SENATE BILL REPORT

SHB 1009

As Reported by Senate Committee On:

State Government, Tribal Relations & Elections, February 26, 2020

Title: An act relating to the state auditor's duties and procedures.

Brief Description: Addressing the state auditor's duties and procedures.

Sponsors: House Committee on State Government & Tribal Relations (originally sponsored by Representatives Dolan, Kirby and Jinkins; by request of State Auditor).

Brief History: Passed House: 3/01/19, 95-0; 2/12/20, 97-0.

Committee Activity: State Government, Tribal Relations & Elections: 3/11/19, 3/15/19 [DPA]; 2/21/20, 2/26/20 [DPA].

Majority Report: Do pass as amended.

Signed by Senators Hunt, Chair; Kuderer, Vice Chair; Zeiger, Ranking Member; Muzzall, Assistant Ranking Member; Hasegawa, Hawkins and Takko.

Staff: Melissa Van Gorkom (786-7491)

Background: Auditor. The auditor is authorized to audit public accounts, investigate improper governmental activity, request prosecutions of wrongdoings, and report on its findings. The auditor may also conduct independent, comprehensive performance audits of public agencies.

Loss of Public Funds. State agencies and local governments must immediately report any known or suspected loss of public funds or assets, or other illegal activity to the State Auditor’s Office.

Financial Audits. When examining routine audits of state agencies' financial affairs, the auditor reviews all revolving, local, and other state funds, including state accounts that are not managed by or in the care of the state treasurer or under control of the state agencies. When conducting audits, the auditor examines revenues and expenditures, assets and liabilities, accounting methods and procedures, and recordkeeping practices. The auditor is required to report to the Legislature within five months of each biennium's end to discuss the status of all financial affairs audits during the proceeding biennium, as well as any recommendations for their improved financial management.

Local government must submit financial reports to the State Auditor's Office for each fiscal year. The reports must contain:

• Ÿcollections made or receipts received by officers from all sources;

• accounts due to the public treasury but not collected;

• expenditures for every purpose and which authority authorized the expenditure;

• a statement of all costs of ownership and operation, and of all income, of each and every public service industry owned and operated by a local government;

• a statement of the entire public debt of every local government including other relevant information;

• a classified statement of all receipts and expenditures by any public institution; and

• a statement of all expenditures for labor relations consultants, including the identification of each consultant, compensation, and the terms and conditions of each agreement or arrangement.

An examination of the financial affairs for all local governments is done on a periodic basis as determined by the auditor, but must be completed at least once every three years and include a review of all local government tax levies.

Performance Audits for Transportation Related Agencies. The Transportation Performance Audit Board was established in 2003 to provide oversight and accountability of transportation-related agencies. This is accomplished with performance audits, and review of performance measures and outcomes. In 2005, statewide transportation governance was restructured when voters approved Initiative 900 (I-900) which required the auditor to conduct performance audits on state agencies and local government, including state and local transportation governmental entities.

Performance Audits of Long-Term In-home Care. The auditor is required under Initiative 1163, approved by the voters in November 2011, to conduct performance audits of the long-term in-home care program on a biennial basis. As part of the auditing process, the state must hire five additional fraud investigators to ensure clients receiving services at taxpayers' expense are medically and financially qualified to receive the service and are actually receiving the service.

Citizen Advisory Board Performance Audit Program. The Citizens Advisory Board (board) was created in 2005 to establish criteria for performance audits, as part of a performance audit program (program). The auditor and the board must develop a draft work plan for performance audits under the program. The auditor is required to contract out for performance audits. Every four years, the Joint Legislative Audit Review Committee is required to contract with a private entity for a performance audit of the program. The audits conducted under the board's authority are separate from the comprehensive performance audits of state and local governments, and each of their agencies, accounts, and programs, required under I-900.

Summary of Bill: The bill as referred to committee not considered.

Summary of Amended Bill: Loss of Public Funds. Immediate reporting is not required for agency loss of funds, assets, or other illegal activity, and the auditor must adopt policies for these reporting procedures.

Fiscal Audits. The requirement of the auditor to report all state financial affairs audits for the proceeding biennium and any recommendations for their improved financial management to the Legislature within five months of the end of each biennium is removed.

The requirement of the auditor to receive statements of labor relations consultant information in the local government fiscal reports is removed. Additionally, the auditor is no longer required to review tax levies of all local governments as part of the periodic examination of the fiscal affairs of their entities.

Performance Audits. The performance audit authority under the statute is modified. References to repealed language concerning the Transportation Performance Audit Board responsibility to conduct performance audits for transportation related agencies are removed from the statute. The performance audit program under the authority of the board, and related provisions, are repealed. The requirement for the auditor to conduct performance audits of the long-term in-home care program on a biennial basis is removed. The auditor retains authority to direct performance audits under I-900.

Appropriation: None.

Fiscal Note: Available.

Creates Committee/Commission/Task Force that includes Legislative members: No.

Effective Date: Ninety days after adjournment of session in which bill is passed.

Staff Summary of Public Testimony on Substitute House Bill (Regular Session 2019): The committee recommended a different version of the bill than what was heard. PRO: The difference in this bill from the Senate version is in a recommendation from JLARC to reconcile some language for performance audits. The Auditor's Office has used I-900 for its performance audit functions and thus the substitute bill removes the Citizens Advisory Board previously authorized by the Legislature that was superseded by I-900.

Persons Testifying: PRO: Scott Nelson, State Auditor's Office.

Persons Signed In To Testify But Not Testifying: No one.

Staff Summary of Public Testimony on Amended Bill (Regular Session 2020): PRO: This bill is about savings and efficiency. It will save money for state and local governments by eliminating redundant and unnecessary reporting requirements such as removing the requirement for paper reports that are readily available through state or local government websites. It also eliminates old statutory language regarding performance auditing that runs contrary to the I-900 language that was passed by citizens in 2005 creating the current performance auditing program. These changes have been carefully vetted with all stakeholders.

Persons Testifying: PRO: Pat McCarthy, State Auditor; Scott Nelson, State Auditor's office.

Persons Signed In To Testify But Not Testifying: No one.