HOUSE BILL REPORT

                E2SHB 2881

                    As Passed Legislature

Title:  An act relating to audits of state contractors by the state auditor.

Brief Description:  Auditing state contractors.

Sponsors:  By House Committee on Appropriations (originally sponsored by Representatives Clements, Dickerson, Parlette, Gombosky, Backlund, Gardner, Delvin, O'Brien and Lambert).

Brief History:

  Committee Activity:

Vendor Contracting & Services:  1/27/98, 2/3/98 [DPS];

Government Administration:  2/5/98 [DPS(SVC)];

Appropriations:  2/7/98 [DP2S(w/o sub SVC)].

Floor Activity:

Passed House:  2/13/98, 98-0.

Senate Amended.

House Concurred.

Passed Legislature.

HOUSE SELECT COMMITTEE ON VENDOR CONTRACTING & SERVICES

Majority Report:  The substitute bill be substituted therefor and the substitute bill do pass.  Signed by 7 members:  Representatives Clements, Chairman; Backlund; Delvin; Dickerson; Gardner; Gombosky and Parlette.

Staff:  Josh Weiss (786-7292).

HOUSE COMMITTEE ON GOVERNMENT ADMINISTRATION

Majority Report:  (Vendor Contracting & Services)  The substitute bill by Committee on Select Vendor Committee be substituted therefor and the substitute bill do pass.  Signed by 13 members:  Representatives D. Schmidt, Chairman; D. Sommers, Vice Chairman; Scott, Ranking Minority Member; Gardner, Assistant Ranking Minority Member; Doumit; Dunn; Dunshee; Murray; Reams; Smith; L. Thomas; Wensman and Wolfe.

Staff:  Josh Weiss (786-7292).

HOUSE COMMITTEE ON APPROPRIATIONS

Majority Report:  The second substitute bill be substituted therefor and the second substitute bill do pass and do not pass the substitute bill by Select Committee on Vendor Contracting & Services.  Signed by 29 members:  Representatives Huff, Chairman; Alexander, Vice Chairman; Clements, Vice Chairman; Wensman, Vice Chairman; H. Sommers, Ranking Minority Member; Doumit, Assistant Ranking Minority Member; Gombosky, Assistant Ranking Minority Member; Benson; Carlson; Chopp; Cody; Cooke; Crouse; Grant; Keiser; Kenney; Kessler; Lambert; Lisk; Mastin; McMorris; Parlette; Poulsen; Regala; D. Schmidt; Sehlin; Sheahan; Talcott and Tokuda.

Staff:  Joe Hauth (786-7271).

Background: The Office of the State Auditor currently is required to oversee random audits of nongovernment entities who receive over $300,000 worth of state moneys in exchange for the provision of social services.  State agencies are required to prepare lists of nongovernment entities who meet the audit criteria, and report the lists to the Office of the State Auditor.  The state auditor is required to generate two groups of nongovernment entities who will be audited: (1) a randomly selected group which is statistically representative of the total number of nongovernment entities reported by the state agencies, and; (2) a second group which is chosen according to listed risk-assessment factors.  All required audits are performed by private CPAs, according to standards established by the state auditor.

With the exception of the above procedure, the state auditor is currently unable to audit entities which receive public moneys through contract or grant in return for services.   This is true even if there are indications that such an entity is not maintaining adequate financial records, or is misusing state money.

Summary of Bill: The process for random audits of state vendors is amended.  The first group of nongovernment entities, those randomly selected, choose a licensed CPA who will perform the audit.  The second group of entities, selected according to the risk-assessment model, are audited directly by the auditor.  In creating this second group, the state auditor is required to consider findings of audits from other nongovernment entities who provide services under the same state or federal program.  The auditor is required to review the results of the audits from the risk-assessment group to determine if there is evidence of misuse of public moneys.

The state auditor is given the ability to investigate vendors who provide services to state agencies or their clients, including nonprofit organizations.  The ability is discretionary, where there is "reasonable cause to believe that a misuse of state moneys has occurred."  The state auditor may perform an audit according to an agreed upon procedures engagement consistent with the standards of the American Institute of Certified Public Accountants.  The state auditor must report any misuse of state moneys to the local prosecuting attorney.

The bill is null and void unless funded in the budget.

Appropriation: The sum of  $200,000 is appropriated to the Office of the State Auditor for the fiscal year ending June 30, 1999.

Fiscal Note:  Requested on January 20, 1998.

Effective Date:  Ninety days after adjournment of session in which bill is passed.  However, the bill is null and void unless funded in the budget.

Testimony For:  (Vendor Contracting & Services)  Client confidentiality must be maintained when performing an audit.  Entities which receive less than $300,000 should also be audited, and perhaps the threshold should be lowered to $50,000 or $100,000.

(Government Administration )   None.

(Appropriations)  Some of the largest not-for-profit organizations have had some problems.  The bill is intended to ensure that state money goes into the hands of the people for whom it is intended.  The Washington State Catholic Conference is probably one of the largest social-service providers, and it supports these measures.  The State Auditor's Office supports the bill.

Testimony Against:  (Vendor Contracting & Services)  None.

(Government Administration )   None

(Appropriations)  None.

Testified:  (Vendor & Contracting Services) Margaret Casey, Washington State Catholic Conference (pro).  Linda Long, Office of the State Auditor (comments only.)

(Government Administration )   None.

(Appropriations)   Representative Clements, prime sponsor; Margaret Casey, Washington State Catholic Conference; and Linda Long, State Auditor's Office.