BILL REQ. #:  H-0548.2 

Read first time 01/22/2003.   Referred to Committee on State Government.

     AN ACT Relating to ensuring government efficiencies through performance audits conducted by the state auditor; amending RCW 43.88.160, 43.88.090, and 43.09.050; adding new sections to chapter 43.09 RCW; and creating new sections.

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

NEW SECTION.  Sec. 1   Competitive pressures that force efficiencies in the private sector to ensure they provide useful and quality products and services at a reasonable cost do not apply to the public sector. This act is intended to create a mechanism whereby conscientious public employees and concerned citizens can work together to improve state government. Performance audits are a powerful management and decision-making tool that can be utilized to achieve and maintain efficient government.

NEW SECTION.  Sec. 2   A new section is added to chapter 43.09 RCW to read as follows:
     (1) The state auditor shall undertake ongoing independent, objective, and comprehensive performance audits of state government, which shall be performed in accordance with government auditing standards and funded by the general fund.
     (2) For the purposes of this act, "government auditing standards" means the generally accepted government auditing standards as published by the comptroller general of the United States general accounting office.
     (3) For the purposes of this act, "state government" or "state agency" or "state agencies" includes any agencies, boards, commissions, departments, committees, offices, programs, or services within the executive branch of state government, including any institution of higher education.
     (4) The performance audit report must include:
     (a) Identification of potential cost savings in state agencies, programs, and services;
     (b) Identification of funding to state agencies, programs, and services that can be eliminated or reduced;
     (c) Identification of state agencies, programs, and services that can be eliminated, reduced, or transferred to the private sector;
     (d) Analysis of gaps and overlaps in state agencies, programs, and services and recommendations for improving, dropping, blending, or separating functions to correct gaps or overlaps;
     (e) Analysis and recommendations for pooling information technology systems across agency lines;
     (f) Analysis of the roles and functions of state agencies, programs, and services and their compliance with statutory authority and recommendations for eliminating or changing those roles and functions and ensuring compliance with statutory authority;
     (g) Recommendations for eliminating or changing statutes, rules, and policy directives as may be necessary to ensure state agencies carry out reasonably and properly those functions expressly vested in state agencies by statute;
     (h) Verification of the reliability and validity of individual or multiple agency performance data, self-assessments, and performance measurement systems as required under RCW 43.88.090; and
     (i) Identification and recognition of best practices.
     (5) The state auditor may require any state agency to provide all information required for completion of any audit, and each state agency shall fully and completely cooperate with the state auditor for the purposes of this section. The costs of complying with these requirements are paid for by the agency.
     (6) The state auditor shall contract with private sector professional and technical experts for conducting performance audits and shall provide oversight of such audits and employees within the state auditor's office, if available and qualified, may assist such audits. The state auditor shall create and maintain a list of qualified private sector professional and technical experts who shall be selected to conduct performance audits either by lot or on a rotating basis.
     (7) The state auditor shall solicit suggestions for improving government performance from both front-line public employees, government service recipients, and the public at large in the conduct of each audit. The state auditor shall establish a toll-free telephone number at which the public may make suggestions, report government waste, and note government innovation. The state auditor shall compile the information acquired and make it available upon request and may provide comments regarding the information acquired.
     (8)(a) The state auditor shall perform preliminary performance assessments and establish initial scoring for state agencies, programs, and services and present an audit work plan to the citizens' advisory committee created in section 6 of this act and the joint legislative audit and review committee within sixty days after the effective date of this act for their review and comment. The citizens' advisory committee and the joint legislative audit and review committee shall present their respective comments in writing within thirty days after they receive the audit work plan from the auditor. Within sixty days after the state auditor has completed a performance audit of a state agency, program, or service, the auditor shall present the final performance audit report to the legislature and the governor and make the report available to the public upon request and on its web site.
     (b) The state auditor shall create subsequent auditing schedules for all state agencies and present subsequent audit work plans to the citizens' advisory committee and the joint legislative audit and review committee within thirty days after each plan is created for their review and comment. The citizens' advisory committee and the joint legislative audit and review committee shall present their respective comments in writing within thirty days after they receive a subsequent audit work plan from the auditor. Within sixty days after the state auditor has completed a subsequent performance audit of a state agency, program, or service, the auditor shall present its final performance audit report to the legislature and the governor and make the report available to the public upon request and on its web site.
     (9) The state auditor, the joint legislative audit and review committee, and the citizens' advisory committee shall strive to cooperate and collaborate between and among themselves to the fullest extent possible in order to maximize the intent of this act and to ensure government efficiencies are achieved through performance audits authorized by this act.
     (10) The office of the economic and revenue forecast council shall establish a peer group rating system using as benchmarks only those states having the same number of electoral votes as Washington or having plus or minus one electoral vote as does Washington and shall issue a budgeting and economic climate report based on the peer group rating system. The report shall include an analysis of any peer group state performance audits of state agencies and the effects on each state's budgeting and economic climate. The office of the economic and revenue forecast council shall submit its budgeting and economic climate report to the legislature, the governor, and the state auditor no later than December 31, 2003, and shall, thereafter, make the report available to the public upon request and on its web site. The office of the economic and revenue forecast council shall update its budgeting and economic climate each year and submit each year's report to the legislature, the governor, and the state auditor no later than December 31st of each year and shall make each year's report available to the public upon request and on its web site. The legislature shall use the budgeting and economic report as submitted from the office of the economic and revenue forecast council as the basis for determining Washington state's competitive economic standing in relation to the other states within the peer group.

Sec. 3   RCW 43.88.160 and 2002 c 260 s 1 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) Except as provided in chapter 43.88C RCW, 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;
     (c) Establish policies for allowing the contracting of child care services;
     (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 of representatives and the president of the senate regarding the fiscal impact of such plans and may amend or alter the plans, except that for the following agencies no amendment or alteration of the 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 employee 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 the number or the classes for the following: Agencies headed by elective officials;
     (g) Adopt rules to effectuate provisions contained in (a) through (f) 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 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 equipment maintenance providers or 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 twelve 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))) (d) 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))
     (d) Perform or participate in performance ((verifications and performance)) audits ((as expressly authorized by the legislature in the omnibus biennial appropriations acts or in the performance audit work plan approved by the joint legislative audit and review committee)). A performance audit for the purpose of this section is an objective and systematic examination of evidence for the purpose of providing an independent assessment of the performance of a state agency, program, or service in order to provide information for improving public accountability and facilitating decision making by those who have the responsibility to initiate or oversee corrective action. Performance audits include economy, efficiency, and program audits.
     (i) Economy and efficiency audits include determining whether the state agency is acquiring, protecting, and using its resources, such as personnel, property, and space, economically and efficiently; the causes of uneconomical or inefficient practices; and whether the agency has complied with laws and rules on matters of economy and efficiency.
     (ii) Program audits include determining the extent to which the desired results or benefits established by the legislature or other authorizing body are being achieved by the state agency; the effectiveness of agencies, programs, and services; and whether the agency complied with laws and rules applicable to the program.
     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 joint legislative audit and review committee or other appropriate committees of the legislature, in a manner prescribed by the joint legislative audit and review 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 or in the performance audit work plan. The results of a performance audit conducted by the state auditor that has been requested by the joint legislative audit and review committee must only be transmitted to the joint legislative audit and review committee)).
     (((d))) (e) 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 within six months, such action to include, as appropriate, the withholding of funds as provided in RCW 43.88.110. The director of financial management shall annually report by December 31st the status of audit resolution to the appropriate committees of the legislature, the state auditor, and the attorney general. The director of financial management shall include in the audit resolution report actions taken as a result of an audit including, but not limited to, types of personnel actions, costs and types of litigation, and value of recouped goods or services.
     (((e))) (f) Promptly report any irregularities to the attorney general.
     (((f))) (g) Investigate improper governmental activity under chapter 42.40 RCW.
     (7) The joint legislative audit and review committee may:
     (a) Make post audits of the financial transactions of any agency and management surveys and program reviews as provided for in chapter 44.28 RCW as well as performance audits and program evaluations. To this end the joint 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.
     (c) Make a report to the legislature which shall include at least the following:
     (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.

Sec. 4   RCW 43.88.090 and 1997 c 372 s 1 are each amended to read as follows:
     (1) For purposes of developing budget proposals to the legislature, the governor shall have the power, and it shall be the governor's duty, to require from proper agency officials such detailed estimates and other information in such form and at such times as the governor shall direct. The estimates for the legislature and the judiciary shall be transmitted to the governor and shall be included in the budget without revision. The estimates for state pension contributions shall be based on the rates provided in chapter 41.45 RCW. Copies of all such estimates shall be transmitted to the standing fiscal committees ((on ways and means)) of the house of representatives and senate at the same time as they are filed with the governor and the office of financial management.
     The estimates shall include statements or tables which indicate, by agency, the state funds which are required for the receipt of federal matching revenues. The estimates shall be revised as necessary to reflect legislative enactments and adopted appropriations and shall be included with the initial biennial allotment submitted under RCW 43.88.110. The estimates must reflect that the agency considered any alternatives to reduce costs or improve service delivery identified in the findings of ((a)) any performance audit of the agency by the state auditor or the joint legislative audit and review committee. Nothing in this subsection requires performance audit findings to be published as part of the budget.
     (2) Each state agency shall define its mission and establish measurable goals for achieving desirable results for those who receive its services and the taxpayers who pay for those services. Each agency shall also develop clear strategies and timelines to achieve its goals. This section does not require an agency to develop a new mission or goals in place of identifiable missions or goals that meet the intent of this section. The mission and goals of each agency must conform to statutory direction and limitations.
     (3) For the purpose of assessing program performance, each state agency shall establish program objectives for each major program in its budget. The objectives must be consistent with the missions and goals developed under this section. The objectives must be expressed to the extent practicable in outcome-based, objective, and measurable form unless an exception to adopt a different standard is granted by the office of financial management and approved by the legislative committee on performance review. The office of financial management shall provide necessary professional and technical assistance to assist state agencies in the development of strategic plans that include the mission of the agency and its programs, measurable goals, strategies, and performance measurement systems.
     (4) Each state agency shall adopt procedures for continuous self-assessment of each program and activity, using the mission, goals, objectives, and measurements required under subsections (2) and (3) of this section.
     (5) It is the policy of the legislature that each agency's budget proposals must be directly linked to the agency's stated mission and program goals and objectives. Consistent with this policy, agency budget proposals must include integration of performance measures that allow objective determination of a program's success in achieving its goals. The office of financial management shall develop a plan to merge the budget development process with agency performance assessment procedures. The plan must include a schedule to integrate agency strategic plans and performance measures into agency budget requests and the governor's budget proposal over three fiscal biennia. The plan must identify those agencies that will implement the revised budget process in the 1997-1999 biennium, the 1999-2001 biennium, and the 2001-2003 biennium. In consultation with the legislative fiscal committees, the office of financial management shall recommend statutory and procedural modifications to the state's budget, accounting, and reporting systems to facilitate the performance assessment procedures and the merger of those procedures with the state budget process. The plan and recommended statutory and procedural modifications must be submitted to the legislative fiscal committees by September 30, 1996.
     (6) In the year of the gubernatorial election, the governor shall invite the governor-elect or the governor-elect's designee to attend all hearings provided in RCW 43.88.100; and the governor shall furnish the governor-elect or the governor-elect's designee with such information as will enable the governor-elect or the governor-elect's designee to gain an understanding of the state's budget requirements. The governor-elect or the governor-elect's designee may ask such questions during the hearings and require such information as the governor-elect or the governor-elect's designee deems necessary and may make recommendations in connection with any item of the budget which, with the governor-elect's reasons therefor, shall be presented to the legislature in writing with the budget document. Copies of all such estimates and other required information shall also be submitted to the standing committees on ways and means of the house and senate.

Sec. 5   RCW 43.09.050 and 1992 c 118 s 6 are each amended to read as follows:
     The auditor shall:
     (1) Except as otherwise specifically provided by law, audit the accounts of all collectors of the revenue and other holders of public money required by law to pay the same into the treasury;
     (2) In his or her discretion, inspect the books of any person charged with the receipt, safekeeping, and disbursement of public moneys;
     (3) Investigate improper governmental activity under chapter 42.40 RCW;
     (4) Inform the attorney general in writing of the necessity for the attorney general to direct prosecutions in the name of the state for all official delinquencies in relation to the assessment, collection, and payment of the revenue, against all persons who, by any means, become possessed of public money or property, and fail to pay over or deliver the same, and against all debtors of the state;
     (5) Give information in writing to the legislature, whenever required, upon any subject relating to the financial affairs of the state, or touching any duties of his or her office;
     (6) Report to the director of financial management in writing the names of all persons who have received any moneys belonging to the state, and have not accounted therefor;
     (7) Authenticate with his or her official seal papers issued from his or her office;
     (8) Make his or her official report annually on or before the 31st of December; and
     (9) Undertake ongoing independent, objective, and comprehensive performance audits of state agencies, which shall be performed in accordance with government auditing standards and funded by the general fund.

NEW SECTION.  Sec. 6   A new section is added to chapter 43.09 RCW to read as follows:
     (1)(a) The citizens' oversight committee for government accountability is established as a panel composed of five citizen members appointed by the leadership of the house of representatives who are not affiliated with the party of the state auditor. The members of the citizens' oversight committee shall select a chair from one of the five citizen members. The committee may create subcommittees and advisory panels to assist in its deliberations and may contract for specialized expertise.
     (b) Members of the citizens' oversight committee for government accountability shall have verifiable experience and expertise in private sector financial management, accounting, or auditing in order to qualify for appointment to the committee.
     (c) The committee may solicit charitable gifts, grants, and donations that are placed into the citizens' oversight committee for government accountability account, created in the custody of the state treasurer, and used to offset general fund moneys appropriated for such purposes. The treasurer shall transfer money from the account to the general fund, when money is available in the account.
     (2)(a) The citizens' oversight committee for government accountability shall submit reports and recommendations to the state auditor regarding the initiation, scope, compliance, and accountability of performance audits, and for achieving, increasing, and improving state government efficiency, effectiveness, organization, operations, accountability, and cost savings. The committee shall provide recommendations regarding funding for future audits.
     (b) The state auditor shall designate a coordinator from within the auditor's office who shall provide logistical and staffing assistance to the committee as necessary.
     (3) The citizens' oversight committee shall be appointed within thirty days after the effective date of this act. A new citizens' oversight committee shall be formed and members appointed within sixty days after future elections of the state auditor.
     (4) All members of the citizens' oversight committee shall be reimbursed for travel expenses incurred in the performance of duties of the citizens' oversight committee in accordance with RCW 43.03.050 and 43.03.060. All members shall receive a per diem of seventy dollars per day when performing duties of the citizens' oversight committee.

NEW SECTION.  Sec. 7   One-half of one percent of the funds appropriated for the current biennium for each state agency or institution shall be dedicated towards the cost of auditing that agency or institution. Any excess funds held by an agency at the end of the biennium shall be available to the state auditor for audits of other agencies on a case-by-case basis as needed. Each agency shall report to the legislature no later than December 31st of each year the funds remaining in its performance audit account.

NEW SECTION.  Sec. 8   This act shall be liberally construed so as to effectuate its purposes and the state auditor and the joint legislative audit and review committee shall exercise the authority provided under this act to the fullest extent possible in order to maximize the intent of this act and to ensure government efficiencies are achieved through performance audits authorized by this act within the funds available for such exercise.