Annual Report

Year Ended June 30, 2015

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 for Arizona citizens
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 professionals in fulfilling these responsibilities.

Office provides effective information and recommendations—As the State’s
independent auditor, our oversight responsibilities focus on conducting audits and
issuing effective reports. Our reports focus on various ways that Arizona government
can improve. During fiscal year 2015, we issued 200 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
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2015
Year Ended June 30, 2015

Three main 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.

provided details about school
Financial and federal compliance audits—
districts’ classroom and nonReports are about the accuracy of annual
classroom
spending,
and
financial statements and on internal control and
operational trends across time.
compliance over financial and federal grant
The Arizona Department of Child
regulations.
Safety’s congregate care placements, which recommended
Procedural and compliance reviews and
methods to reduce congregate
investigations—Reports show whether entities
care use.
have fully complied with expenditure limitations,
Arizona’s number of child abuse
whether school districts have fully complied with
or neglect reports, substancertain standards over financial operations, or
tiation rate, and investigative
results of special fraud investigations.
approach compared to other
states, which included recommendations to improve collaboration between caseworkers, investigators, and law
enforcement.

For fiscal years 2016 and 2017, the Legislature directed our Office to conduct three
more special reviews of the Arizona Department of Child Safety. Our first report, issued
September 2015, focused on child safety, removal, and risk assessment practices. Our

Office reports issued by report type and government
Fiscal year 2015
State
School
Community Total
Report type
agencies Universities districts Counties colleges reports
Performance and special audits
Performance audit
99
12
1
21
Audit follow-up letter
218
34
1
53
Special legislative requests
2
1
3
Financial and federal compliance audits
Financial statement
6
3
9
10
28
Internal control
3
3
9
10
25
Federal compliance
1
9
9
19
Procedural and compliance reviews and investigations
Special investigation
3
3
Procedural review
2
2
Compliance review
1
13
1
1
15
Agreed-upon procedures
1
9
3
13
Expenditure limitation
9
9
18
Total reports
41
7
63
47
42
200

second report, due in March 2016, will address the use of a differential response system and case screening.
Finally, our third report, due in September 2016, will examine permanency practices for children in out-of-home
care. All three reports will consider best practices in other states and recommend improvements.
State agency performance audits—Our performance audits and sunset reviews covered state agencies and
boards that provide a variety of services to Arizona citizens. These reports included many recommendations
to help state leaders and agencies provide services more effectively and efficiently and had wide-ranging
impacts for Arizona citizens. Some examples of our reports that directly affect Arizona citizens include:

• Boards that regulate medical, dental, and naturopathic physician professionals—We recommended that
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these boards better protect the public by ensuring that healthcare professionals meet established licensing
and certification requirements.
Arizona Department of Transportation, Motor Vehicle Division (MVD)—We made recommendations for
improving customer service at MVD’s field offices, which handle millions of transactions each year for
Arizona drivers and vehicle owners.
Arizona Department of Revenue—We recommended that this department better protect sensitive taxpayer
information by improving information technology security, including recommendations for developing a
security program and enhancing physical security.

In addition, we issued the following three audits with impacts across many government agencies:

• Arizona Department of Administration—We made recommendations to improve management over the
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State’s procurement system, which sets standards for and supervises all state agencies’ purchases of
goods and services. Our recommendations will help ensure all state agencies consistently apply procurement laws and regulations.
State Purchasing Cooperative Program—This program allows Arizona political subdivisions, nonprofit
organizations, and tribal nations to purchase goods and services from state-wide contracts, and we recommended changes to better align fees with program costs and to better protect and account for fee revenue
payments from cooperative members.
Office of Administrative Hearings—This office is responsible for fairly and impartially hearing contested
matters arising out of state regulation, and we recommended that it enhance its policies and procedures for
ensuring fair and independent hearings, better comply with statutory hearing time frame requirements, and
develop consistent rates for all agencies.

School district performance audits—In our school district performance audits, we identified issues that
affect the accountability for and effective use of public monies. For example, we highlighted best practices at
efficiently operated districts such as properly overseeing operational areas, using available programs to obtain
solar power systems at no cost or to reduce electricity costs through rebates, and closing unneeded schools
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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
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Making a positive difference

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

fraud allowing inappropriate and fraudulent activities such as
vendor overpayments and unusual or improper credit card
purchases to occur without timely detection.
Over-reported student ridership or mileage resulting in the
Federal compliance audits of the State’s
overfunding of student transportation.
agencies, universities, community colleges,
Failed to ensure that bus driver certification requirements
and counties verify appropriate spending of
were met or that bus maintenance was performed, creating a
federal monies. In our audits covering fiscal
potential student and public safety risk.
year 2014, these entities spent over $13.6
Had large amounts of excess square footage, resulting in
billion in federal monies to provide services
increased plant operations costs.
such as healthcare and education programs
Entered into poorly designed solar power contracts, resulting
to Arizona citizens.
in the sale of excess generated power at a loss.
Technical assistance we regularly provide to
Poorly managed the food service program, resulting in the
the State’s agencies and local governments
need for a large program subsidy, overpayments to vendors,
helps to improve state government effectiveimproper sale of surplus food to employees, and increased
ness, efficiency, and accountability.
program losses because of food sales to community
members.
Had excessive travel costs for governing board members and noninstructional staff.

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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 practices and state and federal laws and 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.
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 2015. Our
investigations revealed that a Glendale Union High School District bookstore manager embezzled and
misused more than $70,000 of district monies. On June 10, 2015, as part of a plea agreement, she pled
guilty to felony theft and fraudulent schemes, was sentenced to 1 year in prison and 7 years of probation,
and was ordered to pay full restitution. In addition, our investigations revealed that a Tolleson Union High
School District principal’s administrative assistant embezzled and misused more than $10,500 of district
monies. On April 23, 2015, as part of a plea agreement, she pled guilty to felony theft, was sentenced to
2 years of probation, and paid full restitution. Finally, our investigations revealed that a Yucca Elementary
School District business manager embezzled and misused more than $4,000. On June 15, 2015, as part
of a plea agreement, she pled guilty to felony theft, was sentenced to 3 years of probation and 80 hours of
community service, and paid full restitution.
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 2015, 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; reducing excess building space; rebidding poor contracts; recovering
overpayments made to vendors; and reducing overstaffing in noninstructional areas. Finally, our annual
financial and federal compliance audits allow us to provide ongoing assistance that helps ensure state and
local governments implement our recommendations.
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Office provides helpful technical assistance—Our Office impacts governments through ongoing
technical assistance that we provide through webinars, budget preparation packages, alerts and informational
memorandums, annual financial reporting guideline packages and report templates, and meetings.

For example, we have continued our effort to help school districts lower their training costs. We conducted
free regional school district workshops throughout Arizona. Some of these workshops were designed to
help school districts with fewer than 1,500 students strengthen their internal controls and improve financial
management practices; however, others were geared towards all districts. The response to the workshops
has been highly favorable. We also continue to provide webinars and video responses to frequently asked
questions.
We also provided the State, local governments, and government auditors with technical assistance as they
implemented new and complex governmental accounting and financial reporting standards over pensions.
Governmental Accounting Standards Board (GASB) Statement No. 68 prescribed these new and complex
requirements that are effective for fiscal year 2015 government financial reports. Because of the complexities,
we have coordinated with the State’s retirement systems and provided assistance through presentations,
sample financial statement disclosures and journal entries, and a questions-and-answers document. Our
assistance has helped ensure that local governments will readily have the information they need to understand
and implement these new pension standards.
Further, 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. We have also 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.

Office professionals have excellent reputation in government auditing
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 to 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 National Legislative Program Evaluation Society (NLPES)
Certificate of Impact for our Patagonia Elementary and Union High School Districts performance audit. 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 and the public regarding impactful improvements that
can result from implementing our recommendations.

Office professionals participate in professional organizations—Our Office professionals participate
in national, state, and local professional organizations. Our professionals demonstrate their expertise, energy,
and enthusiasm as leaders in the government-auditing field and give presentations 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 more than 53 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, 2015