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; and creating new sections.
BE IT
ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
NEW
SECTION. Sec. 1. The
legislature finds that the state auditor lacks the needed authority to
investigate the finances of state nongovernmental 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 licensed in this state.
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;
(c)
Internal accounting controls exist and are effective; and
(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 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 for 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.
(5)
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 (4) of this section. The
office of the state auditor may procure the services of a certified public
accountant to perform such an audit, as set forth under RCW 43.09.045. 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;
(c)
Internal accounting controls exist and are effective; and
(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.
(6)
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 (5)(a) through
(d) of this section. If the entity is selected under subsection (4) 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)))
(7) 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)))
(8) 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 an audit of financial and legal compliance
of any entity that receives public moneys through contract or grant in return
for services. This authority includes examinations 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, and may be performed according to an agreed upon procedures
engagement as in the existing 1998 standards of the American institute of
certified public accountants professional standards section 600.
The
state auditor may charge the contracting agency, whether state or local, for
the costs of an audit of a not-for-profit corporation that receives public
moneys through contract or grant in return for services. Any contracting
agency that is responsible to the state auditor for such costs shall use due
diligence to recover costs from the audited entity.
NEW
SECTION. Sec. 4. A
new section is added to chapter 43.09 RCW to read as follows:
If
after a financial audit of an entity that receives public moneys under contract
or grant in return for services, there is reasonable cause to believe that a
criminal misuse of public moneys has occurred, the office of the state auditor,
within thirty days from receipt of the report, shall deliver a copy of the
report to the appropriate local prosecuting authority.
NEW
SECTION. Sec. 5. If
specific funding for the purposes of this act, referencing this act by bill or
chapter number, is not provided by June 30, 1998, in the omnibus appropriations
act, this act is null and void.
