"NEW SECTION.  Sec. 2   A new section is added to chapter 43.09 RCW to read as follows:
     For purposes of sections 3 through 6 of this act:
     (1) "Board" means the citizen accountability advisory board created in section 4 of this act.
     (2) "Performance audit" means an objective and systematic assessment of a state agency or agencies or any of their programs, functions, or activities by an independent auditor in order to help improve agency efficiency, effectiveness, and accountability. Performance audits include economy and efficiency audits and program audits.
     (3) "State agency" or "agency" means a state agency, department, office, officer, board, commission, bureau, division, institution, or institution of higher education. "State agency" includes all elective offices in the executive branch state government. This includes state agencies and programs as well as those programs and activities that cross agency lines.

NEW SECTION.  Sec. 3   A new section is added to chapter 43.09 RCW to read as follows:
     The state auditor may conduct performance audits under the provisions of sections 1 through 7, 9, and 10 of this act. The state auditor may contract for performance audits as he or she may determine.

NEW SECTION.  Sec. 4   A new section is added to chapter 43.09 RCW to read as follows:
     (1) A citizen accountability advisory board is created to provide advice to the state auditor on performance audits of state government.
     (2) The board shall consist of eight members as follows:
     (a) One member shall be selected by the state auditor;
     (b) One member shall be selected by the chair of the joint legislative audit and review committee;
     (c) One member shall be selected by the director of the office of financial management;
     (d) Four of the members shall be selected by the governor as follows: Each major caucus of the house of representatives and the senate shall submit a list of three names. The lists may not include the names of members of the legislature. The governor shall select a person from each list provided by each caucus; and
     (e) One member shall be selected by the governor.
     (3) The board shall elect a chair.
     (4) Appointees shall be individuals who have a basic understanding of state government operations with knowledge and expertise in performance management, quality management, strategic planning, performance assessments, or closely related fields.
     (5) Members shall serve for terms of four years, with the terms expiring on June 30th on the fourth year of the term. However, in the case of the initial members, two members shall serve four-year terms, two members shall serve three-year terms, and one member shall serve a two-year term, with each of the terms expiring on June 30th of the applicable year. Appointees may be reappointed to serve more than one term.
     (6) The state auditor's office shall provide staff assistance to the board.
     (7) The board shall meet at least once a quarter and may hold additional meetings at the call of the chair or by a majority vote of the members of the board. Meetings are subject to chapter 42.30 RCW.
     (8) The members of the board shall be compensated in accordance with RCW 43.03.220 and reimbursed for travel expenses in accordance with RCW 43.03.050 and 43.03.060."

"NEW SECTION.  Sec. 5   A new section is added to chapter 43.09 RCW to read as follows:
     (1) The state auditor shall establish criteria and protocols for performance audits. Agencies shall be audited using criteria that include generally accepted government auditing standards as well as legislative mandates and performance objectives established by state agencies. Mandates include, but are not limited to, agency strategies, timelines, program objectives, and mission and goals as required in RCW 43.88.090.
     (2) Using the criteria developed in subsection (1) of this section, the state auditor shall complete a statewide performance review as a preliminary to a work plan for conducting performance audits. The state auditor shall develop a schedule and common methodology for conducting these performance audits.
     (3) In developing the work plan, the state auditor shall consider input from the board, citizens, state employees, state managers, the joint legislative audit and review committee, public officials, and others. The work plan may include a list of agencies, programs, or systems to be audited on a timeline decided by the state auditor based on a number of factors including risk, importance, and citizen concerns. All audits shall be designed to be completed within a six-month period.
     (4) Before adopting the final work plan, the state auditor shall consult with the legislative auditor and other appropriate oversight and audit entities to coordinate work plans and avoid duplication of effort in their planned performance audits of state government. The state auditor shall defer to the joint legislative audit and review committee work plan if a similar audit is included on both work plans for auditing.
     (5) In conducting the audits, agency front-line employees and internal auditors should be involved. The audits may include:
     (a) Identification of programs and services that can be eliminated, reduced, consolidated, or enhanced;
     (b) Identification of funding sources to the state agency, to programs, and to services that can be eliminated, reduced, consolidated, or enhanced;
     (c) Analysis of gaps and overlaps in programs and services and recommendations for improving, dropping, blending, or separating functions to correct gaps or overlaps;
     (d) Analysis and recommendations for pooling information technology systems used within the state agency, and evaluation of information processing and telecommunications policy, organization, and management;
     (e) Analysis of the roles and functions of the state agency, its programs, and its services and their compliance with statutory authority and recommendations for eliminating or changing those roles and functions and ensuring compliance with statutory authority;
     (f) Recommendations for eliminating or changing statutes, rules, and policy directives as may be necessary to ensure that the agency carry out reasonably and properly those functions vested in the agency by statute;
     (g) Verification of the reliability and validity of agency performance data, self-assessments, and performance measurement systems as required under RCW 43.88.090;
     (h) Identification of potential cost savings in the state agency, its programs, and its services;
     (i) Identification and recognition of best practices;
     (j) Evaluation of planning, budgeting, and program evaluation policies and practices;
     (k) Evaluation of personnel systems operation and management;
     (l) Evaluation of state purchasing operations and management policies and practices; and
     (m) Evaluation of organizational structure and staffing levels, particularly in terms of the ratio of managers and supervisors to nonmanagement personnel.
     (6) The state auditor's performance audit work plan shall be updated at least annually.
     (7) The state auditor must provide the preliminary performance audit reports to the audited state agency for comment. The auditor also may seek input on the preliminary report from other appropriate officials. Comments must be received within thirty days after receipt of the preliminary performance audit report unless a different time period is approved by the state auditor. The final performance audit report shall include the objectives, scope, and methodology; the audit results, including findings and recommendations; the agency's response and conclusions; and identification of best practices.
     (8) The state auditor shall provide final performance audit reports to the citizens of Washington, the governor, the board, the joint legislative audit and review committee, the appropriate legislative committees, and other appropriate officials. Final performance audit reports shall be posted on the internet.
     (9) The state auditor may conduct performance audits for transportation-related agencies as defined under RCW 44.75.020.

NEW SECTION.  Sec. 6   A new section is added to chapter 43.09 RCW to read as follows:
     The audited agency is responsible for follow-up and corrective action on all performance audit findings and recommendations. The audited agency's plan for addressing each audit finding and recommendation shall be included in the final audit report. The plan shall provide the name of the contact person responsible for each action, the action planned, and the anticipated completion date. If the audited agency does not agree with the audit findings and recommendations or believes action is not required, then the action plan shall include an explanation and specific reasons.
     The office of financial management shall require periodic progress reports from the audited agency until all resolution has occurred. The office of financial management is responsible for achieving audit resolution. The office of financial management shall annually report by December 31st the status of performance audit resolution to the appropriate legislative committees and the state auditor. The legislature shall consider the performance audit results in connection with the state budget process.
     The auditor may request status reports on specific audits or findings.

Sec. 7   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 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) 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 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. 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) 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) Promptly report any irregularities to the attorney general.
     (f) 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.

NEW SECTION.  Sec. 8   A new section is added to chapter 43.09 RCW to read as follows:
     Each biennium the legislature shall appropriate an amount equal to two one-hundredths of one percent of the total general fund state appropriation in that biennium's omnibus operating appropriations act for purposes of the performance audits conducted by the state auditor as authorized by sections 2 through 6 and 9 of this act.

NEW SECTION.  Sec. 9   A new section is added to chapter 43.09 RCW to read as follows:
     If the legislative authority of a local jurisdiction requests a performance audit of programs under its jurisdiction, the state auditor has the discretion to conduct such a review under separate contract and funded by local funds.

NEW SECTION.  Sec. 10   A new section is added to chapter 2.56 RCW to read as follows:
     The office of the administrator for the courts is encouraged to conduct performance audits of courts under the authority of the supreme court, in conformity with criteria and methods developed by the board for judicial administration that have been approved by the supreme court. In developing criteria and methods for conducting performance audits, the board for judicial administration is encouraged to consider quality improvement programs, audits, and scoring. The judicial branch is encouraged to submit the results of these efforts to the chief justice of the supreme court or his or her designee, and with any other applicable boards or committees established under the authority of the supreme court to oversee government accountability."