SB1410 - 541R

Be it enacted by the Legislature of the State of Arizona:

Section 1. Section 15-914, Arizona Revised Statutes, is amended to read:

START_STATUTE15-914. Financial and compliance audits

A. The governing board of a school district that is required to comply with the single audit act amendments of 1996 (P.L. 104‑156; 110 Stat. 1396; 31 United States Code sections 7501 through 7507) shall contract for at least annual financial and compliance audits of financial transactions and accounts subject to the single audit act amendments of 1996 and kept by or for the school district. The governing board of a school district that is not required to comply with the single audit act and that has adopted an expenditure budget of two million dollars $2,000,000 or more for the maintenance and operation fund pursuant to section 15‑905 shall contract for an annual financial statement audit. The governing board of a school district that is not required to comply with the single audit act and that has adopted an expenditure budget of less than two million dollars $2,000,000 but more than seven hundred thousand dollars $700,000 for the maintenance and operation fund pursuant to section 15‑905 shall contract for a biennial financial statement audit. An independent certified public accountant shall conduct the audit in accordance with generally accepted governmental auditing standards. To the extent permitted by federal law, a school district that is required to participate in an annual audit pursuant to this subsection may convert to a biennial audit schedule if the previous annual audit did not contain any significant negative findings. If a biennial audit of a school district conducted pursuant to this subsection contains any significant negative findings, the school district shall convert back to an annual audit schedule. If a school district is required to convert back to an annual audit schedule pursuant to this subsection because of significant negative findings, the school district may subsequently convert to a biennial audit schedule if the previous two annual audits did not contain any significant negative findings. For the purposes of this subsection, "significant negative finding" means a finding that results in the issuance of a letter of noncompliance from the auditor general.

B. The governing board of a charter school that is required to comply with the single audit act amendments of 1996 shall contract for an annual financial and compliance audit of financial transactions and accounts subject to the single audit act amendments of 1996 and kept by or for the charter school.

C. A charter school that is not subject to the single audit act amendments of 1996 shall contract for at least an annual financial statement comprehensive audit conducted in accordance with generally accepted governmental auditing standards. An independent certified public accountant shall conduct the audit.

D. For all audits referred to in subsections A, B and C of this section, the independent certified public accountant shall submit a uniform system of financial records compliance questionnaire to the auditor general with the applicable audit reports. The independent certified public accountant shall also send a paper copy or electronic copy of the applicable audit reports to the county school superintendent of the county where the school district is located.

E. Contracts for all financial and compliance audits and financial statement audits and the completed audits shall be approved by the auditor general as provided in section 41‑1279.21. Contracts for all financial and compliance audits and financial statement audits shall comply with the rules for competitive sealed proposals as prescribed by the state board of education in section 15‑213.

F. If the school district or charter school will incur costs of financial and compliance audits for the budget year, the governing board of the school district or the governing body of the charter school may increase its base support level for the budget year by an amount equal to the amount expended for the district's or charter school's financial and compliance audits in the year before the current year, increased by the growth rate as prescribed by law, subject to appropriation. In determining the amount expended for the district's or charter school's financial and compliance audits, the school district or charter school shall include only the portion of the audit that must be paid from monies other than federal monies. The department of education and the auditor general shall prescribe a method for determining the increase in the base support level and shall include in the maintenance and operation section of the budget format, as provided in section 15‑903, a separate line for financial and compliance audits expenditures.

G. Every audit contract shall include a systematic review of average daily membership, as defined in section 15‑901, using methodology that is consistent with guidelines established by the auditor general. The auditor general shall consider cost when establishing guidelines pursuant to this subsection and, to the extent possible, shall attempt to minimize the cost of the review. The purpose of the review is to determine whether the average daily membership reported by the charter school or school district is in compliance with the laws of this state and the uniform systems of financial records for charter schools and school districts.

H. In addition to any other audit required or allowed by law, the auditor general shall conduct a comprehensive annual audit of each charter school in this state.

I. Each audit conducted for a charter school that includes a review of compliance with the uniform system of financial records shall include examinations of classroom spending, special education programs and the diversity of the charter school pupils and staff. END_STATUTE

Sec. 2. Section 15-914.02, Arizona Revised Statutes, is amended to read:

START_STATUTE15-914.02. School districts; charter schools; audit

A school district or charter school that is subject to audit pursuant to section 41‑1279.03 shall comply with the reporting, follow‑up and hearing participation requirements of that section. END_STATUTE

Sec. 3. Section 41-1279.03, Arizona Revised Statutes, is amended to read:

START_STATUTE41-1279.03. Powers and duties

A. The auditor general shall:

1. Prepare an audit plan for approval by the committee and report to the committee the results of each audit and investigation and other reviews conducted by the auditor general.

2. Conduct or cause to be conducted at least biennial financial and compliance audits of financial transactions and accounts kept by or for all state agencies subject to the single audit act of 1984 (P.L. 98‑502). The audits shall be conducted in accordance with generally accepted governmental auditing standards and accordingly shall include tests of the accounting records and other auditing procedures as may be considered necessary in the circumstances. The audits shall include the issuance of suitable reports as required by the single audit act of 1984 (P.L. 98‑502) so that the legislature, the federal government and others will be informed as to the adequacy of financial statements of the this state in compliance with generally accepted governmental accounting principles and to determine whether the state has complied with laws and regulations that may have a material effect on the financial statements and on major federal assistance programs.

3. Perform procedural reviews for all state agencies at times determined by the auditor general. These reviews may include evaluation of administrative and accounting internal controls and reports on these reviews.

4. Perform special research requests, special audits and related assignments as designated by the committee and conduct performance audits, special audits, special research requests and investigations of any state agency, whether created by the constitution or otherwise, as may be requested by the committee.

5. Annually on or before the fourth Monday of December, prepare a written report to the governor and to the committee that contains a summary of activities for the previous fiscal year.

6. In the tenth year and in each fifth year thereafter in which a transportation excise tax is in effect in a county as provided in section 42‑6106 or 42‑6107, conduct a performance audit that:

(a) Reviews past expenditures and future planned expenditures of the transportation excise revenues and determines the impact of the expenditures in solving transportation problems within the county and, for a transportation excise tax in effect in a county as provided in section 42‑6107, determines whether the expenditures of the transportation excise revenues comply with section 28‑6392, subsection B.

(b) Reviews projects completed to date and projects to be completed during the remaining years in which a transportation excise tax is in effect. Within six months after each review period, the auditor general shall present a report to the speaker of the house of representatives and the president of the senate detailing findings and making recommendations.

(c) Reviews, determines, reports and makes recommendations to the speaker of the house of representatives and the president of the senate whether the distribution of highway user revenues complies with title 28, chapter 18, article 2.

7. If requested by the committee, conduct performance audits of counties and incorporated cities and towns receiving highway user revenue fund monies pursuant to title 28, chapter 18, article 2 to determine if whether the monies are being spent as provided in section 28‑6533, subsection B.

8. Perform special audits designated pursuant to law if the auditor general determines that there are adequate monies appropriated for the auditor general to complete the audit. If the auditor general determines the appropriated monies are inadequate, the auditor general shall notify the committee.

9. Establish a schoolwide audit team in the office of the auditor general to conduct performance audits and monitor school districts and charter schools to determine the percentage of every dollar spent in the classroom by the school district or charter school. Each school district and charter school shall prominently post on its website home page a copy of its profile pages that displays the percentage of every dollar spent in the classroom by that school district or charter school from the most recent status report issued by the auditor general pursuant to this paragraph. The performance audits shall determine whether school districts and charter schools that receive monies from the Arizona structured English immersion fund established by section 15‑756.04 and the statewide compensatory instruction fund established by section 15‑756.11 are in compliance comply with title 15, chapter 7, article 3.1. The auditor general shall determine, through random selection, the school districts and charter schools to be audited each year, subject to review by the joint legislative audit committee. A school district or charter school that is subject to an audit pursuant to this paragraph shall notify the auditor general in writing as to whether the school district or charter school agrees or disagrees with the findings and recommendations of the audit and whether the school district or charter school will implement the findings and recommendations, implement modifications to the findings and recommendations or refuse to implement the findings and recommendations. The school district or charter school shall submit to the auditor general a written status report on the implementation of the audit findings and recommendations every six months for two years after an audit conducted pursuant to this paragraph. The auditor general shall review the school district's or charter school's progress toward implementing the findings and recommendations of the audit every six months after receipt of receiving the district's or charter school's status report for two years. The auditor general may review a school district's or charter school's progress beyond this two‑year period for recommendations that have not yet been implemented by the school district or charter school. The auditor general shall provide a status report of these reviews to the joint legislative audit committee. The school district or charter school shall participate in any hearing scheduled during this review period by the joint legislative audit committee or by any other legislative committee designated by the joint legislative audit committee.

10. Annually review per diem compensation and reimbursement of expenses for employees of the state and members of a state board, commission, council or advisory committee by judgmentally selecting samples and evaluating the propriety of per diem compensation and expense reimbursements.

B. The auditor general may:

1. Subject to approval by the committee, adopt rules necessary to administer the duties of the office.

2. Hire consultants to conduct the studies required by subsection A, paragraphs 6 and 7 of this section.

C. If approved by the committee, the auditor general may charge a reasonable fee for the cost of performing audits or providing accounting services for auditing federal funds, special audits or special services requested by political subdivisions of the this state. Monies collected pursuant to this subsection shall be deposited in the audit services revolving fund.

D. The department of transportation, the board of supervisors of a county that has approved a county transportation excise tax as provided in section 42‑6106 or 42‑6107 and the governing bodies of counties, cities and towns receiving highway user revenue fund monies shall cooperate with and provide necessary information to the auditor general or the auditor general's consultant.

E. The department of transportation shall reimburse the auditor general as follows, and the auditor general shall deposit the reimbursed monies in the audit services revolving fund:

1. For the cost of conducting the studies or hiring a consultant to conduct the studies required by subsection A, paragraph 6, subdivisions (a) and (b) of this section, from monies collected pursuant to a county transportation excise tax levied pursuant to section 42‑6106 or 42‑6107.

2. For the cost of conducting the studies or hiring a consultant pursuant to subsection A, paragraph 6, subdivision (c) and paragraph 7 of this section, from the Arizona highway user revenue fund. END_STATUTE

Sec. 4. Section 41-1279.04, Arizona Revised Statutes, is amended to read:

START_STATUTE41-1279.04. Authority to examine records; violation; classification

A. The auditor general or the auditor general's authorized representatives, in the performance of official duties, shall have access to, and authority to examine, any and all books, accounts, reports, vouchers, correspondence files and other records, bank accounts, criminal history record information as defined in section 41‑1701, money monies and other property of any state agency, board, commission, department, institution, program, advisory council or committee or political subdivision of this state, whether created by the constitution or otherwise, or such documents and property of a contractor relating to a contract with this state pursuant to the provisions of section 35‑214. It is the duty of Any officer or employee of any such agency or political subdivision, having such records under the officer's or employee's control, to permit shall allow access to and examination of the records on the request of the auditor general or the auditor general's authorized representative.

B. For the purpose of complying with section 41‑1279.03, subsection A, paragraphs 4 and 9, the auditor general or the auditor general's authorized representative, in the performance of official duties, may attend executive sessions of the governing body of any state agency, or school district or charter school in this state.

C. For the purpose of auditing the department of revenue, the auditor general and the auditor general's authorized representatives have access to state tax returns, except that a report of the auditor general shall not violate the confidentiality of state tax laws.

D. Any officer or person who knowingly fails or refuses to permit such access and examination is guilty of a class 2 misdemeanor. END_STATUTE