Audit: Gila County excise tax largely used for roads; Hayden and Winkelman charged nearly $627,000 in questionable expenditures

The Office of the Auditor General told the Arizona State Senate Public Safety Committee of Reference that a June 2024 performance audit found Gila County, the city of Globe and most towns used transportation excise tax revenue for highway and street purposes as required by statute, but that the towns of Hayden and Winkelman recorded almost $627,247 of inappropriate, unsupported or incorrectly recorded expenditures during calendar years 2019 through 2023.

The report, presented by Melanie Chesney, Deputy Auditor General, found that the county, Globe, and the towns of Miami, Payson and Star Valley appropriately used the excise tax monies to fund road and bridge projects, improve traffic mobility and enhance travel safety. Chesney said the audit covered receipts and expenditures from Jan. 1, 2019, through Dec. 31, 2023, and that total excise tax revenue distributed to Gila County and the incorporated towns during that period was about $20,600,000.

The audit is required under Arizona Revised Statutes 42-6107 and examines whether jurisdictions used excise tax money only for statutorily authorized highway and street purposes. Chesney told the committee that the statutes allow excise tax monies to be used for construction, maintenance, repair, roadside development, rights-of-way acquisition, transportation studies and related administrative costs that support those functions.

Key findings and examples

Chesney said the auditor’s analysis showed Hayden had nearly $498,039 of transactions that were unsupported, inappropriate or incorrectly recorded. Sampled items included personnel costs charged to the restricted fund without documentation to justify the allocation, a $423 hotel charge tied to the League of Arizona Cities and Towns conference that lacked supporting documentation showing it was related to street work, $359 in gasoline charges for the public works director without documentation tying the fuel purchases to road projects, and a $353 equipment repair charge that should have been charged to the town’s public golf course.

For Winkelman, auditors identified $129,208 of questionable items in a sample, including about $122,000 in personnel costs lacking documentation for the allocation, a nearly $5,000 duplicate vendor payment (charged once on a change order and again on the final invoice), about $1,100 for paint supplies and a lawn mower that lacked documentation tying the purchases to street projects, and nearly $400 in grocery purchases with no supporting explanation showing a street-related purpose.

Chesney said Hayden and Winkelman commonly combine excise tax receipts with other restricted transportation monies (such as highway user revenue funds) in a single accounting fund, which required the auditors to allocate expenditures based on the proportion of excise tax revenue to other restricted revenue in that fund. That blending limited the auditors’ ability to definitively separate which specific transactions funded by the pooled account were paid from excise tax revenue versus other restricted sources.

Internal controls and recommendations

The audit found both towns lacked documented review-and-approval procedures for restricted transportation expenditures; the auditors noted many approvals were performed verbally and were not evidenced in records. Auditors also found neither town tracked actual employee hours spent on road-related work, instead relying on unsupported estimates to allocate salary and benefit costs to the restricted fund.

To address the issues, the report recommends that Hayden review past and future excise tax expenditures charged to its fund and repay any impermissible amounts, including the $498,039 identified in the audit sample; implement documented policies and procedures for review and approval of restricted transportation expenditures; train staff on those procedures; and adopt time-accounting mechanisms (time sheets, spreadsheets or manual logs) to allocate personnel costs more accurately.

For Winkelman, auditors recommended a similar review and repayment of any impermissible expenditures (including the $129,208 identified), consultation with its attorney to assess whether any spending could violate the Arizona Constitution’s gift clause and, if so, how to remediate, development and training on documented review-and-approval procedures, and implementation of time-tracking for staff who work on street projects.

Follow-up on prior audit and withheld funds

Chesney said auditors followed up on recommendations from a June 2019 Gila County transportation excise tax audit. The follow-up found four of five prior recommendations implemented; the remaining item involved the Town of Miami. The 2019 audit had found Miami loaned excise tax revenue to other funds; Miami repaid most of the loan and had a remaining balance of about $75,298 as of Aug. 2020. Chesney said Miami had since repaid that balance as of June 30, 2021, but auditors could not determine whether additional loans occurred in fiscal years 2022 or 2023 because Miami had not completed those annual financial audits at the time of the presentation.

Chesney told the committee the Arizona State Treasurer withheld distribution of excise tax revenue to the Town of Miami because of an uncorrected finding; as of Dec. 31, 2023, the treasurer had withheld $582,006. She said that if Miami completes and submits the outstanding audit and auditors determine the remaining recommendation has been implemented, the auditors would notify the Arizona Department of Transportation, which could then notify the treasurer and the treasurer could release the withheld monies.

Committee exchange and next steps

After the presentation a committee member asked for clarification about whether four recommendations had been implemented and one remained outstanding; Chesney confirmed that one remained open pending receipt and review of Miami’s fiscal year 2023 audit. Chesney closed the presentation by saying she was available to answer questions, and the committee adjourned.

Why it matters

Auditors warned that using restricted excise tax monies inappropriately reduces funds available for road and bridge work and can erode public trust. The report’s recommendations seek to strengthen internal controls, improve documentation, and, where necessary, recover funds so that excise tax revenues are used for their statutory purposes.