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State of Arizona June 30, 2004 Single Audit Report

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State of Arizona June 30, 2004 Single Audit Report A REPORT TO THE ARIZONA LEGISLATURE Financial Audit Division Single Audit State of Arizona Year Ended June 30, 2004 Debra K. Davenport Auditor General The Auditor General is appointed by the Joint Legislative Audit Committee, a bipartisan committee composed of five senators and five representatives. Her mission is to provide independent and impartial information and specific recommendations to improve the operations of state and local government entities. To this end, she provides financial audits and accounting services to the State and political subdivisions, investigates possible misuse of public monies, and conducts performance audits of school districts, state agencies, and the programs they administer. Copies of the Auditor General’s reports are free. You may request them by contacting us at: Office of the Auditor General 2910 N. 44th Street, Suite 410 • Phoenix, AZ 85018 • (602) 553-0333 Additionally, many of our reports can be found in electronic format at: www.auditorgen.state.az.us (This Page Intentionally Left Blank) State of Arizona Single Audit Reporting Package Year Ended June 30, 2004 Table of Contents Page Comprehensive Annual Financial Report Issued separately Single Audit Section Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Basic Financial Statements Performed in Accordance with Government Auditing Standards 1 Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 3 Schedule of Expenditures of Federal Awards 6 Schedule of Findings and Questioned Costs Summary of Auditors’ Results 48 Federal Award Findings and Questioned Costs 50 Appendix State of Arizona Agency Codes 62 State Responses Corrective Action Plan 65 Summary Schedule of Prior Audit Findings 78 STATE OF ARIZONA OFFICE OF THE DEBRA K. DAVENPORT, CPA WILLIAM THOMSON AUDITOR GENERAL AUDITOR GENERAL DEPUTY AUDITOR GENERAL Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Basic Financial Statements Performed in Accordance with Government Auditing Standards The Honorable Janet Napolitano, Governor State of Arizona The Honorable Ken Bennett, President Arizona State Senate The Honorable James P. Weirs, Speaker Arizona House of Representatives The Honorable Charles E. Jones, Chief Justice Arizona Supreme Court We have audited the financial statements of the governmental activities, business-type activities, aggregate discretely presented component units, each major fund, and aggregate remaining fund information of the State of Arizona as of and for the year ended June 30, 2004, which collectively comprise the State’s basic financial statements, and have issued our report thereon dated February 11, 2005. Our report was modified as to consistency because of a change in the application of an accounting principle for an increase in the capitalization threshold for equipment, works of art, and historical treasures at Arizona State University; changes in accounting principles for the implementation of Governmental Accounting Standards Board Statement No. 39 and Technical Bulletin No. 2004-1; and a change in reporting entity for the State Compensation Fund, which was previously reported in the State’s basic financial statements as a discretely presented component unit but is no longer financially accountable to the State, and therefore, is not reported in the State’s basic financial statements. Finally, our report was modified due to our reliance on the reports of the other auditors. We conducted our audit in accordance with U.S. generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. The financial statements of the aggregate discretely presented component units, except for the Water Infrastructure Finance Authority, and the financial statements of the Public Safety Personnel Retirement System, Elected Officials’ Retirement Plan, and Corrections Officer Retirement Plan pension trust funds included in the aggregate remaining fund information, were not audited by the other auditors in accordance with Government Auditing Standards. 2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051 Internal Control over Financial Reporting In planning and performing our audit, we considered the State’s internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinions on the basic financial statements and not to provide an opinion on internal control over financial reporting. Our consideration of internal control over financial reporting would not necessarily disclose all matters in internal control that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the basic financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We and the work of the other auditors noted no matters involving internal control over financial reporting and its operation that we and the other auditors consider to be material weaknesses. However, we noted other matters involving internal control over financial reporting that we will report to various state agencies’ management in separate letters at a future date. Compliance and Other Matters As part of obtaining reasonable assurance about whether the State’s basic financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests and the work of the other auditors disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. However, we noted certain immaterial instances of noncompliance or other matters that we will report to various state agencies’ management in separate letters at a future date. This report is intended solely for your information and use and that of the Chairperson and Vice Chairperson of the Joint Legislative Audit Committee, federal awarding agencies, and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. However, this report is a matter of public record, and its distribution is not limited. Debbie Davenport Auditor General February 11, 2005 2 STATE OF ARIZONA OFFICE OF THE DEBRA K. DAVENPORT, CPA WILLIAM THOMSON AUDITOR GENERAL AUDITOR GENERAL DEPUTY AUDITOR GENERAL Independent Auditors’ Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 The Honorable Janet Napolitano, Governor State of Arizona The Honorable Ken Bennett, President Arizona State Senate The Honorable James P. Weirs, Speaker Arizona House of Representatives The Honorable Charles E. Jones, Chief Justice Arizona Supreme Court Compliance We have audited the compliance of the State of Arizona with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended June 30, 2004, except for that portion of the federal programs administered by the Arizona Health Care Cost Containment System, the Arizona Department of Transportation, and the Water Infrastructure Finance Authority. Those agencies were audited by other auditors, and our opinion, insofar as it relates to the compliance of those agencies with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement, is based solely on the work of the other auditors. The State’s major federal programs are identified in the Summary of Auditors’ Results section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of the State’s management. Our responsibility is to express an opinion on the State’s compliance based on our audit and the work of the other auditors. We conducted our audit of compliance in accordance with U.S. generally accepted auditing standards; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the State’s compliance with
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