Pandemic era financial reporting delays continue to plague Arizona state agencies
Since 2020, the state of Arizona has repeatedly missed deadlines to file required financial audit reports detailing how state agencies use federal funds, and continued delays could have serious financial implications for the state.
Arizona Auditor General Lindsey Perry is responsible for creating the audit reports for state agencies to show whether the state is complying with federal laws and regulations governing the use of those federal funds.
Nicole Bartlett, a financial audit manager in the Auditor General’s Office, told the Arizona Legislature’s Joint Legislative Audit Subcommittee on Wednesday that reports are due on March 31, but the state did not file its financial statement audit for 2022 until Oct. 18 and will not file the 2022 financial compliance audit until Dec. 20.
She said the office will begin work on reports for fiscal year 2023 in January 2024.
“However, given that they are due on March 31, 2024, they will also be late,” Bartlett said.
Republican Rep. Matt Gress, the committee’s vice chair who was budget director for former Gov. Doug Ducey, said continuing to miss those deadlines could affect the state’s credit rating and jeopardize federal funding.
“University financial aid could be at risk; some of our bond issuances, certainly; and managing federal funds,” Gress said. “The federal government delegates auditing authority to the auditor general on its behalf to ensure these dollars are being spent in accordance with federal regulations, and when we are delayed…it really throws into question the federal government’s ability to count on the State of Arizona to do the job.”
The Auditor General’s Office said the delays are due to the fact that the Arizona Department of Administration and other state agencies repeatedly missed deadlines, some by as many as 300 days, to file needed information with the auditor general between 2020 and 2023.
State agency directors told Arizona’s Joint Legislative Audit Committee that the delays are rooted in the COVID-19 pandemic, when many routine government functions ground to a halt or were interrupted. The influx of federal funds sent to states in response to the pandemic also compounded the situation, because it substantially increased agencies’ financial reporting workload.
“That was all sort of a confluence of events that has sort of built up over time, because when you’re … late one year, you get a late start to the next year, and it sort of builds if you’re not dedicating enough resources to tackle that problem,” said Catcher Baden, Gov. Katie Hobbs’ deputy director of legislative affairs.
For example, Angie Rodgers, executive deputy director of the Arizona Department of Economic Security, said the department’s expenditures from federal awards increased from $2 billion in 2019 to over $12 billion in 2021.
She said some of those new funds were used to set up new programs, which have their own financial reporting requirements.
Bartlett said federal officials gave states a six-month grace period in the wake of the pandemic, though Arizona missed those extended deadlines, as well. She said the feds no longer plan to extend the March deadline.
But she emphasized the state has been in a similar situation before in 2015 and 2016 and was able to get back on schedule.
And the state agencies said they have plans to correct the issue, including assigning staff to focus on providing information on time to the auditor general.
ADOA Executive Deputy Director Elizabeth Alvarado-Thorson said her office will work to foster more consistent communication with departments and plans to implement a new tracking system for agencies.
Baden also said the governor’s office is using $890,000 in federal funds to help agencies hire more help.
Gress said he is encouraged by the attention Hobbs is giving to the issue.
“They have a big lift ahead of them on the single audit and getting on schedule, but I believe that the Governor allocating nearly $1 million in resources is a good first step,” Gress said.
Ashley Retsinas, an assistant director at ADOA, told the committee the agencies believe their plans will allow them to get back on schedule in time to issue the financials for the 2024 fiscal year.
But Perry said it is too soon to tell if the agencies’ efforts will give the Auditor General’s Office enough time to prepare future audits by the federal deadline, as it works to complete the fiscal year 2023 audit that is 10 months behind schedule.
“We look forward to continuing that progress in fiscal year 2023, but until we receive information on time and it’s accurate, I don’t know what fiscal year 23 will look like to even answer what fiscal year 24 will look like,” Perry said.