BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                  AB 1345|
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                                 THIRD READING


          Bill No:  AB 1345
          Author:   Lara (D)
          Amended:  6/6/12 in Senate
          Vote:     21

           
           SENATE GOVERNANCE & FINANCE COMMITTEE  :  8-0, 6/13/12
          AYES:  Wolk, Dutton, DeSaulnier, Fuller, Hernandez, Kehoe, 
            La Malfa, Liu

           SENATE APPROPRIATIONS COMMITTEE  :  Senate Rule 28.8

           ASSEMBLY FLOOR  :  74-0, 1/26/12 - See last page for vote


           SUBJECT  :    Local government:  audits

           SOURCE  :     State Controller John Chiang


           DIGEST  :    This bill imposes additional requirements on 
          audits of local governments.  This bill requires an audit 
          for any local agency to be made by a certified public 
          accountant or public accountant, licensed by, and in good 
          standing with, the California Board of Accountancy.

           ANALYSIS  :    The federal Single Audit Act of 1984 requires 
          that state and local public agencies, which receive federal 
          funds from a variety of sources, perform a single, 
          jurisdiction-wide specific audit.  The objective is to save 
          time and expense on the part of the state and local 
          entities, while giving the federal agencies involved a more 
          consistent source of information.
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          State law requires the State Controller to receive audit 
          reports prepared by any local public agency in compliance 
          with the federal Single Audit Act of 1984.  After the 
          Controller receives these reports, he or she must ascertain 
          the report's compliance with the federal act and transmit 
          the report to the appropriate state agency (AB 4334 
          (Waters), Chapter 861, Statutes of 1988).

          State law prohibits a public accounting firm from providing 
          audit services to a local educational 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 educational agency in each of the 
          six previous fiscal years.  An appeals panel can waive this 
          requirement if the panel finds that no otherwise eligible 
          auditor is available to perform the audit (AB 2834 
          (Migden), Chapter 1128, Statutes of 2002).

          This bill requires an audit for any local agency to be made 
          by a certified public accountant or public accountant, 
          licensed by, and in good standing with, the California 
          Board of Accountancy.

          Beginning in the 2013-14 fiscal year, this bill prohibits a 
          local agency from employing a public accounting firm to 
          provide audit services to the 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 for six consecutive fiscal 
          years.  The Controller can waive this requirement if he or 
          she finds that another eligible public accounting firm is 
          not available to perform the audit.  This bill specifies 
          that, for the purposes of calculating the six consecutive 
          fiscal years, the local agency must not take into account 
          any time that a public accounting firm was employed by that 
          local agency prior to the 2013-14 fiscal year.

          This bill requires that audit reports prepared in 
          compliance with the federal Single Audit Act for any city, 
          county or special district, as defined by state law, must:


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           Be submitted to the State Controller within nine months 
            after the end of the period audited or pursuant to 
            applicable federal or state law.

           Comply with the Government Auditing Standards issued by 
            the Comptroller General of the United States.

          If a local agency does not submit an audit report to the 
          Controller by the specified due date, this bill allows the 
          Controller to appoint a qualified certified public 
          accountant or public accountant to complete the report and 
          to obtain the information required.  This bill requires the 
          Controller to notify a local agency of its failure to 
          submit the audit report and give the local agency a 
          reasonable amount of time to submit the report before 
          appointing a certified public accountant or public 
          accountant.  The Controller's costs, including a contract 
          with, or the employment of, the certified public accountant 
          or public accountant, in completing the audit must be borne 
          by the local agency and must be a charge against any 
          unencumbered funds of the local agency. 

          This bill requires the Controller to refer any matters of 
          unprofessional conduct, as defined in state law, and 
          multiple and repeated failures to disclose noncompliant 
          acts to the California Board of Accountancy.

           Comments 

          The City of Bell's independent auditor failed to report 
          financial 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.  These failures suggest a lack of proper 
          checks and balances in the local government audit process.  
          To ensure that local governments' independent auditors 
          remain independent, this bill requires local governments to 
          comply with the same audit partner rotation requirements 
          that the 2002 Migden bill applied to school districts.  The 
          bill also enacts reforms, including:

           Requiring local governments' audits to conform to 

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            recognized government standards and procedures. 

           Establishing deadlines by which local agencies must 
            submit audits to the Controller for review.  

          This bill strengthens local governments' independent audit 
          processes and provides safeguards to protect taxpayers 
          against local agencies' misusing public funds.  

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes   
          Local:  No

           SUPPORT  :   (Verified  6/26/12)

          State Controller John Chiang
          American Federation of State, County, and Municipal 
          Employees
          California Board of Accountancy



           ASSEMBLY FLOOR  :  74-0, 1/26/12
          AYES:  Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, 
            Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, 
            Brownley, Buchanan, Butler, Charles Calderon, Campos, 
            Carter, Cedillo, Chesbro, Conway, Cook, Dickinson, Eng, 
            Feuer, Fletcher, Fong, Fuentes, Furutani, Beth Gaines, 
            Galgiani, Garrick, Gatto, Gordon, Grove, Hagman, Hall, 
            Hayashi, Roger Hernández, Hill, Huber, Hueso, Huffman, 
            Jeffries, Jones, Knight, Lara, Logue, Bonnie Lowenthal, 
            Ma, Mansoor, Mendoza, Miller, Mitchell, Monning, Morrell, 
            Nestande, Nielsen, Norby, Olsen, Pan, Perea, V. Manuel 
            Pérez, Portantino, Silva, Skinner, Solorio, Swanson, 
            Torres, Valadao, Wagner, Wieckowski, Williams, Yamada, 
            John A. Pérez
          NO VOTE RECORDED:  Davis, Donnelly, Gorell, Halderman, 
            Harkey, Smyth


          AGB:do  6/26/12   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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