State of Arizona June 30, 2009 Report Highlights-Financial and Single  Audit

State of Arizona June 30, 2009 Report Highlights-Financial and Single Audit

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State of ArizonaREPORT General Fund FinancialHIGHLIGHTS Condition DeclinesFINANCIAL AND SINGLE AUDITSSubjectThe State of Arizona issues aComprehensive Annual Financial During fiscal year 2009, General Fund • Five hundred eighty million dollars inReport. The State is responsible revenues and other financing sources certificates of participation were issuedfor preparing financial statements, totaled approximately $20.9 billion, and for new school construction by themaintaining strong internal expenditures and other financing uses School Facilities Board. In addition,controls, demonstrating totaled approximately $22.2 billion. transfers into the General Fundaccountability for its use of public Although revenues and other financing increased by $399 million in fiscal yearmonies, and complying with sources increased $894 million from fiscal 2009 because the Legislature requiredfederal program requirements. Asyear 2008, expenditures and other additional transfers from other funds tothe auditors, our job is tofinancing uses exceeded revenues by address budget shortfalls.determine whether the State has$1.3 billion. As a result, the State’smet its responsibilities.General Fund ended the year with a General Fund expenditures and otherOur Conclusion deficit of $978 million. financing uses increased by $673 million,or 3.1 percent, between fiscal years 2008The information in the State’s General Fund revenues and other and 2009, primarily as a result of ...

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State of Arizona
REPORT General Fund Financial
HIGHLIGHTS Condition DeclinesFINANCIAL AND SINGLE AUDITS
Subject
The State of Arizona issues a
Comprehensive Annual Financial During fiscal year 2009, General Fund • Five hundred eighty million dollars in
Report. The State is responsible revenues and other financing sources certificates of participation were issued
for preparing financial statements, totaled approximately $20.9 billion, and for new school construction by the
maintaining strong internal expenditures and other financing uses School Facilities Board. In addition,
controls, demonstrating totaled approximately $22.2 billion. transfers into the General Fund
accountability for its use of public Although revenues and other financing increased by $399 million in fiscal year
monies, and complying with
sources increased $894 million from fiscal 2009 because the Legislature requiredfederal program requirements. As
year 2008, expenditures and other additional transfers from other funds tothe auditors, our job is to
financing uses exceeded revenues by address budget shortfalls.determine whether the State has
$1.3 billion. As a result, the State’smet its responsibilities.
General Fund ended the year with a General Fund expenditures and other
Our Conclusion deficit of $978 million. financing uses increased by $673 million,
or 3.1 percent, between fiscal years 2008
The information in the State’s General Fund revenues and other and 2009, primarily as a result of the
financial statements is fairly stated financing sources increased $894 million, following:
in all material respects, and the
or 4.5 percent, between fiscal years 2008financial statements can be relied
and 2009, primarily as a result of the • Health and welfare expenditureson. However, auditors identified
following: increased by $1.1 billion due to25 deficiencies in internal control
increased enrollment in the Arizonaover financial reporting, including
Health Care Cost Containment5 material weaknesses, and one • Intergovernmental revenues increased
instance of noncompliance. In System’s programs and increases in$1.8 billion, primarily because $539
addition, the State maintained associated provider rates.million was received in federal stimulus
adequate internal controls over, monies from the American Recovery
and complied with, the federal • Education expenditures decreased byand Reinvestment Act of 2009, and
compliance requirements for 4 of $241 million, compared to fiscal yearthere was an additional increase in
the 29 federal programs tested. 2008. The decrease can be primarilyfederal monies received for health andHowever, for 25 federal programs
attributed to a decrease in statewelfare programs of $739 million.tested, auditors found that the
assistance for kindergarten throughState did not maintain adequate
12th grade and university operating• Sales tax revenues decreased $780internal controls or comply with
expenditures to address mid-yearmillion. Sales taxes paid by retail storesone or more of the compliance
budget shortfalls.requirements. See pages 3 and 4 and construction contractors
for further information. decreased because of the economic
• Intergovernmental revenue sharingdownturn.
decreased by $122 million, compared
to fiscal year 2008. This is primarily due• Income tax revenues decreased by $1
to the decrease in sales tax revenuesbillion from the previous year as a
received.result of the 194,000-person decrease
in the number of individuals employed
The General Fund’s fund balance hasand a decrease in the amount of2009 decreased the past 2 years by $2.9corporate income taxes collected
billion, ending with an unreserved deficitduring the fiscal year.
Year Ended June 30, 2009 of $1.4 billion and a reserved fund
balance of $423 million. Condensed Financial
Information
Condensed Statement of Net Assets Statement of Net Assets—This
June 30, 2009
statement reports all of the State of Arizona’s (In Millions)
assets and liabilities using the accrual basis of
Assets accounting. Net assets, which are the
Cash and investments $ 7,701
difference between assets and liabilities, are
Receivables 1,759
reported in three major categories: Capital assets, net of accumulated
depreciation 21,264
Other assets 1,082 • Invested in capital assets, net of related debt
Total assets 31,806 show the equity in property, equipment, and
Liabilities buildings.
Long-term debt 8,116
• Restricted net assets show the net resources
Other liabilities 4,798
that must be used for restricted purposes as Total liabilities 12,914
specified by external entities. Net assets
• Unrestricted net assets show the net Invested in capital assets, net
resources available for general operations. of related debt 16,423
Restricted 5,077
Unrestricted (2,608) A condensed Statement of Net Assets for the
Total net assets $18,892 primary government is presented to the right.
Condensed Statement of Activities Statement of Activities—This statement Year Ended June 30, 2009
(In Millions) shows how net assets changed during the
current fiscal year. Revenues are reported as
Program revenues:
either program revenues (those generated by Charges for services $ 3,003
or dedicated to a specific program) or general Operating grants and contributions 11,864
Capital grants and contributions 568 revenues (taxes and revenues not raised by or
Total program revenues 15,435
dedicated to a specific program). The change
General revenues 11,492
in net assets indicates whether financial health Total revenues 26,927
Expenses 29,605 has improved or deteriorated as a result of
Change in net assets (2,678) current year activities. Net assets decreased by
Net assets—beginning 21,570
$2.7 billion in the current year. A condensed Net assets—ending $18,892
Statement of Activities for the primary
government is presented to the right.

American Recovery and Reinvestment Act (ARRA)—
The State recorded $834 million in ARRA monies in fiscal year
2009. From fiscal year 2009 through fiscal year 2011, the State is
scheduled to receive approximately $2.8 billion in ARRA monies
to be used largely for education and for health and welfare
programs.
page2The State Did Not Always Comply
with Federal Program Requirements
Auditors identified and tested 29 major federal to be material. As a result, our audit opinion on
programs, including 19 program clusters, federal compliance was modified because of
under the guidelines established by the Single noncompliance with federal requirements for
Audit Act. Audit tests included evaluating the the following programs or clusters:
State’s compliance with each program’s federal Supplemental Nutrition Assistance Program
regulations generally related to expending, Cluster; Temporary Assistance for Needy
monitoring, matching, and reporting federal Families Cluster; Vocational Rehabilitation
awards. Auditors noted internal control Cluster; Child Support Enforcement; Title I, Part
weaknesses or instances of noncompliance A Cluster; Improving Teacher Quality State
with program requirements for 25 of the Grants; and the Research and Development
programs tested. For 7 of the programs, the Cluster.
instances of noncompliance were considered
The Department of Economic Security Did
Not Materially Comply with Program
Requirements for Four Programs
The Arizona Department of Economic Security verification system. In addition, it did not
receives federal monies to help administer apply automated mass updates of federal
assistance programs to recipients throughout allotments and standards to all open cases.
the State of Arizona. For the period July 1, 2008 This resulted in questioned costs of $11,271.
through June 30, 2009, the Department • The Department did not materially comply
received almost $3.2 billion in federal financial with federal requirements applicable to the
assistance, including $106 million in American TANF Cluster since it did not always retain
Recovery and Reinvestment Act (ARRA) documents supporting its verification of
monies. However, for the audit period, the wage and unemployment compensation
Department did not materially comply with through the data exchange process. In
federal requirements for four of its programs. addition, it did not disseminate the federal
Specifically, auditors noted the following: tax return information received from the
Internal Revenue Service to the local offices
• The Department did not materially comply for verification of and comparison to
with federal requirements applicable to the applicants’ and recipients’ unearned income
SNAP Cluster and the TANF Cluster since it records.
did not always follow the internal control • The Department did not materially comply
policies and procedures for activating and with federal requirements applicable to the
issuing electronic benefits transfer (EBT) Vocational Rehabilitation Cluster because it
cards. In addition, one employee did not always determine if applicants were
manipulated the eligibility computer system eligible within 60 days of the application
to issue an EBT card for personal use. submission date.
• The Department did not materially comply •
with federal requirements applicable to the
SNAP Cluster since all required Child Support Enforcement program for
documentation was not included in the case establishing support obligations, processing
files and all recipient information was not interstate cases, and establishing new
accurately transferred into the eligibility cases.
page3Five Material Weaknesses in
Internal Control and One Instance
of Material Noncompliance over
Financial Reporting Were Identified
Auditors identified 25 deficiencies in Material Noncompliance
internal control over financial reporting.
Five of these deficiencies were material • The Department of Economic
weaknesses. A material weakness is a Security’s Division of Developmental
Disabilities did not ensure theweakness in internal controls that could
required information was included inlead to a material misstatement of the
the member case files and thatState’s financial statements. Also,
reviews occurred within specifiedauditors identified one instance of
time frames.material noncompliance over Arizona
TO OBTAIN Long-Term Care System Contract’s
MORE INFORMATION
case management requirements. A
summary of the material weaknessesA copy of the full report
and material noncompliance follows:is available at:
www.azauditor.gov
MMaatteerriiaall WWeeaakknneesssseess
Contact person:
Rick Meyer
• The Department of Administration(602) 553-0333
did not prepare financial statements
in a timely manner.
• Arizona State University did not have
adequate controls over payroll
expenses.

effective access and change
management controls and did not
update its disaster recovery plan for
its computer information systems.
• Northern Arizona University did not
have adequate access controls over
its Web-based application.
• The Department of Transportation
did not accrue certain liabilities at
June 30, 2009.
REPORT
HIGHLIGHTSState of Arizona
FINANCIAL AND SINGLE AUDITS
Year Ended June 30, 2009
page 4