BP BHEAD INT S [atlas:bill]

AN ACT Relating to audits of state contractors by the state auditor; amending RCW 43.88.570; adding new sections to chapter 43.09 RCW; creating a new section; making an appropriation; and declaring an emergency.

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

NEW SECTION. Sec. 1. The legislature finds that mismanagement of agency contract resources is often difficult to discover, given the state auditor's lack of authority to investigate the finances of state contractors. The legislature further finds that current contract oversight and management procedures cannot ensure that services under contract are delivered effectively and efficiently. Therefore, the legislature intends to enhance the authority of the state auditor to audit entities that provide services to the state or its clients under contract with state agencies.

Sec. 2. RCW 43.88.570 and 1997 c 374 s 3 are each amended to read as follows:

(1) Each state agency shall submit a report to the office of the state auditor listing each nongovernment entity that received over three hundred thousand dollars in state moneys during the previous fiscal year under contract with the agency for purposes related to the provision of social services. The report must be submitted by September 1 each year, and must be in a form prescribed by the office of the state auditor.

(2) The office of the state auditor shall select ((~~two groups of entities from the reports for audit as follows:~~

~~(a) The first group shall be selected~~)) at random a group of entities from the reports using a procedure prescribed by the office of the state auditor. The office of the state auditor shall ensure that the number of entities selected under this subsection (2)((~~(a)~~)) each year is sufficient to ensure a statistically representative sample of all reported entities.

(((b) The second group shall be selected based on a risk assessment of entities conducted by the office of the state auditor in consultation with state agencies. The office of the state auditor shall consider, at a minimum, the following factors when conducting risk assessments: Findings from previous audits; decentralization of decision making and controls; turnover in officials and key personnel; changes in management structure or operations; and the presence of new programs, technologies, or funding sources.))

(3) Each entity selected under subsection (2) of this section shall be required to complete a comprehensive entity-wide audit in accordance with generally accepted government auditing standards. The audit shall be completed by, or under the supervision of, a certified public accountant from the list created under subsection (4) of this section. The audit shall determine, at a minimum, whether:

(a) The financial statements of the entity are presented fairly in all material respects in conformity with generally accepted accounting principles;

(b) The schedule of expenditures of state moneys is presented fairly in all material respects in relation to the financial statements taken as a whole;

(d) The entity has complied with laws, regulations, and contract and grant provisions that have a direct and material effect on performance of the contract and the expenditure of state moneys.

(4) The office of the state auditor shall create a list of certified public accountants who may conduct the audits required by subsection (3) of this section. The office of the state auditor shall select certified public accountants based on reputation, experience and competency in performing public audits, and geographic distribution.

(5) The office of the state auditor shall also select a second group based on a risk assessment of entities conducted by the office of the state auditor in consultation with state agencies. The office of the state auditor shall consider, at a minimum, the following factors when conducting risk assessments: Findings from audits of entities under contract with the state to provide services under the same state or federal program; findings from previous audits; decentralization of decision making and controls; turnover in officials and key personnel; changes in management structure or operations; and the presence of new programs, technologies, or funding sources.

(6) The office of the state auditor is required to complete a comprehensive entity-wide audit, in accordance with generally accepted government auditing standards, of each entity selected under subsection (5) of this section. The audit shall determine, at a minimum, whether:

(a) The financial statements of the entity are presented fairly in all material respects in conformity with generally accepted accounting principles;

(b) The schedule of expenditures of state moneys is presented fairly in all material respects in relation to the financial statements taken as a whole;

(d) The entity has complied with statutes, rules, regulations, and contract and grant provisions that have a direct and material effect on performance of the contract and the expenditure of state moneys.

(7) The office of the state auditor shall prescribe policies and procedures for the conduct of audits under this section. The office of the state auditor shall deem single audits completed in compliance with federal requirements to be in fulfillment of the requirements of this section if the audit meets the requirements of subsection (3)(a) through (d) or subsection (6)(a) through (d) of this section. If the entity is selected under subsection (5) of this section, the office of the state auditor shall review the single audit to determine if there is evidence of misuse of public moneys.

((~~(5)~~)) (8) Completed audits must be delivered to the office of the state auditor and the state agency by April 1 in the year following the selection of the entity for audit. Entities must resolve any findings contained in the audit within six months of the delivery of the audit. Entities may not enter into new contracts with state agencies until all major audit findings are resolved.

((~~(6)~~)) (9) Nothing in this section limits the authority of the state auditor to carry out statutorily and contractually prescribed powers and duties.

NEW SECTION. Sec. 3. A new section is added to chapter 43.09 RCW to read as follows:

The state auditor may, where there is reasonable cause to believe that a misuse of state moneys has occurred, conduct a financial audit of any entity that receives public moneys through contract or grant in return for services. This authority includes investigations of not-for-profit corporations who provide personal services to a state agency or to clients of a state agency. Such a financial audit shall be performed in a manner consistent with this chapter.

A report shall be made of each financial audit upon completion, and one copy shall be transmitted to each of the following: The governor, the director of financial management, the contracting state agency, the joint legislative audit and review committee, the house of representatives committee on appropriations, the senate committee on ways and means, the chief clerk of the house of representatives, the secretary of the senate, and the office of the state auditor to be kept on file. A copy of any report containing findings of misuse of state moneys shall be transmitted to the attorney general.

NEW SECTION. Sec. 4. A new section is added to chapter 43.09 RCW to read as follows:

If any financial audit of an entity that receives public moneys under contract or grant in return for services discloses probable cause of criminal misuse of public moneys, within thirty days from the receipt of his or her copy of the report, the attorney general shall institute and prosecute in the proper county the appropriate legal action to carry into effect the findings of such a financial audit.

NEW SECTION. Sec. 5. The sum of one hundred thousand dollars, or as much thereof as may be necessary, is appropriated from the general fund to the office of the state auditor for the fiscal year ending June 30, 1999. The appropriation in this section is provided solely for the purposes of section 3 of this act, and any portion of this amount that is unnecessary to fulfill these purposes shall lapse.

NEW SECTION. Sec. 6. This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect immediately.