Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2002

State of Hawaii

Sir:

Your Committee on Ways and Means, to which was referred H.B. No. 1821, H.D. 2, entitled:

begs leave to report as follows:

The purpose of this measure is to appropriate funds for the auditor to perform financial audits of the departments of education, health, human services, and other state agencies.

The Department of Accounting and General Services contracts out many state agency financial audits. The Office of the Auditor currently performs an average of three financial audits per year, contracted out to private auditing firms. Constitutional and statutory law requires the Auditor to conduct post-audits of all departments, although currently DAGS — does the majority.

Your Committee finds that it is appropriate for the Office of the Auditor to assume more of the responsibilities of performing state audits. Your Committee has amended this bill by establishing an Audit Revolving Fund within the Office of the Auditor to enable the State to charge each federal, special, or other fund its rightful audit cost and expend them for audit services. The creation of a revolving fund would allow state agencies to continue to obtain federal reimbursement for audit costs. The Office of the Auditor could then bill state agencies for the cost of the federal portion of the audit and the billing could be used by the agency to seek reimbursement from the federal government. This mechanism is used in a number of states, as it serves to prevent loss of federal funding. Aside from an initial start-up cost, this fund would merely change the expending agency and would not change the overall expenses for auditing. The seed money is necessary as federal funds are secured on a reimbursement basis.

Your Committee has further amended the bill to appropriate funds to the Audit Revolving Fund for the Department of Education only. The Department of Education currently does not pursue federal reimbursement for the costs of its audits. When the department takes that step, the revolving fund established in this bill will be available to account for those reimbursements.

As affirmed by the record of votes of the members of your Committee on Ways and Means that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 1821, H.D. 2, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 1821, H.D. 2, S.D. 1, and be placed on the calendar for Third Reading.