State of Arizona June 30, 2004 Single Audit Report

Office Of The Auditor General

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A REPORT
TO THE
ARIZONA LEGISLATURE
Financial Audit Division
Single Audit
State of Arizona
Year Ended June 30, 2004
Debra K. Davenport
Auditor GeneralThe 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 • [phone]
Additionally, many of our reports can be found in electronic format at:
www.auditorgen.state.az.us














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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 RequirementsApplicableto Each Major Program
and on Internal Control over Compliance in Accordance with OMB Circular A-133 3

Schedule of Expenditures of Federal Awards6

Schedule of Findings and QuestionedCosts

Summary of Auditors’ Results 48

Federal Award Findingsand Questioned Costs50

Appendix

State of Arizona Agency Codes62

State Responses

Corrective Action Plan 65

SummaryScheduleofPriorAudit Findings78




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.
th2910 NORTH 44 STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • [phone] • FAX [phone]
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 resp