STATE AUDITOR—HIGHER EDUCATION—MEDICINE—PUBLIC FUNDS—Whether UW Physicians Is Subject To Audit By The State Auditor
UW Physicians (UWP) is likely subject to audit under RCW 43.09.310 and RCW 43.09.420 because the University of Washington exercises such control that a Washington court is likely to consider UWP to be functionally a part of the University.
March 27, 2018
The Honorable Pat McCarthy
Cite As: AGO 2018 No. 4
Dear Auditor McCarthy:
By letter previously acknowledged, you have requested our opinion on the following question, rephrased as follows:
Is the Association of University Physicians, doing business as UW Physicians (UWP), subject to audit under RCW 43.09.310 and .420?
UWP is likely subject to audit under both RCW 43.09.310 and .420. The University of Washington, a state educational institution subject to audit under these provisions, exercises such control over UWP that UWP should be considered the functional equivalent of the University for purposes of RCW 43.09.
In 1945, the Washington State Legislature authorized the University of Washington to establish, operate, and maintain a school of medicine. Laws of 1945, ch. 15, § 1 (enacting former
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RCW 28.77.200 (1945)). A year later, the University of Washington School Of Medicine was founded. In furtherance of its mission, the University created the Association of University Physicians in 1962 to provide medical services to the community. The Association of University Physicians was incorporated as a nonprofit corporation in 1983 and changed its name to UW Physicians (UWP) in 1989. The School of Medicine, UWP, and six other entities comprise the University’s UW Medicine program.
In Hyde v. University of Washington Medical Center, 186 Wn. App. 926, 931, 347 P.3d 918 (2015), the court detailed the operation of UWP and its relationship to the University:
UWP is a nonprofit corporation created under chapter 24.03 RCW “for the benefit of the University of Washington School of Medicine exclusively for charitable, educational and scientific purposes, and to aid in performing certain functions of and to carry out certain purposes of the University of Washington School of Medicine.” Its principal and income are devoted exclusively to these purposes. UWP is managed and directed by a board of trustees, which includes the chairs of each department of the UW medical school, plus 12 at-large trustees who are voting members of UWP elected by their colleagues and 3 community members who are appointed by the dean of the medical school. Upon dissolution, UWP’s remaining assets will transfer to the university.
UWP provides physician services only at hospitals owned or managed by UW and other practice sites approved by the medical school dean. The physicians who provide these services must be faculty members of the UW School of Medicine, must have no independent private medical practice, and, unless otherwise approved by the medical school dean, must be licensed to practice medicine in Washington. All records of care provided by UWP members at UW facilities are the property of UW.
There is thus a very close relationship between UW Medicine and UWP, confirmed in the bylaws for each organization. According to its bylaws, UW Medicine’s governing board is responsible for the “[p]lanning and delivery of medical services, including oversight of the physician services provided through the UWP.” UWP’s bylaws correspondingly recognize that it shall be “directly accountable to the [UWP] Board and through it to the Dean.” Hyde, 186 Wn. App. at 933. UWP’s bylaws also vest the Dean of the School of Medicine with the authority to add
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and remove UWP Board members, approve new clinical departments, approve amendments to UWP’s bylaws, and set salaries for UWP employees.
Your opinion request seeks guidance on whether UWP, a nonprofit corporation, may be audited by the state auditor under RCW 43.09. Our analysis of your question follows.
Is the Association of University Physicians, doing business as UW Physicians (UWP), subject to audit under RCW 43.09.310 and .420?
For the reasons discussed more fully below, we conclude that the state auditor has the authority to audit UWP under both RCW 43.09.310 and .420. Our analysis is limited to the question of whether the state auditor may audit UWP, and does not address the scope of the auditor’s authority under either provision. We also do not imply that UWP would be considered a state agency for other purposes.
a. The State Auditor has Broad Legislative Authority to Audit State Agencies
The Washington State Auditor is the “auditor of public accounts, and shall have such powers and perform such duties in connection therewith as may be prescribed by law.” Wash. Const. art. III, § 20. Accordingly, the state auditor “has only such powers as are conferred by the legislature.” Graham v. State Bar Ass’n, 86 Wn.2d 624, 625, 548 P.2d 310 (1976).
The state auditor is legislatively mandated to audit state agencies. RCW 43.09.310(1). For the purposes of RCW 43.09.310, the term “state agency” is defined to mean “elective officers and offices, and every other office, officer, department, board, council, committee, commission, or authority of the state government . . . supported, wholly or in part, by appropriations from the state treasury or funds under its control . . . .” RCW 43.09.290. The term also includes “all state educational . . . institutions, supported, wholly or in part, by appropriations from the state treasury or funds under its control.” RCW 43.09.290. The University of Washington qualifies as a “state agency” under RCW 43.09.290 because it is a state educational institution partially supported by legislatively-appropriated funds. See Substitute S.B. 5883, § 606, 65th Leg., 3d Sp. Sess. (2017).
Additionally, the state auditor “shall audit all revolving funds, local funds, and other state funds and state accounts that are not managed by or in the care of the state treasurer and that are under the control of state agencies, including but not limited to state departments, boards, and commissions.” RCW 43.09.420. While the definition of “state agency” provided in
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RCW 43.09.290 does not apply to RCW 43.09.420, Washington courts have treated the University of Washington as a state agency for a variety of purposes. See, e.g., Univ. of Washington v. City of Seattle, 188 Wn.2d 823, 837, 399 P.3d 519 (2017) (“UW is clearly a state agency as that term is ordinarily defined.”); Hontz v. State, 105 Wn.2d 302, 310, 714 P.2d 1176 (1986); Hyde, 186 Wn. App. at 930. The statute’s identification of “state departments, boards, and commissions” as examples of state agencies does not alter this conclusion. See Hickle v. Whitney Farms, Inc., 148 Wn.2d 911, 924 n.15, 64 P.3d 1244 (2003) (A definition listing an example while including the phrase “including but not limited to” is open-ended and allows other items to fall within the scope of the definition.). It is therefore likely that the University of Washington also qualifies as a state agency for purposes of RCW 43.09.420.
Accordingly, the state auditor may audit the University of Washington under both RCW 43.09.310 and .420. As we discuss next, UWP may also be audited under these provisions because UWP functions as an arm of the University of Washington.
b. UWP is an Arm of the University of Washington for Purposes of RCW 43.09
Washington courts have faced the question of whether a corporation can be so interconnected with a governmental entity that it may be treated the same as the governmental entity for purposes of a given statute. To resolve this question, courts have looked to the context and purpose of the statute at issue to shape the analysis in each case. See Telford v. Thurston County Bd. of Comm’rs, 95 Wn. App. 149, 159, 974 P.2d 886 (1999) (looking to the intent of the Public Records Act); Hyde, 186 Wn. App. at 929-30 (considering purpose of the tort claims statute).
For example, Washington courts apply a four-part balancing test known as the Telford test to determine whether a nongovernmental entity should be treated like a public agency for purposes of the Public Records Act. See, e.g., Fortgang v. Woodland Park Zoo, 187 Wn.2d 509, 534, 387 P.3d 690 (2017) (concluding that a nonprofit corporation that operates a zoo under a contract with the City of Seattle is not a public agency for purposes of the PRA); Clarke v. Tri-Cities Animal Care & Control Shelter, 144 Wn. App. 185, 188, 181 P.3d 881 (2008) (holding that a corporation running an animal shelter under contract with local government is a public agency for purposes of the PRA). The Telford test considers whether the entity performs a governmental function, as well as the extent of governmental financial support and involvement in its creation and
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activities. Fortgang, 187 Wn.2d at 517-18. The Telford court settled upon this test after deciding that these factors were relevant to furthering the purpose of the PRA. Telford, 95 Wn. App. at 163.
One prior case directly addresses the status of UWP itself. In Hyde, the Washington State Court of Appeals concluded that the statutory filing requirements for bringing tort suits against state agencies should also apply to suits brought against UWP. Hyde, 186 Wn. App. at 928-29. The court decided that the filing requirements did apply because UW Medicine exercised such control over UWP that it was “functionally an arm of the State.” Id. at 927. To support its conclusion, the court cited the University’s control over where UWP may provide its services, who UWP may employ, and the UWP board of trustees’ ultimate accountability to UW Medicine. Id. at 931-33. It also emphasized that the activities of UWP subjected state funds to liability and suggested that it would be contrary to the purpose of RCW 4.92.100 for the statute’s filing requirements to not apply to suits brought against UWP. Id. at 927, 932, 934.
While helpful, Hyde does not resolve whether the state auditor’s authority extends to UWP because audits are governed by different statutes that serve a different purpose. An entity can be a state agency for one purpose and not for another. Prominent among the reasons why the Hyde court found UWP to be a state agency for purposes of the tort claim filing statute was the fact that the state indemnifies UWP for tort liability. Hyde, 186 Wn. App. at 932 (UWP medical staff are deemed state employees for liability purposes). Applying the tort claim statute to UWP therefore furthered the purpose of the tort claim statute.
The analysis of whether the state auditor may audit UWP must accordingly be informed by the language and purpose of RCW 43.09. The legislature has directed the state auditor to audit all state agencies. RCW 43.09.310. It has broadly defined the term “state agency” to include the University of Washington, and has directed that all “books, records, funds, accounts, and financial transactions” of state agencies be subject to audit, regardless of whether those records are associated with legislatively-appropriated funds. RCW 43.09.290. It has further expanded the auditor’s authority in conducting state agency audits by allowing for the audit of “all revolving funds, local funds, and other state funds” under the control of state agencies. RCW 43.09.420. The clear import of this broad legislative mandate is for audits to reach all financial records of state agencies.
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A court deciding whether a corporation like UWP may be audited under RCW 43.09 would likely apply an agency analysis similar to the test applied in Hyde that takes into account the legislative purpose of RCW 43.09. That analysis as to UWP would likely track closely with the Hyde court’s analysis concluding that UWP should be treated like a state agency for purposes of RCW 4.92.100, the tort claim filing statute. As discussed, the University of Washington created UWP “for the benefit of the University of Washington School of Medicine[.]” Hyde, 186 Wn.2d at 931. The physicians who provide services through UWP do so only at University-approved facilities and must be faculty members of the medical school. Id. UWP incorporates the name of the University of Washington into its own name, effectively branding itself to the public as affiliated with the University and its medical school. Its patient care records are the property of the University. Id. Of particular relevance to the applicability of RCW 43.09 is the court’s recognition that the funds held by UWP must be used to benefit the University. See Hyde, 186 Wn. App. at 931 (“Upon dissolution, UWP’s remaining assets will transfer to the university.”), 937 (UWP is “required ‘to devote its income to the support of the University’ and must retain all of its funds in excess of its annual operating expenses ‘for the benefit of the School of Medicine, as an Academic Support Fund to be used throughout the University by the School of Medicine for the education, research and other institutional needs of the School of Medicine.’”).
Given these factors, UWP should be considered the functional equivalent of the University of Washington for purposes of RCW 43.09 and therefore subject to audit to the same extent.
We trust that the foregoing will be useful to you.
ROBERT W. FERGUSON
GREGORY K. ZISER
Assistant Attorney General
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Post-audit of state agencies—Definitions.
For the purposes of RCW 43.09.290 through 43.09.340 and 43.09.410 through 43.09.418, post-audit means an audit of the books, records, funds, accounts, and financial transactions of a state agency for a complete fiscal period; pre-audit means all other audits and examinations; state agency means elective officers and offices, and every other office, officer, department, board, council, committee, commission, or authority of the state government now existing or hereafter created, supported, wholly or in part, by appropriations from the state treasury or funds under its control, or by the levy, assessment, collection, or receipt of fines, penalties, fees, licenses, sales of commodities, service charges, rentals, grants-in-aid, or other income provided by law, and all state educational, penal, reformatory, charitable, eleemosynary, or other institutions, supported, wholly or in part, by appropriations from the state treasury or funds under its control.
Audit of statewide combined financial statements—Post-audits of state agencies—Periodic audits—Reports—Filing.
(1) Except as provided in subsection (2) of this section, the state auditor shall annually audit the statewide combined financial statements prepared by the office of financial management and make post-audits of state agencies. Post-audits of state agencies shall be made at such periodic intervals as is determined by the state auditor. Audits of combined financial statements shall include determinations as to the validity and accuracy of accounting methods, procedures and standards utilized in their preparation, as well as the accuracy of the financial statements themselves. A report shall be made of each such audit and post-audit upon completion thereof, and one copy shall be transmitted to the governor, one to the director of financial management, one to the state agency audited, one to the joint legislative audit and review committee, one each to the standing committees on ways and means of the house and senate, one to the chief clerk of the house, one to the secretary of the senate, and at least one shall be kept on file in the office of the state auditor. A copy of any report containing findings of noncompliance with state law shall be transmitted to the attorney general and shall be subject to the process provided in RCW 43.09.312.
(2) Audits of the department of labor and industries must be coordinated with the audits required under RCW 51.44.115 to avoid duplication of audits.
Audit of revolving, local, and other funds and accounts.
As part of the routine audits of state agencies, the state auditor shall audit all revolving funds, local funds, and other state funds and state accounts that are not managed by or in the care of the state treasurer and that are under the control of state agencies, including but not limited to state departments, boards, and commissions. In conducting the audits of these funds and accounts, the auditor shall examine revenues and expenditures or assets and liabilities, accounting methods and
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procedures, and recordkeeping practices. In addition to including the results of these examinations as part of the routine audits of the agencies, the auditor shall report to the legislature on the status of all such funds and accounts that have been examined during the preceding biennium and any recommendations for their improved financial management. Such a report shall be filed with the legislature within five months of the end of each biennium regarding the funds and accounts audited during the biennium. The first such report shall be filed by December 1, 1993, regarding any such funds and accounts audited during the 1991-93 biennium.
. . . .
(5) “Public funds”, for purposes of this chapter, means all moneys, including cash, checks, bills, notes, drafts, stocks, and bonds, whether held in trust, for operating purposes, or for capital purposes, and collected or disbursed under law, whether or not such funds are otherwise subject to legislative appropriation, including funds maintained outside the state treasury.
 Your opinion request letter asked whether UWP could be subject to audit under RCW 43.09.290. That statute sets forth definitions that are key to our analysis, but the auditing authority associated with them is located in RCW 43.09.310.
 See UW Medicine: Fact Book, p. 44, http://www.uwmedicine.org/about/Documents/UW-Medicine-Fact-Book.pdf (last visited Dec. 4, 2017); UW Medicine: Board Bylaws, p. 1 (rev. Feb. 2016), http://www.uwmedicine.org/about/Documents/UW-Medicine-Board-Bylaws.pdf (last visited Dec. 4, 2017).
 UW Medicine: Board Bylaws, p. 1.
 UW Medicine: Board Bylaws, § 1.2.
 RCW 43.09.290, .310, and .420, and RCW 43.88.020(5) are all appended for ease of reference.
 A revolving fund is “a fund in the state treasury, established by law, from which is paid the cost of goods or services furnished to or by a state agency, and which is replenished through charges made for such goods or services or through transfers from other accounts or funds.” RCW 43.88.020(9). A “local fund” is a fund created by a particular agency, with the authorization of the Office of Financial Management, outside the state treasury. See RCW 43.88.195 (authorizing the creation of such funds). The state universities, including the University of Washington, “are permitted to utilize so-called ‘local’ funds to cover portions of their operational expenses.” AGLO 1977 No. 11, at 4.
 RCW 43.09.290 provides that its definitions apply “[f]or the purposes of RCW 43.09.290 through 43.09.340 and 43.09.410 through 43.09.418[.]” We view the exclusion of RCW 43.09.420 as deliberate given that the legislature did not amend RCW 43.09.290 to apply to RCW 43.09.420 when the latter statute was enacted in 1993.
 As the court explained:
Under the Telford test, the factors relevant to deciding when a private entity is treated as the functional equivalent of an agency are (1) whether the entity performs a government function, (2) the extent to which the government funds the entity’s activities, (3) the extent of government involvement in the entity’s activities, and (4) whether the entity was created by the government.
Fortgang, 187 Wn.2d at 517-18 (citing Clarke, 144 Wn. App. at 192).
 See also Hontz, 105 Wn.2d at 310 (concluding that Harborview Medical Center was an “arm of the State” for Eleventh Amendment immunity purposes because it was operated and managed by the University of Washington and all of its employees were University employees).
 For example, an entity might qualify as a state agency for purposes of the tort claim filing statute, as the court concluded of UWP in Hyde, but not for public records purposes under the Telford test.
 For the current biennium, the Legislature has confirmed our conclusion that UWP is subject to audit in a budget proviso regarding the University of Washington: “To ensure transparency and accountability, in the 2017-2019 fiscal biennium the University of Washington shall comply with any and all financial and accountability audits by the Washington state auditor including any and all audits of university services offered to the general public, including those offered through any public-private partnership, business venture, affiliation, or joint venture with a public or private entity, except the government of the United States.” Engrossed Substitute S.B. 6032, § 602(27).