Key Points: 

• Collaboration on ESA audits delayed despite legal requirements 

• ESA director attributes long runway to strain on small staff 

• Lawmakers push for prompt consultation on auditing, AI

The Arizona Department of Education and the Arizona Auditor General’s Office are now consulting on risk-based auditing of the Empowerment Scholarship Account program — months after a law requiring collaboration took effect. 

All the while, the Department of Education is still finding its footing in auditing the program, with a small staff and a slow-moving trek toward artificial intelligence.

Last session, the Legislature added a provision requiring consultation with the Auditor General’s Office to develop risk-based auditing procedures for the state’s fast-growing school choice program.  

But Auditor General Lindsay Perry pointed out at a Joint Legislative Audit Committee meeting July 21 that, 10 months after the law’s effective date and eight months after the department started its risk-based auditing, the two offices had yet to find themselves in the same room on the issue, though not for lack of trying. 

Perry said her office first reached out in January and had since been unsuccessful in nailing down a date. 

ESA Director John Ward attributed the delay to the department falling into the “throes of trying to prepare an ESA parent handbook,” which ran well into June, and a staff with the bandwidth to do little more than daily operations. 

As of July 21, a total of 86,423 students are enrolled in the ESA program, and, according to Ward, approximately 4,000 student applications are still pending. Ward said the program dispersed $869 million in funds in FY2025 and stands to reach $1 billion, with over 90,000 students projected for the following year.

All of this is handled by a staff of 40, including 12 purchase review specialists, which, considering the program’s scope, leaves employees “always in survival mode,” according to Ward. 

Ward said, “It’s difficult for this very small staff to do much more than daily operations.” 

Under state law, the Arizona Department of Education is mandated to conduct or contract for annual audits, as well as perform random and quarterly audits. 

A purchase backlog stretching close to 100,000 and a strain on staff led the department to implement a policy in December requiring all purchases under $2,000 to be automatically processed and reviewed later using risk-based auditing. 

Ward said the department had to take action “before the wheels came off the bus.” 

According to Doug Nick, a spokesperson for the department, purchase review staff perform audits on an “ongoing daily basis.” 

Employees review purchases exceeding $2,000, and Ward told the Joint Legislative Audit Committee that staff combs through a daily 250 orders below the $2,000 threshold for audit. 

“During our audits, every single day, we catch something that represents misspending or inappropriate spending,” Ward told lawmakers. “We catch things every single day.”

Ward said the department has also been regularly meeting with the program’s financial vendor, ClassWallet, about developing and implementing artificial intelligence to streamline the review process. 

He said they are first looking at using automation to identify anomalous purchase activity, with a grander goal down the line to create a system to vet whether purchases are allowable or not. 

A spokesperson for ClassWallet declined to provide further information about the development of artificial intelligence solutions, stating that the company is obligated by contract not to disclose program details to unaffiliated third parties. 

But, in the contract signed by ClassWallet and the State Treasurer’s Office in 2023, ClassWallet noted plans to incorporate business intelligence to automate purchase approvals.Nick confirmed the department had been working with ClassWallet on AI solutions for about two years, and Ward said they continued to “put pressure to get it rolled out as quickly as possible.” 

Joint Legislative Audit Committee Chair Sen. Mark Finchem said the department’s work with ClassWallet seemed a “grand opportunity for consultation with the Auditor General’s Office” and prodded the two to finally set a meeting date.

“We got him, we got you. In two weeks I’d like to know you’ve had a meeting,” Finchem said. 

Perry told lawmakers that getting in step with the department was a continued priority.

“We look forward, as we did in January, to working with the department on this risk-based model. As you know, the auditor general takes state law very seriously,” Perry said. “Once we have an agreement to meet, we’ll get the right people in the room and have a good discussion.” 

A spokesperson for the Arizona Department of Education could not confirm a meeting date just yet, but said the department would comply with Finchem’s deadline.