Arizona has racked up long delays in completing federally-required audits of government spending, and it’s not clear when the state will get back on track.
Lawmakers grilled state agency chiefs and debated who’s to blame for the snowballing delays during a Sept. 21 hearing of the Joint Legislative Audit Committee.
The committee’s Republican leaders pointed to the issue as a sign of government dysfunction, as President Donald Trump’s administration has signaled it will use the delays as leverage to threaten billions of dollars in federal funding.
“We need to understand why this keeps happening,” said state Rep. Matt Gress, R-Phoenix, the committee chair. “If we don’t fix this problem, then federal program funding and grants could be at risk.”
Democrats
have emphasized reports that the state’s Empowerment Scholarship Account voucher program has contributed to the delays. Gov. Katie Hobbs’ team argues the situation is improving.
“I can understand the skepticism,” Catcher Baden, legislative liaison for Hobbs’ office, told the committee. But “we’re starting to make a dent in the problem.”
Many U.S. states fell behind on their audits during the pandemic, when an infusion of federal cash inundated state and local governments.
Arizona is one of nine states that haven’t caught up, staffers with the Arizona Auditor General told the committee.
The state submitted its comprehensive “single audit” for fiscal year 2024 about a year late, according to Arizona Auditor General Lindsey Perry. Her office is expecting similarly lengthy delays again this year.
Perry and her staff told lawmakers that several agencies have been consistently slow to provide the information needed to complete the audits.
Some of the slowness stems from agencies that oversee the state’s big social safety net programs, like the Department of Economic Security and the state’s Medicaid program.
The Auditor General has also accused the state’s Department of Education, Treasurer’s Office, and Department of Administration of contributing to the delays.
The audit shortfalls could disqualify Arizona from billions of dollars' worth of federal subsidies, though it's not yet clear how aggressively the Trump administration will approach the issue. Gustav Chiarello, an assistant secretary at the U.S. Health and Human Services Department, warned Hobbs in a July 14 letter the agency has the right to temporarily withhold or altogether terminate federal funds if Arizona's audit performance doesn't improve.
The health agency, which administers mammoth subsidy programs like Medicaid and Medicare, "will determine the appropriate course of action based on the State's response and demonstrated progress towards compliance," Chiarello wrote.
National controversies around government spending shadowed the Sept. 21 hearing.
Chiarello, who testified at the hearing, described how high-profile allegations of fraud out of Minnesota motivated his office’s review of federal funds. He praised the Republican-led committee for putting pressure on state agencies.
“In my view, this is incompetence on steroids,” said state Sen. Mark Finchem, R-Prescott, the committee’s co-chair.
Delays draw finger-pointing
Lawmakers on the committee heard mixed explanations for the issues that have gummed up what is ordinarily a routine government function.
State auditors and agency chiefs described a worrisome cycle that includes thin staffing, incomplete or inaccurate information provided by state agencies, poor technology, and interagency territorial disputes that have held up financial reviews.
Michael Wisehart, the director of the Department of Economic Security, told the committee many of the delays within the agency stem from detailed accounting requirements for a pandemic-era unemployment program. Antiquated technology and turnover within the accounting department have also been stumbling blocks, he said.
“Maintaining team members that are willing to do this exceptionally difficult work, for state pay, has been a challenge,” Wisehart said.
The agency has since hired more staff, contracted a large accounting firm and ramped up its work with the Arizona Department of Administration, he told lawmakers.
“We have turned the corner,” he said.
Perry's office has also butted heads with the state’s Education Department, which delayed auditors’ access to a software program that tracks school voucher expenditures. Leaders of both departments told the committee the issue stemmed from a legal dispute. The Education Department restored auditors’ access to the software on Sept. 21, the morning of the hearing.
It remains to be seen whether the Trump administration would follow through on its threats to cut funds from Arizona, as the GOP-led cuts to social safety net programs have created some blowback on the 2026 campaign trail.
Gress told The Republic he believes the Trump administration’s threats to revoke funding are real. During the hearing, he emphasized Arizona’s biggest universities have separated themselves from the state’s auditing process after the delays caused federal agencies to temporarily withhold some of their funding late last year.
“I’m not convinced that there has been enough emphasis placed on this issue by the executive,” Gress said.
Democrats on the committee questioned why the Arizona treasurer, Republican Kimberly Yee, was not asked to testify. State Rep. Stephanie Stahl Hamilton, D-Tucson, was unsatisfied by Gress' explanation that the Treasurer's Office recently resolved their compliance issues, calling it "selective scrutiny" in a statement to The Republic.
“It’s campaign time,” state Sen. Catherine Miranda, D-Phoenix, told The Republic. “Without having a full discussion about the ESA programs, we’re only doing a half-baked job.”
Laura Gersony covers politics for The Arizona Republic. Contact her at 480-372-0389 or Laura.Gersony@usatodayco.com.
This article originally appeared on Arizona Republic: Audit of AZ spending is overdue. Now, billions in federal cash at risk
