REPORT TITLE:
Government Audit


DESCRIPTION:
Requires the auditor to contract with an independent auditing
firm to conduct an annual financial audit of state and county
governments to evaluate efficiency in operations and
effectiveness in spending, and to determine where cutbacks in
state and county funding may take place; Appropriates funds.(SD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        38
THE SENATE                              S.B. NO.           S.D. 1
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO ANNUAL STATE AND COUNTY GOVERNMENT FINANCIAL AUDITS.



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

 1      SECTION 1.  The legislature finds that there is an immediate
 
 2 need for comprehensive annual financial audits of Hawaii state
 
 3 and county governments.
 
 4      The goal of an annual audit is to ascertain the financial
 
 5 viability of state and county governments and to provide the
 
 6 management reports which will lay the groundwork to reshape
 
 7 government for a new and improved way of doing business.  The
 
 8 purpose of the audit is to verify the financial standing of state
 
 9 and county governments, examine their organization, management,
 
10 operations, and programs, and identify opportunities for
 
11 reorganization, consolidation, and elimination of duplicated
 
12 functions.  In addition, the legislature finds that each audit
 
13 should be conducted by one or more independent auditors to
 
14 provide an outsider's view and determine where reductions can be
 
15 made in state and county spending.
 
16      The legislature further finds that an annual financial audit
 
17 of state and county governments will call attention to
 
18 irregularities in the procurement process, such as has occurred
 
19 at the city and county of Honolulu's Ewa Villages housing
 

 
Page 2                                                     38
                                     S.B. NO.           S.D. 1
                                                        
                                                        


 1 project, and will also improve government operations and
 
 2 efficiency by identifying existing problems or potential future
 
 3 problems involving internal controls.  If the auditor finds that
 
 4 an annual financial audit of state and county governments is not
 
 5 feasible because of time, cost, or other limitations, the auditor
 
 6 is to determine in its discretion which agencies are to be
 
 7 audited by the independent auditor each year, as long as each
 
 8 state and county agency is audited at least once every two years.
 
 9      The purpose of this Act is, therefore, to provide for the
 
10 auditor to contract with one or more independent auditing firms
 
11 to conduct an annual financial audit of Hawaii state and county
 
12 governments.  The audit is to provide for a complete review of
 
13 all state and county agencies and programs, services, and
 
14 activities operated by those agencies for the purpose of
 
15 evaluating efficiency in operations and effectiveness in state
 
16 and county spending. 
 
17      SECTION 2.  Definitions.  For purposes of this Act:
 
18      "Agency" means any state or county board, commission,
 
19 department, committee, institution, agency, or office within the
 
20 legislative, executive, or judicial branch of state or county
 
21 government, including institutions of higher education.
 
22      "Independent auditor" means an independent accounting or
 
23 auditing firm of national standing that has experience in
 

 
Page 3                                                     38
                                     S.B. NO.           S.D. 1
                                                        
                                                        


 1 conducting financial audits of state and county governments
 
 2 agencies.
 
 3      SECTION 3.  Annual financial audit of state and county
 
 4 governments.  The auditor, through competitive sealed bidding or
 
 5 proposals pursuant to chapter 103D, shall contract with one or
 
 6 more independent auditors to annually conduct a comprehensive
 
 7 financial audit of state and county government operations to:
 
 8      (1)  Challenge and question the basic assumptions underlying
 
 9           all agencies and the programs and services they provide
 
10           to identify those that are vital to the best interests
 
11           of the people of the State of Hawaii and those that no
 
12           longer meet that goal;
 
13      (2)  Review the functions, organizational structures, and
 
14           staffing levels of all agencies and the programs,
 
15           services, and activities operated by those agencies;
 
16      (3)  Evaluate the efficiency with which agencies operate the
 
17           programs under their jurisdictions and fulfill the
 
18           duties assigned to them by law;
 
19      (4)  Determine methods to maximize the amount of federal
 
20           funds received by the State and the counties for their
 
21           programs in order to better ensure that the people of
 
22           Hawaii receive a greater share of the taxes levied on
 
23           them by the federal government;
 

 
Page 4                                                     38
                                     S.B. NO.           S.D. 1
                                                        
                                                        


 1      (5)  Determine methods to establish a system for the
 
 2           reporting of measurements related to performance and
 
 3           for integrating the information so reported into the
 
 4           State's and counties' fiscal planning processes;
 
 5      (6)  Make recommendations, including but not limited to the
 
 6           following:
 
 7           (A)  Any necessary changes in organizational structure,
 
 8                management style, and administrative procedures to
 
 9                improve the overall administration and operation
 
10                of state and county governments;
 
11           (B)  The use of automated technology;
 
12           (C)  The privatization of certain operations, or other
 
13                alternative service delivery approaches including
 
14                managed (public-private) competition; and
 
15           (D)  The elimination of or reduction in funding to
 
16                various agencies, programs, or services; and
 
17      (7)  Make recommendations to the legislature as to
 
18           amendments to statutory and constitutional provisions
 
19           that will improve the efficiency and economy of state
 
20           and county governments.
 
21      SECTION 4.  Assistance from state and county agencies.  All
 
22 departments, agencies, and offices of the State and counties and
 
23 any private companies or agencies receiving state or county funds
 

 
Page 5                                                     38
                                     S.B. NO.           S.D. 1
                                                        
                                                        


 1 shall fully cooperate with and provide assistance to the
 
 2 independent auditor as needed with respect to its audit, and
 
 3 shall respond promptly to the auditor's requests in conducting
 
 4 this audit, including but not limited to requests for records and
 
 5 other information requested in the course of the audit.
 
 6      SECTION 5.  Financial audit work plan; public input;
 
 7 reports.(a)  In performing its duties under this Act, the
 
 8 independent auditor shall adopt a financial audit work plan,
 
 9 which shall ensure that the audit is conducted by program and
 
10 functional areas so that individual agency performance can be
 
11 analyzed in relationship to other agencies and overlaps and gaps
 
12 can be detected.
 
13      (b)  The work plan shall include the conduct of public
 
14 hearings throughout the State and the establishment of a
 
15 telephone hotline for citizens to call in suggestions for
 
16 improving government operations or to report instances of fraud,
 
17 waste, or other abuse.  To the greatest extent possible, the
 
18 independent auditor shall seek input from state and county
 
19 employees at all levels.
 
20      (c)  If the auditor determines that an annual financial
 
21 audit of state and county governments is not feasible due to
 
22 time, cost, or other limitations, the auditor shall determine
 
23 which agencies shall be audited by the independent auditor each
 

 
Page 6                                                     38
                                     S.B. NO.           S.D. 1
                                                        
                                                        


 1 year; provided that each state and county agency shall be audited
 
 2 at least once every two years.
 
 3      (d)  The independent auditor, consistent with generally
 
 4 accepted accounting principles and auditing standards, shall
 
 5 report its findings and recommendations to the legislature and
 
 6 the governor no later than twenty days before the convening of
 
 7 the regular session of 2000.
 
 8      SECTION 6.  There is appropriated out of the general
 
 9 revenues of the State of Hawaii the sum of $          , or so
 
10 much thereof as may be necessary for fiscal year 1999-2000, for
 
11 the purposes of this Act, including costs incurred under this Act
 
12 in contracting with one or more independent auditors to conduct
 
13 financial audits of state and county government agencies in
 
14 accordance with this Act and for costs incurred in the conduct of
 
15 those audits.  The sum appropriated shall be expended by the
 
16 auditor for the purposes of this Act.
 
17      SECTION 7.  There is appropriated out of the general
 
18 revenues of the State of Hawaii the following sums, or so much
 
19 thereof as may be necessary for fiscal year 1999-2000, to assist
 
20 the counties in implementing this Act:
 
21      City and county of Honolulu                 $
 
22      County of Kauai                             $
 
23      County of Maui                              $
 

 
Page 7                                                     38
                                     S.B. NO.           S.D. 1
                                                        
                                                        


 1      County of Hawaii                            $             
 
 2           Total                                  $
 
 3      The sums appropriated shall constitute the State's share of
 
 4 the cost of mandated programs under Article VIII, section 5, of
 
 5 the State Constitution.
 
 6      SECTION 8.  This Act shall take effect on July 1, 1999.
 
 7