Auditor General’s Reports Point To Alarming Financial, Policy Practices

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A number of audit reports were submitted to the Joint Legislative Audit Committee (JLAC) last month, and there are a few state agencies, counties, and school districts that have some work to, according to Arizona Auditor General Lindsey Perry.

The Auditor General is appointed by the Arizona Legislature and is a non-partisan position in the state government. The office is responsible for determining whether state agencies, counties, colleges, and other public bodies are using their resources effectively and are complying with applicable laws.

This is done through various audits, the results of which are reported to the JLAC. The Auditor General also has authority to make recommendations for ensuring agencies follow accounting and budgeting standards.

On Aug. 20, the JLAC received an Auditor General follow-up report involving the Douglas Unified School District, which was found in December 2019 to lack adequate computer controls that “increased its risk of unauthorized access to sensitive information, errors, fraud, and data loss,” the report stated.

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The original audit also found the district failed to ensure the safety and welfare of school bus passengers “because it did not have a policy or systematic procedures for ensuring its school buses were properly maintained.”

During the recent follow-up, Douglas school officials had carried out three of six recommendations, and were in the process of implementing the others. As a result, the Auditor General will “continue to follow-up at 6-month intervals…on the status of the recommendations that have not yet been fully implemented,” wrote Vicki Hanson, director of the Division of School Audits.

A 2016 performance audit of the use of restricted transportation excise taxes in Pinal County resulted in a four-year update issued last month concerning financial transactions by the towns of Mammoth and Superior.

Those towns were found to have “inappropriately loaned and used excise tax monies for other purpose,” according to the initial audit report. It was later revealed the two towns also inappropriately transferred nearly $2.5 million of Highway User Revenue Funds.

According to Aug. 10 update, those monies must be repaid to the proper funds, something Perry’s office is overseeing. In addition, four of four recommendations were implemented by the town of Superior. However, the update notes the town of Mammoth had not implemented seven recommendation from 2016.

The follow-up report comes as a new Pinal County excise tax audit is being planned for later this year.

The last Auditor General audit for Coconino County found that the information on the county’s financial statements and expenditure reporting appeared reliable, but the county’s internal controls revealed weaknesses and “instances of noncompliance.”

Those weaknesses, Perry’s staff found, allowed improper expenditures of at least $22,500 for food and beverage purchases, and “another $120,000 that may have been misspent.”

August was a busy month for the Auditor General, with several follow-up reports being issued to the JLAC from 2019 audits. And many of the agencies require further action, the Arizona Daily Independent has learned.

One of those agencies is the Arizona Department of Insurance, which was the subject of 23 recommendations in September 2019. The department regulates and monitors nearly 1,600 insurance companies operating in Arizona to ensure the entities comply with State and federal laws.

The 2019 audit found the department’s fraud-referral prioritization process “lacks components to ensure it investigates high-priority referrals.” It also identified deficiencies with the department’s conflict-of-interest process and information technology security, and recommended changes with how long-term care insurance rate reviews are managed.

But on Aug. 4, the JLAC was advised that a recent follow-up by the Auditor general found only five of the 23 recommendations had been implemented, with another 14 were “in the process of being implemented.”

As a result, another follow-up will be conducted within 18 months, according to Dale Chapman, Director of the Performance Audit Division.

Another state agency still needing further follow-up is the Arizona Department of Water Resources (ADWR) which manages the state’s water resources and has various responsibilities connected to groundwater regulation, surface water rights, and state-wide water planning.

Chapman advised the JLAC last month that a January 2019 audit report recommended ADWR improve its collection of required reports from well owners and well drillers, follow-up with potential groundwater users within the State’s irrigation non-expansion areas, and issue a statutorily required water conservation report.

But an 18-month follow-up completed Aug. 4 found only three of the five auditor recommendations had been implemented. The other two were in the process of being implemented, prompting Chapman’s division to arrange for another follow-up in mid-2021.

On a positive note, the Auditor General has closed out its review of the state board with jurisdiction over people who have been found guilty except insane by a court involving acts which caused death or serious physical injury to another, or threats to commit such acts.

As part of a December 2018 audit, seven recommendations were made to the Arizona Psychiatric Security Review Board, including taking steps to ensure the board receives “necessary information to inform its decisions” regarding those under its care.

The audit report also found the board needed to implement internal controls “such as rules and policies and procedures, to help efficiently and consistently meet its key responsibilities.” Another recommendation was that the Legislature consider revising state law to address questions of who is responsible for providing the board’s administrative support.

In a follow-up report on Aug. 21, the Auditor General informed the Joint Legislative Audit Committee that the board fully implemented three of the seven recommendation, including the legislative item. Two others were implemented in alternative ways and another two were no longer applicable.

As a result, the December 2018 audit was formally concluded with nothing outstanding.