procedural review
4
Compliance review
Agreed-upon procedures
1
Expenditure limitation
Total reports
41
7

12
41
1

19
1
59
3

1
5
5
5

9
9
7

22
20
13

1
8
34

3
6
19
8
17
190

2
16

72

2
3
6
9
36

State agency performance audits—The performance audits and sunset reviews we issued during fiscal
year 2013 covered several state agencies or boards that provide a variety of services to Arizona citizens.
These reports include many recommendations to help state agency leaders provide services and conduct
operations more effectively and efficiently. For example, to help the Arizona State Parks Board with its efforts
to keep parks open and reopen closed parks, we recommended that it expand its partnerships, create a
new marketing plan, develop more accurate and consistent ways to track visitation, and improve its planning
to determine how best to sustain the State Parks system in an environment in which the Board’s financial
resources have changed. In addition, in our audit of the Department of Environmental Quality—Compliance
Management, we found that the Department can improve the efficiency and effectiveness of its inspection
and compliance efforts by working with the U.S. Environmental Protection Agency to employ a risk-based
inspection approach and targeting its inspections to the facilities that are most likely to violate regulations.
Finally, we made recommendations to help the Arizona Health Care Cost Containment System do more to
detect Medicaid fraud and abuse and recommended that the Arizona School for the Deaf and Blind do more
to promote student success by ensuring that children with sensory impairments receive services early in their
lives and by increasing students’ access to highly qualified teachers.
School district performance audits—School district performance audits are yet another example of how
we have a positive impact, identifying some common issues that affect the accountability and effective use
of public monies. We found that districts overstaffed operational areas; lacked adequate controls to minimize
the risks of errors and fraud, which allowed fraudulent and inappropriate activities such as falsified drug tests,
personal profiting from the sale of district property, and theft to occur without timely detection; misreported
mileage, resulting in the overfunding of student transportation; did not conduct drug and alcohol tests of school
bus drivers or conduct proper preventative maintenance, resulting in school bus safety violations; had poor fuel
controls, resulting in suspicious fuel usage and missing fuel; had large amounts of excess square footage and
surplus property, resulting in increased plant operations costs; shifted monies out of the classroom into other
operational areas; and had performance pay goals that were so easily met that they did not promote improved
performance. Our reports also highlighted some best practices at districts such as properly overseeing
operational areas, monitoring energy usage and implementing energy conservation plans, providing services
in cooperation with neighboring districts, and closing unneeded schools and buildings to reduce costs.
Financial and federal compliance audits—These audits focused on accuracy of financial data and the
effectiveness of internal controls and compliance with required accounting practices and state and federal
regulations. We provided the State’s agencies, universities, counties, and community colleges with various
recommendations to help them report financial information accurately, keep their electronic data safely
protected, and ensure they will continue to receive federal grant monies that help to provide services such as
healthcare and education to Arizona citizens. Included in these reports is our annual state-wide report, which
addresses the State’s controls over financial reporting and federal compliance.
page

2

Special investigations—Special fraud investigations result in individuals being held responsible for
their unlawful and inappropriate use of public monies. We issued reports over one state agency and two
school districts during fiscal year 2013. For example, our investigation of the Arizona Governor’s Office of
Economic Recovery revealed that an individual fraudulently
obtained $250,000 of its Arizona jobs grant monies by falsely
Making a positive difference
representing his company. He also deceptively received
State agencies, school districts, and other
$493,765 in lease benefits from an Arizona company after
local governments have consistently impleproviding it similar false information. On August 21, 2013, as
mented more than 90 percent of our perforpart of a plea agreement, he pled guilty to felony theft and
mance audit recommendations within 2 years.
illegal control of an enterprise. He was sentenced to 2.5 years
in prison and ordered to pay nearly $750,000 in restitution. In
Federal compliance audits of the State’s
addition, our investigation of the Glendale Elementary School
agencies, universities, community colleges,
District revealed that a former district employee misused more
and counties verify appropriate spending of
than $32,000 of public monies, embezzling $8,045 for her own
federal monies. In our audits covering fiscal
purposes. On October 8, 2013, as part of a plea agreement,
year 2012, these entities spent nearly $15.5
the former employee pled guilty to felony theft. She was
billion in federal monies to provide services
sentenced to 3 years of probation and ordered to pay nearly
such as healthcare and education programs
$32,000 in restitution.

••
••

to Arizona citizens.

••

Audit followup—After audits are completed, we follow up on
Technical assistance we regularly provide to
state agency, local government, and school district efforts to
the State’s agencies and local governments
implement our recommendations. We report on the status of
helps to improve state government effectivethese efforts to legislative members and governing bodies.
ness, efficiency, and accountability.
Specifically, following the release of state agency performance
audits and/or sunset reviews, we conduct followups at 6
and 18 months; historically, more than 90 percent of our recommendations have been implemented. We
also conducted 41 follow-up visits at school districts to determine their status in implementing our audit
recommendations. Cumulatively, those districts reported saving millions of dollars by implementing audit
recommendations such as consolidating bus routes; eliminating payments for unproductive time; rebidding
poor contracts; and reducing administrative, plant operations, and transportation positions. Finally, our
annual financial and federal compliance audits allow us continual contact to provide ongoing assistance
that helps ensure state and local governments implement our recommendations.

Office provides helpful technical assistance—Our Office impacts governments through ongoing

assistance that we provide through webinars, alerts and informational memorandums, and meetings. For
example, we have continued our effort to help school districts, cities, towns, community colleges, and
counties lower their training costs by providing training via free, live webinars. For example, we partnered
with the Arizona Department of Revenue to conduct a webinar for school districts on extracurricular activities
fees tax credit monies and also provided additional webinars to school districts and community college
districts on topics such as cash handling, bookstore operations, and financial stress assessments. Using
webinars allowed over 500 participants to view formal trainings as they aired without incurring travel time
and related costs, and many others accessed them at their convenience through our Web site. Participant
feedback has been extremely positive.
We also have worked closely with the State and local governments in our financial statement and federal
compliance audits to help improve the timeliness and accuracy of financial statement and federally
mandated compliance reports. Investors, financial institutions, and federal agencies continue to demand
accurate financial information reported as quickly as possible. The State’s size and complexities require
extraordinary coordination between all state agencies and universities. Through our working together with
the State’s Department of Administration and other state agencies, the State has continued to issue its
audited financial statements earlier over the last 3 years. Also, the State has met the federal requirements
for issuing its federal compliance audit reports for the past 3 years.
We continually provide assistance through budget preparation packages, alerts and informational
memorandums, annual financial reporting packages and report templates, and meetings. Our continual
presence while auditing state agencies and local governments places our professionals in a unique position
to provide ongoing helpful and consistent technical assistance that helps to improve state government
effectiveness, efficiency, and accountability.
page

3

Office has audit and oversight responsibilities
and special audits—State
•• Performance
agencies/programs and school districts

Arizona
Auditor General
Deputy Auditor
General

Operating Divisions
Financial
Audit

School
Audits

Performance
Audit

Accounting
Services

Support Divisions

and compliance audits—The State
•• Financial
and its agencies, universities, counties, and
community colleges

and compliance reviews and
•• Procedural
investigations—State agencies and certain
local governments

accounting systems—School
•• Uniform
districts, charter schools, and certain local
governments

Information
Technology

Professional
Practice

Administration

expenditure reporting system—
•• Uniform
Certain local governments

The Office has audit and oversight responsibilities and serves as an independent auditor for the State’s
agencies, universities, school districts, counties, and community colleges. Our Office is also regularly asked to
complete highly specific research and investigative projects in response to legislative requests. In addition, the
Legislature requires us to define standards and establish procedures for uniform accounting and budgeting
systems for school districts and other local governments. The Auditor General is assisted in fulfilling these
responsibilities by a Deputy Auditor General and approximately 180 office professionals organized into four
operating and three support divisions.

Office professionals have 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 auditing organizations, including our recognition for the
quality of our work and involvement in professional organizations.
Office is recognized for high-quality work—One formal recognition of the quality of our work and national
reputation is our recent External Peer Review by the National State Auditors Association (NSAA). This review
represents an independent “audit” of our Office. Specifically, the review measured our compliance with
professional standards when we perform our audit work and issue our resulting reports. After reviewing
our fiscal year 2013 audit activities, the NSAA review team issued a report 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 External Peer Review results give us the highest mark a state audit
organization can receive in such a review.
Office professionals participate in professional organizations—Our Office professionals stay involved
and participate in national, state, and local professional organizations, which demonstrates their expertise,
energy, and enthusiasm as leaders in the government auditing field. As part of our participation in professional
organizations, we give presentations and lead and participate in discussions that help with standard-setting
oversight and monitoring, best practices sharing, and training in many technical areas, such as accounting
principles and government auditing standards. During the fiscal year, our Office gave over 30 presentations to
professional organization or government officials, providing technical assistance and education.

Annual Report
page

4

A copy of this report is
available at: www.azauditor.gov

Year Ended June 30, 2013