BP BHEAD INT H

AN ACT Relating to performance audits of state government; amending RCW 43.88.160; and adding a new chapter to Title 43 RCW.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. Public officials, legislators, and citizens want and need to know whether public funds are handled properly and in compliance with the law. They also want and need to know whether state agencies, programs, and activities are achieving their purposes and whether they are operating economically and efficiently. The legislature and governor are committed to providing state employees the resources and tools they need to demonstrate accountability.

Public officials and state employees entrusted with public resources are responsible for establishing and maintaining effective controls to ensure that appropriate goals and objectives are met; resources are safeguarded; laws are followed; and reliable data are obtained, maintained, and fairly disclosed. Public officials and state employees entrusted with public resources are accountable both to the public and to other levels and branches of government for the resources provided to carry out government programs and services.

Public officials and employees who manage state programs need to be accountable for their activities to the public. This need for accountability has caused a demand for better information about the performance of state government and its agencies and programs.

The legislature, governor, state auditor, and other state-wide elected officials recognize state employees as their most valued resource. We further recognize that state employees share the vision established under the Washington performance partnership to make state government the most effective and best performing state government in the United States, as measured in terms of quality of customer service, accountability for cost-effective services, and productivity.

Performance auditing of state government or any of its agencies, programs, or activities is an essential element of public accountability. Performance auditing provides credibility to information reported by or obtained from public officials.

It is the intent of the legislature and governor to authorize the state auditor to provide reliable, independent performance audits of state government and any of its agencies, programs, or activities. The state auditor's costs in carrying out this chapter shall be considered a fundamental stewardship responsibility and shall be paid from the general fund.

NEW SECTION. Sec. 2. The purpose of this chapter is to provide independent, regular performance audits of state government.

NEW SECTION. Sec. 3. Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Performance measures" mean realistic estimates, generally in quantifiable terms, of what the state or any of its agencies or programs is expected to achieve.

(2) "Performance audits" mean an objective and systematic assessment of state government or any of its agencies, programs, functions, or activities by an independent auditor in order to help public officials demonstrate public accountability. Performance audits include economy and efficiency audits, program audits, and performance verification.

(3) "Economy and efficiency audits" mean performance audits that establish: (a) Whether the state or any of its agencies is acquiring, protecting, and using its resources such as personnel, property, and space economically and efficiently; (b) the causes of inefficiencies or uneconomical practices; and (c) whether the state or any of its agencies has complied with significant laws and rules in acquiring, protecting, and using its resources.

(4) "Program audits" mean performance audits that determine: (a) The extent to which desired outcomes or results are being achieved; (b) the causes for not achieving intended outcomes or results; and (c) compliance with significant laws and rules applicable to the program.

(5) "Performance verification" means an analysis that verifies: (a) The accuracy of data used by state agencies in quantifying intended results and measuring performance toward those results; and (b) whether the reported results were achieved.

NEW SECTION. Sec. 4. The state auditor shall:

(1) Use professional judgment in establishing his or her performance audit plans and conduct the full range of performance audits, including economy and efficiency audits, program audits, and performance verification. The issues that these performance audits may consider include, but are not limited to, compliance with applicable laws, rules, and other authoritative and relevant standards; the efficient allocation and use of resources; the cost-effectiveness of alternative methods of service delivery and goal attainment; the reliability of information provided by public officials; the administrative and organizational design of programs; the results of programs and activities and their impact on recipients; and the achievement of state-wide and agency goals and objectives;

(2) Employ personnel and other resources necessary to conduct performance audits. Performance auditing is not the domain of a single profession or discipline. It is an activity that draws on the tools and skills of many disciplines, particularly economics and the social sciences;

(3) Use private sector, independent professional and technical experts necessary in conducting performance audits;

(4) Involve front-line employees and internal auditors to the degree possible in the performance audit process;

(5) Determine whether personnel and other professional and technical experts conducting performance audits have organizational and personal independence from the agency, program, and people being audited;

(6) Solicit suggestions for improving government performance from legislators, the governor, front-line employees, government service recipients, and citizens;

(7) Establish effective avenues for the public to make suggestions for improving state government performance and operations;

(8) Determine whether public officials have involved legislators, the governor, citizens, front-line employees, and government service recipients in the process of developing and updating performance measures;

(9) Determine whether cost-effective, useful, reliable, and valid performance measures are being produced and used in state government planning, budgeting, and managing. For performance measures to lead to improvements in decision making and service delivery, they must be an integral part of all three activities;

(10) Design performance audits to be timely and useful by the legislature, governor, citizens, public officials, and front-line state employees;

(11) Present a performance audit work plan to the audit committee established under section 5 of this act by September 30 annually and to the legislature and governor at least sixty days prior to each odd-year session. Nothing precludes the state auditor from consulting more frequently with the audit committee, legislature, and governor regarding the performance audit work plan;

(12) Report the results of performance audits to the governor, legislators, the audit committee, and the director of financial management within thirty days of the completion of field work;

(13) Report the results of performance audits directly and effectively to the public, using modern technology and in writing. Recipients of the reports shall include, but not be limited to, citizens, media, and applicable agency public officials and state employees;

(14) Contract for a national state auditors association peer review at least every three years;

(15) Establish clear expectations and measures of performance regarding implementation of the intent and purpose of this chapter;

(16) Establish a performance audit impact tracking system to assess what impact these audits have and to continuously improve the performance audit function. The state auditor should see the reports being used in executive and legislative processes and should see a significant number of his or her recommendations implemented, either through legislation or executive action. Performance audits must be relevant, objective, and timely and their results must be communicated effectively;

(17) Coordinate planned performance audit work with the work performed by the legislative budget committee, internal auditors, and others with authority to conduct performance audits; and

(18) Use the state and agency strategic plans in conducting performance audits.

NEW SECTION. Sec. 5. The audit committee is created and its members consist of private and public sector Washington residents as follows:

(1) The chairs of the following committees:

(a) Senate ways and means;

(b) House of representatives appropriations;

(d) House of representatives government operations;

(2) Attorney general;

(3) Director of financial management;

(4) At least two state employees; and

(5) At least two private sector representatives from the following groups:

(a) Eastern Washington;

(b) Western Washington;

(d) Business.

NEW SECTION. Sec. 6. (1) The state employee members of the audit committee will be appointed by, and serve at the pleasure of, the state auditor.

(2) The state auditor will appoint the private sector members of the audit committee. They will serve staggered three-year, renewable terms as follows:

(a) One-third of the private sector representatives, or as many as the state auditor deems reasonable will be appointed to an initial one-year term;

(b) One-third of the private sector representatives or as many as the state auditor deems reasonable, will be appointed to an initial two-year term; and

(c) One-third of the private sector representatives, or as many as the state auditor deems reasonable, will be appointed to an initial three-year term.

(3) Vacancies among the private sector representatives will be filled by appointment of the state auditor for the duration of the term.

NEW SECTION. Sec. 7. (1) The audit committee shall from time to time elect a chair from among its members.

(2) The audit committee shall meet at the call of the chair.

(3) The audit committee may adopt rules to govern its procedures.

(4) A majority of the members of the audit committee constitutes a quorum for the transaction of any business but no proceeding of the committee is valid unless carried by the rate of a majority of the members present.

NEW SECTION. Sec. 8. Members of the audit committee shall be reimbursed for travel expenses as provided in RCW 43.03.050 and 43.03.060. Legislative members shall receive allowances provided for in RCW 44.04.120.

NEW SECTION. Sec. 9. The audit committee shall facilitate the performance audit process by providing advice to the state auditor on audit policy and plans.

NEW SECTION. Sec. 10. The state auditor may contract for the services of those independent professional and technical experts as deemed necessary to carry out this chapter.

NEW SECTION. Sec. 11. Sections 1 through 10 of this act constitute a new chapter in Title 43 RCW.

Sec. 12. RCW 43.88.160 and 1994 c 184 s 11 are each amended to read as follows:

This section sets forth the major fiscal duties and responsibilities of officers and agencies of the executive branch. The regulations issued by the governor pursuant to this chapter shall provide for a comprehensive, orderly basis for fiscal management and control, including efficient accounting and reporting therefor, for the executive branch of the state government and may include, in addition, such requirements as will generally promote more efficient public management in the state.

(1) Governor; director of financial management. The governor, through the director of financial management, shall devise and supervise a modern and complete accounting system for each agency to the end that all revenues, expenditures, receipts, disbursements, resources, and obligations of the state shall be properly and systematically accounted for. The accounting system shall include the development of accurate, timely records and reports of all financial affairs of the state. The system shall also provide for central accounts in the office of financial management at the level of detail deemed necessary by the director to perform central financial management. The director of financial management shall adopt and periodically update an accounting procedures manual. Any agency maintaining its own accounting and reporting system shall comply with the updated accounting procedures manual and the rules of the director adopted under this chapter. An agency may receive a waiver from complying with this requirement if the waiver is approved by the director. Waivers expire at the end of the fiscal biennium for which they are granted. The director shall forward notice of waivers granted to the appropriate legislative fiscal committees. The director of financial management may require such financial, statistical, and other reports as the director deems necessary from all agencies covering any period.

(2) The director of financial management is responsible for quarterly reporting of primary operating budget drivers such as applicable workloads, caseload estimates, and appropriate unit cost data. These reports shall be transmitted to the legislative fiscal committees or by electronic means to the legislative evaluation and accountability program committee. Quarterly reports shall include actual monthly data and the variance between actual and estimated data to date. The reports shall also include estimates of these items for the remainder of the budget period.

(3) The director of financial management shall report at least annually to the appropriate legislative committees regarding the status of all appropriated capital projects, including transportation projects, showing significant cost overruns or underruns. If funds are shifted from one project to another, the office of financial management shall also reflect this in the annual variance report. Once a project is complete, the report shall provide a final summary showing estimated start and completion dates of each project phase compared to actual dates, estimated costs of each project phase compared to actual costs, and whether or not there are any outstanding liabilities or unsettled claims at the time of completion.

(4) In addition, the director of financial management, as agent of the governor, shall:

(a) Develop and maintain a system of internal controls and internal audits comprising methods and procedures to be adopted by each agency that will safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency, and encourage adherence to prescribed managerial policies for accounting and financial controls. The system developed by the director shall include criteria for determining the scope and comprehensiveness of internal controls required by classes of agencies, depending on the level of resources at risk.

Each agency head or authorized designee shall be assigned the responsibility and authority for establishing and maintaining internal audits following the standards of internal auditing of the institute of internal auditors;

(b) Make surveys and analyses of agencies with the object of determining better methods and increased effectiveness in the use of manpower and materials; and the director shall authorize expenditures for employee training to the end that the state may benefit from training facilities made available to state employees;

(d) Report to the governor with regard to duplication of effort or lack of coordination among agencies;

(e) Review any pay and classification plans, and changes thereunder, developed by any agency for their fiscal impact: PROVIDED, That none of the provisions of this subsection shall affect merit systems of personnel management now existing or hereafter established by statute relating to the fixing of qualifications requirements for recruitment, appointment, or promotion of employees of any agency. The director shall advise and confer with agencies including appropriate standing committees of the legislature as may be designated by the speaker of the house and the president of the senate regarding the fiscal impact of such plans and may amend or alter said plans, except that for the following agencies no amendment or alteration of said plans may be made without the approval of the agency concerned: Agencies headed by elective officials;

(f) Fix the number and classes of positions or authorized man years of employment for each agency and during the fiscal period amend the determinations previously fixed by the director except that the director shall not be empowered to fix said number or said classes for the following: Agencies headed by elective officials;

(g) Provide for transfers and repayments between the budget stabilization account and the general fund as directed by appropriation ((~~and RCW 43.88.525 through 43.88.540~~));

(h) Adopt rules to effectuate provisions contained in (a) through (g) of this subsection.

(5) The treasurer shall:

(a) Receive, keep, and disburse all public funds of the state not expressly required by law to be received, kept, and disbursed by some other persons: PROVIDED, That this subsection shall not apply to those public funds of the institutions of higher learning which are not subject to appropriation;

(b) Receive, disburse, or transfer public funds under the treasurer's supervision or custody;

(c) Keep a correct and current account of all moneys received and disbursed by the treasurer, classified by fund or account;

(d) Coordinate agencies' acceptance and use of credit cards and other payment methods, if the agencies have received authorization under RCW 43.41.180;

(e) Perform such other duties as may be required by law or by regulations issued pursuant to this law.

It shall be unlawful for the treasurer to disburse public funds in the treasury except upon forms or by alternative means duly prescribed by the director of financial management. These forms or alternative means shall provide for authentication and certification by the agency head or the agency head's designee that the services have been rendered or the materials have been furnished; or, in the case of loans or grants, that the loans or grants are authorized by law; or, in the case of payments for periodic maintenance services to be performed on state owned equipment, that a written contract for such periodic maintenance services is currently in effect and copies thereof are on file with the office of financial management; and the treasurer shall not be liable under the treasurer's surety bond for erroneous or improper payments so made. When services are lawfully paid for in advance of full performance by any private individual or business entity other than as provided for by RCW 42.24.035, such individual or entity other than central stores rendering such services shall make a cash deposit or furnish surety bond coverage to the state as shall be fixed in an amount by law, or if not fixed by law, then in such amounts as shall be fixed by the director of the department of general administration but in no case shall such required cash deposit or surety bond be less than an amount which will fully indemnify the state against any and all losses on account of breach of promise to fully perform such services. No payments shall be made in advance for any equipment maintenance services to be performed more than three months after such payment. Any such bond so furnished shall be conditioned that the person, firm or corporation receiving the advance payment will apply it toward performance of the contract. The responsibility for recovery of erroneous or improper payments made under this section shall lie with the agency head or the agency head's designee in accordance with regulations issued pursuant to this chapter. Nothing in this section shall be construed to permit a public body to advance funds to a private service provider pursuant to a grant or loan before services have been rendered or material furnished.

(6) The state auditor shall:

(a) Report to the legislature the results of current post audits that have been made of the financial transactions of each agency; to this end the auditor may, in the auditor's discretion, examine the books and accounts of any agency, official or employee charged with the receipt, custody or safekeeping of public funds. Where feasible in conducting examinations, the auditor shall utilize data and findings from the internal control system prescribed by the office of financial management. The current post audit of each agency may include a section on recommendations to the legislature as provided in (c) of this subsection.

(b) Give information to the legislature, whenever required, upon any subject relating to the financial affairs of the state.

(c) Make the auditor's official report on or before the thirty-first of December which precedes the meeting of the legislature. The report shall be for the last complete fiscal period and shall include determinations as to whether agencies, in making expenditures, complied with the laws of this state. ((The state auditor is authorized to perform or participate in performance verifications only as expressly authorized by the legislature in the omnibus biennial appropriations acts. The state auditor, upon completing an audit for legal and financial compliance under chapter 43.09 RCW or a performance verification, may report to the legislative budget committee or other appropriate committees of the legislature, in a manner prescribed by the legislative budget committee, on facts relating to the management or performance of governmental programs where such facts are discovered incidental to the legal and financial audit or performance verification. The auditor may make such a report to a legislative committee only if the auditor has determined that the agency has been given an opportunity and has failed to resolve the management or performance issues raised by the auditor. If the auditor makes a report to a legislative committee, the agency may submit to the committee a response to the report. This subsection (6) shall not be construed to authorize the auditor to allocate other than de minimis resources to performance audits except as expressly authorized in the appropriations acts.))

(d) Be empowered to take exception to specific expenditures that have been incurred by any agency or to take exception to other practices related in any way to the agency's financial transactions and to cause such exceptions to be made a matter of public record, including disclosure to the agency concerned and to the director of financial management. It shall be the duty of the director of financial management to cause corrective action to be taken promptly, such action to include, as appropriate, the withholding of funds as provided in RCW 43.88.110.

(e) Promptly report any irregularities to the attorney general.

(f) Investigate improper governmental activity under chapter 42.40 RCW.

(g) Conduct performance audits under chapter 43.-- RCW (sections 1 through 10 of this act).

(7) The legislative budget committee may:

(a) Make post audits of the financial transactions of any agency and management surveys and program reviews as provided for in RCW 44.28.085 as well as performance audits and program evaluations. To this end the committee may in its discretion examine the books, accounts, and other records of any agency, official, or employee.

(b) Give information to the legislature or any legislative committee whenever required upon any subject relating to the performance and management of state agencies.

(i) Determinations as to the extent to which agencies in making expenditures have complied with the will of the legislature and in this connection, may take exception to specific expenditures or financial practices of any agencies; and

(ii) Such plans as it deems expedient for the support of the state's credit, for lessening expenditures, for promoting frugality and economy in agency affairs and generally for an improved level of fiscal management.