As a result of our review, we determined that the District misrepresented at least 26 employees of three nonprofit corporations as district employees, improperly loaned the cost of their salaries to the nonprofits, and improperly allowed 22 of these nongovernmental employees to participate in state and district benefits. One of the primary benefits these nonprofit employees received was participation in the Arizona State Retirement System (ASRS). Although these employees were not eligible to participate in the state retirement system as employees of the nonprofits, the District made them appear to be district employees.

District administration determined in January 2008 that the District needed to correct the situation and discontinue the arrangements; however, the District did not notify the ASRS of potentially ineligible employees, and did not discontinue the arrangements with two of the nonprofits for another 7 to 9 months. Furthermore, the District had not yet discontinued the remaining arrangement as of February 2009. We submitted our report to the ASRS, which has the authority to determine whether the 22 employees should be removed from the ASRS.

The District’s actions were unlawful when it loaned public monies by improperly placing all 26 nonprofit employees in its payroll system, paying their salary and benefits, and later accepting reimbursement from those employees’ nonprofit corporations. Detailed records were available only for the past 6 fiscal years, during which the loans totaled more than $3 million. These actions violated the Arizona Constitution, Article IX, §7, which prohibits the gift or loan of public monies to corporations.