County Finance

Arizona Revised Statutes (A.R.S.) §41-1279.21(A)(1) requires the Arizona Auditor General to conduct or contract for county audits annually.

Additionally, counties that expend more than $750,000 in federal awards during a fiscal year must also have a compliance audit (single audit) under the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards.

We provide reporting guidelines that include illustrative examples of financial statements, disclosures, and schedules, as well as the auditors’ reports. Decision-makers can refer to the Financial Report User Guide for counties to identify and understand the information presented in their financial reports.

Yes. A.R.S. §11-661 requires counties to post their audited financial statements in a prominent location on their official websites within 7 business days of filing the reports with the Arizona Auditor General. The financial statements must be accessible on the website for at least 60 months. A.R.S. §41-1279.07 requires financial statements to be filed by March 31, within 9 months after the close of each fiscal year. For counties that do not meet the March 31 filing deadline pursuant to A.R.S. §9-481(F), the county must post on its official website a Notice of Pending Financial Statement Filing form we prescribe. This form must be posted on the county’s website until the financial statements are filed with us.

Effective September 29, 2021, A.R.S. §11-661, as amended by Laws 2021, Ch. 427, §2, directs that the county board of supervisors (board) require its auditors to present audit results and any findings to the board in a regular meeting without the use of a consent agenda within 90 days of audit completion. Pursuant to A.R.S. §41-1279.21, the Arizona Auditor General conducts or contracts for counties’ annual financial and compliance audits, and we plan to present our audit results and findings annually to the board in accordance with this new law.

After completing our annual financial and compliance audits, we and the contracted auditor who performed the audit, if applicable, will present the following audit reports and results to the county board of supervisors:

• Financial statement audit report—We will present our auditors’ opinions as to whether the county’s basic financial statements are presented fairly, in all material respects, in conformity with generally accepted accounting principles. 
   
• Financial statement internal control and compliance audit report—We will present any deficiencies in internal control; fraud; noncompliance with provisions of laws, regulations, contracts, or grant agreements; and abuse relevant to the audit of the financial statements that we identify and are required to report.
   
• Federal program internal control and compliance audit report—We will present our auditors’ opinion on the county’s schedule of expenditures of federal awards and our opinions on federal program compliance, as well as any control deficiencies, instances of noncompliance, questioned costs, or fraud affecting federal programs that we identify and are required to report. 

County management should work closely with their auditors throughout the audit process and coordinate with them to ensure the council presentation occurs within 90 days of completing required audits.

Each county shall provide financial information for inclusion in the annual audit that verifies that Arizona highway user revenue fund monies the county received pursuant to title 28, chapter 18, article 2, and any other dedicated state transportation revenues the county received are being used solely for the authorized transportation purposes. A.R.S. §41-1279.21(A)(1)

To fulfill the HURF reporting requirements and to comply with professional standards, auditors use the American Institute of Certified Public Accountants’ (AICPA) Codification of Statements on Auditing Standards, AU-C §806—Reporting on Compliance with Aspects of Contractual Agreements or Regulatory Requirements in Connection With Audited Financial Statements.

Yes. A.R.S. §42-17103 requires a county to publish its estimates of revenues and expenses (the contents of which are described in A.R.S. §42-17102), or a summary of its estimates of revenues and expenses, and notice of a public hearing of the board to hear taxpayers and make tax levies at designated times and places. A county may revise its tentatively adopted budget at any level, including increasing total expenditures, prior to publishing it in accordance with A.R.S. §42-17103. After the public hearing on the budget, a county must finally determine and adopt its budget. However, in accordance with A.R.S. §42-17105, the total expenditure amount in the final budget must not exceed the total expenditure amount in the published tentatively adopted budget. This does not preclude an adjustment between departments or a reduction in total expenditures.

A.R.S. §42-17106 does not allow a county to revise its adopted budget to increase total expenditures. It also does not allow budgeted expenditures to be exceeded at the department level, although it includes a provision that would allow counties to revise the budget to avoid potential overexpenditures at the department level. Subsection B of the statute allows budgeted expenditures at the department level to be revised by allowing the board of supervisors to transfer monies between budget items (departments) if all of the following apply: (1) the monies are available; (2) the transfer is in the public interest and based on a demonstrated need; (3) the transfer does not result in a violation of the limitations prescribed in Arizona Constitution, Article IX, §§19 and 20; and (4) a majority of the members of the board of supervisors votes affirmatively on the transfer at a public meeting.

No. Arizona Revised Statutes do not require counties to submit their adopted annual budgets to our Office.

Generally, no. A.R.S. §42-17106 prohibits a county from spending money for a purpose that is not included in its budget and from spending money or incurring or creating a debt, obligation, or liability in a fiscal year in excess of the amount stated for each purpose in the finally adopted budget, except as provided by law, REGARDLESS of whether the county has received at any time, or has on hand, monies or revenue in excess of the amount required to meet expenditures, debts, obligations, and liabilities that are incurred under the budget. Attorney General Opinion I78-132 relating to federal monies received by counties has interpreted this statute as prohibiting counties from spending monies that were received unexpectedly during the current budget year if the expenditures were not included in the current year’s budget.

However, the AG Opinion provides an exception if a county is merely a conduit for the expenditure of the monies. The federal grant must be analyzed to determine whether the exception is applicable. Additionally, there may be instances in which additional federal monies may be received for a grant that was already included in the current year’s budget. In such cases, the provisions of A.R.S. §42-17106(B) may allow the county to revise the budget at the department level if that statute's provisions are followed. However, total budgeted expenditures may not be increased.

Budgetary fund balance is used to describe governmental funds total, unspent, available financial resources accumulated, at a specific point in time, such as July 1. For proprietary funds, such as enterprise and internal service funds, the term “net position” is used rather than “fund balance” to describe the financial resources accumulated.

Like budgetary fund balance, governmental fund financial statement fund balance represents current financial resources without the effects of long-term assets, long-term liabilities, and deferred outflows or inflows. However, financial statement fund balance includes nonspendable amounts, such as prepaid amounts and inventories, that are not included in budgetary fund balance.

Proprietary fund financial statement net position differs from budgetary net position by including the effects of long-term assets, long-term liabilities, and deferred outflows/inflows. These long-term items are not reflected in budgetary net position. However, counties’ budgets separately identify amounts included in budgetary net position that are reserved for future years debt, capital, or other expenditures.

Additional resources for information on budgetary and financial statement fund balance:

• Official County Budget Forms
• Financial report user guide for State and local governments
• Government Finance Officers Association—Fund Balance Guidelines for the General Fund available at https://www.gfoa.org/materials/fund-balance-guidelines-for-the-general-fund

Yes. Under the provisions of A.R.S. §11-251(58), a county may, with the unanimous consent of the board of supervisors, sell any county property at less than fair market value to any other governmental entity.

Yes, provided the purchase is made in accordance with the requirements of A.R.S. §11‑254.01 and the Uniform Accounting Manual for Arizona Counties, Purchasing section.

Yes. A.R.S. §38-503 states that a public agency may purchase goods or services from an employee, provided such purchase is made using public competitive bidding. The employee must make any substantial interest known in the agency’s official records and refrain from voting or otherwise participating in any manner as an officer or employee in relation to the sale. In addition, A.R.S. §38-503(C)(2) states that counties may purchase limited supplies, materials, and equipment from a member of the board of supervisors without using public competitive bidding procedures. These purchases are limited to $300 in any single transaction and no more than $1,000 annually from any board member. The policy to allow such purchases must be approved annually.

Statutes do not specifically identify what types of debt are subject to the legal debt limit. However, based upon statutes, related court cases, and Attorney General opinions, it appears that indebtedness subject to the limitation would be any debt payable from the county’s general revenues (see Arizona Constitution, Article IX, §8). Each debt type must be examined individually to determine whether it is subject to the limitation. Those debt types that are generally not subject to the limitation appear to include the following: 

a. Special assessment indebtedness, as such debt is secured by assessment against benefiting property owners. 

b. Revenue bonds, as such bonds are generally payable from revenues of independent revenue producing assets or utilities. 

c. Lease-purchase agreements, provided such agreements do not compel payment beyond 1 year. 

d. Obligations not entered into voluntarily, such as those the State creates or mandates. 

e. Certificates of participation also appear to be exempt from the debt limitations under the same reasoning for excluding revenue bonds. 

This list is not all inclusive.

Yes, the Arizona Attorney General’s Arizona Agency Handbook (Handbook), which is linked below, includes Section 6—Public Records. The Handbook provides guidance on public records law, confidential records, and addresses the difference between commercial and noncommercial public records requests. Counties should consult with their legal counsel as needed in addition to reviewing these resources to ensure compliance with public records request requirements.

https://www.azag.gov/agency-handbook

Yes. Per A.R.S. §38-614, a county board of supervisors may adopt rules and regulations to provide merit awards for county employees with the following restrictions: the board of supervisors must approve all merit awards, a merit award may not exceed $2,500, and payments must be made from a Special Merit Award Fund. The rules and regulations must include granting a merit award for the following: (1) an adopted procedure or idea that resulted in eliminating or reducing county expenditures or improving operations in the public interest or (2) performance of a special act or service in the public interest. All county employees are eligible for merit awards, provided that the idea proposed or action taken was not a result of the employees’ regular employment duties.

There appears to be no prohibition against using checking accounts that require a minimum balance. However, since revenues collected and deposited into such clearing accounts should be remitted intact at least monthly to the County Treasurer, a county department should not use a portion of those revenues to establish the minimum balance for the account; the clearing account minimum balance should be established by warrant.