Annual Report

Year Ended June 30, 2014

Our Mission
We provide information,
assistance, and
recommendations to improve
Arizona government for its
citizens.

Our Vision
To make a positive difference
by promoting better
government.

Our Authority
The Arizona Office of
the Auditor General is
a legislative agency
under the direction of the
Joint Legislative Audit
Committee, a bipartisan
committee composed
of five senators and five
representatives. We provide
independent and impartial
information, assistance, and
recommendations to improve
state and local government
operations.

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 Arizona government improve accountability and effectively use public monies. We accomplish this through our audit and
oversight activities by providing independent and impartial information and recommendations in our reports, at briefings and hearings, and by providing technical assistance
to government officials who manage operations. The Auditor General is assisted by a
Deputy Auditor General and approximately 190 office professionals in fulfilling these
responsibilities.

Office provides effective information and recommendations—As the State’s
independent auditor, our audit and oversight responsibilities focus on conducting
audits and issuing effective reports. Our reports focus on various ways that Arizona
government can improve. During fiscal year 2014, we issued 204 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. In addition, the Legislature
requires us to prescribe standards and procedures for uniform accounting and
budgeting systems for school districts and other local governments.
Special audits requested by
the Legislature—The Legislature
relies on our Office to provide
useful information to help legislative
members make better decisions in
governing our State. This year we
issued special reports on:

• School district spending, which
•

•

2014
Year Ended June 30, 2014

•

Office report types
Performance and special audits—Reports
focus on how effectively, efficiently, and
economically state agencies and school districts
conduct business and include special studies the
Legislature requests.

Financial and federal compliance audits—
provided details about how
Reports are about the accuracy of annual
school districts spent their monfinancial statements and on internal control and
ies both in the classroom and for
compliance over financial and federal grant
other operations.
regulations.
Children support services foster
home recruitment-related serProcedural and compliance reviews and
vices contracts, which included
investigations—Reports show whether entities
several recommendations for
have fully complied with expenditure limitations;
improving the contracting prowhether school districts have fully complied with
cess.
certain standards over financial operations; or
Transportation services for child
results of special fraud investigations.
protective services clients, which
recommended the implementation of a performance measurement system to manage and evaluate these services.
Information technology (IT) procurement, which compared selected Arizona practices
to other states; assessed best practices for intellectual property; and analyzed IT
platform standardization and its impact on the procurement process.

Office reports issued by report type and government
Fiscal year 2014
State
School
Community Total
agencies Universities districts Counties colleges reports
Report type
Performance and special audits
12
1
23
Performance audit
10
Sunset audit
1
1
Audit follow-up letter
22
30
1
53
Special legislative requests
3
1
4
Financial and federal compliance audits
Financial statement
4
3
11
10
28
Internal control
3
3
11
10
27
Federal compliance
1
11
8
20
Procedural and compliance reviews and investigations
2
1
3
Special investigation
Procedural review
6
6
Compliance review
1
9
1
11
Agreed-upon procedures
1
7
1
9
Expenditure limitation
8
11
19
Total reports
51
7
54
52
40
204

For fiscal year 2015, the Legislature directed our Office to conduct two additional special audits addressing
other aspects of children support services and engage an independent consultant to examine the current
child safety system. Our first report, issued October 2014, focused on the State’s use of congregate care and
methods the new Arizona Department of Child Safety (ADCS) should consider to reduce its use. Our second
report, due in March 2015, will review various areas related to child abuse and neglect cases in Arizona
compared to other states. The consultant’s report, due in July 2015, will consider best practices to improve
service delivery and provide consultation on the effective establishment of ADCS, focusing on implementation
challenges.
State agency performance audits—Our 2014 performance audits and sunset reviews covered several
state agencies and boards that provide a variety of services to Arizona citizens. These reports included many
recommendations to help state leaders provide services and conduct operations more effectively and efficiently. For example, our award-winning Arizona Department of Financial Institutions (Department) audit made
recommendations to help the Department enhance its examinations process to place greater emphasis on
high-risk financial enterprises, improve its complaint-handling process to ensure complaints are appropriately
processed in a timely manner, and reevaluate its fee structure to better align with its costs. This audit earned
a Certificate of Impact from the National Legislative Program Evaluation Society (NLPES) for its demonstration of significant impact on public policy. In addition, we leveraged the expertise of audit staff with varied
backgrounds including performance audit, financial audit, and IT audit to conduct comprehensive audit work
at several state agencies and make recommendations in a wide range of areas. For example, our performance audit of the Arizona Game and Fish Department provided recommendations to ensure the prudent
stewardship of public resources, improve the process for issuing big game hunting permits, and improve the
Department’s IT systems management process. Further, our IT procurement practices audit provided recommendations that included developing IT-specific contract templates with applicable terms and conditions
and modifying intellectual property terms and conditions to ensure that the rights included in a particular IT
solicitation are appropriate based on who pays for the IT development costs.
School district performance audits—School district performance audits are yet another example of how
we have a positive impact, identifying issues that affect the accountability for and effective use of public
monies. Our reports highlighted best practices at efficiently operated districts such as properly overseeing
operational areas, providing services in cooperation with neighboring districts, and closing unneeded schools
and buildings to reduce costs. In addition, our reports included various recommendations for improvement
at some districts that:

• overstaffed operational areas making them more costly than necessary.
• lacked adequate controls to minimize the risks of errors and fraud allowing fraudulent and inappropriate
activities such as overpayments and theft to occur without timely detection.

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• over-reported mileage resulting in the overfunding of student
transportation.
• failed to ensure that bus driver certification requirements
•
•
•
•

were met or that bus maintenance was performed creating
a potential student and public safety risk.
had large amounts of excess square footage resulting in
increased plant operations costs.
entered into poorly designed solar power contracts resulting
in the sale of excess generated power at a loss.
poorly managed the food service program resulting in the
need for a large program subsidy.
paid performance monies for goals that were not met.

Making a positive difference

•

State agencies, school districts, and other
local governments have consistently implemented more than 95 percent of our performance audit recommendations within 2 years.

•

Federal compliance audits of the State’s
agencies, universities, community colleges,
and counties verify appropriate spending of
federal monies. In our audits covering fiscal
year 2013, these entities spent over $13.6
billion in federal monies to provide services
such as healthcare and education programs
to Arizona citizens.

Financial and federal compliance audits—These audits
focused on the accuracy of state and local government
financial statements along with evaluating the effectiveness
of internal controls and compliance with required accounting
Technical assistance we regularly provide to
practices and state and federal laws and regulations. We
the State’s agencies and local governments
provided the State’s agencies, universities, counties, and
helps to improve state government effectivecommunity colleges with various recommendations to help
ness, efficiency, and accountability.
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.

•

Special investigations—Special fraud investigations result in individuals being held responsible for their
unlawful and inappropriate use of public monies. We issued three reports during fiscal year 2014. Our
investigations revealed that a Paradise Valley Unified School District high school bookstore manager
misused more than $72,500 of district monies, embezzling $67,162 for her own purposes. On October
18, 2013, as part of a plea agreement, the school bookstore manager pled guilty to felony theft and was
sentenced to 3 years of probation and ordered to pay full restitution totaling $72,511. In addition, our investigations revealed that a Yavapai County Education Service Agency (Agency) finance administrator created
false invoices totaling $19,473 for the Agency to receive reimbursement for unallowable costs under
Arizona’s American Recovery and Reinvestment Act–State Fiscal Stabilization Fund grant. The finance
administrator submitted the false invoices to the Arizona Governor’s Office of Education Innovation, which
reimbursed the Agency from grant monies. On October 21, 2013, the finance administrator was indicted on
three felony and misdemeanor charges related to fraud schemes, misuse of public monies, and impeding
an audit. Finally, our investigations revealed that a Kingman Unified School District teacher employed a
fraud scheme and embezzled $12,918 by creating false invoices to arrange for customers to issue checks
payable in his name. On October 23, 2014, the teacher pled guilty to felony theft and was sentenced to 2
years of probation and 200 hours of community service, and he paid full restitution totaling $12,918.
Audit followup—After audits are completed, we follow up on state agency, local government, and school
district efforts to implement our recommendations. We report on the status of these efforts to legislative
members and governing bodies. Specifically, following the release of state agency performance audits
and/or sunset reviews, we conduct followups at 6 and 18 months; in fiscal year 2014, more than 95 percent
of our recommendations were implemented. We also conducted follow-up visits at school districts to
determine their status in implementing our audit recommendations. Cumulatively, districts reported saving
millions of dollars by implementing audit recommendations such as consolidating bus routes; eliminating
payments for unproductive time; rebidding poor contracts; recovering overpayments made to vendors;
reducing administrative, plant operations, and transportation positions; and reducing electricity costs.
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 lower their training costs by providing

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training via free, live webinars. In addition, we conducted six free regional small school district workshops
throughout Arizona. These workshops were the first in a series to help school districts with fewer than 1,500
students strengthen their internal controls and improve financial management practices. The response to the
workshops has been highly favorable.
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 statements and federally mandated
compliance reports. Investors, financial institutions, and federal agencies continue to demand accurate
financial information reports 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 Arizona
Department of Administration and other state agencies, the State has continued to issue its audited financial
statements earlier over the last 4 years. Also, the State has met the federal requirements for issuing its federal
compliance audit reports for the past 4 years.
We continually provide assistance through budget preparation packages, alerts and informational memorandums, annual financial reporting guideline 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 useful and consistent technical assistance that helps Arizona government improve effectiveness, efficiency, and accountability.

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 our work quality and national

reputation is our National State Auditors Association (NSAA) External Peer Review. This review represents
an independent “audit” of our Office. Specifically, the review measured our compliance with professional
standards when we performed our audit work and issued our 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 that helps ensure that we follow required Government Auditing Standards. Our External
Peer Review results give us the highest mark a state audit organization can receive in such a review.
Another recognition of our high-quality work is the NLPES Certificate of Impact for our Arizona Department
of Financial Institutions performance audit and sunset review. Based on the audit report’s impact from both
the legislative and public perspectives, the NLPES presented us with this award for providing information to
our Legislature regarding impactful program improvements that can result from the implementation of our
recommendations.

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 participate in discussions that help with standardsetting, 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 more than
35 presentations to professional organizations or government officials.

Annual Report
Page 4

The Auditor General’s reports
are available on our Web site at:
www.azauditor.gov

Year Ended June 30, 2014