BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 2613|
|Office of Senate Floor Analyses | |
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THIRD READING
Bill No: AB 2613
Author: Achadjian (R)
Amended: 6/21/16 in Senate
Vote: 21
SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 6/15/16
AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach,
Pavley
ASSEMBLY FLOOR: 78-0, 5/5/16 - See last page for vote
SUBJECT: County auditor: audits: special districts
SOURCE: California Special Districts Association
DIGEST: This bill authorizes certain special districts to
replace a required annual audit with a financial compilation or
agreed-upon procedures engagement.
ANALYSIS:
Existing law:
1)Requires county auditors to annually audit each special
district's accounts and records.
2)Requires special districts to pay for the annual audit.
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3)Authorizes a special district, by unanimous request of the
special district's governing board and with the unanimous
approval of the county board of supervisors, to replace the
annual audit with:
a) A biennial audit;
b) A five-year audit if the district's annual budget
doesn't exceed an amount set by the county supervisors; or
c) An audit at a specified interval, as designated by the
county auditor, not to exceed five years.
4)Authorizes a special district that processes their financial
transactions through the county's financial system and has
annual revenues below $150,000 to replace the annual audit
with a financial review upon unanimous request of the special
district's governing board and with the unanimous approval of
the county board of supervisors.
This bill:
1)Authorizes, until January 1, 2027, additional alternatives to
the annual audit for special districts that both process their
financial transactions through the county's financial system
and have annual revenues below $150,000, as follows:
a) Upon unanimous request of the governing board of the
special district and with unanimous approval of the board
of supervisors, the district may replace the annual audit
with an agreed-upon procedures engagement (AUP).
b) Upon annual unanimous request of the governing board of
the special district and with annual unanimous approval of
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the board of supervisors, the district may replace the
annual audit with an annual financial compilation performed
by the county auditor.
2)Prohibits a special district from replacing the audit with a
financial compilation for more than five consecutive years, at
which time the district must undergo an annual audit.
3)Requires the special district to pay for any costs incurred by
the county auditor in performing a financial compilation or an
AUP.
4)Authorizes a county auditor, upon receipt of the financial
review, AUP, or financial compilation, to appoint an
accountant to conduct an audit of the special district, with
proper notice to the governing board of the special district
and board of supervisors.
Background
Auditors perform a variety of financial oversight services that
differ in the scope, activity, and assurance of financial
stability provided, including:
Audit. An audit is the highest level of financial oversight
that can be provided. Its purpose is to provide financial
statement users with an opinion by the auditor on whether the
financial statements are prepared in accordance with the
proper financial reporting framework. The auditor evaluates
the internal control system, tests accounting records by
examining source documents, and performs other procedures to
obtain reasonable assurance about whether the financial
statements are free from misstatement, error, or fraud.
Financial Review. When performing a financial review, an
auditor issues a formal report that includes a conclusion as
to whether he or she is aware of any material modifications
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that should be made to the financial statements in order for
them to meet the accounting principles and practices generally
used in an industry. The auditor does not perform any audit
procedures, such as assessing fraud risk. Thus, a financial
review provides less assurance than an audit.
Agreed-upon Procedures Engagement (AUP). Auditors may also
enter into an AUP, where the auditor and the client agree upon
specific audit procedures to perform or specific aspects of
the agency to review, but stops short of performing all of the
procedures required in a full audit. An AUP provides more
assurance than a financial review because it can include
additional analyses and tests, but less assurance than a full
audit.
Financial Compilation. The objective of a financial
compilation is to present the financial information in a
standardized format. A financial compilation provides no
assurance regarding the financial statements because the
auditor is not required to verify the accuracy or completeness
of the information provided, or express an audit opinion or a
review conclusion. Furthermore, unlike other financial
oversight services, an auditor is not required to be
independent, although any lack of independence must be
disclosed.
State law generally requires special districts to be audited
annually. But annual audits can be costly. To reduce the
burden on smaller special districts, the Legislature has
authorized several alternatives to the annual audit, including
less frequent audits or a financial review instead of an audit.
Some special districts continue to find the audit requirements
in law to be burdensome and have been unable to utilize the
financial review options available to them. They want the
Legislature to provide additional alternatives to the annual
audit requirements.
Comments
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1)Purpose of the bill. Rigorous fiscal oversight reassures
taxpayers that public officials spend their money wisely. But
tough auditing standards are expensive. Formal annual audits
can cost more than 30% of small special districts' revenues.
When districts spend scarce revenues on annual audits, they
divert funds from the services that their constituents want.
AB 2613 provides small special districts with additional
options to replace the annual audit, including an AUP that
provides more assurance than the financial review under
current law. AB 2613 will reduce costs and make additional
funds available to provide services while maintaining
necessary transparency and accountability.
2)Accountability and Efficiency. Special districts vary widely
in size and annual budgets. Smaller special districts may be
more accountable than larger districts because residents of
the district may have greater access to the board of directors
or may be able to more easily attend district meetings. On
the other hand, small districts can be less well known or
visible to residents, may lack a public Web site, and may have
difficulties holding competitive elections for board seats.
Smaller districts may also be less efficient because they lack
the ability to take advantage of economies of scale. AB 2613
provides additional options for the smallest districts to
replace the annual audit. If a special district's size
prevents it from performing basic financial analyses such as
audits or financial reviews, it may not be large enough to
provide truly accountable and efficient service. Other
entities, such as general-purpose governments or larger
districts, may be better suited to providing these services.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:NoLocal: No
SUPPORT: (Verified6/22/16)
California Special Districts Association (source)
Alpine Village-Sequoia Crest Community Services District
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Association of California Healthcare Districts
Association of California Water Agencies
California Fire Chiefs Association
Carmel Valley Recreation and Park District
Fire Districts Association of California
McKinleyville Community Services District
Pasadena Glen Community Services District
Pliocene Ridge Community Services District
Plumas Eureak Community Services District
Resource Conservation District of the Santa Monica Mountains
Sausalito-Marin City Sanitary District
Spreckels Community Services District
Spreckels Memorial District
OPPOSITION: (Verified6/22/16)
None received
ASSEMBLY FLOOR: 78-0, 5/5/16
AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,
Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke,
Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley,
Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier,
Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson,
Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger
Hernández, Holden, Irwin, Jones, Kim, Lackey, Levine, Linder,
Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina,
Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen,
Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago,
Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,
Wilk, Williams, Wood, Rendon
NO VOTE RECORDED: Beth Gaines, Jones-Sawyer
Prepared by:Anton Favorini-Csorba / GOV. & F. / (916) 651-4119
6/22/16 15:15:21
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