BILL ANALYSIS Ó
AB 1345
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ASSEMBLY THIRD READING
AB 1345 (Lara)
As Amended January 12, 2012
Majority vote
LOCAL GOVERNMENT 9-0 APPROPRIATIONS 17-0
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|Ayes:|Smyth, Alejo, Bradford, |Ayes:|Fuentes, Harkey, |
| |Campos, Wieckowski, | |Blumenfield, Bradford, |
| |Gordon, Hueso, Knight, | |Charles Calderon, Campos, |
| |Norby | |Chesbro, Donnelly, Gatto, |
| | | |Hall, Hill, Ammiano, |
| | | |Mitchell, Nielsen, Norby, |
| | | |Solorio, Wagner |
| | | | |
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SUMMARY : Expands the State Controller's (Controller) oversight
over local government auditing practices. Specifically, this
bill :
1)Defines "local agency," for purposes of the requirement that
the Controller receive every audit report prepared for any
local agency in compliance with the federal Single Audit Act
of 1984, to mean any city, county, any district, and any
community redevelopment agency required to furnish financial
reports as specified.
2)Requires audit reports to be submitted to the Controller
within nine months after the end of the period audited, or
pursuant to applicable federal or state law.
3)Requires audit reports to comply with the Government Auditing
Standards issued by the Comptroller General of the United
States.
4)Authorizes the Controller to appoint a qualified certified
public accountant (CPA) or public accountant (PA) to complete
an audit report and to obtain required information if a local
agency does not submit the audit report by the established due
date.
5)Provides that costs incurred by the Controller, including a
contract with, or the employment of a CPA or PA in completing
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an audit report shall be borne by the local agency and shall
be a charge against any unencumbered funds of the local
agency.
6)Requires the Controller to refer a case to the California
Board of Accountancy (Board) if the Controller finds through a
quality control review of audit working papers of the audit
report made pursuant to the provisions of this bill that the
audit was conducted in a manner that constitutes
unprofessional conduct, as defined, or there were multiple and
repeated failures to disclose noncompliant acts.
7)Requires an audit for any local agency, including those
submitted to the Controller pursuant to the bill's provisions,
to be made by a CPA or PA licensed by, and in good standing
with, the Board.
8)Declares, beginning with the 2013-14 fiscal year (FY), that a
local agency shall not employ a public accounting firm to
provide audit services to a local agency if the lead audit
partner or coordinating audit partner having primary
responsibility for the audit, or the audit partner responsible
for reviewing the audit, has performed audit services for that
local agency each of the six previous years.
9)Allows, if the Controller finds that another eligible public
accounting firm is not available to perform the audit, the
Controller to waive the requirement contained in 8) above.
EXISTING LAW :
1)Requires any nonfederal entity, defined as states, local
governments, or nonprofit organizations, that expends $500,000
or more in federal money to prepare an annual audit that meets
certain specifications and transmit that audit to specified
federal agencies.
2)Requires the Controller to receive every audit report prepared
by any local public agency pursuant to the Single Audit Act
and to review those reports for compliance with federal law
before forwarding them to the designated state agency.
3)Requires annual audits of local educational agencies (LEAs),
and requires those audit reports to be filed with the
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applicable county superintendent of schools, the Department of
Education, and the Controller.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, this bill will result in minor costs that are
absorbable by the Controller.
COMMENTS : This bill adds a number of provisions that stipulate
standards and increase oversight of local agency audits. First,
the bill requires that all audits comply with federal government
auditing standards and must be performed by a Board-licensed CPA
or PA. Second, the bill requires that audit reports for local
agencies be submitted to the Controller within nine months after
the end of the period audited or pursuant to applicable federal
or state law. Third, if the audit report is not received by
that due date, the bill gives the Controller the authority to
appoint a qualified CPA or PA to complete the report and obtain
the necessary information. Costs incurred by the Controller to
appoint a CPA or PA are to be incurred by the local agency.
Fourth, the bill requires the Controller to refer cases to the
Board, if the Controller finds through a quality control review
of the audit working papers of the audit report that the audit
was conducted in a manner that constitutes unprofessional
conduct, or that there were multiple and repeated failures to
disclose noncompliant acts. Lastly, the bill prohibits,
starting in FY 2013-14, a local agency from employing a public
accounting firm if the lead audit partner or coordinating audit
partner has performed audit services for that local agency for
each of the six previous fiscal years. Provisions in the bill
allow the Controller to waive the requirement if the Controller
finds that another eligible public accounting firm is not
available to perform the audit.
This bill is a result of the exposure of unethical and illegal
financial practices by numerous officials in the City of Bell,
which came to light in 2010. The city's independent auditor
failed to report abuses such as excessive salaries, illegal
loans, and questionable fees. In a series of audits of Bell's
finances, the Controller found that the independent auditor
failed to comply with 13 of 17 fieldwork auditing standards and
reported no significant deficiencies in any of the city's funds.
According to the author, "the current statutory approach to
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protect taxpayers from waste, fraud and abusive practices by
local governments is not working as illustrated by the
Controller's Office audit findings in the Cities of Bell and
Montebello and the County of Modoc where millions of state,
federal, and local dollars were misspent over several years."
Additionally, the author says that the "current oversight system
of 58 counties, 482 cities, and nearly 5,000 special districts
lacks the authority and resources to identify and investigate
the types of issues that were found in Bell and Modoc."
A similar bill, AB 229 (Lara) was heard by the Assembly Local
Government Committee on April 27, 2011, and passed on an 8-0
vote. That bill was amended in the Senate to deal with a
different subject. While this bill is similar to AB 229, it is
much narrower in scope.
Support arguments: The State Controller's Office, the sponsor
of the bill, writes that this bill will "help provide the
independent oversight needed to protect public funds and restore
the public's confidence in the fiscal integrity of our cities,
counties, and other local government agencies." The
Controller's office believes that the provisions of the bill
will strengthen the independent audit process and provide a
safeguard to protect taxpayers from waste, fraud and abuse.
Opposition arguments: The Legislature may wish to consider
whether the requirement in the bill to rotate audit partners
every six years may place a heavier burden on those local
agencies in more isolated, rural communities because there may
be limited options for audit firms available to those agencies.
The bill allows the Controller the flexibility to waive this
requirement, but only if the Controller finds that another
eligible firm is not available, leaving some ambiguity as to how
the Controller makes this finding.
Analysis Prepared by : Debbie Michel / L. GOV. / (916)
319-3958
FN: 0003024
AB 1345
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